Resources, Skills and Capabilities

We focus on six Therapy Areas: Cardiovascular, Gastrointestinal, Infection, Neuroscience, Oncology and Respiratory & Inflammation. These represent a significant proportion of the world's burden of disease.

Our medicines

Our heritage

Backed by our 70 year track record of pharmaceutical innovation, we have a broad range of marketed medicines that continue to make a positive difference in important areas of healthcare.

Our range of medicines includes 10 products each with annual sales of over $1 billion in 2009. Our business growth in the short to medium term is expected to be driven by three factors: (1) our key products Crestor, Seroquel XR and Symbicort; (2) the successful launch of the next wave of products from our pipeline, which includes Onglyza^™, Brilinta, Certriad, Vimovo, Recentin, motavizumab, dapagliflozin, zibotentan, NKTR-118, TC-5214, ceftaroline and CAZ104; and (3) from expansion in Emerging Markets, through organic growth of products from our current portfolio and pipeline but also through selective additions of AstraZeneca branded generics. For further information about our branded generics strategy see the Sales and marketing section below.

A collaborative approach

Our medicines are testament to the combined skills of AstraZeneca people, our collaborators and our commitment to working closely with physicians, patients and others to understand what they need and what they value. Such relationships have helped us develop families of medicines, generation by generation, such as our hormone-based cancer treatments, including Arimidex, which have played a part in increasing the five year survival rate for women with breast cancer from under 70% 50 years ago to around 90% today.

Our collaborations are crucial to what we do and how we do it. For example, a programme of externalisation and our own internal project work has been at the heart of our work since 2006 in developing a world-class diabetes portfolio. From a position where we had no clinical projects in diabetes, we now have a portfolio with three medicines in Phase I studies and a further one in Phase IIb studies. Dapagliflozin is undergoing Phase III studies and is one of the compounds we are developing in collaboration with BMS. In 2009, this collaboration resulted in the approval of Onglyza^™ in both the US and EU for the treatment of Type 2 diabetes.

Medicines for more patients

Even before a medicine comes to market, we develop programmes which are designed to optimise both the benefit medicines bring to patients' lives and their commercial potential within the timeframe that patent protection is available to us. We continue to do so throughout the whole life of a medicine. In particular, we continue to look for new disease indications for which a marketed product might have efficacy.

For example, Crestor, our statin for managing cholesterol levels, has been used to treat over 19 million people since its launch in 2003. Subsequent studies showed that Crestor also slows the progress of atherosclerosis (hardening of the arteries) in patients with elevated cholesterol levels. The JUPITER study in 2008 demonstrated a significant reduction in major cardiovascular events (44% compared to placebo) in men (over 50) and women (over 60) with elevated high-sensitivity C-reactive protein but low/normal cholesterol levels. In 2009 regulatory submissions were made in the US and the EU to reflect the significant reductions in such events.

Similarly, we first introduced Seroquel as a treatment for schizophrenia. Subsequent studies have shown that it is also effective in treating both the manic and depressive dimensions of bipolar disorder. Seroquel and Seroquel XR are the only agents approved in the EU to treat all phases of bipolar disorder. In the US, in 2009, Seroquel was approved for the treatment of schizophrenia in adolescents and for the acute treatment of manic episodes associated with bipolar disorder in children and adolescents. Seroquel XR was also approved in the US as an adjunct treatment in adults with major depressive disorder (MDD). Our approach to developing generations of drugs to meet new areas of unmet medical need continues and is illustrated by the announcement of a further collaboration and licence agreement with Targacept for the global development and commercialisation of TC-5214, their late-stage investigational product for MDD.

We also continue to develop better ways in which our medicines can be used. Our Symbicort maintenance and reliever therapy (Symbicort SMART) was the first asthma treatment regime to combine both regular maintenance and as-needed reliever therapies. This allows patients to control daily symptoms and reduce the severity and number of asthma attacks using a single inhaler.

Other developments with Symbicort exemplify our approach to optimising the benefit of our medicines for patient health both in terms of bringing benefits to additional patient groups and working with third parties. In 2009, Symbicort Turbuhaler was approved in Japan to treat adult asthma and it was launched in Japan in January 2010. In August, we signed an agreement with Astellas to co-promote Symbicort Turbuhaler in Japan. Symbicort Turbuhaler is also now approved in 96 countries for use in treating chronic obstructive pulmonary disease, including chronic bronchitis and emphysema.

In addition to small molecules we also have a strong capability in biologics. For example, Synagis is routinely used by hospitals for the prevention of serious lower respiratory tract disease caused by respiratory syncytial virus (RSV), a respiratory infection in infants, and has been administered to over one million premature babies. Synagis was the first MAb approved in the US for the prevention of an infectious disease. Since its launch in 1998 it has become the standard of care for RSV prevention.

Our biologics capability is also exemplified by our influenza vaccines, where we have developed technologies that enable innovative ways of reverse-engineering new vaccines. FluMist, the first nasal spray influenza vaccine to be approved in the US, represented the first innovation in flu vaccination in more than 60 years. Our total product supply of approximately 10 million FluMist doses sold out in 2009. Our technology also enabled us to develop, and to be the first to market in the US, a vaccine designed to prevent H1N1 influenza (swine flu). We received approval for our H1N1 influenza vaccine in September and then contracted with the US Department of Health and Human Services for 42 million doses, which we manufactured and distributed on time and to schedule.

Further information about all our major products can be found in the Therapy Area Review. Many of our products, for example, Seroquel and Crestor, are the subject of product liability claims and patent challenges. Information about material legal proceedings can be found in Note 25 to the Financial Statements.

Investing for the future

Within each of our Therapy Areas, the individual disease areas in which we work are agreed using a regular review process that enables us to deploy our resources in the best way to meet our commercial and scientific objectives. We evaluate market opportunities against a set of criteria, including unmet medical need, competitive position and our capabilities. Our R&D Executive Committee, which will be replaced in 2010 by the Portfolio Investment Board (further details of which are set out in the R&D Executive Committee section) uses the reviews to determine the levels of investment we will make in different disease areas.

Product performance summary $m

¹

Acquired in June 2007.

Patient safety

The safety of the patients who take our medicines is a fundamental consideration for us. All drugs have potential side effects and we aim to minimise the risks and maximise the benefits of each of our medicines - starting with the discovery of a potential new medicine and continuing throughout its development, launch and marketing.

After launch, we continually monitor the use of all our medicines to ensure that we become aware of any side effects not identified during the development process. This is known as pharmacovigilance and is core to our ongoing responsibility to patients. We have comprehensive and rigorous pharmacovigilance systems in place for detecting and rapidly evaluating such effects, including mechanisms for highlighting those that require immediate attention. We also work to ensure that accurate, well-informed and up-to-date information concerning the safety profile of our drugs is provided to regulators, doctors, other healthcare professionals and, where appropriate, patients. Clinical studies, although extensive, cannot replicate the complete range of patient circumstances. Rare side effects can often only be identified after a medicine has been launched and used in far greater numbers of patients and over longer periods of time.

We have an experienced, in-house team of around 350 clinical patient safety professionals working around the world who are dedicated to the task of ensuring that we meet our commitment to patient safety. This number of people is lower than in 2008 because data entry of individual case reports is now managed by an external provider (as described below). At a global level, every medicine in development and on the market is allocated a Global Safety Physician and a team of patient safety scientists. In each of our markets we also have dedicated safety managers with responsibility for patient safety at a local level.

Our two Chief Medical Officers (CMOs) have overall accountability for the benefit/risk profiles of the products we have in development and those on the market. One CMO is responsible for our small molecule products, the other for our biologics. They provide medical oversight and ensure that appropriate risk assessment processes are in place to enable informed decisions to be made about safety as quickly as possible.

