Earnings Call: Q1 2017

Apr 27, 2017

Afternoon, ladies and gentlemen, and welcome to AstraZeneca's Q1 Results Analyst Conference Call. Before I hand over the call to Pascal Sorio, AstraZeneca, I would like to read the Safe Harbor statement. The company intends to utilize the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Participants on this call may make forward looking statements with respect to the operations and financial performance of AstraZeneca. By their very nature, forward looking statements involve risks and uncertainties, 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 presentation. We will now hand you over to AstraZeneca, where the call is about to start. Hello, everyone. I'm Pascal Soriot. Welcome to the Q1 results conference call and our webcast presentation for the investors and analysts. We're in London today, where we are also hosting the Annual General Meeting this afternoon. We have people on the phone and on the webcast. The presentation is available online for all of you to download. Please turn to slide 2. This is the Safe Harbor statement. So moving on to slide 3. We plan today to spend about 30 minutes on the presentation and then leave 30 minutes for Q and A. In total, we have exactly 1 hour together and we need to end on time as another company has a conference call starting in This is to make it fair to everyone on the call. Thank you for your collaboration with that. As usual, I'm joined by Marc Dunoyer, our CFO Marc Malan, our EVP for Global Portfolio and Product Strategy Global Medical Affairs and Corporate Affairs and Sean Bowen, our EVP for Global Medicines Development and Chief Medical Officer. We also have online Jamie Friedman, who is our Business Unit Head for Oncology. Please turn to slide 4. So this is the agenda today. I move to slide 5. So before we get started on financials, just a reminder that we made refinements in our results announcement this morning, emphasizing actual growth rates alongside growth rates at constant exchange rates. On our conference call today, we will be making comments on our financial performance at CER, which is a non GAAP measure. With the formalities behind me, I will now kick off. So in summary, we had a good start to 2017. Total revenue declined in the quarter, primarily reflecting the tail of the loss of U. S. Exclusivity for Crestor. New AstraZeneca, which we define as the 3 main therapy areas and the established medicines in the emerging market grew by 6% in the Q1. The emerging markets were really a highlight. They were up 9% and they are now the biggest sales region in AstraZeneca. Within this region, China continued to perform well and saw regulatory approval and launch for Tagrisso and approval for Farxiga. Our respiratory business delivered a stable performance despite the ongoing challenges in the U. S. And Symbicort remained the global leader by volume market share. In diabetes and other competitive field, Farxiga continued to grow in all markets despite subdued U. S. Growth due to affordability programs and managed care access. Brilinta continued to excel. Tagrisso has expanded on its impressive launches in the U. S, in Europe and in Japan. And now we are also accessing the private market in China. The core earnings per share declined was limited to 4%, given the continued cost focus, but also due to the continued sales progression of the new AstraZeneca. So now we'll turn to slide 6. Our pipeline delivered very strong results since the last results announcement. This is the most extensive set of highlights for a long time. Let me cover a handful of new news items. First of all, Tagrisso news included the conversion from accelerated to full approval in the U. S. And the EU and the important approval in China that followed the very accelerated regulatory review. In the meantime, we've also launched Tagrisso in China with very good start. Lynparza received the regulatory submission acceptance and priority review in the U. S. For the second line application in ovarian cancer as well as an orphan designation for the same cancer in Japan. As the first ever PARP inhibitor, Lynparza met a Phase III primary endpoint in brachy mutated metastatic breast cancer. Farxiga received approval in China and the SGLT2 class including Farxiga showed encouraging CV outcomes data in the CVD real world study. Further in diabetes, the new valerian auto injector was accepted for U. S. Regulatory review. The disappointing news was that we received a complete response letter for ZS9 in the U. S. However, there are more milestones that Sean will speak to later and a good start to 2017 should bode well for the rest of the year. Please turn to slide 17. So when we look at new AstraZeneca, it was another strong quarter where product sales grew by 6%. All CRP areas contributed so did the established medicines in the emerging market. As we move forward, these areas will be the key growth drivers as we exit the major patent cliff for Crestor in the U. S. By July this year comparisons will ease and we look forward to keeping you updated on our return to growth in product sales. This graph in the light gray shading shows you that we are reaching the end of this the impact of this large patent expiry. Please turn to Slide 8. As we begin returning to growth, our focus is increasingly on commercial execution and we've already launched Bevespi in Q2 this year. At the end of the year, we Benralizumab, our first biologic to treat severe uncontrolled asthma. In bladder cancer, durvalumab's U. S. PDUFA date remains this quarter. We were also encouraged by the positive Phase III data for Lynparza in metastatic breast cancer. There's a lot more new pipeline news flow expected over the next few quarters with Mystic and FLORA as two important highlights. With the opportunity in first line lung cancer shared between Tagrisso and our 2 IO medicines, we have the chance to become a leader in the treatment of lung cancer. And so far, we remain very confident in the MYSTIC trial refinement. With this, I will now hand over to Mark Mallon. Thanks, Pascal. I'm pleased to be here with all of you today to talk about our performance of the growth