AstraZeneca PLC (LON:AZN)

Earnings Call: Q4 2012

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Jan 31, 2013

Good afternoon, everybody. Welcome to AstraZeneca's Q4 and full year 2012 results. Happy to take questions and support whatever questions we have through the day. Without further ado, I'll hand over to Pascal Soriot. Pascal? Thank you, James. Good afternoon, everyone. Really a pleasure to see you all again. Welcome to our 2012 full year results presentation. First, let me set the stage for today's agenda. I will make some opening remarks summarizing the key events for 2012, the headline numbers for the full year. I'll also review our commercial performance, looking at our revenue trends in our key regions and for our key brands. Briggs Morrison, who is our EVP for Global Medicines Development, will review our pipeline progress in 2012. Simon, you all know Simon very well, our CFO, will present our 2012 financial performance and provide you with our thinking for guidance for 2013. I'll conclude with some observations from my first 90 days at AstraZeneca, ahead of our capital markets day that we are planning for March. I'm also pleased today to say that we have in the room, Ruud Dobber. Ruud is our commercial head for the European region and is also our interim leader for the global product strategy function. We'll also share your questions. Simon has committed he will actually take all your very hard questions and leave me with the easy ones. If I start with our performance in 2012, our results really reflect a period of significant patent expirations, as you all know, and overall challenging market conditions throughout the entire world. Our revenue was down by 15% in constant currency terms and reflects the loss of approximately $4.5 billion in revenue from the loss of exclusivity on several products, with Seroquel XR being the biggest driver. Core EPS was down 9% for the year to $6.41. That is above the latest guidance we provided. We have to say core EPS benefited from favorable impact of 2 tax-related matters, and also from the sale of the NEXIUM OTC rights, the second tax-related matter took place in the last quarter. Reported EPS was $4.99, which is down 29% compared with last year. As a reminder, last year included a large gain from the sale of the Astra Tech assets. The full-year dividend was maintained at $2.80 per share. We successfully drove the performance of many of our brands that retain market exclusivity. These 6 brands together accounted for $600 million in incremental revenue on a constant currency basis. We also made real progress on the pipeline this year. We achieved 3 important regulatory approvals for new medicines in Europe. First, for Forxiga, which is a new first-in-class treatment for diabetes, an SGLT2 inhibitor. So far the feedback from our customers is very good. Very early days, but good feedback. Zinforo, a new cephalosporin antibiotic, and Caprelsa, a smaller new orphan treatment for advanced medullary cancer of the thyroid. In the U.S., I also want to point out that FluMist Quadrivalent was the first four-strain influenza vaccine to be approved by the FDA. Our portfolio in Japan was strengthened by three approvals for SYMBICORT, the SMART dosing regimen, and the approval of the COPD indication, but also the approval for NEXIUM for use in combination with low-dose aspirin. You will hear all the details on the pipeline from Briggs in a few minutes. Among the many transactions and alliances we forged in 2012, the big three, so to speak, are firstly, the collaboration with Amgen on five clinical projects in the field of inflammation, one of which is in late-stage development. Second is the acquisition of Ardea Biosciences, which brought a phase III molecule for the treatment of gout. And finally, our diabetes alliance, which was expanded with Bristol Myers Squibb's acquisition of Amylin and, as you know, our subsequent buying of our share of that exciting portfolio. So we now have a full portfolio of products in diabetes. Moving to the next slide, the full-year revenue performance, when I refer to growth rates, will be on constant currency basis. If you look at it by region, the U.S. declined by 21%, driven by the loss of exclusivity for SEROQUEL XR. Revenue in Western Europe was down 19%. The loss of patent protection on four products, SEROQUEL XR, Atacand, NEXIUM, but also MERREM, accounted for more than 60% of the revenue decline. In addition to continued headwinds from government interventions, which the whole industry is dealing with, as you know, in Europe. Revenue in established rest of the world was down 14%. Largely due to a 31% decline in Canada as a result of generic competition for CRESTOR and Atacand. Revenue in Japan was down 5%. The biennial price reductions are a key factor, of course. The underlying strength of our in-market performance for NEXIUM, SYMBICORT, and SEROQUEL XR was not reflected in our reported sales simply due to ordering patterns from our marketing partners in Japan. Revenue in other established was negatively impacted by the loss of exclusivity for SEROQUEL XR and MERREM, as well as the challenging pricing environment for CRESTOR in Australia. We experienced a substantial price reduction there. So in total, CRESTOR sales were down 8% in Australia to around GBP 350 million. Revenue in the emerging markets was up 6% in the fourth quarter, which allowed us to bring the full-year growth rate to 4%. As you will remember, the first half of 2012 was impacted by the supply chain issues, and we've been recovering progressively since then. We had good growth in China, where revenue was up 17% for the year. Amongst our other larger markets, we had good performance in Russia and Romania, Saudi Arabia. Overall, our growth rate was really affected by weak performances in four markets. Turkey, which was heavily impacted by government pricing interventions. Mexico, where we had generic competition and clearly a tough market environment. Brazil, with the loss of exclusivity for CRESTOR and SEROQUEL XR, and also India, where our revenue has been impacted by local supply issues. Together, those four markets accounted for more than GBP 160 million in constant currency revenue decline for the full year. If we look at it from a brand perspective now, this slide provides you with a snapshot of revenue for our key brands. There are really some real bright spots amongst those products in our portfolio that are not impacted by loss of a patent protection. Crestor, of course, experienced loss of exclusivity in Canada. Excluding Canada, our sales were up 2% for the year. Symbicort had a good year, with sales reaching over GBP 1 billion in the U.S. for the first time. Very strong results for Symbicort. Despite the loss of exclusivity for Seroquel XR, we achieved 4% growth for Seroquel XR. We also had another strong year for our oncology products, Erbitux and Faslodex in particular. A good performance for the Onglyza family, which is developing very nicely. The inclusion of Byetta and Bydureon from Amylin added about GBP 111 million in revenue since the addition of these products to our portfolio from the third quarter. We achieved slow but steady progress on Brilinta, and we'll come back to this. As you can see on the bottom of the slide, loss of exclusivity took a large toll. We have substantial headwinds from those patent expiries on Seroquel XR globally and regional losses on Nexium, Atacand, and Merrem. Detailed commentaries on our brand performance are in the press release. I just want to provide some additional color on five products in the portfolio. Crestor, an update on our Brilinta launch, the performance of the Onglyza franchise, also some color on Symbicort, and finally a brief look at Nexium and its performance in Japan. Let me start with Crestor. The sales in the U.S. were up 3%. Total prescriptions were down just 1.4% for the year, which truly is a very resilient performance in the face of multiple atorvastatin generics starting May 30th last year. If you look at the next slide that shows you the net dynamic volume trend, the red area maps the number of patients who are newly starting their statin therapy with Crestor. The blue represents the patients who have switched to Crestor from another statin. The gray line below the axis is the number of patients who are switching from Crestor to another statin. Finally, the important line is the yellow line, which is the net result of all those additions and losses. As you can see, this yellow line on the chart, you can see the increase in net dynamic volume that occurred in the last six months of 2011. This was following the label changes for simvastatin and the removal of the 80 milligram dose from the market. The Crestor volume was already on the downward trend from this back around the time of the limited launch of generic atorvastatin in November 2011. We did lose a bit more ground following that launch. Overall, I think it is fair to say that the data on the right-hand side of the graph tend to demonstrate that Crestor dynamic volumes have held up very well and are stabilizing, even with the influx of multiple atorvastatins in May. That is confirmed by this chart that shows you the total prescriptions for Crestor in the United States. Of course, it goes up and down as I described a minute ago. Importantly, you can see that in the last couple of quarters, we see signs of stabilization. Total prescription in the fourth quarter of 2012 are about 6% lower than last year, some of which is a function of the prior period ramp-up. We also had a small decline in the second half of 2012 related to volume losses in the low-margin Medicaid business. Overall, as I said, a very resilient performance in total prescriptions. In the rest of the world, sales were down 9%, but if you exclude Canada, they were unchanged. We continue to do well in Japan, where Crestor is actually the number one statin by volume share of the market. As you can see here in the next slide, we continue to grow our share of new patients in Japan, even after the launch of generic atorvastatin, and certainly, Crestor is the largest statin there. In the emerging markets, sales were up 4%, 14% if you adjust for the loss of exclusivity in Brazil and in Mexico. Let me turn to Brilinta. We have actually now launched in 82 countries. Sales are still modest at about GBP 89 million for the year. If you look at the next slides, in the U.S., we see steady progress in the growth in total prescriptions. In the fourth quarter, scripts were 46% higher than in the third quarter. As we start the new year, we have seen a real boost to our managed market access. We now have unrestricted preferred access to more than 50% of covered