AstraZeneca Annual Report and Form 20-F Information 2008

Notes to the Financial Statements (Group)

• 21 Dividends to shareholders
• 22 Acquisitions of business operations
• 23 Post-retirement benefits
• 24 Employee costs and share option plans for employees
• 25 Commitments and contingent liabilities
• 26 Leases
• 27 Statutory and other information

25 COMMITMENTS AND CONTINGENT LIABILITIES

	2008 $m	2007 $m	2006 $m
Commitments Contracts placed for future capital expenditure not provided for in these accounts	332	571	383

Included in the above total are contracts related to certain product purchase and licence agreements with contingent consideration, the amounts of which are variable depending upon particular ‘milestone’ achievements. Sales of the products to which these milestones relate could give rise to additional payments, contingent upon the sale levels achieved. AstraZeneca generally has the right to terminate these agreements at no cost. Guarantees and contingencies arising in the ordinary course of business, for which no security has been given, are not expected to result in any material financial loss.

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Arrangements with Merck

Introduction

In 1982, Astra AB set up a joint venture with Merck & Co., Inc. (“Merck”) for the purposes of selling, marketing and distributing certain Astra products in the US. In 1998, this joint venture was restructured (the “Restructuring”). Under the agreements relating to the Restructuring (the “Agreements”), a US limited partnership was formed, in which Merck is the limited partner and AstraZeneca is the general partner, and AstraZeneca obtained control of the joint venture’s business subject to certain limited partner and other rights held by Merck and its affiliates. These rights provide Merck with safeguards over the activities of the partnership and place limitations on AstraZeneca’s commercial freedom to operate. The Agreements provided for:

• a payment to Merck in the event of a business combination between Astra and a third party in order for Merck to relinquish certain claims to that third party’s products;
• annual contingent payments; and
• termination arrangements which cause Merck to relinquish its interests in AstraZeneca’s products and activities in stages, some of which are mandatory and others optional.

These elements are discussed in further detail below, together with a summary of their accounting treatments.

Payment in the event of a business combination

On the merger of Astra and Zeneca, a one-time Lump Sum Payment of $809m was triggered. As a result of this payment, Merck relinquished any claims it may have had to Zeneca products.

This payment was expensed at the point of merger since it caused no incremental benefits over the prior years’ aggregate Astra and Zeneca performance to accrue to the merged AstraZeneca entity.

Annual contingent payments

AstraZeneca makes ongoing payments to Merck based on sales of certain of its products in the US (the “contingent payments” on the “agreement products”). As a result of the merger of Astra and Zeneca in 1999, these contingent payments (excluding those in respect of Prilosec and Nexium) could not be less than annual minimum sums between 2002 and 2007 ranging from $125m to $225m. AstraZeneca’s payments exceeded the minimum level in all years.

AstraZeneca will continue to make contingent payments to Merck until at least 2012. Contingent payments (excluding those in respect of Prilosec and Nexium) will cease in 2010 if AstraZeneca exercises the First Option (as discussed under “First Option” below); contingent payments in respect of Prilosec and Nexium will cease in 2012 if AstraZeneca exercises the Second Option at that time (as discussed under “Second Option” below).

The annual contingent payments on agreement products are expensed as incurred.

Termination arrangements

The Agreements provided for arrangements and payments under which, subject to the exercise of certain options, the rights and interests in AstraZeneca’s activities and products held by Merck immediately prior to the merger would be terminated, including details of:

• the Advance Payment;
• the Partial Retirement;
• the True-Up;
• the Loan Note Receivable;
• the First Option; and
• the Second Option.

Advance Payment

The merger between Astra and Zeneca in 1999 triggered the first step in the termination arrangements. Merck relinquished all rights, including contingent payments on future sales, to potential Astra products with no existing or pending US patents at the time of the merger. As a result, AstraZeneca now has rights to such products and is relieved of potential obligations to Merck and restrictions in respect of those products (including annual contingent payments), affording AstraZeneca substantial freedom to exploit the products as it sees fit.

At the time of the merger, the Advance Payment was paid. It was calculated as the then net present value of $2.8bn discounted from 2008 to the date of merger at a rate of 13% per annum and amounted to $967m. It was subject to a true-up in 2008 (as discussed under “True-Up” below).

Partial Retirement

In March 2008, there was a partial retirement of Merck’s limited partnership interest by payment to Merck of an amount calculated as a multiple of the average annual contingent payments from 2005 to 2007 on the relevant products, plus $750m. The payment was $4,271m. The amount payable under the Partial Retirement was estimated to be $4.3bn in the 2007 financial statements.

Upon the Partial Retirement, Merck’s rights in respect of certain of the agreement products ended. The products covered by the Partial Retirement include Toprol-XL, Pulmicort, Rhinocort and Symbicort.

True-Up

In 2008, in accordance with the Agreements, there was a True-Up of the Advance Payment. The True-Up amount was based on a multiple of the average annual contingent payments from 2005 to 2007 in respect of all the agreement products with the exception of Prilosec and Nexium (subject to a minimum of $6.6bn), plus other defined amounts (totalling $912m). In accordance with the Agreements, the calculated amount was then reduced by the Appraised Value (as discussed under “First Option” below), the Partial Retirement and the Advance Payment (at its undiscounted amount of $2.8bn). This True-Up amount was settled in an amount equal to $241m owed by Merck to AstraZeneca. The amount payable under the True-Up was estimated to be $0.2bn in the 2007 financial statements, payable by Merck to AstraZeneca.

Loan Note Receivable

Included in the assets and liabilities covered by the Restructuring was a loan note receivable by AstraZeneca from Merck with a face value of $1.38bn. In 2008, at the same time as the settlement of the Partial Retirement and the True-Up, Merck settled the loan note receivable by paying AstraZeneca $1.38bn.

If Merck had exercised the First Option in 2008, the net minimum payment that would have been made to Merck would have been $3.3bn, being the minimum combined payments of $4.7bn specified in the Agreements on the Partial Retirement, the True-Up and First Option, less the repayment of the loan note of $1.38bn. In accounting for the Restructuring in 1998, the loan note was included in the determination of the fair values of the assets and liabilities to be acquired. At that time, the loan note was ascribed a fair value of zero on acquisition and on the balance sheet, because it was estimated that the net minimum payment of $3.3bn equated to the fair value of the rights to be acquired under the Partial Retirement, True-Up and First Option.

First Option

In accordance with the Agreements, in 2008 a calculation was made of the Appraised Value, being the net present value of the future contingent payments in respect of all agreement products not covered by the Partial Retirement, other than Prilosec and Nexium. The Appraised Value was calculated in 2008 as $647m. In the 2007 financial statements, this amount was estimated to be $0.6bn.

Payment of the Appraised Value to Merck in March 2008 would have taken place only if Merck had exercised the First Option in 2008. Merck did not exercise this option. AstraZeneca may exercise the First Option in 2010 for a sum equal to the 2008 Appraised Value.

Upon exercise of the First Option, Merck will relinquish its rights over the agreement products not covered by the Partial Retirement, other than Nexium and Prilosec. If AstraZeneca does not exercise the First Option, the contingent payment arrangements in respect of these agreement products will continue (as will AstraZeneca’s other obligations and restrictions in respect of these products) and the Appraised Value will not be paid. Products covered by the First Option include Entocort, Atacand, Plendil and certain compounds still in development.

Second Option

Provided that the First Option is exercised, AstraZeneca may exercise a Second Option to repurchase Merck’s interests in Prilosec and Nexium in the US. This option is exercisable by AstraZeneca in 2012, or in 2017, or if combined annual sales of the two products fall below a minimum amount. AstraZeneca’s exercise of the Second Option will end the contingent payments in respect of Prilosec and Nexium and will effectively end AstraZeneca’s relationship with, and obligations to, Merck (other than some residual manufacturing arrangements). The exercise price for the Second Option is the net present value of the future annual contingent payments on Prilosec and Nexium as determined at the time of exercise. If the Second Option is exercised, Merck will then have relinquished all its interests in the partnership and the agreement products, including rights to contingent payments. The exercise price of the Second Option cannot be determined at this time.

Accounting treatment of termination arrangements

AstraZeneca considers that the termination arrangements described above represent the acquisition, in stages, of Merck’s interests in the partnership and agreement products (including Merck’s rights to contingent payments) and depend, in part, on the exercise of the First and Second Options. The effects will only be reflected in the Financial Statements as these stages are reached. If and when all such payments are made, AstraZeneca will have unencumbered discretion in its operations in the US market.

AstraZeneca anticipates that the benefits that accrue under all of the termination arrangements arise:

• Currently, from the substantial freedom over products acquired or discovered post-merger.
• On occurrence of each stage of such arrangements, from enhanced contributions from, and substantial freedom over, those products that have already been launched (for example, Pulmicort, Symbicort, Rhinocort and Atacand), and those that are in development.
• Economic benefits include relief from contingent payments, anticipated cost savings from cessation of manufacturing arrangements and other cost efficiencies, together with the strategic advantages of increased freedom to operate.

The Advance Payment has been accounted for as an intangible asset and is being amortised over 20 years. This approach reflects the fact that, under the Agreements, AstraZeneca has acquired rights relieving it of potential obligations and restrictions in respect of Astra products with no existing or pending patents at the time of merger. Although these rights apply in perpetuity, the period of amortisation of 20 years has been chosen to reflect the typical timescale of development and marketing of a product.

The net payment made in 2008, consisting of the Partial Retirement of $4.271bn less the True-Up of $241m and loan note receivable of $1.38bn, in total $2.6bn, has been capitalised as intangible assets.

Part of the net payment made in 2008 resulted in AstraZeneca acquiring Merck’s interests in certain AstraZeneca products, including Pulmicort, Rhinocort, Symbicort and Toprol-XL. Consequently AstraZeneca no longer has to make contingent payments on these products to Merck and has obtained the ability to fully exploit these products and to fully exploit other opportunities in the Respiratory therapy area that AstraZeneca was previously prevented from doing by Merck’s interests in these products. Intangible assets aggregating $994m have been recognised in respect of these acquired product rights and these are being amortised over various periods, giving rise to an annual expense of approximately $60m going forward.

The balance of the net payment made in 2008 represents a payment on account for the product rights that will be acquired in the event that the First and the Second Options are exercised by AstraZeneca. Intangible assets aggregating $1.656bn have been recognised in the year in relation to the payment. This balance will not be subject to amortisation until each of the options is exercised and the related product rights are acquired. Should it become probable that the First Option will not be exercised, all the payments on account will be expensed immediately. If after the First Option has been exercised it becomes probable that the Second Option will not be exercised, the payments on account for the product rights to be acquired under the Second Option will be expensed immediately.

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Environmental costs and liabilities

The Group’s expenditure on environmental protection, including both capital and revenue items, relates to costs which are necessary for implementing internal systems and programmes and meeting legal and regulatory requirements for processes and products.

They are an integral part of normal ongoing expenditure for carrying out the Group’s research, manufacturing and commercial operations and are not separated from overall operating and development costs. There are no known changes in legal, regulatory or other requirements resulting in material changes to the levels of expenditure for 2006, 2007 or 2008.

In addition to expenditure for meeting current and foreseen environmental protection requirements, the Group incurs costs in investigating and cleaning up land and groundwater contamination. In particular, AstraZeneca and/or its affiliates have environmental liabilities at some currently or formerly owned, leased and third party sites.

In the US, the AstraZeneca affiliate, Zeneca Inc., and/or its indemnitees, have been named as potentially responsible parties (PRPs) or defendants at approximately 17 sites where Zeneca Inc. is likely to incur future investigation, remediation or operation and maintenance costs under federal or state, statutory or common law environmental liability allocation schemes. Similarly, the AstraZeneca affiliate, Stauffer Management Company LLC (SMC), which was established in 1987 to own and manage certain assets of Stauffer Chemical Company acquired that year, and/or its indemnitees, have been named as PRPs or defendants at approximately 28 sites where SMC is likely to incur future investigation, remediation or operation and maintenance costs under federal or state, statutory or common law environmental liability allocation schemes. In Europe and other parts of the world outside the US, AstraZeneca has given indemnities to third parties in respect of approximately 45 sites. These environmental liabilities arise from legacy operations that are not part of the Group’s current pharmaceuticals business and, at most of these sites, remediation, where required, is either completed or nearing completion.

AstraZeneca has made provisions for the estimated costs of future environmental investigation, remediation and operation and maintenance activity beyond normal ongoing expenditure for maintaining the Group’s research and development and manufacturing capacity and product ranges where a present obligation exists; it is probable that such costs will be incurred and can be estimated reliably. With respect to such estimated future costs, there were provisions at 31 December 2008 in the aggregate of $118.9m, which mainly relate to the US. These provisions do not include possible additional costs that are not currently probable. Where we are jointly liable or otherwise have cost sharing agreements with third parties, we reflect only our share of the obligation. Where the liability is insured in part or in whole by insurance or other arrangements for reimbursement, an asset is recognised to the extent that this recovery is virtually certain.

