Earnings Call: Q3 2013

Oct 31, 2013

Hello, everybody. It's Pascal Soriot here from AstraZeneca. It's really a pleasure to welcome you to our Q3 9 months conference. It's my pleasure to introduce some of our team members here present with me in the room. We have Simon Noss, of course, our CFO. We also have Briggs Morrison, our CMO and our EVP for Global Medical Development. And finally, Marc Dunoyer, who's been our EVP for Product Strategy, M and A and Business Development and is our newly appointed CFO. We also are here in the room together with some of our Finance and Investor Relations team members. All right. So let me just move on to the first slide. Our plan today is to provide a business performance update focused on the 3rd quarter financial results, while also providing a progress report on the strategic priorities that we are working towards. On business performance, 3rd quarter revenue was down 4%, and again as in previous quarter largely due to the loss of exclusivity on some of our products, we estimate around $350,000,000 in impact this quarter. Our 5 growth platforms grew collectively by about 8%. And as you can see here, the emerging markets grew by 5% and so did Japan. We experienced growth in all five of this growth platform. We made a lot of good progress this year with our pipeline. Sorry about this. We started Phase 3 development on 3 enemies. We filed 3 regulatory applications in the quarter and we also announced 4 business development transactions all to support our ever deepening oncology portfolio. I will now turn to the headline financial results for the quarter. And for the most part, I will be focusing on performance on a constant currency basis. Simon will, of course, make more detailed remarks on the P and L in his presentation. I'd also like to attract your attention that we are reconfirming our financial guidance for the full year. So results in the Q3 was done revenue in the Q3 was down 4% in constant currency terms to $6,250,000,000 That is an improvement from the 7% decline for the year to date, reflecting the moderating trend on the revenue impact from losses of exclusivity. We said at the half year that we expected to see an uptick in core operating costs in the quarter as we continue to invest behind our growth platforms and our pipeline. Core operating costs that is R and D and SG and A combined were up 9%. That is higher than the 9 months figure. And as Simon will show later, some of that is phasing of last year's spend. As a result, core operating profit and core EPS declined more than revenue. Core EPS was $1.21 which is down 26%. Of course, you will remember that the Q3 last year we had the proceeds from the sale of Nexium OTC rights, which flattered results by $0.16 per share. This accounted for 9 percentage points of the decline in core EPS for the quarter. After the usual core adjusting items, reported EPS was $0.99 a 16% decrease. That is better than the core EPS performance due to the intangible asset impairment related to Olaparib, which was reversed following the resumption of Phase 3 development earlier in the quarter. I will now look at revenue on a regional basis. Moving to the next quarter, the next slide. As I said earlier, we tend to focus our business performance discussions on a constant currency basis, so as to have a true picture of underlying performance. However, it is important not to lose sight of the impact that currency movements also have on our business, particularly when they are concentrated in one market Japan, where we have lost $150,000,000 to the yen's weakness in Q3 alone and more than $360,000,000 year to date. Looking at revenue on a constant currency basis, the U. S. Was down 8%. Loss of exclusivity accounted for around half of the decline. Nexium were also Nexium and Crestor were also done in the quarter, although both products were somewhat affected by destocking in the quarter. The declines were partially offset by growth for Symbicort, the diabetes franchise, Flumice and Brilinta. Revenue in Europe was down 4% on exclusivity losses partially offset by revenue increases for Brilique and the diabetes products. In the established rest of the world, revenue was down 8%, largely due to generic competition for in Canada and for Crestor in Canada and Australia where generics entered the market and media. In Japan, revenue increased by 5%. There's always a bit of noise in the reported numbers as several of our key products have partners where the timing of our shipments to them can markedly influence the quarterly trend. But in term of in market demand, as you can see on this slide, we continue to drive strong volume market share in Japan with increases for Nxiom, Crestor and Symbicort irrespective of the shipping patterns. Revenue in the emerging markets was up 5% in the 3rd quarter, including a 13% increase in China, which was impacted by some inventory destocking in the quarter. As far as China, we are the 2nd largest multinational pharmaceutical market in that country a firm in that country. And our year to date growth was 18.5%, which ranks as 4th. Monthly data is pretty volatile. And as you can see here, the August data shows a slowdown in the market, but we still outperformed most of our peers. And September looks to be back on track. Another factor to keep in mind when looking at our emerging markets business is that the quarterly sales evolution in 2012 was impacted by the supply chain issues we encountered last year with sales depressed in the first half and with recovery in the second half. For the full year, we expect a high single digit growth rate in the emerging markets. I will now turn to the 3 product franchises amongst our 5 growth platforms. And let me start first with Brilinta. Brilinta revenue in the quarter was $75,000,000 up from $24,000,000 last year. In the U. S, we are driving the execution of our performance acceleration plan while we make steady progress in our rest of the world markets, in particular in Europe. In the U. S, the performance plan includes new promotional campaigns with sharper differentiation and a strong competitive focus. The addition of the primary care sales support to implement the in hospital selling activities so that we manage the continuity of care from patient initiation in the cath lab through to discharge and a full course of chronic outpatient treatment. We also have the transition of care specialists, the 200 person force of former cardiac nurses that are now fully deployed since the beginning of Q3. We finished this in July. We've improved our formulary access in managed care and we're also launching retail stocking programs to make sure that there is Brilinta on the pharmacy shelf when the patients get their first prescription filled. As I said, when we launched these programs, we expect them to drive performance towards the back end of this year. At the full year results in the early part of next year, we'll make an assessment of the Q4 performance and make any adjustments to our plan in the light of that review. Let me move to the next slide and show you that our NBLX as far as the new brand to not new to brand prescription share, we continue to see steady growth with Brilinta in the United States. We've been adding somewhere between 70 and 100 basis points in share each quarter, which is now up to 6.3%. And that is our share of the total of new starts for all indications, not just the ACS indication that is our label and which we are currently limited to. Total prescriptions of course like the new brand to share but are also steadily growing and it's important to see the lag between the 6.3% you see here and the 