Good afternoon. Welcome, ladies and gentlemen, to AstraZeneca's half year 2017 results analyst conference call. Before I hand over the call to Pascal Soriot, AstraZeneca, I'd 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. By their very nature, forward-looking statements involve risk and uncertainty, and results may differ materially from those expressed or implied by these forward-looking statements. The company undertakes no obligation to update forward-looking statements. There will be an opportunity to ask questions after today's presentations. Please press star one to indicate you would wish to ask a question at any time during the call.
We will now hand you over to the Chief Executive Officer, Pascal Soriot, where the call is about to start.
Good afternoon, everyone. It's Pascal Soriot here. Welcome to the first half results conference call and webcast for investors and analysts. We are in Cambridge, in the U.K., in our global headquarters, and we have people on the phone and the webcast. As always, the presentation is available on astrazeneca.com for you to download. Please turn to slide two. This is our usual safe harbor statement. Please turn to slide three. Today, we plan to spend about half an hour on the presentation and then leave almost one hour for Q&A. We have lots to talk about today, and it's very important for us to put all of today's news into context. If you want to ask questions from the phone, you can get in the line already now by pressing star one. There's also an option to ask questions online as part of the webcast.
As we would like to provide everyone with an opportunity to ask questions, please limit to one question per person. This will make it fair for everyone. Thank you for your help here. Today, I'm joined by Marc Dunoyer, our CFO; Mark Mallon, our EVP for Global Products and Portfolio Strategy, Global Medical Affairs, and Corporate Affairs; Jamie Freedman, EVP for the Oncology Business Unit; and Sean Bohen, our EVP for Global Medicines Development and our Chief Medical Officer. Please turn to slide four. This is our agenda for today, and I would like to ask you to move to slide five. These are the highlights for the first half. On our conference call today, we'll be making comments on our financial performance using core reporting metrics and at CER, at constant exchange rates, which are both non-GAAP measures.
With the formalities behind me, I will now kick off. In summary, the business performance for the first half of 2017 was in line with expectations. Total revenue declined as anticipated and reflected the tail impact of CRESTOR and Seroquel XR's U.S. loss of exclusivity and some phasing of externalization revenue. The other hand, sales from growth platforms increased overall. They now account for 70% of total revenue. Emerging markets were up 6%. Within this region, China continued to perform well, and we saw the launch and the first sales of TAGRISSO. Outside China, there were impacts from the economic and geopolitical situation in some countries. Our respiratory business continued to be impacted by U.S. SYMBICORT, while the medicine remained a global leader in its class.
For new CVMD, BRILINTA continued with its high growth, and in diabetes, Farxiga continued to be the world leader in its class, despite a subdued U.S. performance due to pressure on managed care access. Overall, Farxiga delivered very good results. Japan was up by 6% and actually accelerated in Q2. TAGRISSO expanded on its impressive global launch and recorded the first sales in China, as I mentioned a minute ago. Finally, earnings per share were underpinned by continued cost management and other operating income. Please turn to slide six. The pipeline news flow continued since the last results announcement. We were, of course, disappointed by today's MYSTIC progression-free survival readout, and we now have to wait for overall survival data in the first half of 2018. We were pleased by a number of successes, including the PACIFIC trial. Let me cover a handful of news items.
First of all, Imfinzi. The Imfinzi news include the strategic and early U.S. launch in bladder cancer, as well as the early positive PFS results obtained from the PACIFIC trial. Earlier today, we provided an update on progression-free survival from MYSTIC, where there is no PFS benefit, and we need to wait until first half of 2018, when we expect to get the full picture of the clinical profile with the overall survival final analysis. The other hand, we met the single primary endpoint of progression-free survival in the FLAURA trial for TAGRISSO, which we are very pleased by when you see the growth coming from TAGRISSO in first half. We think we now got clinical data to unlock more value for patients and AstraZeneca and to help our ambitions in lung cancer. Next news is Faslodex.
It obtained approval in first-line breast cancer in the EU and in Japan, Lynparza was accepted for review in the EU and in Japan in second line ovarian cancer based on the SOLO2 trial. Unfortunately, BYDUREON for type 2 diabetes didn't show a statistically significant reduction in cardiovascular events in the EXSCEL outcomes trial. The safety profile of this medicine was reconfirmed. In respiratory, Bevespi was accepted for review in the EU for the treatment of COPD. We need to wait for the STRATOS 2 trial for tralokinumab to fully characterize the clinical profile for severe uncontrolled asthma. Outside our main TA areas, our externalization efforts were boosted by the approval of Kyntheum for psoriasis. Through partnerships with focused dermatology companies like Valeant in the U.S. and LEO Pharma in Europe, we've been able to bring this medicine to patients in need of better therapies.
Given our strategic focus on the three main TAs, AstraZeneca is not able to provide the same support to a dermatology medicine as our partners are, underpinning the strategic rationale for the decision to externalize. There are more pipeline milestones that Sean will speak to later. He will also cover today's news in detail. Please turn to slide seven. When we look at new AstraZeneca, we continue to see growth. Product sales grew by 4% and more underlying. Marc Mallon will get back to this later. As we move forward and very soon exit the patent cliff for CRESTOR in the U.S., we will start to see this growth become more visible, and we look forward to keeping you updated on this journey. I will now move to slide eight. As we begin returning to growth, our focus on commercial execution will increase.
There are good examples today, for instance, BRILINTA and also TAGRISSO. We've now also launched Qtern in Europe and, of course, Imfinzi in the U.S. At the end of the year, we anticipate the launch of benralizumab, our first biologic medicine in respiratory disease to treat severe uncontrolled asthma. On the news flow side, we were able to add more tick marks for Imfinzi approval and the exciting data from the PACIFIC trial in stage 3 unresectable lung cancer. I believe this is an indication that is still underestimated. It has a lot of potential, and we will be by ourselves in that indication.
We also recognize, however, that the MYSTIC PFS results are disappointing, and that we now need to wait until the first half of 2018 before we get the final OS data, and therefore, the full picture of the clinical profile of Imfinzi in lung cancer and the combination. On the other hand, today's news from the FLAURA trial for TAGRISSO is very encouraging, and it supports our focus on lung cancer and the benefit we can bring to patients. There's a lot more pipeline news flow expected over the remainder of the year. In summary, despite some disappointments and some successes, together with the management team, we are very committed to delivering on our return to growth and to deliver the value and the benefits of the pipeline to patients in need around the world.
I have to say that I'm very impressed by the progress we've made, and I would like to thank every colleague in the global AstraZeneca network for their contribution. I'm very proud to be the CEO of this company. I look forward to continuing on our journey, and I would like to say that I'm very committed to seeing the implementation of this strategy through. Speaking of our journey, please turn to slide nine. I'd like to touch on the collaboration that we have announced earlier today with our partner, Merck. The primary purpose of the collaboration is to accelerate and to expand the potential for Lynparza and essentially make Lynparza the PARP inhibitor of choice. This collaboration affirms Lynparza as the leading PARP inhibitor for IO combinations and also is the leading PD-1 in terms of clinical trials ongoing.
Jamie will elaborate on this further in his section, but essentially, the collaboration will also enable further studies to be initiated faster than we could have done ourselves and in broader patients population. In a nutshell, we actually partner products where we believe we can create more value with our partner. Here, there is a clear benefit in partnering with Merck, who is a very strong company, a company that shares our focus on science and has a strong IO presence. In combining Lynparza with KEYTRUDA on the one hand, and bevacizumab on the other hand, we believe we can make Lynparza a much bigger product. The total deal value is worth up to $8.5 billion, which we consider very attractive for Lynparza.
