Astrazeneca Regulatory News (AZN)

AstraZeneca PLC

2 February 2017 07:00

Full-Year and Q4 2016 Results

Performance in line with expectations; 2017 has the potential to be a defining year

Financial Summary

· The fall in Product Sales primarily reflected the entry of Crestor generic medicines in the US; Crestor represents the last anticipated blockbuster3 patent expiry, ahead of significant late-stage pipeline news flow

· Good progress on cost control in the year, reflecting the evolving shape of the business:

- Reported and Core R&D cost growth of 2% to $5,890m and 5% to $5,631m, respectively, including the absorption of the R&D costs of Acerta Pharma and ZS Pharma

- Reported and Core SG&A costs declined by 12% to $9,413m and by 9% to $8,169m, respectively

· Reported EPS increased by 9% in the year to $2.77, reflecting a revaluation of acquisition-related liabilities. A 5% fall in Core EPS was driven by a corresponding rate of decline in Total Revenue

· A second interim dividend of $1.90 per share has been declared, bringing the dividend for the full year to $2.80 per share. The Board reaffirms its commitment to the Company's progressive dividend policy

Commercial Highlights

The Growth Platforms grew by 5% in the year (Q4 2016: Up by 3%). Highlights included:

· Emerging Markets: 6% growth (Q4 2016: Up by 7%) to $5,794m, supported by China, up by 10% to $2,636m

· Diabetes: Growth of 11%, as Farxiga became the Company's largest-selling Diabetes medicine

· Japan: A sales decline of 3% to $2,184m, reflecting the biennial price reduction in the year

· Brilinta: Sales grew by 39% to $839m; on track to be a blockbuster medicine

· Respiratory: A decline of 3% to $4,753m (Q4 2016: Down by 5%), reflecting US pricing pressure for Symbicort

· New Oncology: Strong sales of $664m (Q4 2016: $216m); Tagrisso delivered sales of $423m in its first year

Achieving Scientific Leadership

The pipeline-driven progress of AstraZeneca continued in the year. Twelve potential new medicines are in

Phase III/under regulatory review, primarily within the three therapy areas of Oncology, Cardiovascular & Metabolic Diseases and Respiratory. The Oncology pipeline, which attracted over 40% of R&D investment in the year, is progressing ahead of the Company's expectations, in particular Tagrisso and the Immuno-Oncology programmes. The table below highlights successes in the late-stage pipeline since the last results announcement:

Pascal Soriot, Chief Executive Officer, commenting on the results said:

"Our financial results in the year were in line with expectations and reflected the ongoing transition of our company. We brought a sharper strategic focus to our three main therapy areas, boosting pipeline productivity further as we saw with Priority Review Designations for durvalumab and Tagrisso, as well as regulatory submission acceptances for durvalumab in bladder cancer and for benralizumab in severe, uncontrolled asthma. Our underlying business is growing as a new AstraZeneca emerges, driven by competitive franchises and Emerging Markets.

2017 has the potential to be a turning point for our company as we near the end of our patent-expiry period and bring new medicines to patients across the globe. We anticipate defining data, in particular from our outstanding pipeline of Immuno-Oncology and targeted treatments. This year we have the opportunity to launch several life-changing medicines for cancer, respiratory and metabolic diseases. It is an exciting time as we rapidly approach the inflection point for our anticipated return to long-term growth, built on the solid foundations of a science-led pipeline."

FY 2017 Guidance

The Company provides guidance on Total Revenue and Core EPS only. All measures in this section are at constant exchange rates1:

\* The Core EPS guidance anticipates a normalised effective Core tax rate of 16-20% (FY 2016: 11%).

Guidance is subject to base-case assumptions of the progression of the pipeline and the extensive level of news flow listed on the following page. Variations in performance between quarters can be expected to continue, with year-on-year comparisons expected to ease in the second half of FY 2017, when the impact of the entry of Crestor generic medicines in the US will annualise.

The Company presents Core EPS guidance. It is unable to provide guidance on a Reported/GAAP basis because the Company cannot reliably forecast material elements of the Reported/GAAP result, including the fair-value adjustments arising on acquisition-related liabilities, intangible-asset impairment charges and legal-settlement provisions. Please refer to the section 'Cautionary Statements Regarding Forward-Looking Statements' at the end of this announcement.

In addition to the guidance listed above, the Company also provides indications in other areas of the Income Statement. The sum of Externalisation Revenue and Other Operating Income in FY 2017 is anticipated to be ahead of that in FY 2016. Sustainable and ongoing income4 is expected to increase further as a proportion of Externalisation Revenue in FY 2017. Core R&D costs are expected to be broadly in line with those in FY 2016 and the Company anticipates a further reduction in Core SG&A costs, reflecting the evolving shape of the business. A full explanation of these items is listed in the Operating & Financial Review.

FY 2017 Currency Impact

Based only on average exchange rates in January 2017 and the Company's published currency sensitivities, there is expected to be a low single-digit percentage adverse impact from currency movements on Total Revenue and Core EPS in the year. Further details on currency sensitivities are contained within the Operating and Financial Review.

