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 are here in London and we have people with us here in the room, on the phone, and on the webcast. As usual, the presentation is available for those of you who 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 Slide 3. 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. For those of you on the phone and want to ask a question, please press star one.
There's also an option to ask questions online as part of the webcast. Please limit yourselves to one question in the first round, if you don't mind, so everybody can get a chance to ask a question. Thank you so much. Today I'm joined by Marc Dunoyer, our CFO, Mark Mallon, our Executive Vice President of Global Product and Portfolio Strategy, Global Medical Affairs and Corporate Affairs, Dave Fredrickson, who is Executive Vice President, and Head of our Oncology Business Unit, and Sean Bohen, our Executive Vice President for Global Medicines Development and our Chief Medical Officer. Please turn to Slide 4. This is the agenda, very standard format. You've seen that many times before. If we turn to Slide 5, these are the highlights of the year. I think we can say that 2017 was indeed a turning point for us and we made encouraging progress across the entire company.
Certainly very much from a pipeline viewpoint, it's also starting to show as far as commercial delivery. We had accelerated growth in the last quarter, it bodes well for 2018. Oncology was particularly encouraging with a growth rate of about 19% across all our medicines. Of course, we had the impact of the new launches only in the last quarter and those are slowly ramping up, in particular IMFINZI. TAGRISSO also is starting to accelerate on the back of first-line data, which of course we don't promote, but some physicians, in particular in the U.S., are already starting to adopt in their daily practice. CVMD also progressed very nicely. We now have two blockbusters in our cardiovascular diabetes portfolio. BRILINTA, which grew by 29%, really pleases me to see this product finally get to where I always thought it should be, there's more to come.
FARXIGA with a growth rate of 28%, despite a very competitive marketplace. In respiratory, we experienced some quarterly SYMBICORT improvement, starting to bottom out a little bit in some region and certainly grow very much in China. The FASENRA launch is proceeding very well. Very early days, of course. We launched in November in the U.S., as you know. So far so good. We're very satisfied with what we are seeing for this launch in the United States, including into January. The emerging markets are clearly a nice story, in particular for China. We experienced a growth rate of 8% acceleration in Q4. Just like to remind you that throughout the year, we were impacted negatively by divestments. An example is the anesthetics divestment. The actual growth rate of those countries is higher than we report, 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%-8%, so the 30% growth rate is truly a very remarkable success and there's more to come in 2008, '18, sorry. I'm not suggesting a minute that the growth rate will be higher than Q4, but certainly more to come in term of products. As you know, we got a reimbursement on the national drug reimbursement list for five new products. That certainly will fuel our growth. TAGRISSO is doing very well. We are actually even seeing something with TAGRISSO in China that we would never have thought possible five years ago.
We're seeing the product being reimbursed by some regional formularies, and we would not have seen that five years ago simply because the cost was a hurdle and things are changing. Really, we believe it has a great potential there. Our core EPS is better than expected due essentially to product sales. There were some one-offs, sales through ups, and of course, an improvement in our tax rate. For 2018, we guided to a single-digit percentage increase in product sales. You 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. 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. We should really see the full swing, the full impact of those launches, that will kick in in 2019 in Europe. They already started to kick in the U.S. in 2018. By 2019, really, we are out of the woods as it relates to patent expiries. We guided core EPS of $330-$350. This is to fully support the launch. Importantly, we actually achieved in 2017, really good success beyond our financial results and the products of our pipeline. 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.
We are identified as the biggest achiever for 300% increase in renewable electricity in a single year. Really, very good result. If you turn to slide six, these are the highlights in term of the news flow. We had very rich news flow in the last part of the year. As you can see here in particular, 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 a second line setting. This is a n all-comer approval, so a very substantial opportunity for our Japanese organization. Also very pleased to announce that we've received priority review in China. That's another thing that you wouldn't have so possible in China five years ago.
The typical process was you have to wait for approval in another geography, then you start developing in China, you basically launch several years after everybody else. This is changing. TAGRISSO really led the way, we're trying to achieve now the same with LYNPARZA. We presented, as you know, our phase III data for FLAURA at the ESMO, as a result, we received breakthrough therapy designation for first-line use in the U.S., this was followed by an acceptance of our submission in the U.S. with a priority review, also submission acceptances in both the EU and Japan, those are proceeded. In CVMD, we received some really good news for ZS-9.
The FDA accepted our regulatory resubmission, you've probably seen that in Europe, the CHMP has now completed the inspection of the plant to their satisfaction, then they reinstated their positive opinion. Hopefully we get approval for those two medicines in the not so distant future, for those medicines in those two region, I should say. Finally, as I said a minute ago, we got approval and launched FASENRA in the U.S. for severe and uncontrolled asthma. We also announced the positive top line results for the phase III KRONOS trial recently, which looked at the triple combination PT010 for patients with COPD. Of course, as usual, Sean will cover the pipeline in more detail later. If you want to turn to slide seven, I just want to highlight here, the top part actually of the graph.
As you can see, we are in light gray. That shows you that we are kind of finished in term of the patent expiries in the United States. The top part of the graph shows the patent loss of the sales from products that have lost their patents in the U.S. The second part is the darker gray reflects Europe and Japan, essentially. You can see here that we still have sales, that explains why in 2018, we will see a decline here. The rest of the portfolio is growing nicely. If you move to slide eight, as we said at the beginning of the year, 2017 was a defining year from a pipeline viewpoint because it's really a time when we started moving from pipeline delivery into commercial delivery, in 2018, we are in full swing as far as commercial delivery.
We now have several products in launch mode, then essentially, we really have commercial products now. Our story, if you will, is no longer purely a pipeline story, but it's a story of commercial delivery. On the right side, you see that we achieved many positive results. ZS-9 was a temporary setback, hopefully we should get approval soon, as I said. There's, of course, the MYSTIC PFS setback, I should say. We're still waiting for the overall survival results in the first half of this year, I will let Dave and Sean cover the rest of the oncology news in more detail. On this chart, you see essentially the sort of most important events. If you look at the totality of the events that we experienced in 2017, there were 43 events, whether they were clinical readouts or regulatory approvals in various geographies.