It is possible that the Company, or its affiliates, could incur future environmental costs beyond the extent of our current provisions. The extent of such possible, additional costs is inherently difficult to estimate due to a number of factors, including, but not limited to: (1) the nature and extent of claims that may be asserted in the future; (2) whether the Company or any of its affiliates has or will have any legal obligation with respect to asserted or unasserted claims; (3) the type of remedial action, if any, that may be selected at sites where the remedy is presently not known; (4) the potential for recoveries from or allocation of liability to third parties; and (5) the length of time that the environmental investigation, remediation and liability allocation process can take. Notwithstanding and subject to the foregoing, it is estimated that potential additional loss for future environmental investigation, remediation and remedial operation and maintenance activity above and beyond our provisions could be, in aggregate, in the order of $15-30m, which relates solely to the US.

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Legal proceedings

AstraZeneca is involved in various legal proceedings considered typical to its businesses, including litigation relating to employment, product liability, commercial disputes, infringement of intellectual property rights, the validity of certain patents, anti-trust, securities laws and governmental investigations. The more significant matters are discussed below.

Most of the claims involve highly complex issues. Often, these issues are subject to substantial uncertainties and therefore the probability of a loss, if any, being sustained and an estimate of the amount of any loss are difficult to ascertain. Consequently, for a majority of these claims, it is not possible to make a reasonable estimate of the expected financial effect, if any, that will result from ultimate resolution of the proceedings. In these cases, AstraZeneca discloses information with respect to the nature and facts of the cases.

With respect to each of the legal proceedings described below, other than those which have been disposed of, we are unable to make estimates of the possible loss or range of possible losses at this stage, other than where noted in the case of the European Commission fine, which is under appeal, and the Class 2 and 3 settlements in the Average Wholesale Price litigation. We also do not believe that disclosure of the amount sought by plaintiffs, if that is known, would be meaningful with respect to those legal proceedings. This is due to a number of factors including: the stage of the proceedings (in many cases trial dates have not been set) and the overall length and extent of pre-trial discovery; the entitlement of the parties to an action to appeal a decision; clarity as to theories of liability, damages and governing law; uncertainties in timing of litigation; and the possible need for further legal proceedings to establish the appropriate amount of damages, if any.

However, although there can be no assurance regarding the outcome of any of the legal proceedings referred to in this Note 25 to the Financial Statements, based on management’s current and considered view of each situation, we do not currently expect them to have a materially adverse effect on our financial position. This position could of course change over time, not least because of the factors referred to in the above paragraph.

In cases that have been settled or adjudicated, or where quantifiable fines and penalties have been assessed and which are not subject to appeal, or where a loss is probable and we are able to make a reasonable estimate of the loss, we indicate the loss absorbed or the amount of the provision accrued. No provisions have been made for any such claims and legal costs incurred discussed below other than the European Commission fine which has been paid and the settlement with certain parties under the Average Wholesale Price litigation.

Where it is considered that the Group is more likely than not to prevail, legal costs involved in defending the claim are charged to the income statement as they are incurred.

Where it is considered that the Group has a valid contract which provides the right to reimbursement (from insurance or otherwise) of legal costs and/or all or part of any loss incurred or for which a provision has been established, the best estimate of the amount expected to be received is recognised as an asset.

Assessments as to whether or not to recognise provisions or assets and of the amounts concerned usually involve a series of complex judgements about future events and can rely heavily on estimates and assumptions. AstraZeneca believes that the provisions recorded are adequate based on currently available information and that the insurance recoveries recorded will be received. However, given the inherent uncertainties involved in assessing the outcomes of these cases and in estimating the amount of the potential losses and the associated insurance recoveries, we could in future periods incur judgments or insurance settlements that could have a material adverse effect on our results in any particular period.

Intellectual property claims include challenges to the Group’s patents on various products or processes and assertions of non-infringement of patents. A loss in any of these cases could result in loss of patent protection on the related product. The consequences of any such loss could be a significant decrease in sales of the product, which could materially affect the future results of the Group. The lawsuits pending against companies that have filed ANDAs in the US, seeking to market generic forms of products sold by the Group prior to the expiry of the applicable patents covering these products, typically include allegations of non-infringement, invalidity and unenforceability of these patents. In the event that the Group is not successful in these actions or the statutory 30-month stay expires before a ruling is obtained, the companies involved will also have the ability, subject to FDA approval, to introduce generic versions of the product concerned.

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Abraxane^® (paclitaxel protein-bound particles for injectable suspension) (albumin–bound)

AstraZeneca is party to an agreement with Abraxis BioScience, LLC, (Abraxis) to co-promote Abraxane^®. In July 2006, Elan Pharma International Limited filed a lawsuit in the US District Court for the District of Delaware against Abraxis alleging that Abraxis infringes two US patents in connection with the marketing, use and sale of Abraxane^®. Elan did not name AstraZeneca in the complaint, nor did it seek an injunction in respect of AstraZeneca’s sales of Abraxane^®. There was a jury judgment against Abraxis in the litigation in June 2008, which had no impact on AstraZeneca.

Subsequently, in November 2008, AstraZeneca entered into a conditional agreement with Abraxis under which Abraxis would re-acquire exclusive rights to market Abraxane in the US, subject to the approval of the board of Abraxis’ parent company. Pursuant to the agreement, the board of Abraxis’ parent company ended the Co-Promotion Agreement on 2 January 2009. Under the agreement, Abraxis will pay AstraZeneca a $268m fee on 31 March 2009. This matter will no longer be reported.

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Accolate (zafirlukast)

In May 2008, AstraZeneca received a Paragraph IV Certification notice-letter from Dr. Reddy’s Laboratories Ltd and Dr. Reddy’s Laboratories, Inc. (together Dr. Reddy’s) that it had submitted an ANDA to the FDA for Accolate. AstraZeneca lists seven patents referencing Accolate in the FDA’s Orange Book. Dr. Reddy’s did not challenge two listed patents, US Patent Nos. 4,859,692 and 5,583,152, which expire in September 2010. As a result, Dr. Reddy’s cannot market its zafirlukast product before the 2010 expiration date of these two patents. Dr. Reddy’s challenged the five remaining patents alleging non-infringement, invalidity or unenforceability. In June 2008, AstraZeneca commenced patent infringement litigation against Dr. Reddy’s in the US District Court for the District of New Jersey for infringement of three of the five remaining listed patents, US Patent Nos. 5,319,097, 5,482,963 and 6,143,775. The remaining two patents listed in the FDA Orange Book have expiration dates in December 2011 and March 2014. In July 2008, Dr. Reddy’s responded to AstraZeneca’s pleading. Discovery proceeds. No trial date has been set.

AstraZeneca has full confidence in, and will vigorously defend and enforce, its intellectual property protecting Accolate.

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Atacand (candesartan cilexetil)

In March and April 2008, AstraZeneca and Takeda received Paragraph IV Certification notice-letters from Teva Pharmaceuticals USA Inc. (Teva), notifying AstraZeneca and Takeda that it had filed an ANDA with the FDA, seeking approval to market a generic version of Atacand in the 4mg, 8mg, 16mg and 32mg doses prior to the expiration of US Patent No. 5,534,534 (the ’534 patent), which expires in 2013. AstraZeneca lists three patents referencing Atacand in the FDA’s Orange Book. Teva’s notice alleges that its products do not infringe the ’534 patent. Teva did not challenge the remaining two listed compound patents, which expire in 2011 and 2012 respectively. As a result, Teva cannot market candesartan cilexetil before June 2012. AstraZeneca and Takeda did not bring an action for patent infringement in respect of the ’534 patent.

In July 2008, AstraZeneca and Takeda received a Paragraph IV Certification notice-letter from Mylan, Inc. (Mylan) relating to an ANDA submitted by Matrix Laboratories Ltd with respect to all four dose forms of candesartan cilexetil, alleging non-infringement of the ’534 patent. Mylan did not challenge the two compound patents listed in the FDA Orange Book. As a result, Mylan cannot market candesartan cilexetil before June 2012. AstraZeneca did not bring an action for patent infringement in respect of the ’534 patent.

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Atacand HCT (candesartan cilexetil and hydrochlorothiazide)

In September 2008, AstraZeneca received a Paragraph IV Certification notice-letter from Mylan, Inc. (Mylan) notifying AstraZeneca that it had submitted an ANDA for Atacand HCT, a combination product containing candesartan cilexetil and hydrochlorothiazide in the 32/12.5mg and 16/12.5mg dose forms. AstraZeneca lists five patents referencing Atacand HCT in the FDA’s Orange Book. Mylan’s notice alleges non-infringement, invalidity or unenforceability in respect of US Patent Nos. 5,534,534, 5,721,263 and 5,958,961. Mylan did not challenge the two listed compound patents, the latter of which expires in June 2012. As a result, Mylan cannot market candesartan cilexetil and hydrochlorothiazide before June 2012. AstraZeneca did not file a complaint for patent infringement.

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Crestor (rosuvastatin)

Product liability

From 2004 to present, AstraZeneca in the US was served with 16 individual lawsuits in various US jurisdictions, alleging injury in association with the use of Crestor. Fourteen of the cases were dismissed in early stages, and another was dismissed after the court granted AstraZeneca’s motion for summary judgment in June 2007. These decisions were not appealed by the plaintiffs. AstraZeneca intends to vigorously defend the remaining case, which is still in its preliminary stage.

Patent litigation – US

AstraZeneca lists three patents referencing Crestor in the FDA Orange Book: No. RE37,314 covering the active ingredient (the ’314 patent), No. 6,316,460 covering formulations (the ’460 patent), and No. 6,858,618 covering medical use (the ’618 patent). In the fourth quarter of 2007, AstraZeneca received Paragraph IV Certification notice-letters from Apotex, Inc. (Apotex), Aurobindo Pharma Limited (Aurobindo), Cobalt Pharmaceuticals Inc. and Cobalt Laboratories Inc. (together Cobalt), Glenmark Pharmaceuticals Inc. USA (Glenmark), Mylan Pharmaceuticals, Inc. (Mylan), Par Pharmaceutical, Inc. (Par), Sandoz, Inc. (Sandoz), Sun Pharmaceuticals Industries Limited (Sun) and Teva Pharmaceuticals USA, Inc. (Teva). Each entity notified AstraZeneca that it had submitted an ANDA to the FDA for approval to market Crestor 5mg, 10mg, 20mg and 40mg rosuvastatin calcium tablets prior to the expiration of one or more of AstraZeneca’s three FDA Orange Book-listed patents. The notice-letters informed AstraZeneca that each respective ANDA contained a Paragraph IV Certification alleging non-infringement, invalidity or unenforceability of one or more of AstraZeneca’s three patents. In December 2007, in response to notice-letters from seven of the nine ANDA-filers, AstraZeneca Pharmaceuticals LP, AstraZeneca UK Limited, IPR Pharmaceuticals, Inc., and AstraZeneca’s licensor, Shionogi Seiyaku Kabushiki Kaisha (Shionogi), filed separate lawsuits in the US District Court for the District of Delaware, against Apotex, Aurobindo, Cobalt, Mylan, Par, Sandoz and Sun for infringement of the patent covering rosuvastatin calcium, the active ingredient in Crestor tablets. AstraZeneca did not file patent infringement actions against Teva and Glenmark because they did not seek approval to market products before the 2016 expiration date of the patent covering the active ingredient. In addition to filing actions in the US District Court for the District of Delaware, for procedural reasons, AstraZeneca Pharmaceuticals LP, AstraZeneca UK Limited, IPR Pharmaceuticals, Inc. and Shionogi filed three duplicate patent infringement actions against Mylan, Aurobindo and Cobalt in US District Courts in West Virginia, New Jersey and Florida respectively. Aurobindo answered the duplicate action in New Jersey. After Mylan and Cobalt conceded jurisdiction of the Delaware District Court in January 2008, AstraZeneca dismissed the duplicate actions in West Virginia and Florida.

In January 2008, each of the seven ANDA-filers sued by AstraZeneca in the District of Delaware for infringement of the ’314 patent answered, counterclaimed, or otherwise responded to AstraZeneca’s pleadings. AstraZeneca replied or responded as allowed. In response, some defendants submitted jurisdictional motions seeking dismissals of parties and claims. The District Court heard oral argument on the jurisdictional motions in July 2008. In November 2008, the court issued a magistrate’s Report and Recommendation Regarding Motions to Dismiss deciding the defendants’ various jurisdictional motions. In December 2008, Aurobindo filed objections to the Report. In January 2009, the Court adopted the magistrate’s recommendations in respect of all parties except as to Aurobindo and its pending objections. Later in January 2009, AstraZeneca responded to Aurobindo’s objections.

Although AstraZeneca did not sue Apotex for infringement of the ’460 patent, in March 2008 Apotex filed a declaratory judgment lawsuit against AstraZeneca based on AstraZeneca’s ’460 patent in the US District Court, Middle District of Florida.

