1st Nov 2007 11:00
AstraZeneca PLC01 November 2007 AstraZeneca PLCThird Quarter and Nine Months Results 2007 "Nine Months sales up 7 percent, core EPS up 8 percent. On track to deliverfull year earnings target." Financial Highlights Group 3rd Quarter 3rd Quarter Actual CER 9 Months 9 Months Actual CER 2007 2006 % % 2007 2006 % % $m $m $m $mSales 7,150 6,516 +10 +6 21,389 19,321 +11 +7 Operating Profit 2,022 2,106 -4 -7 6,165 6,213 -1 -3 Profit before Tax 1,888 2,187 -14 -16 6,146 6,440 -5 -7 Earnings per Share $0.91 $1.01 -11 -13 $2.88 $2.93 -2 -4 Core EPS* $1.04 $1.03 +1 -2 $3.28 $2.98 +10 +8 * Core EPS is a supplemental non-IFRS measure which management believes isuseful to understanding the Company's performance. This measure is adjusted toexclude: restructuring costs of $0.06 and $0.28 in Q3 and YTD respectively;amortisation of significant intangible assets arising from corporateacquisitions (ie MedImmune) of $0.05 in Q3 and $0.07 YTD; and amortisation ofintangibles related to our current and future exit arrangements with Merck inthe US of $0.02 in Q3 and $0.05 YTD. All narrative in this section refers to growth rates at constant exchange rates(CER) • Third quarter sales increased 6 percent to $7,150 million. Excluding US sales of Toprol-XLTM from the current and the prior year quarter, sales increased 9 percent. The inclusion of MedImmune increased sales 2 percent.• Operating profit in the third quarter was $2,022 million, down 7 percent. Operating profit was reduced by restructuring costs of $146 million and by $212 million from the inclusion of MedImmune, as a result of the expected seasonal trading loss and the amortisation of intangible assets.• For the nine months, sales were $21,389 million, up 7 percent. Operating profit was down 3 percent, to $6,165 million. Operating profit was reduced by restructuring costs of $604 million and by an operating loss of $315 million from the inclusion of MedImmune.• Free cash flow before acquisitions was $3,607 million for the nine months. Cash distributions to shareholders were $5,773 million, including net share repurchases of $3,132 million.• Two additional compounds (PN400 for pain and CrestorTM/ABT-335 fixed-dose combination for lipid disorders) progressed to Phase III development, bringing the total number of Phase III projects to ten.• Seroquel XRTM was launched in the US in August; first European approval was received on 29 August in the Netherlands.• Combined sales of 5 key products increased 14 percent for the nine months: NexiumTM (up 2 percent); Seroquel TM (up 15 percent); CrestorTM (up 39 percent); ArimidexTM (up 11 percent) and SymbicortTM (up 23 percent). David Brennan, Chief Executive Officer, said: "We continue to make progress onour key priorities: the business is on track to meet its earnings target for thefull year, the entire organisation is driving for increased productivity and thepipeline has been further strengthened with two projects added to Phase IIIdevelopment during the quarter." London, 1 November 2007 Pictures of senior executives are available on www.newscast.co.uk. Broadcastfootage of AstraZeneca products and activities is available onwww.thenewsmarket.com/astrazeneca. Media Enquiries: Steve Brown/Edel McCaffrey (London) (020) 7304 5033/5034 Staffan Ternby (Sodertalje) (8) 553 26107 Kirsten Evraire (Wilmington) (302) 885 0435Analyst/Investor Mina Blair/Karl Hard/Jonathan Hunt (London) (020) 7304 5084/5322/5087Enquiries: Staffan Ternby (Sodertalje) (8) 553 26107 Ed Seage/Jorgen Winroth (USA) (302) 886 4065/(212) 579 0506 Business Highlights All narrative in this section refers to growth rates atconstant exchange rates (CER) unless otherwise indicated Third Quarter Sales in the third quarter increased 6 percent at CER, or 10 percent on an asreported basis (including a 4 percent positive impact from currency movements).The inclusion of sales from MedImmune accounted for 2 percent of the salesincrease. Excluding US sales of Toprol-XLTM from both the current and prioryear, third quarter sales were up 9 percent. Sales in the US were up 3 percent,affected by the generic competition for Toprol-XLTM. Sales outside the US