1.6% total scrip. It takes some time for total scrip to catch up with new scrip, of course. In Europe, as you see here, the market share trends in the larger markets are also continuing in the right direction. Among the 3 global we're now among the 3 global oral antiplatelet agents and we are number 2 in Germany, in Italy and in the UK and we continue to gain ground in France. And it's not only in Europe, we are also number 2 in Canada and in Australia behind COPY LOVRIL. So as you can see, good progress in a variety of markets around the world, in particular in Europe. If I move now to the diabetes franchise, revenue from our share of the alliance reached $206,000,000 in the quarter. Of course, some of the growth is compared to only a partial quarter of revenue in 2012 for Baeta and Badiouren in the U. S. And we only started reporting revenue in the rest of the world in April when we took over from Lilly. If I look at the Onglaiza performance, you can see the yellow line on the chart is the new to brand share for the franchise. You can clearly see the decline in new to brand prescription share in the Q4 of last year and the Q1 of this year. An important driver of this was the changes in our formulary status in some managed care plans as well as the increased competitive intensity for the DPP-four class. We've maintained a relatively stable new to brand prescription share, hovering around 16% despite the launch of new entrants. So you can see here, we have stability over the last few months in our prescription share for Ongyzor. If I now move to the exenatide family share, you can see that after many weeks of declining new to brand share in the U. S, we started to see some improvements in the quarter based on growth for Badureon and some stabilization of the beta declines as we fully integrated our combined sales force and sharpened our brand positioning. So some good news for this Exenatide family. Let me now move to Forxiga. Forxiga, it's very early days. Of course, we are seeing good physician acceptance in Europe, but it is also a very challenging reimbursement environment, especially in Germany. In the U. S, we're looking forward to an advisory committee in December ahead of the January 11 PDUFA date for review of the NDA. There is no doubt that with growing prevalence of Type 2 diabetes across the globe, it will continue to be a long term driver of growth. Because it does consume an increasing share of valuable health care resources, governments and payers are ratcheting up the price pressure on the industry. Combined with increasing competitive intensity, this is affecting performance in the short term. But we are in diabetes for the long haul and we are determined to be a competitor in that market. Let me move to Symbicort. And Symbicort continues its strong performance across the globe with sales up 7% to nearly $840,000,000 If we look at the U. S. Share trend, it is still very strong. Share of new starts for combination CRP are up almost 3.5 points this year. Total prescriptions are up 18% compared with just 2% for the market. So very good results in the U. S. For Symbicort. Let me now move to our scientific leadership agenda. We've made a lot of progress since our last pipeline update of the half year. We had 3 regulatory filings accepted for review. The U. S. NDA for EPANOVA for the treatment of patients with severe hypertriglyceridemia was accepted for review by the FDA. The European MAA for naloxigal for the treatment of opioid induced constipation was filed and we are awaiting acceptance by the FDA. The European MAA for Olaparib was accepted for review. Here we filed based upon the results of Phase 2 studies in BRCA mutated platinum sensitive relapsed CROS ovarian cancer. We've also had 3 new Phase 3 starts for NMEs. We've started the SOLO-one and the SOLO-two Phase 3 pivotal trials for olaparib and we started a Phase 3 program in gastric cancer in Asian patients called the GOAL study. We initiated a Phase III program for selumetinib in second line therapy in patients with advanced or metastatic non small cell lung cancer, tumors are KRAS mutation positive. And just this week, we began a Phase III program for benralizumab, a potent inhibitor of IL-five. The first study in the program is designed to determine whether benralizumab reduces the number of exacerbations in patients with severe asthma that remains uncontrolled, despite receiving high doses of inhaled corticosteroids in combination with a second controller such as long acting beta agonist. We started the year with 6 new molecular entities in our late stage pipeline. Since then, unfortunately, we lost fostamatinib, but we added 2 more through business development and we progressed 4 more enemies into Phase III clinical trials so that our late stage pipeline has grown to 11 enemies in either Phase III or in registration. We remain active on the business development front and we've recently entered into 4 transactions that will significantly complement our in house efforts in oncology. The acquisition of Amplimid adds another immunotherapy mechanism of PD-one monoclonal antibody to our increasingly comprehensive MCC portfolio. We entered into a worldwide licensing agreement with Merck to develop and market MK1775, a small molecule inhibitor of V1 kinase, which is currently in Phase IIa clinical studies in combination with standard of care for the treatment of patients with certain types of ovarian cancer. Our acquisition of SpiroGen will deepen our own in house technology platform in the area of antibody drug conjugates. In parallel, we are collaborating with an affiliate of SpiroGen ADC Therapeutics, where we can select 2 preclinical ADC programs for development and commercialization. Their innovative their innovative treatment for prostate cancer. This is a close to market opportunity as the regulatory application for Abirateron was submitted in July of this year. All in all, it has been a very productive quarter as we strive to achieve scientific leadership and advance our pipeline. I'm actually going to stop here and turn over to Simon, who will take you through the Q3 financial performance, after which we'll hold a Q and A session. Simon, over to you. Well, thank you, Pascal, and good morning and good afternoon to everyone on the call. So I'm going to cover the Q3 P and L. I'll briefly touch on restructuring and on our cash performance. And then finally, I will close with our thoughts on guidance for the full year. Turning first to the Q3 P and L, and I'm going to focus here on the core margins and profit. Of course, the press release does contain the statutory numbers and indeed a detailed reconciliation of those to the core measures. And when I refer to growth rates, they're all going to be on a constant currency basis. Core gross margin in the quarter was 82.4% of sales. That is down 120 basis points compared with the 3rd quarter last year with an unfavorable product mix contributing to the decline. Over the last several quarters, core gross margin has benefited from lower core Merck expense that's related to the second option amendments implemented in the middle of last year, but that effect has now annualized. Expenditures on core SG and A were $2,200,000,000 in line with the stepped up levels of investment behind Brilinta, behind the diabetes franchise and in emerging markets that commenced in the Q2 this year. If we look at the quarterly SG and A expenditures for the last seven quarters, you can see that spend in absolute terms is pretty level in both Q2 and Q3 this year. Part of the explanation for the pop up to a a double digit increase lies in the quarterly patterns in 