Earnings Call: Q1 2014

Apr 24, 2014

Good morning, good afternoon, everyone. Welcome to AstraZeneca's First Quarter Results Call for 2014. I'm Pascal Soria and I'm joined here today by Brings Morrison, our EVP of Clinical Development and our Chief Medical Officer as well as Marc Dunoyer, our Chief Financial Officer and we will share the presentation. I've also got here with me in the room Ruud Dobber, who is our EVP for Europe and our temporary Head of Global Product Strategy. And I'm also joined by some of my colleagues from the Finance and the Investor Relations teams here in the room. We have posted a set of slides on the Investor page of our website that will follow along with today's presentation and we'll try to queue the slide numbers as we go through. I will provide a brief overview of our financial performance to date. And as I promised when we last spoke at the full year results, I'll provide an update on our strategic priorities. I will then hand over to Briggs for an update on the progress we are making on our R and D pipeline. And finally to Mark to run through the financial performance in more detail, before I give my closing remarks and open up for questions. So as you can see from the title slide, this has been a quarter of continued momentum across the business. You've heard me say a few times before that I believe that AstraZeneca is on a journey. And while we are only reporting the Q1, I'm pleased to say that we've made great progress on the journey so far this year. I'm especially pleased with the significant progress made towards achieving scientific leadership in the development of our pipeline. Looking at some of the highlights of this quarter on slide 5, which we will run through in more detail shortly, we can see that revenues have increased by 3 period. We actually successfully launched Farxiga in the U. S. Market following FDA approval for the treatment of adults with type 2 diabetes in early January and it has been performing strongly so far. We've also had Foresiga approved in March in Japan and we've had continued success in Germany and Europe. This has also been a significant quarter for scientific leadership with great progress of our late stage pipeline. Olaparib which targets ovarian cancer has had a priority review accepted by the FDA, while AZD9291 our small molecule EGFR inhibitor has actually been granted breakthrough therapy designation by the FDA. We've also made 4 Phase 3 investment decisions and Briggs will come back to this in a moment. Moving to slide 6, we can see that we now 6 $6,400,000,000 and our core EPS was down 11% to 1 $0.17 as we increased our investments in our growth platforms and to support our rapidly progressing pipeline. Marc will discuss these numbers in more detail shortly. There's further good news from the emerging markets, which delivered double digit growth at 11% CER, driven essentially by another successful quarter in China, up 22% at constant exchange rate, whereas Swazenica is outpacing the market. Japan also posted a very strong quarter for us. If we now turn to slide 7, considering our strategic priorities, I've already touched briefly on the developments made in achieving scientific leadership and Briggs will give you a further update on this. I will now review the performance of our key growth 5 key growth platforms. So if we start with slide 8, each of our five growth drivers has contributed to the strong overall progress in the quarter. We added $3,300,000,000 of revenue from this growth platform and I will now look at each of those in turn. Relinta has improved in the quarter with revenues up 94% to $99,000,000 as you can see on slide 9. We see strong performance especially in Europe as well as good growth in the emerging market and the established rest of the world. Canada Australia doing very well. And we have leadership positions now in several markets in Europe and elsewhere. In Europe in particular on slide 10, you can see the good market share performance of Brilinta in a number of countries. We continue to believe in the potential of this product and we invest to support it. And the drug has now demonstrated that it has really provided strong benefits to patients and can be successful. A few markets have really shown that. Over the next few years, there's reason to believe that we can keep building Brilinta to the leadership status we think it deserves. If we turn to Brionita around the world and in particular in the U. S. Where we will certainly continue sharpening our commercial focus. The Department of Justice investigation remains ongoing and there's no doubt that this has set back the overall performance of the drug. Once this has been resolved, we'll be able to give you a better update. It is actually reassuring to see though that in the last few weeks, we've seen an uptick in the market share trend for Brilint and the United States and we see growing momentum and that's quite encouraging to see this progress. Turning to diabetes on slide 12. The acquisition of the remaining half of the alliance with BMS has clearly enhanced our revenues and has improved our offering and our performance. We've seen a rise in market share of Badurean. The share of Onglyce and the U. S. Market has remained stable. The franchise is in a very strong position to grow with revenues in the quarter of $347,000,000 and the integration of the alliance is on track. Really not able to say that we were able to integrate this alliance, this business in about 2 months, so very rapid integration. If you look at slide 13, the launch in the U. S. Of Forxiga in February this year has been very successful. And while it's only early days the product has progressed strongly. Farxiga is adding to the growth of SGLT2 class. And importantly 2 out of 5 of the Farxiga trialists are new to the SGLT2 class. And if you look at slide 14, the launch uptake so far as shown by the absolute new to brand prescription number is exceeding all recent non insulin anti diabetic drug launches since the launch of cetagliptin back in 2006. So I think it's fair to say as a summary of this diabetes franchise that Farxiga so far is doing very well in the U. S. But the the Orion market share is improving and Onglyza is rather stable and essentially because we are focusing our efforts behind Farxiga and Badureon. If I now move to respiratory, Symbicort is up 13% And in the U. S, our sales were $344,000,000 in the Q1, up 20% over last year. Global sales are up 13% to $928,000,000 It's also worth noting that Pulmicort recorded over 2 $50,000,000 of sales in the Q1 growing at 13% CER. On slide 16, you can see the continued strong Symbicort U. S. Market share performance. Symbicort new to combination therapy market share grew by 4 percentage points in the Q1 and the total prescription share was up by 3.5 points as you can see on the right hand side of this slide. We also have good news