AstraZeneca Annual Report and Form 20-F Information 2011

Commercialisation and business execution risks continuedBiosimilarsVarious regulatory authorities are implementing or considering abbreviated approval processesfor biosimilars (similar versions of existing biologics, also referred to as ‘similar biologicalmedicinal products’, ‘follow-on biologics’ and ‘follow-on protein products’) that would competewith patented biologics.For example, in 2010, the US enacted the Biologics Price Competition and Innovation Act withinthe Affordable Care Act, which contains general directives for biosimilar applications. The FDAsought stakeholder input on specific issues and challenges in implementing an abbreviatedbiosimilar approval pathway and further guidance is expected to be issued in the first quarterof 2012. In addition, the FDA and the industry have reached agreement on biosimilar user fees.In Europe, the EMA published a draft guideline on similar biological medicinal productscontaining MAbs. This draft guideline will likely be finalised in 2012 and is expected to includemore clarification around the definition of biosimilars.Increasing implementation and enforcement of more stringent anti-briberyand anti-corruption legislationThere is an increasing focus globally on the implementation and enforcement of anti-bribery andanti-corruption legislation. For example, the UK Bribery Act came into force in July. This act hasextensive extra-territorial application, implements significant changes to existing UK anti-briberylegislation and broadens the scope of statutory offences and the potential applicable penalties,including, organisational liability for any bribe paid by persons or entities associated with anorganisation where the organisation failed to have adequate preventative procedures in placeat the time of the offence. There is also an increase in the maximum applicable penalties forbribery, including up to 10 years imprisonment and unlimited fines. There have also beenincreased enforcement efforts in the UK by the Serious Fraud Office and, in the US, there hasbeen significant enforcement activity in respect of the Foreign Corrupt Practices Act by the SECand US Department of Justice against US companies and non-US companies listed in the US.We are the subject of current anti-corruption investigations and there can be no assurancethat we will not, from time to time, continue to be subject to informal inquiries and formalinvestigations from governmental agencies. In the context of our business, governmentalofficials interact with us in a variety of roles that are important to our operations, such as in thecapacity of a regulator, partner or healthcare payer, reimburser or prescriber, among others.ImpactWhile it is uncertain when any such abbreviatedapproval processes may be fully adopted,particularly for more complex protein moleculessuch as MAbs, any such processes could materiallyadversely affect the future commercial prospectsfor patented biologics, such as the ones thatwe produce.ImpactWe devote significant resources to the considerablechallenge of compliance with this legislation,including in emerging and developing markets, atconsiderable cost. Investigations from governmentalagencies require additional resources. Despitetaking significant measures to prevent breachesof applicable anti-bribery and anti-corruption lawsby our personnel, breaches may result in theimposition of significant penalties, such as fines,the requirement to comply with monitoring orself-reporting obligations or debarment or exclusionfrom government sales or reimbursementprogrammes, any of which could materiallyadversely affect our financial condition and resultsof operations and reputation.Any expected gains from productivity initiatives are uncertainWe continue to implement various productivity initiatives and restructuring programmes with theaim of enhancing the long-term efficiency of the business. However, anticipated cost savingsand other benefits from these programmes are based on estimates and the actual savings mayvary significantly. In particular, these cost reduction measures are based on current conditionsand do not take into account any future changes to the pharmaceutical industry or ouroperations, including new business developments, wage or price increases.Failure of information technologyWe are dependent on effective IT systems. These systems support key business functions suchas our R&D, manufacturing and sales capabilities, and are an important means of internal andexternal communication.Failure of outsourcingWe have outsourced a number of business critical operations to third party providers.This includes certain R&D processes, IS/IT systems, human resources, finance andaccounting services.In 2011, we terminated our existing outsource relationship for IT infrastructure services andtransitioned to a new multi-sourced operating model. This includes bringing critical strategicand control activities back into AstraZeneca.ImpactIf inappropriately managed, the expected value ofthese initiatives could be lost through low employeeengagement and reduced productivity, increasedabsence and attrition levels, and industrial action.Our failure to successfully implement these plannedcost reduction measures, either through thesuccessful conclusion of employee relationsprocesses (including consultation, engagement,talent management, recruitment and retention), orthe possibility that these efforts do not generate thelevel of cost savings we anticipate, could materiallyadversely affect our results of operations andfinancial condition.ImpactAny significant disruption of these IT systems orfailure to integrate new and existing IT systems couldmaterially adversely affect our financial conditionand results of operations.ImpactFailure of the outsource provider to deliver timelyservices and to the required level of quality couldmaterially adversely affect our financial conditionand results of operations and adversely impact ourability to meet business targets and maintain a goodreputation within the industry and with stakeholders.It may also result in non-compliance with applicablelaws and regulations.A failure to successfully manage and effect thetransfer of the provision of the IT infrastructureservices in-house and to the new outsourcingproviders could create disruption which couldmaterially adversely affect our financial conditionand results of operations.Corporate GovernanceAstraZeneca Annual Report and Form 20-F Information 2011Risk 135