AstraZeneca PLC (AZN) Q2 2020 Earnings Report, Transcript and Summary

Good afternoon, Europe, and good morning to the U.S. Welcome, ladies and gentlemen, to AstraZeneca's half year results 2020 presentation conference call and webcast for investors and analysts. Before I hand over to AstraZeneca, I would like to read the safe harbor statement. The company intends to utilize the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Participants on this call may make forward-looking statements with respect to the operations and financial performance of AstraZeneca. Although we believe our expectations are based on reasonable assumptions, by their very nature, forward-looking statements involve risks and uncertainties and may be influenced by factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. Any forward-looking statements made on this call reflect the knowledge and information available at the time of this call. The company undertakes no obligation to update forward-looking statements. Please also carefully review the forward-looking statements disclaimer in the slide deck that accompanies this presentation and webcast. There will be an opportunity to ask questions after today's presentations. [Operator Instructions]. I will now hand you over to the company.

Hello, everyone. It's Pascal Soriot, CEO of AstraZeneca. Welcome to our first half 2020 conference call and webcast for investors and analysts. As always, the presentation was posted to astrazeneca.com earlier today, and we've also sent it to people on our distribution list. So if we turn to Slide 2. This is the usual safe harbor statement. We will be making comments on our performance using constant exchange rates, or CER, core financial numbers and other non-GAAP measures. A reconciliation between the non-GAAP and the GAAP data is contained in the results announcement. And all numbers used are in million U.S. dollars and refer to first half 2020 unless stated otherwise. If we want to turn to Slide 3. We plan to spend about half an hour on the presentation and then do Q&A for 45 minutes. We aim to end at 1:15 U.K. time. If you keep questions short, we'll try and keep answers short, too. [Operator Instructions]. In the speaking order, I'm joined by Dave Fredrickson, our EVP for the Oncology business unit; Ruud Dobber, EVP of BioPharmaceuticals; Marc Dunoyer, our CFO; José Baselga, our EVP of Oncology R&D; Mene Pangalos, our EVP of BioPharmaceuticals, R&D. And also joining us for the questions are Pam Cheng, our EVP for Operations and IT; and Leon Wang, who is the EVP in charge of China and the Emerging Markets. So we'll move to Slide 4. This is the agenda where we plan to cover all the key aspects of the results today. And moving then to Slide 5. In the first half of 2020, performance underpinned our leading response to COVID-19. The business was resilient, and where COVID-19 had an adverse impact, other medicines compensated. Total revenue advanced 14% in the half, and we estimate only a modest benefit from COVID-19 stocking. New medicines advanced by 45%, and we saw continued strong progress across all therapy areas and also in the emerging markets. In the quarter, Respiratory was impacted from Pulmicort in China. But as I said earlier, other medicines more than compensated. Core operating profit grew by 23% despite 13% lower other operating income. With a tax rate of 21%, core EPS ended at $2.01, up by 26% and much more than revenue, delivering operating leverage. As a result, our guidance is unchanged today. We continue to see strong progress in the pipeline, mostly on regulatory approvals. And finally, the leading response to the COVID-19 pandemic includes advancing a vaccine candidate while repositioning other medicines. You've heard a lot about the vaccine candidate, but we also have other projects, antibodies but also Calquence and Farxiga trying to help patients with COVID disease. There is a relentless focus on patient access supply and, of course, our employee safety and continuity of our work. So if we turn to Slide 6. Looking at the pipeline news flow since the results announcement in April, I'll just mention a few highlights. There were a number of approvals for Lynparza across multiple cancer types and geographies. Since the launch at the end of 2014, Lynparza has seen significant progress with more to come. Farxiga received its important approval in the U.S. for heart failure, and the inhaled Respiratory portfolio increased its reach with Bevespi in China, and, importantly, the closed triple combination medicine, Breztri, in the U.S. Outside approvals, it's really encouraging to see the progress for Enhertu in breast and gastric cancers. Later on today, José will cover the expanded collaboration with Daiichi Sankyo on the new antibody drug conjugate. All in all, another great period for the pipeline. If I move to Slide 7. The second quarter of 2020 was the seventh quarter now with strong growth in total revenue. Again, this was driven by the new medicines. Tagrisso crossed now the quarterly $1 billion mark, with Lynparza and Imfinzi continuing their strong growth trajectories. The growth from the new medicine is now coming from a broader range of medicines, as we saw in the first quarter, revenue from Koselugo in the rare indication. In total, new medicines added $2 billion of additional revenue, further diversifying growth and sustainability. As a result of our strategy execution, new medicines now make up more than half of our revenue. Please turn to Slide 8. The increased business diversification, you can also see it through Oncology, now more than 40% of product sales. Across AstraZeneca, specialty care medicines account for more than half of the business. Combined, China and the other emerging markets make up 35% of sales, with growth in ex China market at 15% and in China 14% despite the COVID-19 impact on Pulmicort, which I'm sure we will talk about later. In summary, the results for the first half support the guidance and also a future of sustainable growth across medicines and geographical markets. AstraZeneca remains strategically well positioned in the current environment, and we are well prepared to remain an important partner for health care systems globally, as evidenced also by the vaccine effort. Before I hand over to Dave to cover our Oncology business, I would like to express my sincere thanks to all AstraZeneca co-workers across the globe that have made this and our response to COVID-19 possible. Everybody has done an absolutely stellar job across the entire company despite sometimes very challenging circumstances, and I'm very, very grateful for everyone's contribution. So with this, Dave, over to you. Turning to Slide 9, by the way.

Thank you, Pascal. And if we can -- just as I go through this, I plan to update on the performance of our Oncology business before handing it over to Ruud, who'll give an update on BioPharmaceuticals and Emerging Markets. We are pleased to report a strong growth in total revenue of 31% for Oncology to $5.3 billion in the half, a business that's now annualizing at over $10 billion. We're seeing regional expansion, particularly outside of the U.S., as our life cycle efforts start to take effect. The new launches are progressing well, which is supported by additional news flow of data and approvals. Please turn to Slide 10. Starting with our lung cancer franchise, we are pleased to report that both Tagrisso and Imfinzi showed strong growth in the quarter at 45% and 52%, respectively, with revenue of $2 billion and $954 million, respectively. Tagrisso is now approved in 86 countries in the first-line setting. And in the half, we saw continued expansion in countries with national reimbursement, which now totals 28. U.S. Tagrisso revenue was up 30% as demand growth continued despite some negative inventory movements, and we see strong growth from Europe and Emerging Markets as reimbursements and launches take effect. Japan was impacted by the previously mentioned price cut in November last year. Imfinzi reported $954 million in the half with the majority of revenue still coming from the U.S. at $574 million, with a growth of 21% as we reached high levels of penetration in the PACIFIC Stage III non-small cell lung cancer setting. We're now launching the CASPIAN indication in extensive-stage small cell lung cancer in the U.S. following approval earlier in the year. Outside the U.S., we are starting to see revenue of Imfinzi pick up, particularly in Europe and Emerging Markets, with revenue of $167 million and $63 million. Japan delivered $124 million. And the China launch of PACIFIC still happened in the first quarter despite the COVID-19 pandemic, and we anticipate NRDL negotiations to commence next year. Please turn to Slide 11. Lynparza showed continued progress with product sales of $816 million in the half, up by 60%, with half of sales coming from outside the U.S. This reflected growth across all regions as we continued to roll out the breast and ovarian cancer indications in the major markets of the U.S., in Europe and Japan. U.S. sales were $406 million, up by 55%, with continued increase in demand as Lynparza maintained its leadership in the PARP inhibitor market in both ovarian and breast cancer as we launched the PAOLA-1 indication in first-line HRD-positive ovarian cancer. Europe sales were $198 million, up by 56%, driven primarily by first-line ovarian cancer launches. Our Emerging Markets sales were up by 120% to $56 million driven by the China launch and the recent inclusion on the NRDL. And Japan sales amounted to $77 million with growth of 31% driven by the uptake in ovarian and breast cancers following the previously mentioned 14% price cut as of April of this year. Please turn to Slide 12. Turning now to the new launches, Calquence in chronic lymphocytic leukemia and Enhertu in third-line HER2-positive metastatic breast cancer. I am pleased to report Calquence revenue of $195 million in the half, predominantly in the U.S. with the new label and CLL taking effect at the end of 2019. The launch feedback has been very encouraging as the impressive Phase III data are resonating very well with physicians. We're encouraged to see expansion in our prescriber base with around 70% of all new starts in CLL coming from new-to-Calquence prescribers and about 1 in 3 CLL patients now starting on Calquence. Following the Enhertu launch at the beginning of the year, we are pleased to have reported $36 million in collaboration revenue. Based on $76 million of sales booked by Daiichi Sankyo in the first half of 2020, Enhertu has now achieved approximately 1/3 patient share in the third-line setting. Before I end, I'd like to thank all of our oncology colleagues for what they do every day to benefit the patients and our company, especially during this global pandemic. I'll now turn over to Ruud for an update on our BioPharmaceuticals business and Emerging Markets.

