AstraZeneca PLC (AZN) Q2 2013 Earnings Report, Transcript and Summary

Hello everybody. It’s Pascal Soriot here from AstraZeneca. It’s really a pleasure to welcome you to Q2 and Half Year Conference. It is my pleasure to introduce some of our team members here. Simon Lowth, of course our CFO; but also Briggs Morrison, our EDP for Global Medical Development; and Marc Dunoyer, who is our EDP for Product Strategy, M&A and Business Development and we also here in the room together with some of our Finance and Investor Relations team members. So I’d like to start by first giving you a high-level summary of the highlights for the quarter as I see them. Second quarter revenue was down by 4% on a CER basis, $500 million decline coming from loss of exclusivity, which is very much inline with our expectations. Despite this we saw a good double-digit increase from our four key growth platforms – five growth platform, sorry, which provided in aggregate more than $400 million of incremental revenue in CER terms. I would also highlight our growing late-stage pipeline with two NDA submissions, 1 Phase III start and more to come later this year and importantly three late-stage projects that have been added to our pipeline via business development. The headline from a sales and profit view point, as you can see here our revenue was down for the quarter by 4% in constant currency terms of $6.2 billion. Our core operating profit was down 10% as we continue to invest behind our growth platforms in our pipeline. Our core EPS was down 21% at CER with the main driver beyond the operating profit line, a higher tax rate in the quarter compared to last year, where we had a $0.19 per share benefit from tax settlements. And after the usual core adjusting items, reported EPS was $0.66 per share. Importantly we see that if we look at the abolition of our revenue profile, we have a steady moderation in the rate of revenue lost from products recently experiencing loss of exclusivity from nearly $1.4 billion in the fourth quarter of 2012 to now just under $500 million this quarter. The rest of the portfolio is being showing some growth, but obviously it has been [swallowed up] by the generic erosion. Sale as a whole, we grew the rest of the portfolio by $232 million or around 4% and as I mentioned in my introduction this has been fueled by double-digit increase with five growth platforms, which combined for more than $400 million in incremental revenue in the quarter. Next slide if I look at the five growth platforms in turn, Brilinta, Diabetes, the Emerging Markets, Respiratory, and Japan. And if I start, first of all, with the revenue, the revenue performance by region, the U.S. was down 4%, essentially on Seroquel IR and for the erosion of our Toprol-XL franchise. If you exclude this, the rest of the portfolio was up 4%. Revenue in Europe was down 13% at the – as the exclusivity losses continue to take their tour. In the established Rest of the World, in particular Japan which is one of our five growth platforms, we had a revenue increase of 10%, so very nice result in Japan. Now of course some of this increase is the result of a very soft comparator for Nexium, we have the second quarter last year only had 1 million sales and we were still working our launch stock. Japan is a market where we’ve a number of partner products. So there is some revenue volatility based on ordering patterns by our partners, but we’re also seeing strong underlying in market demand for Nexium, for Crestor and for Symbicort. If we look at the emerging markets on this block, you see that they were a 12% in the quarter and very importantly we saw China grow by 21%, which is very nice to see because we’re now back in steady growth in China and actually going faster in the market. For the rest of the emerging markets, as you can see here we have a pretty healthy 9% growth rate. So, we’re suddenly on track with our expectation for the year, which is a high single-digit growth rate. If you look at this on the quarterly basis, you can see here that China again grew by 21% and represents almost half of the additional growth that was generated by the emerging markets. Of course we’re little bit advantage here by the comparison to Q2 2012 where we had some supply chain issue and that’s certainly has an impact on the quarter-to-quarter comparison in the second quarter. But as I said, we are overall on track with our goal to keep growing the emerging market by high single-digit growth rate. If I now turn to Brilinta the revenue in the quarter was $65 million, up from $18 million last year. We’re executing on all of the new programs and increased investments according to the plans we laid out in March, including the July start for the Transition of Care nurses. And its important to note because a number of the part of the plans, we outlined in March have been put in place over the rest few months and some of them earlier this year, some of them are recently and its only the combination of all the elements of this plan that will – we believe drive acceleration to what the end of this year as we communicate to the earlier. We’re seeing some nice progression in term of our access, as you can see on this chart, we gain nine points of preferred reimbursement. And good access in Medicare Part D, now we’re above 70%. The sales in the Rest of the World were $49 million for the quarter in Europe. We are now closing in on number two position in volume share of the total OAP market in Germany, and in the U.K., but also in Italy. And we continue to make steady progress in France. If we look at the U.S. more specifically, the chart here shows you the steady progress we’re making in going on New to Brand share in the U.S. market, which is closing in on 6%. That is of all OAP usage, not just the ACS indication. And this is accompanied with – by a steadily increasing total prescription plan which you see on the right hand side of this chart, where total prescriptions in the second quarter are up 33% versus the first quarter of this year. Now I think what is important to keep in mind as far as Brilinta is that, we grow this product through new prescriptions. And the number of opportunities for new prescriptions is of course limited in relation to the total pool of prescriptions and therefore the impact that we can make on the total pool of prescriptions is only progressing and it takes time. This is why once again we said it few terms that we need to be patient and wait until the second part of this year to see a fuller impact on our total sales. If I look at the Rest of the World, you can see here that we have good progress across a variety of markets in Europe. Steady increase in our market share across several markets in Europe. And more to come throughout the year as we implement our additional plans in those various countries. Coming to Diabetes, revenue from our share of the Diabetes alliance reached $200 million in the quarter. Of course the growth rate compared to last year is flatted by the absence of Byetta, Bydureon and Symlin revenues in the prior-year. Onglyza revenues were up 29% in the U.S. Although some of this was due to an adjustment related to return reserves. The market itself looks to settling into a high single-digit growth trend in prescription term as the [filler of] switches from TTD products that run into course. Onglyza franchise market share has stabilized following the formulary changes that affected our first quarter performance. Outside the U.S., Onglyza revenue increased by 23%. Of course the Onglyza news in the quarter was the announcement of the headline results for the Seroquel trial where we met the primary endpoint and satisfy the FDA requirement to show an alarm, but unfortunately we didn’t meet the secondary endpoint of showing superiority. For the GLP-1 franchise U.S. revenue for the both Byetta and Bydureon were $63 million in the quarter and we recorded $22 million in the Rest of the World, following the assumption of this products 1 million, April