AstraZeneca PLC (AZN) 2012 Q2 法說會逐字稿

Well, welcome, ladies and gentlemen, and thanks for joining our second quarter results conference call and webcast. After my brief opening remarks, you'll hear from Tony Zook, Executive Vice President of Global Commercial Operations; followed by Julie Brown, Interim Chief Financial Officer. We're also joined by Martin Mackay, President of Research & Development, who will be here to participate in the Q&A session; and of course, members of the Investor Relations Team as well.

Our second quarter, and indeed our first half financial performance, reflects a revenue profile that was expected. Given the loss of exclusivity of several key products, most notably Seroquel IR from March.

Products with loss of exclusivity accounted for 15 percentage points of our 18% decline in second quarter revenue in constant currency terms.

In addition to the challenges from our specific portfolio due to generics, we continue to face the same difficult market conditions that the whole industry faces as the global economy struggles to return to sustainable growth. Government interventions in the marketplace continue to take their toll. We estimate the impact to AstraZeneca at around $300 million in the second quarter alone.

The disposals of Astra Tech and Aptium created good value, but they also weigh on the year-on-year revenue comparisons.

And finally, in terms of revenue headwinds, we saw a continued impact on our business from the supply chain interruptions following the implementation of new IT systems in our plant in Sweden.

Our best estimate of the impact in the second quarter is around 2% of revenue overall, but as you will have seen in the press release, supply issues reduced our growth rate in emerging markets from around 8% down to 1%.

Production is now well ahead of normal levels and is responding to ongoing demand, including filling back orders and restoring normal inventories in the distribution channels. We estimate the revenue impact for the full year to be around 1%.

Despite the challenges, our commercial organization continues to drive performance for those brands where we retain market exclusivity, and in geographic markets where we are investing for future growth. As you'll hear from Tony in a few moments, there's been a very resilient performance for Crestor in the face of a highly genericized statin market, particularly with the recent launches of generic atorvastatin in many markets.

There was also good growth within the diabetes and oncology portfolios. As for Brilinta, well, Brilique is gaining momentum in Europe, although it's fair to say that the ramp-up in the US remains slow.

In addition to ongoing discipline in managing our operating costs, the restructuring programs are delivering real benefits to improve our long-term competitiveness. Expenditures in research and development and SG&A are both lower in the quarter in constant currency terms, even after making the necessary investments in development projects to advance the pipeline and in support of new launches.

We've made further progress on the pipeline since Martin's comprehensive update in February. We received a positive recommendation by the CHMP in Europe for approval of FORXIGA, a first-in-class new diabetes medicine from our collaboration with Bristol-Myers Squibb. It's now being reviewed by the European Commission, which has final approval authority.

We also received a positive CHMP recommendation for approval in Europe for Zinforo, a new intravenous cephalosporin antibiotic for the treatment of adult patients with complicated skin and soft issue infections, and community-acquired pneumonia. Here again, we await approval by the European Commission.

Across the entire pipeline, 22 projects have successfully progressed to the next phase of development, including seven projects entering first human testing. 10 projects have been withdrawn.

Our portfolio has also been strengthened by a string of successful business development initiatives in the first half. The collaboration with Amgen on five clinical stage projects in inflammation, including brodalumab, which will enter Phase III before year end.

We completed the acquisition of Ardea Biosciences, which adds lesinurard, a Phase III asset for the treatment of gout to our portfolio. And then just this month, we announced an exciting expansion of our diabetes alliance with Bristol-Myers Squibb, which will add two important on-market products for diabetes; the GLP-1 analogs Byetta and Bydureon, once Bristol-Myers Squibb completes its acquisition of Amylin Pharmaceuticals.

As we strengthen the portfolio through externalization, we continue to deliver attractive cash returns to shareholders through our progressive dividend and share repurchases.

We are determined to navigate through the market challenges we face with a relentless focus on execution. In the context of the first half performance and the outlook for the remainder of the year, we're maintaining our financial target for the full year, with core earnings per share in the range of $5.85 to $6.15.