Out of 43, 40 were positive. We had three setbacks, tralokinumab, ZS-9, and MYSTIC. It really gives you a sense of the sheer scale of the pipeline progression we've experienced in 2017 and the great work our GMD organization under Sean's leadership has been doing to deliver all of this and there's more to come in 2018. We expect more or less same volume of activity, and in fact, January was in itself a tremendous month in terms of what you might call GMD productivity with several great news there. If we move to slide nine, this shows you that we are definitely committed to returning the company to growth.
As a not so exciting reminder, we've had no growth since 2010 as we went through all those patent expiries. 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 we've been experiencing for all these years. 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 growth. 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 and IMFINZI. 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. Overall, our expectation for 2018 is that the positive should more than offset the negative, and we expect low single-digit growth rate in product sales. With this, I'll now hand over to Mark, who is going to take you through our product sales and our growth platforms.
Thanks, Pascal. Welcome everybody. I'm pleased to be here again to give you an update on our performance of our growth platforms. We'll start with our Go to slide number 12. Great. Thank you. Today, 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 favorable true-ups in the U.S. for Respiratory. Combined revenue from our growth platforms represented over three-quarters of our business product sales. Also we saw good momentum, as Pascal mentioned, in emerging markets, but also in New CVMD and in New Oncology. Turn to slide 12, please.
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. We will look at the whole of oncology as a growth platform in itself, along with new CVMD, Respiratory and emerging markets. Next slide, please. Speaking 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. 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%. Also importantly in 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 market performance was significantly impacted by divestments. 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 would be 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. Turn 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 favorable sales through adjustment in the U.S., as I mentioned, but also certainly by overall continued increase in volume. In the U.S. and Europe, SYMBICORT sales declined by 12% and 10%, respectively. Importantly, in the U.S., NBRx, new-to-brand prescriptions, has been growing actually for SYMBICORT since September, and this was driven by an increase in share of voice, by the expanded COPD exacerbations, and the launch of a new campaign. 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 a fourth quarter performance of 26%, and this was driven by underlying growth and also some seasonality. Please turn to slide 16.
As Pascal mentioned, staying in Respiratory, we're pleased to announce the approval of FASENRA in the U.S. and the launch in the fourth quarter. We've now also announced approvals in Europe and Japan in 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 initial feedback from the market from physicians, 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%, despite intense competition, with fourth quarter growth up 21%. Continued growth that was demonstrated across all regions, which was very exciting to see. This is for FARXIGA and BRILINTA. Both, as Pascal mentioned, achieved blockbuster status with more than $1 billion in sales.
BRILINTA delivered 29% growth, with particularly impressive performance in the U.S. of 46% growth in 2017. FARXIGA delivered 28% growth in the year and maintained a 41% volume market share globally, continuing to maintain leadership within the SGLT2 class. In the U.S., we're excited also to have our innovative auto-injector, BYDUREON BCise, launched. Again, we are seeing encouraging early uptake with BYDUREON BCise. Next slide, please. In Japan, we continue to grow, with product sales up 4%. That's despite a declining Japanese market. Growth was mainly driven by FARXIGA, new indication for FASLODEX, and FARXIGA. We took, I should say, TAGRISSO, a new indication for FASLODEX 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. 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. It's great work by our local team there. CRESTOR did see their first generic competition in Q3, with multiple generics launching in the fourth quarter. We're now seeing an erosion rate comparable to other major products in Japan when they faced generic competition, and we do anticipate this effect to continue throughout 2018. We've had continued great success with TAGRISSO, where we've fully saturated the addressable second-line market with a 90% market share in the second line. It's a really outstanding performance by our team in Japan. On that note, great pleasure to hand over to Dave to take you through the Oncology growth platform. We can go ahead and move to slide 19. Thanks, everyone.
Thanks, Mark. Good afternoon, everyone. Now, as we turn to Oncology, we are really pleased to announce $4 billion in total product sales in 2017. 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 have now been delivered. 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've seen success consistently across the second line as we prepare for first line.
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 into next year. If we could turn to the next slide, please. 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 results in full-year sales of $297 million, with 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 of the pill burden and also the narrower label were lifted 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. in sales of $141 million. I think it is important to also note that the majority, and in fact, a significant majority of our sales in the fourth quarter in the U.S. were in ovarian cancer versus in other tumor types. We saw strong progress throughout the year within Europe, with sales up 58% in the full-year European sales of $130 million. BRCA testing rates have been moving nicely, and it's boosted by additional launches that we've seen across several markets. Again, as we mentioned before, Japan was just in January approved for the all-comers label in platinum-sensitive resistant.
We're certainly very pleased with this progress. We look forward to that being a catalyst going forward in 2018. 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. field 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. If we could turn to slide 21, please. Moving on to lung cancer, and specifically to take a look at TAGRISSO and IMFINZI. First, starting with TAGRISSO, very pleased to see that TAGRISSO demonstrated 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've seen across all of the markets that we're 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 see within the U.S. I think that that actually creates opportunity for a little bit of further growth within Europe. That's something that we're working on. The France testing rates are certainly on par with what we see within the U.S. In Japan, as Marc mentioned, testing rates are over 90%. We see market share among those that are T790M positive, also above 90%.
Japan has really probably hit about its theoretical max in terms of second line, and we're getting ready for first line within Japan. Lastly, Pascal spoke about China, and what we've had in terms of really an outstanding early penetration into that market. Turning quickly to IMFINZI, we look forward to the regulatory decisions that are going to come on PACIFIC. In the meanwhile, we've been quite pleased to see that within bladder cancer, our 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. We're in preparations and getting ready for launch for the stage 3 unresectable launch that's coming up shortly. If you turn to slide 22.
