AstraZeneca PLC (AZN) 2022 Q2 法說會逐字稿

Good morning to those from the U.K. and U.S., good afternoon to those in Central Europe, and good evening to those listening in Asia. Welcome, ladies and gentlemen, to AstraZeneca's Half Year 2022 Results Conference Call and Webcast for investors and analysts.

Before I hand over to AstraZeneca, I'd like to read the Safe Harbor statement. The company intends to utilize the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Participants on this call may make forward-looking statements with respect to the operations and financial performance of AstraZeneca. Although we believe our expectations are based on reasonable assumptions, by their very nature, forward-looking statements involve risks and uncertainties and may be influenced by factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. Any forward-looking statements made on this call reflect the knowledge and information available at the time of this call. The company undertakes no obligation to update forward-looking statements.

Please also carefully review the forward-looking statements disclaimer in the slide deck that accompanies this conference call and webcast. There will be an opportunity to ask questions after today's presentations. (Operator Instructions)

And with that, I will now hand you over to AstraZeneca.

Thank you, operator, and welcome, everyone. I'm Andy Barnett , Head of Investor Relations at AstraZeneca, and I'm pleased to welcome you to AstraZeneca's First Half 2022 Conference Call. All materials presented today are available on our website.

Slide 2 has our usual Safe Harbor statement. We will be making comments on our performance using constant exchange rates, or CER, core financial numbers and other non-GAAP measures. A non-GAAP to GAAP reconciliation is contained within the results announcement. Numbers used are in millions of U.S. dollars and for the first half, unless otherwise stated.

Please advance to Slide 3. This slide shows our agenda for today's call, and in a moment, I'll hand over to our CEO, Pascal Soriot, to begin. Following our prepared remarks, we will open the line for questions. (Operator Instructions)

With that, please advance to Slide 4, and I'll hand over to Pascal.

Thank you, Andy. Hello, everyone, and welcome to this half year call. So if we move to Slide 5, please. We continue to deliver for the first half of 2022 both in terms of commercial performance as well as moving our pipeline forward. Total revenue increased 48% versus prior year to $22.2 billion, and core EPS increased by 44% to $3.61.

Given the strength of our underlying business as well as increased demand for our COVID-19 medicines, which delivered $2.5 billion of revenue in the first half, we have updated our revenue guidance for the year. We now expect revenue growth for the full year to increase at a low 20s percentage.

Guidance on EPS remained unchanged, and we continue to expect a mid to high 20 percentage increase as we continue to invest in our pipeline. We have also confirmed an interim dividend of $0.93, reflecting the Board's intention to increase the dividend to $2.90 for the full year of 2022.

Looking across our business, we delivered revenue growth from all business areas, reflecting not only the breadth of our portfolio but also the depth in each of our respective business areas. In the first half of the year, we reported several important late-stage data readouts, including Farxiga in heart failure, Ultomiris in NMO and Imfinzi in non-small cell lung cancer, and we received significant approvals, enabling commercial launches.

Please move to Slide 6. In order to maintain our ambition for long-term industry-leading growth, we will need to maximize our launches and continue to invest in our great pipeline and our research technologies.

First, our pipeline successes have been driven -- have driven increased need to resource commercial launches. With competition increasing in many markets, investing smartly to optimize our launches has never been more important. Spend on market development for medicines like Evusheld is also important if we are to unlock the full potential of this medicine.

Based on emerging data, we need to act fast and invest to win with high potential pipeline opportunities. And we have several medicines as we see -- as you see here on the second column in this chart, we have several medicines where recent data has pointed to the potential for major clinical advances and sizable commercial opportunities. So we last -- we have listed here, as you can see on this chart, the successes we've experienced in the last few months, but also in the middle, the priority assets that we are fully resources for maximum potential.

Thirdly, there is a continued need to invest in early discovery research and new technologies to accelerate the rate of pipeline growth, and you can see here a number of those technologies. And in particular in [rare disease] we've made tremendous progress in the last 2 years, and Susan will highlight a little bit more examples of this.

In addition to our goal of reducing SG&A spend as a percentage of sales over time, in R&D, we have set bold internal targets to drive efficiencies for the use of digital solutions. For example, we have invested in remote data collection for many of our global trials as well as the use of real-world evidence and data science to optimize trial design to improve the success rate. This improvement will make our trials more efficient, more accessible for patients and reduce our indirect impact on the climate.

We've also worked to internalize clinical operations to drive further efficiencies.

A rigorous approach to portfolio prioritization is also being applied, which is enabling the direct number of investment being the most promising medicines and the discontinuation of development for others, such as the 3 that are mentioned here. These decisions are difficult, but given the breadth of our portfolio, are increasingly important. So as you can see here, we are not only investing but we're also driving productivity improvement very aggressively.

Together, these investments will help us deliver our ambition for low double-digit CAGR through 2025 and industry-leading growth thereafter. We want to remain a fast-growing company beyond 2025, and we are confident we have in our hands what it takes to be a growing company until 2030, and hopefully, even beyond 2030.

At the same time, we remain committed to increasing operating leverage. And so despite the need to invest in new launches, our pipeline and technologies, we remain focused on improving operating margin. We're confident that this combination of industry-leading growth and operating leverage will drive shareholder value.

So please move to Slide 7. We look forward to a productive back half of the year, and we have several Phase III readouts, including the EMERALD-1 trial of Imfinzi in locoregional liver cancer. The first Phase III readout for capivasertib in HR+ HER2 negative breast cancer and MESSINA trial of Fasenra in EoE.

And in 2023, we expect more than 20 Phase III readouts. The next couple of years are going to be extremely rich in clinical readouts. We are well positioned to deliver industry-leading growth through 2025 and beyond, as I said, and I look forward to sharing more exciting news as we -- as our pipeline progresses.

Please advance to the next slide, and I will now hand over to Aradhana to walk you through our financials in the first half of the year.

Thank you, Pascal, and good afternoon, everyone. As usual, I will start with our reported P&L.

Please turn to Slide 9. As Pascal has already highlighted, total revenue grew by 48% in the first half, benefiting from a full quarter of Alexion sales and higher revenues from COVID-19 medicines. Our collaboration revenue increased to $551 million in the half, partly driven by increase in HER2 sales. As a reminder, Daiichi Sankyo books in HER2 product sales in most Western markets while we record our share of gross profits in those regions as collaboration revenue.

We record our share of the R&D and sales and marketing costs in our P&L. We will, however, book product sales in China upon launch. Our reported gross margin continues to be adversely impacted by the Alexion fair value uplift, which we anticipate to continue for another 6 months or so until the inventory is sold.

Please turn to Slide 10. Turning to the core P&L, our core gross margin increased by 6 percentage points in the first half to 81.1%, with the second quarter benefiting from the phasing of cost recognition associated with the fulfillment of Vaxzevria contracts as well as favorable currency movements.

While quarterly fluctuations of the growth margin may continue, we still expect the ex-COVID-19 group core gross margins this year to be relatively stable compared to pre-COVID levels.

Our core operating expenses increased by 33% in the first half, driven by the addition of Alexion, which given timing of the consolidation had no contribution in the first half of 2021. To echo Pascal's comments, the increase in cost also reflects continued investments in R&D where several positive readouts in the last several months have ungated additional trials. We also recognized a one-off charge of $89 million in the second quarter relating to a discontinued project.

The pace of approvals following our pipeline success, necessitated investment in new launches, resulting in a 29% increase in SG&A costs in the first half. But again, compared to a 2021 number which did not include Alexion. SG&A costs during the period also reflect increased investment behind the launch of Evusheld, where we're focused on driving end-market demand. We continue to work to expand capacity following the recent dosing update.

Our core operating margin was 33.1% in the first half and 31.2% in the second quarter, benefiting from higher gross margins. On the net income line, we benefited from a lower tax rate in the second quarter, which was driven by favorable adjustments when we filed our 2021 tax return in major jurisdictions. Variations in tax rate between the quarters are expected to continue, but we still anticipate a core tax rate of 18% to 22% for the full year. Second quarter core EPS of $1.72 in the second quarter represents 89% growth.

We saw some FX headwinds following the strengthening of the U.S. dollar in the period, which impacted our revenue by more than $500 million in Q2 alone versus on a CER basis. If rates remained at the level seen at the end of June, we anticipate a mid-single-digit adverse FX impact on both total revenue and core EPS for the full year.

Please turn to Slide 11. Today, we are updating our full year guidance. We now anticipate total revenue at constant exchange rates to grow by low to mid-20s (sic) [low 20s] percentage, which reflects the strength of the underlying business and an updated outlook for our COVID-19 medicines. We expect COVID-19 revenues broadly flat to 2021 with, of course, a different mix of Vaxzevria and Evusheld.

We're also updating our guidance for core operating expenses, which are now anticipated to grow by mid to high teens percentage. This, as Pascal touched upon in his introduction, is mainly driven by additional investment in R&D as we continue to invest in long-term growth including promising medicines such as Dato-DXd, new launches across the globe as well as broader investment in digital and AI capabilities, to name a few.

Looking ahead, we expect our R&D expenses in the second half of the year to be broadly consistent with the first half as trials progress. We have had very limited divestments so far this year, and we now anticipate other operating income in the second half to be at similar levels as in the first half of around $200 million. Our 2022 outlook for China and emerging markets remains unchanged. Our core EPS guidance for the full year also remains unchanged, with an anticipated growth of mid- to high 20s percentage.

