AstraZeneca PLC (AZN) Q4 2017 Earnings Report, Transcript and Summary

All right, good afternoon, everybody. Good morning to those of you who are joining us by telephone. Welcome to our full year results presentation, our conference call and webcast to investor and analyst. We’re here in London and we've people with us here in the room, on the phone and on the webcast. As usual, the presentation is available for those of you want to access it online at astrazeneca.com for you to download it. Please turn to Slide 2. This is our usual Safe Harbor statement, if you want to move to Slide3. We plan to spend about 45 minutes on the presentation and keep the rest of the time the next 45 minutes for the Q&A. [Operator Instructions]. Thank you so much. So today, I’m joined by Marc Dunoyer, our CFO; Mark Mallon, EVP of Global Portfolio and Product Strategy, Global Medical Affairs and Corporate Affairs; Dave Fredrickson who is EVP and Head of Oncology; and Sean Bohen, our EVP of Global Development and Chief Medical Officer. Please turn to Slide 4. This is the agenda, very standard format and you've seen that many times before. If we turn to Slide 5, these are the highlights of the year. And I think we consider 2017 was indeed a turning point for us and we made encouraging progress across the entire company, certainly very much from a pipeline view point, but it's also starting to show as far our commercial delivery. We had accelerated goals in the last quarter and it bodes well for 2018. Oncology was particularly encouraging with a growth rate of about 19% across all our medicines and of course we had the impact of the new launches on in the last quarter and those are slowing ramping up in particular Imfinzi. But Tagrisso also is turning to accelerate on the back of first line data, which of course we don’t promote, but some physicians in the U.S. already starting to adopt in their daily practice. CVMD also progressed very nicely. We now have to two blockbusters in our cardiovascular diabetes portfolio. Brilinta which grew by 29% really pleased as me to see this product finally get to we always thought it should be and there is more to come. And Farxiga with a growth rate of 28% despite the very and competitive marketplace. In respiratory, we experience some quarterly Symbicort improvement starting to bottom out a little bit in some reason and certainly very much in China. And the first our launch is proceeding very well. Very early days of course, we launched in November and U.S. as you know, but so far so good we’re very satisfied with what we're saying for, for this launch in United States including into January. The emerging markets clearly a nice story in particular for China. We experienced a growth rate of 8%, acceleration in Q4, just like to remind you that for the year, we were impacted negatively by divestments and example is the anesthetic status. So the actual growth rate of those countries is higher than we reported, if you correct for this. China grew by 15% also impacted negatively for three quarters by those divestments. In Q4, we experienced a growth rate of 30%. Just as a reminder the market is growing by 7% to 8%, so the 30% growth rate is truly a very remarkable success and there's more to come in 2018 and I am not suggesting immediate that the growth rate would be higher in Q4, but certainly more to come in term of products. As you know, we got reimbursement on the national drug reimbursements list for five new products. So that's something we'll see [indiscernible]. Tagrisso is doing very well. We are actually even seeing something in Tagrisso in China that we would never have thought possible five years ago. We're seeing the product being around us by some regional formularies and we will not have seen that five years ago simply because the cost was [indiscernible] and things are changing. So really we believe it has a great potential there. Our core EPS is better than expected due essentially to product sales. There were some run-off sales to us and of course an improvement in our tax rate. For 2018, we guided to a single digit percentage increase in product sales, got to remember in 2008 we have the last portion of patent expiries hitting Japan and Europe. This often has been forgotten. The patent expired in Europe for Crestor later than the U.S. and therefore there's still an impact in that region as well as in Japan. So, just as a reminder make sure you consider this as you do your forecast for this year. By the end of this year, we will be done with patent expiries and we should really see the full swing, the full impact of those launches that will kick in 2019. In Europe, they've already started to kick in the U.S. in 2018. So by 2019 really we are out of the woods as it relates to patent expiries. We guided a core EPS of 3.30 to 3.50. This is to fully support the launch. Importantly, we actually achieved in 2017 really good success beyond our financial results income and the products of our pipeline. We are ranked 34 in the Corporate Knights' 14 such annual global 100 list of the most sustainable companies in the world and everybody at AZ is very proud of this achievement that was on the back of a lot of good work by many people across the Company. And we're identified as a biggest achiever for 300% increase in renewable electricity in a single year, so really very good results. If you turn to Slide 6, these are the highlights income of the news flow. We had very rich news flow in the last part of the year, as you can see here and particularly Lynparza received the U.S. approval in breast cancer, which is really a major milestone demonstrating the benefit of PARP inhibition outside of ovarian cancer. Within ovarian cancer, we received approval for Lynparza in Japan in the second line setting and this is a non-common approval. So, there is substantial opportunity for our Japanese organization and also very pleased to announce that we've received 5-tier review in China. That's another thing that you will not have thought possible in China five years ago. The typical process was you have to wait for approval in other geography and then you start developing in China and you basically launch several years after everybody else. This is changing, Tagrisso really led the way and we're trying to achieve now the same ways with Lynparza. We presented as you know Phase 3 data for FLAURA at the ESMO and as a result we received break-through therapy designation for first line use in the U.S. and this was followed by an acceptance of our submission in the U.S. with a priority review also a submission acceptance in both the EU and Japan and those are processed. In CVMD, we resist on really, really good news for ZS-9. The FDA accepted our regulatory resubmission and you probably seen that in U.S. the CHMP has now completed the inspection of the plant and to their satisfaction and then they've reinstated there positive opinion. So hopefully we get a poll for those medicines and not so distant future. For those medicines in those store regions I should say, and finally as I said a minute ago, we launched Fasenra, we've got approval launch for Fasenra U.S. for CV and uncontrolled asthma. We also announced the positive top line results for the phase KRONOS recently which looked at the triple combination of PT010 for patients with COPD. And of course as usual, Sean will cover the pipeline in more detail later. If you want to turn to Slide 7, I just want to highlight here the top prospects sheet of the graph, as you can see we’re in other way that shows you that we're kind of finished in term of patent expiries in United States. The top path of the graph shows the patent loss, the patent loss study from products that have lost their patients in the U.S. The second part is darker grey reflection of Japan essentially and you can see here there is -- we still have sales and not experience why in 2018, we will see a decline here. The rest of the portfolio is growing immensely. If you move to Slide 8, we said at the beginning of the year, 2017 was a defining year from a pipeline view point because the later time when we started moving from pipeline delivery into commercial delivery and in 2018, we’re in full swing of fast commercial delivery. We now have several products in announce mode and in essentially we really have commercial products, now we don’t ask story if you will is no longer purely a pipeline story, but it's a story of commercial delivery. On the right size you see that we achieved many positive results. ZS-9 was a temporary setback and hopefully we should get approval soon as I said. And there is of course the MYSTIC setback which did have to appear first [indiscernible] I should we're waiting for the overall survival results in the first half of this year and we let Dave and Sean cover the rest of the oncology news in more detail. Now on this chart, you see essentially the sort of most important events. But if you look at the totality of the events that we experienced in 2017, they were 43 events where they were clinical readout or regulatory approvals in those geographies. Out of 43, 40 were positive, we had three setbacks. Our [indiscernible] ZS-9 and MYSTIC. So it really gives you a sense of the sheer scale of the pipeline progression we experienced in 2017 and the great work of J&J organization in the Sean's leadership has been doing to deliver all of this and there is more to come in 2018, we expect more or less same volume of activity and in fact generate with itself a tremendous month of what you might call J&J productivity was several bright news there. So if we move to Slide 9, this shows you that we’re defiantly committed to return in the Company to grow. As a not so exciting reminder, we've had no goals since 2010 as we went for all those patient expiries. And I don't need to tell you this you know that it's certainly a reminder of the kind of transition we've gone through and the headwinds negative -- the headwinds we've been experiencing for this year. For the first time in Q4, we experienced growth, not a lot of growth but certainly growth, and it's clearly a turning point for us. As we look ahead, we have many positive opportunities that will drive our goals. Some of those are listed here as you can see Fasenra of course, Farxiga, Brilinta, the DECLARE trial for Farxiga will be a very substantial opportunity. There's more coming for Tagrisso first line as soon as we get approval, we can start promoting the indication. Lynparza, Imfinzi, so as you can see here quite a lot. Still as I said earlier a negative which is still a big negative for Crestor in Europe and Japan that is slowing us down, but overall the expectation -- our expectation for 2018 is that the positive should offset, more than offset the negative and we expect low single-digit growth rate in product sales. So, with this, I'll handover to Mark who is going to take you through our product sales and our growth platforms.