In summary, if you put together what you have heard from both Mark Mallon, Pascal, and myself, we have now a pipeline transformation that is continuing to deliver, and we are 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 have got several global launches underway across each of the therapeutic areas, oncology, CVMD, and respiratory. We remain committed to ensuring all eligible patients get access to our treatments as quickly as possible. And with this, it is my pleasure to turn over to Marc Dunoyer to go through some of our financials. Thank you.
Thank you, Dave, and hello, everyone. I am 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 am 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 U.S. Product sales, however, grew by 3% in the quarter, which included favorable true-up adjustment related to the first nine months of 2017. Encouraging progress, however, was made right across our therapy areas and in regions such as emerging markets.
External revenue grew by 38% in the year, with income from the collaboration with Merck of $1.2 billion, making just over half of the total. The reported tax rate of -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 sales of medicine, where we have lost exclusivity, as well as the ramp-up of manufacturing capacity for new medicines. The core gross margin ratio is also increasingly impacted by agreements with both Merck and Circassia.
To remind you, we book all LYNPARZA and Duaklir product sales and reflect the product profit share within cost of sales. It is useful to remember that when you are modeling our 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 cost discipline. We did, however, see an uplift in core SG&A cost in the second half, driven by some specific factors, which I will talk about in a moment. Other operating income increased by 14% in the year, 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 U.S. tax reform, the adjustment for which were reflected only in the reported tax rate.
In the first quarter, our core tax rate benefited from the impact of U.K. Patent Box profits, true-up on tax returns, and positive development in relation to a number of historic tax liabilities for which we had previously provided. These reflected the variability that can be expected now and again on tax matters. For 2018, I envisage a core tax rate of 16%-20%. Please turn to slide 26. Looking at external revenue in more detail, I want to turn to the contribution of ongoing external revenue, which includes royalties, option payments, milestone payments, and profit sharing. In 2017, this amounted to $821 million and was 35% of the total external revenue. In 2016, the ratio was 21%. Over time, 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 from 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 payments by Merck of $750 million for certain license option over 2017 to 2019, and up to $6.15 billion contingent 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 remain committed to focusing on appropriate cash generating and value accretive deals given the productivity of our pipeline. We also committed to the continued management of our portfolio disposal and to increasing the focus on our three main therapy areas 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 a quarter of the R&D budget each, with only a nominal level of funding allocated outside the three main therapy areas. In 2018, core R&D costs are anticipated to be in the range of a low single-digit percentage decline to stable, including the favorable impact on development cost from the collaboration with Merck. I did say back in July that you may see some rise in core SG&A cost. That is exactly what you saw in the second half, given investment in our launch programs.
We continue to make encouraging progress in reducing our underlying SG&A cost base, particularly within our infrastructure and enabling functions. In 2018, core SG&A cost 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 improve 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 of 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 2017, given the upfront Acerta investment in 2016. We know we have more work to do to drive our underlying cash flow.
We do anticipate growth in product sales and expect a reduction in restructuring cost to accompany our 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 % growth in product sales in 2018 at constant exchange rate. This is weighted toward the second half, reflecting the impact of generic competition to CRESTOR that Pascal mentioned earlier. In 2018, anticipate the sum of external revenue and other income to be less than that of 2017. We also anticipate a core EPS of $3.30 to $3.50 at constant exchange rates.
Within the financial performance we are already starting to see, as 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, Marc, 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. I'll finish with a look at our upcoming news flow. Please turn to slide 31. We delivered more good 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. As Pascal mentioned, we were also granted priority 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 the treatment of ovarian cancer. TAGRISSO received breakthrough therapy designation in the United States after meeting its PFS primary endpoint in the first line FLAURA trial. We're awaiting regulatory decisions for first line in the U.S., EU, and Japan. In CVMD, we received EU approval for the combination of BYDUREON and insulin in type 2 diabetes based on the results of the DURATION-7 trial. As Pascal explained earlier, we also had encouraging news for ZS-9 in both the U.S. and the EU. For roxadustat, our partner, FibroGen, received priority review status in China for the treatment of anemia. In respiratory, SYMBICORT received U.S. approval for COPD exacerbations, while FASENRA gained approval in the U.S., EU, and Japan.
The KRONOS trial met eight of nine primary endpoints. Lastly, based on strong phase II trial results for tezepelumab, we initiated a new phase III trial, NAVIGATOR, in patients with severe uncontrolled asthma. Turn 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 was submitted in the U.S., EU, and Japan last year for first-line EGFR-mutated non-small cell 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 3 unresectable non-small cell lung cancer.
We anticipate very similar timelines to that of TAGRISSO in the U.S., the EU, and Japan. Next slide, please. Looking now at CVMD, we anticipate two key phase III readouts in 2018. FARXIGA's DECLARE trial remains on track to read out 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/LABA combination therapy in a fixed dose in our Aerosphere delivery technology in a pressurized meter dose inhaler. In the KRONOS phase III trial, PT010 demonstrated significant improvement in six out of seven lung function primary endpoints compared with dual combination therapies in patients with moderate to severe COPD.
In total, eight of nine primary endpoints in the KRONOS trial were met, including two non-inferiority endpoints that were required to qualify PT009 as a viable comparator. We look forward to the ETHOS exacerbation trial results in 2019, which will further characterize the role of this potential new treatment for patients with COPD. We believe our biologics portfolio for severe asthma is emerging as one of the strongest in the industry. Turning to tezepelumab, a first-in-class potential new medicine that blocks TSLP. A recent Phase II-B clinical trial called PATHWAY evaluated tezepelumab in a broad population of severe asthma patients. The results were published in "The New England Journal of Medicine" and presented as a late-breaking abstract at 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 that targets the IL-5 receptor, thereby inducing direct and near complete depletion of eosinophils via antibody-dependent, cell-mediated cytotoxicity. 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 expect 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 readout for SOLO-1 in the first half and a 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 and 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 and Japan in the second half. Moving now to immuno-oncology. We anticipate a U.S. regulatory decision for PACIFIC in stage 3 unresectable lung cancer in this half of the year and for the EU and Japan in the second half. Furthermore, with regard to lung cancer, we expect data readouts for MYSTIC and ARCTIC first half of the year, with NEPTUNE following in the second half.