Just as a short reminder, $8.5 billion for half of this asset, which 4 years ago was written off in the books of the company, we believe is actually a reflection of the valuation that a very respectable company is actually able to see in Lynparza. We believe together with our partner at Merck, we can make Lynparza a big product. With this, I will now hand over to Marc Mallon. Marc, over to you.
Thanks, Pascal. I'm pleased to be here again to update you on the performance of our growth platforms. Let's jump right in. Next slide, please. I will cover our non-oncology growth platforms and then hand over to Jamie to cover new oncology. The growth platforms, as Pascal mentioned, demonstrated overall growth in the quarter, despite the continued headwinds in respiratory. The combined revenue of our growth platforms represented an impressive 70% of total revenue in the first half. Momentum was seen in emerging markets, in Japan, and in new oncology. Next slide, please. Starting with emerging markets, we continue to deliver in line with our long-term performance target of mid to high single-digit growth in product sales. In fact, when you take out the revenue from divestments, growth in the half was more than 10% across emerging markets.
Growth in China of 8% in the half was mainly driven by new products, new launches of Farxiga and TAGRISSO, and on the strong performance of BRILINTA. Importantly, for our long-term business, we have seen five of our medicines added newly to the Chinese National Reimbursement Drug listings, one of the best performances of any company in China, and including, most importantly, BRILINTA. Outside of China, we continue to see headwinds in Saudi Arabia and Venezuela due to challenging economic environment in those countries. Other parts of the emerging markets performed well, and notably Middle East and Africa, with growth of 28% in the first half of the year. Next slide, please. The respiratory franchise sales continue to see challenges in the half, with downward pressure in the U.S. being slightly offset by emerging markets and established rest-of-world performance.
As expected with SYMBICORT, we continue to see challenges, with global product sales down 10%. This reflecting price headwinds in the U.S. and competitive dynamics in Europe. We do not see a lessening of competitive pricing pressure going forward. However, SYMBICORT continues to lead volume share in the ICS/LABA class globally. In the U.S. and Europe, SYMBICORT product sales declined by 19% and 10%, respectively. SYMBICORT emerging markets delivered growth of 4%, with SYMBICORT China sales up by 18% in the half. We've launched an extensive SYMBICORT campaign to highlight its strong differentiation versus competitors. The campaign focuses on the 39% greater reduction in exacerbations versus Seretide and SABA, the seven times improvement in asthma control days versus baseline standard of care. In fact, this was achieved with a 25% lower ICS dose than Seretide and SABA. Next slide, please.
Touching briefly on Bevespi, the U.S. launch is going well, with new-to-brand prescriptions almost at 15% after only six months. The performance is ahead of what you would expect to see of a fourth to market launch. Actually right now, we're the only LABA/LAMA growing market share in the U.S. While the growth of the LABA/LAMA class continues to be below expectations, we still believe it has an important role to play with COPD patients, and we continue to believe that Bevespi offers a unique proposition with the Aerosphere technology, supported by a differentiated clinical profile. As a reminder, Bevespi is the first of our portfolio of new products launching on our new pMDI platform, utilizing the co-suspension technology that enables a consistent delivery of one or more medicines from a single pMDI. Next slide, please.
In new CVMD, sales were up 4%, despite intense competition, with a strong performance in emerging markets offsetting slower U.S. performance. BRILINTA delivered product sales of almost a half a billion dollars in the half with 28% growth, notable performance seen in the U.S. and emerging markets, including China. The overall diabetes franchise exhibited a softer half, with sales down 4%. U.S. sales declined by 9% as a result of intense pricing pressure and competition for market share. Farxiga maintained a 40% volume market share globally, and it continues to be the leader in volume market share, with product sales of $457 million in the half and 22% growth, as Pascal highlighted. Farxiga continued to deliver strong growth in Europe and emerging markets, with sales up 24% and 83%, respectively.
In the U.S., Farxiga product sales were down 1% due to managed care access and affordability programs in a competitive market. Moving forward, we're working to optimize our affordability programs in the U.S. As we wait for CV outcomes data from the DECLARE trial, the CVD-REAL Study has already demonstrated the CV benefits for the SGLT2 class in Farxiga in a real-world setting. These data have been well shared and accepted by the medical community. We continued our efforts highlighting the overall benefits of Farxiga, which include excellent glucose control, weight loss, blood pressure, and a proven tolerability profile. Next slide, please. Finally, touching on Japan, we continue to grow, with product sales up 6% in the half driven by TAGRISSO and Farxiga. Farxiga is leading the SGLT2 class in terms of value sales, and the class itself is exhibiting strong growth in Japan.
Our diabetes business in Japan was up 21% in the first half. As I mentioned, we continue to have great success with Tagrisso in Japan. I'll, at this point, turn it over to Jamie, and he'll tell you more about that and the rest of our new oncology portfolio.
Thank you, Mark. Hello, everyone. I'm going to cover the oncology franchise. This quarter is the first quarter since 2010 that we've achieved $1 billion in product sales. This is a 20% growth since the previous year. For the first half, we've achieved $1.9 billion in sales, which is 19% improvement since the previous year. This is primarily driven by four products. Faslodex, which is an older product, has seen renewed growth due to expansions into first line. We just found out yesterday, actually, that we got approval in Europe for the FALCON Trial, which is a first-line metastatic breast cancer. We hope to hear soon about the U.S. We've also seen combination use in second line with CDK4/6 inhibitors. This is a 16% growth and about $250 million in sales for the quarter.
For new oncology products, we're halfway to achieving our goal of six new medicines by 2020. Three have already been delivered. Tagrisso has shown very strong growth globally, particularly in Asia. Imfinzi, we initiated our strategic launch in May 2017, I'll cover that in more detail. With Lynparza, there's been continued strong news flow. We announced SOLO2 results, which is the second-line maintenance setting for ovarian cancer that was very impressive, and more recently for metastatic breast cancer with BRCA mutation. Next slide, please. Tagrisso has shown strong growth quarter on quarter. This is primarily due to emerging markets and established rest of world. In Japan, we've had the highest testing rates of all at about 96%. In China, we had the fastest launch in the history of AstraZeneca in May, with sales starting to pick up.
In Europe, we've seen more reimbursements, most recently in Italy, for a total of 14 markets in Europe with partial or full reimbursement. In the U.S., we're starting to see testing rates for T790M mutations in second-line increase due to education around ctDNA plasma retesting. We previously reported the first-line results in phase I that had an impressive progression-free survival of 19.3 months. We just announced today the results of FLAURA, which is the pivotal trial in first-line EGFR mutant non-small cell lung cancer that were positive, you'll hear more about that from Sean. Next slide, please. For Imfinzi, we received accelerated approval in second-line bladder cancer and launched in May. We've only been on the market for a couple of months, we've already seen 35% share of voice, which is second to the other competitors.
This is really a strategic launch to set us up for stage 3 unresectable non-small cell lung cancer based on the positive PACIFIC trial where we met the progression-free survival endpoint, which is the primary endpoint of the trial. We anticipate regulatory submission in the second half of this year. This is a tremendous opportunity for us with about 100,000 stage 3 lung cancer patients where there's no other PD-1 or PD-L1 inhibitor. This has the potential to be a blockbuster, and we're two to three years ahead of the competition. Next slide, please. With Lynparza, we remain a global leader. We were the first on the market with ovarian cancer. Now there's competitors, and we are the first to announce positive results in a second indication for a PARP inhibitor, which is metastatic breast cancer. We've seen steady growth, particularly in Europe.
In the U.S., we've seen some headwinds as a result of still having the fourth-line indication in ovarian cancer, and we have a very high pill burden. SOLO2 results in the second-line maintenance setting were submitted for regulatory submission, and we hope to hear back in the third quarter. As a result of that, when we can launch, we'll be able to reduce the pill burden from 16 capsules a day to four tablets a day, and also be in a second-line maintenance setting, which would make us very competitive. We have a very favorable safety profile. Our development program with Lynparza is extremely robust. The goals are to move to earlier line settings with the SOLO1 trial reading out at the beginning of 2018. It will position us in first-line maintenance ovarian cancer.
