Astrazeneca Regulatory News (AZN)

AstraZeneca PLC

28 July 2016 07:00

This announcement contains inside information.

H1 2016 Results

Financial Summary

· Total Revenue down by 3% as expected, reflecting a 2% decline in Product Sales that was driven by patent expiries, in particular Crestor in the US. The phasing of Externalisation Revenue is towards H2 2016

· Reported and Core R&D costs increased by 6% and 9% respectively; Reported SG&A costs were stable, with Core SG&A costs declining by 5%, supporting full-year commitments

· Reported EPS declined 45%, negatively impacted by restructuring charges related to the recently-announced cost reduction programme. Core EPS declined 20%, reflecting the phasing of Externalisation Revenue to the second half of the year

· An unchanged first interim dividend per share of $0.90

· FY 2016 guidance unchanged

Commercial Highlights

The Growth Platforms grew by 7% in the half. Of the six platforms, the performance included:

· Emerging Markets: +7%. Encouraging China growth of 11%

· Diabetes: +18%. A good performance underpinned by the success of Farxiga 

· Respiratory: +1%. Strong Emerging Markets sales of Symbicort, pricing compression in the US and Europe

· New Oncology: Sales of $251m reflected the successful ongoing launch of Tagrisso 

Achieving Scientific Leadership: Progress since the last results announcement

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

"Our performance in the first half was in line with expectations, reflecting the anticipated near-term patent expiry challenges and the phasing of Externalisation Revenue in 2016. Our Growth Platforms continued to advance and made up over 60% of Total Revenue. Importantly, our transformed pipeline is advancing quickly and delivering a rich flow of differentiated medicines, boding well for our return to growth.

Alongside positive results for our first potential Respiratory biologic medicine, benralizumab, and for Tagrisso in second-line lung cancer, we are encouraged by the rapid patient recruitment in our Immuno-Oncology durva/treme combination programmes. This strong scientific momentum is set to continue, in particular where we anticipate key Immuno-Oncology data."

FY 2016 Guidance

Guidance for FY 2016 is unchanged and is shown at CER1.

The above guidance incorporates the dilutive effects arising from the Acerta Pharma B.V. (Acerta Pharma) and ZS Pharma, Inc. (ZS Pharma) transactions announced in FY 2015.

Externalisation Revenue is expected to be ahead of that in FY 2015, including an element of recurring income arising from prior agreements. This is in line with the Company's long-term business model, which includes externalisation as part of the portfolio-management strategy.

Externalisation activities, a result of increasing R&D productivity and the focus on three therapy areas, relate to specific risk and reward-sharing strategic collaborations. They broaden, accelerate and maximise the development and commercialisation potential for a number of the Company's medicines. Initial and milestone revenue, together with sales-related revenue, is included in the Company's financial statements as Externalisation Revenue. Receipts will be defined as Externalisation Revenue where AstraZeneca retains a significant ongoing interest in the potential or on-market medicine.

Core R&D costs are expected to be at a similar level to FY 2015. The Company is committed to materially reducing Core SG&A costs in FY 2016 versus the prior year. These measures are based on constant exchange rates.

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.

FY 2016 Currency Impact

Based on average exchange rates in the first half and the Company's published currency sensitivities, there is now expected to be only a minimal adverse impact from currency movements on Total Revenue in FY 2016. Core EPS is now expected to benefit from currency movements by a low to mid single-digit percentage versus the prior year. Further details on currency sensitivities are contained within the Operating and Financial Review.

Pipeline: Forthcoming Major Newsflow

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 for 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.

Notes

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

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

Results Presentation

A conference call for investors and analysts, hosted by management, will begin at midday UK time today. Details can be accessed via www.astrazeneca.com/investors.

Reporting Calendar

The Company intends to publish its nine-month financial results on 10 November 2016. 

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 therapy areas - Respiratory & Autoimmunity, Cardiovascular & Metabolic Diseases and Oncology. The Company is also active in inflammation, infection and neuroscience through numerous collaborations. 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.

Adrian Kemp

Company Secretary

AstraZeneca PLC

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 six and three-month periods to 30 June 2016 (the half and the quarter, respectively) compared to the six and three-month periods to 30 June 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 fell by 5% in the half, reflecting the strength of the US dollar.

Product Sales

The level of decline in Product Sales was driven by the US market entry of a Crestor generic medicine in the second quarter, as well as the ongoing impact of Nexium generic medicines in the US. Overall US Product Sales declined by 7% in the half, with Product Sales in Europe down by 3%.

Within Product Sales, Growth Platform sales grew by 7% in the half and represented 61% 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

Externalisation Revenue recognised in the half amounted to $684m. Highlights included:

Examples of sustainable future Externalisation Revenue are shown below:

*For further details, please see the Corporate & Business Development section

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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Respiratory & Autoimmunity

Symbicort

Symbicort sales declined by 6% to $1,552m in the half. The decline was driven primarily by continuing price erosion, partially offset by volume growth. Symbicort became, however, the global market leader by volume in the period.

In the US, sales of $681m represented a decline of 5%. This reflected the impact of competitive intensity in the half that was partly offset by encouraging volume growth and market-share gains.

In Europe, sales declined by 18% to $466m, a result of declining market demand in the class, as well as increased competition from analogue medicines. In contrast, Emerging Markets sales grew by 25% to $209m; China sales grew by 33% to $80m.

