AstraZeneca Annual Report and Form 20-F Information 2011

Our Strategy and PerformanceMore people than ever before had access to innovative medicines in 2011. At the same time, thepharmaceutical industry is facing the expiry of patents on some of the world’s most successfulmedicines, is experiencing pressure on R&D returns and is increasingly being challenged to provethe value of its drugs. In this section, we describe the key growth drivers and challenges that weface. We then describe AstraZeneca’s response, strategy and business model for creating value,through which we deliver benefits to our stakeholders. Finally, we outline the indicators that we useto measure our delivery against our objectives.The pharmaceutical industryAs the figure overleaf shows, the world pharmaceutical market grewby 4.5% in 2011. Average revenue growth in Established Markets was2.8% while that in Emerging Markets was over four times higher at12%. The top five pharmaceutical markets in the world remained theUS, Japan, Germany, France and China, with the US representing38.1% of global prescription pharmaceutical sales (2010: 38.5%).While demand for medicines and world pharmaceutical marketscontinued to grow in 2011, research-based pharmaceutical companiesfaced a challenging marketplace. Industry returns are under pressurefrom declining R&D productivity and intensifying pricing pressures,particularly in Established Markets facing rising healthcare costs. Wealso face increased competition from generic medicines as some ofthe world’s most successful drugs come off patent. In addition, greaterregulatory constraints are being placed on the pharmaceutical industryby governments and those who pay for our medicines.The industry remains highly competitive. Our competitors are otherlarge research-based pharmaceutical companies that developand sell innovative, patent-protected prescription medicines andvaccines, as well as smaller biotechnology and vaccine companies,and companies that produce generic medicines. While many of ourpeers are confronting similar challenges, strategically these challengesare being met in different ways. For example, some companieshave chosen to diversify by acquiring or building branded genericsbusinesses or consumer portfolios, arguing that this enables them tobetter meet changing customer needs and smooth risk for shareholders.Most companies continued to pursue their existing strategies in2011, with some continuing to diversify and others pursuing afocused strategy. There were, however, exceptions with examplesof companies shedding diversified assets. Key trends includedefforts to improve R&D productivity, expansion of geographic scope,especially in Emerging Markets and Japan, and the pursuit ofoperational efficiency. Industry consolidation continued with bothmerger activity and acquisitions of specific assets and capabilities.Growth driversExpanding patient populationsThe world population is estimated to have passed seven billion in2011, increasing from six billion in 1998, and is expected to reachnine billion by 2050. In addition, the number of people who canaccess healthcare continues to increase, particularly among theelderly. Globally, it is estimated that the number of people over 65will be almost one billion by 2030, double what it was in 2005.Faster-developing economies, such as China, India and Brazil,offer new opportunities for the pharmaceutical industry to help anexpanding number of patients who can benefit from innovativemedicines. Emerging Markets now represent approximately 85% ofthe world population. In addition, pharmaceutical revenues in thosemarkets grew significantly faster than those in Established Markets in2011 and, as the Estimated pharmaceutical market growth 2010-2015figure overleaf shows, it is estimated that this trend will continue.Unmet medical needIn most established markets, ageing populations and certainlifestyle choices such as smoking, a poor diet and lack of exercisedrive an increased incidence of chronic diseases such as cancer,cardiovascular/metabolic and respiratory diseases which requirelong-term management. The prevalence of chronic disease isincreasing in middle income countries and is also beginning to havean impact in low income countries. For example, there are 36 milliondeaths every year from non-communicable diseases and, of those,80% are in lower and middle income countries. It is estimated thatnearly 33% of the world’s diabetes patients will come from India andChina by 2030, by which date its prevalence in Brazil is expected tohave increased by two-thirds.Strategy and PerformanceAstraZeneca Annual Report and Form 20-F Information 2011Strategy and Performance The pharmaceutical industry 15