AstraZeneca

Introduction

• $24.7 bn
Total Revenue

• $3.9 bn
R&D Expenditure

• Over 500
collaborations
and partnerships
globally

Note: In a pharmaceutical company, almost all the assets are intangible

– Namely the drug patents
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 Background
• Share price dropped over the
summer - solely related to the
publication of disappointing
results from their ongoing MYSTIC
Ph. IV lung cancer drug?
• Prompted commentators to take a
closer look at AstraZeneca’s
accounting choices
• Move to core earnings meant
excluding restructuring charges,
exceptional legal costs and
amortisation of intangible assets
• Resembles Tesco pre-scandal ->
vast increase in invested capital at
the expense of returns
• From 1998-2011 Tesco’s ROCE
was steadily declining despite EPS
was increasing. Same pattern
emerging with AstraZeneca?

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 Relation to the Class Material

 Internally generated research costs are always

expensed, whereas development costs may be
capitalized if the following criteria are met
 intent to and technical feasibility of
completing the asset,
 ability to use/sell the asset,
 the asset will generate future economic
benefit
 For US GAAP, all R&D must be expensed
 AstraZeneca uses IFRS, and, thus, expense and
capitalize in accordance with these regulations
 However, in their “core” earnings amortization
of intangibles is excluded
 In a pharmaceutical company, almost all the
assets are intangibles
 In other words, major costs are being ignored
in the calculation of “core” profits - what is
“core”?
 Thus, the core earnings seem to be substantially
overstated and might mislead some investors
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Thank you