So with that as an introduction, let me turn briefly to the headline numbers for the second quarter. Tony and Julie will provide more detail on revenue performance and the full profit and loss statement a bit later.

Revenues in the second quarter was nearly $6.7 billion, and that was down 18% in constant currency terms, and I've already mentioned the key drivers.

Core operating profit was down 27% to $2.3 billion. And as you will hear from Julie, operating expenses are down in constant currency, but not enough to compensate for the revenue decline.

Core earnings per share were $1.53 in the quarter' that's down 6%. As we noted on the front page of the press release, core EPS benefited from the release of a tax provision related to a cross-border transfer pricing issue. This amounted to $0.19 per share.

Adjustments to core earnings were slightly higher this quarter compared with the second quarter last year, so the decline in reported earnings per share is a bit more than for core, down 11% to $1.27.

I won't spend any time on headline numbers for the first half other than to say revenue was down 15%, core operating profit was down 23%, and core EPS was down 13%.

And with that, I will turn over to Tony Zook, who will talk about the second quarter commercial performance for regions and for brands. Tony, over to you.

Before I get into the numbers, a few words on the overall commercial performance in the first half.

Simon's already set out the framework. While the global pharmaceutical industry continues to face challenging market conditions, and as we tackle the particular challenges we face with our current portfolio, we remain focused on the things that we can truly influence; putting our commercial resources behind the brands that retain market exclusivity, and continuing to invest in the markets that offer attractive growth opportunities in the future.

We create the headroom to make those investments by our restructuring and reshaping efforts. We're certainly looking to achieve a net reduction in spend, but we are absolutely focused on preserving our commercial capabilities and capacity to drive performance where we can make a difference.

That means reducing non-customer facing positions, and consolidation of our regional headquarters' structure is a key component of that. In fact, around 40% of the headcount reduction in sales and marketing related to our previously announced restructuring program will be in non customer-facing positions.

We are evolving the size and deployment of our field force to match the evolving product portfolio with a general move towards reductions in the more mature, developed markets, while investing in emerging markets. Where we reduce our sales force, we're building up our headcount in new channels like service teams and call centers.

Along with [digital], with these new channels, we're maintaining, and in some cases increasing, market share for our brands at a lower cost than the traditional sales rep-only model.

So with that as context, let me walk you through the second quarter revenue performance using constant currency growth rates, looking first at revenue on a regional basis.

As Simon said in the opening, global revenue was down 18%. Loss of exclusivity is the main driver, with disposals and supply issues also playing a role. Revenue in the US was down 29% in the second quarter, with generic competition for Seroquel IR accounting for 80% of the decline. There was good growth for Symbicort, Onglyza, and Faslodex, but this was offset by the disposals of Astra Tech and Aptium.

Revenue in Western Europe was down 20%. In addition to Seroquel IR, generic competition for Nexium, Arimidex and Merrem were also important contributors to the decline in revenue.

Revenue in the Established Rest of World was down 12%, chiefly on the 30% decline in Canada. In addition to generic competition for Atacand, generics for Crestor entered the Canadian market in April, pursuant to the previously disclosed settlement of the patent litigation.

Revenue in Japan was down 2%, this being a year in the biennial price reduction cycle. It's also important to keep in mind that when we look at our performance in Japan, for many of our key brands, Crestor, Symbicort, Seroquel, and most recently Nexium, we record revenue based on shipments to our marketing partners. So the numbers in any given quarter often reflect ordering patterns and inventory movement as opposed to underlying demand, where we receive good performance for Crestor and Symbicort, for example.

Revenue in Emerging Markets was up 1% in the second quarter. Two markets in particular are putting a damper on our performance; Brazil, where we had the loss of exclusivity for Seroquel IR and Crestor, and Mexico, where the macroeconomic conditions are making performance difficult, particularly for the kinds of products in our portfolio at the moment.

