Earnings Call: Q1 2013

Apr 25, 2013

Well, thank you, operator, and good afternoon to everybody on the call. Let me start with a couple of things. Firstly, just tell you that all of you that I've contracted some sort of cold over the last of the day. So I will take occasional pauses as we go through this call to take a glass of water. So I hope you'll forgive me for that. But as we move then into the call, let me just start by saying that we posted a set of slides on the Investor page of our website, and they'll follow along with my presentation. And what I'll try to do as we go through is cue the slide numbers as we go along so that you can follow. So turning to the first content slide, which is Slide number 4 in the pack. It's been a few short weeks since our Investor Day on the 21st March. And at that meeting, Pascal and the AZ management team laid out a clear articulation of our strategic firstly, to achieve scientific leadership second, to return our company to growth and third and importantly, to be a great place to work for AZ people. And I'd say that the energy of the entire organization is focused behind undertaking the important task of executing on these priorities. And over the last few months, in the run to and of course following that meeting, we've made good progress. Our drive towards scientific leadership has been enhanced by 4 important business development agreements. So with Moderna Therapeutics, the Karolinska Institute, AlphaCore Pharma and then BIND Therapeutics, all of which put us at the cutting edge of important new technologies that will bring important new medicines to patients. Our 5 growth platforms, so that's Brilinta, the diabetes franchise, emerging markets, respiratory and then Japan, well, all 5 contributed incremental growth in the Q1, although clearly they couldn't make up for the expected revenue loss from patent expirations in the quarter. And we're also working at pace to simplify our business and to drive continued productivity as evidenced as you'll have seen by the quick start to Phase 4 of the restructuring program that we laid out at the Investor Day. So good progress on implementing our 3 key strategic priorities. But our focus today, of course, is the 1st quarter results. And I'm going to cover 5 topics. I'll first summarize the headline numbers, then I'll cover the revenue performance by region and for selected brands. And then I'll turn to the core operating performance and put an emphasis on key drivers of operating profit and margin. I'll briefly touch on restructuring and cash flow. And finally, I'll close with our thoughts on guidance for the full year. So on to the headline results, and that's Slide 5 in the deck. Total company revenue was $6,400,000,000 in the quarter. That's a 12% decline in constant currency terms. Revenue declined by 13% on an actual basis as a result of the negative impact of exchange rate movements, chiefly the Japanese yen. Once again, the dominant feature of our revenue profile in the Q1 is a lot of exclusivity on several brands, Seroquel IR and Atacand in many markets and Crestor in Canada. These three products alone were down more than $900,000,000 compared to last year. I'll discuss the regional and brand performances shortly, but let's just continue with the headline numbers. So core operating profit in the quarter was down 21%. Core operating expenses were 4% lower than last year in constant currency terms, but revenue was down more. And together with the impact of lower core other income, this drove the core operating profit decline. Core earnings per share in the quarter were $1.41 compared with $1.87 last year. The 0.21 benefit from a lower number of shares broadly offset the higher tax rate in the quarter. Adjustments to core measures at $0.60 per share were the same for both periods, although with a different mix. We had higher restructuring last year and higher amortization this year. When applied to the lower core EPS base in 2013, this resulted in a large decline for reported EPS compared to core EPS. So overall, reported EPS was down 31 percent to 0 point 8 $1 So those are the headlines for the Q1. Let's move on Slide 6 and look at the Q1 revenue performance. Now when I refer to growth rates here, it will be on a constant currency basis. What is reported in Europe is now revenue from Western Europe, combined with many markets that were previously reported under emerging markets. We provided 8 quarters of restated history to help you calibrate your models, and you can find these on the Investor page of our website. So with that bit of housekeeping out of the way, let's look at the revenues. Revenue in the U. S. Was down 16% compared to the Q1 last year, driven by loss of exclusivity for Seroquel IR. We exclude Seroquel IR. The rest of the portfolio increased by 3% in the quarter. 1st quarter revenues include $78,000,000 related to our share of sales of the Amelind diabetes portfolio, which wasn't in the prior period. And there was growth contribution from Symbicort, BrilintaCore and the Onglyza franchise. Revenue in Europe was down 16% in the quarter, chiefly due to the loss of exclusivity for on Seroquel XR following some adverse patent judgments and at risk launches, particularly in Germany. The continued impact from the loss of exclusivity for Atacand and Nexium also fueled the revenue decline. Revenue in Established Rest of World was down 17%, and that's largely a Crestor story, the loss of exclusivity for Crestor in Canada and then on top of that, pricing pressure in Australia. Revenue in Japan was up 5%. We saw good growth for Nxiom, good growth for Crestor and indeed for Symbicort. Revenue in Emerging Markets was up 9% in the quarter. That's an improvement from our exit rate in the Q4 of 2012. Although increases in Saudi Arabia, stable revenues in Brazil and Turkey played their part, it was really the 21% increase in China that was the primary driver of performance. China sales were fueled by good growth for silicon, Nexium, Crestor and Eressa. Looking towards the rest of the year, in addition to continued growth in China, we expect see a broader set of markets contribute to the overall emerging markets performance. Slide 