In March 2008, AstraZeneca moved before the Judicial Panel on Multi-District Litigation (JPMDL) for co-ordination and consolidation of all Crestor pre-trial matters by the Delaware Court. In June 2008, the JPMDL granted AstraZeneca’s motion for co-ordination and consolidation in the District of Delaware of all current ANDA matters involving Crestor. In June 2008, the JPMDL ordered Apotex’s in Florida declaratory judgment action against AstraZeneca and AstraZeneca’s duplicate suit against Aurobindo in the District of New Jersey transferred to the District of Delaware for pre-trial co-ordination. In September 2008, Apotex voluntarily dismissed its transferred Florida declaratory judgment lawsuit against AstraZeneca.

In their responses to AstraZeneca’s complaints, Cobalt, Par and Sandoz pleaded declaratory judgment counterclaims based on the ’460 patent or the ’618 patent or a third unlisted AstraZeneca patent directed to a crystalline form of rosuvastatin. Those counterclaims were later dismissed.

In June 2008, Teva notified AstraZeneca that it had amended its previously filed ANDA for approval to market Crestor rosuvastatin calcium tablets. Teva’s amended ANDA contained a Paragraph IV Certification alleging non-infringement and invalidity in respect of AstraZeneca’s ’314 patent. In July 2008, AstraZeneca Pharmaceuticals LP, AstraZeneca UK Limited, IPR Pharmaceuticals, Inc., and AstraZeneca’s licensor, Shionogi, filed a lawsuit in the US District Court for the District of Delaware, against Teva for infringement of the ’314 patent. In July 2008, Teva answered AstraZeneca’s pleading.

In September 2008, the Delaware District Court issued an amended scheduling order covering all of the Crestor ANDA matters subject to the Multi-District Litigation order, including the new lawsuit directed to Teva’s amended ANDA. The consolidated matter proceeds.

In October 2008, in a separate action, Teva Pharmaceuticals Industries Ltd., Teva’s Israeli parent corporation (Teva Ltd.), filed a patent infringement lawsuit against AstraZeneca Pharmaceuticals LP, AstraZeneca PLC, AstraZeneca UK Limited and IPR Pharmaceuticals, Inc. (together AstraZeneca) in the Eastern District of Pennsylvania. The complaint alleges that the manufacture, use and sale of Crestor 5mg, 10mg, 20mg and 40mg tablets infringe a formulation patent owned by Teva Ltd. In January 2009, AstraZeneca responded to Teva Ltd’s pleading.

Patent litigation – Canada

In September 2008, AstraZeneca Canada Inc. received a Notice of Allegation from Novopharm Limited (Novopharm) in respect of Canadian Patents Nos. 2,072,945 (the ’945 patent) and 2,313,783 (the ’783 patent) listed on the Patent Register in Canada for Crestor. Novopharm claims that the ’945 patent is invalid and that the ’783 patent has not been infringed. AstraZeneca responded by commencing a court application in October 2008 under the Patented Medicines (Notice of Compliance) Regulations, seeking an order prohibiting the Minister of Health from issuing a Notice of Compliance (marketing approval) to Novopharm until after expiry of the patents.

In November 2008, AstraZeneca Canada Inc. received a Notice of Allegation from Apotex in respect of the Canadian ’945 and ’783 patents listed on the Patent Register in Canada for Crestor. Apotex claims that the ’945 patent is invalid and that the ’783 patent would not be infringed and is invalid. AstraZeneca responded by commencing a court application in December 2008 under the Patented Medicines (Notice of Compliance) Regulations, seeking an order prohibiting the Minister of Health from issuing a Notice of Compliance (marketing approval) to Apotex until after expiry of the patents.

As a consequence of AstraZeneca Canada’s legal actions seeking prohibition orders, neither Novopharm nor Apotex can obtain a Notice of Compliance for its rosuvastatin calcium tablets until the earlier of the disposition of the respective court application in its favour or, unless a Prohibition Order is granted, 24 months after the date on which the respective court application was commenced (assuming its regulatory submission is approvable by that date).

AstraZeneca has full confidence in, and will vigorously defend and enforce, its intellectual property protecting Crestor.

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ENTOCORT EC (BUDESONIDE)

AstraZeneca lists two patents in the FDA Orange Book referencing Entocort EC. In April 2008, AstraZeneca received a Paragraph IV Certification notice-letter from Barr Laboratories (Barr) notifying AstraZeneca that it had submitted an ANDA to the FDA seeking approval to market a generic form of AstraZeneca’s Entocort EC prior to the expiration of the two patents. Barr’s notice alleges non-infringement and invalidity. In May 2008, AstraZeneca filed a patent infringement action against Barr in the US District Court for the District of Delaware. In June 2008, Barr responded and filed counterclaims alleging non-infringement and invalidity. No trial date has been set.

In June 2008, AstraZeneca received another Paragraph IV Certification notice-letter on behalf of generic drug manufacturer Mylan Pharmaceuticals Inc. (Mylan), that it had submitted an ANDA to the FDA for approval to market a generic version of AstraZeneca’s Entocort EC prior to the expiration of the patents listed in the FDA Orange Book. Mylan claims that each of the two patents covering Entocort EC is either invalid or will not be infringed by its proposed ANDA product. In July 2008, AstraZeneca filed a complaint for patent infringement against Mylan in the US District Court for the District of Delaware. In August 2008, Mylan responded by alleging non-infringement and invalidity of the patents-in-suit. No trial date has been set.

AstraZeneca has full confidence in, and will vigorously defend and enforce, its intellectual property protecting Entocort EC.

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Ethyol (amifostine)

In April 2008, the FDA approved Sun Pharmaceutical Industries Limited’s (Sun) generic amifostine product, which Sun launched shortly thereafter. An active infringement action has been brought against Sun as it pertains to certain patents to which AstraZeneca, through its acquisition of MedImmune, has rights. There was no material change to the status of that litigation in 2008.

Settlement discussions have occurred between the parties, and the Court is scheduled to hear Sun’s motion for summary judgment in February 2009. MedImmune believes that the trial of this matter will be scheduled for late 2009.

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Exanta (ximelagatran)

Between January and March 2005, four putative and essentially similar securities class actions were filed in the US against AstraZeneca PLC, Håkan Mogren (who currently serves as a Director of AstraZeneca PLC), Sir Tom McKillop, Jonathan Symonds and Percy Barnevik (who are former Directors of AstraZeneca PLC). These actions were subsequently consolidated into a single action in the US District Court for the Southern District of New York. The Consolidated Amended Complaint alleged that the defendants made materially false and misleading statements regarding Exanta clinical trials and the status of the Exanta new drug application in the US. The plaintiffs purport to assert claims on behalf of purchasers of AstraZeneca publicly traded securities during the period April 2003 to September 2004 under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.

In an opinion dated 3 June 2008, the US District Court for the Southern District of New York dismissed the case in its entirety by granting the motions to dismiss of AstraZeneca PLC and the individual defendants. Plaintiffs are currently appealing this decision to the US Court of Appeals for the Second Circuit, except for the ruling regarding two of the four individual defendants. AstraZeneca filed its brief in response to Plaintiffs’ appeal on 14 October 2008.

AstraZeneca PLC will continue to vigorously defend itself in this matter.

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Iressa (gefitinib)

Between 2004 and 2008, seven claims were filed against AstraZeneca KK in Japan, in the Osaka and Tokyo District Courts. In six of the claims, it is alleged that Iressa caused a fatal incidence of interstitial lung disease (ILD) in a Japanese patient. In the seventh claim, it is alleged that Iressa caused a non-fatal incidence of ILD. AstraZeneca KK believes the claims are without merit and is defending all the cases. ILD is a known complication of lung disease, including advanced lung cancer, regardless of treatment.

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Losec/Prilosec (omeprazole)

Patent litigation – US

In 2001, AstraZeneca filed a suit in the US against Andrx Pharmaceuticals, Inc. (Andrx) for infringement of US Patent No. 6,013,281 (the ’281 patent) directed to a process for making an omeprazole formulation. Andrx filed counterclaims of non-infringement, invalidity and unenforceability for inequitable conduct during prosecution of the ’281 patent. Andrx also asserted that in addition to the ’281 patent, two other formulation patents, numbered 4,786,505 (the ’505 patent) and 4,853,230 (the ’230 patent) were unenforceable for alleged litigation misconduct by AstraZeneca. Both parties sought attorneys’ fees. In May 2004, the US District Court for the Southern District of New York ruled that the ’281 patent was infringed, but also ruled that the ’281 patent was invalid.

The US District Court for the Southern District of New York dismissed Andrx’s litigation misconduct and other counterclaims and affirmative defences, leaving intact the October 2002 decision finding the ’505 and ’230 patents not invalid and infringed by Andrx. The October 2002 decision was affirmed in all respects on appeal in December 2003. The Court entered final judgment regarding the ’281 patent in July 2004, after determining to stay the attorneys’ fees claims pending any appeals. Andrx appealed the judgment and AstraZeneca cross-appealed. The appeal was argued to the US Court of Appeals for the Federal Circuit in August 2006. In April 2007, the Federal Circuit affirmed the lower court decision that the asserted claims of the ’281 patent are invalid. The Federal Circuit also concluded that AstraZeneca’s ’505 and ’230 formulation patents remained enforceable. As a result of Andrx’s infringement of the ’505 and ’230 patents, AstraZeneca was the prevailing party against Andrx in the lower court. AstraZeneca is pursuing appropriate relief, including damages.

During 2000 and 2001, AstraZeneca had filed suits against Lek Pharmaceutical and Chemical Company d.d. and Lek Services USA, Inc. (together Lek), Impax Laboratories Inc. (Impax), Eon Labs Manufacturing Inc. (Eon), Mylan Pharmaceuticals Inc. (Mylan), Apotex Corp. and Apotex, Inc. (together Apotex), Torpharm, Inc. (Torpharm) and Zenith Goldline Pharmaceuticals, Inc. (now known as IVAX Pharmaceuticals, Inc.) (IVAX). These suits followed the filing of ANDAs by these companies with the FDA concerning the companies’ intention to market generic omeprazole products in the US. The basis for the proceedings is that the actions of all the companies infringe the ’505 and ’230 formulation patents relating to omeprazole. The cases are proceeding under the US Hatch-Waxman legislation. The case against IVAX was dismissed without prejudice shortly after it was filed, after IVAX withdrew its application to market generic omeprazole. During 2003, after Mylan commenced commercial sale of its product, AstraZeneca filed suit against Laboratorios Esteve, SA and Esteve Quimica, SA (together Esteve), manufacturers of the omeprazole product to be distributed in the US by Mylan. In 2003 and 2004, Lek, Apotex and Impax all began commercial sales of their generic omeprazole products. In July 2004, Lek filed a motion for summary judgment of non-infringement. In January 2005, AstraZeneca filed suit against Teva Pharmaceutical Industries Ltd and Teva Pharmaceuticals USA, Inc. (together Teva), which are marketing and selling Impax’s omeprazole products. The Teva case was stayed in June 2005 until liability issues in the Impax action are resolved. AstraZeneca made claims for damages against each of the selling defendants. Anti-trust and non-infringement counterclaims were filed by Andrx, Apotex, Torpharm, Impax, Eon, Mylan, Esteve, Teva and Lek. All defendants except Lek have also raised invalidity and unenforceability counterclaims. The anti-trust counterclaims, as well as AstraZeneca’s claims for damages, have been stayed pending resolution of the patent liability issues. Apotex, Impax and Eon have withdrawn their anti-trust counterclaims.

In January 2006, AstraZeneca withdrew its claims for damages against Impax, and as a result the Court dismissed Impax’s demand for a jury. Impax appealed this decision on an interlocutory basis to the US Court of Appeals for the Federal Circuit, which denied the appeal, and then to the US Supreme Court, which also denied the appeal. From April to June 2006, a consolidated bench trial on patent liability issues was conducted, involving the remaining defendants, Mylan, Esteve, Lek, Apotex and Impax. Post-trial briefing was completed in July 2006.

In May 2007, the US District Court for the Southern District of New York upheld both formulation patents covering Prilosec. The Court found that the generic omeprazole formulations of Impax and Apotex infringed AstraZeneca’s patents. The Court also found that the generic products sold by Lek, Mylan and Esteve did not infringe AstraZeneca’s patents. AstraZeneca appealed the Mylan/Esteve decision to the US Court of Appeals for the Federal Circuit. Impax and Apotex also appealed. In May 2008, all three appeals were argued before the Federal Circuit. In June 2008, the Federal Circuit upheld the ruling that Mylan/Esteve did not infringe. In September 2008, the Federal Circuit upheld that the generic omeprazole formulations of Impax and Apotex infringed AstraZeneca’s patents-in-suit. AstraZeneca will pursue damages and additional remedies from Apotex, Impax and Teva, who is marketing Impax’s product.