Revenue in China grew by 12%. Supply issues have made the biggest impact in emerging markets. If you adjust for this, revenue growth would have been around 8%. We're expecting a rebound in emerging markets' performance in the second half, but achieving double-digit growth for the full year is now unlikely.

Looking at brand revenue, you can see the mixed picture. With some good performances of brands that retain exclusivity, and by and large I would count Crestor in that category, although as you can see, the loss of exclusivity in Canada and Brazil account for the small decline in revenue in the quarter.

The growth in Symbicort was largely from a strong US performance where sales were up over 20%. The oncology products, Iressa and Faslodex, both grew strongly, as did Onglyza. And Brilinta/Brilique is starting to make a contribution to growth as well. At the bottom, of course, is the significant drag on revenues from those brands most affected by loss of exclusivity, in particular Seroquel IR.

I'm going to look at a few of these brands in more detail, starting with Crestor.

Crestor sales were down 5% in the quarter, largely due to the loss of exclusivity in Canada and Brazil. Sales from the US were down 1%. Crestor total prescriptions in the US are still growing ahead of the statin market, and the performance has been quite stable in the face of generic atorvastatin.

As we have mentioned many times, 94% of Crestor volumes come from continued therapy, which we expected would remain stable, and that's been the case.

We've also seen a stable trend in net dynamic volume; that is new starts and switches to Crestor, minus switches from Crestor. And that's holding steady even since the launch of multi-source atorvastatin products at the end of May.

We're also seeing a steady improvement in the volume of patients switching from Crestor since the initial bump from the atorvastatin launch. We have taken a decision that we will not pursue many state Medicaid contacts where the price point required is not justifiable on sound business grounds. So we may see a slight reduction in TRx volumes in the second half, but the revenue impact will be even smaller.

We're seeing that same resilient performance in Rest of World markets, where except for Canada, sales we're up 1%. And that's not by accident; it's the result of considerable work to position Crestor in the market as the preferred statin for patients at increased cardiovascular risk, a position that has helped support usage of the product in a high genericized statin market.

Crestor continues to grow well ahead of the market in Japan, although that's not reflected in the 4% ex-factory sales growth in the quarter.

Turning to Seroquel IR, which can be summed up in one word, generic. Sales in the US were down 86%. On this chart, we show two recent generic launches in the US C&S market, Seroquel IR and the antidepressant escitalopram, as you can see here how rapidly brands now erode in the US market once generics enter. This is especially the case, like ours, when there's not a 100-day exclusivity that limits the number of generic players.

Seroquel IR sales in the rest of the world were down 39%, again typical of the pattern where erosion is not as fast and as deep as in the US market.

It's a much better picture for Seroquel XR. Worldwide sales were up just 1% in the quarter. Sales in the US were down 4% where the atypical antipsychotic market has also turned ex-growth in prescription terms.

Seroquel XR market share took a bit of a hit in April, down 17 basis points in the first four months of generic Seroquel IR, but has stabilized in May and June. We continue to believe that Seroquel XR will remain an important treatment choice, and that we should be able to grow revenues alongside generic quetiapine IR.

Seroquel XR sales in Rest of World were up 3% in the quarter. Western Europe was down 6%, where we've had a generic launch in the UK, and an at-risk launch in Germany. The launch in France is off to a strong start. Sales in emerging markets were up 40% in the quarter.

Symbicort's sales were up 3% in the second quarter on the back of a strong performance in the US where sales were up 21%. In the US, Symbicort total prescriptions increased by 12% compared with 1% for the fixed combination market.

Symbicort's share of new prescriptions is up a full point since December to 22.5% in June, and share of new patients is at 27.2%. Symbicort sales in Rest of World were down 3%.

Turning now to Brilinta. I'll come to the US performance in just a moment, but first in Europe, the big news since the first quarter is that we have now successfully secured pricing approvals in Germany, and most recently in France, where we have now launched.

We continue to generate a strong performance in Germany. We have good uptake in Nordic markets, and we're off to a good start in our launch in Italy, but I'm going to go through a couple of slides to illustrate each of these points.

