In February 2006, the Federal Court of Appeal upheld a lower court decision that prohibited Apotex from obtaining a Notice of Compliance for omeprazole magnesium tablets until the expiry of a relevant formulation patent in December 2008.
In January 2006, AstraZeneca Canada Inc. was served with a claim in the Federal Court of Canada for payment of an undetermined sum based on damages allegedly suffered by Apotex due to the delay from January 2002 to January 2004 in the issuance to Apotex of a Notice of Compliance in Canada for its 20mg omeprazole capsule product. AstraZeneca believes the claim is without merit and intends to defend it and to pursue its already pending patent infringement action against Apotex vigorously.
In January 2007, AstraZeneca discontinued long pending proceedings against Reddy-Cheminor Inc. in respect of patents relating to omeprazole capsules, following Reddy-Cheminor’s withdrawal of its allegations.
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The first action was brought in 2004 in the Superior Court of the State of California for the County of Los Angeles by the AFL-CIO, two unincorporated associations, and an individual on behalf of themselves, the general public and a class of California consumers, third party payers, cash payers and those making a co-payment. A second action was filed in the same court on behalf of a similar putative class of consumers. Actions making substantially similar allegations were filed in 2004 and 2005 on behalf of putative classes of consumers, third party payers, purchasers and labour management trust funds in the Circuit Court of Searcy County, Arkansas; in the Superior Court of the State of Delaware in and for New Castle County; in the Superior Court of Massachusetts in Boston; in the US District Court for the District of Delaware (three consolidated cases); and in the Circuit Court of the 11th Judicial Court in and for Miami-Dade County, Florida.
In September 2005, the Court in California issued a ruling on AstraZeneca’s demurrer and motion to strike in the two California actions. The Court granted AstraZeneca’s motion with respect to the associational plaintiffs and denied the motion with respect to the individual plaintiffs, allowing the cases of the individuals to proceed. In October 2005, the Court in Massachusetts denied AstraZeneca’s motion to dismiss. Discovery in the California and Massachusetts cases is proceeding, and plaintiffs’ motions for class certification were filed in October 2007. The California plaintiffs filed an amended class certification motion in January 2008.
In November 2005, the US District Court for the District of Delaware granted AstraZeneca’s motion to dismiss the consolidated class action complaint. In September 2007, the US Court of Appeals for the Third Circuit affirmed the dismissal and denied plaintiffs’ petition for rehearingen banc. On 18 December 2007, plaintiffs filed a petition forwrit of certiorari with the US Supreme Court. AstraZeneca’s response to the petition is due in February 2008. The Delaware state case has been stayed pending the outcome of the Delaware federal cases.
In May 2006, the Arkansas State Court granted AstraZeneca’s motion to dismiss the plaintiffs’ complaint. The plaintiffs filed additional motions and pleadings, including an amended complaint. AstraZeneca filed a motion to dismiss the amended complaint.
In October 2006, the Florida Court dismissed the plaintiffs’ complaint with prejudice and without leave to amend. In June 2007, the Florida Court of Appeal affirmed the dismissal and the Florida Supreme Court denied further review.
Anti-trust
In December 2006 and January 2007, several lawsuits against AstraZeneca entities, including putative class actions, were filed in the US District Court for the District of Columbia alleging anti-trust claims of unlawful monopolisation relating toPrilosec andNexium. Individual actions were filed in December 2006 by Walgreen Co., Eckerd Corporation, Maxi Drug, Inc. d/b/a Brooks Pharmacy, The Kroger Co., New Albertson’s Inc., Safeway, Inc., Hy-Vee, Inc., American Sales Company, Inc., Rite Aid Corporation, and Rite Aid Headquarters Corp. Also, putative class actions brought on behalf of direct purchasers were filed on 18 December 2006 by Meijer, Inc., Meijer Distribution, Inc., Louisiana Wholesale Drug Co., Inc., and in January 2007 by Burlington Drug Co., Inc., Dik Drug Co., Inc, and King Drug Co. of Florence, Inc. The plaintiffs seek treble damages, injunctive relief and attorney fees. All plaintiffs filed amended complaints in February 2007. In April 2007, AstraZeneca filed a motion to dismiss the amended complaints in each of the cases.
Patent proceedings
In October 2007, the European Patent Office (EPO) Opposition Division ruled that the European process patent EP 0773940 forNexium is valid in amended form, despite an opposition by the German generic manufacturer, ratiopharm. The patent has been upheld as granted except, with respect to certain claims, minor amendments were made. On 23 January 2008, ratiopharm filed a notice of appeal against this decision.
The EP 0773940 patent forNexium covers a process for the manufacturing of esomeprazole and its salts in Austria, Belgium, Switzerland, Germany, Denmark, Spain, France, UK, Greece, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Monaco, The Netherlands, Portugal, Slovenia and Sweden. This positive decision by the EPO means that this patent, in its amended form, still covers the manufacturing process forNexium. This patent expires in 2015.
This portfolio includes additional patents with expiration dates ranging from 2009 to 2018. In addition to these patents,Nexium has data exclusivity valid until March 2010 in most major European markets. AstraZeneca will vigorously defend and enforce its intellectual property rights protectingNexium.
Patent litigation
In October 2005, AstraZeneca received a notice from Ranbaxy Pharmaceuticals, Inc. that Ranbaxy Laboratories Limited (together Ranbaxy) had submitted an ANDA to the FDA for esomeprazole magnesium delayed-release capsules, 20mg and 40mg. The ANDA contained Paragraph IV certifications of invalidity and/or non-infringement in respect of certain AstraZeneca US patents listed in the FDA Orange Book with reference toNexium. In November 2005, AstraZeneca commenced wilful infringement patent litigation in the US District Court for the District of New Jersey against Ranbaxy and its affiliates in response to Ranbaxy’s Paragraph IV certifications regardingNexium.
In January 2006, AstraZeneca received a notice from IVAX Pharmaceuticals Inc. that IVAX Corporation had submitted an ANDA to the FDA for esomeprazole magnesium delayed-release capsules, 20mg and 40mg. The ANDA contained Paragraph IV certifications of invalidity and/or non-infringement in respect of certain AstraZeneca US patents listed in the FDA Orange Book with reference toNexium. IVAX also certified in respect of certain other AstraZeneca US patents listed in the FDA Orange Book with reference toNexium that IVAX will not launch its product prior to the expiry of those patents, the latter of which expired in October 2007. In March 2006, AstraZeneca commenced wilful patent infringement litigation in the US District Court for the District of New Jersey against IVAX, its parent Teva Pharmaceuticals, and their affiliates. The Ranbaxy and Teva/IVAX matters have been consolidated. No trial date has been set.
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In August 2006, AstraZeneca received a notice from Dr Reddy’s Laboratories Inc. and Dr Reddy’s Laboratories Limited (together, Dr Reddy’s) that Dr Reddy’s had submitted an ANDA to the FDA for esomeprazole magnesium delayed-release capsules, 20mg and 40mg. Dr Reddy’s August 2006 notice did not challenge three FDA Orange Book-listed patents claiming esomeprazole magnesium (US Patent Nos. 5,714,504, 5,877,192 and 6,875,872). In December 2007, AstraZeneca received another notice from Dr. Reddy’s that Dr. Reddy’s had submitted an ANDA to the FDA for esomeprazole magnesium delayed-release capsules, 20mg and 40mg. Dissimilar from the August 2006 notice, Dr. Reddy’s December 2007 notice did challenge three FDA Orange Book-listed patents claiming esomeprazole magnesium (US Patent Nos. 5,714,504, 5,877,192 and 6,875,872). AstraZeneca’s exclusivity relating to these three patents expires on 3 August 2015, 27 November 2014 and 27 November 2014, respectively. In January 2008, AstraZeneca commenced patent infringement litigation in the US District Court for the District of New Jersey against Dr. Reddy’s in response to Dr. Reddy’s Paragraph IV certifications regardingNexium. No trial date has been set.
In July and September 2007, AstraZeneca received notice from Matrix Laboratories, Inc. (Matrix) that Matrix had submitted an ANDA to the FDA for esomeprazole magnesium delayed-release capsules, 20mg and 40mg. Matrix was seeking FDA approval to market a generic esomeprazole magnesium product prior to the expiration of some but not all of the patents listed in the FDA Orange Book with reference toNexium. Matrix’s notice did not challenge three FDA Orange Book-listed patents claiming esomeprazole magnesium (US Patent Nos. 5,714,504, 5,877,192 and 6,875,872). Because AstraZeneca has not received notice from Matrix as to these three US patents, Matrix cannot market generic esomeprazole magnesium until the end of the exclusivity afforded by these patents. As a result, AstraZeneca did not bring a lawsuit at this time. AstraZeneca reserves the right to enforce all patents related toNexium, including those listed in the FDA Orange Book.
After its expiry, a 30-month stay will not prevent the FDA from approving an ANDA, and an ‘at risk’ launch by a generic drug manufacturer may occur, of delayed-release esomeprazole magnesium capsules, in the year ending 31 December 2008.
In Canada, AstraZeneca Canada, Inc. received several notices of allegation from Apotex Inc. (Apotex) in late 2007 in respect of patents listed on the Patent Register in Canada forNexium. Apotex has asserted in its notices that it has filed an Abbreviated New Drug Submission in March 2007, for 20mg and 40mg esomeprazole magnesium trihydrate tablets and alleges non-infringement and/or invalidity of numerous patents. AstraZeneca has responded by commencing seven court applications in January 2008 under the Patented Medicines (Notice of Compliance) Regulations. On 17 January 2008, Apotex advised that its product was erroneously described as being a trihydrate in its recent allegations, which allegations Apotex asserted it was withdrawing. Apotex mailed replacement allegations on 17 January 2008, which AstraZeneca is entitled to challenge. Apotex cannot obtain a Notice of Compliance (marketing approval) for its esomeprazole tablets until the earlier of the disposition of all of the court applications in Apotex’s favour or 24 months from the date on which the latest court application has been commenced.
AstraZeneca has full confidence in and will vigorously defend and enforce its intellectual property protectingNexium.
Nolvadex (tamoxifen)
AstraZeneca was a co-defendant with Barr Laboratories, Inc. (Barr) in numerous purported class actions filed in federal and state courts throughout the US. All of the state court actions were removed to federal court and were consolidated, along with all of the cases originally filed in the federal courts, in a federal multi-district litigation proceeding pending in the US District Court for the Eastern District of New York. Some of the cases were filed by plaintiffs representing a putative class of consumers who purchased tamoxifen. The other cases were filed on behalf of a putative class of ‘third party payers’ (including health maintenance organisations, insurers and other managed care providers and health plans) that have reimbursed or otherwise paid for prescriptions of tamoxifen. The plaintiffs alleged that they paid ‘supra-competitive and monopolistic prices’ for tamoxifen as a result of the settlement of patent litigation between Zeneca and Barr in 1993. The plaintiffs sought injunctive relief, treble damages under the anti-trust laws, disgorgement and restitution. In April 2002, AstraZeneca filed a motion to dismiss the cases for failure to state a cause of action. In May 2003, the US District Court for the Eastern District of New York granted AstraZeneca’s motion to dismiss. The plaintiffs appealed the decision.
In November 2005, the US Court of Appeals for the Second Circuit affirmed the District Court’s decision. The plaintiffs thereafter moved for re-hearing by the original panel of judges in the case and re-hearing by a panel of all of the judges on the US Court of Appeals for the Second Circuit. The plaintiffs’ requests for re-hearing were denied in September 2006. In December 2006, the plaintiffs filed a petition for awrit of certiorari to the US Supreme Court seeking to have the Court hear an appeal of the Second Circuit’s decision. In June 2007, the US Supreme Court denied the plaintiffs’ writ, thus ending the litigation.
Pulmicort Respules (budesonide inhalation suspension)
In September 2005, AstraZeneca received a notice from IVAX Pharmaceuticals Inc. (IVAX) that IVAX had submitted an ANDA to the FDA for a budesonide inhalation suspension containing a Paragraph IV certification and alleging invalidity and non-infringement in respect of certain of AstraZeneca’s patents relating to budesonide inhalation suspension. In October 2005, AstraZeneca filed a patent infringement action against IVAX in the US District Court for the District of New Jersey. In December 2005, IVAX responded and filed counterclaims alleging non-infringement and invalidity. In January 2006, AstraZeneca filed an amended complaint, withdrawing averments as to the infringement of one of the patents-in-suit. Discovery in the litigation is ongoing. After its expiry, a 30-month stay will not prevent the FDA from approving an ANDA, and an ‘at risk’ launch by a generic drug manufacturer may occur, of a budesonide inhalation suspension in the year ending 31 December 2008.
AstraZeneca continues to have full confidence in and will vigorously defend and enforce its intellectual property protectingPulmicort Respules.
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Rhinocort Aqua (budesonide nasal spray)
In September 2007, AstraZeneca AB received a letter from Apotex Inc. (Apotex) stating that Apotex had submitted an ANDA for a budesonide nasal spray (32mcg spray) and that it intended to engage in the commercial manufacture, use and sale of a generic version ofRhinocort Aqua budesonide nasal spray before the expiration of US Patent Nos. 6,291,445, 6,686,346 and 6,986,904 (the ’445, ’346 and ’904 patents). The Apotex notice contained a Paragraph IV certification alleging that the claims of the ’445, ’346 and ’904 patents are ‘not infringed and invalid’. The ’346 and ’904 patents will expire in April 2017. The ’445 patent has an additional six months of paediatric exclusivity which ends in October 2017.
After investigating the allegations in Apotex’s Paragraph IV letter, AstraZeneca has decided not to file a patent infringement suit against Apotex. AstraZeneca will not maintain or enforce the ’445, ’346 and ’904 patents and has requested their de-listing from the FDA Orange Book.
Seroquel (quetiapine fumarate)
Product liability
In August 2003, Susan Zehel-Miller filed a putative class action against AstraZeneca PLC and AstraZeneca Pharmaceuticals LP on behalf of ‘all persons in the US who purchased and/or usedSeroquel’. Among other things, the class action alleged that AstraZeneca failed to provide adequate warnings in connection with an alleged association betweenSeroquel and the onset of diabetes. In 2004, the US District Court for the Middle District of Florida denied class certification and the case was ultimately dismissed. Two additional putative class actions raising similar allegations have likewise been dismissed. There are no other US class actions relating toSeroquel; however, four putative class actions raising substantially similar allegations have been filed in Canada.
Additionally, AstraZeneca Pharmaceuticals LP, either alone or in conjunction with one or more affiliates, has been sued in numerous individual personal injury actions involvingSeroquel. In most of these cases, the nature of the plaintiffs’ alleged injuries is not clear from the complaint and in most cases, little or no factual information regarding the alleged injury has been provided in the complaint. However, the plaintiffs generally contend that they developed diabetes and/or other related injuries as a result of takingSeroquel and/or other atypical anti-psychotic medications. As of 16 January 2008 AstraZeneca was defending 8,121 served or answered lawsuits involving approximately 12,347 plaintiff groups (24 January 2007: 604 served or answered lawsuits involving approximately 7,450 plaintiff groups). To date, approximately 1,900 additional cases have been dismissed by order or agreement and approximately 1,400 of those cases have been dismissed with prejudice. Approximately 22% of the cases that were or are pending in the federal court multi-district litigation (MDL) have been dismissed. Approximately half of the currently pendingSeroquel cases are in federal court with clusters of state court activity in Delaware, New Jersey, New York and Missouri. Single cases are pending in a few additional jurisdictions, including one case in Canada. Plaintiffs’ discovery of AstraZeneca, as well as AstraZeneca’s discovery of specific plaintiffs’ cases, is ongoing in most jurisdictions and AstraZeneca intends to vigorously test the merits of those individual cases on factual and legal grounds. Bellwether case systems have been implemented by the courts in Delaware, New Jersey and the federal court MDL due to the larger volume of consolidated cases in those jurisdictions. No trials are expected to begin in any of theSeroquel cases until the autumn of 2008. One trial that was scheduled in Minnesota for March 2008 has been dismissed. AstraZeneca is also aware of approximately 70 additional cases that have been filed but not yet served and has not determined how many additional cases, if any, may have been filed. Some of the cases also include claims against other pharmaceutical manufacturers such as Eli Lilly & Co., Janssen Pharmaceutica, Inc. and/or Bristol-Myers Squibb Company. AstraZeneca intends to litigate these cases on the merits and will defend the cases vigorously. As of 31January 2008, legal defence costs of approximately $200m have been incurred (of which approximately $160m was incurred during 2007). AstraZeneca has product liability insurance that is considered to respond to the vast majority of claims brought in theseSeroquel cases, subject to a retention. This insurance provides coverage for legal defence costs and potential damages that may be incurred up to a specified limit. AstraZeneca currently expects the legal defence costs to be less than the upper limit of the insurance coverage and has recorded an insurance receivable of $139m (2006 $nil). However, these cases are at an early stage and there can be no guarantee that the ultimate cost incurred will not exceed any insurance recoveries received.
Patent litigation
In September 2005, AstraZeneca received a notice from Teva Pharmaceuticals USA Inc. (Teva) that Teva had submitted an ANDA for quetiapine fumarate 25mg tablets containing a Paragraph IV certification alleging invalidity, unenforceability or non-infringement respecting AstraZeneca’s US patent listed in the FDA Orange Book with reference toSeroquel. In November 2005, AstraZeneca filed a lawsuit directed to Teva’s 25mg tablets ANDA in the US District Court for the District of New Jersey for wilful patent infringement.
In February 2006, AstraZeneca received another notice from Teva that it had amended its previously submitted ANDA for quetiapine fumarate 25mg tablets and added 100, 200 and 300mg tablets to its application to the FDA. The amended ANDA submission contained a similar Paragraph IV certification alleging invalidity, unenforceability or non-infringement in respect of AstraZeneca’s US patent listed in the FDA Orange Book with reference toSeroquel. In March 2006, in response to Teva’s amended ANDA and Teva’s intent to market additional strengths of a generic version ofSeroquel in the US prior to the expiration of AstraZeneca’s patent, AstraZeneca filed an additional lawsuit against Teva in the US District Court for the District of New Jersey for patent infringement.
The two Teva lawsuits were consolidated in April 2006. However, in March 2006, the US District Court had granted Teva’s motion to strike AstraZeneca’s added allegation of wilfullness in its patent infringement claim in the first complaint directed to Teva’s 25mg tablets. Therefore, in the consolidated action, in response to AstraZeneca’s now combined allegations of patent infringement directed to Teva’s 25, 100, 200 and 300mg tablets ANDA, Teva alleges non-infringement and patent invalidity. In January 2007, Teva filed a motion seeking leave to amend its pleadings in the consolidated action to add allegations, defences and counter-claims directed to alleged inequitable conduct in the procurement of AstraZeneca’s patent.
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In March 2007, AstraZeneca received a Paragraph IV certification notice-letter from another generic drug manufacturer, Sandoz Inc. (Sandoz), notifying AstraZeneca that it had submitted an ANDA to the FDA for approval to market a generic version of AstraZeneca’s 25mg quetiapine fumarate tablets prior to the expiration of AstraZeneca’s listed patent. Sandoz’s notice-letter alleged non-infringement and patent invalidity. In April 2007, AstraZeneca filed a lawsuit in the US District Court for the District of New Jersey against Sandoz alleging patent infringement.
In June 2007, AstraZeneca received a third notice from Teva notifying AstraZeneca that it had supplemented its ANDA for quetiapine fumarate tablets again, adding 50, 150 and 400mg tablets to the application. The third notice-letter similarly advised that Teva’s supplementation contained a Paragraph IV certification respecting AstraZeneca’s listed patent coveringSeroquel. In June 2007, AstraZeneca filed a third lawsuit in the US District Court for the District of New Jersey against Teva for its supplementation adding the 50, 150 and 400mg dosage strengths.
In October 2007, the Court granted AstraZeneca’s partial summary judgment motion based on collateral estoppel, which precludes Teva from re-litigating issues previously resolved against it in another previous patent litigation involving Eli Lilly’s anti-psychotic drug, Zyprexa™.
The four pending patent infringement cases against Teva and Sandoz have been consolidated for purposes of discovery, which proceeds. After its expiry, a 30-month stay will not prevent the FDA from approving an ANDA, and an ‘at risk’ launch by a generic drug manufacturer may occur, of quetiapine fumarate tablets in the year ending 31 December 2008.
We continue to have full confidence in our intellectual property protectingSeroquel and will vigorously defend and enforce it.
Sales and marketing practices
In February 2007, the Commonwealth of Pennsylvania filed suit against AstraZeneca, Eli Lilly & Co. (Lilly), and Janssen Pharmaceutica Inc. (Janssen) claiming damages incurred by the Commonwealth as a result of alleged off-label promotion of atypical anti-psychotics by the three manufacturers. The lawsuit is filed in state court in Philadelphia and seeks to recover the cost to the Pennsylvania Medicaid programme and other state-funded health insurance programmes for prescriptions written as a result of the alleged off-label promotion. In December 2007, the Court granted defendants’ motion to sever the claims against AstraZeneca and Janssen from those against Lilly and directed the Commonwealth to file separate complaints against the two severed defendants, which the Commonwealth did in January 2008. Although no similar lawsuits have been brought by states other than Pennsylvania, AstraZeneca has been informed that the Attorney Generals’ Offices of multiple other states have investigations into similarSeroquel off-label issues. AstraZeneca has signed agreements with 20 states tolling the statutes of limitations on potential claims, and has been approached by additional states for similar tolling agreements. AstraZeneca believes these claims to be without merit and intends to vigorously defend the Pennsylvania lawsuit.