platform, and we'll get started by moving to Slide 10. So our growth platforms continued to demonstrate overall growth in the quarter despite a stable performance in respiratory. The combined revenue of our 5 growth platforms represented almost 2 thirds of our total revenue in Q1, and momentum was clearly seen in emerging markets and in new oncology. I'll touch on the performance of emerging markets in Japan, but I'm going to focus most of my remarks on respiratory, new oncology, and our cardiovascular and metabolic platform, which we'll refer to as new CDMD. This groups together Solinta and our growth diabetes product and medicine. Slide 11, please. So first turning to emerging markets. We continue to remain on track to deliver our long term performance goal of product sales in the mid to high single digit range. Emerging markets, as Pascal mentioned, is now AstraZeneca's largest sales region, with the growth being driven by the growth products, Brilinta, Orsiga and Respiratory. China continues to be a key driver where we recently received, as Pascal mentioned, approvals for FORCEGA and TEGRISO. Turning to Slide 12. Taking a look at respiratory, our respiratory franchise, sales stabilized in the quarter after a challenging second half of twenty sixteen, with downward pressure in the U. S. Being offset by strong emerging markets performance. Symbicort continued to grow unit volume, up a few percent and continues to lead the ICS Alava class globally. Product sales were down by 8%, reflecting pricing headwinds in the U. S. And competitive dynamics in Europe. This was offset by the positive emerging market and established rest of the world growth. In the U. S, Symbicore product sales declined by 21%, with slight volume growth. We continue to see significant price rebasing. And as previously mentioned, we expect the pricing pressure to be strongest in the first half of the year. In Europe, Symbicort product sales were down by 9% with continued pressure from both branded and analog competition. Emerging markets delivery growth of 10% with typical sales in China, up by 24% in the quarter. And Puma Creek continues to grow for us, up to 14% in the quarter with strong emerging markets growth of 28%, mainly driven by China. VESVY launched successfully in January in the U. S, performing in line with the previous launch products in the class, and early feedback from physicians has been positive. We plan to make a regulatory submission for BEVESFI in the EU soon. Turn to Slide 13. Just taking a step back for a moment from sales in respiratory, we wanted I want to really believe our overall respiratory strategy is well positioned to take advantage of the expected market expansion over the next 10 years. Significant unmet needs still exist with asthma and COPD currently affecting 600,000,000 individuals worldwide. The inhaled market is forecast to grow in volume, particularly in the emerging markets, with new treatment approaches driving further expansion. Biologics are forecast to accelerate growth further through increased penetration and earlier use of biologics. And our respiratory portfolio is well positioned for this emerging market evolving market. With Benralizumab, which has been accepted for regulatory review in the U. S, the EU and Japan, trilikinumab with Phase 3 data rate out in the second half of this year, and tesopelumab, which met its primary endpoint in the Phase 2b trial pathway. Our ambitions in respiratory go beyond our current inhaled and biologics portfolio. We will continue to push the boundaries of science in our early pipeline with the goal of early intervention and ultimately impacting disease modification. Slide 14, please. Now turning to new patent medicines in CV metabolic diseases and that will support our return to growth strategy. The new Cvmd sales were up by 6% despite intense competition, with strong performance in emerging markets, offsetting a weaker U. S. Performance. We continue to focus on Brilinta and in diabetes, Percega and VIBERIA. Brilinta delivered product sales of $244,000,000 in the quarter with 27% growth. Notable performance was seen in the U. S, in China and emerging markets. We remain confident that Brilinta will become a $1,000,000,000 blockbuster product this year. Brilinta Emerging Markets sales grew by 54 percent to $60,000,000 with China sales increasing by 68%. U. S. Sales increased by 24%, reflecting updated guidelines. And in Europe, sales were up 12%, and Berlin continued to outperform the OAB market in this region. In diabetes, we continue to focus on the 2 medicines that have the potential to offer a CV benefit, prostiga and Bydurean. Our diabetes franchise exhibited softer quarter with minus 1% sales growth. Product sales in the U. S. Declined by 7%, the result of intense pricing pressure and competition for market share. Europe exhibited growth of 1% with Farxiga offsetting losses in Oncolyta. Farxiga maintained a 40% share globally with product sales of $207,000,000 in the quarter and 25% growth. We expect growth will be supported by the broader knowledge in the medical community of the CBD real data confirming the morbidity and mortality benefits of this class of medicine. In the U. S, Farxiga outgrew the SGL 2 class and product sales were up 2%, but to do affordability programs they manage their care access. PARXNIGA delivered strong growth in Europe and Emerging Markets with sales up 24% 90%, respectively. And BYDURAN returned to growth in the 1st quarter with 14% growth driven by the U. S. And established rest of the world, with sales of $153,000,000 in the quarter. We're also very excited to announce that the FDA has accepted the auto injector for regulatory review in the U. S. Please turn to Slide 15. In Japan, we returned to growth. Product sales were up 3% in the Q1, driven by Tagrisso, Orsiga and Nexium. And this included a 6% decline in pricing as a result of national price cuts in April 2016. Tagrisso sales continue to grow and the Japanese yen sequential quarterly growth was 7%. T790 testing levels are now at 85%, of which about a quarter is from the new blood based test for the C790 mutation. In March, in Japan, Lynparza was awarded the orphan drug designation for ovarian cancer, which ensures a shorter regulatory review period. We anticipate our 2nd new oncology launch in Japan in 2018. Slide 16, please. Finally, turning to new oncology. 