of 2013. So, the market share for Bydureon prescriptions in the U.S. market continues to grow, although we see declines in Byetta. Total market share for the franchise is actually down, as I will show you in a few minutes. And as far as Forxiga, we call it a good start in Europe, as I will show you in a few minutes, with revenue being 4 million for the first half. We are facing a challenging reimbursement environment. We refilled in the U.S. our NDA and the PDUFA date now is January 11, 2014 for this submission. So if I look at Onglyza, as I told you a minute ago, we have stabilized the market share. We're not satisfied with this market share and we want to see it grow, but suddenly it is reinsuring to see we've been able to stabilize it after the loss of the [Gamma] account, of course, earlier this year. If we look at Bydureon, as I told you a minute ago, the market share of Bydureon is still growing but it is not growing sufficiently to compensate for the decline in Byetta, the Byetta market share. So the total in exenatide market share, family share is actually declining and suddenly we are intending to address this and looking forward to the launch of the new device next year to reenergize this family. Finally looking at Forxiga, as you can see on this graph, very good launch in Germany and the UK, suddenly in Germany in particular very successful launch. Of course, we're now going to have to address the reimbursement challenges that we are facing in particular in Germany. If I move on to Symbicort, the critical products in our Respiratory franchise. Sales in the second quarter were up 8% to $842 million. This performance is actually fueled by the 16% revenue increase in the U.S. market where Symbicort prescriptions were also at 16% compared to just 2% for the fixed combination market, so really an outstanding result for Symbicort in the U.S. marketplace. In the rest of the world, our sales were up 4%. They were 2% in Europe. We continue to drive a good in-market performance in Japan on the back of the approvals for SMART in COPD, although this is not reflected in reported sales in the quarter due to partner ordering patterns. If we look at the U.S. market share trend, as I told you a few minutes ago, very nice progress and you can see here that our share of total prescriptions has grown to 24.1% and we have reached an all-time high of 30.7% [initial] patients new to combination therapy, so it's really an excellent performance. Now if I move to one of our – to our second critical priority which is to achieve scientific leadership, I'll spend the next few minutes outlining the progress we're making on this critical priority. And as a reminder to achieve this, we decided to focus on distinctive science in three core therapy areas; cardiovascular/metabolic disease, oncology and respiratory/autoimmune diseases. We are prioritizing and we are accelerating our pipeline both in our internally sourced projects but also with business development. And we are driving to transform our innovation culture and our model. And so we have accelerated the projects which translate into movements into Phase III, which we are announcing for the first half but there is more to come in the second half. So if I look at the recent pipeline news, first of all as I mentioned earlier, we've resubmitted the NDA for Forxiga in the U.S. Just before the ASCO, we announced that the first patient has been enrolled in a Phase III clinical trial for moxetumomab in the treatment of adult patients with hairy cell leukemia who have not responded to our relapsed after standard therapy. In June together with our alliance partner BMS, we announced the top line results for the SAVOR trial. As you know and as I just said a minute ago, we met the primary safety objective which is really critical because this was an FDA requirement and therefore we showed no harm. But we didn’t meet the objective of superiority which was a lower probability, we always mentioned that but of course it certainly was disappointing to not be able to show superiority in than instance and the results we presented at the ESC in September. The metreleptin NDA has been accepted in the U.S. This drug is a treatment for metabolic disorders associated with inherited or acquired lipodystrophy where this is estimated to affect a few thousand people around the world. The disappointment in the quarter was actually the completion of the fostamatinib and naloxegol program and at the end of the day based on the totality of the results we saw, we made the decision not to proceed with regulatory filings and we returned the asset to our partner, Rigel. Finally I'd like to make a note of our growing portfolio of late stage assets with the acquisitions of Omthera and Pearl but also the collaboration we just announced yesterday with FibroGen. If I look at our total pipeline, as I said we have a growing late stage pipeline. We have now 81 projects in clinical development. As you can see on the right-hand side of the chart, we now have eight new molecular entities in Phase III or in registration. This is the result of moxetumomab Phase III start combined with the additions of Epanova for high triglycerides and the Pearl LAMA/LABA combination for COPD. There are five others that still await regulatory approval in some other major markets and those are documented on the bottom right of this chart. During the period, there were five additions to the clinical development pipeline from discovery research, six projects successfully progressed to their next phase of development alongside the two external additions and 10 projects were discontinued. Let us now turn to business development and what I'd like to say here is that we made good progress on the busy front. These are some of the key transactions we've completed in the last few months mapped across all three core therapy areas and it's really – the key message is all these activities have been focused on the core [CRP] areas that we announced in March. The other message to you is that there's a good spread between investments and discovery research, just like Moderna or NGM and others but also investment in later stage or closer to market assays, which came by the way of the acquisition of Omthera and Pearl Therapeutics and again yesterday the announcement that we will collaborate with FibroGen for the development of FG-4592 for anemia associated with chronic kidney disease and end-stage renal disease. We made some progress with our Cambridge site. You know that the biggest piece of news in the quarter for us in term of long-term applications was transforming our innovation culture. It's our decision to locate a new UK-based global R&D headquarter center on the Cambridge Biomedical Campus. This is really a very exciting development for AstraZeneca. It's a very vibrant hub from the medical innovation. Its home to some of the leading institution, academic institution research units in the world, and you can see here on this map the University of Cambridge of course with the School of Clinical Medicine and also the Addenbrooke’s Hospital, the Future of Papworth Hospital that will be built just next door to where we will build a head office; the MRC Laboratory of Molecular Biology, the LMB; the IMS Institute of Metabolic Science and also the Cancer Research UK Cambridge Institute. So we're really very excited to be at the heart of science and be close to such a number of prestigious institutions. In July we announced a two-year collaboration on three preclinical and clinical oncology projects with the University of Cambridge and Cancer Research UK. This is the first of what we envision will be numerous opportunities for collaborations with all of this world-class centers that will be our new neighbors. So I am going to stop here, and I’m going to turn over to Simon who will take you through the second quarter financial performance, after which we will hold a Q&A session, and Simon, Briggs and Marc will join us to address your questions. Thank you.