from the emerging markets. On slide 17, you see that we had a strong quarter with 11% growth at CEAA and we've seen particular strong growth in China up 22% in the quarter. This is the highest growth rate of all large multinational companies in China. China is now our 2nd biggest market in quarterly sales. As you can see from the chart, we continue to outpace the Chinese market by nearly 10% in growth rate and we have further strengthened our number 2 position amongst multinational companies in the country. Also good news from Japan. Turning to the next slide, slide 18. Sales were up 13% on a CER basis, driven primarily by the outstanding performance of Nxiom, which has consistently grown market share and has been one of the best brand launches in the pharma market since in the last 10 years. Nexium is now the number one proton pump inhibitor in Japan in value. Symbicort and Crestor are also performing strongly in Japan and Forciga was approved in the country in late March. That concludes my initial remarks. So I will now hand over to Briggs for a pipeline update. Thank you very much, Pascal. At the full year results, we announced our intent to update the pipeline table quarterly instead of biannually as our pipeline continues to progress quite rapidly. And so therefore, it gives me really great pleasure to present our first update at the quarterly pipeline update. Our goal of course in spending our R and D dollars is to make very thoughtful decisions about how we invest those R and D dollars and to make sure that we deliver on the things that we decide to invest in. And what I'll try to do in this presentation is give you a little more insight into some of the decisions that we've been making in addition to the deliverables that we've achieved. If we can go on to slide 20, you you'll remember this slide from the year end results where we talked about 19 candidates that could potentially enter registration trial starts. And I want to be very clear about this slide. When I show you the cohort for 2014, these are molecules that we believe the Phase 3 programs will start in 2014. The molecules on the right hand side are molecules that potentially could start Phase 3. I'm going to also talk to you now about investment decisions that we've made to progress molecules into Phase 3. We may make an investment decision this year, but the molecule may not start Phase 3 until next year. So this slide is really about Phase 3 start. If we go on to slide 21, I'm going to talk you through here our 3 categories of things we wanted to share with you. On the far left, our Phase 3 starts In the middle, our Phase 3 investment decision, which again, this is our commitment to progress the program, but it doesn't mean the program has actually started. And finally, Phase 3 investment decisions that we still have left to make. What I'm showing you here above the line are the Phase 3 starts, Phase 3 investment decisions and pending decisions for our new molecular entities. On the previous slide, again, we were highlighting new molecular entities. I will talk about lifecycle management in a minute. So as Pascal noted, we have made 3 additional Phase 3 investment decisions for new molecular entities this year, trilikinumab in severe asthma AZD9291, our molecule that inhibits EGFR receptor in second line non small cell lung cancer and MEDI-four thousand seven hundred and thirty six, the PD L1 antibody for non small cell lung cancer as well as was highlighted in our press release. We still have a number of Phase 3 investment decisions pending as the year progresses. These are a number of molecules that we'll have to look at the data as the data comes out, look at our portfolio and decide whether we want to if the data supports it, do we want to invest in these additional molecules, move those into Phase 3 as well. On Slide 22, you'll see below the line, life cycle management, important life cycle management program. So Phase 3 starts we have started Phase 3 for berdalumab in psoriatic arthritis, for selumetinib in metastatic uveal melanoma and for olaparib in metastatic breast cancer. We've also made a Phase 3 investment decision to invest to progress our anti IL-five receptor antibody benralizumab into Phase 3 for COPD. And we have again some additional Phase 3 investments pending as the year progresses, including additional tumor types for our PD L1 antibody and potentially first line lung cancer for 9,291. If we move on to Slide 23, this is a slide just to remind me to highlight to all of you that we did get breakthrough designation from the FDA for 9,291 for the treatment of non small cell lung cancer that is EGFR mutant and that has progressed after an FDA approved TKI. The breakthrough designation, we believe signals to us that the FDA is seeing the same potential in this molecule that we're seeing. This is a slide that was shown at Lung Cancer Conference in Sydney, Australia last year in October, just highlighting the very good response rate that we've been seeing. Of course, we will present additional information on 9,291 at ASCO. And I just use this slide to remind you all that we did get the break through designation. Slide 24 is the delivery. So as I said, we want to make good decisions about what we spend our R and D dollars on and then we hope to be successful in delivering the things that we said we would do. So these are some regulatory milestones that we have achieved in the Q1. Pascal talked about the U. S. Approval of Farxiga. Farxiga was also approved in Japan. The Bydurean dual chamber pen was approved in the U. S. ZIGDOO, which is the combination of Forxiga plus metformin was approved in Europe. Metrolleptin on MyoLEPT was approved for generalized liver dystrophy here in the U. S. As Pascal noted, we have gotten the FDA has accepted our filing for olaparib has granted priority review. We have an advisory committee in June and we have a PDUFA date in October. And as I just mentioned, 9,291 in second line mutant lung cancer containing the T790M mutation achieved breakthrough designation. As the year progresses on slide 25, we have some additional key data readouts that I'm sure you will all be interested in tracking. In the Q2, we have the 1st Phase 3 results from bridalumab. This is a placebo controlled trial. The top line results communication path will look a lot like what you've seen from Amgen's Amgen RUN trial. We'll be working with them and the way we communicate will be consistent with the way that Amgen communicates their top line results. The Saxodapa Phase 3 data will be presented at ADA and we will have updates on both PD L1 and 9,291 at ASCO. In the Q3, we have the Phase 3 top line results from all the 3 remaining Phase 3 studies for lisinurad in combination with febroxastat and the two trials in combination with allopurinol. We'll have the top line results for Kadzavi and complicated intra abdominal infection