2012. You can see that Q3 last year was the lowest quarter of SG and A spend last year. So that provides you with some context for the 11% growth rate in this quarter. You will also note that the Q4 in 2012 shows the customary seasonal move up in spend, which is a fairly well established pattern for us. So I'd also expect to see this pattern repeat itself in the Q4 this year. Core other income of $176,000,000 was 60% lower than last year. And as Pascal already noted in his review of the headline results, that's due to the $250,000,000 proceeds from the sale of Nexium OTC rights in the Q3 last year. I'll come back to core other income when I review our guidance for the full year. Moving then down the P and L, that leads to a core pre R and D operating margin of 49.4 percent of revenue. That's 9 60 basis points lower than last year's level. But the decline was largely driven by the higher core SG and A expense and of course the significantly lower core other income with lower core gross margin also a contributing factor. Our core R and D investment was up 7% in the quarter as increased spending on in licensed, acquired or partnered projects was partially offset by productivity savings from our ongoing restructuring programs. In fact, productivity and restructuring programs are providing some of the headroom to invest, not just in the pipeline, but also in the sales and marketing support behind our growth platforms. However, given the opportunities that we see to drive growth and value, we have guided to an increase in core operating costs. That's the combination of core SG and A and core R and D expenses. And we expect that the increase in core operating costs for the full year on a constant currency basis will be towards the upper end of our lowtomidsingledigit guidance range. Core operating profit was slightly more than $2,000,000,000 in the quarter, 29% lower than last year. But as I've already mentioned, around 9 percentage points of this was related to the Nexium OTC proceeds in the prior year. Core operating margin was 32.4 percent of revenue, 11.4 percentage points lower than last year, the result of the decline in core pre R and D operating margin, combined with the higher core R and D expense as a percent of revenue. Now just a brief word on restructuring. Here, we've simply refreshed this slide from the last time to include the charges for the Phase IV restructuring program that we took in the Q3. You'll see that the year to date total is just over $1,000,000,000 of the $1,300,000,000 that we expect to charge this year. The program remains on track to deliver the $800,000,000 per annum in benefits by the end of 2016. Now turning to cash. Cash generated from operating activities was $4,900,000,000 for the 9 months, compared with $4,100,000,000 in the prior period last year. Now lower tax and interest payments and improvements in timing benefits in working capital partially offset the lower operating profit in the 9 months of 2013, which included some higher non cash costs, whilst the lump sum pension contribution drove higher outflows in the prior year. Our cash generation supports our commitment to our progressive dividend policy, whilst also providing the resources to invest in the business. Cash outlays on acquisitions were $825,000,000 and net intangible investments of $913,000,000 includes the various upfronts for licensing, investments in IT as well as the Merck arrangements. So let me conclude my remarks with our thoughts for guidance for the full year. As expected, the revenue impact from the loss of exclusivity has continued to moderate sequentially through the 1st 3 quarters of the year, with revenue for the 9 months down 7% in constant currency terms. Based on the performance to date and the outlook for the remainder of the year, we continue to anticipate a mid to high single digit decline in revenue on a constant currency basis for the full year. On core operating costs, the slide here simply reiterates what I said earlier, an increase for the full year towards the upper end of our low to mid single digit guidance range. Core other income is a change. We had previously guided for something under $600,000,000 Based on performance to date and the outlook for the remainder of the year, core other income is now expected to be around $700,000,000 providing some mitigation to the core operating costs. With a revenue and a cost profile in line with guidance, the company continues to expect core earnings per share to decline at a rate that is significantly higher than the decline in revenue in 2013. Financial guidance for 2013 has been based on January 2013 average exchange rates for our principal currencies. Movements versus guidance rates have lowered revenue by around 2% and core earnings per share by around 3% for the 9 months. I'll now hand back to Pascal, who will chair the Q and A session. Thank you, Simon, for this very comprehensive review of our Q3 performance, which was very much in line with what we expected given the impact of loss of exclusivity on the top line. Before we open to your questions, I would like to say a few words of thanks to Simon for the last day it is with AstraZeneca today. Simon has made a very significant and lasting contribution to EASI, helping put the company on a stronger footing for the future. I know that I speak on behalf of everyone at AstraZeneca and wishing him well in the next chapter of his career. And I can say that on a personal level, I will miss him very much. I'm of course delighted to welcome Marc rare blend of financial business and Sands experience that will be critical in his role as we focus on delivering against our strategy. So now let me take your questions. If I may call for the first question, please. 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 2 legal questions and one pipeline question. One legal question was about Pulmicort Respirals. So I saw you announced last night that you'd won your appeal, but the release refers to the case being remanded for further proceedings. So the question there is what's next in this case or what could happen next? And how confident are you now that we won't see the other operating income line disappear other than that that actually could continue out to mid-twenty 18? And the other legal question was on Brilinta in the release you mentioned the investigation from the DOJ into the PLATO study. Is that the investigation to do with events in Eastern Europe and Poland and Hungary? Is that what exactly are the DOJ investigating? And then just one pipeline question which was Benelizumab, so your IL-five has gone to Phase 3. You're about 2 years behind GSK and Teva's IL-five. I think your product targets the cytokine rather than the receptor. What are the reasons to think this will be a differentiated product versus those other two products? Are you going for a different population or anything like that? Okay. Thank you, James. Simon, do you want to take the first question, the Premiercard question? And maybe Briggs, you could take the pipeline question and the Brilinta study question? Yes, certainly. Well, thanks, James, for the question. So on Pulmicort, you'll have seen from our release that the Court of Appeals reversed and as you said, reminded for further proceedings, a trial court decision that the generics didn't infringe the A34 patent, but the Court of Appeal upheld, as you saw, the 603. In terms of next steps, in the legal matter, we're obviously reviewing the decision and we will be working through exactly what the next steps in the litigation process are. In addition and not therefore able to give further information on that at this