Beyond the specific guidance, like all other companies, we're also being impacted by the current macro environment, and we have seen a number of countries reporting high inflation numbers recently, which may ultimately also impact our cost base. You saw that our distribution costs increased by about 32% in the half versus 2021, reflecting not only higher freight rates and inflation, but also higher volumes, including Alexion. Unlike some other industries, we are limited in our ability to pass on cost increases to our customers.

Please turn to Slide 12. We continue to see improvement in cash flow generation, and in the first half, our net cash inflow from operating activities increased by $1.7 billion to $4.5 billion. In the second quarter, we paid $775 million to Chugai following a legal settlement on Ultomiris. And in the first quarter, we paid the first of 3 payments, $920 million to the former shareholders of Acerta. The 2 remaining payments of similar amount will be paid in 2023 and 2024.

As we have previously highlighted, that we also anticipate cash flows relating to prior business development transactions, including Daiichi, of just above $1 billion this year.

Our current net debt-to-EBITDA ratio is 3.5x. If adjusting for Alexion fair value inventory adjustment, which does not affect our cash flow, the ratio is 2.1x. Our capital allocation priorities remain unchanged, and we continue to invest in our business in order to deliver long-term sustainable growth. Consistent with our announcement in February, with an increase in dividend to an annualized $2.90 per share, the Board has approved an interim dividend for 2022 of $0.93 to be paid in September.

With that, I will hand over to Dave to take you through our oncology performance.

Thank you, Aradhana. Slide 14, please. We're pleased to report that our oncology total revenue grew 22% year-over-year during the first half, underpinned by 18% growth in product sales. We saw double-digit product sales growth for Tagrisso, Imfinzi and Lynparza versus the prior year and also sequentially in the quarter, as well as very strong continuing momentum for both Calquence and Enhertu.

Across regions, performance was nicely balanced with the U.S., Europe, emerging markets and established rest of world each also driving double-digit year-on-year growth.

Importantly, we're seeing positive signs of recovery in cancer diagnosis, testing and treatment rates as COVID-19 case and hospitalization rates improved over the last 6 months in many countries. For example, in the U.S., advanced breast cancer and ovarian cancer diagnosis rates have returned to pre-COVID baseline levels, and lung cancer is improved to 90% of baseline, trends were optimistic, will continue. In China, lockdowns in key cities have had an adverse impact on our medicines in the second quarter.

Now I'm going to turn to greater detail on each of our key oncology medicines. Tagrisso global revenues grew by 14% in the first half. In the U.S., growth was 11% with Q2 growing at 17%, reflecting increased underlying demand and the normalization of inventory and gross to net impact seen in Q1.

In the adjuvant setting, our efforts continue to build momentum. EGFR testing is now standard of care with rates greater than 80%. And importantly, adjuvant drug treatment rates have eclipsed 7 -- excuse me, 60% for the first time. With that said, there's still much work to do in terms of market education and driving stage shift to early disease.

In Emerging Markets, revenues grew 17% in the half, driven by continued launch momentum, especially in LatAm, and significant volume growth in the first-line demand in China. As highlighted last quarter, volume growth in China has fully compensated for the lower NRDL price.

On a sequential basis, EM revenues were broadly flat due to the impact of COVID-19 lockdowns in major cities in China.

Turning now to Imfinzi. Global revenues grew 16% in the half and 20% in the second quarter, benefiting from recovery in diagnosis and chemoradiation rates in many regions. U.S. performance was robust, with sales growing 15% in the half and 22% in Q2 as we saw an encouraging rebound in the Pacific setting and early, spontaneous, non-promoted use in biliary tract cancer where the TOPAZ-1 data has been added as category 1 treatment in the NCCN guidelines this month.

In Europe, Imfinzi growth was up an impressive 29% for the half on strong uptake in small cell lung cancer based on CASPIAN an increasing use in Stage 3 lung following COVID-19 recovery. Across the globe, our teams are busily preparing for anticipated launches of TOPAZ-1 in and HIMALAYA in liver cancer.

For Lynparza, we continue to solidify the brand as the leader in the global PARP inhibitor class. Product sales grew 18%, led by growth in adjuvant breast cancer following the U.S. approval based on the OlympiA Phase III trial and also supported by continued growth in HRD-positive first-line ovarian cancer and second-line castration-resistant prostate cancer.

Performance was seen across regions, with U.S. sales up 11%, Europe up 20% and Established Rest of World, up 27% in the half. Finally, emerging markets grew 32% on expanded patient access in ovarian cancer in China and other EM launches.

Turning to hematology. Calquence continues to show excellent momentum, with worldwide revenues up 87% versus the first half of 2021. In the U.S., Calquence has crossed 55% share of new BTKi class starts in first-line CLL, consolidating its position as the clear standard of care.

In Europe, expansion continues, resulting in 26% of sequential growth from Q1 as new patient share continues to rise as we rapidly establish leadership in several major markets.

And finally, for Enhertu. Total revenue was up 129% to $204 million. In the U.S., Enhertu has already achieved a leading new patient share of 35% in second-line HER2-positive metastatic breast cancer, rapidly displacing the prior standard of care. This is just 2 months after approval and launch based on the DESTINY-Breast03 Phase III trial. Europe and emerging markets have contributed nicely to growth as well based on launches in the third-line HER2-positive metastatic breast cancer.

Following presentation in Q2 at ASCO and inclusion in the NCCN guidelines, we are preparing for anticipated launches in HER2 low metastatic breast cancer based on DESTINY-Breast04. Given the timing of those events, we don't believe growth for the half reflects much utilization yet in this setting.

Across the globe, we are once again in an intense period of launch activity. We're just getting started with OlympiA and DESTINY-Breast03, and we hope soon that, that will be followed by DESTINY-Breast04, PROpel, HIMALAYA, TOPAZ-1, POSEIDON and DESTINY-Lung01 in the months ahead.

As we look to the second half, we're also looking forward to seeing data readouts from EMERALD-1 Phase III trial of Imfinzi in local regional liver cancer and CAPItello291, the first Phase III readout for our AKT inhibitor, capivasertib, in HR+/ HER2-negative breast cancer. Collectively, this list, many of which represent blockbuster opportunities, will be key drivers of oncology growth next year and beyond.

I'll now hand over to Susan, who will cover the pipeline in greater detail.

Thank you, Dave. Please turn to Slide 15. I was very happy to be back in Chicago in June, where we once again demonstrated our scientific leadership in cancer research at this year's ASCO. During a plenary presentation, we presented Enhertu data, outlining unprecedented benefit in HER2-low metastatic breast cancer patients. This success unlocks further opportunity to utilize HER2-targeted therapies in HER2 low patients in breast cancer and beyond. The strength of the data was corroborated by the U.S. submission of DESTINY-Breast04 receiving a Priority Review.

Also at ASCO, we presented results from the FAKTION trial with capivasertib in metastatic ER-positive breast cancer. Using next-generation sequencing, PI3K/AKT/PTEN pathway altered patients were identified and expanded biomarker subgroup analyses were performed. Patients in this subgroup saw an impressive 38.9 months of overall survival benefit versus 20 months in the fulvestrant monotherapy arm. PI3K/AKT/PTEN is the most frequently mutated pathway in breast cancer, and is very important as mutations can drive resistance to current endocrine therapies.

Moving on to hematology. With the acquisition of TNB-486, a CD19xCD3 directed T-cell engager, we're advancing our ambition to deliver innovative new treatments across blood cancers. By generating new immune responses, T-cell engagers could potentially deliver benefit to cancer patients not currently responsive to immunotherapy.

TNB-486 is currently in Phase I clinical trials as a monotherapy in relapsed or refractory B-cell non-Hodgkin lymphoma, with plans to expand into other lymphomas. Moving forward, we plan to develop TNB-486 as a monotherapy or in combination with other targeted and (inaudible) therapies in B-cell malignancies, including diffuse large B-cell lymphoma as well as follicular lymphoma.

Please turn to Slide 16. We look forward to this year's World Congress on Lung Cancer Conference in August, presenting data addressing advanced and resistant disease with targeted medicines and novel combinations. We'll present results from the SAVANNAH trial combining Tagrisso and Orpathys. Results showed a trend towards improved response rates with increasing levels of resistance, with an overall response rate of 32% in [all comers] And 49% in high-met aberration patients. We look forward to data from trials such as FLAURA2 and SAFFRON, broadening and elongating the level of clinical benefit Tagrisso can provide to patients.

We will present data from the TROPION-Lung02 trial, Dato-DXd plus checkpoint inhibitor pembrolizumab with or without platinum chemotherapy, demonstrating promising efficacy and tolerable safety in advanced non-small cell lung cancer patients without actionable genomic alterations. The response rate seen in the Dato-DXd and checkpoint inhibitor arm is much more impressive than what we've seen with either monotherapy. The results are in line with the BEGONIA trial for Dato-DXd + Imfinzi, where the 74% response rate gives us confidence both from tolerability and efficacy standpoint over and above what we've seen with IO + chemo.

Looking forward to next year, we have an exceptionally high level of news flow upcoming for oncology. Key charts to look out for in 2023 are the TROPION-Lung01 results with Dato-DXd in the first half as well as AEGEAN, [EFS and BR31] readouts to bring Imfinzi earlier in the treatment paradigm for non-small cell lung cancer, increasing the chance of cure.

I'm now going to hand over to Ruud to cover BioPharmaceuticals. Please advance to Slide 17.