For head and neck cancer, we expect data for KESTREL and EAGLE in the first half, and our first-line bladder cancer trial, DANUBE, will have a data readout in 2019. In CVMD, DECLARE data will be available later this year. We anticipate a regulatory decision for our Bydureon auto-injector 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 in COPD.
At the same time, we expect regulatory submissions of BEVESPI in Japan and Duaklir in the United States. Finally, we expect data from anifrolumab, our lupus program, to read out in the second half of the year. With that, I'll hand back to Pascal.
Thank you, Sean. I'll try to conclude quickly so we can actually dedicate the full 45 minutes to your questions. If we move to next slide 37. Essentially, the message I'd like to leave you with is, this has been a long and arduous road over the last four, five years dealing with these patent expiries. I think what we can say is that our development team has done a fantastic job developing this pipeline and bringing these products to approval. We have shown that we can execute on our pipeline and develop great products and implement really good clinical plans. Now we are actually showing that our commercial teams can do a great job, and are doing a great job. FARXIGA, BRILINTA, our blockbuster products. TAGRISSO. We launched TAGRISSO at the end of 2015.
Within two years, we turned this product into a blockbuster, it's growing extremely rapidly, and there's a lot more to come. We're in the process of launching FASENRA, as we actually progress throughout 2018, you will be able to see how good a job our team, in the U.S. to start with and around the world, is doing, and the same will happen with IMFINZI. I think we are 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 expiries in Europe and Japan. After this, 2019 and beyond, we really should experience a period of fast growth. With that, I will conclude, then we'll now move to the Q&A.
For those of you who are on the phone, please remember to press star one to ask a question. We'll also take written questions from the webcast. Can I please remind everybody to limit questions to one, to be fair to all of our callers. Thanks in advance. I need to speak another seven seconds, we have just finished 45 minutes, we have 45 minutes for questions. Where do we start? Sachin?
Sachin Jain from Bank of America. Start off with a financial question, if I may, for Marc. On the one-off income guidance of less than what was achieved in 2017, it's fairly broad. I wonder if you could just give some directional commentary on where you think it sits versus combined externalization now and consensus of $2.4 billion. Related, the guidance range obviously is $0.20. Is that predominantly related to uncertainty on the one-off income, or are there operational uncertainties in that? Thank you.
Marc, do you want to cover this question?
The first question on the sum of external revenue plus other income, as we said earlier, and we repeated today, the sum is going to be lower than that of 2017. It's a bit difficult to tell you exactly what it's going to be, but some reduction. What I can say is that we are going to continue with external revenues, and we are going to continue also with other disposals. This is part of our business model, and this will continue. I can't be more precise than that as of today. On your second question, the range of the guidance $3.30-$3.50, there's obviously some uncertainty on the deals we will be able to conclude. More importantly, we need to see the success behind the launch of our many new products or new formulation and line extensions.
These are the two bigger factors behind the range of our guidance in terms of EPS.
Sorry. Vincent Mauger from Morgan Stanley. I have a question on China and the strong uptake. Two questions in one. Can you talk about the penetration of TAGRISSO? You said that it's already fairly high, but what should we expect going forward? Also, what's the profitability in China? 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 growing there implies investing also there?
Yeah. I'll ask Mark Mallon to maybe cover this one, but let me just correct if there is a misunderstanding. I didn't say that the TAGRISSO penetration in China is very high. If it was very high, we would have already a multibillion-dollar product because as you know, almost 50% of patients with lung cancer in China have an 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 already. With that, Mark, do you want to cover the more general question?
Yeah. Our business in China is growing, but it is also profitable. Not very different, I would say, than the rest of our business overall. Marc might even 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 focused 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 to get our medicine. It's a
Fast-growing, profitable business. We've got a great base. We'll invest to continue to expand our reach. This is the way we've described it.
Let's just 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. I'm sure nobody has heard about Wuhan. Wuhan is a city of 10 million people. I asked our team, "Is it an important city?" They say, "Oh, not so much. It's medium priority, and it's growing. It will be a priority in the near future, but it's still a small place." You get there, and this city is booming. It's completely booming. It's not in the dark ages. It's actually rapidly catching up. We are only starting to penetrate that place. 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 leverage the full potential of China as it unfolds over the next few years. Do you have anything you want to add on TAGRISSO and maybe ARIMIDEX in China? Those are such an important market for us.
Inhibitors, of course.
Yeah. I think 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. 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. In terms of the opportunity that still exists in China, there's considerable. I think that that's probably not really going to unlock until you start seeing reimbursement happening more broadly. I think that there are other analogs and examples of that you can see how that affects the penetration. In terms of ARIMIDEX our more mature or established brands continue to grow in China.
Whereas ARIMIDEX, FASLODEX, ZOLADEX are not part of our growth drivers outside of China. Within China, those are all growing in the double digits.
Thank you.
Can we take maybe one question online, then we come back to the room, Richard and Andrew. Tim Anderson. Tim, do you want to go ahead?
Thank you. A question on MYSTIC. Investors often seem to lose sight of the fact that you have a durva mono arm in this trial and a positive that would give you a first-line monotherapy indication alongside KEYTRUDA, possibly even in the current year. That would seem quite relevant, especially as PACIFIC gets approved in stage 3. I'm wondering if I can just get your latest thinking on at least this arm of MYSTIC being positive, given how the trial is powered, given where you've set your cut points and that sort of thing. Is it safe to assume you'd say that positive results are highly likely? Can I just slip in one quick question on tax rate guidance? The bracket is so big, 16%-20%. I'm wondering what explains that.
Thanks, Tim. I guess the first question is for you, Sean. The next is for Marc.