point, The other aspect is that as you recall, the Court of Appeals had enjoined the generics from entering the market during the pendency of appeal and a mandate hasn't yet been issued from that court, upon remand, we'll just seek to extend the injunction during the pendency of further proceedings before any trial court. So that's an update on Pulmicort. Briggs, over to you. Sure. James, thanks for your questions. Let me first take the benralizumab question. I think if I heard the way you phrased it, I think you had it backwards. Our antibody targets the receptor and through ADCC enables depletion of peripheral eosinophils and the other molecules target the ligand. What the differentiation will be, the clinical program will define. Obviously, we're hopeful that because of the more profound depletion pharmacodynamically that we will see improvements in exacerbations and potentially also in FEV1, asthma symptoms, nighttime awakening, things like that. So the program is set up in a way that hopefully if that differentiation is there, it will be revealed through careful experimentation. The question about Brilinta, I think all we can really say is that on October 21st, we did get a civil investigative demand from the U. S. Department of Justice. It is regarding PLATO, the clinical trial that was the pivotal trial for the approval of Brilinta. We'll of course cooperate with his inquiry and we really can't give any details on that ongoing investigation. I think it's important that we reemphasize that we have full confidence in the PLATO trial. It was we believe well conducted in collaboration with a number of strong academic groups. We had an independent data safety monitoring board. The FDA obviously rigorously reviewed that before they approve the product. And that's about all I can say about the DOJ request. Thanks, Briggs. The next question is from Tim Anderson at Sanford Bernstein. Tim, do you want to ask your question? Yes. Thank you very much. Can you it's a pipeline question. The first one is, can you map out important news flow from here with your immuno oncology assets, specifically your PD L1 and tremulimimab? And importantly, on those two products, can you talk about potential filing timelines in their first indication? So when would that possibly occur roughly? And second question is, when you give earnings guidance for 2014, presumably in January, is that likely going to be qualitative like it was this year where all you'll talk about is earnings growth relative to revenue growth? And are you yet willing to identify for investors what you think will be the trough here in terms of revenues or earnings? Okay. Thanks, Tim. Great questions. The second one seems to be a question we've heard a few times before. Briggs, could you address the first one, the immunotherapy question? Sure. So Tim, thanks very much for the question. It's exciting to have someone ask us a question about the filing dates for PD L1 when we've reported at this point a small number of patients in Phase 1. So obviously, you see the same potential that we do. But I would just comment that we are in the early stages of our PD L1 program and I don't think at this point we can forecast when we might be able to file that program is still evolving. As you know from I'm sure your search of clinicaltrials dot gov, tremolimumab is in a Phase 2 trial for mesothelioma. There was a recent publication showing some interesting early signs for TRIMI in mesothelioma. But again, I think it's a little early for us to tell you what the filing dates might be for that. And of course, we're also just starting up combination programs with those 2 molecules. So, I think it's a little early to tell you what the filing dates. In terms of news flow, obviously, we would hope that there would be some additional information at ASCO in 2014 at the end of May beginning of June as usual. Thanks, Praef. Yes, we'll some additional clinical data at the ASCO. And the only thing I would add as far as our filing strategies, we're looking at all the options that, of course, as you can imagine, would help us bring this product to patients as quickly as possible. But as Brake said, it's a bit early and essentially our clinical data will guide our strategy. Simon, do you want to take the other question? Yes, certainly, Tim. I mean these are questions obviously that you know I debated and others over the last year or so. And indeed, I think we addressed these questions at our Investor Day. And certainly, I think our thinking hasn't really changed since that time. And the answer to your two questions, one about annual earnings guidance and second about trough year, to some extent, they're closely linked in the same core thinking. The success of our company is going to be driven by our ability to grow and drive the growth in our growth platforms, the 5 key growth platforms and to accelerate the development of our pipeline. And you've seen, I think, good progress on that. That would drive the revenue growth. We will invest hard behind securing that growth And that will get layered on top of the remainder of the portfolio, which comprises a pretty well established stable revenue of mature products. And then obviously, the key expiring brands of Nexium, Crestor and Cerro Col XR. Exactly where that growth sort of overtakes the decline on exploration is going to be a function of our success in driving the top line. And we don't measure the success of the company by a particular 12 month window in which the trough might occur and will grow from. So we're not going to sort of declare a specific particular date in time. We're building a company for success for the long term. And really the same thinking then flows back to our annual earnings guidance. The earnings in a particular year are going to be driven by our success in growing the revenue line, protecting the mature portfolio. The costs, I mean, we're driving efficiencies in every area of our business. We've demonstrated we can do that. We've sustained high margins through a challenging period, but we're also committed to invest. And we want to ensure that we invest behind the opportunities as we see them and that applies within the year. So the earnings in the year are going to be a function of the performance in driving the top line and the investment decisions that confront us as we go through the year. And the resulting EPS, therefore, is going to be a function of revenue and the investment. And that's why we guided this year on our revenue and why we guided to movement in cost independently. And I imagine that the same thinking will continue and be shared with the market at the beginning of January. But obviously, Pascal and indeed Mark will have a chance to share with you updated thinking at that time. Thanks, Simon. As you can see, Simon is as passionate about Aussie as he was several months ago. It's really good to see. The next question is from Amy Walker at Morgan Stanley. Amy, go ahead please. I have three questions, if I may, please. The first one is that I think you mentioned in the Q2 that diabetes is the lion's share of the incremental operating cost spend in your revised guidance. But diabetes sales in the 3rd quarter still came in some way below consensus expectations. And I think one of your competitors in Europe seems to have had a surprisingly weak quarter as well. Can you just talk about how your overall revenue share within the market is developing and what you expect to be able to achieve with the higher spend than you'd originally budgeted for? And do you see any risk that there could be even more investments in absolute terms on a quarter by quarter basis