Pulmicort

Pulmicort sales were $549m in the half, an increase of 10%. Growth reflected the performance of Pulmicort Respules in Emerging Markets, where Pulmicort sales grew by 23% to $349m. China sales increased by 26% to $288m, partly reflecting the increasing prevalence of acute chronic obstructive pulmonary disease (COPD) and paediatric asthma. To address this growing prevalence, AstraZeneca continued its expansion of treatment centres, as well as provided increased access to home-based patient care systems.

Tudorza/Eklira

Sales in the half were up by 4% to $87m, driven by Europe sales growth of 17% to $41m. US sales declined by 9% to $41m, partly reflecting lower market demand and a loss of Medicare Part D access, which was partially mitigated by the effect of inventory stocking.

Daliresp/Daxas

Rights were acquired in March 2015 from Actavis plc (Actavis) for Daliresp in the US and Canada. Sales in the half were $71m, driven by higher volume demand and inventory stocking. In the US, sales grew to $66m and represented 93% of global sales.

On 3 May 2016, AstraZeneca announced that it had completed the acquisition of the core respiratory business of Takeda Pharmaceutical Company Limited (Takeda). The agreement, initially announced in December 2015, included the expansion of rights to Daliresp in the US (marketed as Daxas in other countries). Since completion, Daxas sales in Europe amounted to $4m.

Duaklir

Duaklir has been launched successfully in more than 25 countries, with sales of $30m during the half reflecting encouraging levels of market share achieved in major European markets. Further launches are anticipated in due course.

Cardiovascular & Metabolic Diseases

Onglyza

Sales increased by 6% to $402m as DPP-4 class volumes continued to grow.

Sales in the US were stable at $212m. A higher net price, restocking levels and good federal-business sales offset the continued competitive pressures in the DPP-4 class.

Sales in Europe increased by 4% to $73m, a comparable rate to the overall DPP-4 class. Emerging Markets sales increased by 16% to $80m, with strong perfomance in Brazil (up by 67% to $8m) and Latin America ex-Brazil (up by 27% to $11m).

Brilinta

Sales in the half increased by 48% to $395m. 

US sales of Brilinta were $159m, an increase of 57%. Updated preferred guidelines regarding acute coronary syndrome treatment from the American College of Cardiology and the American Heart Association in March 2016 helped to expand the use of Brilinta, illustrated by a new-to-brand prescription market share of 12%. Brilinta became the branded oral anti-platelet market leader in the US in the half. 

Sales of Brilique in Europe grew by 17% to $125m, reflecting indication leadership across a number of markets. In the second quarter, the German Institute for Quality and Efficiency in Healthcare gave its assessment of the additional benefit from Brilique at the 60mg dose. This assessment referred to the new indication (high-risk, post- myocardial infarction) which emanated from the PEGASUS trial.

Emerging Markets sales grew by 106% to $91m, with China representing 47% of Emerging Markets sales at $43m, despite the medicine not being included on the National Drug Reimbursement List.

Farxiga

During the half, sales increased by 88% to $376m.

Sales of Farxiga in the US increased by 82% to $209m, reflecting higher market volumes, extended market share and net pricing. Encouraging levels of patient access and greater promotional activity drove volumes and total prescription share growth during the period. 

Sales of Forxiga in Europe were up 72% to $89m in the half as the medicine continued to lead the SGLT2 class. Emerging Markets sales increased by 135% to $53m, with strong performances in Asia Pacific (up by 167% to $22m), Brazil (up by 78% to $12m), and Latin America ex-Brazil (up by 80% to $8m).

Bydureon/Byetta

Combined sales for Bydureon/Byetta were $429m with Bydureon sales up by 11%, representing around 68% of total Bydureon/Byetta sales. With the Company's focus on Bydureon, Byetta sales declined by 19% to $138m.

In the US, Bydureon sales were $234m, an increase of 5%, despite increased competition from new market entrants. Sales in Europe increased by 43% to $50m, reflecting the Company's ongoing effort to expand its Diabetes presence.

Legacy: Crestor

Sales of Crestor declined in the half by 15% to $2,082m.

In the US, Crestor sales declined by 27% to $1,004m as the first Crestor generic competitor entered the market on 2 May 2016. The impact of destocking offset the favourable effects from a higher net price. Crestor continued to maintain both total and new-to-brand prescription levels of market share; multiple generic Crestor medicines, however, entered the US market in July 2016.

In Europe, sales declined by 4% to $438m, reflecting the increasing prevalence of generic-medicine competition. Crestor consolidated its position as the leading statin in Japan, with sales growth in the half of 5% to $250m. Sales in China grew by 16% to $156m.

Oncology

Iressa

Sales of Iressa in the half increased by 2% to $270m.

Following the US launch in July 2015, first-half sales were $10m as the Company prioritised the launch of Tagrisso.

In Europe, sales declined by 8% to $61m, reflected in falling market-volume share in France and Italy. Emerging Markets sales increased by 3% to $134m. The growth was limited by a decline in China sales of 3% to $71m, reflecting the competitive environment. In June 2016, however, Iressa received national reimbursement listing in China.

