Geographical Review

AstraZeneca is the fourth largest pharmaceutical company in the US, with a 6% market share of US prescription pharmaceuticals by sales value.

Sales in the US decreased by 2% to $13,426 million (2010: $13,727 million), as strong performance from our key growth brands was offset by the impact of increased generic competition experienced by our mature brands. Combined sales of our key growth brands, namely, Brilinta, Crestor, Onglyza^TM, Seroquel, Symbicort and Faslodex, were up by 16% to $8,474 million (2010: $7,316 million). Increased generic competition for Arimidex, and Toprol-XL and its authorised generic, resulted in a sales decline in these brands of 62% to $446 million (2010: $1,183 million).

Brilinta was approved by the FDA in July to reduce the risk of cardiovascular death and heart attacks in patients with acute coronary syndromes (ACS). Unrestricted managed markets access was 59%, and trial among target interventional cardiologist initiators was 6% at the end of 2011. Crestor achieved sales of $3,074 million (2010: $2,640 million) and a total prescription growth of 4.4% within the statin market. This growth outpaced the market almost four-fold. A competitor to Crestor, atorvastatin, was available in generic form in the US beginning in late 2011.

Seroquel continued to be the most prescribed atypical anti-psychotic, with sales up 10% to $4,123 million (2010: $3,747 million). Total Seroquel prescriptions declined by 1%, driven by Seroquel IR erosion of 4% due to increased generic and branded competition. Strong Seroquel XR prescription volume growth of 17% partially offset the total Seroquel IR prescription volume decline. Seroquel XR accounts for 18% of total Seroquel prescription volume in the US, up from 16% at the end of 2010.

Symbicort pMDI continued to deliver steady growth in the US, with sales up 17% to $846 million (2010: $721 million) and prescription growth of 10%, leading the fixed combination class in total prescription growth. It achieved a 20.3% total prescription share and a 21.5% new prescription share of the inhaled corticosteroid/long-acting beta-agonist market.

Onglyza^TM/Kombiglyze XR^TM captured one in four new dipeptidyl peptidase IV (DPP-IV) patient treatment decisions and achieved a 6.5% total prescription market share gain in 2011, ending the year with a total prescription market share of 16.5% of the DPP-IV inhibitor market. Kombiglyze XR^TM was launched in January 2011 and doctors are now prescribing it to one in 10 new patients. Onglyza^TM revenues in the US were $156 million (2010: $54 million).

Nexium was the fifth most prescribed branded pharmaceutical in the US. In the face of continuing generic, OTC and pricing pressures, Nexium sales declined 11% to $2,397 million (2010: $2,695 million). Nexium remains the branded market leader retaining significant market share and volume within the proton pump inhibitor class.

Sales of Toprol-XL and its authorised generic (metoprolol succinate extended-release tablets), which is marketed and distributed by Par Pharmaceutical Companies, Inc. (Par) decreased 41% to $404 million (2010: $689 million), due to the impact of generic competition from Watson Pharmaceuticals Inc. and Wockhardt Limited, which entered the market in 2010. In December, Mylan Inc. announced that its subsidiary Mylan Pharmaceuticals Inc. (Mylan) received final approval from the FDA for its ANDA for metoprolol succinate extended-release tablets in 25mg, 50mg, 100mg and 200mg doses.

Following multiple generic anastrozole products entering the US market in June 2010, sales of Arimidex declined by 91% to $42 million (2010: $494 million).

In June, the US District Court ruled that Mylan did not infringe the Entocort formulation patent (EC patent no. 5,643,602). Following Mylan’s entry of its generic, AstraZeneca launched an authorised generic with marketing and distribution by Par Pharmaceutical, Inc.

In 2011, sales of Synagis were down 12% to $570 million (2010: $646 million). Sales in the 2010/2011 RSV season started slower than anticipated due to later than forecast seasonal onset, coupled with payer pressure resulting from wider adoption of more restrictive guidelines regarding the use and dosing of Synagis by the American Academy of Pediatrics.

Sales for Aptium Oncology increased by 2% to $224 million (2010: $219 million) and sales for Astra Tech were down 24% to $77 million (2010: $101 million), all recorded in the period prior to its disposal to DENTSPLY International Inc., which completed in August.