required in diabetes beyond the end of this year? So that's the first question. The second question, in view of the FDA's recent decision regarding the SEPA from Amarin and the need for a CV outcome study, do you expect to have the outcomes trial data available ahead of your filing for the CREST or EPANOVA combination? And also do you see any risk to your recent EPANOVA filing in the high triglycerides around the potential need for an outcome study in that indication? And the last question, I'm sorry to come back to the Department of Justice Investigation. I wondered if you could tell us, is it having any impact on your activities in Brilinta at all from a sales perspective in the near term? Are there any restrictions that have been enforced on you as a result of that investigation? Thanks very much. Thanks, Amy. Actually, Briggs, maybe I'll ask you in a minute to address the Amarin question. In fact, we had a similar question received by e mail from Matthias Ekblom. So probably can address both at the same time, if you don't mind. Amy, let me just quickly cover the DOJ question. We haven't got any restriction on sale or promotion of relintas as a result of this investigation. As you can imagine, we completely we support the investigation and cooperate as much as necessary. There's no impact we can see on ourselves and then no restriction to our promotional activities. As far as diabetes, we are in a launch phase with diabetes. We have several products that require promotion. There's a very competitive marketplace and some of those products are in launch phase or re launch phase for CIGA in Europe for instance is being launched. So that explains why the investment is very substantial, combination of this launching period and the competitive intensity. I would say overall, as you saw a minute ago, our market share with ONGLYZA has stabilized in the United States. And we can see that the share of the Exantad family is slowly picking up. Stabilized and it's picking up. Baeta is stabilized and Baduran is growing. So on with that franchise, we've got some good news, encouraging news. As you probably remember, we mentioned it at the 2nd quarter call, we increased our share of voice very substantially in the 2nd quarter, in fact, with a full impact in the 3rd quarter. And we're also addressing our presence in the endocrinology market segment, the endocrinologist office. We're hoping that all these actions will have an impact over the next few months in the U. S. So, Briggs, maybe you want to cover the Amarin question? So for Amy Amatay, the email question. So first, let me be clear that what we have filed for in the U. S. Is for the high triglycerides patients with triglycerides above 500. And we don't think that the amarinadcom in any way affects that particular indication that application is in our PDUFA date is May of next year. The second question is, is there a utility for physicians to have a fixed dose combination of EpiNova with Crestor? We believe that there is and we're continuing to work on that from a technical and development point of view. And then the third part of that really is your question around the claim for the population who has triglycerides between 205 100 and there we're in discussions with the FDA to get better clarity on their view of that and what implications that would have. We're of course in the planning phases of setting up our cardiovascular outcomes trial And we think that what we heard at the advisory committee will help us further refine the design of that trial and be able to answer that question definitively. Thanks, Bruce. Let me just maybe quickly add that as you can imagine, when we licensed this product and we looked at a variety of scenarios and the scenario where the scenario where we could not we will not get approval based on the 50% recruitment was one of the scenario we considered. And we probably weighted all the scenarios in the valuation of this opportunity. Now whether we will still be able to launch based on in the mixed dyslipidemia based on the 50% recruitment, we don't know. We still have to go through the discussions with the FDA. But at the end of the day, our belief, our fundamental assumption here is that reducing triglycerides will actually deliver a positive cardiovascular benefit, in particular in those patients with high triglycerides level above 200 and low HDL. But even that population which is very, very large actually in that sub population we should be able to show a cardiovascular benefit and bring to the market the first product having demonstrated cardiovascular reduction in this population. So I'll move to Andrew Baum at Citi. Andrew, can you do you want to go ahead? Thank you. Good afternoon. Three questions. First, Marc's background perhaps does not make him the immediate obvious choice for CFO for company committed to maintaining its dividend through a significant period of LOEs. And how comfortable should investors feel about continued high level of commitment about keeping that progressive dividend policy in place, certainly over the next few years? 2nd, how much additional productivity improvements remain net productivity improvement After the very significant headcount, I think it's about 15,000 jobs net taken out of the organization over the last 6 years, particularly in relation to the Crestor LOEs, which Mark will be looking to handle? And then thirdly, leading on from that, would you like to comment on how comfortable you are with consensus earnings forecast over the next 3 years? Thank you. Thank you, Andrew. Let me just quickly address the dividend question. Maybe, Simon, you want to chip in, in terms of productivity. But the basically, we are still very committed to the dividend policy. There's no change. We are committed to what we said earlier this year. We will support the dividend policy we've got in place. I see no reason to change that. As to Mark's appointment, the role of a CFO is changing in companies. And what I'm looking for is someone who really can play the role that Simon played, actually someone who is able to understand the business and be a tragic thinker, not only a financial expert. And I'm looking to the same strategic partnership with Marc that I've had with Simon over the last 12 months. Marc brings this unique blend of financial experience, but also business experience in a variety of markets around the world. So I look forward to working with him, but his appointment doesn't change anything to the dividend policy that we communicated earlier. As far as the additional productivity improvements, Simon, do you want to cover this? Yes, certainly, Andrew. Thanks for the question. I mean, dealing with the sort of 4 key elements of cost, we see in cost of goods, we see continued opportunity to drive productivity improvement, efficiency improvements. And indeed, you can see our gross margin staying up in a very robust level despite both pricing pressures in a number of markets and also a business mix that's shifting towards markets that have historically been rather lower priced. So we continue to find opportunities to drive efficiencies in our supply chain and our factories through continuous improvement in individual facilities, through restructuring of our supply chain and moving more production to lower cost locations. And for example, we are committed to a pretty significant investment program in our China facilities, which give us very low cost of production for that region. If you move to G and A, we're on a journey to continue to improve the infrastructure cost in the business. The footprint changes that we announced early this year, we're in the