Strategy and Performance

In our Business Environment section we outline the opportunities presented by expanding patient populations in Emerging Markets, unmet medical need and advances in science, as well as the pricing pressure and other challenges facing the pharmaceutical sector. Over the last 10 years, our healthcare revenue has grown from $15 billion to almost $33 billion and our Emerging Markets business has grown from 6% of our global revenue to 13%. Our challenge as a business is to be nimble in seizing the opportunities and managing the risks in order to build our competitive advantage.

We estimate that in the next five years, more than half our current revenue is subject to potential loss through the ordinary course of patent expiries and loss of Regulatory Exclusivity protecting our products. This loss of intellectual property is an inherent feature of our industry that occurs naturally as part of the cycle of innovation, growth and renewal. It is, however, challenging to be able to synchronise the cycles of patent expiry and portfolio renewal. The goal for our planning process is to ensure that we can continue to sustain the cycle of successful innovation and thus continue to refresh our portfolio of patented products and generate value for shareholders.

The executive team, with the endorsement of the Board, believes that the most value-creating strategy for AstraZeneca is to remain a focused, integrated, innovation-driven, global, prescription-based biopharmaceutical business:

• focused in that we will continue to be selective about those areas of the industry in which we choose to compete, targeting those product categories where medical innovation or brand equity continues to enable us to make acceptable levels of returns on our investments
• integrated in that we believe the best way to capture value within this industry is to span the full value chain of discovery, development and commercialisation
• innovation-driven in that we believe our technology base will continue to deliver innovative products that patients will want and for which payers will pay
• global in that we believe we have the ability efficiently and effectively to meet healthcare needs in both Established and Emerging Markets.

We believe that there are continued opportunities to create value for those who invest in pharmaceutical innovation and that AstraZeneca has the skills and capabilities to turn these opportunities into long-term value.

The initiatives we are pursuing in the coming years are in line with those we reported on last year and we do so again overleaf in this Annual Report. These show that we are already on a path of change. Our 2009 review emphasised the need for the pace of that change to accelerate.

Pipeline

While remaining committed to scientific innovation to deliver a flow of new medicines, the need to further improve the productivity of R&D is a central part of our plans. Meeting this challenge will require continued investment in new skills and capabilities. It will also require our R&D organisation to undertake more transformational change than ever before. Our plans include a reduction in the number of disease area targets within our core Therapy Areas, a continued focus on external collaboration, some consolidation of our activities onto a smaller R&D site footprint, and other efficiency measures, subject to consultations with work councils, trades unions and other employee representatives and in accordance with local employment laws.

Our commitment to scientific innovation is coupled with our belief that successful delivery of our plans will require more external collaboration than ever before, including more extensive collaboration with industry and academic partners. External project opportunities will compete alongside in-house developments for funding from our new Portfolio Investment Board which will replace the R&D Executive Committee.

Business growth

Our enhanced programme of external collaboration includes working with payers. We are setting out to build an industry-leading capability in 'payer partnering' to ensure that the needs of our customers are clearly understood throughout R&D and included in our decision-making.

In terms of the commercialisation of our products, we will continue to build on our leading positions in Established Markets. Our plans for growth will also build on the investments we have already made in Emerging Markets. In addition to commercialising the current and new product offerings being developed internally, we believe we can drive further growth by selectively supplementing our Emerging Markets portfolio with branded generic products sourced externally and marketed under the AstraZeneca brand.

Business shape

We will continue to use business improvement programmes, such as Lean Sigma, to drive efficiencies across the Group. We will also move further towards a more flexible cost base which will enable us to respond rapidly as our requirements change. To do this we will make greater use of outsourcing and strategic collaborations with other organisations.

Culture and behaviour

We define success not only by what we do but also by how we do it. Acting responsibly ensures we do things in the right way and in line with the expectations of shareholders, customers, payers, regulators and other stakeholders. We will continue to embed a culture of accountability across the Group, nurturing a spirit of innovation in all functions.

Good progress has been made in the implementation of previously announced restructuring programmes. This has involved a reduction of 12,600 positions. Annualised benefits of $1.6 billion were realised by the end of 2009, which are on track to grow to around $2.4 billion by the end of 2010.

The next phase of restructuring, which includes completion of the previous programmes, some additional initiatives in supply chain and in selling, general & administration, as well as the R&D initiatives, will result in the realisation of a further $1.9 billion in estimated annual benefits by the end of 2014. These programmes may, when fully implemented, involve up to an additional 10,400 job reductions.

Set out below is more information about how we measure and review our performance on an annual basis. For each of our strategic priority areas, the Strategy, objectives and 2009 performance table summarises the initiatives we have been undertaking in support of them, our 2010 objectives, our KPIs and our performance against them in 2009.