wereup 9 percent, including a 14 percent increase in Emerging Markets. Operating profit in the third quarter was $2,022 million, down 7 percent.Excluding $146 million in restructuring costs, operating profit was unchanged inthe quarter. The inclusion of MedImmune reduced operating profit by $212million. This reduction reflects the seasonal trading loss and the amortisationof intangible assets, together with charges in respect of post-acquisitionpipeline rationalisation. Operating profit was also affected by the onset offull generic competition for Toprol-XLTM in the US market. Expenditures in Research and Development were up 32 percent to $1,335 million;MedImmune and restructuring charges accounted for 18 percent of this increase. In the third quarter, SG&A expenses increased 10 percent to $2,487 million.Excluding amortisation and other SG&A expenses resulting from the inclusion ofMedImmune and restructuring costs, underlying SG&A expenditures were down 3percent in the quarter. Reported earnings per share in the third quarter were $0.91 compared with $1.01in 2006. NexiumTM sales in the third quarter were $1,293 million, down 1 percent. Salesin the US were down 3 percent. NexiumTM continued to gain share in the brandedsegment of the US PPI market, but it was insufficient to offset lower realisedprices and the growth in generic omeprazole. NexiumTM sales in other marketswere up 3 percent. SeroquelTM sales increased 22 percent to $1,055 million in the third quarter,the first time sales have exceeded one billion dollars in a quarter. Sales inthe US were up 24 percent, which included initial stocking of Seroquel XRTMahead of its launch in August. Approval of Seroquel XRTM was achieved in theNetherlands on 29 August, which will enable the Company to seek similarapprovals across Europe utilising the Mutual Recognition Procedure. Salesoutside the US were up 17 percent. CrestorTM sales in the third quarter were up 25 percent to $691 million. Salesin the US were up 14 percent to $342 million, with market share holding steadydespite the strong growth of generic simvastatin products. Sales in othermarkets increased 40 percent to $349 million. ArimidexTM sales increased 7 percent in the third quarter to $425 million, on a7 percent increase in the US and 8 percent sales growth in other markets. SymbicortTM sales in the third quarter were up 25 percent to $371 million. TheUS launch began on 26 June. In the US, SymbicortTM share of patients newlystarting fixed combination therapy reached 9.8 percent in the week ending 19October, with a 4.6 percent share of all new prescriptions for combinationproducts. Sales outside the US were up 24 percent. Nine Months For the nine months, sales increased 7 percent at CER, or 11 percent on an asreported basis; currency movements had a 4 percent positive impact on reportedsales growth. The inclusion of MedImmune sales from 1 June contributed lessthan 1 percent to the sales increase. Excluding US sales of Toprol-XLTM from thecurrent and prior year periods, sales increased 9 percent. Sales in the US andin other markets were each up 7 percent for the nine months. Operating profit was $6,165 million for the nine months, down 3 percent.Excluding the $604 million in restructuring costs charged in the nine months,operating profit increased 7 percent. Earnings per share for the nine monthswere $2.88 (including $0.28 of restructuring costs), compared with $2.93 in2006. Enhancing Productivity In furtherance of the wide range of productivity initiatives announced earlierthis year, $146 million of restructuring costs have been charged in the thirdquarter, bringing the total for the nine months to $604 million. The Companystill anticipates the full year charge to be around $900 million, subject to thesuccessful conclusion of employee consultation processes. Future Prospects The Company continues to perform well in increasingly challenging marketconditions. Sales growth for the full year is now anticipated to be around 7 to8 percent at CER, which takes into account both the increase from consolidationof MedImmune sales and the anticipated sales decline for Toprol-XLTM in the US. The target