2017 continues to be an exciting year for us. New oncology product sales of Tagrisso, Lynparza and the U. S. ARESSA were $236,000,000 in the quarter. Tagrisso continued to demonstrate strong uptake in the U. S, Europe and Japan, with global product sales of $171,000,000 and 48 regulatory approvals. In China, we have launched Fructisil in April, which is a few months ahead of industry benchmark, just after a few weeks between the approval and the first sales, really remarkable performance by our teams across the globe and in China to make this happen, and this included obtaining the import license. Lynparza Q1 product sales were $57,000,000 up 32%. We continue to see growth driven by higher testing rates and market penetration. We also saw an increase in competitive pressure in the U. S. We will look to expand the current news based on strong SOLO-two trial data in second line maintenance treatment of ovarian cancer, and we look forward to further label expansion trials outside of ovarian cancer, like breast cancer, where we have new data now. So to conclude, overall, we saw solid performance from our growth platform. We're looking forward to the next wave of launches and together they will drive the emergence of AstraZeneca. Thank you for listening, and I'm happy now to turn this over to Mark. Thank you, Mark, and hello, everyone. I'm going to spend the next few minutes taking you through our financial performance in the Q1. So please turn to Slide 18. As usual, I will begin by showing the reported P and L numbers before turning to the core numbers. Total revenue declined by 10% in the quarter, impacted by the entry of the U. S. Multiple generics for Questor in July last year. External revenue increased by 3%. As previously highlighted, we expect the sustainable and ongoing part of external revenue to increase over time. And in the Q1, this increased to 32% of total revenue from 21% in the whole of 2016. Please turn to Slide 19. If we now turn to the core performance, we can look further down the P and L and see that our gross margin in the quarter was down at constant exchange rates by 1 percentage point to 83.6 percent, reflecting a changing mix of sales, including the impact of patent securities, partly offset by the resilience of some legacy medicine in established markets and the growing influence of Specialty Care Medicine. The absolute gross margin benefited from foreign exchange. It is important to note that we do not anticipate such a high gross margin to continue over the full year. However, I would like to make an additional remark. There was no real change in gross margin from emerging markets now being our largest sales repurchase. Core R and D costs declined by 3% in the quarter and core SG and A costs declined by 12%. These declines reflect our focus on cost control and support a full year commitment of keeping core R and D costs broadly stable as well as reducing core SG and A costs. Again, we do not anticipate such a similar reduction in core SG and A costs over the full year. Core other operating income increased to €333,000,000 including a gain on disposal of short term investment as well as a milestone we see from Pfizer. The core tax rate in the quarter was 17%, which was within the 16% to 20% range we have indicated for the full year. As Pascal mentioned a moment ago, the core EPS decline of 4% was limited by the favorable sales progression of New AstraZeneca and our relentless focus on costs. We turn to Slide 20. This slide, which is now familiar to you, illustrates the important progress we have made towards taking cost out of the business. As just mentioned, core R and D decreased by 3%, whereas core SG and A costs decreased by 12%. The SG and A decline, equivalent to 1 percentage point of total revenue, was partly driven by the simplification and the line standards for the centralization of shared services, including back and mid of lease activities. We recently launched a global business service organization, which over time will increase the level of integration and allow us to focus on cost further. We remain committed to continue reducing our cost base this year. Please turn to Slide 21. To conclude, I want to reiterate the 2017 guidance, which is at constant exchange rate. I expect a low to mid single digit percentage decline in total revenue. Core EPS is anticipated to decline by a lowtomidsing percentage. Outside of guidance, the total exchange revenue and other operating income is still expected to be ahead of that in 2016. Sustainable and ongoing income is expected to increase as a proportion of external revenue in 2017 and beyond. We anticipate that core R and D costs will be broadly in line with 2016. And as I just mentioned now, we plan to make further reduction in core SG and A costs. As I highlighted before, variation in performance between quarters can be expected to continue with year on year comparison beginning to ease in the second half as we begin to lap the impact from the loss of Cresco in the United States. Our capital allocation priorities remain We will continue to strike a balance between the interest 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 will keep under review any potential investments in value enhancing and immediately earnings accretive opportunities. With that, I will hand over to Sean. Thank you, Mark. I would now like to run through the late stage pipeline events since the last results announcement, the highlights of recent data presentation and then wrap up with a look at our upcoming news flow. Please turn to Slide 23. As you can see here, it was quite a busy quarter with progress in all therapy areas. And as you will see through my presentation, we anticipate this phase to continue through the year. To highlight approvals achieved, we had conversion to full approval for Tagrisso in the United States and the EU, approvals for Tagrisso and Farxiga in China, Q turn was approved in