In Germany, we're maintaining our number one market share for oral antiplatelet therapy for ACS patients in hospitals where we're on protocol, which is now at 85% of our target hospitals. And now we're starting to see this presence in the hospital drive retail utilization, where we've grown to 8.5% market share on the dynamic OAP market, now second to clopidogrel.

In the Nordic markets, we've also taken over the number two position in volume market share in the oral antiplatelet therapy market.

The launch in Italy is also off to a strong start, where in just six months we're joint second with prasugrel in terms of share of ACS therapy for patients in hospitals where we're on formulary.

Turning to the US, you can see on this slide that progress is slow but steady on all key indicators; formulary acceptance, protocol adoption and trial by innovational choreologists. We're slowly establishing reimbursement on Medicare Part D plans, all of this translating into a steady build in total prescriptions.

We're also pleased to see Brilinta receive a strong Class I recommendation in the recent guidelines updated by the ACC and AHA. On balance, I think it's fair to say that it's the third brand into the market, and to contend with generic clopidogrel, we're finding that penetrating the US hospital market has been a real challenge. However, we remain confident that we can establish Brilinta's value in the world's largest market.

Onglyza had another strong quarter, with alliance revenues up 72%. Revenue in the US was $58 million, and as you can see on this next slide, the combined market shares from Onglyza and Kombiglyze XR are well up from a year ago in a DPP4 market that's growing at 24%. Onglyza revenue in Rest of World was up 62% to $21 million.

Finally, a quick snapshot for two of our oncology projects that are now at a run rate that will annualize at $600 million each. Faslodex sales were up 24% in the quarter on continued penetration of the 500 milligram dosage form, but also from expanded use. We also saw good growth from Iressa, where sales were up 13%.

I'll now hand over to Julie Brown who will review the second quarter P&L. Julie?

Thank you, Tony. I will cover the core P&L for the second quarter, with an emphasis on the key drivers of operating profit and margin. I'll briefly touch on restructuring. I'll comment on our cash performance and cash distributions to shareholders. And finally, I will close with our thoughts on guidance for the full year.

I will now turn to the second quarter P&L. I will focus here on core margins and profit. The press release does, of course, contain the statutory numbers, and a detailed reconciliation to the core pressures. When I refer to growth rates, they will all be on a constant currency basis.

Revenue was $6.7 billion. Core gross margin in the quarter was 79.9% of sales. That is down 190 basis points compared with the second quarter last year, largely due to a change in product mix following the loss of exclusivity on key brands.

Core SG&A expense was down 18% compared with the second quarter last year. We continue to exercise discipline in managing these costs, and see meaningful benefits from restructuring being realized, whilst at the same time creating headroom to support our new product launches.

The absence of Astra Tech also contributed to the lower SG&A in the quarter. The excise tax component of US healthcare reform amounted to 2.8% of the SG&A expense in the quarter.

Core other income of $182 million was unchanged compared with the second quarter last year. There were some moving parts. Royalty income from Entocort in the US was lower following generic entry, but it was largely offset by income from the Zomig marketing agreement with Impax Laboratories in the US.

That leads to a core pre-R&D operating margin of 49.9% of revenue, down 190 basis points compared to the second quarter last year on lower revenue and gross margin.

Core R&D investment in the quarter was just under $1.1 billion. That is 4% lower than last year. Benefits from restructuring have more than offset increased spend on projects to progress our pipeline, including the additional projects from the Amgen collaboration.

For the full year, I expect core R&D expense will be lower than last year in constant currency terms, both on an overall basis, and if you exclude the impact from intangible impairments from both periods. This leads to a core operating profit of $2.3 billion in the quarter, 27% lower than last year; and core operating margin was 34.1% of revenue, down 430 basis points.

Turning to our productivity program. In the second half we have charged $907 million of the projected $2.1 billion total cost for Phase III of restructuring with the split between cost of goods, R&D and SG&A as laid out in the table. We still expect most of the restructuring costs associated with the program we announced back in February will be taken in 2012, and we remain on track for delivering the estimated $1.6 billion in annual benefits by the end of 2014.