Okay, I'll start, Tim, with your MYSTIC question. Yes, what you describe in the design of MYSTIC is exactly right. It's got three arms. It's IMFINZI monotherapy, IMFINZI plus tremelimumab combination IO, 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 in very high expressors PD-L1, that is a validated therapeutic hypothesis with a PD-1 in that select patient group versus chemotherapy. What's a little confusing about interpreting the data out in the world was that if you look at the BMS data, it didn't seem to show that same patterns, it's not 100% clear why that difference between the two. We do consider monotherapy in high expressors a validated therapeutic hypothesis.
We also, as we've said many times, consider overall survival not only the more meaningful endpoint for patients, but actually the endpoint that better captures the benefit of IO treatments. That's the final readout and primary endpoint that we'll read out the first half of this year. With that we're cautiously optimistic about the MYSTIC trial for monotherapy and high expressors, and then also the hypotheses we may test with combination.
Thanks, Sean. Marc? Yes.
Regarding the range of the tax rate from 16%-20%, this is a usual range we provide. We did the same in 2017. When we advanced in the year, we narrowed down that range from 17%-19%. As you saw, due to variability on various movements and so on, we finished at 14%. I tend to be relatively cautious, and this is why I would prefer to keep a range of 16%-20%, because the tax rate is a very valuable matter depending on our various negotiation with various geographies.
Thanks, Marc. Richard and then Andrew.
Yeah. Richard Parkes from Deutsche Bank. I've got a financial one for Mark. I think your guidance on the steer you've given on SG&A costs suggests that those costs will be about $500 million higher than consensus was assuming before the results. Obviously, you're investing behind the launches, that figure does seem a bit higher than I would have thought, given that you're leveraging some of your existing sales force or those launches need relatively modest investment. 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 if actually you decided to reinvest back elsewhere in the business as well as those new launches.
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. We are investing selectively behind our products being launched or launch preparation. We have several of them. We have seven of them. Some of them are in existing fields where we are already operating, so the cost increase is minimal. In some others, we have some more. Pascal was mentioning China. Every year, we do invest further in China, of course, this is also costing us money. The payback is extremely rapid, we continue doing it. Mostly it's on the specialized sales forces that we need to launch all our new products or new formulation or line extension and some additional expenditures in China, I would say. This is probably the gist of the increase of the SG&A in 2018.
Maybe Mark, let me add that I don't know how you computed $500 million, Richard. I was double, triple-checking our guidance to make sure I had the right numbers in mind. We guided for a low- to mid-single-digit increase. That doesn't translate into $500 million. Less than that.
I was just comparing what that implies versus where consensus was before the results for next year.
Oh, okay. Andrew?
Thank you. Mark, your colleagues in oncology normally take the disproportionate amount of the questions on the therapeutics side. Could we talk about FARXIGA, which is obviously a billion-dollar product now? We happen to have taken a view that we think given the certain members of the class and the pending data in DECLARE, this could be a substantially undervalued asset. Could you humor us if DECLARE hits for both primary and secondary prevention and is further validated by heart failure trials and the ADA guidance on cardiovascular outcome, how large a product can this actually be prior to the patent expiry? Then just a quick add-on. The interim analysis for DAPA-HF we're expecting it this year. Would I be right in thinking that's a reasonable assumption?
Should we maybe start with the heart failure readout question and then look back into the commercial question? Sean, do you want to cover that?
I think that was a cue for me.
You can follow the commercial question and Mark the development one if you want.
I'd be very happy to forecast what I think FARXIGA would be worth. The heart failure question is we do incorporate interim analyses into these trials. I think maybe Andrew, I'm going to expand a little bit for everyone. The DAPA-HF trial Andrew's referring to is a trial of FARXIGA for the treatment of heart failure in both diabetics and non-diabetics. What it would do is it would enable the use of FARXIGA, if positive, outside of diabetes as well. There are interim analyses. We don't get into the details of how they're powered or when they're done. We have them, and then if they're positive, we announce them. Otherwise, our assumption is that we go ahead into the final analysis. I can't provide more detail than that.
In terms of the potential, I know Mark would caution me to say that we don't provide guidance, but what I can say is that we see substantial further opportunity for FARXIGA in the class. Of course, it's a $1 billion-plus brand already growing in the mid-20s%. We've just launched the product of FARXIGA. That's further upside. We've expanded access in the U.S. There's still a tremendous room in terms of changing practice. There's only a couple of countries in the world where SGLT2s are in guidelines ahead of DPP-4s, even though we have now outstanding evidence showing that this really has class as a great cardiovascular benefit. We still have a lot of work to do on the education. DECLARE will have a very big impact on that if it's positive because of the breadth of the risk profiles of the patients in the study.
Of course, that's just in the diabetes area. If we're successful in the cardiovascular program, that's all further upside. This can be a very substantial product. We're absolutely committed to it across the globe. I haven't mentioned it to BRICS side. We actually now have the number 1 major country in the world where FARXIGA is the number 1 innovative oral anti-diabetes product, and that's in Brazil, which is a very major market, bigger than Galvus, bigger than Januvia. That's where we're aiming to take this medicine.
Unfortunately, the countries where SGLT2s are recommended as first after metformin instead of DPP-4 are small countries. One of them is Singapore. Hopefully, with a lot of good work, we'll be able to modify the guidelines, and if that class becomes first line after metformin, the potential, as Mark said, is enormous. You could also have added the CKD, kidney disease, because we also have a program in kidney disease. That's really where actually our strategy takes its full potential because we're going to be in kidney disease, we're going to be in heart failure, with a variety of products. FARXIGA, of course, roxadustat in kidney disease, PRALUENT in cardiology. We have BRILINTA. We'll have, hopefully, FARXIGA. We'll have PRALUENT. We really will have a strong portfolio in each of these areas.
Thank you. Simon Baker from Exane. If I can just go back to Richard's question on SG&A. Mark, you talked about essentially two moving parts within SG&A, continued efficiencies in the underlying SG&A versus investments in new projects and new launches. I wonder if you could give us a little bit more color on the trend there, particularly in 2018, what that underlying SG&A could do. Then if I can, I'll chance my arm on moving on to 2019, I wonder if you could give us a feel for, I've asked this question many times before, on the trajectory of SG&A beyond 2018. There's a general feeling within the market that at some point in the future, the SG&A burden of AstraZeneca will be somewhat lower than it is now. There's a lot of debate as to how low and when.