for earnings per share remains in the range of $3.60 to $3.75, whichexcludes restructuring costs and the US contribution from Toprol-XLTM.Following the full launch of generic competition to Toprol-XLTM in the USmarket, the Company now estimates a full year contribution from Toprol-XLTM inthe US of around $0.38. Inclusion of this estimate results in target earningsper share in the range of $3.98 to $4.13, excluding restructuring costs. Restructuring costs for the nine months were $604 million ($0.28 per share).The extent to which the full year estimate of $900 million ($0.44 per share)will be realised is subject to the timing of the consultation process. Disclosure Notice: The preceding forward-looking statements relating toexpectations for earnings and business prospects for AstraZeneca PLC are subjectto risks and uncertainties, which may cause results to differ materially fromthose set forth in the forward-looking statements. These include, but are notlimited to: the rate of growth in sales of generic competitors to Toprol-XLTM inthe US market, the rate of growth in sales of generic omeprazole in the US,continued growth in currently marketed products (in particular CrestorTM, NexiumTM, SeroquelTM, SymbicortTM and ArimidexTM), the growth in costs and expenses,interest rate movements, exchange rate fluctuations, and the tax rate. Forfurther details on these and other risks and uncertainties, see AstraZenecaPLC's Securities and Exchange Commission filings, including the 2006 AnnualReport and Form 20-F. Sales All narrative in this section refers to growth rates at constant exchange rates(CER) unless otherwise indicated Gastrointestinal Third Quarter CER % Nine Months CER % 2007 2006 2007 2006NexiumTM 1,293 1,280 -1 3,913 3,752 +2LosecTM/PrilosecTM 268 324 -20 845 1,024 -20Total 1,581 1,625 -5 4,818 4,830 -3 • In the US, NexiumTM sales in the third quarter were $851 million, down 3 percent compared to last year. Market share of total prescriptions in the US PPI market was 27.7 percent in September; however, continued share gains in the branded segment were unable to offset the strong growth of generic omeprazole and lower realised prices. Estimated underlying demand was unchanged for the quarter, as a 2 percent decrease in dispensed tablet volume was offset by an increase from non-retail channels. • US sales of NexiumTM for the nine months were up 1 percent to $2,568 million. • NexiumTM sales in other markets in the third quarter were up 3 percent. Sales in Emerging Markets were up 34 percent, which more than offset the 8 percent decline in Western Europe. • NexiumTM sales in other markets were up 3 percent for the nine months. • For the nine months, PrilosecTM sales in the US were up 8 percent. LosecTM sales in other markets were down 25 percent, although sales increased in Japan and China. Cardiovascular Third Quarter CER % Nine Months CER % 2007 2006 2007 2006CrestorTM 691 536 +25 1,997 1,403 +39SelokenTM /Toprol-XLTM 328 473 -33 1,229 1,407 -14AtacandTM 320 279 +8 934 809 +10ZestrilTM 72 76 -11 228 229 -6PlendilTM 66 68 -9 205 210 -8Total 1,621 1,579 -1 5,029 4,509 +8 • In the US, CrestorTM sales in the third quarter were $342 million, a 14 percent increase over last year. Total prescriptions in the US statin market increased 7 percent in the quarter; CrestorTM prescriptions were up 15 percent. CrestorTM share of total prescriptions in the US statin market is holding steady at 8.6 percent in September, despite the continued strong growth for simvastatin, which has increased its market share by more than six points during the course of 2007. • US sales of CrestorTM for the nine months were up 31 percent to $1,038 million. • In other markets, CrestorTM sales were up 40 percent in the third quarter to $349 million. Sales in Western Europe were up 20 percent; sales in Canada increased 45 percent. • Volume share of the statin market for CrestorTM is now 20.1 percent in Canada; 12.1 percent in the Netherlands; 20.4 percent in Italy; and 14.9 percent in France. • The launch of CrestorTM in Japan is progressing well, achieving a 7.3 percent volume market share in August 2007. • US sales of the