Eventually, we're going to have the OlympiA results that will put us in the adjuvant breast cancer setting, and then we have additional indications with pancreatic cancer and prostate cancer. We have several combination trials underway with VEGF inhibitors, including bevacizumab and cediranib, that will expand the activity of Lynparza beyond BRCA mutations. Beyond that, we have an extensive DDR portfolio to combine with Lynparza that will put us in different segments of different diseases, as well as the immuno-oncology combination. Next slide, please. Pascal mentioned earlier that we entered a strategic collaboration with Merck, and this is a critical partnership that we believe will maximize the value of Lynparza. By combining two immuno-oncology agents, one a PD-1 inhibitor, KEYTRUDA, which is one of the leading immuno-oncology agents, as well as Imfinzi.
The goal behind it is to enhance activity in the BRCA mutant subpopulation, but also to expand beyond BRCA mutations into the wild type population. We're pursuing this not only with IO, but DDR and VEGF inhibitors, and this is something that Merck will participate in with us as well. Next slide, please. The goal, again, around the partnership is Merck has the most number of clinical trials in immuno-oncology with 39% in multiple indications. That's shown in the light green segment. In the darker green segment is Imfinzi, also very active in clinical trials. The two of us together would have by far the most clinical trials with immuno-oncology. By partnering with each other and combining with Lynparza, we should maximize the value of Lynparza. Next slide, please. In summary around the Merck collaboration, we combine the capabilities of two main oncology players.
We established Lynparza as the preferred PARP inhibitor backbone of PD-L1 and PD-1 inhibitors. It accelerates Lynparza development with KEYTRUDA. We maximize the potential number of treatment options. As Pascal mentioned, the total value of the deal is $8.5 billion. With that, I'll hand it over to Marc Dunoyer to cover finance.
Thank you, Jamie, and hello, everyone. I'm going to spend the next few minutes taking you through our financial performance in the first half. If you could please turn to slide 25. As usual, I will begin by showing you the reported P&L numbers before turning to the core performance. Total revenue declined by 9% in the half with product sales impacted by the original effect of the CRESTOR and Seroquel XR losses of exclusivity in the U.S. External revenue declined by 1%. As previously highlighted, we expect the sustainable and ongoing proportion of external revenue at a high of 34% in the first half to increase over time. Please turn to slide 26. If we now turn to the core performance, we can look further down the P&L and see that our gross margin in the half was stable at constant exchange rate at 83%.
This reflected the mix of sales and the growing influence of specialty care medicine, together with the impact of the losses of exclusivity and the resilience of some legacy medicine in established markets. It's important to note that we do not anticipate such a high gross margin over the full year, given the phasing of supply costs and some non-repetitive benefits that will not be seen in the second half. Core R&D costs declined by 4% in the half, and core SG&A costs declined by 9%. These reductions reflected our focus on cost discipline and supported our full-year commitment of keeping core R&D costs broadly stable and reducing core SG&A costs. Again, we do not anticipate such a reduction in core SG&A costs over the full year as we saw in the first half.
Core other operating income and expense more than doubled in the half, partly reflecting the level of disposal activity, as well as the milestone received from Pfizer. The core tax rate in the half was 19%, in line with the 16%-20% range we continue to anticipate for the full year. As Pascal mentioned a moment ago, the increase in core EPS in the half was primarily driven by a continuing focus on cost, as well as the increase in other expense and income. If you could please turn to slide 27. This familiar slide illustrates the important progress in reducing our operating cost base. As I've just mentioned, core R&D costs declined by 4% in the half, whereas core SG&A decreased by 9%.
One example of what we are doing is prioritization, making sure that we have the right people and resources focused on the best medicine and opportunities. We also recently launched a global business service organization, which over time will increase the level of integration and allow us to focus on costs further. We remain committed to continue reducing our operating cost base this year. Please turn to slide 28. Turning to our operating profit margin, you may have noticed that we have achieved a 30% plus margin for a number of consecutive quarters. This has even been before the overall pipeline delivers in a way we anticipate. We also know that our gross margin is being supported by the growing influence of specialty care medicine sales. Core R&D investment is not targeted as a ratio to product sales, and core SG&A costs have the capacity to reduce further.
We recognize the long-term operating leverage opportunities. However, depending upon the success of the pipeline, we will also want to retain some flexibility to invest in high-return pipeline and launch opportunities. In short, as the big patent cliff cycle ends this year, and as the pipeline delivers, new AstraZeneca has the potential to deliver a growing margin while keeping some flexibility on pipeline opportunities. Please turn to slide 29. To conclude, I want to reiterate the 2017 guidance, which is at constant exchange rate. I expect a low to mid-single-digit % decline in total revenue. Core EPS is anticipated to decline by low to mid-teen %. Outside of guidance, the total of external revenue and other operating income is still expected to be ahead of that in 2016. As I mentioned, sustainable and ongoing income is expected to increase as a proportion of external revenue in 2017 and beyond.
We anticipate that core R&D will be broadly in line with 2016, and as I just mentioned now, we plan to reduce core SG&A costs this year. As I highlighted before, variation in our performance between quarters can be expected to continue, with year-on-year comparison beginning to ease in the second half, particularly as we begin to lap the impact from the loss of CRESTOR in the U.S. Finally, you have seen our capital allocation priorities before, and they remain unchanged. We will continue to strike a balance between the interests of the business, our financial creditors, and our shareholders. After providing for investment in the business, supporting the progressive dividend policy, and maintaining our strong investment-grade credit ratings, we'll keep under review any potential investment in value-enhancing and immediately earning accretive opportunities. With this, I will now hand over to Sean.
Thank you, Marc. I will run through the late-stage pipeline events occurring since the last results announcement, today's important news, and highlights of recent data presentations. I'll wrap up with a look at our upcoming news flow. Please turn now to slide 31. As in Q1, it was an equally busy three months, where we mostly saw progress in each therapy area. Imfinzi got U.S. approval in bladder cancer, our first biologic and our first immunotherapy. The PACIFIC trial met its progression-free survival primary endpoint during a planned interim analysis, and we are now very excited to be working with regulators to bring Imfinzi to patients with stage 3 unresectable non-small cell lung cancer.
As you saw, MYSTIC did not show benefit on PFS. We now will await the final overall survival in the first half of 2018. This is a disappointment for us. As we've said on several occasions, we need overall survival to fully qualify the clinical profile of the IO medicines, which is why we refined the MYSTIC trial design. Further in lung cancer, FLAURA met its primary endpoint in the first-line FLAURA trial. Lynparza had regulatory submission acceptance in the EU and Japan for second-line ovarian cancer. In type 2 diabetes, BYDUREON met the primary safety objective in the cardiovascular outcomes trial. It did not reach statistical significance in showing superior CV benefit over placebo. These data will be shared at EASD later this year.
Further on data readouts, we had some mixed news with tralokinumab not meeting its primary endpoint in severe uncontrolled asthma, although the study did provide valuable information regarding potential in a subpopulation of patients expressing a specific biomarker. These learnings have been incorporated into the second phase III study of tralokinumab, STRATOS 2. Staying on respiratory, we had regulatory submission acceptances of Bevespi for COPD in the EU. Last week, we learned that our partner LEO Pharma received European approval for Kyntheum, formerly known as brodalumab and marketed as Siliq in the U.S. Please turn to the next slide. In June, we took our science to ASCO and shared 100 abstracts, including updates on Lynparza, Tagrisso, and Imfinzi. We shared the OlympiAD data from Lynparza in BRCA-mutated metastatic breast cancer, which made the plenary session. We also shared health-related quality of life data in ovarian cancer from SOLO2.