and some Phase II data on our 2 different mechanisms of interfering with the interferon pathway in lupus. Again, at ESMO, we will continue to update you on our oncology portfolio and there'll be some data on Alzheimer's disease coming up as well in the Q3 on our base inhibitor. And finally in the Q4, the verdalliumib psoriasis trials, the Q4 trials reading out, these are the 2 head to head trials against DOLARA as well as the 2b data on mavrolumab. So some very important data readouts that will help us understand and help you understand the potential of our molecule. Number of regulatory milestones as the year progresses. We are tracking for the approval of Ebonova. The PDUFA date is coming up soon as well as filing for the Vidarian dutetampir pen in Japan. We are on track to file ERISA in the U. S. Refile ERISA I should say. We have naloxolgol PDUFA date in September and have an advisory committee meeting on the whole class of molecules in June. And we are working with our Japanese regulatory colleagues to try to get Brilinta approved in Japan. In the Q4, I've noted the PDUFA date for olaparib potential approval for ZIGDO XR in the U. S, the filing of sacadapar fixed dose combination at the end of the year, the CHMP opinion for the Bydurean dual chamber pen, the filing of MyoEpt for the vodistrophy in Europe. If the Phase 3 trials read out favorably for lisinurad in the Q3, we'll be on track to file that in the Q4 and same with the Cazavi. I've highlighted on Slide And finally on slide 28, this is a slide that I showed you at the year end results, which again above the line I have potential new molecular entity submissions and we've checked off that we filed olaparib in the U. S. And then below the line are potential life cycle management submissions in 2014 through 2016. And I will just highlight a couple of additions. The first is related to the Pearl program. We had told you that in 2015, we anticipated filing the LAMALA combination for COPD. We have decided to also file the LAMALA component alone, which is being studied as part of that overall program. With the starting of the uveal melanoma program for selumetinib, there is a potential for a submission in 2015 for that indication. And then if we look at the life cycle management submissions below the line, all of these we showed you at year end results, the one new additional one is the potential for olaparib to be filed for metastatic breast cancer given that we've now started that Phase 3 program. So I will stop there. In terms of the pipeline, again, I think we're very pleased with the progress of our pipeline. As Mark I think will touch on in his comments, it is putting a little bit of pressure on our budget to accommodate all these wonderful molecules. But we're trying to be very disciplined in the molecules we invest in. And with that, I'll turn things over to Marc. Thank you, Briggs, and good afternoon, good morning, everyone. Today, I will provide a little more details on the drivers of the headline results for the Q1 and how we are redeploying our resources to invest in our growth platforms and rapidly progressing pipeline as we work towards returning AstraZeneca to growth. I will also discuss the currency effects on our regional revenues, discuss the key drivers of operating profit and margin as well as provide an overview of our cash generation cash application in the quarter. If I turn to the next slide, which present the headline results for the Q1. We can see that the revenue for the Q1 grew by 3% to €6,400,000,000 at constant exchange rate. The currency impact on the 1st quarter revenues was minus 2%, which I will explain on the next slide. I note here that the Q1 includes 2 months of 100% of the revenue from the diabetes brand following our acquisition of the remaining stake in the alliance with BMS. Core EPS for the quarter was $1.17 declining at minus 11% at constant exchange rate. The impact of the foreign exchange lowered core EPS by 6%. Next slide. The slide shows the regional currency impact on our revenues in the Q1. In Europe, we had a small tailwind, but in established Rest of the World markets, the currency headwind was almost 2%, with Japan comprising about 2 thirds of the negative effect due to the weakening yen. In emerging markets, the headwind was a negative almost 1% effect of currency on revenue. I will now turn to the P and L for the quarter and focus here on core margins and profits. The press release contains the statutory numbers and a detailed reconciliation to the core measures. As a reminder, when I refer to growth rates, they will all be at constant exchange rates. Core gross margin was 81.4 percent of revenue. There are a number of moving parts in the quarter with a benefit from lower Crestor royalties more than offset by the inclusion of diabetes related costs. Core SG and A expense was up 14% compared with last year. The increase in SG and A was driven by the inclusion of all the costs associated with the diabetes portfolio as well as the investment behind the launch of Farxiga in the United States and continued investment in the emerging markets and particularly in China. The excise fee imposed by the enactment of the U. S. Healthcare Reform Measures amounted to 2.4% of core SG and A expense for the quarter. Core R and D expenditures were up 13% to nearly €1,100,000,000 in the first quarter. The doubling of the late stage portfolio over the last 12 months together with the support of Brilinta through the Partinom program are the key drivers of R and D cost growth. The strong progression across all stages of development of oncology portfolio does put pressure on our cost base in particular through the rapid advancement of immunotherapies. Core other operating income for the quarter increased by 29%. It is worth noting however that this quarter was flattered by 1 off milestone payment, which accounted for about 70% of the growth. Core operating profit was €1,950,000,000 11% lower than last year. Operating margin was 30.4 percent of revenues. Looking at the Q1 cost range for the last 3 years, it can be noted that the increase in Q1 2014 is enhanced by the relatively lower cost in Q1 2013, both on the SG and A and the R and D lines. Within SG and A, practically all growth comes from increased sales and marketing costs, whereas G and A was flat. The quarter on quarter growth rates has stayed constant within SG and A as we have continued to support our growth products. On the other hand, there has been an acceleration of the growth of R and D cost as a result of a rapidly progressing pipeline. Moving to the next slide, we see that the net cash generated from operating activities was €1,200,000,000 for the quarter. The lower EBITDA was chiefly a result of the loss on disposal of our R and D site at Alderley Park and some negative ForEx. We had a favorable working capital movement in the quarter despite the sale