Toprol-XLTM product range, which includes sales of the authorised generic, were down 43 percent in the quarter and 20 percent for the nine months, as the full range of dosage strengths were subject to generic competition from August 2007. Generic products accounted for 57 percent of dispensed prescriptions in the quarter. • Sales of SelokenTM in other markets were up 6 percent in the third quarter and 7 percent for the nine months as a result of growth in Emerging Markets. • AtacandTM sales in the US were down 7 percent in the third quarter and increased 1 percent for the nine months. • Sales of AtacandTM in other markets were up 13 percent in the quarter and 12 percent year to date. Respiratory Third Quarter CER % Nine Months CER % 2007 2006 2007 2006SymbicortTM 371 276 +25 1,139 861 +23PulmicortTM 286 263 +6 1,007 892 +11RhinocortTM 80 83 -7 267 270 -4AccolateTM 19 20 -5 57 59 -3OxisTM 18 21 -24 64 65 -9SynagisTM * 122 - n/m 138 - n/mFluMistTM * - - - - - -Total 935 696 +29 2,793 2,252 +19 * Sales of these MedImmune products are consolidated in AstraZeneca accountsfrom 1 June 2007. As a result, there are no prior period sales included.• SymbicortTM sales in the third quarter were up 25 percent to $371 million, on a 24 percent increase in markets outside the US. Growth in Europe has been fuelled by increased usage in COPD as well as market share gains in asthma, where the launch of the SymbicortTM SMARTTM regimen is having an impact. • In the US, SymbicortTM sales in the third quarter were $4 million following $30 million in launch stocks sold in the second quarter. Since launch at the end of June, nearly half of allergists and one third of pulmonary specialists targeted by promotional efforts have prescribed SymbicortTM. SymbicortTM share of new prescriptions for fixed combination products was 4.6 percent in the week ending 19 October; market share of patients newly starting combination therapy reached 9.8 percent. • Worldwide sales of SymbicortTM for the nine months increased 23 percent to $1,139 million. • Sales of PulmicortTM in the US increased 12 percent in the third quarter and 16 percent year to date. PulmicortTM RespulesTM sales were up 24 percent in the third quarter, on estimated volume growth of 18 percent. • PulmicortTM sales in other markets were down 2 percent in the third quarter and up 1 percent for the nine months. • Sales of RhinocortTM Aqua in the US were down 8 percent for the nine months. Total prescriptions declined 15 percent. • Sales of SynagisTM totalled $122 million in the third quarter. US sales were $56 million; sales outside the US were $66 million. There are no corresponding sales recorded in the AstraZeneca accounts in the prior year period; on a pro-forma basis SynagisTM sales are 9 percent ahead of last year, bearing in mind that SynagisTM sales are highly seasonal, with the majority of sales recorded in the fourth and first quarters. Oncology Third Quarter CER % Nine Months CER % 2007 2006 2007 2006ArimidexTM 425 382 +7 1,256 1,096 +11CasodexTM 324 299 +5 965 879 +6ZoladexTM 273 255 +2 797 736 +4IressaTM 55 62 -11 168 174 -3FaslodexTM 54 47 +11 156 138 +9NolvadexTM 20 21 -10 59 66 -12EthyolTM * 19 - n/m 27 - n/mTotal 1,189 1,076 +7 3,480 3,105 +8 * Sales of this MedImmune product are consolidated in AstraZeneca accounts from1 June 2007. As a result, there are no prior period sales included.• In the US, sales of ArimidexTM were up 7 percent in the third quarter to $167 million. ArimidexTM has a market-leading 38.3 percent share of total prescriptions for hormonal treatments for breast cancer. Sales for the nine months were up 15 percent, with total prescriptions 6 percent higher than last year. • ArimidexTM sales in other markets were up 8 percent in the third quarter and 7 percent for the nine months. • CasodexTM sales in the US were down 1 percent in the third quarter and were up 3 percent for the nine months. • CasodexTM sales in other markets increased 7 percent for both the third quarter and nine months. Sales for the nine months were up 13 percent in Japan and increased 6 percent in Western Europe. • Sales of IressaTM were down 3 percent for the nine