REG - AstraZeneca PLC - Second Quarter & Half Year Results 2014 <Origin Href="QuoteRef">AZN.L</Origin> - Part 2
06/09/2014 22:42
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330 7
Arimidex 78 83 (5) 156 175 (8)
Casodex 83 96 (11) 166 188 (7)
Respiratory, Inflammation and Autoimmunity
Symbicort 928 842 9 1,856 1,668 11
Pulmicort 209 213 - 472 446 7
Infection, Neuroscience and Gastrointestinal
Nexium 971 1,023 (4) 1,901 1,963 (1)
Synagis 47 11 327 375 415 (10)
Seroquel XR 304 339 (11) 596 661 (10)
Seroquel IR 89 99 (8) 155 226 (30)
Cardiovascular and Metabolic disease
· In the US, Crestor sales in the second quarter were $771 million, up 1 percent. Total prescriptions for statin products in the US were flat in the second quarter compared to last year. Crestor total prescriptions decreased 6 percent, consistent with the
first quarter performance. Crestor sales in the first half were in line with prior year as net price realisation and prior year rebate adjustments offset volume declines.
· Crestor sales in ROW were down 5 percent to $679 million in the second quarter, reflecting the impact of generic competition in Australia. In addition to the decline in Australia, Canada also contributed to the 18 percent decline in Established ROW. Sales
in Emerging Markets were up 8 percent, with China growing by 33 percent. Crestor sales in ROW in the first half were down 5 percent to $1,306 million.
· US sales of the Toprol-XL product range, which includes sales of the authorised generic, were down 6 percent in the quarter to $29 million, largely the result of market share loss following additional generic entrants. Seloken sales in other markets were
up 13 percent to $164 million. Overall, sales in the first half were down 1 percent to $386 million.
· Onglyza revenue was up 131 percent in the second quarter to $238 million, of which $144 million was in the US and $94 million in other markets. AstraZeneca completed the acquisition of the BMS share of the global diabetes alliance on 1 February 2014 and
began reflecting 100 percent ownership at that point. Total prescriptions for the Onglyza franchise in the US were down 3 percent compared with the second quarter last year, and share of total prescriptions was 15.3 percent in June 2014, down 0.4
percentage points since March 2014. Average realised selling prices were lower in the quarter and half year. Revenue in the first half was $400 million, up 108 percent.
· US sales of Atacand were down 63 percent in the quarter to $9 million. Generic competition for the diuretic combination product followed the loss of exclusivity in December 2012. Atacand sales in other markets were down 8 percent to $130 million,
reflecting loss of exclusivity in many markets. Sales in the first half were down 21 percent to $261 million.
· Sales of Brilinta/Brilique were $117 million in the second quarter. Almost half of the sales were in Europe, where second quarter sales have increased by 42 percent compared with the second quarter of 2013. Strong performance in Canada, Australia and
Emerging Markets is also contributing to brand revenue growth.
· Brilinta sales in the US in the second quarter were $35 million. Total prescriptions for Brilinta in the US in the second quarter of 2014 were 15 percent higher than the first quarter of 2014. New to brand share is now 6.9 percent, growth of 0.6 percentage
points in the quarter.
· Byetta and Bydureon revenues in the US were $148 million and $52 million in ROW in the second quarter. Bydureon share of total prescriptions in the US was 19.9 percent in June 2014, up 0.3 percentage points since March 2014. Half year revenue is $358
million, up 130 percent. US dual chamber pen launch is on track for the second half of 2014.
Oncology
· Zoladex sales were $236 million in the second quarter. Sales in Europe were down 15 percent and down 13 percent in Japan. For the half year, sales were down 6 percent to $457 million.
· Iressa sales in the second quarter were down 5 percent to $147 million, as a decline in Japan more than offset growth in China. Worldwide sales of Iressa in the first half were level at $316 million.
· Arimidex sales in the first half were $156 million worldwide, down 8 percent as sales continue to decline as a result of loss of exclusivity.
· Sales of Casodex in the first half were $166 million, down 7 percent. All but $3 million of these sales were in markets outside the US. Sales in Japan, which account for 51 percent of global revenue, were down 16 percent in the first half.
