AstraZeneca PLC (AZN) Q2 2007 Earnings Report, Transcript and Summary

Andrew Bamm – Morgan Stanley Chris Schott – Bank of America Kevin Wilson - Citigroup Steve Scala – SG Cowen Michael Decort – ABN Amro Andy Cosen – Redburn Partners

Thank you for joining us this afternoon. Welcome to our meeting, where our goal is to review with you our financial results for the first half of the year and discuss some very important aspects, some other things that are going on, changes that are taking place in our business. So I’ll start the meeting with an overview of results and where we stand, as well as the work that we’ve been doing to address our productivity challenge and the challenge that I laid down to our entire organization in February, when we reported the beginning of our restructuring program. I’ll then ask John Patterson to come up and provide you with an update to the changes in the pipeline as well as our R&D productivity initiatives since we last reviewed this comprehensively with you when we were together in February. And finally, here at his last AstraZeneca quarterly results meeting, John Symonds is here and he’ll take you through the financial data, as usual. At the end of that we’ll take questions both from you here with us in London, as well as folks that are online, and we’ll try to alternate back and forth and cover as much ground as we can. As you’ll have seen in the press release, the quarter’s results have an added layer of complexity as we begin to reflect the impact of the acquisition of MedImmune. As we step up our changes and the pace of our productivity initiatives and the restructuring charges that comes with it we’re going to do everything we can to help you understand that, to make it as transparent as possible. And by now, as I said, you’ve seen the second quarter results and the first half results, which we published a couple of hours ago. So let…

Thank you, David, and good afternoon, or good morning, ladies and gentlemen, wherever you are. I’m really pleased to be able to share with you today the excellent progress that we’re making in developing the Astra Zeneca pipeline, and to give a degree of detail behind the headlines that you will have read in the press release, and already heard today from David. We’ve been working hard to increase the size of the pipeline with particular attention being paid to the later phases. Our quality-on-time initiative has now been running for one and a half years, and we’re seeing real evidence of an accelerated delivery with significant time reduction in the early phases of development and increasing numbers of products moving forward. We are building pipeline momentum as our portfolio increases to 157 projects, of which eight are now in phase three, representing seven new medicines. At the same time, we’re actively lowering the risk of our portfolio. The MedImmune acquisition has been a transformational event for the company’s research and development organization, growing our whole finds and capabilities base, and accelerating our biologic strategy. The Abgenics Cap and MedImmune externalization project gave us the capability to discover, develop, and manufacture monoclonal antibodies, vaccines and anti-virals, with the capacity to take eight biologics per annum into development. Together with the highly skilled and experienced MedImmune and Cap workforces, we’re now in a position that would have taken us many years and significant learning to achieve. We’re now more than capable of delivering our promise of 25% of new molecules offered for phase three development being biologics. In so doing, have created a larger, more diverse, and richer R&D pipeline. It covers organic chemistry, genetically engineered, and fermentation derived molecules, and anti-virals. When you add in the manufacturing capacity, we’re now…

Good afternoon, everyone. We’ve still got a lot of ground to cover, so let’s get straight into the agenda here. Here’s what I’m going to cover, firstly, the headline results and how all the moving pieces fit together; a review of where we are with MedImmune, performance, synergy, acquisition accounting, while we also want to move to core EPS going forward; researching program, cost and benefit; how the underlying business is doing and our expectations for the remainder of the year. Finally, our current thoughts in relation to capital structure. So here are the moving pieces in earnings-per-share in the second quarter: reported EPS for the quarter of $0.95; restructuring costs amounted to $376 million or at an EPS level, $0.18. MedImmune impact was a loss of $0.06 leaving an underlying earnings per share of $1.19, up $0.13. You can also see here from the box, they’re excluding Top Pro Excel. This gives you a line of sight into the guidance we set at the beginning of the year: earnings per share is up by 15%. And in the back-up slide, you’ll see that there’s an equivalent analysis for operating profit, also the movements for the half-year. Let me turn to MedImmune, and there are three things I want to cover: the numbers in the second quarter, synergies and acquisition accounting. Firstly, as you can see here, there are a number of components in addition to the underlying trading performance. The bottom line is a loss of $0.06 or $140 million including incremental interest costs of $37 million. This gives you the full line of site to earnings per share. I wouldn’t (inaudible) to separate interest in this way in subsequent quarters. In addition, the one-off charges relating to an acquisition of $49 million and amortization of intangibles amounting to…