Tagrisso

Sales of Tagrisso were $143m, with the US representing 72% of global sales; the first regulatory approval for Tagrisso was in the US in November 2015.

After regulatory approval in the EU and Japan in the first quarter, Tagrisso sales amounted to $25m in Europe and $15m in Japan. Regulatory approvals have been granted in a number of further markets, including Korea, Switzerland and Canada; the Company anticipates additional regulatory approvals in due course.

Lynparza

Sales of Lynparza reached $98m in the half. Sales in the US increased to $62m, primarily driven by higher demand, an increased net price and changes in inventory-stocking levels. Sales in Europe were $32m following several successful launches. Lynparza is now available for patients in 29 countries, with regulatory reviews underway in nine additional countries including Singapore, Brazil, and Russia.

Legacy: Faslodex

Faslodex sales increased by 23% to $401m. US sales grew by 28% to $211m, driven by higher levels of demand following an expanded label for 2nd-line treatment for advanced or metastatic breast cancer.

Europe sales increased by 13% to $113m. Emerging Markets sales were up in the half by 36% to $47m, with China sales growth of 125% to $9m.

Legacy: Zoladex

Sales declined by 3% to $382m, primarily driven by a decline in Europe sales of 3% to $80m and an Emerging Market sales decline of 5% to $153m. China sales grew by 5% to $60m. US sales increased by 36% to $19m, reflecting higher volume demand and a higher net price.

Infection & Neuroscience

Nexium

Sales of Nexium declined by 18% to $1,025m in the half, due primarily to the impact of generic-medicine competition in the US and Europe.

Sales in the US declined by 39% to $294m following the loss of exclusivity in 2015 and changes in managed-care contracts. Sales in Europe declined by 10% to $127m, with Emerging Markets sales increasing by 1% to $367m. Japan sales decreased by 11% to $184m, reflecting the competitive environment.

Seroquel XR

Sales declined by 17% to $427m. Sales in the US were $306m, representing a decline of 13%. Sales in Europe declined by 32% to $76m, due primarily to the impact of generic-medicine competition.

Synagis

Sales of Synagis remained stable at $271m. Sales in US increased by 2% to $163m, driven primarily by higher net pricing, which was partly mitigated by lower demand. This was a consequence of the more-restrictive guidelines from the American Academy of Pediatrics Committee on Infectious Disease, which reduced the number of patients eligible for preventative therapy with Synagis.

FluMist/Fluenz

Sales in the half declined by 48% to $11m, reflecting lower volumes. The Company confirmed on 23 June 2016 that the Advisory Committee on Immunization Practices (ACIP) of the 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 ACIP's updated recommendation is expected to result in very limited US demand in the second half of the year. The Company consequently wrote down the value of its inventory of FluMist by $47m in the second quarter, which was reflected within the Cost of Sales.

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

US sales declined by 7% in the half to $4,209m, driven primarily by the loss of exclusivity of Crestor on 2 May 2016. Crestor sales were $1,004m, a 27% decrease versus the comparative period. The decline was partially offset by favourable performances from Growth-Platform medicines Farxiga (up by 82% to $209m), Brilinta (up by 57% to $159m) and Lynparza (up to $62m).

Europe

Sales in Europe declined by 3% to $2,467m, driven primarily by ongoing price pressures. The strong growth of Forxiga sales (up by 72% to $89m) and Brilique sales (increasing by 17% to $125m) was more than offset by an 18% decline in Symbicort sales to $466m, which reflected adverse pricing and lower volumes, driven by competition from analogue medicines. Lynparza sales increased to $32m following its launch in 2015, reflecting a strong performance in Germany.

Established ROW

Sales in the Established Rest Of World (ROW) declined by 4% to $1,445m. Japan sales for the half declined by 3% to $998m, reflecting the biennual price cut in April 2016. Sales of Forxiga increased by 127% to $25m. Nexium sales declined by 15% to $237m, despite retaining position as the number one medicine in the class by market-share volume and new-to-brand prescription share.

Emerging Markets

Emerging Markets sales increased by 7% to $2,913m, despite continued downward pressure from macro-economic conditions in Latin America. China sales grew by 11% to $1,384m; China represented 48% of Emerging Markets sales in the half.

Sales in Brazil grew by 13% to $177m due to the strong performances of Forxiga (up by 78% to $12m), Oncology (up by 13% to $40m) and Seloken (up by 16% to $32m). Russia sales were up by 12% to $104m, led by strong performances in Cardiovascular & Metabolic Diseases medicine sales (up by 32% to $32m).

Financial Performance

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Profit and Loss

Gross Profit

Reported Gross Profit declined by 1% in the half to $9,652m and, excluding the impact of externalisation, the Reported Gross Profit Margin was 81.5%, an increase of two percentage points. An adverse impact from the mix of sales, the market entry of a Crestor generic medicine in the US, as well as a write-down of inventory levels of FluMist in the US were more than offset by lower restructuring and amortisation charges. Excluding these charges, Core Gross Profit declined by 4% to $9,738m and, excluding the impact of externalisation, the Core Gross Profit margin declined by one percentage point to 82.3%.

Operating Expenses: R&D

Reported R&D costs increased by 6% in the half to $2,945m. This reflected the number of potential 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 would have increased by 1%.