the United States for type 2 diabetes and the approval for SILIQ for psoriasis by our partner. For regulatory submissions accepted, Lynparza was accepted in the United States for second line ovarian cancer supported by data from the SOLO-two trial and the Study 19 trial. This submission was granted priority review. The Bydurean auto injector in the U. S. Was accepted. This approval anticipated approval will make the medicine more convenient for patients to administer Symbicort specifically for exacerbations in COPD and benralizumab in China for severe uncontrolled asthma. We received the 2nd complete response letter for ZF9 related to manufacturing issues. We remain committed to bringing this important medicine to patients with hyperkalemia and are currently working with global regulatory agencies to accomplish this goal. To complete the picture, we had the positive Phase 3 trial for Lynparza Olympiad And this compared Lynparza to chemotherapy in metastatic breast cancer. As many of you know, we will have these data to present at ASCO in June. Please turn to the next slide. At recent oncology medical meetings, we have kept up the positive momentum with data presentation. We have presented updated bladder cancer data from Study 1108. As a reminder, we are under regulatory review in the U. S. Following our mid December announcement of submission acceptance with the PDUFA date in this quarter. We had additional concordance data on PD L1 diagnostic assays with an effort to reconcile various existing tests for PD L1. We had Lynparza's SOLO-two data at the Society of Gynecologic Oncology meeting presented in March And early data at the AACR meeting on a number of our medicines and innovative biomarkers, including more advanced data on our TLR-seveneight agonist in solid tumors and Lynparza combined with temozolomide in second line small cell lung cancer. You can turn now to Slide 25. With this slide, I'll conclude on oncology. This slide will be familiar to you demonstrating our commitment and expected upcoming immuno oncology data readout from Phase 3 trials ongoing. First, a few updates. We had last patient begin dosing in testral since the last update on the pipeline as well as in Danube for the global trial, which excludes China. We had 1st patient dosed in Pearl, which is a first line IO trial specifically in Asian patient. And we also had a first patient dose in Caspian. Caspian is not listed on this slide. It is a Phase 3 trial in small cell lung cancer. For data in mid-twenty 17, as you all know, we'll have the first data from Mystic. This will be the final PFS analysis. We're confident in the recent trial refinement that we discussed last quarter and shared with you. You will also note that some of these refinements have found their way into other programs and other indications, namely the Neptune and test trial. In the second half of twenty seventeen, we'll have the first data for ARCTIC and third line PD L1 low negative non small cell lung cancer patients. This has pushed out from our expectation in the first half of twenty seventeen because of a slower accrual of events, as we described in the results announcement that we circulated this morning. Further, in lung, we expect data from PACIFIC in Stage 3 unresectable non small cell lung cancer. We will also see testral data in first line head and neck cancer. Next year again will be a busy year with final overall survival data from both Mystic and Neptune in non small cell lung cancer. Of course, there are interims for overall survival before that in these trials. Further, we expect readout from Danube and bladder and EGLE in head and neck cancer. We have also added our new POSEIDON trial to the overview now. It's our durvatremi combo with chemotherapy, also durva with chemotherapy and compared to standard of care chemotherapy. This is based on the encouraging Phase 1 data we shared with you late last year at the World Lung Cancer Meeting. We look forward to keeping you updated on our progress of our upcoming announcements in our IO portfolio. Slide 27, please. Moving on to data from our CVMD portfolio. At the ACC meeting in March, we shared the results of an exciting real world evidence study called CBD Real. This is the 1st large real world evidence study that's kind evaluating the rate of hospitalization for heart failure and of death from any cause in patients with Type 2 diabetes on SGLT2 inhibitors compared to other medicines for the treatment of diabetes. The study included more than 300,000 patients with type 2 diabetes from around the world and approximately 87 of these patients did not have existing cardiovascular disease. The CV Reel results are robust, consistent and confirmatory, data set showing that the treatment with the SGLT2 class cuts the rate of hospitalization for heart failure and death for many caused by approximately 50%. This is the first of several comparative analyses of CBD Real. The study is ongoing and there will be future analysis conducted and presented using this data set. On the right hand panel of the slide, other outcomes trials are underway, including XL with Fyburian with data expected in the second half of this year, which is earlier than previously expected. Again, the change in expectation for data readout is due to a faster than expected event rate. We also have DECLARE with Farxiga with data in 2019 at the latest. We have 2 additional FORCEA outcomes trial started this year, one of those in heart failure and one in chronic kidney disease, both in patients both with and without diabetes. And I can also share with you today that we recruited the last patient into the STRENGTH study for EPANOVA. This is an outcome trial in combination with statin conducted in 22 countries worldwide with data expected in 2019. In summary, our goal in CVMD is to reduce morbidity, mortality and organ damage by addressing multiple risk factors of cardiovascular and metabolic diseases for the long term benefit of the patient. If we now go on to Slide 28, this is our news flow that is expected in 2017 2018 and you can see from this slide, these are both very busy and very exciting years for AstraZeneca. By the