Hello, everybody. It's Pascal Soriot here from AstraZeneca. It's really a pleasure to welcome you to our Q2 and half-year conference. It is my pleasure to introduce some of our team members here. Simon Lowth, of course, our CFO, but also Briggs Morrison, our EVP for Global Medicines Development, and Marc Dunoyer, who is our EVP for Product Strategy, M&A, and Business Development. We're also here in the room together with some of our finance and investor relations team members. I would like to start by first giving you a high-level summary of the highlights for the quarter as I see them. Second quarter revenue was down by 4% on a CR basis, a $500 million decline coming from loss of exclusivity, which is very much in line with our expectations.
Despite this, we saw a good double-digit increase from our five growth platforms, which provided, in aggregate, more than $400 million of incremental revenue in CR terms. I would also highlight our growing late-stage pipeline with two NDA submissions, one phase III start, and more to come later this year. Importantly, three late-stage projects that have been added to our pipeline via business development. The headlines from a sales and profit viewpoint, as you can see here, our revenue was down for the quarter by 4% in constant currency terms to $6.2 billion. Our core operating profit was down 10% as we continue to invest behind our growth platforms and our pipeline.
Our core EPS was down 21% at CR, with the main driver beyond the operating profit line, a higher tax rate in the quarter compared to last year, where we had a $0.19 per share benefit from tax settlements. After the usual core adjusting items, reported EPS was $0.66 per share. Importantly, we see that if we look at the evolution of our revenue profile, we have a steady moderation in the rate of revenue lost from products recently experiencing loss of exclusivity from nearly $1.4 billion in the fourth quarter of 2012 to now just under $500 million this quarter. The rest of the portfolio has been showing some growth, but obviously it has been swallowed up by the generic erosion. Still, overall, we grew the rest of the portfolio by $232 million, or around 4%.
As I mentioned in my introduction, this has been fueled by a double-digit increase for our five growth platforms, which combined for more than $400 million in incremental revenue in the quarter. Next slide. If I look at the five growth platforms in turn, Brilinta, Diabetes, the Emerging Markets, Respiratory, and Japan. If I start, first of all, with the revenue performance by region, the U.S. was down 4%, essentially on SEROQUEL IR and also further erosion of our TOPROL-XL franchise. If you exclude this, the rest of the portfolio was up 4%. Revenue in Europe was down 13% as the exclusivity losses continued to take their toll. In the established rest of the world, in particular Japan, which is one of our five growth platforms, we had a revenue increase of 10%. Very nice result in Japan.
Of course, some of this increase is the result of a very soft comparator for NEXIUM, where the second quarter last year only had $1 million in sales, and we were still working our launch stock. Japan is a market where we have a number of partner products. There is some revenue volatility based on ordering patterns by our partners. We're also seeing stronger underlying in-market demand for NEXIUM, for CRESTOR, and for SYMBICORT. We look at the emerging markets on this graph, you see that they were up 12% in the quarter. Very importantly, we saw China grow by 21%, which is very nice to see because we're now back in solid growth in China and actually growing faster than the market. For the rest of the emerging markets, as you can see here, we have a pretty healthy 9% growth rate.
We are certainly on track with our expectation for the year, which is a high single-digit growth rate. If you look at this on a quarterly basis, you can see here that China, again, grew by 21% and represents almost half of the additional growth that was generated by the emerging market. Of course, we are a little bit advantaged here by the comparison to Q2 2012, where we had some supply chain issues, and that certainly has an impact on the quarter-to-quarter comparison in the second quarter. As I said, we are overall on track with our goal to keep growing the emerging market by high single-digit growth rates. If I now turn to Brilinta. The revenue in the quarter was $65 million, up from $18 million last year.
We are executing on all of the new programs and increased investment according to the plans we laid out in March, including the July start for the transition of care nurses. It's important to note because, a number of the parts of the plans we outlined in March have been put in place over the last few months, some of them earlier this year, some of them more recently. It's only the combination of all the elements of this plan that will, we believe, drive acceleration toward the end of this year, as we communicated earlier. We've seen some nice progress in terms of our access. As you can see on this chart, we gained nine points of preferred reimbursement, and good access in Medicare Part D. Now we are above 70%. The sales in the rest of the world were $49 million for the quarter.
In Europe, we are now closing in on number 2 position in volume share of the total OAP market, in Germany and in the U.K., but also in Italy. We continue to make steady progress in France. We look at the U.S. more specifically, the chart here shows you the steady progress we're making in growing our new to brand share in the U.S. market, which is closing in on at 6%. That is of all OAP usage, not just the ACS indication. This is accompanied by a steadily increasing total prescription trend, which you see on the right-hand side of this chart, where total prescriptions in the second quarter are up 33% versus the first quarter of this year.
I think what is important to keep in mind as far as Brilinta is that we grow this product through new prescriptions, the number of opportunities for new prescriptions is, of course, limited in relation to the total pool of prescriptions. Therefore, the impact that we can make on the total pool of prescriptions is only progressive and it takes time. This is why, once again, we've said a few times that we need to be patient and wait until the second part of this year to see a fuller impact on our total sales.
If I look at the rest of the world, you can see here that we have good progress across a variety of markets in Europe, a steady increase in our market share across several markets in Europe, and more to come throughout the year as we implement our additional plans in those various countries. If I move to diabetes, revenue from our share of the Diabetes Alliance reached $200 million in the quarter. Of course, the growth rate compared to last year is flattered by the absence of BYETTA, BYDUREON, and SYMLIN revenues in the prior year. ONGLYZA revenues were up 29% in the U.S., although some of this was due to an adjustment related to return reserves. The market itself looks to settling into a high single-digit growth trend in prescription term as the fear of switchers from the TZD products has run its course.
Our ONGLYZA franchise market share stabilized following the formulary changes that affected our first quarter performance. Outside the U.S., ONGLYZA revenue increased by 23%. Of course, the ONGLYZA news in the quarter was the announcement of the headline results for the SAVOR trial, where we met the primary endpoint and satisfied the FDA requirement to show no harm. Unfortunately, we didn't meet the secondary endpoint of showing superiority. For the GLP-1 franchise, U.S. revenue for both BYETTA and BYDUREON was $63 million in the quarter, and we recorded $22 million in the rest of the world, following the assumption of these products from Lilly in April of 2013. The market share for BYDUREON prescriptions in the U.S. market continues to grow, although with the declines in BYETTA, total market share for the franchise is actually down, as I will show you in a few minutes.
