AstraZeneca is a successful, research-based, prescription pharmaceutical business. We bring benefit for patients and add value for our shareholders and wider society through innovation and the responsible delivery of medicines in important areas of healthcare.

The demand for healthcare continues to grow. People are living longer, populations are increasing and the emergence of new economies means that the number of patients who can benefit from medicines is expanding. At the same time, many diseases remain under-diagnosed, sub-optimally treated or do not have effective therapies. Alongside these significant opportunities for AstraZeneca to make a difference, we face some tough challenges –including growing pressure on the price of our marketed products, higher costs and regulatory hurdles for the development of new ones and an increasingly competitive marketplace, including earlier challenges to our patents.

Our strategy for achieving sustained, industry-leading growth within this environment centres on three key priorities:

PATIENTS, PRODUCTS, PEOPLE AND PERFORMANCE
Our business objectives are focused on four core areas – patients, products, people and performance – that we believe are core drivers of success in delivering our strategy.

To bring the most benefit for patients and those who treat them, we must continue to understand what makes a difference for them – and apply that insight across all of our activities to ensure we remain targeted on their changing needs. For the future, we recognise that sustainable long-term success depends on further strengthening the flow of new products – whether from our own laboratories or from outside AstraZeneca. The continued commitment and energy of our people is vital, and we aim to provide the leadership and support they need to deliver their best contribution to achieving our business goals. By keeping our promises in all aspects of our business, and effectively managing the associated opportunities and risks, we aim to drive a performance that will place us among the best in the industry.

OUR YEAR IN BRIEF
2006 saw some good progress. The Company delivered excellent financial results, with strong sales growth of 11%, enhanced by our continued commitment to improve productivity across the business.

Product performance
In the short to medium term, our growth is expected to continue to be driven by five key products, launched over the last 12 years
– Arimidex, Crestor, Nexium, Seroquel andSymbicort. In 2006, these five key growth products together delivered sales of $13.3 billion, up 23% from last year, and overall sales of all our products, including our successful mature brands such as Casodex, Zoladex, Seloken/Toprol-XL, Zomig, Diprivan and Merrem, totalled $26.5 billion.

In December, the European Patent Office ruled that one of the European substance patents for Nexium would be rejected. Both Nexium and Seroquel continue to be the subject of patent litigation in the US following the filing of Abbreviated New Drug Applications in 2005 and 2006. AstraZeneca continues to have confidence in the intellectual property portfolio protecting Nexium and Seroquel and will defend and enforce its intellectual property rights protecting both products.

Symbicort achieved global sales of $1.2 billion in 2006, up 18%. During the year, it was approved in the US in a pressurised Metered Dose Inhaler for maintenance treatment of asthma in patients aged 12 years and above. We continue to plan for a US launch for Symbicort around the middle of 2007, although achieving this launch timeline is dependent upon successful transfer of technology from development to manufacturing and completion of validation batches. In addition, Symbicort SMART was approved for use in adults through the EU Mutual Recognition Procedure.

You can read more about our product performance in other sections of this report.

In our markets
The growing demand for healthcare means increasing pressure on the budgets of governments and others who pay for it. We must manage the associated downward pressure on the price of our products, whilst continuing to invest in providing medicines that make a difference. During 2006, pricing pressure was particularly strong in Europe, where governments continue to introduce cost-containment measures such as jumbo reference pricing in Germany. In the US, still the world’s largest pharmaceutical market, the Democratic gains in the mid-term election may signal further changes to the pricing environment in that country. You can read more about this in the Geographic Review and Price Regulation sections (pages 33 and 50).

As we continue to focus on managing such challenges and building on our leading positions in established markets, we are also increasing our strength in fast-developing markets, such as China. During the year, we announced a $100 million R&D investment over the next three years in China, which reflects our commitment to building our presence in this important market. As part of this, I was pleased to hold in 2006 the first AstraZeneca Senior Executive Team meeting in that country.

Strengthening our pipeline
There are three linchpins in our strategy to strengthen the pipeline. First, improve the productivity of our own in-house discovery and development efforts. Second, continue to increase the pace with which we evaluate and acquire promising projects from external sources. This is not a short-term stopgap to backfill the pipeline. It represents an important change in mindset. We are making a long-term commitment to step up our access to the world of scientific innovation that resides outside AstraZeneca. The third element is our commitment to establishing AstraZeneca as a major international presence in biopharmaceuticals.

Enhancing in-house discovery and development
During 2006, we continued our drive to improve the efficiency of our internal R&D processes and the effectiveness of our decision-making so that we can quickly eliminate weaker drug candidates and concentrate on the robust, rapid progress of the ones most likely to succeed as significant advances in healthcare. We also reviewed our disease target areas and re-focused our effort to ensure our scientific resources are prioritised on those areas where we believe our skills can make the most difference and where the largest opportunities lie.