Great. Thank you, John, and thank you, Jon, for reviewing the R&D situation. What we will do now is move on to Q&A. I’ll just remind the audience here live that we also have people who are online. We will start here live with the first question and then we will move on. Andrew? Question-and-Answer Session

Thanks. It’s Andrew Bamm at Morgan Stanley. I have four questions; two for John and two for Jon. For John Patterson, Saxagliptin, perhaps you could indicate whether you’ve met with the FDA and whether they have confirmed that they will accept your filing at the first half of 2008 given the issues associated with (inaudible)? Second, on your (inaudible) receptor antagonist, perhaps you could outline why you’re more confident given recent experience with (inaudible), the Abbott compound? For Jon Symonds, post-2008, after you’ve made the Merck payment and also the associated costs of restructuring, should we assume that that $1 billion is going to be subject to outward revision and what kinds of levels do you think we should be using in our models? Second, and you kind of indicated some of this, what percentage of the $900 million of restructuring benefits is actually going to be (inaudible) by R&D investments? How much is going to come through?

John Patterson, do you want to start off?

Thanks, Andrew. First of all, we believe we have a complete and robust Phase three program for Saxagliptin that’s capable of being filed next year. The FDA has not asked us to do any specific extra studies, and in particular, any renal studies. We have in that package and will have on the (inaudible) dossier on renal insufficiency and the drug has been well studied at multiples of up to 40 times the alpha dose in Phase three. However, we’re not blind to what’s going on in the outside world. We’ve actually initiated contact with the FDA in relation to (inaudible) in general and the issues with (inaudible). We’re consulting with them. That is ongoing. As of when we get to the end of that consultation process, if there’s anything to say, we’ll say it. On 4054, I’m very confident that we’re going to get the right results in phase three for a couple of good reasons. One is we think we’ve learned from some of the designs from the other study in terms of how you actually treat subsequent treatments with the drugs in phase three, and in particular to concentrate on overall survival in the patient population, where clear progression-free survival is very hard to measure. The second thing is, there’s a significant oncological difference between them in that by being an endothelin A antagonist without the B, we believe that the B in our pre-clinical pharmacology is actually a negative finding and actually mitigates against the activities of drugs. Having selectivity for endothelin A we believe gives a significant difference between the drugs.

Good. Jon?

Yes, thank you. I hope over the last three or more years that we’ve demonstrated a set of financial policies that are very heavily focused on shareholder return. Indeed, the share buyback program that we’ve adopted over that period has been very much with that in mind. I think it’s absolutely clear now that there is a new stakeholder on the horizon and the board is clear that until we reach the desired level of long-term debt, that stakeholder is going to stand pretty firmly amongst our priorities. Until we get to the core level of debt, I think the board is going to want to make the assessment of buybacks in any one year to be dependent upon that level as well as the business opportunities that the company sees. I think we haven’t given up the (inaudible) philosophy of shareholder return. I think if at that point we still see strong cash flows, then I think share buybacks will come back more firmly on the agenda. I think in terms of the benefits of the synergy program or the restructuring program, I think it’s a bit too early to say, Andrew. I think what firmly lies behind this program, as David has described, is a belief that the business has to be significantly more competitive, focused, and efficient, and we’re driving these out now. It is also very clear that success in this industry is highly dependant on product flow. We have prioritized R&D spending for the last year or two and no doubt will continue to do so. I think we really would want to see how the business shapes before deciding it’s all going to drop through or it’s all going to be reinvested or a mix in between. I think that there is certainly a bias towards investment in products in the future.

Good. Why don’t we go to the screen here, number one, Chris Schott from Bank of America.