Cash generated from operating activities in the first half was $2.8 billion, in line with last year. With disciplined management of working capital and lower tax spend, we were able to offset the lower operating profit and contributions to the pension fund.

In terms of cash distribution to shareholders, we maintain our commitment to our progressive dividend policy. The Board has recommended a first interim dividend of $0.90, and as you will recall, the aim is to set the first interim at around one-third of the full-year dividend for the prior year, which in 2011, was $2.80 per share.

Subject to market conditions and business needs, the target for our net share repurchases in 2012 remains $4.5 billion. We completed gross repurchases of $1.9 billion in the first half, and issued $0.3 billion in consideration of share option exercises, giving a net figure of $1.6 billion.

In terms of the cash profile for the second half, we have the pending Amylin payments; approximately $3.4 billion to expand the collaboration subject to a final true-up; plus a further $135 million relating to the option to establish equal governance rights over key strategic and financial decisions regarding the collaboration. We will also be paying the first interim dividend in September.

The other potential call on cash this year was the Merck shares option, or the second option as it is also called. We've reached an agreement with Merck to amend certain provisions related to the second option, and now intend to exercise the option in 2014, barring unforeseen circumstances.

We have agreed on the valuation methodology and the option exercise price, which will now be around $407 million, representing $327 million for the PPI product subject to a true-up, and around $80 million for the profit allocation in the partnership. The expected payments to Merck will be capitalized and amortized as set out in Note 5 of our second quarter financial statement.

One other accounting item to note. With effect from January 1, 2013, we are updating our definition of core financial measures to exclude all amortization charges and intangible asset impairments. The new definition will provide better clarity on the impact from amortization and impairment charges, which are included in our core results under our current definition. In addition, it will aid comparability of our results versus the peer group.

We will publish an update on this with our third quarter and nine months results.

Finally, turning to guidance. We knew that 2012 was going to be a challenging year in revenue terms, particularly with the loss of exclusivity on several products, most notable Seroquel IR. We expect government interventions on pricing to continue at the upper bounds of what we anticipated, both in Europe and in the US.

We continue to vigorously defend our intellectual property. We prevailed in the US trial on the Seroquel IR patent, and we have also had positive outcomes in Spain and in the Netherlands. But we've also had an adverse judgment in the UK, and some at-risk launches in Europe. There are rulings pending in other jurisdictions.

On balance, our revenue assumptions are unchanged. We expect the decline in revenue for the full year to be in the range of low to mid-teens in constant currency terms, including any residual impact from supply issues.

The other items of guidance are also unchanged, with the exception of tax. With the tax benefit realized in the second quarter, we now expect the effective tax rate for the full year to be around 20%; that is 2 points lower than our previous guidance.

As we mentioned in the press release, we did have a probability-weighted view of the likely realization of this benefit when we revised our guidance at the first quarter results. And this, taken together with the dilutive impact of the expansion of the diabetes alliance with BMS, means our core EPS target for the full year remains unchanged in the range of $5.85 and $6.15.

Whilst currency was negative to core EPS in the first half compared with last year, it was broadly neutral versus our guidance, which was based on the January 2012 average exchange rate.

Our forward look to guidance takes no account of the likelihood that average exchange rates for the remainder of the year may differ materially from the January 2012 average.

In summary, our revenue performance reflects many of the expected challenges that we've provided the framework for our guidance update in the first quarter. We are seeing the benefits of disciplined cost management. Our restructuring programs are delivering real benefits, through lower R&D and SG&A costs that help provide the headroom for the investments in our business development, our pipeline, and new launches. We continue to focus on shareholder returns with our progressive dividend policy and share re-purchases.

And I will now hand back to Simon, who will chair the question and answer session.

Well, thank you, Julie and Tony. (Operator Instructions). And we'll obviously try and answer as many questions as possible, but you can help us with that. If I could ask you to limit yourself to one, certainly no more than two questions.