In 2009, we appointed Tata Consultancy Services Sverige AB to manage the data entry process for safety reports relating to AstraZeneca products. This is designed to improve efficiency and consistency of data entry across AstraZeneca, and allow our patient safety teams to focus on case prioritisation, the medical aspects of patient safety and continuing to improve our safety science.

Our commitment to patient safety includes ensuring the security of our medicines throughout their manufacture and supply. We continuously monitor our business environment to identify any new or emerging product security risks and work to ensure that these are managed quickly and effectively. In addition to our internal processes, we use a range of measures against counterfeit medicines and continue to develop our capabilities in this area. These include introducing technologies that make it more difficult for counterfeiters to copy our products; conducting market surveillance and monitoring the supply chain to identify potential counterfeiting operations; responding rapidly to any reports of counterfeit AstraZeneca medicines; and working with regulators, healthcare professionals, distributors, law enforcement agencies and other organisations to protect patient interests. We also participate in a variety of anti-counterfeiting forums and programmes in the public and private sector, including WHO/Interpol's International Medical Products Anti-Counterfeiting Taskforce and the Pharmaceutical Security Institute. Further information on counterfeiting can be found in the Product counterfeiting section.

Pricing our medicines

Continued innovation is required to address unmet medical need. Our challenge is to deliver innovations that bring benefits for patients and society at a level of investment and internal productivity that reflects the downward pressure on pricing.

Our global pricing policy provides the framework for optimising the profitability of all our products in a sustainable way. It balances many different factors, including ensuring appropriate patient access. When setting the price of a medicine, we take into consideration its full value to patients, those who pay for healthcare and society in general. Our pricing also takes account of the fact that, as a publicly owned company, we have a duty to ensure that we continue to deliver an appropriate return on investment to our shareholders.

We continually review our range of medicines (both those on the market and in the pipeline) to identify any that may be regarded as particularly critical to meeting healthcare needs. This may be either because they treat diseases that are (or are becoming) prevalent in developing countries, or because they are potentially a leading or unique therapy addressing an unmet need and offering significant patient benefit in treating a serious or life-threatening condition. In such cases, we aim to provide patient access to these medicines through expanded patient access programmes across all markets, including the US. We also support the concept of differential pricing in this context, provided that safeguards are in place to ensure that differentially priced products are not diverted from patients who need them, to be sold and used in more affluent markets.

Economic benefit

Our medicines play an important role in treating medical needs and in doing so they bring economic as well as therapeutic benefits. Effective treatments can help to save healthcare costs by reducing the need for more expensive care, such as hospital stays or surgery. They also contribute to increased productivity by reducing or preventing the incidence of diseases that keep people away from work.

Strategy

Our R&D strategy is centred on delivering sustained business growth through a continuous flow of new and innovative medicines that meet unmet medical need at prices payers find acceptable. Our strategic objective is to deliver a flow of new medicines (two new molecular entities per year on average). In line with our ongoing externalisation strategy, we continue to look beyond our own laboratories, and actively seek acquisitions and alliances with third parties to gain access to the best science and/or technology platforms. In 2009, we completed three Phase III ready in-licence deals (2008: three). In addition, we have acquired Novexel (completion of the acquisition is subject to the expiry or termination of the applicable waiting period under the US Hart-Scott-Rodino Antitrust Improvements Act) thus gaining access to two further compounds; one of which is Phase III ready and the other of which is Phase II ready.

We are creating a knowledge-driven organisation by investing in information sources and tools to allow our scientists to integrate and exploit internal and external knowledge, as well as share this knowledge and enable innovative ways of working across the organisation. This information sharing culture is allowing our pre-clinical and clinical scientists to work together to select high quality targets and compounds and to design clinical studies to establish quickly whether our compounds could become safe and effective medicines of the future. We are also focused on integrating our tools and databases to develop predictive platforms across R&D.

Our capabilities

AstraZeneca has had a long history of successful research leading to innovative, effective and valued medicines. We recognise the need to build on this tradition and this is reflected in our strategy.

As we develop potential medicines through a structured programme of studies, our focus is on ensuring that they are developed effectively to meet the needs of patients, regulators and payers. We do so by applying the best science to clinical need by designing appropriate programmes that ultimately deliver successful submissions to regulators. To this end, our cross-functional project and product teams bring together all the relevant skills and experience needed to ensure the rapid development of effective new medicines. They also manage the associated risks and ensure that quality and safety remain fundamental considerations at every stage.

Our R&D function has access to leading-edge technologies and capabilities such as stem cells and RNA interference technology which support the development of therapeutic agents across a range of Therapy Areas. Our medicines' pipeline spans all modalities with the majority of our late-stage pipeline comprising small molecules. We also have a pipeline of biological approaches to targeting disease which includes antibodies, antibody derivatives, therapeutic proteins, peptides, and various types of live attenuated and sub-unit vaccines.

Our R&D activities cover the entire life-cycle of a medicine - from the initial discovery of a new chemical/molecular entity, through the rigorous phases of pre-clinical and clinical studies in man. After a medicine's launch, our life-cycle management process (including line extensions) is designed to ensure both its continued safe use and to explore its potential for treating other diseases or extending its use into additional patient populations.

Our research process starts with the analysis of many thousands of compounds for their potential to become a new medicine. Only a few make it through the various stages and we work continuously to improve the quality of our chemical leads and biological targets, while working to eliminate, at an early stage, those compounds that are unlikely to succeed. We have also invested in a number of key academic collaborations to identify potential new targets, disease mechanisms and technology platforms. We continue to use Lean Sigma-based business improvement programmes. For example, through improvements in novel compound flow, material handling, and enhancement of many key decision-making tests, we have seen significant reductions in the turnaround time of data in drug hunting projects. We have also extended this way of working to a key supplier of compounds from China to improve our joint processes.

We use biomarkers to help identify the efficacy and safety of our compounds. Biomarkers are biological factors or measures that can be used to quantify the progress of a disease and/or the effects of a treatment, although it is not always easy to identify a marker for each molecule.

As responsible participants in the provision of valued medicines for patients we believe strongly in helping to ensure that the right medicines are prescribed to the right patients at the right doses - this is our interpretation of 'personalised healthcare'. With this in mind we are investing in finding new ways to differentiate patients with apparently similar diagnoses. A successful example of this approach is the recent European regulatory approval of Iressa for patients with lung cancer who have an activating mutation of the epidermal growth factor receptor. As part of this approach we signed a collaboration agreement in December with Dako, a world leader in cancer diagnostics. We will work together with Dako to develop new medicines linked to diagnostic tests to predict which patients are most likely to respond to potential oncology treatments.

Even before clinical studies begin, safety assessment is a critical part of our research. A process including both in vitro and computer modelling allows for 'high throughput testing' for safety early in the stages of selecting the best compounds for development. Our Lean Sigma approach has driven a series of process improvements which have reduced the loss of compounds in late-stage clinical development on account of safety concerns and cut the time taken to deliver key safety studies, without compromising quality. Testing for safety is also carried out on animals before it is carried out in man. For further information see the Animal research section.

Strengthening the pipeline

In the short term, we have continued to build on the strong portfolio growth achieved over the last few years. Our portfolio volume in clinical phases has grown by 5% in 2009 and the distribution of the projects between the various phases of development continues to improve. In the medium term, we will continue to drive our pre-clinical and clinical Phase I and II projects towards proof of concept as rapidly as possible. We have a wide range of compounds across all modalities in early development and a total of 44 projects in Phase I, 34 projects in Phase II and 11 projects in Phase III/Registration development and are running 14 significant life-cycle management projects.

Further details are set out in the Development projects chart below and the Pipeline by Therapy Area chart below and in the Development Pipeline table.

Development projects - new products and line extensions

Pipeline by Therapy Area at 28 January 2010

^#

Partnered product.

^*

Subject to expiry or termination of the applicable waiting period under the US Hart-Scott-Rodino Antitrust Improvements Act.

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Orphan Drug.