Great. Just two quick questions for you. First of all, regarding your Medicare Part D, as we start looking out to 2008 and you’re having initial discussions with payers, is your impressions formularies, just broadly speaking, going to be as inclusive as we see currently or are we going to start seeing some of these plans start to be more selective with the products they cover at tier two? Secondly, just a quick question regarding the guidance for the rest of this year. That $0.30 dilution associated with MedImmune this year, then maybe taking away the one-time charges that made amortization. Thank you.

Okay, the Medicare Part D question is a good one. Tony Zook is here. Tony runs the North American business, including the U.S. The contracting process has been underway for a while. I think we’ve had in the U.S. a pretty good view of what the opportunities for 2008 will be. The first round of contracting two years ago, really two-year contracts and then we went back into negotiation. And, Tony, maybe you can comment on where you think it’s headed from a formulary perspective and a tier two perspective?

Sure, David. Chris, I think the short answer to your question is the great majority of 2008 contracts have already been established and the formularies are pretty much locked and loaded and we haven’t seen any real significant shift whatsoever in formularies restricting access in any way shape or form. Our tier two access is very much in line with where we were through 2007. There is, obviously, a strong push in tier one to go generic first, but the tier two access rates really have not changed, David.

Thanks, and Jon, on the guidance question, the $0.30?

Yes, there’s a little bit of unraveling that’s necessary. I think you can work out very clearly what we think the amortization is and the interest. That will yield a profit contribution from MedImmune in the seven months that we own it. One thing I would just point out that part of the acquisition accounting fully values the inventory that MedImmune has on hand so that when that gets unwound, you virtually make no profit on the unwinding of its existing inventory. So without that, you know, it does contribute to the bottom line. So that’s pre-amortization and, obviously, doesn’t fully overcome the interest charge at this stage.

Okay, good. Let’s go back to the floor here and then we’ll take an e-mail question that’s come in and I’ll give that one to John in a moment. Right here, Alex?

(Inaudible) from Bear Stearns. I’ve also got four questions. To Andrew’s last question about how much of those $900 million they’ll be able potentially to drop through, just trying it in a different way, about a year ago when you gave us your map for 2010 you roughly provided enough for the operating margin to stay in the lower 30s; then we had the first restructuring program announced in February, which cost $500 million and you gave an indication then that probably wouldn’t boost the margin, that’s just to safeguard and protect the gross margin. Now we have an additional $900 million and, obviously, I do realize that I haven’t included MedImmune in all of this, but if you keep MedImmune out of the picture what has changed compared to a year ago why you think it’s going to be more geared towards investments without actually the margin improvement? That’s question number one. And then just a clarification question on the MedImmune synergies, you speak to Biologic’s investment not required, that’s $205 million in savings. I’m a bit confused; what is investment and what is cost? Is that ongoing cost of an investment? Just if you give some clarification on that. Then, you mentioned that you’re going to play the press between volume and pricing for Nexium and, obviously, I think that means you’re going to make further concession in the price. Do you have something very concrete in the back of your mind as you watch the prescription going forward, should we assume they already come at lower prices? And the final question is an update or a bit more clarification on the update you gave on FluMist in the press release where you said you expect we still deliver the lower end of the MedImmune guidance as in delivering about 75% more than last year. Can you actually tell us what exactly constitutes the bottleneck to determine the 75% rather than 100%? Is it because you have to do lot by lot check because of the current quality control issues?

Okay, good, lots of questions. And we’ll come back to the FluMist in a minute and since David is here, he can handle that and also come back to the Nexium issue in a moment, Tony, on the volume and price equation and some of the mix. But maybe, Jon, maybe you can comment first on the re-investment and the margin issues.