As far as Forxiga, we recorded a good start in Europe, as I will show you in a few minutes, with revenue being $4 million for the first half. We are facing a challenging reimbursement environment. We filed or refiled in the U.S., our NDA, and the PDUFA date now is January 11, 2014, for this submission. If I look at ONGLYZA, as I told you a minute ago, we have stabilized the market share. We're not satisfied with this market share, and we want to see it grow, but certainly it is reassuring to see we've been able to stabilize it after the loss of the Gamma account, of course, earlier this year.
If we look at BYDUREON, as I told you a minute ago, the market share of BYDUREON is still growing, but it is not growing sufficiently to compensate for the decline in the BYETTA market share. The total exenatide market share, family share, is actually declining. Certainly, we are intending to address this and looking forward to the launch of the new device next year to reenergize this family. Finally, looking at Forxiga. As you can see on this graph, very good launch in Germany and the U.K. Certainly, in Germany in particular, very successful launch. Of course, we're now going to have to address the reimbursement challenges that we are facing, in particular in Germany. If I move on to SYMBICORT, the critical product in our respiratory franchise. Sales in the second quarter were up 8% to $842 million.
This performance is actually fueled by the 16% revenue increase in the U.S. market, where SYMBICORT prescriptions were also up 16%, compared to just 2% for the fixed combination market. Really an outstanding result for SYMBICORT in the U.S. marketplace. In the rest of the world, our sales were up 4%. They were up 2% in Europe. We continue to drive a good in-market performance in Japan on the back of the approvals of SYMBICORT and COPD, although this is not reflected in reported sales in the quarter due to partner ordering patterns. If we look at the U.S. market share trend, as I told you a few minutes ago, very nice progress, and you can see here that our share of total prescriptions has grown to 24.1%, and we've reached an all-time high of 30.7% in share of patients new to combination therapy.
It's really an excellent performance. Now, if I move to our second critical priority, which is to achieve scientific leadership, I'll spend the next few minutes outlining the progress we're making on this critical priority. As a reminder, to achieve this, we decided to focus on distinctive science in three core therapy areas: cardiovascular metabolic disease, oncology, and respiratory autoimmune diseases. We are prioritizing and we are accelerating our pipeline, both in our internally sourced projects, but also with business development. We're driving to transform our innovation culture and our model. We have accelerated projects which translates into movements into phase III, which we are announcing for the first half, but there's more to come in the second half. If I look at the recent pipeline news, first of all, as I mentioned earlier, we've resubmitted the NDA for Forxiga in the U.S.
Just before the ASCO, we announced that the first patient has been enrolled in the phase III clinical trial for moxetumomab in the treatment of adult patients with hairy cell leukemia who have not responded to or relapsed after standard therapy. In June, together with our alliance partner, BMS, we announced the top line results for the SAVOR trial. As you know, as I just said a minute ago, we met the primary safety objective, which is really critical because this was an FDA requirement, therefore, we showed no harm. We didn't meet the efficacy objective of superiority, which was a lower probability. We always mention that, of course, it certainly was disappointing to not be able to show superiority in that instance, the results will be presented at the ESC in September. The metreleptin NDA has been accepted in the U.S.
This drug is a treatment for metabolic disorders associated with inherited or acquired lipodystrophy, a rare disease estimated to affect a few thousand people around the world. The disappointment in the quarter was actually the completion of the fostamatinib OSKIRA program. At the end of the day, based on the totality of the results we saw, we made the decision not to proceed with regulatory filings, and we returned the asset to our partner, Rigel. Finally, I'd like to make a note of our growing portfolio of late-stage assets with the acquisitions of Omthera and Pearl, but also the collaboration we just announced yesterday with FibroGen. If I look at our total pipeline, as I said, we have a growing late-stage pipeline. We have now 81 projects in clinical development.
As you can see on the right-hand side of the chart, we now have eight new molecular entities in phase III or in registration. This is the result of moxetumomab phase restart, combined with the additions of EPANOVA for high triglycerides and the Pearl LABA/LAMA combination for COPD. There are five others that still await regulatory approval in one or some other major markets, and those are documented on the bottom right of this chart. During the period, there were five additions to the clinical development pipeline from discovery research. Six projects successfully progressed to their next phase of development alongside the two external additions, and 10 projects were discontinued. In our turn to business development, what I'd like to say here is that we made good progress on the BD front.
These are some of the key transactions we've completed in the last few months, mapped across all three core therapy areas. It's really a key message is all these activities have been focused on the core CRP areas that we announced in March. The other message to you is that there's a good spread between investments in discovery research, just like Moderna or NGM and others, but also investment in later stage or closer to market assets. Which came by the way of the acquisition of Omthera and Pearl Therapeutics . Again, yesterday, the announcement that we will collaborate with FibroGen for the development of FG-4592 for anemia associated with chronic kidney disease and end-stage renal disease. We made some progress with our Cambridge site.
You know that the biggest piece of news in the quarter for us was in term of long-term applications for transforming our innovation culture, is our decision to locate our new U.K.-based global R&D headquarters center on the Cambridge Biomedical Campus. This is really a very exciting development for us or AstraZeneca. It's a very vibrant hub for biomedical innovation, sorry. It's home to some of the leading academic institution research units in the world. You can see here on this map, the University of Cambridge, of course, with the School of Clinical Medicine, but also the Addenbrooke's Hospital and the future Papworth Hospital that will be built just next door to where we will build our head office. The MRC Laboratory of Molecular Biology, the LMB, the MRC Institute of Metabolic Science, and also the Cancer Research UK Cambridge Institute.
We're really very excited to be at the heart of science and be close to such a number of prestigious institutions. In July, we announced a 2-year collaboration on three preclinical and clinical oncology projects with the University of Cambridge and Cancer Research UK. This is the first of what we envision will be numerous opportunities for collaborations with all of these world-class centers that will be our new neighbors. I'm going to stop here and I'm going to turn over to Simon, who will take you through the second quarter financial performance. After which we will hold a Q&A session, and Simon, Briggs and Marc will join us to address your questions. Thank you.
Thank you, Pascal, and good afternoon or good morning to everyone on the call. I'm going to cover the second quarter P&L. I'll briefly touch on our restructuring program. I'll cover the cash performance and the first interim dividend. Finally, I'm going to close with our thoughts on guidance for the full year. I'm going to now turn to the second quarter P&L. I'm going to focus here on core margins and profit. The press release does, of course, contain all the statutory numbers and a detailed reconciliation to our core measures. As with sales, when I refer to growth rates, they will all be on a constant currency basis. Pascal has already covered the revenue performance, which as you saw, was down 4% to $6.2 billion. Core gross margin in the quarter was 82.3% of sales.