lives in the commercial plans, but also in Medicare Part D. We see a steady improvement in access in both Part D and commercial plans. That is up more than 20% point in commercial and 30 points in Part D compared to the third quarter. We know that physicians' concerns are about plan reimbursement and affordability for patients, and that has clearly hindered the product trial. This improved access should really help us move forward into the year, and we're doing a number of other things which we could talk about later if you wanted to. Outside the United States, our good performance in Germany continues. If you look at the data from our survey panel, we've leveraged our strong protocol adoption to maintain our number one share of SCS initiation in the hospital. This graph actually shows you the total IMS audit data, where our share of the total prescriptions in the OAP market in the hospital is measured. You see a clearly improving trend and a very encouraging development of our prescriptions here. At 13%, this is a lower number than our SCS panel, but the panel measures new initiations. These numbers also includes other indications, not on the SCS use, but using of antiplatelet products in other indications. Overall, a very nice progression. Our retail volume market share, again, all usage is also rising very quickly. Our second important country in Europe, and it's a very important one for Brilinta because it's the largest OAP market in Europe, and the latest market for which we have some early launch tracking to report. It's still very early days, but we've had a faster protocol uptake and share of SCS initiations than when we launched in Germany. Even on just six months of data, our penetration of the hospital and retail volume for all OAP usage is on par with the prasugrel launch uptake in its first six months, despite our being third to market. Here in France, pretty encouraging market development. If we move to the next slide, a final word on Brilinta. We received approval in China in the fourth quarter. Of course, this is only a first step. We now must achieve listing on the RDLs before we can really drive revenue there. Let me now move on to the Onglyza franchise. Our share of the alliance revenue for the Onglyza franchise was GBP 323 million for the year, which is up to 53%. Much of this is still in the U.S., where the alliance revenue was about $237 million. If you look at the scripts now for the Onglyza franchise in the U.S., they were up 45% for the year, which is well ahead of the DPP-4 market growth of about 22%, and our share is steadily improving. Our total franchise share was up 1.3% percentage points during the year, with the growth coming from KOMBIGLYZE XR on the background of a stable Onglyza market share. The sales in the rest of the world for Onglyza were up 56% to GBP 86 million. We've now launched KOMBIGLYZE XR in Brazil and in Mexico. In Europe, the first launches of Kombiglyze took place in the first quarter of 2012, which should really help performance in Europe, where the combination products are very important. Symbicort had another good year. Very important product for us in the next few years. Sales in the U.S. reached the $1 billion milestone for the first time. We've achieved steady growth in total prescriptions. The market share is up two percentage points over the last 12 months. We are now at 22%. Importantly, our share of new patient start is 28%, which gives you an idea of the upside that is still there for Symbicort in the United States in terms of our total prescription share. The sales in the rest of the world were unchanged for the year at about GBP 2.2 billion. Importantly, we continue to do very well in Japan, helped by the approvals of the Symbicort SMART regimen, but also the COPD indication. The last product I would like to talk about is Nexium. We've achieved a steady financial performance in the U.S. in a highly generic PPI market. Our slowly declining volume is actually partially offset by higher realized selling prices, a mixed effect which is due to the loss of low-margin business in Medicaid. Really what I wanted to talk about is Japan. As you will remember, Nexium sales in Japan were treading water for most of the year, essentially due to the provisions under the Ryotanki that limited prescriptions for new products in their first year on the market to just about two weeks' supply. That certainly limited Nexium. The two-week limit was lifted in October, the performance has really accelerated. If you look at the next slide, it really shows the tremendous success we've experienced with Nexium, which is now the most successful launch ever in Japan. A great performance by our commercial team in Japan, which is really an outstanding team. I'd like to stop here and turn the presentation over to Briggs, who will review our 2012 pipeline progress. Thank you. Thank you very much, Pascal. Hello, everyone. My name is Briggs Morrison. I'm the Executive Vice President of Global Medicines Development. I've been with AZ about a year, held a similar position at Pfizer before that, and multiple development positions at Merck before that. I'm a medical oncologist by training. Today, I want to give a brief update on the priorities for R&D at AstraZeneca on our portfolio, including the pipeline movement, some highlights from 2012, a late-stage update and the anticipated news flow for 2013. We've set some clear and focused priorities to achieve scientific leadership, progress the pipeline, rebuild the phase III portfolio, enhance R&D productivity, strengthen our capabilities in translational science and personalized medicine, and foster a culture of high quality and innovative science. As you'll see, our phase I and II pipeline is shaping up, our investments in large molecules are particularly taking effect. We've built good momentum in the portfolio, it's important that we now pull these through to patients. Let's look at our pipeline movement since 2011. Pipeline now includes 84 projects, of which 71 are in the clinical phase of development, 13 are either launched, approved, or filed. There are 11 NME projects currently in late-stage development, either in phase III or undergoing regulatory review. During 2012, across the portfolio, 39 projects have progressed to the next phase, 12 molecules entered human testing, 19 projects were discontinued. This slide shows a detailed view across our phase I, II, and III, both small and large molecules. There's a lot on it's hard to read, you should have a copy. You can see that we now have a good balance of small and large molecules today, with the large molecules making up about 45% of our portfolio. The work we've done in the last few years has injected real quality into our pipeline. This is reflected particularly in the phase I and II portfolio. I think this bodes quite well for what we can expect to enter into phase III in the coming years. I'll touch more on that later in the presentation. Last year, there was a lot of good activity in the pipeline, as Pascal mentioned. We saw, for example, the launches of Zinforo, Forxiga, and Kombiglyze in Europe, OXYS, Symbicort SMART, and Symbicort COPD in Japan, phase III starts for durvalumab and CAZ-AVI. In the fourth quarter, we also had the approval for Brilinta in China. I'm going to start with Brilinta as I talk a little bit more about some of our late-stage assets. Brilinta continues to make great progress in terms of its availability around the world, now with approvals in 88 countries. It's under review in a further 18. PARTHENON is our lifecycle management program for Brilinta, which we have continued to invest and now has over 50,000 patients enrolled in a number of large outcomes trials. We've completed PHILO, our acute coronary syndrome trial in Asia, and anticipate submitting for approval in Japan in the second quarter. Our PEGASUS-TIMI 54 study in patients who have had a previous myocardial infarction is also progressing well, is on track for filing in 2015. We recruited our first patient for the EUCLID trial, for patients with peripheral artery disease in December of last year. Peripheral artery disease, or PAD, affects about 27 million people in Europe and North America. There's currently insufficient evidence on how best to medically manage these patients, resulting in substantial healthcare costs. We anticipate filing the EUCLID trial in 2016. We're also investing significantly in investigator-sponsored trials. In the fourth quarter, Brilinta was added to the ACCF/AHA guidelines for the management of patients with ST elevation myocardial infarctions, so-called STEMI patients. This brings to 11 the number of global guidelines in which Brilinta is considered standard of care. In November, the European Commission approved Farxiga for the treatment of type 2 diabetes in the European Union. It's the first SGLT2 inhibitor to gain regulatory approval anywhere in the world. It provides physicians with a completely new option to improve glycemic control with the additional benefits of weight loss and blood pressure reduction. We've now launched Farxiga in the U.K., Germany, and Denmark and received Therapeutic Goods Administration approval in Australia. We've had constructive discussions with the FDA about the Farxiga NDA in the United States. We will be providing additional data from ongoing studies and expect to resubmit in the middle of this year. Assuming a standard six-month review, we think we will hear back from the FDA by the end of this calendar year. We're excited about the future of the dabigatran franchise and have submitted a marketing authorization for a dabigatran metformin immediate-release fixed-dose combination. Did that in the fourth quarter of last year. We expect to begin enrollment in DECLARE, a large cardiovascular outcomes trial, by the end of this year. For Onglyza, the SAVOR-TIMI 53 trial is fully recruited, and the follow-up is ongoing. This study complies with the new FDA requirements for assessing cardiovascular risk for patients with type 2 diabetes. As the trial progressed, we recruited more patients more quickly than anticipated. We increased our enrollment numbers from 12,000 to 16,500. This increase in sample size allowed us to accrue the events more quickly than we had planned. We and our partner, BMS, expect to submit the data from SAVOR to regulatory authorities around the world in the second half of this year, which is two years ahead of our initially planned timeline. For Symbicort, in June, Symbicort SMART was approved and launched in Japan. The COPD indication was approved in August and launched in September. PATHOS is a real-world evidence study on the impact of different COPD management strategies on outcomes for