AstraZeneca(US:AZN)2023-02-20 16:00Strategic Report Financial Highlights AstraZeneca reported strong 2022 financial growth, with Total Revenue increasing 19% to $44.4 billion, Core Operating Profit growing 34% to $13.4 billion, and net cash flow from operating activities rising 64% to $9.8 billion 2022 Key Financial Metrics | Metric | 2022 Value ($) | 2021 Value ($) | Growth (Actual) | Growth (CER) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $44,351 million | $37,417 million | 19% | 25% | | Reported Operating Profit | $3,757 million | $1,056 million | 256% | 298% | | Core Operating Profit | $13,350 million | $9,928 million | 34% | 42% | | Reported EPS | $2.12 | $0.08 | 2,581% | 4,903% | | Core EPS | $6.66 | $5.29 | 26% | 33% | | Net Cash Flow from Operating Activities | $9,808 million | $5,963 million | 64% | N/A | AstraZeneca at a Glance AstraZeneca is a science-led pharmaceutical company focused on Oncology, BioPharmaceuticals, and Rare Disease, with a 2022 development pipeline of 179 projects, total revenue of $44.4 billion, and a global workforce of 83,500 2022 Revenue Breakdown | Breakdown by Therapy Area | Percentage | Breakdown by Region | Percentage | | :--- | :--- | :--- | :--- | | Oncology | 35% | US | 40% | | BioPharmaceuticals | 45% | Emerging Markets | 26% | | Rare Disease | 16% | Europe | 20% | | Other Medicines | 4% | Established Rest of World | 13% | - The company's R&D pipeline consists of 179 projects, including 15 NMEs in late-stage pipeline and 121 NME or major life-cycle management projects in Phase II and III18 - AstraZeneca employed 83,500 people in 2022, an increase from 83,100 in 2021, with 49.5% of senior roles filled by women26 Chair's Statement Chair Leif Johansson reflects on a decade of growth, noting Total Revenue doubled to over $44 billion since 2018, 20 new medicines launched, and a 467% Total Shareholder Return, while announcing a $2.90 per share dividend and his retirement - Total Revenue doubled to over $44 billion in 2022 since the company returned to growth after 201830 - The Board declared a full-year dividend of $2.90 per share for 2022, an increase from $2.87 in 20212930 - Over the last decade, AstraZeneca delivered a Total Shareholder Return (TSR) of 467%, significantly outperforming the FTSE100 (85%) and pharma peers (366%)30 - The company launched 20 new medicines in the last 10 years, including three in 2022, and had 14 blockbuster medicines in 202231 Chief Executive Officer's Review CEO Pascal Soriot reported strong 2022 performance with Total Revenue up 19% to $44.4 billion, significant R&D progress including 72 regulatory events and three new medicine approvals, and a 59% reduction in Scope 1 and 2 GHG emissions 2022 Total Revenue Growth by Therapy Area (CER) | Therapy Area | Growth (CER) | | :--- | :--- | | Oncology | 20% | | Cardiovascular, Renal & Metabolism | 19% | | Respiratory & Immunology | 3% | | Rare Disease | 10% | - The company achieved 72 regulatory submissions or approvals and 29 pipeline progression events in 202237 - Three new medicines were approved in 2022: Imjudo (liver and lung cancer), Beyfortus (RSV prevention in infants), and Airsupra (asthma)37 - AstraZeneca achieved a 59% reduction in Scope 1 and 2 greenhouse gas emissions by the end of 2022 compared to its 2015 baseline38 Healthcare in a Changing World The global pharmaceutical sector saw 8.4% sales growth in 2022, with the US market accounting for nearly 50% of global sales, while facing key trends like geopolitical conflict, economic downturns, chronic disease burden, AI adoption, and climate change - Global pharmaceutical sales grew by 8.4% in 2022, reaching $1,214 billion, with the US market growing by 8.8% to $605 billion404142 - Key global trends affecting the pharmaceutical sector include geopolitical conflict, global economic downturn, the rising prevalence of chronic diseases, the transformational impact of AI, and accelerating climate change4850 - Investment in AI-enabled drug discovery surpassed $5.2 billion at the end of 2021, more than doubling in the past five years50 Our Purpose, Values and Business Model AstraZeneca's purpose is to "push the boundaries of science to deliver life-changing medicines," guided by five core values and a business model centered on science-led R&D investment, revenue generation from product sales, and reinvestment for long-term value - The company's purpose is to push the boundaries of science to deliver life-changing medicines51 - In 2022, AstraZeneca invested $9.8 billion in science and generated $9.8 billion in net cash flow from operating activities53 - The business model follows the life-cycle of a medicine: Investment (discovery, development), Revenue Generation (sales, collaborations), and Reinvestment (funding future innovation)555657 Our Strategy and Key Performance Indicators AstraZeneca's strategy focuses on Science and Innovation, Growth and Therapy Area Leadership, and People and Sustainability, with an ambition to launch 15 new medicines by 2030, supported by strong 2022 KPI results including 29 pipeline progression events and 19% Total Revenue growth - The company's ambition is to launch 15 new medicines by 203061 Key Performance Indicators (2022 vs 2021) | KPI Category | Metric | 2022 Result ($) | 2021 Result ($) | | :--- | :--- | :--- | :--- | | Science & Innovation | Pipeline Progression Events | 29 | 32 | | | Regulatory Events | 72 | 49 | | Growth & Therapy Area Leadership | Total Revenue | $44.4 billion | $37.4 billion | | Financial Targets | Core EPS | $6.66 | $5.29 | | People & Sustainability | Employee belief 'great place to work' | 86% | 85% | | | Sustainability Scorecard Performance | 7/9 Green | 10/12 Green | Therapy Area Review AstraZeneca's 2022 revenue was driven by its core therapy areas, with Oncology growing 15% to $15.5 billion, BioPharmaceuticals generating $20.0 billion, and Rare Disease contributing $7.1 billion, led by key products like Tagrisso, Farxiga, and Ultomiris Oncology The Oncology division achieved $15.5 billion in revenue in 2022, a 15% increase, driven by key products like Tagrisso, Lynparza, Imfinzi, and Calquence, with a strategy focused on scientific platforms and leadership in lung, breast, and blood cancers Key Oncology Product Revenue 2022 | Product | 2022 Revenue ($) | Growth (Actual) | Growth (CER) | | :--- | :--- | :--- | :--- | | Tagrisso | $5,444 million | 9% | 15% | | Lynparza | $2,993 million | 9% | 14% | | Imfinzi | $2,784 million | 15% | 21% | | Calquence | $2,057 million | 66% | 69% | | Enhertu | $602 million | 182% | 184% | - The Oncology strategy focuses on six scientific platforms: Tumour drivers and resistance, DNA damage response, Antibody drug conjugates (ADCs), Epigenetics, Immuno-oncology, and Cell therapies88 BioPharmaceuticals The BioPharmaceuticals unit, comprising CVRM, R&I, and V&I, aims to transform care for chronic diseases, with 2022 revenues of $9.2 billion for CVRM, $6.0 billion for R&I, and $4.8 billion for V&I, supported by positive trial results and new approvals BioPharmaceuticals Revenue 2022 | Business Unit | 2022 Revenue ($) | Growth (Actual) | Growth (CER) | | :--- | :--- | :--- | :--- | | CVRM | $9,211 million | 13% | 19% | | R&I | $5,963 million | -1% | 3% | | V&I | $4,836 million | 1% | 8% | Rare Disease The Rare Disease unit generated $7.05 billion in revenue in its first full year, a 4% pro forma increase, driven by the C5 complement inhibitors Soliris and Ultomiris, with a strategy to maintain leadership in complement therapies and diversify the portfolio Key Rare Disease Product Revenue 2022 (Pro Forma) | Product | 2022 Revenue ($) | Growth (CER) | | :--- | :--- | :--- | | Soliris | $3,762 million | -5% | | Ultomiris | $1,965 million | 42% | | Strensiq | $961 million | 11% | - Ultomiris is now the established standard of care in the US, Germany, and Japan for both PNH and aHUS, two life-threatening rare diseases156 - The company is advancing a broad development portfolio to inhibit complement system targets beyond C5, including Factor D and Factor P, to pursue a range of new indications156 Business Review This review details AstraZeneca's operational execution across Science and Innovation, Growth and Therapy Area Leadership, and People and Sustainability, highlighting $9.8 billion R&D investment, 19% Total Revenue growth to $44.4 billion, and reaching 44.6 million people through healthcare access programs Science and Innovation AstraZeneca invested $9.8 billion in R&D in 2022, maintaining a pipeline of 179 projects with 19% productivity, focusing on enhancing disease biology, creating next-generation therapeutics, and upholding bioethical principles including clinical trial transparency - R&D expenditure was $9,762 million in 2022, with 60% allocated to late-stage development and 40% to discovery and early-stage development168 - The R&D pipeline includes 179 projects, with 155 in the clinical phase, and in 2022, there were 29 pipeline progression events and 72 regulatory events (submissions or approvals)163175 Growth and Therapy Area Leadership This section details commercial performance, with Total Revenue increasing 19% to $44.4 billion, strong growth in the US (+47%), 198 successful market launches, and 23 major business development transactions including acquisitions of TeneoTwo and Neogene Therapeutics 2022 Total Revenue by Geography | Region | 2022 Revenue ($) | Actual Growth % | | :--- | :--- | :--- | | US | $17,920 million | 47% | | Emerging Markets | $11,745 million | -4% | | Europe | $8,738 million | 9% | | Established Rest of World | $5,948 million | 22% | - The company delivered 198 successful market launches in 2022 and continued to implement its Operations 2025 program to scale capabilities184206 - Key business development deals in 2022 include the acquisitions of CinCor Pharma, Neogene Therapeutics, and TeneoTwo to strengthen the pipeline in hypertension, cell therapies, and haematology, respectively213 People and Sustainability AstraZeneca focuses on its people and societal impact, with 49.5% of senior roles held by women, reaching 44.6 million people through access programs, achieving a 59.3% reduction in Scope 1 & 2 GHG emissions, and committing to high ethical standards - 49.5% of senior middle management roles and above are filled by women, and voluntary employee turnover decreased to 11% in 2022 from 14% in 2021216223 - The company's flagship Access to Healthcare programmes (Healthy Heart Africa, Young Health Programme, etc.) have reached a cumulative 44.6 million people217220 - Progress on the 'Ambition Zero Carbon' strategy includes a 59.3% reduction in Scope 1 and 2 GHG emissions from the 2015 baseline and a commitment to plant 50 million trees by 2025219236 EU Taxonomy Disclosure AstraZeneca's core pharmaceutical business is not covered by the EU Taxonomy, resulting in 0% Taxonomy-aligned revenue, though 14% of Capex and 2% of Opex in 2022 were Taxonomy-eligible for activities like building construction and vehicle fleets - The Group's revenues are wholly derived from the business of pharmaceuticals, which is not currently covered by the EU Taxonomy, resulting in a Taxonomy-eligible Revenue KPI of 0%241 Taxonomy-Eligible Expenditure KPIs 2022 | Expenditure Type | Taxonomy-Eligible KPI | | :--- | :--- | | Capital Expenditure (Capex) | 14% | | Operating Expenditure (Opex) | 2% | Task Force on Climate-related Financial Disclosures (TCFD) Summary Statement AstraZeneca aligns its disclosures with the TCFD framework, covering governance, strategy, risk management, and metrics, with the Board's Sustainability Committee overseeing climate strategy and aiming for a 98% reduction in Scope 1 & 2 emissions by 2026 and net-zero by 2045 - The company's disclosures are consistent with the four TCFD recommendations: Governance, Strategy, Risk Management, and Metrics and Targets248 - Physical climate risk assessments were conducted on 29 key sites and over 750 critical suppliers to ensure supply chain resilience250 - Transition risks are highest for asthma and COPD products due to propellants, with the company investing in next-generation inhalers with near-zero Global Warming Potential (GWP) as part of its Ambition Zero Carbon strategy251 Risk Overview AstraZeneca identifies and manages Principal Risks across product pipeline, commercialization, supply chain, legal, and economic categories, and the Board has issued a viability statement confirming the company's ability to operate and meet liabilities over a three-year period - Principal Risks are grouped into five categories: Product pipeline, Commercialisation, Supply chain & business execution, Legal, regulatory & compliance, and Economic & financial269271276282 - Key risks include failure to deliver the pipeline, pricing and access pressures, supply chain disruptions, failure of IT or cybersecurity, and geopolitical volatility269270271275282 - The Board has issued a viability statement, confirming its reasonable expectation that the company can continue operations and meet its liabilities over a three-year period to December 31, 2025, even under severe but plausible downside scenarios267 Financial Review The Financial Review details AstraZeneca's strong 2022 performance with Total Revenue of $44.4 billion (+19%) and Core EPS of $6.66 (+26%), explaining the use of non-GAAP 'Core' measures, covering profitability, cash flow, debt management, and providing 2023 guidance for low-to-mid single-digit revenue growth Reconciliation of Reported to Core Results (2022, $m) | Metric | Reported ($) | Adjustments ($) | Core ($) | | :--- | :--- | :--- | :--- | | Gross Profit | 31,960 million | 3,803 million | 35,763 million | | Operating Profit | 3,757 million | 9,593 million | 13,350 million | | Profit Before Tax | 2,501 million | 9,870 million | 12,371 million | | Basic EPS ($) | 2.12 | 4.54 | 6.66 | - Collaboration Revenue increased 54% to $1,353 million, including $519 million from the Enhertu alliance with Daiichi Sankyo and $355 million in milestones from the MSD collaboration on Lynparza/Koselugo301306310 - Net debt decreased from $24.3 billion at year-end 2021 to $22.9 billion at year-end 2022, supported