In March 2010, the Affordable Care Act came into force. It has had, and is expected to continue to have, a significant impact on our US sales and the US healthcare industry as a whole. For 2010, the impact of higher minimum Medicaid rebates on prescription drugs was a reduction in our pre-tax profit for the period of nearly $230 million. In 2011, the overall reduction in our profit before tax for the year due to higher minimum Medicaid rebates on prescription drugs, discounts on branded pharmaceutical sales to Medicare Part D beneficiaries and an industry-wide excise fee was $750 million. These amounts reflect only those effects of the Affordable Care Act that we know have had or will have a direct impact on our financial condition or results of operations and which we are therefore able to quantify based on known and isolatable resulting changes in individual financial items within our financial statements. There are other potential indirect or associated consequences of these legislative developments, which continue to evolve and which cannot be estimated but could have similar impacts. These include broader changes in access to or eligibility for coverage under Medicare, Medicaid or similar governmental programmes, such as the recent proposals to limit Medicare benefits. These could indirectly impact our pricing or sales of prescription products within the private sector. By their nature and the fact that these potentially numerous consequences are not directly linked to a corresponding and quantifiable impact on our financial statements, it is not possible to accurately estimate the financial impact of these potential consequences of the Affordable Care Act or related legislative changes when taken together with the number of other market and industry related factors that can also result in similar impacts. Further details of the potential impact of the Affordable Care Act are contained in the Pricing pressure section and the Principal risks and uncertainties section.

Currently, there is no direct government control of prices for commercial prescription drug sales in the US. However, some publicly funded programmes, such as Medicaid and TRICARE (Department of Veterans Affairs), have statutorily mandated rebates and discounts that have the effect of price controls for these programmes. Additionally, pressure on pricing, availability and utilisation of prescription drugs for both commercial and public payers continues to increase. This is driven by, among other things, an increased focus on generic alternatives. Primary drivers of increased generic use are budgetary policies within healthcare systems and providers, including the use of ‘generics only’ formularies, and increases in patient co-insurance or co-payments. In 2011, 80% of the prescriptions dispensed in the US were generic. While it is unlikely that there will be widespread adoption of a broad national price-control scheme in the near future, there will continue to be increased attention to pharmaceutical prices and their impact on healthcare costs for the foreseeable future.

Sales performance outside the US in 2011 was down by only 2% to $20,165 million (2010: $19,542 million), despite the continuing challenging economic environment. Combined sales of key products (Arimidex, Crestor, Nexium, Seroquel and Symbicort) were down 1% with sales of $10,301 million (2010: $9,923 million). Emerging Markets delivered particularly strong sales, up 10% with sales of $5,763 million (2010: $5,198 million).

AstraZeneca is the sixth largest prescription-based pharmaceutical company in Western Europe, with a 4.4% market share of prescription sales by value.

Total sales in Western Europe were down 11% to $8,501 million (2010: $9,168 million) due largely to volume erosion on Nexium, Arimidex and Merrem following generic entrants and the negative price impact from price reductions primarily related to government interventions. This development was partially offset by volume growth attributable to Crestor, Seroquel XR, Symbicort, Iressa and Faslodex.

Crestor outperformed the statin class with strong 13% sales growth by volume. Likewise, Seroquel outperformed the atypical anti-psychotics market segment more than twice in value, with strong growth of Seroquel XR, up by 31%, primarily driven by the bipolar indication. Generic versions of Nexium are now available in most markets with overall sales down 39% to $762 million (2010: $1,202 million).

Brilique was launched in Germany, the UK, Italy, Spain, Norway, Sweden, Denmark, Finland, Austria, Greece and Switzerland, and sales exceeded $9 million.

The macro-economic situation has deteriorated, leading to increased pressure on healthcare budgets with some European markets beginning to emerge from the crisis and others still facing major issues with the implementation of new austerity measures. Most governments in Europe intervene directly to control the price, volume and reimbursement of medicines. Several governments have imposed price reductions and increased the use of generic medicines as part of healthcare expenditure control. Several countries are applying strict criteria for cost effectiveness evaluations of medicines which has delayed and reduced access to medicines for patients in areas of important unmet medical need. These and other measures all contribute to an increasingly difficult environment for branded pharmaceuticals in Europe.