patients. That was shared at ERS. 19,000 patient years of data. This is the largest and longest real-world study to compare the effectiveness and safety of Symbicort compared to fluticasone-salmeterol in patients with moderate to severe COPD. Specific to the U.S., the next step for Symbicort is the submission of the breath-activated inhaler, which is on track for a 2014 filing. Let's also talk about the molecules that are in phase III. For naloxegol, the phase III CODIAK studies are progressing well. CODIAK is designed to investigate the safety and efficacy of naloxegol as a medicine to relieve constipation, which is a side effect of the prescription use of opioids for chronic pain management. We announced the top-line results from CODIAK 4 and 5, and CODIAK 7 in patients with non-cancer-related pain who have opioid-induced constipation. We released those results in November of last year. More phase III data from both of those trials will be presented at DDW in May. Enrollment in CODIAK 8, which is a long-term safety trial, is complete, and those results are expected this quarter. We remain on track for regulatory submissions in the U.S., Europe, and Canada in the mid part of this year. Of course, pending our full analysis of all the data from all 4 trials and a pre-NDA meeting we have with the FDA. CAZ-AVI is an innovative combination of an established antibiotic, ceftazidime, with a novel inhibitor of bacterial resistance called avibactam. CAZ-AVI aims to treat hospitalized patients with complicated intra-abdominal infections, complicated urinary tract infections, and hospital-acquired pneumonias, including ventilator-assisted pneumonia. We enrolled our first patient in the phase III study in 2012. Brodalumab is the anti-IL-17 receptor monoclonal antibody that we are developing in collaboration with Amgen. This is being studied for the treatment of psoriasis, and phase III was initiated in the third quarter of last year. A psoriatic arthritis phase II trial was also completed, and we are in the middle of analyzing that data. Fostamatinib is the first oral kinase inhibitor with selectivity for the spleen tyrosine kinase, so-called SYK kinase, in development for rheumatoid arthritis. Our phase III OSCAR program is on track to report in the second quarter of this year, with anticipated filings in the U.S. and Europe at the end of this year in the fourth quarter. Our acquisition of Ardea last year brought in the phase III asset lesinurad. Lesinurad is a selective uric acid reabsorption inhibitor that primarily targets URAT1 and OAT4 in the proximal renal tubule cells that regulate the excretion of uric acid from the body. It is being developed as an oral, once-a-day chronic treatment for gout, and it is being studied in an ongoing phase III program, including as an add-on to allopurinol in patients who do not reach their target serum uric acid concentrations with allopurinol alone. We think due to its complementary mechanism of action and its tolerability profile, it has the potential to fundamentally change the way that gout is treated by helping the majority of patients actually get to their goal of 6 milligrams per deciliter in serum uric acid. We are targeting regulatory submissions in 2014. In 2013, there are five programs that could potentially progress to and start phase III. In 2014, there are an additional 11 programs. Not all of these will make it, but this figure clearly reflects the progress we've made in our phase I and II pipeline that I mentioned earlier, and our consistent focus on quality, I think, increases the chances that these molecules will progress and start phase III. This year, as well as the upcoming phase III starts, there are many milestones anticipated. Further phase III results for Fostamatinib and naloxegol. Several submissions, including BRILINTA in Japan and Farxiga in Japan and China, and the launch of FluMist Quadrivalent Flu Vaccine in the U.S., to just name a few. I think, as you can see, our focus on quality, the innovative science in our lab, and the enhancements to our approaches are beginning to play out. Continuing this momentum over the next few years will, I believe, result in a significant increase in our phase III new molecular entity programs as we progress the pipeline. I'll speak more about additional opportunities we are creating with our pipeline at the Capital Markets Day in New York in March. Now I'd like to turn the microphone over to the man who answers all the hard questions, Simon Lowth. Thank you, Briggs. I'm going to cover six topics. I'll recap the headline numbers for the full year, and the fourth quarter. I'll cover our core operating profit performance, and I'll emphasize the key drivers of operating profit and margin. I'll update you on the progress of phase III of our restructuring program. I'll describe our cash performance and our decisions on shareholder distributions. I will make the bridge from our core P&L on the old basis to our new definition of core financial measures. Then using this new core as the baseline, I'll close with our thoughts on guidance for 2013. Pascal covered the overview of the full-year performance in his opening remarks. To complete the picture, we bridge from core earnings per share of $6.41 to a reported earnings per share of $4.99, with the usual adjusting items for restructuring, amortization, impairments, and legal provisions. While core earnings per share declined by 9%, reported earnings per share fell by 29%. The faster decline in reported EPS is due to higher restructuring and amortization costs in 2012, and of course, the $1.08 benefit in 2011 from the sale of Astra Tech. I don't intend to go into any detail on the fourth quarter accounts. The revenue picture is similar to the full year. Core EPS, however, benefited from the favorable adjustment to deferred tax balances related to the reduction in the Swedish corporation tax rate. I'll now turn to the P&L for the full year, and I'll focus here on core margins and profit. The press release does, of course, contain the statutory numbers and a detailed reconciliation to the core measures. When I refer to growth rates, they will all be on a constant currency basis. Core gross margin was 81.2% of revenue. That is down 90 basis points compared with last year, which benefited from the settlement with PDL BioPharma in the first quarter. For 2012, there were benefits from the absence of Astra Tech and Aptium Oncology, and there was also a small uplift in the second half from the accounting treatment of the Merck second option. Countering those upsides, there was an unfavorable impact from product mix. Core SG&A expense was down 12% compared with last year. Restructuring benefits and spending discipline were partially offset by increased investment, particularly in emerging markets, and the inclusion of the amortization expense related to the Amylin Pharmaceuticals intangible assets acquired in the expansion of the Diabetes Alliance. The excise fee imposed by the enactment of U.S. healthcare reform measures amounted to 2.8% of core SG&A expense for the year. Core other income for the year was up 24%, reflecting the GBP 250 million from the sale of NEXIUM OTC rights. Core pre-R&D operating margin was 53.2% of revenue. That is 90 basis points lower than last year, as the benefit from higher core other income was more than offset by higher core cost of sales and core SG&A expense as a % of revenue. Core R&D expenditures were down 11% to nearly GBP 4.5 billion. We did absorb significant new spending on in-licensed, acquired, or partnered projects during the year. These are more than offset by restructuring benefits and by significantly lower intangible impairments in 2012 compared with last year. The volatility related to impairments is one of the reasons we moved to our new definition of core measures. Core operating profit was GBP 10.4 billion at 18% lower than last year. Core operating margin was 37.3% of revenue, 160 basis points lower than last year. We turn to our productivity program. For the full year, we've incurred GBP 1.6 billion of costs associated with the phase III of restructuring that we announced back in February 2012. If you add in the GBP 261 million, that you'll recall was charged in the fourth quarter of 2011, it means we've around GBP 300 million left to go against the total program estimate of GBP 2.1 billion. Most of this will be taken in 2013. Actions involving around 6,300 of the estimated 7,300 positions that will ultimately be impacted have been completed. Total annual benefits of GBP 1.6 billion by the end of 2014 are targeted from this phase, and we estimate that around GBP 350 million were retrieved by the end of 2012. Bringing together all three phases of restructuring, we have reduced gross headcount by around 27,000 positions. After reinvestments, we've achieved a net reduction of over 15,000 positions. Cash generated from operating activities was GBP 6.9 billion for the year, compared with GBP 7.8 billion in 2011. Lower tax payments only partially offset the lowered EBITDA for the year. Cash outflows on externalization activities were GBP 5.1 billion, chiefly related to the purchase of the Amylin Pharmaceuticals intangibles and the GBP 1.1 billion acquisition of Ardea Biosciences. We ended the year with a net debt position of GBP 1.4 billion. Turning to cash distributions to shareholders. The second interim dividend is GBP 1.90, which brings the dividend for the full year to GBP 2.80, maintaining the same dividend as last year. This is consistent with our progressive dividend policy by which we aim to maintain or grow the dividend each year. It's a policy that we're committed to going forward. We've revised the basis by which we assess dividend cover. Previously, you may recall the dividend cover target was two times based on reported earnings before restructuring costs. Now, with the adoption of our new definition of core financial measures, the dividend cover target is now two times based on core earnings on the new definition. We believe that this new core earnings measure is a better indicator of the cash cover for the dividend. 