Improving productivity

The progress we are making in our drive to increase productivity continues to be reflected in the delivery of projects from the pre-clinical study phase (Discovery) and the growth of our early clinical study (Development) portfolio where we have embedded a culture of Lean Sigma. During 2009, 29 projects were selected for Development (2008: 32).

Throughout 2009, we focused on driving continuous improvement activities across the entire R&D value chain. We maintained and improved the performance gains in cycle times achieved in 2008 for small molecules.

The use of predictive approaches in pre-screening of candidate molecules has had notably increased success rates in some areas in recent years. For example, we have seen failure in early Development due to genotoxicity fall to zero, and failure due to drug metabolism and pharmacokinetics has reduced significantly. Further application of these predictive approaches to the design and simulation of clinical trials using data from previous studies reduced the duration of the clinical trial for one Phase II project by one to two years, and its full projected development cost reduced by over $100 million.

Despite this improvement in productivity, we recognise the need to improve our rate of success in progressing projects from Phase II to Phase III. This is a focus for our future efforts.

Our resources

At the end of 2009, we had a global R&D organisation with around 11,600 people (10,500 full time equivalent employees) at 17 principal centres in eight countries.

Our main small molecule facilities are in the UK (Alderley Park, Macclesfield and Charnwood); Sweden (Lund, MöIndal and Södertälje); and the US (Waltham, Massachusetts and Wilmington, Delaware). Other sites which have a focus on research are in Canada (Montreal, Quebec); France (Reims); and the UK (KuDOS and Arrow Therapeutics' sites). We have a clinical development facility in Osaka, Japan. Our principal sites for biologics and vaccines are in the US (Gaithersburg, Maryland and Mountain View, California) and the UK (Cambridge).

As part of our strategic expansion in important Emerging Markets, we continue to strengthen our research capabilities in Asia Pacific. Investment continued during 2009 at our 'Innovation Centre China' research facility in Shanghai, which opened in 2007. Our research facility in Bangalore also continues to grow with capital investment supporting increases to R&D resources in India. Both facilities are increasingly involved in Development activities.

In 2009, we invested $4.4 billion in R&D (2008: $5.2 billion; 2007: $5.2 billion), $764 million on acquiring product rights (such as in-licensing), and additionally approved $329 million of R&D capital investment to strengthen our resources in line with our strategic objectives.

Several major capital projects were completed during 2009, and the facilities handed over to the business, including laboratory and office expansions in Boston (US), a new laboratory facility in Macclesfield (UK) and a new manufacturing facility in Mölndal (Sweden). Of the approved capital investment of $329 million, there were no new major small molecule R&D investments authorised during 2009. The focus of the $79 million that has been authorised is on improving and enhancing existing facilities. The remaining $250 million of approved investment was associated with our biologics laboratories in the US and the UK, and influenza vaccine programmes.

Externalisation

Our externalisation strategy continues to focus on enhancing our internal innovation through investment, external collaborations and acquisitions that further strengthen our pipeline of products. Further information on our activities can be found in the Working with others section below.

Our New Opportunities group has continued to seek additional value from our portfolio by facilitating re-profiling across our Therapy Areas and by identifying additional disease areas in which our compounds can meet unmet medical need. For example, in 2009 we concluded a strategic alliance with the ophthalmology company, Alcon, to identify innovative eye care products using AstraZeneca compounds in areas adjacent to our Therapy Areas of focus.

R&D ethics

We are committed to delivering innovation responsibly by setting and working to consistently high ethical standards across all aspects of our R&D worldwide. Compliance with relevant laws and regulations is a minimum baseline and underpins our own global principles and standards, as outlined in our global Bioethics Policy.

Further information about our commitment to responsible research is available on our website, astrazeneca.com/responsibility.

Clinical trials

We conduct an increasing number of our clinical trials at multiple sites in several different countries. A broad geographic span helps us to ensure that those taking part reflect the diversity of patients around the world for whom the new medicine is intended. This approach also helps to identify the types of people for whom the treatment may be most beneficial.

We take a number of factors into account when choosing a trial location. These include the availability of experienced and independent ethics committees and a robust regulatory regime, as well as sufficient numbers of trained healthcare professionals and patients willing to participate in a trial.

When conducting a trial anywhere in the world, we operate to the highest of the standards required by the external international, regional or local regulations, and our own internal standards.

Before a trial begins, we work to make sure that those taking part understand the nature and purpose of the research and that proper procedures for gaining informed consent are followed (including managing any special circumstances such as different levels of literacy). We also have procedures in place to ensure that the privacy of participants' health information is protected.

We take very seriously our responsibility to protect trial participants from any unnecessary risks and avoid any serious adverse reactions. Throughout the research process, we continuously review, and make judgements on whether the potential benefits of a new medicine continue to outweigh the risk of side effects.

Whilst all our AstraZeneca clinical studies are conceptually designed and finally interpreted in-house, some of them are run for us by external contract research organisations (CROs). The percentage of studies we place with CROs varies, depending on the number of trials we have underway and the amount of internal resources available to do the work. In 2009, around 24% of patients in our global studies of our small molecule portfolio and around 89% of patients in our biologics studies were monitored by CROs on our behalf.

Our clinical data handling is outsourced to Cognizant Technology Solutions Sweden AB, a business process solution company and during the year, we announced a strategic alliance with Quintiles Limited to provide integrated services for the majority of our clinical pharmacology studies. These sourcing decisions have helped us to promote consistency, drive resource efficiency and, importantly, helped to speed up our internal data interpretation and decision-making.

We remain committed to making information about our clinical trial activities publicly available. We publish information on the registration and results of all new and ongoing AstraZeneca sponsored clinical trials for all products in all phases, including marketed medicines, medicines in development and those whose further development has been discontinued. We post results, irrespective of whether they are favourable or unfavourable to AstraZeneca on public websites, including (for small molecule compounds) on our own dedicated website, astrazenecaclinicaltrials.com. By the end of 2009, we had registered over 1,100 trials and published the results of more than 600 trials.

Animal research

Our pre-clinical research includes animal studies, which continue to play a vital role in the R&D of new medicines. They provide essential information, not available through other methods, about the effects of a potential new therapy on disease and the living body. Regulatory authorities around the world also require safety data from pre-clinical testing in animals before a new medicine can be tested in man.

We are committed to the responsible use of animals. All our research using animals is carefully considered and justified and, backed by our Bioethics Policy, we continue to drive the application of the 3Rs (Replacement, Reduction and Refinement of animal studies) across our research activity. Wherever possible, we use non-animal methods such as cell culture, computer modelling and 'high-throughput screening' that eliminate the need to use animals early in drug development, or reduce the number needed. As part of our drive for continuous improvement, we continue to use statistical design to optimise our studies and reduce the numbers of animals needed. We also work to refine our existing animal models to ensure that the animals we use are exposed to as little pain and stress as possible. We continuously review all our animal studies to make sure that they continue to add value to our research decision-making processes.

The number of animals we use each year depends on the amount of pre-clinical research we are doing and the complexity of the diseases under investigation. We remain focused on making sure that we minimise the use of animals without compromising the quality of the research data. In 2009, we used approximately 393,000 animals in-house (2008: 347,000). In addition, approximately 17,000 animals were used by external contract research organisations on our behalf (2008: 29,000). We believe that this number would be much greater without our active commitment to the 3Rs. We no longer report, as a KPI, the number of animals we use in our research, although we will continue to publish the figures each year. This reflects our commitment to continuous improvement through the application of the 3Rs and good scientific practice, which we believe is the true indicator of our performance. More information about our commitment is available on our website, astrazeneca.com/responsibility.

We only use primates in circumstances where no other species or non-animal methods can provide the safety or clinical benefit information that we are seeking in a study, and where the outcomes of the study are likely to bring significant advances for the development of new medicines. Our expanding biologics capability means that we will be increasing our primate use over time, particularly in the development of MAbs targeted at important areas such as cancer and respiratory disease. MAbs are highly specific to human physiology, so primates are, in most cases, the only relevant animal model because of their similarity to humans.

