Earnings Call: Q2 2016

Jul 28, 2016

Good afternoon. Welcome, ladies and gentlemen, to the AstraZeneca First Half Year Results Analyst Conference. Before I hand over to 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, Although we believe our expectations are based on reasonable assumptions by their very nature, forward looking statements involve risks and uncertainties and may be influenced by factors that could cause actual results to differ materially from those expressed or implied by these forward looking statements. Any forward looking statements made on this call reflect the knowledge and information available at the time of this call. The company undertakes no obligation to update forward looking statements. The next voice you hear will be that of Pascal Soriot. Hello, everyone. I'm Pascal Soriot, CEO of AstraZeneca. Welcome to the first half twenty sixteen results conference call for investors and analysts. The presentation is posted online for you to download. We plan to spend a good half hour on the presentation, and then we will leave plenty of time for Q and A. In total, we have 1 hour and 15 minutes together. So please turn to Slide 2. I'm joined today by Luke Mills, our EVP for Global Products and Portfolio Strategy, Global Medical Affairs and Corporate Affairs Margin Rhea, CFO and Sean Boyan, our EVP for Global Medicines Development and our Chief Medical Officer. I will provide a short overview and then I will hand over to Luc for an update on the growth platforms and the ongoing launches of new medicines. As usual, Mark will cover the financials and our guidance. Sean will provide a pipeline and useful update, and you will see there's a lot of exciting news in that pipeline. At the end, I will provide concluding remarks before we take your questions. Please turn to Slide 4. The Q2 of 2016 continued with in line with our expectations and we are on track for the year. Total revenue reflects the loss of exclusivity, including cluster, but also the phasing of externalization revenue. We saw R and D investments stabilizing with Q2 growth more in line with our full year commitments. We're still finding a very attractive pipeline, which has delivered important news lately. As far as SG and A costs, they continue down, which support the full year commitment of a material decline. EPS overall was impacted by the flu missed inventory write down. And all in all, the business performed as we expected and we therefore maintained the full year 2016 guidance. Importantly, and we're all very excited about this, the pipeline continued to make significant progress in Q2 with the following highlights. First of all, in oncology, we received positive Phase III trials for Tagrisso and Faslodex, which is right for patients and for our company. We look forward to presenting the data at medical meetings later in the year. We're also very pleased to have completed rapidly the recruitment in many of our key IO Phase III trials, including MISTIC and ARCTIC, both of which will have data during the first half of twenty seventeen. Back to a special note of Mystic, we recruited about 1100 patients in about a year or so. So our team did an absolutely stellar job recruiting that study in record time. Many of the studies are ongoing in recruiting. We also got U. S. Fast Track designation for Lynparza in second line ovarian cancer. Respiratory immunity also saw success in 2 Phase III trials for benralizumab in severe uncontrolled asthma. Modalumab for psoriasis received a positive recommendation at the recent FDA Advisory Committee meeting. The cardiovascular and metabolic diseases franchise saw an approval in the EU for Saxadapa, now called Q term in type 2 diabetes, and we also made a regulatory resubmission of Saxadapa in the U. S. We look forward to hearing back from the agency during Q1 2017. As you know, we received a complete response letter for the S9, and we're now working hard to address the manufacturing issues that were raised. Sean will give you an update later on. Finally, we welcome the last patients in the Phase III THEMIS trial for Brilinta. As you remember, that study is in diabetic patients. In short, we are really pleased with the progress demonstrated over the period and our teams around the world have really demonstrated our ability to deliver on our pipeline and to execute on our clinical programs. Please turn to Slide 5. I wanted to take a moment here to highlight some of the progress we've made in optimizing resource allocation and deploying capital in an optimal manner. We've grouped our efforts in 3 areas, in which of which the top two results are externalization revenue and the bottom one is operating income. Essentially, we are looking for partnership that access to access therapeutic area expertise where we need them. For instance, the base inhibitor for Alzheimer's disease with Lilly brodalenumab in psoriasis with Valiant and LEO who both had very strong dermatology businesses, carlopenumab for atopic dermatitis with LEO, and importantly diorvalumab in hematology with our partner Celgene. In each case, what we're trying to do here is optimize the value of each medicine through the partnership and create a recurring revenue stream, which we book as externalization revenue. So that's really the first example of externalization partnership. The second example of externalization partnership related to instances where we engage in partnerships to help us increase commercial reach and good examples of this include Movantik, Trendol and the Anesthetics portfolio. In the last example, we partnered anesthetics with a dedicated partner in the field who has a very large hospital based sales force and can grow this business with a focus and a dedication that we would not be able to demonstrate because we allocate our resources to our core areas. And we are retaining a significant proportion of the total economics, which we book as externalization revenue too. So the important part here is that those externalization partnerships help us market our products better, focus our resources in our core areas and generate recurring revenues that we will hopefully grow over the next few years. Thus and final is the final example is disposals, where we provide only onetime income through other operating income. These are products that are typically small peripheral products that we divest. And a couple of examples of those are Mylet last year and in June of this year. And essentially what we do is we take this resulting revenue stream from those activities and the one time income, and that allows us to invest in our R and D portfolio and focus our sharpen our focus in our main CRP areas, continue the R and D investment and also to support our dividend commitment. So we're pleased that many investors have been patient throughout this process, having relied on the dividend for the short term and believing in the pipeline for the medium and long term. We're also pleased by the trust and the investment in our company, and I would like to thank you for your continued support. Please turn to Slide 6. As we approach the next few quarters, I'm also approaching many very important Phase III data points for AstraZeneca. The next 12 to 18 months will be really rich in news and importantly out of time for us. In particular, this is the case for immuno oncology where we expect a significant level of news flow from across the entire portfolio, including dorvalumab monotherapy, but importantly in combination with tremidimumab. We're very pleased with the speed of enrollment that we've seen in many of the trials. As I said a minute ago, MISTIC enrolled almost 700 patients in about a year or so, which clearly indicates the interest from physicians and patients in the opportunity to test the IOI combination of diorgotremi over other treatment options in first line lung cancer. But also it is attributed to the quality of our teams, the talent of our people and the commitment to bring those medicines to patients as quickly as possible. Between now and the end of the year, we expect data from HOPE in head and neck cancer. In the first half of next year, we expect data from Condor in the same cancer, but in combination this time. We also expect data from ARTIK and MYSTIC in lung cancer, which are both fully enrolled. In the second half of next year, it's data from Kestrel in head and neck cancer and PACIFIC in lung cancer. In 2018, we will have Neptune in lung cancer, EAGLE in head and neck cancer and DANUBI in bladder cancer. So enormous progress, very fast recruitment and a tremendous opportunity for us to position ourselves as a leader in immuno oncology in the couple of in the years to come through this combination strategy, which we have been pursuing for now a couple of years. I'd like to take a moment here to thank all our employees around the world for the tremendous work they've done to bring our pipeline to where it is now, and we're really looking forward to sharing future updates with you. With this encouraging news, I will hand over to Luc. Thanks, Pascal. And if I can ask you all to move to Slide 8, please. So I'm pleased to report the growth platforms have demonstrated significant progress in the half. These platforms now represent over 60% of total revenue. And encouragingly new oncology now represents over $250,000,000 in sales and these sales reinforce our confidence that our strategy is very much working and very much on track. Please now turn to Slide 9. With Brilinta and Japan performing solidly and in line with expectations and even better in the Q2, I'll prioritize my time today to focus on respiratory, diabetes, emerging markets and of course new oncology. Please turn to Slide 10. Our respiratory franchise delivered 1% sales growth during the