I absolutely did not say that none of it would drop to the bottom line. What I didn’t say was it all would necessarily either. I think there clearly are some choices. I mean, we talked about R&D heading to the 17% or 18% mark by the end of the decade. I think it’s probably more likely to get to the higher end of that given the speed that John is moving at now. If you take out six months, nine months out of a development program you do get more projects running into the later phase so I think there is an additional bolus of cost there. Equally we haven’t changed today the template performance that we see. We still see the ability to generate strong margins. This may give us the opportunity to grow them in excess of what we set last summer. I just don’t think at this stage that we really want to call out exactly how this is going to get re-invested. But don’t take what I said to Andrew’s question that there is nothing going to drop through or you’re not going to see it visibly. This is an important program. I think on Biologic’s not required, I think the simplest way to answer this is to say that our view is that we would have had to respect or invested at least $200 million in enabling CAT to develop, manufacture and optimize the antibodies that are coming through their development programs that we now don’t need to spend because we’ve got the assets and the capabilities at MedImmune. So these would have been revenue costs. These were people, they were headcount, they were expenses, and they were development costs. These would have been in our R&D costs for the year. MedImmune brings all of that capability with it and therefore we don’t need to make it, though I know we’ve talked in the past about it is cost avoided. These were real sums of money that wouldn’t have had products in development if we hadn’t spent it.

All right, David, do you want to comment on FluMist and where we are?

Let me just add a comment to Jon’s about investment versus operating cost. He’s absolutely right. We expect to avoid about $205 million a year in incremental operating cost on the AZ Biologic side. In addition, as you’ll remember from his slides it was around $500 million in actual capital investment that can be avoided because of the significant capital already in place at MedImmune at our main manufacturing site in Frederick and Gaithersburg, Maryland where we have our pilot production facilities and capabilities there. With respect to your question on FluMist we’ve actually made tremendous progress with the FDA over the last several months with negotiating what we expect to be final labeling for the label expansion below five years of age for young kids in the U.S. and have that we think ready to go. We also have made progress with the FDA and finalized our post-marketing commitments. What we’re waiting on right now and will be the gating issue on where we end up versus prior guidance is getting complete with a warning letter on our manufacturing facility here in the U.K. It was received in late May. We are currently working with the agency on that. In fact, we had a conference call yesterday afternoon and our current expectation is that we’ll be out of that if all continues to progress in time for us to begin shipping in September the vaccine. Assuming that, shipping beginning around the beginning of September we should be toward the bottom end of that prior range or four to five million doses of flu vaccine for this season. If there were further delay, then, obviously, that would jeopardize that.

Oh, you want to give that to Tony; oh, you have one, all right. Go ahead on the Nexium and the volume and price trade off.

I think those are good questions. The challenge that we face I think David highlighted quite well, which is the generic omeprazole off about 50% in the quarter and for us to continue to grow we have to continue to leverage our platform of efficacy first and foremost. We believe we have a competitive advantage there and we’re going to continue to leverage that. But we also know that we’re going to have to continue to take share within the branded segment to an even greater degree than we have in the past. The first half of the year we’re up about .6 share points in the branding segment. We need that to accelerate. And that means we’re going to have to increase our access selectively; we’re not going to do this across the board, but where there is opportunity to grow volume and we think at a reasonable value equation, then we will do so and so I think what you will see is in the first half of the year our net price per capsule has been actually relatively stable in the marketplace, but I think you will see some widening of that in the second half. A good example of that would be the Defense DoD contract that we just secured. That goes in effect right now so you will see some widening as a natural cause of that.

Okay, John, do you want to handle this CORONA trial question and then we’ll go one more to the floor and then we’ll go to Sebastian on the stream here.

Okay, the question is when will we see the results of the CORONA trial. The simple answer is the CORONA study has now completed very recently and so we’re now collecting the information and we’ll be processing it and as soon as we have that data we’ll be in a position to talk about it. Just to remind you that’s a study in heart failure patients. It’s not a straight, vanilla LDL lowering study. It is in ischemia patients, but not patients who would have been candidates for a statin primarily based on their LDL. So it’s a broadening of the indications for statin type of study rather than trying to show that it’s a best in class.

All right. On the floor here.

Kevin Wilson from Citigroup with three questions. One for John or David, could you talk a bit more about the intellectual property buried inside MedImmune. You haven’t really expanded on that, are there technologies, processes, things that you may talk more about later in the year? Secondly, David could you talk about the political situation in the U.S. and how you see it panning out over the course of the next 12 months, 15 months. And finally, for David on the issue of staff morale, how is it being taken in the European organization with these large numbers of job losses?