In line with our global Bioethics Policy, AstraZeneca does not currently conduct or outsource work using wild caught primates or great ape species. In the rare case where there is a substantial medical need and no credible alternative model is available, exceptions may be considered. However, this will require rigorous secondary ethical and scientific review, in addition to our normal review processes, to challenge the need for the study, followed by appropriate Board level approval.

The welfare of all the animals we use continues to be a top priority. Compliance with relevant laws and regulations is a minimum baseline and underpins our own global Bioethics Policy and standards of animal care and welfare which apply worldwide. Qualified veterinary staff are involved in the development and implementation of our animal welfare programmes and everyone working with laboratory animals is trained and competent in their allocated responsibilities. As well as mandatory inspections by government authorities, we have a formal programme of regular audits carried out by our own qualified staff.

External contract research organisations that conduct animal studies on AstraZeneca's behalf are also required to comply with our ethical standards, and we conduct regular audits to ensure our requirements are being met.

In November 2008, the European Commission published its proposal to revise the 1986 EU Directive 86/609 (Directive) on the protection of animals used for scientific purposes. We support the need for Europe-wide legislation concerning the use of animals in research and revision of the Directive to reflect advances in science and technology. However, we are contributing to discussions about changes in a number of areas that we believe are necessary to ensure that, alongside the promotion of high standards of animal welfare, the new legislation supports the ability to conduct, in Europe, R&D that addresses patient needs.

Stem cell research

As a company whose success is built on leading-edge science, we continuously monitor and assess new research capabilities to identify opportunities that could help us deliver better medicines for patients worldwide. We believe that stem cell research may present several such opportunities in enhancing the drug discovery process as well as providing therapeutic options.

Significant scientific progress has been made in the development of stem cell-based research models for improved prediction of safety, metabolism and efficacy of emerging candidate drugs, with promising results. Our interest is in the potential of stem cells to differentiate into normal human cells, such as hepatocytes (liver cells) and cardiac myocytes (heart muscle cells) and use those cells in biological assays. We believe this could represent a significant step forward in increasing the clinical relevance of studies at an earlier stage of development of a potential new medicine and would help us to overcome the current limitations that a restricted supply of human cells presents. However, more work is needed to understand the full potential of this type of research. It is a relatively new area and we do not have all the necessary skills and technologies in-house. We are therefore working with external partners who have expertise and an ethical commitment consistent with our own, such as Cellartis AB (Cellartis), a biotech company focused on applications of human embryonic stem cells, cell technologies and the UK public-private partnership, Stem Cells for Safer Medicines. We also participated in a European Framework Research VI programme working with stem cells. Further collaborations will include the use of induced pluripotent stem cells.

Increasingly, we are also exploring the potential to treat disease by modulation of stem cells within target organs using either small molecules or biological therapies, an exciting new area often referred to as regenerative medicine. Here, we are embarking on several external collaborations, such as the one with Cellartis, combining the best ideas and latest innovation in academic research with our ability to search for new drugs. We are looking for the potential of molecules to direct the fate of stem cells towards therapeutic benefit in diseases such as diabetes and emphysema, thus identifying potentially new candidate drugs. Further investments will follow in this area.

Our commitment to ensuring high ethical standards is reflected in our Human Embryonic Stem Cell Research Policy framework, as set out in our Bioethics Policy, which demands compliance both with external legislation, regulations and guidelines, and with our own codes of practice.

We recognise that we cannot achieve our strategic goals on our own. To deliver successful medicines to market we need to work with doctors, patients and other stakeholders to understand what they need and want. We work with governments and those who pay for healthcare to ensure our products represent value for money. We also look to develop new ways of working with others who complement our existing skills, enhance our internal innovation or bring extra value to what we do. In doing so, we work to ensure that those we work with meet our high ethical standards.

Innovation, value and externalisation

In a world of rapidly advancing science and technology, no pharmaceutical company can rely exclusively on its own resources if it is to stay at the forefront of pharmaceutical innovation. Through our strategy of 'externalisation', we seek to expand our product portfolio and geographical presence through, for example, technology licensing arrangements and strategic collaborations and, where appropriate, acquisitions of complementary businesses.

Accessing products through externalisation is a key component of our efforts to both strengthen our pipeline of new products and to access opportunities to drive short-term growth. Our Strategic Planning and Business Development team works closely with our R&D, Global Marketing and Finance teams to deliver this.

We have completed over 60 major externalisation deals in the last three years as well as numerous smaller deals to enhance and strengthen the portfolio. Further details of the current status of a number of the products concerned can be found in the Therapy Area Review.

Significant late-stage deals completed in 2009 include the in-licence of ceftaroline, a next generation anti-infective, from Forest, and the in-licence of NKTR-118 and NKTR-119 from Nektar to address opioid-induced constipation. In December, we also successfully concluded a major in-licence agreement with Targacept for TC-5214, a late-stage product for major depressive disorder, and acquired Novexel (completion of the acquisition is subject to the expiry or termination of the applicable waiting period under the US Hart-Scott-Rodino Antitrust Improvements Act) to further build the infection portfolio.

Early-stage deals help build longer-term strength in the portfolio and in June we concluded a ground-breaking deal with Merck under which the two companies will collaborate to research a novel combination anti-cancer regimen composed of two investigational compounds, MK-2206 from Merck and AZD6244 from AstraZeneca (in-licensed from Array). Other significant early-stage deals included a risk-share collaboration with Jubilant aimed at multiple neuroscience targets, and a further collaboration with the Institute of Cancer Research (UK) and Cancer Research Technology Limited.

During the year we also signed exclusive worldwide licence agreements with Catalyst Biosciences, Inc. to develop novel engineered proteases and with Trellis Bioscience Inc. to develop and commercialise antibodies focused on respiratory syncytial virus.

Deals that will help drive short-term growth include a co-promotion agreement for Abbott's Trilipix^™ in the US, a commercialisation agreement with Astellas for Symbicort in Japan, a distribution agreement with UCB for Cimzia^™ in Brazil and a co-promotion agreement with Salix for Nexium in the US.

Another component of our externalisation strategy is to maximise value from our portfolio through disposals and out-licensing transactions. In 2009, part of our Swedish OTC (over-the-counter) portfolio was divested to GlaxoSmithKline and rights to ophthalmological indications for a number of AstraZeneca assets were granted to Alcon. Other disposals of note included the out-licence of two pre-clinical oncology assets to Celleron Therapeutics Limited and the divestment of a P38 Inhibitor programme to Flexion Therapeutics AG.

Outsourcing and contract manufacturing

As part of our drive to reshape the business we also outsource certain activities where we believe we can take advantage of third party expertise. Using specialist providers helps us improve efficiency and focus on our core business. Outsourcing also reduces costs and creates a more flexible cost base which can be changed as our needs change.

We have already contracted out a significant portion of our supply and manufacturing activity and are undertaking a programme of outsourcing other services and activities, including some R&D processes, information services, facilities management and other internal support functions.

As part of our effort to ensure we have cost-effective and flexible support services, we signed a seven-year global outsourcing contract in December with NorthgateArinso UK Limited (NGA) for some human resource (HR) services. NGA will begin to manage HR activities, such as payroll and data management, enabling our internal HR organisation to focus on areas where they can most significantly contribute to the success of the business, for example business partnering and 'centres of expertise', such as talent management. For more information on our HR services, see the People section below. Earlier in 2009, we signed a five-year contract with Genpact International, Inc. to provide global finance and accounting services and will continue to explore other areas where outsourcing can bring benefits to the business by improving service and reducing cost.