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. The board's view is that the annual dividend will not just reflect the financial performance of a single year taken in isolation, but it will reflect its view of the earnings prospects for the group over the entire growth of the investment cycle. Likewise, it recognizes that dividend cover in any given year is likely to vary from the two times cover target. Prior to suspending the 2012 share repurchase program, we executed net share repurchases of GBP 2.2 billion. The board will continue to keep under review the opportunity to return excess cash to shareholders through periodic share repurchases. However, the board has decided that no share repurchases will take place in 2013 in order to maintain flexibility to invest in our business. As we announced last quarter, beginning with the first quarter of 2013, we'll be updating our definition of core financial measures. The principal change is to exclude all intangible asset amortization and impairments, with the exception of information systems related intangibles. We provided the reconciliations for the four quarters of 2011 and the nine months of 2012 back in November. In today's press release, we've included the reconciliations for the fourth quarter and the full year 2012. I know that many of you have already adjusted your 2013 models, but others may yet to do so. Just to be absolutely clear, here is the core P&L for 2012 reconciled to the new basis. I'll not take the time to go all the way down all the accounts here. I might just point out the core gross margin against this new basis, I might expect to see some decline in 2013. The other item I'll call out is, of course, that the new core EPS figure is GBP 6.87 for 2012 versus GBP 6.41 on the old basis. I'll now turn to our guidance for 2013, it's in the context of this new core baseline. The financial performance for the full year of 2012 was defined by the significant revenue decline associated with the loss of exclusivity for several products. Seroquel IR alone declined by GBP 3 billion. Regional losses of exclusivity for Atacand, Nexium, and Crestor combined for a further negative impact of more than GBP 1 billion. Against this revenue profile, spending discipline and restructuring benefits can only be expected to partially mitigate the impact on core profits and margin profits, particularly as investments to drive future growth and value are to be made. A larger decline in core EPS for 2012 was averted by the favorable impact of two tax-related items. GBP 0.19 from the tax provision release in the second quarter, GBP 0.18 from the adjustment to deferred tax balances in the fourth quarter. 2012 also benefited from GBP 0.16 from the sale of OTC rights for Nexium in the third quarter. Together, those three items amount to GBP 0.53 per share headwind as we move into 2013. For 2013, we expect challenging market conditions will persist, including continued government interventions in price. The revenue impact from the loss of exclusivity will continue to affect the revenue performance with the first quarter, particularly challenging, since Seroquel IR and Crestor in Canada have not yet reached the 12-month anniversary since generics entered the market. For the full year of 2013, the company anticipates 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. These will provide the necessary headroom to invest behind key growth platforms and in progressing the pipeline with the aim to combine core R&D and SG&A expense, to hold core operating costs in 2013 to a slight increase compared with 2012 on a constant currency basis. Core other income is expected to be under GBP 600 million for the year. The reported tax rate for 2013 is anticipated to be around 23%. With a revenue and operating cost profile in line with our guidance, core EPS will decline significantly more than revenue in 2013. In January 2010, the company outlined planning assumptions for revenue and margin evolution for the period 2010 to 2014. With 2013 guidance now in place and in the context of an updated corporate strategy, these planning assumptions for the remainder of the period have been withdrawn. Financial guidance for 2013 has been based on January 2013 average exchange rates for our principal currencies and takes no account of the likelihood that average exchange rates for the remainder of 2013 may differ materially from these rates. I'll hand back to Pascal. Pascal? Thank you, Simon. I just wanted to close this session with a few thoughts on my first three months at AstraZeneca. It's too early for us to share any views as to what our strategy will look like. We wanted to do this at the end of March as we had communicated to you earlier. We really want to do a thorough job of analyzing our options and looking at our business and developing priorities and strategies in detail. My priority for the first three months was really to get to know the people, understand the organization, understand the culture, understand how this company works, what it is we do very well, and what we could do better. As you can imagine, an organization of that size is not something you get to know very quickly. Fundamentally, the most critical piece is to understand the people, and in particular, the critical leaders that are making this company work. I have gone around the world. I've visited about 15 sites in many countries. I've visited every single research and development site. I've gone to many of our commercial organizations. I've had many town halls. I must have interacted with more than 8,000 people. I've met many of our leaders. I have had many roundtables of 8 to 10 people, cross-functional roundtables in various sites. I must have run 35 or 40 of those, which enabled me to hear from 350 to 400 people. I think I have now a good sense for the organization and what it is we do well and what we need to improve. As I have shared with some of you in the last few weeks. One of the things that really strike me the most at AstraZeneca is that despite two or three years of waves of restructuring, the people are still very, very motivated. Sometimes a little bit disoriented, of course, as you can imagine, because you saw the headcount reduction that the company has experienced in the last few years, and you can't do this without impacting people. Incredibly engaged and committed, passionate group of people, and very committed to doing the right thing and committed to the success of the company. Second thing is the collaborative spirit is quite unique, actually. I've worked for many companies. I've been in many different places, and the level of collaboration in the organization is quite remarkable. I also believe we have tremendous science. Got great scientists around the world. It's not only me saying this. I have talked to, as you can imagine, many opinion leaders, many people I know from my past lives at the previous company or other companies in oncology and diabetes and cardiovascular medicine. We've also run a series of meetings, advisory boards, probably spent in total close to two weeks doing this with some of the top leaders in the world, top scientists in oncology, in metabolism, cardiovascular medicine, et cetera. Typically what I heard was that AstraZeneca and science ranks in the top three companies in the industry, three, four companies in the industry. Good fundamental science and fundamental scientists. Now, you might ask me what is it that you need to do then to leverage this, and why is the pipeline not what you could expect it to be? I think really over the last few years, we have, as a company, become a little bit complicated, and in many ways out of these complications, a bit conservative and complicated with quite a number of management layers. A great collaborative culture, but also, as a result, very consensus driven with sometimes lack of clarity of decision making that leads to many committees and not necessarily rapid decision making. One of the things we need to do, it was a clear resounding message from many of those scientists, is select the assets that can do well and commit to those and prioritize them. We haven't been able to do this very well, I must say, in the past, and that is certainly something we will do better in the future. Fundamentally, many strengths and strong biology, strong understanding of biology, a strong biologics unit, strong small molecule. If I could have my first slide, maybe I wanted to share with you a few reasons why I believe this company can do well. If you look at it, AstraZeneca has strength in biologics. It has strength in small molecules, of course, and that's the heritage of AstraZeneca. It has strength in immunotherapeutics, and also it has quite unique antibody engineering technologies. These biologics immunotherapeutics and antibody technologies, they are part of the MedImmune organization today. Part of it is the CAT heritage, the Cambridge Antibody Technology here in Cambridge, U.K. We have quite a unique combination of capabilities. We're not the only ones having some of those, but to the extent we have them, I think we have a very special place. If you look at the pipeline itself, if you look at the next slide, this is a complicated chart, like many of those pipeline charts are. I just want to leave you with two messages here. One is, if you look at phase I, phase II, and phase III, you have two columns. The left one is the small molecules. The right one is the biologics, the large molecules. What this tells you is that our pipeline is about 50/50 small and large molecules. It's not reflected in the phase III late development portfolio, of course. It's too early for this. Many of those products are progressing now through the development program. 