Please turn to Slide 13. First of all, many thanks, Dave. And today, I'm pleased to talk to you about the BioPharmaceuticals business. Total revenue of BioPharmaceuticals, comprising New Cardiovascular, Renal and Metabolism and Respiratory & Immunology were $4.9 billion in the half, growing at 9%. Starting with New CVRM, revenue was up by 11% despite intense competition in diabetes, with total revenue at $2.3 billion. Growth for both Farxiga and Brilinta continued with double-digit increases. Farxiga revenue reached $848 million in the half with 21% growth, maintaining volume market share leadership globally, with strong volume growth across all regions while benefiting from the SGLT2 class growth. In the United States, Farxiga saw a reduction of 12% as price declines took effect, though volumes continued to grow due to the DECLARE launch. Outside the U.S., which accounts for 72% of revenue, we saw strong performances with volume-driven growth increasing. Europe revenue was up by 29%, and Emerging Markets revenues were up by 59%, benefiting from the China NRDL listing. Brilinta delivered revenue of $845 million with 70% growth driven by a strong performance in Emerging Markets, up by 40%. We also had continuous growth in the United States and Europe, up by 9% and 5%, respectively, with underlying demand continuing in the U.S. and Europe experiencing some negative COVID stocking impact in the quarter. The majority of use is still in the acute setting, and Brilinta continues to outgrow the market in all regions. Please turn to Slide 14. Turning to Respiratory & Immunology, we reported revenue of $2.7 billion with a 7% growth in the half impacted by Covid destocking and Pulmicort, notably in China. Ex Pulmicort, Respiratory grew 14% in the quarter. Underlying Symbicort growth was strong in the quarter with $1.4 billion with a growth of 26% in the half and 15% in the quarter. The U.S. saw particularly strong growth, up 46% to $558 million due to demand growth following the launch of the authorized generic and the resilient ICS/LABA market. Globally, Symbicort remained the leader in value and volume market share in the ICS/LABA class. Pulmicort was down 32% in the half with a revenue of $477 million, mainly driven by the COVID impact on the business in China, especially the pediatric nebulization segment. We continue to focus on growing revenue of Symbicort and other at-home solutions ahead of Pulmicort. Please turn to Slide 15. Now I will focus on the new launched medicines. Fasenra contributed $426 million of revenue in the half, with the bulk continuing to come from the United States, Germany and Japan. In the U.S., Fasenra is performing very well against new competitors, up by 31% with $272 million in revenue. Europe and Japan revenue were $88 million and $46 million, respectively, as Fasenra continued to be the leading novel biological medicine for severe, uncontrolled asthma. The launch of Breztri for COPD is progressing well with revenue of $11 million in the half, with launches taking place in Japan and recently in China. And of course, we just saw the approval in the United States last week, while the EU regulatory review is progressing with anticipated decision this half. Lokelma had revenue of $28 million in the half, mostly from the United States, and we maintained leadership in the new-to-brand prescriptions. China and Japan launches are progressing well. On roxadustat, we reported collaboration revenue of $11 million in the half coming from China following the initial launch and the recent NRDL inclusion. Now I will move to the Emerging Markets. Please turn to Slide 16. Emerging Markets, where total revenue grew by 15% in the half, continued to track ahead of our long-term performance ambition, which is to grow sales on average by a mid to high single-digit percentage. Outside China, total revenue was up by 15%, with growth spread across all regions. China delivered stable growth of 40% as we saw some impact from the COVID-19 pandemic, notably with Pulmicort, as previously mentioned. The addition of Lynparza, Farxiga and roxadustat to the NRDL effective February 2020 contributed to the revenue performance. New medicines grew by 79%, now contributed almost to 1/3 of the total revenue in the region, with the strong performance driven by oncology and New CVRM. With this, I will now hand over to Marc.

Please turn to Slide 17. Thank you, Ruud, and hello, everyone. I want to take you through our financial performance in the first half as well as a reminder of our financial priorities and guidance for the full year. Please turn to Slide 18. I will start with the reported P&L before commenting on our core performance. As Pascal mentioned earlier, total revenue grew by 14% in the half, which included only a modest impact from COVID-related inventory movements. Within total revenue, we also delivered 107% increase in collaboration revenue driven by the success of Lynparza and Enhertu. Please turn to Slide 19. Moving to the core P&L. This slide clearly demonstrates our early progress in improving operating leverage. Our gross margin ratio reached 81% in the half and increased by 1 percentage point in the second quarter to 84% versus previous year, reflecting the mix of product sales and manufacturing efficiencies. Core R&D expenses increased by 9% in the half, partly a result of focused investment in the pipeline, including the development of Enhertu. Merck upfront contribution in 2017 to the development of Lynparza recorded at that time on our balance sheet was gradually released to the P&L until last year. This, therefore, impacted the comparative performance. Core SG&A expenses increased by 5% in the first half driven by additional investment in the China expansion and further support for global launches in Oncology. Core operating income declined by 13% to $604 million, while our core tax rate was 21%, in line with the indicated range for the full year. Our core earnings per share ended at $2.01 for the half, up by 26%, demonstrating the progress we are making. Please turn to Slide 20. Turning to net debt and cash generation. Our net debt has increased by $1.7 billion since the end of last year to $13.7 billion. Encouragingly, there is a 30% improvement in EBITDA to $4.1 billion as well as a $688 million increase in net cash from operation, reflecting the constantly improving underlying business performance. The level of net debt was in line with our expectations given that the first half sees the payment of a larger second interim dividend. We also made the second of 2 $675 million payment to Daiichi Sankyo as part of last year's agreement on Enhertu. Please turn to Slide 21. This familiar slide continues to demonstrate our progress. As I mentioned, the 14% growth in total revenue was converted into a 26% increase in core earnings per share. Our core operating margin rose by 2 percentage points to 29% even with a 13% reduction in other operating income. The operating leverage is apparent in the first half, and core operating expenses represented 57% of total revenue versus 61% a year ago. I wish to reiterate that improvement in our P&L will lead to increasing cash generation over time, which will then help us deleverage our balance sheet further and helping us to focus on priorities like our progressive dividend policy. Please turn to Slide 22. Finally, I will turn to guidance for 2020, which, as I mentioned a moment ago, is on total revenue and core earnings per share at constant exchange rates. I have no hesitation in retaining our guidance for the year. In the current circumstances, however, we will keep a cautious view over the remaining global impact of the COVID-19 pandemic, and there is always a potential to see further variations in our performance between quarters. In 2020, like in 2019, we are aiming to increase operating leverage driven by a high single-digit to low-digit -- low double-digit percentage increase in total revenue, and this is anticipated to drive growth in core EPS of a mid- to high-teens percentage. I'm also happy to reiterate our long-standing capital allocation priorities. With this week news on our growing collaboration with Daiichi Sankyo, we have seen another example of our most important capital allocation priority, which is reinvesting in the business. We also look to keep our strong investment-grade credit rating as well as retain our focus on our progressive dividend policy. And with that, I will now hand over to José. José Baselga: Thank you, Marc, and hello, everybody. I will provide an update on our Oncology medicines since our last call. As usual, I am joined by Mene Pangalos, who will discuss BioPharmaceuticals upcoming news flow. Please, let's turn to Slide 24. Now on to the recent highlights in Oncology, also case in the virtual ASCO 2020 meeting this quarter. On the left, the groundbreaking Phase III data of the ADAURA trial, where Tagrisso showed unprecedented disease-free survival in the adjuvant treatment of Stage Ib to IIIa eGFR-mutated non-small lung cell cancer. Treatment with Tagrisso after surgery with curative intent reduced the risk of disease recurrence or death by around 80%. In the middle, news from Enhertu, where we presented positive mid-stage data in gastric, lung and colorectal cancer. Enhertu recently received Orphan Drug Designation as well as Breakthrough Therapy designation in the U.S. for third-line gastric, highlighting the vast unmet medical need in this setting. Enhertu also received Breakthrough Therapy designation in metastatic HER2-mutated non-small cell lung cancer. Other ASCO highlights from our pipeline include the sustained final overall survival from Imfinzi in the CASPIAN trial where Imfinzi maintained a 25% reduction in the risk of death versus chemotherapy alone. We also presented Phase I data from our oral SERD, AZD9833, in which an overall response rate of 16.3% and a clinical benefit rate of 42.3% was observed in a heavily pretreated population, where 53% of patients had received prior treatment with Faslodex and 50% had received prior treatment with CDK 4/6 inhibitors. AZD9833 is now progressing into later trials, and it is a testament to our confidence of its efficacy. And it's a -- sorry, it's a testament to our confidence in its efficacy potential and safety profile. Other news in the quarter include the PROfound trial overall survival publication in the New England Journal of Medicine. The PROfound indication, which was approved by the U.S. FDA in May, so Lynparza become the only PARP inhibitor to improve overall survival versus standard of care hormonal therapies in a biomarker-based subset of metastatic castration-resistant prostate cancer patients. Please turn now to Slide 25, please. As we announced -- let's please move to Slide 25, if we could. As we announced earlier this week, we are very excited to strengthen our ongoing ADC collaboration with our partner, Daiichi Sankyo, by including the TROP2 medicine, DS-1062. We believe that this is the best-in-class medicine with great potential in reshaping the treatment of metastatic lung cancer, a continuing health care challenge worldwide. Of note, 45% of non-small cell lung cancer patients are diagnosed in a metastatic setting. And currently, only 5% of these patients are still alive after 5 years of diagnosis. Using the same successful linker as Enhertu, the TROP2 target has high expression in most solid tumors, providing the potential for a broad applicability. With a lower drug-antibody ratio of 4, we consider its safety profile to be manageable. Compelling efficacy data in non-small cell lung cancer was presented by the Daiichi Sankyo at this year's ASCO, where DS-1062 showed a 27% overall response rate in unselected late-line post-platinum and post-IO non-small cell lung cancer. On the merit of this data, we will be pursuing Phase III trials in non-small cell lung cancer soon with further trials in other tumors, such as triple-negative breast cancer, and will include combinations with immunotherapies. Let's turn please to Slide 26. Lastly, I would like to take you through a quick update on our progress on a few of our exciting new oncology medicines in earlier development. As mentioned earlier, following the positive Phase I trial, we'll soon be kicking off an exciting Phase III program for our oral SERD in breast cancer. We also will be starting Phase III trials in advanced uterine cancer for our WEE1 inhibitor, adavosertib, on the back of promising Phase II data. We also have new inclusions on this slide since April like our B-cell maturation antigen antibody drug conjugate, MEDI2228, and our CDK9 inhibitor, AZD4573, both for the treatment of blood cancers. As for the progress on what's now, regarding our PARP inhibitor, Lynparza, we can confirm that we will start soon a new Phase III trial in colorectal cancer with our partner, Merck. We look forward to updating you on the progress of these medicines and others in the near future. With this, I will hand over to Mene. Please turn to Slide 27.