Notes

1. All growth rates and guidance are shown at constant exchange rates (CER) unless specified otherwise.

2. See the Operating and Financial Review for a definition of Core financial measures and a reconciliation of Core to Reported financial measures.

3. The term 'blockbuster' is defined as a medicine with Product Sales in excess of $1bn over a period of 12 months.

4. Sustainable and ongoing income is defined as Externalisation Revenue excluding upfront receipts.

Pipeline: Forthcoming Major News Flow

Innovation is critical to addressing unmet patient needs and is at the heart of the Company's growth strategy. The focus on research and development is designed to yield strong results from the pipeline.

The term 'data readout' in this section refers to Phase III data readouts, unless specified otherwise.

#Potential fast-to-market opportunity ahead of randomised, controlled trials.

Results Presentation

A presentation and accompanying live webcast for investors and analysts, hosted by management, will begin at 12.30pm UK time today. Details can be accessed via astrazeneca.com/investors.

Reporting Calendar

The Company intends to publish its first quarter financial results on 27 April 2017.

About AstraZeneca

AstraZeneca is a global, science-led biopharmaceutical company that focuses on the discovery, development and commercialisation of prescription medicines, primarily for the treatment of diseases in three main therapy areas - Oncology, Cardiovascular & Metabolic Diseases and Respiratory. The Company also is selectively active in the areas of autoimmunity, neuroscience and infection. AstraZeneca operates in over 100 countries and its innovative medicines are used by millions of patients worldwide. For more information, please visit www.astrazeneca.com and follow us on Twitter @AstraZeneca.

Operating And Financial Review

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All narrative on growth and results in this section is based on CER unless stated otherwise. Financial figures are in US$ millions ($m). The performance shown in this announcement covers the twelve and three-month periods to 31 December 2016 (the year and the quarter, respectively) compared to the twelve and three-month periods to 31 December 2015.

Core measures, which are presented in addition to Reported financial information, are non-GAAP measures provided to enhance understanding of the Company's underlying financial performance. Core financial measures are adjusted to exclude certain significant items, such as:

- amortisation and impairment of intangible assets, including impairment reversals but excluding any charges relating to IT assets

- charges and provisions related to global restructuring programmes (this will include such charges that relate to the impact of global restructuring programmes on capitalised IT assets)

- other specified items, principally comprising legal settlements and acquisition-related costs, which include fair-value adjustments and the imputed finance charge relating to contingent consideration on business combinations

Details on the nature of these measures are provided on page 64 of the Annual Report and Form 20-F Information 2015.

Total Revenue

Based on actual exchange rates, Total Revenue declined by 7% in the year and by 13% in the quarter.

Product Sales

The level of decline in Product Sales was driven by the impact of the entry of Crestor generic medicines in the US, as well as the reducing impact of Nexium generic medicines in the US. Sales of Crestor and Nexium in the US declined by 57% and 39%, respectively. Overall US Product Sales declined by 22% in the year to $7,365m (Q4 2016: Down by 37% to $1,618m). Product Sales in Europe declined by 3% in the year to $5,064m (Q4 2016: Down by 3% to $1,332m).

Within Product Sales, the Growth Platforms grew by 5% in the year, representing 63% of Total Revenue:

1New Oncology comprises Lynparza, Iressa (US) and Tagrisso.

2Total Product Sales for Growth Platforms adjusted to remove duplication on a medicine and regional basis. 

Externalisation Revenue

Where AstraZeneca retains a significant economic interest in medicines or potential new medicines, income from transactions is reported as Externalisation Revenue in the Company's financial statements. The table below illustrates the level of sustainable and ongoing income1 within the total of Externalisation Revenue. Sustainable and ongoing income is anticipated to grow as a proportion of Externalisation Revenue over time.

1Sustainable and ongoing income is defined as Externalisation Revenue excluding upfront receipts.

2Royalties in FY 2016 included those derived from the Aspen Global Incorporated (Aspen) transaction highlighted below.

Externalisation Revenue recognised in the year amounted to $1,683m. Highlights included:

Examples of sustainable and ongoing Externalisation Revenue streams are shown below:

Product Sales

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The performance of key medicines is shown below, with a geographical split shown in Notes 8 and 9.

Product Sales Summary

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ONCOLOGY

Full-year sales of $3,383m; up by 20%.

Oncology sales represented 16% of Total Product Sales.

Iressa (full-year sales of $513m; down by 5%)

Sales in the US amounted to $23m, with sales in Europe declining by 5% to $120m. The Company prioritised the launch of Tagrisso in the year, given its potential impact for patients and the Company. Emerging Markets sales (defined in the Regional Product Sales section on page 13) declined by 10% to $233m. China sales declined by 16% to $116m, a result of a new price following national reimbursement listing obtained in June 2016. Strong competition from branded and generic medicines in Korea also contributed to the decline.