That's up 110 basis points compared with the second quarter last year. Core gross margin benefited from lower Core Merck expense related to the second option amendments that we implemented in the middle of last year. With the full year results, I mentioned that we would expect core gross margin this year to be below the level achieved in 2012. That, as you recall, was 82.4%, and that remains our view going forward. Core SG&A expense was up 6% in the quarter. It was down 2% in the first quarter, which I flagged then as largely due to phasing. Core SG&A expense for the first half is up 2%. Investments in support of our growth platforms, particularly in emerging markets, Brilinta and the diabetes franchise, were only partially offset by benefits from restructuring and tight spending discipline in support of mature brands and in developed markets. Core other income of $218 million was 19% higher than last year, and that included an increase in our Pulmicort Respules royalty income.
That leads to a core pre-R&D operating margin of 49.7% of revenue, 160 basis points lower than last year, as the benefit from the higher core gross margin and core other income was offset by the higher core SG&A expense as a percentage of revenue. Core R&D investment in the quarter was $1.040 billion. That's 1% higher than last year, and also a step up from the first quarter 2013. The second quarter was impacted by incurring some closed down costs related to the fostamatinib program. We continue to realize savings from our restructuring programs, but the step up in business development activity is starting to exert an upward tension on core R&D expenses as we look into the second half.
You'll recall that we've previously guided to core operating costs. That's combined core SG&A and core R&D costs being held to a slight increase in 2013 in constant currency terms. With the investments that we're making behind our growth platforms and the larger project volume that we now have in research and development, we anticipate for the full year a low to mid-single digit increase in core operating costs compared with 2012 on a constant currency basis. Core operating profit was just under $2.1 billion in the quarter, 10% lower than last year. Core operating margin was 33% of revenue, 2.3 percentage points lower than last year. Just a brief word on restructuring. On this slide, you can see the scope of what we're now referring to as phase 4 of our restructuring program.
This combines the initiatives newly announced in March of this year, together with the actions that remained to be implemented from the phase 3 program that we announced back in February of 2012. The total program costs are estimated to be $2.3 billion. As you can see here, we have charged $308 million to the P&L in the second quarter. Turning to cash. Cash generated from operating activities was $3.8 billion for the first half, compared with $2.8 billion last year. Lower tax and lower interest payments partially offset the lower operating profit in the first half of 2013, which included some higher non-cash costs, whilst a lump sum pension contribution drove higher cash outflows in the prior year. Cash outlay on acquisitions of business operations was $565 million, with other net investment of $762 million, and that includes investments in our IT and in the Merck arrangements.
The board has recommended a first interim dividend of $0.90. This amount is a reflection of the board's aim of setting the first interim dividend at around one-third of the prior year full dividend, which last year was $2.80. We remain committed to our progressive dividend policy, by which we aim to maintain or grow the dividend each year. Our target for dividend cover is two times core earnings over the entirety of the investment cycle. When the board adopted the progressive dividend policy, it recognized that some earnings fluctuations are to be expected as the company transitions through this period of exclusivity losses and new product launches. Board's view is that the annual dividend will not just reflect the financial performance of a single year, taken in isolation, but reflect its view of the earnings prospects for the group over the entirety of the investment cycle.
Likewise, it recognizes that dividend cover in any year is likely to vary from the two times cover target. Moving to guidance. As we expected, the impact from the loss of exclusivity for several brands affected performance in the first quarter. While this impact will be felt throughout the year, comparison with prior year periods did moderate in the second quarter, a reflection that the 12-month anniversaries for generic competition for Seroquel IR in many markets, and for Crestor in Canada, have been reached. While the revenue increase seen in Japan and in emerging markets in the quarter is a reflection of good growth in underlying demand, it is also somewhat flattered by soft comparisons with the second quarter last year, in particular, the destocking of Nexium in Japan and the impact of supply chain constraints in emerging markets.
Our revenue outlook for the full year is unchanged. We continue to anticipate a mid-to-high single-digit decline in revenue on a constant currency basis. Productivity and efficiency programs will continue to deliver their target level of savings, providing us with the headroom to invest behind our key growth platforms and progress the pipeline. Core operating costs, combining core R&D and SG&A expense in the first quarter, you'll recall, were 4% lower than last year. As I said at the time, this was largely a matter of phasing. Core operating costs were up 5% in the second quarter, resulting in core operating costs broadly flat for the half year. As I mentioned earlier, we continue to drive investments behind our growth platforms. The influx of projects acquired through business development is exerting an upward tension on core R&D expenses in the second half.
For the full year, we now anticipate a low-to-mid single-digit increase in core operating costs compared with 2012 on a constant currency basis. With the revenue and cost profile in line with this guidance, the company continues to expect core EPS to decline at a rate that is significantly higher than the revenue decline in 2013. Now, financial guidance for 2013 has been based on January 2013 average exchange rates for our principal currencies. While our first quarter results were broadly in line with this currency assumption, movements versus guidance rates lowered core earnings per share in the second quarter by around 2% and may continue to impact core EPS for the second half of the year if rates remain where they are. With that, let me now hand back to Pascal, who will chair the Q&A session.
Thank you very much, Simon. I'll now invite you to ask your questions, and maybe I could ask Tim Anderson from Sanford Bernstein to ask his question. Tim, over to you.
Thank you very much. I have a few questions, a modeling question to start with. In our forecast, at least as your company moves into 2014, we have SG&A and R&D declining year-on-year. Your new guidance for 2013 raises the possibility that operational spending could actually increase in 2014. I know you probably won't want to comment on 2014, directionally, maybe you can say whether this line of thinking is correct. A second question is on M&A. I know you kind of talked about this subject back in March, can you refresh us on the upper limit of deal sizes you're considering? I've been under the impression that they're mostly bolt-on types of arrangements. Is that still the plan going forward?
Last question is, I'm wondering if you would be willing to say what the trough year for earnings for AstraZeneca is likely to be. Some analyst models show it happening in 2017. Some show it happening in 2019. I'm wondering if it could really be that far away.
Okay, Tim, thank you for those three questions. I'll ask Simon to address the first one, and maybe you could also address the trough year question, Simon, if you don't mind.
Yeah. No, certainly, Tim. Thanks very much for the question. I think, firstly, in terms of operating costs, as I mentioned, we have a significant restructuring program underway. I sort of dimensioned that for you earlier. That program continues. It's very much on track, and it's going to deliver reductions in our cost base and improvements in the flexibility of our cost base. In addition to that, we have a wide-ranging series of productivity improvement programs underway across the business. Again, we'll improve our efficiency and give us the headroom to invest. We do see significant opportunities for continued growth behind our growth platforms. I indicated that we're going to sustain that investment where we can see that it drives long-term value and growth. That's behind particularly sales and marketing costs.