Well thank you Pascal and good afternoon or good morning to everyone on the call. So I’m going to cover the second quarter P&L, I’ll briefly touch on our restructuring program. I’ll then cover the cash performance and the first interim dividend and then finally I’m going to close with our thoughts on guidance for the full-year. So let me now turn to the second quarter P&L. Am going to focus here on core margins and profit. The press release does of course contain all the strategy numbers and a detailed reconciliation to our core measures and then as with sales, when I refer to growth rates they will all be on a constant currency basis. Now Pascal has already covered the revenue performance which as you saw was down 4% to $6.2 billion. Core gross margin in the quarter was 82.3% of sales, now that’s up a 110 basis points compared to the second quarter last year. Core gross margin benefited from lower core Merck expense related to the second-option amendments that we implemented in the middle of last year, but the full-year results I mentioned that we would expect core gross margin this year to be below the level achieved in 2012, the math as you recall was 82.4% and that remains our view going forward. Core SG&A expense was up 6% in the quarter, it was down 2% in the first quarter which I flagged then was largely due to phasing. Core SG&A expense for the first half is up 2%.Now investments, in support of our growth platforms particularly in emerging markets, Brilinta and the diabetes franchise were only partially offset by benefits from restructuring and tight spending discipline in support of material brands and in developed markets. Core other income of $218 was 19% higher than last year and that included an increase in our Pulmicort Respules royalty income. So that leads to a core pre R&D operating margin of 49.7% of revenue, 160 basis points lower than last year was the benefit from the higher core gross margin and core other income was offset by the higher core SG&A expense as a percentage of revenue. Core R&D investment in the quarter was 1,040 million that’s 1% higher than last year, and also a step up from the first quarter 2013. Now the second quarter was impacted by incurring some close down costs related to the fostamatinib program. We continue to realize savings from our restructuring programs, but the step up in business development activity is starting to exert an upward tension on core R&D expenses as we look into the second half. You will recall that we previously guided to core operating costs that’s combined core SG&A and core R&D costs being held to a slight increase in 2013 in constant currency terms. With the investments that we’re making behind our growth platforms and the larger project volume that we now have in research and development we anticipate for the full-year a low to mid single-digit increase in core operating costs compared with 2012 on a constant currency basis. Core operating profit was just under $2.1 billion in the quarter, 10% lower than last year. Core operating margin was 33% of revenue, 2.3 percentage points lower than last year. Now just a brief word on restructuring; on this slide you can see the scope of what we’re now referring to as Phase IV of our restructuring program, and this combines the initiatives nearly announced in March of this year together with the actions that remains to be implemented from the Phase III program that we announced back in February of 2012. The total program costs are estimated to be $2.3 billion, and as you can see here we have charged $308 million to the P&L in the second quarter. Turning to cash, cash generated from operating activities was $3.8 billion for the first half compared with $2.8 billion last year. Lower tax and lower interest payments partially offset the lower operating profit in the first half of 2013 which included some higher non-cash costs whilst a lump sum pension contribution drove higher cash outflows in the prior-year. Cash outlay on acquisitions of business operations was $565 million without a net investment of $762 million, and that includes investments in our IT and in the Merck arrangements. Now the board has recommended a first interim dividend of $0.90. This amount is the reflection of the board’s aim of setting the first interim dividend at around one third of the prior-year full dividend which last year was $2.80. We remain committed to our progressive dividend policy by which we aim to maintain or grow the dividend each year. Our target for dividend cover is two times core earnings over the entirety of the investment cycle. Now when the board adopted the progressive dividend policy it recognized that some earnings fluctuations are to be expected as the Company transitions through this period of exclusivity losses and new product launches. Both view, it's that the annual dividend will not just reflect the financial performance of a single year taken in isolation, but reflectivity of the earnings prospects for the group over the entirety of the investment cycle and likewise it recognizes that dividend covering any year is likely to vary from the two times cover target. Moving to guidance; as we expected the impact from the loss of exclusivity for several brands affected performance in the first quarter. And while this impact will be felt throughout the year comparison with prior-year periods did moderate into the second quarter a reflection that the 12 month anniversaries for generic competition for Seroquel IR in many markets and for Crestor in Canada are being reached. While the revenue increase seen in Japan and in emerging markets in the quarter is a reflection of good growth in underlying demand, it is also somewhat flattered by soft comparisons with the second quarter last year in particular the de-stocking of Nexium in Japan, and the impact of supply chain constraints in emerging markets. So our revenue outlook for the full-year is unchanged. We continue to anticipate a mid to high single-digit decline in revenue on a constant currency basis. Productivity and efficiency programs will continue to deliver their target level of savings providing us with the headroom to invest behind our key growth platforms and progress the pipeline. Core operating costs combining core R&D and SG&A expense in the first quarter you’ll recall were 4% lower than last year, but as I said at the time this was largely a matter of phasing. Core operating costs were up 5% in the second quarter resulting in core operating costs broadly flat for the half year. As I mentioned earlier, we continue to drive investments behind our growth platforms, and the influx of projects acquired through business development is exerting an upward tension on core R&D expenses in the second half. So, for the full-year we now anticipate a low to mid single-digit increase in core operating costs compared with 2012 on a constant currency basis. And with a revenue and cost profile in mind with this guidance the Company continues to expect core EPS to decline as a rate that is significantly higher than the revenue decline in 2013. Now financial guidance for 2013 is being based on January 2013 average exchange rates for our principle currencies while our first quarter results were broadly in line with this currency assumption movements versus guidance rates lowered core earnings per share in the second quarter by around 2% and they continue to impact core EPS for the second half of the year if rates remain where they are. So with that, let me now hand back to Pascal who will chair the Q&A session.