Responsible procurement

Our commitment to responsible business extends to ensuring that we work only with suppliers who embrace standards of ethical behaviour consistent with our own. This is required by our Code of Conduct and applies across the full range of our procurement activities worldwide.

Implementing our approach across the many thousands of suppliers we have around the world is a significant challenge for a global company the size of AstraZeneca. We have made some good progress in recent years and to further strengthen our effort in this area, in 2009 we published a new Global Responsible Procurement Standard. This standard defines our Responsible Procurement Process and provides clear direction about our risk-based approach to integrating ethical standards into our procurement activity worldwide. This includes a requirement to incorporate a responsible business clause in contracts with suppliers.

Training in the new standard was provided for procurement professionals during 2009. For all AstraZeneca employees, our Code of Conduct training now includes a responsible procurement awareness module.

Our Responsible Procurement Process is based on an escalating set of risk-based due diligence activities, applied in a pragmatic way. We assess a supplier's ethical risk areas and identify whether further assessment is needed to assure us that the supplier has appropriate systems and controls in place to meet our ethical expectations. The same initial assessment process is used for all suppliers and more detailed, specific assessments are then made as required, proportionate to the level of risk a supplier presents. Our process allows us to share issues with suppliers and encourage them to improve their standards, rather than automatically excluding them from our supply chain. However, we will not use suppliers who are unable or unwilling to embrace, in a timely way, standards of ethical behaviour that are consistent with our own.

In 2009, we completed responsible procurement assessments of over 800 of our suppliers (representing over 65% of our total spend on third parties) and implemented further assessments where required. This ongoing assessment programme will continue throughout 2010.

Our existing supplier evaluation procedure requires that comprehensive on-site supplier audits of all our high-risk manufacturing suppliers are conducted at least once every four years. Medium-risk suppliers are audited at the start of the business relationship and additional audits conducted if there are significant changes at a supplier. These Integrated Supplier Evaluation Protocol (ISEP) audits cover a range of risk areas, including product security and waste handling as well as social elements, such as human rights and labour standards. During 2009, we conducted ISEP audits at 51 manufacturing sites at 45 different suppliers (2008: 34 sites at 31 suppliers). The 2008 figures are higher than reported last year because a post year end review identified that more audits had been conducted than reported in 2008.

Customer focus

Our international sales and marketing organisation is active in over 100 countries. We have an extensive network focused on growing our business and driving levels of commercial excellence to maintain our position among the industry world leaders. As well as building on our leading positions in North America and Other Established Markets, such as Japan and Western Europe, we continue to increase our strength through strategic investment in Emerging Markets, where GDP growth and changing disease demographics present significant opportunities. See the market definitions table for more information on AstraZeneca's market definitions.

Our Global Marketing function is responsible for developing and leading our global brand strategy. It ensures a strong customer focus and commercial direction in the management of our pipeline and marketed products. At an early stage in the medicine discovery process we define what we believe the profile of a medicine needs to be to work most effectively in combating a particular disease. These disease target product profiles (TPPs) are based on the insights we gain through our relationships with healthcare professionals, patients and others for whom the medicine must add value, including regulators and payers. The attitudes and needs of these groups are key drivers of the development of the TPPs which are used throughout the life-cycle of a medicine to guide our R&D activity and help shape the Therapy Area and marketing strategies. Early in the development of new products, we also consider how best to demonstrate the value of our medicines to payers.

Emerging Markets growth

During the course of 2009, AstraZeneca continued to execute its ambitious investment strategy across Emerging Markets in large markets such as China, Mexico, Brazil and Russia, as well as in medium-sized and smaller markets where there is significant unmet medical need.

In China (including Hong Kong), as a result of its current strategic focus on 'Big Cities Big Hospitals', AstraZeneca is the second largest multinational pharmaceutical company in the prescription market.

Our strategy for Emerging Markets is based upon a rapid expansion of the commercial organisation across areas where we assess there to be significant market potential. In this context we provide our country leaders with the autonomy to tailor their strategies to local customer needs. These local plans are supported by AstraZeneca's global capabilities, one of which is a highly disciplined approach to sales force management.

To maximise these local opportunities, AstraZeneca has started to launch a range of branded genericised medicines. These medicines, which are within our key areas of therapy expertise, will make our products available to more patients and at lower price levels than is possible with patent-protected medicines.

As an example, to support our new branded generics business in India, we significantly increased our level of investment, enabling the launch of eight new products of which five were launched in the second half of 2009. This initiative will be rolled out in more than 20 Emerging Markets where we assess there to be potential.

Customer choice in North America

We continue to develop our sales and marketing effort in the US as we strive to best meet our customers' needs. The focus for 2009 was to ensure that our interactions with healthcare professional (HCP) customers match their desire for more flexible methods to access our products that are not solely dependent on the traditional sales representative.

As a result, two new customer teams have been created to deliver services and information. One team was charged with delivering all the traditional services, but to do so remotely and at a time that matched the HCP's schedule. The second team simply focused on delivering samples and patient support materials to the HCP's practice. At the same time, we have expanded our web-based capabilities to improve the way we deliver service over the internet.

The intended result of these changes is to offer customers choices about how we can best meet their needs and the needs of their patients.

Reshaping in Other Established Markets

Across Europe, we have significantly reshaped the organisation in order to stay competitive in an evolving market place. By focusing on core activities and building capabilities around these, we have strengthened focus in the critical area of market access, whilst also being able to significantly improve productivity in the sales force.

Market access is an increasingly important area. In order to develop products that meet the needs of payers we are focusing even more on understanding the priorities and agendas of both payers and healthcare providers. Building on this information, we seek to demonstrate how our products offer value and support cost-effective healthcare.

An effective sales force

In the majority of markets, we sell through wholly-owned local marketing companies. Elsewhere, we sell through distributors or local representative offices. Our products are marketed primarily to physicians (both primary care and specialist) as well as to other healthcare professionals. Marketing efforts are also directed towards explaining the economic as well as the therapeutic benefits of our products to governments and others who pay for healthcare. Face-to-face contact is still the single most effective marketing method but, increasingly, the efforts of our sales force are being complemented by our use of the internet. In the US, where it is an approved and normal practice, we also use direct-to-consumer advertising campaigns for some products.

To improve our commercial effectiveness we are benchmarking with leading industries in the area of customer insight. This helps develop a better understanding of real needs of customers upon which we can plan and act. It allows us to be more focused in our communications with customers.

Our rapid growth in Emerging Markets is driving demand for central commercial support, particularly in respect of sales force effectiveness. Core sales and marketing training programmes have been adapted for, and deployed in, local environments. The main focus of these programmes is to embed core commercial skills and to strengthen sales managers' coaching and planning skills.

Working in collaboration

The preparations and launch of Onglyza^™, the first brand in the AstraZeneca/BMS diabetes alliance, has brought significant experience and learning to both organisations. The joint work between our companies has improved planning, time to market and execution of the launch. In June, we entered into an agreement under which AstraZeneca obtained the non-exclusive right to co-promote Trilipix^™, alongside Abbott in the US (excluding Puerto Rico). This is the second co-promotion agreement between AstraZeneca and Abbott, the first being for Crestor.

We will continue to explore opportunities to work in collaborations at local or regional levels as a model to improve success. This could either be through getting access to commercial capabilities, such as the collaboration to sell Symbicort with Astellas in Japan, or to strengthen the portfolio, such as the collaboration with UCB for the commercialisation of UCB's Cimzia^™ in Brazil.

More information about our collaborations can be found in the Working with others section.

Sales and marketing ethics

Driving high ethical standards across all our sales and marketing activity is one of our top priorities. It is an important part of our overall commitment to patient health and safety, and to delivering business success responsibly.

Our business is global and culturally diverse. Societal expectations and legal requirements often vary significantly between the different countries in which we operate. We work to manage these differences effectively and deliver consistently high standards worldwide.