Thank you, José, and hello to everyone on today's call. We're really proud to be at the forefront and highly active in the pursuit of tackling the COVID-19 global health crisis. Last week, as many of you know, we published data in Lancet for our Phase I/II COV001 trial as part of our collaboration with Oxford University showing that the vaccine AZD1222 was tolerated and generated robust immune response in terms of both neutralizing antibodies and T cells. Late-stage trials are currently ongoing in the U.K., in Brazil, in South Africa and are about to start in the United States. After the evaluation of more than 1,500 antibodies for their ability to bind and neutralize the SARS-CoV-2 virus spike protein, we've identified AZD7442, the combination of 2 monoclonal antibodies licensed from Vanderbilt University, which will be starting Phase I trials in the next few weeks. Through our proprietary YTE technology, we extended the half-life of these antibodies with a predicted dosing of around every 150 days. This makes the AZD7442 ideal for both prophylaxis and treatment regimens. The feature detailing AZD7442 neutralizing potency was published in this month's Nature. Please turn to Slide 28. I'll now highlight the news presented at recent CVRM congresses. At ERA EDTA in June, we presented a number of sub-analyses from the Phase IIIB DIALIZE trial that showed that Lokelma was effective across all groups of hemodialysis patients with hyperkalemia. The concomitant RAAS inhibitor therapy nor eGFR level appeared to limit normokalemia, and the medicine is effective in hemodialysis patients with severe hyperkalemia. As a reminder, the DIALIZE trial showed that 41.2% of CKD patients maintained normal potassium levels pre-dialysis compared to only 1% receiving placebo. For roxadustat, FibroGen and Astellas presented data from the DOLOMITES Phase III trial in non-dialysis patients, where results showed non-inferiority of roxadustat versus darbepoetin alfa in the correction of hemoglobin levels during the first 24 weeks of treatment. At this year's ADA congress, sub-analysis from Farxiga's Phase III DAPA-HF trial showed reduced incidence of type 2 diabetes in patients with heart failure with reduced ejection fraction. During the period, we also received approval from the U.S. FDA for use of Farxiga in heart failure with reduced ejection fraction with or without type 2 diabetes. We also showcased one of our new medicines, cotadutide, our glucagon and GLP-1 dual agonist, which continues to progress in the clinic for NASH and is about to enter clinical trials in diabetic kidney disease. Liver and kidney are the key target organs of the hormone glucagon, and we recently highlighted the role of glucagon in resolving inflammation and fibrosis in a paper published in Nature Metabolism, underlying the potential for GCGR in the treatment of NASH. And finally, we shared news early this week regarding Farxiga's DAPA-CKD trial, where Farxiga met its primary endpoint of the composite of worsening of renal function or risk of death in adult patients with chronic kidney disease with and without type 2 diabetes. Exceptionally, the trial also met every one of its secondary endpoints in this population, making Farxiga the first medicine to significantly reduce the risk of death from any cause in CKD patients. Please turn to Slide 29. And now for the update for BioPharmaceuticals and what's next in our pipeline. I'd like to highlight a couple of new programs out in the slides since April. In CVRM, we have a molecule called AZD9977, which is a new mineralocorticoid receptor modulator, which we're going to use in combination with Farxiga. We believe AZD9977 has a low risk of hyperkalemia relative to other MR antagonists and so is ideal to combine with Farxiga and to develop in heart failure patients with CKD who are largely undertreated currently with MRAs. In Respiratory & Immunology, our inhaled JAK program continues to move forward with 2 molecules in development for use in asthma and other inflammatory lung conditions. We also have a bispecific against nerve growth factor and tumor necrosis factor, where initial data gathered so far in osteoarthritic pain shows levels of analgesia exceeding those that we would expect from standard of care. We believe this medicine has the potential to address a very significant unmet medical need in both our OA pain and neuropathic pain. Throughout the year, we look forward to updating you on the progress of these and other medicines in the BioPharmaceuticals pipeline. And the IR team also remind me to say, please take a look at the new Appendix slide on upcoming/what's next milestones, added based on your feedback from the sell-side analysts. Please turn to Slide 30. I'll end by taking you through some of the key items of upcoming news flow in the second half of the year across our entire pipeline. In Oncology, we're expecting European regulatory decisions for Imfinzi in small cell lung cancer; and for Lynparza in first-line ovarian cancer, second-line prostate cancer; and Enhertu in third-line plus HER2-positive breast cancer. We also start regulatory submissions for the ADAURA data for Tagrisso, and we'll have data readouts for Imfinzi in Stage 3 non-small cell lung cancer with PACIFIC-2. In BioPharmaceuticals, we're anticipating regulatory decisions with Farxiga heart failure in the EU and Japan, Brilinta in stroke in the U.S., roxadustat in anemia in CKD in the U.S. and PT010 in Europe. We'll commence regulatory submissions for Farxiga in chronic kidney disease, EU and China submissions for Brilique in stroke, anifrolumab in lupus and AZD1222 for SARS-CoV-2 vaccinations following data readout towards the end of the year. In terms of other data readouts, we'll have data from the OSTRO trial for Fasenra in nasal polyps as well as the results from the NAVIGATOR and source trials for tezepelumab in severe asthma. With that, I'll now hand back to Pascal for closing comments, and please turn to Slide 31.