In June 2007, AstraZeneca received a notice from Dr. Reddy’s Laboratories, Ltd and from Dr. Reddy’s Laboratories, Inc. (together Dr Reddy’s) that Dr. Reddy’s had submitted an ANDA seeking FDA approval to market a 20mg delayed release omeprazole magnesium capsule for the OTC market. Dr. Reddy’s seeks approval to market a generic omeprazole OTC product before the expiration of the patents listed in the FDA Orange Book in reference to the Prilosec OTC product that is marketed by Procter & Gamble. In July 2007, AstraZeneca commenced patent infringement litigation in the US District Court for the Southern District of New York against Dr. Reddy’s in response to Dr. Reddy’s Paragraph IV Certification regarding Prilosec OTC. In July 2008, Dr. Reddy’s filed a motion for summary judgment of non-infringement. The Court has not ruled on this motion. No trial date has been set.

Patent litigation – France

In June and July 2004, AstraZeneca applied in France for injunctions based on its omeprazole formulation patent against six companies for marketing generic omeprazole. In August 2004, the applications were rejected at first instance. AstraZeneca appealed this decision and in March 2005 the applications were rejected on appeal. In May 2004, AstraZeneca also started legal proceedings against the same companies for infringement of its omeprazole formulation patent in France. These proceedings have been consolidated with a case challenging the validity of the patent, brought by one of the companies against AstraZeneca. These cases have been closed due to inactivity by both parties over the last two years.

Patent litigation – Canada

AstraZeneca continues to be involved in proceedings in Canada involving various patents relating to omeprazole capsules or omeprazole magnesium tablets. Apotex launched a generic omeprazole capsule product in Canada in January 2004.

In February 2006, the Federal Court of Appeal upheld a lower court decision that prohibited Apotex from obtaining a Notice of Compliance for omeprazole magnesium tablets until the expiry of a relevant formulation patent in December 2008. In December 2008, the Federal Court of Appeal dismissed Apotex’s appeal of an order dismissing a motion by Apotex to set aside a Prohibition Order.

In January 2006, AstraZeneca Canada Inc. was served with a claim in the Federal Court of Canada for payment of an undetermined sum based on damages allegedly suffered by Apotex due to the delay from January 2002 to January 2004 in the issuance to Apotex of a Notice of Compliance in Canada for its 20mg omeprazole capsule product. AstraZeneca believes the claim is without merit and is defending it, as well as continuing to vigorously pursue its already pending patent infringement action against Apotex.

AstraZeneca has full confidence in, and will vigorously defend and enforce, its intellectual property protecting Losec/Prilosec.

European Commission investigation

In February 2000, the European Commission commenced an investigation relating to certain omeprazole intellectual property rights, and associated regulatory and patent infringement litigation. The investigation is pursuant to Article 82 of the EC Treaty, which prohibits an abuse of a dominant position. The investigation was precipitated by a complaint regarding a number of patent and other proceedings involving AstraZeneca. AstraZeneca has, in accordance with its corporate policy, co-operated with the Commission. In July 2003, the Commission served a Statement of Objections on AstraZeneca, referring to alleged infringements regarding the obtaining of supplementary protection certificates for omeprazole in certain European countries; and regarding AstraZeneca’s replacement of omeprazole capsules by omeprazole MUPS (tablets) and withdrawal of capsule marketing authorisations in three European countries. AstraZeneca replied fully to the Commission, explaining why its actions were, in AstraZeneca’s view, lawful. An oral hearing took place in February 2004. In June 2005, the Commission notified AstraZeneca PLC and AstraZeneca AB of its Decision to impose fines totalling €60m on the companies for infringement of European competition law (Article 82 of the EC Treaty and Article 54 of the EEA Agreement). The Commission alleges that the companies abused their dominant positions in the periods between 1993 and 2000 by making a pattern of misleading representations before the patent offices and/or courts in Belgium, Denmark, Germany, The Netherlands, Norway and the UK in regard to obtaining supplementary protection certificates for omeprazole; and by requesting the surrender of market authorisations for omeprazole capsules in Denmark, Norway and Sweden, combined with withdrawal of omeprazole capsules from these countries and the launch of omeprazole MUPS (tablets). AstraZeneca does not accept the Commission’s Decision and has appealed it to the Court of First Instance. AstraZeneca denies that it had a dominant position or that it was engaged in the behaviours as characterised by the Commission. In the meantime, the fine was fully provided for in the half-year results in 2005 through a charge to operating profit of $75m. Because it is further alleged by the Commission that these activities had the effect of hindering the entry of the generic version of Losec and parallel trade, it is possible that third parties could seek damages for alleged losses arising from this matter. Any such claims would be vigorously resisted.

The Oral Hearing in the above appeal to the Court of First Instance took place on 26 and 27 November 2008. The Court indicated its intention to hand down judgment in Spring 2009.

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Nexium (esomeprazole magnesium)

Sales and marketing practices

AstraZeneca entities have been sued in various state and federal courts in the US in purported representative class actions involving the marketing of Nexium. These actions generally allege that AstraZeneca’s promotion and advertising of Nexium to physicians and consumers was unfair, unlawful and deceptive, particularly as the promotion relates to comparisons of Nexium with Prilosec. They also allege that AstraZeneca’s conduct relating to the pricing of Nexium was unfair, unlawful and deceptive. The plaintiffs allege claims under various state consumer protection, unfair practices and false advertising laws. The plaintiffs in these cases seek remedies that include restitution, disgorgement of profits, damages, punitive damages, injunctive relief, attorneys’ fees and costs of suit.

The first action was brought in 2004 in the Superior Court of the State of California for the County of Los Angeles by the AFL-CIO, two unincorporated associations, and an individual on behalf of themselves, the general public and a class of California consumers, third party payers, cash payers and those making a co-payment. A second action was filed in the same court on behalf of a similar putative class of consumers. Actions making substantially similar allegations were filed in 2004 and 2005 on behalf of putative classes of consumers, third party payers, purchasers and labour management trust funds in the Circuit Court of Searcy County, Arkansas; in the Superior Court of the State of Delaware in and for New Castle County; in the Superior Court of Massachusetts in Boston; in the US District Court for the District of Delaware (three consolidated cases); and in the Circuit Court of the 11th Judicial Court in and for Miami-Dade County, Florida.

In September 2005, the Court in California issued a ruling on AstraZeneca’s demurrer and motion to strike in the two California actions. The Court granted AstraZeneca’s motion with respect to the associated plaintiffs and denied the motion with respect to the individual plaintiffs, allowing the cases of the individuals to proceed. In October 2005, the Court in Massachusetts denied AstraZeneca’s motion to dismiss. Plaintiffs’ motions for class certification in the California and Massachusetts cases were filed in October 2007. The California plaintiffs filed an amended class certification motion in January 2008. In June 2008, AstraZeneca filed oppositions to the class certification motions, and also filed motions for summary judgment in California. Oral argument on the California motions was held in December 2008 and a decision is expected by the second quarter of 2009.

In November 2005, the US District Court for the District of Delaware granted AstraZeneca’s motion to dismiss the consolidated class action complaint. In September 2007, the US Court of Appeals for the Third Circuit affirmed the dismissal and denied plaintiffs’ petition for rehearing en banc. In December 2007, plaintiffs filed a petition for writ a certiorari with the US Supreme Court. AstraZeneca responded to the petition in February 2008. The petition is pending. The Delaware state case has been stayed pending the outcome of the Delaware federal cases.

In May 2006, the Arkansas State Court granted AstraZeneca’s motion to dismiss the plaintiffs’ complaint. The plaintiffs filed additional motions and pleadings, including an amended complaint. AstraZeneca filed a motion to dismiss the amended complaint. In July 2008, the Arkansas State Court granted AstraZeneca’s renewed motion to dismiss the plaintiffs’ amended complaint. The plaintiffs filed an appeal.

Anti-trust

In December 2006 and January 2007, several lawsuits against AstraZeneca entities, including putative class actions, were filed in the US District Court for the District of Columbia alleging anti-trust claims of unlawful monopolisation relating to Prilosec and Nexium. Individual actions were filed in December 2006 by Walgreen Co., Eckerd Corporation, Maxi Drug, Inc. d/b/a Brooks Pharmacy, The Kroger Co., New Albertson’s Inc., Safeway, Inc., Hy-Vee, Inc., American Sales Company, Inc., Rite Aid Corporation, and Rite Aid Headquarters Corp. Also, putative class actions brought on behalf of direct purchasers were filed in December 2006 by Meijer, Inc., Meijer Distribution, Inc., Louisiana Wholesale Drug Co., Inc., and in January 2007 by Burlington Drug Co., Inc., Dik Drug Co., Inc, and King Drug Co. of Florence, Inc. The plaintiffs sought treble damages, injunctive relief and attorney fees. All plaintiffs filed amended complaints in February 2007. In February 2008, the court dismissed all complaints. The plaintiffs did not appeal the decision.

Patent proceedings

In October 2007, the European Patent Office (EPO) Opposition Division ruled that the European process patent EPB0,773,940 (the ’940 patent) for Nexium is valid in amended form, despite an opposition by the German generic manufacturer, ratiopharm. The patent has been upheld as granted except, with respect to certain claims, for minor amendments. In January 2008, ratiopharm and AstraZeneca filed notices of appeal against this decision.

The ’940 patent for Nexium covers a process for the manufacturing of esomeprazole and its salts in Austria, Belgium, Switzerland, Germany, Denmark, Spain, France, UK, Greece, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Monaco, The Netherlands, Portugal, Slovenia and Sweden. This positive decision by the EPO means that this patent, in its amended form, still covers the manufacturing process for Nexium. This patent expires in 2015.

This portfolio includes additional patents with expiration dates ranging from 2009 to 2018. In addition to these patents, Nexium has data exclusivity valid until March 2010 in most major European markets.

AstraZeneca has full confidence in, and will vigorously defend and enforce, its intellectual property rights protecting Nexium.

Patent litigation

In October 2005, AstraZeneca received a Paragraph IV Certification notice-letter from Ranbaxy Pharmaceuticals, Inc. that Ranbaxy Laboratories Limited (together Ranbaxy) had submitted an ANDA to the FDA for 20mg and 40mg esomeprazole magnesium delayed-release capsules. The ANDA alleged invalidity and/or non-infringement in respect of certain AstraZeneca US patents listed in the FDA Orange Book with reference to Nexium. In November 2005, AstraZeneca commenced wilful patent infringement litigation in the US District Court for the District of New Jersey against Ranbaxy and its affiliates in response to Ranbaxy’s Paragraph IV Certifications regarding Nexium. In April 2008, AstraZeneca entered into a settlement agreement and consent judgment with Ranbaxy. Ranbaxy was the first to file an ANDA having a Paragraph IV Certification notice in respect of the FDA Orange Book-listed Nexium patents. Ranbaxy conceded that all six patents asserted by AstraZeneca in the patent litigation are valid and enforceable. Ranbaxy also conceded that four of the patents would be infringed by the unlicensed sale of Ranbaxy’s proposed generic product. The settlement agreement allows Ranbaxy to commence sales of a generic version of Nexium under a license from AstraZeneca on 27 May 2014.

In January 2006, AstraZeneca received a Paragraph IV Certification notice-letter from IVAX Pharmaceuticals Inc. that IVAX Corporation (together IVAX) had submitted an ANDA to the FDA for 20mg and 40mg esomeprazole magnesium delayed-release capsules. The ANDA contained Paragraph IV Certifications of invalidity and/or non-infringement in respect of certain AstraZeneca US patents listed in the FDA Orange Book with reference to Nexium. In March 2006, AstraZeneca commenced wilful patent infringement litigation in the US District Court for the District of New Jersey against IVAX, its parent Teva Pharmaceuticals, and their affiliates. In December 2008, the Court granted AstraZeneca’s motion to add Cipla, Ltd. as a defendant in the litigation. No trial date has been set.

In August 2006, AstraZeneca received a Paragraph IV Certification notice-letter from Dr Reddy’s Laboratories Inc. and Dr Reddy’s Laboratories Limited (together Dr Reddy’s) that Dr Reddy’s had submitted an ANDA to the FDA for 20mg and 40mg esomeprazole magnesium delayed-release capsules. Dr Reddy’s August 2006 notice did not challenge three FDA Orange Book-listed patents claiming esomeprazole magnesium (US Patent Nos. 5,714,504, 5,877,192 and 6,875,872). In December 2007, AstraZeneca received another Paragraph IV Certification notice-letter from Dr. Reddy’s that Dr. Reddy’s had submitted an ANDA to the FDA for 20mg and 40mg esomeprazole magnesium delayed-release capsules. Unlike the August 2006 notice, Dr. Reddy’s December 2007 notice alleged that US Patent Nos. 5,714,504, 5,877,192 and 6,875,872 were invalid or not infringed. AstraZeneca’s exclusivity relating to these three patents expires on 3 August 2015, 27 November 2014 and 27 November 2014, respectively. In January 2008, AstraZeneca commenced patent infringement litigation in the US District Court for the District of New Jersey against Dr. Reddy’s. No trial date has been set.