process of indeed accelerating the pace with which we are able to implement those changes, which will allow us to bring down the facilities and infrastructure cost in G and A by moving people to a smaller number of locations, designing those locations effectively. So we see opportunity to bring down the facilities infrastructure cost. IT is another area that's been, and indeed, you and I have talked about this in the past, Andrew, a very substantial area of spend for the company. With the introduction of new technologies, particularly cloud based technologies, our new CIO is seeing very significant opportunity to help us deliver better IT, but actually at lower costs. So I think G and A, the scope for continued efficiency improvements to allow us to more than offset inflation in that area. In sales and marketing, we've worked very hard to optimize the sort of above market structure in our commercial organization. That's pretty thin this point in terms of the overall organization. And as you know, we've also worked very hard on the targeting and the efficiency of our sales and promotional activities. So I think what will drive the sales and marketing spend, of course, there are continuing efficiencies, but this is going to be about where we choose to invest and the level of investment we choose to make. And we're going to invest where we can see an opportunity to get a return. And going to your specific question around Crestor and other LOEs, I think we've shown that when products go off patent, we either remove the resource behind them or we redeploy it, whether a good value creating opportunity is to do so and we'll apply exactly the same principles with the forthcoming LOEs. And then finally, on the R and D cost, you'll recall Briggs at our Investor Day talked about the growth in our late stage pipeline, talked about, I think, Briggs from memory, sort of 12 in late stage by 2016. We're considerably ahead of that schedule, which is clearly putting considerable pressure on our late stage spend. But we're finding ways through productivity and infrastructure cost in earlier stages of R and D to absorb that and lift to our commitment of keeping R and D costs sort of broadly flat. So that's a bit of a cook's tour through the cost base, Andrew, but important question. Hope it gives you a sense of where we are. Thanks, Simon. Let me just add, Andrew, that as I said, for the dividend policy, we remain committed to it and we also Christopher Lilberg, which we received by email, from Christopher Lilberg, which we received by email regarding costs and how should we think about those in 2014. It's a bit early for us of course to give any guidance as to next year. The one thing I can say is that we have lots of productivity improvement programs in place as Simon was saying. And we will stay committed to what we said earlier. We will keep our R and D budget stable with the moving parts that Simon was describing a minute ago. And our SG and A will adjust according to the development of our sales so that we can stay true to our commitments, our margin commitments that we presented to you earlier this year. And certainly, Mark is very committed to supporting this and driving cost efficiencies next year, so we deliver on those goals. Let me move to Keri Holford at Credit Suisse. Keri, do you want to go ahead? Thank you. Yes, three questions, please, if I can. Firstly, on Questor. Can you just detail what proportion of the incremental decline we saw in the U. S? So the difference between the decline in demand and sales was due to the lower price realization you talked about in the statement versus inventory destocking and whether you expect either to ease into Q4 and beyond? On polymer cord, we saw a weaker than anticipated ex U. S. Performance and that was despite the strong growth in China. And to me, that looks like it's an increasing on the quarter specific issue or is this an example of a broader trend where continued price pressure in Europe is essentially wiping out any growth from emerging markets? And then lastly, on diabetes, you talked about promotional spend having increased already year to date and this is now reflected in your new guidance for the full year. But today, we've also heard that Novo will add an additional 400 reps in the U. S. In the 4th quarter. I wonder if we should expect that to follow suit here. Thanks. Okay. Thanks, Kerry. Quite a number of questions here. Let me start with Cresta. In Q3 with Cresta in the United States, we had a slight volume decline and a slight price increase. And essentially the movements you see is quite a stock movement. The important piece for you is to consider that to look at the market share and our market share is stable. Month to month, we have a very stable market share with Cresta in the United States. So if you think of Cresta over the next few months for the U. S, just keep this in mind, our market share is stable. As it relates to diabetes, I don't see any substantial increase in promotion over the next few quarters. The only driver of incremental promotion will be the launch of Forxiga in the United States if we get approval early next year. I just would like to make a quick comment on your remark regarding guidance. You said our new guidance, we're not giving a new guidance. It's the same guidance. We're reconfirming our guidance. We're just, I think, precising or giving an additional precision that cost should be seen as closer to the top end of the range of increase we described in our guidance, but it's not a new guidance. Finally, as far as Pulmicort, I don't see any specific change in trend here. In the United States, we are still on the same track. And in China, Pumicort continues to do well. We've had some inventory movements in China across a range of products, but I haven't got any new I don't know Simon or Marc if you want to add anything. Personally, I haven't got any addition or additional comment to make. I don't see a massive trend a change in trend here. For China there was a slight slowdown in the Q3, but the latter months the last month seems to be bringing it back to normal trend. There was a slow small reduction in the stock level in China for many brands including ours. But it's and I think it's not to be lasting very long. So there's nothing very unusual in the quarter to quarter pattern. Good. Let me move to Lars Seyvring at SEB. Lars, do you want to ask your question? Yes. Thank you for that. Simbicot, the U. S, could you say anything about the pricing environment? We saw similar comments from Glaxo and it seems to have some negative effects in the Q3 sales. And the other question is regarding your rating comment about Nexium and the revenue recognitions in the quarters ahead in the U. S. How should we think about the current level of inventories that will not be filled in the coming quarters? Thanks, Lars. Simon, do you want to cover the Nxiom guidance question? Yes, sure. I mean, the in the press release, we simply set out as a reminder, the accounting treatment for as you go into a period of loss of exclusivity and just calling your attention really a number of factors. The first is, as the market anticipates an LOE, you can get a process of destocking as the pipeline sort of slowly lowers down. We then at the point at which we go LOE, we need to we essentially reflect a provision against the pipeline inventory because obviously that inventory, if not sold, can then be returned. And we also move to demand based accounting. So we then record the revenue as the underlying demand. If you go back and I think the best way of guiding you on this one is to go back and look at what