Respiratory, Inflammation and Autoimmunity
· Symbicort sales in the US were $377 million in the second quarter, a 30 percent increase over the prior year. Total prescriptions for Symbicort were up 32 percent in the quarter, compared to a 2 percent increase for the fixed combination market. Symbicort share of total prescriptions for fixed combination products reached 31 percent in June 2014, up 1.2 percentage points since March 2014. Symbicort sales in the US in the first half were up 25 percent to $721 million. Price was broadly flat for both the
quarter and half year.
· Symbicort sales in other markets in the second quarter were $551 million, down 3 percent. Sales in Europe were down 7 percent due to competitive and pricing pressure in the market. Sales in Established ROW were up 2 percent as strong underlying volume growth was offset by destocking in Japan. Sales in Emerging Markets were up 11 percent with China revenue more than doubling. Symbicort sales in ROW in the first half were up 4 percent to $1,135 million.
· US sales of Pulmicort were down 12 percent to $104 million in the first half. Pulmicort sales in ROW were up 13 percent to $368 million, with China comprising approximately half.
Infection, Neuroscience and Gastrointestinal
· In the US, Nexium sales in the second quarter were $455 million, down 18 percent compared with the second quarter last year. TRx volume declined by 13 percent and realised net price also reduced slightly. Nexium sales in the first half were down 13 percent to $939 million.
· Nexium sales in other markets in the second quarter were up 14 percent to $516 million. Japan and China contributed much of the growth, with sales up 47 percent and 31 percent respectively. Nexium sales in other markets were up 14 percent in the first half to $962 million.
· In the US, sales of Synagis in the second quarter were $3 million; the second quarter is out of season for the US. Outside the US, sales in the second quarter were $44 million, up 246 percent, which reflects the quarterly phasing of revenues related to shipments to AbbVie, our international distributor. The American Academy of Pediatrics Committee on Infectious Diseases updated guidelines for Synagis in the US on 28 July 2014. These further restrictions will put downward pressure on volume.
· Sales of Seroquel XR in the US were $181 million in the second quarter, down 2 percent. Total prescriptions were down 3 percent, offset by slightly higher realised net price. US sales for the first half were down 2 percent to $347 million.
· Sales of Seroquel XR in ROW were down 22 percent to $123 million in the second quarter, as a result of generic competition (including some "at risk" launches) in Europe. Sales in Established ROW were down 48 percent, as a result of generic competition in Canada. Sales in Emerging Markets were up 9 percent.
· Sales of Seroquel IR were down 30 percent in first half to $155 million. The majority of this decline is attributable to Japan, as our partner increased its inventory in 2013 in anticipation of a manufacturing site change.
Regional Revenue
Second Quarter First Half
2014 2013 % Change 2014 2013 % Change
$m $m Actual CER $m $m Actual CER
US 2,438 2,252 8 8 4,951 4,697 5 5
Europe 1,640 1,546 6 - 3,277 3,206 2 (2)
Established ROW1 916 1,059 (14) (9) 1,761 2,009 (12) (4)
Japan 579 657 (12) (9) 1,116 1,206 (7) 1
Canada 147 162 (9) (2) 286 332 (14) (7)
Other Established ROW 190 240 (21) (13) 359 471 (24) (14)
Emerging Markets2 1,460 1,375 6 11 2,881 2,705 6 11
China 524 431 22 23 1,108 896 24 23
Total 6,454 6,232 4 4 12,870 12,617 2 3
1Established ROW comprises Canada, Japan, Australia and New Zealand.2Emerging Markets comprises all remaining Rest of World markets, including Brazil, China, India, Mexico, Russia, and Turkey.
· In the US, revenue was up 8 percent in the second quarter, with declines in revenue from brands such as Nexium and Atacand offset by the growth platforms and the impact of completing the acquisition of the BMS share of the global diabetes alliance. The diabetes products provided $182 million of incremental revenue, with growth from Symbicort and Brilinta also contributing.
· In the second quarter, revenue in Europe was flat as the favourable impact from the acquisition of the BMS share of the global diabetes alliance, continued growth for Brilinta and timing of partner purchases of Synagis were offset by the continuing impact from loss of exclusivity on Seroquel XR in some markets and Atacand, and competitive and pricing pressure in the Symbicort market.