7 provides a snapshot of revenue for our key brands. In addition to the regional growth platforms of platforms of emerging markets in Japan, as you can see here, our brand growth platforms, Brilinta, diabetes and Symbicort, all contributed incremental revenue in the quarter. Crestor was down 11%, but it would have been flat except for the generic erosion in Canada. And at the bottom of the slide, you can also see the significant impact from loss of exclusivity for Seroquel IR and Adychand. Detailed commentaries on brand performance are in the press release, but I'd like to provide some additional color on 3 growth platforms, so Brilinta, diabetes and Symbicort. And I'll also touch on Crestor. So firstly, Brilinta, and that's Slide 8. Sales were $51,000,000 in the quarter with $30,000,000 in Europe and $15,000,000 in the U. S. We continue to implement our plans to build this important brand that we outlined in our Investor Day a few weeks ago. On Slide 9, we've rolled forward this graph of Brilinta's new to brand performance in the U. S. For the most recent weekly data, and it shows a continuation of the growth trend from January with the usual dip for the holiday week. We exit the 1st quarter with weekly new to brand volumes up 30% compared to the entry point in January. Performance outside the U. S. Continues to build. We can increasingly use the regular IMS data to track progress instead of relying on survey data. And you can see on Slide 10, these graphs show steady progress in markets like Germany, Italy, the UK and Australia. Now turning to the diabetes franchise, starting on Page 11, Slide 11. Revenue for Ongliza was up 27% to $90,000,000 in the quarter. Alliance revenue in the U. S. Was $64,000,000 that was up 19%. Now total prescriptions for DPP-4s in the U. S. Has slowed, but was still double digits in the quarter, up 10%. Total prescriptions for our franchise of OnGlyza plus CombiGlise XR were up 9%. Now we did lose share during the quarter. Our market share of TRxs was 16.1% in March and that is off by 170 basis points from December 2012. This is an increasingly competitive category. We've experienced some losses of preferred formulary positions in managed care plans and experienced a decreasing share of voice relative to competitors. We are focused on pulling through volume where we've got strong access and we will continue to compete vigorously in this Outside the U. S, our share of Alliance revenue from Glizer was $26,000,000 that's up 53%. And there have been further European launches of COMBIGlyze during the quarter. I'm moving on Slide 12 and the first the GLP-one franchise. The Q1 includes $69,000,000 in revenue from our share of the alliances by Byetha and Byetha percent increase compared to their October baseline with new to brand share up 1.5 percentage points in that time. And starting April 1, the alliance has now assumed responsibility for the XANO side products outside the U. S. Forxiga revenue was $1,000,000 in the quarter, reflecting the fact that the launch rollout is in its very early stages following approval in November of last year. The initial feedback we're getting from physicians is really quite positive towards this new treatment modality. Now seen on Slide 13, Symbicort sales were up 14% to $826,000,000 Sales in the U. S. Were up 32%. Symbicort's total prescriptions were up 15% compared to just 3% for the fixed combination market, and our share of total prescriptions and share of new patient starts were both up during the quarter. Sales in the rest of world were up 7% on growth in Europe and continued market share penetration in Japan on the back of the launches of Symbicort Smart and the COPD indication. And then finally turning to Crestor, that's on Slide 14. Now sales were down 11% in the quarter to $1,300,000,000 due to the loss of exclusivity in Canada, while otherwise sales would have been flat. Sales in the U. S. Were down 4% to 652 $52,000,000 Total prescriptions were down 7% compared to the Q1 last year. Realized prices were up, but that's attributable to the Medicare coverage gap adjustments that were put through in the Q1 last year. Otherwise, realized prices would have been slightly lower in the quarter, and we continue to expect lower pricing for the balance of the year. Sales in Rest of World was $671,000,000 down 16%. Excluding Canada, Rest of World sales were actually up 5% on some good growth in Japan and in China. As you model Cresdel revenues for the rest of the year, you should recall that a ruling from the court in Australia invalidated 3 patents, and we would expect that generics will achieve listing for reimbursement around the midyear. I'll now turn to the Q1 P and L, which is on Slide 15. I'll I'll focus here on core margins and profit. The press release does, of course, contain the statutory numbers and a detailed reconciliation And as with sales, when I refer to growth rates, that will be on a constant currency basis. Core gross margin in the quarter was 8 2.2% of sales. That is up 90 basis points compared with the Q1 last year. Product mix was unfavorable. However, core gross margin benefited from lower core Merck expense related to down 2% compared with the Q1 last year. Benefits from restructuring programs and overall lower selling and marketing expense in developed markets more than offset selective investments in support of emerging markets and for Alinta as well as taking on our share of the selling costs for Byetta, Badurian and Similin. Core other income was 36% lower than last year on lower ZOMIG royalties and the absence of some one offs in the Q1 of 2012. That leads to a core pre R and D operating margin of 51.5 percent of revenue, is 350 basis points lower than last year as the slightly higher core gross margin as a percent of revenue is offset by the lower core other income and the higher SG and A expense as a percent of revenue. Core R and D investment in the quarter was $963,000,000 that's 7% lower than last year. We continue to realize savings from our restructuring programs. The phasing of clinical project costs also drives the favorable variance, the spending winds down on Phase III trials for projects like fostamatinib and