Thanks, Pascal, and welcome everybody, I am pleased to be here to again to give you an update on our performance our growth platforms. So, we'll start with our -- we'll go to Slide number 12 -- great, thank you. So there I'll cover the growth platforms except new oncology which will be covered by our Head of Oncology Business Unit, Dave Fredrickson. The growth platforms delivered overall growth in the year of 6%, with a strong acceleration during Q4, driven by continued volume growth and true ups -- favorable true ups for -- in the U.S. for respiratory. Combined revenue from our growth platforms represented over three quarters of our business, our product sales, and also we saw good a momentum as Pascal mentioned in emerging markets, but also in new CVMD and in new Oncology. Turn to Slide 12 please. Now as we're going forward this year and as we increase our focus on commercial execution, we're going to start to share growth from our main therapeutic areas in this new format. Basically, we'll look at the whole of oncology as a growth platform in itself along with new CVMD, respiratory, and emerging markets. Next Slide please. So, thinking of emerging markets. Emerging market growth continues to be in line with the long-term performance target of mid-to high single-digit growth in product sales with 8% sales growth for the year, and as Pascal highlighted, China had a particularly strong year with excellent results in the fourth quarter, 30% growth and that contributed to an overall growth in the year of 15%. And then also importantly emerging markets, the growth was driven by our core growth platforms, our core therapeutic areas, which all delivered double-digit growth across emerging markets. Please turn to Slide 14. In 2017 emerging markets performance was significantly impacted by divestments. So therefore, the underlying performance in China and emerging markets was actually even stronger than was reported. Excluding the effects of divestment, China demonstrated 18% and 22% growth in 2016 and 2017, and ex-China growth will 7% and 10%. It's also worth to note that the growth in China in the fourth quarter was absolutely driven by durable demand growth as sales were not impacted by inventory movements and you can see that clearly on the China inventory chart at the right hand side or the left hand side of the page. So turning to Slide 15 please, respiratory sales continue to see challenges in the year with an overall sales decline of 1%.Symbicort product sales were down by 6% in the year with a flat quarter partly driven by favorably sale true-up adjustments in U.S. as I mentioned, but also was certainly by overall continued increase in volume. In the U.S. and Europe, Symbicort sales decline by 12% and 10% respectively. Important in the U.S. and Europe, new brand prescription has been growing for Symbicort since September and this was driven by an increase in share voice by that expanded exacerbation label, COPD exacerbation and the launch of a new campaign, so very encouraged by Symbicort performance in the fourth quarter. Symbicort continued to grow in emerging markets and delivered 10% growth this year and Pulmicort also continued to demonstrate robust growth up 12% in the year driven by emerging markets with fourth quarter performance of 26%. This was driven by underlying growth and also some seasonality. Please turn to Slide 16. As Pascal mentioned, saying in Respiratory we're pleased to announce the approval on the Fasenra in the U.S. and the launch in the fourth quarter, and actually we now also announced approvals in Europe in Japan and January, and this is for patients with severe asthma as you know. We launched Fasenra at the end of last year and as Pascal also highlighted the feedback, initial feedback for the market from traditions, payers and patients, has all been positive and consistent with Fasenra's highly competitive clinical profile. Next slide please, moving to new CVMD. Sales were up 9% just like intense competition with fourth quarter growth up 21%, continued growth that was demonstrated across all regions which was very exciting to see and this is for Farxiga and Brilinta. And both that Pascal mentioned achieved blockbuster status with more than a $1 billion in sales. Brilinta delivered 29% growth which was particularly -- with particularly impress with performance in the U.S. of 46% growth in 2017 and Farxiga delivered 28% growth in the year and maintain a 41% market share globally, that maintain continued to remain leadership within the SGLT2 class. In the U.S., we're excited to have our innovative autoinjector by doing B size launch and again we're seeing encouraging really uptake with by B size. Next Slide please. In Japan, we continue to grow with products sales up 4% that’s despite a declining Japanese market. Growth was mainly driven by Fasenra, new indications for fast Faslodex products and Fasenra. We took Tagrisso a new indication for Fasenra and Farxiga. We look forward to launches of our recently approved products Lynparza and Fasenra in Japan, which will add to our opportunity there significantly. And actually, the performance of our team in Japan is really outstanding Symbicort, Nexium, Farxiga and Tagrisso are all number one in terms of volume market share in Japan. And so it’s a great work by our local team there. Crestor did see a first day first generic competition in Q3 with multiple generics launching in the fourth quarter. So we're now announcing rate comparable to other major products in Japan when they face generic competition and we do anticipate this effect to continue throughout 2018. We have had continued great success with Tagrisso where we fully saturated the addressable second line market with a 90% market share in the second line of -- really outstanding performance by team in Japan. And on that note, it's a great pleasure to hand over to Dave to take you through the oncology global platform. We can go ahead and move to Slide 19. Thanks everyone.