· Revenue in Established ROW was down 9 percent in the quarter, as growth of Nexium and the launch of Forxiga in Japan were more than offset by generic competition on Crestor in Australia and Seroquel IR inventory depletion in Japan due to a planned manufacturing site change.
· Revenue in Emerging Markets was up 11 percent in the quarter, largely the result of a 23 percent increase in China. China now represents almost 40 percent of the total Emerging Markets business, with growth driven by Crestor, Nexium, Symbicort and Seloken. In the first half revenue in Russia grew 26 percent and Brazil was up 5 percent.
Brilinta
and timing of partner purchases of
Synagis
were offset by the continuing impact from loss of exclusivity on
Seroquel XR
in some markets and
Atacand
, and competitive and pricing pressure in the
Symbicort
market.
·
Revenue in Established ROW was down 9 percent in the quarter, as growth of
Nexium
and the launch of
Forxiga
in Japan were more than offset by generic competition on
Crestor
in Australia and
Seroquel IR
inventory depletion in Japan due to a planned manufacturing site change.
·
Revenue in Emerging Markets was up 11 percent in the quarter, largely the result of a 23 percent increase in China. China
now represents almost 40 percent of the total Emerging Markets business, with growth driven by
Crestor
,
Nexium, Symbicort
and
Seloken
. In the first half revenue in Russia grew 26 percent and Brazil was up 5 percent.
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2014 $m 2013 $m
Revenue 12,870 12,617
Cost of sales (2,760) (2,583)
Gross profit 10,110 10,034
Distribution costs (149) (153)
Research and development expense (2,528) (2,534)
Selling, general and administrative costs (5,784) (5,061)
Other operating income and expense 296 311
Operating profit 1,945 2,597
Finance income 26 29
Finance expense (467) (236)
Profit before tax 1,504 2,390
Taxation (201) (547)
Profit for the period 1,303 1,843
Other comprehensive income
Items that will not be reclassified to profit or loss:
Remeasurement of the defined benefit liability (288) (27)
Tax on items that will not be reclassified to profit or loss 85 10
(203) (17)
Items that may be reclassified subsequently to profit or loss:
Foreign exchange arising on consolidation 64 (352)
Foreign exchange arising on designating borrowings in net investment hedges (122) 45
Fair value movements on derivatives designated in net investment hedges (11) 59
Amortisation of loss on cash flow hedge 1 1
Net available for sale gains taken to equity 49 83
Tax on items that may be reclassified subsequently to profit or loss 5 (7)
(14) (171)
Other comprehensive income for the period, net of tax (217) (188)
Total comprehensive income for the period 1,086 1,655
Profit attributable to:
Owners of the Parent 1,300 1,834
Non-controlling interests 3 9
1,303 1,843
Total comprehensive income attributable to:
Owners of the Parent 1,089 1,673
Non-controlling interests (3) (18)
1,086 1,655
Basic earnings per $0.25 Ordinary Share $1.03 $1.47
Diluted earnings per $0.25 Ordinary Share $1.03 $1.47
Weighted average number of Ordinary Shares in issue (millions) 1,261 1,250
Diluted weighted average number of Ordinary Shares in issue (millions) 1,263 1,252
$1.03
$1.47
Diluted earnings per $0.25 Ordinary Share
$1.03
$1.47
Weighted average number of Ordinary Shares in issue (millions)
1,261
1,250
Diluted weighted average number of Ordinary Shares in issue (millions)
1,263
1,252
Condensed Consolidated Statement of Comprehensive Income
For the quarter ended 30 June 2014 $m 2013 $m
Revenue 6,454 6,232
Cost of sales (1,307) (1,317)
Gross profit 5,147 4,915
Distribution costs (77) (76)
Research and development expense (1,328) (1,275)
Selling, general and administrative costs (3,058) (2,543)
Other operating income and expense 425 179
Operating profit 1,109 1,200
Finance income 10 7
Finance expense (253) (121)
Profit before tax 866 1,086
Taxation (69) (255)