In May 2007, the New Jersey Ironworkers Local Union No. 68 filed a class action suit against AstraZeneca on behalf of all individuals and non-governmental entities that paid forSeroquel from January 2000 to date. The lawsuit is filed in the federal District Court in New Jersey and alleges that AstraZeneca promotedSeroquel for off-label uses and misled class members into believing thatSeroquel was superior to other, lower-cost alternative medicines. Two similar class action lawsuits were filed in June 2007 in the New Jersey and Pennsylvania federal courts. In December 2007, the three lawsuits were transferred to the Middle District of Florida by the US Judicial Panel on Multidistrict Litigation. AstraZeneca believes these suits to be without merit and intends to vigorously defend the claims.
Symbicort (budesonide/formoterol)
In October 2007, following an appeal by a group of generic manufacturers, Norton Healthcare Limited, Miat SpA, Generics (UK) Limited and Liconsa SA, the European Patent Office (EPO) Technical Board of Appeal revoked the European combination patent forSymbicort for use in asthma. Two European patents (EPB1014993 and EPB1210943) claimingSymbicort for use in COPD are under appeal and opposition respectively. The hearing date for the COPD appeal at the EPO is now set for 6 May 2008. The proceedings instituted by IVAX Pharmaceuticals (UK) Limited in the UK and Ireland with respect to theSymbicort patents will remain stayed until the EPO Technical Board of Appeal decision on the COPD patent.
AstraZeneca will vigorously defend and enforce its remaining intellectual property portfolio protectingSymbicort, which has patent expiry dates up to 2019 in Europe.
Toprol-XL (metoprolol succinate)
In May 2003, AstraZeneca filed a patent infringement action against KV Pharmaceutical Company (KV) in the US District Court for the Eastern District of Missouri in response to KV’s notification of its intention to market a generic version ofToprol-XL tablets in the 200mg dose prior to the expiration of AstraZeneca’s patents covering the substance and its formulation. In response to later similar notices from KV related to the 25, 50 and 100mg doses, AstraZeneca filed further actions. KV responded in each instance and filed counterclaims alleging non-infringement, invalidity and unenforceability of the listed patents.
In February 2004, AstraZeneca filed a patent infringement action against Andrx Pharmaceuticals LLC (Andrx) in the US District Court for the District of Delaware in response to Andrx’s notification of its intention to market a generic version ofToprol-XL tablets in the 50mg dose prior to the expiration of AstraZeneca’s patents. In response to two later similar notices from Andrx related to the 25, 100 and 200mg doses, AstraZeneca filed two additional patent infringement actions in the same court. In each instance, Andrx claimed that each of the listed patents is invalid, not infringed and unenforceable.
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In April 2004, AstraZeneca filed a patent infringement action against Eon Labs Manufacturing Inc. (Eon) in the US District Court for the District of Delaware in response to Eon’s notification of its intention to market generic versions ofToprol-XL tablets in the 25, 50, 100 and 200mg doses prior to the expiration of AstraZeneca’s patents. In its response, Eon alleged that each of the listed patents is invalid, not infringed and unenforceable. Eon also alleged that the filing of the infringement complaints, as well as other actions by AstraZeneca, constitutes anti-competitive conduct in violation of US anti-trust laws. Pursuant to a joint motion of AstraZeneca and Eon these anti-trust counts were severed from the case and stayed, for possible consideration depending on the outcome of the trial of the patent claims.
All of the patent litigation relating toToprol-XL against KV, Andrx and Eon was consolidated for pre-trial discovery purposes and motion practice in the US District Court for the Eastern District of Missouri. The defendants filed a motion for summary judgment in December 2004 alleging that theToprol-XL patents are invalid due to double patenting. A summary judgment motion of unenforceability was filed by the defendants in 2005 and AstraZeneca filed summary judgment motions on infringement and validity in 2005. In January 2006, the US District Court for the Eastern District of Missouri issued a ruling finding that the two patents-in-suit are unenforceable (based on AstraZeneca’s inequitable conduct in the prosecution of these patents in the US Patent and Trademark Office) and invalid. AstraZeneca appealed the District Court decision to the US Court of Appeals for the Federal Circuit. In July 2007, a three-judge panel of the Federal Circuit unanimously ruled that the inequitable conduct determination by the District Court was improper on summary judgment because there were material facts in dispute and therefore the issue of inequitable conduct was remanded to the District Court. The panel upheld, however, in a divided (2-1) decision, the finding that theToprol-XL patents were invalid due to double patenting. In August 2007, AstraZeneca petitioned the Federal Circuit for reconsideration of the invalidity determination. Reconsideration was denied in October 2007.
In August 2006, Sandoz (formerly Eon) received final approval from the FDA on the 25mg dose of metoprolol succinate and tentative approval on the 50, 100 and 200mg doses. On 21 November 2006, Sandoz launched its 25mg metoprolol succinate product, which was followed by Par Pharmaceuticals’ (Par) launch of a 25mg generic metoprolol succinate product under a distribution agreement with AstraZeneca. In May 2007, the FDA issued final approval to KV for the 100 and 200mg doses of generic metoprolol succinate. KV launched these products in July 2007, followed by a launch of an authorised generic by Par under its distribution agreement with AstraZeneca. In May 2007, the FDA issued final approval to Sandoz for a 50mg generic metoprolol succinate product after Andrx waived its right to 180 days exclusivity on the 50mg product. In August 2007, Sandoz launched its 50mg product, followed immediately by the launch of a 50mg authorised generic by Par, pursuant to its distribution agreement with AstraZeneca.
In the first quarter of 2006, AstraZeneca was served with 14 complaints filed in the US District Courts in Delaware, Massachusetts and Florida against AstraZeneca Pharmaceuticals LP, AstraZeneca LP, AstraZeneca AB and Aktiebolaget Hässle. The complaints were putative class actions filed on behalf of both direct purchasers and indirect purchasers that allege that the AstraZeneca defendants attempted to illegally maintain monopoly power in the US overToprol-XL in violation of the Sherman Act through the listing of invalid and unenforceable patents in the FDA Orange Book and the enforcement of such patents through litigation against generic manufacturers seeking to market metoprolol succinate. The complaints seek treble damages based on alleged overcharges to the putative classes of plaintiffs. These 14 complaints were consolidated into two amended complaints in the US District Court in Delaware, one on behalf of direct purchasers, and one on behalf of indirect purchasers. The lawsuits are based upon the 2006 ruling described above by the US District Court for the Eastern District of Missouri in the consolidated patent litigation against KV, Andrx and Eon, that the AstraZeneca patents relating toToprol-XL are invalid and unenforceable. In 2006 AstraZeneca filed a motion seeking to dismiss or in the alternative stay the consolidated complaint in both anti-trust cases. As noted above, AstraZeneca appealed the District Court decision, which resulted in a reversal and remand on the issue of inequitable conduct and an affirmance that theToprol-XL patents were invalid. AstraZeneca’s motion to dismiss the complaints is still pending. AstraZeneca denies the allegations of the anti-trust complaints and will vigorously defend the lawsuits.
In June 2007, AstraZeneca received notification from Dr. Reddy’s Laboratories Inc that it had filed an ANDA for the 100 and 200mg doses of metoprolol succinate and that sale of its generic products would not infringe AstraZeneca’s US Patent Nos. 4,957,745 and 5,246,714. AstraZeneca did not file suit in response to this notification.
Zestril (lisinopril)
In 1996, two of AstraZeneca’s predecessor companies, Zeneca Limited and Zeneca Pharma Inc. (as licensees), Merck & Co., Inc. and Merck Frosst Canada Inc. commenced a patent infringement action in the Federal Court of Canada against Apotex, Inc. (Apotex), alleging infringement of Merck’s lisinopril patent. Apotex sold a generic version of AstraZeneca’sZestril and Merck’s Prinivil™ tablets. Apotex admitted infringement but raised positive defences to infringement, including that it acquired certain quantities of lisinopril prior to issuance of the patent and that certain quantities were licensed under a compulsory licence. Apotex also alleged invalidity of the patent. Following a trial in early 2006, in April 2006 the Federal Court of Canada ruled in favour of AstraZeneca and Merck on the key issues and Apotex stopped selling lisinopril in May 2006. In October 2006, the Federal Court of Appeal in Canada upheld the lower court’s decision and dismissed Apotex’s appeal. In December 2006, Apotex sought leave to appeal to the Supreme Court of Canada. The Supreme Court of Canada dismissed Apotex’s leave to appeal in May 2007. AstraZeneca intends to pursue a reference proceeding in the Federal Court to quantify the damages related to the infringement by Apotex. Apotex commenced the sale of lisinopril in October 2007 after expiry of the relevant patent.
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27 COMMITMENTS AND CONTINGENT LIABILITIES CONTINUED
Average wholesale price class action litigation
In January 2002, AstraZeneca was named as a defendant along with 24 other pharmaceutical manufacturers in a class action suit in Massachusetts, brought on behalf of a putative class of plaintiffs alleged to have overpaid for prescription drugs as a result of inflated wholesale list prices. Following the Massachusetts complaint, nearly identical class action suits were filed against AstraZeneca and various other pharmaceutical manufacturers in four other states. AstraZeneca and other manufacturers have since been sued in similar lawsuits filed by the state Attorneys General of Pennsylvania, Nevada, Montana, Wisconsin, Illinois, Alabama, Kentucky, Arizona, Mississippi, Hawaii, Alaska, Idaho and Utah as well as by multiple individual counties in the state of New York. The Attorney General lawsuits seek to recover alleged overpayments under Medicaid and other state-funded healthcare programmes. In several cases, the states are also suing to recover alleged overpayments by state residents. Several of these suits have been consolidated with the Massachusetts action for pre-trial purposes, pursuant to federal multi-district litigation procedures.
In January 2006, the District Court in Boston certified three classes of plaintiffs against the ‘Track 1’ manufacturer defendants, AstraZeneca, GlaxoSmithKline, Bristol-Myers Squibb, Schering-Plough and Johnson & Johnson. The three certified classes are: (Class 1) a nationwide class of consumers who made co-payments for certain physician-administered drugs reimbursed under the Medicare Part B programme (Part B drugs); (Class 2) a Massachusetts-only class of third-party payers, including insurance companies, union health and welfare benefit plans, and self-insured employers, who covered consumer co-payments for Part B drugs; and (Class 3) a Massachusetts-only class of third-party payers and consumers who paid for Part B drugs outside of the Medicare programme. For all classes, the only AstraZeneca drug at issue isZoladex (goserelin acetate implant).
A bench trial against four of the Track 1 defendants, including AstraZeneca, by Classes 2 and 3 began in November 2006 and concluded in January 2007. A separate jury trial against AstraZeneca only, involving the Class 1 claims, was scheduled to begin in June 2007.
In May 2007, the parties reached a proposed settlement agreement resolving the Class 1 claims. The settlement, if ultimately approved by the Court, will involve payments of up to $24m, not including attorneys’ fees, to reimburse individual class members submitting claims. AstraZeneca has agreed that $10m of any unclaimed amounts will be donated to charitable organisations funding cancer patient care and research. Notice of the proposed settlement was mailed to potential class members in December 2007, and the Court has scheduled a hearing for final approval of the settlement in May 2008. A provision of $27m was established in 2007.
In June 2007 and November 2007, the Court issued decisions on liability and damages on Classes 2 and 3. The Court found AstraZeneca liable under the Massachusetts consumer protection statute for engaging in unfair and deceptive conduct in connection with the pricing ofZoladex during the period 1998 to 2003. The Court awarded double damages (with pre-judgment interest) of $5.5m for Class 2, and single damages (with pre-judgment interest) of $7.4m for Class 3. AstraZeneca believes the decision to be in error and has filed an appeal in which it is confident that it will prevail and so no provision has been made for these awards.
The Court’s award on Classes 2 and 3, if it survives appeal, relates to damages incurred by payers within the Commonwealth of Massachusetts only. Plaintiffs have filed a motion seeking certification of multi-state classes of third-party payers in an effort to pursue similar claims for damages under the consumer protection statutes of other states. The Court has scheduled a hearing on plaintiffs’ motion in May 2008.
The decision on Classes 2 and 3 and the settlement of Class 1 relate toZoladex only. The multiple Attorney General lawsuits pending against AstraZeneca and other manufacturers nationwide, which involve numerous drugs in addition toZoladex, remain pending against AstraZeneca. The first of these cases scheduled for trial is the case filed by the Alabama Attorney General in state court in Montgomery, Alabama. That case is scheduled for a jury trial against AstraZeneca beginning February 2008.
Separately, MedImmune is involved in various lawsuits brought by various states and counties in the US alleging manipulation of average wholesale prices by several defendants, including MedImmune. The lawsuits were filed between 2003 and 2007 by Alabama, Mississippi, Iowa, New York City, and by various New York counties. The status of the various lawsuits by various states and counties alleging manipulation of average wholesale price by several defendants, including MedImmune, did not change materially during the financial year ended 31 December 2007, except that in April 2007, Orange County, New York filed suit in the Southern District of New York against a number of defendants, including MedImmune and in October 2007, the State of Iowa filed a lawsuit against a number of defendants, including MedImmune, in the US District Court for the Southern District of Iowa.
The allegations made in respect of the average wholesale price lawsuits described in this section are denied and will be vigorously defended.
340B class action litigation
In August 2004, AstraZeneca was named as a defendant, along with multiple other pharmaceutical manufacturers, in a class action suit filed by the County of Santa Clara in California state court on behalf of similarly situated California counties and cities that allegedly overpaid for drugs covered by the federal ‘340B’ programme. The 340B programme entitles hospitals and clinics that treat a substantial portion of uninsured patients to preferential drug pricing for outpatient drugs. According to the complaint, the genesis of the suit was an audit report by the US Department of Health and Human Services Office of Inspector General (OIG) in June 2004. The OIG later withdrew the audit report and in 2006, re-issued a revised audit report that substantially modified the previous audit findings.
The case was removed to federal court, the US District Court for the Northern District of California. In 2006, the US District Court dismissed each of the allegations in the County’s complaint. The County appealed the dismissal to the US Court of Appeals for the Ninth Circuit, and the parties briefed the matter. A date for oral argument has not yet been set. AstraZeneca denies the allegations in the County’s complaint and intends to continue to defend them vigorously.
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| | |
| | FINANCIAL STATEMENTS |
| 172 | ASTRAZENECA ANNUAL REPORT AND FORM 20-F INFORMATION 2007 |
|
| NOTES TO THE FINANCIAL STATEMENTSCONTINUED |
27 COMMITMENTS AND CONTINGENT LIABILITIES CONTINUED
Drug importation anti-trust litigation
In May 2004, plaintiffs in a purported class action filed complaints in the US District Court for Minnesota and for New Jersey, alleging that AstraZeneca Pharmaceuticals LP and eight other pharmaceutical manufacturer defendants conspired to prevent American consumers from purchasing prescription drugs from Canada, ‘depriving consumers of the ability to purchase’ drugs at competitive prices. The New Jersey case was voluntarily dismissed in July 2004. In August 2005, the Minnesota District Court dismissed with prejudice the plaintiffs’ federal anti-trust claims and declined to exercise supplemental jurisdiction in relation to the state statutory and common law claims, which claims were dismissed without prejudice. The plaintiffs appealed the District Court’s decision to the US Court of Appeals for the Eighth Circuit. In November 2006, the US Court of Appeals for the Eighth Circuit affirmed the District Court’s decision. This matter is now concluded.
In August 2004, Californian retail pharmacy plaintiffs filed an action in the Superior Court of California making similar allegations to the Minnesota action and also alleging a conspiracy by approximately 15 pharmaceutical manufacturer defendants to set the price of drugs sold in California at or above the Canadian sales price for those same drugs. In July 2005, the Court overruled in part and sustained in part, without leave to amend, the defendants’ motion to dismiss the plaintiffs’ third amended complaint in these proceedings. The Court overruled the defendants’ motion in respect of conspiracy claims but sustained the motion in respect of the California Unfair Competition Law claims. In December 2006, the Court granted the defendants’ motion for summary judgment and the case was subsequently dismissed. In January 2007, plaintiffs filed a Notice of Appeal with the Court of Appeal of the State of California. Briefing on the appeal is now complete.
AstraZeneca denies the material allegations in the California action and is vigorously defending this matter.
Anti-trust
In July 2006, AstraZeneca Pharmaceuticals LP was named as a defendant, along with a number of other pharmaceutical manufacturers and wholesalers, in a complaint filed by RxUSA Wholesale, Inc. (RxUSA) in the US District Court for the Eastern District of New York. The complaint alleges that the defendants violated federal and state anti-trust laws by, amongst other things, allegedly refusing to deal with RxUSA and other ‘secondary wholesalers’ in the wholesale pharmaceutical industry. The plaintiff alleges a conspiracy among the manufacturers and seeks an injunction and treble damages. AstraZeneca vigorously denies the allegations and in November 2006 filed a motion to dismiss the complaint.
For a description of other anti-trust-related litigation involving AstraZeneca, see the subsections entitledNexium (esomeprazole),Losec/Prilosec(omeprazole),Nolvadex (tamoxifen) andToprol-XL (metoprolol succinate) in this Note 27 to the Financial Statements.
AstraZeneca is part of a sectoral inquiry by the European Commission into the pharmaceutical industry and was the subject of an unannounced inspection in January 2008. The inquiry relates to the introduction of innovative and generic medicines and it will cover commercial practices, including the use of patents and generics. We understand that several companies have been similarly approached.
The Commission has stated that this inquiry is not aimed at investigating practices where there have been any indications of wrongdoing although it could address any competition law breaches found by means of separate proceedings. The Commission has also stated that it plans to issue an interim report in autumn 2008 and envisages that the final results of its inquiry will be available in spring 2009.
AstraZeneca is cooperating fully with the Commission in relation to its inquiry.
Employment-wage/hour litigation
In September 2006, Marc Brody filed a putative class action lawsuit against AstraZeneca LP on behalf of himself and a class of approximately 844 pharmaceutical sales specialists employed by the Group in California during the period 19 September 2002 to the present. The plaintiff alleges he and the proposed class members were unlawfully classified as exempt employees and denied overtime compensation and meal breaks in violation of the California Labour Code. AstraZeneca removed this action to the US District Court for the Central District of California in October 2006. The Plaintiff filed a first amended complaint on or about 20 March 2007, for failure to provide meal and rest periods, failure to pay all wages earned each pay period, failure to provide accurate wage statements, failure to pay wages timely upon termination, unfair competition and civil penalties. AstraZeneca denies the allegations made by the plaintiff, asserting that the sales specialists are properly classified under various exemptions to the wage laws. Discovery is ongoing. (The plaintiff’s lawyers are also pursuing similar claims in lawsuits against most of the major pharmaceutical companies.)
In separate lawsuits against AstraZeneca, the firms representing Brody filed additional state wage-and-hour class actions, the first under Pennsylvania Minimum Wage Act and Wage Payment Collection Law in the US District Court for the Western District of Pennsylvania on behalf of two plaintiffs and a putative class of approximately 473 sales specialists working in Pennsylvania during the period March 2004 to the present; and the second in the US District Court for the Southern District of New York on behalf of one plaintiff and a putative class of approximately 890 sales specialists working in the state of New York during the period June 2001 to the present, claiming the sales specialists were misclassified as exempt from overtime pay under New York labour law.
Additionally, in June 2007, the firms representing Brody filed a nationwide collective action based on federal wage-and-hour law (FLSA) in the US District Court for the District of Delaware, seeking unpaid overtime compensation and liquidated damages. The lawsuit has a potential class size of 8,300 current and former sales specialists employed by the Group in the US during the period June 2004 to the present. The parties have negotiated a stipulation of dismissal of this lawsuit, and the action has been dismissed with prejudice. Plaintiff’s counsel is expected to file a new FLSA action with a different named plaintiff in the near future.
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| FINANCIAL STATEMENTS | |
| ASTRAZENECA ANNUAL REPORT AND FORM 20-F INFORMATION 2007 | 173 |
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| NOTES TO THE FINANCIAL STATEMENTS CONTINUED |
27 COMMITMENTS AND CONTINGENT LIABILITIES CONTINUED
Additional government investigations into drug marketing practices
As is true for most, if not all, major prescription pharmaceutical companies operating in the US, AstraZeneca is currently involved in multiple US federal and state investigations into drug marketing and pricing practices. The US Attorney’s Office in Philadelphia is directing four active investigations involving AstraZeneca. The first two involve requests for documents and information relating to contracting and disease management programmes with two of the leading national Pharmacy Benefits Managers. The third involves a review of sales and marketing practices relating toSeroquel, including allegations that AstraZeneca promotedSeroquel for non-indicated (off-label) uses. The fourth investigation relates to selected physicians who participated in clinical trials involvingSeroquel. The US Attorney’s Office in Boston is conducting an additional investigation into sales and marketing interactions with a leading provider of pharmacy services to long-term care facilities. AstraZeneca understands that all of these investigations may be the subjects of sealedqui tam lawsuits filed under the False Claims Act.