Thank you very much, Simon. So now I'll invite you to ask your questions and maybe I could ask Tim Anderson from Sanford Bernstein to ask his question. Tim, over to you.

Thank you very much. I have a few questions, modeling questions to start with. In our forecast at least of, as your company moves into 2014, we have SG&A and R&D declining year-on-year but your new guidance for 2013 raises the possibility that operational spending could actually increase in 2014, and I know you probably won't want to comment on 2014, but directionally maybe you can say whether this line of thinking is correct? Second question was on M&A. I know you kind of talked about this subject back in March, but can you refresh us on the upper limit of deal sizes you're considering? I've been under the impression that they're mostly bolt-on types of arrangements, is that still the plan going forward? And then last question is I'm wondering if you would be willing to say what the trough year for earnings for AstraZeneca is likely to be? Some analysts models show it happening in 2017, show it happening in 2019. I'm wondering if it could really be that far away.

Okay, Tim, thank you for those three questions. I'd ask Simon to address the first one and maybe you could also address the trough year question, Simon, if you don't mind.

Certainly. Tim, thanks very much for the question. I mean I think certainly in terms of operating costs, as I mentioned, we have a significant restructuring program underway. I sort of mentioned that for you earlier. That program continues. It's very much on track and it's going to deliver reductions in our cost base and improvements in the flexibility of our cost base. In addition to that, we have a wide ranging series of productivity improvement programs underway across the business again, will improve our efficiency and give us the headroom to invest. We do see significant opportunities for continued growth behind our growth platforms and I indicated that we're going to sustain that investment where we can see that it drives long-term value and growth, so that's behind particularly sales and marketing costs but predominately, Tim, I mean there's some increase in sales and some selling resources, but there's also a significant investment in variable, promotional and (indiscernible) support, medical spend as well. So there's a high degree of flexibility behind that investment and we're putting in a targeted way during the course of this year. And then in addition to that, we've obviously brought in a number of late stage and later stage assets this year, which as I said, do bring some upward tension on our late stage development budget. And of course we've also, as Pascal described, had one or two progressions into late stage development and we hope to see that – some further late stage progressions during the course of this year. So we do see increased investment opportunity this year which is why we've moved our guidance in 2013. As we look into 2014, as you'd expect we'll update you with our full year results as we shaped up our plans for 2014. What I would say at least to reiterate the guidance we've provided back at our Investor Day which is we will continue to maintain our R&D margins in the 48 to 52 range and we very much see our R&D investment level as remaining broadly flat through this period and you'll recall Briggs sort of laid that out back at the Investor Day. So that's a view on costs for you, Tim. And moving to your second question which was on the – I think the year in which we expect sort of earnings to reach a trough. Tim, I'm sort of reiterate the sort of remarks I made again when we were altogether in New York which is we got a strong stable base of revenue from established products, from our respiratory franchise and some biologics products. We've got known uncertain expirations of products coming off patents of which Nexium in the U.S. in '14 and then Crestor in '16 and '17, clearly the most significant. So what happens on the top line is all about what we do in terms of driving the growth platforms and exactly where the earnings dropout is going to be a function of the success in driving those growth platforms and the market opportunity it presents with. Then I think you can see from our actions this half, we are intent on investing behind those opportunities where we see them exactly which 12-month window, that sort of (indiscernible). We're not going to specify, not really [capable] to specify and certainly that's not a key metric for management as we drive forward.

Thanks, Simon. That's very clear. And Tim just to repeat again what Simon said is that our guidance for 2014 we will precise it early next year, but what we said in March remains correct. We will keep targeting the pre R&D margin that Simon described for you and we will keep targeting a R&D budget that is moderately flat and so that's what we said in March and it remains valid. As far as M&A as we said before is also still valid and I think what we said was that we don't see the need for large acquisition for us to succeed. We believe we can actually succeed through acceleration of some of our pipelines, reshaping of our internal project of pipeline, accelerated business development which you called this bolt-on acquisitions or collaborations, some of those you've seen in the last few months and we keep doing this. So this is really our base plan is to get the best out of our own portfolio, complement this with business development activities and we believe we can actually succeed with that approach. Now that doesn't mean we'll not consider a larger acquisition if we – but we'll only consider this if we think we can add value. And if you look at all the business development initiatives we've launched in the last few months, those are projects where we think we can add value. We can add value because they are in our core therapy areas where we believe we know the market, we can add value in the way we develop those products, in the way we commercialize them and we will keep doing this. So if we find an acquisition of a larger size where we believe we can add value one way or another whether it's geographically driven or because of lack of abilities we'll do that. But it is not our best plan. The best plan is really our internal pipeline and business development activities.

Okay. So maybe I could ask (indiscernible) if you want to ask your question.

Good morning. A couple of questions. First, you typically got a very large 60,000 patient child population ongoing for Brilinta. Could you remind us how many years of patent term extension you think Brilinta's eligible for? I’m just thinking about the period of economic for that drug given the investments taking place? Second on SAVOR, are there any circumstances that you feel the disclosure from that trial could be used to actually constrain (indiscernible) and Onglyza growth given the pressure particularly in Europe compares? Finally on tralokinumab could you comment whether you would consider licensing the compounds with another PD-1 aside from your own? And then finally just on the outlook for Symbicort in the U.S. and in Europe given the impending launch (indiscernible), to what extent can you anticipate the impact on volumes and pricing as GSK increased their assets and there's a new differentiated compound, how will that impact Symbicort over the near term? Thank you.

Thanks, (indiscernible). So maybe what I could do is ask Briggs, do you want to comment on (indiscernible) I mean the one thing I could do is tell you that we're (indiscernible) two collaborations with all the companies in term of combinations. We believe that (indiscernible) has potential for combinations with a variety of products in particular for sure PD-L1 or PD, but we certainly would not license this product out with combined effort. So, if you want to say a few words on same, Briggs and (indiscernible) as well.

Yeah. So, Andrew let me just finish off with Pascal’s comments on Treme. We think Treme is a very important part of our portfolio and we were not interested in licensing it out. We were quite interested in licensing it in actually. And so in combination with other things in our portfolio we think it's quite important and as Pascal said we have entertained and we continue to entertain overtures from others who want to partner with us. In terms of SAVOR, as Pascal said the full results that we presented as ESC at the end of August beginning of September, you can imagine from a 16,000 patient trial we’ve generated, we think the largest data set now on foreign inhibitors and are able to answer many of the questions that have been raised around this class. So we think that the ESC presentation will provide quite a bit of information. I think that your question was do we believe there is anything in there that would in anyway dampen the enthusiasm for the class as a whole? Again until you see all of the data, I don’t know if it's fair to have that conversation. We can talk about that once we have all had a chance to review the totality of the information.