growth, but it was lower than that of 2013. In the next slide, the payment of the 2nd interim dividend in the quarter along with the cash associated with the acquisition of the Davitus Alliance assets results in a significant cash outflow in the quarter. Net cash distribution to shareholders were €2,200,000,000 euros As you have seen this morning, we are reaffirming our full year guidance. We continue to anticipate a lowtomidsingledigit decline in revenue on a constant currency basis. We want to note that this guidance assumes the entry of Nexium generic in the United States towards the end of May 2014. With continued investment in the pipeline and growth platform, we still anticipate core EPS to decline in the teens at constant exchange rates. We again reconfirm our commitment to a progressive dividend policy. AstraZeneca made significant progress this quarter and we are confident we will see continued momentum over the course of the year. With that, I will now hand back to Pascal. Thank you, Marc. In closing, I would like to say it's been a busy period for AstraZeneca and we're very pleased with the progress we've made so far. So in a nutshell, Q1 revenue growth was driven by all 5 growth platforms. We've had strong continued momentum with our pipeline. We can expect as you saw from Brick's presentation a very rich news flow in the quarters to come. And finally, we've maintained our financial guidance for 2014. So with that, I would now like to open for questions. So over to you, operator. And please remember that for those participation participating via telephone, please press star 1 on your telephone keypad to alert us So the first question is from James Gordon at JPMorgan. James, do you want to go ahead? Hello. Thanks for taking my questions. I had a couple of questions about the PACIFIC study, so the MEDI-four thousand seven hundred and thirty six study. One of my questions was will you be looking at PD L1 expression and segmenting patients by their expression level as part of the study? And do you have a diagnostic for this? Also can you talk at all about whether you'll be treating to progression or beyond? And what sort of comparator or background you'll be using? And also what you'd be expecting or what you'd be powering for in terms of the magnitude of overall survival? And then I also had a question which was on alliances. I've seen some comments on the media call this morning that you'd be interested in doing alliances and then there could be some announcements quite soon on that. Within the realm of alliances, would you actually consider swapping or divesting rather than actually just forming alliances? Is it possible you were to divest anything? And would you be prepared to give away any economics on immuno oncology in exchange for anything else? Or is that something off the table? Thanks, James. So, BRICS, maybe you could cover the questions the series of questions on 4,736 and the study. Let me just maybe quickly address the second question. The alliances, what we said this morning is not very different from what we've said in the past I. E. We will look for alternative options to develop products that are not in our core therapy areas. We focus on those 3 core as you know. And so we're looking for a variety of partnering options for products that come out of the other 2 TAs. I can't be more specific than this and I apologize for this, but you'll have to bear with us a little bit because suddenly we're looking at a variety of options that we hope to conclude very quickly on. As to the specific question about IMTs, we certainly would not at this stage plan to I don't know how would you call it. I mean we will not plan to let part of the value coming from our MT portfolio go away. Certainly what we will and are considering is a series of partnership with other companies that are willing and interested in developing their own products in combination with our IMTs. But we will not at this stage consider partnering the IMT portfolio. We believe it's a very important portfolio. We have a variety of products and we can combine them as we've said before. And it's very much at the heart of our oncology TA. And certainly in that area we want to do it ourselves. But certainly again partner for combination purposes with other companies. Maybe Rick do you want to cover the PD L1 question? Happy to. So the PACIFIC study, the details should be appearing on clinicaltrials.gov fairly soon and we'll be talking more about it at the investors call investors meeting at ASCO. What I would say just to clarify it is as we said in the press release it's sequential therapy. So patients with locally advanced stage 3 disease will commonly get a combination of chemoradiation therapy as sort of definitive therapy. The intent is after that therapy to then follow on with PD L1 antibody. There is data to suggest that radiation induces PD L1 expression and may account for some of the resistance. So the idea is to be able to convert those patients into higher response rates and improvements in overall progression free and overall survival. When the data comes out, the trial design is better on clinicaltrials.gov and we have a chance to talk with you more, we can say more about the design. Thank you. Thanks, Briggs. And we certainly look at PD L1 expression as part of the range of studies that we are considering for sure. So should we move to Alexandra Hauber at UBS? Alexandra, do you want to ask your question? Yes, thank you. I've actually got 3. Firstly, SYMBIKOORD in the U. S. Seems was very strong, which and it appears that you didn't buy your improved formulary position by pricing concessions. Is that because you commented that in the press release pricing was stable. Is that just now this quarter? Or can we expect this stay like that in this year? And in this context, can you also comment on sort of any net price effect you're seeing on Badurion in the U. S? Second question, can you provide some ideas about launch timeline for the Vadoreo dual chamber pen or is that still something which we just have to wait for? And the third question is if I look at the Phase 3 study that you were announcing on 9,291, second line patients with T79 mutations after first line CTI progression, That seems to be the most narrow indication you can possibly go for and seems to contrast a bit to what Clovis is doing with their Waterfront approach to do all sorts of things in their Tiger program. Is there any reason for that that you're going forward so selectively? Are you waiting for any more data? And are you planning to expand that at some point? Okay. Thanks, Alexandre. Briggs, maybe you could cover the 9,291 question and certainly talk about our plans to go into 1st line as well. Let me just quickly cover the Symbicort U. S. Question. The improvement in market share you see is not entirely due to the ESI improvement in access. We estimated