Predominantly, Tim, there's some increase in field sales and some selling resources, but there's also a significant investment in variable promotional and KOL support, medical spend as well. There's a high degree of flexibility behind that investment, and we're putting in a targeted way during the course of this year. In addition to that, we've obviously brought in a number of late-stage and later-stage assets this year, which, as I said, do bring some upward tension on our late-stage development budget. Of course, we've also, as Pascal described, had one or two progressions into late-stage development, and we hope to see some further late-stage progressions during the course of this year. We do see increased investment opportunity this year, which is why we've moved our guidance in 2013.
As we look into 2014, as you'd expect, we'll update you with our full-year results as we've shaped up our plans for 2014. What I would say, I think, is to reiterate the guidance we provided back at our investor day, which is we will continue to maintain our pre-R&D margins in the 48%-52% range, and we very much see our R&D investment level as remaining broadly flat through this period. You'll recall Briggs sort of laid that out back at the investor day. That's a view on costs for you, Tim. Moving to your second question, which was on the, I think, the year in which we expect sort of earnings to reach a trough.
Tim, I'm going to sort of reiterate the sort of remarks I made again when we were all together in New York, which is we've got a strong, stable base of revenue from established products from our respiratory franchise and from biologics products. We've got known and certain expirations of products coming off patent, of which NEXIUM in the U.S. in 2014 and then CRESTOR in 2016 and 2017 are clearly the most significant. What happens on the top line is all about what we do in terms of driving the growth platforms and exactly where the earnings trough out is going to be a function of the success in driving those growth platforms and the market opportunity presents with. I think you can see from our actions this half, we are intent on investing behind those opportunities where we see them.
Exactly which 12-month window that sort of trough appears, we're not going to specify. Not sure that's helpful to specify. Certainly, that's not a key metric for management as we drive forward. Pascal, over to you for the other question.
Thanks, Simon. That's very clear. Tim, just to repeat again what Simon said is that our guidance for 2014 will precise it early next year. What we said in March remains correct. We will keep targeting the pre-R&D margin that Simon described for you, and we will keep targeting an R&D budget that is broadly flat. That's what we said in March, and it remains valid. As far as M&A, what we said before is also still valid. I think what we said was that we don't see the need for a large acquisition for us to succeed. We believe we can actually succeed through acceleration of some of our pipeline, reshaping of our internal project pipeline, accelerated business development, what you called these bolt-on acquisitions or collaborations. Some of those you've seen in the last few months, and we'll keep doing this.
This is really our base plan, is get the best out of our own portfolio, complement this with business and business development activities, and we believe we can actually succeed with that approach. That doesn't mean we'll not consider a larger acquisition. We'll only consider this if we think we can add value. If you look at all the business development initiatives we've launched in the last few months, those are projects where we think we can add value. We can add values in the way we develop those products, in the way we commercialize them, and we will keep doing this.
If we find an acquisition of a larger size where we believe we can add value one way or another, whether it's geographically driven or because of our capabilities, we'll do that. It is not our base plan. The base plan is really our internal pipeline and business development activities.
Got you.
Maybe I could ask Andrew Baum from Citi. Andrew, if you want to ask your question?
Morning. couple of questions. First, you've clearly got a very large, 60,000-odd patient trial population ongoing for Brilinta. Could you remind us how many years patent term extension you think Brilinta is eligible for? Just thinking about the period of economic return for that drug, given the investment taking place. Second, on SAVOR. Are there any circumstances that you feel the disclosure from that trial could be used to actually constrain class and ONGLYZA growth, given the pressure, particularly in Europe, from payers? Finally, on tremelimumab, could you comment whether you would consider licensing the compound to be co-developed with another PD-1 aside from your own? Finally, just on the outlook for SYMBICORT in the U.S. and in Europe, given the impending launch of Breo, to what extent can you anticipate the impact on volumes and pricing as GSK increase their effort and those new differentiated compounds?
How will that impact SYMBICORT over the near term? Thank you.
Thanks, Andrew. Maybe what I could do is ask Briggs, do you want to comment on SAVOR and say a few words on tremelimumab? The one thing I could do as far as TREME is tell you that we're certainly always open to collaborations with other companies in terms of combinations. We believe TREME has potential for combinations with a variety of products, in particular for sure, PD-L1 or PD-1. We certainly would not license this product out. We'd combine it. If you want to say a few words on TREME, Briggs, and SAVOR as well.
Yeah. Andrew, let me just finish off Pascal's comments on TREME. We think TREME is a very important part of our portfolio. We were not interested in licensing it out. We were quite interested in licensing it in, actually. In combination with other things in our portfolio, we think it's quite important. As Pascal said, we have entertained and will continue to entertain overtures from others who want to partner with us. In terms of SAVOR, as Pascal said, the full results will be presented at ESC at the end of August, beginning of September. You can imagine from a 16,000-patient trial, we've generated, we think, the largest data set now on DPP4 inhibitors and are able to answer many of the questions that have been raised around this class. We think that the ESC presentation will provide quite a bit of information.
I think that your question was, do we believe there's anything in there that would in any way dampen the enthusiasm for the class as a whole. Until you see all of the data, I don't know it's fair to have that conversation. We can talk about that once we've all had a chance to review the totality of the information.
Thank you, Briggs. Let me just cover the other two questions. I think one was Brilinta, and the patents, the expiries, they range from 2018 to 2019 in Europe and up to 2021 in the U.S. We have filed for extensions. We don't have a time yet in terms of the approval of those extensions, but the extensions would extend the patent life, patent protection to 2023 and beyond in the various geographies. We still have quite a number of years in front of us to gain a return out of this product. As far as Breo, we certainly expect some impact of this class on Symbicort, but in the short term, we don't expect that there would be a very substantial impact because Symbicort is used for different type of patients who have a more advanced, say, form of the disease.
Our assumption at this point is that Breo and other similar products will Sorry, actually, Andrew, I thought you were talking about LABA/LAMA. You're talking about Breo, the new combination product. I've got to start again. Breo, essentially the expectation is that we will have an impact there for that one. The pricing, I would imagine, will be in the same range as Symbicort would be. It will be competing with Symbicort, but it will also be competing with Advair. We have to see what they actually are able to do, for instance, in the U.S. The launch has been delayed, as you know. We'll have to see what kind of access this product can achieve. There'll be pricing competition. We don't believe that it will impact Symbicort so much, but there will be, of course, volume competition there.