Thank you. Briggs, let me just cover up the other two questions, I think one was Brilinta, and the patents, the expiries they range from 2018 to 2019 in Europe and up to 2021 in the U.S. we have filed for extensions. We don’t have the time yet in terms of the (indiscernible) of those extensions, but the extensions would extend the patent protection to 2023 and beyond in the various geographies. So we still have quite a number of years in front of us for – to gain a return out of this product. As far as [Bydureon] we certainly expect some impact of this class on Symbicort, but we in the short-term we don’t expect that there would be a very substantial impact because Symbicort is used for different type of patients who have a more advanced say form of the disease. So our assumption at this point is that [Bydureon] and other similar products will – sorry actually, Andrew I thought you're talking about LABA/LAMA, you’re talking about [Bydureon] the newer combination products, and I’ve got to start again. And [Bydureon] and essentially the expectation is that we will have an impact there for that one. The pricing I would imagine will be in the same range as Brilinta would be – as Symbicort would be, but the – and it will be competing with Symbicort, but it will also be competing with (indiscernible) and we have to see what they actually, I were to do from (indiscernible) United States, the launch has been delayed as you know, and the excess we’ll have to see what kind of excess this product can achieve. There will be for pricing competition we don’t believe that it will impact Symbicort so much, but there will be of course war in competition there. As far as the LABA/LAMA competition that’s more distant and as we’ve talked about before we believe that the impact on Symbicort will be progressive, but over time it certainly will impact it which is why we decided to proceed with this broad acquisitions so that we could actually be present in this market. So I might actually ask Peter Verdult from Morgan Stanley to ask your question, Peter. Peter Verdult – Morgan Stanley: Yeah, thanks Pascal and good afternoon everyone. Just a few for you actually; two products, one strategic. It's been reported that you are considering exploring some sort of biosimilar strategy. So the simple question from me is; how did that jive with your views on biosimilars when you’re at rush and the overall commitment of Astra to be focused on innovation. And then the two product questions; if we take the Brilinta run rate now it's less than $300 million I’m assuming the investment you’re making behind the product is multiples above this. Are you willing to sustain this level of investment until we see the data from PEGASUS which is believe is end of ’14 or is there a plan B for Brilinta? And then on diabetes competitive landscape heating up, can you shed some light on what you’re doing and any incremental investment you’re having to make on the sales force to maintain your share of voice. Thanks.

Thanks Peter. As far as Brilinta, our investment isn’t that substantial, and we’ll basically repeat what we said earlier which is we are going to invest very substantially this year to drive the penetration of this product, and we will actually look at how we’re progressing early next year. So we always said we have to wait till the last quarter of this year and therefore we look at it at the end of the year early next year and we decide what we do. Now if we were not on track with our plan we certainly would revisit -- we’d have to revisit what we do. We can’t wait until 2015 to adjust our investment if sales don’t come through. But so far I have to say we are on a good track. I think the problem is that everybody has to realize that there’s a big pool of prescriptions of course for [IPs]. First of all the big pool covers variety of indications, we only have access to one indication to the ACS, that’s the first point. And the second point is that the big pool of total prescriptions is filled by new prescriptions, and the only access we have is to this new prescriptions, new patients. We gather those new patients and then of course there is -- we loose prescriptions when patients are discharged. So many of the things we do are targeted at of course increasing our share of new prescriptions more or so retaining patients when they leave the hospital which the last part of our plan as you know was to put in place 200 critical care nurses in the United States. But I think it's important to remember when you look at the progression of the product to remember that we only gained access to new prescriptions in one indication. But so far what we see is we're on track. Of course you always would want to progress faster, but personally I think we are track but we’ll look at it at the end of the year, and if we can’t justify the investment we will have to adjust it of course. As far as biosimilars I can only repeat also there what we have said before. What we said is our strategy is focused on innovation and I will not comment on the market rumors as you can imagine. We have also said in March that we would look at whether some of the capabilities we have in (indiscernible) could be leveraged in the biologic field. And that means biosimilar could also mean biosuperior products that are differentiated and that’s what we’re looking at and we haven't really concluded yet what we will do. But certainly our focus remains innovation. But you have various degrees of innovation. You have the breakthrough innovation of a new medical entity that really transform a disease treatment, and you have the innovation of an incremental benefit that you bring to an existing product. So that’s really what we’re looking at, but we remain true to our focus on innovation. And as far as biosimilars themselves they can only tell you what I’ve said in the past which would add as – actually come through really which was that the biosimilars will make it one day, but it is proving more challenging than many people felt three years ago. But it doesn’t mean the biosimilars will never make it to the market at some point they will. It's just taking more time than many people thought. Now the last question you asked Peter was about diabetes. I have to say suddenly our performance as far as diabetes is concerned is not what we would like to see so we have to address some of the challenges we are facing in the U.S. in particular, and we’re doing this. We are planning to increase our diabetes investment in the U.S. in fact we have already done that in discussion with our partner BMS. I think you heard there’s a message from Lamberto from BMS last week during their call. We are very committed, it is a very competitive market you know very well that we have -- we’re competing with big companies that have large resources, strong presence and they’re investing heavily. But we are finally committed to compete at the right level in the U.S. in particular and everywhere but very much in the U.S. and I just like to repeat that starting early July, we have the level of investment that is actually required to be competitive. We lost share for a period of time, that's for sure. And we've corrected this. And in the end you have to look at this as – from a long-term viewpoint, the basis remains a great long-term opportunity even though we have to accept it will be challenged there from a pricing viewpoint possibly in Europe, from a competitive viewpoint. There are lots of patients [who go in] market and we remain committed. Peter Verdult – Morgan Stanley: Thanks.

So let me now move to James (indiscernible) with JPMorgan.

Hello. Thanks for taking my questions. I just had a question on the pipeline on the FibroGen deal. I wanted the FG-4592, there's been a previous clinical hold to hepatitis and I know (indiscernible) withdrawn from the market and in that case, it was due to a worst (indiscernible). But in the two different indications you're going for, the pre-dialysis to post-dialysis. How competitive does this look in terms of the pre-dialysis? Could safety be an issue and for patients who are on dialysis, what sort of advantage having an oral product that patients are already getting dialysis?

Thanks, Jim, great question. Can I ask Briggs if you want to address this?

Yeah, let me talk specifically about the molecule that we're partnering with FibroGen on there. It was an earlier molecule they had that had an LFT issue but this molecule, in our review of the safety data and the trials they've done today, it actually looks quite clean to us so far. Just going into Phase III, some more data will come out. But from what we've seen so far, we think the molecule is clean. The question about the use in both dialysis and pre-dialysis clearly in the chronic kidney disease patients having something that's not parentally administered, we think provides an important advantage to physicians and the dialysis segment I think the safety questions around (indiscernible) opens up an issue for – an opportunity for new mechanisms. Again, this mechanism keeps your [EPO] levels almost at physiologic ranges which we think potentially could provide a safety advantage. So it is – all that tests was coming on the market. But from a medical and scientific point of view, I think there are theoretic advantages to this mechanism over parental administered uses.