half with the performance in emerging markets and the resilience of Symbicort in volume terms offsetting the competitive pressures in the U. S. And also the EU. In the half year, Symbicort established itself as the number one medicine globally in the growing ICSLABA class in volume terms. And sales were down 6% in the half, reflecting the competitive nature of the overall market. In the U. S, solid volume growth was partly offset by pricing as a result of new contracts. And for Europe, while sales continued to be affected by slower in class market growth and competitive pressures from both branded competition and analogs, Simmscorp maintained its market leadership in the highly competitive ICSLABA market environment, and we aim to strengthen our position with the ongoing launches of the pressurized device across the EU. In emerging markets, we maintain leadership where sales grew by 25% with China growing by 33%. Pulmicort, Pulmicort sales grew by 10% in total, largely driven by a 23% increase in emerging markets. And the business in China continues to expand with more nebulizer centers established in addition to the 8,000 or so centers already in place. And we believe the sales growth is sustainable with additional initiatives in the home nebulization, improved diagnostics as well as treatment. Duaklir achieved encouraging market share gains and the emerging LAMALABA class is set to annualize at $1,000,000,000 in 2016. Duicleer continues to grow in Europe, having successfully launched in more than 25 countries and with several more launches planned in 2017. Please turn to Slide 11. Moving to Brilintra Brilintura performance, we're on track and are now the number one branded antiplatelet medicine in the U. S. I can cover more details on this in the Q and A as needed. Please turn to Slide 12. We now look at diabetes. The good performance continued in the first half with a growth of 18%. Growth was visible across all regions and the 3 major classes in what remains a very competitive market. And we believe that the GLP-one and XGLT-two classes will continue to be the fastest growing in Type 2 diabetes. Data released by products in both classes have shown that CV and renal benefits and outcome studies, EXCEL and DECLARE will provide more data in due course. Factoring in these dynamics, we've fully focused our strategy and are now in the process of executing this with Farxiga and Bydurean to achieve our ambitions in diabetes. Farxiga is now the number one diabetes product in our portfolio. And as you can see in the pie chart, it leads the global SGLT2 plus with 42% volume share. In the U. S, preferred status on the Caremark formulary continues to support the medicine despite the competitive landscape, but we also recognize the need to capture more market share and are adjusting our approach accordingly. In Europe and international markets, VASVIGA leads the class with around 60% market share. Iberian continued to see good sales growth overall. In Europe and Japan, growth continues to outpace the GLP-one class, the fastest growing class in the Type 2 diabetes market. U. S. Has also benefited from market growth. However, competitive pressure remains based on a broadening range of GLP-one options in that market. Please turn to the next slide. If we look now at emerging markets, While the overall growth rate slowed during the half, the second quarter was up versus the first, and we are on track with our long term goals. As you can see on the graph, China maintained double digit growth of 11%, while the other emerging markets exhibited high single digit growth. Our established portfolio, as we've said on previous calls, is well positioned as the main near term growth driver and trends of better diagnosis, improved access and favorable patient dynamics all bode well for our established products in respiratory and diabetes. While growth in China moderated during the half, we are looking at growing faster than other multinational companies and the overall market. And looking forward, we expect to maintain solid growth in China. For Brazil and Russia, Brazil and Russia grew at 13% 12 and these two countries along with the Middle East and Africa and most of Latin America all continued to outperform the market. And encouragingly, this growth was supported across all the main therapeutic areas. So respiratory sales were up 23%, Polinta was up 106%, diabetes was up 44%, and finally legacy oncology was up 5%. And as a reminder, the long term target for emerging markets is mid to high single digit percentage growth in sales. Please turn to Slide 14. We had good results in Japan, which I won't go into now as I mentioned at the start of the call, but it's pleasing. Next slide, thanks. Finally, looking at the 2 new oncology product launches, Tagrisso and Lynparza, which have amassed $250,000,000 in the half. Firstly, Tagrisso, and you can see here on the left hand side graph, it demonstrates that we've made good progress across all markets in just over 6 months from launch, with 3,000 patients now treated to date with this remarkable medicine. The tQ DNA T790M diagnostic test is now expected to become available in the second half in the U. S. And we look to further data readouts in first line in 2017 as Tagrisso moves to the court becoming the new standard of care. Turning to Lynparza, the graph on the right demonstrates a strong trajectory. 1.5 years after approval, 4,000 patients have received Lynparza since the launch in December of 2014. And LYNPARZA has now been launched in 29 countries with reviews ongoing in 9. Bracket testing rates have increased significantly to over 60% in the U. S. And Europe, and we continue to gain confidence in LYNPARZA backed by the Study 19 data presented at ASCO. The study confirmed the long term benefit and safety of Lynparza in the second line platinum resistant recurrent setting for ovarian cancer patients for over 5 years. And we look forward to keeping you updated on our progress with NINPARZA and Tagrisso. We're very excited about that. These two initial launches build the foundation for our new oncology product platform. And with that, I'll now hand you over to Mark. Thanks, Luca and hello, everyone. I'm going to spend the next few minutes taking you through our performance in the first half. Please turn to Slide 17. Before we go into the numbers, I wanted to highlight something you may have noticed in our announcement this morning. In view of the recent SEC guidelines and requirements around the reporting of GAAP and non GAAP measures, we have decided to actively implement changes in our materials straight away. You'll notice that we are now giving equal weight to the reported and core performance with reported numbers now coming first. By doing this, we're enhancing what is becoming clearer and more consistent disclosure. We will strive to improve our disclosure over time. In the spirit of the changes we are making, you can see on this slide the reported P and L for the half and for the second quarter. Please turn to Slide 18. Turning to the core P and L, the total revenue decline of 3% in the half reflected a fall in product sales by 2%, with the effect of losing exclusivity on Crestor in the United States, particularly impacting the performance in the Q2. Looking at external revenue, we are planning good level of activity in the second half of the year. There were a few deals, however, that competed in first half. The 5% rise in the cost of sales in the half reflected the mix of sales as well as the $47,000,000 write down of inventory levels for Flimist in the United States. The core gross profit margin declined by 1 percentage point in the half to 82%. Core R and D cost growth slowed to 3% in the Q2 and full year total core R and D costs are expected to be at a similar level to last year at constant exchange rates. SG and A cost fell by 5% in the first half, in line with the commitment we made to a material reduction this year. Our core tax rate was 17% in the first half, in line with the 16% to 20% range for the full year I have outlined previously. Please turn to Slide 19. Cost discipline continues to be a key focus for the business, and we have made good progress in the first half. Looking at R and D cost, the chart shows sequential declines over recent quarters despite the absorption of Zales Pharma and Acerta Pharma. Excluding that absorption, R and D costs would have only increased by 3% in the first half. The current level of investment in R and D reflects the sheer number of potential medicine and pivotal trials, and it is important that we dedicate resources to this program. Turning to core SG and A. Costs declined by 5% in the first half with efficiency savings in sales and marketing operations adding to further reduction to IT cost reduction. You can see from the chart the path we are following to reduce costs even further in the future. We are confident in meeting our core discipline commitments this year. Please turn to Slide 20. You may well be familiar with this slide that summarizes the challenges and opportunities that we face this year. We know there are 2 clear pressures on the business when we think about our 2016 guidance, namely the recent loss of exclusivity for Cresco in the United States plus the dilutive effect of the AFFRETA and various pharma transactions. So both platforms consistently perform well. We also have an important period coming up for the pipeline and the launch programs. We'll continue to pursue value creating externalization and disposal opportunities. And as I just mentioned, we will continue to deliver against our commitment on cost. This means that our full year total revenue and core EPS guidance at constant exchange rate is unchanged today. Turning to foreign currency movements, we now anticipate more favorable FX than previously thought. This is why we now anticipate only an minimal adverse impact and currency movements on total revenue this year, and core EPS is expected to benefit from currency movements by a low to mid single digit percentage versus 2015. Please turn to Slide 21. This is a slide I've used before, but it's important to emphasize our capital allocation priorities. 