Profit for the period 797 831
Other comprehensive income
Items that will not be reclassified to profit or loss:
Remeasurement of the defined benefit liability (263) 33
Tax on items that will not be reclassified to profit or loss 79 (4)
(184) 29
Items that may be reclassified subsequently to profit or loss:
Foreign exchange arising on consolidation 9 (33)
Foreign exchange arising on designating borrowings in net investment hedges (121) (19)
Fair value movements on derivatives designated in net investment hedges (2) 1
Amortisation of loss on cash flow hedge 1 1
Net available for sale gains taken to equity 47 32
Tax on items that may be reclassified subsequently to profit or loss 12 (15)
(54) (33)
Other comprehensive income for the period, net of tax (238) (4)
Total comprehensive income for the period 559 827
Profit attributable to:
Owners of the Parent 796 823
Non-controlling interests 1 8
797 831
Total comprehensive income attributable to:
Owners of the Parent 558 828
Non-controlling interests 1 (1)
559 827
Basic earnings per $0.25 Ordinary Share $0.63 $0.66
Diluted earnings per $0.25 Ordinary Share $0.63 $0.66
Weighted average number of Ordinary Shares in issue (millions) 1,262 1,252
Diluted weighted average number of Ordinary Shares in issue (millions) 1,264 1,254
$0.63
$0.66
Diluted earnings per $0.25 Ordinary Share
$0.63
$0.66
Weighted average number of Ordinary Shares in issue (millions)
1,262
1,252
Diluted weighted average number of Ordinary Shares in issue (millions)
1,264
1,254
Condensed Consolidated Statement of Financial Position
At 30 Jun 2014$m At 31 Dec 2013$m At 30 Jun 2013$m
ASSETS Non-current assets
Property, plant and equipment 6,150 5,818 5,665
Goodwill 11,560 9,981 9,958
Intangible assets 21,150 16,047 16,391
Derivative financial instruments 349 365 366
Investments in joint ventures 70 - -
Other investments 289 281 238
Other receivables 1,380 1,867 552
Deferred tax assets 1,387 1,205 1,423
42,335 35,564 34,593
Current assets
Inventories 2,249 1,909 2,089
Trade and other receivables 7,817 7,879 7,268
Other investments 819 796 839
Derivative financial instruments 1 40 4
Income tax receivable 360 494 942
Cash and cash equivalents 4,958 9,217 8,252
16,204 20,335 19,394
Total assets 58,539 55,899 53,987
LIABILITIES Current liabilities
Interest-bearing loans and borrowings (2,500) (1,788) (1,880)
Trade and other payables (10,304) (10,362) (9,642)
Derivative financial instruments (12) (2) (65)
Provisions (679) (823) (619)
Income tax payable (2,827) (3,076) (2,991)
(16,322) (16,051) (15,197)
Non-current liabilities
Interest-bearing loans and borrowings (7,574) (8,588) (8,506)
Derivative financial instruments - (1) -
Deferred tax liabilities (2,427) (2,827) (2,954)
Retirement benefit obligations (2,634) (2,261) (2,263)
Provisions (580) (566) (775)
Other payables (6,950) (2,352) (880)
(20,165) (16,595) (15,378)
Total liabilities (36,487) (32,646) (30,575)
Net assets 22,052 23,253 23,412
EQUITY
Capital and reserves attributable to equity holders of the Company
Share capital 316 315 313
Share premium account 4,236 3,983 3,746
Other reserves 1,973 1,966 1,973
Retained earnings 15,504 16,960 17,184
22,029 23,224 23,216
Non-controlling interests 23 29 196
Total equity 22,052 23,253 23,412
23
29
196
Total equity
22,052
23,253
23,412
Condensed Consolidated Statement of Cash Flows
For the six months ended30 June 2014 $m 2013 $m
Cash flows from operating activities
Profit before tax 1,504 2,390
Finance income and expense 441 207
Depreciation, amortisation and impairment 1,410 1,590
Decrease in working capital and short-term provisions 703 209
Non-cash and other movements 216 435
Cash generated from operations 4,274 4,831
Interest paid (272) (249)
Tax paid (736) (778)
Net cash inflow from operating activities 3,266 3,804
Cash flows from investing activities
Movement in short-term investments and fixed deposits 34 12
Purchase of property, plant and equipment (378) (231)