In July and September 2007, AstraZeneca received a Paragraph IV Certification notice-letter from Matrix Laboratories, Inc. (Matrix) that Matrix had submitted an ANDA to the FDA for 20mg and 40mg esomeprazole magnesium delayed-release capsules. Matrix was seeking FDA approval to market a generic esomeprazole magnesium product prior to the expiration of some but not all of the patents listed in the FDA Orange Book with reference to Nexium. Matrix’s notice did not challenge three FDA Orange Book-listed patents claiming esomeprazole magnesium (US Patent Nos. 5,714,504, 5,877,192 and 6,875,872). As AstraZeneca has not received notice from Matrix as to these three US patents, Matrix cannot market generic esomeprazole magnesium until the end of the exclusivity afforded by these patents. AstraZeneca did not bring a lawsuit. AstraZeneca reserves the right to enforce all patents related to Nexium, including those listed in the FDA Orange Book.

In March 2008, AstraZeneca received a Paragraph IV Certification notice-letter from Teva Parental Medicines (Teva) that Teva had submitted a new drug application (NDA) to the FDA regarding esomeprazole for injection, 20mg/vial and 40mg/vial. The notice contains certifications of invalidity, unenforceability, and/or non-infringement in respect of US Patent No. 5,877,192, which is listed in the FDA Orange Book with reference to Nexium in intravenous form. In April 2008, AstraZeneca commenced patent infringement litigation against Teva in the US District Court for the District of New Jersey. In October 2008, Teva informed AstraZeneca that Teva was withdrawing its NDA relating to esomeprazole for injection. As a result of Teva withdrawing its NDA, the Court has dismissed the litigation.

In May and June 2008, AstraZeneca received a complaint from IVAX and a complaint from Dr. Reddy’s for declaratory judgments of non-infringement and/or invalidity for patents listed in the FDA Orange Book with reference to Nexium that were not previously at issue in the ongoing infringement litigations. In August 2008, the Court dismissed the IVAX and Dr. Reddy’s declaratory judgment actions as to certain patents and stayed the declaratory judgment actions as to remaining patents at issue. In January 2009, the Court vacated its August 2008 Orders, which had dismissed and stayed the declaratory judgment actions. As a result, the IVAX and Dr. Reddy’s declaratory judgment actions are proceeding. No trial date has been set.

In August 2008, AstraZeneca received a Paragraph IV Certification notice-letter from IVAX challenging US Patent No. 7,411,070 (the ’070 patent). The ’070 patent is listed in the FDA Orange Book with reference to Nexium. The notice contains certifications of invalidity, unenforceability and/or non-infringement in respect of the ’070 patent. In October 2008, AstraZeneca commenced patent infringement litigation asserting the ’070 patent against IVAX and Cipla Limited in the US District Court, District of New Jersey. No trial date has been set.

In December 2008, AstraZeneca received a Paragraph IV Certification notice-letter from Sandoz, Inc. (Sandoz) that Sandoz had submitted an ANDA to the FDA for esomeprazole magnesium delayed-release capsules, 20mg and 40mg. The ANDA alleged invalidity and/or non-infringement in respect of certain AstraZeneca US patents listed in the FDA Orange Book with reference to Nexium. In January 2009, AstraZeneca commenced patent infringement litigation in the US District Court for the District of New Jersey against Sandoz in response to Sandoz’s Paragraph IV Certifications regarding Nexium. No trial date has been set.

In Canada, AstraZeneca Canada Inc. received several notices of allegation from Apotex Inc. (Apotex) in late 2007 in respect of patents listed on the Patent Register in Canada for Nexium. Apotex has asserted in its notices that it has filed an Abbreviated New Drug Submission for 20mg and 40mg esomeprazole magnesium trihydrate tablets and alleges non-infringement and/or invalidity of numerous patents. AstraZeneca responded by commencing seven court applications in January 2008 under the Patented Medicines (Notice of Compliance) Regulations. In January 2008, Apotex advised that its product was erroneously described as being a trihydrate in its recent allegations, which Apotex asserted it was withdrawing. Apotex made replacement allegations in January 2008, some of which AstraZeneca is continuing to challenge in Court applications commenced in March 2008 under the Patented Medicines (Notice of Compliance) Regulations. Apotex cannot obtain a Notice of Compliance (marketing approval) for its esomeprazole tablets until the earlier of the disposition of all of the court applications in Apotex’s favour or, unless a Prohibition Order is granted, 24 months from the date on which the latest court application has been commenced.

In Norway, AstraZeneca received a writ from Hexal AG, Sandoz AS (Norway) and Sandoz A/S (Denmark) (together Hexal) claiming that AstraZeneca’s Norwegian patents No. 314,125 and No. 307,378, which relate to Nexium, are invalid. In a reply filed with the Oslo District Court in September 2008, AstraZeneca stated that it contests Hexal’s claims. AstraZeneca filed a request with the Norwegian Patent Office to amend Norwegian patent No. 314,125 and also requested that the Court stay the invalidity case pending determination of the patent amendment request. In October 2008, Hexal consented to AstraZeneca’s request to stay the invalidity case until the patent amendment request had been determined.

In Finland, AstraZeneca filed for declaratory relief against Sandoz A/S and Sandoz Oy (Finland) (together Sandoz) in July 2008 in respect of Finnish Patent No. 117,755 (the ’755 patent), which relates to Nexium. AstraZeneca has requested that the Finnish Court declare that Sandoz would infringe the ’755 patent if they were to launch a generic esomeprazole product prior to expiry of the term of the ’755 patent. Sandoz filed a written response in November 2008 and requested, inter alia, that this proceeding be stayed. In September 2008, Sandoz and Hexal brought an invalidity action concerning the ’755 patent before the District Court of Helsinki. AstraZeneca filed a written response to the invalidity action in December 2008. No trial date has been set for either of these two Finnish Court proceedings.

AstraZeneca has full confidence in, and will vigorously defend and enforce, its intellectual property protecting Nexium.

Federal Trade Commission (FTC) inquiry

In July 2008, AstraZeneca received a Civil Investigative Demand from the Federal Trade Commission seeking information regarding the Nexium patent litigation settlement with Ranbaxy. AstraZeneca is co-operating fully with the request.

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Pulmicort Respules (budesonide inhalation suspension)

On 25 November 2008, AstraZeneca entered into a settlement agreement in its Pulmicort Respules patent infringement litigation against IVAX Pharmaceuticals, Inc., a wholly owned subsidiary of Teva Pharmaceuticals USA Inc. (Teva).

The agreement settles the patent infringement litigation filed by AstraZeneca following Teva’s submission to the FDA of an ANDA for a generic version of Pulmicort Respules. Under the settlement agreement, Teva concedes that the patents asserted by AstraZeneca in the patent litigation are valid and enforceable. Teva also concedes that its generic version of Pulmicort Respules infringes AstraZeneca’s patents.

The settlement agreement will allow Teva to commence sales of budesonide inhalation suspension, a generic version of Pulmicort Respules, under an exclusive licence from AstraZeneca beginning 15 December 2009. AstraZeneca will receive a significant royalty on sales of Teva’s product, with a marked step down in payments if additional at-risk generic products enter the market place. Teva also agrees to pay AstraZeneca a sum in respect of damages resulting from the unauthorised launch of its generic budesonide inhalation suspension product in November 2008. The agreement releases Teva from all past US sales of its generic budesonide inhalation suspension and provides that any product already shipped by Teva will remain in the market to be further distributed and dispensed.

In March 2008, AstraZeneca filed a lawsuit in the US District Court for the District of New Jersey against Breath Ltd. (Breath) for patent infringement. The lawsuit is the result of an ANDA filed by Breath with the FDA concerning Breath’s intent to market a generic version of AstraZeneca’s Pulmicort Respules in the US prior to the expiration of AstraZeneca’s patents. The basis for AstraZeneca’s complaint is that the action by Breath of filing an ANDA infringes certain of AstraZeneca’s patents directed to Pulmicort Respules and their use. In May 2008, Breath responded and filed counterclaims alleging non-infringement and invalidity. Discovery in the litigation is ongoing.

AstraZeneca has full confidence in, and will vigorously defend and enforce, its intellectual property protecting Pulmicort Respules.

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Seroquel (quetiapine fumarate)

Product liability

In August 2003, Susan Zehel-Miller filed a putative class action against AstraZeneca PLC and AstraZeneca Pharmaceuticals LP on behalf of ‘all persons in the US who purchased and/or used Seroquel’. Among other things, the class action alleged that AstraZeneca failed to provide adequate warnings in connection with an alleged association between Seroquel and the onset of diabetes. In 2004, the US District Court for the Middle District of Florida denied class certification and the case was ultimately dismissed. Two additional putative class actions raising similar allegations have likewise been dismissed. There are no other US class actions relating to Seroquel; however, four putative class actions raising substantially similar allegations have been filed in Canada.

AstraZeneca Pharmaceuticals LP, either alone or in conjunction with one or more affiliates, has been sued in numerous individual personal injury actions involving Seroquel. In most of these cases, the nature of the plaintiffs’ alleged injuries is not clear from the complaint and, in most cases, little or no factual information regarding the alleged injury has been provided in the complaint. However, the plaintiffs generally contend that they developed diabetes and/or other related injuries as a result of taking Seroquel and/or other atypical anti-psychotic medications.

As of 5 January 2009, AstraZeneca was defending approximately 9,210 served or answered lawsuits involving approximately 15,461 plaintiff groups. To date, approximately 2,363 additional cases have been dismissed by order or agreement and approximately 1,500 of those cases have been dismissed with prejudice. Approximately 60% of the plaintiffs’ currently pending Seroquel claims are in state courts (primarily Delaware, New Jersey, New York and Missouri) with the other 40% pending in the federal court, where most of the cases have been consolidated for pre-trial purposes into a Multi-District Litigation (MDL). Approximately 24% of the cases that were or are pending in the federal court MDL have been dismissed.

Plaintiffs’ discovery of AstraZeneca has largely been completed, although additional discovery may take place. AstraZeneca’s discovery of specific plaintiffs’ cases is ongoing in most jurisdictions and AstraZeneca intends to vigorously test the merits of those individual cases on factual and legal grounds. Bellwether case systems have been implemented by the courts in Delaware, New Jersey and the federal MDL court due to the larger volume of consolidated cases in those jurisdictions.

On 28 January 2009, the federal judge presiding over the Seroquel MDL in the District Court for the Middle District of Florida orally informed the parties that she was granting AstraZeneca’s motions for summary judgment in the first two Seroquel product liability cases set for trial. Therefore, the trial scheduled for 2 February 2009 in Florida has been cancelled.

AstraZeneca expects that an additional seven to nine trials may be scheduled to commence in 2009. AstraZeneca is also aware of approximately 59 additional cases that have been filed but not yet served and has not determined how many additional cases, if any, may have been filed. Some of the cases also include claims against other pharmaceutical manufacturers such as Eli Lilly & Co., Janssen Pharmaceutica, Inc. and/or Bristol-Myers Squibb Company. AstraZeneca intends to litigate these cases on their individual merits and will defend against the cases vigorously.

As of 31 December 2008, legal defence costs of approximately $512m have been incurred (of which approximately $335m was incurred during 2008). AstraZeneca has product liability insurance that is considered to respond to the vast majority of claims brought in these Seroquel cases, subject to a retention. This insurance provides coverage for legal defence costs and potential damage amounts in connection with the Seroquel product liability cases. AstraZeneca has recorded an insurance receivable of $426m at 31 December 2008 (2007: $139m). AstraZeneca currently estimates that its defence costs alone may exceed its insurance coverage with respect to the Seroquel cases.

Patent litigation – Seroquel

In September 2005, AstraZeneca received a notice from Teva Pharmaceuticals USA Inc. (Teva) that Teva had submitted an ANDA for quetiapine fumarate 25mg tablets containing a Paragraph IV Certification alleging invalidity, unenforceability or non-infringement in respect of AstraZeneca’s US patent listed in the FDA Orange Book with reference to Seroquel. In November 2005, AstraZeneca filed a lawsuit directed to Teva’s 25mg tablets ANDA in the US District Court for the District of New Jersey for wilful patent infringement.

In February 2006, AstraZeneca received another notice from Teva that it had amended its previously submitted ANDA for quetiapine fumarate 25mg tablets and added 100mg, 200mg and 300mg tablets to its application to the FDA. The amended ANDA submission contained a similar Paragraph IV Certification alleging invalidity, unenforceability or non-infringement in respect of AstraZeneca’s US patent listed in the FDA Orange Book with reference to Seroquel. In March 2006, in response to Teva’s amended ANDA and Teva’s intent to market additional strengths of a generic version of Seroquel in the US prior to the expiration of AstraZeneca’s patent, AstraZeneca filed an additional lawsuit against Teva in the US District Court for the District of New Jersey for patent infringement.