projects. Now you'll recall that we've guided to core operating costs, so that's combined core SG and A and R and D costs being held to a slight increase in 2013 in constant currency terms, and that is indeed our expectation. So I would view the 4% decrease in these costs in the first quarter as a matter of phasing, we will continue to make the investments behind the growth platforms and pipeline through the course of 2013. Core operating profit was $2,300,000,000 in the quarter, It's 21% lower than last year. Core operating margin was 36.4 percent of revenue, 4.4 percentage points lower than last year. Just a brief word on restructuring. On Slide 16, you can see the scope of what we are now referring to as Phase 4 of restructuring. And this combines the initiatives newly announced last month compared with the actions or together with the actions that remain to be implemented from the Phase 3 program that we announced back in February of 2012. Total program costs are estimated to be $2,300,000,000 and you can see here that we've charged $543,000,000 to the P and L in the Q1. Turning to Slide 17. Cash generated from operating activities was $2,200,000,000 in the quarter compared with $1,500,000,000 in the Q1 of 2012 as Alf. Lower tax and interest payments partially offset the lower operating profit in 2013, whilst the one off pension fund contribution drove higher out flows in the Q1 last year. We also paid the 2nd interim dividend from 2012 in the quarter that amounted to 2,300,000,000 dollars Finally, turning to guidance, and that's Slide 18 in your pack. We continue to expect a mid to high single digit decline in revenue in constant currency terms for the full year. We will continue to face headwinds from loss of exclusivity. Indeed, since the start of the year, we've received an adverse ruling on Crestor patents in Australia. We'll see continued erosion of Seroquel IR at Akande and for Crestor in Canada. However, the prior year comparisons will improve as the 12 month anniversaries are met. So despite the new challenges and the double digit revenue decline in the Q1, we maintain our revenue guidance for the full year. It's actually a similar story on costs. Despite the 4% decline in combined core SG and A and R and D expense in the quarter, this is a matter of phasing, and we continue to expect a slight increase in core operating costs for the full year in constant currency terms. With our revenue and cost profile in line with guidance, we continue to expect core earnings per share to decline at a rate significantly higher than the decline in revenue this year. One final item. As you will recall, on the 1st April, the U. S. District Court, Metropolitan District of New Jersey, ruled one of our patents protecting palmicort respials invalid and further ruled that the generic defendants do not infringe a second patent. In that announcement, we disclosed that revenues for Pulmicort Respirules in the U. S. Were $135,000,000 in 2012 and royalties represented an annualized value of approximately $260,000,000 under core other income. There is currently a temporary restraining order in place, while the U. S. Court of Appeals for the Federal Circuit considers our pending motion for a longer injunction pending appeal. We have no further news to report at this time, but just to remind you that should additional generics enter the market, both As for currency, exchange rate movements created a 4% negative variance to core EPS compared to last year, but it was neutral to core EPS versus our January 2013 guidance rates in the quarter. I'd remind you though that our guidance takes no account of the likelihood that average exchange rates for the remainder of the year materially from the January 2013 average. So with that, we'll now move on to the Q and A session. And I'll ask the operator to come on and try instructions and then get into your questions. Thank you, operator. Now I see Tim Anderson of Sanford Bernstein. Tim, over to you, first question. Thank you very much. A couple of questions, if I can. On Crestor, previously the company said that they expect the product to hold up pretty well through generic Lipitor in the U. S. In Q1, as you pointed out, prescriptions were down 7% year on year. And I'm wondering if you can talk about what you expect with this product in the U. S. Going forward through its patent expiration in 2016? Do you think the decline in prescriptions in the U. S. Specifically could continue to accelerate? And then another question, which is, are you willing to say yet is Astra willing to say when they think the trough year where we'll be in terms of revenues or earnings? Tim, thanks very much for those two questions. On Crestor, we continue to believe that Crestor has a very clear positioning in the statin market for higher risk patients. And we continue to see the brand perform well. The impact in terms of Q1 performance was particularly associated with changes in managed care and formulary position. But as Sage, would you like to pick up and talk a bit more about what we saw in the Q1 and how we see the brand moving forward? And then I'll pick up Tim's second question. Sure. I mean, it's really not a function of actually losing physicians in managed care. It's the function of plan years rolling over, patients enrolling in new coverage schemes. We typically see at the beginning of every year an uptick in the number of switches away from Crestor to generic products. And that's exactly the same pattern we saw this quarter where you see net switches from Crestor increase. And we've already seen, again, like we've typically seen, a recovery in that net switch rate as we exited the quarter. So it's a fairly typical what I would call almost a seasonal effect where you see that when the rollover of plan years, we see an uptick in switches to generic, which then kind of unwinds over the course of the quarter. Yes. And I think, Tim, we have seen as we watch obviously the scripts pretty closely. And I think as Ed was saying, we've seen a trend back once we've moved through those changes in formulae positions. I'd also say that when we look at the prescribing base for Crestor, it remains in some mid-90s of people who