50/50 is the first message I want to leave you with. The second is, if you look at the colors and if you look at the top color, the red color, you will see a lot of oncology programs there. I guess the message to you is we are going to be rebuilding oncology. Cardiovascular medicine, diabetes, close to my heart. Oncology is also close to my heart, and I'm very happy to have Briggs leading our development function because Briggs is an oncologist by training, and oncology, of course, is very close to his heart. This is clearly one of the things we're going to do is rebuild our oncology pipeline. Finally, as you can see here, I know it's written in small letters and hard to read, but we have a very rich program of life cycle management extensions around BRILINTA, around our diabetes franchise. A very full program. The key for us is to pick the winners out of this pipeline and move them forward and commit and invest in those. Clearly, this is what we're going to do. We're going to invest in this pipeline and build it organically. It is sometimes hard to see because when you are faced with headwinds like we are faced, losing patent protection for NEXIUM, SEROQUEL, et cetera, the top line, of course, is very substantially negatively impacted by all of that. It's hard to see that there are underlying growth opportunities, but there are, and I've talked about those before. If I get the last slide. Beyond the pipeline, which will drive our future growth, BRILINTA is still, I believe, a growth driver. GBP 89 million last year doesn't feel like it is a massive growth driver, but I believe we can, through really hard work and clever work, we certainly can turn this product into a true growth driver. It will be a slow, steady progress. I believe that by the second half of 2013, you will see a different trajectory for this product, and we have signs that we actually can do it. The second is diabetes and our alliance with BMS. Diabetes is a disease that is a progressive disease, as you know. Patients tend to progress. They receive one, two, three treatments and receive combinations. There is room for a variety of products. We have, of course, a GLP-1, we have a DPP-4 with ONGLYZA, we have combinations, and we have now Forxiga, SGLT2 inhibitor, which was just launched in Germany and so far, and this is very early days, of course, but so far is getting pretty good reception. The emerging markets have always been important to AstraZeneca, which is a company that was one of the first ones to identify the potential of those countries. We have tremendous presence in many of those markets, in particular in China, because when you talk about emerging markets, typically you really mean China. It's the biggest potential out there. We have 5,000 people, about five. That's about the size of our presence in China. We have a very large sales force. We have a tremendous leadership team, and I believe that moving forward, we can drive faster growth in China than we have in the recent past. The fourth one is our respiratory franchise. SYMBICORT certainly will face challenges in Europe, even though the analogs are not generics, or the market dynamics are different. Certainly, they will impact us negatively. But in the U.S., we have tremendous potential. You heard what I said a bit earlier. GBP 1 billion is what we achieved. We have 22% share, 28% new patients initiation, so a lot of potential. I'd like to remind you, ADVAIR was a GBP 5 billion product, so there's a lot of room for growth in the U.S. And the emerging markets in China in particular, in Japan, we have growth potential for SYMBICORT, and we will build our respiratory franchise with our own portfolio. There's quite a number of products that address the respiratory field in our portfolio, but also we'll be looking at licensing and partnering, of course. The last one is Japan. Japan is a market that has been stable for the last few years. It's starting to grow steadily, 3%, 5% a year. Again, in Japan, we have a tremendous leadership team and a tremendous organization. We have a lot of products that still have growth potential. SYMBICORT for sure, NEXIUM, CRESTOR, many others. So Japan will be one of our growth platforms. Clearly, beyond these patent expiries, we have potential for growth. My conclusion is that there is a way forward for us organically through these patent expiries by delivering better on what we have in our hands, the portfolio, of course, but also the pipeline, but also what we have in the marketplace. Complement this with a string of pearls business development strategy, finding the right opportunities out there and doing the right thing, developing and commercializing them. There is opportunities for us to partner further, just like we've done with Amgen or we've done with BMS, and bring our capabilities to bear to better market or develop products where we have expertise. Finally, as I said before, we'll certainly be open to initiatives that are more transformative deals. I also wanted to tell you that the probability, the likelihood of this is lower because there are not so many. They have to make strategic sense. We have to be able to operationally deliver on something like this. Many of those large acquisitions are difficult to execute, they have to be operationally feasible. Finally, and importantly, they have to create value, of course. We're going to be open to all of this. I really believe that our base plan, which is execute on what we have and complement it with business development, can actually take us through the patent expiry, the cliff we are facing, then start growing again at some point in time in the not-too-distant future. That's really what I wanted to share today. The message is we are committed to science. We're committed to innovation. We are committed to our pipeline. We'll invest in growing our pipeline. We'll invest for long-term growth. We will return to growth one way or another. We will share with you more of our plans Not only our strategies and our plans, but also our pipeline and share all of this with you in March. Invite you all to join us March 21st, you can get a sense for why we are so excited and why we believe we can actually turn this company back to growth. Thank you so much. I'll open the floor for questions now. Amit Roy from The Mirror. Thank you. Just a couple of questions around CRESTOR. Do you have any plans to have any dose discrimination on pricing? When simvastatin went generic against Lipitor, they end up dropping the lower dose by about 30%, I believe. If you look at the prescriptions, you can see the two lower doses are now, even the 20 mg is going negative in the U.S. The two lower doses make sense because they're similar to Lipitor. Would you rather give some price play on the lower dose and keep the price higher on the higher doses, which are quite unique? Secondly, in terms of pricing CRESTOR overall for next year, you've managed to, in the U.S., keep pricing quite high and realize some despite loss of volume. Will you be able to keep pricing high for next year in CRESTOR in general? Many thanks. Amit, I'm not sure I got the first question. Let me just try, and if I didn't get it, you can always ask again. In the U.S. in 2012, our price didn't decline much. In fact, what happened is that we lost the Medicaid business. We lost volume out of the Medicaid business. Our net price was more or less stable because of the effect of the Medicaid, losing the Medi business, which is at a lower price. For 2013, the price will show some decline. The good thing is we know what it is going to be, and we know that we have good coverage and good reimbursements for 2013 because we have completed our round of negotiations with managed care. There will be some pressure on price in the U.S. in 2013. I won't tell you how much, but there will be some price pressure, yeah. Hello. Yep. Thank you. That was the answer to my second question. The first question was around CRESTOR pricing by its different doses, the four different doses of CRESTOR. When one looks at the prescriptions, you can see that the two lower doses, the five milligram and the 10 milligram, are the ones that are suffering the most. 20 a little bit. Which is to be expected considering, as a physician myself, we tend to think that the five and 10 are similar to the 20 and 40 Lipitor. When Pfizer faced the same issue with generic simvastatin, we saw them drop the price of lower dose Lipitor down to be able to compete with the generic simvastatin in that case. Do you have any plans on changing the price of CRESTOR by dose, but essentially keep the higher doses at a high price, but drop the price of the low dose to try to maintain some share in the face of generic atorvastatin 20 and 40 milligrams, typically? Our focus is on the patients who need the high dose because that's really where you can see the best clinical benefit. Our focus for CRESTOR is the post-ACS patients, in particular, and those patients who need higher dose, where clearly we deliver better benefit than atorvastatin. In that setting, we've been able to defend the use of CRESTOR quite well without having to adjust our price too dramatically. We're certainly adjusting the price of the small dose. I can't tell you precisely whether we have specific plans for the low dose. We could get back to you on this one unless, Simon, you know the answer. No. The one thing I can tell you is that the absolute commercial focus is the higher dose, where really the benefit is. Yeah. Sachin Jain, Bank of America. Three questions, please. Firstly, on cost growth. You've alluded to some growth in 2013. I wonder if you'd give us any color 2014 and 2015. Is it fair to assume continued growth? I guess that comment in the context of the savings program. I see you've got roughly GBP 1.3 billion left. How does that phase 2013, 2014, is there potential for greater cost growth once the saving program begins to slow or even come to an end? Second question, just within your sales guidance, if you'd give some color as to what emerging market growth is assumed, given that your growth rate for the full year, of course, we're still running around 6%, I think. The third question on R&D. Just real top-down question on the slide you put up on phase II to III progression decisions this year and next year. I just wonder if you'd give us any color on the average time those compounds have been in phase II. I guess an external perception is a lot of those compounds have been sitting there for a while. Is that perception correct or not? Thank you. Thanks, Sachin. Maybe, Simon, you could take the first two, and Briggs will take the R&D question. Certainly. If we start with your second one first, which was on emerging markets. I think Pascal described some of the press Sachin faced in 2012 in the emerging markets. We had good underlying growth in markets like China and Russia, but some specific issues, as he described, in Turkey, India, Brazil, and Mexico. In addition, of course, we had the drain in the first half, really from the supply chain issues, which impacted emerging markets. As we move into 2013, we do expect the growth to recover in some of those drains on 2012 sort of annualizing out. We'd expect to see some stronger growth going into 2013 and continued good fundamentals in a number of those core markets, and we're investing behind those. Some acceleration. The first of your questions on the cost. We do see costs, as you said. Productivity improvement programs restructuring continue to deliver benefits. The phase III program, the remaining benefits, when we describe the benefits, you're probably familiar with this, we describe it as the annual rate at the end of that year. I would expect sort of the remaining benefits, those to be reasonably easily phased between sort of 2013 and 2014. Most of the costs coming into 2013, but the benefits flowing out in 2014. If you come and look at the cost run rate in 2013, that's a combination of the restructuring, the productivity delivering. As you saw actually from my headcount, that bridge, we're reinvesting where we can see growth potential. You saw that in the movement of headcount, and that's certainly a feature as we go into 2013. We're investing behind our growth platforms in sales and marketing, in emerging markets, but elsewhere. We're investing to progress the pipeline. That certainly is leading to the guidance we provided for 2013, which is to hold the increase to a slight increase. 