As far as the LABA/LAMA competition, that's more distant, and as we've talked about before, we believe that the impact on Symbicort will be progressive, but over time, it certainly will impact it, which is why we decided to proceed with this product acquisition so that we could actually be present in this market. I might actually ask Peter Verdult from Morgan Stanley to ask your question, Peter.
Yeah, thanks, Pascal. Good afternoon, everyone. Just a few for you, actually. Two product, one strategic. It's been reported that you are considering exploring some sort of biosimilar strategy. The simple question from me is how does that jive with your views on biosimilars when you were at Roche, and the overall commitment at Astra to be focused on innovation? Then the two product questions. If we take the Brilinta run rate now, it's less than GBP 300 million. I'm assuming the investment you're making behind the product is multiples above this. Are you willing to sustain this level of investment until we see the data from PEGASUS, which I believe is end of 2014, or is there a plan B for Brilinta?
Then on diabetes, competitive landscape heating up, can you shed some light on what you're doing and any incremental investment you're having to make on the sales force to maintain your share of voice? Thanks.
Thanks, Peter. As far as Brilinta, our investment is indeed substantial. I will basically repeat what we said earlier, which is we are going to invest very substantially this year to drive the penetration of this product. We will actually look at how we're progressing early next year. We always said we have to wait till the last quarter of this year, and therefore we look at it at the end of the year or early next year, and we decide what we do. If we were not on track with our plan, we suddenly would have to revisit what we do. We can't wait until 2015 to adjust our investment if sales don't come through. So far, I have to say, we are on a good track.
I think the problem is that everybody has to realize that there's a big pool of prescriptions, of course, for APs. First of all, that big pool covers a variety of indications. We only have access to one indication to the ACS. That's the first point. The second point is that the big pool of total prescriptions is filled by new prescriptions, and the only access we have is to these new prescriptions, new patients. We get those new patients, and then, of course, we lose prescriptions when patients are discharged. Many of the things we do are targeted at, of course, increasing our share of new prescriptions, but also retaining patients when they leave the hospital, which the last part of our plan, as you know, was to put in place 200 critical care nurses in the U.S.
I think it's important to remember when you look at the progression of the product, to remember that we only gain access to new prescriptions in one indication. So far, what we see is we're on track. Of course, you always would want to progress faster, personally, I think we are on track. We'll look at it at the end of the year, and if we can't justify the investment, we will have to adjust it, of course. As far as biosimilars, I can only repeat also there what we've said before. What we've said is our strategy is focused on innovation. I will not comment on the market rumors, as you can imagine. We've also said in March that we would look at whether some of the capabilities we have in particular at MedImmune could be leveraged in the biologic field.
That means biosimilar could also mean biosuperior products that are differentiated, and that's what we're looking at. We haven't really concluded yet what we will do. Certainly, our focus remains innovation. You have various degrees of innovation. You have the breakthrough innovation of a new molecular entity that really transform a disease treatment, and you have the innovation of an incremental benefit that you bring to an existing product. That's really what we're looking at. We remain true to our focus on innovation. As far as biosimilars themselves, I can only tell you what I've said in the past, which I would add has actually come true, really, which was that the biosimilars will make it one day, but it is proving more challenging than many people thought three years ago.
It doesn't mean the biosimilars will never make it to the market. At some point they will. It's just taking more time than many people thought. The last question you asked, Peter, was about diabetes. I have to say, suddenly our performance as far as diabetes is concerned is not what we would like to see. We have to address some of the challenges we're facing in the U.S. in particular, and we're doing this. We're planning to increase our diabetes investment in the U.S. In fact, we've already done that in discussion with our partner, BMS. I think you heard the same message from Lamberto from BMS last week during their call. We're very committed. It is a very competitive market. You know very well that we're competing with big companies that have large resources, strong presence, and they're investing heavily.
We certainly committed to compete at the right level, in the U.S. in particular. Everywhere, but very much in the U.S. I'd just like to repeat that starting early July, we have the level of investment that is actually required to be competitive. We lost share of voice for a period of time, that's for sure. We've corrected this. In the end, you have to look at this from a long-term viewpoint. Diabetes remains a great long-term opportunity, even though we have to accept it will be challenged here and there from a pricing viewpoint, possibly in Europe, from a competitive viewpoint. There are lots of patients, a growing market, and we remain committed.
Thanks.
Let me now move to James Gordon at JPMorgan.
Hello. Thanks for taking my question. I just had a question on the pipeline on the FibroGen deal. I'm aware that FG-4592, there's been a previous clinical hold for hepatitis. I know Takeda's Omontys also ended up getting withdrawn from the market, and in that case, it was due to a worse adverse event profile than EPO. In the two different indications you're going for, the pre-dialysis and post-dialysis, how competitive does this look in terms of the pre-dialysis? Could safety be an issue? For patients who are on dialysis, what's the real advantage of having an oral product if patients are already getting dialysis?
Thanks, James. Great question. Can I ask, Briggs, do you want to address it?
Yeah, let me talk specifically about the molecule that we're partnering with FibroGen on. There was an earlier molecule they had that had an LFT issue. This molecule, in our review of the safety data and the trials they've done to date, actually looks quite clean to us so far. Just going into phase III, more data will come out. From what we've seen so far, we think the molecule's clean. The question about the use in both dialysis and pre-dialysis. Clearly in the chronic kidney disease patients, having something that's not parenterally administered, we think provides an important advantage to physicians. In the dialysis segment, I think the safety questions around ESAs opens up an opportunity for new mechanisms. Again, this mechanism keeps your EPO levels almost at physiologic ranges, which we think potentially could provide a safety advantage.
I'll let Pascal others comment on the market. From a medical and scientific point of view, I think there are theoretic advantages to this mechanism over parenterally administered ESAs.
Marc, do you want to add a few comments on this and the market circumstances as well?
Basically, the pre-dialysis market will, if we succeed in our development program, be about two-thirds, and the dialysis market will be about one-third. This is basically a different territory from the erythropoietins.
You have a large number of patients in pre-dialysis who have anemia and should be treated but are not treated because EPO is not necessarily the best response for this. There's a substantial opportunity there. In dialysis, of course, it will be different, and EPO will still play a big role in the future, even though you could also make an argument that if a patient has started on an oral agent when they get to dialysis, they might stay on it. Really, the core of this program would be pre-dialysis. Should I now move to Keyur Parekh at Goldman Sachs? Keyur, do you want to ask your question?