Thank you, Susan. Now turning to Slide 18. Looking at our BioPharmaceuticals business, CVRM total revenues were up 19% on a pro forma basis to $4.6 billion. R&I was up 3% to $3 billion, and V&I delivered total revenues of $2.8 billion. Farxiga achieved an impressive 62% growth driven by strong demand in type 2 diabetes, heart failure and chronic kidney disease.

Farxiga is the fastest-growing SGLT2i brand globally, and strong performance across all regions provides confidence in continued growth. We reported headline results in the delivery trial for Farxiga in heart failure with preserved ejection fraction, which Mene will cover in more detail. But needless to say, we are excited about the potential opportunity to expand use in this underserved population.

In Respiratory & Immunology, strong growth from Fasenra and new launch medicines, Breztri, Saphnelo and Tezspire was partly offset by Pulmicort's continued decline in China following VBP inclusion last October.

Fasenra continued its market leadership position in eosinophilic asthma across major markets, delivering 18% growth in the half. We are excited by the launch of Tezspire in severe asthma. In its first 4 quarters since launch, Tezspire achieved 13% new-to-brand market share, and we are pleased to see over 60% of new-to-brand share coming from the non-IL-5 class with minimal impact on Fasenra.

We continue to see demand growth for Saphnelo in systemic lupus erythematosus. And in the U.S., new-to-brand prescriptions reached 24% of the biological class in the second quarter.

Within V&I, for Vaxzevria total revenues reached $1.6 billion in the half, fulfilling the majority of initial contracts. As Pascal mentioned, Vaxzevria, our COVID-19 vaccine, is estimated to have saved over 6 million lives. This analysis is based on data from Imperial College and published in The Lancet.

Evusheld, our long-acting antibody, delivered $914 million, reflecting additional contracts signed globally.

Please turn to Slide 19. In Emerging Markets, total revenue was $6.2 billion in the half. Emerging Markets' growth rate, including the impact of Vaxzevria, was 16%, and this was split between ex-China emerging market sales, which grew 46%, and China, where sales declined 5%. Excluding the impact of Vaxzevria, ex-China emerging markets grew 48%.

As mentioned previously, the delayed VBP 7 tender process completed in July, and we expect implementation in quarter 4 of this year with full impact on [silicon stock] in 2023. We reiterate our guidance and still expect total revenue for emerging markets to grow by mid-single digits in 2022 with mid-single-digit decline in China.

I will now hand over to Mene to cover the R&D advancements in the period.

Thanks, Ruud. Please turn to Slide 20. In May, we reported that DELIVER trial showed that Farxiga achieved a clinically meaningful reduction in cardiovascular death or worsening heart failure in patients with preserved ejection fraction. Together with the successful DAPA-HF trial, DELIVER demonstrates Farxiga's efficacy across the full spectrum of heart failure regardless of ejection fraction, and we look forward to presenting DELIVER's full results at the ESC in Barcelona in August.

Also in the quarter, together with our partner Ionis, we disclosed positive high-level results from the NEURO-TTRansform trial in hereditary transthyretin-mediated amyloid polyneuropathy. A debilitating disease that can lead to impaired motor function. Eplontersen delivered a clinically meaningful improvement in the patient's modified neuropathy impairment score plus 7.

In our V&I portfolio, new data published in The New England Journal of Medicine showed that Evusheld retains neutralizing activity against the Omicron variants BA.5, BA.4 and BA.2, all of which are highly prevalent globally today. And while Evusheld remains highly effective at preventing COVID-19, we are cognizant that the virus will continue to evolve. And in the quarter, we licensed an early-stage portfolio of COVID-19 antibodies from RQ Biotechnologies.

Looking ahead to the next 18 months, we have more data to come from Farxiga with the DAPA-MI Phase III trial for non-diabetic patients with myocardial infarction. And we're excited about forthcoming Phase III readouts with Fasenra in 3, eosinophilic-driven diseases: EOE, HES and EGPA. Later this year, we also anticipate seeing further Phase II data from our SOLANO study, confirming that AZD8233 has the potential to be a best-in-class molecule in terms of its LDL-reducing activity in patients with dyslipidemia, and that's targeting PCSK9.

We have over 10 mid-stage clinical trial readouts in the next 12 to 18 months that will fuel the next wave of significant investment decisions, including Farxiga combinations, our MPO inhibitor, and tozorakimab, our anti-IL-33 monoclonal antibody.

Please move to Slide 21. We were also delighted with The New England Journal of Medicine publication and proud to have developed such an efficacious medicine with nirsevimab. RSV, as you know, is a leading cause of lower respiratory tract infections such as bronchiolitis or pneumonia as well as hospitalization in infants, and these data show for the first time the potential to significantly protect all infants through their first RSV season with a single-dose immunization, and we look forward to working with health authorities to bring nirsevimab to infants as quickly as possible.

Please now turn to Slide 22, and I will now hand over to Marc to cover rare diseases.

Thank you, Mene. Please turn to Slide 23. In the first half, Rare Disease contributed $3.5 billion in total revenues, representing year-on-year pro forma increase of 10%. In the second quarter, we recognized certain one-off pricing adjustment in the international region. Excluding these one-offs, pro forma growth in the first half was 8%. Emerging market sales were $206 million in the first half, impacted by order timing in certain tender markets.

In the second quarter, the C5 franchise delivered durable pro forma growth of 9%. The slowing growth of Soliris reflects successful conversion to Ultomiris. New market expansion and strong launch uptake in generalized myasthenia gravis in the U.S. drove Ultomiris to 31% in the second quarter. While it is still early in the myasthenia gravis launch at quarter end, approximately 1/3 of Ultomiris initiation with complement naive patients, which gives us confidence in the ability to expand our addressable population to approximately 30,000 patients in the United States.

Beyond the -- of Ultomiris initiation with complement naive patients, which gives us confidence in the ability to expand our addressable population to approximately 30,000 patients in the United States.

Beyond the C5 franchise, Strensiq grew 18% in the quarter, driven by strong underlying demand and initiation trends in the U.S. Lastly, Koselugo demonstrated substantial growth in the quarter, benefiting from rare disease organizational realignments resulting in increased demand and market expansion.

Please turn to Slide 24. During the period, we reported remarkable Phase III data from the Ultomiris CHAMPION trial in neuromyelitis optica. As shown on the Kaplan-Meier curve, there were 0 adjudicated relapses on the slide that you can see. This is this horizontal blue line, 0 adjudicated relapses observed in patients receiving Ultomiris, and importantly, this effect continued out to 73.5 weeks. This exceptional data not only represent the opportunity to bring an innovative new medicine to NMO patients, but also offers another example of the consistently strong data generated by C5 franchise, Soliris and Ultomiris, in neurological indications.

Looking ahead, we're excited to continue to deliver on our pipeline with anticipated readouts for Soliris in Guillain-Barré syndrome, which is now expected in the second half of this year, and the headline results of our first-generation novel oral Factor-D inhibitor, danicopan, in PNH, with EVH expected in the first half of 2023.

Lastly, before I turn the call back to Pascal for closing commentary, I would like to highlight 2 important milestones for Alexion. This year, Alexion marks its 30th anniversary in rare disease and also the first anniversary of the deal closure. With immense gratitude, I would like to thank our Alexion colleagues for their continued commitment to pushing the boundaries of science and accelerating innovation to develop life-changing therapies for those living with rare disease around the world.

With that, please turn to Slide 25, and I will hand over the call to Pascal.

Thank you very much, Marc. Please move to the next slide. .

Together with the Board, I'm pleased to announce Michel Demare will take over from Leif Johansson as Chair following the 2023 AGM. I've worked closely with Michel since he joined our Board in 2019, and I look forward to our continued partnership in his new role. I'd like to thank Leif for his commitment to AstraZeneca over the years and through the transition period. I've had an amazing 10-year period working with Leif, and we've gone through a lot together. And I would really like to thank him and the Board for their continued support over the last 10 years that have taken us from where we are -- where we were in 2013 to where we are today, in a very, very different place. And it's been really a fantastic experience working with Leif. We've been a tremendous team. And I know Michel and I will be working together and forming an excellent team for the many years to come.

Now, we'd like to close with Slide 27. We continue to execute on our strategic priorities, which will position AstraZeneca to deliver long-term growth. Our robust life cycle management continues to support our top line growth, and in the half, we delivered on key Phase III life cycle management trials, including Ultomiris in NMOSD and Farxiga in heart failure with preserved ejection fraction. We continue to invest in our pipeline in order to achieve our strategic growth ambition, and we remain open to strategic business development such as our acquisition of TeneoTwo, CD19xCD3 T-cell engager in hematology.

Importantly, we have a long runway for most of our medicines in terms of loss of exclusivity, which should provide confidence in our sustainable growth. Our company has shown -- has grown stronger in 2022 both in terms of revenue and pipeline development. And as you have seen and heard today, we are investing thoughtfully to continue to grow our business at an industry-leading right through 2025 and beyond. We want and we believe we can be a growth story for the many years to come. As you can see on this slide, we have everything we need to grow and we continue building on what we have.

At the same time, we want to continue driving our focus on improving operating margin. And as you probably remember, we said our goal is to get to mid to high 30s in the mid to long term. We're very committed to this. We're making progress in that direction. And the success we are experiencing with our top line revenue allows us to stay focused on this goal of improving margin, but at the same time, continue to invest strongly in our pipeline so that we can indeed deliver top line growth -- strong growth post 2025.

Thank you all for joining. We'll now take your questions, and I will hand the call back to Andy.