2014 and 2015, we'll update you when we get to those years. It's going to be shaped by the nature of the investment opportunities that we face. Hope that helps you on that. Let me just add on the, as far as the emerging markets, if you look at China, we grew by 17% by the last year. I think we can grow faster than that in China. We have many products that really have pretty good potential there. I mean, CRESTOR is only GBP 100 million in China. It's growing fast, but it's only starting. The potential is still enormous. NEXIUM is growing, can do very well. Yervoy has tremendous potential in China. SEROQUEL is growing. We can certainly do better than 17%. The growth in those countries should overall accelerate, as Simon was saying. Briggs, do you want to? Yeah. The pipeline tells you when each of those molecules started the phase they're in. You can go down and take a look. I think it is fair to say that some of the ones that are in the potential may have been there longer than one would have liked. I think the sense of urgency that we as a leadership team are bringing to the portfolio is exactly that, to look at what we have and ask what are those molecules, as Pascal said, that we need to accelerate, get them into phase III and get them out to patients. What happened in the past is what happened in the past. What we're focused on is what do we have for substrate today and what can we move it quickly forward. Sorry, just a follow on. For those one that have been sitting there for a while, do you have additional data or just greater conviction that's driving the decision? Just to clarify that. I can give you an example. olaparib was one that we do have additional data. We've done additional studies and we have longer term follow-up on patients that were in trials that we've done. From that data, which I think most of it we presented at ASCO in May or June, you'll see that there's new information that gives us greater confidence about the molecule. This is typically an example where I think one of the things as a company we need to do better is identify biomarker and have a better personalized health care approach because olaparib was developed in all comers. In fact, we find now that BRCA mutations are really the population that is the most likely to respond to this drug. Sort of we are two years behind the ball a little bit. We have new data, as Briggs was saying, that is very encouraging actually. Now what we need to do is move forward in next stage development. Alexandra Hauber from JPMorgan. Four questions, please. Firstly, on the top line, you gave quite a range. Can you just roughly tell us where the key uncertainties are in your forecast? Secondly, on the gross margin, I think you said that may decline a little bit year-over-year and I was surprised about that given that you're going to have a full year benefit of the option 2 accounting. There's also a large proportion of alliance revenue which I think comes to you at 100% gross margin. Can you just explain where the negative mix effect is coming from and why it's so strong? Third question, Cimzia code obviously been great success story in the U.S. and these market shares have been going up in a straight line, but at a GBP 1 billion and 23% market share, you're no longer the little guy who's playing catch up. How certain are you that you can continue to drive further market share gains? Is it as simple as that as long as that new patient market share is staying significantly above the overall market share, are you confident that you can get that additional 4% share at the very least? The last question is on moxetumomab, which you said I actually can't remember whether the decision has to be taken I think, whether it needs to be taken forward. Let's assume it is going to be taken forward. This is an anti-CD22, how widely applicable is that in hematological toxicities and how aggressively would you bring this forward? Would it be a very step-by-step going to very refractory populations first? Simon, do you want to take the first couple of questions, Alexandra, over and maybe Ruud you would take the Cimzia code then? Alexandra Hauber, on the gross margin, I indicated that we felt we'd see some downward pressure on gross margin into 2013. That's comparing on a new core versus new core. We're looking through the Merck effect so that isn't a driver of it. You are right, as the alliance grows, particularly from Glaxo, you'd think that would have a bit of a benefit. That is being offset though, as the proportion of our sales in emerging markets grow, that tends to put a bit of pressure on the relative mix of the geographic mix. You've also got the unwind, the full year effect from Seroquel flowing through. It's really a function of geographic and product mix, nothing very significant. I would also say, Alexandra Hauber, we're continuing to work very hard from a supply chain efficiency standpoint to mitigate that mix effect and of course, the sort of wider pricing environment we face. In terms of the revenue, you asked, I think, what some of the uncertainties are. I think that they're familiar to all of us. There's government price interventions. I think I shared this with you before. Up until really the last 12-18 months, we've been able to forecast really very accurately, as it turned out, the annual price effect, particularly in Europe and some of our key markets. What we found in the last 12-18 months is we're getting less predicted price interventions of various forms, and in some markets, coming back several times with different types of programs. I would say first uncertainty is price interventions, particularly in Europe, but in some other markets. The second is that what has characterized our revenues in the last 12-18 months has been some loss of exclusivity in some well-followed, well-appreciated markets where the patent has expired. We do also have a number of patents, particularly formulation patents, where we continue to defend our intellectual property, but we've had generic companies launching at risk. You may have followed, for example, SEROQUEL XR in Germany, would be a good example of that. If you also look at the notes to the accounts today, you will see where we've tabled out the various patent proceeding matters we're involved in. Clearly, some of those have some binary outcomes around them. I would say government price intervention, loss of exclusivity, but actually in some of the markets that may not be tracked as closely as in the past in the European markets, Australia. Those are the two main uncertainties. In providing you with a range in terms of our revenue decline, that builds in the range of outcomes that we could envisage. Hope that helps. Thanks. Simon? Yes, absolutely. If I get your question right about the Symbicort performance in the U.S., let me first echo some of the words Pascal was using, that we are very pleased that the growth is there. We believe we have a very strong team in place locally in order to further boost the performance moving forward. We are very strong in asthma, historically. We feel that we are gaining market share in the COPD segment, but that all in all together, it gives us the confidence moving forward that Symbicort can gain substantial market share moving forward in the U.S. marketplace. Can you take the question on moxetumomab? I think your question about moxetumomab, I think was your last one. Yeah. I think what you'll see, as you know probably quite well, in oncology, it's not uncommon that a molecule can work for multiple indications. You'll see that with olaparib, you'll see that with selumetinib, you'll see that with moxetumomab. Its lead indication is actually a small orphan indication, hairy cell leukemia. The data is quite compelling and quite impressive, and we feel compelled, obviously, to get that done and get that out. As you correctly note, there's a broader envelope of opportunities there that we'll continue to explore. Louis, I don't see your question on XFL. Basically, it seems that you have seen the hairy cell data already. The question is, does that make you confident enough that you can go for a really broad rollout, or is there anything why the molecule will be more always in the niche applications of hematology? Yeah. I think if you're asking about the larger sort of lymphoma indications, I don't think we have enough hard data yet. Theoretically, it makes sense. I think getting the dose and schedule right in some of those other indications, we're still working on. Sorry. Maybe after that question, I will ask Tim or Jo, who are on the phone, to ask their question. To the extent that you can, I realize we'll get a greater update in March. Just give us some sense of how you're thinking between kind of midterm and the long term, how you're thinking about returning Astra to growth, kind of between those two different time frames. Secondly, Simon, kind of from a dividend cover perspective, you mentioned you're looking at kind of a 2x the core EPS over an investment cycle. If you can just give us a sense for how long that investment cycle is. Is it three years? Is it five years? Kind of how long should we think about that? Thirdly, just for housekeeping purposes, what are you assuming for the outstanding patent litigation for Crestor in Australia in your guidance for 2013? In terms of the first question, yeah, I mean, sort of we'll have to wait until March, I guess. I see our story in sort of three phases, really. The short term, the midterm, and the long term. The long term is clearly about rebuilding R&D and improving productivity in R&D, and we certainly have started working on developing plans and metrics for this. The short term is clearly accelerating the growth of the platforms I talked about earlier because we have to unlock the potential of products like Brilinta, like diabetes, et cetera. It's clearly a short-term priority. The midterm is navigating through this patent expiry phase and returning to growth. I know you'd like to know where we will bottom out and when we will start growing again. We've removed our 2014 guidance. The intent is not to introduce a new one. That's very clear. I don't have a specific number I would give you, but the only thing I can tell you is that we're certainly working as hard as we can to return to growth as early as possible. I hope it's very helpful, but that's all I can say at this stage. I'm sorry. Simon? Yes. Two questions, Gaëtan. The first was about our assumptions, I think, on the proceedings on Crestor in Australia. You asked what