Thanks Mark. Good afternoon everyone. So as we turn to oncology, we are really pleased to announce 4 billion in total product sales in 2017. So this now represents 20% of total AstraZeneca product sales and that’s growth of 19% year-over-year 2017 versus 2016. I think really importantly within this we see now that four of the six new medicines that is part of our ambition to launch by 2020 and now been delivered. And we look across these and I'll talk about it in greater detail but we see truly global launches with both Lynparza and Tagrisso. With Lynparza, the growth is accelerating as we see success within ovarian cancer also combined with the new launch which will be a catalyst going forward within breast. In Tagrisso, we have seen success consistently across the second line as we prepared for the first line. And then within the U.S., the success of Imfinzi and Calquence we really look forward on building onto as we move into 2018 and those are catalysts for next year. New Oncology within the 4 billion delivered 1.3 billion as Mark had mentioned previously last year and we look forward to that continuing strong growth in the next year. And we get turn to the next slide please. So now focusing on Lynparza, I want to go through and talk about what has really been strong performance there as well. For the quarter globally, we saw 100 million in sales which was north than four year sales at 297 million, with a really very strong growth as you can see on the slide across all regions and it's underpinned by truly strong growth in the second half of the year within the U.S. What we saw from that is once the handicap the pill burden and also the narrower label were lifter with the SOLO-2 approval that we really began to increase our competitiveness within the ovarian cancer space and we see a 74% growth within the quarter within the U.S. and sales of 141 million. I think it is important to also note that the majority and in fact the significant majority of our sales in the fourth quarter in the U.S. were in ovarian cancer versus another tumor types. We saw a strong progress throughout the year within Europe with sales up 58% and the full year European sales of 130 million. Bracket testing rates have been moving nicely and it's boosted by additional launches that we have seen across several markets. Again, as we mentioned, before Japan was just in January approved for the all-comers label and platinum sensitive resistant. We are certainly very pleased with this progress we look forward to that being a catalyst going forward in 2018. And finally, I'm really pleased to say that our collaboration with Merck is going very well. We see good integration both on the development side but also on the commercial side, joint U.S. sealed forces are now in the field operating together partnering and collaborating together and that was in time for the breast cancer launch and that was on purpose we will continue to see the global Merck team come on board throughout 2018 across major regions. And we could turn to Slide 21 please. So moving onto lung cancer and specifically to take a look at Tagrisso and Imfinzi, first starting with Tagrisso, very pleased to see that Tagrisso demonstrated a continued growth quarter-on-quarter and now is at 955 million in sales for the year. This is predominantly driven by second line and higher testing rates that we have seen across all of the markets that we are in. We have seen in the U.S. 59% growth over the year. Testing rates now over 70% and we see continued growth as we prepare for first line. We also saw very strong growth in Europe, up 142% over the year. The testing rates in Europe are somewhat below what we've seen within the U.S., I think that that actually creates opportunity for a little bit of further growth within Europe and that's something that we're working on. The France testing rates are certainly on par with what we see within the United States. In Japan, as Mark mentioned, testing rates are over 90%, we see market share among those that areT790M positive, also above 90%. So, Japan has really probably had about its theoretical max in terms of the second line and we're getting ready for first line within Japan. And then lastly, Pascal spoke about China and what we have in terms of really an outstanding early penetration into that market. Turning quickly to Imfinzi, we look forward the regulatory decisions that are going to come on Pacific, in the meanwhile, we've been quite pleased to see that within bladder cancer or labeled indication, we are now third in the market in terms of market share with low double digit market share and I think that speaks to the competitiveness of our field force and we're in operations and getting ready for launch for the Stage III unresectable launch, that’s coming up shortly. If you turn to Slide 22, so in summary, if you put together what you've heard from both, Mark Mallon, Pascal, and myself, we have now a pipeline transformation that is continuing to deliver and we're now focused on commercial execution on a global scale. The extensive portfolio across our three main therapy areas has the potential to deliver several blockbuster medicines and you see that we've got several global launches underway across each of the therapeutic areas; oncology, CV metabolism, and respiratory. We remain committed to ensuring knowledge of patients, getaccess to our treatments as quickly as possible. And with this, it’s my pleasure turn over to Marc Dunoyer to go through some of our financials. Thank you.

Thank you, Dave, and hello everyone. I’m going to spend the next few minutes to review the financial performance for 2017 and then move on to the guidance we provided this morning for the year 2018. If you could, please turn to Slide 24. As usual, I'm going to start with the reported P&L before turning to the core numbers. As Pascal mentioned earlier, the total revenue declined by 2% in the year, with product sales impacted by Crestor and Seroquel XR losses of exclusivity in the United States. Product sales however, grew by 3% in the quarter, which included favorable to true-up adjustments related to the first nine months of 2017 across our therapy areas and envisions such as emerging markets. Externalization revenue grew by 38% in the year with income from the collaboration with Merck of 1.2billion/million making just of a half of the total. The reported tax rate of minus 29% in the year, reflected a favorable net adjustment of $617 million to deferred taxes, driven by the recently reduced U.S. federal income tax rate and non-taxable fair-value adjustment relating to contingent consideration on business combinations. Please turn to Slide 25. Turning now to the core P&L, our gross margin ratio for the year, fell by one percentage point to 81.2%, driven primarily by product mix effects including the decline of where we've seen medicine where we have lost exclusivity as well as including the decline of federal where you've seen PARP where we've lost this as well as a ramp-up of manufacturing capacity for new medicines. So core gross margin ratio is also increasingly impacted by agreements with both Merck and Circassia. To remind you, we book all Lynparza and Tudorza product sales and reflect the product share within cost of sales. It is useful to remember that when you're modeling your performance or performance and anticipate a further decline in our gross margin ratio versus 2017 for 2018. Core R&D and SG&A cost each reduced by 3% in the year, this reduction reflected our focus on core discipline, we did however see an uplift in core SG&A costs in the second half, driven by some specific factors which I'll talk about in a moment. Core operating, other operating income increased by 14% in a year as a result of the level of disposal activity, the core tax rate in the year to date was 14% slightly lower than the range I indicated previously. The rate was not impacted by tax reform, the adjustment of which we're reflected only in the reported tax rate. In the fourth quarter our core rate benefited from the impact of UK patent box profit to work on tax returns and positive developments in relation to a number of historic tax liabilities for which we had previously provided. These reflected the viability that can be expected now and again on tax matters. For 2018, I envisage a core tax rate of 16 to 20%. Please turn to Slide 26. Looking at external revenue in more detail, I want to turn to the contribution of ongoing exoneration revenue which includes royalties, option impairments, milestone payments and profit sharing. In 2017, this amounted to 821 million and was 35% of the total exonerate revenue; and 2016 the ratio was 21%., overtime we expect to see this ratio possibly rising further. The collaboration with Merck is expected to provide a significant amount of income in the years to come. We recognize about 1.2 billion in external revenue for Merck in the year and a further cash inflow of 600 million deferred against future R&D investment. As mentioned previously the agreement also included payment by Merck of 750 million of certain license option over 2017 to 2019 and up to 6.15 billion contingents upon successful achievement of approval and sales milestone for both monotherapy and combinations. We received the first option payment of 250 million. To conclude this slide I want to reiterate that we have been committed to focusing on appropriate cash generating value accretive deals given the productivity of our pipeline. We also committed to the country management of our portfolio disposal and to increasing the focus on our three main therapyies every year over time. Please turn to slide 27. It's important to illustrate the progress we have made last year in reducing our operating cost base in line with the commitments I gave 12 months ago. Core R&D cost declined by 3% with oncology continuing to occupy the largest part of investment at 44% of the total. CVMD and respiratory again enjoyed around quarter of the R&D budgets each, with only a nominal level of funding allocated outside of the main therapy areas. In 2018 core R&D costs, are anticipated to be in the range of the low single-digit percentage decline to stable, including the favorable impact on development costs from the collaboration with Merck. I did say back in July that you may see some rise in core SG&A costs that is exactly what you saw in the second half given investment in our launch program. We continue to make encouraging progress and reducing on the line SG&A cost base particularly within our infrastructure and admin functions. In 2018 core SG&A costs are expected to increase by low to mid single-digit percentage. Please turn to Slide 28, cash generation remains a focus for the entire management team as you can see on either side of the chart we improved our net cash inflows before financing activities by $1.1 billion in the year. The reduction in cash from operation reflected the impact on the movement in working capital that was driven by factoring levels in 2016. The lower level of purchase or intangible assets, however reflected the acquisition of Takeda's respiratory portfolio in 2016, while upfront payment on business combinations were 1.1 billion lower in '17 given the upfront Acerta investment in 2016. We know we've more work to do to drive our underlying cash flow. We do anticipate growth in product sales and expect the reduction in restructuring costs to our company and focus on cost discipline. Please turn to Slide 29, I'd like to conclude with our 2018 guidance, which is on product sales and core EPS. We anticipate low single-digit percentage growth in product sales in 2018 at constant exchange rate. This is weighted towards the second half reflecting the impact of generic competition to Crestor that Pascal mentioned earlier. In 2018, anticipated sum of external revenue and other income to be less than that of 2017, we also anticipate the core EPS of $3.30 to $3.50 at constant exchange rates. Within the financial performance, we are really starting to see well as success of our pipeline and commercial execution, I'm confident in our ability to deliver against what are unchanged and consistent capital allocation priorities, summarized on the right of this panel. With that, I will hand over to Sean. Thank you.