Okay, I’ll start and then, David, I’ll come back to you at the end for the IP comments about MedImmune, maybe a comment about what’s there. I’ll start at the bottom of the list there, Kevin, with staff morale. I think the announcements we’ve had clearly do have an impact overall. What we have tried to do is move clearly and quickly within each of the organizations that are affected with a message to the people who will be affected that they are and to the ones who aren’t that we need to be able to get back to work. I think the management process that’s been put in place both around communication, around working with the unions to make sure people understand and then having kind of at the top of the list the importance of the effect on the employees and what we can do to make the transition as smooth as possible has been our highest priority because we’ve recognized it’s a significant event. So our Chairman was just in Germany and came back and said he felt like they had done a very good job in managing it and he felt what the issues were, met with some of the people that had been affected and at the same time with people who were staying and felt we were getting a pretty good balance and I think that is typical of what’s also happened in Italy and in the U.K. and Switzerland where we’ve made other decisions. So that’s a tough one. The political situation pre-election, you know a tough one to call. You know being on the Pharma Board I get a number of different insights into that. There will be attempts at a number of different types of legislation, but it’s difficult to see…

I’d be happy to comment on that. MedImmune has a very broad portfolio of intellectual property, both property protected by patents and property protected by know-how and trade secrets. We’ve been at this since 1988 when the Company was formed and have really been one of the early leaders in protein antibody engineering as well as vaccine development. I would characterize our proprietary position as falling into several main areas. First of all, if you think about antibody technologies, really all things related to antibodies, MedImmune has a very deep portfolio of existing patents, patent applications, trade secrets and know-how, (inaudible), antibody derivatives; all of those areas are areas where MedImmune has been doing very, very significant research and has existing patents and patent applications and trade secrets. On the vaccine side of the business we also have real core capabilities that are industry leading in the areas of live attenuated vaccines, also in the areas of vectored vaccines and subunit vaccines. Many of you may be familiar with the HPV vaccines currently being launched by both Merck and GSK around the world. Much of that early technology was really developed in our labs in Gaithersburg at MedImmune. The virus-like particle technology that lies beneath and enables both Merck and GSK’s vaccines was developed up through Phase II at MedImmune, and then licensed to GSK and subsequently Merck. So a lot of core expertise in the vaccine area, as well as in the antibody area. Another area that I would highlight where we have very strong capabilities and proprietary positions is in our process development and manufacturing of biologics. Clearly MedImmune has been a world leader, if not the world leader, in protein production. With Synagis now we have commercialized the manufacturing process where we see about 3 grams a…

Thank you, David. Let’s go to question number two on here, Sebastian Berthan from Exane Paribas. Sebastian. Sebastian Berthan – Exane Paribas: Hello. Two questions, please. One is to come back on the guidance you have put towards to within the last year on the sales side, it was just like it to be close to around the pharma market growth in 2010. Is it still something you believe is achievable given the slow down of some of the products and a number of pipeline disappointments? And secondly with regards to DAPA (inaudible) following the Phase II results, to what extent may urinary infections could be an issue for the profile of the drug?

I’ll take the first one. I think the pharma market growth issue is something that we will continue to target ourselves towards. I think there have been some of you that maybe the projections would go down a little bit, but I still don’t see with our portfolio any reason why we should not be growing in line with the market from a value perspective globally. I believe we can and should be able to do that, and so that will be our target. John, do you want to take the DAPA question?

Yes. I think it’s a good question. Diabetics do have an excess incidence of urinary tract infections and increasing the sugar in the urine is obviously a concern to some people. In the studies to date there have been a relatively low incidence of UTIs, and it’s been absolutely manageable and very few people have come off study as a result of it. Obviously it’s one of the key things we’ll continue to look at as we go through the program, but to date it has not been a big issue.