Disposal of property, plant and equipment 133 37
Purchase of intangible assets (1,490) (567)
Purchase of non-current asset investments (5) (13)
Payments to joint ventures (70) -
Upfront payments on acquisitions (2,778) (565)
Payment of contingent consideration on acquisitions (449) -
Interest received 58 58
Payments made by subsidiaries to non-controlling interests (10) (10)
Payments received by subsidiaries from non-controlling interests - 41
Net cash outflow from investing activities (4,955) (1,238)
Net cash (outflow)/inflow before financing activities (1,689) 2,566
Cash flows from financing activities
Proceeds from issue of share capital 254 243
Repayment of loans (750) -
Dividends paid (2,425) (2,296)
Hedge contracts relating to dividend payments 25 (71)
Repayment of obligations under finance leases (17) (12)
Payments to acquire non-controlling interests (102) -
Movement in short-term borrowings 445 -
Net cash outflow from financing activities (2,570) (2,136)
Net (decrease)/increase in cash and cash equivalents in the period (4,259) 430
Cash and cash equivalents at the beginning of the period 8,995 7,596
Exchange rate effects 3 (69)
Cash and cash equivalents at the end of the period 4,739 7,957
Cash and cash equivalents consists of:
Cash and cash equivalents 4,958 8,252
Overdrafts (219) (295)
4,739 7,957
(295)
4,739
7,957
Condensed Consolidated Statement of Changes in Equity
Share Share Other Retained Total Non- Total
capital premium reserves* earnings $m controlling equity
$m account $m $m interests $m
$m $m
At 1 Jan 2013 312 3,504 1,960 17,955 23,731 215 23,946
Profit for the period - - - 1,834 1,834 9 1,843
Other comprehensive income - - - (161) (161) (27) (188)
Transfer to other reserves - - 13 (13) - - -
Transactions with owners:
Dividends - - - (2,371) (2,371) - (2,371)
Issue of Ordinary Shares 1 242 - - 243 - 243
Share-based payments - - - (98) (98) - (98)
Transfer from non-controlling interests to payables - - - - - (1) (1)
Dividend paid to non-controlling interests - - - - - (3) (3)
Disposal to non-controlling interests - - - 38 38 3 41
Net movement 1 242 13 (771) (515) (19) (534)
At 30 Jun 2013 313 3,746 1,973 17,184 23,216 196 23,412
Share Share Other Retained Total Non- Total
capital premium reserves* earnings $m controlling equity
$m account $m $m interests $m
$m $m
At 1 Jan 2014 315 3,983 1,966 16,960 23,224 29 23,253
Profit for the period - - - 1,300 1,300 3 1,303
Other comprehensive income - - - (211) (211) (6) (217)
Transfer to other reserves - - 7 (7) - - -
Transactions with owners:
Dividends - - - (2,395) (2,395) - (2,395)
Issue of Ordinary Shares 1 253 - - 254 - 254
Share-based payments - - - (143) (143) - (143)
Transfer from non-controlling interests to payables - - - - - (3) (3)
Net movement 1 253 7 (1,456) (1,195) (6) (1,201)
At 30 Jun 2014 316 4,236 1,973 15,504 22,029 23 22,052
* Other reserves includes the capital redemption reserve and the merger reserve.
Responsibility Statement of the Directors in Respect of the Half-Yearly Financial Report
We confirm that to the best of our knowledge:
· the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as
adopted by the European Union and as issued by the International Accounting Standards Board;
· the half-yearly management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the enterprise during that period; and any changes in the related party transactions described in the last annual report that could do so.
The Board
The Board of Directors that served during all or part of the six-month period to 30 June 2014 and their respective
responsibilities can be found on pages 28 and 29 of the AstraZeneca Annual Report and Form 20-F Information 2013, with the
exception of Ann Cairns who was elected as Non-Executive Director and appointed as a member of the Audit Committee on 24
April 2014. Graham Chipchase was appointed as a member of the Remuneration Committee and stepped down from the Audit
Committee on 6 May 2014.