about half of the progress we've made with Symbicort comes from access improvement. The other half is simply the hard work that and the good work that has been done by the team over the last few months, we were already as you know, before this improvement in access, we were already on the growth trajectory. And so we certainly believe that it can continue because we are very focused on this product in the U. S. As far as pricing, the ESI win was certainly not linked to, as I've said before, linked to a large discount we offered. We didn't actually. And in fact the price effect so far this year is relatively small. We have a minus 1% price effect and we estimate the price will be more or less stable for the rest of the year. So I would not see a sort of a price war there, if you will, in Symbicort. It's really very good blocking and tackling and good commercial work done by the team in the United States that's driving this improvement in market share. As far as Badureon dual chamber pen, we our plan at this point is to launch it later this year. We haven't given any specific date, Alexandra. And as soon as we have clarity, we will communicate this. But at this point, unfortunately, a bit too early to comment. And maybe I'll hand over to Briggs for the question on 9291. Thanks for the question. So first I'd say we have ongoing single arm trial to look at patients with the 2,790M mutation as well as patients who do not have the mutation. The second line indication we believe is the area of the greatest unmet medical need. Obviously, we patients who are newly diagnosed with EGFR mutant lung cancer have available to them agents. And once they fail, this is their biggest unmet medical need and has the highest probability we think from a scientific point of view. So that's clearly where we would go first. As you saw on slide 22, we are considering investing an investment decision to also study in first line non small cell lung cancer. I don't think there's additional data that we need. Our scientists are just trying to work through the study design and what we anticipate in terms of benefit if you were to give this molecule versus say, ERISA in first line setting. That's what we're working through in terms of making that investment decision. Okay. Nicky? Thanks, Briggs. There's a question from Andrew Baum at Citi. Andrew, over to you. Thank you. Three questions, please. First, Pascal, in the context of maximizing shareholder value, what is your commitment remaining an independent pharmaceutical company? 2nd, in reference to the scale of divestments mentioned in the Feet article, you talk about infectious diseases, CNS. My impression is that most of the likely divestible assets are ex U. S. And relatively small. It's tough to get to that $15,000,000,000 number, which is quoted. I just wonder whether you like to comment on the scale. And then finally, for Briggs, with regard to the PD L1, could you just confirm firstly, it will include both, receptacle and nonreceptible Stage 3 small cell lung cancer patients? And then additionally, to what extent do you expect the screening program in the U. S. To expand the eligible patient population going forward? And do you think you will be 1st market within that indication? Many thanks. Thanks, Andrew. So the first question on shareholder value, we are of course very committed on creating shareholder value and we believe the best way for us to do this is to focus on science, come up with medicines that will be differentiated and help patients. And if we do that well, then we'll be successful commercially and create value for shareholders. And we believe we have a clear strategy. We believe we're making good progress from a pipeline viewpoint. We believe there's more progress to come. And certainly, we are very committed to creating this additional value on an independent basis. But of course, we are always considering options to accelerate shareholder value where it makes sense. But at this point in time, we are very convinced that our strategy is working and we're creating value through progressing our pipeline and we'll continue doing this on an independent basis. As far as IDEA and infectious disease and CNS, maybe you'd make me think say something I didn't say actually, Andrew. And I didn't talk about divestments. I talked about partnerships. And then essentially what we said and I sort of said again today is that in as far as products that our R sub are 3 core therapy areas, we will look for partnership options. And I've said this before. And so that will apply to our ID assets. Some are for some, we have the rights outside the U. S. For some newer products, we have global rights. We'll also apply to our CNS assets. And with those, we'll find solutions that are optimizing those assets and optimizing our presence and optimizing our capabilities, our development capabilities, our commercial capabilities. And so the answer to how we go about partnering those products will vary from product to product. Now it may sound a little bit lacking in specifics and it is because the options are multiple of course. So you just have to wait to see how this shapes up. But that's certainly something we're going to be working on over the next few weeks months. Then there's a question from Tim Anderson at Sanford Bernstein. Tim, do you want to go ahead? Sorry, Tim, before you I'm sorry, I forgot to ask Briggs to address the PD-one question that Andrew raised. I'm so sorry. Yes. Thanks very much. So Andrew, you'll see in the press release, we did it is locally advanced unresectable non small cell lung cancer. So this is Stage 3 unresectable where patients are commonly treated with a combination of chemo radiotherapy and then following on to that we would add PD L1 antibody. Your question about the screening, it's of course it's hard to know exactly how much the screening is going to increase the detection of earlier stage lung cancers. But we do believe that that is a trend that will be progressing particularly in the U. S. And I think we believe that will be increasing the number of people who pick up at some of these earlier stages. Thanks, Briggs. We received an e mail question from Christopher Liebig at Carnegie. And I want to address it because unfortunately we cannot answer that question relating to MEDI-four thousand seven hundred and thirty six. And the question is what's the timing of our pivotal trial and how soon will the file go according to our plan? And I apologize in advance, but we will not answer that question for obvious confidentiality reasons. So we'll certainly become more specific as time goes by. But for today, we'll specific as time goes by. But for today, we'll not address that question if you allow me. So Tim Anderson at Sanford, Tim, do you want to go and ask your questions? Yes. Can you hear me? Yes. Okay. So a question on immuno oncology and then unrelated question. But