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 a strong investment grade credit ratings, will keep under review any potential investment in value enhancing and immediately earning lucrative opportunities. I want to mention our dividend payout in particular, given its maintenance as well as the fact that it is based in dollars. With a favorable foreign exchange rate environment, we believe our dividend payout is strong as we retain our progressive policy. I am pleased that despite the final loss of patent experience we are faced with, we are able to reward our investors for their patience and support. Please turn to Slide 22. Finally, it's good to recognize how our lending partners are pivotal in supporting our growth plans over the long term. As a good example, in May of this year, we successfully issued €2,200,000,000 of medium term notes. And as you can see from the chart, we now have an appropriate debt maturity profile. This is underpinned by the strong investment grade credit ratings I mentioned a moment ago with Moody's at A3 and S and P at A-. Thank you for listening, and I will now hand over to Sean. Thank you, Mark. I will now move on to our exciting pipeline. As was alluded to earlier, we are seeing very good progress with the pipeline and in particular, the medicines in late stage clinical trials. First, I plan to review the Q2 late stage pipeline headlines, but also go a bit more into detail on a few items of particular interest. At the end, I will review our upcoming news flow. Please turn to Slide 24. Starting with respiratory and autoimmunity, benralizumab saw a readout of 2 positive Phase III trials, COLIMA and SIRACO. These trials will form the backbone of a regulatory submission before the end of the year for an intended indication in severe uncontrolled asthma. Further, last week, the Dermatologic and Ophthalmic Drugs Advisory Committee appointed by the U. S. FDA voted unanimously recommending approval for radalumab for adults with moderate to severe plaque psoriasis. We will continue supporting our partners, Valiant in the United States and LEO in the EU and bringing this important medicine to patients as soon as possible. In cardiovascular and metabolic diseases, Brilinta saw the last patient of a total of about 19,000 patients recruited in the Phase III THEMIS trial. The last company sponsored major outcome study for Brilinta to read out in 2018. FEMUS is testing Brilinta in patients with type 2 diabetes and coronary heart disease with no history of myocardial infarction or stroke. QTern, previously known as Saxodapa, was approved in the EU for type 2 diabetes. Also, the regulatory resubmission for the fixed dose combination of the 2 diabetes medicines was accepted by the FDA in the U. S. We expect to hear back from the agency during Q1 of 2017. We received a complete response letter from the FDA for ZF9 as a potential medicine to treat hyperkalemia. The CRL referred to observations arriving from a pre approval manufacturing inspection. The CRL did not require the generation of new clinical data. We expect to resubmit the NDA as soon as we can this year, after which we assume to get a response from the FDA within 6 months of that resubmission. In oncology, we saw positive Phase III trial results from Faslodex in first line hormone receptor positive metastatic breast cancer. Unfortunately, Lynparza missed the primary endpoints in the metastatic gastric cancer trial in Asia. However, this does not change the outlook for the lifecycle program for LYNPARZA, where we expect Phase III results this year in BRCA mutated second line ovarian cancer as well as in BRCA mutated metastatic breast cancer. Tagrisso saw the confirmatory Phase III trial in second line EGFR mutated T790M non small cell lung cancer readout with positive results across a range of endpoints. Further, the MEK inhibitor, selumetinib, obtained orphan drug designation in differentiated thyroid cancer. Finally, as announced during the ASCO Investor Science event, we have now recruited the last patient in the MYSTIC trial in first line metastatic non small cell lung cancer. And today, we can share the same good news for ARCTIC in the third line PD L1 negative setting. MYSTIC and ARCTIC are both scheduled to report PFS data in the first half of twenty seventeen. Outside the main therapy areas, we obtained EU approval for ZAVICEFTA, previously Tazavi, for serious infection and also obtained conditional marketing authorization in the EU for the pandemic live attenuated influenza vaccine. Please turn now to Slide 25. As I mentioned, I will now go into detail on a few key pipeline results beginning with benralizumab. In May, we announced the positive top line Phase III results for benralizumab, a potential best in disease eosinophil depleting antibody and our first biologic for the treatment of patients with severe uncontrolled asthma. Asthma currently affects the health and daily living of 315,000,000 individuals worldwide. And by 2020, this will likely increase to more than 400,000,000 people. Up to 10% of asthma cases are severe, of which approximately 40% are uncontrolled. Severe uncontrolled asthma has 8x greater risk of mortality than severe asthma that is controlled. This results in a significant physical and socioeconomic burden with severe patients accounting for around 50% of all asthma related health care costs. The primary endpoint in the 2 pivotal Phase III registrational trials, SIRACO and COLIMA, demonstrated significant reductions in annual asthma exacerbation rate compared to placebo. The trials evaluated the efficacy and safety of 2 dose regimens of pembrolizumab as an add on therapy for patients 12 years of age and older with severe uncontrolled asthma and on high dose inhaled corticosteroid plus a long acting beta-two agonist. A previously reported Phase IIb trial demonstrated a reduction of eosinophils and asthma exacerbations with an overall improvement in lung function, and this slide depicts the reduction in exacerbations. As announced in our May press release, the Phase III safety and tolerability findings for benralizumab were generally consistent with those reported in previous trials. I'm very excited about the potential for benralizumab to improve patient outcomes in severe asthma. And we look forward to the presentation of detailed Phase III results in September at the European Respiratory Society meeting here in London. As previously mentioned, regulatory submissions in the U. S. And EU are expected before the end of the year. Please turn now to Slide 26. From respiratory and benralizumab, we now move on to the oncology highlights out of the June ASCO meeting. We were pleased to share data for Tagrisso and CNS disease. In patients with lung cancer, common site of metastasis remains the brain. So a medicine with the ability to penetrate the blood brain barrier has clear patient advantages and may help improve overall survival. This is a hypothesis that is currently being explored in additional clinical trials, including the first line Phase III trial called FLAURA, which is scheduled to report next year. For Lynparza, we saw early overall survival data from the Study 19 trial in BRCA mutated second line and beyond ovarian cancer. We are eagerly awaiting the results from the SOLO-two trial later this year, which is testing a specific second line population of platinum sensitive recurrent patients. We're pleased to soon see other DNA damage response medicines start Phase III trials. First, the AZD1775 V1 inhibitor. We are looking forward to sharing our progress in DDR at upcoming medical meetings and quarterly results. From the IO medicines, we saw strong data for durvalumab in second line PD L1 positive urothelial bladder cancer, which supported the breakthrough therapy designation obtained earlier in the year. We saw a wealth of relevant data at ASCO from ourselves as well as other companies supporting our decision to focus on the unique combination of Durva and Tremy. We are looking forward to the upcoming news flow from the IO pipeline, which I will detail in a few slides. Lastly, on hematology, we presented acalabrutinib's frontline data in chronic lymphocytic leukemia for the first time, and they were just as impressive as the data in relapsedrefractory CLL previously shared at the American Society of Hematology in December of 2015. We are also pleased to see the progress made by the Celgene collaboration, a topic I reviewed in greater detail at last quarter's conference call. I now plan to go into more details on 2 areas, namely IO and Lynparza. Please turn to Slide 27. We are often asked about when we will see an immunotherapy from AstraZeneca benefiting patients outside of clinical trials. This chart aims at providing an answer to that question. We have multiple ways our IO medicines can come to market. For durvalumab monotherapy, the first data remained HAWK in the second line PD L1 positive metastatic in second line PD L1 positive metastatic head and neck cancer with final data expected this year. Then key data from PACIFIC in stage 3 unresectable non small cell lung cancer in the second half of next year. And then one of the 3 arms in the MISTIC study, which could also potentially provide a monotherapy label for durvalumab. It's important to remember, as has also mentioned on the slide, that the HAWK trial is a single arm Phase II trial with no comparison to standard of care and therefore a potential fast to market opportunity ahead of randomized combination data from the CONDOR trial and randomized controlled data from the Kestrel and EAGLE trials in head and neck cancer. In combination therapy of DIRVA plus Tremi, the first half of twenty seventeen is expected to deliver a number of key trials. CONDOR and second line PD L1 negative metastatic head and neck cancer with some of the same caveats as HAWK, Arctic in 3rd line PD L1 negative non small cell lung cancer and Mystic in the first line non small cell lung cancer setting. 