are continuing on with their Crestor therapy. We see very clear positioning of the brand for high risk patients. We see real resilience in the higher dosage, but it's fair to say where we do see pressure on the script volumes, it tends to be in the lower dosages, which is exactly what we'd have expected. And I think, Tim, you're going to see that story. But then continued resilience with Crestor patients, but then continued resilience with Crestor patients going forward. Your second question sorry, Ed, did you have a comment to make? One other follow-up is, if you recall about around the midyear last year, we started seeing a decline from our Medicaid segment business and that will annualize till mid year as well. So that's another factor in the early year performance to keep in mind. Yes. Thanks, Ed. To your second question, Tim, on the trough year, I mean, I think you all know, it's a question that a number of people have asked us, and we've been rather sort of stubbornly resistant in giving a precise 12 month period. And our reason for that is we don't want the organization, we don't want us to be sort of focused on one particular 12 month slice. The shape of the revenue profile for the company is going to be defined by the interplay of 3 factors. We see continued resilience and scalability in the sort of established products within our portfolio, particularly aided by good growth in emerging markets for some of those established brands. We know that loss of exclusivity will continue to impact the top line with the most notable events still to come being Nexium in the U. S. And then Crestor in 2016 2017. So when we return to growth, it's going to be a function of our success in driving our growth platforms. They all grew in this Q1. We're investing heavily behind them, but we don't want to concentrate down on one particular 12 month window. I know you'd love us to give that, Tim, but I we just don't think it's right for us to be focused on that. We need to drive the business for success over the long term. Thank you. So no, Tim, thanks a lot. I'm going to move to the second question on the line here, which I think Peter Verdult from Morgan Stanley. Peter, your questions. Simon, it's Pete here, Morgan Stanley. Just a few. We've heard from a number of companies recently this week on reporting that inventory levels across retail pharmacies and the distributor channels in the U. S. Running at uncharacteristically low levels. Just wondering whether that's been a factor for Astra? And if so, whether you can give some sort of ballpark quantification? Can I just dig a bit secondly, can I just dig a bit more on the diabetes franchise? I mean, the landscape is well known. The formula lost on Caremark is well known. But it does seem that the franchise versus expectations quite soft. So I just want to know what explicitly you're going to do to try and reaccelerate those trends and whether there's any update as to when the SAVR data will be released? And then lastly, just a very quick one. If the Phase III data for OSCIRA, the last few OSCIRA programs fostamatinib match the same sort of profile that we saw in ASKIRA 1. Is it fair to say that Astra will not proceed to file that product for rheumatoid arthritis? Thanks. Okay. Well, Peter, thanks for the questions. So let me perhaps deal with them in reverse order and perhaps ask Ed to comment on inventory levels. So on OSCIRA, we're going to wait for the data from the remaining OSCIRA trials. I'm not going to speculate on the outcome of those. And there's not that long before we'll see the results and we can then assess the medicine and the prospects in the light of those. In terms of diabetes, I think this remains an absolutely critical growth platform for us. We, as an alliance, have got a strong portfolio. We and BMS are clearly very committed to the long term success of the business. On Glizer and indeed Exanatide, they're on a continued to show decent year on year growth, and we've seen a pretty encouraging start for FaSeqa. But as you picked up, Peter, and indeed we have, that we've seen some headwinds to that growth. I think you've all seen a slowing in DPP4 growth. And in part, that's got to do with the annualization of the slowdown and substitution out of other categories last year. We've seen intensifying competition, and that's put share of voice under pressure in some markets, particularly the U. S. And as you yourself referred to, and I mentioned in my notes, we've seen a loss of some key formulary positions, particularly Caremark. So those have been some headwinds. But we're taking a whole series of actions in order to ensure the long term success of that business. We're stepping up sales and marketing investment behind the brands and remain committed to that. We've obviously putting increased investment behind Forexiga where it's approved and, as I mentioned, encouraging start for that brand in markets like Germany. And of course, we're getting stuck into the launch and promotion of Exanatide in the rest of the world markets from the 1st April. Sabre is going to be an important catalyst. I think, Karl here, Q2, I think, is when we'd expect Sabre. No new news on that for you, so Q2. We got the Farxiga filing in the U. S. Around the mid year. And then, of course, the dual chamber pen for exanatide for Bydureon in Q3 for the U. S. And then Q4 for Europe. So a lot of activity and investment peed it behind the portfolio. And we look forward to seeing that continue to grow over the remainder of this year. In terms of inventories in the U. S, I mean, we obviously have distribution service agreements with the majority of our customers, and that contains the amount of inventory then ranges and there are penalties either side. But Ed, is there anything particular that you want to add if that we've seen? Yes. There's nothing in aggregate that's worth calling out. If you say there's always tos and froths at the brand level, again, nothing really material. But in terms of directionally, Nexium was probably slightly flattered by changes differences in inventory movements between this quarter and a quarter a year ago and Seroquel was probably penalized a bit, but that's the