For Tagrisso, we shared encouraging data from AURA3 for patients with EGFR T790M mutation-positive non-small cell lung cancer and CNS metastases, strengthening the case for Tagrisso's move to first-line EGFR mutated lung cancer and its ability to cross the blood-brain barrier. For Imfinzi, we highlighted the data included in our recent approval for bladder cancer and further non-small cell lung cancer data from Study 1108. Please turn to slide 33. As you all know, a large unmet medical need remains in non-small cell lung cancer. This slide illustrates the depth and breadth of AstraZeneca's commercialized and late-stage potential medicines in this disease area. Spanning the EGFR mutated tumors with small molecules like Iressa and Tagrisso, and addressing the non-EGFR and non-ALK mutated tumors with Imfinzi and tremelimumab. AstraZeneca's ambition is to provide a treatment option for as many patients with non-small cell lung cancer as possible.
Over the past three months, we have received three major data points. PFS for PACIFIC and MYSTIC. We are waiting for the overall survival for both trials. We received the positive results from Tagrisso in the FLAURA trial with only one primary endpoint progression-free survival. We are working on regulatory submissions for PACIFIC and FLAURA at the moment. We hope to bring these two opportunities to patients as soon as possible. Please turn to slide 34. This slide highlights the status of the three recent news items and the progress that we have made in non-small cell lung cancer to date. First, with the positive progression-free survival readout from the PACIFIC trial with Imfinzi in stage 3 unresectable non-small cell lung cancer. We will make regulatory submissions as soon as possible this half. We believe this is a very meaningful opportunity.
Second, we have announced the MYSTIC PFS data. We are disappointed that the combo of Imfinzi and tremelimumab and Imfinzi alone monotherapy did not show a benefit on progression-free survival. I will come back to this in a moment. Third, we had the good news from Tagrisso that met its single primary endpoint in the first-line FLAURA trial. Not only was the trial statistically significant but also clinically relevant. The two positive news items will increase our presence in lung cancer across stages and key segments of the market. This is good news for patients and for the company as well. Please turn to slide 35. As just discussed, MYSTIC did not meet its progression-free survival endpoint, both for the combo and monotherapy, and both at the 25% PD-L1 expression cut point.
We are continuing the trial to assess overall survival for both monotherapy and combination therapy, which are the remaining primary endpoints. We expect these readouts to come in the first half of 2018. As we have previously mentioned, all trials of this nature have interim analyses built into the statistical analysis plan. However, we do not comment on the exact timing of those interims. We remain confident that overall survival is the best measure of efficacy in immuno-oncology and look forward to keeping you updated with our progress. Turn now to slide 36. As a reminder, there is more to come beyond progression-free survival for MYSTIC. We recently saw positive readout for PACIFIC, and we are currently studying either Imfinzi or Imfinzi plus Tremy in six other randomized controlled trials.
Studies include adjuvant with a disease-free survival endpoint, PEARL first-line trial in the Asian patient population, as well as POSEIDON with chemo combination with IO therapy. AstraZeneca's commitment to immuno-oncology remains strong. Non-small cell lung cancer is at the forefront of our overall strategy in oncology. Please turn to slide 37. Concluding on immuno-oncology, here is a familiar slide, including our trials in head and neck and bladder cancers, as well as non-small cell lung cancer. KESTREL has been moved into the first half of 2018 due to a slower-than-expected event rate, causing a slight timeline movement from the end of 2017. Next year, we will have final overall survival data from both MYSTIC and NEPTUNE, as well as results from DANUBE in bladder cancer. Next slide, please.
Looking now beyond immuno-oncology, I wanted to highlight the additional news items in our overall oncology portfolio that we expect to share between now and the end of 2018. Acalabrutinib, where we are looking to update you on next steps. As a reminder, we generally communicate regulatory submission acceptance once we have heard back from the regulatory agency. Faslodex continues to make strides in first-line breast cancer. Regulatory approvals for Lynparza in second-line ovarian cancer, and regulatory submission in first-line breast cancer are forthcoming. Similarly, opportunities for moxetumomab in leukemia and selumetinib in thyroid cancer round out the broad range of news items that you can expect to see from AstraZeneca in the next few quarters. Next slide, please. Moving away from oncology for a moment, I wanted to highlight some of the important science happening in our CVMD therapy area.
At ADA, we recently shared additional CVD-REAL findings supporting the benefit of SGLT2 inhibitors over other oral anti-diabetic medicines in both all-cause mortality and hospitalizations due to heart failure. Also, data on DURATION 7 and DURATION-8 showing added benefit when combining BYDUREON with either Farxiga or basal insulin. At ESC in August, with our partners the TIMI Group, we will share new data from the PEGASUS trial in high-risk post-MI patients, and at EASD in September, AstraZeneca will participate in an EASD-sponsored discussion panel on SGLT2 inhibitors as a novel treatment for type 1 diabetes, as well as present the exciting 24-week data from the DEPICT-1 trial of Farxiga in type 1 diabetes. We announced today that the DECLARE trial timeline is being moved forward to the second half of 2018 from 2019 previously.
With that, I'd like to end with a snapshot of upcoming news flow from our late-stage pipeline. Next slide, please. As you can see from this slide, 2017 will continue to be a busy year, and activity will continue into 2018. We've now broken 2018 into first and second half. Before the end of 2017, we expect to receive U.S. regulatory decisions on Faslodex in the first-line setting, Lynparza in second-line ovarian cancer, the BYDUREON auto-injector, and benralizumab for severe uncontrolled asthma. We will also be submitting Lynparza in breast cancer, TAGRISSO in first-line EGFR-mutated non-small cell lung cancer based on today's news, and of course, Imfinzi based on the PACIFIC trial in Stage 3 unresectable lung cancer. There is certainly still the potential for a fast-to-market opportunity with acalabrutinib. Please note my previous comments on when we generally announce potential regulatory submission acceptance.
In 2018, we expect the final MYSTIC OS data, plus a number of other news items, including Lynparza in first-line ovarian cancer based on SOLO-1, and first data readouts for the IO trials KESTREL and EAGLE in head and neck cancer. We'll also see data on PT010 in COPD. Starting this time next year, we'll begin to see readouts for lupus and bladder cancer and have the potential for quite a few regulatory submissions before the end of 2018. Thank you all for your continued support, and thanks to all the hardworking people who come to work at AstraZeneca every day to make this happen. Now I'll hand back to Pascal for closing comments.
Thank you, Sean. Let me summarize. First of all, the first half was in line with expectations. New AstraZeneca group product sales by 4%. Our financials are on track, and we reconfirm our guidance. Second, the pipeline is advancing at pace with 12 new potential medicines in phase III under registration. The oncology pipeline, in particular, is progressing. TAGRISSO and Lynparza are ahead of expectation. We recognize, of course, that the MYSTIC news are a disappointment, but we also need to see the positive surprise with the PACIFIC trial, which is a very large opportunity that will belong to us for a period of time.
We are looking forward to sharing further news flow that we think has the potential to mark a meaningful step change for AstraZeneca, in particular, the details of the PACIFIC and the FLAURA phase III trials in lung cancer, which we hope to present very soon. We will now go to the Q&A. For people on the conference call, please remember to press *1 to ask a question. We will also take written questions from the webcast. Can I please remind everyone to limit questions to one to be fair to everybody? Thanks in advance. Perhaps we can now take the first question from the conference call. I think the first question would go to Timothy Anderson at Bernstein. Tim, go ahead.