There are also a number of additional active investigations led by state Attorneys General. These include multiple investigations relating toSeroquel off-label issues, discussed above, along with an investigation by the Delaware Attorney General’s Office into marketing and sale activities within the state of Delaware.
It is not possible to predict the outcome of any of these investigations, which could include the payment of damages and the imposition of fines, penalties and administrative remedies.
Congressional investigations
AstraZeneca, along with several other manufacturers, has received a letter from the Committee on Oversight and Government Reform of the US House of Representatives as part of the Committee’s ongoing oversight of the pharmaceutical industry’s research and marketing practices. The Committee has requested that AstraZeneca provide clinical and marketing information relating toSeroquel.
AstraZeneca also received letters from the Finance Committee of the US Senate requesting information regarding AstraZeneca’s payments to certain identified physicians and their prescribing information related toSeroquel. In addition, the Finance Committee has requested sales and marketing information regarding the use ofSeroquel in nursing homes.
AstraZeneca is co-operating with both Committees.
Federal Trade Commission (FTC) study on authorised generics
In October 2007, AstraZeneca received a Special Order from the FTC, requesting certain information in connection with the FTC’s industry-wide study of the short- and long-term competitive effects of authorised generics in the prescription drug marketplace. AstraZeneca has begun to collect the requested information and plans to respond to the Special Order.
Informal US Securities and Exchange Commission (SEC) inquiry
In October 2006, AstraZeneca received from the SEC a letter requesting documents related to its business activities in Italy, Croatia, Russia and Slovakia for the period ‘1 October 2003 to the present’. The SEC’s request generally seeks documents concerning any payments to doctors or government officials and related internal accounting controls. The request also seeks policies, correspondence, audits and other documents concerning compliance with the Foreign Corrupt Practices Act, as well as any allegations or communications with prosecutors’ offices relating to corruption or bribery of doctors or government officials. AstraZeneca has produced documents in response to this request. It is not currently possible to predict the outcome of this inquiry.
Serious Fraud Office (SFO) inquiry
In 2007, AstraZeneca received from the SFO in the UK a request for documentation about its involvement in the UN Oil for Food programme in Iraq. AstraZeneca denies any allegation of illegal or unethical behaviour in its trading relationships with Iraq. AstraZeneca will comply with the SFO’s request for documentation.
Other government investigations
From time to time, AstraZeneca receives enquiries and requests for information from a number of governmental and/or other regulatory bodies relating to a range of issues (some, but not all, of which relate directly to the business of AstraZeneca) and some of which are confidential in nature. AstraZeneca seeks to comply with these requests in an appropriate and timely manner and generally on the basis of legal advice received. The nature and scope of the investigation in relation to which such enquiries and requests for information have been received is not always known to AstraZeneca. Consequently, it is not always possible to determine whether such enquiries and investigations relate specifically to AstraZeneca or are merely a means of gathering factual information in the context of an unrelated third-party issue.
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| | FINANCIAL STATEMENTS |
| 174 | ASTRAZENECA ANNUAL REPORT AND FORM 20-F INFORMATION 2007 |
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| NOTES TO THE FINANCIAL STATEMENTS CONTINUED |
27 COMMITMENTS AND CONTINGENT LIABILITIES CONTINUED
Taxation
Where tax exposures can be quantified, an accrual is made based on best estimates and management’s judgement. Details of the movements in relation to material tax exposures are discussed below.
AstraZeneca faces a number of transfer pricing audits in jurisdictions around the world and, in some cases, is in dispute with the tax authorities. The issues under discussion are often complex and can require many years to resolve. Accruals for tax contingencies require management to make estimates and judgements with respect to the ultimate outcome of a tax audit, and actual results could vary from these estimates. The international tax environment presents increasingly challenging dynamics for the resolution of transfer pricing disputes. These disputes usually result in taxable profits being increased in one territory and correspondingly decreased in another. Our balance sheet positions for these matters reflect appropriate corresponding relief in the territories affected. Management considers that at present such corresponding relief will be available but given the challenges in the international tax environment will keep this aspect under careful review. The total net accrual included in the Financial Statements to cover the worldwide exposure to transfer pricing audits is $1,322m, an increase of $327m due to a number of new audits, revisions of estimates relating to existing audits, offset by a number of negotiated settlements. For transfer pricing audits where AstraZeneca and the tax authorities are in dispute, AstraZeneca estimates the potential for reasonably possible additional losses above and beyond the amount provided to be up to $400m; however, management believes that it is unlikely that these additional losses will arise. Of the remaining tax exposures, AstraZeneca does not expect material additional losses. It is not possible to estimate the timing of tax cash flows in relation to each outcome, however, it is anticipated that a number of significant disputes may be resolved over the next one to two years. Included in the provision is an amount of interest of $234m. Interest is accrued as a tax expense.
28 LEASES
Total rentals under operating leases charged to the income statement were as follows:
| | | 2007 | | 2006 | | 2005 | |
| | | $m | | $m | | $m | |
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| | | 210 | | 197 | | 155 | |
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The future minimum lease payments under operating leases that have initial or remaining terms in excess of one year at 31 December 2007 were as follows:
| | | | 2007 | | 2006 | | 2005 | |
| | | | $m | | $m | | $m | |
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| Obligations under leases comprise | | | | | | | |
| Rentals due within one year | | 103 | | 108 | | 83 | |
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| Rentals due after more than one year: | | | | | | | |
| | After five years | | 184 | | 161 | | 90 | |
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| | From four to five years | | 34 | | 30 | | 18 | |
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| | From three to four years | | 43 | | 38 | | 26 | |
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| | From two to three years | | 51 | | 51 | | 41 | |
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| | From one to two years | | 67 | | 63 | | 52 | |
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|
| | | | 379 | | 343 | | 227 | |
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| | | | 482 | | 451 | | 310 | |
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| | |
| FINANCIAL STATEMENTS | |
| ASTRAZENECA ANNUAL REPORT AND FORM 20-F INFORMATION 2007 | 175 |
|
| NOTES TO THE FINANCIAL STATEMENTS CONTINUED |
29 STATUTORY AND OTHER INFORMATION
| | | | 2007 | | 2006 | | 2005 | |
| | | | $m | | $m | | $m | |
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| Fees payable to KPMG Audit Plc and its associates: | | | | | | | |
| | Group audit fee | | 3.6 | | 3.1 | | 2.5 | |
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| Fees payable to KPMG Audit Plc and its associates for other services: | | | | | | | |
| | The audit of subsidiaries pursuant to legislation | | 6.1 | | 5.4 | | 5.0 | |
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| | Other services pursuant to legislation | | 3.6 | | 4.1 | | 0.8 | |
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| | Taxation | | 1.1 | | 1.2 | | 1.0 | |
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| | All other services | | 0.7 | | 1.0 | | 2.2 | |
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| Fees payable to KPMG Audit Plc in respect of the Group’s pension schemes: | | | | | | | |
| | The audit of subsidiaries’ pension schemes | | 0.6 | | 0.5 | | 0.5 | |
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| | | | 15.7 | | 15.3 | | 12.0 | |
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Other services pursuant to legislation includes fees of $2.7m (2006 $3.2m, 2005 $nil) in respect of section 404 of the Sarbanes-Oxley Act. All other services includes $nil (2006 $nil, 2005 $1.8m) in respect of section 404 of the Sarbanes-Oxley Act.
Included within the Group audit fee is an amount of $0.1m (2006 $0.1m) in respect of the audit of the Company.
Taxation services consist of tax compliance services and tax advice.
Related party transactions
The Group had no material related party transactions which might reasonably be expected to influence decisions made by the users of these Financial Statements.
Key management personnel compensation
| | | 2007 | | 2006 | | 2005 | |
| | | $’000 | | $’000 | | $’000 | |
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| Short-term employee benefits | | 31,525 | | 21,321 | | 19,334 | |
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| Post-employment benefits | | 2,072 | | 3,191 | | 1,731 | |
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| Share-based payments | | 11,515 | | 8,417 | | 5,663 | |
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| | | 45,112 | | 32,929 | | 26,728 | |
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Short-term employee benefits in 2007 include one-off employee costs of $11m in relation to the acquisition of MedImmune.
Total remuneration is included within employee costs (Note 26).
Subsequent events
There were no material subsequent events.
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| | |
| | FINANCIAL STATEMENTS |
| 176 | ASTRAZENECA ANNUAL REPORT AND FORM 20-F INFORMATION 2007 |
|
| NOTES TO THE FINANCIAL STATEMENTS CONTINUED |
30 SHARE CAPITAL OF PARENT COMPANY
| | | Authorised | | Allotted, called-up and fully paid | |
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| | | 2007 | | 2007 | | 2006 | | 2005 | |
| | | $m | | $m | | $m | | $m | |
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| Issued Ordinary Shares ($0.25 each) | | 364 | | 364 | | 383 | | 395 | |
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| Unissued Ordinary Shares ($0.25 each) | | 236 | | – | | – | | – | |
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| Redeemable Preference Shares (£1 each – £50,000) | | – | | – | | – | | – | |
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| | | 600 | | 364 | | 383 | | 395 | |
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The total authorised number of Ordinary Shares at 31 December 2007 was 2,400,000,000, of which 1,457,000,853 Ordinary Shares were in issue.
The Redeemable Preference Shares carry limited class voting rights and no dividend rights. This class of shares is capable of redemption at par at the option of the Company on the giving of seven days’ written notice to the registered holder of the shares.
The movements in share capital during the year can be summarised as follows:
| | | No. of shares | | | |
| | | (million) | | $m | |
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| At 1 January 2007 | | 1,532 | | 383 | |
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| Issues of shares | | 5 | | 1 | |
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| Re-purchase of shares | | (80 | ) | (20 | ) |
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| At 31 December 2007 | | 1,457 | | 364 | |
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Share re-purchases
During the year the Company re-purchased, and subsequently cancelled, 79,927,377 Ordinary Shares at an average price of 2593 pence per share. The total consideration, including expenses, was $4,170m. The consideration has been charged against retained earnings.
Share schemes
A total of 4,682,622 Ordinary Shares were issued during the year in respect of share schemes. Details of movements in the number of Ordinary Shares under option are shown in Note 26; details of options granted to Directors are shown in the Directors’ Remuneration Report.
Shares held by subsidiaries
No shares in the Company were held by subsidiaries in any year.
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| | |
| FINANCIAL STATEMENTS | |
| ASTRAZENECA ANNUAL REPORT AND FORM 20-F INFORMATION 2007 | 177 |
|
| PRINCIPAL SUBSIDIARIES |
| | | | | Percentage of voting | | | |
| At 31 December 2007 | | Country | | share capital held | | Principal activity | |
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| UK | | | | | | | |
| AstraZeneca UK Limited | | England | | 100 | 1 | Research and development, | |
| | | | | | | manufacturing, marketing | |
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| AstraZeneca Reinsurance Limited | | England | | 100 | �� | Insurance and reinsurance underwriting | |
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| AstraZeneca Treasury Limited | | England | | 100 | | Treasury | |
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| Continental Europe | | | | | | | |
| NV AstraZeneca SA | | Belgium | | 100 | | Manufacturing, marketing | |
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| AstraZeneca Dunkerque Production SCS | | France | | 100 | | Manufacturing | |
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| AstraZeneca SAS | | France | | 100 | | Research, manufacturing, marketing | |
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| AstraZeneca GmbH | | Germany | | 100 | | Development, manufacturing, marketing | |
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| AstraZeneca Holding GmbH | | Germany | | 100 | | Manufacturing, marketing | |
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| AstraZeneca SpA | | Italy | | 100 | | Manufacturing, marketing | |
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| AstraZeneca Farmaceutica Spain SA | | Spain | | 100 | | Manufacturing, marketing | |
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| AstraZeneca AB | | Sweden | | 100 | | Research and development, | |
| | | | | | | manufacturing, marketing | |
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| AstraZeneca BV | | The Netherlands | | 100 | | Marketing | |
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| | | | | | | | |
| The Americas | | | | | | | |
| AstraZeneca Canada Inc. | | Canada | | 100 | | Research, manufacturing, marketing | |
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| IPR Pharmaceuticals Inc. | | Puerto Rico | | 100 | | Development, manufacturing, marketing | |
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| AstraZeneca LP | | US | | 99 | | Research and development, | |
| | | | | | | manufacturing, marketing | |
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| AstraZeneca Pharmaceuticals LP | | US | | 100 | | Research and development, | |
| | | | | | | manufacturing, marketing | |
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| Zeneca Holdings Inc. | | US | | 100 | | Manufacturing, marketing | |
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| MedImmune, Inc. | | US | | 100 | | Research and development, | |
| | | | | | | manufacturing, marketing | |
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| Asia, Africa & Australasia | | | | | | | |
| AstraZeneca Pty Limited | | Australia | | 100 | | Development, manufacturing, marketing | |
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| AstraZeneca KK | | Japan | | 80 | | Manufacturing, marketing | |
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1 Shares held directly.
The companies and other entities listed above are those whose results or financial position principally affected the figures shown in the Group Financial Statements. A full list of subsidiaries, joint ventures and associates will be annexed to the Company’s next annual return filed with the Registrar of Companies. The country of registration or incorporation is stated alongside each company. The accounting year ends of subsidiaries and associates are 31 December, except for Aptium Oncology, Inc. which, owing to local conditions and to avoid undue delay in the preparation of the Financial Statements, is 30 November. AstraZeneca operates through 290 subsidiaries worldwide. The Group Financial Statements consolidate the Financial Statements of the Company and its subsidiaries at 31 December 2007. Products are manufactured in 20 countries worldwide and are sold in over 100 countries.
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| | |
| | FINANCIAL STATEMENTS |
| 178 | ASTRAZENECA ANNUAL REPORT AND FORM 20-F INFORMATION 2007 |
|
| INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF ASTRAZENECA PLC |
We have audited the Company Financial Statements of AstraZeneca PLC for the year ended 31 December 2007 which comprise the Balance Sheet and the related notes on pages 179 to 183. These Company Financial Statements have been prepared under the accounting policies set out therein. We have also audited the information in the Directors’ Remuneration Report that is described as having been audited.
We have reported separately on the Group Financial Statements of AstraZeneca PLC for the year ended 31 December 2007.
This report is made solely to the Company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The Directors’ responsibilities for preparing the Annual Report and Form 20-F Information, the Directors’ Remuneration Report and the Company Financial Statements in accordance with applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice) are set out in the Statement of Directors’ Responsibilities on page 116.
Our responsibility is to audit the Company Financial Statements and the part of the Directors’ Remuneration Report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the Company Financial Statements give a true and fair view and whether the Company Financial Statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Directors’ Report is consistent with the Company Financial Statements.
In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding Directors’ remuneration and other transactions is not disclosed.
We read the other information contained in the Annual Report and Form 20-F Information and consider whether it is consistent with the audited Company Financial Statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the Company Financial Statements. Our responsibilities do not extend to any other information.
BASIS OF AUDIT OPINION
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the Company Financial Statements and the part of the Directors’ Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the Company Financial Statements, and of whether the accounting policies are appropriate to the Company’s circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Company Financial Statements and the part of the Directors’ Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the Company Financial Statements and the part of the Directors’ Remuneration Report to be audited.
OPINION
In our opinion:
| > | The Company Financial Statements givea true and fair view, in accordance withUK Generally Accepted AccountingPractice, of the state of the Company’saffairs as at 31 December 2007. |
| | |
| > | The Company Financial Statements andthe part of the Directors’ RemunerationReport to be audited have been properlyprepared in accordance with theCompanies Act 1985. |
| | |
| > | The information given in the Directors’Report is consistent with the CompanyFinancial Statements. |
KPMG Audit Plc
Chartered Accountants
Registered Auditor 8 Salisbury Square London EC4Y 8BB
31 January 2008
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| | |
| FINANCIAL STATEMENTS | |
| ASTRAZENECA ANNUAL REPORT AND FORM 20-F INFORMATION 2007 | 179 |
|
| ASTRAZENECA PLC |
BALANCE SHEET
| | | | | | | |
| | | | 2007 | | 2006 | |
| At 31 December | Notes | | $m | | $m | |
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| Fixed assets | | | | | | |
| Fixed asset investments | 1 | | 30,355 | | 19,118 | |
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| Current assets | | | | | | |
| Debtors – other | 2 | | 1 | | 9 | |
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| Debtors – amounts owed by subsidiaries | | | 6,984 | | 1,382 | |
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| | | | 6,985 | | 1,391 | |
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| Total assets | | | 37,340 | | 20,509 | |
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| Creditors: Amounts falling due in less than one year | | | | | | |
| Non-trade creditors | 3 | | (4,353 | ) | (33 | ) |
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| Net current assets | | | 2,632 | | 1,358 | |
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| Total assets less current liabilities | | | 32,987 | | 20,476 | |
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| Creditors: Amounts falling due after more than one year | | | | | | |
| Amounts owed to subsidiaries | 4 | | (283 | ) | (283 | ) |
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| Interest bearing loans and borrowings | 4 | | (10,482 | ) | (747 | ) |
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| | | | (10,765 | ) | (1,030 | ) |
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| Net assets | | | 22,222 | | 19,446 | |
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| Capital and reserves | | | | | | |
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| Called-up share capital | 7 | | 364 | | 383 | |
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| Share premium account | 5 | | 1,888 | | 1,671 | |
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| Capital redemption reserve | 5 | | 91 | | 71 | |
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| Other reserves | 5 | | 1,841 | | 1,841 | |
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| Profit and loss account | 5 | | 18,038 | | 15,480 | |
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| Shareholders’ funds | | | 22,222 | | 19,446 | |
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$m means millions of US dollars.
The Financial Statements on pages 179 to 183 were approved by the Board of Directors on 31 January 2008 and were signed on its behalf by:
| DAVID R BRENNAN | | SIMON LOWTH |
| Director | | Director |
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| | |
| | FINANCIAL STATEMENTS |
| 180 | ASTRAZENECA ANNUAL REPORT AND FORM 20-F INFORMATION 2007 |
|
| ACCOUNTING POLICIES |
BASIS OF ACCOUNTING
The Company Financial Statements are prepared under the historical cost convention, modified to include revaluation to fair value of certain financial instruments as described below, in accordance with the Companies Act 1985 and UK Generally Accepted Accounting Principles (UK GAAP). The Group Financial Statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union and are presented on pages 121 to 123.
The following paragraphs describe the main accounting policies under UK GAAP, which have been applied consistently.
NEW ACCOUNTING STANDARDS
The Company has adopted the following accounting standard in the year:
Financial Reporting Standard No. 29 ‘Financial Instruments: Disclosures’ (FRS 29). FRS 29 sets out the requirements for the presentation of, and disclosures relating to, financial instruments, and replaces the disclosure requirements of FRS 25 ‘Financial Instruments: Disclosure and Presentation’. The Company is exempt from the requirements of FRS 29 because the Company is included in AstraZeneca PLC’s publicly available Consolidated Financial Statements for 2007, which include disclosures that comply with IFRS 7, the equivalent International Financial Reporting Standard.
The Company has also adopted Amendment to FRS 26 ‘Financial Instruments: Measurement’, UITF Abstract 42 ‘Reassessment of Embedded Derivatives’ and UITF Abstract 45 ‘Liabilities arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment’. The adoption of these standards and abstracts did not have a significant impact on net results, net assets or disclosures of the Company.
UITF Abstract 44 (IFRIC 11): ‘FRS 20 (IFRS 2) Group and Treasury Transactions’ has been issued but has not yet been adopted by the Company.
FOREIGN CURRENCIES
Profit and loss account items in foreign currencies are translated into US dollars at average rates for the relevant accounting periods. Assets and liabilities are translated at exchange rates prevailing at the date of the Company balance sheet. Exchange gains and losses on loans and on short term foreign currency borrowings and deposits are included within net interest payable. Exchange differences on all other transactions, except relevant foreign currency loans, are taken to operating profit.
TAXATION
The charge for taxation is based on the result for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and for accounting purposes. Full provision is made for the effects of these differences. Deferred tax asset valuation allowances are made where it is more likely than not that the asset will not be realised in the future. These valuations require judgements to be made including the forecast of future taxable income. Deferred tax balances are not discounted.
Accruals for tax contingencies require management to make judgements and estimates in relation to tax audit issues. Tax benefits are not recognised unless the tax positions will probably be sustained. Once considered to be probable, management reviews each material tax benefit to assess whether a provision should be taken against full recognition of that benefit on the basis of potential settlement through negotiation and/or litigation.
Any recorded exposure to interest on tax liabilities is provided for in the tax charge. All provisions are included in creditors due within one year.
INVESTMENTS
Fixed asset investments, including investments in subsidiaries, are stated at cost and reviewed for impairment if there are indications that the carrying value may not be recoverable.
FINANCIAL INSTRUMENTS
Loans and other receivables are held at amortised cost. Long term loans payable are held at amortised cost.
CONTINGENT LIABILITIES
Through the normal course of business, AstraZeneca is involved in legal disputes, the settlement of which may involve cost to the Company. Provision is made where an adverse outcome is probable and associated costs can be estimated reliably. In other cases, appropriate descriptions are included.