I wonder if you could sort of flesh out as much as you're prepared to do, what we should think of in 2019, how much of the SG&A increase this year is transient versus permanent to give us an idea for the long run SG&A requirements for the company. Thank you.
Thank you very much for this very good question. The SG&A, basically, you have two different phenomenons. You have the continued cost discipline of the company, which is obviously impacting SG&A. Also it's done all across the company. I could say the same on the late-stage development division. They're also doing great effort on cost discipline and productivity increases. This goes all across the company, obviously, this reduces the cost. I've also talked about the launches, I would say the accumulation of launches that we are confronted to now. We have seven products in launch or in launch preparation. Obviously, this impacts negatively the SG&A.
To your question on the longer term, as we are moving progressively towards a more balanced company between primary care and specialty care, including oncology, the cost of doing business is going to, over a medium and long term, reduce proportionally. There is these three factors. We have greater efficiencies on the overall company. You have the nature or the number of the launches. Where do we launch? How many products do we launch in a given year? You have the long-term trend, where we're moving from primary care predominantly to a mix of primary care and specialty care. Over time, one can expect that the SG&A ratio will diminish to some extent.
I think it's important to keep in mind and remember that at the end of the day, we have a pipeline that is oversized relative to the total size of the company. We have all these launches Mark is talking about, with a base business that is small in relation to the pipeline. The good news is we're being able to experience a fast growth rate as soon as we get out of these patent expiries. The issue, of course, 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 shape the market and get the full potential of this product.
By 2019, 2020, there's no doubt our ratio will drop, and we want to get to operating margins that are in line with the industry. We definitely need to increase our operating margin. There's no question. 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'll give you an example. In the U.S., our SYMBICORT share of voice is lower than the competition. We're driving market share increase, as Mark 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. It's not like we are overspending relative to the competition, it's just the nature of the pipeline, the portfolio, and the number of launches we have.
This will disappear as those products launch and they start generating sales. If you look at TAGRISSO, it's already very profitable. As you can imagine, very profitable. We just need to get all these launches to critical mass to become profitable. Maybe last point is China. China is actually a profitable market. We've been investing because we've been growing at fast pace, we keep investing to keep pushing this growth. Actually, it's profitable. The profitability is similar to what we get in Europe. As we gain critical mass and become even bigger, the profitability will go up mechanically.
Yes. Naresh, go ahead.
Sorry, Jo. I'll get to you next. I missed you a few times.
You've given us obviously lots of information about lots of different parts of the businesses. One of the biggest contributors is externalization and 22% of your EBIT is from non-recurring externalization. You've given us guidance for this year. We need some color going forward as to how quickly the quality of the earnings will improve. 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? Following on from that, we've had $ billions worth of disposals over the last two or three years. How do you see that progressing over the next two or three years? Thank you.
Mark, there's a question for you. Let me just make a general comment, in term of strategically where we're trying to achieve, because there's all sorts of deciphering or reading of what we're trying to do with 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 a CEO of a large mining company. He was explaining that they are building the perfect portfolio for them. They're selling mines and buying other mines. It's essentially what we're doing. It's just very similar. Ultimately, what we want is almost the totality of our sales to come from those three core therapy areas.
We are investing in those three core TAs, and we are partnering or divesting, partnering new products and sometimes even tail products, and divesting other products that do not fit. At some point, that will show up in our growth rate, of course, and leverage across the business. More specifically, Mark, do you want to comment on the financials?
I think you have covered the big principle behind it. I think externalization, as we have said many times, is part of our business model. We 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 would not do it as fast. We have several examples where we have done it. I think what you need to remember is, in thinking about the 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 is progressively returning to growth. What you see as 22% today, if you look at the percentage of EBIT, very soon will become much smaller.
We've always said it, that we would peak and then continue doing it because it's part of the model, but suddenly the amount of upfront milestones would decline. This externalization income would decline progressively. Essentially by around 2020, we want to have the sustainable business, if I call it in this way, to basically generate sufficient profitability to cover the dividend and more. That's really this interim period. Strategically, we are building a portfolio which is totally aligned with our focus, and secondly, it's capital redeployment. It's capital allocation. We basically use this income to fuel the build of our three core TAs. Jo?
Jo Walton 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. I understand you don't want to give it to us product by product, but I assume it was also just a bit beyond respiratory because drugs like CRESTOR in the U.S. had 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 a reasonable guide to look at going forwards against the 81 or so that we saw for the full year in 2017? Then finally, a respiratory question.
I'm intrigued that you're putting a lot of effort behind SYMBICORT in the U.S. ahead of what would be likely to see a generic ADVAIR sometime in 2018. Just wondering what you think the impact on SYMBICORT will be, whether there'll be a generics first strategy that you will have to overcome in that market? Perhaps to chance my luck as well, you've 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?
It's not even three. It's four questions. Should I only pick one, or? The first one, I suspect Mark is not going to give you much of a detailed response, so maybe I can give you this one. Do you want, Mark, to cover the true-ups and the gross margin, and the other Mark will cover the respiratory question? Is that okay?
For the true-up, my recommendation would be not to look too much at the first quarter, which was impacted by more true-up that are corresponding to the 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. You will see the progressive reduction of the headwinds, and therefore it gives you a better view. My advice is, don't look at the fourth quarter. Think about this true-up as applying to the full year 2017. Another indication, if you look at which type of product, we don't want to give a product by product detail, but what I can say, that most of the true-up concern the legacy product, and less so for the newer product.
Your second question, maybe it was the 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 variation. I think if you looked at the gross margin level in the second half of 2017, I think this would provide you a good indication for where the gross margin should be in 2018. Do not look at the first half, because there were factors which were distorting it.
Let me just repeat what Marc said, because it's important in terms of swaps. It really affects, the great majority is affecting the legacy products to some extent. It's not so relevant because those products are going away anyway in the U.S., and the core products are not affected by those swaps. You can look at the gross rate of those products and be confident that this is not affected by those swaps. Mark Mallon has the other one.