on immuno oncology, at ASCO that's coming up, I know we're going to see various data sets from you on different products. Can you just give us your general level of excitement for tremulimumab at this point? And is there any reason to think that this CTLA-four inhibitor may act differently and look differently than ipilimumab? And then on PD L1, Slide 28 shows product submissions through 2016. I don't see PD L1 there. I guess that implies a filing maybe in 2017, but if you could just expand on that. And then my high level question is, I think a majority of big pharma companies have talked in recent years about how big mergers between big pharma companies destroy more value than they create because of things like disruption to R and D? And I guess you could look at one clear expression would be Roche with Genentech, but that was a very different set of circumstances. It certainly wasn't big pharma plus big pharma. My question to you is, would you generally agree with the majority of your peer companies that these sorts of big tie ups are too messy to really create value? I'll address that last question first actually if I may Tim. And then in the meantime, Briggs can think about the level of enthusiasm or excitement he's got for Remy. As far as your last question, it would actually be difficult for me to tell you that I do believe that large mergers do not create value, first of all, because I'm a pragmatic person, and I think there's never really good to have a sort of a philosophy that applies to everything. I think you got to be practical and look at things case by case. And secondly, because the Roche Genentech merger that you mentioned, I led that integration and I actually believe that it actually worked and created value. So I really think it depends on the companies you merge. It depends on whether you can integrate them. It really is a question of are there really true synergies you can generate complementarity from a geographic viewpoint, from a capability viewpoint? Can you bring the 2 cultures together? Can you operationalize the integration? And so there's never really a simple answer to those questions. It's really case by case. So Briggs, I hope I gave you enough time to for you to figure out how excited you are about Rami. Do you want to cover this? Be delighted to. So I think the simple answer to your question of do we believe there is a profound difference between TRME and Ipi, I'd say the answer is no. I think that if done if the exact same experiments are done with the same with the 2 molecules, most of the data would suggest it would probably behave similarly. We are excited about Tremy. We have an ongoing program in mesothelioma and have decided actually to increase the sample size there to improve our chances of having that Phase III trial potentially be a registration trial. And of course, we're quite excited about the combinations of TRME with the other molecules in our portfolio, so with PD L1 or with other molecules. So we have a strong belief in TRME and think that with the right experiments and the right clinical data could be an important medicine. Thanks, Briggs. Oops, sorry. No, that's it. Okay. As far as the PD L1 filing question, Tim, just as I said a minute ago, if you allow me, I won't be more specific than what you have in the table. And things may change as we go forward. But at this stage, what you've seen is what we actually can share. So I'll move to Sachin Jain at Bank of America. Sachin, do you want to go ahead? Hi. Sachin Jain from Bank of America. First question again on M and A. So irrespective of the recent bid specs, I'm not asking for confirmation of rumors or otherwise. Just a high level comment of your process for assessing the value of bid approaches in terms of what valuation you reject outright versus what you would be open to. So for example, as a focus on bid to unaffected share price, intrinsic value of the business as you see it today or value of the business as you see it in 3 to 5 years. The reason for the question is on a comment to an earlier question, you said you would be open to opportunities for accelerating shareholder value. I just wonder how you define shareholder value. That's the first question. The second question is a PD-one PD L1 question. There's a Phase 2 lung Atlantic study that's recently listed on clinical trials, which looks quite similar to PACIFIC. So I could just wonder if you could give any color as to why you're running 2 similar studies in a similar setting? And then the final question is for Mark on cost progression. Is it fair to expect SG and A and R and D to increase sequentially into Q2 given any 2 months of Bristol consolidation in the Q1, are there any cost offsets? And then related in your introductory comments, you commented R and D spend potentially going up given accelerated immunotherapy development. I wonder if you could give any color there. Thank you. Sachin, so maybe I can take the first one. Marc, you could take the cost question. Briggs, you could take the PD L1 Atlantic question. In terms of the first question Sachin, the way we look at charler value, the way we measure it is CSR. And I guess I will stop at this and not be more specific as far as the rest of your questions. We have a relatively good idea of what the value of this company is and the value we can create with the implementation of the strategy that we've communicated and that we are implementing now. And so that's basically our baseline. And anything that could enable us to accelerate this or do better, certainly, we will, of course, consider. We are very aware of our responsibility to our shareholders. And that's basically as specific as much as I can say. Martin, do you want to cover the costs? Yes. I think we have signaled the cost progression from the diabetes, but also from the other investment in emerging markets for the SG and A. We have also signaled this morning the we have also signaled the increase of our R and D expenses in the Q1. So I think the increases are going to continue. Whether they are going to continue at the same rate still needs to be seen. But we have signaled several times that the one of our key challenge challenges will be the redeployment of our resources to our priorities and to our core areas. So this will continue to be a challenge for us. You have seen how fast our portfolio and pipeline is maturing. So we will continue to allocate the best resources to the best programs across the year and the following year also. The only thing thanks, Mike. The only thing I would add on this is we've communicated the guidance and we're committed to delivering this. We're committed to our dividend. And as we move forward into next year and the year after, I think suddenly we will look for ways to improve our productivity, improve the productivity of our SG and A, as you can imagine, look for synergies across our