Approved by the Board and signed on its behalf by
Pascal Soriot
Chief Executive Officer
31 July 2014
Independent Review Report to AstraZeneca PLC
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report
for the six months ended 30 June 2014 (but not for the quarter ended 30 June 2014) which comprises condensed consolidated
statement of comprehensive income, condensed consolidated statement of financial position, condensed consolidated statement
of cash flows, condensed consolidated statement of changes in equity and Notes 1 to 7. We have read the other information
contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting
the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK
FCA"). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in
this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the Company for our review work, for this report, or for the conclusions we have reached.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are
responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in Note 1, the annual financial statements of the group are prepared in accordance with International
Financial Reporting Standards ("IFRSs") as adopted by the European Union ("EU") and as issued by the International
Accounting Standards Board ("IASB"). The condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and as issued by the
IASB.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the
half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for
use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in
scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does
not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an
audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial
statements in the half-yearly financial report for the six months ended 30 June 2014 is not prepared, in all material
respects, in accordance with IAS 34 as adopted by the EU, and as issued by the IASB, and the DTR of the UK FCA.
Antony Cates
For and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London E14 5GL
31 July 2014
Notes to the Interim Financial Statements
1 BASIS OF PREPARATION AND ACCOUNTING POLICIES
These unaudited condensed consolidated interim financial statements ("interim financial statements") for the six months
ended 30 June 2014 have been prepared in accordance with IAS 34 Interim Financial Reporting. The annual financial
statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by
the EU and as issued by the International Accounting Standards Board. As required by the Disclosure and Transparency Rules
of the Financial Conduct Authority, the interim financial statements have been prepared applying the accounting policies
and presentation that were applied in the preparation of the Company's published consolidated financial statements for the
year ended 31 December 2013. There have been no significant new or revised accounting standards applied in the six months
ended 30 June 2014.
The information contained in Note 6 updates the disclosures concerning legal proceedings and contingent liabilities in the
Group's Annual Report and Form 20-F Information 2013.
The Group has considerable financial resources available. As at 30 June 2014, the Group had $5.5 billion in financial
resources (cash balances of $5.0 billion and undrawn committed bank facilities of $3.0 billion that are available until
April 2019, with $2.5 billion of debt due within one year). The Group's revenues are largely derived from sales of products
which are covered by patents which provide a relatively high level of resilience and predictability to cash inflows,
although our revenue is expected to continue to be significantly impacted by the expiry of patents over the medium term. In
addition, government price interventions in response to budgetary constraints are expected to continue to adversely affect
revenues in many of our mature markets. However, we anticipate new revenue streams from both recently launched medicines
and products in development, and the Group has a wide diversity of customers and suppliers across different geographic
areas. Consequently, the Directors believe that, overall, the Group is well placed to manage its business risks
successfully.
On the basis of the above paragraph and after making enquiries, the Directors have a reasonable expectation that the
Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly,
the interim financial statements have been prepared on a going concern basis.
The comparative figures for the financial year ended 31 December 2013 are not the Company's statutory accounts for that
financial year. Those accounts have been reported on by the Group's auditors and delivered to the registrar of companies.
The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew
attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or
(3) of the Companies Act 2006.
2 Net DEBT
The table below provides an analysis of net debt and a reconciliation of net cash flow to the movement in net debt.
At 1 Jan 2014 $m Cash Flow $m Non-cash Movements $m Exchange Movements $m At 30 Jun 2014 $m
Loans due after one year (8,516) - 1,023 (11) (7,504)
Finance leases due after one year (72) - 1 1 (70)
Total long term debt (8,588) - 1,024 (10) (7,574)
(766) -
Current instalments of loans (766) 750 (1,007) - (1,023)
Current instalments of finance leases (30) 17 (30) - (43)
Total current debt (796) 767 (1,037) - (1,066)
Other investments - current 796 (34) 31 26 819
Net derivative financial instruments 402 (25) (39) - 338
Cash and cash equivalents 9,217 (4,263) - 4 4,958
Overdrafts (222) 4 - (1) (219)
Short-term borrowings (770) (445) - - (1,215)
9,423 (4,763) (8) 29 4,681
Net funds/(debt) 39 (3,996) (21) 19 (3,959)
Non-cash movements in the period include fair value adjustments under IAS 39.