Marc, do you want to add a few comments on this and the market (indiscernible) as well?

Yes. Basically the pre-dialysis market will – if we succeed in all development programs it'd be about two-thirds and the dialysis market will be about one-third. So this is basically a different territory from the [operating].

We have a large number of patients in pre-dialysis who have an (indiscernible) should be treated, there are not treated because EPO is not necessarily the best response for this, and has a substantial opportunity there. In dialysis, of course it'd be different and EPO will still play a big role in the future even though you could also make an argument that if the patient is started on an oral agent when they get to dialysis, they might stay on it. But really the core of this program will be pre-dialysis. Should I now move to (indiscernible) at Goldman Sachs, (indiscernible), do you want to ask your question.

I have three if I may. One, just a quick R&D question. I believe my understanding is when you bought (indiscernible) from Pfizer, they did retain the rights to combination therapies. I was just wondering if you would be able to confirm that. And if that is indeed the case, then did they retain rights to all combination therapies or only combination therapies that are included to other Pfizer compounds? Second, again on the immunotherapy side, recent updates on clinical trials seem to suggest that all of your trials for the (indiscernible) are either suspended or on hold. I was wondering if you might be able to confirm that and confirm that you haven't seen any new safety signals there. Third question on the SG&A level, I realized that you're guiding to a 48% to 52% pre-R&D margin for next year. But if you were to think about it in absolute dollar senses, can you help us think about costs that you are incurring this year that you may be able to roll off next year. But if I'm hearing you correctly, Pascal, you're kind of investing more behind Brilinta, you're investing more behind that but you said in July, should absolute levels of cost be same or higher than this year? Thank you.

Thank you. Can I start maybe with the general level questions, I mean do you want to address that one.

Yes, certainly. I mean (indiscernible) as I mentioned for a combination of restructuring productivity improvements, efficiently care we are continuing to reduce the fixed cost space, so growing numbers, physical infrastructure, the fixed cost base, across SG&A particularly in the established markets and also in R&D and that's a trend that will continue on beyond '13 and into '14 and '15 as our productivity and restructuring programs progress. And therefore an increasing proportion of our cost base is pretty variable. What do I mean by that? I mean promotional spend, I mean external clinical project spends and also in fact we can move up and down sales resource in a pretty flexible variable way. So the increase this year relative to our expectations at the beginning of the year is coming as I said – selling activity, promotional spend and external clinical project spend. As we roll into 2014 in the same way that we have the flexibility to lift up our investment where we see good opportunity in that same way, we've got the ability to dial it down where we see opportunity diminished or indeed in saying if we see the opportunity there. It's a very flexible cost space. I'm not going to on this call look into 2014 and tell you exactly what the run rates are going to be. We'll be doing that at the full year results in January. But I think what I can leave you with is that the cost base is flexible and variable and we can dial it down or dial it up depending upon the opportunity within that overall frame of goals for our pre R&D margin. Pascal, back to you.

Thanks, Simon. In terms of your other two questions of the combination CRP rights we have to our service basically. This was a full acquisition. Having said that, indeed if Pfizer or any other company had a good combination proposal for us to propose and we've been in discussion with other companies, we would certainly consider it but it's a full acquisition rights for (indiscernible). And the other one is I hope I understood your question but if I understood it correctly it relates to moxetumomab and it's actually not on hold, it's in Phase III unless your question was about the OX40…

It was about the OX40.

So essentially what we're doing here with OX40 is we're bringing a humanized version of OX40…

The current OX40 is not on clinical to my knowledge, (indiscernible). We have some drug supply issues that are delaying the progression of the program but not the safety hold.

And because we're developing this humanized product, we had delays in supply and therefore the (indiscernible) trials are not started yet. But there's no clinical hold. We'll double check this – maybe we could double check this and get back to you if what we tell you is not correct. But to my understanding there's no clinical hold.

Okay.

There is an email question from (indiscernible). The question is what is your target for Brilinta in the U.S. in terms of the total market share? I don't have to answer this one because as you know we don't give specific guidance. I can only tell you as high as possible, but I don't know that that would satisfy you. So we typically don't give targets. If we gave you a target for share and prescription, it would be giving you a target for Brilinta sales. So I'm really sorry, I can't really be specific for that one. The only thing I can remind you is that we only consider this part as you know in the ACS segment and the ACS segment represents 20% of the total volume. So we only have access to 20% of the total volume. But that's as much as I can tell you. Maybe I can move on to Kerry Holford at Credit Suisse. Kerry do you want to go ahead.

Thank you guys, three questions please. Firstly just quickly going back to operating costs, you talked a lot about SG&A and clearly it was higher than we’re anticipated in Q2 and you talked about that being part of the reason for higher cost guidance for the full-year. But I guess I’m interested to understand which of your franchises now require more promotional effort than you thought they would do, say three to six months ago. So you touch briefly on Diabetes, but I wonder where does the price has come to you? Secondly on Symbicort in the U.S., the sales were up inline with subscription growth suggesting they benefit from price and mix and I know you’ve got a (indiscernible) benefit from a list price expected year-on-year. Does that reflect increased rebate pressure or other stocking issues that we should be aware of them? And finally on the Pearl acquisition, just interested in hearing your thoughts on the competitive positioning of the lead product there, the twice daily LABA/LAMA which looks at least currently before the market. And also whether you can confirm whether the LABA compound have started Phase II, with you yet and when we might expect to see that later? Thank you.

So quite a number of questions, Kerry. So, let me maybe start with couple of comments on operating costs and Simon will also add few comments in a minute and then we talk a little on Pearl operating costs. I would say, the only place where we really can say surprise may not be the right word, but let’s say the landscape has changed compared to what we had in mind later last year when we designed our plans is really Diabetes, I mean, Brilinta is on track with what we had in mind. But diabetes suddenly the promotional pressure has increased and the market was, is a little bit slower than most people, I guess our peers and as we expected and the promotional spend has increased. : Now we also accept the fact that this is going to be very competitive. And the reason we went forward with this product is to maintain our presence in the field. Symbicort is a critical franchise for us. We believe we needed to be present in that LABA/LAMA market segment and that’s why we acquired Pearl. But as I said, we realize it’s going to be very competitive. Briggs do you want to add anything on LABA/LAMA, but first maybe Simon on the increased cost.