Thank you, Mene. So if we can turn to Slide 32 before the Q&A session. I wanted to leave you with these slides for a few moments as a summary of our strategic achievements. First of all, we have a global presence, and it is a very important aspect of our company. We have a balance of specialty and primary care, and we have a leading business in the emerging markets also with significant R&D base. And that is important because in times of change, having a global presence and a diversified geographical footprint and a diversified specialty and primary care business really helps bring some resilience to the company. The other aspect of the resilience of the company, of course, is the fantastic commitment that our employees all around the world have shown during this very challenging period of time. Second, we have a strong pipeline with 17 Phase III medicines and significant life cycle projects. And as you heard today, there's a lot more coming in the early and mid-stage pipeline. And finally, and as we always said, our financials are improving, and we've delivered on our goals. With a number of new medicines and 9 blockbuster products, we've returned to sustainable revenue and earnings growth, and we are now focused on operating leverage and cash flow. So with this, we'll now move to the Q&A. [Operator Instructions]. Thanks in advance.

And perhaps now we can take the first question from the conference call. That seems to be from Sachin Jain at Bank of America. Sachin, 1 question or maybe 2, but please not 3 or 4. Thank you.

Sachin Jain, Bank of America. Promise, two questions. First is on guidance. The bottom end of the sales guide at high single digit implies limited growth in the second half of the year, seems conservative given the trajectory. Anything we're missing? Or is there scope to raise guidance in 3Q? And then one question for Mene on the recent vaccine data published. Your perspective on the strength of the data versus competition. The market seems to have concluded it's not as competitive. So any thoughts there?

Thanks, Sachin. So maybe I could ask Mene to answer the vaccine question after making a quick comment that again, we're competing against this virus. And data -- and efficacy/safety data is one thing, but manufacturing billions of doses is what we all collectively need to achieve because there will be a need for lots of vaccine. So maybe, Mene, you can cover this question and then Marc could cover the sales forecast, if I may call it that way.

Thanks, Pascal. So first of all, I think we're very pleased that both our data shows that we're getting a good level of neutralizing antibody presentation in the patients that are vaccinated with the 2 doses as well as a good T cell response. The study remains on track. As you know, we've dosed now nearly 12,000 patients around the world, in the U.K., Brazil and South Africa, and we're about to start the Phase III program in the U.S. With regards to you saying that the vaccine looks less effects, I'm not sure where you're basing it on. I know people have compared neutralizing antibody levels next to convalescent patients. We're showing that our antibody response is in the range of where convalescent patients are. I would caution you about comparing assays that are done in different labs because the assays are very different in terms of the IC50s, IC80s or IC100s. The standards are a bit different. And actually, the convalescence samples are different as well. So in our experiment, for example, 86% of our convalescent patient samples are from severely hospitalized subjects. If you look at Moderna and Pfizer patients' convalescent samples, less than 20%. So it does make quite a big difference because neutralizing antibodies are very different in convalescent samples. So very difficult to compare. But I would say I'm pleased that everyone's vaccine seems to be generating good neutralizing antibody responses, and now it also generates a very robust T cell response.

Thanks, Mene. I mean, Sachin, we have very clear data showing that depending on the type of patients, you take, are they severe patients in a hospital or less severe, the level of antibodies in these convalescent patients varies very, very dramatically. So you really have to be careful what is the comparison group. And then as Mene said, there's also this question of assays. At the end of the day, the truth will come out of the clinical studies. And as Mene said, hopefully, we have several vaccines anyway because that's what we need. Marc, do you want to cover the sales question?

Yes. Happily. So Sachin, our product sales grew by 13% for the first half. And for the year, the total revenues are planned to grow high single digits, low double digits. We do not expect -- we're obviously very cautious about the speed of the recovery from COVID-19. We do not expect an enormous change in the trend, but we do expect a continued progressive recovery, not a fast recovery. And this is why we believe the -- reiterating our guidance of high single digit, low double digits for total revenue remains adequate.

If I may add to this, Sachin. The one thing we've all learned with this virus is that it's incredibly unpredictable. Every expert in the world has made predictions about the evolution of the disease, and most of the time they've been wrong. So we don't know what's going to happen in the fall and in the winter, how much of disease there will be. So it's a very uncertain environment that we are living in until we get a vaccine. Tim Anderson with Wolfe Research.

Unrelated, I guess, to current Q2 results. Generics are starting to get approved in China. So it seems like it's just a matter of time until volume-based procurement kicks in. And we estimate maybe this happens in 2022 or so, which is important because this is a $1 billion product for you guys in China. I think it's actually the biggest drug by any multinational in China. So should analysts be modeling a big decline in emerging market Pulmicort starting in that type of time frame? And how the kind of the weak Q2 results layer into how to think about this? And then just a quick question, nirsevimab, Sanofi holding an Investor Day on this asset today. Maybe you can remind listeners of your arrangement with them on this externalized asset on things like your kind of the economics.

So two great questions, Tim. The VBP question, I'll ask Leon to cover this. And it's not so much an emerging markets question, it's more of a China question. So maybe Leon, you could cover Pulmicort, and the VBP question in general beyond Pulmicort. And very quickly, before Leon does that, this nirsevimab question, it's sort of -- it's a, from an economic [indiscernible], a 50-50 deal. So that's how we agreed. And then, of course, the management, the operationality of it, depends on countries. And by and large, Sanofi thinks there is a -- the economics are that of a partnership. Leon, do you want to cover the VBP?

Yes. Yes. I think in China, we actually are focused quite much not just on VBP but actually launching new products very fast and also getting them into reimbursement listing very fast. I think that's the -- our main focus. But of course, VBP, we -- this year, we have -- last year already, we have lost 1 tender for Crestor VBP, and we win the VBP tender for Iressa. So I think for VBP brand, we try our best to consumerize and also to really focus on the loyal customer and the patients. And a lot of Chinese patients are -- still stick to the original brand, as we observed. So AstraZeneca is becoming largest online and also off-line pharmacy company already. So I think VBP, we cannot say we do not decline our sales, but I think we try to minimize the impact to the current business. At the same time, we are growing rapidly, the growth platform and newly launched products and the newly reimbursement-listed products. So in 2018, we have many products getting to reimbursement listing, and now they are growing fast. In 2019, we have also Lynparza, Farxiga and roxa, and they're also doing well. In 2020, we are also getting Tagrisso first line, Imfinzi, Lokelma, [indiscernible], Breztri. So it's a long list of reimbursement entries. So I think that's the China government strategy, and AstraZeneca is positioned as the best company in covering all the channel and also almost every tier of the city. So it's a very solid number one company in China. So we believe we can make China and emerging markets continue to grow.

Yes. Sure. But is Pulmicort specifically at risk for VBP over the next coming years?

Yes. I think Pulmicort, we don't know when. But I think when there is enough number of generic getting to 0.5 and also 1 milligram to SKU, getting to the VBP, definitely it will be in the next 1 or next 2 or the next 3 VBP round. But I think Pulmicort has its special thing. It's a pediatric using drug. So most of the children and the family, they are already -- still self-pay. Treatment is not covered by the employee or resident insurance. So usually, parents still will go for the branded product and also self-pay. So I think we have a relatively good chance to slow down the decline of Pulmicort even getting to VBP. But at the same time, we should definitely launch -- already launched Breztri very successfully into COPD market and also continue growing asthma maintenance market. So I think these 2 markets are much bigger than the Pulmicort acute asthma, pediatric age-below-5 market. So I think we see huge potential of China Respiratory business.

So Tim, what Leon said is really important. I mean first of all, if you look at Pulmicort, we will be impacted. We don't know exactly when. And you have to have several generics to be put in VBP, but it will happen one -- at some point. But here, what Leon and his team are doing is consumerize the product, so rely on people wanting to buy their first Pulmicort, and they buy it online or they buy it in pharmacy. We also are developing home nebulizing. We're working with device companies to promote the use of home nebulizers. So that's one piece. The more important piece is also what Leon mentioned, is the history of treating asthma in China has been reacting to asthma attacks. We need to shift the trade to maintenance and convince doctors to treat patients so they -- on a maintenance basis. And the potential for Symbicort and in particular Breztri is enormous in China, both in COPD and in asthma. So that's really the direction of travel, and that's how we manage the decline of Pulmicort but also the growth of other products in the Respiratory portfolio. The next question is coming from...