Thank you, Mark, and thank you everybody for taking time to join us today. I'd like to now run through the late stage pipeline events since the last results announcement and the highlights of recent data presentations. Then I will finish with a look at our upcoming news flow. Please turn to Slide 31. We delivered moderate progress in the quarter in each therapy area. In oncology, Faslodex received approval in the U.S. and EU for the combination with CDK4/6 inhibitors in breast cancer. Lynparza was approved in second line ovarian cancer in Japan, the first PARP inhibitor to be approved in Japan and as Pascal mentioned we were also granted parity review for Lynparza in China. In the U.S. we received Lynparza approval for the treatment of germline BRCA mutated metastatic breast cancer from the OlympiAD data, making Lynparza the first PARP inhibitor to be approved beyond of ovarian cancer. We see break through therapy designation in the United States after meeting PFS primary end point in the first line of Florida trial and we're waiting regulatory decisions for first line in the U.S. EU and Japan. In CBMD, we received EU approval for the combination of Bydureon an insulin and type diabetes based on the results of the duration seven trial. As Alex Pascal explained earlier, we have encouraging news for ZS-9 in both the U.S. and the EU. [Staff] our partner [Fibergen] we see priority review status in China for the treatment of anemia. In Respiratory, Symbicort received the U.S. approval for COPD exacerbation while Fasenra gained approval in the U.S., EU and Japan, the KRONOS trial meet eight or nine primary end points, lastly based on KRONOS phase 2 trial results which has a pace in that, we initiated a new phase 3 trial navigator and patients with savior uncontrolled asthma. Turning now to Slide 32, turning to lung cancer specifically we're rapidly moving forward with regulatory submissions around the world from strong FLAURA and PACIFIC data. Tagrisso what’s imbedded in the U.S. EU and Japan last year for first line EGF are mutated lung cancer, we anticipate a regulatory decision in the first half of this year in the U.S. where it's under priority review. We anticipate decisions in the EU and Japan in the second half of the year. Turning to Imfinzi, we saw eight regulatory submissions by the end of 2017 based on the PACIFIC data for the treatment of Stage III unreachable small-cell lung cancer. We anticipate very similar timelines to that of Tagrisso in the U.S. for EU and Japan. Next Slide please. Looking now at CVMD, we anticipate two key phase three readouts in 2018. Farxiga's DECLARE trial remains on track in the second half of the year. For Roxadustat, we continue to anticipate regulatory submission in the second half of the year, for this potentially first in class treatment for anemia. Now turn to Slide 34. Starting with PT010 our ICS LAMA combination therapy in a fixed dose in our aerosphere delivery technology in a pressurize meter dose inhaler. In the KRONOS Phase 3 trial, PT010 demonstrated significant improvement in six out of seven long function primary endpoints compared with dual combination therapies and patients with moderate to savior COPD. In total, eight of nine primary end points in KRONOS trial were meet including two non-inferiority endpoints that will require to qualify PT009, as a viable comparators. We look forward to the ETHOS exacerbation trial results in 2019, which will further characterize the roll of this potential new treatment with patients with COPD. We believe our biologic portfolio for severe asthma is emerging as one of the strongest in the industry. Turning to Tezepelumab, our first in class potential new medicine that blocks [slip] a recent safety B clinical trial called Pathway evaluated as a Tezepelumab in a broad population of severe asthma patients, the results were published in the internal medicine In the New England Journal of Medicine and presented as a late breaking abstract ERS. Finally, while Fasenra is already approved in severe uncontrolled asthma, our voyager program is evaluating the efficacy and safety in severe COPD and we anticipate data in the second half of 2018. We believe Fasenra has the potential to be the best-in-class medicine because it's an anti eosinophil monoclonal antibody targets the IO5 receptor. Thereby inducing direct and near complete depletion of eosinophil via FRP any antibody-dependent some idiots toxicity Please turn now to Slide 35. I want to conclude by highlighting some of the news flow that you can see on this slide and except for 2018 and 2019. For Lynparza we anticipate a regulatory decision for second line ovarian cancer in the EU in the first half of the year. In first-line, we expect a data read out for so low one in first half and the regulatory submission in the second half. Following the U.S. approval in breast cancer we expect regulatory submission in the EU for Lynparza in this half on a regulatory decision in Japan in the second half of 2018. For Tagrisso as I mentioned earlier we anticipate regulatory decision in the U.S. in the first half of the year and for the EU in Japan in the second half. Moving now to immunooncology, we anticipate a U.S. regulatory decision for specific and Stage III unresectable lung cancer in this half of the year and for the EU in Japan in the second half. Furthermore with regard the lung cancer we expect data read outs for MYSTIC and ARCTIC first half of the year with not to following in the second half. For head and neck cancer we expect data for Castro and ego. In the first and the first line balder cancer trial DANUBE in the first half and the first line DANUBE will have data readout 2019. In CDMD, declared data will be available later this year we anticipate a regulatory decision for our Bydureon and autoinjector in the EU in the second half of the year. As I mentioned earlier, we anticipate a regulatory submission for roxadustat in the second half of 2018. In respiratory, we have had a data readout for PT010 and COPD and at the same time we expect regulatory submissions of the best fee in Japan and do clear in the United States. Finally, we expect data from anifrolumab, our lupus program to readout in the second half of the year.. And with that, I'll hand back to Pascal.

Thank you, Sean. So I'll try to conclude quickly so we can actually dedicate the full 45 minutes to your questions. So if we move to next slide, Slide 37, essentially the message I would like to leave you with it this has been hard -- long and hard year over the last four to five years dealing with this patient expiry. I think what we can say is that development team has done a fantastic job. They were up in this pipeline and bringing this product to approval, and we have shown that we can execute on our pipeline and develop great products and implement really good clinical plant. And now we are actually showing that our commercial team can do a great job and are doing a great job. Farxiga and Brilinta are both blockbuster products. Tagrisso, we launched Tagrisso at the end of 2015 within two years, we made this product and we turner this product into a blockbuster and is growing extremely, rapidly and there's a lot more to come. We’re in the process of launching Fasenra and as we actually progress for our 2018, you will be able to see, how good job our in the U.S. to start with and around the world is doing and the same will happen with Imfinzi. So I think we're really in a good place and getting to the end of this, very difficult period, we're experiencing, there’s another year, 2018 to go where we’re still dealing with headwinds, the final patent expires in Europe and Japan, and after this, 2019 and beyond, we really should experience a period of fast growth. And with that, I will conclude and then we'll now move to the Q&A.

[Operation Instructions] Can I please remind everybody to limit questions to one to be fair to all of our callers? Thanks in advance, and then I need to speak another second seconds. So we just finished 45 minutes and we have 45 minutes for questions. Where do we start, Sachin?

Sachin Jain from Bank of America and I’ll start off with a financial question from me for Marc. On the one-off guidance it was less than and, what was achieved in 2017. It’s fairly broad where I can get directional commentary on where you think versus combined externalization underlying consensus of $2.4 billion and related, the guidance range obviously is $0.20. Is that predominantly relates to uncertainty on one-off income, or are there operational uncertainties in that? Thank you.

Marc, do you want to color this question?

So, the first question on the. Sum of external revenue plus other income, as we said earlier and we repeated today, this -- the sum is going be lower than that of 2017. It’s very difficult to tell you exactly what it’s going to be, but some reduction. What I can say is that we’re going to continue with external revenues and we’re going to continue also with other disposals. So, this is part of our business model and it will continue. I can’t be more précised than that as of today. On your second question, the range of the guidance $3.30 to $3.50, there’s obviously some uncertainty on the deals we will be able to conclude, but more importantly, we need to see the success behind the launch of our many new products or new formulation and line extensions. So these are the two bigger factors behind the range of our guidance in terms of EPS.