2 other important data points for AstraZeneca are the NEPTUNE lung cancer and Danube bladder cancer trials in 2018. In summary, we're quickly approaching key pivotal data for durvalumab and the durvalumab combination, and we're looking forward to sharing these data points in due time. Please turn now to Slide 28. Moving on to Lynparza and specifically the Study 19 trial. I will start with this Kaplan Meier curve, which was presented at ASCO in June. Study 19 is a randomized Phase 2 trial comparing Lynparza versus placebo as a maintenance therapy in 2nd line ovarian cancer patients. The trial was designed to demonstrate an improvement in progression free survival of LYNPARZA over placebo. It was not designed nor sized to detect superiority in terms of overall survival, But as you can see at 5 years of follow-up, some 15% of patients remain on treatment. In summary, 2 key messages from this data. First, patients are living longer and not only the median survival is significantly superior, almost 5 months compared to placebo, but there's also a 38% reduction in the risk of death from ovarian cancer. Secondly, LYNPARZA has started to show a long tail to the survival curve, similar to something we have seen previously with immunotherapy. Please turn to Slide 29. We are proud to have an industry leading portfolio with multiple agents in proof of concept studies across several cancer types, including ovarian, breast, pancreatic and prostate. Our strategic framework starts with Lynparza monotherapy, progresses to Lynparza in combination and extends further to V1 and other small molecule and IO agents, looking beyond the BRCA mutation. Please turn to Slide 30. Finally, on the upcoming news flow. During the remainder of the year, we expect a regulatory decision on cediranib for ovarian cancer in the EU and bridalumab for psoriasis in the U. S. We have a number of regulatory submissions coming up, including benralizumab for severe asthma, the resubmission of ZS9 in the U. S. As well as the first regulatory submission, a rolling submission for roxadustat in China by our partner, FibroGen. In oncology, we expect a regulatory submission for Tagrisso in China and potentially acalabrutinib in one blood cancer in the U. S. There is the usual caveat around Phase II trials supporting regulatory submission as for acalabrutinib where Phase II trials may support faster market opportunities ahead of randomized controlled trials. Key data readouts are Brilinta in peripheral artery disease, Lynparza in both breast and ovarian cancers, selumetinib in lung cancer and durvalumab's Phase II in head and neck cancer. If positive, we expect the aforementioned key data readouts in the second half of twenty sixteen to convert to regulatory submissions in the first half of twenty seventeen. On readouts, we expect the first key IO combination trials, Condor, Mystic and Arctic, during the first half of twenty seventeen. We expect regulatory decisions on briddalumab and ZS9 in the EU, as mentioned, and as mentioned, Saxodapa in the U. S. Today, we are also rolling the news flow forward to include the second half of twenty seventeen. We expect the first half twenty seventeen news flow to convert to regulatory submissions in the second half of next year. We expect new data from a number of ongoing trials, including first data for trilakinumab, our second biologic in severe asthma roxadustat in anemia from an AstraZeneca sponsored trial and the first line data from Lynparza in ovarian cancer and Tagrisso in first line EGFR mutated non small cell lung cancer. From the IO pipeline, we expect data from PACIFIC in Stage III unresectable lung cancer and from testral in first line head and neck cancer. Lastly, moxetumumab in hairy cell leukemia is expected to deliver its first data next year. In short, we are very pleased with the overall progress of the late stage pipeline and we are looking forward to sharing the upcoming news flow as it will be pivotal not only for patients, but also for AstraZeneca as a company and our expected return to growth. I will now hand you back to Pascal. Thank you, Sean. Please turn to Slide 32. Before we end, let me just quickly summarize. First of all, our financials are on track. And as you heard, we reconfirm our guidance for the year. 2nd, the pipeline is accelerating. We now have new potential medicines in Phase 3 and under registration. The 3rd message for you today is our oncology pipeline is progressing very rapidly. In particular, the IOI combination programs that are really quite exciting and moving along quite quickly. And finally, we're looking forward to sharing upcoming news flow over the next 18 months that we think has the potential to transform AstraZeneca. So we now go to the Q and A. We can now take the first caller, who is Jo Walton at Credit Suisse. Go ahead, Jo. Thank you. In the spirit of talking about clinical trial results that are coming through next year, I wonder if we could also look at some of the costs that might be coming through next year. So if you've got all of these new products coming through, how realistic is it to assume that you can continue to A second one on foreign exchange, please. Because we're going to A second one on foreign exchange, please. Because we're going to be seeing a foreign exchange benefit at the bottom line, which we're not seeing at the top line, I wonder if you could give us some help as to which line item we should see it in. Presumably, it will be an expansion of the cost of the gross margin and an apparent reduction in cost of goods, but just to check that, please. And finally, you've highlighted the credit rating. I wondered why you'd chosen to do that. Does this tell us something about you feel that you've got capacity to buy some more products in? Thank you, Edouard. So I'll ask Marc to answer the ForEx question and also the credit rating question. Maybe a quick point on the SG and A cost and Luc, if you have anything to add, please jump in. The reason we feel confident we can continue managing our SG and A costs, Joe, is that, first of all, we have productivity programs in place that will continue to deliver benefits over the next year or 2. And secondly, it's important to keep in mind our pipeline is now shifting to more specialty care products. If you look at the news flow, it's going to be very much driven by oncology over the next 12, 18 months. Products also like Benalizumab, all of those medicines that require R and D costs, but less SG and A cost as you know, because they are more targeted customer groups. So as the pipeline shifts and redeploy to specialty care products, our expectation is that we can manage our SG and A cost as we have guided we would. Look, okay. So I'll ask Marc to answer the other two questions. So Gil, thank you very much for the question on the ForEx. So the slight benefit that we are anticipating, obviously, if the existing ForEx are continuing till the end of the year and is period of great ForEx volatility, this is a very difficult thing to predict. The lines that are the lines of the P and A that are particularly influenced, if these rates were maintained until the end of the year would be the cost lines. Basically, this would be SG and A as well as R and D cost, but also as you suggested, the cost of goods line. All these lines would be receiving some slight improvement for the end of the year. And this is due to the more dramatic decline of the sterling pound versus dollars and to a small extent, but much lower extent on the Swedish krona versus dollars. Credit pricing, Matt? Credit pricing. So I think there was no hidden agenda, no any hidden message underneath. It was just to, first of all, to say thank you to our creditors and also to present to the outside world that our portfolio of debt maturities is now more balanced than it was in the past, and there was no nothing more than explaining how this portfolio of debt is structured. Thank you, Mark. Sachin Jain, Bank of America. Sachin, go ahead. Thanks for the questions. First one for you, Pascal. In the introductory comments, you thank shareholders for their patience, which Mark reiterated when discussing the dividend. I just wonder if there's any particular backdrop for that. Shares broadly flat last 2 years with investors, therefore, apparently not giving credit to pipeline progress, the inflection you believe in. So just wondered whether you saw any risk of another crystallizing the value you see quicker. And then just a couple of pipeline questions. Firstly, on the TESARO PARP data that came out recently, do you view that from a competitive standpoint given the positive data in G BRCA wild type and the absolute PFS improvement versus what you have on the label? Secondly, on respiratory, Glaxo were very vocal on their triple yesterday and potential market share gains versus Symbicort. Wondering if you could just remind us the time lines of your triple and its relative competitive profile. And then the final one on IO. Does the Merck headline data in first line PD L1 positive lung Would the PFS benefit change your view of PFS versus OS read for MYSTIC? Thank you. Thank