Tim, one more point to add is usually, the volume of -- VBP volume is 50%, 60% of the total market volume, and the amount is 50%, 60% -- another 50%, 60%x is -- 50%, 60% is like 30%, 40% at the end is under VBP tender So the rest, 60%, 70% is really not a part of the VBP. So that's something maybe people neglected. So maybe overly pessimistic.

Thanks, Leon. Luisa Hector of Berenberg.

Maybe to come back to Sachin's question on the guidance. But, I mean, looking at the first half EPS growth, it's well ahead of your full year guidance. So I just wondered if there's any cost constraints to highlight for the second half. And I'm particularly interested in the gross margin, which saw a nice uplift in Q2 despite the fact that within that, you have the pay away from Merck on Lynparza, which is growing. So could you address the gross margin? And I wanted to confirm no COVID vaccine sales within your guidance for 2020. And if not, is that because the Brazilian data probably isn't enough to get you an approval this year? And why would that be? Is there something about the trial design, the single dose or lack of elderly patients that might constrain you there?

Thanks, Luisa. Several questions here. So I'll ask Marc to cover this. Starting with the last one. There'll be no profit from the vaccine this year. I mean I'll let Marc cover the accounting of this vaccine. We will be delivering vaccine this year assuming, of course, the vaccine works and is safe, which we keep our fingers crossed it will be the case. But there will be no profit. That's the important piece. So Marc will cover the accounting of this. In term of the guidance, I'll also ask Marc to answer. But remember also we are transitioning away from other income. So essentially, we're turning to a business that if you look at EPS, then turning to a business that is powered by the -- by our core growth drivers. We've always said we are going through a transition period, pruning, simplifying our portfolio, reinvesting in our pipeline and transitioning across to a different type of business, and that's what we are doing. So don't forget also this piece. Marc, over to you.

Yes. Thank you. So we'll try to take your questions one by one. First of all, on the EPS. First half, we are posting $2.01, which is very much in line with what we need to achieve for the whole year. So therefore, I would caution you not only using the sort of the growth rate of the first half of 2020 as a sort of a surrogate for the full year. The comparative performance of the second half of 2019 is more difficult than the first half of 2019. So I feel that the profit achieved in the first half in value is a good surrogate for the second half. Talking about gross margin. So gross margin -- when we looked at the first quarter, the gross margin was between 78% and 79%. And I indicated that one should not look at the quarter-by-quarter gross margin but more should look at a cumulative term on the full year. And I indicated then that the gross margin would probably be, in 2020, around 80%. Now we have seen in the second quarter this progression of the gross margin, which is 84%. This is due predominantly to the biologicals due to 2 reasons. First of all, we consolidate -- we closed -- we sold one site, the site of Boulder, and consolidated on Frederick our biological production. That was one factor. We also had increased volume on our biologicals for anticancer but for other products also. This has improved the volume and the absorption on Frederick. So this has improved the gross margin. There is also another factor, which is a greater absorption on the non-biologic, on the -- or the small molecules. So you have 3 factors that have contributed to make the second quarter gross margin higher than average. Now if we're going to look forward, what will be the gross margin for the full year 2020? We thought it would be about 80%. And if the greater absorption that we have seen continues to some extent, we believe it will be between 80% and 81% for the full year. Talking about the vaccine numbers, is -- our guidance for the time being does not include any impact of the vaccine. What Pascal has indicated, which is a no-profit assumption, I wouldn't want you to draw conclusion that we are not going to sell the vaccines in 2020. We obviously do everything we can to develop and register and distribute this vaccine as early as possible in the latter part of the year, but the number that we have indicated today do not include any numbers for vaccine. We will include those when we know more about the timing of the studies and the review process by authorities.

Thanks, Marc. The accounting of it, we may also vary from deal to deal because sometimes we get reimbursed for expenses, sometimes we invoice. And we have a commitment that the price we charge is reflecting of a no-profit commitment. So we'll have different types of accounting for some of those deals. Mene, do you want to comment on the data and the program itself?

Yes just because I want to go ahead with a couple of statements. So the studies that we have running in the U.K., Brazil, South Africa and soon to start in the U.S. will all be 2-dose studies. And the data readouts from either the U.K. study, the Brazilian study or the South African study or a combination of those could be sufficient for regulatory approvals around the world, just to be clear.

The one thing maybe I would add, Luisa, is that there is one thing we don't -- one variable we do not control, and that's the case for everybody, and that's the rate of infection. As you can imagine, if the attack rate is low, it's going to be hard to show a statistically meaningful benefit or reduction of infections. And that's why we have quickly moved into Brazil and South Africa where the infection rate is high, where we tend to have a better chance to show efficacy or lack of efficacy but at least a statistically meaningful result. But that's the kind of variable that none of us developing vaccines can control, and that influencing -- that influences greatly the timing of getting the results of our trials, of course. Michael Leuchten, Michael at UBS.

Two, please. One, just interested in, and I guess this is for Leon, the change of the agreement in China for roxadustat, whether there's any operational rationale behind that. Any color would be helpful. And then so -- and Marc, just going back to the accounting around the vaccine. So my understanding is at the moment, this is netted in the P&L line by line. So whatever expenses you incur are then netted against the money or the funding that you have received. How is this done on a cash flow basis? So the substantial effort you've been making over the last few months, is that just all in, in the cash flow, in the operational cash flow number? Or is there also some netting and it comes in below that line? Any color there would be helpful.

Marc, do you want to cover both questions, including the roxa China agreement? Because of course, you've been very much involved in that one.

Yes. Okay. So let me start with the vaccine accounting. So first of all, I'd like to -- on the P&L, as Pascal said, we have -- there's more than one contract. Therefore, it's not done in a uniform manner around the world. But more often than not, we will book sales either to governments or through licenses and so on. So there will be a line on sales. We'll book it on revenues. And we will have also cost of sales, I mean, cost of manufacturing. We may have some other costs involved. So it won't be netted. It will be netted in economic term because we have a no-profit commitment. But it's not netted on the accounting statements. So the economic result will be neutral for the vaccine, but it will be represented on our P&L on the adequate line. As far as cash flow is concerned, most of the time, we try to match the sort of commitment that we have to make to subcontractors or various parties with what -- with the commitment that we receive either from governments or from supranational organization and donors. But it doesn't always work that well, so we have usually a small-time lag between the commitment that we make and the payment of the loan and the grants that we received. But at the first half of the year, this cash flow impact is limited. We expect it to be a bit larger for the remainder of 2020. But the other point I wanted to say, there will be no netting. There's no netting at all. In other words, we will receive some subsidies, some grants from some parties. It will be booked in our cash flow as subsidies. And if we make commitment to a subcontractor, we will also book it where it should be booked on our cash flow statement. So therefore, this will become visible and apparent to all. On roxadustat. So we have renegotiated the agreement in China to facilitate the collaboration between our own organization and FibroGen but also to take into account the change of the regulation of the 2-invoice rule to be more in line with the principle of the contract that we had signed in 2014, I believe. So it was basically to adjust to the new regulation of China and to try and keep the principle that we had agreed upon several years ago. I believe this contract -- the new contract -- the new terms of the contract are going to be easier for the 2 local organization to collaborate with each other. And this is why we did this negotiation. But the economic terms are not changed overall. It's just different terms.

Thank you, Marc. So the next question is from James Gordon at JPMorgan. James, over to you.

James Gordon, JPMorgan. Thanks for taking 2 questions. The first question was about the COVID-19 vaccine and how to think about neutralizing antibodies. So COVID-19, it might be that revaccination is going to be required. And the one question has been whether you can reuse it. But do you know what proportion of patients end up getting neutralizing antibodies when they get given this [indiscernible] virus? And do the neutralizing antibodies mean it doesn't work at all? Or do they just mean you get lower efficacy and you'd have to dose it up higher? And also, how long do the neutralizing antibodies last for? Do we know that? So might it be that the neutralizing antibodies show that at the same pace as the protective antibodies? And so that was the first question, please. And then the second question, just on TROP2, a key differentiation in the way you develop it? So there is a TROP2 asset already out now, Trodelvy. Is the main differentiation the antibody ratio or the linker or something else? And do we think that you're going to develop this for everyone, as in all-comers, or just in high-TROP2 patients? Because when I look at the efficacy, I saw the 27% efficacy quoted on the slides, but I think in the 2/3 of people with a high TROP2, you get about 3x the efficacy versus the low TROP2. So what are you thinking about that, please?