The two Teva lawsuits were consolidated in April 2006. However, in March 2006, the US District Court had granted Teva’s motion to strike AstraZeneca’s added allegation of wilfullness in its patent infringement claim in the first complaint directed to Teva’s 25mg tablets. Therefore, in the consolidated action, in response to AstraZeneca’s now combined allegations of patent infringement directed to Teva’s 25mg, 100mg, 200mg and 300mg tablets ANDA, Teva alleges non-infringement and patent invalidity. In January 2007, Teva filed a motion seeking leave to amend its pleadings in the consolidated action to add allegations, defences and counter-claims directed to alleged inequitable conduct in the procurement of AstraZeneca’s patent.

In March 2007, AstraZeneca received a Paragraph IV Certification notice-letter from another generic drug manufacturer, Sandoz Inc. (Sandoz), notifying AstraZeneca that it had submitted an ANDA to the FDA for approval to market a generic version of AstraZeneca’s 25mg quetiapine fumarate tablets prior to the expiration of AstraZeneca’s listed patent. Sandoz’s notice-letter alleged non-infringement and patent invalidity. In April 2007, AstraZeneca filed a lawsuit in the US District Court for the District of New Jersey against Sandoz alleging patent infringement.

In June 2007, AstraZeneca received a third notice from Teva notifying AstraZeneca that it had supplemented its ANDA for quetiapine fumarate tablets again, adding 50mg, 150mg and 400mg tablets to the application. The third notice-letter similarly advised that Teva’s supplementation contained a Paragraph IV Certification respecting AstraZeneca’s listed patent covering Seroquel. In June 2007, AstraZeneca filed a third lawsuit in the US District Court for the District of New Jersey against Teva for its supplementation adding the 50mg, 150mg and 400mg dosage strengths.

In October 2007, the Court granted AstraZeneca’s partial summary judgment motion based on collateral estoppel, which precludes Teva from re-litigating issues previously resolved against it in another previous patent litigation involving Eli Lilly & Co.’s anti-psychotic drug, Zyprexa^™.

After completion of fact-discovery, Sandoz and Teva conceded that their respective ANDA products infringe AstraZeneca’s patent covering Seroquel. Sandoz and Teva also conceded the patent’s validity, leaving only allegations of unenforceability for inequitable conduct. In March 2008, AstraZeneca filed a motion for summary judgment of no inequitable conduct.

In July 2008, the US District Court, District of New Jersey granted AstraZeneca’s motion for summary judgment of no inequitable conduct. Therefore, on 9 July 2008, the Court entered its Final Judgment in AstraZeneca’s favour on all claims and defences in respect of infringement, validity, and enforceability of AstraZeneca’s patent. The Court’s judgment includes an order to the FDA that any approvals of Teva’s or Sandoz’s ANDAs shall be after the date that is the later of the expiration date of US Patent No. 4,879,288 (the ’288 patent) or the expiration date of any additional exclusivity to which AstraZeneca is or becomes entitled.

Teva and Sandoz appealed the judgment to the Federal Circuit Court of Appeals. In December 2008, the parties completed briefing. Oral argument is scheduled for 6 March 2009. In December 2008, Teva announced that the FDA had tentatively approved its generic quetiapine tablets.

Patent litigation – Seroquel XR

AstraZeneca lists two patents in the FDA Orange Book referencing Seroquel XR: the ’288 patent covering quetiapine fumarate, the active ingredient, and US Patent No. 5,948,437 (the ’437 patent) covering extended-release formulations, processes and methods in respect of quetiapine fumarate.

In July 2008, AstraZeneca received a Paragraph IV Certification notice-letter from Handa Pharmaceuticals, LLC (Handa) stating that it had submitted an ANDA seeking approval to market generic versions of 200mg and 300mg Seroquel XR tablets before the expiration of AstraZeneca’s two listed patents covering Seroquel XR. Handa’s Certification notice-letter alleged non-infringement, invalidity and unenforceability. Later in July 2008, AstraZeneca received a similar Paragraph IV Certification notice-letter from Handa stating that it had submitted an amendment to its ANDA for 200mg and 300mg tablets adding a request for approval to market a generic version of 400mg Seroquel XR tablets before the expiration of AstraZeneca’s two listed patents covering Seroquel XR.

In July 2008, AstraZeneca filed a lawsuit in US District Court, District of New Jersey, against Handa and a currently unknown, associated entity alleging infringement of AstraZeneca’s ’288 and ’437 patents covering Seroquel XR 200mg, 300mg and 400mg tablets. The filing of this lawsuit triggered 30-month stays of FDA final approval for Handa’s ANDA products.

In September 2008, AstraZeneca received a Paragraph IV Certification notice-letter from Accord Healthcare Inc. (Accord) advising that it had submitted an ANDA seeking approval to market generic versions of 200mg, 300mg and 400mg Seroquel XR tablets before expiration of AstraZeneca’s patent covering the Seroquel XR formulation. Accord is a subsidiary of Intas Pharmaceutical Limited (Intas). Later in September 2008, AstraZeneca filed a lawsuit in US District Court, District of New Jersey, against Accord, Intas and related entities, alleging infringement of the ’437 patent. The filing of this lawsuit triggered a 30-month stay of FDA final approval for Accord’s ANDA products.

In October and November 2008, AstraZeneca received respectively a third and fourth Paragraph IV Certification notice-letter from Handa advising that it had submitted an ANDA seeking approval to market generic versions of 50mg and 150mg Seroquel XR tablets before expiration of AstraZeneca’s patents covering the product. In October 2008, AstraZeneca filed a second lawsuit in US District Court, District of New Jersey against Handa alleging infringement of AstraZeneca’s patents covering the active ingredient and formulation of Seroquel XR 50mg tablets; and in December 2008, AstraZeneca filed a third lawsuit against Handa alleging infringement of AstraZeneca’s patents covering the active ingredient and formulation of Seroquel XR 150mg tablets. The filing of these additional lawsuits triggered 30-month stays of FDA final approval for Handa’s 50mg and 150mg ANDA products.

For purposes of discovery, the three Handa actions and the Accord action have been consolidated under a common scheduling order. The consolidated matter proceeds.

In December 2008, AstraZeneca received a Paragraph IV Certification notice-letter from Biovail Laboratories International SRL (Biovail) stating that it had submitted an ANDA seeking approval to market generic versions of 200mg, 300mg and 400mg Seroquel XR tablets before the expiration of AstraZeneca’s two listed patents covering Seroquel XR. Biovail’s Certification notice-letter alleged non-infringement and invalidity in respect of AstraZeneca’s patents. In January 2009, AstraZeneca filed a lawsuit in US District Court, District of New Jersey, against Biovail alleging infringement of AstraZeneca’s ’288 and ’437 patents covering Seroquel XR 200mg, 300mg and 400mg tablets. The filing of this lawsuit triggered a 30-month stay of FDA final approval for Biovail’s ANDA products.

On 26 January 2009, AstraZeneca received a second Paragraph IV Certification notice-letter from Accord stating that it had submitted an ANDA seeking approval to market a generic version of 150mg Seroquel XR tablets before the expiration of AstraZeneca’s patent covering the Seroquel XR formulation. Accord’s Certification notice-letter alleged non-infringement and invalidity in respect of AstraZeneca’s patents.

AstraZeneca has full confidence in, and will vigorously defend and enforce, its intellectual property protecting Seroquel and Seroquel XR.

Sales and marketing practices

The US Attorney’s Office in Philadelphia is directing an investigation relating to Seroquel involving a review of sales and marketing practices, including allegations that AstraZeneca promoted Seroquel for non-indicated (off-label) uses. AstraZeneca understands that this investigation is the subject of a sealed qui tam lawsuit filed under the False Claims Act. A second investigation may relate to selected physicians who participated in clinical trials involving Seroquel. There are also a number of additional active investigations involving Seroquel sales and marketing practices led by state Attorneys General which include investigations relating to Seroquel off-label issues. Approximately 34 states are participating in a joint investigation and several states may also have individual investigations. It is not possible to predict the outcome of any of these investigations, which could include the payment of damages and the imposition of fines, penalties and administrative remedies.

In February 2007, the Commonwealth of Pennsylvania filed suit against AstraZeneca, Eli Lilly & Co. (Lilly), and Janssen Pharmaceutica Inc. (Janssen) claiming damages incurred by the Commonwealth as a result of alleged off-label promotion of atypical anti-psychotics by the three manufacturers. The lawsuit is filed in state court in Philadelphia and seeks to recover the cost to the Pennsylvania Medicaid programme and other state-funded health insurance programmes for prescriptions written as a result of the alleged off-label promotion and also seeks compensation for costs incurred by the State for the treatment of Medicaid and other public assistance beneficiaries who allegedly developed diabetes, hyperglycemia and other conditions as a result of using Seroquel without adequate warning. In December 2007, the Court granted the defendants’ motion to sever the claims against AstraZeneca and Janssen from those against Lilly and directed the Commonwealth to file separate complaints against the two severed defendants, which the Commonwealth did in January 2008. In December 2008, the Court granted AstraZeneca’s motion to dismiss all but two counts of the Complaint including dismissal of the Commonwealth’s claims alleging violations of the Pennsylvania Medicaid False Claims Act. Similar lawsuits were filed by the State of Montana in February 2008, the State of Arkansas in May 2008, and the State of South Carolina in January 2009. AstraZeneca believes these claims to be without merit and intends to vigorously defend against them. As of the date of this announcement, the Montana action has not been served.

In May 2007, the New Jersey Ironworkers Local Union No. 68 filed a class action suit against AstraZeneca on behalf of all individuals and non-governmental entities that paid for Seroquel from January 2000 to date. The lawsuit was filed in the federal District Court in New Jersey and alleged that AstraZeneca promoted Seroquel for off-label uses and misled class members into believing that Seroquel was superior to other, lower-cost alternative medicines. Two similar class action lawsuits were filed in June and July 2007 in the New Jersey and Pennsylvania federal courts. In December 2007, the three lawsuits were transferred to the Middle District of Florida by the US Judicial Panel on Multi-District Litigation (MDL). In November 2008, the MDL Court granted AstraZeneca’s motion and dismissed these cases in their entirety with prejudice. The plaintiffs filed a Notice of Appeal in December 2008. AstraZeneca intends to vigorously defend against the appeal, which it expects will be heard by the Eleventh Circuit Court of Appeals some time in 2009.

In September 2008, the Pennsylvania Employees Benefit Trust Fund (PEBTF) served AstraZeneca Pharmaceuticals LP with a complaint filed in the Pennsylvania Court of Common Pleas of Philadelphia County seeking economic damages stemming from allegedly improper marketing practices that caused the PEBTF to reimburse for allegedly overpriced Seroquel prescription and the medical care of Fund members allegedly injured from Seroquel use. In October 2008, AstraZeneca removed this lawsuit to federal court and immediately requested that it be transferred to the Seroquel MDL. The decision regarding transfer is pending. AstraZeneca intends to vigorously defend itself against this lawsuit.

In addition, there have been congressional inquiries regarding Seroquel as discussed below.

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Symbicort (budesonide/formoterol)

In May 2008, following an appeal by the generic manufacturers Norton Healthcare (Norton) and Generics UK, the European Patent Office (EPO) Technical Board of Appeal revoked the European patent EPB 1,014,993 covering the use of Symbicort for the treatment of chronic obstructive pulmonary disease (COPD). The stays granted in the revocation proceedings instituted by IVAX Pharmaceuticals (UK) Limited (IVAX) in the UK and Ireland with respect to the national parts of the Symbicort combination patent EPB 613,371 and EPB 1,014,993 will remain in place until IVAX applies to the Court to lift these stays in light of the EPO decisions.

In December 2008, following an opposition by Norton, the EPO Opposition Division revoked the European patent EPB 1,210,943 covering the use of Symbicort, with a specific ratio of the active ingredients and a specific particle size, for the treatment of COPD.

In June 2008, the US Patent and Trademark Office issued a final determination that US Patent No. 5,674,860 was not eligible for patent term extension. AstraZeneca filed a request for reconsideration.

AstraZeneca will vigorously defend and enforce its remaining intellectual property portfolio protecting Symbicort, which has patent expiry dates up to 2019 in Europe.

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Synagis (palivizumab)

MedImmune settled its patent litigation in June 2008 with Genentech and the City of Hope in respect of the Cabilly patent (US Patent No. 6,331,415). Under the terms of the settlement agreement, the litigation, which was pending before the US District Court for the Central District of California, was fully resolved and dismissed. The settlement resolved disputed issues with respect to Synagis as well as a related product, motavizumab, for which regulatory approval is being sought. The settlement also permits MedImmune to obtain licences for certain additional pipeline products under the Cabilly patent family. MedImmune filed its original complaint in April 2003. Following a US Supreme Court decision in MedImmune’s favour in January 2007, the case had been returned to the lower courts for further proceedings.

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Toprol-XL (metoprolol succinate)

In 2003, AstraZeneca filed a patent infringement action against KV Pharmaceutical Company (KV) in the US District Court for the Eastern District of Missouri in response to KV’s notification of its intention to market a generic version of Toprol-XL tablets in the 200mg dose prior to the expiration of AstraZeneca’s patents covering the substance and its formulation. In response to later similar notices from KV related to the 25mg, 50mg and 100mg doses, AstraZeneca filed further actions. KV responded in each instance and filed counterclaims alleging non-infringement, invalidity and unenforceability of the listed patents.