Yes.
First of all, in terms of respiratory, and the question around SYMBICORT investment and ADVAIR generics. Our expectation is that the bulk of the effect of any analogs or generics, for ADVAIR, we will focus on ADVAIR. That's not to say there won't be some impact, but we really expect in other places, the substitution is sort of within the molecule, because it's hard to change devices and molecules in the respiratory area in general. We plan for continued intense competition in that category, I think we've got realistic expectations around pricing and the competition in the market, and we're confident we can be successful. It's really important because we've got a very exciting inhaled portfolio ahead of us. We've just only launched BEVESPI, we've got PT010 coming, and there's still huge unmet need in this category. We remain confident in our position there.
In turn, I'm so glad you asked about, thank you for asking about BYDUREON BCISE because we're very excited about this. The GLP-1 category is growing very fast in the U.S. This device has 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, and there's been a lot of holidays. You're going to have to wait a few more weeks to start to see a clear position. The feedback from, again, physicians and patients on BYDUREON BCISE is very positive. We have adjusted our resourcing.
We've got very significant sales and medical teams in the U.S. that are supporting both FARXIGA and Bydureon, we're very excited about the prospects for BYDUREON BCISE in 2018.
I think you can. It's early days, you're right, Marc, but you can actually look at the NBRx share for BCise over the last two or three weeks, and you will see that there's a very nice progression already, even though we started promoting, in fact, in January, really. The product itself has a potential, and then the combination with FARXIGA also has potential. As you know, we have very nice data for that combination. Should we move to Alex at BMO? Alex is on the line. I think maybe Dave is waiting for a question to tell him how good a job he's doing. Usually, we talk about oncology the whole time, and there's no easy question. Alex, go ahead.
Hi, this is Prakhar Agrawal on behalf of Alex Arfae. Two quick questions. First, what has been the early physician feedback on CALQUENCE? Secondly, have you conducted an interim OS analysis on MYSTIC since you announced the PFS results? Lastly, when should we expect the IMFINZI PACIFIC results to be reflected in the sale of major markets, specifically U.S. and Europe? Thank you.
Here is the answer to my call for oncology questions. Maybe, Sean, you can cover the MYSTIC and the PACIFIC question, because really, it's a regulatory question in terms of when do we get approval and when can we start promoting, and Dave could add some more color from a commercial viewpoint and also cover CALQUENCE.
The interim question's pretty easy. It's very similar to the answer that I gave to Andrew's question about FARXIGA. We have interims in the trials. We do not disclose things about those interims unless, of course, they're positive. That's how PACIFIC turned out being disclosed for PFS, you may recall. The trials, it's important to recognize, are designed based on robust assumptions of clinically meaningful differences and designed to be the right size of the final analysis. If they exceed our expectations considerably, they can read out early. With regard to PACIFIC and the regulatory timing, I pretty much gave that actually in the presentation.
Regulatory timing for the U.S., we anticipate in the first half of the year to receive approval for PACIFIC based upon the priority review designation for, I'm calling major markets, Japan and the EU, it will be by end of year 2018.
Thanks, Sean. Dave, maybe some additional color commercially on PACIFIC and then CALQUENCE.
Sure. In terms of the additional color on PACIFIC, in terms of from a commercial perspective, so we are very much getting ourselves ready for the PACIFIC launch, which we're anticipating, as we've said, within the first half. The majority of the utilization that we saw in the fourth quarter for IMFINZI was within lung cancer. Obviously we promote only within the bladder setting, but we see that there's enthusiasm within PACIFIC. I think that if you take a 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 will net out. We studied in stage 3 concurrent unresectable patients. The second is access. We've certainly seen that access has been growing in terms of hospital access within the U.S. and formulary access, and I think that it speaks volumes to one of the reasons why getting onto the market with bladder was so important because it has allowed us to be able to have that formulary access. I think the last piece is the speed with which you expect to see adoption. I think that here it's important to remember that the data for PACIFIC are certainly very exciting and unprecedented, but we also have a lot of education that we're going to need to do.
I think that it's important to also recognize that today there are no therapies that are used post-chemoradiotherapy in stage 3, it's watch and wait is the competition. To educate physicians on that, this is different from you're using an agent today, and we're going to replace it with something better. This is an education on this is a new way, a new treatment paradigm with the PACIFIC regimen. I think that needs to be factored in as we think about the uptake. On CALQUENCE, we've been really pleased with the progress that we've 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.
What we've 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 launched on the 31st 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're speaking to. We estimate that right now about one in five new starts is being started on CALQUENCE in MCL at the end of the year. Again, when you think about that that's an eight-week launch period that included some holidays within there, we're pretty pleased with that progress.
Thank you. James Gordon from J.P. Morgan. Two questions, please. One was on TAGRISSO in China. There was a comment about some initial reimbursement in some places. What does that initial reimbursement look like? Is it very big price concessions to what we've seen in the West? As you broaden reimbursement in China, do you think you'll have to make big price concessions? How's that playing out? Also in China, when do you think you might have a first-line approval, and could that require another step up in price concessions? If I could just squeeze another question in, which would be on roxadustat. There's pre-dialysis and dialysis. Where do you think the bigger hurdle is? Which is tougher to get the mortality outcome you need, and which is the bigger commercial opportunity?
Maybe Sean could cover the Roxa question and also the approval timing for first-line TAGRISSO in China. Let me just say that in first line, it's going to be hard in the near term, right? Because the cost is substantial. In the second line, you have a relatively good case to potentially get a reimbursement. First line, it's harder, and we have IRESSA there that is really doing very well. Sean, do you want to cover the first one, and then Dave could cover the other one?