So with that introduction, can we have the first question, please? Gbola Amusa, UBS.

I have two on products. On Brilinta first of all, we are seeing some progress on your prescription trends in Europe, but we see the phrasing on formulary target hospitals, etc. Would you be able to comment on what percentage of overall demand the slides you show in Germany, Nordic and Italy respectively, what percentage of the market that actually is here showing?

And then on cholesterol and Crestor, ATP 4 guidelines are still long overdue. Do you have any further insights on what the hold-up is exactly and when you think they may finally emerge, and whether ATP 4 could have the effect on the market and on Crestor that we saw with ATP 3 and ATP 2?

Gbola, thanks very much for those questions. On Brilinta, I'll ask Tony to comment. This is a very important medicine. We continue to have real confidence in Brilinta's ability to bring real benefit to patients. We're pleased with the progress that we're making in Europe and other markets around the world.

As Tony said, we'd love to be getting Brilinta to more patients more swiftly in the US, but we feel we're working steadily through the progress of gaining -- getting on to formulary protocol and building trials.

But, Tony, do you want to try and tackle the question on overall demand?

Sure, Gbola. Thanks for the question. As you probably know, if you looked at the incidence rates in Germany, it's about 360,000 incidents in a given year. If we look to our protocol inclusion on the hospitals, in Italy for example, we're on 85% of the top -- we're targeting 85% of the top 1,000 hospitals. Likewise in Germany, it's a very high percentage of the hospital base.

And so we're very pleased with the progress that we continue to make. You also saw that for the first time in these markets we're now seeing that that hospital performance is also beginning to be pulled through into the dynamic share as well. So while lower, nonetheless, it's still continuing to show solid progress, and now we have passed the second entrant and are now going head to head with Clopidogrel.

Tony, thanks for that. Martin, do you want to comment on Crestor and cholesterol guidelines?

Yes, very briefly, just to say that we're not actually part of the update process which was carried out by the Committee. And as you know, those are -- these are nominated by the National Heart, Lung and Blood Institute. What I would say is previous updates, also as you know, have made target levels more aggressive. But we do expect to see full guidelines at the second half of 2012.

Well, can you at least talk about perhaps UK when those guidelines are anticipated? I know you're not involved there as well, but we have the Lancet making some fairly bullish statements about how cholesterol drugs should be used. Do you think that might be influential on, let's say, the UK guidelines when they come?

You would think so. You would think they would be influential, but until we see both sets of guidelines, really it's just a little premature to comment. And as I said, the way that targets have gone over the years has certainly been to be more aggressive, and one could speculate on that. But I would say let's wait to see the guidelines.

Thanks.

Gbola, thanks for that. Clearly, I think Martin's final comment was an important one. We do see in many markets when new guidelines come out they tend to be more demanding in standards, and that of course is something that provides benefit from Crestor, which I think has got a strong evidence base that it's the treatment of choice for the higher-risk patients looking to get their cholesterol into target. And so we obviously watch, to answer your question, the guidelines with a great deal of closeness.

Alexandra Hauber.

Hello. James Gordon, JPMorgan, standing in for Alexandra. One question was just on the supply chain disruption. In the release today, you say the impact on the top line for the full year will be around 1%, which I think would be around $300 million. So I suppose the question would be how much is actually left, presumably to fall into Q3? Because we've seen -- I think you had about $70 million in Q1, and then in Q2 about $100 million in emerging markets and also hitting Europe.

So the first question; how much is left for Q3, and also maybe how would that split between Europe and the emerging markets?

And also, just squeezing a second question in, Western Europe declined about 20%, and you said half of that was the big four genericizations. So of the other 10%, how much of that is other genericizations versus price cuts or other issues?

Great. Well, James, thanks for the questions. Let me deal with the first question on the supply chain interruption; and, Tony, if I may, can I ask you to pick up the dynamics in Europe?