Tagrisso (full-year sales of $423m)

In the second half of the year, sales of Tagrisso surpassed those of Iressa, with Tagrisso becoming the leading AstraZeneca medicine for the treatment of lung cancer. Regulatory approvals were granted in a number of markets, including Brazil, Hong Kong, Singapore, Taiwan and the United Arab Emirates; the Company anticipates additional regulatory approvals and reimbursement decisions in due course. To date, Tagrisso has received regulatory approval in 46 countries worldwide.

Sales in the US amounted to $254m. After regulatory approval in the EU and Japan earlier in the year, sales in the year were $76m in Europe and $82m in Japan.

On 27 December 2016, a third-party, blood-based companion-diagnostic test for Tagrisso was approved in Japan. The test is designed to confirm the presence of a T790M mutation in patients. Similarly, the blood-based companion-diagnostic partner test for Tagrisso was approved in the US on 29 September 2016.

Lynparza (full-year sales of $218m)

Lynparza was available to patients in 31 countries by the end of 2016, with regulatory reviews underway in seven additional countries including Russia, Brazil and Singapore. Almost 5,000 patients globally have been prescribed Lynparza since the first launch in December 2014. Sales in the US increased by 81% in the year to $127m; Lynparza now has a high market penetration. Sales in Europe increased to $81m, following a number of successful launches.

Legacy: Faslodex (full-year sales of $830m; up by 19%)

Sales in the US in the year increased by 23% to $438m, mainly driven by an expanded label in March 2016 for 2nd-line advanced or metastatic breast cancer, in combination with palbociclib. Europe full-year sales increased by 11% to $228m. An increase in demand in Japan led to sales growth of 12% to $63m. China sales, up by 91% to $20m, supported Emerging Markets sales of $96m, representing an increase of 25%.

Legacy: Zoladex (full-year sales of $816m; stable)

The stable performance was attributed to Europe sales (down by 4% to $156m) and Established Rest Of World (ROW) sales (down by 7% to $270m) being offset by favourable sales performances in the US (up by 25% to $35m) and Emerging Markets (up by 6% to $355m).

CARDIOVASCULAR & METABOLIC DISEASES

Full-year sales of $8,116m; down by 13%.

Cardiovascular & Metabolic Diseases sales represented 38% of Total Product Sales.

Brilinta (full-year sales of $839m; up by 39%)

Sales of Brilinta in the US were $348m, representing an increase of 45%. The performance reflected updated preferred guidelines from the American College of Cardiology and the American Heart Association in the first half of the year; Brilinta remained the branded oral anti-platelet market leader in the US. Brilinta's new-to-brand weekly prescription market share jumped to around 15% at the end of the year, representing an increase of around three percentage points.

Full-year sales of Brilique in Europe increased by 15% to $258m, reflecting indication leadership across a number of markets. In the year, the German Institute for Quality and Efficiency in Healthcare (IQWiG) gave its assessment of the additional benefit from Brilique at the 60mg dose as tested in the PEGASUS trial, as did the National Institute for Health and Clinical Excellence in England, UK.

Emerging Markets full-year sales grew by 80% to $189m, with China sales more than doubling. China represented 47% of Emerging Markets sales of the medicine at $89m, despite it not being included on the National Reimbursement Drug List. The Company anticipates inclusion in due course. Growth was underpinned by a combination of strong levels of hospital-listing expansion and increased use in existing hospitals.

Farxiga (full-year sales of $835m; up by 72%)

In the year, sales of Farxiga surpassed those of Onglyza and Farxiga became the leading AstraZeneca medicine for the treatment of diabetes, consolidating its position as global leader in the SGLT2 class.

Sales of Farxiga in the US increased by 75% to $457m, primarily reflecting overall market growth and a higher net price. A stronger emphasis on promotional activity and improved levels of patient access resulted in market-share growth. Full-year sales of Forxiga in Europe increased by 52% to $187m, as the medicine continued to lead the growing class. Emerging Markets sales increased by 96% to $133m, driven by ongoing launches and improved access. In particular, strong performances were seen in the Asia-Pacific region (up by 108% to $52m), Brazil (up by 50% to $28m), and the Middle East, Africa & Others region (up to $32m).

Onglyza (full-year sales of $720m; down by 6%)

Sales in the US declined by 10% to $376m, as the Company prioritised sales and marketing resources towards Farxiga. Continued competitive pressures in the DPP-4 class led to lower market share but were partially offset by reduced levels of utilisation of patient-access programmes. Full-year sales in Europe declined by 5% to $132m and by 4% in Emerging Markets to $142m, again reflecting the Company's focus on Farxiga.

In the quarter, global sales declined by 21%, due to adverse pressures on the DPP-4 class and reflecting an acceleration of the previously-mentioned market dynamics.

Bydureon/Byetta (full-year sales of $832m; down by 7%)

Combined full-year US sales for Bydureon/Byetta were $627m. Bydureon sales in the US declined by 4% to $463m, representing 74% of total Bydureon/Byetta US sales. Around 75% of sales came from the new dual-chamber pen compared to the prior tray presentation. The decline in US Byetta sales of 22% to $164m was attributed to the Company's promotional focus on Bydureon. The decline in both Bydureon and Byetta US sales reflected lower net pricing; a regulatory submission for the new Bydureon autoinjector is anticipated in the US in the first half of 2017.