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| | |
| FINANCIAL STATEMENTS | |
| ASTRAZENECA ANNUAL REPORT AND FORM 20-F INFORMATION 2007 | 181 |
|
| NOTES TO THE COMPANY FINANCIAL STATEMENTS |
1 FIXED ASSET INVESTMENTS
| | Investments in subsidiaries | |
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| | Shares | | Loans | | Total | |
| | $m | | $m | | $m | |
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| Cost and net book value at 1 January 2007 | 6,715 | | 12,403 | | 19,118 | |
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| Additions | 8,571 | | 9,692 | | 18,263 | |
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| Repayment of loan | – | | (7,069 | ) | (7,069 | ) |
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| Exchange | – | | 40 | | 40 | |
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| Amortisation | – | | 3 | | 3 | |
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| Cost and net book value at 31 December 2007 | 15,286 | | 15,069 | | 30,355 | |
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2 OTHER DEBTORS
| | 2007 | | 2006 | |
| | $m | | $m | |
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| Other debtors | 1 | | 1 | |
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| Deferred tax asset | – | | 8 | |
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| | 1 | | 9 | |
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3 NON-TRADE CREDITORS
| | 2007 | | 2006 | |
| | $m | | $m | |
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| Amounts due within one year | | | | |
| Short term borrowings (unsecured) | 4,123 | | 7 | |
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| Other creditors | 206 | | 12 | |
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| Amounts owed to subsidiaries | 24 | | 14 | |
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| | 4,353 | | 33 | |
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4 LOANS
| | Repayment | | 2007 | | 2006 | |
| | dates | | $m | | $m | |
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| Amounts owed to subsidiaries (unsecured) | | | | | | |
| US dollars | | | | | | |
| 7.2% Loan | 2023 | | 283 | | 283 | |
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| | | | | | | |
| Interest bearing loans and borrowings (unsecured) | | | | | | |
| US dollars | | | | | | |
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| Floating Rate Note | 2009 | | 649 | | – | |
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| 5.4% Callable bond | 2012 | | 1,741 | | – | |
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| 5.4% Callable bond | 2014 | | 747 | | 747 | |
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| 5.9% Callable bond | 2017 | | 1,741 | | – | |
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| 6.45% Callable bond | 2037 | | 2,715 | | – | |
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| Euros | | | | | | |
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| 4.625% Non-callable bond | 2010 | | 1,099 | | – | |
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| 5.125% Non-callable bond | 2015 | | 1,099 | | – | |
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| Pounds sterling | | | | | | |
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| 5.75% Non-callable bond | 2031 | | 691 | | – | |
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| | | | 10,765 | | 1,030 | |
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| | | | | | | |
| Loans or instalments thereof are repayable: | | | | | | |
| After five years from balance sheet date | | | 7,276 | | 1,030 | |
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| From two to five years | | | 2,840 | | – | |
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| From one to two years | | | 649 | | – | |
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| Total unsecured | | | 10,765 | | 1,030 | |
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| Total due within one year | | | – | | – | |
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| | | | 10,765 | | 1,030 | |
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With the exception of the floating rate note, all loans are at fixed interest rates. Accordingly the fair values of the loans will change as market rates change. However, since the loans are held at amortised cost, changes in interest rates and the credit rating of the Company do not have any effect on the Company’s net assets.
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| | |
| | FINANCIAL STATEMENTS |
| 182 | ASTRAZENECA ANNUAL REPORT AND FORM 20-F INFORMATION 2007 |
|
| NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED |
5 RESERVES
| | Share | | Capital | | | | Profit | | | | | |
| | premium | | redemption | | Other | | and loss | | 2007 | | 2006 | |
| | account | | reserve | | reserves | | account | | Total | | Total | |
| | $m | | $m | | $m | | $m | | $m | | $m | |
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| At beginning of year | 1,671 | | 71 | | 1,841 | | 15,480 | | 19,063 | | 23,778 | |
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| Profit for the year | – | | – | | – | | 9,407 | | 9,407 | | 652 | |
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| Dividends | – | | – | | – | | (2,658 | ) | (2,658 | ) | (2,217 | ) |
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| Cash flow hedge in anticipation of debt issue | – | | – | | – | | (21 | ) | (21 | ) | – | |
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| Share re-purchases | – | | 20 | | – | | (4,170 | ) | (4,150 | ) | (4,129 | ) |
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| Share premiums | 217 | | – | | – | | – | | 217 | | 979 | |
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| At end of year | 1,888 | | 91 | | 1,841 | | 18,038 | | 21,858 | | 19,063 | |
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| Distributable reserves at end of year | – | | – | | 1,841 | | 13,978 | | 15,819 | | 6,063 | |
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As permitted by section 230 of the Companies Act 1985, the Company has not presented its profit and loss account.
At 31 December 2007 $4,060m (31 December 2006 $11,129m) of the profit and loss account reserve was not available for distribution. The majority of this non-distributable amount relates to profit arising on the sale of Astra AB to a subsidiary in 1999, which becomes distributable as the underlying receivable is settled. During 2007, $7,069m (2006: $5,738m) of the profit was realised by repayment. Subsequent to the year end, a further $377m was repaid on 18 January 2008, resulting in additional distributable reserves not included in the figures above. Included in other reserves is a special reserve of $157m, arising on the redenomination of share capital in 1999.
6 RECONCILIATION OF MOVEMENT IN SHAREHOLDERS’ FUNDS
| | 2007 | | 2006 | |
| | $m | | $m | |
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| Shareholders’ funds at beginning of year | 19,446 | | 24,173 | |
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| Net profit for the financial year | 9,407 | | 652 | |
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| Dividends | (2,658 | ) | (2,217 | ) |
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| Cash flow hedge in anticipation of debt issue | (21 | ) | – | |
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| Issues of AstraZeneca PLC Ordinary Shares | 218 | | 985 | |
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| Re-purchase of AstraZeneca PLC Ordinary Shares | (4,170 | ) | (4,147 | ) |
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| Net increase/(reduction) in shareholders’ funds | 2,776 | | (4,727 | ) |
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| Shareholders’ funds at end of year | 22,222 | | 19,446 | |
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7 SHARE CAPITAL
| | Authorised | | Allotted, called-up and fully paid | |
| |
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| | 2007 | | 2007 | | 2006 | |
| | $m | | $m | | $m | |
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| Issued Ordinary Shares ($0.25 each) | 364 | | 364 | | 383 | |
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| Unissued Ordinary Shares ($0.25 each) | 236 | | – | | – | |
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| Redeemable Preference Shares (£1 each – £50,000) | – | | – | | – | |
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| | 600 | | 364 | | 383 | |
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The total authorised number of Ordinary Shares at 31 December 2007 was 2,400,000,000, of which 1,457,000,853 Ordinary Shares were in issue.
The Redeemable Preference Shares carry limited class voting rights and no dividend rights. This class of shares is capable of redemption at par at the option of the Company on the giving of seven days’ written notice to the registered holder of the shares.
The movements in share capital during the year can be summarised as follows:
| | No. of shares | | | |
| | (million) | | $m | |
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|
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| At 1 January 2007 | 1,532 | | 383 | |
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| Issues of shares | 5 | | 1 | |
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| Re-purchase of shares | (80 | ) | (20 | ) |
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| At 31 December 2007 | 1,457 | | 364 | |
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|
Back to Contents
| | |
| FINANCIAL STATEMENTS | |
| ASTRAZENECA ANNUAL REPORT AND FORM 20-F INFORMATION 2007 | 183 |
|
| NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED |
7 SHARE CAPITAL CONTINUED
Share re-purchases
During the year the Company re-purchased, and subsequently cancelled, 79,927,377 Ordinary Shares at an average price of 2593 pence per share. The total consideration, including expenses, was $4,170m. The consideration has been charged against the profit and loss account reserve.
Share schemes
A total of 4,682,622 Ordinary Shares were issued during the year in respect of share schemes. Details of movements in the number of Ordinary Shares under option are shown in Note 26 to the Group Financial Statements; details of options granted to Directors are shown in the Directors’ Remuneration Report.
Shares held by subsidiaries
No shares in the Company are held by subsidiaries.
8 COMMITMENTS AND CONTINGENT LIABILITIES
Crestor (rosuvastatin)
From 2004 to present, AstraZeneca Pharmaceuticals LP and/or AstraZeneca LP in the US were served with 15 individual lawsuits in various US jurisdictions, alleging injury in association with the use ofCrestor. 11 of the cases were dismissed in early stages, and another was dismissed after the Court granted AstraZeneca’s motion for summary judgment in June 2007. These decisions were not appealed by the plaintiffs. AstraZeneca intends to vigorously defend the remaining cases, all of which are still in preliminary stages. In addition, a motion to institute a class action was filed in Quebec, Canada against AstraZeneca PLC and AstraZeneca Canada Inc. in which the petitioners alleged injury as a result of the use ofCrestor. In March 2007, the Court granted the named plaintiff’s request to discontinue this action.
AstraZeneca continues to have full confidence in and will vigorously defend and enforce its intellectual property protectingCrestor.
Exanta (ximelagatran)
Four putative and essentially similar securities class actions were filed in the US against AstraZeneca PLC, Håkan Mogren (who currently serves as a Director of AstraZeneca PLC), Sir Tom McKillop, Jonathan Symonds and Percy Barnevik (who are former Directors of AstraZeneca PLC) between January and March 2005. These actions were subsequently consolidated into a single action pending in the US District Court for the Southern District of New York. The Consolidated Amended Complaint alleges that the defendants made materially false and misleading statements regardingExanta clinical trials and the status of theExanta New Drug Application in the US. The plaintiffs purport to assert claims on behalf of purchasers of AstraZeneca publicly traded securities during the period April 2003 to September 2004 under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.
The defendants deny the allegations made in the lawsuit and will vigorously defend the action. In 2006 they filed a motion to dismiss the action, and that motion is pending before the Court.
Anti-trust
AstraZeneca is part of a sectoral inquiry by the European Commission into the pharmaceutical industry and was the subject of an unannounced inspection in January 2008. The inquiry relates to the introduction of innovative and generic medicines and it will cover commercial practices, including the use of patents and generics. We understand that several companies have been similarly approached.
The Commission has stated that this inquiry is not aimed at investigating practices where there have been any indications of wrong-doing although it could address any competition law breaches found by means of separate proceedings. The Commission has also stated that it plans to issue an interim report in autumn 2008 and envisages that the final results of its inquiry will be available in spring 2009.
AstraZeneca is cooperating fully with the Commission in relation to its inquiry.
Other
The Company has guaranteed the external borrowing of a subsidiary, in the amount of $288m.
9 STATUTORY AND OTHER INFORMATION
There are no employees of the Company (2006 nil). The Directors of the Company were paid by another Group company in 2007 and 2006.
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| | |
| | FINANCIAL STATEMENTS |
| 184 | ASTRAZENECA ANNUAL REPORT AND FORM 20-F INFORMATION 2007 |
|
| GROUP FINANCIAL RECORD |
| | 2003 | | 2004 | | 2005 | | 2006 | | 2007 | |
| For the year ended 31 December | $m | | $m | | $m | | $m | | $m | |
|
| Turnover and profits | | | | | | | | | | |
| Sales | 18,849 | | 21,426 | | 23,950 | | 26,475 | | 29,559 | |
|
| Cost of sales | (4,463 | ) | (5,193 | ) | (5,356 | ) | (5,559 | ) | (6,419 | ) |
|
| Distribution costs | (162 | ) | (177 | ) | (211 | ) | (226 | ) | (248 | ) |
|
| Research and development | (3,012 | ) | (3,467 | ) | (3,379 | ) | (3,902 | ) | (5,162 | ) |
|
| Selling, general and administrative costs | (7,393 | ) | (8,268 | ) | (8,695 | ) | (9,096 | ) | (10,364 | ) |
|
| Other operating income and expense | 188 | | 226 | | 193 | | 524 | | 728 | |
|
| Operating profit | 4,007 | | 4,547 | | 6,502 | | 8,216 | | 8,094 | |
|
| Profit on sale of interest in joint venture | – | | 219 | | – | | – | | – | |
|
| Finance income | 381 | | 532 | | 665 | | 888 | | 959 | |
|
| Finance expense | (311 | ) | (454 | ) | (500 | ) | (561 | ) | (1,070 | ) |
|
| Profit before tax | 4,077 | | 4,844 | | 6,667 | | 8,543 | | 7,983 | |
|
| Taxation | (1,033 | ) | (1,161 | ) | (1,943 | ) | (2,480 | ) | (2,356 | ) |
|
| Profit for the period | 3,044 | | 3,683 | | 4,724 | | 6,063 | | 5,627 | |
|
| Attributable to: | | | | | | | | | | |
| Equity holders of the Company | 3,022 | | 3,664 | | 4,706 | | 6,043 | | 5,595 | |
|
| Minority interests | 22 | | 19 | | 18 | | 20 | | 32 | |
|
| Earnings per share | | | | | | | | | | |
| Earnings per $0.25 Ordinary Share (basic) | $1.77 | | $2.18 | | $2.91 | | $3.86 | | $3.74 | |
|
| Earnings per $0.25 Ordinary Share (diluted) | $1.77 | | $2.18 | | $2.91 | | $3.85 | | $3.73 | |
|
| Dividends | $ 0.725 | | $0.835 | | $1.025 | | $1.410 | | $1.750 | |
|
| Return on sales | | | | | | | | | | |
| Operating profit as a percentage of sales | 21.3 | % | 21.2 | % | 27.2 | % | 31.0 | % | 27.4 | % |
|
| Ratio of earnings to fixed charges | 100.4 | | 93.6 | | 85.6 | | 92.7 | | 15.6 | |
|
| | 2003 | | 2004 | | 2005 | | 2006 | | 2007 | |
| At 31 December | $m | | $m | | $m | | $m | | $m | |
|
| Balance sheet | | | | | | | | | | |
| Property, plant and equipment, goodwill and intangible assets | 10,574 | | 11,147 | | 9,697 | | 11,657 | | 29,649 | |
|
| Other investments | 133 | | 262 | | 256 | | 119 | | 182 | |
|
| Deferred tax assets | 1,261 | | 1,218 | | 1,117 | | 1,220 | | 1,044 | |
|
| Current assets | 11,593 | | 13,025 | | 13,770 | | 16,936 | | 17,082 | |
|
| Total assets | 23,561 | | 25,652 | | 24,840 | | 29,932 | | 47,957 | |
|
| Current liabilities | (6,558 | ) | (6,587 | ) | (6,839 | ) | (9,447 | ) | (15,187 | ) |
|
| Non-current liabilities | (3,828 | ) | (4,568 | ) | (4,310 | ) | (5,069 | ) | (17,855 | ) |
|
| Net assets | 13,175 | | 14,497 | | 13,691 | | 15,416 | | 14,915 | |
|
| Capital and reserves attributable to equity holders | 13,086 | | 14,404 | | 13,597 | | 15,304 | | 14,778 | |
|
| Minority equity interests | 89 | | 93 | | 94 | | 112 | | 137 | |
|
| Total equity and reserves | 13,175 | | 14,497 | | 13,691 | | 15,416 | | 14,915 | |
|
| | 2003 | | 2004 | | 2005 | | 2006 | | 2007 | |
| For the year ended 31 December | $m | | $m | | $m | | $m | | $m | |
|
| Cash flows | | | | | | | | | | |
| Net cash inflow/(outflow) from: | | | | | | | | | | |
| Operating activities | 3,368 | | 4,817 | | 6,743 | | 7,693 | | 7,510 | |
|
| Investing activities | (852 | ) | 970 | | (1,182 | ) | (272 | ) | (14,887 | ) |
|
| Financing activities | (2,674 | ) | (2,761 | ) | (4,572 | ) | (5,366 | ) | 6,051 | |
|
| | (158 | ) | 3,026 | | 989 | | 2,055 | | (1,326 | ) |
|
Ratio of earnings to fixed charges
For the purpose of computing these ratios, earnings consist of the income from continuing ordinary activities before taxation of Group companies and income received from companies owned 50% or less, plus fixed charges (excluding capitalised interest). Fixed charges consist of interest (including capitalised interest) on all indebtedness, amortisation of debt discount and expense and that portion of rental expense representative of the interest factor.
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| | ADDITIONAL INFORMATION |
| 186 | ASTRAZENECA ANNUAL REPORT AND FORM 20-F INFORMATION 2007 |
|
| SHAREHOLDER INFORMATION |
| AstraZeneca | 2003 | | 2004 | | 2005 | | 2006 | | 2007 | |
|
| Ordinary Shares in issue – millions | | | | | | | | | | |
| At year end | 1,693 | | 1,645 | | 1,581 | | 1,532 | | 1,457 | |
|
| Weighted average for year | 1,709 | | 1,673 | | 1,617 | | 1,564 | | 1,495 | |
|
| Stock market price – per $0.25 Ordinary Share | | | | | | | | | | |
| Highest (pence) | 2868 | | 2749 | | 2837 | | 3529 | | 2984 | |
|
| Lowest (pence) | 1820 | | 1863 | | 1861 | | 2574 | | 2093 | |
|
| At year end (pence) | 2680 | | 1889 | | 2829 | | 2744 | | 2164 | |
|
| |
| PERCENTAGE ANALYSIS AT 31 DECEMBER 2007 OF ISSUED SHARE CAPITAL | | | |
| By size of account | 2007 | | |
| No. of shares | % | | |
|
| 1 – 250 | 0.5 | | |
|
| 251 – 500 | 0.7 | | |
|
| 501 – 1,000 | 0.9 | | |
|
| 1,001 – 5,000 | 1.3 | | |
|
| 5,001 – 10,000 | 0.2 | | |
|
| 10,001 – 50,000 | 1.0 | | |
|
| 50,001 – 1,000,000 | 12.9 | | |
|
| Over 1,000,0001 | 82.5 | | |
|
| Issued share capital | 100.0 | | |
|
| 1 | Includes VPC and ADR holdings. |
At 31 December 2007, AstraZeneca PLC had 133,820 registered holders of 1,457,000,853 Ordinary Shares of $0.25 each. At 31 December 2007, there were approximately 223,000 holders of American Depositary Receipts (ADRs) representing 9.58% of the issued share capital and 145,000 holders of shares held under the VPC Services Agreement representing 20.55% of the issued share capital. The ADRs, each of which is equivalent to one Ordinary Share, are issued by JPMorgan Chase Bank.
ASTRAZENECA PLC
Since April 1999, following the AstraZeneca merger, the principal markets for trading in the shares of AstraZeneca PLC are the London, Stockholm and New York Stock Exchanges. The table below sets out, for the four quarters of 2006 and for the first two quarters and last six months of 2007 the reported high and low share prices of AstraZeneca PLC, on the following bases:
| > | For shares listed on the London Stock Exchange (LSE) the reported high and low middle market closing quotations are derived fromThe Daily Official List. |
| | |
| > | For shares listed on the Stockholm Stock Exchange (SSE) the high and low closing sales prices are as stated in the Official List. |
| | |
| > | For American Depositary Shares (ADS) listed on the New York Stock Exchange the reported high and low sales prices are as reportedby Dow Jones (ADR quotations). |
| | |
| | | Ordinary LSE | | ADS | | Ordinary SSE* | |
| |
| |
| |
|
|
| | | High | | Low | | High | | Low | | High | | Low | |
| | | (pence) | | (pence) | | (US$) | | (US$) | | (SEK) | | (SEK) | |
|
| 2006 | – Quarter 1 | 2975 | | 2574 | | 51.73 | | 45.12 | | 403.5 | | 352.5 | |
|
| | – Quarter 2 | 3264 | | 2757 | | 59.82 | | 50.54 | | 434.5 | | 376.5 | |
|
| | – Quarter 3 | 3435 | | 3101 | | 65.43 | | 56.60 | | 477.0 | | 414.5 | |
|
| | – Quarter 4 | 3529 | | 2728 | | 66.37 | | 53.55 | | 484.0 | | 365.5 | |
|
| 2007 | – Quarter 1 | 2984 | | 2734 | | 58.78 | | 53.53 | | 414.0 | | 367.5 | |
|
| | – Quarter 2 | 2953 | | 2567 | | 59.04 | | 51.00 | | 401.0 | | 354.5 | |
|
| | – July | 2770 | | 2542 | | 56.16 | | 51.51 | | 374.5 | | 348.0 | |
|
| | – August | 2545 | | 2278 | | 51.78 | | 45.56 | | 348.5 | | 319.5 | |
|
| | – September | 2466 | | 2345 | | 50.07 | | 47.29 | | 342.0 | | 315.0 | |
|
| | – October | 2589 | | 2356 | | 52.47 | | 48.66 | | 343.5 | | 310.5 | |
|
| | – November | 2330 | | 2093 | | 48.23 | | 43.23 | | 311.5 | | 272.0 | |
|
| | – December | 2316 | | 2164 | | 47.14 | | 42.82 | | 303.5 | | 277.0 | |
|
| * | Principally held in bearer form. |
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| | |
| ADDITIONAL INFORMATION | |
| ASTRAZENECA ANNUAL REPORT AND FORM 20-F INFORMATION 2007 | 187 |
|
| SHAREHOLDER INFORMATION CONTINUED |
During 2007, AstraZeneca’s share re-purchase programme, which was introduced in 1999, continued with the re-purchase and subsequent cancellation of 79.9 million shares at a total cost of $4,170m, representing 5.5% of the total issued share capital of the Company. The average price paid per share in 2007 was 2593 pence. Between 1999 and 2006, a total of 282.8 million Ordinary Shares were re-purchased, and subsequently cancelled, at an average price of 2693 pence per share for a consideration, including expenses, of $13,318m. The excess of the consideration over the nominal value was charged against the profit and loss account reserve. Shares issued in respect of share schemes totalled 4.7 million.