Okay. Let’s go back to the floor, then there’s a quick e-mail question, and then Steve Scala has a question online here. One the floor in the back, please. Marietta Minutes – Dresdner Kleinwort: Marietta Minutes from Dresdner Kleinwort. A few questions, please. The first one is on 4054. My understanding was that the oncology community overall was moving more from overall survival to progression free survival, specifically because overall survival tends to be more distorted by subsequent treatments. So I’m not sure how you expect to avoid some of the issues that people have just raised earlier in the meeting by focusing more on overall survival. My second question relates to the growth margin. I completely understand that given uncertainty around R&D you don’t want to commit to a certain operating margin development. But just to clarify, at the beginning of the year when you announced the supply chain rationalization program you said that the $500 million spend was needed to protect margins. I now understand from the press release that now that you’ve stepped that up you actually see potential to improve the underlying growth margins. Can you just confirm that that is the case? And my final question really relates to the SG&A restructuring. I’m just really having some trouble understanding that conceptually, because presumably a lot of that is not actually fat, and I don’t really see any of your competitors doing anything on a similar scale. So maybe you can just give us a little bit of flavor as to why you suddenly realized that you have so much cost you can take out, where sort of functionally speaking a lot of the savings are coming from, what products are really going to get reduced promotional support, and whether there actually is risk that you will ultimately have to reinvest in the business given that the benefits basically from this are going to be coming through just when the next generation of products are launching? I’m really just trying to better understand the whole concept of this SG&A restructuring. Thank you.

John, do you want to take the question on overall survival versus progression free and what some of the issues are?

Your premise is absolutely right taken across cancer as a whole, though there are some specific issues about prostate cancer that make a difference. These are patients who have bone-in metastases, usually multiple bone-in metastases, and of course they’re osteoblastic, not osteolytic. And as a result, the only thing you have to measure on PFS is the bone scan, and multiple hot spots don’t tell you whether there is healing on new lesions. And then the other thing is pain. So actually progression free survival is a hugely difficult to go with in homo resistant end stage prostate cancer, which is where we are. The second thing is usually in tumor studies there are multiple different therapies given post the therapy that you’re measuring, and therefore you get a confounding of your results by those subsequent therapies. Because these are people who have virtually reached the end of the line, there is virtually no other therapy, and what we’re doing is making sure that those that do get chemotherapy, and they’re going to be the minority, have it in balance between the two groups and they’re followed-up in the appropriate way. Hence the specific issue of PFS versus overall survival in prostate cancer.

Jon, do you want to talk a little bit about the margin issue and certainty versus uncertainty.

I think the logic is good. The first program was to protect gross margins around 80%. We’re now accelerating and expanding that project, so it either increases the confidence that we’ll keep it 80% or potentially do a little bit better than that. We have expanded the scope of the opportunity that we see around making our cost of sales more productive.

And I’ll take the SG&A. I’d like to separate the sales and marketing expense from the G&A expense, and start with G&A. G&A is, I think was said during one of our presentations, we’re really focused on trying to significantly reduce and operate more efficiently in a lot of the support areas. And you see that in the IBM contract, in reductions in support staff, and areas where we can either operate more efficiently or get it done by someone else better. I think in the sales and marketing side what you see us doing is sizing ourselves for the opportunities that exist in the market. So Germany is an example where last year their reimbursement for Nexium was reduced by 40%. We had sized our business there around Nexium, as well as around Crestor, which was not introduced there. We had waited for a while to see how we could work it up, but ultimately decided we needed to size our capacity to take advantage of the market opportunity. And we’ve done the same thing in some of the other markets where you’ve seen changes take place. The same situation with Nexium is happening in Italy, and we need to hold our leadership in those markets accountable for that. I don’t think of it as fat, I really think of it as where are the opportunities, where do we want to be investing, because they the same token we are increasing the numbers of people that we have in emerging markets like Asia-Pacific, we’ve added in China, we’ve added in Mexico and Russia in the last year where there are market opportunities that present themselves in a different way. And we will continue to do that. The same thing has been done in the U.S. where there is more reliance upon contract sales organizations, so it’s not as significant an AstraZeneca issue, but we do go up and go down the ladder a little bit. I think you should expect us to continue to do that. Our target is to improve our overall SG&A to sales to make it much more industry competitive. John, do you want to take the quick question on the e-mail and then we’ll go to Steve Scala at SG Cowen.