Full-year sales in Europe increased by 3% to $145m, reflecting the Company's ongoing effort to expand its Diabetes presence. Full-year sales of Byetta and Bydureon in Emerging Markets increased by 13% to $24m and decreased by 25% to $4m, respectively. On 10 October 2016, AstraZeneca entered into a strategic collaboration with 3SBio Inc. (3SBio) for the rights to commercialise Bydureon and Byetta in the Chinese market. The agreement allowed the Company to benefit from 3SBio's established local expertise in injectable medicines as well as focus on its oral type-2 diabetes medicines.

Legacy: Crestor (full-year sales of $3,401m; down by 32%)

In the US, Crestor full-year sales declined by 57% to $1,223m, reflecting the market entry of Crestor generic medicines. Sales in the quarter declined by 88% to $95m. In Europe, full-year sales declined by 4% to $866m, reflecting the increasing use of generic medicines. In contrast, Crestor consolidated its position as the leading statin in Japan, with full-year sales stable at $521m. Full-year sales in China grew by 27% to $311m, while Russia sales grew by 28% to $29m.

RESPIRATORY

Full-year sales of $4,753m; down by 3%.

Respiratory sales represented 22% of Total Product Sales.

Symbicort (full-year sales of $2,989m; down by 10%)

Full-year sales in the US declined by 18% to $1,242m. This primarily reflected the impact of the continued effects of pricing pressure from managed-care access within the ICS/LABA class. Competition also remained intense from other classes. In Europe, full-year sales declined by 12% to $909m, primarily a result of competition from branded and analogue medicines. The performance improved during the year, with Q4 2016 sales in Europe declining by only 3% to $230m.

In contrast, full-year Emerging Markets sales grew by 10% to $402m, reflecting sales growth in China of 32% to $156m and Latin America (ex-Brazil) sales growth of 12% to $37m.

Symbicort continued to lead the global market by volume within the class; the medicine provides a platform for the launch of Bevespi and potential launch of benralizumab.

Pulmicort (full-year sales of $1,061m; up by 8%)

Pulmicort returned to being a blockbuster medicine in the year.

Strong underlying volume growth in Emerging Markets drove a 21% sales increase in that region to $698m. Emerging Markets, representing 66% of Pulmicort sales, more than offset sales declines in the US, Europe and Established ROW. China sales increased by 24% to $570m and represented 54% of sales of Pulmicort. Volume demand in China partly reflected the long-term increase in China of acute chronic obstructive pulmonary disease (COPD) and paediatric asthma. AstraZeneca continued its expansion of treatment centres and provided increased access to home-based patient-care systems.

Tudorza/Eklira (full-year sales of $170m; down by 9%)

Sales in the US declined by 25% to $77m, reflecting adverse market demand, limited Medicare Part D access and the focus on the launch of Bevespi. Sales in Europe increased by 9% to $83m.

Daliresp/Daxas (full-year sales of $154m; up by 48%)

Sales in the US increased by 29% to $134m in the year, driven primarily by favourable market penetration. US sales represented 87% of global sales. ROW sales rights were added in May 2016 and, since completion, Daxas sales in Europe amounted to $15m.

Duaklir (full-year sales of $63m)

Duaklir has been launched successfully in excess of 25 countries; sales more than doubled in the year. This followed the strategic transaction with Almirall, S.A., which was completed in October 2014.

Bevespi

Bevespi Aerosphere inhalation aerosol was launched commercially in the US in January 2017 and is available in pharmacies for the long-term, maintenance treatment of airflow obstruction in patients with COPD. It is the only LAMA/LABA combination treatment to be delivered in a pressurised metered-dose inhaler (pMDI) and the first FDA-approved therapy to be formulated with AstraZeneca's co-suspension delivery technology, a focus of the Company's future-platform development for respiratory-disease combination therapies. Bevespi also demonstrated a 381mL improvement in peak inspiratory capacity, a potentially differentiating factor.

OTHER

Full-year sales of $5,067m; down by 19%.

Other sales represented 24% of Total Product Sales.

Nexium (full-year sales of $2,032m; down by 18%)

Sales in the US declined by 39% to $554m in the year, reflecting lower demand and inventory de-stocking, which followed the loss of exclusivity in 2015. Sales in Europe declined by 11% to $251m, and Emerging Markets sales decreased 3% to $690m. Japan sales declined by 4% to $436m, reflecting the mandated biennial price reduction, effective from April 2016.

Seroquel XR (full-year sales of $735m; down by 27%)

Sales of Seroquel XR in the US declined by 28% to $515m in the year (Q4 2016: Down by 60% to $71m). Since 1 November 2016, two companies have launched generic medicines in the US. Full-year sales of Seroquel XR in Europe declined by 32% to $134m reflecting the impact of generic-medicine competition.