end of 2017, we expect to have received 6 additional regulatory decisions, and we'll have had first data readouts for Mystic, Pacific, Arctic and Kestrel as well as for SOLO-one, first line ovarian cancer with Lynparza and FLORA in frontline EGFR mutant non small cell lung cancer with Tagrisso. We will see the potential for a fast market opportunity with acalabrutinib breeding out and anticipate submitting this year as well. Outside of oncology, we'll see data from the BI DURIAN outcomes trial, Exel, as mentioned, and the first Phase 3 data for trilikinumab in severe uncontrolled asthma. In 2018, we will have additional regulatory decisions based on ongoing reviews and an additional round of first data readouts, including for NEPTUNE, Danube and EAGLE. We'll also see data on rakbridustat for anemia, benderolizumab and PT010 in COPD and anaprolizumab in lupus. With this much going on, you will likely appreciate that we are busy moving the pipeline forward to bring benefit to patients worldwide and as well to benefit our shareholders. And with that, I will hand back to Pascal for closing comments. Thank you, Sean. Please turn to Slide 30. Before we end, let me quickly summarize. First of all, we had a good start to 2017. In particular, the emerging markets now became our largest sales region. New AstraZeneca grew product sales by 6% and our financials are on track and we reconfirmed our guidance. More importantly, the pipeline is advancing at pace with 12 new potential medicines in Phase 3 or under our registration. The oncology pipeline in particular is progressing ahead of our expectations with Tagrisso, Imparza and the immuno oncology programs progressing quite nicely. We're looking forward to sharing further news flow that we think has the potential to mark a meaningful step change for AstraZeneca, in particular the first line data for Tagrisso and of course, the MISTIC trial data in lung cancer. We'll now go to Q and A. And I'd like to thank you in advance. And we'll take the first question from Sachin Jain at Bank of America. Sachin, over to you. Hi, Sachin Jain, Bank of America. One question for Sean on Poseidon. I wonder if you could just brief review your given that given that physician feedback seems to be some concern around CTLA-four toxin isolation? And then if you could just touch on what chemo sequencing you're looking at in Poseidon, given the study at World Lung, I think investigated concurrent chemotherapy? Thank you. Thank you for the question Sachin. So, we do have a little more data than what's presented at WorldLung and that's just because you have a cutoff time for when you submit an abstract and actually do the presentation and prepare it. And then we have more follow-up. I will say it's Phase 1 data. So it is limited, but what we felt we saw and what we presented and what has borne out so far is that we get the toxicity of the combo and the toxicity of the chemo, but we don't really see an enhancement of the 2 when combined, so that we're able to tolerate giving them together. And we are giving them together concurrently. I guess that was the other question about what does Poseidon do. It's very similar to what you saw at World Lung in terms of how they are given because as we said, we felt that, that was a manageable toxicity profile. Thank you, Sean. Jim Anderson at Bernstein. Tim, go ahead. Thank you. A question on Arctic and the delay. You say that events are occurring more slowly, but this is a third line lung cancer trial, which is a fast progressive disease and chemo doesn't work very well in third line, such a pretty low bar cross. So I thought that events would actually come in quite fast. And I'm wondering if you can say whether you've changed any aspect of the statistical design of Arctic here in recent months, such that it would the upcoming European loan meeting. There's an abstract from the for the upcoming European Lung Meeting. There's an abstract from the Lung MAP study that shows quite weak response rate with dervamonotherapy even in PD L1 positive patients, which is kind of surprising. And I'm wondering if you can give us your thoughts here. So the first question is, did we I'm going to try to simplify it. The question is, did we change the analysis plan or the level of maturity we asked for out of Arctic in order to do the analysis? The answer to that is no. We have made no changes to the analysis plan. The maturity required was pre specified in order to demonstrate the treatment effect we were anticipating and looking at the number of patients that we had on the trial, reminding you that ARCTIC is a bit complicated. It has a 3 to 2 to 2 to 1 randomization for its different arms. We had forecast that we would be getting new data sooner. So obviously, the event rate is lower than we anticipated as well. But that's the reality of it. It's not something that we changed or manipulated. It's pre specified and it's taking that long for the events to accumulate. That could be, because our treatment effect is good or to be honest, it could be that we got more favorable prognosis patients than we had anticipated. And so they're just doing better independent of treatment. With regard to the question in ELCC, the small data set, it's absolutely true that the point estimate bounces around. When we look at our data in aggregate, we remain confident. 