If you turn to Slide 28, we will now go to the Q&A. (Operator Instructions) Now, let's take the first question from the conference call.

Thanks, Andy. So the first part is -- the first question, sorry, is from Richard Parkes at BNP Paribas. Richard, over to you.

Another chance later on this afternoon, and it's on U.S. drug pricing reform. It's looking increasingly likely that we see enactment to that in the -- over the summer period. So I wondered if you could just help us maybe get some indications for your portfolio? Two aspects to that. Medicare Part D restructuring could have some positive and some negative implications for your portfolio. So can you help us understand how that might balance out?

And then in terms of direct negotiation, you've got a few drugs in Tagrisso, Lynparza, Calquence at some point could come into that basket. So could you just help us understand maybe the probabilities any of those drugs, at least, gets included in the first couple of rounds of that negotiation process?

Thanks, Richard. So maybe I could ask Dave to cover part of your question. And Ruud, you've also been, of course, following this very closely. You could add to this. Over to you, Dave.

Thanks, Pascal. Richard, you have the 2 elements, Part D and negotiation. I guess there's a third element as well which is inflation penalties, which just to address right at the bet, we don't see that as having much impact. If any, we've been pretty responsible and below inflation rates on price increases historically.

I think that between now and when negotiation starts in 2026 based on the current writing, that the impact overall of Part D reform is quite manageable. As you point out, there are going to be some impacts in oncology that are negative over the period. That said, that's offset by some opportunities that come through patient affordability for greater adherence and compliance across the portfolio, and I think, in particular, in our BioPharmaceuticals unit.

In terms of negotiation, we do see negotiation as a bad precedent for innovation. And we think that it's going to have an impact on the speed with which innovation, particularly in areas of small populations and high unmet needs, how companies and sponsors are thinking through that.

In terms of AstraZeneca-specific impacts, I do think that starting in 2027 and beyond, as you point out, that Tagrisso certainly becomes a possibility for being one of the medicines that could fall into this. The rules specifically for how that's being contemplated are not yet clear. They're the top 50 drugs, and there will be some selection that's made by that period of time. But I think that we are looking at a 2027 and beyond time period, so it's certainly kind of post medium term where I think we start to see the impact coming from the negotiation portion.

Ruud, do you want to talk about some of the BioPharma-specific elements?

Yes. So very quickly, and you were mentioning Dave, great adherence is a potential upside for a few products in the BioPharma business. We know that persistency rates in the U.S. are always somewhat lower than, for example, in Europe due to affordability. Out of pocket costs are relatively high in the United States. So hopefully, this part, the redesign will deliver an opportunity for patients to stay long on therapy. And of course, that will benefit some our products in the BioPharma business unit.

Thank you, Ruud. Thank you, Dave. Sachin Jain, Bank of America, what's your question?

Can you just give some color on how you think about cost -- how are you thinking about cost lines?

Can you hear me?

Yes, yes. Go ahead. Sorry.

Sorry. How you're thinking about cost lines within that? So R&D spend clearly flexing up. Any color where you think that goes versus the existing 21% to 22% of sales. And any additional color you can give on SG&A offset for that? And just what flex do you think exists in you getting to the top versus bottom end of that margin range?

Second question is for Susan on amivantamab. Updated PFS data in The World Lung abstract, it looks like PFS trending towards 30 months. Obviously, impressive versus the 18 to 19, with Tagrisso accepting. It's a very small end. Just wondering if you could update us on your competitive thoughts on Tagrisso there? I think on the ASCO call, you'd noted IV discontinuation, seem that 10%, 15% being lower. And therefore, any caution on that potentially hitting? Just wondering whether your thought process is shifting to all there?

Sachin. So Aradhana, do you want to take the first one, and Susan the second?

Thanks, Sachin, for your question. On R&D, as we noted and given the number of positive readouts we've had, clearly, that's ungated a number of additional studies. And so we continue to invest in R&D. I think we've been fairly consistent around how much we want to invest in R&D on an ongoing basis in the sort of low 20 range, and we're sort of consistent with that. As I also mentioned, we do expect the second half to be somewhat consistent with the first half for this year. And going forward, obviously, we'll give guidance when we do for 2023.

On SG&A, we continue to drive improving operating margins. You've seen that our margin trajectory continues to improve and also specifically note that, that margin achievement is with a much lower contribution of other income that we expect this year. So we're continuing to drive SG&A and we'll continue to drive efficiency, and we remain committed to our operating margin ambition that we've communicated previously. Susan?

Sure. Thanks for the question. So we have a multipronged approach to combinations with Tagrisso. Firstly, we have the FLAURA2 study, which is our combination with Tagrisso plus doublet platinum-based chemotherapy. I would point you to encouraging Phase II data from the [OPAL] study, which was presented at ASCO.

Looking at this combination with platinum-based chemotherapy plus pemetrexed which showed in an end of 67 patients, a 91% response rate, a 2-year landmark progression-free survival of 70%, which compares very favorably with the data in an end of 20 that was presented from the CHRYSALIS data. FLAURA2 is fully recruited, and it reads out in the first half of 2023.

In addition, of course, we've got the combination, as you mentioned, with savolitinib, which is ongoing in Phase III in the SAFFRON study. And again, we have data from the SAVANNAH study, which supported at Phase III start with encouraging response rates, particularly in the high MET amplified subgroup.

We've also got combinations that are ongoing with ADC including patritumab, the HER3-directed antibody drug conjugate, as well as with Dato-DXd. And I'll note that Dato-DXd in patients with actionable genomic alterations post-treatment with those targeted therapies showed a 35% response rate. So we're encouraged about the general potential for combinability for Tagrisso.

I think in addition, Sachin, to what Susan laid out, maybe just 2 other components that I'd like to share.

I mean, I think the first piece when we take a look at Tagrisso, and I mentioned this in some of the opening remarks, we are seeing from FLAURA the duration of therapy is increasing, and frankly, longer than what we saw in the study. And I think, in part, this owes to a pretty favorable side effect profile of monotherapy in Tagrisso. I think we see pretty low mid-teens level of grade 3 treatment-related adverse events. And I think that we're already seeing quite a bit longer than from both of the sets of combinations.

I think with that being said, I would expect to see some utilization in certain patients of the combination of both FLAURA2 and the [J&J] combo are positive, and I still think that the majority of the utilization that you're going to see in the metastatic setting comes from the monotherapy at this stage.

And I'd also add, we continue to grow with key catalysts of ADAURA. LAURA is on the horizon. Susan and I have both talked about FLAURA2 when we've initiated the ADAURA2 study, which I think continues to build on life cycle plan in Tagrisso that I think remains vibrant.

Thanks, Dave. Mark Purcell at Morgan Stanley. Mark, over to you.

A question on Evusheld and [amafantinib]. Can you help us understand the level of investment you're putting behind this asset and the durability you expect going forward? Mene, you've mentioned the [RQ] Biotechnology deal with early-stage antibodies. So just the level of ambition there would be great.

Just a follow-up to what Sachin just asked. Do you expect to see combination use of Tagrisso with amafantinib as well? It would be useful to get your perspective there.

And then the last one just on Dato-DXd. You're clearly a priority asset where you're looking to invest more. Could you help us understand the ambitions outside lung cancer at this point?

Thanks, Mark. So maybe we can start with Evusheld, it's kind of 2 questions here. One is the investments and the ambition for this product, and two is durability.

Thanks for the question. And first of all, we are pleased to see strong demand, increased demand for Evusheld because it is clear that it's really important to protect the immunocompromised patients in the COVID-19 due to the fact that they are not able to develop their immune response after vaccination. We do believe that, that demand will continue, and therefore, it is really important to make sure that we do our best to educate and increase the awareness for both patients and HCPs to be able to use Evusheld to protect patients who are in need.

Therefore, our investments are increasing, and we want to resource that in the proper way to make sure that we drive demand and fulfill and satisfy the needs that exists to protect immunocompromised patients.

Durability.

And then given on the durability, I think it's in our increase or updated guidance. It's clear that we do see increased demand this year. It's always difficult to predict and forecast COVID-19 medicine given the evolving and dynamic environment. But I can say that we feel -- that we feel strong about the durable need for Evusheld, specifically given the fact that Evusheld is the only monoclonal antibody approved for prophylaxis, and equally, the only one that has retained neutralizing activity in that space versus all different Omicron variants.

And the reason for that is that Evusheld was designed as a combination of the 2 monoclonal antibodies with a different but complementary activity against the Omicron variant. And therefore, it was designed to evade the resistance in the future variants. So we stay positive and optimistic that it will retain its activity versus new variants.

Thanks, Iskra. Maybe just to add. If you look at COVID today, you could reasonably maybe argument that the most important thing to do today is not necessarily to boost people who are healthy, it's actually to protect those who are immunocompromised and vulnerable. So those are the people who have cancer, people who have been transplanted, people who may have HIV or some other immune conditions. Because these people need to be protected, vaccines don't work at all or not very well.

Two, is they represent 30% to 40% patients who are hospitalized with this COVID. And three is, because they are immunocompromised, they tend to keep the virus in their body longer, and they are a source of mutations and variants.

So for all those reasons, it's important to protect these people, and it should be #1 priority. The issue is, we need to make sure physicians and patients are well aware of the product if we want to make it sustainable. And as a result, the investments we are doing now is really important so we can make sure patients and physicians are educated and then they continue using it.