In 1999, in connection with the merger, AstraZeneca’s share capital was redenominated in US dollars. On 6 April 1999, Zeneca shares were cancelled and US dollar shares issued, credited as fully paid on the basis of one dollar share for each Zeneca share then held. This was achieved by a reduction of capital under section 135 of the Companies Act 1985. Upon the reduction of capital becoming effective, all issued and unissued Zeneca shares were cancelled and the sum arising as a result thereof credited to a special reserve, which was converted into US dollars at the rate of exchange prevailing on the record date. This US dollar reserve was then applied in paying up, at par, newly created US dollar shares.
At the same time as the US dollar shares were issued, the Company issued 50,000 Redeemable Preference Shares with a nominal value of £1.00 each for cash at par. The Redeemable Preference Shares carry limited class voting rights and no dividend rights. This class of shares is also capable of redemption at par at the option of the Company on the giving of seven days’ written notice to the registered holder of the shares.
A total of 826 million AstraZeneca shares were issued to Astra shareholders who accepted the merger offer before the final closing date, 21 May 1999. AstraZeneca received acceptances from Astra shareholders representing 99.6% of Astra’s shares and the remaining 0.4% was acquired in 2000 for cash.
MAJOR SHAREHOLDINGS
At 31 January 2008, the following had disclosed an interest in the issued Ordinary Share capital of the Company in accordance with the requirements of section 5.1.2 of the UK Listing Authority’s Disclosure and Transparency Rules:
| | | | Date of | | Percentage | |
| | | | disclosure | | of issued | |
| Shareholder | Number of shares | | to Company | * | share capital | |
|
| Capital Research and Management Company | 71,261,060 | | 25 Jun 2007 | | 4.89 | % |
|
| Axa SA | 70,934,559 | | 20 Dec 2007 | | 4.87 | % |
|
| Investor AB | 63,465,810 | | 11 Feb 2004 | | 4.36 | % |
|
| Barclays PLC | 61,721,820 | | 18 Dec 2006 | | 4.24 | % |
|
| Wellington Management Co., LLP | 60,565,299 | | 30 Oct 2006 | | 4.16 | % |
|
| Legal & General Investment Management Limited | 59,198,535 | | 12 Sept 2007 | | 4.06 | % |
|
| * | Since the date of disclosure to the Company, the interest of any person listed above in the Ordinary Shares of the Company may have increased or decreased. No requirement to notify the Company of any increase or decrease would have arisen unless the holding moved up or down through a whole number percentage level. The percentage level may increase (on the cancellation of shares following a re-purchase of shares under the Company’s share re-purchase programme) or decrease (on the issue of new shares under any of the Company’s share plans). |
No other person held a notifiable interest in shares, comprising 3% or more of the issued Ordinary Share capital of the Company.
Changes in the percentage ownership held by major shareholders during the past three years are set out below. Major shareholders do not have different voting rights.
| | Percentage of issued share capital | |
|
|
| Shareholder | 31 Jan 2008 | | 31 Jan 2007 | | 31 Jan 2006 | | 26 Jan 2005 | |
|
| Capital Research and Management Company | 4.89 | % | 11.70 | % | 12.57 | % | 13.39 | % |
|
| Axa SA | 4.87 | % | – | | – | | – | |
|
| Investor AB | 4.36 | % | 4.14 | % | 4.01 | % | 3.86 | % |
|
| Barclays PLC | 4.24 | % | 4.03 | % | 3.20 | % | 3.08 | % |
|
| Wellington Management Co., LLP | 4.16 | % | 3.95 | % | 4.97 | % | 3.25 | % |
|
| Legal & General Investment Management Limited | 4.06 | % | 3.43 | % | 3.32 | % | 3.19 | % |
|
AstraZeneca PLC American Depositary Shares (each representing one Ordinary Share) evidenced by American Depositary Receipts issued by JPMorgan Chase Bank, as depositary, are listed on the New York Stock Exchange. At 31 January 2008, the proportion of Ordinary Shares represented by American Depositary Shares was 9.58% of the Ordinary Shares outstanding.
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| | ADDITIONAL INFORMATION |
| 188 | ASTRAZENECA ANNUAL REPORT AND FORM 20-F INFORMATION 2007 |
|
| SHAREHOLDER INFORMATION CONTINUED |
MAJOR SHAREHOLDINGS CONTINUED
Number of registered holders of Ordinary Shares at 31 January 2008:
| > In the US | 790 | |
| > Total | 132,685 | |
Number of record holders of American Depositary Receipts at 31 January 2008:
| > In the US | 2,379 | |
| > Total | 2,413 | |
So far as the Company is aware, it is neither directly nor indirectly owned nor controlled by one or more corporations or by any government.
At 31 January 2008, the total amount of the Company’s voting securities owned by Directors and Officers of the Company was:
| | | | Percentage | |
| Title of class | Amount owned | | of class | |
|
| Ordinary Shares | 283,176 | | 0.02 | % |
|
The Company does not know of any arrangements, the operation of which might result in a change in the control of the Company.
RELATED PARTY TRANSACTIONS
During the period 1 January 2008 to 31 January 2008, there were no transactions, loans, or proposed transactions between the Company and any related parties which were material to either the Company or the related party, or which were unusual in their nature or conditions (see also Note 29).
OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
(a) At 31 January 2008, options outstanding to subscribe for Ordinary Shares of $0.25 of the Company were:
| | | | | |
| Number of shares | | Subscription price | | Normal expiry date |
|
| 46,514,629 | | 1913p-3487 | p | 2008-2017 |
|
| | The weighted average subscription price of options outstanding at 31 January 2008 was 2702p. All options were granted under Company employee share schemes. |
| |
| (b) | Included in paragraph (a) are options granted to Directors and Officers of AstraZeneca as follows: |
| Number of shares | | Subscription price | | Normal expiry date |
|
| 1,925,548 | | 2132p-3487 | p | 2008-2017 |
|
| (c) | Included in paragraph (b) are options granted to individually named Directors. Details of these option holdings at 31 December 2007 are shown in the Directors’ Remuneration Report. |
| |
| | During the period 1 January 2008 to 31 January 2008, John Patterson exercised options over 625 Ordinary Shares under the AstraZeneca Savings-Related Share Option Scheme and retained all the shares so acquired. |
| |
DIVIDEND PAYMENTS
For Ordinary Shares trading on the London and Stockholm Stock Exchanges, the record date for the second interim dividend for 2007, payable on 17 March 2008, is 8 February 2008. For ADRs trading on the New York Stock Exchange, the record date for the second interim dividend for 2007, payable on 17 March 2008, is 11 February 2008. Ordinary Shares trade ex-dividend on the London and Stockholm Stock Exchanges from 6 February 2008 and ADRs trade ex-dividend on the New York Stock Exchange from 7 February 2008. Dividends will normally be paid as follows:
| First interim: | Announced in July and paid in September. |
| | |
| Second interim: | Announced in January/February and paid in March. |
| | |
The record date for the first interim dividend for 2008, payable on 15 September 2008 (in the UK, the US and Sweden), is 8 August 2008.
SHAREVIEW
AstraZeneca’s shareholders with internet access may visit shareview.co.uk and register their details to create a portfolio. Shareview is a free and secure on-line service from the Company’s registrars, Equiniti Limited, which gives access to shareholdings including balance movements, indicative share prices and information about recent dividends.
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| | |
| ADDITIONAL INFORMATION | |
| ASTRAZENECA ANNUAL REPORT AND FORM 20-F INFORMATION 2007 | 189 |
|
| SHAREHOLDER INFORMATION CONTINUED |
SHAREGIFT
AstraZeneca welcomes and values all of its shareholders, no matter how many or how few shares they own. However, shareholders who have only a small number of shares whose value makes it uneconomic to sell them, either now or at some stage in the future, may wish to consider donating them to charity through ShareGift, an independent charity share donation scheme. One feature of the scheme is that there is no gain or loss for UK capital gains tax purposes on gifts of shares through ShareGift, and it may now also be possible to obtain UK income tax relief on the donation. Further information about ShareGift can be found on its website, sharegift.org, or by contacting ShareGift on 020 7930 3737 or at 17 Carlton House Terrace, London SW1Y 5AH. More information about the UK tax position on gifts of shares to ShareGift can be obtained from HM Revenue & Customs, whose website address is hmrc.gov.uk. The share transfer form needed to make a donation may be obtained from the Company’s registrars, Equiniti Limited, whose address can be found on the back cover of this document. ShareGift is administered by The Orr Mackintosh Foundation, registered charity number 1052686.
THE UNCLAIMED ASSETS REGISTER
AstraZeneca supplies unclaimed dividend data to the Unclaimed Assets Register (UAR), which provides investors who have lost track of shareholdings with an opportunity to search the UAR’s database of unclaimed financial assets on payment of a small, fixed fee. The UAR donates part of the search fee to charity. The UAR can be contacted on 0870 241 1713 or at 6th Floor, Cardinal Place, 80 Victoria Street, Victoria, London SW1E 5JL.
RESULTS
Unaudited trading results of AstraZeneca in respect of the first three months of 2008 will be published on 24 April 2008 and results in respect of the first six months of 2008 will be published on 31 July 2008.
DOCUMENTS ON DISPLAY
The Memorandum and Articles of Association of the Company and other documents concerning the Company which are referred to in this document may be inspected at the Company’s registered office at 15 Stanhope Gate, London W1K 1LN.
TAXATION FOR US RESIDENTS
The following summary of the material UK and US federal income tax consequences of ownership of Ordinary Shares or ADRs held as capital assets by US resident shareholders is based on current UK and US federal income tax law, including the US/UK double taxation convention relating to income and capital gains, which entered into force on 31 March 2003 (the Convention) and practice. This discussion is also based in part on representations of JPMorgan Chase Bank as depositary for ADRs and assumes that each obligation in the deposit agreement among the Company, the depositary and the holders from time to time of ADRs and any related agreements will be performed in accordance with its terms. The US Treasury has expressed concerns that parties to whom ADRs are pre-released may be taking actions that are inconsistent with the claiming, by US holders of ADRs, of foreign tax credits for US federal income tax purposes. Such actions would also be inconsistent with the claiming of the reduced tax rate, described below, applicable to dividends received by certain non-corporate US resident shareholders. Accordingly, the availability of the reduced tax rate for dividends received by certain non-corporate US resident shareholders could be affected by actions that may be taken by parties to whom ADRs are pre-released.
This discussion assumes that we are not, and will not become, a passive foreign investment company (PFIC), as discussed below.
UK AND US INCOME TAXATION OF DIVIDENDS
The UK does not currently impose a withholding tax on dividends paid by a UK company, such as the Company.
For US federal income tax purposes, distributions paid by the Company to a US resident shareholder are includible in gross income as foreign source ordinary dividend income to the extent of the Company’s current or accumulated earnings and profits, calculated in accordance with US federal income tax principles. The amount of the dividend will be the US dollar amount received by the depositary for US resident holders of ADRs, (or in the case of Ordinary Shares, the US dollar value of the pounds sterling on the date the dividend is received by the US resident shareholders, regardless of whether the dividend is converted into US dollars). If the dividend is converted into US dollars on the date of receipt, US resident shareholders of Ordinary Shares generally should not be required to recognise foreign currency gain or loss in respect of the dividend income. They may have foreign currency gain or loss if the amount of such dividend is not converted into US dollars on the date of its receipt.
Subject to applicable limitations and the discussion above regarding concerns expressed by the US Treasury, dividends received by certain non-corporate US resident holders of Ordinary Shares or ADRs in taxable years beginning before 1 January 2011 may be subject to US federal income tax at a maximum rate of 15%. US resident shareholders should consult their own tax advisers to determine whether they are subject to any special rules which may limit their ability to be taxed at this favourable rate.
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| | ADDITIONAL INFORMATION |
| 190 | ASTRAZENECA ANNUAL REPORT AND FORM 20-F INFORMATION 2007 |
|
| SHAREHOLDER INFORMATION CONTINUED |
TAXATION ON CAPITAL GAINS
Under the Convention, each contracting state may in general tax capital gains in accordance with the provisions of its domestic law. Under present UK law, individuals who are neither resident nor ordinarily resident in the UK, and companies which are not resident in the UK, will not be liable to UK tax on capital gains made on the disposal of their Ordinary Shares or ADRs, unless such Ordinary Shares or ADRs are held in connection with a trade, profession or vocation carried on in the UK through a branch or agency.
A US resident shareholder will generally recognise US source capital gain or loss for US federal income tax purposes on the sale or exchange of Ordinary Shares or ADRs in an amount equal to the difference between the US dollar amount realised and such holder’s US dollar adjusted tax basis in the Ordinary Shares or ADRs. US resident shareholders should consult their own tax advisers about the treatment of capital gains, which may be taxed at lower rates than ordinary income for non-corporate US resident shareholders and capital losses, the deductibility of which may be limited.
PASSIVE FOREIGN INVESTMENT COMPANY RULES
We believe that we were not a passive foreign investment company (PFIC) for US federal income tax purposes for the year ended 31 December 2007, and do not expect to be a PFIC in the foreseeable future. However, since PFIC status depends on the composition of our income and assets and the market value of our assets (including, among others, less than 25%-owned equity investments) from time to time, there can be no assurance that we will not be considered a PFIC for any taxable year. If we were treated as a PFIC for any taxable year during which Ordinary Shares or ADRs were held, certain adverse tax consequences could apply to US resident shareholders.
UK INHERITANCE TAX
Under the current Double Taxation (Estates) Convention (the Estate Tax Convention) between the US and the UK, Ordinary Shares or ADRs held by an individual shareholder who is domiciled for the purposes of the Estate Tax Convention in the US, and is not for the purposes of the Estate Tax Convention a national of the UK, will generally not be subject to UK inheritance tax on the individual’s death or on a chargeable gift of the Ordinary Shares or ADRs during the individual’s lifetime, provided that any applicable US federal gift or estate tax liability is paid, unless the Ordinary Shares or ADRs are part of the business property of a permanent establishment of the individual in the UK or, in the case of a shareholder who performs independent personal services, pertain to a fixed base situated in the UK. Where the Ordinary Shares or ADRs have been placed in trust by a settlor who, at the time of settlement, was a US resident shareholder, the Ordinary Shares or ADRs will generally not be subject to UK inheritance tax unless the settlor, at the time of settlement, was not domiciled in the US and was a UK national. In the exceptional case where the Ordinary Shares or ADRs are subject to both UK inheritance tax and US federal gift or estate tax, the Estate Tax Convention generally provides for double taxation to be relieved by means of credit relief.
UK STAMP DUTY RESERVE TAX AND STAMP DUTY
A 1.5% stamp duty reserve tax is payable upon the deposit of Ordinary Shares in connection with the creation of, but not subsequent dealing in, ADRs. A 0.5% stamp duty is payable on all purchases of Ordinary Shares.
EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are no governmental laws, decrees or regulations in the UK restricting the import or export of capital or affecting the remittance of dividends, interest or other payments to non-resident holders of Ordinary Shares or ADRs.
There are no limitations under English law or the Company’s Memorandum and Articles of Association on the right of non-resident or foreign owners to be the registered holders of and to vote Ordinary Shares or ADRs or to be registered holders of notes or debentures of Zeneca Wilmington Inc. or AstraZeneca PLC.
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| | |
| ADDITIONAL INFORMATION | |
| ASTRAZENECA ANNUAL REPORT AND FORM 20-F INFORMATION 2007 | 191 |
|
| SHAREHOLDER INFORMATION CONTINUED |
EXCHANGE RATES
For the periods up to April 1999, Astra accounted for and reported its results in Swedish kronor, whereas Zeneca accounted for and reported its results in sterling. Consistent with AstraZeneca’s decision to publish its Financial Statements in US dollars, the financial information in this document has been translated from kronor and sterling into US dollars at the following applicable exchange rates:
| | | SEK/USD | | USD/GBP | |
|
|
|
|
|
|
| Average rates (profit and loss account, cash flow) | | | | | |
| 1995 | | 7.1100 | | 1.5796 | |
|
|
|
|
|
|
| 1996 | | 6.7000 | | 1.5525 | |
|
|
|
|
|
|
| 1997 | | 7.6225 | | 1.6386 | |
|
|
|
|
|
|
| 1998 | | 7.9384 | | 1.6603 | |
|
|
|
|
|
|
| 1999 | | 8.2189 | | 1.6247 | |
|
|
|
|
|
|
| | | | | | |
| End of year spot rates (balance sheet) | | | | | |
| 1995 | | 6.6500 | | 1.5500 | |
|
|
|
|
|
|
| 1996 | | 6.8400 | | 1.6900 | |
|
|
|
|
|
|
| 1997 | | 7.8500 | | 1.6600 | |
|
|
|
|
|
|
| 1998 | | 8.0400 | | 1.6600 | |
|
|
|
|
|
|
| 1999 | | 8.5130 | | 1.6185 | |
|
|
|
|
|
|
The following information relating to average and spot exchange rates used by AstraZeneca is provided for convenience:
| | | SEK/USD | | USD/GBP | |
|
|
|
|
|
|
| Average rates (income statement, cash flow) | | | | | |
| 2005 | | 7.3878 | | 1.8306 | |
|
|
|
|
|
|
| 2006 | | 7.4472 | | 1.8265 | |
|
|
|
|
|
|
| 2007 | | 6.7692 | | 2.0003 | |
|
|
|
|
|
|
| | | | | | |
| End of year spot rates (balance sheet) | | | | | |
| 2005 | | 7.9464 | | 1.7239 | |
|
|
|
|
|
|
| 2006 | | 6.8824 | | 1.9626 | |
|
|
|
|
|
|
| 2007 | | 6.4051 | | 1.9932 | |
|
|
|
|
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DEFINITIONS AND INTERPRETATION
Figures in parentheses in tables and in the Financial Statements are used to represent negative numbers.
Except where otherwise indicated, figures included in this report relating to pharmaceutical product market sizes and market shares are obtained from syndicated industry sources, primarily IMS Health (IMS), a market research firm internationally recognised by the pharmaceutical industry. The 2007 market share figures included in this report are based primarily on data obtained from an online IMS database.
IMS data may differ from that compiled by the Group with respect to its own products. Of particular significance in this regard are the following: (1) AstraZeneca publishes its financial results on a financial year and quarterly interim basis, whereas IMS issues its data on a monthly and quarterly basis; (2) the online IMS database is updated quarterly and uses the average exchange rates for the relevant quarter; (3) IMS data from the US is not adjusted for Medicaid and similar state rebates; and (4) IMS sales data are compiled using actual wholesaler data and data from statistically representative panels of retail and hospital pharmacies, which data are then projected by IMS to give figures for national markets.
References to prevalence of disease have been derived from a variety of sources and are not intended to be indicative of the current market or any potential market for AstraZeneca’s pharmaceutical products since, among other things, there may be no correlation between the prevalence of a disease and the number of individuals who are treated for such a disease.
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| Freehold | | Ownership with absolute rights in perpetuity |
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| Interest payable | | Interest expense |
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| Loans | | Long term debt |
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| RISK |
As a research-based pharmaceutical company doing business globally, we are subject to a variety of risks. Set out below is a summary of the principal risks that may affect our business. They are grouped under the headings Industry/ Economic Environment Risks; Legal/Regulatory Risks; Business Execution Risks; and Reputation. Any of these risks (together with other risks and uncertainties discussed throughout this report or which are not presently known to us or currently considered material) could have a significant effect on our financial condition, results of operations and/or reputation. These risks have not been listed in any assumed order of priority and should be read in conjunction with the cautionary statements regarding forward-looking statements set out on the inside front cover of this report and below. The Managing Risk section on page 47 contains general information about how we manage risks and summary information about our approach to managing certain specific risks.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements about AstraZeneca. Although we believe our expectations are based on reasonable assumptions, any forward-looking statements may be influenced by factors that could cause actual outcomes and results to be materially different from those predicted. Forward-looking statements are identified in this report by using the words ‘anticipates’, ‘believes’, ‘expects’, ‘intends’ and similar expressions. These forward-looking statements are subject to numerous risks and uncertainties. Important factors that could cause actual results to differ materially from those in forward-looking statements, certain of which are beyond our control, include, among other things, the risks detailed below:
INDUSTRY/ECONOMIC ENVIRONMENT RISKS
Risk of expiration of patents or marketing exclusivity
Scientific development and technological innovation are crucial if we are to deliver long-term market success. Patent protection and other types of marketing exclusivity are important ways in which we create value from such development and innovation, but all patents and marketing exclusivity will eventually expire. In the pharmaceutical market, a drug or diagnostic or medical device is normally only protected from competition from alternative products, for the same use, during the period of patent protection or marketing exclusivity. Once patent protection or marketing exclusivity has expired, the product is generally open to competition from generic copy products.