Yeah, no I think the Kerry that the question you raise on costs around where the difference is versus our expectations at the beginning of the year and it surprises. And I think Pascal mentioned probably the most individually significant, which is that we’ve seen increased promotional cost across that, it isn’t we’re intending to respond to that and match in order to realize the full potential of our brands. But I’d say that we have a continual process of looking at the momentum in our different markets, developments in the markets and making decisions about where we lift investments, where there is a good opportunity. So, we put more resources into some of our emerging markets. You saw China performing very strongly where – ensure that we adequately resource that market and one or two other emerging markets. We’re seeing some positive developments in Japan for example, strong price in Nexium, but also are the two primary care brands Symbicort and Crestor and at the same time an opportunity to launch Forxiga, if we are successful with our filing there, alongside the (indiscernible). So we’re wanting to put a bit more resource behind those opportunities in Japan. Symbicort is performing well and so we does up a bit of promotional effort in certain markets with Symbicort. So, I think those are all areas that we’ve shown – taken some increase. It’s fair to say, there are also – and there is where we’ve taken some cost away, because we’ve seen markets being less promotionally responsive. As I stress throughout these are investments we’re making that we will dial up or dial down as the opportunities move. The other area perhaps we’ve not focused on is not [SG&A], it’s R&D. We spend a bit of time (indiscernible) SG&A. Of course you’ve seen and this is another important factor behind me of use on cost we’ve taken on board the series of late-stage projects. Briggs is bringing those into his development programs in the team and we need to and as we look into ’14, we will see to really prioritize our portfolio and spend, but clearly in the six months timeframe, that’s going to give us some upward tension. Such on the costs, I’ll just – Pascal just do it very quickly there was a question on Symbicort, I think question around the underlying drivers of the Symbicort U.S. revenue, which was up 16% in the quarter, prescriptions overall were up 16%. There was a very small destocking effect that really not material for the quarter. In terms of pricing, we did have – it’s a benefit of some mix effect from some good volume growth in some non-retail channels, but essentially the story for Symbicort is strong underlying growth in market share in a market that continue to show little bit of growth as well.

Thanks, Simon. So again, we dial up and down the investment, we hand various products for the year, but China was a big one that – the biggest one really at the end of the day, nobody expected Brilique not to be approved and I’m sure Novo expected it to be approved and launch it and when it didn’t get approved and Victoza and that being promoted by the sales force that was already to launch (indiscernible), so substantial increase in promotion or its we ended up having too much and we’re now matching, but certainly that was not in the plan. Do you want to cover the LABA/LAMA question?

Yeah, LABA is in Phase II. You can take exactly when we will be presenting data at scientific meetings, I would anticipate it probably wouldn’t be – at least the beginning of next year.

Thank you. Got it. Okay.

Should I ask Jayesh that – Jayesh do you want to ask your question? Jayesh (indiscernible). He comes out of his question, so we may have addressed it. Sachin Jain with Bank of America. Sachin, do you want to go ahead?

Hi. Thanks very much. Three product questions if I could. Firstly on Brilinta, the New to Brand chart for the U.S. you have is now a shared chart, not absolute script. So, firstly could you comment on absolute trends recently, which I think had been flat? And then secondly with the New to Brand market in the U.S., I think the overall market has been declining, is there any particular reasons for that and would you expect that to continue? Secondly on Onglyza as you look to increase SG&A, (indiscernible) your focus is there and the reason to the question is I think Merck is flagging market growth and chasing (indiscernible). I think Lilly’s commentary was more focused on the share gains and that commercial access improves. So just where is your focus and then a final pipeline question, benralizumab, I think you had flagged (indiscernible) expedite potential for Phase IIb data in asthma in the first half just wondering whether that data was in-house and whether we could see that nearer? Thank you very much.

Thanks, Sachin. Briggs, do you want to take the – that question?

The Phase IIb there for benralizumab as I’m pretty sure that it will be presented that year, so I don’t know for certain, but I’m – I think no. But what I can say is I’ve seen it and we’re just as bullish on the molecule as we were talk to you guys in March.

We get back to you as to when it's going to be presented, if we – as soon as we know to be honest, but I cant remember. But we send the data and we as Brigg said, we’re very confident in the data we saw in asthma. Okay, so we have the answer. Next year, I think yes. The second question you ask essentially relates to Brilinta and the share is increasing. You're right to say that another few weeks, the volume has been flattish, the market is actually – impacted the market. The total market is down and of course the total market – I think you got to look at it on a long-term trend basis not week-to-week basis. We had a few weeks of flattish volume growth. I focus on the market share and influencing that because that's really where we have the biggest progression we can make. We have no – we have looked at it, we have no specific reason why the market would be flattish to down in the United States, but it is true that the total AP volume has been relatively flat but the market share again keeps – still is going up. As far as Onglyza, our focus is – the primary focus is really access, making sure that we restore good access for this product and we will regain some of the access that has been challenged. It has been difficult for us and of course growing our market share. Those are the two focus areas. And to grow our share, we have basically increased our (indiscernible) in particular our sales force deployment has gone to Onglyza on one hand and [Brilinta] on the other hand and we have new sales force deployment from late June, early July in place. We should see the impact of those changes in the next few months. In fact in July we already had a slight impact on the market share of Onglyza as we could see. It's not only stabilized but we saw a slight pickup and very early days to say but certainly sales force investment and (indiscernible) priorities.

To take a quick follow-on, sorry just on Brilinta when you say your focus is share and we think about your reflection comments and accessing (indiscernible) end of this year into next year, it's fair that you'd be looking for inflection of volume not just share related to whatever the market's doing.

Actually both. The thing is that the market – the total market is really not something we can influence and that first of all we – just to repeat, we only access 20% of the total volume so there's not much we can do to influence the entire class (indiscernible) market. There are so many other indications that we don't have yet but we cannot say where we're about. So we can't influence the overall market. So our real focus is growing our share in ACS and certainly growing that ACS segment from a volume viewpoint, but the priority is the market share. Of course if we had good share progression at the end of the year and the market was completely declining and our sales as a result were flattish or not growing, we would have to revisit the level of investment. But I would not try to conclude anything out of three weeks of flattish volume in the market. I've been around long enough and walking the U.S. long enough to learn to not overreact to three weeks of data points. So as long as you're market share goes in the right direction, I think for a new product like this one you stick to what you're doing. Now of course we'll have to monitor this over the next few months. That's the best I can tell you at this point.