you, Sachin. Lots of great questions here. Sean, maybe you could in a minute take the TESARO question and also the triple and the PFS and Luc could cover the specific of market share. Let me is that okay or Triple time, yes. Okay. And then I'll start with the maybe the backdrop of the dividend commentary. Again, here again, no special message here. I mean, our value proposition to investors has always been that's how we've always presented it, has always been that we are going or we are going, still going through a transition period where we're losing talent protection on a number of products. We are rebuilding, retooling, rebuilding the company and investing in our pipeline and essentially creating long term value that will end up being reflected in our share price. In the meantime, essentially, we were rewarding shareholders for their patience with a progressive dividend policy and sustaining the dividend. Having said that, we suddenly recognize that we are part of shareholders to be patient as we retool. So as we are now coming through our inflection point, we're not yet at the end of our the second phase of this journey we're going through, that journey will end at the end of 'seventeen and by then we'll be totally finished with our patent expiries. But as we are going for an inflection point, losing the last patent protected product and starting on the journey of rich news flow, we thought it was the appropriate time to say again thank you for your continued support over a number of years. Now as to whether we would be exposed, we certainly have been very aware over the last few years that as we create value, then at some point our pipeline becomes attractive. And so hopefully it becomes attractive to our shareholders. But of course, it may be attractive to anybody. I mean, I can't speculate more than I can't I don't want to speculate, but suddenly it is clear that there is value in our pipeline that we hope our shareholders will recognize. Sean, do you want to cover the triple question on Do you want me to triple first or? Yes, I mean, in the order you want, Sachin? Okay. Let me start thank you for the question, Sachin. Let me start with your TECEROBARP question. We have great confidence in PARP inhibition in the DDR portfolio. When we see a competitor molecule targeting the same target, comparison between the two molecules, and that's just very difficult to do when you don't have the full data from the trial. In particular, we don't know the pretreatment characteristics of the patients. And I'm sure as PESARO gets a chance to present their data, we will get more information, be able to make some sort of assessment. We have great faith in SOLO-two in this population. And as I pointed out, the Study 19 data looks quite interesting to us. That update with survival is encouraging and as well we're wondering if we'll be able to duplicate this long tail, which would be very interesting. I'll move on to the IO one, then I'll go to Vebesby because there's the part probably there for Luke. So IO, so again with Merck, they definitely reported top line that their PFS was positive in first line PD L1 positive non small cell lung cancer and in their press release said that they hit OS as well. Again, we haven't seen the exact data. So it's a little hard for me to speak about what it means for MYSTIC. We are very confident in the MYSTIC trial design in that PFS and OS being co primary endpoints increases the strength of that trial to demonstrate the benefit of IO and combo IO across a broad patient population. Specifically, the part of the piece of information we're missing, say, CHN is that we don't know how much crossover there was in the Merck trial from the control arm to other IOs versus how much we might have in Mystic and whether that might confound the OS endpoint versus the PFS endpoint. That's the one big piece that I really don't have the information to comment on. Last with Bevespi. So BIVESP approved in the U. S. Earlier this year. Our plan is to file next year in the EU. And the reason that those filing dates are different are, we include the symptom data, the symptom improvement data in the first filing for the EU and that data becomes available a bit later. Its availability was delayed slightly because that trial is also the one that's enabling China for us. And China implemented a new review, their Human Genetic Resources Administration and that led to a bit of a delay in the implementation of the trial in China. Look, you want to cover the market share points, but can we comment? And I'll just cover the triple from a commercial perspective first. I mean, it's a very attractive option. That's why we have one. Depending on the geography, you've got between 20% 50% of patients who are on a free triple. I mean, from our view, the focus is on cannibalizing those compounds and converting them to a fixed triple in the face of generics. If you look at ICSLABA, this is a little bit of a quarterly debate. Maybe you guys can find this a bit entertaining at times. I think it depends on how you cut the data. If you look at Q2, Symbicort was up 1 point 2 4%, Advair was down 2.18%, and Brio was up 1.29%. So if you look at it at the company level, it's 1.24 versus 0.89. If you look at within the brands as a mix, I think you'd expect that. Our focus is very much on making the case that fast control with Symbicort is an attractive option versus one today. And if we look into 2017, we've got a very good sense of where we're heading in terms of access, and we expect to finalize this over the next 4 weeks. The only thing I would add, Sachin, I think, look, you are talking about U. S. Market shares, right? And then if you go beyond the quarter, if you look at the last few weeks, actually, Sachin, you will see that in terms of NewRx and BRx in the U. S, Symbicort is making some very nice progress, and we expect that to be reflected in our total share in Q3. So we continue to make progress. And with the triple, maybe the additional point is, as we said before, it's an MDI. So there is a place for DPI. There is a place for MDI. I mean, the two technologies are complementary, somehow competitive, of course, but also somehow complementary addressing different patient needs. We think we have a good technology with the Pearl delivery. What we see now that we are starting to discuss Bevesby in the U. S. With some of our customers, physicians, we see a lot of excitement about the technology the ability of the technology to deliver medicines in a very effective manner for the lung. So we think that the 3rd quarter will have a nice potential. Moving to James Gordon. James at JP Morgan. 2 pipeline and 1 launch question. On the pipeline, so continuing the theme of DDR, regarding parts, some of your competitors have suggested that the level of park traffic, so trapping is key to how efficacious the parts are. I think Medivation's PARP is much stronger in terms of trapping. DYZARO also seems to have more trapping ability than NIMPASA. So do you think that could be an explanation for different efficacy? This trapping matter? One question on respiratory, which should be the sort of the benralizumab data coming up at ERS. Where is it you're seeing the differentiation for the product versus Nucala? Is it a more efficacious product or is it around dose frequency? And then just one product one launch product question, Nexium was surprisingly strong. So sales in the U. S. Were up sequentially about 25%, whereas the IMS data sequentially down about 20%. So what happened on Nexium and can that be sustained? Can we start with Didier? Sean, you want to cover that? Sure. Yes. There's a story out there about trapping. And what I'm going to have to do is I'm going to refer you in the near future to a paper that will come out of our EyeMed group and be published in a scientific journal that we believe refutes the contention that trapping makes any difference in terms of the effective PARP inhibition that is just reversible inhibition versus trapping. The second question? Yes. Benlizumab. Benlizumab. Yes, differentiation of benlizumab. You'll see the detailed data in a bit, and it is true that we tested we did test the 2 dose schedules every 4 weeks and every 8 weeks. I can't talk about the data until it's made public, but I think you'll be able to see where our enthusiasm comes from when you see the data. As far as differentiation goes, what we've previously published is that, benralizumab depletes eosinophils more rapidly and more completely than other drugs that we've seen in this class. And it is our hope that, that then translates into a superior profile. Do you want to call the next time you asked? Yes, sure. So James, I think the key thing is we're actually able to retain a little bit more business than we expected. It was around onethree of Rx. And this was driven by some government and Part D programs. But I think the key thing is if you look into Q3, you should not assume that we retain that and that you see a more traditional loss of exclusivity trajectory at that point. Thanks, Brooks. Thank you. Let me move to Tim Anderson at Bernstein. Tim, go ahead. Thank you. Just a few questions. On externalization, just to clarify, after the May SEC guidance came out, is that going to change at all how you elect to book both revenues and expenses in your non GAAP results? I know it's changing how you present GAAP and non GAAP on things like earnings calls. But does it change how you're going to actually treat the non GAAP P and L? Second question on Farxiga going into 2017, can you talk about likely formulary positioning increasing, decreasing, staying the same? And would you agree that mPIRIG, even though it's value enhancing for the whole SGLT2 class, showing a benefit of that class of