I have three, if I may. One, just a quick R&D question. I believe, my understanding is when you bought tremelimumab from Pfizer, they did retain the rights to combination therapies. I was just wondering if you would be able to confirm that, and if that is indeed the case, do they retain rights to all combination therapies or only combination therapies that are with other Pfizer compounds? Second, again, on the immunotherapy side, recent updates on clinicaltrials.gov seem to suggest that all of your trials for the OX40 are either suspended or on hold. I was wondering if you might be able to confirm that and confirm that you haven't seen any new safety signals there. Third question, on the SG&A level, I realize that you're guiding to a 48%-52% pre-R&D margin for next year.
If you were to think about it in absolute dollar senses, can you help us think about cost that you are incurring this year that you may be able to roll off next year? Because if I'm hearing you correctly, Pascal, you're kind of investing more behind Brilinta, you're investing more behind diabetes starting July. Kind of should absolute levels of cost be same or higher than this year? Thank you.
Thanks, Keyur. Can I start maybe with the SG&A level questions? Simon, do you want to address that one?
Yes, certainly. Keyur, as I mentioned, through a combination of restructuring, productivity improvements, efficiency care, we are continuing to reduce the fixed cost base. Fully numbers, physical infrastructure, the fixed cost base, across SG&A, particularly in the established markets and also in R&D. That's a trend that will continue on, beyond 2013 and into 2014 and 2015 as our productivity restructuring programs progress. Therefore an increasing proportion of our cost base is pretty variable. What do I mean by that? I mean, promotional spend. I mean, external clinical project spend. Also, in fact, we can move up and down field sales resource in a pretty flexible variable way. The increase this year, relative to our expectations at the beginning of the year is coming, as I said, from field selling activity, promotional spend, and external clinical project spend.
As we roll into 2014, in the same way that we have the flexibility to lift up our investment where we see good opportunity, in that same way, we've got the ability to dial it down, where we see opportunity diminish or indeed maintain if we see the opportunity there. It's a very flexible cost base. I'm not going to, on this call, look into 2014 and tell you exactly what the run rates are going to be. We'll be doing that at the full year results in January. I think what I can leave you with is that the cost base is flexible and variable, and we can dial it down or dial it up depending upon the opportunity within that overall frame of goals for our pre-R&D margin. Pascal, back to you.
Thanks, Simon. In terms of your other two questions, Keyur, the combination CRP rights, we have to ourselves, basically, this was a full acquisition. Having said that, indeed, if Pfizer or any other company had a good combination proposal for us to propose, and we're in discussion with other companies, we would certainly consider it, but it's a full acquisition, full rights for Treme. The other one is, I hope I understood your question. If I understood it correctly with regards to moxetumomab, and it's actually not on hold, it's in phase III. Unless your question was about OX40. Yeah, it was OX40.
It was about the OX40.
Okay. Essentially what we're doing here with OX40 is we're bringing a humanized version of OX40.
Yeah, the current OX40 is not on clinical to my knowledge, Keyur. Or we have some drug supply issues that are delaying the progression of the program.
Yeah
Not a safety hold.
Because we're developing this humanized product, we've had delays in supply, and therefore the clinical trials are not started yet. There's no clinical hold. We'll double-check this. Briggs, maybe we could double-check this and get back to you if what we tell you is not correct, but to my understanding, there's no clinical hold.
Okay.
There's an email question from Mariella Nastri. The question is, "What is your target for Brilinta in the U.S. in terms of the total market share?" I don't know how to answer this one because as you know, we don't give specific guidance. I can only tell you as high as possible. I don't know that would satisfy you. We typically don't give targets. If we gave you a target for our share in prescription, it would be giving you a target for Brilinta sales. I'm really sorry, I can't really be specific. For that one, the only thing I can remind you is that we only compete at this point, as you know, in the ACS segment, and the ACS segment represents 20% of the total volume. We only have access to 20% of the total volume.
That's as much as I can tell you. Maybe I could move on to Kerry Holford at Credit Suisse. Kerry, do you want to go ahead?
Thank you. Yes, three questions, please. Firstly, just quickly going back to operating costs. You talked a lot about SG&A, and clearly it was higher than we had anticipated in Q2, and you've talked about that being part of the reason for higher cost guidance for the full year. I guess I'm just interested to understand which of your franchises now require more promotional effort than you thought they would do, say, three to six months ago. Sorry, you've touched briefly on diabetes, but I wonder where the surprise has come for you. Secondly, on SYMBICORT in the U.S., the sales are up in line with prescription growth, suggesting no benefit from price and mix, and I know that you've got at least a benefit from a list price perspective year-on-year.
Does that reflect increased rebate pressure or are there stocking issues that we should be aware of there? Finally, on the Pearl acquisition, just interested in hearing your thoughts on the competitive positioning of the lead product there, the twice daily LABA/LAMA, which looks set at least currently to be fourth to market. Also whether you can confirm whether the MABA compound has started phase II with you yet, and when we might expect to see that data.
Quite a number of questions, Kerry. Let me maybe start with a couple of comments on operating costs, and Simon will also add a few comments in a minute, and then also comment on Pearl operating costs. I would say the only place where we really can say, surprised may not be the right word, but where, let's say, the landscape has changed compared to what we had in mind late last year when we designed our plans, is really diabetes. Brilinta is on track with what we had in mind. Diabetes, suddenly the promotional pressure has increased, and the market growth is a little bit slower than most people, I guess our peers and us, we expected. The promotional spend has increased.
Essentially, the delay in the approval of degludec led clearly Novo to relocate those promotional resources to their product, therefore increase the competition, increase the promotional pressure there. The same increase in promotion behind JANUVIA was applied by Merck. We've seen increased promotion coming from Merck and also from Novo. Therefore, this is probably the place where we could say we have seen a little bit of a difference, Simon will add more on that in a minute. Pearl, the biggest differentiation here for us will be that in the U.S. marketplace, this will be the only pMDI available. In every country where you go, you see that patients, in fact, some patients prefer MDIs, others prefer DPI, ideally you'd have both. In the U.S. marketplace, essentially having the only MDI launch, the pMDI launch, would be a critical differentiation.
We also accept the fact that this is going to be very competitive. The reason we went forward with this product is to maintain our presence in the field. SYMBICORT is a critical franchise for us. We believed we needed to be present in that LABA/LAMA market segment, that's why we acquired Pearl. As I said, we realize it's going to be very competitive. Briggs, do you want to add anything on the LABA? First, maybe Simon on the increased cost.