Thank you. Over the last many weeks, you had suggested that you'd provide a fair bit more in your top-line release for MYSTIC than a normal top-line release. To me, it seems pretty scant on details given the materiality of it. I'm hoping you can say at least whether there was a trend on PFS and whether it might have just been a powering issue. Kind of related to this, is there a working hypothesis for why the monotherapy with durva didn't hit on PFS in 25% above? Are you confident that that's not an indictment of the PD-L1 approach versus the PD-1 approach?
Tim, thank you so much. Sean, I think it's for you, this one.
Tim, thank you for the question. With regard to what's being disclosed here, we actually have disclosed more than we usually do. Usually we, in high-level results, we disclose just the outcome, positive or negative, of the primary endpoint that's being evaluated at the time. We did that. That primary endpoint was the Imfinzi-tremi combination for PFS in tumors expressing tumor cells greater than 25% PD-L1. We also then went on. We didn't formally test the secondary endpoint because obviously once you fail with the primary, you aren't recycling that power. We did, however, because we know it's relevant to everyone to get a sense of what happened with the monotherapy in that same patient population. We went on to say that we did not meet the criteria, had we been able to go on to monotherapy that would've made that positive.
That, we think is quite a full and transparent disclosure. With regard to the design of the trial, we are very confident that the trial was adequately powered to show a clinically meaningful PFS benefit. With regard to confidence going forward, the PFS endpoint has not been a very reliable endpoint for predicting benefit in immuno-oncology. There are certainly cases where it has been positive and in line with overall survival. There have been multiple cases, particularly in second-line non-small cell lung cancer, where progression-free survival has not shown a benefit, but when you continue to overall survival, the benefit is shown. That is in fact, in part, why we changed the clinical trial design of MYSTIC to elevate overall survival to a primary endpoint, to allocate the majority of the power to overall survival, and also increase the size of the trial to enable that.
On PD-L1 as a general approach?
Well, PD-L1 is, at this point in our minds, a validated therapeutic approach in non-small cell lung cancer. We talk about the specific data, unfortunately, without yet having a venue at which to actually share it with you. We have conveyed our confidence that it's a clinically meaningful benefit and it will mean Imfinzi is brought to patients with non-small cell lung cancer.
I would only add actually, Tim, that we cannot actually say PD-L1 and PD-1 are different. I mean, nivolumab in first-line lung also didn't show a PFS benefit. I think there is viability from study to study. That's probably the best we can say, I don't think we have evidence that there's difference between PD-1 and PD-L1.
Thank you.
We'll move to Richard Parkes at Deutsche Bank. Richard, go ahead.
Thanks for taking my question. I've got a bunch on MYSTIC. I'm going to skip those and ask something about FLAURA. I just wondered if you could talk about the context in which you gauged clinical meaningfulness of the FLAURA data. I wondered if you'd taken into consideration, obviously, the option physicians have to sequence TAGRISSO in the second-line setting, and obviously that sets a high bar as to what needs to be demonstrated to make this maybe clinical practice-changing data. I suppose my question is this data likely to be practice changing as well as clinically meaningful? Just could add as well, when would we expect survival data from FLAURA to mature?
Thanks, Richard. Maybe, Sean, if you want to comment and then also later on, Jamie, if you have anything you want to add from a sort of a payers and clinical practice viewpoint. Sean?
Yeah. Obviously what we're reporting with high-level results is, again, a bit scant for us to give you details. We found a highly statistically significant, and we believe clinically quite meaningful difference in progression-free survival. It is an endpoint that is in a first line setting, is a robust regulatory endpoint. We do have an interesting design to the trial in that patients who got the standard of care first generation, if they have a T790M mutation on their progression, they within the trial have the option of crossing over to TAGRISSO. As time goes on, we're going to be able to really characterize this better. We are quite confident in the results we have now. With regard to timing of overall survival, overall survival is a key secondary endpoint. The primary endpoint was PFS. That has been met.
We will continue to follow for a couple of key secondary endpoints, the second progression, PFS2, as well as overall survival. We can't give you a timing on that now because the trial, it's event driven and it's quite immature. It takes a while for that endpoint to actually mature because there are Not only the option of going to TAGRISSO if you have a T790M mutation, but for all patients who progress on the trial, there's the option of chemotherapy in a second-line setting. I'll let Jamie comment as well.
Yeah. In terms of the sequencing and why we believe it'll be used in first line, as opposed to second line, in patients who develop the T790M mutation. You'll recall that about half the patients do not develop the T790M mutation, they wouldn't be eligible for TAGRISSO if they waited until second line. That's one point. Second point is some patients actually don't make it to second line because of death. We believe the clinically meaningful result will play into why it should be prescribed. The third is that it crosses the blood-brain barrier and treats, and we believe prevents brain metastases, which is another reason to use it upfront, because a significant number of patients will present with brain metastases in the beginning. We feel confident that it will be used in first line and it'll be a great option for oncologists.
Perfect. Thank you.
Thank you, Jamie. Next question is from Andrew Baum. Go ahead, Andrew.
Yeah, good afternoon. Could you confirm that there was an interim overall survival analysis at the time of the PFS, that did not meet the statistical hurdle, therefore the trial's ongoing until the next interim? Am I correct in my understanding of that? Second, perhaps you could comment, given the change in outlook potentially today in relation to MYSTIC and how it impacts your cash flows, how that impacts both dividend strategy as well as the anticipated run rate for R&D for the company.
Let me just quickly address the second one, you can address the first one, Sean. The second one, Andrew, is when we do our plan, as you know, we do a risk-adjusted plan. What has just happened in the last recent past is we have adjusted the PACIFIC in our forecast to close to 100%. Of course, it's not approved yet, so until it's approved, it's not 100%, but it's close to. When you see the data, I'm sure you will agree with us that the chance of approval is pretty good, and the impact of this data set will be large. We've gone from a relatively low probability of success in our plan because PACIFIC was not guaranteed, of course, to close to 100%. This is going to be a substantial opportunity. Same for FLAURA.
On the other hand, of course, we'll have to adjust MYSTIC in our forecast. Ups and downs. Of course, we would have preferred to have everything being positive, ups and downs overall, we believe we can continue to secure the dividend. If Marc later on wants to add anything, he will, but I think at this stage we see no reason to feel that the dividend is not secure. Sean, do you want to cover the first question?
Sure. I think as you know, Andrew, we don't comment on interim analyses, when they would occur, whether and what the outcome is. I can't really comment on it other than to say, yes, there are interim analyses and yes, there's an independent data monitoring committee that looks at interims and as well as the safety and conduct of the trial as it's ongoing.
Thank you. I should move to a question online, maybe. I think that's going to be for you, Sean. Can you please walk us through all the hypothetical reasons why an IO drug that didn't show a PFS benefit could show an OS benefit, especially as you don't seem to believe in pseudo progression with the checkpoint inhibitors? The question is from Steve Scala. For you, Sean.
Okay. All of the hypothetical reasons, probably not, but I can probably get through some of the major ones. Pseudo progression is one of them. It's not to say that we don't believe in it, but we do think it's uncommon. It could contribute inflammation around the tumor that is marked as progression, but actually represents an immune response to the tumor and may, in fact, be beneficial. I think perhaps the thing that we've wondered about most is the speed of onset of IO therapies, such that you may find that the tumor has some time to grow before the full effect has taken, and then you will get a progression scored. When that immune response comes, you get a benefit down the road that shows up in overall survival.
I think it is important to recognize, these are post hoc explanations for very real data that we have seen repeatedly in second-line head and neck cancer at least, and also in-- I'm sorry, second-line non-small-cell lung cancer, and also in head and neck cancer, where trials have shown overall survival benefits that were not indicated earlier with progression-free survival. There were two other questions, I think, in Steve Scala's email. One was what percent of patients-- One was about the interim look, I already answered that. The other one was what percent of patients in MYSTIC had greater than 25% tumor cell PD-L1 expression? The MYSTIC percentage was consistent with what we had said before, which was about 40%-45% of first-line patients have that level of PD-L1 expression, and that's what we saw.