Vincent Meunier from Morgan Stanley. I had a question on China and this strong uptake. Two questions in one, I mean, can you talk about the penetration of Tagrisso? You said that it’s already fairly high, but what should we expect going forward? And also, what's the profitability in China? And do you think that, I mean, is it in line with the rest of the group and do you think you can increase profitability in China or do you think that that’s growing there, implies investing also there?

So, I’ll ask Mark Mallon to maybe color this one, but, let me just, correct me, if there is a misunderstanding. I didn't say that the Tagrisso penetration in Japan is very high. I mean, it was very high, we would have already, I mean $3 billion products, because as you know, almost 50% of patients with lung cancer in China have EGFR mutation. What I said is that the launch is going very well, and the sales are growing rapidly, and we're getting even reimbursement in some regions or cities in some regions or cities already. So with that Marc you want to cover the more general question.

Yes, our business in China is growing but it is also profitable. Basically not very different I would say than the rest of our business overall market, maybe we want to add a comment on that. In terms of additional investments I would say that China is a place where we have a very strong platform already. We will continue to invest primarily focus in expanding our geographic reach in China because even as big as our organization is there's still many more hospitals, community health centers that we want to get to get our medicine, so it's a fast growing profitable business. We've got a great base. We'll invest to continue to expand our reach.

That should give you a little example to highlight what Marc is saying about the potential for expansion, I was on this trip this week with the PM and a few other people. The first stop was in a city called Wuhan and I'm sure nobody has heard about Wuhan, so we added a city of 10 million, I asked our PM is it an important city. I am not so much, it's medium priority and it's growing it will be a priority in the near future but it's still it’s you get there and Citi is Booming. It's completely booming and it's you know not in the dark ages it's actually rapidly catching up and we are only starting to penetrate that place, so there's enormous potential in China and I really think we are in a place we have an organization a fantastic team and an organization that is really equipped to labor is the full potential of China as it unfolds over the next few years. There's anything you want to add on Tagrisso and maybe IRESSA in China because those are so -- I mean it's an important market for EGFR inhibitors, of course.

I mean that the direct piece to offer on the question that you asked about the penetration rates is that maybe to put a fine point on Pascal's is that they're relatively low for Tagrisso. So the sales and the speed with which we've been able to get sales and to get reimbursement from some regional players has been certainly faster than we've seen with other new products. But in terms of the opportunity that still exists in China, there's considerable. Then I think that that's probably not really going to unlock until you start seeing reimbursement happening more broadly. And I think that there are other analogs and examples of that that you can see how that affects the penetration. In terms of IRESSA, our more mature established brands continue to grow in China, so whereas IRESSA Faslodex, Zoladex are not part of our growth drivers outside of China, within China, those are all growing in the double digits.

David, take maybe one question online and then we come back to the room, Richard and Andrew. Tim Anderson, do you want to go ahead?

Question on MYSTIC, investors often tend to lose sight of the fact that you have a durva mono arm, if positive that would give you a first line monotherapy indication alongside Keytruda, possible even in the current year that would seem quite relevant especially specific to its improvement in Stage III. So I'm wondering if I could just picture latest thinking on least this are with MYSTIC positive given how the trials powered, given where you'd said you'd cut points and that sort of thing. Is it safe to assumed, you'd say that positive results are highly likely and then can I just slip in one question on tax rate guidance the bracket is to big 16% to 20% I'm wondering what explains that.

Thanks, Tim Steven. So I guess those questions for your Sean and next is for Marc?

Okay, I'll start Tim with your MYSTIC question. Yes, what you've described in the design of MYSTIC is exactly right, it's got three arms, it's Imfinzi monotherapy, Imfinzi plus tremelimumab combination IO and then obviously the double chemotherapy control arm. There's also -- enrolls all comers, but the data is analyzed by PD-L1 expression level so that you can look at higher expressing patients. With regard to probability of success for the trial what we know is from KEYTRUDA and very high expressers PD-L1 that that is a validated therapeutic hypothesis with a PD-1 in that select patient group versus chemotherapy. I was a little confusing a about interpreting the data out in the world was that, if you look at the DMS data, it didn't seem to show that same patterns, and it's not 100% clear why that difference between the two. We do consider monotherapy in high expressers a validated therapeutic hypothesis, we also as we said many times, consider overall survival not only a more meaningful endpoint for patients but actually the endpoint that better captures the benefit of IO treatments and so that's the final readout in primary endpoint that we'll read out in the first half of this year. So, with that we're cautiously optimistic about the MYSTIC trial, for monotherapy in high expressers and then also the hypothesis we make out with the combination.

Regarding to the [indiscernible] 16% to 20%, this year is a usual range we provide, we did the same in 2017. When we advance in the year, we now are down that range from 17% to 19%, but as you saw due to variability on various movements and so on, we finished at 14%. So I tend to be relatively cautious and this is why we prefer to keep a range of 16% to 20% because this is a very valuable -- the tax rate is a very variable matter depending on various negotiations with various geographies.

Thanks, Marc. So, Richard and then Andrew.

Richard Parkes from Deutsche Bank. We've got financial one for Marc, I think your guidance on -- for the state you've given on SG&A costs suggests the base cost to be about $500 million higher than consensus with the same and before the results. And obviously your investing behind the launches, but that figure just came a bit higher than I would have thought given that you're leveraging some of the -- your existing sales force or those launches need relatively modest investments, so I just wondered if you could walk through that -- I'm just wondering whether consensus was overestimating the impact from the cost savings programs or you've actually decided to reinvest back elsewhere in the business as well as those new launches?

So, you're asking me to define whether it's above or under 500 million, I think 500 million would probably be the higher range of it, I mean we are investing selectively behind our products, being launched, or launch preparation, we've several of them -- we've seven of them, so some of them are in existing fields, where we're already operating, so the cost increase is minimal and some others we have some more. Pascal was mentioning China every year we do invest further in China and of course this is also costing us, but the payback is extremely rapid so we continue doing it but they are mostly on the specialized sales forces that need to launch all our new products, our new formulation all an expansion and some additional expenditures in China I would say, this is probably the list of the SG&A in 2018.

Marc, your colleagues in oncology normally takes that this propionate amounts of the Know you calculated 500 million or each other that was double type of checking again, so make sure I have the right number in mind. Could we talk about Farxiga, which obviously is a $1 billion, which obviously a 1 billion product now, we happened to have taken few given we think given the certain members of the class and pending data and translate. This could be a 100 million undervalue assets. Could you humor us if DECLARE hits for both primary and secondary prevention and Mark and further validate his y health failure trials and the ADA guidance and cardiovascular outcome? How large a product can this actually be part of the patent expiry? And then just quick add-on, the interim analysis for Dapa-HF, we're expecting this year. Would I be write and thinking that's the reason assumptions?

Should we maybe start with the heart failure with that question and then look back into the commercial question from you.

I think that was cute for me.

So you can tell other commercial questions and Mark development one, if you won, but…

I will be very happy to forecast what I say foresee would be, but the hard question is we do incorporate an interim analysis into these trials. I think maybe Andrew I am going to expand a little bit for everyone says. So the Dapa-HF trial Andrew is referring to is a trial of procedure for the treatment of heart failure. In both diabetics and non-diabetics, so what it would do is would enable these Farxiga, if positive outside of diabetes as well. Our interim analysis, we don’t get into the details of how they are powered or when they are done. So we have done and they are positive we announced them other way. Our assumption is that we go ahead into the final analysis, so I can provide more detail upon that.