Synagis (full-year sales of $677m; up by 2%)

Sales in the US increased by 14% to $325m for the full year due to greater market demand. Sales to AbbVie Inc., which is responsible for the commercialisation of Synagis in over 80 countries outside the US, declined by 7% to $352m.

FluMist/Fluenz (full-year sales of $104m; down by 59%)

The Company confirmed on 23 June 2016 that the Advisory Committee on Immunization Practices (ACIP) of the US Centers for Disease Control and Prevention had provided its interim recommendation not to use FluMist Quadrivalent Live Attenuated Influenza Vaccine (FluMist Quadrivalent) in the US for the 2016-2017 influenza season.

The Company wrote down the value of its inventory of FluMist by $47m in the year, which was reflected within the Cost of Sales. Full-year sales of FluMist in the US declined by 84% to $33m. Europe sales increased by 3% in the year to $64m.

Regional Product Sales

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1 Established ROW comprises Japan, Canada, Australia and New Zealand.

2 Emerging Markets comprises all remaining Rest of World markets, including Brazil, China, India, Mexico, Russia and Turkey.

US (full-year sales of $7,365m; down by 22%)

The full-year decline in US sales reflected the competition from Crestor generic medicines that entered the US market from July 2016. Unfavourable managed-care pricing and continued competitive intensity also impacted sales of Symbicort.

Europe (full-year sales of $5,064m; down by 3%)

Strong growth in sales of Forxiga (up by 52% to $187m) and Brilique (up by 15% to $258m) was more than offset by a 12% decline in Symbicort sales to $909m. However, Symbicort maintained its position as the number one ICS/LABA medicine by volume, despite competition from branded and analogue medicines. Lynparza and Tagrisso sales increased to $81m and $76m respectively.

Established ROW (full-year sales of $3,096m; down by 4%)

Full-year sales of Forxiga in Established ROW increased by 72% to $58m. Nexium sales declined by 10% to $537m.

Japan sales declined by 3% to $2,184m, reflecting the biennial price reduction, effective from April 2016, of around 6%. The decline was partly mitigated by stable sales of Crestor of $521m in the year. Since the launch of Tagrisso in Japan in May 2016, sales amounted to $82m. 

Emerging Markets (full-year sales of $5,794m; up by 6%)

Emerging Markets, representing 27% of global Product Sales, is the second-largest sales region for AstraZeneca.

Sales growth for the year in Emerging Markets was impacted by challenging macro-economic conditions in Latin America, where ex-Brazil full-year sales declined by 7% to $516m. The effect of reductions in Saudi Arabian governmental healthcare spending, as well as the reduction of AstraZeneca's activities in Venezuela, also adversely impacted sales. China sales, however, grew by 10% to $2,636m, representing 45% of Emerging Markets sales in the year.

Sales in Brazil increased by 2% to $348m, reflecting the strong performances of Forxiga (up by 50% to $28m), Oncology medicines (up by 1% to $82m) and Seloken (up by 6% to $63m). Russia sales increased by 13% to $233m, led by strong performances in Cardiovascular & Metabolic Diseases medicine sales (up by 38% to $80m).

A number of AstraZeneca medicines were externalised or disposed of in the year, adversely impacting the level of Product Sales:

Financial Performance

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1 Gross Margin reflects Gross Profit derived from Product Sales, divided by Product Sales

2 All financial figures, except Earnings Per Share, are in $ millions ($m). Weighted Average Shares are in millions.

1 Gross Margin reflects Gross Profit derived from Product Sales, divided by Product Sales

2 All financial figures, except Earnings Per Share, are in $ millions ($m). Weighted Average Shares are in millions

Reconciliation Of Reported To Core Performance 

1 Other adjustments include provision charges related to certain legal matters (see Note 7) and fair-value adjustments arising on acquisition-related liabilities (see Note 6).

Profit And Loss Commentary

Gross Profit

Reported Gross Profit declined by 5% in the year to $18,876m reflecting the market entry of Crestor generic medicines in the US. Excluding the impact of Externalisation Revenue, the Reported Gross Profit Margin was broadly stable at 80.8%, with lower restructuring and amortisation charges offset by an adverse impact from the mix of sales and a write-down of FluMist inventory in the US. Excluding these lower restructuring and amortisation charges, Core Gross Profit declined by 6% in the year to $19,130m and, excluding the impact of externalisation, the Core Gross Profit margin declined by one percentage point to 82.0%.

In the quarter, Reported Gross Profit declined by 15% to $4,425m and Reported Gross Margin declined by three percentage points to 77.9%. Excluding restructuring and amortisation charges, Core Gross Profit declined by 14% to $4,498m and the Core Gross Margin declined by three percentage points to 79.3%.

Operating Expenses: R&D

Reported R&D costs increased by 2% in the year to $5,890m (Q4 2016: $1,543m, a decline of 5%). The full-year increase reflected the number of potential new medicines in pivotal trials as well as the absorption of the R&D costs of ZS Pharma and Acerta Pharma. These costs were partially offset by lower restructuring costs and impairment charges. Without the impact of ZS Pharma and Acerta Pharma, Reported R&D costs in the year would have declined by 3%.