Everyone involved in sales and marketing activities is required to adopt the same core standards, regardless of their particular role or location. These standards are outlined in our Code of Conduct and supporting policies, and more detail is given in our regional and local marketing codes. Our local codes reflect differences in national legislation and healthcare systems. In cases where our standards differ from local law, we adopt whichever standard is higher. Our policies are regularly reviewed and updated, and targeted training is provided for our staff on an ongoing basis.

Compliance with our Code of Conduct and supporting policies is mandatory and monitored by line managers locally, with support from dedicated compliance professionals. We also have a nominated signatory network that works to ensure that our promotional materials meet all applicable internal and external code requirements.

Information concerning instances where our practices may not be up to the standards we require is collected through our various compliance and continuous assurance reporting routes and reviewed by senior management in local and/or regional compliance committees. As appropriate, serious breaches are reviewed by the Board and the Audit Committee. More information about our compliance and risk assurance processes is contained in the Managing risk section.

In 2009, we identified a total of 24 confirmed breaches of external sales and marketing regulations or codes globally (2008: 15: 2007: 32). The increase over 2008 is, we believe, largely due to increased self-reporting (ie where we have identified that a breach has occurred and voluntarily reported it to the relevant national authorities). This reflects our continued internal vigilance and determination to identify and follow through on possible breaches of the high standards we set ourselves. The number should also be viewed in the context of the continuing diligence of external code of practice agencies and regulatory authorities in identifying and processing complaints.

We also received a number of approaches about sales and marketing practices from regulatory authorities and other bodies that did not result in any formal ruling. Although these incidents are not included in our KPI number, we did follow-up with appropriate actions to help ensure that all relevant learning is taken fully into account in our future activities.

We take all breaches very seriously and take appropriate action to prevent repeat occurrences. This may include retraining or other corrective action, up to and including dismissal.

In September 2009, AstraZeneca reached an agreement in principle with the US Attorney's Office to settle claims relating to Seroquel sales and marketing practices and to make a payment of $524 million (including interest). Final settlement is subject to negotiation of a civil settlement agreement and a corporate integrity agreement. More information can be found in Note 25 to the Financial Statements.

We will continue to work to strengthen our governance of our sales and marketing activity through 2010, including additional monitoring and audit programmes, and performance measurement. Whilst our current KPI has provided a benchmark against which to measure our performance in recent years, the variations among the national external regulatory frameworks continue to create a challenge for us in interpreting the number of cases of confirmed breaches of external regulations or codes. In addition, a single confirmed breach by AstraZeneca can involve more than one employee failing to meet the standards required and we are aware that there may be failures to meet standards which are not 'confirmed' and so will not affect the KPI. We are therefore currently reviewing more meaningful ways in which to measure our performance and plan to introduce a new KPI during 2010 which will drive further improvement and support increased transparency in this key aspect of our activity.

The discovery and development of a new medicine requires a significant investment of resources by research-based pharmaceutical companies over a period of 10 or more years. For this to be a viable investment, the results - new medicines - must be safeguarded from copying with a reasonable amount of certainty for a reasonable period of time.

The principal safeguard in our industry is a well-functioning patent system that recognises our effort and rewards our innovation with appropriate protection, allowing time to generate the revenue we need to re-invest in new pharmaceutical innovation. We are confident of our innovations and therefore commit significant resources to establishing effective patent protection for them, and to defending vigorously our patent and related intellectual property rights if they are challenged.

Patent process

We apply for patent protection relatively early in the R&D process to safeguard our increasing investment. Further innovation will mean that we frequently take out additional patents as we develop a product and its uses. We pursue these patents through patent offices around the world. In some countries, our competitors can challenge our patents in the patent offices, and in all countries competitors can challenge our patents in the courts. We can face challenges early in the patent process and throughout the life of the patent. These challenges can be to the validity of a patent and/or to the effective scope of a patent and are based on ever-evolving legal precedents. There can be no guarantee of success for either party in patent proceedings. For information about third party challenges to the patents protecting our products, see Note 25 to the Financial Statements.

The generic industry is increasingly challenging innovators' patents, and almost all leading pharmaceutical products in the US have faced or are facing patent challenges from generic manufacturers. The research-based pharmaceutical industry is also experiencing increased challenges elsewhere in the world, for example in Europe, Canada, Asia and Latin America. Further information about the risk of the early loss and expiry of patents is contained in the Principal risks and uncertainties section.

Data exclusivity

Regulatory Data Protection (RDP or 'data exclusivity') is an important intellectual property right which arises in respect of certain data generated by our research activities, including clinical studies. Data which is required to be submitted to regulatory authorities in order to obtain marketing approvals for our medicines may be protected from use by third parties (such as generic manufacturers) for a specific number of years. The period of such protection differs significantly between countries. We believe in enforcing our rights to RDP and consider it an important protection for our innovations, particularly as patent rights are being increasingly challenged.

Compulsory licensing

Compulsory licensing (the overruling of patent rights to allow patented medicines to be manufactured and sold by other parties) is increasingly being included in the access to medicines debate. We recognise the right of developing countries to use the flexibilities in the World Trade Organization's TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement (including the Doha amendment) in certain limited circumstances, such as a public health emergency. We believe that this should apply only when all other ways of meeting the emergency needs have been considered and where healthcare frameworks and safeguards are in place to ensure that the medicines reach those who need them.

Patent expiries

The following table sets out certain patent expiry dates for our key marketed products. These expiry dates relate to the basic substance patent relevant to that product unless indicated otherwise. The expiry dates shown include any Patent Term Extension and Paediatric Exclusivity periods. Additional patents relating to the stated products may have terms extending beyond the quoted dates.

	US patent expiry
Nexium	20151
Crestor	2016
Toprol-XL	Expired
Atacand	2012
Symbicort	2014 (substance combination)
Pulmicort Respules	20192 (formulation)
Arimidex	2010
Zoladex	Expired
Seroquel/Seroquel XR	2012 (substance)/2017 (XR formulation)
Synagis	2015

¹

Licence agreements with Teva and Ranbaxy allow each to launch a generic version in the US from May 2014, subject to regulatory approval.

²

A licence agreement with Teva permits their ongoing US sale of a generic version from December 2009.

Core to our continued business success is our ability to provide our customers with a reliable supply of high quality medicines worldwide, when they want them, and to do so in the most cost-effective way.

Operational excellence

We seek to maximise the efficiency of our supply chain through a culture of continuous improvement. We focus on what adds value for our customers and patients, and eliminates waste. Improvements have delivered significant benefits in recent years, including reduced manufacturing lead times and lower stock levels, which both improve our ability to respond to customer needs and reduce inventory costs. Changes have also been achieved without compromising customer service and quality.

We have been applying Lean business improvement tools and ways of working to improve the efficiency of our manufacturing plants for a number of years and have recently started to apply it to the whole of our supply chain. In 2009, we seconded two Lean experts from Jaguar Land Rover to apply their knowledge of efficient car manufacturing techniques to our pharmaceutical supply chain.

Our customer focus means our supply chains change as the needs of our local markets evolve. In 2009, we established regional offices. This included sourcing centres in Shanghai, China and Bangalore, India, which were created to identify local high quality suppliers to support growing market demand. We also established a regional packing strategy to improve our ability to respond to customer requirements, retain control over quality and thereby equip the business for growth in emerging markets.

During 2009, as part of our commitment to strategic sourcing, we sold our Dunkirk active pharmaceutical ingredient (API) facility and entered into a contract manufacture agreement with the purchaser for the supply of certain APIs from that site. As part of our continuous review of our manufacturing assets to make sure that they are being used in the most effective way we also completed the sale of facilities in Caponago, Italy and Porriño, Spain. We closed our manufacturing site at Destelbergen, Belgium and announced our intention to exit from the plant at North Ryde, Australia. We recognise the impact that these changes can have on our employees' morale and productivity and the increased risk of industrial action. We manage these risks by consulting fully with staff representatives and acting in line with local employment laws. Our human resources policies and processes are also focused on ensuring that the people affected are treated with respect, sensitivity, fairness and integrity. This commitment is covered in the People section.