Roxa pre-dialysis versus dialysis. We don't have a timeline we communicate for first-line approval in China. In part, that has to do with the fact that there isn't really a PDUFA-like structure in the Chinese regulatory system. You submit, you get acceptance. You don't necessarily know what the review cycle is going to be, so it's hard for us to communicate. I will say that CFDA is definitely moving more quickly in the way that they're reviewing things, and I think TAGRISSO second line T790M was a brilliant example of that. We're hopeful that we can engage them, but I can't give more guidance. Roxa, right. We have two main populations, 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 in one patient population versus another?
There isn't actually. 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 they're at greater cardiovascular risk. 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 the trial.
Just on that, although I could see the mechanism would be the same, I was partly asking because if I understand correctly, they're different comparators. One you're trying to show non-inferiority to placebo, another one superiority to ESA. Whether the different comparator is a different hurdle.
Yeah. Again, 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-inferiority for something that isn't a treatment versus a drug with a current black box warning around this exact endpoint and wanting to show that you don't convey that risk. That's really the only difference between the two. 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. Yes, subsequent indications do typically come with an expectation or a need for price concession that typically comes in the way of free goods. I would use European analogs as you look forward.
Thanks, Dave. Marc, do you want to add something on roxadustat?
I'm so pleased you asked about roxadustat. I think Sean gave you a sense of both how the clinical program is working out and how to think about the outcomes. Commercially, we see very substantial opportunities both in the dialysis and the non-dialysis. A different type of opportunity. 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 data we've seen in China. If we can meet our expectations, we're going to have a cardiovascular product that has benefits there. Then you add in moving from infusion to oral, really substantial benefits. In the pre-dialysis, it's a huge opportunity, but there is a market building effort that's going to require, which we are planning for. A very relatively small percentage of patients get treated for anemia today.
They basically are at elevated cardiovascular risk. They're dealing with a lot of actually symptoms from it, but there's not been reasonable options for these patients. 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 were talking about in PACIFIC with the other than iron, most of these patients don't get any treatment. Really excited about the product.
synergies across the portfolio. If you look at the prescribers, nephrologists, we'll have FARXIGA, we'll have roxadustat. You look at diabetologists who will somehow have to play a role in this pre-dialysis treatment. Of course, we have FARXIGA, we'll have roxadustat. Really strong synergies across. Let's take an online question. Seamus at Leerink. Go ahead, Seamus. Seamus, are you there? We can't hear you. Maybe we return to the room.
Jack Scannell, UBS. I've got 17 questions, of which I'll ask one. You, four or five years ago, published a really interesting paper that was a remarkably frank analysis of why R&D had been unsuccessful, perhaps, at AstraZeneca, and you published a framework to try and make it better. About a month ago, you published another paper declaring victory, saying the problem had been fixed. My question is, how easy would it be for other drug companies to read those papers and try and replicate what you guys claim you've done?
I'll ask Sean to cover this one, I don't think we declared a victory. If it felt like this, that was not the intent. I think Mary, who leads the IMED, was simply sharing some of the learnings and experience we've had. Of course, everybody's very proud of the progress we've made, there was no intent to declare a victory. Sean, do you want to cover this?
Sure, I'm happy to. I think that's exactly right. This is our 5R's paper, two elements to it. One is the declaration of victory. I think from going to mid-single digit % success of a candidate through to getting a drug, to what looks like 20% in our more recent experience, this is great progress. It's not exactly declaring victory because 80% of the time you still fail. We do feel like we're doing a lot better, and that that's playing out now in how our 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?
How transferable are they?
Yeah. It's interesting. I think the lessons are quite transferable, to be perfectly honest. In some respects, they're things we as an industry have known for a long time. If you ask what's different about 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 rigorous. That is not so easy to do, it turns out.
I would only add that all of us can read the same cooking recipe. It doesn't make us a world-class chef. Right? There's that. Having a process and a structure, the approach is really useful, you really need to make sure you have great people and a culture that sustain this and an approach that really is creative and innovative. Let's move back to online. Mark Purcell at Redburn. Mark, go ahead.
Yes. Thank you, Pascal. Can you hear me?
Yep.
Great. Thank you. Just a couple of clarification points, actually. Going back to what Jo was asking on gross margin, I was a little bit confused by the progression in Q4, and there may be some underlying impacts. If we assume product calls of $250 million, $300 million, that would obviously, at a very high gross margin contribution, been very positive for the gross margin in Q4, which came in at 79.4%.
Were there any offsetting factors in there, such as your MSD payments and the Circassia payments, which you mentioned? Can you help us understand the moving parts there? I don't think FX had an impact, but the accruals impact the MSD payments, whether there was an accrual of the MSD payments, which had a dilutive effect. Secondly, on FX, I was a little bit confused by the guidance that FX will have a minimal impact on earnings in 2018. If I followed your guidance, just using the five main currencies that you have in your press release, using a January average, the impact of currency on sales would be 2% earnings, 3%. That impact is consistent with your guidance on sales but not on EPS.
If I use 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. Are there any other factors which I'm missing which dilute the positive effect of the weakening dollar? Are there hedging losses or anything like that? Some clarification would be great. Thanks a lot.
Thanks, Marc. Marc, can you try to cover them
We'll try to mention some more on the gross margin. What I said earlier that if you 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 deduct from gross margin the profit sharing we provide Merck as well as we do for Circassia. We have indicated what goes in or comes out of the gross margin. This is going to be one factor also for 2018. There's 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. This is where the level of gross margin has declined.
You obviously have mix of products in various geographies, 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 biopharma product. These are the two main factors.
Thanks, Marc. I think we'll have to stop here because we are out of time, unfortunately. I'm sorry. If you have any more questions, please send them to our team. Let me just close by thanking you all for your interest and your great questions, and just kind of repeating what I said a bit earlier is we are at a stage where the pipeline is delivered. We are now full commercial launch mode. We have seven products that are either in launch mode or are growing very, very fast. That explains we need to resource them, but that also drives very substantial growth rate. On top of those seven global products that are in full launch mode, we have China. That is really material for us. For many companies, China is not material.
For us, it is very material and growing very rapidly, and it's our second largest market globally. With that, I will again thank you and wish you a good weekend. Thank you very much.