And beyond that, the only question is, as Iskra said, will the variant emerge that become resistant? So far hasn't been the case, because the product is very cleverly developed with 2 antibodies. But beyond this, we still -- and I think, Mene, mentioned it, we are working on the next generation, just in case a variant would become resistant to Evusheld.

So we've got good hope it's sustainable, durable, but of course, we don't know. It's hard to predict the future with COVID as we all know.

The other question was combination, again, and that was -- Susan, do you want to cover that?

Sure, thank you. So Dato-DXd, the -- as I mentioned at the ASCO IR event, we're planning 5 new Phase III trials which will start over the next 12 to 18 months, so by the end of 2023. So we're obviously investing in lung cancer and in breast cancer. We've recently had the start of the TROPIAN-Breast02 study in local recurrence, inoperable metastatic triple-negative breast cancer.

And we have ongoing [PAM tumor] study, which is looking at the potential for this medicine across a range of other tumor types. And I'd remind you that TROP2 expression is actually highly expressed across a range of different tumor types. So I do think there is potential for this molecule beyond breast and lung cancer.

Dave, anything you want to add on?

On Dato, I think that Dato has the opportunity to be one of the most significant medicines within the portfolio. And I think that the TROPION-Lung01 data is obviously going to be the first proof case of that. But I think that if we've got the ability to be able to just replace systemic chemotherapy in late-line lung cancer alone, that the opportunity is quite significant. And then as we think about how a biomarker might open it up to other places, I think the future is bright.

I think also, Mark, you asked a question about expectations around Tagrisso, amavantinab utilization. I mean, obviously, that utilization would be spontaneous off-label, and I think probably it could only occur in the U.S. And so just based on that, while that may be something that I could envision taking place, I don't think that it would affect demand in material way in terms of what I'd be expecting for Tagrisso.

Maybe just to add to what was said and link it back to our investment in R&D. I mean, you heard Dave say Dato-DXd has the potential to be a very, very large product, and we have all seen the Enhertu results and Enhertu can also be a very, very large product. Now the thing is we -- to achieve full potential, we have to develop those agents across a whole range of indications.

And beyond those 2 products, we have a whole range of products in oncology, we have a (inaudible) in cardiovascular medicines, we have tozorakimab. We have a whole number of other products including in rare disease. And so when you consider all of this, you really have to think, unless something really very unexpected happens, we should be a growth company. But we need to resource this product and make them big, big product like they deserve to be and get to their full potential.

Andrew Baum at CC, Andrew, over to you.

Firstly, on Evusheld. Could you update us on the anticipated timing for the FDA approval and also some indication? I'm sure you've been busy trying to build capacity. Where you think capacity could land by the end of next year? I'm just trying to work out how quickly you can leverage the enormous unmet medical need as well as your hematology, oncology and [autoimmune] field forces, which will feed into the at-risk patient population, and use the proceeds to sort of bridge the OpEx demands of the rest of your portfolio. So if you could talk to the limitations and how quickly you can overcome them and how much demand do you think you can grow, assuming the efficacy remains intact? So that's the first question.

The second question is on China. [President Xi] has warned President Biden that the U.S. is playing with fire with Pelosi's visit. There's obviously a lot of geopolitical risk globally. I know that you have the largest Chinese business among the majors, and you have worked hard to build that securing relationships, local manufacturing. But I'm just wondering how has the Board considers other measures such as a partial IPO of the Chinese business with the Chinese listing akin to try and minimize the risk in case there's some escalation here?

And then finally, perhaps you could update us how interactions between your lawyers and Merck's laws have gone in relation to the PARP-1 asset that you have, and Merck's belief they have some ownership or rights on that product?

Let me just take a couple of things quickly. First of all, I'm very happy that Andy was not more successful than I was before limiting you guys to one question at a time. And those are 3 great questions, Andrew.

And the second comment I will make is we don't communicate with our friends at Merck's lawyers. We talk to them, and of course, the lawyer gets involved at some point. But I just want to say we've had a tremendously positive collaboration with the team at Merck. And maybe, let me cover this part one question quickly, is we certainly have had such a great collaboration. We're very much inclined to collaborate with Merck on the PARP-1. The question is under what conditions and what timing and how do we do it? But I can't say we will do it, but it's certainly a very strong consideration for us to do it and continue the fantastic collaboration.

And Dave, if you have anything you want to add, you can add it a bit later if you want, no, yes.

So maybe let's start with Evusheld. Iskra, 2 questions for you, the approval and the capacity.

Yes. So we are progressing with many regulatory bodies around the world, the FDA included. As you probably know, we received approval for prophylaxis already in many countries including Europe, U.K., Canada, Australia and many others, and we have the emergency approval in U.S. and we are working closely with FDA for the final approval of the prophylaxis.

Equally, you probably know that we recently announced the Phase III trial of the treatment of the out of the hospital patients, and we do progress with the submissions of the regulatory approvals for the treatment indication. We do expect approval in Europe in the second half of this year as well as progressing in the U.S., Japan and China with our submissions as previously I commented.

As you fairly noticed, there is a strong and important unmet need in this space. And therefore, we are doing our best to increase the capacity and make sure we are able to supply as many patients as we can across the globe. From the previous discussions and announcements we made, we're continuing to increase the supply, and we are confident that we will be able to supply all the contracts that we currently have. And going forward, we are continuously doing and increasing the supply and the capacity as much as we can.

And on the [Phase 1] deployment, Andrew, you raised an important question and we have field forces across haematology, immunology, et cetera. So we can deploy the sales force. But I think your question about approval, which [arise] an important one. We need to get approval -- full approval, not an EUA, to be able to fully promote. And its fundamental, so we established the product and the use.

With China, let me just say quickly, and I'll hand over to Leon to comment more on the situation on the ground in China. Essentially, we don't comment on what consideration we would do, but we're always looking at various scenarios for the different parts of the business. So in Southern China, we are looking at what is the best way to continue operating in China. The approach we've always taken in China has been we are in China for China. And then more -- in the last few years, our approach has been -- we've been -- we are in China for the world. What that means is we're in China to bring our medicines to Chinese patients, but we're also in China to help the world. We export from China, and we are now connecting to Chinese innovation and looking to partner. We've set up an investment fund that is investing in biotech companies in China, and we're looking at how can we tap into Chinese innovation to benefit patients around the world.

So our approach has really always been to be in China for China and for the world. And the way we operate keep -- is always within that framework. But beyond this, it's hard to comment on what consideration or what options we are actually looking at.

Leon, do you want to comment a little bit on the situation on the ground in China?

Yes. I think the China government is after COVID situation, 0 COVID policies still continue. So maintaining -- avoiding disruption on logistics and supply chain and also protecting foreign company investment are the 2 most important priority for the Chinese government.

So our strategy in China is very clear, is to speed up our global pipeline into China because our global pipeline is still in China, we lag a little bit behind. So we are getting Enhertu D-BO3 and D-BO4 approval next year. And the PTK Acala is very important product, so we also launch Acala next year to indication. And (inaudible) the Evusheld, we are also submitting this year and also, hopefully, we can get approval later this year. So launching [Zidua] next year and launching 2 most important rare disease products and many new indications. So 2023 and 2024 and 2025, the next 3 years will be critical for our new innovative pipeline to succeed in China.

But of course, at the same time, you can clearly see Pulmicort get a hit. And our large products, Seloken and Crestor (inaudible) getting to VBP one by one. But we are still able to maintain all multiple channel promotions to keep loyal user as much as possible. So I think at the same time, we are slowing down the time on the VBP portfolio, and at the same time, pushing a new indication, life cycle indication of large products like Tagrisso and Farxiga. So -- and also launching a new pipeline on top of all these growth.

So I think our strategy is to make clear like Pascal said, we -- on top of our global innovation, we also established the fund with CICC and tap into local innovation. Hopefully, we can work closely, I think, with FibroGen to roxa in China, work with Hutchison to do (inaudible) in China. So that's just the beginning. I think we will have, in the future, more new products in China for China and in China for globe.

Thanks, Leon. So the next question is Adam Karlsson at ABG. Adam, over to you.

First off the back of the (inaudible) Farxiga Phase IIb study and CKD being pushed into H1 next year. Just your current level of confidence or thinking on the prospect of getting Farxiga combinations approved of coming off patent?

And then secondly, on inflationary impact, and I guess, particular personnel cost. How much, if any, of that impact have you seen already? And how should we be thinking about the timing of that impact in either the second half or next year?

Thanks, Adam.

Mene, do you want to take the first one, and Aradhana, the second one about inflation?

Okay. So the -- so first of all, just to remind you, the loss of exclusivity of Farxiga isn't a point in time. It's a range across multiple markets, and our revenues are split pretty well across all the regions. So we have quite a broad time frame in which to get the combinations launched.

But irrespective of that, the 2 combinations that we have moving forward, the MR modulator and the endothelin antagonist, are both self-sufficient business cases in their own right. And as we've said, we're expecting to get data for both of those by the first half of next year.

Now in terms of the mechanisms, these are both well precedented mechanisms. So as long as the molecules behave themselves, we're optimistic. But until we have data in hand, I won't be too optimistic. But I think once we get hopefully positive data, then I think we're full throttle to pivotal studies and trying to launch as soon as we can and hopefully within that time frame.

I think maybe what I could add also separate from the combinations is that as Mene said, the product expiry is probably over time. But on top of it, if you look at the sales that Ruud showed you a bit earlier, the U.S. in the global sales is not the usual 50%, 60% of global sales. And you see here the potential of a drug that is addressing a big unmet need, and so a lot of sales are outside the U.S.