Product quality

We are committed to delivering assured product quality that underpins both the safety and efficacy of our medicines.

Manufacturing processes for medicines can be very complex and must observe rigorous standards of quality. Both manufacturing plants and processes are subject to inspections by regulatory authorities to ensure compliance with prescribed standards which can vary between different regulatory authorities. Such authorities have the power to require changes and improvements, to halt production and impose conditions that must be satisfied before production can resume. Regulatory standards, and therefore manufacturing processes, can also change over time.

We hosted inspections from many different regulatory authorities in 2009. All observations are reviewed along with the outcomes of our own internal inspections and improvement actions are put in place as required to ensure ongoing compliance with expectations. If required, we take action to improve quality and enhance compliance across the organisation. The knowledge obtained from the inspections is shared across the Group.

We continue to be actively involved in influencing new product manufacturing regulations, both at national and international levels, through our membership of industry associations primarily in the EU, the US and Japan.

Our resources

At the end of 2009, we had approximately 9,500 people at 20 manufacturing sites in 16 countries working on the supply of our products.

Capital expenditure on supply and manufacturing facilities totalled approximately $360 million¹ in 2009 (2008: $369 million¹; 2007: $336 million¹). As part of our overall risk management, we carefully consider the timing of investment to ensure that secure supply chains are in place for our products. We have a programme in place to provide appropriate supply capabilities for our new products.

In addition to our plant at North Ryde, Australia (from which we have announced our intention to exit), our principal small molecule manufacturing facilities are in the UK (Avlon and Macclesfield); Sweden (Snäckviken and Gärtuna, Södertälje); the US (Newark, Delaware and Westborough, Massachusetts); France (Reims); Japan (Maihara); China (Wuxi) and Puerto Rico (Canovanas). Approximately 600 people work in API supply and 8,000 in formulation and packaging. We operate a small number of sites for the manufacture of active ingredients in the UK and Sweden, complemented by efficient use of sourcing. Our principal tablet and capsule formulation sites are in the UK, Sweden, Puerto Rico and the US, and we also have major formulation sites for the global supply of parenteral and/or inhalation products in Sweden, France and the UK.

With the addition of a seasonal work force to support the production of the H1N1 influenza vaccine, approximately 870 people are employed at our four principal biologics commercial manufacturing facilities in the US (Frederick, Maryland and Philadelphia, Pennsylvania); the UK (Speke); and the Netherlands (Nijmegen) with capabilities in process development, manufacturing and distribution of biologics, including worldwide supply of MAbs and influenza vaccines. Our biologics production capabilities are scalable, which enables efficient management of our combined small molecule and biologics pipeline.

¹

Figures adjusted to reflect the impact of the MedImmune acquisition.

Managing sourcing risk

Our global procurement policies and integrated risk management processes are aimed at ensuring uninterrupted supply of sufficiently high quality raw materials and other key supplies, all of which are purchased from a range of suppliers. We focus on a range of risks to global supply, such as disasters that remove supply capability or the unavailability of key raw materials, and work to ensure that these risks are effectively mitigated. Contingency plans include the appropriate use of dual or multiple suppliers and maintenance of appropriate stock levels. Although the price of raw materials may fluctuate from time to time, our global purchasing policies seek to avoid such fluctuations becoming material to our business. We also take steps to ensure the quality of the raw materials that we receive from third parties; for more information see the Product quality section.

We also take into account reputational risk associated with our use of suppliers and are committed to working only with suppliers that embrace standards of ethical behaviour that are consistent with our own. See the Responsible procurement section.

With nearly 63,000 employees worldwide, we value the diverse skills and capabilities that a global workforce brings to our business. We work continuously to align these skills and capabilities with strategic and operational needs, whilst maintaining high levels of employee engagement and commitment. This means providing employees with effective leadership, clear targets, open lines of communication, learning and development opportunities and a healthy and safe workplace. All this needs to take place in a culture in which diversity is valued and individual success depends solely on personal merit and performance.

AstraZeneca is committed to making full use of the talents and resource of all its workers within the organisation. We therefore have policies in place to ensure that we avoid any discrimination, including discrimination on the grounds of disability. These include recruitment and selection, performance management, career development and promotion, transfer and training (including re-training, if needed, for employees who have become disabled) and reward.

A strategic approach

Our business strategy drives our approach to managing human resources (HR) issues across AstraZeneca. Identifying and building skills and capability for the long term is critical if we are to deliver that strategy successfully. To that end we have been developing a strategic workforce planning (SWP) capability.

SWP generally takes a longer-term view of five to seven years and is designed to ensure we have the right capabilities in the right location at the right time. SWP also addresses issues such as ensuring a diverse workforce and the challenges of attracting and retaining talent globally.

Targets and accountabilities

Clear targets and accountabilities are essential for ensuring that people understand what is expected of them as we deliver our business strategy. The Board and the SET are responsible for setting our high-level strategic objectives and managing performance against these (see the Reserved matters and delegation of authority section). Managers across AstraZeneca are accountable for working with their teams to develop individual and team performance targets that are aligned to our strategic objectives and against which individual and team contributions are measured and rewarded.

Our focus on optimising performance is reinforced by performance-related bonus and incentive plans. AstraZeneca also encourages employee share ownership by offering the opportunity to participate in various employee share plans, some of which are described in the Directors' Remuneration Report and also in Note 24 to the Financial Statements.

Learning and development

We encourage and support all our people in achieving their full potential with a range of high quality learning and development (L&D) opportunities around the world.

We are implementing a new global approach, backed by the creation of our global L&D organisation, which aims to ensure that standards of best L&D practice are consistently applied in the most efficient way. During 2009, we have continued to develop and deploy global on-line and other development resources, as we seek to make L&D tools and programmes available to all employees, creating a common platform that increases access to learning and supports self-development across the organisation. During 2009, we implemented a refreshed on-line L&D portal, with access to all core leadership and management development tools. We also launched a number of specific business area websites.

Our leadership development frameworks are focused on six core capabilities, which we believe are essential for strong and effective leadership: passion for customers, strategic thinking, acting decisively, driving performance, working collaboratively, and developing people and the organisation. These capabilities apply to all employees and are used across our HR processes. In 2009, we complemented the core leadership capabilities with the launch of a set of manager accountabilities. These define what we expect from all managers across the dimensions of ethical conduct and compliance, people management and engagement, as well as fiscal and financial awareness. Building line manager capability has been supported by the launch of a number of global learning programmes, which address key elements of people management.

Talent management

To ensure we maintain a flow of effective leaders, we work to identify individuals with the potential for more senior and complex roles. These talent pools provide succession candidates for a range of leadership roles across AstraZeneca that are critical to our continued business success. We regard these individuals as key assets to the organisation and we therefore focus on proactively supporting them to reach their potential with, for example, targeted development opportunities.

Engagement and dialogue

We aim to provide an inclusive environment that encourages open discussion and debate at all levels throughout AstraZeneca. As well as line manager briefings and team meetings, we use a wide range of media to communicate with our employees around the world.

To support our goal of promoting high levels of employee engagement, we also use an annual global employee survey (FOCUS) to track employee opinion across a range of key topic areas. The results, which are communicated to all employees, provide valuable insights that inform strategic planning across the business.

Eighty six percent of our employees participated in our 2009 FOCUS survey, reflecting their continued confidence in this feedback mechanism. Results showed that employee engagement scores which were already very strong had improved compared to 2008 and employees felt that the clarity of direction provided by senior leaders had also improved. The survey also identified key areas that continue to require attention, in particular the need for further strengthening leadership capability in effective communications and change management. In addition, our scores around work-life balance decreased slightly in some functions. Our leaders take this feedback very seriously and targets that address employee engagement and the effectiveness of senior leadership communications in particular are included in the SET business performance management framework for 2010.