only directional brand issues I would even point out. Yes. But nothing of a real dollar value that you'd really worry Yes. So Peter, I hope that helps you on that one. Thanks. Let me move to Sachin at Bank of America. Sachin, over to you. Related to U. S. Managed care access versus Lilly. Firstly, just a follow on, on GLISA. How do we think about net pricing from here, given your comments that you would that you intend to compete vigorously? Secondly, on Brilinta. Lilly, in their release yesterday, mentioned lower effective selling prices for Effient. Are you seeing any impact on Brilinta pricing or formulary positioning that we should be aware of? Secondly, just a comment on Baidura and where you refer to new to brand volumes being up 15%. Does that include or exclude Baidus, which isn't any commentary on the total franchise? And then finally on Brilinta and to slide 9 where you point to an inflection in U. S. Trends, commentary whether you feel that isn't enough to get to consensus sales at roughly GBP 300,000,000 this year and GBP 500,000,000 next year? Thank you. Right. Well, thanks very much indeed. So let me pick up, I mean, briefly on Brilinta. Ed, you might want to pick up the on Gliza 1 in terms of sort of pricing and just checking. But on Brilinta, no, we've seen good progress in terms of extending our managed care access with Brilinta. And that has come on the back of, I think, increasing formulary, the continued steady growth in prescriptions. And that's enabling us to expand managed care coverage for the brand and that's coming with consistent pricing. So we're not seeing that growth in managed care Act as coming at the expense of pricing. Anglai, is there any particular comments on the net pricing there that Well, certainly wouldn't make any forward looking statements about our pricing strategy, but I can tell you that price was net positive in the quarter. Yes. Thanks. And so the investment there and it's going to be focused actually on ensuring that we've got the right level of sales and marketing investment behind the brand, clarity of message, clarity of positioning. Those are the levers that we'll be pulling. And then of course, on ONGlysa, we've got the SABR study also to look forward to as we discussed earlier. In terms of the Exanezide franchise, it's new to brand volumes for Faidiran, I mentioned, they're up 15% and growth 1.5 share points in NBRx. And of course, a fair chunk of that is coming at the well, Vyetta at the same time has been losing ground. And overall though, the net exanatide franchise has grown year on year in total prescription terms. I think from memory about 7%. And again, the focus looking forward is to sustain that. We continue to put a significant effort behind Byduren as we think that the weekly dosing has a genuine point of differentiation, but we think there's more we can do with VIEETTA. And so the alliance is going to put renewed focus on VIEETTA to ensure its unique positioning as the once daily is also appreciated by physicians. So and we've made pretty good growth in the number of prescribers for the franchise as well. But clearly, more work to do as we go through the rest of the year. And then finally, you had a question, I think, on Slide 9 and around the Brilinta trajectory. And I think I just I think, Sachin reframed the comments that we made at our Investor Day, which is as we've now built pulmonary access, I think it's about 62% on our target hospitals protocol up to almost 50%, we've expanded managed care access. We think that it's now the right time to further step up our promotional and scientific investment. And we laid out we probably put about a 50% increase there. And we laid out many of the levers a few weeks ago, and you'll recall those more investment in the field, more investment in medical programs, getting nurse practitioners out there. And we continue to think that of terms of acceleration of share, while we've seen some of that in the quarter, we're really looking to the back end of the year to see those investments, which are ramping up in this quarter, to start to pay off. So let's come back to that, I think, in the end of Q3, Q4. So Sachin, thanks for the questions. We've got Matthew Weston from Credit Suisse also waiting on the line. Matthew, over to you. Thank you very much. And three questions, if I can. The first on bringing the Phase 4 restructuring timing forward. Could you explain your reasoning for doing that given that you only ran us through it in detail a couple of weeks ago at the New York event. Is that because a number of headwinds have accelerated? Or fundamentally, why are you bringing that forward? Secondly, with respect to Pulmicort Respirals in the U. S, can you just tell us whether or not generics were actually able to ship in the 24 hour period between the verdict and your injunction and whether we will actually see a financial impact in 2Q or whether or not you were able to get your injunction in place before any generic product was shipped? And then finally on net financials, the €93,000,000 that was booked in Q1, you mentioned FX gains, but you don't break them out. Is €93,000,000 a good run rate for us to take quarterly for the rest of the year? Or should we assume some differences going forward? Okay. Matthew, thanks for the question. So firstly, on the restructuring, as you recall, when we went out the Phase 4 restructuring program, we indicated that it comprised really 4 elements. The first element and if you take the 5,000 positions, the first element of about 1,000 were positions associated with the final stages of Phase 3, but we brought them into Phase 3 board just so that we had one program that we could communicate against. And Matthew, some of those actions were already underway. So it wasn't really an acceleration. It was just that they were already in train. The second aspect was about 2,500 positions where again further SG and A savings, A reasonable proportion of markets like Germany and France, we've already initiated some of those actions. So not really an acceleration, just a program moving at pace. And then the third area was the R and D footprint changes, and that is a slightly longer burn program