One thing I would add, maybe Steve, to what Sean said in terms of why you can get an OS benefit when you see a PFS benefit is it's not only theoretical reasons. There is evidence of the fact that it happens. There's about seven studies, in fact, where an OS benefit was shown when there was no PFS benefit. Out of these studies, four are in lung cancer. There's quite a lot of evidence where that not meeting a PFS endpoint doesn't necessarily mean that you may not hit the OS endpoint. We'll have to be patient and see and wait for these overall survival results. We go to Sachin Jain of Bank of America. Sachin, go ahead.
Hi. Thanks for taking the question. I'll take a question on the Lynparza deal, if I may. You've referenced access to KEYTRUDA on multiple times. Can you just talk about the need to access KEYTRUDA relative to any changed confidence in Imfinzi durvalumab? Related, I wonder if you could just frame sort of the various aspects of this deal. What was the main driving factor? Is it the financial attractiveness of the $8.5 billion in securing externalization revenue for a period of time versus an NPV increase in Lynparza? To frame that debate for us. Thank you.
Thanks, Sachin. The answer is very simple, is that as I said before, we partner assets when we believe that we can create more value with a partner, i.e., we increase the NPV of the asset. Of course, you can imagine it's much more obvious to see that we can achieve this when it relates to an asset that is non-core, because we have no capability, no presence, and therefore a partner that has expertise in the field will do better than we would. It is less obvious to see when it relates to a core asset, but I believe we're going to show this with durvalumab in hematology with Celgene. We have to deliver positive clinical results, but that's sort of the obvious part.
If the combination works, I have absolutely no doubt when I look at how fast we're progressing with this program and how well we're doing with our partner, Celgene, I have no doubt that we'll create more value with them than we would have ever been able to do on our own. As it relates to Lynparza, same story. Then here, that brings me to your first question. Here, the value creation essentially comes from the increased effort that will be brought to combining Lynparza with PD-1 and PD-L1. We have total confidence in durvalumab, but we're also realistic. I mean, durvalumab will not get 100% share of the immuno-oncology market. Pembro is a great product. Merck is a great company.
They're going to get a share of this market. Combining our efforts, the Jova efforts, if you will, with the pembro efforts to combine with Lynparza clearly will make Lynparza bigger than if we were trying to do that by ourselves simply with Jova. That's really the logic behind it, ultimately a bigger NPV. If I move to Simon Baker at Exane. Simon, go ahead.
Thank you. Thank you for taking the question. Just continuing on from where Sachin was asking on the deal with Merck. There are two schools of thought in the market this morning. One suggesting that the size of the potential payments would indicate that the consensus assumptions for Lynparza have been significantly underestimated, and others believing that you are giving away long-term value for short-term cash. Now, the difference between those two is the nature of the contingency on these payments. I wonder if you could give us a little bit more color on how and when the $6.2 billion or so of contingent payments are triggered. Thank you.
It's a great question. Thank you for attracting everybody's attention to the fact that I personally think half of the value, sorry, the value we receive for half of the asset is actually even the secure value is more than what is in the consensus for the totality of the asset. Essentially, we have created value beyond what is in the consensus today. Simon, to answer your question more specifically, I'll hand over to Marc Dunoyer.
Simon, thank you very much. You have seen the upfront of $1.6. You have seen the options, short-term options for $0.75, that's $235, and then you have the $615 of contingent. Approximately one-third is linked to regulatory milestone and two-third is linked to sales milestones. Of course, they come over time.
just one very quick
We'll actually disclose soon the more detailed schedule and also some guidance as to how we will be accounting for these various payments over time. Could we move to a question online? I think Mark Mallon this time this is more going to be for you. It's an email from Jo Walton at Credit Suisse, and it relates to U.S. primary care, particular diabetes, Farxiga, respiratory, and the impact of price pressures. The question here is that this price pressure on this reduction, is it a result of a deliberate policy to save promotional dollars? I assume Jo is implying that we are sacrificing the price to save promotion. Is it impacted by patent expiries and competition, patent expiries that are set to annualize out, when might the decline is? For you, Marc.
Our focus wherever we're trying to get medicines is to get them to as many patients as we can. First thing I would say is we're not trying to minimize or reduce promotional efforts in exchange for lower prices or vice versa. We're trying to have the right combination to get this to as many patients as we can. In terms of the dynamics in the marketplace, I think, as we've seen in many places in the world, we've seen this in Europe, I think realistically, we're going to continue to see pricing pressure as countries, and the U.S. is no different, try to find ways to balance the cost that they're facing. I think certainly things like generics or analogues add pricing pressure, when those come in, you have an increase in pricing pressure, and then over time it will stabilize.
I think it's hard for us to say, because there's so many different factors in each market when that will happen. Right now, what we're focusing on is making sure we're getting the medicines to as many people as we can, being able to lead when we have great medicines like Farxiga and SYMBICORT, which we are. Making the case for the value of the medicines, bringing most importantly new medicines that are going to make a difference and have a higher value. We've launched Bevespi Aerosphere, we've got PT010 launching soon in respiratory. We're waiting for the DECLARE Study coming that will also demonstrate the value of Farxiga. We've got new products like Lokelma and roxadustat coming. All of these will have, I think, a high value to payers and to patients because of the value they can provide.
Thanks, Marc. We should go back to Jeffrey Holford. Jeffrey, Jeff, go ahead.
Hi. Thanks for taking my question. I wonder if you can comment for us on the relative level of crossover that you think you're going to see or are seeing in the MYSTIC study, then just how that impacts your confidence and ability to hit on overall survival following not hitting on progression-free survival. I don't know if you could just make a very quick comment on why it does seem to be taking a bit longer than expected to get acceptance of the filing on acalabrutinib. I thought we would have had an update on that by now. Thanks very much.
Thank you, Jeff. I'll ask Sean to cover both of those questions. We can't comment. We can't give you the details on the crossover.
Yeah. No, that's fine.
We can be confident that it doesn't impact so much the OS. Go ahead, actually, Sean.
Yeah. What we're reporting today is high-level results, there's a lot more detail for us to look at as we look at the detailed information in the trial. We remain confident that overall survival is a more meaningful endpoint and more adequately powered in order to see a clinically meaningful benefit with the monotherapy or with combination, but we can't comment on the rest of those details. Of course, crossover goes both ways in these trials. One is that if you get chemotherapy and you progress on it, you could cross over to a PD-1, PD-L1 agent. The other is that if you get one of the IO arms and you progress, you can get treated with chemotherapy because you'll be chemotherapy naive. That will benefit the overall survival on those arms.
Moving on to the acalabrutinib acceptance, we're on target for what we had hoped in terms of acknowledgement of acceptance and timing of submission. I'm not quite sure what to say about the expectations. It may just be that your expectations are different than ours.
Yeah. On this one, we're totally inside the normal range of 60 days between submission and acceptance of filing. We, of course, do not confirm when we have filed. I can only tell you we are within the normal range that you would expect, yeah.
That's very helpful. Thank you.
Vincent Meunier at Morgan Stanley.
Hello. Thank you for taking my questions. One question back to the Merck collaboration. How would you intend to allocate the $1 or $1.6 billion upfront payments? Do you want to return that to the shareholders, maybe doing a bit of buyback? Would you prefer to make open acquisitions or just invest that in the business? Related to that question, do you consider potentially acquiring more IO candidates to de-risk the IO portfolio? Because when they say that if you just have one PD-L1 drug, which is the core of your IO portfolio, and if you have a problem like MYSTIC, the entire portfolio then is at risk, and maybe it's better to have different assets. Would you consider buying more assets in IO?