Managing the impact of business change

Our continuing strategic drive to improve efficiency and effectiveness through our previously announced restructuring programmes has resulted in the delivery of a gross reduction of approximately 12,600 positions during the period 2007 to 2009. To ensure that a consistent approach, based on our core values, was and continues to be adopted throughout the programme, specific guidance was provided for the HR teams and line managers throughout the organisation. Differences in the legal frameworks and the customary practice in the different geographies in which we operate is a challenge. The global guidance provided aims to ensure that the same or similar elements are included in local implementation of business change. These include, for example, open communication and consultation with employees, face-to-face meetings, re-deployment support and appropriate financial arrangements. In line with our core values, we expect the people affected to be treated with respect, sensitivity, fairness and integrity at all times. It was therefore encouraging that the engagement scores in our 2009 FOCUS employee survey continued to improve despite business change that typically involves headcount reduction.

Consultation

We work to ensure a level of global consistency in managing employee relations, whilst allowing enough flexibility to support the local markets in building good relations with their workforces that take account of local laws and circumstances. To that end, relations with trades unions are nationally determined and managed locally in line with the applicable legal framework and standards of good practice. Managers throughout AstraZeneca are trained in consultation requirements as well as relevant employment law, where applicable. Training is done at a local level and we have a range of HR and line manager networks for sharing experience and good practice, and promoting alignment across the organisation. At a global level, we have a Head of Employee Relations who supports national management in ensuring that their local activities are consistent with our high-level principles. As we continue to develop our global platform for managing HR we seek to ensure that the strength of our local management approaches is not undermined.

There are particularly well-developed arrangements for interactions with trades unions and employee representative groups across Europe. Before it became a legal requirement under European law in 1995, both our heritage companies, Astra and Zeneca, had European Consultation Committees (ECCs) in place. Our single AstraZeneca ECC comprises trade union representatives and locally elected employees, and is chaired by a SET member. The committee meets once a year and a sub-committee meets quarterly to discuss, among other things, business developments and any potential impact these may have on the workforce.

We are always striving to improve consultation arrangements. For example, in 2009 the Joint Consultation and Information infrastructure in the UK was changed and a new arrangement was agreed and implemented in full consultation with representatives. The new arrangement enables dialogue, participation and involvement of employees in a process that is more responsive and flexible to changing needs than the one it replaced.

Human rights

AstraZeneca is fully supportive of the principles set out in the United Nations Universal Declaration of Human Rights. Our Code of Conduct and supporting policies outline the high standards of employment practice with which everyone in AstraZeneca is expected to comply, both in spirit and letter, worldwide.

Overall accountability for progressing the human rights agenda within AstraZeneca lies with our Global Human Resources function, supported by our Global Corporate Responsibility Team who co-ordinate with relevant functions to ensure that human rights issues continue to be appropriately integrated into responsible business strategies.

In January 2010, AstraZeneca signed up to the United Nations Global Compact (UNGC), a strategic policy initiative for businesses that are committed to aligning their operations and strategies with 10 universally accepted principles in the areas of human rights, employment, environment and anti-corruption. We are now working within the framework of the 10 UNGC principles to understand how these principles apply to our business, what we are doing well and where more work may be needed.

More information about our commitment in human rights-related areas is included in this Annual Report including access to medicines, diversity, safety, health and wellbeing, employee relations, sales and marketing practice and working with suppliers. Full details are available on our website, astrazeneca.com/responsibility.

Diversity

With a global workforce comes a rich diversity of skills, capabilities and creativity. We value highly the benefits that such diversity can bring to our individual employees, to our stakeholders and ultimately to our business.

We aim to foster a culture of respect and fairness, where differences are recognised, valued and harnessed, and where individual success depends solely on ability, behaviour, work performance and demonstrated potential. Every manager across AstraZeneca is responsible for ensuring that this happens.

As we continue to reshape our organisation and our global footprint in line with business objectives, our continuing challenge is to ensure that diversity is appropriately supported in our workforce, reflected in our leadership and integrated into business and people strategies.

In 2009, to further strengthen our drive in this area, we appointed a Global Diversity Leader, a new position, whose role is to develop a global Diversity & Inclusion strategy, in partnership with senior leaders who will be accountable for its implementation in the business. We are currently working to identify key areas of strategic focus, considering how best to implement a global strategy with the flexibility needed for local interpretation and implementation, and agreeing KPIs.

As part of this work, during 2009 we identified the need to look more closely at the advancement of women in AstraZeneca. Our data shows that we have 52% of women and 48% of men in our workforce (of the 40,000 people currently in our global HR database) and 24% of 82 senior managers reporting to the SET are women. We are now working with an external expert in this field on a global research project designed to help us better understand some of the causes underlying the data. The outcomes will inform the ongoing development of the Diversity & Inclusion strategy.

Safety, health and wellbeing

Providing a safe workplace and promoting the health and wellbeing of all our people remains a core priority. A safe, healthy working environment not only benefits employees, it supports our business through improved employee engagement, retention and productivity.

We continue to make significant investment in providing a wide range of health and wellbeing improvement programmes across AstraZeneca. These vary according to health risk profile, function and local culture, and include general health initiatives aimed at increasing exercise levels, reducing tobacco use, improving nutrition and managing stress. We also have plans in place to deal with the effect of pandemic flu, including the provision of anti-virals for employees based in areas where adequate supplies may not be available through national treatment regimes.

Work-related stress is currently our greatest single cause of occupational illness, with continued business change, high workloads and interpersonal issues being identified as significant factors. As part of our ongoing efforts in this area, we are adopting an increasingly proactive, risk-based approach, using wellbeing risk assessment tools to identify high-risk areas and target interventions more effectively.

We regret that during 2009, one of our sales representatives in Thailand died in a traffic accident whilst driving on AstraZeneca business. We work hard to identify the root causes of any serious accident and use a range of investigation procedures to help us avoid repetition. Learning is shared with management and staff, and our conclusions about underlying causes are used to improve our management systems.

In recent years, our strengthened efforts to promote driver safety worldwide have delivered some improvements and we are maintaining focus in this important area at all levels of the organisation.

Our long-standing 'Road Scholars' scheme in the US (the home to our largest sales force) continues to be a valuable channel for building awareness and improving driver skills. A driver safety objective is now also included in the US performance management framework. Outside the US, our 'Drive Success' programme takes into account the different driving environments in the various countries in which we operate and provides a high-level framework of common standards to be adopted by each country. The 'Drive Success' programme was launched in 2008 across Europe, Latin America, the Middle East and Africa. Roll-out was completed during 2009 with the launch in Asia Pacific, including Japan.

During the year, we also commissioned a global assessment of our driver safety programmes by an external expert in this field, the results of which were presented to the SET. Both programmes were reported to have a solid foundation on which to build. Key findings centred on the need for clear global and local improvement targets and closer alignment of the two programmes. In response, we have developed a set of KPIs and global targets, together with a new Global Driver Safety Standard, all of which will be introduced across the organisation during 2010.

Our KPI for safety, health and wellbeing combines the frequency rates for accidents resulting in serious injuries and new cases of occupational illness into one KPI, with an overall target of a 50% reduction in the combined rates by the end of 2010, compared with a 2001/2002 reference point. The overall serious injury accident rate for AstraZeneca employees decreased by 2% in 2009, whilst the occupational illness rate increased by 32%. This equates to a combined increase of 9% compared to 2008. The occupational illness rate increase is due largely to a number of suspected cases in 2008 being confirmed as work-related during 2009 and therefore included in the 2009 data, rather than in the 2008 data. We remain on track to achieve the targeted 50% reduction by the end of 2010. Data on our performance over the last three years is shown above.

We are currently in the process of finalising a new safety, health and environment strategy, including associated safety and health targets.