Excluding the impact of lower restructuring and impairment charges, Core R&D costs increased by 5% in the year to $5,631m (Q4 2016: $1,481m, an increase of 2%). Without the impact of the previously-mentioned investments in ZS Pharma and Acerta Pharma, Core R&D costs in the year would have declined by 1%. This compares to the 21% increase in Core R&D costs in FY 2015.

Operating Expenses: SG&A

Reported SG&A costs declined by 12% in the year to $9,413m, reflecting the evolving shape of the business. The decline was also driven by efficiency savings in sales and marketing operations and further reductions in IT costs. These actions included a material reduction in the sales and head-office structure in the US marketing business. Reported SG&A costs declined by 44% in the quarter to $1,386m, reflecting the fair-value adjustment to acquisition-related liabilities.

Core SG&A costs declined by 9% in the year to $8,169m, in line with full-year expectations of a material reduction. Core SG&A costs declined by 14% in the quarter to $2,050m.

Other Operating Income

Where AstraZeneca does not retain a significant economic interest in medicines or potential new medicines, income from transactions is reported as Other Operating Income in the Company's financial statements.

Reported Other Operating Income of $1,655m in the year included:

Operating Profit

Reported Operating Profit increased by 9% in the year to $4,902m. The Reported Operating Margin increased by three percentage points to 21% of Total Revenue.

Core Operating Profit declined by 7% in the year to $6,721m. The Core Operating Margin was stable at 29% of Total Revenue.

Net Finance Expense

Reported Net Finance Expense increased by 37% in the year to $1,317m, reflecting an increase in Net Debt that was driven by the acquisition of ZS Pharma and the majority investment in Acerta Pharma. Excluding the discount unwind on acquisition-related liabilities, Core Net Finance Expense increased by 46% in the year to $661m.

Taxation

Excluding a one-off benefit of $453m following agreements between the Canadian tax authority and the UK and Swedish tax authorities in respect of transfer pricing arrangements for the 13-year period from 2004-2016, the Reported and Core tax rates for the year were 17% and 18% respectively. Including the impact of this benefit, the Reported and Core tax rates for the year were 4% and 11% respectively. The cash tax paid for the year was $412m, which was 12% of Reported Profit Before Tax and 7% of Core Profit Before Tax.

The Reported and Core tax rates in FY 2015 were 22% and 21% respectively when excluding a one-off tax benefit of $186m following the agreement of US federal tax liabilities of open years up to 2008, other provision releases and the benefit of the UK patent box. Including the impact of these benefits, the Reported and Core tax rates in FY 2015 were 8% and 16% respectively.

Earnings Per Share (EPS)

Reported EPS of $2.77 in the year represented growth of 9%; this included a gain of $0.76 on the revaluation of acquisition-related liabilities. Core EPS in the year declined by 5% to $4.31, driven by the same rate of decline in Total Revenue. Both Reported and Core EPS in the year included a non-recurring benefit of $0.36, following the previously-mentioned agreements between the Canadian tax authority and the UK and Swedish tax authorities.

Dividends

The Board has declared a second interim dividend of $1.90 per share (150.2 pence, 16.57 SEK) bringing the dividend per share for the full year to $2.80 (218.9 pence, 24.38 SEK). The Board reaffirms its commitment to the Company's progressive dividend policy.

For holders of the Company's American Depositary Shares (ADSs), the $1.90 per Ordinary Share equates to $0.95 per ADS. Two ADSs equal one Ordinary Share.

Productivity

AstraZeneca's evolution and the changing shape of the business have enabled productivity improvements through the implementation of restructuring initiatives. These included those announced on 29 April 2016. Restructuring charges of $1,107m were incurred in the year. The Company remains on track to realise benefits and incur costs in line with prior announcements.

Cash Flow And Balance Sheet

Cash Flow

The Company generated a net cash inflow from operating activities of $4,145m in the year, compared with $3,324m in the comparative period. The increase reflected improved cash management performance and one-off tax refunds.

Net cash outflows from investing activities were $3,969m compared with $4,239m in the comparative period. The outflows partly reflected the net cash outflow of $2,383m in relation to the majority investment in Acerta Pharma, as well as $1,446m for the purchase of property, plant and equipment.

Net cash outflows from financing activities were $1,324m, incorporating $2,491m of new long-term loans, net of dividend payments in the year of $3,561m. This compared to an inflow of $878m in the comparative period.

The cash payment of contingent consideration in respect of the Bristol-Myers Squibb Company share of the global Diabetes alliance amounted to $242m in the year. The consideration is based on a tiered structure, whereby a higher royalty rate is applied until a specified level of sales is achieved in the year; thereafter a lower rate is applied to the remaining sales in the year and settled in the quarter following the application of the charge. From FY 2017 a single annual rate will be applied.