The results of our drive to improve productivity are reflected in the sustained size of the early development portfolio. During 2006, 21 candidate drugs were selected for development (compared with 25 in 2005 and 18 in 2004). We have a number of compounds in the later stages of development including Zactima and Recentin (formerly AZD2171) for treating cancer, and AGI-1067 and AZD6140

INTRODUCTION
In this section, we have applied the best practice principles of an operating and financial review and discuss the main trends and factors underlying the development, performance and position of AstraZeneca during 2006.

To that end, we provide in this business review an overview of AstraZeneca’s business environment and information about our research, development, manufacturing and sales and marketing activities worldwide, including our 2006 performance in these areas, as seen through the eyes of the Board.

We describe the external environment in which we operate, including the opportunities and challenges, the market for pharmaceuticals, the competitive and regulatory environment, and the principal risks and uncertainties.

We describe our strategy for managing the opportunities and challenges of our business environment, the resources that we bring to bear and how they are aligned to create value through achievement of our strategic objectives, and likely future developments in our business. We also highlight the importance of leadership, effective decision-making and risk management.

Finally, we explain how our progress towards achievement of our objectives is measured.

In the therapy area, geographic and financial reviews, we report on our financial performance during 2006 at a global level, in different geographic areas and at a product level. We also report in detail on the progress of our pipeline and developments in relation to our marketed products (such as new indications, regulatory filings and clinical trial data).

Cancer
The world market value for cancer therapies is $32 billion and growing strongly. Despite dramatic advances in treatment, cancer remains the second highest cause of death in developed countries, and epidemiological evidence points to this trend now emerging in the less developed world. At present cancer accounts for 7.6 million (or 13%) of all deaths worldwide annually, with these numbers projected to continue rising, resulting in an estimated 9 million people dying from cancer in 2015 and 11.4 million dying in 2030. Globally, lung cancer kills more people than any other tumour type. However, there are significant differences in the pattern and severity of disease between Asian and Western populations. Whilst breast, prostate and colo-rectal cancers are common in the West, gastric and liver cancers are more prevalent in Asia. For further information about our cancer therapies, see page 26.

Respiratory & Inflammation
The respiratory world market value is $43 billion. The WHO estimates that 100 million people worldwide suffer from asthma and more than twice that from COPD, which is currently the fourth leading cause of death in the world with further increases in the prevalence and mortality of the disease predicted for the coming decades. The inflammatory market is estimated to be worth $16 billion, with over 40% being for the treatment of rheumatoid arthritis. Biological therapies dominate the inflammatory market in terms of sales value.

Information about the medicines we have or are developing in the above disease areas and our 2006 product performance is set out on pages 29 to31.

Infection
The world market value is $59 billion, with anti-bacterials accounting for $31 billion. Infectious diseases cause more than 11 million deaths each year. World demand for antibiotics remains high, due to escalating resistance and the increased risk of serious infections. Tuberculosis remains a worldwide threat and is newly diagnosed in approximately two million people every year in India and over eight million people worldwide.

 GROWING CHALLENGES FOR INDUSTRY
Whilst the fundamentals of the world pharmaceuticals market remain robust, the industry is facing real challenges.

Pressure on costs
Expenditure on healthcare typically represents between 6% and 15% of a country’s Gross Domestic Product (GDP), with developed countries towards the top end of that range and developing countries spending less. As a proportion of this, pharmaceutical expenditure is usually between 10% and 20% and is therefore still less than 2% of GDP in most countries.

Nevertheless, healthcare systems, whether based on public or private funding, have a finite ability to pay for treatments. Cost-containment remains an ever-present constraint on industry growth. During 2006, further pricing pressures have been placed on the industry through legislation and other means, not only in major established markets, but also in China and India. For more information, see page 50 (Price Regulation).

Doctors remain the principal decision makers regarding which of the available treatments should be prescribed for their patients, but as the economic burden of funding therapies increases, payers, including governments, health insurers, managed care organisations and employers are increasing their efforts to influence the choices doctors make.

Demonstrating economic benefit
Research-based pharmaceutical companies increasingly have to demonstrate the economic as well as the therapeutic value of their medicines to those who pay for healthcare. This requires investment, throughout the life-cycle of a medicine, in studies to demonstrate added medical benefit, cost-effectiveness, cost-benefit and medical outcomes (such as survival and quality of life improvements) in addition to traditional clinical trials designed to establish safety and efficacy. These research efforts also help to ensure we can target our treatments at those patients who will benefit most, a growing expectation of payers and of society in general.