drugs, it might actually lead to more price competition in this category as companies other than really compete for formulary shares by lowering their price? And then last question, if you could just make some high level comments on Brexit and the potential impact to the drug industry in the intermediate term across the various potential areas like regulatory outlook? Let me just maybe start with Brexit. Farxiga, Luc, will you cover this one and externalization? Mark, I'll leave it with you. Brexit, it's really hard to comment at this point. We are at the very beginning of the discussions between the UK and the EU, and we'll have to see how the process evolves over time. So that is the one thing that we'll engage in discussions on, I mean, we'll engage across a variety of aspects, but that is one of the most important ones for us is indeed the regulatory process. Today, we have a single process for our TROP, and we would hope that it's either retained or at least at the very least, a very effective process of mutual recognition. So we don't have to duplicate efforts to get approval in the UK That simply add costs and have delays and doesn't help anybody, the patients, the payers in the industry. So that's one aspect that is really critical for us. And there's a few others, of course, BellSign is the most important. And it's really too early to judge. We hope that everybody is going to be practical about those things, but we'll have to see. Pascal, So Tim, I think it's best to summarize the diabetes contracting environment in the U. S. Is dynamic and relatively unpredictable, which I think to be fair is how it's been for some time. If we look at commercial, we've got a strong position there. I mean, we've got around 90% of lives covered. Where we need to do some more work is Part D, and we're very focused on that. I mean, in terms of Infra reg being a disruptive element, I think in the end, it is a very positive force. What we watch closely, of course, is the class growth of the SGLT-two. And if you look at quarter 1, it was around 2%, whereas in quarter 2, it went up to 7%, which I think is very encouraging. And our focus, of course, is capturing as much of that as possible. And I think linked to that, it's our focus is very much on converting patients who may be placed on a DPP-four onto an SGLT2. And when that decision is made, we make sure that, that patient is a fast figured patient. So regarding exchange revenues, I do not believe that SEC new guidelines will have any impact. So the short answer is no, let me remind you that the external revenues are only containing a sustainable source of revenues in opposition to what we classify as other income, which are usually one off. We retain in the case of external revenues, we retain influence, a significant influence on the asset and there is no disposal of the intellectual property. This is why we classify those as external revenues and we intend to provide the best possible transparency on this source of revenues. Thank you, Marc. Keyur, do you want to go ahead, Goldman Sachs? Thanks, Bhaskar. A couple of questions, please. First one on kind of the PARP landscape. Would you expect assuming that the Niraparib data kind of holds out as kind of the press release suggests, would you expect them to get approved kind of a label beyond just the BRCA mutated, the germline BRCA mutation? And if so, how do you think from a commercial perspective, Lynparza stands versus the TESARO product? And secondly, Sean, you mentioned kind of on the MISTAK study, there was a potential for divalumab single arm to be kind of seen as potentially you being able to file on that. Can you just remind us how mystique is powered from a statistical perspective? Is it derwar creme versus derma versus standard of care? Or is it kind of the pool population versus standard of care? What is the statistical design of the study? Thank you. Those questions have been answered. Yes, yes, yes. So with regard to the TESARA label and what's expected there, I expect that their label will actually have the multiple mutations that they tested and we've focused on BRCA, but we also have we've shared some data from the Royal Marsden on prostate cancer with a more complex definition of VDR. And so I think that this will be an evolving story there. We do we have confidence in SOLO-two converting us to full approval and add fast track designation in fact for that indication and we've talked about when that data is available. You had a competitive landscape question about that, which I don't is that looped? I mean, I can probably expand on that. I mean, I think right now, if we look at scripts in the U. S, around 2 thirds of them are ovarian. And in the nonpromoted areas around it's in low teens or prostate and around 6% is breast. So I mean, I think this is a very rapidly evolving area. I mean, Sean has referred to a paper that's coming out. We think that this is going to further crystallize things. We also are very, very focused on the HRR test and we have our views there. But ultimately, I think the key is that we need to remain ahead of the curve in terms of new indications. But also critically, if you look at DNA damage response, the capability that we'll have to combine agents such as AZD1775, MENPASA and other agents will position us in a strong position in the midterm. And then you had a question about Mystic. So we don't get into the detailed statistical analysis plan and design. I can refresh you with the things that we have communicated about MYSTIC. So MYSTIC, it's all comers. So we have the ability to analyze PD L1 positive versus PD L1 negative. And in all of those patients, there are 3 arms, the standard of care doublet chemotherapy, durvalumab or durva plus tremi. And then as you all had noticed from earlier this year, we did change the plan to bring the ELEVATE overall survival to a co primary endpoint with progression free survival earlier this year. And in order to enable the power of that, we significantly increased the size of the trial. So it's about 1100 patients. Thanks, Sean. So next question is from Nicholas Guillen at Morgan Stanley. Nicholas, go ahead. Hi. Thanks for taking my questions. I have 2 actually. The first one is a follow-up on the mystique again, I'm afraid. So I guess an important question here is how to interpret the PFS data that you will have next year. So in the context of chemo, having demonstrated roughly 6 months of PFS, Merck and Co chemo, IO combo roughly 10 months and no available data for IO mono agent yet. What could be the appropriate comparator? And what would you consider as clinically relevant for the PFS for MYSTIC? That's number 1. And second question is on liquid tumors. Could you update us on the Celgene collaboration and the next important upcoming clinical readouts, please? Thank you. So the with regard to the meaningful PFS endpoint, I mean, I think it's difficult again to do these cross trial comparisons. I think that the data we've seen to date certainly increases our confidence that particularly in the PD L1 positive non small cell lung cancer patients that we will have efficacy. And just to be blunt, it doesn't look like the PD L1s versus the PD-one so far has really differentiated from each other in terms of how they work within that population. So we anticipate nivolumab will work well and show a meaningful benefit. The second aspect of it is, of course, the ability to see a difference with Tremi. And so obviously, our primary strategy is IO combination, verbatremi. And the place where we had previously said we are most likely to see the benefit of that is in the PD L1 negative population, which is now not really benefiting from I O therapy. And the last thing I will say though is that there was some interesting data presented from BMS work at ASCO that suggested at least in some of their experience that their CTLA-four PD-one combination was showing benefit even in the PD L1 positive population, not our primary hypothesis, but MYSTIC is testing that hypothesis nonetheless. I'll move on to Celgene. The next we haven't reported on data readouts. We've reported on what trials we have ongoing and initiated, and it started primarily in multiple myeloma where the combination trials are ongoing in Phase I. Obviously, There you have to get your safety data before you can move on and expand the trial. We also have non Hodgkin lymphoma and chronic lymphocytic leukemia with durvalumab, either with lenalidomide, anti B cell antibodies, also durvalumab and rituximab CHOP in diffuse large B cell lymphoma that's high risk. Those trials are to starting to start by end of year this year and then also some myelodysplastic syndrome trials that are to start second half of this year. Thanks, Sean. Richard Clarke, Deutsche Bank. Richard, go ahead. All right. Thanks for taking my questions. Firstly, on the guidance, you've managed to you've reiterated the earnings guidance despite the flu mist write down, which I think given the lost revenues and that write down, it would have taken you towards the lower end of your expectations. So I'm wondering what's changed since the beginning of the year that's maybe positively offset that. And maybe you could talk about your expectations for externalization revenue for the year and how that's evolved in that context? That's the first question. 