Yes. The question is, ‘Does guidance presume FluMist availability in the U.S.? And if we do not launch FluMist where does guidance shift to?” I think the simple answer, the $0.15 variation in our guidance, is about $350 million, $400 million, so I think we have that risk covered.

Good. Steve Scala at SG Cowen. Are you still there, Steve? You’ve been hanging for a while. Steve Scala – SG Cowen: Yes I am. Thank you. Two questions. What has Glaxo’s response been to your modest dip down on SYMBICORT in the U.S.? Have they met your discount or are they arguing some sort of superiority? And I’m curious as to why AstraZeneca is going to specialists first when the product doesn’t represent any sort of novel concept. Why not just flood the market with your message? And then secondly, with respect to your Nexium outlook, is there an embedded assumption on why its success in protecting Protonics from an at-risk generic launch next week? Or is something like that not considered?

The second one was about is the Nexium strategy contingent upon the potential for Protonics generic launch- is that considered or not. So do you want to take the first one, though, around the GSK response? And the specialist first versus primary care?

Let me deal with the second one first on specialists and primary care. Just to put it into context, it was literally just a gap of about two to three weeks. It was a matter of just us rolling out the training messages and etc. So our specialist launch started about three weeks ago and our primary care launch, in fact, starts this week. And so it’s not a significant gap, but we did want to get to the pulmonologists and allergists and make sure that they were well aware of our core messages as we then brought messages forward into primary care. So the launch effectively with primary care starts this week, and we’re very excited by that. Relative to our managed market access, you’ll have to be very specific with your question I guess to Glaxo, but I can tell you what’s happening in the U.S. market dynamic. Right now we have achieved access rates in excess of about 55% of the covered launch, so we believe that we are in very, very good position. In fact, it’s one of the strongest positions we have ever had going into the launch within the U.S. market. Payers seem to be very, very open to the idea of having alterative products available to them, and so that has been very well received, and it has not taken significant discounts to do that. I think the strong message around speed of onset of action has also played very, very well. So we’re well positioned in managed care, better than we’ve ever had at launch platform, and to this point we’ve not seen a significant pricing reaction anywhere in the marketplace.

And Nexium strategy as it relates to assumptions about other products.

No. It’s (inaudible).

You expect (inaudible) to stay the same.

Yes.

I’m going to ask everybody to limit to one or no more than two questions. If you have more than that we’ll back to the floor and then we will go to the screen real quick to Andy Cosen at Redburn Partners. But let’s go to the floor first. Next question. Michael Decort – ABN Amro: It’s Michael Decort from ABN Amro. Just one general question, really. I just caught a destabilization in market share though the generic erosion of the (inaudible) class really in the statin arena. A similar thing seems to be happening in the Nexium arena. What do you think your risks are for the rest of your portfolio? And then what’s the real implication for sort of the longer-term in the headline pricing of the products and price rises going forward?

I’ll take a shot at that. I think there are some similarities between the statin and PPI markets right now, and I think what we’re seeing emerge is that there is a market for the low price generics as a first line therapy for a lot of people and then there continues to be a market for a branded product that has a better profile. I think it’s very evident in the statin market and know in the PPI market we see people who definitely want to have Nexium, and we have managed care plans that want to have it on their formulary and push us to be more competitive with it. But the fact is I think we’re going to see, over time, two very significant segments emerge. And we recognize that Crestor is a product that’s better suited for patients that are at higher risk, not necessarily low risk people who just need a statin for starters. The same with the PPIs. To the rest of the portfolio, I think it’s probably less of an issue. I think with the a typical anti-psychotics, as John said in his talk, the one thing you can see in that chart he showed is that they are atypical in the way patients respond to them. That uniqueness, given the nature of the psychotic disease and the issues people are dealing with in that area, are significant enough to allow for differentiation. So I think we have a pretty clear— There will be some pressure; I don’t doubt that. But I don’t see it in any way equating to what’s going on with statins or PPIs. Do you want to add anything to that? Okay. Can we go to Andy at Redburn Partners. One or two questions, Andy. Andy Cosen – Redburn Partners: Just the one. Thank you for taking the question. It’s on the right sizing of your marketing and sales in Europe. You just said the changes you’re making they look to be related to factors that have happened already or come in the near term, say Germany and Italy. So does that imply when Nexium goes generic in Europe in 2010 that there will be scope for much further and deeper cuts or is this partly a reaction to that impending event?