Excluding the impact of lower restructuring and impairment charges, Core R&D costs increased by 9% to $2,813m (Q2 2016: Growth of 3%). Without the impact of the aforementioned investments in ZS Pharma and Acerta Pharma, Core R&D costs in the half would have increased by 3%.

Operating Expenses: SG&A

Reported SG&A costs were stable in the half at $5,624m, with efficiency savings in sales and marketing operations and further reductions in IT costs offset by higher restructuring costs, amortisation charges and fair value adjustments, which are excluded from the Core measurement. Core SG&A costs declined by 5% in the half to $4,227m, in line with full-year expectations of a material reduction.

Other Operating Income

Reported Other Operating Income of $425m included:

· $183m of income related to the disposal of the ex-US rights to Imdur

· $89m of royalty income related to the entry of the first US Crestor generic medicine from the period between 2 May 2016 and 8 July 2016

· Other royalty income of $117m, including that related to HPV and the antibiotic medicine, ertapenem

Operating Profit

Reported Operating Profit declined by 24% to $1,341m. The Reported Operating Margin declined by three percentage points to 11% of Total Revenue.

Core Operating Profit declined by 14% to $2,999m in the half. The Core Operating Margin declined by three percentage points to 26% of Total Revenue.

Net Finance Expense

Reported Net Finance Expense of $636m compared to $513m in the prior half, and included $321m for the discount unwind on acquisition-related liabilities. The Core Net Finance Expense, which excludes the aforementioned discount unwind, was $315m in the half, compared to $250m in the comparative period. The increase reflected higher loan interest arising from an increase in net debt, driven by the acquisition of ZS Pharma and the investment in Acerta Pharma.

Taxation

The Reported and Core tax rates for the half were 14% and 17% respectively. These tax rates were lower than the UK Corporation Tax Rate of 20%, mainly due to the impact of the geographical mix of profits, tax settlements and the UK patent box. The cash tax paid for the half was $262m, which was 38% of Reported Profit Before Tax and 10% of Core Profit Before Tax. The Reported and Core tax rates for H1 2015 were 7% and 14% respectively.

Earnings Per Share (EPS)

Reported EPS of $0.51 in the half represented a 45% decline, with Core EPS in the half declining by 20% to $1.78. The declines were driven by the first market entry of a Crestor generic medicine in the US, as well as the ongoing impact of US Nexium generic medicines. The reduction also reflected the phasing of Externalisation Revenue over the year.

Productivity

AstraZeneca continues to enhance productivity through the implementation of its restructuring initiatives, including those announced on 29 April 2016. Restructuring charges of $463m were incurred in the half. The Company remains on track to realise savings and incur expenses in line with prior announcements.

Cash Flow and Balance Sheet

Cash Flow

The Company generated a net cash inflow from operations of $1,374m, compared with $1,008m in the comparative period. Improved working capital and lower net tax payments more than offset the lower profit.

Net cash outflows from investing activities were $3,948m compared with $1,234m in the comparative period. The increase primarily reflected the net cash outflow of $2,383m on the investment in Acerta Pharma.

Net cash outflows from financing activities were $6m, incorporating $2,483m of new long-term loans, net of a dividend payment in the period of $2,409m. This compared to an outflow of $2,388m 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 $141m in the half. 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.

Debt and Capital Structure

At 30 June 2016, outstanding gross debt (interest-bearing loans and borrowings) was $17,579m (30 June 2015: $11,008m). Of the gross debt outstanding at 30 June 2016, $1,060m was due within one year (30 June 2015: $2,705m). The Company's net debt position at 30 June 2016 was $12,734m (30 June 2015: $5,994m).

On 9 May 2016, the Company announced the successful pricing of euro medium-term notes in an aggregate principal amount of €2.2bn, consisting of three tranches:

€500m of five-year, fixed-rate notes with a coupon of 0.25%

€900m of eight-year, fixed-rate notes with a coupon of 0.75%

€800m of 12-year, fixed-rate notes with a coupon of 1.25%

Shares in Issue

During the half, 0.5 million shares were issued in respect of share option exercises for a consideration of $22m. The total number of shares in issue as at 30 June 2016 was 1,265 million.

Dividends

The Board has recommended an unchanged first interim dividend of $0.90 (68.7 pence, 7.81 SEK) per Ordinary Share.

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.

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 30 June 2016, AstraZeneca had hedged 90% of forecast short-term currency exposure that arises between the booking and settlement dates on non-local currency purchases and Product Sales.

Related-Party Transactions

There have been no significant related-party transactions in the period.

Principal Risks and Uncertainties

It is not anticipated that the nature of the principal risks and uncertainties that affect the business, and which are set out on pages 212 to 226 of the Annual Report and Form 20-F Information 2015, will change in respect of the second six months of the financial year.