2nd question is on plans for Flumist. I'm assuming that without a return to the U. S. Market, that's likely to be an overall loss making operation. So just wondering when you might make a decision on the path forward for that franchise. And then finally, on Farxiga, your competitors are highlighting slowing NRx in the SGLT2 class in the U. S. I'm just wondering if you could discuss your what you're seeing now, your expectation and what you might be able to do to help to return the cost of growth? Thanks. Thanks, Richard. So guidance, I mean, the guidance is arranged and so we can be at the top end or the bottom end of the range. And it is true that the flu mist event actually tends to take us towards the lower end of the range. So there's not really a big change that we can see from what we guided to at the beginning of the year. We're still in the range we indicated, and that's why we reconfirmed the guidance. As far as Flumeet, we're certainly working hard to at this stage, our teams are working hard looking at trying to understand better this discrepancy that we saw between the CDC data and our own data, but also the U. K. Health Authority's data and planning for next year. We still believe Framis is a strong brand. It's a good product. There's a good place for it. And we stand behind it. We have to kind of do a bit more work and to decide what we will do with it moving forward, but it's going to take a little longer. And on Farxiga, Luc, you want to comment? So Richard, it's interesting if you look over the say from early 'fourteen until now, the class was on a very steep, an exponential growth curve until around July of 2015 when you had the DKA letter, the diabetic ketoacidosis letter. And the class essentially moved sideways for some time. And I think that was while physicians, particularly primary care physicians, were, I think, essentially waiting for regulators and opinion leaders to form a judgment. The issue around DKA at the time, of course, was that it had the classic symptoms of DKA, but there were some other elements which made it difficult to understand and characterize that patient. That's now happened. And now what we're seeing in the last quarter is the beginning of the class growth again. I think it's early days. It's not where it was before. However, if you look at the fundamental benefits this class delivers, it's a very effective product like Farxiga is very effective at addressing A1C and you have the added benefit of weight loss of course. And on the back of that, we have one outcome study in place and hopefully we have a few more that should ensure that this class returns to its historical growth. Thanks, Luke. We've experienced this in the past. Crestor was certainly a product that was established over a period of time with difficulties at the beginning. I think the SGLT2 class has enormous potential, as Luke said, and we just need to work through these initial issues the class is experiencing. Andrew Beaumont, Italy. Andrew, go ahead. Good afternoon. Three questions for Sean, please. Firstly, could you tell us whether you'll be updating the follow-up for the Phase Ib durvatremi non small cell lung cancer trial since the historic data ESMA is obviously coming up? Number 2, looking at that same trial, there were at least a couple of cases of pseudo progression, which I know is more common with CTLA-four than let's say PD L1 monotherapy. When we think about the PFS endpoint for Mystic, on the one hand, we have the recent Merck trial seeming to validate its utility in this particular setting. But on the other hand, you now have C4 if you do in the regimen with a risk of pseudo progression. How do you think about that and mitigate the potential impact in terms of diluting any PFS signal you may see? And the final question is on your refractory CLL trial with acalabrutinib versus ibrutinib, should we expect that data at the end of 2017? I know it's not on your chart, but looking at the time lines, one wonders whether it's possible. Thank you. Okay. So starting with the 6 update, the non small cell lung cancer IFR you're talking about. We will update. We haven't submitted to do that yet. So it won't be at ESMO. And then we won't be able to communicate when we update until we submit and get the update accepted at a meeting to present it. But we will plan to update that data in due time. Pseudo progression. Yes, I mean, pseudo progression, it's interesting that you bring it up. It was a very, very hot topic, as you appreciate, for a while with IO and it's sort of gone away and we've seen in lung that you do seem to get PFS benefit regardless of whether the pseudo progression is a real entity or not. It doesn't seem to be so prominent that you lose it. And then, of course, obviously, Mystic is now designed to have overall survival as a co primary endpoint. So we have another way to capture the benefit of IO. With regard to the durvatremine combo being potentially different than durvalumab, I really don't think we have enough data to conclude that at this point in time. But we do feel like misfits is well designed and well powered and now stronger with both the PFS and the OS endpoints as co primaries. And there was a third one. The third one, calabrutinib? Calabrutinib. Yes, it's too early for us to report on that because we have the elements of accrual rate and forecasting when the accrual will end. And then, of course, when we report out will be dependent on the event rate because these are event driven trials. And so it's too early for us to forecast that timeline for when the head to head data will be available. Thanks. Thank you. Simon Becker, Exane. Simon, go ahead. Thanks for taking my questions. 3, if I may. Firstly, going back to Tim's question on externalization revenue. You said that it's unimpacted by the SEC guidelines. But I was wondering what the impact of IFRS 15, the new revenue recognition standard would be, if at all, on the reporting externalization revenue? Then secondly, on to the gross margin. I wonder if you could give us your updated thoughts on how the gross margin evolves through this year and beyond. Obviously, we know about the impact of Flumist, but also I was wondering about the potential impact of the genericization of Crestor on the gross margin. And then finally, on R and D, you've over the last couple of years focused your commercial therapeutic focus down to the key target areas that you now have. And I see recently there seems to be evidence that the same is happening in R and D. There have been reports of the closure of U. S. Neuroscience R and D and also reductions in the non oncology R and D efforts in the U. S. At MedImmune. I just wondered if there was more to go there in terms of fitting the R and D footprint to the commercial footprint, notwithstanding what you've said in the past about not wanting to try and box in and potentially lose good scientists by overly focusing R and D effort? Thanks so much. Thank you, Simon. Maybe I'll start with your last question and Marc, you could cover the externalization revenue question and the gross margin one. So Simon, the focus was not a commercial focus, it was a development. Commercial focus was really building capabilities in development actually to start with and of course also commercially around the 3 core areas. And what we said was always that we would actually partner the science or the products that come out of our science in the other CRP areas. So we continue doing this. We certainly have further fine tune our investments in the early phase because if you look at it, immuno oncology portfolio of early projects is certainly increasing. We now have ADCs that are antibody drug conjugates that are also progressing through preclinical early development. So in oncology, we have an extremely rich research and development pipeline, a set of early programs. So we have to certainly focus ourselves here quite a lot. So it's not a commercial focus. It's actually at the end of the day, we have strong sense across the whole portfolio, but we certainly to place our bets and focus our resources on a few things. Having said that, we still have some activities in autoimmune and in CNS. And also we have antibodies that we continue developing for infections. But certainly the need is to focus even our research and development effort. Marc, do you want to cover the Yes. So just regarding the question on IFRS 15, the date of implementation of this new guideline is from 2018. So we are still presently evaluating whether it has any influence on the WAVE report. So we'll be confirming that and letting you know whether it has any implications for the way we describe or extend revenues. For the time being, we do not think this is necessary. But as we continue our investigation, we will provide more transparency on this. Gross margin, second half? This year and beyond, sorry. So I'm only going to comment on the gross margin for the rest of the year. I believe the level of gross margin that you have for the first half is a good indication for the second half. Obviously, as the mix of products evolves over time, it's a bit more difficult to project, but I believe it's a very good indication. And I for the later years, I think the it should remain still a very high gross margin, but it will be influenced, as I was just explaining, by the mix of products in our portfolio. So you have a certainly, I mean, a sort of a downward pressure coming from losing Cresta, which has a high gross margin. On the other hand, you're going to have upward pressure coming from growth in oncology products that have a high margin. So we're just have to monitor what this mix looks like. And so should we move to Steve Scala at Cohen? Steve, go ahead. Thank you. I have a few questions. First, how does AstraZeneca view the CheckMate 568 trial, that's Bristol's single arm lung trial of the nivoipi combo, which is to report in January. Bristol states that it is a medical informing trial, but just asked to view it as a competitive threat to Mystic because Bristol could have combo data first and has 2 agents that are approved. The second question is just to clarify, does AstraZeneca believe it needs