So in terms of the potential, I know Mark would caution with, everybody don't provide guidance. But what I can say is we see substantial further opportunity for Farxiga in the class. So of course it's a $1 billion dollar plus brand we're growing in mid 20. We just launched the product in Farxiga that’s further upsize. We’re expanded access in the U.S. There is still a tremendous room in terms of the change practice. There is only a couple of countries in the world where SGLT2 are in guidelines ahead of before even though we have now outstanding evidence showing that this really has class a great cardiovascular benefit. So, we still have a lot of work to do on the education. DECLARE we will have a very big impact on that if it is positive because of the breath of the patient risk profile, so the patient in the study. And then of course that’s it and in a diabetes area for successful in the cardiovascular that’s all for their upside, so this could be a very substantial product. We are absolutely committed to it across the globe. And I haven’t mentioned it both sides, but we actually now have the first major country in the world where Farxiga is the number one innovative oral anti-diabetes product and that’s in Brazil, which is a very major market bigger than GALVUS, bigger than Januvia. That’s we are aiming to take this medicine.

Unfortunately the countries where SGLT2 ZAR recommended as first after metformin instead of DPP4 are small countries rather than your Singapore. But hopefully with a lot of good work, we will be able to modify the guidelines, and if that class becomes first line after metformin potential as Mark said, it's enormous. You could also have had added CKD, kidney disease, because we also have a program for kidney disease. And that's really where I actually our strategy it, it's full potential because we're going to be in kidney disease, we're going to be in heart failure with righter products. Farxiga of course roxadustat and kidney disease, LOKELMA in cardiology we have Brilinta we'll have hopefully Farxiga, we'll have LOKELMA and so really we'll have a strong portfolio initial of those.

Simon Baker from Exane. If I can just go back to one Richards question on SG&A. Mark you talked about essentially move positive SG&A and continued efficiencies in the underlying SG&A versus investments in new projects and new launches. Give us a little bit more color on the trend that particularly in 2018 what that underlying SG&A could go? And then if I can our chance moving onto 2019 that I wonder if you could give us a fair fall I have asked this question many times before on the trajectory of SG&A beyond 2018, those are general feeling within the market at some point in the future the SG&A burden of AstraZeneca will be somewhat low than it is now. There is a lot of debate as to how low and when. So one day if you could sort of flesh out as much as you are prepared to do what we should think hoping 2019 how much if the SG&A increase this year transient versus permanent to give us an idea for the long run SG&A requirements for the Company?

The SG&A basically you have two different phenomenon. You have the continued discipline of the Company which is obviously impacting SG&A but also its done all across the Company good to the same on the lets say development division they are also doing great effort on cost discipline and productivity increases. So this goes all across the Company and obviously this reduces the cost. I have also talked about the launches and that would say the accumulation of launches that we are confronted to now we have seven products in launch for preparation. So obviously this impacts negatively the SG&A. to your question on the longer term as we are moving progressively towards the more balanced company between primary care and specialty care including oncology, the cost of doing business is going to over the medium and long term reduce proportionally. So there is just three factors we have greater efficiencies on the overall company. We have the nature of the number of the launches where do we launch how many product we will launch in the given year and then you have the long term trend where we are moving from primary care predominantly to a mix of primary care and specialty care. So, all the time one can expect that the SG&A ratio would diminish to some extent.

I think it’s important to keep in mind, remember that at the end of the day we have a pipeline that is oversized relative to the total size of the company. I mean, we have all these launches Marc is talking about, and it was a base business that is small in relation to the pipeline. So the good news is, we'll be able to experience a fast growth, right, as soon as we get out of this patent expires. But then, the issue of cost in the near-term is we have to fund those launches, some are more expensive than others, of course, oncology suddenly -- Tagrisso is less expensive, but products like Fasenra require a lot of investment to shake the market and get the full potential of its product. But, by 2019, 2020, there’s no doubt, our ratio will drop and we want to get to operating margins that our industry -- that are in line with the industry. So, we definitely need to increase our operating margin. There’s no question. But to minimize the investment at this point in time would actually not maximize the potential of our products. If you think about it -- we are really not wasting money. In the U.S., I give an example, in the U.S., I think our Symbicort's share of voice is lower than the competition. We're driving market increase, as Marc showed you a bit earlier in the U.S., with a lower share of voice. In diabetes, we also do not have an overwhelming share of voice. So it's not like we're overspending relative to the compitetetion. It’s just the nature of the pipeline, the portfolio and the number of launches we have, but this will disappear as those products launch and they start generating sales. I mean, if you look at Tagrisso, it's already very profitable. I mean, as you can imagine, very profitable and we just need to get all these launches to critical mass to become profitable. And maybe the last point is China. China is actually a profitable market. We’ve been investing because we’ve been growing at fast pace and then we keep investing to keep pushing this growth. But actually it’s profitable, and the profitability is similar to what we get in Europe. And as we gain critical mass and become even bigger, the profitability would go up, mechanically.

And you’ve given us, obviously lots of information by lots of different parts of the businesses, but one of the biggest contributors is the externalization and 22% of EBIT is from nonrecurring externalization. You’ve given us guidance this year, but we need some color going forward as to how quickly the quality of the earnings will improve? And so, could you give us some sense as to what’s left in the pipeline that you think will come up in the imminent future that you think you could continue to externalize and where we should expect that line to go? And then following on from that, we've had billions of dollars’ worth of disposals over the last three years. So, when do you -- so, how do you see that progressing over the next three years?

So Marc, this is a question for you, but let me just make a general sort of comment. In term of strategically where we're trying to achieve because this all of sorts of deciphering or reading of what we’re trying to do is externalization. Essentially what we’re trying to do is build a portfolio that is completely aligned with our strategy. I was reading recently an interview by CEO of large mining company and he was explaining that they’re building the perfect portfolio for them. They’re selling mines and buying other mines, and this is actually what we're doing, it's a very senior level. Ultimately where we want is almost a totality of our sales to come from those three core therapy areas. So we are investing in those three core TAs and we are partnering all divesting you know partnering new products and sometimes even tail products and divesting other products that do not fit and at some point that will show up in our growth rate of course and leverage across the business, more specifically Marc you want to comment on the financials cover the big principle behind it I think externalization as we have said is part of our business model, we will refine it, we'll find alternative ways to generate revenues for the company in areas where we cannot do it or we wouldn't do it as well or we'll not do it as fast, we have several examples of where we have done it. I think what you need to remember in thinking about sustainability of this, first of all it’s part of our business model. We still have other opportunities but you also need to remember that the company has it’s progressively returning to growth so what you see as 22% today, if you look at the percentage of EBIT very soon we'll become smaller.

Yes, we've always said it you know that we will peak and then continue doing it based on the model but the amount of upfront milestones would decline and so this externalization income would become proactively and essentially by around 2020 we want to have the sustainable business if I call in this way to basically generate sufficient profitability to cover the dividend and more. So that's really this interim period, strategically we are building a portfolio which is totally aligned with our focus and secondly we -- it’s capital redeployment as capital location we basically use this income to fuel the build of our three core tiers.

Jill Wilson from Credit Suisse. Three questions please, I wonder if you could just give us the total aggregate amount of the true ups that benefited you in the fourth quarter and I understand you don't want to give it to us product by product but I assume it also just a bit beyond respiratory because you know drugs like Crestor in the U.S. have a bounce up in the fourth quarter as well. Second question is whether you could help us with the level of depression of the gross margin that you're expecting. Would the fourth quarter, gross margin of 79.4 be reasonable guide to look at going forward against the 81 or so that we saw for the full year in '17, and then finally respiratory question I'm intrigued that you're putting a lot of effort behind Symbicort in the US ahead of what would be likely to see a generic ad fare some tied in 2018. Just wondering what you think the impact on Symbicort will be whether there'll be a generic first strategy that you will have to overcome in that market and perhaps to chance my luck as well you're putting a lot of effort behind Bydureon and the new pen there, how do you see that competing against the very high level of investment being put by Lilly and Novo into the GLP market.