that takes place over the course of the next 2 to 3 years. So that's running very much to our schedule. So the scale of the charge taken this quarter reflects the residual of the Phase 3 program plus the sales and SG and A changes that were underway. And then also, where we have got known changes with identified movements, the we will take a provision against where there's very clear and known changes and where we've announced them. We will take the provision. So there will be a provision taken which won't translate into cash for some time. So those are all the factors which meant that a half of the 1.3 percent, well, slightly under half of the 1.3 percent we expect for this year being taken in the Q1. In terms of your second question, which was the Pulmicort injunction TRO we can place, The I think we're not aware of generics being shipped into channels. And that being said, if there had been, it would have been at low volumes. So we haven't seen a discernible impact. But clearly, it's a space we'll need to watch over the course of the next few weeks. Your final question, I think, was the net financing cost, which you had indicated was running, I think you said at 93%, and you were asking for whether that was likely to be a sort a rate for the remainder of the year. It's a reasonable guide. The movement in FX gains is a pretty small part of the total. I mean, I think it's in high single digits from memory. So I would expect you'll see the Q1 as being a reasonable guide for the full year. With that, move to sorry, so Matthew, hopefully, we dealt with your questions. Now move to Steve Scala at Cowen. Steve? Thank you. Would you give us a rough sense of how the economics to AstraZeneca of a unit of generic Crestor sold by Watsen will compare to a unit sold by AstraZeneca when it launches in 2016, given your very sizable 39% fee? And then secondly, should we expect emerging market growth to continue at a similar rate in 2013 as we saw in the Q1 of the year? Thank you very much. Thanks. So let me deal with the emerging market growth. So we saw good growth in the Q1, 9% or so. As I mentioned in my remarks, at at 21%. And we're now our business in China is now back growing faster than the market. I also mentioned that while we've seen some growth in the Q1 from 1 or 2 markets such as Saudi, we'd the growth is a lot of it. When you do your arithmetic, you'll see came net from China. But as we look forward for the remainder of the year, we expect to see continued strong growth in China. And we'd expect to see a slightly more diverse contribution or contribution from a broader set of markets. So I think we feel pretty good about the emerging market prospects for the full year and expect to see a broader contribution. As you know, we guided to high single digit growth in emerging markets, and that's where we are in the Q1 and that way it sort of remains our outlook. I think your second your first question, which is around Crestor and the settlement with which permits them to enter the market earlier than the expiration date. And of course, we get a royalty from Watson as we disclosed. I'm not able to work through the maths for you because it depends on Watson's price and I'm not going to speculate on that at this stage. But I think you can make an assumption on that and the rest of the pieces are there for you in terms of calculating what that would look like. But I think the royalty is clearly an important netback for us. So thanks for those questions. Brian, over to you at Barclays. Thanks very much. It's Brian Bordeaux from Barclays. It sounds like the 2 question rule has gone, so I have 4, please. First question on Ongyaiza, second on the LOXAGOL, 3rd on Symbicort and fourthly on the geographic definition changes. Firstly, on ONGlyza, just wondering if you can give us the new to brand share that you captured in the Q1, please. 2nd question on naloxagol. Goal. I see you're still in talks with the FDA. I was just wondering if there's any update on the petition for scheduling that you submitted to the DEA. Thirdly, on Symbicort, I was wondering if you could update us on the status of any generics being sold in any markets and your expectations for generic entry in Europe and the U. S. And lastly, thank you very much for the 14 pages of restatements on geographic sales. I was just wondering, does that reflect changes to the way that you operate as well? Or is this just simply an accounting thing? Thank you very much indeed, and I hope your call improves soon. Thank you very much for that. Given your last comments, I won't chastise you for the fact you promised you'd only give 2 questions. So in terms of your dealing with your final question, the geographic change, we have moved essentially what we used to frame as emerging Europe and group that into Europe. And that reflects a couple of things. Firstly, in as the way that those markets have evolved over the last few years, they increasingly represent or they increasingly resemble and have characteristics of some of the other European markets rather than the emerging markets such as the China's and the Middle East and the Latin America's of this world. So the nature of competition, the nature of demand and prospects starts to look more like the Western European markets. And secondly, as I think you will recall from our Investor Day and before, we now have one senior commercial leader responsible for the European region looking after both Western and the former Eastern Europe, that's Rudaba. So that's there's a couple of reasons. And we hope that will be helpful for you in laying out the restatement historically so you can track it going forward. Coming back to naloxidil, the discussions, I mean, with the FDA are ongoing, And I'm not able to update you on the status of the with the DA on the controlled substance component. Typically, that follows decisions from the FDA. So I wouldn't have expected enough to be able to give you an update at this time. We'll keep you posted on that. In terms of Symbicort, we have not seen any new generic or analog activity in Europe or indeed in the U. S. As you know, we have patent protection on our devices in running out to 2018, 2019. We know