Thank you, James. So the TROP2 -- maybe we could start with the TROP2 question. José, you could cover this differentiation, et cetera. And then Mene, the -- you cover the neutralizing antibody question, which is, as I understood it, neutralizing antibody to the vector itself. So José, over to you. José Baselga: So thank you very much, James. So on the DS-1062. So the big differentiation is at two levels. One is at the level of the payload. Our payload, the DXd, is 10x more potent than SC -- NS38. So that's point number one. Point number two is the linker. Our compound has tremendous linker stability. And that means that over a period of days, only 5% of the payload is being released, which explains the fact that you can have a safety profile that is very different from irinotecan. So we believe that this is the best-in-class ADC against TROP2. The applicability, multiple tumor types. The first place to go, obviously, is in non-small cell lung cancer based on the clinical data that you have referred to. Also, triple-negative breast cancer and bladder cancer have proof-of-concept that this is an approach that works. And I would say that beyond that, there are many other tumor types. So we see this as a truly pan-tumor asset. So it -- we'll explore in small cell lung cancer, in gastric, in pancreatic, into the neck, in cervical, et cetera. So I think that is incredibly exciting on that front. The data in lung cancer does not suggest that there is increase in -- a higher efficacy at higher TROP2 levels. So although we are working very hard to find a biomarker, at this point, there is no correlation in lung cancer between different levels TROP2 expression and activity. So our plan for the Phase III study is to go into an all-comers population.

Thanks, José. Mene?

So there are a few questions really, and one is how long lasting is the protection going to be for the vaccine. And by that, how long is the neutralizing antibody response and T-cell response? And for that, we need to go to some of the Merck data because obviously, we don't know yet until we start generating data 6 months and 12 months out. But the Oxford Group have demonstrated that they're getting long-lasting immune responses that go well beyond 12 months, say 12 to 18 months at a minimum. With regards to antibodies to the vector, following 2 doses so far, I would say that's very limited. Again, there's some data they've generated with repeat dosing with other -- against other viruses. And they've gone out to 4 or 5 doses and again seen very -- relatively little impact on the overall immune response to the antigen that you're trying to provoke immune response to. So in this case, it's spike protein for us of SARS-CoV-2. So I think we will be able to dose repeatedly, but it will hopefully be once every 1 or 2 years.

Thanks, Mene. So we'll try to shorten the responses because we have many questions. Matt Weston at Crédit Suisse. Over to you, Matt.

Two, please. One for José. Adjuvant IO. I see you've delayed the readout of the Imfinzi trial in lung. I assume that's because the eGFR patients are likely to move to the ADAURA regimen when approved. I'm just interested, are you reopening recruitment to add more patients? Or are you just running the smaller trial for longer? And then secondly, actually just a follow-up to Mene's comments to James' question to do with neutralizing antibodies to the vector. I note that with other Oxford vaccine candidates, they've used a second vector, the MVA vector, for the second shot, particularly for this reason of not wanting to see neutralizing antibodies. So why didn't you do that here? Why was it not necessary?

Thank you, Matt. So maybe we could start with this neutralizing antibody questions, Mene, and then we'll move to the BR.31. José, over to you.

Short answer is because we've got a very robust neutralizing antibody and T cell response with 2 shots of the same vaccine. And obviously, that's a much easier thing to administer logistically around the world. It doesn't preclude us from looking at other things down the road, but, in this instance, it is the easiest thing and the response is still very good. José Baselga: So in terms of the BR.31 adjuvant study, we have announced that as a result of the positive Tagrisso ADAURA study, we are now analyzing the potential impact that it will have on the adjuvant Imfinzi study. So the Phase III trial analysis is currently being reviewed. So as a result of that, we are anticipating now a delay on the results until '21-plus. I think that's just a normal reaction based on the fact that ADAURA has totally transformed in a good way the therapy of patients with lung cancer.

Thanks, José. Next one is Mark Purcell, Morgan Stanley. Mark, over to you.

Yes. Thanks, Pascal. First question is on your ADC strategy more broadly, if I may, and HER2 with your DXd-directed ADC and TROP2 and all-comer ADC. But in terms of sort of your ADC-centric approach is enabling IO combinations and other combinations, could you sort of help us understand your ambitions there in terms of the promise that ADCs offer sort of smart chemo to replace standard chemo and how that could enable earlier utilization? So sort of following vis-à-vis the MERMAID initiative and the data you generated with ADAURA and PACIFIC. And then could you help us understand your internal capabilities here in terms of building organically ADCs which can compete with the platform you've collaborated with given that you've moved the BCMA ADC into Phase I in the second quarter? And then just a very quick one. Lynparza colorectal cancer Phase III trial, I don't think we've seen any Phase II data. So José, could you help us understand what's giving you the confidence of starting what's going to be a pretty lengthy and significant Phase III program in colorectal cancer for Lynparza?

José, over to you. José Baselga: So thank you very much. These are very good questions and a long question, so I'd like to address them quickly, if I could. So in terms of the ADC program, we believe there is a huge logic in combining ADCs with IO. So basically, the way we see that is that we see ADCs in breast cancer and in lung cancer as the backbone of therapy. And we do see them as the replacement of any form of chemotherapy in that setting just because they are far more efficient. And also, they have a very good profile from the point of view of safety. Now if you think about that, the ADCs induce a very fast response, and it's very deep. In non-small cell lung cancer, in the first-line setting, although IO is helping tremendously, you have PFS in the first-line setting with IO alone in non-small lung cancer of 5, 6 months. That's what you have. So I think with very important ADCs, you could clearly enhance that. So it's front and center in our strategy. And the same applies for -- in HER2. So I think that's important. Now I think, Mark, as you also point out, as you can imagine, when we have 2 assets of this magnitude, it means that we believe in ADC as a pillar of cancer therapy. So we always had at AZ a very good ADC effort, and we have some of our own compounds that are being moved forward. And what we're doing now is that we are strengthening further our internal capabilities as much as we can. So we don't see these 2 ADCs just a two-off phenomena but rather a commitment to this very exciting area of therapy. Then if I recall correctly on the Lynparza study, the Phase III study in colorectal cancer, that's a study that's being done by Merck. We are partners, but that's a Merck brand study. The logic is quite obvious. There is a proportion -- a significant proportion of patients with colorectal cancer that are sensitive to platinum, and there is a correlation between platinum sensitivity and Lynparza sensitivity. So that's a question being addressed. Now of course, you could do a Phase II. But at some point, the only way to prove this is a Phase III. So I totally -- we totally support the approach that Merck is taking on this front. Thank you.

Thanks, José. Richard Parkes at Exane. Over to you, Richard.

Hopefully, you can hear me okay. A couple of questions. First one for Pascal. Just wondered if you could talk about your longer-term ambition in the vaccines market. Obviously, your CapEx is being funded by the contracts you've entered in the vaccine market. Looks like it could open up given improved appreciation of the value of vaccination following the pandemic. So is that an area that you would allocate your own capital to investing behind longer term? That's the first question. Second question is for José on the SERD program. Your competitor has been pretty vocal about their belief that you're disadvantaged by the tolerability and the bradycardia and visual disturbances. Just I was hoping to get your perspective on that and whether those were on-target or off-target toxicities.