happened with Seroquel back in the early 20 12. And if you apply sort of similar thinking to the revenues that you saw and the movement when that went LOE, that's probably the best way of thinking about the same impact for Nxiom. I'm not going to give you to guide on a specific inventory at this point, because that it will very much depend how things pan out in the Q1 of next year. So my encouragement to you would be to look at the patent on Seroquel and use that to guide your thinking for Nexium. On your question on Symbicort, the in the quarter for this year in the U. S, we had a little bit of a net price move against us, more around mix of business in the Symbicort business in the U. S. Indeed, you'll have seen we've had 1 or 2 quarters over the last year where we've had quite a favorable trend on pricing. But in this particular quarter, there was a small net down on price level. I wouldn't say there's a new trend that I would call out in that market. Nothing very material really. So no new trend there. So let me move to the next question. And the next question is from Seamus Fernandez at Leerink. Seamus, do you want to go ahead? Sure. Thank you very much. Can you hear me? Yes. Okay, great. So just a couple of quick questions. Can you just maybe give us a little bit more color on the SG and A spend? Should we be thinking about this as a surge? Again, or should we be thinking about this as kind of sustainably higher rates of primary care spending? The second question, if I may and respectfully, I really struggle to see the science around triglyceride lowering and outcomes and any correlation there in the 200 to 500 range outside of subset analyses. And I think in the context of the really impressive scientific and science driven improvements on the R and D side, I'd just love to know if you would consider actually not pursuing an outcome study for this, should there be challenges with the FDA with regard to the 200 to 500 range and just pursue the north of 500 indication? And then lastly, can you just update us on your timeframe for expectations for Symbicort generics risk? How many patents are covering it? And when would you anticipate Symbicort generic entry? Thanks a lot. Thank you so much. Great question. Maybe Simon, if you want to cover G and A, let me just quickly address the triglycerides question and then please Briggs jump in as you see fit. First of all, thank you so much for the great comment about the great science in our pipeline. As it relates to EPANOVA, I would argue that this is science. In fact, that science is about looking at data and of course different people to have different opinions. And until you've proven something, you don't know whether it's true or not. And that's why you do clinical trials in the 1st place. Now if you look at the report of the FDA, they suddenly pointed out a potential benefit in that subpopulation. Of course, it's a subpopulation. Of course, nothing is proven. There is a meta analysis that was just published, I think, yesterday that looked at a great number clinical trials. I must say I've not even had time to look at it in details, but the top line of that meta analysis is that there is from the conclusion of the authors there is a potential benefit in that high TG, low HDL patient population. And I can tell you that from personal discussions I've had myself with some of the top experts in dyslipidemia in the world, many of them will argue that there is a good chance to show a cardiovascular risk reduction in that subpopulation. Now maybe it doesn't work, of course, we never know. That's why we run the clinical trials. So that's but that's what I would say about EPANUVA and lower RTGs. Briggs, you want to add anything to that question? And then we'll ask Simon to address the SG and A. Yes. Seamus, I think it's a good question. And I would also echo Pascal's comments of thank you for the recognition of the great science we have throughout the portfolio. I think what is probably reasonably clear, I think people would agree is that patients who have high triglycerides despite optimal current therapies still have residual risk. So I don't think there's a debate about there's a risk population here. The question is, will lowering those triglycerides actually lead to cardiovascular benefit? And again, I think as Pascal outlined, there are many physician scientists expert in this field who believe it will. And there are probably some who believe that it won't. So that's why we do the experiment. And I think as you know, I think we're quite good at doing these. I should not use my words, very good at doing these kinds of trials. And so we're going to test it and we'll find out. Thanks, Bruce. Simon, do you want to cover the SG and A question? Sure. So, yes, thanks for the question. You recall in my presentation, I gave you sort of bar chart, which showed the movement in our SG and A spend over the last 7 quarters. And the movement up in from Q1 this year up to Q2 and then we've held that level in Q2 and Q3. That movement up is concentrated very firmly in 3 areas. It's behind Brilinta and the acceleration initiatives that we've put behind Brilinta, particularly in the U. S. And you recall Pascal showed a slide outlining that array of initiatives. The second area has been in diabetes around the world, again, particularly in the U. S. And in a variety of different areas in marketing and medical and additional sales force into the specialist channel. And then the 3rd area has been investment in our emerging markets where you've seen we feel good about the continued strong growth during a reasonably challenging quarter, sort of generally for the sector. So those are the 3 sort of main areas. And when we look as sort of look beyond, I then also indicated that we'd expect to get the same sort of seasonal bump up in the Q4 relative to the run rate in the prior three quarters. And that really reflects the fact that quite a lot of events, conferences do tend to take place during the Q4 of the year. So it's a completion of a series of marketing programs for the year. As we look forward, I think I'd go back to comment that's been a pretty consistent theme on the call, which is we're going to continue to invest where we see good opportunities to drive the growth of our growth platforms, and we'll continue to do that. Of course, conversely, if we're not satisfied with the progress we're making in any particular brand or market, we will remove that investment if it's not providing a return. Because most of this investment is of a variable nature, we can do that really very swiftly. And I'm sure that Pascal and Mark will give further thoughts on what the profile for 'fourteen will look like at the beginning of February in 'fourteen. Thanks, Simon. Yes, let me just say again, we're going through a period of redeployment. We are redeploying ourselves and to our future growth platforms. We committed to investing in our pipeline even though we also committed to keeping our R and D budget stable and we are committed to investing in our growth platforms. Having said that again, we're also committed to the financial framework we defined for you earlier this year and we'll adjust our SG and A investment to whatever the sales look like. So we can deliver on our financial commitments. Let me ask Mark if you Mark if you don't mind if you want to cover the Symbicort patent question. Okay. So the situation for Symbicort, we still have some valid patent on the combination itself as well as patents on the device. They are also although the FDA has had some evolution on the hurdles for analogs or generics in the respiratory field. Although this