by strong operating cash flow of $9.8 billion317322324 - For 2023, the company guides for low-to-mid single-digit Total Revenue growth and high single-digit to low double-digit Core EPS growth337 Corporate Governance Corporate Governance Overview AstraZeneca's governance structure is led by the Board of Directors, responsible for strategy and oversight, delegating to the CEO and five Board Committees, while complying with the UK Corporate Governance Code and actively engaging with a wide range of stakeholders - The governance structure consists of the Board and five committees: Audit, Nomination and Governance, Remuneration, Science, and Sustainability350 - The Board considers all Non-Executive Directors to be independent, with the exception of Marcus Wallenberg due to his length of tenure and relationship with a significant shareholder (Investor AB)378 - Key Board decisions in 2022, such as the appointment of a new Chair, endorsement of the climate strategy, and approval of acquisitions, were made with consideration for key stakeholders and long-term success factors397 Audit Committee Report The Audit Committee, chaired by Philip Broadley, oversees financial reporting integrity, internal controls, and audit processes, focusing on Alexion integration, significant transactions, and reviewing key financial reporting issues like intangible asset valuation and litigation provisions, while recommending PwC's reappointment - The committee monitored significant financial reporting issues, including the valuation of $38.9 billion in intangible assets, US revenue recognition accruals, legal provisions of $161 million, and uncertain tax liabilities of $830 million436437441 - The committee oversaw compliance with the Sarbanes-Oxley Act (SOx), noting that Alexion was fully integrated into the internal controls reporting framework in 2022429 - The committee reviewed the effectiveness of the external auditor, PwC, and recommended their reappointment for the 2023 financial year, with fees for audit-related and other assurance services at 4% of the statutory audit fee in 2022448453 Directors' Remuneration Report The Remuneration Committee outlines its pay-for-performance philosophy, with Executive Directors' 2022 annual bonus at 92% of maximum and the 2020 PSP vesting at 97% of maximum due to strong performance and a 58% three-year TSR, while the CEO's total realised pay was £15.3 million 2022 Executive Director Realised Pay (Single Total Figure) | Executive Director | 2022 Realised Pay (£) | 2021 Realised Pay (£) | | :--- | :--- | :--- | | Pascal Soriot (CEO) | £15,323 thousand | £15,740 thousand | | Aradhana Sarin (CFO) | £2,735 thousand | £3,013 thousand | - The 2022 annual bonus paid out at 92% of maximum opportunity, based on a formulaic scorecard outcome of 183% of target470511517 - The 2020-2022 Performance Share Plan (PSP) vested at 97% of maximum, reflecting strong performance in science, revenue, cash flow, and a relative TSR ranking of 5th out of 16 peers471525 - The CEO to median UK employee pay ratio for 2022 was 159:1, a decrease from 162:1 in 2021569 Financial Statements Consolidated Statements The consolidated financial statements present the Group's financial performance and position, showing a 2022 profit of $3.3 billion on Total Revenue of $44.4 billion, total assets of $96.5 billion, and net cash inflow from operating activities of $9.8 billion Consolidated Income Statement Highlights (Year ended Dec 31, $m) | Line Item | 2022 ($) | 2021 ($) | | :--- | :--- | :--- | | Total Revenue | 44,351 million | 37,417 million | | Operating Profit | 3,757 million | 1,056 million | | Profit for the period | 3,293 million | 115 million | | Basic EPS ($) | 2.12 | 0.08 | Consolidated Statement of Financial Position Highlights (As of Dec 31, $m) | Line Item | 2022 ($) | 2021 ($) | | :--- | :--- | :--- | | Total Assets | 96,483 million | 105,363 million | | Total Liabilities | 59,425 million | 66,076 million | | Total Equity | 37,058 million | 39,287 million | Group Accounting Policies This section outlines the accounting policies for the consolidated financial statements, prepared in accordance with UK-adopted IAS and IFRS, detailing the basis of preparation, key judgements, and significant estimates, particularly concerning revenue recognition, impairment of intangible assets, and business combinations - The financial statements are prepared in accordance with UK-adopted IAS, IFRS as issued by the IASB, and IFRS as adopted by the EU618 - The preparation of financial statements requires management to make significant estimates and judgements, particularly in areas like revenue recognition (US rebates), impairment of intangible assets, and legal provisions618