What that means is even when we lose patent protection in the U.S., the products or elsewhere, the product is not going to collapse. We're going to have a more a slower decline and so more time to launch those combinations and keep maintain this product.

Aradhana?

Sure.

I think on inflation, as I mentioned, we are obviously seeing some impact of inflation, particularly in distribution costs. But we continue to monitor this. Our business is very resilient. We continue to innovate, so I think pricing of drugs and so forth has to be correlated with value. But this is something that we'll continue to monitor in terms of impact it has on our business.

Thanks, Aradhana.

Tim Anderson, Wolfe Research. Tim, over to you.

On datopotamab, on TROPION-LUNG01, what do you think good results would need to be for Astra and investors to say, wow, this is like a very promising new drug? So what's realistic to expect in terms of things like hazard ratio and tolerability and safety?

And then on Tagrisso and amivantamab, again, can Astra clarify its views on how often things that c-MET amplification is the driver of Tagrisso resistance? Because that's really what J&J is, and amivantamab success is most dependent on in that MARIPOSA trial. And the literature suggests it's not that high, maybe it's 20% or something, but I know that different estimates are out there.

So maybe the second question is for Susan. The first one, do you want to cover it, Dave, or?

Sure. I think that in terms of what we see in TROPION-Lung01, you've got to compare that to the background of what we see from second line plus docetaxel, which is the comparator arm utilization, and the results that we see from that docetaxel in second, third line lung cancer has pretty poor response rates in that 5% to 20% range, depending on what you look at. And progression-free survival that again is, I think, relatively short, kind of in the 6 months and below range.

So certainly, when we kind of think about the opportunities to see what investors should be enthusiastic about, I think that some of the early data that we're already beginning to see within the abstract, I think, compares quite favorably to that. I don't know, Susan, if you want to speak to any of those elements. But I think that the other piece that I would say, Tim, that's really important here is that for all of the advancements that have been made in advanced lung cancer through checkpoints and checkpoints plus chemotherapy, the overwhelming majority of patients progress on those regimens, and they find themselves on systemic chemotherapies. And so it is a pretty enormous unmet need that this study seeks to address.

Susie, do you want to comment at all on what we're seeing so far?

Yes. So as you're aware, the data we've already published shows a 28% response rate at the 6 mg per kg dose in the median response duration of 10.5 months. So again, if you put that into the context of what Dave just said about the expectation for current standard of care chemotherapy, I think you're seeing improvement.

And then in terms of tolerability, a couple of things to note. First of all, the rate of interstitial lung disease is low with datopotamab deruxtecan than we've seen with Enhertu. What we do see is stomatitis as a dose-limiting toxicity, and we are investing in patient and investigator education about the management of the side effects and also digital health tools to help manage how patients get through that. So I think there are ways in which we can manage those side effects to really represent an overall benefit risk profile that's quite attractive in this setting.

I think the second thing is -- that David alluded to is that across the program, we'll continue to look for opportunities to further refine the patient population that's best to treat as we move beyond TROPION-Lung01 into other settings.

And then I think your question about the level of MET overexpression and amplification as a resistance mechanism to Tagrisso. What we've seen is in the range of 15% to 30% range. So 15% when you're looking at circulating tumor DNA, but you can't underestimate the rate of MET amplification using ctDNA alone. If you look in tissue, it can be at the higher end of that range. So something in that range is what we're expecting.

And I think, Tim, just maybe to add onto the -- back to the question on data. The [docetaxel] said it's less than 6, which is true. It's probably if we gave kind of accurate 3 to 4 months is what we're seeing. So that's what we need to be beating within this.

Thanks.

James Gordon, go ahead. Go ahead, James.

Two questions.

First question on lung cancer. So if FLAURA2 is positive, that presumably does read to the Tagrisso plus DS-1062 the ORCHARD data. Could that be a pivotal data? Or when might you be able to have pivotal data for Tagrisso plus an ADC for EGFR patients? And then given what we saw at World Lung for 1602-plus KEYTRUDA, fair to assume that you're going to do that in all comers who don't have EGFR mutation. So would it be plausible like within the next 12 months that effectively DS-1062 would be going after every one in lung cancer, either with Tagrisso if they've got the mutations or with KEYTRUDA if they don't have EGFR mutations? Is that the big picture plan for lung cancer?

And the second question was Ultomiris. So you've now got the launch in MG and you've also got NMO coming. So can you remind us what your updated thinking is about how much you can convert over the combined Soliris, Ultomiris franchise over to Ultomiris by the time that Soliris faces loss of exclusivity in 2025? I think the conversion is about 30% now, but is the thinking that you can more than double this conversion in the next 3 years?

Thanks, Jim.

So the first question would be Susan, the second question, Marc, is about the rate of -- not the position, but switch from Soliris to Ultomiris by 2025. Susan, do you want to...

Yes. So just the design of the ORCHARD study, it's a platform-based Phase II study. It's not designed to be a pivotal study. And of course, in order to drive a pivotal trial design, we want to look at safety and efficacy data.

I'll just reiterate what I said, we are planning to initiate a number of Phase III trials over the next 18 months, and we'll continue to evolve as data emerges from the proof-of-concept driving studies.

So Jeff, I think your question was on the rate of conversion on myasthenia gravis, I assume. Let me provide just some reference on the rate of conversion in PNH is above 80%. The rate of conversion on atypical HUS is above 50%. So by 2025, this means 3 years after launch, in myasthenia gravis, we can expect somewhere closer to atypical HUS, I believe, in 3 years' time. And NMO, it's a bit hard to guess. But due to the excellent results that we have seen, we believe the conversion will also be relatively rapid.

Simon Baker. Go ahead, Simon.

Two pipeline ones, if I may.

Firstly, on adavosertib, which you've terminated. I'm assuming that was on tolerability grounds, but any color on that would be useful. And is that the end of what you want as a target? Because I noticed that Merck had disclosed another (inaudible) inhibitor that appears to have the slightly less aggressive structure than adavosertib?

And then secondly, on Fasenra. I see on clinical trials of last week that both RESOLUTE and ORCHID were moved back a year for primary completion. Is that just housekeeping or also a genuine delay there?

Thanks, Simon.

Mene, do you want to take the first and last question? And...

I mean, again, that's really due to delays through COVID and the Ukraine-Russia war. Nothing from a data perspective.

And Susan, adavosertib?

So I think (inaudible) is -- remains an important target. The challenge for adavosertib is the combination of GI, diarrhea-inducing side effects as well as the combination of that with bone marrow toxicity. And the combination of those 2 together proves challenging.

So there's clear activity seen with the adavosertib including in some difficult-to-treat cancers like uterine, serous carcinoma. But when we look at the overall profile versus everything else that we've got in our portfolio and what we've made is a prioritization decision to make sure that we apply our resources on the products that we think have a greater transformative ability for the treatment of patients with cancer.

Okay.

Michael Leuchten at UBS. Michael, over to you.

And just going back to the increase in OpEx for this year, just trying to understand the timing. A lot of the pivotal data that would have suggested you should invest more in ADCs and other compounds you had earlier in the year. So what's changed in July to decide to spend $1 billion more this year in OpEx?

And then just going back to (inaudible) of the incremental revenues you now expect in the second half, how much of that is based on contracts that you have and how much of it depends on you successfully pushing the product more into, I guess, a commercial and non-government setting?

So the second question is about (inaudible) Iskra, do you want to take this?

Yes. Let me start with that.

So the revenue is predicted now for the second half of the year, a combination of what you're saying. Many of that is coming from the contracts that I already agreed with many countries around the globe. But equally, as I mentioned, we are increasing the capacity as much as we can to be able to also supply and increase the supply for the patients that are not still covered with the existing contracts.

Thanks, Iskra.

And maybe, Aradhana, you could take the other question? And also there's a question online about the clarifying total revenue guidance, so you could take the whole thing together.

Sure. Yes.

So Michael, just to answer your question around OpEx. So there are a number of elements actually in OpEx. There's obviously increase in R&D and that's not just the ADC portfolio, which obviously is a big component of it. But it's really across board, and that includes further investments in rare diseases, further investments in BioPharma. As you know, we've done some licensing arrangements there as well, as well as continuing to invest behind Enhertu and Dato as well as our internal pipeline on ADC. So it's actually quite a large portfolio that we're investing behind in R&D.

The -- In addition, there's also SG&A, which we talked a little bit about the ungating of some of the spend on Evusheld relating to demand creation that we're doing. But at the same time, we also have several other launches. As you know, Saphnelo is still early, Tezspire, Fasenra as well as Breztri and on the oncology side, multiple new indications that we'll need to continue to build the market on behind HIMALAYA and TOPAZ. So hopefully, that addresses your question.

I think the second question that Pascal referred to was, I think there was a clarification on total revenue guidance and that is a low 20s increase in revenue. So just -- so that's clear.

Thanks, Aradhana. So Luisa Hector, Berenberg. Luisa, over to you.

A couple of questions.

On Farxiga, I just wonder if you can give any more color on what we should be looking out for at ESC? Should we expect a benefit across all components of the composite endpoint? And how soon could this contribute to sales? And I wonder if you've actually stated when you expect generics in China, I heard all your comments about the phasing of LoE, but I just wondered specifically on China.

And then second question for you, Pascal, because it's clear your confidence in the growth profile beyond 2025. Are there any areas in particular you would highlight where your internal projections are different from consensus? And perhaps just a comment on what you do factor in for pricing in that longer-term view?