In summary, the principal risks and uncertainties listed in the Annual Report and 20-F Information 2015 are:

a) Medicine pipeline and intellectual property risks

Failure to meet development targets; delay to new product launches; acquisitions and strategic alliances, including licensing and collaborations, may be unsuccessful; difficulties obtaining and maintaining regulatory approvals for new products; failure to obtain and enforce effective intellectual property (IP) protection.

b) Commercialisation risks

Expiry or loss of, or limitations to, IP rights and consequential pressure from generic competition; abbreviated approval processes for biosimilars; political and socio-economic conditions; developing our business in Emerging Markets; challenges to achieving commercial success of new products; effects of patent litigation in respect of IP rights; price controls and reductions; economic, regulatory and political pressures; illegal trade in medicines; increasing implementation and enforcement of more stringent anti-bribery and anti-corruption legislation; failure to adhere to applicable laws, rules and regulations; failure of information technology and cybercrime; any expected gains from productivity initiatives are uncertain; failure of outsourcing; failure to attract and retain key personnel and failure to successfully engage with employees.

c) Supply chain and business execution risks

Difficulties and delays in the manufacturing, distribution and sale of products; reliance on third-party goods and services; manufacturing biologic products.

d) Legal, regulatory and compliance risks

Adverse outcome of litigation and/or governmental investigations; failure to adhere to applicable laws, rules and regulations relating to anti-competitive behaviour; substantial product-liability claims; failure to adhere to applicable laws, rules and regulations relating to environment, health and safety; environmental and occupational health and safety liabilities; misuse of social media platforms and new technology.

e) Economic and financial risks

Failure to achieve strategic priorities or to meet targets or expectations; adverse impact from sustained economic downturn; fluctuations in exchange rates; limited third-party insurance coverage; taxation; pensions.

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) Licensing Agreements In Skin Diseases

On 1 July 2016, the Company announced that it had entered into an agreement with LEO Pharma A/S (LEO Pharma), a specialist in dermatological care, for the global licence to tralokinumab in skin diseases. Tralokinumab is a potential new medicine (an IL-13 monoclonal antibody) that has completed a Phase IIb trial for the treatment of patients with atopic dermatitis, an inflammatory skin disease resulting in itchy, red, swollen and cracked skin.

Under the terms of the agreement, LEO Pharma will make an upfront payment to AstraZeneca of $115m, up to $1bn in commercially-related milestones and up to mid-teen tiered percentage royalties on Product Sales. AstraZeneca will manufacture and supply tralokinumab to LEO Pharma. AstraZeneca will retain all rights to tralokinumab in respiratory disease and any other indications outside of dermatology. The Company anticipates completion of the transaction in the third quarter.

On the same date, AstraZeneca and an affiliate of Valeant Pharmaceuticals International, Inc. (Valeant) agreed to terminate the licence for Valeant's right to develop and commercialise brodalumab in Europe. Simultaneously, AstraZeneca has entered into an agreement with LEO Pharma for the exclusive licence to brodalumab in Europe. Brodalumab is an IL-17 receptor monoclonal antibody under regulatory review for patients with moderate-to-severe plaque psoriasis (a skin disease that causes red patches of skin covered with silvery scales) and in development for psoriatic arthritis (inflammation of the joints associated with psoriasis).

In September 2015, AstraZeneca and Valeant entered an agreement granting Valeant an exclusive licence to develop and commercialise brodalumab globally, outside Japan and certain other Asian countries where the rights are held by Kyowa Hakko Kirin Co., Ltd. Valeant will continue to lead development and commercialisation of brodalumab in the US and all other markets included in the original agreement.

LEO Pharma will gain the European rights to brodalumab under similar terms to those agreed with Valeant. Additionally, Amgen Inc. will continue to receive a low single-digit percentage inventor royalty.

b) Rights To Global Anaesthetics Portfolio

On 9 June 2016, the Company announced that it had entered into a commercialisation agreement with Aspen Global Incorporated (AGI), part of Aspen Pharmacare Holdings Limited, for rights to its global anaesthetics portfolio outside the US.

Under the terms of the agreement, AGI will acquire the commercialisation rights for an upfront consideration of $520m. Additionally, AGI will pay AstraZeneca up to $250m in a Product Sales-related payment, as well as double-digit percentage trademark royalties on Product Sales. AstraZeneca will manufacture and supply the medicines on a cost-plus basis to AGI for an initial period of 10 years. Upon completion, anticipated in the third quarter of 2016, AGI will assume responsibility for all activities relating to the sale of the portfolio in all relevant markets.

AstraZeneca will retain a significant ongoing interest in the anaesthetics portfolio, including a long-term manufacturing and supply agreement and participation in commercial strategy. The upfront and milestone payments, as well as royalty receipts, which are open-ended, will therefore be reported as Externalisation Revenue in the Company's financial statements.

c) Zurampic In Europe And Latin America

On 2 June 2016, AstraZeneca announced that it had entered into a licensing agreement with Grünenthal GmbH (Grünenthal) for the exclusive rights to Zurampic (lesinurad) in Europe and Latin America. Zurampic was approved by the European Medicines Agency (EMA) in February 2016, in combination with a xanthine oxidase inhibitor, for the adjunctive treatment of hyperuricemia (excess of uric acid in the blood) in adult patients with uncontrolled gout.