commercial infrastructure and continue improving productivity in R and D and look at various options as we said a bit earlier partnering options and others. But it is fair to say that on the R and D front there will be a little bit of pressure on the R and D budget because suddenly the good news is the pipeline is progressing faster than we anticipated, but it on the other hand creates of course a requirement for additional resources. The next sorry, Briggs, do you want to jump in on the PD L1 question? Yes. So, ATLANTIK is a Phase II trial in patients with locally advanced or metastatic 3b or 4 disease who have received at least 2 prior regimens including 1 platinum based. So it's a single arm trial in patients with more advanced disease who have failed previous therapies. PACIFIC is a trial in essentially newly diagnosed patients who have Stage 3 disease and as part of their definitive therapy are getting chemo radiotherapy for that disease. Today normally they would get chemo radiotherapy as definitive therapy and then nothing additional. That's the setting where sequentially we would like to add PD L1. So it's more of a Pacific is in newly diagnosed locally advanced disease whereas Atlantic are patients who have failed at least 2 prior regimens. Thank you very much. Thanks, Briggs. Maybe we could take an email question. There's a question here on Pulmicore, the growth in China. And basically, the question, I guess, is where does this growth come from? Sorry, I'm trying to read. Yes, well, any one off explaining, sorry, any one off explaining the 50% growth for Pulmicort in the emerging markets in Q1? This is a question from Christopher Liberg at Carnegie. And the answer here is actually this growth is very much driven by China. Quite a large number of markets, but very much China by a large amount. And that is not a one off. This is very much the result of a lot of investment in building nebulizing centers in China. We've actually gone from a few 100 nebulizing centers about a year ago to more than 2,000 nebulizing centers. And it's really pleasing to see, because this is as you know a very severe disease in children and the impact we're having on those patients is really tremendous. And it has, of course, driven a substantial growth of Pimicort in China. There's also another question about Crestor. Maybe Marc, I don't know if you want to cover this one. Should we view the positive net price realization as a one off? It is a one off indeed for Q1. Do you want to cover this one? So should we see the question is whether we will see a more flattish price for the quarter 2. And the answer is the price for Crestor has not slipped much in the Q1. So I think Q2 will probably be a continuation of that. Yes. So the one off the Q1 is really a one off. It's a true up of managed care rebate. So one off for Q1 and then moving forward, I think we'll be flat. So I think we've covered the e mail questions. I'm just checking. Sorry about this, yes. So maybe we could go back to Keyur Parekh Keyur at Goldman Sachs. Do you want to go ahead, Keyur? Sure. Thanks for the call. A couple of questions, please. One, if I understood correctly, you are attributing some changes in your focus from a diabetes portfolio perspective as it relates to marketing efforts in the U. S. I just wanted to get your sense on kind of moving resources from ONGLYSA to ForeSee as you're launching it. Should we think of that as more long term? Or do we think of it as resources moving back to ONGLYSA and therefore the support to ONGLYSA? Or should we think of you needing more resources on the diabetes end? That's one. Secondly, and as you kind of think about the quantum of trials that the industry more broadly seems to be running on immunotherapy, especially kind of smaller trials, kind of single arm studies. Can you share with us your experiences of the dealing with the agency on their willingness to accept single arm studies kind of 20, 30, 40 patient studies for this kind of projects? Thank you. Thanks, Kjell. So the IMT and the attitude of the agency against smaller studies maybe Briggs you could cover in a second. Let me quickly cover the diabetes question in the U. S. It is clear that our focus is for Farxiga. So in the U. S, it's called Farxiga and Badurian. And that has led to the results I've shown you with Farxiga. It's also fair to say that as a result you see a rather flattish picture with Onlyza and it's clear that our focus will remain for CIGA and Vadurian. I would just simply here attract your attention to the data we will present at the ADA in June combining Farxiga and Onglyza in a combination regimen on top of metformin and compared to single agent on top of metformin. And that might also give you an idea of the potential that exists in combining those agents. These are separate therapies or in a fixed combination regimen. This data will be presented at the ADA. Briggs, do you want to jump in on the IMT question? Yes. The question of how many patients do you have to treat before you can potentially get early approval in large part depends on the activity of the molecule. So it's the number essentially what the agency is looking for is a level of confidence around activity and the safety of the molecule. So with low response rates and a wide level of uncertainty around it, you probably need to do more patients. With very high response rates where you can get a pretty small confidence interval around that response rate. As long as there doesn't appear to be significant safety issues, I think the FDA has been willing to grant people accelerated approval with a commitment to follow on with additional studies. Part of the breakthrough designation with 9,291 is it enables us to have those conversations of exactly what do you need from a single arm trial to reassure them of both efficacy and safety and a commitment to follow on with the larger randomized trial. If I could perhaps just follow-up. Sorry, go ahead. Sorry, if I could just follow-up on kind of just getting a sense for what do you mean by kind of good or strong response rates? Are we talking responses north of kind of 40%, 50%, 60% or do you think 20%, 30% response rates are good enough from a filing perspective? Thanks. Yes. The signal that we've gotten from them as we had these exact conversations is response rates in the 30%, 40% range with a lower bound on your comps interval clearly exceeding 2025, I think is something that they would take notice of. Of course, always balanced against the toxicity that your molecule brings as well. But I think that's the range of response rate where they've indicated they'd be willing to have a conversation. You, Rick. So the next question is from Jo Walton at Credit Suisse. Jo, do you want to go ahead? Thank you. Just a couple of questions. On the R and D front, you filed olorparib now a while ago in Europe. I wonder if you could give us an update