Thanks for the question, Vincent. First of all, I think it's good to start with reminding everybody that durvalumab works, and it works very well. We have a problem in bladder, but importantly, we have the PACIFIC study, and it's unfortunate. Well, it's unfortunate. It's just the timing. It's just the norm. We haven't shown you the results yet in detail, but when you see the results, you will agree with us that it certainly works well. There's no issue with durvalumab per se. In terms of having more targets, quite frankly, we have lots of those. I have to say, first of all, we have to wait for OS as far as lung cancer and the mono and the combo. We have additional studies in combination in other indications, bladder, head and neck. That's for the durvaltremi combination.
We have quite a number of new targets. Net-net is we're not planning to acquire any other targets. At least that's not the intent at this point. If something came up that was attractive, we might do it, but we don't feel the need for that. In terms of what we're going to do with the cash, there's no intent to do any share buyback at this point. We will use that to reduce our debt and continue to sustain the dividend and also, of course, take some of this and invest it in our business. We'll basically continue to do what we've been doing. Essentially, the financial aspect of this collaboration is discussed. It enables us to continue doing what we're doing, and certainly should give everybody confidence that the dividend is not at risk at all.
In terms of the pipeline of new targets, Sean, anything you wanted to add?
Yeah. It's a very rich pipeline. I'm not exactly sure what we would acquire from the outside. Obviously, the deal that we did with Merck gives Merck access to one potential combination partner, Lynparza. In addition, a second partner, selumetinib, the MEK inhibition. We also, in the pipeline, have the GITR agonist, the OX40 monoclonal antibodies from MedImmune, CD73, a variety of potential combination partners. It's a very rich pipeline.
Of course, it's a very attractive financial construct, but the most important piece, just going back to Sachin question, the most important aspect of this collaboration is the creation of additional value, the increase in NPV of Lynparza NPV, and the collaboration with a company, Merck, that shares our values, shares a focus on science, and certainly a company we've collaborated with very successfully in the past, and that we look forward to working with again in the next few weeks and months. Moving to Seamus Fernandez at Leerink. Seamus, go ahead.
Thanks very much for the question. My question is just one. Can you guys characterize the % of profits that the externalization strategy will contribute to your earnings this year? Separately, as we look at the externalization strategy, how sustainable is that over the next, call it 3 to 4 years? Because I think, again, the sustainability of the dividend with a 50% cover is one question, but the sustainability of the dividend relative to your current cash flow dynamics given the core EPS dynamics, I think is a key question for investors right now. Thanks.
Good. Thanks, Seamus. I'll ask Marc to answer that question. I don't think we want to answer %, give you %. What we can do is we confirm the guidance and the elements that we put in the guidance that relate to externalization. Marc, do you want to cover this and the cash flow piece?
Yes, I want to repeat the 2 indications that we have provided that for 2017, the sum of external revenue and other income will be greater than the equivalent in 2016. The other indication we have provided is that the part that is sustainable and repeatable is going to grow over time. These are the 2 indications we have provided and where we stand today, we are reconfirming these 2 guidance.
Thanks, Marc. Moving to Keyur at Goldman Sachs. Keyur, go ahead.
Thank you for taking my questions. I just want to try and understand the source of your comfort around the ability to pay the dividend. If I understand your numbers correctly, you generated $338 million in cash flow from operations in the first half of this year. Your dividend payment is $3.6 billion a year, and you owe a billion and a half to Acerta Pharma at 2018, if not before that. What drives your confidence in generating enough cash flow to cover the dividend, given your debt is already 50% higher than where it was December last year? Thank you.
Let me just make a couple of quick comments and then Marc can be more specific. I think you have to consider the growth that will come out of TAGRISSO, for instance, and very, very profitable growth. This is a product that has very strong clinical data now, including in first line, and will generate very strong growth over the next two to three years. As I said, very profitable growth because there's no competition in that segment at this stage. Second is, should not underestimate the growth that will come from PACIFIC, not as big as TAGRISSO overall, but certainly a substantial opportunity. Again, no competition for the next couple of years in that specific stage 3 non-resectable lung cancer. China is growing rapidly.
We reported an 8% growth rate, but the underlying growth rate, if you adjust for divestments, is in fact 17% in China. As soon as we get out of this divestment part, we'll return to this very high growth rate in China. We have a business that is starting to make a difference in China. It's very big. The growth platforms are overall growing. We believe that this is certainly going to drive sales, but also profit improvement. We've had massive headwinds in the last two, three years with patent expiries. Those very soon will be behind us. Marc, do you want to?
Maybe two additional information. First of all, we have a pattern of cash flows
Which is different between the first half of the year and the second half of the year. We have projection for second half 2017, which are going to be much better than the first half of the year. On the table that you were quoting, which is page 44 of our press release, there is a reclassification of disposal of intangible assets, which goes from, I would say the top of the table and goes to the investing activities. In fact, you should count also the 728 together in a way with the 338. This being said, we have just announced today a deal that is going to bring in a substantial amount of cash, so that should help us with all the cash needs of the company. Thank you, Marc. Shall we move to questions from James Gordon at JPMorgan? James, go ahead.
Hello. Thanks a lot for taking the question. The question was about confidence in PARP combos versus CTLA-4 combos. How does the MYSTIC PFS result impact your confidence in showing a significant OS result in MYSTIC and also to the DANUBE and KESTREL studies? Just your relative confidence in CTLA-4 versus PARP as a combo approach. Thanks very much.
Did you say relative confidence of CTLA-4 versus what? PARP. Oh, PARP. Sorry. Okay. Well, Sean, maybe you want to comment on this. The confidence for MYSTIC, we have clearly to wait until we see the final OS analysis. As I said before, there are quite a number of studies that have shown an overall survival benefit without showing a PFS benefit, and very strong overall survival benefit ultimately in lung cancer. We also have our own internal data, and then some of those data we will present in Q4. We're looking at what is the best way to present this data. We have internal data showing in separate study, looking at some of the suspects that gives us confidence. In the end, until we have the final OS analysis, we really cannot say much. Do you want to comment further, Sean?
Yeah. Two things I would say, starting with CTLA-4, which is the much more mature hypothesis being tested. We're really awaiting the outcome in MYSTIC. Again, I'll add, these are things we've been saying for over a year, but we do believe overall survival is obviously clinically meaningful, but also the one that better shows benefit from IO therapies. MYSTIC is designed to show Imfinzi plus Trem-I versus standard of care chemotherapy, or Imfinzi monotherapy versus standard of care chemotherapy. That's how we get a positive trial. I think then it's a more complex equation about level of additional benefit if seen for the CTLA-4 combo, and then benefit risk when we figure out whether there's a possibility of moving forward and changing practice and getting registration. That's a matter of waiting.
The PARP combo and the CTLA-4 combo with PD-1, PD-L1 really don't inform each other. They're very different therapeutic hypotheses with CTLA-4 basically removing an immunosuppressive signal and hopefully intensifying the activation of the immune system against the tumor. PARP is very different, derived from the observation that high mutational burden in the tumor seems to correlate with greater sensitivity to immunotherapy agents and as well homologous recombination repair defects and other DNA repair defects correlating with the high mutational burden, and then how in PARP do you enhance that effect in the context of IO. They're very different, I would say, really unrelated mechanisms, and so their probability of success is very much not informative of each other.
Thanks, Sean. Jack Scannell, UBS. Jack, go ahead.
Question. I guess you've set out your capital allocation principles, and you've also said you have a risk-adjusted plan. Does that effectively mean that thoughts about capital allocation in practice change when the risk adjustments in the plan change? Investors shouldn't expect to see any changes in dividend policy or externalization of revenue or so forth, unless or until we saw more data on the various lung programs, for example.