that there are some generic analogs that have sought approval, but we haven't had any new developments on that score in the last quarter. And indeed, sorry, in the U. S. Device, I should have may have misled you there. I think U. S. Device from memory, Carl, 20, 25, 26. So Europe, 2018, 2019 and then U. S. 25, 20 26. So no update in terms of developments in approval and certainly not market entry of analog. And we continue to see those as markets well protected. You had another question on sorry, on Glizer. New to brand share, Ed, do you have that available? Yes. That was a precise number because it's not a table. I'm actually running a ruler across to an axis on a graph. And it's broadly, if you look at COMBEGlyse and Onglysa together, our new to brand share is running around 16%, give or take. Okay. Thanks, Ed. Thank you. So Brian, thanks for your questions. I'll move to Andreas Hagboom in Danske. Matthias, over to you. Thanks, Matthias Hagboom, Danske Bank Markets. I'd be interested to hear what you have seen in terms of the price component in developed Europe during the start of 2013 and how it compares with the same period last year? Is it same, worse or is it easing? And secondly, in light of the strong gross margin for the quarter, historically, you guided for gross margins in excess of 80%. But in conjunction with the Capital Markets Day in New York, while you reconfirmed your previous pre Argentine margin range, you did no longer explicitly say anything about future gross margins. So what there's some thought behind that as you move more towards Specialty Care and large brands continue to lose exclusivity? Or 80% is longer term no longer realistic? Or is the previous guidance of excess in of 80% on gross margin still a valid comment for the longer term? Well, thanks very much for the 2 quick questions. So firstly, in terms of European pricing action, what we have seen and anticipate for this year is very consistent really with what we saw last year. You'll remember that historically, we had seen government price interventions in the lowtomidsingledigits in Europe. And we've guided really over the last 18 months or so that we've seen that rising up to comfortably midsingledigits. So rather than being in the 3% to 5% range, more saw it in the 5%, 6% range. And that's pretty much what we have seen and expect to see this year. So not a change relative to last year and a continuing level somewhat above historic levels, reflecting the difficult economic circumstances in many of those markets. On your question around margins, we've guided to a core pre R and D margin in the 48% to 52% range. As our business evolves over the next few years and moves more towards a higher proportion of Specialty Care, there will be some movement between gross margin and SG and A. So I'm not going to sort of guide beyond this year in terms of how those 2 different components will stack up. What we've guided to is the pre R and D margin level, which is the level to which we'll be questions. Thanks for taking my questions. Actually, I have 2. The first one relates to the diabetes unit. So what do you expect from the increased FDA scrutiny regarding incretin mimetics? And the second one is a follow-up on DPP-four again. So we've seen that recent script slow down recently for the entire classes. So you mentioned formulary changes for Ingliza specifically, but do you have any idea, any sense as why the entire class is down? 2nd question and last one is a pipeline question regarding Nalox Vanigol. The recent abstracts just released at the DDW showed an efficacy of 10% to 15% placebo adjusted. That is at the very low end of what competitors have achieved. Are you comfortable with those data? Thank you. Sorry. So thanks for the questions. Just let me deal with the DPP IV class, first of all. And we have seen some reduction in the class growth. I mean, it's still a fast growing market. I think from recollection, the class TRx growth was around about 11%, I think, in the Q1, but that does compare to about 26% in the prior period. And we think that that's due to a couple of factors. We have seen additional TZD generics in the second half of twenty twelve. So the TZD market decline has stabilized and that slowed down that as a source of growth for DPP-four. It's also fair to say that we've seen continued strong growth in GLP-one class and that's also taken some edge out of the DPV THOR market rate of growth. So those are probably the 2 main drivers. And as I said, we continue to think it's going to it will remain a growing attractive market, perhaps not at the same rate we had seen. I think in terms of the first question, I think this related to the recent review for the DPP-four and GLP-one class. And I don't, Karl, if you've got anything any comments to add on that. I mean, well, pick that one up and then I'll come back to the naloxazol question. No. I mean, we are continuing to work with the FDA and the EMA in this area. I mean, there are no new findings here. I mean, the labels in this class have already contained, If you report to the pancreatitis issue that's a known effect. And the FDA has just said that they are looking into this and we will continue to provide all the information there. It's nothing specific, of course, to our classes. Yes. So no new news on that. It's a known issue. We don't see any new information, but we will await and to see how that review unfolds. Ed, a question on the Luxor. I think in particular, the our views on the results from the various Kodiak programs. I'm pleased, I guess, it's too early to call. And We're in discussions with the FDA on that. So I don't want to sort of prejudge the outcome of regulatory discussions. But anything, Ed, you'd want to add on the specific number, I guess? Yes. I think the question was looking at the response rates and comparing them cross trial to other competitors. And I think I haven't done an exhaustive side by side analysis, but my understanding is this category 1 has to be pretty cautious about making cross trial comparisons because you've got different durations of therapy in a lot of these trials. And most importantly you've got different primary endpoint definitions