Research and development productivity
Successful companies will be those that enhance their productivity in the discovery and development of new and differentiated medicines designed to meet the growing demand. The industry is working to improve research productivity through the application of new technologies. At the same time, our regulators are also setting increasingly high hurdles for the approval of medicines.

As well as building on our leading positions in existing key markets such as the US, Japan and Europe, we continue to increase our strength through strategic investment in the fast-growing markets of the future, of which China offers the most outstanding opportunity.

Supply and manufacturing
We currently have some 13,500 people at 27 manufacturing sites in 19 countries, dedicated to delivering a secure, high quality, cost-effective supply of our product range worldwide. Of these 13,500 people, around 1,300 are employed in active pharmaceutical ingredient supply and 11,500 in formulation and packaging. We operate a small number of sites for the manufacture of active ingredients, complemented by efficient use of outsourcing. AstraZeneca has active ingredient sites in the UK, Sweden and France and a bulk drug purification plant in Germany. Principal formulation sites for tablets and capsules are located in the UK, Sweden, Puerto Rico, France, Germany and the US. There are also major formulation sites for the global supply of parenteral and inhalation products in Sweden, France and the UK. Packaging is undertaken at a large number of locations, both at AstraZeneca sites and at contractors’ facilities, located close to our marketing companies to ensure rapid and responsive product supply.

 OUR RESEARCH AND DEVELOPMENT
Our global research and development (R&D) organisation is therapy area-led with scientific, medical, technical input and control provided by large multi-skilled Discovery and Development functions. This offers a number of advantages including sharing of best practice and efficient use of resources across a multi-site, global organisation. During 2006, we continued to improve our focus on speed and quality of project delivery and to ensure we fully exploit promising new projects and technology platforms across and outside the main therapy areas. In total we employ around 12,000 people at 16 R&D centres in eight countries – comprising eight joint Discovery and Development facilities in the UK, US, Sweden and a new Innovation Centre that will be built in China; a further seven sites in the UK, US, Canada, India and France that focus only on Discovery; and a facility in Japan for drug development only. These resources are complemented by clinical development capability at 40 sites around the world.

Development portfolio
A core priority is ensuring that our growing range of candidate drugs (compounds with the potential to become new medicines) are developed effectively to meet the future needs of patients. We have a wide range of compounds in early development, and a total of 23 projects in Phase I, 20 projects in Phase II and 28 projects in Phase III development. Whilst the majority of projects are small molecule candidate drugs, an increasing proportion of our early development compounds are biopharmaceuticals (see pages 38 and 39 for more information).

Externalisation
In today’s world of rapid scientific and technological advance, no company can rely exclusively on its own discovery and development. Where appropriate we seek to strengthen our internal capabilities through acquisitions and alliances with external partners whose skills and resources complement our own and which broaden our base for disease research.

We continuously monitor new and emerging sciences for opportunities that will help us to develop the next generation of medicines that offer better results for patients. One such opportunity is biopharmaceuticals – medicines derived from biological molecules, which are often based on proteins produced naturally by living organisms in response to disease, for example antibodies. New technologies have opened up the possibility of producing effective, potent antibodies in large supply that can be used to fight disease. As part of our expansion into this fast-growing area, and building on a successful alliance, during 2006 we acquired Cambridge Antibody Technology Group plc (CAT) – a leading UK-based biotechnology company. CAT’s skills in biological therapeutics complement our expertise and strength in small molecule science, and provide a foundation for building a future pipeline of new products from both areas of research. For more information on CAT research, see page 38 or visit the website, cambridgeantibody.com.

Elsewhere in this report you can read about other licences, collaborations and acquisitions we have entered into.

Product portfolio management
One of the greatest challenges facing any pharmaceutical company is maintaining the quality of its product portfolio. We work to ensure that we effectively prioritise emerging research opportunities (whether from our own discovery activities or from external sources), develop them to meet market needs and maximise the potential of our marketed brands.

During 2005 to 2006, to further strengthen our effort in these areas, we reviewed and refined the way the relevant teams across our business work together. The refinements aim to improve the connectivity, co-ordination and focus of all the various activities, both internally and externally focused, that contribute to maintaining a high quality range of differentiated products that meet patient needs and add value for our stakeholders. More details about our Portfolio Management and Commercialisation can be found on page 43.

 OUR PEOPLE
Our most important resource is our people. With over 66,000 employees, we value the diversity of skills and abilities that a global workforce brings to our business. Within our performance-driven culture, we aim to give our employees the support they need to develop their full potential and to provide a working environment in which they are energised and informed. Optimising individual and team performance, effectively managing and developing all our talent, communicating and fostering our core values and improving our leadership capability are core priorities, alongside a commitment to ensuring the safety, health and wellbeing of all our employees worldwide. For more information, see page 48.