. So maybe I can start with this one and also clarify the $1 billion that Michael was mentioning before, I'm not sure where that comes from. But I mean, our guidance with expenses has been low to mid, and now it's mid to high. So you could potentially derive this, but you could also derive less than $1 billion.

Remember also in the guidance, we have reduced the other income. So it's not only an expense issue, it's also reducing other income in our guidance. And in terms of the increase of expenses, it's really linked to the products -- the portfolio we've discussed -- versus consensus we typically do not comment. What I can say is what are the products that we see as being big potential products and the first 2 will not surprise you. Enhertu and Dato-Dxd, we believe those 2 have very, very large potential for the many reasons we have described.

Beyond that, in oncology, maybe I should ask Dave to comment in terms of what [CCL's] potential. And BioPharma, Ruud, you also would want to say a few words about the products you see as having big potential? Not necessarily versus consensus, but where we see the biggest potential.

I mean, I think, Luisa, your question is 2025 and beyond, I think that to Pascal's point, and I've mentioned this before, the ADCs, certainly. I think secondly, we're beginning to get momentum and enthusiasm around the next wave of IO, which includes bispecifics, and I think that we'll see more on that to come.

Additionally, I believe that the PARP-1 selective is something that, again, here has an early profile that gives me a lot of enthusiasm as Lynparza moves into exclusivity, and it's the first and only in this decade within the portfolio of oncology that goes there.

Those for me are the big highlights, and it's the combinations between IO and ADCs, where I really think that we've got the opportunity to do some important and differentiated clinical approaches.

Okay. I will quickly comment regarding the BioPharma.

I think in the short term, clearly, the trajectory of Farxiga is very promising. And I will also answer your question regarding the expectation in China. The loss of exclusivity is in 2023, but we don't expect a lot of impact instantly. We are expecting VBP in the course of 2024 if it happens, but it still has a substantial potential.

Of course, the new portfolio products like Tezspire, Saphnelo and Breztri has a substantial potential. And then in the midterm, a product like eplontersen, already show good results in (inaudible). And then hopefully, in the future, also in cardiomyopathy are clear strong growth drivers for the business.

And let me just start with the question around (inaudible) and Farxiga. So I can't comment on the results we'll present, but I don't think folks will be disappointed. And what I can maybe add is there'll be 2 high impact publications coming out at the same time, which hopefully will emphasize the quality of the data we're presenting.

Maybe -- thanks, guys.

I mean, the last comment I will make, Luisa, is that one of the characteristics of our company is that we don't depend on 2 or 3 products and where you can say this one has enormous potential. We have many blockbuster potential already. We have more than 10 today, and we expect to have many more over the next few years. So there are a number of products that can be very big. And then there are others that are going to be smaller, but still blockbuster potential, more than $1 billion. So it's really adding up all these products that is going to drive the growth of AstraZeneca over the next 7, 8, 10 years.

Next question is Emily Field at Barclays, Emily?

Question. One on TROPION-Lung01 timing. I know you targeted first half '23. I believe Daiichi Sankyo this morning noted a potential for second half '22 with the caveat that's driven. Just your thoughts on the potential to see that top line data this year?

A question on the myasthenia gravis launch for Ultomiris. Thanks for the color that 1/3 of the sales in complement naive, just curious on if you think you're winning patient share in that population versus (inaudible), which is off to a strong launch?

And then Dave, in the prepared remarks, I believe you mentioned that you weren't seeing much contribution from DBO4 in the first half. Do you expect that there will be signing sales contribution ahead of the PDUFA date given the NCCN guidelines update?

Thanks, Emily.

So Dave, do you want to take the TOPION question? And Marc, the other question? And we try to be short.

Yes. And maybe I can do the DBO4 and the TROPION both.

So when Daiichi guides to second half '22, they're on their fiscal year, and so that goes into first quarter of next year. And when we guide to first half of '23, it's on a calendar year. So you can triangulate the quarter that we're both consistently speaking about.

I think that within DB04. So Emily, I think that with the NCCN guidelines changing because of an overall survival benefit with the speed with which it did, and we already heard the discussion at ASCO, the discussion, not the presenter, talking about how HER2 low is something that she was considering for a patient that was in front of her. And then we know that there are many HER2 low patients that are already easy to identify, I do think that some level of non-promoted spontaneous use is likely to happen in advance of PDUFA. The exact amount of that, I think, is something that we'll just watch and see.

As expected with interaction of the new app therapeutic option, the estimates marketing as the space is expanding very rapidly. Has not been communicated by Argenx that seem to be taking many patients from IVIG and earlier line of therapies. We have launched Ultomiris at the end of April. And although it is early days, I think we are seeing that we are already gaining naive patients for about 1/3 of the of the initiation. We expect this to continue in the future.

So you remember that until the introduction of this recent introduction, Ultomiris, and (inaudible) Soliris was the only branded medicine in myasthenia gravis and was treating more severe forms of myasthenia gravis. So with Ultomiris, our mission will be to go down in severity and cover a larger group of patients. So early days, but a good start.

Thanks, Marc.

Matt Weston, Credit Suisse. Matt, over to you.

Two questions, if I can, please.

The first, coming back to operating costs. The new guidance on R&D is essentially trending towards $10 billion. Aradhana reiterated the low 20s percent of R&D as your target. But I'm mindful that consensus has $9 billion of spend and a 2.5 percentage point margin increase year-over-year for 2023. I don't want to draw you into '23 guidance, but can I just be clear that the message is pipeline success just as increased investment and that's what investors should be prepared for? And any color you can give us around that would be great.

And then secondly, a question about mid-term margins. You commented about mid- to high 30s, but obviously, you've also highlighted how much the potential of the Daiichi Sankyo collaboration product could have to the future growth of Astra. And I just wonder how you see that impacting that margin number given that you book only a very modest amount of sales but 50% of earnings? So I would imagine it could easily push you over that high 30s if they were to achieve the peak sales that you seem to be hoping for?

Thanks. Matt. The 2 questions, so maybe Aradhana, you can cover the margin.

On the -- the first point on the R&D spend, Matt, Aradhana said to you that the second half, we expect to have R&D expenses being consistent with first half. So if you do that, you don't get to 10. I mean, you're not that far, of course, but you're substantially below 10 if you do this math.

And in terms of the question as to whether this is justified by the pipeline, the answer is absolutely. Yes, otherwise, we would not spend it. We have really, a growing -- a rapidly growing pipeline, and we need to support it. If you actually think about a product like Enhertu and a product like Dato-Dxd, taking them to their full potential requires a pretty large program and a lot of investment, and this is something that we have become more and more convinced we need to do.

And then beyond those 2, we have got a number of products certainly (inaudible) requires investment. And we really want to play to win. We want to make sure that every one of our products with potential is totally supported too, so we expand them and maximize them.

As far as the margin, maybe Aradhana, you want to cover this? But we need to keep in mind that we also have Tezspire, we have Lynparza, we have products that are not necessarily always helping with the margin near term.

Yes. I think, again, our ambition remains the same in terms of margin. But as you can imagine, it's always a balance between shorter-term margin and longer-term growth. And as Pascal said, we're playing to win here, and we continue to invest behind the product.

The specific question you had was around the Daiichi product and the partnership with -- on Enhertu and Dato. And yes, we have high hopes and high ambitions for those. But also note that we do pay our fair share of R&D and SG&A expenses. So while on the revenue line, we may not count as product revenues, counted as collaboration revenue, our profit share, we are contributing our fair share of expenses. So we really need to look at sort of an operating profit line there rather than the sort of the margins that are employed.

And again, we're focused on cash flow and improving our operating profit from a dollar standpoint and a margin standpoint.

I mean, these 2 products that can be very large, these 2 ADCs, they will drive tremendous growth post '25. And until '25, they will drive growth, but they will also drive a substantial investment. These studies in oncology, they are -- they tend to take time. They're expensive, and they are quite large. So that's really what you have to keep in mind when you look at the margin.

But having said that, I'd just like to repeat what I said before, we haven't actually changed our ambition to improve our margin to mid to high single 30s, mid to high 30s in the mid to long-term horizon. So nothing has changed there as far as our profitability ambition. It's just that we want to make sure that we do this, and at the same time, we don't improve margin at the expense of long-term sustainable works.

Emmanuel Papadakis? Yes, go ahead, Emmanuel.

Sorry, okay. Perhaps I take a question on capivasertib ahead of the CAPItello291 data due in the second half of the year. So just your degree of optimism, Susan, on probability success in light of action and given a pretty mixed history of the glass? And then a couple of follow-ups.

And [Jose], perhaps you could just give us a bit of color on where you think you are in terms of second-line metastatic share conversion from the current standard of care TDM-1?

And then Evusheld, you've mentioned several times it's retained efficacy, but I think it's pretty clear from recent publications that tozorakimab has at least -- has almost completely lost efficacy against the BA subvariants. So is there any contingency built into the contracts you're signing around returns or cancellations for potential complete loss of efficacy, which seems like a pretty high risk?

So maybe what we could do is, Susan, you will cover the other question in a minute.

But Mene, do you want to cover the Evusheld from sort of an efficacy viewpoint and what we are working on? And then Iskra, you could cover the question about contract?

Yes, it's a great question around the antibodies. I think we were very specific in terms of always having 2 antibodies in Evusheld specifically for the reason that you're asking. So we have seen, obviously, some reduction in activity or one or other antibodies brush when you put them together, the efficacy remains intact and robust.