In 2004, AstraZeneca filed a patent infringement action against Andrx Pharmaceuticals LLC (Andrx) in the US District Court for the District of Delaware in response to Andrx’s notification of its intention to market a generic version of Toprol-XL tablets in the 50mg dose prior to the expiration of AstraZeneca’s patents. In response to two later similar notices from Andrx related to the 25mg, 100mg and 200mg doses, AstraZeneca filed two additional patent infringement actions in the same court. In each instance, Andrx claimed that each of the listed patents is invalid, not infringed and unenforceable.

In 2004, AstraZeneca filed a patent infringement action against Eon Labs Manufacturing Inc., which was later acquired by Sandoz Inc. (Sandoz), in the US District Court for the District of Delaware in response to Sandoz’s notification of its intention to market generic versions of Toprol-XL tablets in the 25mg, 50mg, 100mg and 200mg doses prior to the expiration of AstraZeneca’s patents. In its response, Sandoz alleged that each of the listed patents is invalid, not infringed and unenforceable. Sandoz also alleged that the filing of the infringement complaints, as well as other actions by AstraZeneca, constitutes anti-competitive conduct in violation of US anti-trust laws. Pursuant to a joint motion of AstraZeneca and Sandoz, these anti-trust claims were severed from the case and stayed, for possible consideration depending on the outcome of the trial of the patent claims.

All of the patent litigation relating to Toprol-XL against KV, Andrx and Sandoz was consolidated for pre-trial discovery purposes and motion practice in the US District Court for the Eastern District of Missouri. The defendants filed a motion for summary judgment in 2004 alleging that the Toprol-XL patents were invalid due to double patenting. A summary judgment motion of unenforceability was filed by the defendants in 2005 and AstraZeneca filed summary judgment motions on infringement and validity in 2005. In January 2006, the US District Court for the Eastern District of Missouri issued a ruling finding that the two patents-in-suit were unenforceable and invalid. AstraZeneca appealed the District Court decision to the US Court of Appeals for the Federal Circuit. In July 2007, a three-judge panel of the Federal Circuit unanimously ruled that the inequitable conduct determination by the District Court was improper and therefore the issue of inequitable conduct was remanded to the District Court. The panel upheld, however, in a divided decision, the finding that the Toprol-XL patents were invalid due to double patenting. In August 2007, AstraZeneca petitioned the Federal Circuit for reconsideration of the invalidity determination. Reconsideration was denied in October 2007. In the second and third quarters of 2008, the remaining issues before the District Court were settled with all three defendants for amounts not material to AstraZeneca.

In the first quarter of 2006, AstraZeneca was served with 14 complaints filed in the US District Courts in Delaware, Massachusetts and Florida against AstraZeneca Pharmaceuticals LP, AstraZeneca LP, AstraZeneca AB and Aktiebolaget Hässle. The complaints were putative class actions filed on behalf of both direct purchasers and indirect purchasers that allege that the AstraZeneca defendants attempted to illegally maintain monopoly power in the US over Toprol-XL in violation of the Sherman Act through the listing of invalid and unenforceable patents in the FDA Orange Book and the enforcement of such patents through litigation against generic manufacturers seeking to market metoprolol succinate. The complaints seek treble damages based on alleged overcharges to the putative classes of plaintiffs. These 14 complaints were consolidated into two amended complaints in the US District Court in Delaware, one on behalf of direct purchasers, and one on behalf of indirect purchasers. The lawsuits are based upon the 2006 ruling described above by the US District Court for the Eastern District of Missouri in the consolidated patent litigation against KV, Andrx and Sandoz, that the AstraZeneca patents relating to Toprol-XL are invalid and unenforceable. In 2006 AstraZeneca filed a motion seeking to dismiss or, in the alternative, stay the consolidated complaint in both anti-trust cases. As noted above, AstraZeneca appealed the District Court decision in the underlying patent litigation, which resulted in a reversal and remand on the issue of inequitable conduct and affirmation that the Toprol-XL patents were invalid. AstraZeneca’s motion to dismiss the anti-trust complaints is still pending. AstraZeneca denies the allegations of the anti-trust complaints and will vigorously defend the lawsuits.

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Zestril (lisinopril)

In 1996, two of AstraZeneca’s predecessor companies, Zeneca Limited and Zeneca Pharma Inc. (as licensees), Merck & Co., Inc. and Merck Frosst Canada Inc. (together Merck) commenced a patent infringement action in the Federal Court of Canada against Apotex Inc. (Apotex), alleging infringement of Merck’s lisinopril patent. Apotex sold a generic version of AstraZeneca’s Zestril and Merck’s Prinivil^™ tablets. Apotex admitted infringement but raised positive defences to infringement, including that it acquired certain quantities of lisinopril prior to issuance of the patent and that certain quantities were licensed under a compulsory licence. Apotex also alleged invalidity of the patent. Following a trial in early 2006, in April 2006 the Federal Court of Canada ruled in favour of AstraZeneca and Merck on the key issues and Apotex stopped selling lisinopril in May 2006. In October 2006, the Federal Court of Appeal in Canada upheld the lower court’s decision and dismissed Apotex’s appeal. In December 2006, Apotex sought leave to appeal to the Supreme Court of Canada. The Supreme Court of Canada dismissed Apotex’s leave to appeal in May 2007. AstraZeneca intends to pursue a reference proceeding in the Federal Court to quantify the damages related to the infringement by Apotex. Apotex re-commenced the sale of lisinopril in October 2007 after expiry of the relevant patent.

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Average wholesale price litigation

AstraZeneca is a defendant along with many other pharmaceutical manufacturers in several sets of cases involving allegations that defendants caused entities to overpay for prescription drugs as a result of causing the publication of allegedly inflated wholesale list prices. The first set of cases were filed in December 2001 in the US District Court in Boston, Massachusetts on behalf of a putative class of plaintiffs. Following the Massachusetts complaint, nearly identical class action suits were filed in two other states, which have been consolidated with the Massachusetts action for pre-trial purposes, pursuant to federal Multi-District Litigation (MDL) procedures. Second, AstraZeneca and other manufacturers have since been sued in similar lawsuits filed by the State Attorneys General of Pennsylvania, Nevada, Montana, Wisconsin, Illinois, Alabama, Kentucky, Arizona, Mississippi, Hawaii, Alaska, Idaho, Iowa and Utah as well as by multiple individual counties in the State of New York. The Attorney General lawsuits seek to recover alleged overpayments under Medicaid and other state-funded healthcare programmes. In several cases, the states are also suing to recover alleged overpayments by state residents. Several of these suits have also been consolidated with the Massachusetts action for pre-trial purposes, pursuant to federal MDL procedures. Third, private insurers and consumers have filed putative state-wide class actions in Arizona and New Jersey alleging damages relating to private reimbursement of prescription drugs.

In the MDL action in January 2006, the District Court certified three classes of plaintiffs against the ‘Track 1’ manufacturer defendants, AstraZeneca, GlaxoSmithKline, Bristol-Myers Squibb, Schering-Plough and Johnson & Johnson. The three certified classes are: a nationwide class of consumers who made co-payments for certain physician-administered drugs reimbursed under the Medicare Part B programme (Part B drugs) (Class 1); a Massachusetts-only class of third party payers, including insurance companies, union health and welfare benefit plans, and self-insured employers, who covered consumer co-payments for Part B drugs (Class 2); and a Massachusetts-only class of third party payers and consumers who paid for Part B drugs outside of the Medicare programme (Class 3). For all classes, the only AstraZeneca drug at issue is Zoladex (goserelin acetate implant).

In May 2007, the parties reached a proposed settlement agreement resolving the Class 1 claims. The settlement, which was approved by the Court in December 2008, will involve payments of up to $24m to reimburse individual class members submitting claims, plus attorneys’ fees of $8.58m. AstraZeneca has agreed that a portion of any unclaimed settlement amounts will be donated to charitable organisations funding cancer patient care and research. Notice of the proposed settlement was mailed to potential class members in December 2007. A provision of $27m was established in 2007. In January 2009, one of the class members filed a notice of appeal challenging the settlement.

In June 2007 and November 2007, the MDL Court issued decisions, after a bench trial, on liability and damages on Classes 2 and 3. The Court found AstraZeneca liable under the Massachusetts consumer protection statute for engaging in unfair and deceptive conduct in connection with the pricing of Zoladex during the period 1998 to 2003. The Court awarded double damages (with pre-judgment interest) of $5.5m for Class 2, and single damages (with pre-judgment interest) of $7.4m for Class 3. AstraZeneca believes the decision to be in error and filed an appeal. The US Court of Appeals for the First Circuit held oral argument on the appeal in November 2008.

The MDL Court’s award on Classes 2 and 3, if it survives appeal, relates to damages incurred by payers within the Commonwealth of Massachusetts only. Plaintiffs filed a motion seeking certification of multi-state classes of third party payers in an effort to pursue similar claims for damages under the consumer protection statutes of other states. In September 2008, the MDL Court granted, in part, the plaintiffs’ motion for certification of multi-state versions of Class 2 and Class 3 relating to Zoladex. AstraZeneca believes the decision to be in error. In January 2009, the Court granted AstraZeneca’s motion to stay the entry of the order pending its appeal of the Court’s award relating to Massachusetts payers.

The multiple Attorney General lawsuits pending against AstraZeneca and other manufacturers nationwide, which involve numerous drugs in addition to Zoladex, remain pending against AstraZeneca.

The average wholesale price case filed by the Alabama Attorney General was tried in Circuit Court in Montgomery, Alabama in February 2008. The trial resulted in a jury verdict against AstraZeneca on the State’s claims of fraudulent concealment and misrepresentation, and an award of compensatory damages of $40m and punitive damages of $175m. In June 2008, the trial court held a hearing on AstraZeneca’s request for post-trial relief and reduced the punitive damages award, as required by statute, to $120m. AstraZeneca has filed an appeal with the Alabama Supreme Court. In December 2008, AstraZeneca filed its opening brief supporting its appeal. The appeal seeks to have the entire judgment reversed or, in the alternative, a new trial.

Separately, MedImmune is also involved in various lawsuits brought by various states and counties in the US alleging manipulation of average wholesale prices by several defendants, including MedImmune. The lawsuits were filed between 2003 and 2007 by Alabama, Mississippi, Iowa, New York City, and by various New York counties. The status of the various lawsuits by various states and counties alleging manipulation of average wholesale price by several defendants, including MedImmune, did not change materially during the financial year ended 31 December 2008 except that, in 2008, the State of Kansas filed a suit against a number of defendants, including MedImmune, in the District Court of Wyandotte County, Kansas.

The allegations made in respect of the average wholesale price lawsuits described in this section are denied and will be vigorously defended.

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340B class action litigation

In August 2005, AstraZeneca was named as a defendant, along with multiple other pharmaceutical manufacturers, in a class action suit filed by the County of Santa Clara in California state court on behalf of similarly situated California counties and cities that allegedly overpaid for drugs covered by the federal ‘340B’ programme. The 340B programme entitles hospitals and clinics that treat a substantial portion of uninsured patients to preferential drug pricing for outpatient drugs.

The case was removed to federal court, the US District Court for the Northern District of California. In 2006, the US District Court dismissed each of the allegations in Santa Clara County’s complaint. The County appealed the dismissal, and the US Court of Appeals for the Ninth Circuit reversed the dismissal in August 2008, enabling the County to continue its suit under a third party beneficiary breach of contract theory. Recently, two more Counties became plaintiffs, the County of Santa Cruz and the County of Riverside. In November 2008, the US District Court granted a motion for protective order, thereby limiting the scope of discovery in the manufacturers’ favour; however, the US District Court certified the issue for an immediate interlocutory appeal.

On all other issues not before the appellate court, discovery is currently proceeding before the US District Court and a trial date has been set for February 2010. AstraZeneca intends to vigorously defend these claims.

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Drug importation anti-trust litigation

In August 2004, Californian retail pharmacy plaintiffs filed an action in the Superior Court of California alleging a conspiracy by AstraZeneca and approximately 15 other pharmaceutical manufacturer defendants to set the price of drugs sold in California at or above the Canadian sales price for those same drugs and otherwise restrict the importation of pharmaceuticals into the US. In July 2005, the Court overruled in part and sustained in part, without leave to amend, the defendants’ motion to dismiss the plaintiffs’ third amended complaint in these proceedings. The Court overruled the defendants’ motion in respect of conspiracy claims but sustained the motion in respect of the California Unfair Competition Law claims. In December 2006, the Court granted the defendants’ motion for summary judgment and the case was subsequently dismissed. Plaintiffs appealed that decision and the Court of Appeal of the State of California affirmed the lower Court’s decision. Plaintiffs have appealed to the Supreme Court of California, which has decided to hear the appeal.

AstraZeneca denies the material allegations in the California action and is vigorously defending this matter.