to hit both PFS and OS to file Mystic or is only one or the other sufficient? And then lastly, it appears the THEMIS trial has slipped from 2017 to 2018, and I'm just wondering why. Thank you. Okay. So the first thing is on the BMS data. It's not a randomized controlled trial. So I think its ability can physicians particularly in the United States use these drugs off label, but they can if they find the data compelling. But we think it's unlikely BMS. I said it's unlikely to be a label enabling trial. Mystic PFS, yes, we can file on PFS and Mystic's original design focused primarily on PFS because it is being enrolled in places where crossover from the chemo arm to IO is a possibility. And the question was might that confound the OS endpoint, but we'll find that out later. And then separately, we have NEPTUNE with the combination in all comers and that's an OS primary endpoint trial as the sole primary endpoint, which is confirmatory as well. And, you know, AIMUS, yes, what happens with these trials is you get the enrollment rate, you get the event rate, that's another event driven trial that affects the maturity. And so if the events come slower than you'd like, you end up moving the time line. We try to be reasonably conservative, but we don't always get it quite right. And so we update as we get more data on when we expect the outcome. Thank you. Yes, good. Thanks very much. Sorry. Simas Flanders at Leerink. Go ahead, Simas. Thanks very much. Can you guys hear me? Yes. Go ahead. Okay, great. So just wanted to ask a couple of questions. So from just to clarify on Andrew's question with regard to the timing of the head to head trial of ibrutinib versus acalabrutinib. Can you is it I didn't hear if you stated whether or not it was possible that we could have a readout sooner than what was stated on clinicaltrials dot gov, which is a 2019 primary completion. And can you just remind us what the goals of that evaluation are evaluation is? I would presume that it's primarily safety. So it'd just be helpful to know how that trial is designed and when you would feel you have confidence in certainly non inferiority with the prospect of perhaps a better safety profile? The second question is, again, on Mystic. The agency seems to have offered and demonstrated quite a bit of flexibility as it relates to tests and cutoffs in oncology clinical trials. Can you just help us understand if there may be that type of flexibility with regard to the PD L1 test, if the PD L1 test could be utilized as a primary analysis in the MISTIC study? And if you could move the cutoff because I believe your cutoff has historically been 25%. Is it possible that given the data that you've seen from other companies and the analysis from or the alignment of some of the other clinical data sets looking at your PD L1 test versus others, it seems like altering that perhaps down to even 1% might be possible. So just wondering what the flexibility is on some of those endpoints. And then just the last question, the FLOWERS study, are we still on track for a second half readout on the FLOWERS study? Thanks. Thank you, Seamus. Sean, how are you? Yes. Calabutinib. So we expect the relapsed refractory data. Our current base case, again, these are event driven. So just I think the THEMIS qualification I gave applies here. 2018, the relapsed refractory is the head to head you mentioned too. So the question there is, there are 2 aspects to this. Obviously, there's superiority and efficacy and then there's the safety profile, and we'll get both of those out of there. We believe there is an opportunity for superiority and with 2 attributes. 1 is being able to stay on acalabrutinib longer due to ability to tolerate. And the second is we've shared some data on our inhibition level of BTK kinase activity at trough with the twice daily dosing with thecalibutinib. And it's greater in the mid to high 90s than the mid-80s that Pharmacyclics has shared with Ibrutinib. Now the question is, will that translate into a difference in efficacy? And that's a clinical question. And then the front line is 2019. Going to Mystic and cutoffs, we agree with you completely that the data sets are a little confusing by virtue of the different assays. We do think that this will be illuminated over time. And at this point, we have the ability to compare our assays. And some of that data has already been shared publicly. The other part is a trial design question. So could we change the cutoff from where we are? And the answer is, we can rewrite the analysis plan as long as the trial is blinded and we haven't done an analysis. So there is an opportunity for us to look at that and change that in the analysis plan. Now that's the kind of thing you can only do once because then you have to put your nickel down and look at the data and then you're positive or negative. Go ahead, Bharat. Flora is on track for Thanks very much. Emmanuel Pobalakis at MainFirst. Emmanuel, go ahead. Hey. It was just a couple of questions around cash generation actually in Q2 for Mark. The first was I saw you booked a EUR347,000,000 charges other in the quarter IFRS reconciliation. I couldn't find any detailing of the exact components of that. Any color would be very helpful, particularly which element of that might be cash versus non? And the second was just around cash generation for the full year. I think, Mark, you previously commented it would broadly in line with last year, SEK 3,000,000,000 or so. It was relatively weak, if my math is correct, in Q2. Just wonder if you would reaffirm that expectation? Or are we looking above or below? Many thanks. Okay. So first question on the SEK 347,000,000, which is one of the non core adjustment. It contains 2 groups of expenses. The first one, there are many provisions, legal provisions and the other one is fair value of contingent consideration. These are the this is the component the 2 components of the SEK 347. We do not provide the sort of product by product detail of the legal fees or legal compensation. So considering that those are provisions and Yes, so there is no question about the cash and non cash, therefore the term being non cash. And the second is cash generation for the full year? So the cash generation for the full year should be in line with what you have what you see in the first half. But obviously, this is dependent to some extent to the type and structure of the exploration and other income agreements that we would sign in the second half, as we have also indicated that we will have a very active second half of the year. So this needs to be considered in this. But I think it's where you are now, I mean, roughly in line with the first half would be a very good projection. Thanks, Jeff Alford at Jefferies. Jeff, go ahead. Thanks very much. Given that a lot of your IO focus in the future is going to be on combinations, I wonder if you can just give us your thoughts on how you think pricing of combination of IO agents is going to be done? Whether you think we're going to get into sort of caps type models with a limited revenue per patient just to help thinking about longer term modeling of some of these. Also just wondering if you can just give us a bit of an update on your OX40 program. I know that you're committing an asset into mid and late stage programs now. I'm just wondering when we'll see those mid and late stage programs and what the focus of those will be. Thank you. Thank you. So do you want to start with OX40 and the other mid stage programs? The okay. Yes, sure. I'll go to OX40. So as you may know, we've selected a particular OX40 agonist antibody that immune has as the lead molecule in which to invest. And we're in the process of studying that in combination with durvalumab. And depending upon when we are able to define the dose, we will then initiate the late stage trials. Where to go with it, I think is something that you follow whatever signal you generate in the earlier stage trials if you get one. And then I think also there is, course a patient selection hypothesis around OX40 that we will also test in the clinical program. Thank you. Combination on pricing, Rob? Yes. So I think, Jeff, and I think we're already seeing this across geographies. There is essentially a PDX or PD-one price being established. I think the bigger question is if what we think and it's planning to happen with IO happens, then what's likely to be the evolution of pricing with the CTLA-four class? And I think it's fair to say that the current pricing in melanoma is unlikely to remain there. We have a lot of strategic flexibility and a lot of good ideas in terms of what we can do with the combination of DERBA and TRME. I won't go into them today, but again, we think we can bring something that's very competitive and very attractive to countries and patients optimistic. Thanks, Luke. I mean, it's clear that, Jeff, we believe that we'll have to manage cost of those combinations. And we have many ideas, as Luke said. And those will be different country by country. So there's a whole list of options to manage the cost, and it depends on the payers and the logistics of what we can do country by country. So let me just close here. This was really a very busy session, lots of great questions. Thank you for that. And the exciting part is that it's actually the wealth of questions reflect the strengths and the wealth of our pipeline and the fact that over the next 12 months, we'll have a news flow that suddenly will actually give a lot more proof points of our progress and clarify the landscape for us for the next few years. Thank you again for all your interest. And we certainly look forward to meeting many investors during the watch shows over the next 10 days. Thank you again. Thank you. Bye bye.