I think, Kerry, the question you raised on costs around where are the differences versus our expectations at the beginning of the year, any surprises. I think Pascal mentioned probably the most individually significant, which is that we have seen an increased promotional cost across diabetes, we're intending to respond to that and match in order to realize the full potential of our brands. I would say that we have a continual process of looking at the momentum in our different markets, developments in our markets, making decisions about where we lift investment, where there's a good opportunity. We've put more resources into some of our emerging markets. You saw China performing very strongly, where we ensure that we adequately resource that market and one or two other emerging markets.
We've seen some positive developments in Japan, for example, strong growth in NEXIUM, our other two primary care brands, SYMBICORT and CRESTOR, at the same time, an opportunity to launch FORXIGA, if we're successful with our filing there alongside the exenatide product. We're wanting to put a bit more resource behind those opportunities in Japan. SYMBICORT's performing well, we dialed up a bit of promotional effort in certain markets with SYMBICORT. I think those are all areas that we've taken some increase. It's fair to say there also are areas where we've taken some cost away because we've seen markets being less promotionally responsive. As I've stressed throughout, these are investments we're making that we will dial up or dial down as the opportunities move. The other area perhaps we've not focused on as much as SG&A is R&D.
We've spent a bit of time talking about SG&A. You've seen, and this is another important factor behind our views on costs, we've taken on board a series of late-stage projects. Briggs is bringing those into his development programs and the team there. As we look into 2014, we'll seek to really prioritize our portfolio and spend. Clearly in the 6-month timeframe, that's going to give us some upward tension. That's on the costs. May I just, Pascal Soriot, just very quickly, there was a question on SYMBICORT, I think a question around the underlying drivers of the SYMBICORT U.S. revenue, which was up 16% in the quarter. Prescriptions overall were up 16%. There was a very small de-stocking effect, but really not material for the quarter.
In terms of pricing, we did have the benefit of some mix effects from some good volume growth in some non-retail channels. Essentially the story for SYMBICORT is strong underlying growth in market share in a market that continues to show a little bit of growth as well.
Thanks, Simon. Yeah. Again, we dialed up and down the investment behind various products throughout the year, China was a big one. The biggest one really at the end of the day is, nobody expected degludec to not be approved, I'm sure Novo expected it to be approved and launch it. When it didn't get approved, Victoza ended up being promoted by the sales force that was ready to launch degludec. It created a substantial increase in promotion, which we ended up having to match, we are now matching. Suddenly, that was not in the plans. Do you want to cover the MABA question?
Sure. The MABA's in phase II. I can't say exactly when we'll be presenting data at scientific meetings. I would anticipate it probably wouldn't be until at least the beginning of next year.
Phase II started, you say?
Yes.
Should I ask Jayesh, do you want to ask your question? Jayesh Manek? He canceled his question, so we may have addressed it. Sachin Jain at Bank of America. Sachin, do you want to go ahead?
Hi. Thanks very much. 3 product questions if I could. Firstly, on Brilinta, the new-to-brand chart for the U.S. that you have is now a share chart, not absolute scripts. Firstly, could you comment on absolute trends recently, which I think have been flat? Secondly, with the new-to-brand market in the U.S., I think the overall market has been declining. Any particular reasons for that, and would you expect that to continue? Secondly, on ONGLYZA, as you look to increase SG&A, could you comment where your focus is there? The reason for the question is I think Merck is flagging market growth and chasing the SUs. I think Lilly's commentary was more focused on share gains as their commercial access improves. Just where is your focus? A final pipeline question.
benralizumab, I think you'd flagged at the March investor day potential for phase II-B data in asthma in the first half. Just wondering whether that data was in-house and whether we could see that at ERS. Thank you very much.
Thanks, Sachin. Briggs, do you want to take the benra question?
The phase II-B data for benra is in-house, I'm pretty sure that it will be presented at ERS. I don't know for certain, but I think. No? What I can say is I've seen it, and we're just as bullish on the molecule as we were when we talked to you guys in March.
We'll get back to you as to when it's going to be presented, as soon as we know, to be honest, but I can't remember. We've seen the data, and as Briggs said, we are very confident in the data we saw in asthma.
Next year at ATS.
Okay, we have the answer. Next year at ATS. The second question you ask, Sachin, relates to Brilinta, the share is increasing. You're right to say that in the last few weeks, the volume has been flattish because the market is actually impacted. The total market is down. Of course, the total market, I think you've got to look at it on a long-term trend basis, not week-to-week basis. We've had a few weeks of flattish volume growth. I focus on the market share and influencing that because that's really where we have the biggest progression we can make. We've looked at it. We have no specific reason why the market would be flattish to down in the U.S., but it is true that the total ACS volume has been relatively flat. The market share, again, still is going up.
As far as Onglyza, the primary focus is really access, making sure that we restore good access for this product, we regain some of the access that has been challenged, has been difficult for us, of course, growing our market share. Those are the two focus areas. To grow our share, we have basically increased our promotional effort. In particular, our sales force deployment has gone to Onglyza on the one hand and BYDUREON on the other hand, we have now new sales force deployment from late June, early July in place. We should see the impact of these changes in the next few months. In fact, in July, we already had a slight impact on the market share of Onglyza, as we could see. It's not only stabilized, but we saw a slight pickup.
Very early days to say, but certainly, sales force investment and access are the two priorities.
Can I take a quick follow-on, sorry, just on Brilinta. When you say your focus is share, when we think about your reflection comments and assessing the product at the end of this year, early next year, it's fair to think that you'd be looking for an inflection of volume, not just share relative to whatever the market's doing.
Well, it's actually both. The thing is that the total market is really not something we can influence a lot. First of all, just to repeat, we only access 20% of the total volume. There's not much we can do to influence the entire class, the entire OAP market. There are so many other indications that we don't have yet that we cannot say a word about, we can't influence the total market. Our real focus is growing our share in ACS and certainly growing that ACS segment from a volume viewpoint, but the priority is the market share. Now, of course, if we had good share progression at the end of the year and the market was completely declining and our sales, as a result, were flattish or suddenly not growing, we would have to revisit the level of investment.
I would not try to conclude anything out of three weeks of flattish volume in the market. I've been around long enough and worked in the U.S. long enough to learn to not overreact to three weeks of data points. As long as your market share goes in the right direction, I think for a new product like this one, you stick to what you're doing. Now, of course, we'll have to monitor this over the next few months. That's the best I can tell you at this point.
Okay. Thank you very much.
Let me just move on to Mathias Blom at Danske Bank. Mathias, do you want to ask your question?