It’s difficult to project out the situation in 2010 in Europe given what we see happening right now. The market has slowed in growth now down to overall value growth in Europe is 1% or 2%. So I think we will really look a year or two in advance and try to anticipate what those markets will look like and size ourselves accordingly. Hopefully by 2010 we will be having some product launches around some of the new products, in which case we expect to be using up a lot of our primary care capacity. That’s why we’re trying to maintain it and keep it in place, because we have out performed the market overall with our primary care products across those markets. So we want to keep the capacity in place and get it utilized. That’s why we’ve been so active in licensing and business development. We’ll go to Jill Walton on number two on the screen. Jill.

Thank you. Just two quick questions. Could you please tell us roughly what the R&D spend is that you’ve externalized in the first half of the year? I think we all still find it quite difficult to get to grips with the new capitalizations of the policy. But now that you have this relationship with Bristol, under the old way of looking at things, how much R&D spend are you putting in there that we’re not actually capturing through the R&D charge?

Jon, do you want to take a shot at that?

If you take Bristol Myers, I think the upfront payments were something of the order of $250 million in the balance sheet, and substantially more than that going through the cost lines. So I don’t believe that if you structure these deals properly, with up fronts and up fronts then following when you get risk milestones, the vast majority of the development spend comes through the P&L. So I don’t really believe that we’re distorting the R&D cost in the way that you think. But that could well be a subject for a private session.

But based on the marketing, and you’ve managed a two point improvement in your SG&A in the second quarter of this year (inaudible).

I’m going to then take Chairman’s prerogative. We’re almost out of time and I wanted to recognize John as this is, I’ve said before, his last session with us, and thank him for everything that he has done to contribute to the success of AstraZeneca, both the creation of AstraZeneca as well as the success of it. I’ve worked with John since the time of the merger, as I said to him before, we’ve been colleagues and then we became friends and we’ve worked well together. But more importantly, I’ve been able to see the contribution that he’s made, and I just would like to acknowledge to all of you who participate with us like this pretty regularly that John will be missed as a colleague and as a friend. We certainly wish him well in his new role, and we’ll look forward to catching up with you in your new role. I though maybe you had a few reflections that you might like to give us before you go.

Yes. Thank you. I think this is analyst conference at least 40; I haven’t quite added them all up. I know it’s 30 consecutive AstraZeneca results conferences, but I think it must be well over 40 with Zeneca. I think I’d really just like to leave you with a few of my thoughts. Number one, this is an outstanding organization. And it’s an outstanding organization that has been founded from having outstanding people in it. I think if you look over the seven years of its formation and the challenges that we faced at the time of the merger with why do you put two companies together that have 50% of its top line under threat, how do you deliver industry leading synergy levels at the time, how do you get over the disappointment of the pipeline three years ago. I think in each case this organization has delivered. And so when you think of the challenges that the company and the industry face as you look at it through a spreadsheet, don’t forget the people that lie behind it, because they can do extraordinary things. I think the second point I’d like to just make absolutely clear, in case there is any shred of doubt, I was involved in the identification, evaluation, the negotiation, the pricing, and the implementation of the MedImmune acquisition. And I think that you will see this to be an outstanding deal that gives AstraZeneca, and the outstanding people within MedImmune, a real competitive advantage by having capabilities that are simply not available anywhere in any form in the market today. And I think the third point is this is a management team that is tackling the industry in a way that I don’t believe anyone else is. Just add up the number of major initiatives that are going on here, and I think that this is a management team that is determined to succeed. The final point is a really big thank you for everybody here and everybody that I’ve been involved with through the market. It’s been challenging, but on every occasion it’s been constructive, it’s been fair, and you’ve taught me a lot. I thank you for that.

John, thank you. With that then let me thank everyone for your attention today, as well as for your questions and for your interest. We will be around for a few more minutes. Thank you to all of you on the line as well.