This is more than three, it's four questions. So if you're down, you pick one of -- in the first one, I suspect Marc is not going to give you much of a detailed response, so maybe I can give you this one. You want, Marc, really the true ups and the gross margin and the other Mark will cover the respiratory question, is that okay?

So for the true up, my recommendation -- sorry, my recommendation would be not to look too much at the first quarter, which was impacted by more true ups that are corresponding to rest of the year, I think if you look at the overall year 2017, this gives you a good view of the progression of our portfolio, and you'll see the progressive reduction of the headwinds and therefore it gives you a better view. So, my advice is don't look at the first quarter, think about these true ups as applying to the full year 2017. Another indication if you look at which type of products, we don't want to give a product by product detail, but what I can say that most of the true up are concerned to the legacy product unless for the new product. And then your second question maybe it was a third, I don't remember, on the gross margin level, when we were in quarter three 2017 I mentioned that we would not see large violation, so I think if you looked at the gross margin level in the second half, of 2017 I think this would provide you good indication for where the gross margin should be in 2018 but do not look at the first half for the factors which were distorting it.

Let me just repeat what Marc said because it's important in terms of what -- it really affects the great majorities affecting the legacy products to some extent, it's not relevant because those products are going away anyway in the U.S. and the core products are not affected by those true ups, so you can look at the growth of those products and be confident that this is not affected by those true ups. Mark Mallon, respiratory?

So, first of all in terms of the respiratory, the question around Symbicort investment and Advair generics, I mean our expectation is that the bulk of the effective many analogs or generics for Advair will focus on Advair, that's not to say there won't be some impact, but we really expect in other places the substitution in sort of within the molecule and -- because it's hard to change devices and molecules in the respiratory area in general. We plan for a continued intense competition in that category. So I think we've got realistic expectations around pricing and the competition in the market but -- and we're confident we can be successful, it's really important, because we've got a very exciting healthy portfolio ahead of us, we've got only launch Bevespi, we've got PT010 coming, we -- and there's still huge unmet need in this category, so we remain confident in our position there. And I am so glad you asked about -- thank you for asking about Bydureon BCise because we're very excited about this GLP-1 category growing very fast in the U.S. This device is been really well appreciated by physicians and patients, the feedback in the research that we did before launch and in the early days of launch, is that this is a very competitive device with the leader in the category, it's very early days, we only launched in the middle of December, so -- and there's been a lot of holiday. So you're going to have to wait a few more weeks in fact to see a clear position but the feedback from again physicians and patients on Bydureon BCise is very positive. And we've adjusted our resourcing, we've got a very significant sales and medical teams in U.S. that are supporting both Farxiga and Bydureon, and so we are very excited about the prospects for Bydureon BCise in 2018.

I think you can -- it's early days you're right but you can actually look at the NBRx share for BCise over the last two three weeks and you'll see that there's a very nice progression already even though we started promoting in fact in January really. So, the product itself as a potential and then the combination with Farxiga also has potential. As you know we've very nice data that combination.

Should we move to Alex, BMO? Alex is on the line. I think maybe Dave is waiting for question telling a good job is doing, usually we talk about oncology, the whole time there is no early question. I would like to have.

Hi this is Prakhar Agrawal on behalf of Alex Arfaei. So two quick questions, first, what has been the early feedback on Calquence? And secondly have you conducted an interim OS analysis on MYSTIC since you announced the PFS results. And lastly when should we expect the inventory pacific results to be reflected in the sale of major market specifically U.S. and Europe?

So here is the answer to my oncology question. So may be Shawn you call it the domestic and the pacific question because really its regulatory question in terms of when do we get a product and when can we start promoting and that could add some more color from a commercial view point and also Calquence.

So the interim question is pretty easy, it's very similar to the answer that I gave on to Andrews questions about foresee. We have interims in the trans. We do not disclose things about those interims and last question positive, that how pacific turned out being disclosed for PFS, you may recall. The trials it's important to recognize our designed based on robust assumptions of clinical meaningful differences and design to be the right size of the final analysis. So it's to exceed our expectation, considerably they can read out early. We figured a pacific and the regulatory timing I gave that, I pretty much gave that in the actually in the presentation. So regulatory timing for the United States, we anticipate in the first half of the year to receive approval for pacific based upon the priority review, designation for calling major market here at Japan and the EU by end of year 2018.

Maybe some additional color for Australia and Pacific and then Calquence?

So, in terms of additional color on Pacific in terms from a commercial prospective, we are very much getting ourselves ready for the pacific launch which we're anticipating as we said it in the first half. The majority of the utilization that we saw in the fourth quarter for Imfinzi was within lung cancer. So obviously we promote only within the bladders hitting but we see that there is enthusiasm within pacific. I think that if we take look at the factors that lead into the speed with which you might think about the uptake for pacific. Obviously, the label is one element and we await feedback from the FDA on where that one lead out, we studded in Stage III and current unrepeatable patients. The second is access, we certainly seen them access is been growing in terms of hospital access within the U.S. and formulary access in, I think that it speaks volumes to one of the reasons why getting on to the market with [data] was still important, because it has a lot of to be able to have that formula access. And then I think the last pieces, what you expect early adoption, here its important to remember that the data [indiscernible] certainly very exciting and unprecedented but we also have a lot of education that we’re going to need to do. So I think it's important to also recognize that today there are no therapies that are used post chemo radio therapy in Stage III and its watch and wait is the competition. So they educate physicians on that this is different from you are using an agent today and you are going to replace it with something better, this is on education and this is a new way a new treatment paradigm with the specific regiment. So I think that needs to be factored, Denis as we think about the uptick. On Calquence we have been really pleased with the progress that we have made in mantle cell lymphoma we have a lean and mean sales force on this which we think is appropriately sized for the size of the market that’s there. But what we have seen with that is that coming at the end of the year we have aided awareness over 90% for the brand among our target audience which is incredibly high considering we launch them at 31 of October that’s a lot of progress and speaks to the work that we did there. The intent to prescribe is over 60% among the physicians that we are speaking to. And we estimate that right now about one is size new start is being started on Calquence and MCL at the end of the year. So again when you think about that that’s a eight week launch period that included some holidays within that we are pretty pleased with that progress.

James Gordon from JP Morgan. Two questions please. So one was on Tagrisso in China, THERE was a comment about some initial reimburse in some places. What does that initial reimbursement like is it very big price concessions to what we have seen in the west? And as you board of members in china do you think that to make big price concessions playing out? Also in china when you think of first line approval and could that require another step up in price concessions. And if I could just squeezing on the question and which will be on roxadustat. So there is pre-dialysis and dialysis. Where do you think the big hurdle is which is tougher to get the mortality out coming these and which is the bigger commercial opportunity?

Maybe Sean could color the [indiscernible] question or so the forward timing for first line progress in china. We just said that in first line is going to be hard in the near term because the cost is substantial. In the second line when you have a good case to potentially get up to get a reimbursement, We have Isa that there is really doing very well. Sean do you want to cover the first one and then Dave could cover another one.