1108 is probably the thing we've presented most on and shared most with regard to PD L1 positive and durvalumab. And we feel that durvalumab is quite consistent with the class. So that we have confidence in our program. Thanks, Tony. Matt Weston at Credit Suisse. Go ahead, Matt. Thank you very much. It's a follow-up question on Arctic. Sean, you previously said that you require the TRME arm within Arctic to basically justify or satisfy the FDA requirements on contribution of components for Mystic. And so now I'd like to understand the filing strategy assuming we get a positive outcome for Mystic in the middle of the year, whether you will have to delay filing until you get that Tremi arm out of Arctic or whether or not you would anticipate filing Mystic with that data pending and then add it to the file once Arctic mature? We don't anticipate any delay to the filing of Mystic. If Mystic turns out to be positive and enables filing of the mono, in this case the question is of course of the combo. We remain very confident in our contribution of component strategy and that we will have the data to enable that should the outcome of the trial support it. Thanks, John. James Gordon, James JPMorgan. James, go ahead. Hello. Thanks for taking the question. A question on the POSEIDON study. So as I understand it, it's got the 2 immuno oncology ingredients and the chemo and there will be an arm that's chemo plus PDL-one. Is there a possibility of getting a chemo PDL-one label on the basis of the study if the triple therapy approach wasn't successful? Insurance policy one first, and then I'll go back and talk about how the trial what positive result would look like in that trial. So it really isn't an insurance policy. We don't we have not lost our confidence in MYSTIC. What we have and I've mentioned this before, what we have seen and gotten feedback from treating physicians is that there are there is a perception that immuno oncology treatments are slower onset than chemotherapy. And there are subgroup of patients that progress very, very quickly. And they do not feel, with that subgroup of patients that they can deny them chemotherapy. So what we're doing is we're giving them a complete data set to enable them to decide what does chemo IO look like versus the chemo that is given standard of care still in many places in the world and also obviously in the first line in PD L1 low expressers. The trial is designed to compare chemo IO or chemo IO plus IO versus standard of care chemotherapy. So if you beat standard of care chemotherapy, you have a positive trial. It will then be a judgment call on benefit risk if both arms were to be positive, whether you felt like the chemo or that IO chemo was superior to IO only with chemotherapy and that would be a judgment that we would make and also that regulators would want to look at. Thanks, Bhushan. Jack Cannell, UBS. Jack? Hi. Thank you very much for taking my question. Just one on the diabetes franchise. We've been doing some work on formulary status. It looks like Onglizer has probably been losing a bit of formulary coverage over the last 2 or 3 years. At Tradjenta gaining and JANUVIA slightly down. And in the SGLT2s, Farxiga Holding, with Jardiance going up and Invakana probably losing a bit. And I'm just trying to reconcile that with some of the light diabetes sales we saw in Q1. Does this reflect any particular change in the sort of contracting dynamics that we're seeing? Or has something else gone on? Okay. That's a question for you, Marc Maran. Yes. I think these are both certainly the D34s and also the SGLs are very competitive markets. And so the contracting challenges and pricing pressures have been strong and continue to have some amount of that going forward. I wouldn't say that and that's had an impression impact on the sales growth for all of the companies in the product. We believe that this is the class that is going to be a key factor of really the foundation of diabetes therapy in the future. We're really focusing on continuing to grow growth of the class and of course Farxiga And maintaining good access is a key part of that priority and we're going to continue to support the strong access that we have for Farxiga. Thanks, Marc. Yes, remember that we are in the early days of this class. It's still quite small relative to DPP-four and other classes of oral anti diabetic agents. So the key is really to drive the cardiovascular benefit. Today, we can't really promote that, of course, but over time, this is where the what's going to drive the class. Simon Becker at Exane. Simon, go ahead. Thanks for taking the question. Just moving on to respiratory, I noticed that the filing time line for PTO-one hundred and eleven LAMALABA ICS triple appears to have shifted from 2018 to 2019. I wonder if you could give us some color on the reasons for that delay? Thank you. Yes. What it really has to do is it has to do with in the United States, primarily the rate of enrollment and how long we will have follow-up in order to enable filing in COPD. And so it just is an adjustment based on actual data as we enroll the trial versus what we had forecast. Thanks, John. There's an online question here. Maybe I should take one of those webcast questions, sorry. From Matthias Engelbaum at Swedbank. And the question is, given the fact that Mystic, as most other IO trials, have an open label trial design, investors may have concerns that some OVEZ recent amendments to the trial design of MYSTIC include amendment of co primary endpoint, but also the fact that the decision to start an IO triplet study sorry, that includes chemo I'm sorry, they're adding that includes chemo as announced today. Sorry, the question is becoming longer. You want me to just go ahead and Yes, why don't you try, yes. All right. So, yes, Mystic is an open label trial design. Now for a second, I want to explain, when you compare I O to chemo, you will be unblinded. The investigator will be unblinded. And the reason is that if you look at, for instance, the blood counts in the patient, you will know that if you get myelosuppression, the patient is receiving FEMO versus IO. So it's not really possible to blind. So how do we solve that? So the way we solve that for the PFS primary endpoint is that we have the response and progression called by an independent radiographic review center, a blinded independent radiographic review center. So they don't know the treatment assignments of the patients. They just get scanned and read them over time. So that's for PFS how you create the blind. For overall survival, this is not an endpoint that's really sensitive to knowing the treatment assignment or not knowing the treatment assignment. So there it's less important. And that's how the study design incorporates that. That by the way has nothing to do with the recent amendment. That was the design of the trial from the very beginning. And what was the other and then a decision to start an IO triplet