months, although sales were up 4 percent in Japan and increased 16 percent in China. • FaslodexTM sales were up 9 percent for the nine months. Sales in Western Europe were up 10 percent; sales in Emerging Markets increased 29 percent. Neuroscience Third Quarter CER % Nine Months CER % 2007 2006 2007 2006SeroquelTM 1,055 848 +22 2,941 2,504 +15ZomigTM 107 99 +5 320 295 +5Total 1,371 1,150 +16 3,891 3,464 +10 • In the US, SeroquelTM sales were up 24 percent in the third quarter to $760 million. Third quarter sales included around $80 million of stocking sales for the new Seroquel XRTM formulation, ahead of the full launch promotion that started on 20 August. Sales for the nine months were up 15 percent. Total prescriptions for the nine months are 10 percent ahead of last year, twice the rate of market growth. SeroquelTM share of total prescriptions for antipsychotic products in the US was a market-leading 31.4 percent in September. • SeroquelTM sales in other markets were up 17 percent in both the third quarter and year to date. • Sales of ZomigTM were up 5 percent for the nine months, which is the same sales growth rate achieved in both the US and Rest of World markets. Geographic Sales Third Quarter CER % Nine Months CER % 2007 2006 2007 2006North America 3,485 3,355 +3 10,515 9,827 +7 US 3,199 3,100 +3 9,701 9,059 +7Established ROW* 2,791 2,445 +8 8,297 7,386 +5Emerging ROW 874 716 +14 2,577 2,108 +16 *Established ROW comprises Western Europe (including France, UK, Germany, Italy,Sweden and others), Japan, Australia and New Zealand.• Sales in the US were up 3 percent in the third quarter, as growth in SeroquelTM and CrestorTM, as well as the inclusion of MedImmune sales, more than offset the sales decline for Toprol-XLTM. Excluding Toprol-XLTM from both the current and prior year quarter, sales were up 9 percent. • Sales growth in the Established Rest of World segment was 8 percent in the third quarter. Sales in Western Europe were up 6 percent, benefiting from growth in SymbicortTM, CrestorTM and SeroquelTM, along with the inclusion of SynagisTM sales. Excluding SynagisTM, Western Europe sales increased 3 percent. Sales in Japan were up 10 percent, with CrestorTM and oncology products accounting for nearly two-thirds of the increase. • Sales in Emerging Markets increased 14 percent in the third quarter. Sales in Emerging Europe were up 16 percent. Sales in China increased 25 percent in the quarter. Operating Review All narrative in this section refers to growth rates at constant exchange rates(CER) unless otherwise indicated Third Quarter Reported sales increased by 10 percent and operating profit fell by 4 percent.At constant exchange rates, sales increased by 6 percent and operating profitfell by 7 percent. Excluding the impact of MedImmune and restructuring costs,operating profit increased by 10 percent. Quarter Three Operating Profit CER % EPS CER % $m Reported 2,022 -7 $0.91 -13MedImmune 212 n/a $0.23 n/aRestructuring Costs 146 n/a $0.06 n/aUnderlying 2,380 +10 $1.20 +16 Currency movements increased sales by 4 percent and operating profit by 3percent. In comparison to last year, the dollar was 7 percent weaker against theeuro, increasing sales, and also against the Swedish krona (7 percent) andsterling (7 percent), increasing costs. The net effect of these currencymovements was a positive impact of 2 cents on earnings per share. Underlying US sales growth is slightly ahead of reported growth of 3 percentafter adjusting for managed market accruals, inventory movements and provisionmovements. Outside the US, sales increased by 9 percent. In the third quarter, reported operating margin was 28.3 percent. Excluding theMedImmune operating loss of $212 million and restructuring costs of $146million, underlying operating margin was 34.0 percent, an increase of 1.7percentage points on the third quarter in 2006 (see table below). Quarter Three Reported % Restructuring MedImmune $m Underlying % Change versus costs PY* $m Gross Margin 79.8 (39) 88 80.7 +1.3Distribution 0.8 - (1) 0.7 +0.1R&D 18.7 (8) (167) 16.6 -1.8SG&A 34.8 (99) (193) 31.3 +2.1Other Operating Income 2.8 - 61 1.9 -Operating Profit 28.3 (146) (212) 34.0 +1.7 * Positive number indicates favourable effect on operatingprofit versus prior year. Underlying gross margin of 80.7 percent in quarter three is 1.3 percentagepoints higher than last year. Payments to Merck, at 4.0 percent of sales, were0.8 percentage points lower than last year. Currency increased margin by 0.2percentage points, counterbalancing a negative 0.2 percentage point impact fromincreased royalty payments. Excluding the effect of these additional factors,gross margin increased by 0.5 percentage points, due to continuing operationalefficiencies. Underlying R&D expenditure was $1,160 million in the third quarter, up 14percent over last year due principally to increased activity levels and theeffect of the externalisation strategy, particularly the collaboration withBristol-Myers Squibb. Underlying SG&A costs of $2,195 million were 3 percent lower than quarter threein 2006 as operating efficiencies continue to be driven from our sales andmarketing activities. The inclusion of MedImmune added $193 million, includingintangible amortisation of $105 million. Underlying other income of $136 million was $12 million above the third quarterin 2006. Other income relating to MedImmune amounted to $61 million. Included within cost of sales is the movement in the fair value of financialinstruments used to manage our transactional currency exposures; the net gain inthe quarter was $31 million (compared with a loss of $16 million for the sameperiod last year). Fair value losses of $7 million were charged elsewhere inthe income statement. Nine Months Reported sales increased by 11 percent and operating profit fell by 1 percent.At constant exchange rates, sales increased by 7 percent and operating profitfell by 3 percent. Excluding the effect of MedImmune and restructuring costs,operating profit increased by 12 percent. Nine Months Operating Profit CER % EPS CER % $m Reported 6,165 -3 $2.88 -4MedImmune 315 n/a $0.29 n/aRestructuring Costs 604 n/a $0.28 n/aUnderlying 7,084 +12 $3.45 +16 Currency movements increased reported sales by 4 percent and operating profit by2 percent. Cumulatively, exchange has increased earnings per share by 5 cents.If current exchange rates are maintained for the remainder of the year nofurther benefits are expected to accrue. Underlying US sales growth is broadly in line with reported growth of 7 percentafter adjusting for managed market accruals, inventory movements and provisionmovements. Outside the US, sales increased by 7 percent. In the first nine months, reported operating margin was 28.8 percent. ExcludingMedImmune losses of $315 million and restructuring costs of $604 million,underlying operating margin was 33.4 percent, an increase of 1.2 percentagepoints on 2006 (see table below). Nine Months Reported % Restructuring MedImmune Underlying % Change versus costs PY* $m $m Gross Margin 78.5 (320) 106 80.1 +0.7Distribution 0.9 - (2) 0.8 -R&D 17.4 (37) (195) 16.5 -2.1SG&A 34.2 (247) (313) 31.8 +2.3Other Operating Income 2.8 - 89 2.4 +0.3Operating Profit 28.8 (604) (315) 33.4 +1.2 * Positive number indicates favourable effect on operatingprofit versus prior year. Underlying gross margin of 80.1 percent is 0.7 percentage points higher thanlast year. Payments to Merck, at 4.2 percent of sales, were 0.5 percentagepoints lower than last year. Currency increased gross margin by 0.4 percentagepoints whilst higher royalty payments reduced margin by 0.3 percentage points.Excluding the effect of these additional factors, gross margin was 0.1percentage points higher than last year. Underlying R&D expenditure was $3,498 million in the first nine months of 2007,up 18 percent over last year due principally to increased activity levels andthe effect of the externalisation strategy. SG&A costs excluding restructuringand MedImmune were 2 percent lower than the same period in 2006. Included within cost of sales is the movement in the fair value of financialinstruments used to manage our transactional currency exposures; the net gain inthe first nine months was $40 million (compared with a loss of $36 million forthe same period last year). Other fair value losses of $18 