Okay, thank you very much.

Let me just move on to Mattias Häggblom at Danske Bank. Mattias, do you want to ask a question? Mattias Häggblom - Danske Bank: Thanks so much. Given that there are a number of omega three assets out there in various stage of development, I'd be interested to hear why (indiscernible) some would argue that there are other competitions to this? And secondly, when could theoretically a once daily fixed dose combination of Crestor and Epanova be on this market? And lastly, you've done a number of deals in cardiovascular and respiratory but no late to mid stage for oncology, an area you've emphasized repeatedly that you want to rejuvenate. So is it fair to assume that upcoming business development deals should have a high proportion of oncology deals going forward or has something changed?

Thanks, Mattias. Your first question is sort of answered by your second question in fact is that the combination of Crestor with Epanova is a very attractive aspect of this acquisition and Epanova is a once daily omega three that is therefore easy to combine with a once daily Crestor. So clearly our focus is on developing a fixed combination of Epanova and Crestor. I don't think we have communicated a date or have we a date for fixed combination. I think at some point in time we'll communicate this, but I can tell you this was a critical part of this acquisition to have a fixed combo on the market as quick as possible. It's actually part of the deal construct and our goal as you can imagine is to get that fixed combo in the marketplace before the patent expiry of Crestor in the United States. So with that I guess you can get a sense for when we'd expect to introduce it. The second question as far as deal, I think just a couple of points here. One is we said we would focus on oncology, respiratory and cardiovascular/metabolism and that's what we're doing. Then having said that basically, you have to – we focus on acquisitions where we believe we can add value as I said before. So you have to find these opportunities and you have to convince yourself you can add value. So certainly we're looking at oncology but we only do acquisitions of business development if we can add value to those. The second comment I would like to make is that we don't – the way we would build our pipeline is not only through business development, it is also through our internal pipeline and we've moved or we are moving (indiscernible) Phase III, we have moved moxetumomab in Phase III and (indiscernible) smaller opportunity but (indiscernible) we believe is a large opportunity. We're moving selumetinib in Phase III. We have immunotherapies which we have presented to you in March which we believe have the potential to move into Phase III relatively, rapidly. So over the next, say, year or so you should see a very different late stage oncology pipeline on the (indiscernible) very much for the progression of our internal pipeline. But again we'll keep looking for acquisitions. We just have to find the acquisitions that make sense and we think we can add value. The internal pipeline is certainly in oncology stronger than it is in cardiovascular/metabolism and I think we will see a very strong pipeline just based on what we have in our hands. Mattias Häggblom - Danske Bank: Thanks so much.

Anything Briggs you would want to add…?

We did emphasize in March that when you looked at our pipeline what was missing was cardiovascular/metabolic and so we've put a lot of emphasis on trying to fill that hole. But the Phase I and Phase II with our own products and oncology is actually a much stronger part of our portfolio.

Okay. Let me move on to (indiscernible) you want to go ahead.

Thanks. Can you say anything about the size of the Phase III programs that you're now targeting both for the (indiscernible), but maybe will support the Pearl develops and I guess (indiscernible) double acting product but also the triple actually and if you could shed some light there or the magnitude of trials that you will now undertake?

Very good question and Briggs do you want to take that? So on the [12 for 1], really the focus would have to be on the LAMA/LABA because the triple combination is a little bit away. And before it impacts us on the (indiscernible) front, it will be a little bit of time. But finally in the short term, it's the dual combination and the omega three programs.

Yeah, so the dual combination LAMA/LABA I would say is sort of ballpark comparable to what a Phase III program would be on the order of 2,000 or 3,000 patients. The triple therapy is a little further behind, so we don't really have the sizing of that yet. Then as you know they've already – they've done a fabulous job and they've already filed for their high triglyceride indication in the U.S., the big next piece of investment there is both the Crestor combination and of course the outcomes trial. So the outcomes trial for – given what they've told us and (indiscernible) most likely that will get underway this year. So over the next period that's another cardiovascular outcomes trial type expense that is similar to what we've seen in many of the other cardiovascular outcomes trial as we've done over the past couple of years and we have ongoing.

Thanks, Briggs. We have an email question from Christopher (indiscernible) from Carnegie. And the question is given the objection of a higher operating costs for this year, how should we think about costs going forward? Can you compensate an underlying expansion by the savings from restructuring? In the past year from restructuring in the past year, sorry, are you entering a bit of forced increase operating costs? Simon do you want to take this?

Certainly. Christopher thanks for the question. It is we’ve responded to a number of questions along this theme on the call. But I think the – two, three points, I mean firstly we have a restructuring in productivity program underway and that will deliver significant benefits and we’re always looking to identify opportunities to find sort of underlying efficiencies in our business, that will continue and I think we drive that Christopher somewhat independent where we see short-term investment opportunities, that’s about creating a very efficient and flexible cost base to the long-term. Secondly, as we look at opportunities and imperatives to invest behind our growth platforms in late stage development, of course there is another side of that, which is we’re also looking at where can we deprioritize investment resource which is not delivered a sufficient return where – or where we can sustain the same level of sales activity with a low level of resource. And we will continue to seek out those opportunities and yes that provides an opportunity over a period to – if you like recycle over it reallocate resource from one area into another, we will actively – and always looking at those opportunities. And just the third thing as I’ve again stressed on the call, the investment we’re making step upping cost is predominantly of a variable nature. We will invest where we see the opportunity equally, we got the ability to dial it up or dial it down, I can say if that took a slight objection to toward a period of forced operating costs increase, these are investments in cost to drive future growth and value and what we’re absolutely doing is making that investment to drive long-term growth and value and in fact put some pressure on the operating costs base and margin in the short-term maritime window such as this year, that’s something we’re prepared to do because we believe its right for the long-term of the business. So Christopher hope that that helps you with your question. We got another question from Mark Clark from Deutsche Bank, on margins which I’m – we probably, I think Pascal need to make the last question. Should I do with this one and then…

Yes, (indiscernible) doing with this.

Okay. So Mark you’ve asked whether the core pre-R&D EBIT margin still be about 48% threshold, even with higher operating expense growth and as I’ve said, we provided that view back at our Investor Day between 48% and 52% and that remains our view as we look forward and so that is unchanged Mark and I think that probably brings up Q&A to a close. Pascal if you …?