In Germany, sales growth fell by 8% to $1,189 million (2010: $1,235 million), as the increased compulsory rebates for Symbicort and Seroquel were carried over from mid-2010 and reference pricing for Symbicort and Atacand commenced. However, Seroquel, Faslodex and Iressa all showed a strong performance on an underlying volume basis. As a result of the debt crisis in Greece, the Greek government implemented significant price cuts in 2010 and 2011 which resulted in an overall sales decline of 9% to $305 million (2010: $322 million). In the UK, an 18% decrease in sales to $866 million (2010: $1,022 million) reflected strong volume erosion on Nexium by 56%, Merrem by 86% and Arimidex by 76% respectively following generic entry which was not offset by the solid performance from Symbicort and Seroquel XR.

Overall sales in France decreased by 12% to $1,740 million (2010: $1,889 million), driven by Nexium erosion, down to $266 million (2010: $448 million), a 42% fall following generic entry at the end of April 2011, which was not entirely offset by double digit growth of Crestor and continued strong growth of Symbicort, Faslodex and Iressa despite significant competition. Sales in Italy were down by 11% to $1,113 million (2010: $1,198 million). Our main sales were hit by price cuts on off patent products to align their prices with the EU average price, and by price cuts and prescription controls on Crestor. Despite this, we achieved double digit volume growth for Crestor, Seroquel and Symbicort.

Sales in Established ROW increased by 4%. The key products driving sales growth in 2011 were Crestor, Symbicort, Nexium and Seroquel.

Canada

In 2011, AstraZeneca became the largest research-based pharmaceutical company in Canada by sales value. Despite loss of exclusivity for Atacand after expiry of the compound patent (Canadian patent no. 2,040,955) and the ‘at-risk’ launch of a generic version of Nexium by a competitor, total Canadian sales increased by 1% to $1,604 million (2010: $1,510 million). Combined sales of Crestor, Nexium, Symbicort and Seroquel were $1,171 million (2010: $1,055 million). Crestor became the largest prescription product in Canada by sales value, with year-on-year sales growth of 14% to $716 million (2010: $600 million).

The Canadian provinces continue to adopt provincial and regional approaches to pharmaceutical funding, from one end of the continuum in Quebec, with more open access, to more restricted access in British Columbia. Overall, the trend in Canada indicates that provinces will continue to introduce policy changes that drive cost savings and exert pricing pressure on new and existing medicines (for example, conditional listings, product listing agreements and bulk purchasing), while providing reasonable patient access to innovative medicines.

Japan

Sales in Japan increased by 6% to $3,064 million (2010: $2,617 million). The Tohoku earthquake and tsunami did not significantly disrupt supply of AstraZeneca medicines and did not have a material impact on financial performance.

Strong volume gains of 7% were driven mainly by the continued growth of primary care brands. Sales of Crestor, which is co-promoted with Shionogi & Co. Limited, grew by 16% while sales of Symbicort Turbuhaler grew by 88% in its second year in the market. Sales growth of Losec slowed by 5%, following the September launch of Nexium (co-promoted with Daiichi Sankyo).

Our oncology business remains one of the leaders in Japan based on the performance of established brands including Iressa, Arimidex, Zoladex and Casodex. In November, we also completed the launch of Faslodex, the approval and launch of an additional indication for Iressa, and the signing of an agreement with Daiichi Sankyo to co-promote Ranmark^TM (denosumab) for the treatment of bone disorders stemming from bone metastasis. Daiichi Sankyo acquired the denosumab rights in 2007 from Amgen Inc. and received approval in January 2012.

Other Established ROW

Sales in Other Established ROW showed robust growth of 4% to $1,233 million (2010: $1,049 million). Strong volume growth in Australia for our key products was partially offset by the full year impact of price cuts imposed in April 2010 on Crestor and Nexium and continued price adjustments imposed by the Australian authorities in 2011. Crestor, Nexium and Symbicort all gained market share in the year, with Crestor achieving a 28% volume share in the statin class. Brilique has achieved registration in 2011 in both Australia and New Zealand, with Pharmaceutical Benefits Scheme reimbursement in Australia expected in 2012.