million were chargedelsewhere in the income statement. Restructuring Costs At the half year, the Company provided further details in respect of the variousproductivity initiatives being undertaken to enhance the long-term efficiency ofthe business. As of 30 September, the following charges have been taken: Charged at 30 September Quarter $m Three $mGross Margin Global Supply Chain 39 320 R&D Restructuring of Clinical, Regulatory Affairs 8 37and Disease Area Strategy SG&A European Sales Force Restructuring 22 168 IS and Business Infrastructure 77 79 TOTAL (REPORTED BASIS) 146 604 Of which cash costs: 73 512 All programmes continue to progress to plan, with forecasts for the total costsand benefits associated with each initiative remaining in accordance with theguidance issued in the second quarter news release. Toprol-XLTM In the first nine months, Toprol-XLTM contributed US sales of $883 million(2006: $1,105 million) and EPS of 35 cents (2006: 40 cents). During the thirdquarter all remaining strengths of Toprol-XLTM became exposed to genericcompetition. If Toprol-XLTM were excluded from the first nine months results forboth the current and prior year periods, sales growth would be 9 percent (versus7 percent on a reported basis) and EPS would be down 3 percent (compared with a4 percent decrease as reported). Using the same basis in the third quarter,sales would be up 9 percent (compared with a 6 percent increase as reported) andEPS would be down 9 percent (compared with a 13 percent decline as reported). Finance income and expense Net interest and dividend expense for the third quarter was $134 million (2006income: $81 million) and $19 million expense (2006 income: $227 million) for thefirst nine months. The decrease versus last year is primarily attributable tothe interest payable on the borrowings to acquire MedImmune, Inc., being $191million in the third quarter and $243 million in total. The reported amountsinclude net income of $5 million (2006: $11 million) in the third quarter, and$21 million (2006: $35 million) in the nine months, arising from employeebenefit fund assets and liabilities reported under IAS 19, 'Employee Benefits'. Taxation The effective tax rate for the third quarter is 28.4 percent (2006: 27.2percent) and for the nine months is 29.2 percent (2006: 28.3 percent). For thefull year the tax rate is anticipated to be around 29 percent. Cash Flow Free cash flow (net cash generated and available for acquisitions ordistribution to shareholders) for the nine months was $3,607 million, comparedto $4,793 million in 2006. Cash generated from operating activities was $4,512 million, $1,021 millionlower than in 2006. The decrease is primarily due to an increase in workingcapital requirements of $885 million and additional tax payments of $698million, offset by higher non-cash movements, principally in relation toseverance provisions, of $438 million. Net cash outflows from investing activities were $14,460 million in the period,compared to $557 million in 2006 chiefly due to cash outflows from acquisitionsof $14,814 million in the period (MedImmune, Inc. and Arrow TherapeuticsLimited). Returns to shareholders were $5,773 million (through net share repurchases of$3,132 million and dividends of $2,641 million). Investments In August, the Company paid $34 million to acquire the paediatric asthmabusiness of Verus Pharmaceuticals, Inc. which includes the North American rightsto CyDex Captisol(R)-enabled budesonide solution and a proprietary albuterolformulation. The acquisition of these programmes will further strengthenAstraZeneca's position as a leader in the field of paediatric asthma. In September, the Company paid a further milestone of $30 million under thecollaboration agreement with POZEN, Inc. to develop a fixed-dose combinationproduct containing esomeprazole and naproxen, for the treatment of pain. Themilestone was in relation to the execution of the revised agreement andrecognition of successful proof of concept. In September, the Company's Astra Tech Group announced the acquisition ofAtlantis Components, Inc. for $71 million. The acquisition was completed on 10October. The