Capital Expenditure

Capital expenditure amounted to $1,449m in the year, representing an increase of 3%; the majority of capital expenditure was in maintenance. Investment in AstraZeneca's return to growth continued, with an element of capital expenditure split between expansion of biologics manufacturing capacity and the impending completion of the R&D centre and global headquarters in Cambridge, UK.

Debt and Capital Structure

At 31 December 2016, outstanding gross debt (interest-bearing loans and borrowings) was $16,808m

(31 December 2015: $15,053m). Of the gross debt outstanding at 31 December 2016, $2,307m was due within one year (31 December 2015: $916m). The Company's net debt position at 31 December 2016 was $10,657m (31 December 2015: $7,762m).

Shares in Issue

During the year, 1.1 million shares were issued in respect of share option exercises for consideration of $47m. The total number of shares in issue as at 31 December 2016 was 1,265 million.

Capital Allocation

The Board's aim is to continue to strike a balance between the interests of the business, financial creditors and the Company's shareholders. After providing for investment in the business, supporting the progressive dividend policy and maintaining a strong, investment-grade credit rating, the Board will keep under review potential investment in immediately earnings-accretive, value-enhancing opportunities. The Board reconfirms the continued suspension of the share repurchase programme.

Sensitivity: Foreign-Exchange Rates

The Company provides the following currency sensitivity information:

Currency Hedging

AstraZeneca monitors the impact of adverse currency movements on a portfolio basis, recognising correlation effects. The Company may hedge to protect against adverse impacts on cash flow over the short to medium term. As at 31 December 2016, AstraZeneca had hedged 96% of forecast short-term currency exposure that arises between the booking and settlement dates on Product Sales and non-local currency purchases.

Corporate And Business Development Update

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The highlights of the Company's corporate and business development activities since the prior results announcement are shown below:

a) Sale Of Small-Molecule Antibiotics Business

On 24 August 2016, the Company announced that it had entered into an agreement with Pfizer to sell the commercialisation and development rights to its small-molecule antibiotics business and late-stage pipeline in most markets outside the US. The transaction closed in the quarter. As AstraZeneca will not maintain a significant ongoing interest in the late-stage, small-molecule antibiotics business, all payments were and will be reported as Other Operating Income in the Company's financial statements. This includes the upfront payment of $550m and an unconditional payment of $175m in 2019 (both recognised net of the carrying value of assets disposed and other costs to sell in 2016). The future payments include the milestones of up to $250m, sales-related payments of up to $600m and recurring double-digit royalties on sales of Zavicefta and ATM AVI.

b) Sale Of Respiratory Medicine Rhinocort Aqua (Nasal Spray)

On 7 October 2016, the Company announced that it had entered an agreement with Cilag, an affiliate of Johnson & Johnson, for the divestment of the rights to Rhinocort Aqua outside the US. The transaction closed in the quarter.

c) Externalisation Of Beta-Blocker Medicine Toprol-XL

On 31 October 2016, the Company completed an agreement with Aralez Pharmaceuticals Trading DAC, a subsidiary of Aralez Pharmaceuticals Inc., for the rights to branded and authorised generic Toprol-XL (metoprolol succinate) in the US. AstraZeneca will retain a significant ongoing interest in Toprol-XL through retained ownership of the medicine in ROW markets and product supply to Aralez. Therefore, the upfront payment of $175m, milestones and sales-related payments of up to $48m and mid-teen percentage royalties was and will be reported as Externalisation Revenue in the Company's financial statements.

d) Licensing Agreement: Monoclonal Antibody MEDI2070 (Crohn's Disease)

On 3 October 2016, the Company announced that MedImmune, its global biologics research and development arm, had entered a licensing agreement with Allergan for the global rights to MEDI2070 (moderate-to-severe Crohn's disease). The transaction closed in the quarter. AstraZeneca retained $148m of the upfront payment and will retain up to approximately $847m in future potential milestones, as well as the tiered royalty payments of up to low double-digit percent, following payment to Amgen under the provisions of the original agreement.

e) Externalisation Of Diabetes Medicines Bydureon And Byetta In China

On 10 October 2016, AstraZeneca entered a strategic collaboration with 3SBio for the rights to commercialise Bydureon and Byetta in the Chinese market. The agreement allowed the Company to benefit from 3SBio's established expertise in injectable medicines and also focus resources on AstraZeneca's oral diabetes franchise, including Onglyza, which is already marketed in China, as well as Forxiga and Kombiglyze, which are anticipated to launch in China in 2017. The transaction closed in the quarter.