Under the terms of the agreement, Grünenthal will submit a fixed-dose combination programme for regulatory review and will pay AstraZeneca up to $230m in sales and other related milestones over the lifetime of the contract. Grünenthal will also pay tiered, low double-digit percentage royalties on annual Product Sales. Revenue from the licensing agreement will provide AstraZeneca with future recurring Externalisation Revenue from expected milestone payments and tiered, low double-digit percent royalty payments on Product Sales. The Company anticipates completion of the transaction in the third quarter.

d) Acquisition Of Takeda's Respiratory Business

On 3 May 2016 AstraZeneca announced that it had completed the acquisition of the main respiratory business of Takeda. The agreement, announced in December 2015, included the expansion of rights to roflumilast (marketed as Daliresp in the US and Daxas in other countries), the only approved oral phosphodiesterase 4 (PDE4) inhibitor for the treatment of COPD. PDE4 is an enzyme involved in modulating production of inflammatory mediators by immune cells. AstraZeneca has marketed Daliresp in the US since the acquisition of the rights from Actavis in the first quarter of 2015.

e) Agreement with China Medical System Holdings (CMS) - Imdur outside the US

On 29 February 2016, AstraZeneca announced that it had entered into an agreement with CMS and its associated company, Tibet Rhodiola Pharmaceutical Holding Co., for the divestment of the global rights to Imdur outside the US. Imdur is a mature medicine for the prevention of angina in patients with heart disease; its global sales outside the US were $57m in FY 2015. The transaction completed in the second quarter.

Under the terms of this agreement, AstraZeneca recognised income of $183m for the rights to Imdur in all markets outside the US. Income from the agreement was reported within Other Operating Income.

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 28 April 2016 (the period): 

1Conditional Marketing Authorisation

1. Respiratory & Autoimmunity

AstraZeneca's Respiratory portfolio includes a range of differentiated potential medicines such as novel combinations, biologics and devices for the treatment of asthma and COPD. The pipeline also includes a number of potential medicines designed to treat autoimmune diseases, with a lead programme in systemic lupus erythematosus.

AstraZeneca highlighted the breadth of its Respiratory portfolio at the American Thoracic Society international conference in May 2016, involving more than 60 posters and abstracts that illustrated progress in asthma and COPD medicines.

The following shows the progress in the Respiratory & Autoimmunity portfolio since the last results announcement:

a) Benralizumab (severe asthma)

On 17 May 2016, the Company announced positive top-line results from the benralizumab Phase III programme, an encouraging milestone for AstraZeneca and for millions of patients suffering from severe asthma. Two pivotal Phase III trials (SIROCCO and CALIMA) achieved statistical significance in reducing exacerbations among patients with severe uncontrolled asthma with eosinophilic inflammation. These trials evaluated treatment with benralizumab versus placebo added to high-dose inhaled corticosteroid (ICS) plus long-acting beta agonist (LABA) for the prevention of asthma exacerbations in patients with uncontrolled severe asthma.

Benralizumab is an eosinophil-depleting monoclonal antibody and AstraZeneca's first respiratory biologic medicine. Upon anticipated regulatory approval, benralizumab will potentially be used in addition to inhaled combination medicines. Benralizumab has the potential to deliver rapid and sustained improvement in lung function, symptoms and quality of life, together with significant reductions in exacerbations, hospitalisations and oral corticosteroids use; and simple, convenient dosing and administration.

b) Brodalumab (psoriasis)

On 19 July 2016, the Dermatologic and Ophthalmic Drugs Advisory Committee appointed by the US FDA voted unanimously to recommend approval for brodalumab for adult patients with moderate-to-severe plaque psoriasis. 14 of the panelists voted for approval with conditions related to product labelling and post-marketing obligations based on observations related to suicidal ideation and behaviour. Patient safety is the highest priority and as such the Company is committed to supporting the partner Valeant in addressing any concerns raised by the Committee as the FDA continues its review of brodalumab. Valeant is the Biologics License Application (BLA) holder for brodalumab and is responsible for all development and commercialisation activities in the US. Valeant has communicated that the FDA assigned a Prescription Drug User Fee Act (PDUFA) date of 16 November 2016 for the BLA.

2. Cardiovascular & Metabolic Diseases

This therapy area includes a broad type-2 diabetes portfolio, differentiated devices and unique small and large-molecule programmes to reduce morbidity, mortality and organ damage across cardiovascular (CV) disease, diabetes and chronic kidney disease (CKD) indications.

a) Brilinta (CV disease)

In May 2016, the Brilinta THEMIS trial completed its recruitment, with more than 19,000 patients now randomised within the trial. THEMIS is part of PARTHENON, AstraZeneca's largest clinical-trial programme, evaluating Brilinta in more than 80,000 high-risk CV patients. THEMIS is an event-driven, randomised, double-blind, placebo-controlled trial, designed to evaluate the effect of Brilinta versus placebo for prevention of major CV events in patients with established coronary artery disease and type-2 diabetes, but without a previous myocardial infarction (MI) or stroke. Results are expected in 2018.

The Ministry of Health, Labour and Welfare Drug Committee assessment of Brilinta's application for approval is ongoing in Japan and a regulatory decision is now anticipated in the second half of 2016.

There were three new treatment guidelines updated in China in the first half of the year. The ACS Emergency Room Rapid Guideline, Chinese PCI Guideline and the Coronary Artery Bypass Graft Consensus (2016) guideline. These recommended Brilinta as 'first-choice treatment' over any other platelet inhibitor.

b) Qtern (saxagliptin/dapagliflozin) (type-2 diabetes)

On 19 July 2016 AstraZeneca announced that the European Commission had approved Qtern tablets for the treatment of type-2 diabetes in the European Union (EU) plus Iceland, Liechtenstein and Norway. The fixed-dose combination of saxagliptin and dapagliflozin was the first DPP-4/SGLT2 combination medicine to be approved.