Products under patent protection or having marketing exclusivity usually generate significantly higher revenues than those not protected by patents or marketing exclusivity. For example, we anticipate the expiry of certain patents and/or marketing exclusivity relating toArimidex in a number of major markets within the next few years.Arimidex, for the treatment of breast cancer, had global sales of $1,730m in 2007.
Risk of patent litigation and early loss of patents, marketing exclusivity or trademarks
We believe that we have robust patent protection for our products. However, over the last few years there has been a marked increase in intellectual property litigation in the pharmaceutical industry. Increasingly, manufacturers of generic pharmaceutical products, whether based in developing countries, such as those in Asia, or elsewhere in the world, seek to challenge our patents or other types of marketing exclusivity and/or assert that their products do not infringe our patents in order to gain access to the market for their own generic products. Generic drug manufacturers are seeking to market generic versions of many of our more important products, prior to the expiration of our patents and marketing exclusivity periods. For example, we are currently facing challenges from multiple generic manufacturers to certain of our patents forNexium,Seroquel andCrestor, some of our best-selling products in the US, our largest market. If such challenges are successful and result in the launch of generic products, or if otherwise generic products are launched ‘at risk’ on the expectation that challenges will be successful, this may have a materially adverse effect on our financial condition and results of operations. US sales forNexium in 2007 were $3,383m, forSeroquel were $2,863m and forCrestor were $1,424m. As a result of challenges by generic manufacturers, certain of our US patents coveringToprol-XL were held to be invalid during 2007 and generic versions of the product are now being sold in the US. Sales ofToprol-XL in the US, which were $1,382m in 2006, were down 30% in 2007 to $969m. The more significant patent litigation relating to our products is described in Note 27 to the Financial Statements.
In addition to generic manufacturers, the research-based pharmaceutical industry has become more aggressive in recent years in using intellectual property rights offensively as an additional basis for commercial competition between patented products. This has included the use of patent litigation directed at relatively
young products. In the case of litigation both by generic manufacturers and other research-based companies, we expect that the greatest challenges will be focused on the most valuable products.
Parts of our technology, techniques and proprietary compounds and potential new drugs, including those that are in-licensed, may be found to infringe patents owned by or granted to others. This risk may increase as our focus on biologics and vaccines increases, because intellectual property issues related to biological medicines can be extremely complex. If we cannot resolve any intellectual property disputes, we may be liable for damages, be required to obtain costly licences or be stopped from manufacturing, using or selling our products. During the course of our activities, we may become aware of broad patents owned by others relating to some of our intellectual property, and in some instances we may receive notices from the owners of patents claiming that their patents may be infringed by the development, manufacture or sale of some of our products and potential new drugs. In response, we may obtain licences, determine that our products do not infringe the patents or that the patents are not valid, or we may make various modifications that we believe should not infringe the patents and that should permit commercialisation of our products. Defending such claims can be costly, even if we are successful.
We vigorously defend our intellectual property rights, including taking appropriate infringement action in various courts throughout the world. However, there can be no assurance that any of our currently patented products will not be the subject of intellectual property litigation or other disputes involving patent offices, anti-trust authorities or other government or law enforcement agencies in the future, despite our efforts to establish and defend the most robust patent protection. We may not prevail in a patent infringement action; be able to obtain a licence to any third party patent on commercially reasonable terms; successfully develop non-infringing alternatives on a timely basis; or be able to license alternative non-infringing technology, if any exists, on commercially reasonable terms; and patent protection may not be available at all. If we were not successful during the patent protection or data exclusivity periods in maintaining exclusive rights to market one or more of our major products, particularly in the US where we have our highest revenue and margins, our revenue and margins would be significantly adversely affected.
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In addition to challenges to our patented products from manufacturers of generic or other patented pharmaceutical products, there is a risk that some countries, particularly those in the developing world, may seek to impose limitations on the availability of patent protection for pharmaceutical products, or on the extent to which such protection may be obtained, within their jurisdictions. As a result, generic manufacturers in these countries may be increasingly and more easily able to introduce competing products to the market earlier than they would have been able to, had the patent protection been available.
Trade mark protection for our products is also an important element of our overall product marketing programmes. Combined with patent protection and other types of marketing exclusivity, products protected by a valid trade mark usually generate higher revenues than those not protected by a trade mark. We believe that we have robust trade mark protection for our products. However, trade mark protection may be challenged by third parties.
Risk of expiration or earlier loss of patents covering competing products
The expiration or earlier loss of patents belonging to other pharmaceutical manufacturers that cover branded products, which either compete directly against one of our products or compete in the same therapy area or product class as one of our products, could have a materially adverse effect on our financial condition and results of operations, by allowing competing generic products to enter the market.
Failure to obtain patent protection
It is our policy to apply for intellectual property protection for all inventions and innovations created as a result of the investments in R&D throughout the Group. Obtaining adequate protection for the intellectual property associated with our significant investment in R&D activities continues to be a key business imperative. The range of protection includes patents, trade marks, design registrations, copyright and domain name registrations. It is therefore important to our success that we are able to obtain and enforce patents and other proprietary rights in relation to our products.
We operate in a number of different countries in many of which the patent laws in the pharmaceutical field are continually evolving. As a result, we cannot be sure that, under the applicable legal regimes, new inventions will be patentable, that patents for which applications are now pending will be issued or reissued to us or that the scope of any
patent protection will be broad enough to protect our intellectual property to the extent to which we may receive protection under other, more developed regimes. Limitations on the availability of patent protection in certain developing countries could have an adverse effect on pricing and sales in respect of those products and, consequently, could adversely affect our revenues from those products in those countries, compared to countries where patent protection is available.
Impact of fluctuations in exchange rates
As a global business, currency fluctuations can significantly affect our results of operations, which are accounted for in US dollars. Approximately 49% of our 2007 sales were in North America (comprised of the US and Canada) with a significant proportion of that figure being in respect of US sales. The US is, and is expected to remain, our largest market. Sales in certain other countries are also in US dollars, or in currencies whose exchange rates are linked to the US dollar. Major components of our cost base are, however, located in Europe, where an aggregate of approximately 55% of our employees are based. Movements in the exchange rates used to translate foreign currencies into US dollars may therefore have a materially adverse effect on our financial condition and results of operations.
Certain of our subsidiaries import and export goods and services in currencies other than their own working currency. The results of such subsidiaries could, therefore, be affected by currency fluctuations arising between the transaction dates and the settlement dates for those transactions. We hedge these exposures through financial instruments. The fair value of financial instruments used to hedge these exposures, principally forward foreign exchange contracts and purchased currency options, at 31 December 2007 was $30m. We have policies that seek to mitigate the effect of exchange rate fluctuations on the value of foreign currency cash flows and in turn their effects on the results of the various subsidiaries, but we do not seek to remove all such risks. Further information is contained on page 85 (Financial Review). In general, a unilateral strengthening of the US dollar adversely affects our reported results whereas a weakening of the US dollar is generally favourable. Exchange rate fluctuations may have a materially adverse effect on our financial condition and results of operations in the future.
Debt-funding arrangements
We incurred substantial debt in connection with the acquisition of MedImmune, Inc.. Our debt could affect our business flexibility and requires us to devote cash resources to service interest and principal payments. Our current debt level could limit our ability to engage in additional transactions or incur additional indebtedness and could potentially affect our investment grade credit rating.
The risks of owning and operating a biologics and vaccines business
The acquisition of MedImmune, Inc. in 2007, combined with the earlier acquisition of Cambridge Antibody Technology Group plc in 2006, accelerated our strategic aim of building a major presence in biologics and significantly increased the importance of biologics within the Group. As a result, the risks related to owning and operating a biologics and vaccines business are becoming more important to the Group. Some of the more significant of these risks are described below:
| > | We may have limited access to and/or supply of biological materials, such as cells or animal products or by-products. In addition, government regulations in multiple jurisdictions, such as the US andcountries within the EU, could result inrestricted access to, or transport or useof, such materials. If we lose access tosufficient sources of such materials, or iftighter restrictions are imposed on the useof such materials, we may not be able toconduct research activities as planned andmay incur additional development costs. |
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| > | The development, manufacturing andmarketing of biological products are subjectto regulation by the US Food and DrugAdministration, the European MedicinesAgency and other regulatory bodies. Theseregulations are often more complex andextensive than those applicable to otherpharmaceutical products. As a result, theregulatory review and oversight process mayaffect production and release schedulesfor biological products to a greater extentthan for other products. In addition, variouslegislative and regulatory authorities areconsidering whether an abbreviated approvalprocess is appropriate for biosimilars orfollow-on biological products (similar versionsof existing biological products). It is uncertainas to when, or if, any such process maybe adopted or how such a process wouldrelate to intellectual property rights inconnection with marketed or pipelinebiological products, but any such process |
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| | could have a material effect on the futurecommercial prospects for patentedbiological products. |
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| > | Manufacturing biological products,especially in large quantities, is oftencomplex and may require the use ofinnovative technologies to handle livingmicro-organisms. Manufacturing biologicalproducts requires facilities specificallydesigned and validated for this purpose,and sophisticated quality assurance andquality control procedures are necessary. Slight deviations anywhere in themanufacturing process may result in lotfailure, product recalls or spoilage due tocontamination or otherwise. |
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| > | The methods of distributing and marketingbiological products could have a materialimpact on the revenue we are able togenerate from the sales of products suchasSynagisandFluMist. |
Competition, price controls and price reductions
The principal markets for our pharmaceutical products are the Americas, the countries of the EU, Asia Pacific, India, China and Japan. These markets are highly competitive. We compete in all of them, and elsewhere in the world, against major prescription pharmaceutical companies which, in many cases, are able to match or exceed the resources that we have available to us, particularly in the areas of R&D and marketing investment. Some of our most important products, such asCrestor,Seroquel andSymbicort, compete directly with similar products marketed by some of these companies. Industry consolidation has resulted in the formation of a small number of very large companies and continued consolidation could adversely affect our competitive position, whilst continued consolidation among our customers may increase price pressures. Increasingly, we also compete directly with biotechnology companies and companies that manufacture generic versions of our products following the expiry or loss of patent protection or other marketing exclusivity, which typically leads to a dramatic loss of sales and reduces our revenues and margins. Some of our patented products, includingNexium,Crestor,Seroquel and Symbicort are subject to price pressure from competition from generic products in the same product class.
In most of the principal markets in which we sell our products, there is continued economic, regulatory and political pressure to limit the
cost of pharmaceutical products. Certain groups have been involved in exerting price pressure on pharmaceutical companies with the aim of making medicines more affordable to those who need them. A summary of the principal aspects of price regulation in our most important markets, such as the US, the EU and Japan, is set out in the Sales and Marketing section on page 31.
The Geographical Review section on page 69 also contains references to how price pressures are affecting our business.
In the US, as well as regulatory price pressure, realised prices are being depressed by pressure from managed care organisations and institutional purchasers, who use cost considerations to restrict the sale of preferred drugs that their physicians may prescribe, as well as other competitive activity. Such limited lists or formularies may force manufacturers either to reduce prices or be excluded from the list, thereby losing all the sales revenue from patients covered by that formulary. In addition, private health insurance companies and employers that self-insure have been raising co-payments required from beneficiaries, particularly for branded pharmaceuticals and biotechnology products, among other reasons, to encourage beneficiaries to use generic products. The increased use of strict formularies by institutional customers in response to the current cost-containment environment and increasingly restrictive reimbursement policies could result in a materially adverse effect on our financial condition and results of operations.
In the EU, efforts by the European Commission to reduce inconsistencies and improve standards and best practice in the disparate national regulatory systems have met with little immediate success. The industry is, therefore, exposed to ad hoc national cost-containment measures on prices and the consequent cross-border movement of products from markets with prices depressed by governments into those where higher prices prevail.
The importation of pharmaceutical products from countries where prices are low due to government price controls or other market dynamics, to countries where prices for those products are higher, may increase. The accession of additional countries from Central and Eastern Europe to the EU may result in significant increases in the parallel trading of pharmaceutical products. Movements of pharmaceutical products into the US, in particular from Canada into the US, may increase despite the need to meet current or future safety requirements imposed by regulatory authorities. For example, the US
market has recently experienced efforts to introduce legislation such as the Pharmaceutical Market Access and Drug Safety Act of 2007, which would allow the commercial importation of drugs into the US from selected countries including some member states of the EU, Canada, Australia, New Zealand, Japan and Switzerland, by certain individual consumers, pharmacies and drug wholesalers. There may be further pressure for the adoption of such legislation, particularly given the forthcoming US presidential elections. The effects of any increase in the volume of this cross-border movement of products could result in a materially adverse effect on our financial condition and results of operations.
We expect that pressures on pricing will continue and may increase. Because of these pressures, there can be no certainty that we will be able to charge prices for a product that, in a particular country or in the aggregate, enable us to earn an adequate return on our investment in that product.
Taxation
The integrated nature of our worldwide operations can produce conflicting claims from revenue authorities as to the profits to be taxed in individual territories. The resolution of these disputes can result in a reallocation of profits between jurisdictions and an increase or decrease in related tax costs, and has the potential to affect our cash flows and earnings per share.
The majority of the jurisdictions in which we operate have double tax treaties with other foreign jurisdictions, which enable us to ensure that our revenues and capital gains do not incur a double tax charge. If any of these double tax treaties should be withdrawn or amended, especially in a territory where a member of the Group is involved in a taxation dispute with a tax authority in relation to cross-border transactions, such withdrawal or amendment could have a materially adverse effect on our financial condition and results of operations. Similarly, a negative outcome of a tax dispute or failure of tax authorities to agree through competent authority proceedings could also have a materially adverse effect on our financial condition and results of operations.
Risk of substantial product liability claims
Given the widespread impact that prescription drugs may have on the health of large patient populations, pharmaceutical, biopharmaceutical and medical device companies have, historically, been subject to large product liability damages claims, settlements and awards for injuries allegedly caused by the use of their products.
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Product liability claims, regardless of their merits or their outcome, are costly, divert management attention, and may adversely affect our reputation and demand for our products. Adverse publicity relating to the safety of a product or of other competing products may increase the risk of product liability claims. Litigation, particularly in the US, is inherently unpredictable and verdicts and/or unexpectedly high awards of damages can result. Substantial product liability claims that result in court decisions against us or in the settlement of proceedings could have a materially adverse effect on our financial condition and results of operations, particularly where such circumstances are not covered by insurance. We are currently subject to product liability litigation in relation toSeroquel, and further details about this and all material legal proceedings in which we are involved are set out in Note 27 to the Financial Statements. Information about our approach to patient safety is set out in the Medicines section on page 21.
Performance of new products
Although we carry out numerous and extensive clinical trials on all our products before they are launched, for a new product it can be difficult, for a period following its launch, to establish from available data a complete assessment of its eventual efficacy and/or safety in broader clinical use on the market. Due to the relatively short time that a product has been tested and the relatively small number of patients who have taken the product, the available data may be immature. Simple extrapolation of the data may not be accurate and could lead to a misleading interpretation of a new product’s likely future commercial performance.
The successful launch of a new pharmaceutical product involves a substantial investment in sales and marketing costs, launch stocks and other items. The commercial success of our new medicines is of particular importance to us in order to replace sales lost as and when patent protection ceases in major markets for established marketed products. If a new product does not succeed as anticipated or its rate of sales growth is slower than anticipated, there is a risk that the costs incurred in launching it could have a materially adverse effect on our financial condition and results of operations. In addition, for launch of products that are seasonal in nature, delays for regulatory approval or manufacturing difficulties can have the effect of delaying launch to the next season and significantly reduce the value of costs spent in preparing for the launch for that season.
Environmental/occupational health and safety liabilities
We have environmental liabilities at some currently or formerly owned, leased and third party sites, as described in more detail in Note 27 to the Financial Statements. These liabilities are carefully managed by designated technical, legal and business personnel and there is no reason for us to believe that associated current and expected expenditure and/or risks are likely to have a materially adverse effect on our financial condition and results of operations as a general matter, although they could, to the extent that they exceed applicable provisions, have a materially adverse effect on our financial condition and results of operations for the relevant period. In addition, a change in circumstances (including a change in applicable laws or regulations) may result in such an effect.
Nonetheless, a significant non-compliance or incident for which we were responsible could result in us being liable to pay compensation, fines or remediation costs. In some circumstances, such liability could have a materially adverse effect on our financial condition, reputation and results of operations. In addition, our financial provisions for any obligations that we may have relating to environmental liabilities may be insufficient if the assumptions underlying the provisions – including our assumptions regarding the portion of waste at a site for which we are responsible – prove incorrect, or if we are held responsible for additional contamination.
Developing our business in emerging markets
The development of our business in emerging markets may be a critical factor in determining our future ability to sustain or increase the level of our global product revenues. Challenges that arise in relation to the development of the business in emerging markets include, but are not limited to, competition from companies that are already present in the market, the need to correctly identify and leverage appropriate opportunities for sales and marketing, poor protection of intellectual property, inadequate protection against crime (including counterfeiting, corruption and fraud) (further details of which can be found below), inadvertent breaches of local law/regulation and not being able to recruit sufficient personnel with appropriate skills and experience. The failure to exploit potential opportunities appropriately in emerging markets may have a materially adverse effect on our financial condition and results of operations. Information on the risks associated with the failure to obtain patent protection can be found above.
Product counterfeiting
Counterfeit medicines are a danger to patients all over the world, as they may contain harmful substances, the wrong dose of the active pharmaceutical ingredient (API) or no API at all. The International Medical Products Anti-Counterfeiting Taskforce (IMPACT) of the World Health Organization (WHO) estimates that approximately 10 to 30% of medicines in emerging economies are counterfeit, with parts of Latin America, Asia and Africa having a greater percentage than that range. By contrast, in developed countries with effective regulatory systems, counterfeits represent less than 1% of the market.
In addition, undue or misplaced concern about the issue might induce some patients to stop taking their medicines, with consequential risks to their health. Also, public loss of confidence in the integrity of pharmaceutical products as a result of counterfeiting could adversely affect our reputation and financial performance.
We use a range of measures against counterfeit medicines, and continue to develop such measures, including through the following:
| > | We are introducing technologies that makeit more difficult for counterfeiters to copyour products. |
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| > | We conduct market surveillance andmonitor the supply chain to identifypotential counterfeiting operations. |
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| > | We respond rapidly to any reports ofcounterfeit AstraZeneca medicines,working with regulators, healthcareprofessionals, distributors, law enforcementagencies and other organisations toprotect patient interests. |
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| > | We participate in a variety of anti-counterfeiting forums in the public andprivate sector, including the WHO’s IMPACTworking group and the PharmaceuticalSecurity Institute. |
LEGAL/COMPLIANCE/REGULATORY RISKS
Risk of adverse outcome of litigation and/or government investigations and risk of insufficient insurance coverage
Note 27 to the Financial Statements includes information about legal proceedings in which we are currently involved. Unfavourable resolution of these and similar future proceedings, including government investigations, competition and anti-trust enquiries, investigations and litigation, product liability litigation and securities class action law suits, may have a materially
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adverse effect on our financial condition and results of operations, not least because we may be required to make significant provisions in our accounts related to legal proceedings and/or governmental investigations, which would reduce earnings. In many cases, particularly in the US, the practice of the plaintiff bar is to claim damages – compensatory, punitive and statutory – in extremely high amounts. Accordingly, it is difficult to quantify the potential exposure to claims in proceedings of the type referred to in Note 27 to the Financial Statements.
Recent insurance loss experience in the pharmaceutical industry, including product liability exposures, has increased the cost of, and narrowed the coverage afforded by, pharmaceutical companies’ product liability insurance. In order to contain insurance costs in recent years, we have continued to adjust our coverage profile, accepting a greater degree of uninsured exposure. The Group has not held product liability insurance and securities class action cover since February 2006. In addition, where claims are made under insurance policies, insurers may reserve the right to deny coverage on various grounds. If such denial of coverage is ultimately upheld, this could result in material additional charges to our earnings.
Difficulties of obtaining and maintaining regulatory approvals for new products
We are subject to strict controls on the manufacture, labelling, distribution and marketing of pharmaceutical products. The requirement to obtain regulatory approval based on a product’s safety, efficacy and quality before it may be marketed for a specified therapeutic indication or indications in a particular country, and to maintain and to comply with licences and other regulations relating to its manufacture, are particularly important. The submission of an application to regulatory authorities (which are different, with different requirements, in each region or country) may or may not lead to approval to market the product. Regulators can refuse to grant approval or may require additional data before approval is given, even though the medicine may already be launched in other parts of the world. The countries that constitute key markets for our pharmaceutical products include the US, the countries of the EU and Japan. The approval of a product is required by the relevant regulatory authority in each country, although a single pan-EU, marketing authorisation approval can be obtained through a centralised procedure.
In recent years, regulatory authorities and sponsor companies have been under increased public pressure to apply more conservative benefit/risk criteria before a pharmaceutical product is approved. In addition, third party interpretation of publicly available data on our marketed products has the potential to influence the approval status or labelling of a currently approved and marketed product.