Under the terms of the collaboration agreement, 3SBio made an upfront payment of $50m and will pay development milestones of up to a further $50m for the exclusive rights to commercialise Bydureon and Byetta in the Chinese market (excluding Hong Kong) for an initial period of 20 years. AstraZeneca will retain a significant ongoing interest in Bydureon and Byetta through retained ownership of the medicines in other markets and will manufacture and supply these medicines to 3SBio for an agreed purchase price.

f) MEDI1814 (Alzheimer's Disease)

AstraZeneca continues to collaborate with Lilly in the development of medicines for patients impacted by Alzheimer's disease (AD). Building on the current collaboration for the BACE inhibitor, AZD3293, currently in two Phase III trials, the companies are now also co-developing MEDI1814, an antibody selective for amyloid-beta 42 (Aβ42), which is currently in Phase I development as a potential disease-modifying treatment for AD. The build-up of plaque in the brain containing the peptide amyloid-beta (Aβ) is one of the pathological hallmarks of AD. MEDI1814 binds selectively to Aβ42, which is believed to be a more toxic Aβ species. In pre-clinical models, MEDI1814 dose-dependently reduces levels of this peptide, potentially slowing the progression of AD.

g) Senior Executive Team Changes

In January 2017, Leon Wang was appointed to the newly-created SET role of Executive Vice-President, Asia Pacific, with responsibility for the Company's activities in China and Hong Kong, Asia Area, Australia and New Zealand. Leon joined AstraZeneca China in 2013 as a Vice-President and became President in 2014. Under his leadership China became AstraZeneca's second-largest market worldwide. Leon has twenty years of experience in the pharmaceutical industry.

As Executive Vice-President, International West, Mark Mallon retains responsibility for AstraZeneca's businesses in Russia, Latin America, and the Middle East and Africa in addition to his role as EVP, Global Product and Portfolio Strategy, Global Medical Affairs & Corporate Affairs.

It was announced in January 2017 that Luke Miels, formerly Executive Vice-President, Europe would leave AstraZeneca to take up a senior position with a main competitor.

Research and Development Update

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A comprehensive table with AstraZeneca's pipeline of medicines in human trials can be found later in this document.

Since the results announcement on 10 November 2016 (the period):

#As at 2 February 2017

ONCOLOGY

AstraZeneca has a deep-rooted heritage in Oncology and offers a growing portfolio of new medicines that has the potential to transform patients' lives and the Company's future. At least six new Oncology medicines are expected to be launched between 2014 and 2020, of which two have already been launched (Lynparza and Tagrisso). A broad pipeline of small molecules and biologics is in development and the Company is committed to advancing Oncology as one of AstraZeneca's Growth Platforms primarily focused on lung, ovarian, breast and blood cancers.

In addition to its own existing cancer medicine capabilities, the Company is actively pursuing innovative collaborations and investments that are designed to accelerate the delivery of AstraZeneca's strategy, as illustrated by the Company's majority investment in Acerta Pharma in haematology that closed in 2016.

At three recent medical meetings, ASH (American Society of Hematology), WCLC (World Conference on Lung Cancer) and the San Antonio Breast Cancer Symposium, AstraZeneca highlighted its continued momentum in Oncology with a total of 50 abstracts, including 15 oral presentations. Abstracts and presentations provided a comprehensive update on recent data from Faslodex, Iressa, Tagrisso and the Company's emerging presence in blood cancers, through acalabrutinib.

a) Faslodex (breast cancer)

During the period, the Company received regulatory submission acceptances for Faslodex in 1st-line metastatic breast cancer in the US and the EU. The submissions were based on the Phase III FALCON trial that compared Faslodex 500mg to Arimidex 1mg for the treatment of locally-advanced or metastatic breast cancer, in post-menopausal women who have not had prior hormonal treatment for hormone receptor-positive breast cancer. Faslodex demonstrated superiority compared with Arimidex and met its primary endpoint of extended progression-free survival (PFS).

b) Tagrisso (lung cancer)

In December 2016, data from the AURA3 trial were presented at WCLC. AURA3 was the first randomised and controlled trial for Tagrisso and tested the medicine in 2nd-line treatment of patients with epidermal growth factor receptor (EGFR) T790M mutation-positive locally-advanced or metastatic NSCLC against standard-of-care (SoC) platinum-based doublet chemotherapy. The trial showed that Tagrisso significantly improved PFS by 5.7 months with a hazard ratio of 0.30 (equal to a risk reduction of 70%).

Additionally, in the 34% of patients with central nervous system (CNS) metastases at baseline, PFS was also significantly greater (4.3 months, hazard ratio 0.32) with Tagrisso. The medicine's ability to provide benefit in patients with CNS metastases is encouraging and Tagrisso continues to be tested in the BLOOM trial. Based on results from AURA3, regulatory submissions were made in the US and EU during the period; acceptances were received on both submissions and Priority Review Designation was obtained in the US.

c) Durvalumab (multiple cancers)

In December 2016, AstraZeneca received FDA acceptance with Priority Review status of the Biologics License Application (BLA) for durvalumab in patients with locally-advanced or metastatic urothelial carcinoma, whose disease has progressed during or after one standard platinum-based regimen. This acceptance was based on the results of the urothelial cancer cohort of Study 1108 and follows the FDA's Breakthrough Therapy Designation for durvalumab in bladder cancer in February 2016. The Prescription Drug User Fee Act (PDUFA) date is in the second quarter of 2017.

The Company is also advancing durvalumab alone and in combination with tremelimumab in bladder cancer.