And I think you also need to be careful not to be confusing a decrease in neutralize -- in vitro neutralization, pseudovirus assays with a decrease in efficacy because that doesn't necessarily translate. Because you don't know what the level of nuclearizing activity in vitro is to get it.

Iskra said in the real world studies that we're seeing with current variants, the efficacy is remaining very robust across all the variants. It's because we have 2 antibodies, I think we're in reasonably good shape, and we are never going to get resistance, but I think we're reasonably well protected. But of course now, the next generation of antibodies that we acquired are going to enable us to find additional binders that will further protect us from those resistant variants if they occur.

Mene, before you cover the contract question, maybe something -- it's worth reminding everybody is when we talk about the efficacy of Evusheld, the numbers you've heard are efficacy against one symptom. We're not talking about efficacy against severe disease or whatever, we're talking about efficacy against one symptom. So it's a tremendous level of efficacy that we have today, and then real-world evidence is demonstrating it's still there.

What that means is we protect people not against severe disease, we protect them against being symptomatic. So it's a fantastic efficacy.

(inaudible) That's like a running nose, a cough, a fever. I mean it's small ....

(inaudible) Something, runny nose or cough. So I mean, it's really a very impressive efficacy level.

Iskra?

And I think it's really worth highlighting again that we really believe that the activity will not be lost in the new variant. And I think that just to build on the (inaudible) point, we do see a different level of efficacy of different antibodies in the different variants. But it is true that one or the other are really keeping the strong efficacy.

Therefore, I mean -- and we are working with the government and the relevant healthcare stakeholders being transparent on that. And I do believe that we will find a way even in case the resistance will happen to make sure that we deliver what will be needed to protect the patients and equally to find a way how to make sure that governments will be protected in a way given the unpredictability of the COVID-19 environment.

I think it's also fair to say that from the vaccine onwards, I think we are all working in the environment that is extremely volatile and dynamic, and that we are all taking a different level of risks moving forward, making sure that we have deliver medicines, both vaccines and antibodies, that can continue to protect the patients and prevent -- protect them from the COVID-19.

Susan -- Thanks Iskra.

So in terms of the development of (inaudible) we were very careful to make sure that we develop the right dose and schedule. So the intimate dosing schedule 4 days on, 3 days off, is something that optimizes the tolerability and minimizes the discontinuation rate, which I think is an important feature of the design.

And then the second thing that builds confidence is, of course, the data from Fraction, which I highlighted in the presentation. 55% of patients have the activated pathway PI3 kinase/AKT/PTEN loss. And in that group, we saw really impressive improvement in not just PFS, but in overall survival with a hazard ratio of 0.46 for overall survival. So we do Phase III trials in order to confirm the activity we've seen in Phase II, but we have a good level of confidence in the importance of this pathway and in the ability of this molecule to inhibit the pathway well and to have that done in a tolerable way.

I'm just going to hand over to Dave now to talk about the Enhertu question.

Yes. So Emmanuel, on Enhertu, we've seen really brisk conversion in second line just 2 months after approval. We now have 35% share of second line Enhertu positive. Just to put into perspective, we saw Kadcyla, TDM-1 a year ago, probably in 45% to 50% use. And so the majority of that 35% use that we're seeing right now in second line is coming at the expense of TDM-1. We do see some reduction in some other areas.

I'd also note that we also continue to see use in third line plus for those don't see, obviously, or who haven't had an opportunity to be able to yet get Enhertu in the second line. So I'm proud of the work that the AZ and DS teams are doing just in 2 months after the launch.

Thanks, Dave.

So we are over time, but we appreciate that you are very interested, and we love your questions, and they are great questions. We also want to respect your time, so we'll take 2 or 3 more questions and then close the call.

Viktor Sundberg, Nordea. Viktor, over to you.

One question on MEDI5752, your PD-1 CTL-4 bispecific that you presented at ASCO. I think it was clear that the 1,500-milligram cohort was too toxic, but also on the 750 milligram, the discussant commented that the toxicity looks fairly similar to ipi/nivo alone. So my question is if you agree with that assessment? And if the 500-milligram dose is the way to go forward for that program? And if you think efficacy will be enough of that lower dose?

And perhaps a quick second question as well on HER2 low just quickly. So we know that HER2 low expression is less common in (inaudible) negative patients. But any data you have seen it's also lower in earlier lines of treatment, irrespective of [HER] status compared to later lines of treatment just for modeling purposes?

Susan, do you want to cover this?

Yes, sure. So the 5752. First of all, at doses of about 500 and 750 milligrams, if you look at the effect on T-cell proliferation rate, you are in the range of increase you would expect to get from around a 10 mg per kg dose of ipilimumab or tremelimumab. And we presented that with some of the data at AACR.

In terms of the tolerability, we're obviously looking at the discontinuation rate, and we'll continue to evaluate that both 750 and 500 milligrams. We will be presenting some more data in combination with chemotherapy in non-small cell lung cancer setting at the World Congress on Lung Cancer. So look for that as well. But we look at the totality of the data. And overall, we're encouraged profile that we see that we can get a good tolerability profile with improved efficacy compared with what you'd expect with a PD-1 agent alone.

And in terms of HER2 low, I don't see a real shift in the HER2 low prevalence between early and late line.

Thanks, Susan. Peter Welford, Jefferies.

Just 2 quick ones.

Firstly, just the comment on other operating income and the comments you made with regards to second half. I'm curious, does this mark at the end now of the sort of serious portfolio optimization that we're seeing from AstraZeneca? And should we now envisage, therefore, an end to these profits? Or is it more just this particular year given macroeconomic challenges, management's current focus that there hasn't been the same degree, but we should not necessarily assume that's going to be the case in the future years.

And then secondly, just coming back to the SG&A. Just curious, you've talked in the past about the fact the years of investing more and more in China are now over. Just curious if you can update us on your thoughts there? Are you actually now taking cost out of China? Or how should we think about investment in China when we think about the SG&A trend?

Maybe I can cover quickly what I say. Because I always describe what we've done is sort of pruning the tree, right? I mean, and basically the divesting products that would be better managed by someone else than by us and someone else could create value. So we've done a lot of this. There's less today, of course. And basically, now we are trying to grow new branches to the street to make it a beautiful tree with launching of new products.

But it doesn't mean that it's finished. I mean, we'll basically manage that as we go, but there's definitely less older products to divest and less, less other income moving forward. So our intent is really to focus on our products, our new products grow them and develop the pipeline now.

Aradhana?

Yes. And I think the second question was around China and whether we're investing more in SG&A in China.

Clearly, it's been a tremendous growth journey in China over the last several years. As you know, the government and pricing policies have put the growth there under pressure. That being said, we continue to invest in new products. And hopefully, the new product launches will drive that growth. We are managing our cost base in China in proportion to the revenue decline that we see. And again, we'll continue to manage that while investing in innovation.

Thanks, Aradhana.

So we take the last question. Seamus Fernandez, Guggenheim. Seamus, over to you.

Pascal, and maybe you can be noted for horticultural comparisons as well.

But the dynamics, I guess, around Dato. One quick question there. Maybe you guys can just help us understand, when you look at the data, Dave, you said you would hope that it would potentially replace late-line chemotherapy, but it's also being studied in combination with platinum-based chemotherapy. So is it your expectation that we will continue to see platinum-based chemotherapy as part of these regimens? Or is it possible that, that could be eliminated from the regimens going forward?

And then secondly, just very quickly, on the COVID antibody approaches, just hoping you guys could give us a little color on whether or not the regulatory environment is changing such that COVID antibodies can actually come to market almost in the way that flu vaccines are reapproved over time? Just hoping to understand that context a little bit better.

Thanks very much. So that's the first one, Susan, (inaudible) and the second one.

So the data that we'll present with the TROPION-Lung02 at the World Congress on Lung Cancer looks at the combination both with the double of Dato-Dxd plus pembro as well as the combination with platinum-based chemotherapy.

So I do think that it's probably going to depend a little bit on how patients present and what physicians are wanting to achieve. So those patients with bulky disease that want to achieve rapid and durable responses, there's a choice there, but you'll see the data at World Congress and Lung Cancer as it comes to.

Yes. I mean, I think the only thing that I'd add, and Seamus, you're pointing out that I sort of talk about the first sequence, I think, that the first step is replacing some of this late-line systemic chemotherapy. In terms of what's possible as we move into earlier lines, I think that obviously, both platinum and PEM are utilized here. And so one of the important clinical questions is the one that you're asking, which is, would we be able to replace both or just one of those? And they've got very different on a tolerability and number of cycles considerations. So those are the kinds of things we'll be answering in the program as the Phase IIIs in the frontline get underway.

Relatively easy came to you. So it's tempting to continue using it.

Mene, do you want to cover -- or Iskra, do you want to comment a bit on that?

I think it's a good question, and I can say that we would be hopeful to see the regulators taking the approach, the COVID-19 medicines, both on vaccine and antibodies, in the same way as they are doing for the flu. That would definitely accelerate and ease the way of the new updated vaccines and [monoclonals] for the new variants coming to the patients.

It's still not the case, but I'm sure you're aware that there are many discussions between the regulators and an equally discussions -- between the regulators and the manufacturers in the industry how to accelerate and optimize that process to be able to be -- to continue to be agile and flexible when it comes to bringing the medicines against COVID to the patients.

Thanks, Iskra. So we'll close here. Thank you so much for your great interest, and I wish you all a good day and a good weekend. Thank you.