intangible asset acquired is the specialist CAD/CAM technology usedto design and manufacture customised dental implant abutments, which furtherstrengthens Astra Tech's product portfolio in the field of dental implants. In October, the Company decided, by mutual agreement, to end its collaborationwith NPS Pharmaceuticals, Inc. to discover and develop drugs targetingmetabotropic glutamate receptors (mGluRs). The Company has agreed to pay $30million to acquire NPS's assets relating to the collaboration. Core Earnings per Share Management believes that investors' understanding of the Company's performanceis enhanced by the disclosure of Core EPS, as it provides an understanding ofthe underlying ability to generate returns to shareholders. The Core EPSmeasure is adjusted to exclude certain significant items, such as charges andprovisions related to restructuring and synergy programmes, amortisation of thesignificant intangibles arising from corporate acquisitions and those related toour current and future exit arrangements with Merck in the US, and otherspecified items. Core EPS is not, and should not be viewed as, a substitute forEPS in accordance with IFRS. The reconciliation of third quarter and nine months Core EPS to reportedearnings per share is provided below: 3rd 3rd CER Nine Months Nine Months CER Quarter Quarter % 2007 2006 % 2007 2006 Reported EPS $0.91 $1.01 -13 $2.88 $2.93 -4 Restructuring Costs $0.06 - n/a $0.28 - n/a Amortisation of intangible assets MedImmune acquisition $0.05 - n/a $0.07 - n/a Merck arrangements $0.02 $0.02 n/a $0.05 $0.05 n/a Core EPS $1.04 $1.03 -2 $3.28 $2.98 +8 Debt and Capital Structure During September, approximately $7.9 billion in debt was raised in the debtcapital markets to re-finance short term debt taken on to fund the acquisitionof MedImmune, Inc. The re-financing consisted of a $6.9 billion 4-tranche SECGlobal issue and a €750 million Eurobond, issued off a new Euro Medium Term NoteProgramme. The details are as follows: • $650 million Floating Rate Notes due 2009 • $1,750 million 5.4% Notes due 2012 • $1,750 million 5.9% Notes due 2017 • $2,750 million 6.45% Notes due 2037 • €750 million 5.125% Notes due 2015 As at 30 September 2007, outstanding gross debt (including loans and short-termborrowings) is $14,314 million, of which $8,994 million is long-term (greaterthan 12 months). Outstanding net debt is $10,867 million. Share Repurchase Programme During the third quarter, 22.6 million shares were re-purchased for cancellationat a total cost of $1,134 million bringing the total re-purchases for the yearto date to 61.6 million shares at a total cost of $3,294 million. Shares issuedduring the year to date were 3.5 million in consideration of share optionexercises for a total of $162 million. The total number of shares in issue at 30 September 2007 was 1,474 million. The share re-purchase programme is calculated to have added 6 cents to EPS forthe year to date after allowing for an estimate of interest income foregone. R&D Update During the quarter the Company announced that two additional compounds haveprogressed to Phase III development, bringing the total number of projects inPhase III to ten. The two progressions were: • PN400, a new pain product, under co-development with POZEN, Inc., for the treatment of pain in patients who require chronic NSAID therapy and are at risk for NSAID related ulcers. • CrestorTM/ABT-335, a fixed dose combination of AstraZeneca's CrestorTM and Abbott's next generation fenofibrate. This single pill should have beneficial effects by reducing LDL and triglycerides whilst increasing HDL over and above that achieved by the individual components. Seroquel XRTM was approved in the Netherlands on 29 August; the Company will nowseek similar approvals across Europe utilising the Mutual Recognition Procedure. Seroquel XRTM was also approved in Canada on 27 September. Calendar7 December 2007 Business Review - Biologics31 January 2008 Announcement of fourth quarter and full year 2007 results David BrennanChief Executive Officer This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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