In the Emerging Markets, sales increased by 10% to $5,763 million (2010: $5,198 million), which was principally driven by growth in China and Latin America.

In many of the larger markets, such as Brazil and Mexico, patients tend to pay directly for prescription medicines and consequently these markets are at less risk of direct government interventions on pricing and reimbursement. In other markets such as South Korea, Taiwan and Turkey, where governments do pay for medicines, we are seeing continued efforts to reduce the cost of prescriptions in line with the systems in Western Europe, Canada and Australia.

Emerging Europe

Sales in Emerging Europe grew by 7% to $1,244 million (2010: $1,165 million) driven by increased sales in Russia and Romania, which more than offset reduced sales in Turkey, we have continued to build our presence in Russia, where sales increased by 19% to $284 million (2010: $232 million) mainly due to increased sales of Symbicort by 41%, Nexium by 33% and Crestor by 25% driven by growth in the retail segment. We have also consolidated our position among the leaders in the hospital and regional reimbursement segments.

In Romania, we delivered a strong performance with sales up 24% to $154 million (2010: $119 million), largely as a result of sales of Atacand increasing by 63%, Seroquel increasing by 43% and Symbicort increasing by 86%. In late 2009, the Turkish government imposed unprecedented levels of price reductions on the pharmaceutical industry. As a result, our sales were down in Turkey in 2010, but recovered in 2011, up 7% to $297 million (2010: $304 million).

China

Our sales in China (excluding Hong Kong) increased by 15% to $1,261 million (2010: $1,047 million). The slow down in growth rate versus 2010 was primarily driven by a reduction in overall Chinese market growth which was particularly evident in major cities as well as weaker performance in our gastrointestinal and anaesthesia businesses. Our cardiovascular (CV) and oncology businesses continued to grow ahead of the market due to strong performances by Crestor and Betaloc Zok (Seloken/Toprol-XL), despite delays in activation of reimbursement in Beijing, Shanghai and Guangzhou. We continue to be one of the leading multinational pharmaceutical companies in China and the second largest in the prescription market by sales value. In November, we announced our decision to invest $200 million in a new manufacturing facility to further strengthen our position in China. In December, we announced we had entered into an agreement to acquire Guangdong BeiKang Pharmaceutical Company Limited, a generics company based in Conghua City, Guangdong province. This agreement, which remains subject to regulatory approval in China, will provide us with access to a portfolio of injectable medicines used to treat infections.

Emerging Asia Pacific

Sales in Emerging Asia Pacific grew 5% to $968 million (2010: $890 million). This was driven by strong sales growth in India, up 21%, Vietnam, up 29%, and Indonesia, up 11%. Growth was more subdued in markets which were more significantly impacted by government interventions on pricing or by measures which promoted local generic penetration, primarily in Taiwan, Thailand and the Philippines.

Other Emerging ROW

Our sales grew by 12% to $2,290 million (2010: $2,096 million) largely due to strong sales growth in Venezuela and Argentina. We achieved double digit year-on-year sales growth for most of our key products, Nexium, Seroquel XR, Symbicort, Zoladex, Atacand and Seloken. Excluding Brazil, where generic competitors entered the market for the first time in 2011, Crestor sales grew by around 12% across the region.

In Latin America the pharmaceutical market continues to grow strongly, underpinned by a relatively stable political and economic climate. Strong competition from local, non-multinational, companies with branded generic products is increasingly becoming a feature of the region.

Brazilian sales for the year were impacted by loss of exclusivity not only on Crestor but also Atacand monotherapy and Seroquel IR. The Brazilian pharmaceutical market continues to experience double digit growth. Mexican year-on-year sales were flat, mirroring a market that is currently showing low single digit growth.

2011 saw successful launches of Brilinta in Brazil, Vimovo in a number of countries in Central America and the Caribbean, and Onglyza^TM in Colombia.

In the Middle East and Africa, despite political challenges arising from the ‘Arab Spring’ revolutions, we further accelerated our growth with sales up 12%. Our largest markets were South Africa, Saudi Arabia, the UAE and Algeria where we achieved steady growth. South African growth was mainly driven by Symbicort up 12%, Seroquel up 14% and Crestor up 10%.