After receiving a Complete Response Letter (CRL) from the US FDA in October 2015, the Company submitted a regulatory filing with new clinical data, which was accepted by the FDA. The submission was based on discussions with regulators and was a first step towards regulatory approval in the US. The PDUFA date is scheduled for the first quarter of 2017.

c) Type-2 diabetes CV outcomes trials

As the field of type-2 diabetes medicines continues to evolve, with multiple outcomes trials producing data, AstraZeneca continues to assess both the SGLT2 and GLP-1 classes for potential long-term benefits. Two significant type-2 diabetes outcomes trials are underway and are fully recruited. Details and updates on those two trials are listed below:

*Includes ~10,000 patients who have had no prior index event (primary prevention) and ~7,000 patients who have suffered an index event (secondary prevention).

d) ZS-9 (hyperkalaemia)

On 27 May 2016, AstraZeneca announced that the US FDA had issued a CRL regarding the new drug application (NDA) for ZS-9 (sodium zirconium cyclosilicate), the potential new medicine being developed for the treatment of hyperkalaemia (a high potassium level in the blood serum) by ZS Pharma, a wholly-owned subsidiary of AstraZeneca. The CRL referred to observations arising from a pre-approval manufacturing inspection. The FDA also acknowledged receipt of recently-submitted data which it had yet to review. The CRL did not require the generation of new clinical data. AstraZeneca and ZS Pharma have made important progress in addressing the findings of the CRL and are in dialogue with the FDA regarding the timing of the resubmission of the NDA. From the time of the resubmission, anticipated to be in the second half of the year, the Company assumes a maximum of a six-month period for the FDA review.

In the EU, the EMA has accepted a request to extend the submission timeline in order for the Company to provide a comprehensive and complete package. The Company continues to anticipate EU approval in the first half of 2017.

e) Roxadustat (anaemia)

In the period, the Company approved Phase III investment for roxadustat in an additional type of anaemia, Myelodysplastic Syndrome (MDS), with AstraZeneca's partner, Fibrogen, Inc. MDS is a condition in which the bone marrow produces insufficient levels of healthy blood cells and there are abnormal (blast) cells in the blood and/or bone marrow. Anaemia is observed in approximately 60-80% of MDS patients, producing symptoms of fatigue, angina, dizziness, cognitive impairment or altered sense of well-being and all too often requiring transfusions. Transfused patients with MDS experience higher rates of cardiac events, diabetes, infections, and transformation to acute myeloid leukaemia and have a decreased overall survival rate when compared with non-transfused patients. 

The Phase III trial will seek to demonstrate the efficacy and safety of roxadustat, which acts on both the production of red blood cells and management of iron, in achieving transfusion independence in patients with lower-risk MDS and a low transfusion burden.

Roxadustat is already in late Phase III development against anaemia arising from CKD, with a rolling regulatory submission expected to initiate in China before the end of the year. The first Phase III data from an AstraZeneca-sponsored registrational trial are expected to be available during the second half of 2017, with a potential regulatory submission in the US anticipated in 2018.

3. Oncology

AstraZeneca has a deep-rooted heritage in Oncology and offers a rapidly-growing portfolio of new medicines that has the potential to transform patients' lives and the Company's future. With at least six new medicines to be launched between 2014 and 2020 and a broad pipeline of small molecules and biologics in development, the Company is committed to advancing New Oncology as one of AstraZeneca's six Growth Platforms focused on lung, ovarian, breast and blood cancers.

In addition to core capabilities, the Company is actively pursuing innovative collaborations and investments that accelerate the delivery of AstraZeneca's strategy, as illustrated by the Company's investment in Acerta Pharma in haematology.

AstraZeneca highlighted its pipeline of Oncology medicines at the American Society of Clinical Oncology meeting on 6 June 2016. At the meeting, AstraZeneca's Oncology management team presented both pipeline programmes and lifecycle management trials in Immuno-Oncology (IO), DNA Damage Response (DDR), tumour drivers & resistance and haematology. The Company presented 73 abstracts and oral presentations, including updates on the Lynparza Study 19, Tagrisso in leptomeningeal disease and durvalumab in 2nd-line, PDL1-positive urothelial bladder cancer. In addition to the breadth and depth of the data shared at the meeting, AstraZeneca announced a number of encouraging updates in the period.

a) Faslodex (breast cancer)

On 27 May 2016, the Company announced that Faslodex had met its primary endpoint in the FALCON trial. Top-line data showed that 1st-line treatment with Faslodex extends progression-free survival (PFS) in postmenopausal women with locally-advanced or metastatic hormone receptor-positive breast cancer, compared to the current standard of care. Full evaluation of the data is ongoing and results are expected to be presented at a forthcoming medical meeting.

b) Lynparza (ovarian and other cancers)

The Phase III SOLO-2 trial for Lynparza was granted Fast Track Designation by the FDA in the period. SOLO-2 is designed to evaluate Lynparza as a potential maintenance treatment for platinum-sensitive, relapsed germline BRCA-mutated, ovarian-cancer patients who are in complete or partial response following platinum-based chemotherapy. The FDA's Fast Track programme is designed to expedite the development and review of medicines to treat serious conditions and fill an unmet medical need. SOLO-2 high-level results are expected to be available later this year.