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Pain pump litigation

Starting in February 2008, AstraZeneca LP, AstraZeneca Pharmaceuticals LP, Zeneca Holdings Inc., and/or AstraZeneca PLC have been named as defendants and served in approximately 41 lawsuits, involving approximately 48 plaintiffs, filed in various US jurisdictions, alleging injuries caused by third party pain pumps. The complaints in these cases generally allege that the use of Marcaine, Sensorcaine, Xylocaine and/or Naropin, with or without epinephrine, in pain pumps that were implanted into patients in connection with arthroscopic surgery, caused chrondrolysis. Other named defendants in these cases are other manufacturers and distributors of bupivacaine and lidocaine and other pain medications, pain pump manufacturers, and in some cases the surgeons. To date, 25 plaintiffs have dismissed their cases against the AstraZeneca defendants while the case was in preliminary stages, and the AstraZeneca defendants have filed pending motions to dismiss several other cases. In addition, three plaintiffs have voluntarily dismissed AstraZeneca PLC but have maintained their suits against other AstraZeneca defendants.

Rights to market Sensorcaine, Xylocaine and Naropin in the US were sold to Abraxis Bioscience Inc. (Abraxis) in June 2006 but many of these lawsuits may be a retained liability under the terms of the Asset Purchase Agreement with Abraxis. To date, AstraZeneca has tendered six of the active claims to Abraxis.

It was previously reported that plaintiffs moved to consolidate the federal pain pump cases under the Multi-District Litigation (MDL) process. The Judicial Panel on MDL denied that motion in August 2008. Accordingly, the cases will continue as individual lawsuits.

AstraZeneca intends to vigorously defend these cases.

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Anti-trust

In July 2006, AstraZeneca Pharmaceuticals LP was named as a defendant, along with a number of other pharmaceutical manufacturers and wholesalers, in a complaint filed by RxUSA Wholesale, Inc. (RxUSA) in the US District Court for the Eastern District of New York. The complaint alleges that the defendants violated federal and state anti-trust laws by, amongst other things, allegedly refusing to deal with RxUSA and other ‘secondary wholesalers’ in the wholesale pharmaceutical industry. The plaintiff alleges a conspiracy among the manufacturers and seeks an injunction and treble damages. AstraZeneca vigorously denies the allegations and in November 2006 filed a motion to dismiss the complaint. The motion to dismiss is pending.

For a description of other anti-trust-related litigation involving AstraZeneca, see the subsections entitled Nexium (esomeprazole), Losec/Prilosec (omeprazole), Nolvadex (tamoxifen) and Toprol-XL (metoprolol succinate) in this Note 25 to the Financial Statements.

In January 2008 AstraZeneca, together with several other companies, was the subject of an unannounced inspection simultaneous with the launch by the EU Commission (Commission) of a Sectoral Inquiry (Inquiry) into the pharmaceutical industry. The Inquiry relates to the introduction of innovative and generic medicines and covers commercial and other practices, including the use of patents. On 28 November 2008, the Commission published its preliminary report. The report does not identify wrongdoing by any individual companies but is stated to provide a factual basis for further consideration. The Commission has stated that it will commence individual investigations where there are indications that competition rules have been breached. The preliminary report focuses on a number of issues relating to competition in the EU, referring to strategies which the Commission believes pharmaceutical companies use to block or delay generic entry. Such strategies include: patent filings and enforcement; patent settlement agreements and other agreements; interventions before national regulatory authorities; and life-cycle management strategies.

A final report is expected in Spring 2009. AstraZeneca has been co-operating fully with the Commission and participating in European Federation for Pharmaceutical Industries and Associations activities.

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Federal Trade Commission (FTC) study on authorised generics

In October 2007, AstraZeneca received a Special Order from the FTC, requesting certain information in connection with the FTC’s industry-wide study of the short- and long-term competitive effects of authorised generics in the prescription drug marketplace. AstraZeneca completed and submitted its response to the FTC in January 2008.

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Additional government investigations into drug marketing practices

As is true for most, if not all, major prescription pharmaceutical companies operating in the US, AstraZeneca is currently involved in multiple US federal and state investigations into drug marketing and pricing practices. In addition to the investigations described above, the US Attorney’s Office (USAO) in Philadelphia is directing two investigations which involve requests for documents and information relating to contracting and disease management programmes with two of the leading national Pharmacy Benefits Managers. AstraZeneca has been co-operating with these investigations and the USAO may decline to intervene in one or both of these investigations. The USAO in Boston is conducting an additional investigation with a leading provider of pharmacy services to long-term care facilities. According to a securities filing, that investigation may be the subject of one or more qui tam complaints that were filed under the False Claims Act.

In addition to the Attorney General investigations regarding Seroquel described above, the Delaware Attorney General’s Office is investigating certain sales and marketing practices of AstraZeneca, which appear to focus on AstraZeneca’s prior interactions with physicians in the State of Delaware. In addition, AstraZeneca is providing information in response to two informal requests for information relating to nominal pricing under the Medicaid rebate program, one from the US Department of Justice and one from the Attorney General of the State of Michigan.

It is not possible to predict the outcome of any of these investigations, which could include the payment of damages and the imposition of fines, penalties and administrative remedies.

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Serious Fraud Office (SFO) inquiry

In 2007, AstraZeneca received from the SFO in the UK a request for documentation about its involvement in the UN Oil for Food programme in Iraq. AstraZeneca denies any allegation of illegal or unethical behaviour in its trading relationships with Iraq. AstraZeneca has complied with the SFO’s original request for documentation and with further requests for information received during the course of 2008. It is not currently possible to predict the outcome of this inquiry.

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Other government investigations

From time to time, AstraZeneca receives enquiries and requests for information from a number of governmental and/or other regulatory bodies relating to a range of issues (some, but not all, of which may relate directly to the business of AstraZeneca) and some of which are confidential in nature. AstraZeneca seeks to comply with these requests in an appropriate and timely manner and generally on the basis of legal advice received. The nature and scope of the investigation in relation to which such enquiries and requests for information have been received is not always known to AstraZeneca. Consequently, it is not always possible to determine whether such enquiries and investigations relate specifically to AstraZeneca or are merely a means of gathering factual information in the context of an unrelated third-party issue.

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Congressional investigations

Since March 2007 AstraZeneca, along with several other manufacturers, has received several letters from the Committee on Oversight and Government Reform of the US House of Representatives as part of the Committee’s ongoing oversight of the pharmaceutical industry’s research and marketing practices. The Committee has requested that AstraZeneca provide clinical and marketing information relating to Seroquel and one letter requested pricing information for several AstraZeneca brands.

Since August 2007 AstraZeneca has received multiple letters from the Ranking Member of the Finance Committee of the US Senate requesting information regarding AstraZeneca’s payments to certain identified physicians and their prescribing information related to Seroquel. In addition, the Finance Committee requested sales and marketing information regarding the use of Seroquel in nursing homes. The Finance Committee also requested information regarding use of a third party company for certain aspects of clinical studies and publications related to Seroquel, as well as information regarding AstraZeneca’s transparency efforts in certain business areas. AstraZeneca is co-operating with both Committees.

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Informal US Securities and Exchange Commission (SEC) inquiry

In October 2006, AstraZeneca received from the SEC a letter requesting documents related to its business activities in Italy, Croatia, Russia and Slovakia for the period 1 October 2003 to the present. The SEC’s request generally seeks documents concerning any payments to doctors or government officials and related internal accounting controls. The request also seeks policies, correspondence, audits and other documents concerning compliance with the Foreign Corrupt Practices Act, as well as any allegations or communications with prosecutors’ offices relating to corruption or bribery of doctors or government officials. AstraZeneca has produced documents in response to this request. It is not currently possible to predict the outcome of this inquiry.

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Employment-wage/hour litigation

In September 2006, Marc Brody filed a putative class action lawsuit against AstraZeneca LP on behalf of himself and a class of approximately 844 pharmaceutical sales specialists employed by the Group in California during the period 19 September 2002 to the present. The plaintiff alleges he and the proposed class members were unlawfully classified as exempt employees and denied overtime compensation and meal breaks in violation of the California Labour Code. AstraZeneca removed this action to the US District Court for the Central District of California in October 2006. The plaintiff filed a first amended complaint in March 2007, for failure to provide meal and rest periods, failure to pay all wages earned each pay period, failure to provide accurate wage statements, failure to pay wages in a timely manner upon termination of employment, unfair competition and civil penalties. AstraZeneca denies the allegations made by the plaintiff, asserting that the sales specialists are properly classified under various exemptions to the wage laws. Discovery is ongoing. (The plaintiff’s lawyers are also pursuing similar claims in lawsuits against most of the major pharmaceutical companies).

In separate lawsuits against AstraZeneca, the firms representing the plaintiff filed additional state wage-and-hour class actions, the first under the Pennsylvania Minimum Wage Act and Wage Payment Collection Law in the US District Court for the Western District of Pennsylvania on behalf of two plaintiffs and a putative class of approximately 473 sales specialists working in Pennsylvania during the period March 2004 to the present; and the second in the US District Court for the Southern District of New York on behalf of one plaintiff and a putative class of approximately 890 sales specialists working in the state of New York during the period June 2001 to the present, claiming the sales specialists were misclassified as exempt from overtime pay under New York labour law.

Additionally, in June 2007, the firms representing the plaintiff filed a nationwide collective action based on federal wage-and-hour law (FLSA) in the US District Court for the District of Delaware, seeking unpaid overtime compensation and liquidated damages. The lawsuit has a potential class size of 8,300 current and former sales specialists employed by the Group in the US during the period June 2004 to the present. The parties have negotiated a stipulation of dismissal of this lawsuit, and the action has been dismissed with prejudice. The plaintiff’s counsel is expected to file a new FLSA action with a different named plaintiff in the near future.

In June 2008, the US District Court, Central District of California, granted summary judgment in favour of AstraZeneca, dismissing all claims filed by the named plaintiff, Marc Brody, and finding the motion for class certification to be moot. Plaintiff has filed a notice of appeal with the Ninth Circuit Court of Appeals in California.

AstraZeneca is defending three putative class action lawsuits alleging various violations of state wage-and-hour laws by challenging the way AstraZeneca has classified its sales representatives as exempt from overtime pay requirements. In Hummel v. AstraZeneca, the US District Court for the Southern District of New York granted AstraZeneca’s motion for summary judgment and dismissed the case in September 2008. In October 2008, Hummel filed a notice of appeal to the Second Circuit Court of Appeals. On 20 January 2009, the parties finalised a resolution agreement that will result in Hummel dismissing the appeal with prejudice in exchange for AstraZeneca’s agreement to waive its costs.

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Taxation

Where tax exposures can be quantified, an accrual is made based on best estimates and management’s judgement. Details of the movements in relation to material tax exposures are discussed below.

AstraZeneca faces a number of transfer pricing audits in jurisdictions around the world and, in some cases, is in dispute with the tax authorities. The issues under discussion are often complex and can require many years to resolve. Accruals for tax contingencies require management to make estimates and judgements with respect to the ultimate outcome of a tax audit, and actual results could vary from these estimates. The international tax environment presents increasingly challenging dynamics for the resolution of transfer pricing disputes. These disputes usually result in taxable profits being increased in one territory and correspondingly decreased in another. Our balance sheet positions for these matters reflect appropriate corresponding relief in the territories affected. Management considers that at present such corresponding relief will be available but given the challenges in the international tax environment will keep this aspect under careful review. The total net accrual included in the Financial Statements to cover the worldwide exposure to transfer pricing audits is $1,628m, an increase of $306m due to a number of new audits, revisions of estimates relating to existing audits, offset by a number of negotiated settlements and exchange rate effects.

Included in the total net accrual are amounts in respect of the following transfer pricing arrangements:

• AstraZeneca and Her Majesty’s Revenue & Customs (HMRC) have made a joint referral to the UK Court in respect of transfer pricing between our UK and one of our overseas operations for the years 1996 to date as there continues to be a material difference between the Group’s and HMRC’s positions. An additional referral in respect of controlled foreign company aspects of the same case was made during 2008. Absent a negotiated settlement, litigation is set to commence in 2010.
• AstraZeneca has applied for two advance pricing agreements (APA’s) in relation to intra-group transactions between the UK and the US and the UK and Japan. Both APA’s are being progressed through competent authority proceedings under the relevant double tax treaties.

Management continues to believe that AstraZeneca’s positions on all its transfer pricing audits and disputes are robust and that AstraZeneca is appropriately provided.

For transfer pricing audits where AstraZeneca and the tax authorities are in dispute, AstraZeneca estimates the potential for reasonably possible additional losses above and beyond the amount provided to be up to $400m; however, management believes that it is unlikely that these additional losses will arise. Of the remaining tax exposures, AstraZeneca does not expect material additional losses. It is not possible to estimate the timing of tax cash flows in relation to each outcome, however, it is anticipated that a number of significant disputes may be resolved over the next one to two years. Included in the provision is an amount of interest of $365m. Interest is accrued as a tax expense.

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