AstraZeneca Annual Report and Form 20-F Information 2011

RiskCommercialisation and business execution risksChallenges to achieving commercial success of new productsThe successful launch of a new pharmaceutical product involves substantial investment insales and marketing activities, launch stocks and other items. The commercial success of ournew medicines is of particular importance to us in order to replace lost sales following patentexpiry. We may ultimately be unable to achieve commercial success for any number of reasons.These include difficulties in manufacturing sufficient quantities of the product candidate fordevelopment or commercialisation in a timely manner, erosion of IP rights including infringementby third parties and failure to show a differentiated product profile.As a result, we cannot be certain that compounds currently under development will achievesuccess, and our ability to accurately assess, prior to launch, the eventual efficacy or safety of anew product once in broader clinical use can only be based on data available at that time, whichis inherently limited due to relatively short periods of product testing and small clinical studypatient samples.Additionally, the commercialisation of biologics is often more complex than for traditionalpharmaceutical products, primarily due to differences in the mode of administration, technicalaspects of the product and rapidly changing distribution and reimbursement environments.ImpactIf a new product does not succeed as anticipatedor its rate of sales growth is slower than anticipated,there is a risk that we are unable to fully recoup thecosts incurred in launching it, which could materiallyadversely affect our financial condition and resultsof operations.Due to the complexity of the commercialisationprocess for biologics, the methods of distributingand marketing biologics could materially adverselyimpact our revenues from the sales of productssuch as Synagis and FluMist/Fluenz.Illegal trade in our productsIllegal trade covers the theft, illegal diversion and counterfeiting of our products. Illegal tradein pharmaceutical products is estimated to exceed $75 billion per year and is generallyconsidered by the industry, NGOs and governmental authorities to be increasing. We suffera commensurate financial exposure to illegal trade, but in many cases, due to the nature ofour portfolio, this exposure has a greater impact on public health. Regulators and the publicexpect us to secure the integrity of our supply chain and to actively cooperate in the reductionof illegal trade in genuine AstraZeneca products, whether illegally diverted or stolen, and incounterfeited products.ImpactPublic loss of confidence in the integrity ofpharmaceutical products as a result of counterfeitingcould materially adversely affect our reputation andfinancial performance. In addition, undue ormisplaced concern about the issue may inducesome patients to stop taking their medicines, withconsequential risks to their health. There is also adirect financial loss where counterfeit medicinesreplace sales of genuine products and wheregenuine products are recalled following discoveryof counterfeit, stolen and/or illegally traded productsin an effort to regain control of the integrity of thesupply chain. In many countries, particularlydeveloping markets, a robust programme to tackleillegal trade is seen as part of the licence to operate.Developing our business in Emerging MarketsThe development of our business in Emerging Markets is a critical factor in determining ourfuture ability to sustain or increase our global product revenues. This poses various challengesincluding: more volatile economic conditions; competition from companies with existing marketpresence; the need to identify correctly and to leverage appropriate opportunities for sales andmarketing; poor IP protection; inadequate protection against crime (including counterfeiting,corruption and fraud); the need to impose developed market compliance standards; inadvertentbreaches of local and international law; not being able to recruit appropriately skilled andexperienced personnel; identification of the most effective sales channels and route to market;and interventions by national governments or regulators restricting access to market and/orintroducing adverse price controls.ImpactThe failure to exploit potential opportunitiesappropriately in Emerging Markets may materiallyadversely affect our reputation, financial conditionand results of operations.Expiry or loss of, or limitations on, IP rightsPharmaceutical products are only protected from being copied during the limited period ofprotection under patent rights and/or related IP rights such as Regulatory Data Protection orOrphan Drug status. Expiry or loss of these rights typically leads to the immediate launch ofgeneric copies of the product in the country where the rights have expired or been lost. Seethe Intellectual Property section from page 34 which contains a table of certain patent expirydates for our key marketed products.Additionally, the expiry or loss of patents covering other innovator companies’ products mayalso lead to increased competition for our own, still-patented, products in the same productclass due to the availability of generic products in that product class.ImpactProducts under patent protection or within theperiod of Regulatory Data Protection typicallygenerate significantly higher revenues than thosenot protected by such rights. Our revenues, financialcondition and results of operations may be materiallyadversely affected upon expiry or early loss of ourIP rights, due to generic entrants into the marketfor the applicable product. Additionally, the lossof patent rights covering major products of otherpharmaceutical companies, such as Lipitor(in November), may adversely affect the growthof our still-patented products in the same productclass (ie Crestor) in that market.132 RiskAstraZeneca Annual Report and Form 20-F Information 2011