Risk of failure to observe continuing regulatory oversight
Once a product has been approved for marketing by regulatory authorities, it is subject to continuing control and regulation, such as the manner of its manufacture, distribution, marketing and safety surveillance. In addition, the facilities in which products are produced are subject to continuing inspections, and minor changes in manufacturing processes may require additional regulatory approvals, either of which could result in us having to incur significant additional costs. Regulatory authorities have wide-ranging administrative powers to deal with any failure to comply with continuing regulatory oversight (and this could affect us whether such failure is our own or that of third parties with which we have relationships). These powers include withdrawal of a marketing approval previously granted, product recalls, seizure of products and other sanctions for non-compliance. Regulatory sanction, following a failure to comply with such continuing regulatory oversight, could have a materially adverse effect on the conduct of our business, our financial condition and results of operations. In addition, because our products are intended to promote the health of patients, any supply interruption could lead to allegations that public health has been endangered, and could lead to legal proceedings being filed against us.
BUSINESS EXECUTION RISKS
Risk that R&D will not yield new products that achieve commercial success
The development of new pharmaceutical and biological products is complex and involves the commitment of substantial effort, funds and other resources to R&D activities. It also involves a high degree of risk and uncertainty and can take many years. New products are important to replace the sales of older products that decline upon the expiration of exclusive rights. Our product development efforts with respect to any product candidate may fail at any stage of the process, and we may ultimately be unable to achieve commercial success for any number of reasons, including:
| > | Difficulty enrolling patients in clinical trials. |
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| > | Our failure to obtain the required regulatoryapprovals for the product candidate orthe facilities in which it is manufactured. |
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| > | Adverse reactions to the product candidateor indications of other safety concerns. |
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| > | Our inability to manufacture sufficientquantities of the product candidate fordevelopment or commercialisation activitiesin a timely and cost-efficient manner. |
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| > | Unfavourable data from key studies. |
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| > | Excessive costs of, or difficultyin, manufacturing. |
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| > | Erosion of patent term and other intellectualproperty rights, and infringement of thoserights and the intellectual property rightsowned by third parties. |
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| > | Our failure to show value or a differentiatedprofile for our products. |
As a result, we cannot be certain that compounds currently under development will achieve success. For example, in 2007 we discontinued a number of projects as shown in the pipeline table on page 30. There can also be no guarantee that new products in the pipeline will achieve market success or come to market before the expiration of our patents or the erosion of our current product brands. Furthermore, a succession of negative drug project results and a failure to reduce development timelines effectively could adversely affect the reputation of our R&D capabilities. The failure of R&D to yield new products that achieve commercial success may have a materially adverse affect on our financial condition and results of operations.
Acquisitions and strategic alliances formed as part of our externalisation strategy may be unsuccessful
We may pursue acquisitions of complementary businesses, technology licensing arrangements and strategic alliances to expand our product portfolio and geographical presence as part of our business strategy. Examples of recent such strategic acquisitions, arrangements and alliances include:
| > | Acquisitions of MedImmune, Inc.,Cambridge Antibody Technology Group plc,Arrow Therapeutics Ltd and KuDOS Pharmaceuticals Limited. |
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| > | Collaboration with Bristol-Myers SquibbCompany to develop and commercialisetwo investigational compounds beingstudied for the treatment of Type 2diabetes, saxagliptin and dapagliflozin. |
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| > | Collaboration with POZEN Inc. to developa fixed dose combination of naproxen andesomeprazole for chronic pain (PN400),utilising POZEN’s proprietary technology. |
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| > | Agreement with Abbott Laboratories for thedevelopment of Abbott’s next-generationfenofibrate (ABT-335) andCrestorin asingle pill, fixed-dose combination treatmentto target all three major blood lipids –LDL-C ‘bad cholesterol’, HDL-C ‘goodcholesterol’ and triglycerides. |
We may not complete these types of transactions or collaborative projects in a timely manner, on a cost-effective basis, or at all, and may not realise the expected benefits of any acquisition, licensing arrangement or strategic alliance. For example, in April 2007, we terminated our licensing and collaboration agreement with AtheroGenics, Inc. following the discontinuation of the development of AGI-1067 (an investigational anti-atherosclerotic agent for the potential treatment of patients with coronary artery disease) due to its failure to meet its target product profile. Other companies may also compete with us for these strategic opportunities. When we are able to complete these transactions, the success of these types of arrangements (whether already existing or to be entered into in the future) is largely dependent on the technology and other intellectual property acquired from a business or contributed from our strategic partners and the resources, efforts and skills of our partners. Disputes and difficulties in such relationships are common, often due to conflicting priorities or conflicts of interest. The benefits of these alliances would be reduced or eliminated should strategic partners terminate the agreements; fail to devote sufficient financial or other resources to the alliances; suffer negative outcomes in intellectual property disputes; fail to perform their obligations as expected; or impose controls and commercial limitations over the marketing and promotion of products developed under that collaboration. Also, under many of our strategic alliances, we make milestone payments well in advance of commercialisation of products, with no assurance that we will ever recoup those payments. If these types of transactions are unsuccessful, this may have a materially adverse effect on our financial condition and results of operations.
In addition, integration of an acquired business could result in us incurring significant debt and unknown or contingent liabilities, as well as having a negative effect on our reported results of operations from acquisition-related charges, amortisation of expenses related to intangibles and charges for impairment of long-term assets. These effects, individually or in combination, could cause a deterioration of our credit rating and result in increased borrowing costs and interest expense. We could also experience difficulties in integrating geographically separated organisations, systems and facilities, and personnel with diverse backgrounds. Integration of an acquired business may also require management resources that would otherwise be available for continuing development of our existing business. For example, the process of ensuring that our biologics and vaccines business, MedImmune, is operationally independent within our R&D organisation but aligned with our overall R&D strategy and objectives may be time-consuming and hard to achieve. The process may result in business disruption, the loss of key employees, slower execution of various work processes, compliance failures due to a change in applicable regulatory requirements and other issues such as a failure to integrate information technology and other systems (further details of the risks associated with information technology and outsourcing can be found below). Furthermore, although the operating model for MedImmune has significant potential benefits, it may not be the most effective way of realising efficiencies. As a result, we cannot be certain that we will not encounter difficulties in aligning MedImmune whilst maintaining its operational independence as contemplated, or that the expected benefits, including anticipated synergies, will be realised.
Risk of reliance on third parties for supplies of materials and services
Like most, if not all, major prescription pharmaceutical companies, in some of our key business operations, such as the manufacture, formulation and packaging of products, we increasingly rely on third parties for the timely supply of specified raw materials, equipment, contract manufacturing, formulation or packaging services and maintenance services. Although we actively manage these third party relationships to ensure continuity of supplies on time and to our required specifications, some events beyond our control could result in the complete or partial failure of supplies or in supplies not being delivered on time. Any such failure could have a materially
adverse effect on our financial condition and results of operations.
Risk of failure to manage a crisis
We handle chemical and biological materials, operate research and manufacturing plants and distribute products worldwide. Major disruption to our business and damage to our reputation may be triggered by an operational incident or actions by third parties. In these circumstances, a well tried and tested plan for addressing operational and other issues should ensure a timely response and the ability to resume business as usual. Failure to institute proper communication to internal and external stakeholders and mobilise a rapid operational response could have a materially adverse effect on our financial condition and results of operations.
Risk of delay to new product launches
Our continued success depends on the development and successful launch of innovative new drugs. The anticipated launch dates of major new products have a significant impact on a number of areas of our business, including investment in large clinical trials, the manufacture of pre-launch stocks of the products, investment in marketing materials ahead of a product launch, sales force training and the timing of anticipated future revenue streams from commercial sales of new products. These launch dates are primarily driven by the development programmes that we run and the demands of the regulatory authorities in the approvals process, as well as pricing negotiation in some countries. Delays in anticipated launch dates can arise as a result of adverse findings in pre-clinical or clinical studies, regulatory demands, competitor activity and technology transfer. Any delay to the anticipated launch dates may therefore impact our business and operations in a number of ways. Significant delay to the anticipated launch dates of new products could have a materially adverse effect on our financial condition and results of operations.
Information technology and outsourcing
We are dependent on effective information technology systems. These systems are an important means of internal communication and communication with customers and suppliers, and also play an important role in respect of our R&D capabilities. Any significant disruption of these systems could materially and adversely affect our operations. We also have a number of outsourcing arrangements in respect of critical processes and services and our increasing dependency on these service
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| ADDITIONAL INFORMATION | |
| ASTRAZENECA ANNUAL REPORT AND FORM 20-F INFORMATION 2007 | 199 |
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| RISKCONTINUED |
providers could impact on our ability to deliver on business targets and to maintain our compliance status and reputation.
Risks relating to productivity initiatives
We are implementing various productivity initiatives and restructuring programmes, with the aim of enhancing the long-term efficiency of the business. However, the anticipated cost savings and other benefits are based on preliminary estimates and the actual savings may vary significantly. In particular, these cost reduction measures are based on current conditions and do not take into account any future changes to the pharmaceutical industry or our operations, including new business developments, wage and price increases and other factors. Our failure to successfully implement these planned cost reduction measures, either through the successful conclusion of employee consultation processes or otherwise, or the possibility that these efforts do not generate the level of cost savings we anticipate going forward, could have a materially adverse effect on our financial condition and results of operations.
REPUTATION
Some parts of society continue to challenge the pharmaceuticals industry, which is under the close scrutiny of the public, the media and other stakeholders. Rising expectations are especially noteworthy in the areas of improving access to medicines for the underprivileged, both in our established markets and in less-developed nations; business conduct in our supply chain; fair marketing practices; bio-ethical challenges; working conditions; human rights; and animal rights. Although we seek to manage these risks through various proactive measures, there can be no assurance that in the future such risks will not have a materially adverse effect on our financial condition or results of operations.
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| | ADDITIONAL INFORMATION |
| 200 | ASTRAZENECA ANNUAL REPORT AND FORM 20-F INFORMATION 2007 |
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| CORPORATE INFORMATION |
HISTORY AND DEVELOPMENT OF THE COMPANY
AstraZeneca PLC was incorporated in England and Wales on 17 June 1992 under the Companies Act 1985. It is a public limited company domiciled in the UK. The Company’s registered number is 2723534 and its registered office is at 15 Stanhope Gate, London W1K 1LN (telephone + 44 (0)20 7304 5000). From February 1993 until April 1999, the Company was called Zeneca Group PLC. On 6 April 1999, the Company changed its name to AstraZeneca PLC.
The Company was formed when the pharmaceutical, agrochemical and specialty chemical businesses of Imperial Chemical Industries PLC were demerged in 1993. In 1999, the Company sold the specialty chemical business. Also in 1999, the Company merged with Astra AB of Sweden. In 2000, it demerged the agrochemical business and merged it with the similar agribusiness of Novartis AG to form a new company called Syngenta AG.
The Company owns and operates numerous R&D, production and marketing facilities worldwide. Its corporate headquarters are at 15 Stanhope Gate, London W1K 1LN.
MEMORANDUM AND ARTICLES OF ASSOCIATION
Objects
As is typical of companies registered in England and Wales, the Company’s objects, which are detailed in the Memorandum of Association, are broad and wide-ranging and include manufacturing, distributing and trading pharmaceutical products.
Any amendment to the Company’s Articles of Association requires the approval of shareholders at a general meeting of the Company.
Directors
The Board has the authority to manage the business of the Company, through powers such as authorising the Company to allot and re-purchase its shares. However, subject to certain exceptions, Directors do not have power to vote at Board meetings on matters in which they have a material interest.
The quorum for meetings of the Board of Directors is a majority of the full Board, of whom at least four must be Non-Executive Directors. In the absence of a quorum, the Directors do not have power to determine compensation arrangements for themselves or any member of the Board.
The Board of Directors may exercise all the powers of the Company to borrow money. Variation of these borrowing powers would require the passing of a special resolution of the Company’s shareholders.
All Directors must retire from office at the Company’s AGM each year and may present themselves for re-election. Directors are not prohibited, upon reaching a particular age, from submitting themselves for election or re-election.
Within two months of the date of appointment, Directors are required to beneficially own Ordinary Shares in the Company of an aggregate nominal amount of $125. At present, this means they must own at least 500 shares.
Rights, preferences and restrictions attaching to shares
The share capital of the Company is divided into 2,400,000,000 Ordinary Shares with a nominal value of $0.25 each and 50,000 Redeemable Preference Shares with a nominal value of £1.00 each. The rights and restrictions attaching to the Redeemable Preference Shares differ from those attaching to Ordinary Shares as follows:
| > | The Redeemable Preference Shares carryno rights to receive dividends. |
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| > | The holders of Redeemable PreferenceShares have no rights to receive noticesof, attend or vote at general meetingsexcept in certain limited circumstances. They have one vote for every 50,000Redeemable Preference Shares held. |
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| > | On a distribution of assets of the Company,on a winding-up or other return of capital(subject to certain exceptions), the holdersof Redeemable Preference Shares havepriority over the holders of OrdinaryShares to receive the capital paid up onthose shares. |
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| > | Subject to the provisions of the CompaniesAct 1985, the Company has the rightto redeem the Redeemable PreferenceShares at any time on giving not lessthan seven days’ written notice. |
Action necessary to change the rights of shareholders
In order to vary the rights attached to any class of shares, the consent in writing of the holders of three quarters in nominal value of the issued shares of that class or the sanction of an extraordinary resolution passed at a general meeting of such holders is required.
Annual general meetings and extraordinary general meetings
Annual general meetings and extraordinary general meetings where a special resolution is to be passed or a Director is to be appointed require 21 clear days’ notice to shareholders. All other extraordinary general meetings require 14 clear days’ notice.
For all general meetings, a quorum of two shareholders present in person or by proxy, and entitled to vote on the business transacted, is required.
Shareholders and their duly appointed proxies and corporate representatives are entitled to be admitted to general meetings.
Limitations on the rights to own shares
There are no limitations on the rights to own shares.
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| ADDITIONAL INFORMATION | |
| ASTRAZENECA ANNUAL REPORT AND FORM 20-F INFORMATION 2007 | 201 |
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| CROSS-REFERENCE TO FORM 20-F |
The information in this document that is referenced on this page is included in AstraZeneca’s Form 20-F for 2007 (2007 Form 20-F) and is filed with the Securities and Exchange Commission (SEC). The 2007 Form 20-F is the only document intended to be incorporated by reference into any filings by AstraZeneca under the Securities Act of 1933, as amended. References to major headings include all information under such major headings, including subheadings. References to subheadings include only the information contained under such subheadings. Graphs are not included unless specifically identified. The 2007 Form 20-F has not been approved or disapproved by the SEC, nor has the SEC passed comment upon the accuracy or adequacy of the 2007 Form 20-F. The 2007 Form 20-F filed with the SEC may contain modified information and may be updated from time to time.
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| | A. | Selected financial data | | |
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| | | Group Financial Record | 184 | |
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| | | Shareholder Information | 186 | |
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| | D. | Risk factors | 193 | |
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| | 4 | INFORMATION ON THE COMPANY | | |
| | A. | History and development of the Company | 200 | |
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| | | Financial Review – Investments, divestments and capital expenditure | 82, 95 | |
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| | | Note 8 – Property, plant and equipment | 131 | |
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| | | Note 24 – Acquisitions of business operations | 145 | |
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| | | Directors’ Report | 8 | |
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| | C. | Organisational structure | | |
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| | | Directors’ Report – Corporate Governance and Managing Risk | 38 | |
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| | | Principal Subsidiaries | 177 | |
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| | | Directors’ Report – Main Facilities | 37 | |
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| | 5 | OPERATING AND FINANCIAL REVIEW AND PROSPECTS | | |
| | A-F. | Directors’ Report | 7 | |
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| | A-F. | Financial Review | 77 | |
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| | | Note 17 – Financial instruments | 138 | |
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| | 6 | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | | |
| | A. | Directors and senior management | | |
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| | | Business Organisation – Board of Directors at 31 December 2007 | 18 | |
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| | | Directors’ Remuneration Report | 98 | |
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| | | Note 25 – Post-retirement benefits | 148 | |
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| | | Note 29 – Statutory and other information | 175 | |
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| | | Business Organisation – Board of Directors at 31 December 2007 | 18 | |
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| | | Directors’ Remuneration Report | 98 | |
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| | | Directors’ Report – Corporate Governance and Managing Risk | 38 | |
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| | | Note 26 – Employee costs and share option plans for employees | 153 | |
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| | | Directors’ Remuneration Report – Directors’ Interests in Shares | 110 | |
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| | | Note 26 – Employee costs and share option plans for employees | 153 | |
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| | 7 | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS | | |
| | A. | Major shareholders | | |
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| | 8 | FINANCIAL INFORMATION | | |
| | A. | Consolidated statements and other financial information | | |
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| | Financial Statements (excluding Directors’ responsibilities on page 116 and Auditors’ opinion on page 117) | 118 | |
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| | 9 | THE OFFER AND LISTING | | |
| | A4 | Price history of listed stock | | |
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| | 10 | ADDITIONAL INFORMATION | | |
| | B. | Memorandum and Articles of Association | 200 | |
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| | D. | Exchange controls and other limitations affecting security holders | 190 | |
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| | 11 | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | | |
| | Financial Review – Financial Risk Management Policies – Treasury | 85 | |
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| | 12 | DESCRIPTION OF SECURITIES OTHERTHAN EQUITY SECURITIES | | |
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| | 13 | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES | | |
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| | 15 | CONTROLS AND PROCEDURES | | |
| | | Directors’ Report – Internal controls, risk management and Turnbull Report guidance | 42 | |
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| | 16 | [RESERVED] | | |
| | A. | Audit Committee financial expert | | |
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| | | Financial Statements (excluding Directors’ responsibilities on page 116 and Auditors’ opinion on page 117) | 118 | |
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| | ADDITIONAL INFORMATION |
| 202 | ASTRAZENECA ANNUAL REPORT AND FORM 20-F INFORMATION 2007 |
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| GLOSSARY |
The following abbreviations and expressions have the following meanings when used in this report:
abbreviated new drug application (ANDA)
A marketing approval application for a generic drug submitted to the US Food and Drug Administration.
ACE inhibitors A class of drugs that is used to treat hypertension and other cardiovascular diseases, which work by blocking the production of a hormone called angiotensin II.
acute coronary syndrome (ACS) An umbrella term used to cover any group of clinical symptoms compatible with acute myocardial ischaemia.
adenosine diphosphate (ADP) A molecule that plays an important role in energy transfer in cells.
adjuvant An agent that modifi es the effect of other agents (for example drugs and vaccines) while having few if any direct effects when given by itself; it operates like a catalyst in chemical reactions.
adjuvant therapy Treatment given as an adjunct to another medical intervention, for example surgery.
ADR American Depositary Receipt evidencing title to an ADS.
ADS American Depositary Share representing one underlying Ordinary Share.
adverse reaction An unwanted, negative consequence associated with the use of a medicine.
agonist A substance capable of binding to a molecular target to trigger a response.
allergic rhinitis An allergic reaction to airborne substances such as pollen or dust.
Alzheimer’s disease A group of disorders causing deterioration of the brain, which affects one’s memory and reasoning capabilities.
anaesthesia The total or partial loss of sensation, especially in relation to pain.
analgesia The inability to feel pain whilst conscious.
angina Chest pain/discomfort caused by lack of oxygen to the heart muscles through reduced blood flow in the coronary arteries.
angiogenesis A physiological process in which new blood vessels grow from pre-existing vessels.
angiotensin II A hormone that causes blood vessels to narrow and thereby raises blood pressure.
angiotensin converting enzyme (ACE) Converts a hormone called angiotensin to its activated form called angiotensin II, enabling it to function.
Angiotensin II acts by narrowing the diameter of the blood vessels and thereby raises blood pressure.
ankylosing spondylitis (AS) A degenerative inflammatory disease affecting the spine and causing chronic pain.
antagonist A substance capable of binding to a molecular target to neutralise or counteract a reaction.
anti-androgen A drug that blocks the action of testosterone on the prostate gland and is used in the treatment of prostate cancer.
anti-psychotic drug A drug for the treatment of depression or mania.
aromatase inhibitor A drug that inhibits the enzyme, aromatase, which is involved in the production of the female sex hormone, oestrogen and therefore is used in the treatment of breast cancer.
AstraZeneca AstraZeneca PLC and its subsidiaries.
atherosclerosis The progressive narrowing or hardening of the arteries linked to the build-up of lipids (fats) in the arterial walls and the formation of atheromatous plaque.
atherosclerotic plaque A build up of cholesterol and fatty material in the walls of blood vessels as a consequence of atherosclerosis.
atrial fibrillation (AF) Abnormal irregular heart rhythm.
beta-agonistA medicine that relaxes the muscles around the airways and thereby eases restricted breathing during an asthma attack or in chronic obstructive pulmonary disease.
beta-blocker A medicine used to treat various cardiovascular diseases that acts by blocking receptors at nerve endings.
biomarker A characteristic that can be measured objectively and evaluated as an indicator of normal biological, or pathogenic processes, or pharmacological responses to a therapeutic intervention.
biopharmaceuticals/biologics A class of medicines derived from proteins usually produced naturally by living organisms in response to disease, for example antibodies.
biosimilars Follow-on biopharmaceuticals that are biologically similar to an existing medicine.
bipolar disorder Any of several mood disorders, usually characterised by alternating episodes of depression and mania or by episodes of depression alternating with mild, non-psychotic excitement.