Hopefully, I get your question, Jack, but maybe I don't, in which case please come back and ask again. What I said was that our plan is a risk-adjusted plan. We take all our projects, we risk-adjust them, and that's what we use to long range forecast and look at our long range sales profit and cash flow forecast. What we are going to do now with those results is we're going to put, let's say 100% soon enough, hopefully of PACIFIC into the plan, the same for TAGRISSO, including first line. Then we'll adjust MYSTIC. The PFS endpoint in our long-range plan had a low probability in our plan because as we told you, we always believed that it is an OS game more than a PFS game, and that's why we put the majority of the statistical power on the OS analysis.
In our long-range plan, we have a lower probability for the PFS endpoint to read out. Now we're moving to OS. What I was saying earlier is we'll redo our long-range plan with all these elements. From what we can see today, there's no reason for us to change our long-range forecast, including our cash flow forecast, and therefore to have a different approach to our dividend policy. Of course, the next six to eight months will be very informative because the competitive landscape will clarify. As you know, there's a number of other studies that we read out. Depending on the outcome of these competitive studies, and also the outcome of our own ongoing studies in other indications and into next year, the OS analysis, until then, it will be difficult to be clear on the total potential for durvalumab.
Based on what we know today, I think what I said earlier is that we have no reason to have a different view of our future. Does it answer your question, or did you have anything else in mind?
No, thank you very much. I've got a terrible echo on my line, which may have made my question less coherent even than usual. Actually, you answered it precisely. Thank you very much.
Thanks. Jo Walton at Credit Suisse. Jo, go ahead.
Thank you. My question is about the turning point for AstraZeneca and longer-term margins. Marc showed us a slide showing really very stable 30-odd% margins. Of course, some of that's been helped by disposal gains within that, so it isn't all truly operational from an underlying perspective. I wonder if you could confirm whether you think that 2018 still will be the turning point year, and what sort of operating margins do you think would be a sustainable level given the mix of business that you would expect to have in the next few years, some really fancy new drugs, but also a growing emerging market presence? I wonder if you could just help us on that longer-term margin objective.
Thank you, Jo, for this question. Regarding the operating margin, I think we have said, and we said this I think several years ago, that the profit will grow slightly faster than our sales. We also said that from 2018 onwards, we would return to growth. I think these two elements stay the same. At what level the operating margin will stabilize, I think it's maybe a bit early to comment, but I think over time, as we move towards specialty care and oncology taking greater share in our business, the operating margin is definitely going to increase.
Thank you, Marc. You should not conclude, by the way, that the emerging markets business is a low profitability business. It is a business with quite a reasonable profitability, actually, and it's growing. What has really been a burden for us in the last three years is patent expiries and losing products that were incredibly profitable, like CRESTOR and NEXIUM, that were at the end of their life cycle with limited promotion and big scale, and therefore very profitable. At the same time as we had to invest in rebuilding our pipeline and rebuilding our future. That's really what has been a burden more than the emerging markets that are actually growing and delivering reasonable profitability.
As Marc said, as we move forward and suddenly our specialty care business grows, we're launching benralizumab at the end of the year or early next year, we launch future products, the margin should, over time, improve. It's too early yet to give you a target as to what that margin could be. We need still more understanding of what the pipeline looks like. Should we move to Emmanuel Papadakis at Barclays? Emmanuel, go ahead.
Sorry, I was on mute. Thank you for taking the question. Can you hear me?
Yeah.
Yeah. Apologies. Couple of follow-ups. One for Marc, if we could perhaps pin you down a touch further on cash flow. I think when I asked the question with the Q4 results, you'd indicated 2017 would be in line with 2016 on cash flow from operations, and it's clearly running significantly below that rate. I know you said H2 will be better, but perhaps you could confirm that comment you made earlier. The second was for Pascal. It was just to follow on from your comment that, I don't know whether it was intentional, I think you just remarked that the PACIFIC opportunity would not be as large as TAGRISSO. If I recall correctly, your 2014 unrisked guidance for what was then 9291 was around $3 billion. Perhaps you'd just like to clarify that or quantify that. Thank you very much.
Let me try this one. Marc, maybe you can cover the cash flow question. Hopefully, I will address your question, Emmanuel. Otherwise, let me know. What I meant to say is that PACIFIC is a large opportunity. TAGRISSO as a whole is a bigger opportunity. We see TAGRISSO being now, with the kind of data we have, a $4 billion+ opportunity, including first line, and it could go even beyond that if we have a successful adjuvant outcome. PACIFIC is large, and the Stage 3 non-resectable lung cancer is not as large as the Stage 4 lung cancer. In the near term, there will be no competitor because we are the only product with data in that setting. It's a large opportunity for us. Still, smaller than the sort of $4 billion we see in PACIFIC. That's what I said.
Hopefully, that addresses your question. Marc, do you want to cover the cash flow?
Yes. I can only say that, as I indicated earlier on, the pattern Our cash flows between the first half and the second half is very similar between 2016 and 2017. As for the overall for the year, we estimate today, as I indicated earlier, that it would be of a similar quantum for 2017 as for 2016. Similar pattern, similar numbers.
Emmanuel, did that cover your question regarding the potential of Tagrisso? Maybe one thing I could also add is that two, three years ago, we gave an indication of the potential of Tagrisso, and then we had a forecast in our plan for Tagrisso, but the forecast we had in our plan was a risk-adjusted forecast. As we have progressed, two things happened. First of all, the risk has been removed and the probability of success is now close to 100% for all those indications. Two is the product profile has improved. We now have very good data in first line. We have data in brain metastasis. The product penetrates the blood-brain barrier. We didn't expect that three years ago. We hoped it might be the case, but we didn't have the data, so we didn't have that in our product profile.
Finally, the competitors have left the scene. Essentially, as we progressed, the product has looked better, the competitors have disappeared, and the probability, the risk has been removed. All of that has driven Tagrisso up and up and up. Now it is very large. We move to Mark Purcell at Redburn, who is asking us an email question. "Please could you explain your confidence in MYSTIC overall survival data reading at first half 2018 as opposed to full year 2018? Is this based on event rates or low non-anticipated OS curve separation, which was seen relatively late with Kisqali in KEYNOTE-021G?" Sean, for you.
Sure. The anticipated readout is based on event rates with a level of maturity that triggers the final overall survival analysis. The reason that we're refining it is because we're getting closer and we're better able to estimate to narrow it down from a 12-month period to a six-month period. It's not an inference from another trial. It's just standard clinical trial design and execution.
Thank you, Sean. We'll now actually end the Q&A. I would like to thank you very much for your great questions and conclude again and just kind of summarize where we are again for you. First of all, first half financials are in line with expectations. Our new AstraZeneca sales grew by 4%. Our financials are on track. We reconfirm our guidance. Pipeline, very importantly, the pipeline is advancing at pace. 12 new potential medicines in phase III and under registration. In particular, our pipeline in oncology is progressing with TAGRISSO and Imfinzi looking really good. In particular, this recent TAGRISSO news make us very confident that it is going to be the big product we are hoping it would become.
On the IO front, MYSTIC, of course, is a disappointment. Please consider the number of studies that have had a PFS endpoint not met but still delivered OS benefits. Let's wait a little bit longer. We do recognize MYSTIC is certainly a disappointment. We also have to recognize that PACIFIC was certainly not expected. It's a positive surprise, and it has a lot of potential and a very profitable potential. I would like to underline this and considering the limited competition in that segment. We're looking forward to sharing further news flows over the next few weeks and months. We think that we have the potential to reach a meaningful step change for AstraZeneca in the next few months, in particular when we present the details of the PACIFIC and FLAURA phase III trials in lung cancer.
Thank you again for all your support and your interest. Have a good rest of the day.