Thanks so much. Given that there are a number of omega-3 assets out there in various stages of development, I'd be interested to hear why Omthera, as some would argue that there are other compositions superior to theirs. Secondly, when could, theoretically, a once-daily fixed dose combination of CRESTOR and EPANOVA beyond the U.S. market? Lastly, you've done a number of deals in cardiovascular and in respiratory, but no late to mid-stage in oncology, an area you've emphasized repeatedly that you want to rejuvenate. Is it fair to assume that upcoming business development deals should have a higher proportion of oncology deals going forward, or has something changed?
Thanks, Mathias. Great question. Your first question is sort of answered by your second question, in fact, is that the combination of CRESTOR with EPANOVA is a very attractive aspect of this acquisition. EPANOVA is a once daily omega-3 that is therefore easy to combine with the once daily CRESTOR. Clearly, our focus is on developing a fixed combination of EPANOVA and CRESTOR. I don't think we have communicated a date, or have we, a date for a fixed combination. I think at some point in time, we'll communicate dates, but I can tell you this was, of course, a critical part of this acquisition to have a fixed combo on the market as quickly as possible.
It's actually part of the deal construct. Our goal, as you can imagine, is to get that fixed combo in the marketplace before the patent expiry of CRESTOR in the U.S. With that, I guess you can get a sense for when we'd expect to introduce it. The second question as far as deal, I think just a couple of points here. One is we said we would focus on oncology, respiratory, and cardiovascular metabolism. That's what we're doing. Having said that, basically, we focus on acquisitions where we believe we can add value, as I said before. You have to find those opportunities, and you have to convince yourself you can add value. Certainly, we're looking at oncology, but we'll only do acquisitions or business development if we can add value to those.
The second comment I would like to make is that the way we will build our pipeline is not only through business development, is also through our internal pipeline. We've moved or we're moving olaparib in phase III. We've moved moxetumomab in phase III. Admittedly, it's a smaller opportunity. Olaparib, we believe, is a larger opportunity. We're moving selumetinib in phase III. We have immunotherapies which we have presented to you in March, which we believe have the potential to move into phase III relatively rapidly. Over the next, say, year or so, you should see a very different late-stage oncology pipeline at AstraZeneca, very much through the progression of our internal pipeline. Again, we'll keep looking for acquisitions. We just have to find acquisitions that make sense and we think we can add value.
The internal pipeline is certainly in oncology, stronger than it is in cardiovascular metabolism. I think we will see a very strong pipeline just based on what we have in our hands.
Thanks so much.
Anything, Briggs, you would want to add or Matt?
No, I agree entirely. Again, we did emphasize in March that when you looked at our pipeline, what was missing was cardiovascular metabolic. We've put a lot of emphasis on trying to fill that hole. The phase I and phase II with our own products in oncology is actually a much stronger part of our portfolio.
Thanks. Let me move on to Lars Evrang at ABG Sundal Collier. Lars, do you want to go ahead?
Yes, thanks. Can you say anything about the size of the phase III programs that you're now targeting, both for the omega-3 tablet, but maybe also for the Pearl development? I guess it's not only the double-acting product, but also the triple acting. If you could shed some light there on the magnitude of trials that you will now undertake.
Yeah, great question, Lars. Briggs, do you want to take that on? The Pearl program, really the focus would have to be on the LABA/LAMA because the triple combination is a little bit further away. Before it impacts us from a cost viewpoint, it will be a little bit of time. Certainly in the short term, it's the dual combination and the omega-3 programs.
Yeah. The dual combination LABA/LAMA, I would say is sort of ballpark comparable to what a big phase III program would be on the order of 2,000 or 3,000 patients. The triple therapy is a little further behind, so we don't really have the sizing of that yet. Omthera, as you know, they've done a fabulous job, and they've already filed for their high triglyceride indication in the U.S. The big next piece of investment there is both the CRESTOR fixed dose combination and, of course, the outcomes trial. The outcomes trial for Omthera, given what they've told us and the work we've been doing with them, looks like that'll get underway this year.
Over the next period, that's another cardiovascular outcomes trial type expense that is similar to what we've seen in many of the other cardiovascular outcomes trials we've done over the past couple of years, and we have ongoing.
Thanks, Briggs. We have an email question from Christopher Lyrhem from Carnegie. The question is, given the projection of a higher operating cost for this year, how should we think about cost going forward? Can you compensate an underlying expansion by the savings from restructuring in the past year, sorry, or are you entering a period of forced increased operating costs? Simon, do you want to take this one?
No, certainly, Christopher. Thanks for the question. We've responded to a number of questions along this theme on the call. I think two or three points. Firstly, we have a restructuring and productivity improvement program underway, and that will deliver significant benefits, and we're always looking to identify opportunities to find further sort of underlying efficiencies in our business. That will continue. I think we drive that, Christopher, somewhat independent of where we see short-term investment opportunities. That's about creating a very efficient and flexible cost base for the long term.
Secondly, as we look at opportunities and imperatives to invest behind our growth platforms and in late-stage development, of course, there's another side of that, which is we're also looking at where can we deprioritize investment of resource, which has not delivered a sufficient return or where we can sustain the same level of sales activity with a lower level of resource. We will continue to seek out those opportunities. Yes, that provides an opportunity over a period to, if you like, recycle or reallocate resource from one area into another. We will actively and always are looking at those opportunities. Just the third thing is I've, again, stressed on the call, the investment we're making, the step-up in cost is predominantly of a variable nature.
We will invest where we see the opportunity, equally, we've got the ability to dial it up or dial it down. I confess I took a slight objection to the word a period of forced operating cost increase. These are investments in cost to drive future growth and value. What we're absolutely doing is making that investment to drive long-term growth and value, and if that puts some pressure on the operating cost base and margin in a short-term narrow time window, such as this year, that's something we're prepared to do because we believe it's right for the long term of the business. Christopher, I hope that helps you with your question. We've got another question from Mark Clark from Deutsche Bank on margins, which we would probably, I think, Pascal, need to make the last question. Should I deal with this one and then?
Yes. Do you mind doing with this one?
Okay. Mark, you've asked, will the core pre-R&D EBIT margin still be above 48% threshold even with higher operating expense growth? As I've said, we provided that view back at our Investor Day between 48% and 52%, and that remains our view as we look forward. That is unchanged, Mark. I think that this probably brings our Q&A to a close. Pascal, over to you.
Yes, it does. Thank you very much for your participation and your active questioning. We always appreciate it. We'll close this session for today. Thank you so much. Goodbye.