Board The Board of Directors of AstraZeneca PLC.
BRCA-mutated breast cancer A form of breast cancer caused by the mutation of the gene that normally acts to restrain the growth of cells in the breast.
bronchodilator A drug that causes the widening of air passages of the lungs.
CAD/CAM Computer aided design/computer aided manufacturing.
carbapenem A class of antibiotic drugs.
cardiovascular (CV) Relating to the heart and blood vessels.
CAT Cambridge Antibody Technology Group plc.
CEE Central and Eastern Europe.
CER Constant exchange rates.
cerebrovascular disease Disease affecting the arteries in the brain or those that supply blood to the brain.
chloro-fluorocarbons (CFCs) Gaseous compounds of carbon, chlorine, fluorine and hydrogen.
chronic obstructive pulmonary disease (COPD) Any disorder that persistently obstructs bronchial airflow, for example emphysema.
cognitive disorders Disorders with progressive or chronic impairment of cognition or memory.
colorectal cancer (CRC) Also called colon cancer or bowel cancer.
Company AstraZeneca PLC.
congestive heart failure (CHF) Impairment of the heart muscle leading to deterioration of the heart’s ability to function as a pump to circulate blood throughout the body.
connected person This is defined by sections 252 – 256 Companies Act 2006 and includes a person’s spouse, civil partner, child(ren) and step-child(ren).
corticosteroid Any of the steroid hormones made by the cortex (outer layer) of the adrenal gland.
cost growth rates Percentage growth of a particular cost category over the comparable cost category for the previous year.
CR Corporate responsibility.
C-reactive protein (CRP) Produced by the liver. The level of CRP rises when there is body-wide (systemic) inflammation.
CRO A contract research organisation to which pharmaceutical companies can sub-contract activities, for example clinical trial work.
Crohn’s disease A chronic inflammatory disorder of the bowel.
depositary JPMorgan Chase Bank, as depositary under the deposit agreement pursuant to which the ADRs are issued.
diabetes A metabolic disorder caused by inadequate production or utilisation of insulin, characterised by hyperglycaemia (high glucose blood sugar).
Director A director of the Company.
diuretic A drug that causes the increased production of urine.
deoxyribonucleic acid (DNA) A molecule that carries the key genetic instructions for living organisms.
dopamine partial agonists Drugs that mimic the effects of dopamine in the brain by stimulating dopamine receptors.
double-blind study A clinical study in which none of the participants (subject, investigator nor research team), knows what treatment the subject is receiving until the end of the study.
drug metabolism The biochemical modification or degradation of drugs, usually through specialised enzymatic systems.
dyslipidaemia Abnormal concentrations of lipids or lipoproteins in the blood.
earnings per share (EPS) Profit for the year after tax and minority interests, divided by the weighted average number of Ordinary Shares in issue during the year.
EEA The European Economic Area.
efficacyThe beneficial effect of a drug.
EFPIA The European Federation for Pharmaceutical Industries and Associations.
EMEA The European Medicines Agency.
epidermal growth factor (EGF) receptor A protein found on the surface of some cells and to which epidermal growth factor binds, causing the cells to divide. It is found at abnormally high levels on the surface of many types of cancer cells, so these cells may divide excessively in the presence of epidermal growth factor.
epidemiological Relating to the study of incidences, distribution, control and prevention of diseases in populations.
EU European Union.
exceptional items Significantly large items that are distinct in nature from items normally occurring during ordinary business activities.
excipient An inactive substance that serves as the vehicle or medium for a drug or other active substance.
extrapyramidal Relating to nerve pathways that link nerve nuclei in the surface of the cerebrum (main mass of the brain), basal ganglia (deep within the brain) and parts of the brain stem.
finance income and expense Includes interest earned and payable, and similar items.
first good laboratory practice (FGLP) The point at which a compound undergoes the first pre-clinical study that is required for regulatory approval, which marks entry into the development pipeline.
first-line therapy Treatment given to a newly diagnosed patient, who has therefore not yet been treated.
first time in man The first time that an experimental compound is administered to a human. It implies that the compound has passed ethical review bodies and passed formal regulatory toxicology studies.
Food and Drug Administration (FDA) Part of the US Department of Health and Human Services Agency, which is the regulatory authority for all pharmaceuticals (including biologics and vaccines) and medical devices in the US.
free cash flow Represents net cash flows before financing activities, and is calculated as net cash inflow before financing activities, adjusted for acquisitions of businesses, movements in short term investments and fixed deposits and disposal of intangible assets.
gastrointestinal (GI) Relating to the stomach and intestines.
gastrointestinal stromal tumours A rare tumour of the gastrointestinal tract.
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| ADDITIONAL INFORMATION | |
| ASTRAZENECA ANNUAL REPORT AND FORM 20-F INFORMATION 2007 | 203 |
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| GLOSSARY CONTINUED |
gastro-oesophageal reflux disease (GERD) A condition where gastric juices, containing acid, travel back from the stomach into the oesophagus.
generalised anxiety disorder (GAD) A neurotic illness characterised by chronic and persistent apprehension and tension.
GIA Group Internal Audit, our internal audit function.
glioblastoma A type of primary brain tumour.
gross margin The margin, as a percentage, by which sales exceed the cost of sales, calculated by dividing the difference between the two by the sales figure.
Group AstraZeneca PLC and its subsidiaries.
head-to-head study A clinical trial in which two different treatments are directly compared with each other. (For drugs under development, this is often a comparison with a marketed drug that is seen to be the gold standard).
high-density lipoprotein cholesterol (HDL-C) Cholesterol carried in the blood by HDL back to the liver, sometimes referred to as ‘good’ cholesterol.
high-throughput screening The process of using automated tests to search quickly through large numbers of substances for desired binding or activity characteristics.
HKAPI Hong Kong Association of the Pharmaceutical Industry.
hormone A chemical messenger carried in the blood which produces a biological effect at its site of action.
human papilloma virus (HPV) A group of viruses that can cause cervical cancer.
hydrochlorothiazide (HCTZ)A water pill (thiazide diuretic) that helps prevent the body from absorbing too much salt, which can cause fluid retention.
hydrofluoroalkanes (HFAs) New propellants for metered-dose inhalers that are more environmentally friendly than the current CFC-based inhalers.
hyperglycaemic The condition of abnormally high levels of glucose in the blood.
hypertension High blood pressure.
IAS International Accounting Standards.
ICH The International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use, which brings together regulators and pharmaceutical industry experts from the three ICH regions (Europe, the US and Japan) to discuss scientific and technical aspects of drug registration.
IFRS International Financial Reporting Standards.
immunosuppressedA condition in which the response of the immune system is reduced.
IMS Health Inc. Provider of global pharmaceutical market data.
inside information Precise, confidential, share-price sensitive information which relates to the Group.
IR Immediate release.
ischaemic heart disease A chronic disease caused by insufficient blood supply to the heart muscles via the coronary arteries.
KPI Key performance indicator.
large molecule A general term used to describe pharmaceutical R&D using biology and biological methods and materials to discover and develop new medicines. Biological molecules are large compared with chemical molecules.
Lean Sigma™ A business improvement methodology.
leukotriene receptor antagonistA non-steroidal asthma medication taken over the long term and shown to reduce use of inhalers etc. and may also allow the asthmatic to reduce high doses of inhaled steroids.
LIBID London Interbank Bid Rate.
LIBOR London Interbank Offered Rate.
line extension A new formulation, indication or presentation of a marketed product.
Lipid Another word for fat. Lipids are one of the main constituents of plant and animal cells.
low-density lipoprotein cholesterol (LDL-C) Cholesterol that is carried in the blood by LDL, sometimes referred to as ‘bad’ cholesterol.
LSE London Stock Exchange plc.
luteinising hormone-releasing hormone (LHRH) A naturally occurring hormone that controls sex hormones in both men and women.
LHRH agonist A drug that mimics the effect of LHRH.
major depressive disorder (MDD) Depression where five or more symptoms of depression are present for at least two weeks.
Markman hearing A pre-trial hearing in the US in which judges hear from both parties as to the appropriate meaning of relevant key words used in the claims of a patent.
marketing authorisation application (MAA) An application for authorisation to place medical products on the market. This is a specific term for the EU/EEA markets.
Medicaid A US health insurance programme for individuals and families with low incomes and resources. It is jointly funded by the states and federal government, and is managed by the states.
Medical and Healthcare Products Regulatory Agency (MHRA) The UK regulatory authority, a government agency, for medicines and medical devices.
Medicare A US health insurance programme for US citizens aged 65 or older, US citizens under age 65 with certain disabilities, and US citizens of all ages with permanent kidney failure requiring dialysis or a kidney transplant. Recently, Medicare began offering prescription drug coverage under Part D of the Medicare Prescription Drug Benefit.
metabolic syndrome A combination of medical disorders that increase one’s risk of cardiovascular disease.
metastatic disease Disease that has spread from one part of the body to another.
MHLW The Japanese Ministry of Health, Labour and Welfare.
minority interests Share of profits that belong to non-AstraZeneca shareholders in partially-owned subsidiaries.
monoclonal antibodies (MAbs) An antibody derived from a single clone of cells; all antibodies derived from such a group of cells have the same sequence of DNA.
monotherapy Treatment where only one agent is given.
moving annual total (MAT)A figure that represents the financial value of a variable for 12 months.
multiple sclerosis (MS) Progressive deterioration of the nervous system.
multiple unit pellet system (MUPS) A formulation in which each dose is subdivided into hundreds or thousands of smaller units with modified release properties.
myocardial infarction (MI) A heart attack.
myocardial ischaemia See ischaemic heart disease.
nasal polyp A growth attached to the lining of the nose.
National Council on Aging (NCOA) A US non-profit organisation that helps older people to, amongst other things, stay healthy.
NCI US National Cancer Institute.
nebulised corticosteroid A steroid drug administered as tiny droplets in water vapour.
neurology The scientific study of the structure or function of the nervous system and brain.
new chemical entity (NCE) A new, pharmacologically-active chemical substance. The term is used to differentiate from line extensions and existing drug products.
new drug application (NDA) An application to the US Food and Drug Administration for approval to market a new medicine in the US.
non-Hodgkin’s lymphoma Cancer arising from a type of white blood cell called lymphocytes. The disease can develop in organs related to the lymphatic system.
non-small cell lung cancer (NSCLC) A term covering three distinct types of lung cancer.
non-steroidal anti-inflammatory drugs (NSAIDs) Medicines that relieve pain and reduce inflammation when used over a period of time.
normotensive Indicating a normal arterial blood pressure.
NYSE New York Stock Exchange.
odontology A science dealing with the teeth, their structure, development and diseases.
oncology The study of cancer.
operating costs Distribution costs; research and development costs; and selling, general and administrative costs.
operating profit Sales, less cost of sales, less operating costs, plus operating income.
Orange Book A publication of the US Food and Drug Administration that lists the patents relating to drugs approved for marketing and sale in the US, including patents which protect active ingredients.
Ordinary Shares Ordinary Shares of $0.25 each in the capital of the Company.
osteoarthritis (OA) A joint disease which causes degeneration of the cartilage that lines the joints.
outcomes study A clinical trial (usually large) assessing the effect of a drug in preventing or delaying a specific and important medical event (for example the occurrence of a heart attack).
over the counter (OTC) A term used for medicines that can be purchased without a prescription.
palliative Treatment that has no curative intent but is given to maintain quality of life and to relieve suffering.
parenteral Administered by injection (for example intravenous, sub-cutaneous and intramuscular).
Parkinson’s disease A neurological disorder caused by degeneration of or damage to nerve cells in the brain.
perennial rhinitis A year round inflammatory nasal disorder.
Peripheral or cutaneous T-cell lymphoma (PCTL/CTCL) Both are specific types of non-Hodgkin’s lymphoma.
phage The abbreviation for bacteriophage, a virus that infects bacteria.
phage display A test to screen for protein interactions using multiple gene sequences and bacteriophages.
Pharmaceutical and Medical Devices Agency (PMDA) The Japanese regulatory authority for medicines and medical devices, part of the MHLW.
Pharmaceutical Research and Manufacturers of America (PhRMA) The principal US pharmaceutical industry association.
pharmacogenomics A biotechnological science that combines the techniques of medicine, pharmacology and genomics and is concerned with developing drug therapies to compensate for genetic differences in patients which cause varied responses to a single therapeutic regimen.
pharmacokinetics The study of what the body does to a drug.
pharmacology The study of how drugs affect a living organism.
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pharmacovigilance The scientific collection and evaluation of information from healthcare providers and patients relating to the adverse effects of medicines.
phase I The phase of clinical research where a new drug or treatment is tested in small groups of people (twenty to eighty) to check that the drug can achieve appropriate concentrations in the body and, determine a safe dosage range, and identify side effects. This phase includes healthy volunteer studies.
phase II This phase of clinical research includes the controlled clinical activities conducted to evaluate the effectiveness of the drug in patients with the disease under study and to determine the common short-term side effects and risks associated with the drug. Phase II studies are typically conducted in a relatively small number of patients (usually no more than several hundred).
phase III This phase of clinical research is performed to gather additional information about effectiveness and safety of the drug, often in a comparative setting, to evaluate the overall benefit/risk profile of the drug. Phase III studies usually include between several hundred and several thousand patients.
PIE Pharmaceuticals in the environment.
placebo In clinical trials, an inert substance identical in appearance to the substance being tested, also known as a sugar pill.
plateletsThe blood cells that form blood clots.
poly-ADP-ribose polymerase (PARP) An enzyme critical to the repair of damaged cells and maintenance of cellular energy.
positron emission tomography (PET) A highly specialised imaging technique that uses short-lived radioactive substances to produce three-dimensional coloured images of those substances functioning within the body. These images are called PET scans.
post-marketing surveillance (PMS) The systematic detection and evaluation of adverse reactions occurring in association with pharmaceutical products once these are available in the marketplace.
pre-clinical studies Studies conducted before a drug is tested in human subjects, and which support and help establish boundaries for safe use of the drug in subsequent phase I studies.
pressurised metered dose inhaler (pMDI) An aerosol inhaler/puffer device for delivering medicine directly into the lungs.
primary care The medical care that a patient receives upon first contact with the healthcare system, before referral elsewhere within the system.
profit before tax Operating profit, plus finance income, less finance expense.
prolactin The hormone that stimulates milk production after childbirth.
proof of concept Proof of concept provides clinical confirmation that an investigational product possesses a desired pharmacological effect in patients with the disease of interest. This can be achieved after a positive placebo-controlled study or dose-response study using a validated surrogate variable or the final clinical outcome variable. Proof of concept also includes establishing a limited dose range to be used in the subsequent confirmatory studies.
proof of principle Proof of principle is achieved when an intended pharmacological effect results in an expected change in a relevant biomarker in a dose range, which does not cause any major unwanted effects. Proof of principle therefore provides the first measurable evidence that an investigational product might work in humans. Proof of principle is normally demonstrated in a limited number of subjects with the disease of interest or in healthy volunteers when a relevant model exists.
prophylaxis or prophylactic therapy A therapy or measure used to prevent disease.
proton pump inhibitor (PPI) A medicine that reduces the production of acid in the stomach.
psychiatry The study, prevention and treatment of mental illnesses and emotional and behavioural problems.
qui tam action (in the US) An action brought under a statute that allows a private person to sue for a penalty, part of which the government or some specified public institution will receive.
R&D Research and development.
reflux oesophagitis A condition in which acidic fluid is regurgitated from the stomach into the oesophagus.
respiratory Relating to or affecting breathing or the organs used to breathe.
respiratory syncytial virus (RSV) A virus that attacks the mucous membranes of the human respiratory tracts, including the nose, throat and air passages.
RET-kinase A receptor-tyrosine kinase which is normally involved in maturation of a variety of tissues, including the nervous system and kidney. It is sometimes mutated and has an abnormal function in certain types of thyroid cancer.
rheumatoid arthritis (RA) Joint inflammation in which the joints become painful, swollen, stiff, and in severe cases, deformed.
ribonucleic acid (RNA) A nucleic acid molecule containing ribose. RNA plays a key role in many biological processes, including translating genetic information from DNA into proteins.
ribosome A large complex intracellular molecule that synthesises protein.
ribosome display A technique used to create proteins that can bind a desired atom, ion or molecule.
ROW Rest of the world.
schizophrenia A psychiatric condition in which the patient suffers impairment of their perception of reality.
second-line therapy Treatment administered after the failure of, or in addition to, first-line therapy.
Securities and Exchange Commission (SEC) US governmental agency that regulates the securities industry/stock market.
SEK, kronor, krona References to Swedish currency.
sepsis A life-threatening condition resulting from uncontrolled severe infection.
SG&A costs Selling, general and administrative costs.
SHE Safety, health and the environment.
small molecule A general term used to describe pharmaceutical R&D using chemistry and chemical methods and materials to discover and develop new medicines. Chemical molecules are small compared with biological molecules.
specialist care The medical care the patient receives after being referred by the primary care provider.
SR Sustained release.
SSE Stockholm Stock Exchange.
statin A class of drugs that alter cholesterol levels in the blood.
sterling, £, GBP, pence or p References to the currency of the UK.
supplemental new drug application (sNDA) An application made to the US Food and Drug Administration to seek approval to market a marketed drug for another indication.
systemic lupus erythematosus (SLE) A disease of the immune system (the system that prevents and fights infection).
target product profile (TPP) Statement of the essential attributes required for a specific drug to be a clinically and commercially successful product, which can form the basis for commercial evaluation and guide Discovery and Development activities.
thrombosisThe formation of blood clots.
toxicology The study of poisons.
triglycerides The major form of fat that comes from the food we eat as well as from being produced by the body.
TSR Total shareholder returns.
Type 2 diabetes An illness caused by the body being resistant to insulin.
UK The United Kingdom of Great Britain and Northern Ireland.
UK Combined Code Guidance that sets out standards of good practice in corporate governance for the UK.
urology Relating to the structure, functioning and disorders of the urinary tract.
US The United States of America.
US dollar, US$, USD or $ References to the currency of the US.
vascular endothelial cell growth factor (VEGF) A growth factor which promotes the growth of new blood vessels.
World Health Organization (WHO) The United Nations’ specialised agency for health.
XR Extended release.
Zollinger-Ellison syndrome A rare gastric acid disorder.
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| | Trade marks
Trade marks of the AstraZeneca group of companies appear throughout this document in italics. AstraZeneca, the AstraZeneca logotype and the AstraZeneca symbol are all trade marks of the AstraZeneca group of companies. Trade marks of companies other than AstraZeneca appear with a® or™ sign and include: Abraxane®, a registered trade mark of Abraxis BioScience, Inc.; Aspirin™, a trade mark of Bayer AG; Avastin™, a trade mark of Genentech, Inc.; BiTE™, developed by Micromet, Inc. and MedImmune, Inc.; Cubicin™, a trade mark of Cubist Pharmaceuticals, Inc.; CyDex Captisol™, a trade mark of CyDex Pharmaceuticals Inc.; CytoFab™, a trade mark of Protherics, Inc.; Herceptin™, a trade mark of Genentech, Inc.; Humira™, a trade mark of Abbott Biotechnology Ltd.; Lean Sigma™, a trade mark of Smallpiece Enterprises Limited; Prinivil™, a trade mark of Merck & Co., Inc.; Seretide™, a trade mark of GlaxoSmithKline; Taxotere™, a trade mark of Aventis Pharma SA; TriCor™, a trade mark of Fournier Industrie et Santé; Zocor™, a trade mark of Merck & Co., Inc.; and Zyprexa™, a trade mark of Eli Lilly and Company. Use of terms
In this Annual Report and Form 20-F Information, unless the context otherwise requires, ‘AstraZeneca’, ‘the Group’, ‘we’, ‘us’ and ‘our’ refer to AstraZeneca PLC and its consolidated entities. Statements of dates
Except as otherwise stated, references to days and/or months in this Annual Report and Form 20-F Information are references to days and/or months in 2007. | | Statements of competitive position
Except as otherwise stated, market information in this Annual Report and Form 20-F Information regarding the position of our business or products relative to its or their competition is based upon published statistical data for the 12 months ended 30 September 2007, obtained from IMS Health, a leading supplier of statistical data to the pharmaceutical industry. Except as otherwise stated, these market share and industry data from IMS Health have been derived by comparing our sales revenue to competitors’ and total market sales revenues for that period. For the purposes of this Annual Report and Form 20-F Information, references to the world pharmaceutical market or similar phrases are to 52 countries contained in IMS Health’s MIDAS Quantum database, which amount to approximately 95% (in value) of the countries audited by IMS Health. Statements of growth rates, sales and market data
Except as otherwise stated, growth rates and sales in this Annual Report and Form 20-F Information are given at constant exchange rates (CER) to show underlying performance by excluding the effects of exchange rate movements. Market data are given in actual US dollars. AstraZeneca websites
Information on or accessible through our websites, including astrazeneca.com, astrazenecaclinicaltrials.com, medimmune.com and cambridgeantibody.com, does not form part of this document. | | 
Designed by Addison Corporate Marketing Limited. Printed by St Ives Westerham Press Limited. | |
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