Thanks, Richard. I'll try to cover the first one, which is a good question, and José could cover the SERD question. The vaccines, I mean, it's a good question. I cannot answer it as of today. Every year with the Board, we review our long-term strategy, and those are the kind of discussions we're going to have over the next few months. I can only tell you today that our starting point was really kind of living our values, in fact, doing the right thing. We thought this is a vaccine that has a good profile. We can help globalize the development and the manufacturing. And we can make an impact as a company on this terrible disease. And also, being entrepreneurial is another one of our values. And so everybody in the company is very entrepreneurial. And so that's really why we jumped in there. We want to make an impact. We want to make a difference. And then we will see. We are being entrepreneurial, and we'll see where that takes us. But also, we have to have strategic discussions on capital allocation. But you really start with, do we have anything? Do we have an opportunity? Do we have science that can -- we can follow? So lots of questions. We don't have the answer, and we will look at this over the next few months. José, the SERD question? José Baselga: Yes. Well, as you can imagine, the SERD is right on my alley. So I'd be looking at the SERD data not with two eyes but actually with more than that, and I would say with two eyes and a heart. So the activity data that was reported at ASCO, you cannot compare different. You cannot do cross-study comparisons. But somehow, you need to look at your data and see what it tells you. And what it tells me is that our patient population was the most heavily pretreated of any other reported Phase I study with SERD. And in this incredibly heavily treated population, we had perhaps the highest response rate reported and the highest clinical benefit rate. So we are dealing with a very efficacious and likely to be best-in-class SERD inhibitor. Now the -- bradycardia is an on-target effect. It's something that has been seen also by other SERDs. I would be concerned if I did not see bradycardia because it's a very powerful class effect. The good news with bradycardia is that the question is not how low that the heart rate goes but rather can it recover upon stress or exercise. And is it causing or not symptoms? And the answer is that we have not seen patients having symptoms that alter their functionality due to bradycardia. And the same applies with the visual disturbances. These are visual disturbances that do not interfere with their daily lives. There is static relapses. It gets better. So we are studying this very carefully, but we are not concerned. And also very importantly, we have not announced yet our Phase III dose. This toxicity scales that are part of the clinical trials have not been adapted to the different agents. So we are thinking that it's going to be more relevant to perhaps present this data in a way that provides meaningful information for the drug development process. And I think here, these toxicity scales in bradycardia and in eye disturbances are not helping. And one more last comment, if I may. We have studied extensively, and there is no organic damage to any of the visual apparatus of any of these patients.

Thanks, José. Maybe just to add, you have to remember, bradycardia was defined as a heart rate below 60. I take confidence myself that my heart rate is below 60 and I'm still alive. So I think it's a question of how you classify this bradycardia, and we have more work to do in defining exactly what we mean by this because it creates questions. But in fact, as José explained, there's no reason to be concerned at this point. Simon Baker at Redburn.

I have two questions. Firstly, one for Marc. A question on 2 quarterly factors and any potential impact on full year. Firstly, on the tax rate, which was higher than we expected in Q2. Does that have any full year impact? Was that just quarterly fluctuation that will wash out in the second half? And also on SG&A, where you talked about investment in launches, but presumably there were some COVID-related savings there. So I wonder if you could give us the dynamics around that and any impact that will have on the full year figure. And then a question for Ruud on Brilinta. If I look at the contribution of established rest of world sales to the total for Brilinta, it's one of the lowest of your focus key medicines. I just wonder if you could give us an update on where you see the potential for Brilinta in established rest of world.

Thank you. Shall we start with Marc? And then, Ruud, you could cover the Brilinta question.

Yes. So Simon, thank you for the question on the tax rate. So basically, 21% for the second quarter, and we are confirming our guidance or indication more precisely on the tax rate for the whole year, There's no change to it. As you suggest, this is obviously a quarter-to-quarter small -- very small variation. On the SG&A, you are right to say that like many other companies, we have had a reduced level of commercial activities. And therefore, spend of SG&A has been lower than expected. But conversely, we have had a dramatic increase, although the line is a small line, on distribution costs. The freight has been -- the capacity of freight has reduced by about 50%, and the cost of freight and transportation and warehousing and everything has increased by about 30% -- 30% to 40%. So you have -- the COVID-19 has brought some pluses and minuses. Our SG&A is growing year-to-date at 5%. And with this, we have invested behind several launches, and we have continued to invest for size in China.

Thanks, Marc. Ruud, Brilinta?

Yes. Absolutely. Very quickly, so in established -- the world's markets, we are primarily talking about countries like Australia, Japan and Canada, we lost the patent. The patent expires already in Canada. In Japan, as you probably know, the sales of Brilinta is almost nonexisting. So the growth potential in what we are calling the established markets outside of Europe and Canada and international is relatively limited. But equally, we still see a very substantial opportunity in the United States, Europe and especially in the emerging markets moving forward.

Next one is [indiscernible]. Naresh, you may be on mute. We can't hear you. Okay. So -- hello?

Hello? Can you hear me?

Yes. Go ahead, Naresh [ph].

Sorry, I'm not sure what happened there. Just a couple of questions on Tagrisso, please. There were some signs that eGFR testing in U.S. and in Europe was down quite significantly due to COVID. But we're not seeing any impact on Tagrisso sales. Is that something you have seen with respect to eGFR testing? And should we expect any impact on Tagrisso in H2 as a result? Or have new patient starts been pretty stable? And then secondly, on Tagrisso in China. In your initial epidemiological data, you gave the potential patient population a pretty big haircut to reflect limited patient access. Now you're in the market, and you can see the uptake, particularly in the first-line setting, is there any upside to your initial population data for Tagrisso in China?

Thank you, Naresh [ph], two questions for you.

Great. Thanks, Naresh [ph], for the questions. So on the first, in terms of the eGFR testing rates, across tumor types we are seeing declines in diagnosis rates and testing rates. And so that's true of the eGFR testing in the U.S. just as it is true of actually all of the testing that we're seeing. With that said, I think that we did see -- within the U.S. specifically, we see continued low single-digit demand on Tagrisso continuing to be driven. And I think that, that is largely due from what we see in increase in duration of therapy and TRxs. I think again on Tagrisso, the key thing that we've really highlighted here is that the strength of Tagrisso is really the global business, which is up by 7%, and it speaks to the expansions that we're making across the globe to bring FLAURA online and get national reimbursements and then the move that we'll make, obviously, to transition to ADAURA. On the question within China, I think we still continue to stay true to the epidemiology data that we've put out. We continue to work on making sure that we're driving access not only, of course, into the provinces but into the counties. But I think the estimates that we gave before are still holding true with the numbers that we're seeing right now.

Thank you, Dave. So -- sorry, the -- Nick, can you get me the -- and we have a couple of additional questions. Can I get the list, please? Nick, I don't know if you hear me. Can I get the list of questions, please? I don't know where -- we'll -- he...

Pascal, I believe [indiscernible] is next.

It's okay. It's okay. It's okay. I'm just waiting to hear from Nick. Nick?

Yes, Pascal. Sorry.

Oh, you're on. Okay, thanks. Thanks very much. Christopher Woodard [ph]. Thank you very much.

So the first one, Tagrisso. I noticed that there's a change in, yes, potential regulatory filing. So have you held presubmission talks yet with all the major global agencies? And then do you expect to submit in H2 only in the U.S. or elsewhere also? And then secondly, can you quantify the impact of COVID-19 on SG&A in Q2 as a percent of -- well, as a percent of sales delta from last year? And finally, on the logistics of vaccine delivery. It's been reported that actually delivering the vaccine to end users may be a challenge because of the quantities that have been -- or that are planned to be shipped around the world. Can you comment on what, if anything, you're doing to kind of prepare for that?

Thank you so much. Marc, do you want to cover the second question?

The second question was basically the impact on the SG&A level or on the sales level? I'm not sure I...

So yes, sorry. SG&A. So as a sort of -- if you can quantify that as a sort of -- yes, in terms of a delta in percent of SG&A to sales.

So I have mentioned early on that the SG&A grew for the first half at 5%. And I would say that if -- it's a bit hard to speculate, but if COVID-19 had not taken place, I would imagine that our growth rate would have been more in line with what we have seen before, which is probably 7%. So I would imagine a 2% impact on the growth rate of SG&A due to COVID-19-related reduction of activities. But it's a very approximative view. Does it answer your question?

Yes. Yes.

Thank you. Thank you.

Thanks, Marc. And the first question was about Tagrisso filing. Do you want to take it, Dave?

Yes. Absolutely. So we are moving at pace across the globe with health authorities on our discussions on ADAURA. As you saw from the news just today, we've been granted breakthrough therapy designation in the United States by the FDA for ADAURA. We're also discussing Orbis countries with the FDA and other health authorities. So I think that the enthusiasm for this dataset is high and look forward to more updates on filings that are happening throughout the second half as we really move towards getting ready for a variety of global launches next year.