Leadership
Good leadership and effective risk management are key to ensuring our resources and capabilities continue to be focused on meeting the challenges, and maximising the opportunities, of our business environment.

The Board of Directors: Our Board comprises Executive Directors, with direct responsibility for business operations, and Non-Executive Directors, who have responsibility to bring independent, objective judgement to bear on Board decisions. The Board sets Company strategy and policies and monitors progress

The cholesterol absorption inhibitor project aims to provide additional LDL-C reduction when an absorption inhibitor is used in combination with a statin. Our development compound (AZD4121) is expected to enter clinical development during 2007. AZD6610 is a PPAR alpha compound with partial effect on gamma receptors and is in Phase II clinical testing for the treatment of combined dyslipidaemia (LDL-C and trygliceride elevation with low levels of HDL-C).

Patients with various mixed dyslipidaemias are expected to become more prominent segments of the dyslipidaemic population, due to increased prevalence of metabolic syndrome and diabetes. In July we signed an agreement with Abbott Laboratories to co-develop and co-promote a cholesterol treatment in the US to treat three important blood lipids – LDL-C, HDL-C and triglycerides –in a single pill. The fixed-dose combination therapy will combine Crestor with either ABT 335, a next-generation fenofibrate currently under development by Abbott, or Abbott’s currently marketed fenofibrate, TriCor^™. Final selection between the two programmes will be based upon data generated from the initial studies, with an anticipated regulatory submission to the FDA in 2009.

Thrombosis
In the anti-coagulation area our focus is on AZD0837, an oral direct thrombin inhibitor in Phase II testing. Three months’ treatment of patients with atrial fibrillation indicated that the liver signal seen with Exanta is not seen with AZD0837 treatment. Work is ongoing to develop an extended-release formulation in order to reduce peak/trough variability and provide an opportunity for once-daily dosing.

In the anti-platelet area AZD1283 has been selected for pre-clinical development. The aim is to develop an effective anti-platelet drug with markedly reduced bleeding risk. AZD9684 has been tested in a proof-of-principle study with patients with diagnosed acute pulmonary embolism. Data indicate that the compound enhances the endogenous fibrinolytic system. Due to its short half-life, the compound needs to be given parenterally to treat acute thrombosis-related CV events.

In 2006 we entered into an agreement with the Australian company Cerylid Biosciences to acquire kinase inhibitors that have the potential to deliver a very effective anti-platelet therapy with minimal risk for bleeding complications. The aim is to start a lead optimisation pre-clinical project in early 2007.

Atrial fibrillation (AF)
During 2005, we discontinued development of the oral formulation of AZD7009 (for the maintenance of sinus rhythm after conversion of AF) due to non-cardiac adverse events. New clinical results from a dose-finding study with short-term intravenous administration of AZD7009 were delivered during 2006. However, due to non-cardiac adverse events, a decision to stop further development was taken during the summer. Continued work in the area has focused on a follow-up compound, AZD1305, where efficacy can be anticipated to be similar to AZD7009, but with an aim to provide a better side-effect profile. AZD1305 is in Phase I.

Details of all compounds in the CV pipeline are contained in the table on page 16.

PERFORMANCE 2006
Reported performance
CV sales were up by 15% on a reported basis, rising from $5,332 million in 2005 to $6,118 million in the current year. The strong performance of Crestor was the principal driver of growth.

Underlying performance
Excluding exchange effects, CV sales grew by 15%. Annual sales for Crestor exceeded $2 billion for the first time in 2006 and, since launch in early 2003, more than 70 million prescriptions have been written. Crestor sales in the US were up 57% to $1,148 million for the year. New prescriptions for statins in the US were up 18%; Crestor new prescriptions were up 58%. Crestor new prescription market share in December 2006 was 9.6%, a 2.7 percentage point increase over the last year, and this represented the largest share gain recorded by a branded statin in 2006. Beginning in January 2007, new prescription market data will be distorted by the launch of multiple generic simvastatin products. In other markets Crestor sales increased by 61% on good growth in Europe (up 56%) and in Asia Pacific following launch in Australia and Japan in the second half. Volume share of the statin market for Crestor is now 17.4% in Canada; 11.5% in the Netherlands; 19.3% in Italy; and 12.9% in France.

Sales of Toprol-XL in the US were up 7% for the full year to $1,382 million. Total prescriptions in the US increased by 10% versus last year. The November launch of Sandoz’s 25mg metoprolol succinate product in the US was followed by an announcement that we had entered into a supply and distribution agreement with Par Pharmaceutical to distribute an authorised generic version of the same 25mg dosage strength in the US market. As a consequence, adjustments