On 18 May 2016, the top-line results from the Phase III Lynparza GOLD trial in advanced gastric-cancer patients were announced. Lynparza, in combination with paclitaxel chemotherapy and compared with paclitaxel chemotherapy alone, did not meet the primary endpoint of overall survival (OS) in either the overall population or patients whose tumour tested negative for Ataxia-Telangectasia Mutated (ATM) protein. While there was a numerical survival trend in the Lynparza plus paclitaxel arm, it did not meet statistical significance. The particular regimen in the GOLD trial, at a low dose and in combination with chemotherapy, differed from other Phase III trials in the Lynparza programme. The Lynparza GOLD data will be analysed and submitted for presentation at a forthcoming medical meeting.

c) Tagrisso (lung cancer)

On 18 July 2016 the Company announced that Tagrisso's confirmatory Phase III AURA3 trial had met its primary endpoint, demonstrating superior PFS data compared to standard platinum-based doublet chemotherapy in 2nd-line patients with EGFR T790M mutation-positive, locally-advanced or metastatic non-small cell lung cancer (NSCLC) whose disease had progressed following 1st-line EGFR tyrosine kinase inhibitor therapy.

Tagrisso also demonstrated a safety profile consistent with previous trials and, in addition to PFS, the objective response rate, disease control rate and duration of response also achieved clinically-meaningful improvements versus chemotherapy. A full evaluation of the AURA3 data, including an analysis of OS data is ongoing and the results will be presented at a forthcoming medical meeting.

d) Selumetinib (lung and other cancers)

On 12 May 2016, selumetinib was granted Orphan Drug Designation by the FDA for the treatment of patients with differentiated thyroid cancer (DTC). DTC, diagnosed in approximately 60,000 patients in the US each year, is usually treated with surgery. High-risk patients, however, need additional radioactive iodine (RAI) to kill cancer cells. Up to one in seven patients do not respond to RAI because they lack a key substance, sodium/iodine importer, that is needed to move RAI into cancer cells.

Selumetinib is a MEK 1/2 inhibitor that has already demonstrated clinically-meaningful increases in iodine uptake and retention in patients with thyroid cancer who did not previously respond to RAI. A MEK inhibitor inhibits the mitogen-activated protein kinase enzymes (MEK1 and/or MEK2).

e) Durvalumab (multiple cancers)

The Company continues to advance multiple monotherapy trials of durvalumab and combination trials of durvalumab with tremelimumab in IO. An update on key AstraZeneca-sponsored ongoing trials with durvalumab is provided over the page:

1SCCHN = Squamous Cell Carcinoma of the Head and Neck

METASTATIC UROTHELIAL BLADDER CANCER

OTHER METASTATIC CANCERs/EARLY TRIALs

f) MEDI0562 (cancer)

During the period, AstraZeneca made a final selection of the OX40 agonist to take forward to mid- and late-stage development. The fully-humanised OX40 monoclonal antibody, MEDI562 is advancing in Phase I as a monotherapy and in combination with durvalumab or tremelimumab. Data compiled from the murine OX40 (MEDI6469) and fusion-protein OX40 (MEDI6383) programmes have informed and directed the ongoing development of MEDI0562.

Infection & Neuroscience

a) Zavicefta (serious infections)

On 28 June 2016, the EMA granted marketing authorisation to Zavicefta (ceftazidime and avibactam, previously known as CAZ AVI) for a broad label of indications covering complicated intra-abdominal infections, complicated urinary tract infections including pyelonephritis (infection of the kidney), and hospital-acquired pneumonia, including ventilator-associated pneumonia. The approval also included using Zavicefta to treat infections caused by aerobic Gram-negative organisms in adult patients who have limited treatment options, an indication which, to date, has not been awarded to any other novel antibiotic medicine.

On 21 July 2016, the Company announced positive results from the Phase III REPROVE trial, which assessed the efficacy of Zavicefta compared with meropenem in the treatment of adult patients with hospital-acquired pneumonia, including ventilator-associated pneumonia. Zavicefta met the primary objective of statistical non-inferiority compared to meropenem at the test of cure visit (day 21 from randomisation). The trial showed an adverse event profile consistent with current knowledge of the safety profile of the medicines.

b) Pandemic Live Attenuated Influenza Vaccine (P/LAIV) (pandemic influenza)

On 1 April 2016, the Committee for Medicinal Products for Human Use of the EMA issued a positive opinion recommending the conditional approval of P/LAIV. P/LAIV is indicated for the prevention of influenza in a pandemic setting in children and adolescents. In the event that the World Health Organization declares a pandemic, a dossier can be submitted for conversion to full approval, providing an expedient public-health tool to protect European children.

ASTRAZENECA DEVELOPMENT PIPELINE 30 JUNE 2016

AstraZeneca-sponsored or -directed studies

Phase III / Pivotal Phase II / Registration

New Molecular Entities (NMEs) and significant additional indications

Regulatory submission dates shown for assets in Phase III and beyond. As disclosure of compound information is balanced by the business need to maintain confidentiality, information in relation to some compounds listed here has not been disclosed at this time.

† US and EU dates correspond to anticipated acceptance of the regulatory submission.

# Collaboration.