that includes chemotherapy. I think I addressed this already. That's more a pragmatic decision. We believe that there will be a place for chemotherapy in some patients, with non small cell lung cancer regardless of where IO comes in because physicians do see these rapid progressors. They do see that the standard of care doublet chemo was approved and used based on a survival benefit. So some patients will probably get chemotherapy and we just want to really establish for physicians what is the benefit of using the 2 together and what is the safety Just like to remind everybody actually that this IOKEMO strategy, we mentioned a long time ago that we would explore that combination for the reasons that Sean just highlighted. But we also said that we wanted to explore IO, IO chemo and as a result did this Phase I study that, of course, we had to wait for. But it's not a new event. It's not a knee jerk reaction to any new development. It was part of our strategy from sort of day 1 really. So this Vincent Meniere at Morgan Stanley. Do you want to go ahead, Vincent? Thank you very much for taking my question. A question on Lynparza. So what should we expect in terms of sales dynamics for Lynparza, notably in the context of the 4% decline in the U. S. In Q1? I mean, should we expect sales to grow before the SOLO2 label update? And also, would you anticipate off label use in breast based on Olympiad? Thanks, Vincent. Jamie, do you want to cover this question? Yes, sure. Thanks for the question. So we have seen some competitive pressure in the marketplace in the U. S. And that's due to early entry of competitors. But we're optimistic because we've had positive news though for the SOLO-two results in second line maintenance was presented at SGL. They were positive and we filed in the U. S. And it's undergoing priority review. We hope with Solo II we'll be introduced in a tablet formulation, which is important in the Q3. In Japan, we've received orphan drug designation and that will accelerate the approval timeline. And then as was mentioned previously with the positive Olympiad results that we reported that will be actually presented at ASCO in metastatic breast cancer. We will be the 1st PARP inhibitor in that new indication. So overall, we do expect an uptick in sales, particularly in the Q3. And then at the end of the year, the SOLO-one readout and first line maintenance, which should also help as well. Vincent, I think I just want to add this is Sean. I just want to add for you that as Jamie mentioned with the presentation of the Olympiad data at ASCO that does also give us the opportunity to seek guideline recommendation for Lynparza in metastatic breast cancer. And at least in the United States, if that is granted, that does sometimes drive some use ahead of regulatory approval. Thanks, John. His real first name is Vincent, by the way. But for today, we'll call him Vincent. So, same as Fernandez at Leerink. Seamus, do you want to go ahead and ask your question? Seamus? Yes. Hello, can you hear me? Yes. Okay, great. Thanks. So I just have two questions. The first one really is on the quality of the earnings and statements that your views that this was a good quarter. We're seeing more externalization build into the P and L. And I'm increasingly challenged to think about the quality of the earnings after, let's say, in the next couple of years. Can you talk a little bit about where we should be seeing SG and A going? Preliminary comments, I think you said that 12% down on SG and A this quarter is not sustainable for this year. And I'm just trying to understand why that's the case as the arms race globally continues to come down. And the second question is the enthusiasm around the emerging markets. Can you help us better understand why you're so enthusiastic about the growth in the emerging markets when China was such a slow grower in the mix? Thanks. So first question, I'll ask Mark to cover it. But let me just say as far as externalization, as we mentioned before, we have an overall target and a guidance for the year. But this is going to bounce around a little bit from quarter to quarter. So it's not because we have a large quarter that you should think, okay, this is becoming very, very, very large. It's going to vary from quarter to quarter because of course the timing of this deal varies a little bit. As far as the specific SG and A question, Marc, do you want to talk about this? Yes, just relatively briefly, the minus 12% in reduction of SG and A in the Q1, you need to remember we initiated a program of productivity increase starting Q2 of 2016. So we have, as a comparative base, the first quarter of 2016 and therefore the 12% is more impressive than the rate that we will have for the end of the year. I don't want to give you a precise number, but I can only repeat today that we will have a further reduction on our SG and A cost base for the full year. Thanks, Marc. And in terms of midterm outlook, we've always said we don't typically guide. But on top of it, in this instance, it would be really difficult to guide before we have a better view of what kind of clinical news flow we will get. I mean, we have such a number of new clinical trials that we read at and that will define the type of portfolio of products we have. And as a result, it will shape, to some extent, the SG and A ratio moving forward. So we really could not give any sort of guidance even if we wanted to at this stage in term of mid term and beyond 2017. We have 2017 guidance, of course, but beyond that would be hard. Emerging Markets, Martin and Malen this time, do you want to cover it? So first of all, actually our growth in the Q1 in China has been solid. Now in the actual, it was a low single digit number, but in constant exchange rate. Actually, we had high single digit growth. And keep in mind, we do have some impact of the deals that we've done in China. For example, we had a couple of different partnerships in anesthesia, cardiovascular. And so actually, our China business continues to achieve double digit growth. And so that's specifically China. Very confident we continue to outgrow the market with the number 