we'd assumed in our outlook. The answer to that is that we provide a range, as you're familiar with, in terms of, in this case, the revenue decline. The range is there to cover a variety of outcomes on that matter, success or not, and to meet a range of other matters. It's within that range. That was your question on Crestor. In terms of the dividend cover, yes, we're targeting two times on a core earnings per share basis. We said that we look at that sort of over an investment cycle. Our industry has long investment cycles. We're looking at five, 10 years because it's driven by pipeline renewal. We've obviously been running higher than that for recent years. That's the target we have through that sort of time period. Hope that helps you. Yeah. Maybe just to repeat something Simon said before, and it's really our commitment to our dividend policy. This we wanted to reaffirm and make sure there's no question around it. Maybe what I could do is ask Tim Anderson, who is on the phone, to ask questions. I know he and Jo have been waiting for quite some time, actually. Tim, do you want to go ahead? Sure. Thank you. Thank you very much. A few generic questions, if I can. On SYMBICORT, in what future year should we realistically expect to see generics or quasi-generics start to come to the market in Europe and U.S., or are you confident that this will not happen through at least the next three years? You have two products where there could be different salt formulations introduced in the U.S. by generic companies in the not-so-distant future. With CRESTOR and NEXIUM, if those clear the necessary legal hurdles, like they may, how do you view the potential share losses with those compounds in the U.S.? Kind of extending that question further, is there any chance of seeing different salt formulations against something like CRESTOR launch in Europe, like we saw happen with Plavix a number of years ago? Where even though it was a different salt, it actually took quite a bit of share. Last question is on your anti-PD-L1. When will we see data on that compound? Is there any possibility of leapfrogging that from phase I to phase III? Thank you so much, Tim Anderson. Ruud Dobber, I'll ask you to cover Tim Anderson, because if you want, maybe just quickly let me just make one comment on CRESTOR. That is, I cannot offer much comment because we don't really comment on IP-related matters. We will defend our patents, as you can imagine. The only comment maybe I would make is just to remind you that a different sort is actually not substitutable. If any of those was to reach the market, which we certainly, as you can imagine, will do our best we will to avoid, and we believe we have a strong case. If it happened and those products are not substitutable, and therefore their impact is not the same as you would imagine from a pure generic product. Ruud Dobber? A couple of comments, Tim Anderson, about the SYMBICORT situation. Let's not forget that the device market is a very special market. We still have full patent protection of the device of the Turbuhaler up to 2019. Even if generic analogs go onto the market, it will certainly not be in our device. It can have price implications, of course, if products are clustered in one general cluster. So far we haven't seen any, let's say, indication that generic analogs are entering the market. We are following it. If they are entering, we will take the adequate action we can take from a commercial perspective if there is an infringement from a legal perspective. So far we feel relatively okay with that. Regarding the U.S., more or less the same situation. We have a patent protection of the device, which is still for a long period of time. I cannot say that we are fully protected, but we feel that this device is clearly good enough in order to protect our business for a considerable period of time. When I commented a bit earlier that we expected SYMBICORT to face more challenges in Europe than elsewhere, I had in mind, of course, the impact of analogs. Which again, is not the impact you would expect from a pure generic, but certainly will disturb the pricing. That's the European situation. In the U.S., we don't expect anything like this to happen in the near term. In the rest of the world. In Japan, it's not that relevant. In China, we are doing very well and we also believe we can sustain the goals of SYMBICORT. On PD-L1. As Pascal described the two biotech units and then late two developments. PD-L1 is still in our biotech unit. Tim, it's in phase I now. I think Pascal has pushed all of us to, particularly oncology, to think about ways we can go from phase I to phase III. As that data reads out, that's certainly a candidate to get that kind of acceleration. It's a little further back than being able to do that immediately. One of the things maybe to attract your attention to is the fact that we have a PD-L1, we also have a CTLA-4, and so we have the potential for combination of those two agents, which is quite an intriguing sort of a possibility for us. Of course, we have to see more data before we can formulate any combination strategy. Thank you. Thanks for taking my question. Sebastian Opitz from Panmure Gordon. Just to press on a little bit on the respiratory portfolio on what Tim Anderson's just asked. It's evident from your answer that you're making the fairly reasonable assumption that Symbicort generics in the U.S. are unlikely. Nonetheless, if we're kind to sort of exclude some of the pipeline assets which have been in phase II since 2008, or certainly for more than three years, then your pipeline in respiratory looks relatively light. 16% of your revenues in 2012 came from respiratory growing as a proportion going forward. Quite a significant concentration or risk there, and yet you had respiratory as one of your key sort of engines there. What is the plan there? Are you looking to broaden that pipeline there? Is that something that is a focus area? That's one question on respiratory. This is a tough question, but since you joined on the 1st of October, Pascal, you have often said in public forums that the launch of BRILINTA/Brilique was not optimal. Perhaps I haven't sort of heard that from you in person, and perhaps you can take this forum to just explain to us what the remedial steps that you have taken to rectify that, and what we can look forward to with regards, because that was number one on your growth engine. That's obviously something that we need to understand, and I don't understand it probably through lack of understanding of that specific area. A third question, that's more strategic, I guess. You've come from an organization which had a sort of a diagnostics platform, and obviously companion diagnostics is a significant part of drug development going forward, and that may impact R&D department productivity going forward. Obviously, this organization that you've joined has suffered in the past five to six years from lack of companion diagnostics. Iressa is an example of those. If a right market was available, I'm sure would have had higher revenues. Do you see that as a weakness, and can you address that sort of organically not having a sort of a diagnostics platform, specifically looking at markets for companion diagnostics? Thanks so much. Three questions, right? Let me start maybe with respiratory and then Briggs can also come back. SYMBICORT we've talked about. The management of respiratory would be certainly business development initiatives, but also our portfolio. I'm not sure what you have exactly in mind when you said we have assets there that have been there for a long time. On the biologic side, we have assets that haven't been there for a long time. They've been there a long time because they were in research and then in early development. But products like tralokinumab, benralizumab, those are products that are progressing nicely through the development pipeline, and they are new and they will move into late-stage development over the next couple of years. Maybe Seleni Briggs can tell you more about this. It is a priority for us because I think we have strength there both in development and commercial and also in research, and we can leverage this and build that on the back of our SYMBICORT presence. BRILINTA, some of the things we're doing are things that AstraZeneca had started doing. Certainly we are expanding and doing more of and speeding up, and some of the things we're doing are new, additional, I would say. What we're doing is making sure that we address the cast lab as a priority and in a specific way because the prescription staff there, the physicians there are different. The patient flow is different. So you have to have a sales force that is dedicated and understand that environment. We're working on hospital protocols formulary listings because essentially physicians follow protocols in that setting and you have to be on a protocol otherwise you don't get used. We've made good progress in terms of protocol inclusions in France, Germany, et cetera. We are at 60% and above of inclusion on hospital protocols, at least for the key hospitals we are targeting. We're working on discharge, making sure we don't lose patients from the discharge to the primary care or physician or cardiologist. We have increased our commercial investment, substantially increased the sales force effort, increased the number of commercial programs. We have increased substantially the investment in clinical programs. We are about to start a program in stroke. We have other indications we are looking at. We have unlocked substantial budgets for grants-in-aid, specific studies that physicians are interested in addressing. We also are looking at large phase IV studies. Physicians have lots and lots of questions that are not necessarily the regulatory questions, but they are clinical, daily, practical, clinical questions that they need substantially lifting our effort there. There's a wide series of things we are doing to accelerate the growth of Brilinta, but for sure, we've increased our investment in a number of areas. Finally, companion diagnostics, personalized healthcare. I do believe that suddenly we suffered a little bit from a primary care mindset where every drug has to be given to as many patients as possible. As we know, the world has moved, and suddenly, many of our R&D colleagues at AstraZeneca knew that. The question is sometimes in an organization, some people know something, the organization doesn't know it or hasn't integrated it in the way it goes about developing and commercializing medicines. The capabilities were not always there to do this, understanding identification of biomarkers, diagnostic tests, et cetera, but also the