Thanks, Dave. Can we return maybe to the vaccine question? And Pam, you could cover the distribution question that was asked. But you could also give people a sense of what this setup in manufacturing means because everybody is always focused on clinical results, but having a vaccine that can help the world means you have to scale up the manufacturing, and that's a very important dimension that tends to be forgotten. Go ahead, Pam.

Yes. Absolutely. Thank you, Pascal. So let me just quickly give everyone a feel in terms of what have we done in setting up supply chains to be capable of delivering over 2 billion doses of this potential vaccine between end of 2020 and to the end of 2021. So we've now are in collaborations and partnership with over 20 what we call the contract manufacturing organizations. We've got 2 significant sublicenses as well in place. And we've worked very, very hard to, in parallel, as we are standing up clinical trials, to also get these supply chain ready and manufacturing -- commercial manufacturing ready. We stood up these what we call the independent sort of parallel supply chains to ensure that we can have broad and equitable assets around the world without competing with each other as well. So our main focus is to do everything we can to ensure that these commercial doses are available should this vaccine proven effective. Our goal has always been, if this vaccine is effective, we wouldn't have lost a single day in delivering these doses to the world. We are collaborating with many governments and entities around the world on supply and distribution. We, as one company, AstraZeneca, will not be in the position of deciding who gets what vaccine and when. We are working with the governments in due course to ensure that the doses are available. And we would -- the government and the entities will decide who gets vaccinated and when.

Thanks, Pam. So the next question is Andrew Baum at Citi.

Yes. Actually -- so first question for Pascal and José. A couple of your former colleagues from Genentech have founded EQRx that has a drug with a very similar profile called amanitin approved on the Chinese market and is -- and now they've acquired the U.S. rights. So as you think about the competitive risk, given some of the recent action of the FDA in accepting Chinese data, realistically how are you thinking about future planning? I'm sure there's intellectual property questions, but I'm just interested in gauging how aware and the amount of thought you give to that product. And then second, on PT027, which -- the budesonide albuterol inhaler, what's your internal level of excitement? Despite the lack of innovation, we've argued at least that there is significant medical need. But I'm interested in understanding commercially how important you think it could be within the U.S. market.

Thank you. So maybe let's start with PT027. At the end of the day, we follow the science, but the important piece is to address patients' needs, right? So if you can help patients, even the science -- even if the science is not breakthrough, it is exciting. So Ruud, do you want to talk about PT027? And then we'll return to EQRx and José can comment.

Yes. Absolutely, Pascal. So Andrew, I think it's almost an understatement to say that there's a lot of excitement in the U.S. organization. And it's twofold. First of all, there's an overreliance on short-acting beta agonists. It's causing a lot of issues, including asthma death in the United States. So coming back to Pascal's point, there's clearly a medical need. The second piece is in the United States, we don't have the smart or the anti-inflammatory relief indication because the FDA was never very keen in order to move into that direction. So in that sense also from a commercial opportunity, if PT027 is successful and will get approved, it's the only product who can claim that you can have an ICS and, in this case, a SABA in order to treat patients across the GINA 1 up to GINA 5 patient population. So it's a very exciting product. And clearly, we are beefing up our resources. We are looking into every possibility to get a good start of this product in the United States when it is registered.

Thanks, Ruud. I mean the Symbicort there in Europe and elsewhere has changed the guidelines on what you know, and it's a huge opportunity and a way to change treatment. Hopefully, we can do the same with PT027 in the U.S. So let's move to the EQRx question. Just a quick general point actually, Andrew, is that the FDA has said they will take Chinese data. They haven't said they will take a second-line dataset to get approval for first line. Or you're going to do that, right? So -- but José, go ahead. José Baselga: So thank you very much, Andrew. So I think your question has two aspects to it. One is particularly how this affects Tagrisso, and I think that the Tagrisso situation that we have is one that's incredibly strong because we have full second-line approval. And also, we have randomized first-line data and now we have adjuvant data. So they -- it's a very solid position that we have. So I think to me, Andrew, and I think that where you're going is the philosophy of all this. Because if there is a way down the line to get trials done in China in the Phase II setting with a lack of the control arm and that can lead to approval in the U.S. or rest of the world, I think that's a model that pharma needs to consider, and it's something that we will need to address in time. So it's all very fluid and very interesting. But I think that in the particular case of Tagrisso, the situation that we have is one that is extremely solid based on our data.

Thanks, José. Peter Welford?

Just two quick ones. Firstly, just returning again, I'm sorry, to the vaccine. You said [indiscernible]. I wonder if you could comment to give us timing at all when you may have some data on elderly and also pediatric and other at-risk patients. And also, is it possible for you to pull across the U.K., South Africa, Brazil studies to get data sooner depending on differential rates of infections or really study if they have to have its own independent event rate? And then just a quick one for Marc on cash flow, which is I think in the past you've been very clear with covering the dividend ex-date payments. I wonder if, now post the second Daiichi deal, you can give us, I guess, a reiteration or perhaps talk about when, again, covering the dividend and how you look at the cash flow from that following the second, obviously, major collaboration.

Thanks, Peter. Mene, do you want to cover the first two questions? And Marc will cover the cash flow questions.

Yes. So data on different age groups is coming from the Phase I study and from the Phase II part and the Phase III study we're running in the U.K., and we're getting that data in on a weekly basis. And with regards to pulling data from U.K., Brazil and African studies, the answer is, yes, we can because the endpoints are exactly the same. So we would be able to pull the data for the filing.

Thanks, Mene. Next question is Steve Scala at Cowen. Steve, over to you.

Pascal, would you like me to answer the question on the cash flow? That's how...

Oh, I'm sorry. I forgot that one. Go ahead, Marc. I was too [indiscernible].

And I will make it as short as I can. So we confirm our plan for 2021 to cover the dividend with our net cash flows, including or taking into account this new product right acquisition that we have just announced earlier in the week. So it doesn't change our plan whatsoever.

Thank you, Marc. So Steve Scala, Cowen.

Questions on a few upcoming events. The Enhertu filing for gastric seems to have been pushed out in the U.S. and EU. The Imfinzi treme filing in first-line HCC is back in 2020. It had been pushed to -- had been pushed previously to 2021. And then the PT027 data is now late 2021. It had been this year. Can you provide perspective on the reasons for these changes? And then quickly on the oral SERD, is it safe enough for a CDK4/6 combination in the first-line setting?

Thank you. So Mene, maybe you want to comment on the [indiscernible] and also, José, on the changes in Oncology and also cover the SERD question?

Yes. PT027 is one of the few studies we've got in late-stage development that has been impacted by COVID-19 because it's a mild population. We've had to pause. We had to pause enrollment and it's the only reason to delay. Back recruiting now.

Yes. We've had a number of -- a couple of studies impacted by COVID. José, do you want to -- thanks, Mene. José, do you want to cover the SERD question and safety in term of combination? José Baselga: Yes. Absolutely. So we are planning ahead to do a randomized Phase III study with the combination. We feel -- we're gathering the data, but we have no concerns. In terms of the...

In the -- go ahead. José Baselga: In terms of the clinical trials, and -- it all -- all the readouts that we have are purely event driven. So, I mean, there is nothing much we can do that follow the occurrence of the events.

Thank you. Thank you, José. So we've gone over a little bit because we had so many very good questions. I'm really sorry, but we now have to close. There are still a few questions that we cannot answer, but we want to be respectful of your time. If you want to share those questions with the IR team, we'll make sure we answer them separately. Let me just close by, thank you all again for your interest. And maybe quickly I'll repeat what I said a bit earlier. What you see now in play -- at play is really the strength of our global presence, our diversified footprint, our broad footprint around the world, our balanced specialty/primary care portfolio and the growth we see in the emerging markets. We now have a strong pipeline with 17 Phase III medicines, lots of life cycle projects, as you've heard today. Lots of good questions. And there's more to come with the early- and mid-stage pipeline. And finally, even though for a period of time people had their own questions and doubts, we are showing that our financials are improving, and we are delivering exactly on what we said we would do. So we're progressing our earnings growth and improving margins and cash flow. And definitely, we will continue building the pipeline but staying true to the financial commitments we have made to you and to our shareholders. So with this, thank you again for all your interest, and I wish you a great rest of the day. Thank you. Bye-bye.