3 restructuring costs
Profit before tax for the six months ended 30 June 2014 is stated after charging restructuring costs of $772 million ($293
million for the second quarter 2014). These have been charged to profit as follows:
2nd Quarter2014 2nd Quarter2013 Half Year2014 Half Year2013
$m $m $m $m
Cost of sales 13 86 24 98
Research and development expense 105 62 190 353
Selling, general and administrative costs 175 160 266 400
Other operating income and expense - - 292 -
Total 293 308 772 851
851
4 ACQUISITION OF BMS SHARE OF GLOBAL DIABETES ALLIANCE ASSETS
On 1 February 2014, AstraZeneca completed the acquisition of Bristol-Myers Squibb's (BMS) interests in the companies'
diabetes alliance. The acquisition provides AstraZeneca with 100% ownership of the intellectual property and global rights
for the development, manufacture and commercialisation of the diabetes business, which includes Onglyza (saxagliptin),
Kombiglyze XR (saxagliptin and metformin HCl extended release), Komboglyze (saxagliptin and metformin HCl), Farxiga
(dapagliflozin, marketed as Forxiga outside the US), Byetta (exenatide), Bydureon (exenatide extended release for
injectable suspension), Myalept (metreleptin) and Symlin (pramlintide acetate).
The transaction consolidates worldwide ownership of the diabetes business within AstraZeneca, leveraging its primary and
specialty care capabilities and its geographical reach, especially in emerging markets. The transaction included the
acquisition of 100% of the share capital of Amylin Pharmaceuticals, LLC, and the asset purchase of the additional
intellectual property and global rights not already owned by AstraZeneca, for the development, manufacture and
commercialisation of Onglyza, Kombiglyze XR, Komboglyze and Farxiga, including associated BMS employees. This combination
of intangible product rights and manufacturing assets with an established work force and their associated operating
processes, principally those related to the global manufacturing and selling and marketing operations, requires that the
acquisition is accounted for as a business combination in accordance with IFRS 3 Business Combinations.
Upfront consideration for the acquisition of $2.7 billion was paid on 1 February 2014, with further payments of up to $1.4
billion being payable for future regulatory, launch and sales-related milestones. AstraZeneca has also agreed to pay
various sales-related royalty payments up until 2025. The amount of royalties payable under the agreement is inherently
uncertain and difficult to predict, given the direct link to future sales and the range of outcomes cannot be reliably
estimated. The maximum amount payable in each year is with reference to net sales. AstraZeneca may also make payments up to
$225 million when certain additional assets are subsequently transferred. Contingent consideration has been fair valued
using decision tree analysis, with key inputs including the probability of success and consideration of potential delays.
In accordance with IFRS 3, the fair value of contingent consideration, including future royalties, is recognised
immediately as a liability.
In addition to the acquired interests, AstraZeneca has entered into certain agreements with BMS to maintain the
manufacturing and supply chain of the full portfolio of diabetes products. BMS will also continue to deliver specified
clinical trials in line with the ongoing clinical trial plan, with an agreed number of R&D and manufacturing employees
dedicated to diabetes remaining with BMS to progress the diabetes portfolio and support the transition for these areas.
These arrangements will be carried out over future periods and future payments by AstraZeneca to BMS in relation to these
arrangements will be expensed as incurred. No amounts have been recognised in the initial acquisition accounting in
relation to these arrangements but have been separated, at fair value, from the business combination accounting in
accordance with IFRS 3.
The terms of the agreement partially reflect settlement of the launch and sales-related milestones under the pre-existing
Onglyza and Farxiga collaboration agreements, which have been terminated in relation to the acquisition. The expected value
of those pre-existing milestones is $0.3 billion and has been recognised as a separate component of consideration and
excluded from the business combination accounting in accordance with IFRS 3. Subsequently, these separate intangible assets
have been recognised.
Goodwill of $1.6 billion is underpinned by a number of elements, which individually cannot be quantified. Most significant
among these are the synergies AstraZeneca expect to be able to generate through more efficient manufacturing processes and
the incremental value accessible through strategic and operational independence upon taking full control of the alliance.
The fair value of receivables acquired as part of the
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