mindset was not necessarily there. Quite frankly, Olaparib is probably a good example of that. That's one of the things we're doing now. The biotech units have responsibility from research to proof of concept. The idea is to go from the bench to the bedside and back as quickly as possible and build early development teams that will capitalize on biomarker, personalized healthcare, and early and fast, speedy early development work. We can indeed identify products that have potential to move from phase I to phase II, III or phase III quickly. All that work needs to be done. A lot of work had been done already, started doing in the last couple of years. We need to do more of this, change the mindset of the organization, and have the appropriate organizational model in place as well, which is really what we have done in this latest realignment. Briggs, do you want to talk about this? The only thing I'd say about the respiratory franchise is, again, I think if you think about respiratory, there's asthma, there's COPD, there's interstitial lung disease, there's a variety of things. Asthma, if you think about it today, we as an industry have, and we as a company have done pretty well to address a lot of the medical need in asthma. There is a unique population that I think biologically we understand better. The molecules that Pascal talked about that are coming through from the MedImmune biotech unit, they're focused on the mechanisms that matter for the unmet need. I think that's the right way to go after that part of that population. COPD, we're still using some of the same mechanisms that have been around for a while. I think we're still looking for those key biologic insights that you can start to segment COPD the way we segment asthma. That's really, I think, where the respiratory franchise is going to head. Yes, Peter Verdult from Morgan Stanley. Just two high-level questions. Pascal, just firstly on the CNS division. You've made some comments about how you're thinking about respiratory. With the ongoing loss of Seroquel, how should we be thinking about this? Just a dismantling of the infrastructure as CNS declines, relying on your virtual R&D business model or BD and partnerships to complement the infrastructure you've got? Just on the pipeline, I mean, you're a fresh pair of eyes at AstraZeneca. I'm sure you're going to tell us that you're excited by the whole pipeline. If there's a couple of assets that really excite you in the early stage, I'll be interested to hear what they are. Yeah. Well maybe I'll ask also Briggs, because he's another pair of fresh eyes. Briggs joined the company, what, maybe- A year ago A year ago now. That much? Okay. It was only nine months ago, but still you have a pair of fresh eyes, too. CNS, I think you have to see it as we are testing a new model. Essentially from a commercial viewpoint, our presence is shrinking. There's no question about it, and we'll have to rebuild it. We have to start from the early pipeline and over time rebuild it. Our priority is clearly going to be cardiometabolism, oncology, and respiratory inflammation, and to a lesser degree, anti-infectives. CNS is clearly one franchise where we're going to have to start from the beginning again and rebuild over the next few years. Do you want to say which products you are the most impressed with? No. Just to see whether we have the same. I'll let you go first then. Okay. I think We talked about tremelimumab, for instance, in asthma, I think is a compound that we can move into late-stage development. Hopefully, we need more data, but that's a very intriguing one. I think olaparib, even though I know some of you will be a little bit skeptical, even cynical about it, we have a chance to reposition it for the right patient population across a variety of tumor types and move it forward. I think that I'm intrigued personally by the possibilities we have to combine immunotherapies, for instance, CTLA-4, PD-L1 or combine some of our large molecule with small molecules or immunotherapies. This probably would be some of the most intriguing products. Selumetinib, I have my doubts, I must say, but we have good data that are shaping up and in a portfolio like this, it's always good to have internal debates. We have the internal debates, and I'm also open-minded. Certainly, we'll progress this product and try it because there is a good opportunity for this product. If what we believe is right, it could actually be quite a very interesting product in combination with chemotherapy. That might be the only MEK inhibitor that can be combined with chemotherapy without intolerable side effects because of its short-acting profile. We'll have to see, of course. Those that are probably the most intriguing would be tremelimumab and atezolizumab, I guess, the combination of the immunotherapies. I may be a little more bullish on selumetinib than he is, just because- Yes I think if you look at the data presented at ASCO last year, when you combine it with TAXOTERE, response rate goes from 0 to almost 40%. You get progression-free survival, overall survival. I think we have to figure out exactly how to combine it with chemo, and that has not been the trend in oncology these days. People try to move away from chemo. If a drug works well in that combination, and it works in combination with a number of different chemotherapies, it could actually be quite significant. We have a few tremendous people that I would trust personally who are really convinced or will give it a good shot. Maybe what I could do, I'm sorry, I know that there are some more questions. I'll give one last question, if James, you allow me to do that, and I'll hand the microphone to Jo, who's been on the phone waiting for a long time. You promise me you don't ask a question about non-core items, Jo, otherwise I don't give you the microphone. Go ahead. Hello, can you hear me? Jo, go ahead with your question. Hello, can you hear me? Yes, go ahead. I have two quick questions. Firstly, just looking at the marketing cost, it's about GBP 2.2 billion in the fourth quarter, your SG&A on your new core basis. Of course, we haven't seen your company in the same structure as it is because that includes some spending on the Amylin products. Is that a reasonable guide of the sort of quarterly run rate, or is there a heavy seasonal bias there? How much more in terms of marketing support can we expect that you will need as you take on board the European business, which I understand hasn't yet transitioned to you? Secondly, on the price of assets, chief executive of Roche, a company you know well, said yesterday at the analyst meeting that it was very difficult to get assets in. The prices were just astronomically high for late-stage assets. You had to do deals really early on to show where you could add value. Otherwise, it was just a basic bidding war. I wondered if you felt that there were any reasons why you might be able to show something other than just sheer money in bidding for late-stage assets. I think we all understand you're going to do exciting things with your R&D, but they don't really probably bite until 2015, 2016, and beyond. Investors might want to see something a bit sooner. Thanks, Jo. Simon, do you want to address the first question? Yeah. Yeah. I'm sorry. Jo, on the quarterly run rate, I think the guidance that we provided for our cost base, which is continued efforts on efficiency and the benefits of our programs creating headroom that we're going to redeploy that headroom and that holding our core costs to a slight increase as we go into 2013, that applies really across the SG&A and R&D lines. I think you'll see some increased investment sort of showing through in your quarterly run rates on SG&A, albeit a slight increase. The quarterly pattern, Jo, the other piece of that, I'd encourage you to sort of look at our quarterly patterns over the last couple of years. You generally do see a pattern of some higher spend in the fourth quarter and not a typically sort of constant rate. I would say that our 2010, 2011, 2012 quarterly rates probably are reasonably reflective of what we'd see going forward. Any extra costs, anything we haven't seen for the European bit of the Bigerion, Biakher, or is that insignificant? Sorry, Jo, I beg your pardon. I do beg your pardon. I was including that actually as one of the drivers of the investment that we're putting back in. Ruud here has been working extraordinarily hard in Europe over the past couple of years and has adjusted his cost base to reflect loss of exclusivity in a number of markets. Actually done a great job in maintaining our margins through that period. Ruud, I think you'll be putting investment behind our diabetes franchise. Sure reflective of the opportunity that we see. Absolutely. To add quickly on that, we are in the transition phase, as you probably know, with Lilly, the current marketing authorization holder, and we hope to finalize that at the end of the first quarter so we can start promoting the BYETTA, BYDUREON portfolio in the European environment from quarter two onwards. Thank- Personalize. Yeah. Thank you. Licensing opportunities, Jo, I would not certainly dispute the fact that. First of all, there are not so many very late-stage opportunities, secondly, certainly, they are more expensive than the early opportunities. If the point is that we need to license earlier, for sure. You need to license as early as possible so you can add as much value as possible. I don't think, though, that it is totally impossible to find assets where you can add value if you have specific skills in an area or global scale. In terms of late stage, buying products is not the only way you can do it. The BMS alliance that we entered into is a good example of another way to do it, where we certainly are getting together and sharing our expertise to develop and commercialize a portfolio of products, so far we've done it quite well. I really hope that Forxiga is actually going to be a nice product. The feedback so far is very encouraging. That is an example. The Amgen one is another example. You don't necessarily need to buy products. You can also enter alliances and share risk and value doing it. There's a variety of options that are open to us out there, not necessarily buying at full price, and that's certainly not something we will do. We'll not buy products if we don't believe we can add value and make it a financially attractive option. I don't think my CFO would allow me to do that anyway. That's probably not possible. Thank you so much for your great questions and see you next time. Thank you. Bye-bye.

Data Source: Quartr Last updated: Jan 31, 2013

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