So in China we say that pre-dialysis versus dialysis. We don’t have a timeline we communicate for first line approval in china. In part have do with the fact that there isn’t really a PDUFA like structure in the Chinese regulatory system. So, you don’t use -- you submit you get acceptance, you don’t necessarily know what reduced cycling is going to be -- it's hard for us to communicate. I'll say it's the FDA definitely will be more quickly in a way that they are reviewing things and I think Tagrisso, second line piece on idea was brilliant example of that. So we are hopeful that we can engage them. But can't get more guidance, Rock, right so we've two main population so which are pre-dialysis and those already on dialysis. It feels like there are two questions there, is there a reason to think that the profile would be different safety wise and one patient population versus another there isn’t actually. But what I can tell you is in a given period of time it's easier to get a lot more events on the dialysis patients, simply because their greater cardiovascular risk. So we don’t see a difference between the two mechanistically for what we would expect. We do believe that we will have more information on the dialysis patients by virtue of their higher risk going into trial.

It will be the same. I was partly asking because if I understand correctly their different comparators, one - you're trying to show non-inferiority placebo, another one superiority to ESA, so whether that makes it -- whether the different comparator is a different hurdle?

And again I -- we don’t mechanistically have any reason to believe that. The comparators are a different hurdle. It’s more along the lines of what’s the appropriate thing non-inferior for something that doesn’t -- isn't a treatment versus a drug with a current black box warning around this exact endpoint and warning to show that that you don’t convey that risk. So that’s really only difference between the two.

So I think without getting into too much detail on the specifics of individual product pricing within China. What I would suggest that if you're looking for a good analog for how China prices move, I think Europe serves as a good one. So, yes, subsequent indications do typically come with an expectation or a need for price concession that typically comes in a way of free goods. I would use European analogs as you look forward.

Thanks Dave. Mark, do you want to add something roxa?

Yes. I'm so pleased you asked about roxadustat, I mean, I think Sean gave you a sense of both -- sort of how the clinical program is working out and how to think about the outcomes. I mean, commercially, we see very substantial opportunities both in the dialysis and the non-dialysis. It’s a different type of opportunity. So dialysis, we think, we’re going to have immediately, a very differentiated profile already. We know the ability to impact hemoglobin is very good from the day we’ve seen in China. If we can meet our expectations, we’re going to have cardiovascular product that has benefits there. And so, then you added, moving from infusion to oral, really substantial benefit. In the pre-dialysis, I mean, it’s a huge opportunity, but there is a market-shaping and building effort that’s going to require which we’re planning for. A very small, relatively small percentage of patients get treated for anemia today, right. But basically elevated cardiovascular risk, they’re dealing with lot of actually symptoms from it, but there's not been reasonable option for these patients, so really a huge opportunity there as well. It's going to take time to build that market because we've got to generate the evidence and educate physicians almost like what we are talking about in PACIFIC with the -- other than iron, most of these patients don't get any treatment, so, really excited about the product.

And again, synergies across the portfolio, I mean, if you look at the prescribers, nephrologists. We’ll have Farxiga. We'll have roxadustat. Then you look at diabetologist who will somehow have to play a role in this pre-dialysis treatment. Of course, we’ll have Farxiga, we’ll roxadustat. So, it’s really a strong synergy across. Let’s move to take an online question, Seamus at Leerink. Go ahead, Seamus. Seamus, are you there? We can’t hear you. So maybe we return to the room.

Jack Scannell, UBS. I've got 17 questions of which I'll ask one. You four, five years ago published really interesting paper that was remarkably frank analysis of why R&D had been unsuccessful, perhaps, for AstraZeneca, and you published the framework to try and make it better and then about a month ago you published another paper declaring victory, saying the problem has been fixed. So my question is how easy would it be for other drug companies to read those papers and try and replicate what you've guys claimed you've done.

Sure, I am happy to -- I don't that's exactly right. So this is our five hour papers and two elements to it. One is the declaration of victory. I think from going to single digit mid-single digit percent success of the candidate through getting a drug to what looks like 20%. And our more recent experience, this was great Sean progress. It's not exactly declaring declared a victory right, if than felt like this that was not the intent. But we feel like we're simply sharing some of the learnings and the experience we've had, and of course everybody's very proud of the progress we've made, The was I think we're enabling confident no intent to declare victory. Sean, do you want to cover this?

I am happy to, I did think that's exactly right so this is our [indiscernible] paper and two elements to it, one is the declaration of victory. I think from going to single digit mid single digit percent success of a candidate through to getting a drug, to what looks like 20% in our more recent experience this was great progress. It's not exactly declaring victory right because then 80% of the time we still fail so we do -- but we do feel like we're doing a lot better and that that's playing out now in how R&D investment is realizing into launches and market opportunities. The question was I think are we enabling competition by publishing these kinds of things.

Yes, you know it's interesting I think the lessons are quite transferrable to be perfectly honest and in some respects there're things we have been as an industry have known for a long time. If you ask what's different about it it's not knowing them that's quite so complicated as it is applying them objectively and consistently and not allowing hope to sway you in a place for one of those factors, that means that you've moved away from being vigorous. That is not so easy to do, it turns out.

I would only add that all of us can read the same cooking recipe doesn't make us a world class chef so there's that I mean having a process and a structure that part is very useful but then you really need to make sure you have great people and then really people who and a culture that sustained this and an approach that really is really creative and innovative. So let's move back to our online Mark Purcell at Redburn.

Yes, thank you Pascal. Can you hear me? Great thank you. Just a couple of classification points actually going back to what Jill was asking on gross margin, I feel a bit confused by the progression in Q4 and there may be some underlying impacts, if we assume products cost $250 million to $300 million that would obviously at a very high gross margin contribution to be very positive to the gross margin in Q4 which can then something like 24%. So are there any offsetting factors in there such as your MSD payments and this case payments which you mentioned? And then can you help us understand sort of a moving parts there, I think the FA covered impacts of it, the accruals impact, the MSD payments, whether those and accrual of the MSD payments which had a little effect? And then secondly on FX, I was a little bit confused by the guidance the FX put up and minimal impact on any in 2018. If I followed your guidance just using the fine based currencies that you have in your press release, using a channel [indiscernible] impact would be used in earning 3%, so that impact is consistent with your guidance on sales, but not on EPS. If I use this spot again just using the five main invoicing currencies and not the other component, the impact of currency was 3% on sales and 5% on earnings. So are there any factors which are missing, which dilute the effect -- positive effect of the weakening dollar or the hedging losses or anything like that? Some clarification would be great.

Mark, can you try to cover them?

So, we'll try to mention some more on the gross margin, what I said early on that you should look at the second half of 2017 this should provide you a good guide for what the level of gross margin will be in 2018. It is also in our press release, we have -- we deduct from gross margin the profit sharing we provide, Merck as well as we do for Circassia, so we have indicated what goes in or comes out of the gross margin, so this is going to be one factor also for 2018. There is another factor that you need to consider that explain that -- in comparison to the first half of 2017 the gross margin is lower, we have larger expenditures and depreciation in the biopharmaceutical capabilities, so this is why the level of gross margin has declined. We also have a mix of products in various geographies but if I put this aside, the two main factors are the profit margin given to the partners, this is one, and the more expensive production capabilities for the biopharm product these are the two main factors.

Thanks Mark. So I think we'll have to stop here, because we're out of time unfortunately and so if you have any more questions, please send them to IR team. Let me just close by thanking you all for your interest and your great questions, and just kind of repeating what I said bit earlier is we are at a stage where the pipeline is delivered, we're now full commercial launch mode. We've seven products that are either in launch mode, or growing very-very fast, so that explains we need to resource them, but that also drives very substantial growth rate, and on top of seven global products that are into launch mode, we have China that is really material for us, for many companies China that is not material, for us it is material -- very material and growing very rapidly and this has become largest market globally. So, with that, I will again thank you and wish you good weekend. Thank you very much.