in a lot of them. So it's hard to make cross trial comparisons the way one might be facile with making a blood pressure trial comparison where blood pressure lowering is blood pressure lowering. No, I think Ed thanks. I think that is the key point that very difficult in this class to make those the cross trial comparisons. Now it's 1 minute past 1 and we have our Annual General Meeting today, which I'm expected to attend. And we've got a couple more questions here. So what I'd probably like to do, I mean Seamus, if you've each of you Seamus, Larry, Swung and Mark have got to Deutsche, if you've each got one question, we'll try and handle that and then close-up. But I'll need to move very swiftly through your questions. If you've got more, I'm sure you can come back to James and the IR team and they'll pick them up for you. So Seamus, any one question, if you've got one, I'll try and deal with it on the call. Sure. Perfect. Thanks so much for taking the question. Maybe just quickly, you mentioned the SABR study multiple times. And I know I'm not asking for kind of the scientific views on Sabre, but really in the market research that you've done around Sabre, what are the key questions that Sabre will answer answer to really drive or that can drive improved DPP-four class growth or specifically growth of onglysiscomaglysis? Well, thanks for that. We're not in a position to sort of prejudge the outcome of say that it's a cardiovascular study and I mean in some I mean it was essentially set up for a no harm test. But James, do you want to pick up on any sort of what we've done around potential outcomes? Yes. I think, 1st and foremost, Seamus, it's addressing the I think the previous question in terms of safety design is a non inferiority and can remove a number of the questions which are still lurking around there and being asked at the moment. So that will be a tick hopefully for the class as a whole. And I think that can contribute to class growth. Secondly, clearly, the mortality benefit, if that is seen, that can be a major driver both again for the class and reaccelerating the growth for the class. And obviously, we believe we would be able to benefit particularly in terms of having that advantage of that data from Gliza specifically. But probably to don't really in a position to prejudge that clearly, something to kind of That's hypothetical if that data is positive. I mean those would be the 2 most important things from a research point. Yes. So Seamus, sorry if you've got further questions, if you come back to James and team afterwards. And then finally, if I can, and I'm sorry, I know that there's some further people waiting to put questions, Johan and Christophe. But I'm going to take one last question from Mark at Deutsche Bank. And then with apologies, ask if the rest of you could direct your questions to James and the team after the call. Thank you very much indeed. Mark, over to you. Thanks, Simon. It's just a quick question about business development. Pascal said at the Investor Day that this was going to be a focus in the coming months. So far we've seen what our terms were relatively early to mid stage R and D deals. Is it likely that that is what we will continue to see in the coming months? And also how much of that business development strategy is still to be determined by Marc De Noyer, who I know has still not joined the company just yet? Okay. Well, thanks. I mean, I think the broad sort of parameters shape of our business development strategy we laid out in at our Investor Day and the first, the focus is on strengthening the science base, the pipeline and where we can the on market portfolio for our core 3 core therapeutic areas. So cardiovascular, metabolic disease, respiratory and inflammation and oncology. And that will be those will be the therapy areas of focus. We will continue to look across the discovery, development, commercialization chain for good opportunities. And you're absolutely right. The four deals that we've done in the 1st part of this year have been earlier stage deals in particularly actually in cardiovascular oncology, I guess, as a sort of concentration of that activity. As we go forward, we will continue to look for good opportunities in those three areas. I think, as we all know, later stage opportunities on market views, there are relatively few of them. They tend to be highly priced and therefore we need to be very selective about what we do there. But I do think there will continue to be good earlier stage opportunities. And we're as active at the moment in terms of reviewing and discussing potential opportunities as we've been for some considerable length of time. With Mark's arrival when he joins us, I'm very confident that the more crisply defining the specific opportunities and priorities within each of the therapeutic areas and he'll be working with his team to do that. So I don't imagine a significant change in direction, but even more, I'm sure, momentum and focus behind that activity, which is a key part of our strategy. So with that, thank you to all of you for joining and for your questions. And my apologies, I know there were 2 callers who weren't able to put their questions to us. And again, I'm sorry for that. And I'd urge you to reach out to James and team to make sure your questions are indeed answered. So for that, thanks to all of you for joining. I mean just a concluding remark really. I think as expected, the Q1 results do reflect the continued impact from loss of exclusivity on a number of products. But our outlook for the year is unchanged. We are working to a very clear set of priorities, in particular, returning to growth and achieving scientific leadership, particularly in our core TAs. And I think in the quarter, we encouraged to see that all five of our growth platforms contributed incremental growth. And as I just touched on in my last in that last sort of Q and A, the recent business development activities have reinforced our commitments, strengthened our position in our core therapy areas and over time will bring distinctive science to new medicines and hence to the patients we serve. So with that, I bid you all a very good day. Thank you.