2 company there. So our position in China remains very strong. Overall, we're positive about emerging markets because the unmet needs are so substantial across the region. And I think, of course, there are going to be ups and downs in the emerging market economy because there's volatility. But long term and overall, we definitely are very confident on that. If I can follow-up, just a quick question. Can you just give us a sense of when perhaps we might start to see leverage in the P and L of those markets then? Because I think that's another key question. There was also a question online about the difference in margin between emerging markets and the group as a whole. Our emerging market business is definitely profitable. It's not as profitable as the whole group as U. S. Or Europe. What we've said in the past is that it's a bit less profitable than Europe, but this is not just growth. This is a very it is a profitable business for us, and it is very sustainable. All right. Thanks very much, Marc. Moving on to the next question, Andrew Baum at Citi. Andrew, do you want to go ahead? Hi. A couple of questions, please. On strategies for prosecuting your PD L1, you referred to the rationale for looking at chemo combinations as one to address subgroup of patients who urgently need treatment or symptomatic and require shrinkage. Should I interpret this as indicating that you view the role of chemo as an additive one, rather than necessarily showing benefit through immunopotentiation? That's the first question. And then the second question is, I'd be interested in Sean and the team's view on the reported phenomenon of hyperprogression with some of the PD-one and PD L1 assets? And indeed, especially in your head and neck trials, given some of the recent literature, whether you think you are may seeing hyperprogression in some of the patients in the derma arm of that trial? Thank you. So with regard to the immuno potentiation question, I mean that's a theoretical possibility, but we really take a pragmatic view as I described that this is chemo and the benefit you get from that plus IO and you get time to get that started. With regard to the progression, we haven't seen evidence of it. We would say in aggregate, we don't really see heightened progression a convincing story for heightened progression. With regard to the trials you're referring to, they're blinded now. So, we don't know anything about the data and I can't really answer the question in the context of a blinded trial. But I guess that, at least your lung trials, approached in relation to the particular patient? That's what I was referring to. Some lung cancer patients do very badly and progress very quickly. That happens on all their therapies. I would see nothing that is a pattern specific to IO. Thank you. Okay. Thanks, Sean. So we'll come back again later, Andrew, if we have time, but I'm just trying to keep one question per person. Emmanuel Papdecis, sorry, at Barclays. Emmanuel, do you want to go ahead? Sure. That was very good pronunciation. Just a quick one quick question for Marc on cash flow. You had a relatively large negative working capital movement in the Q1. I was wondering if you could give us a little bit more color on that and also maybe a bit of color on expectations for operating and free cash flow for the full year in terms of comparability to last year's should we expect it in line or perhaps slightly ahead? Thank you. Thank you for the question. First of all, the I will address the variation quarter 1 2017 versus quarter 1 2016. So the variation, as you point out, is mostly on the need of working capital. There are several factors, but one of them is the increase of inventories that we need to have to prepare for the new launches. There is a reduction of managed market rebates payable in the United States as we have had reductions sales reductions on products like Crestor, for instance, which was carrying very high rebates last year. Also an overall reduction of payables because we have reduced our normal cost base and therefore the payables on the SG and A has reduced. There is also another factor that the factoring that we did. We had increased our factoring in the quarter 1 2016, so that's the which did not happen in 2017. So these four elements are explaining the large variation in the need of working capital. Regarding the outlook for the year, obviously, we're going to continue our effort on cash generation. We are putting pressures on receivable as well as on payable. A bit more difficult to do on inventories, which we won't be able to contain so much because we are launching new products and in particular biologics, which require longer larger inventories. Thanks, Marc. Let's take a webcast question from Marietta Mimiz at Prem Avenue. The question is for you, Mark Marlon. Can you give us an update of the patient flows between categories in diabetes? Are physicians becoming more comfortable with the SGLT2 class? Is the class mainly gaining from DPP-four due to additional benefits? Any indicators that these GLT-two are delaying the start of injectable CRP? Any color on how patient flow into and between the categories is changing as the SGLT2 class gains traction? Any indication would be great. So physicians are definitely getting more comfortable with class. And I think the best way to describe how that's evolving is earlier use of SGLT2s. So we're seeing more use in naive patients. We're seeing more use immediately after metformin ahead of DPP-four and we're seeing physicians adding it on to other therapies sooner and more early in the process. So far, I can't say that we've got a strong indication of a big change in when injectable therapy is starting. I think both that all of this is going to head towards SGLT2 as people better appreciate the cardiovascular benefits of the class and we're certainly doing our part to educate around the overall benefits in glucose control and weight loss of SGLT2. Good. Thanks very much, Marc. We'll have to stop here. We are getting to almost 1 So thank you very much again for your great interest in AstraZeneca, and I wish you all a great day. Thank you. Bye bye.