hurdle seems to have been lowered somewhat, they still remain pretty high for generic to overcome. So obviously, it's difficult to predict, but we don't see a clear and present danger with generics in the United States for Symbicort. Thank you, Marc. Let me ask Marc Clark for Deutsche Bank. Marc, do you want to ask your question? Yes. Good afternoon, gentlemen. I had a question about emerging markets. On the Q1 call, there was sort of some commentary about the non China business being a bit lackluster. And you suggested that there'd be a pickup outside of that and we saw that in Q2. But by my rudimentary math, it looks like growth outside of China dropped away to a little better than flat in the Q3. And I'm just wondering, is this just the usual tender timing and phasing or is there any tougher trading conditions in some of the other key markets, something like Mexico or LatAm or whatever? So I wonder if you could give some color there, please. Thanks, Mark. Simon, do you want to cover this question? There's been some movements around the world in tenders and inventory. But Simon, do you want to cover this? Yes, certainly. So I think the if we look at our quarterly rates through the year for emerging markets, 9, 12, and then 5. I think we covered in our press release one of the drivers of the slower growth of 5% in Q3 was obviously the pattern of demand and to some extent, inventory in China, and that's addressed in the release. The second driver of the sort of slower growth rate in the Q3 relative particularly to the Q2 is we did have and really, I think, to some extent, Mark, you answered your own question, it was principally driven by patent of tender timing and tender business in our MEA region. And to some extent, the sort of wider social political climate there is also impacting business a bit. In addition to that, we did get some generic entry on Nexium in Turkey during this quarter. So that was the main pull down. If you looked at the rest of our Asia business, I think performed quite strongly. Russia performed quite strongly in the Q3. I'd also say that LatAm was a bit slow also in the Q3. I think there was generic entry in Brazil on a product, and that was also on Nexium. So that probably gives it to you tenders in Middle East Africa, Nxiom in Turkey, Nxiom in Brazil and that probably gives you the seasonal pattern. We do get that volatility in these markets, Mark. Thanks. Thank you, Simon. Damian Conover at Morningstar is the next question. Damian, go ahead. Great. Thanks for taking the questions. Just a question on the challenges with reimbursement on FORGEESA in Europe. Just wanted to see if you could characterize those a little bit and hear a little bit about your strategies to overcome those. And then second, just a question on R and D spending and the philosophy there as you go through some major patent losses over the next few comfortable moving into a R and D spend that kind of pushes into the low 20% of total sales Or if you would want to cap that, obviously, depending on the opportunities that come up through the pipeline? Thank you. Thank you, Damian. The R and D spend question is, we have said we will keep our R and D budget stable. And as Simon was explaining a few minutes ago, essentially shifting our investment to a late stage pipeline to support our pipeline, but also maintain our R and D spend overall stable. Now of course, if we demonstrate that the productivity of this investment is improving and if we demonstrate this by progressing some of our projects and showing proof points of our ability to deliver there, we may have at some point in the future, we may have to revisit our end spend. But for the time being, I don't see any reason why we would do this. We can still manage the pipeline as it is with the budget that we've defined it. The other question you had Damian related to ForcIGA and the reimbursement, Essentially, we are in discussion with all the payers in the various countries in Europe and trying to establish with them the cost effectiveness of this agent and highlighting the benefits that Forxiga brings to patients in particular weight loss. It has been difficult, I must say, in Germany, but we're now going back with our fixed combination product metformin DAPA, and we have good hope that we will gain support for that fixed combination. So that's the other way for us to gain access in the German marketplace. Let me move now to Naresh Chouhan at Liberum. Naresh, do you want to go ahead? Hi. Thanks for taking my question. Just one question please on acquisitions and use of cash. So this year year to date there's been $1,700,000,000 of in licensing and acquisitions. And the question I suppose is, are these just filling gaps in portfolio where as you come in you've seen things that where technologies you need or opportunities you found? Or is this something that where we should expect ongoing levels of spend as and when the opportunities arise? Just give us a sense of use of cash over the next few years. Thanks. Yes, great question. Thank you for that question, Naresh. The first comment I would make is that if you look at our acquisitions, our business development activities, they've really been focused in 3 core TAs, oncology, cardiometabolism and respiratory, as we said we would do. And they span across early to late stage opportunities, but certainly focus in these three courteous. Essentially, we've really tried to rebuild our pipeline, but we've also found more opportunities than we thought. And suddenly, our teams have done a very good job identifying those opportunities and moving them forward. And I think we have built, in particular in oncology, a very strong platform with assets that are more advanced in development and technologies that will support our oncology presence. For instance, the ADCs, that's only a little bit more long term, but they put us in a very strong position in that segment of the oncology market. We have been able to strengthen our IMT platforms. So clearly, a lot I would say a lot more progress than I would even have imagined at the beginning of the year. Moving forward, we certainly will invest in opportunities if we find the right opportunities. It's just that this year we've found a lot and we had to rebuild our portfolio. So we've taken advantage of the opportunities we identified. We'll allocate funding as we go depending on what we find, but always focusing on our core strategic platforms. I'm conscious that we have overrun the timing. So let me wrap up this session. Certainly appreciate all your questions and your interest in our business. So thank you for joining us and thank you for all those questions. In closing, our Q3 financial performance and indeed throughout 13 has reflected the impact on revenue from the loss of exclusivity on several key products. However, as we said throughout this discussion, we continue to execute on our strategy, which means we are making a necessary investment in our growth platforms and our pipeline. Our growth platforms are performing well with growth in the quarter that was 8%. We're also making very significant progress on our pipeline. We have 3 regulatory filings that were accepted. We started 3 new Phase III programs since our last update, which brings our total lead stage pipeline to now 11 enemies that are either in Phase 3 or in the registration. We've also entered into 4 new business development transactions with transactions that have really strengthened our oncology portfolio in particular. And finally, we reconfirm our financial guidance for the full year. So with that, I would like to wish you all a good day. And again, thank you