on the timeline there and your negotiations. Looking at your upcoming events, I can see that there's an oral argument surrounding Pulmicort early in May. But do you have a timeline when you think there could be some decision on the Pulmicort generics? Do you have any view as to whether there's been any wholesaler destocking yet for Nexium? And my final question is just on it to help us with our modeling. The net finance charge excluding the royalty stuff is very similar in the Q1 this year to the Q4 of last year and yet you will have been paying for the Bristol Myers deal for at least part of the quarter. Is there anything unrepresentative about that 1Q? Or is it 4 times the 1Q for the full year net finance charge? Okay. Thanks, Joe. So Marc, maybe you could cover the funds charge in a few seconds. And let me start with Pimicort. There's nothing new to report here, actually, Joe, on the Pulmicore front. And we typically do not comment, as you know, on our ongoing litigation. Level in the U. S. We've noticed. The stock the inventory level in the U. S. At the end of March was very similar at the end of the quarter was very similar to what it was at the beginning of the quarter, at the beginning of January. So no inventory movements there. And maybe Olaparibirab brakes, do you want to say a word on that? Yes. And thanks very much for the question. A little bit of an oversight on our part. Thank you very much. We should have had it on slide 26 because it is potential to be potential to have the EU approval in the Q4 of this year. Thank you. Since we're on Europe and we need a little bit more time actually to address your finance question, Joe, let me just ask Rod, who is here with us today. So, I'll tell you a little bit about Forxiga in Germany because the U. S. Is of course very important, but we're also doing very well in Germany incredibly well in fact with for SIGA so far and also with the deal. So do you want to say a few words about this one? Of course, Pascal. And what I've mentioned also in the annual results in the Q1, we were in an arbitration process in Germany. I'm happy to report that we came to a resolution. And as a consequence of that, we are in the phase of relaunching Forsika in Germany. Goes extremely well. It's clearly tracking on a value basis the line of Januvia. So we are very pleased. On top of that, we are also very pleased to the progress we are making with Sigduo, the fixed dose combination of depakliflozin and metformin. So both products are doing extremely well in the German market. Thanks, Rod. So you've been able to get a Januvia type price? Yes. So Mark is going to address your question. So, Jo, did you have another question or comment? Sorry. The in Germany then does that mean that you have got a Januvia type price? Yes. So we had an active negotiation as always. We are not disclosing exactly the price where we landed, but it's more or less in the ballpark of the Genovia price. Yes. Regarding the financial Yes. Regarding the financial expenses, which are treated in our core, I think the amount of €126,000,000 is in line with what we expect for the year. So there's nothing very extraordinary on the in these expenses. And we do have some expenses included for the acquisition of BMS on this. Sorry go ahead. No that's it. Okay. So we'll I apologize for those of you who are still in line. We'll only be able to take one last question from Simus Fernandez of Leerink. Simus, do you want to go ahead? Sure. Thanks so much. So I was encouraged to see you talk about the advancement of benralizumab into Phase 3 for COPD. Can you talk a little bit more about where you see the overall respiratory pipeline because I think there are also potential immunologic indications where we could see further advancements there. So just maybe talk a little bit about the breadth of the opportunity that you see across the various mechanisms that can approach respiratory disease outside of just severe asthma? And then as a second question, I was just hoping we could get a little bit of an update on the tax rate and where we see the sustainable tax rate. And then as we move forward, what should we anticipate or what are the possibilities for the patent box for all of the very rich pipeline that we see advancing forward from here? Again, with so many products in the pipeline looking like they have a good start, it would seem like the patent box could be something that could be quite beneficial to AstraZeneca moving forward in terms of the tax rate. Thanks so much. Thanks, Thomas. So let me try to address the questions on the respiratory portfolio. Maybe Marc, you could take the tax rate and the Patent Box questions. And also Briggs, if you have anything to add on the respiratory portfolio, not the respiratory portfolio please jump in. And I hope I actually I hope I understand your questions well enough. So the way we look at it is that in those respiratory diseases, the treatment is likely to change and towards a more personalized health care approach. So we see subgroup of patients emerging and those some patients will respond to IL-five that have eosinophilic disease. Others will respond more to IL-thirteen or some other mechanisms. So what we are doing is building a portfolio of biologics and we have benarizumab so far. We have also tirokinoab which we mentioned a bit earlier we are going to move into Phase 3. And essentially, that's our approach to those respiratory diseases is to develop biologics that will be targeted at subpopulations of patients. Over time, we can also hope possibly that biologics might be useful in earlier stages of disease and influence the course of disease and certainly something we'll be exploring. Briggs, is there anything you want to add to this? No. I think that's a good initial summary. And again, Thomas will probably have some discussions of this at the analyst presentation at ATA. Regarding the tax rate, so the rate for the quarter is 20 reported tax rate is 20.7%. It is not materially different from what we had in previous quarters or previous years. It is slightly better, but it's not materially different. Regarding the Patent Box, progressively as our pipeline progresses, we will make use of this possibility in a progressive manner. We will increase it over time. So I think the answer to the question is yes, we are going to make use of the Patent Box as our portfolio progresses. In that regard, it's really good to notice that 2 of our products rilaparib and 9291 originate out of our U. K.-based oncology team and certainly will take advantage of the patent box there too. So we'll stop here. And again, I would like to thank you very much for joining us today and asking so many useful and insightful questions. And hopefully, you'll agree with us that our pipeline is making good progress. So we'll report back again at the end of quarter 2 with hopefully some further progress on