So on the supply chain, we did indeed, as we trailed at the first quarter, we experienced the interruption to production really towards the end of the first quarter. Into the beginning of the second quarter, we anticipated that the $60 million or so impact we'd had in the first quarter would be increased in the second quarter, and that's exactly what you've seen.

As the second quarter progressed, we were able to largely resolve the issues, significantly ramp-up production. As I said in my remarks, we're now operating well above usual run rates. So we're now responding to ongoing demand, and we're also replenishing inventories in the supply chain.

The dynamic now, James, is there will be some back orders which impacted our sales in the first quarter; we'll be meeting those. But there may be some additional lost sales actually in the market place. And hence, we've guided to a 1% impact for the overall year, and that allows for a range of sensitivities from here. But I think that guidance for you of 1% is the right sort of benchmark for you to have in mind.

Let me turn to Tony on Europe and, obviously, we talked about loss of generics, Tony, in the remarks. It is an environment of pricing. You want to elaborate on that?

Sure, James. You were right. A big part of it was the volume pressures that we felt with the introduction of generics. But as you rightfully say, the pricing pressures in Europe are quite intense. When we came into the year, we believed that the pricing impact would be in the range of mid to single -- mid-single digits, low to mid-single digits, and the pricing impact that we've seen has certainly been at the upper end of that range, and in some countries has actually exceeded it.

Within Europe, the Southern European markets have been hit probably the hardest. We see countries like Spain, Italy and Greece that have exceeded that limit. And so the pricing pressures do play a component, as you have suggested.

Tony, thanks for that. I think the other factor is whilst there's been probably a disproportionate impact of the supply chain interruption in the first half was in the emerging markets, it's fair to say some markets in Europe have been impacted.

Having said that, I think that within Europe, we've seen strong performances from drugs like Crestor, from Brilinta, with as Tony mentioned, from Onglyza.

So whilst we've got a challenging environment in Europe, we also continue to be encouraged by the performance we're making where we've got brands with exclusivity.

Peter Verdult, Morgan Stanley.

Simon, just a couple of questions around product and accounting. Just on Crestor, clearly, trends holding up well at the moment. You made some comments in the presentation about how your confidence is high; that will remain in 2012.

I just want to look into 2013 a bit, just to get a sense as to how confident you are that you can maintain the Tier 2 access that you currently enjoy.

And then a quick add-on on products for Martin. Just with canagliflozin now filed in the US, just wanted to see if there's anything -- any update you can give us in terms of path to market for dapa in the US.

And then just quickly shifting to an accounting. On the tax rate, the guidance implies a big jump in H2. Now given the profit loss in the US, I was quite surprised by that. So just maybe a few comments about the mix and what's going on there.

And then as it relates to your new reporting, which will exclude amortization, I saw the other day that you basically -- the allocation of the purchase price to goodwill was minimal. I was just wondering, on the GBP3.5 billion that you're spending on Amylin, should we expect a similar treatment; i.e., most of it goes onto the intangibles which will then be amortizing?

Thanks.

Well, Peter, thanks for that. I -- my Interim CFO tells me, and she's fairly astute with the numbers, tells me that was actually four questions, Peter, rather than two. But nevertheless --

Two parts; two questions, two parts.

We will respond to them because they're all good questions.

So let me ask -- can I suggest, Tony, would you like to pick up Crestor and looking into 2013? Martin, if you could then pick up SGLT2, dapa, FORXIGA. And then we'll tackle the -- Julie will tackle the accounting items.

Sure. Thanks for the question, Peter. As you said, Crestor has been fairly resilient in the US marketplace, where we have seen, as I mentioned before, that high stability factor with the patients that are already on product. And even the net dynamics have moved in a positive direction. And so we are confident in our ability to retain our positioning as the statin for the patient at higher risk.

Relative to our contracting status, as you said, we've enjoyed fairly healthy open status and Tier 2 status. We don't anticipate any significant trend differences moving forward relative to our Tier 2 status. In fact, many of the contracts are in place not just for the second half, but already for 2013.

So in a broad sense, we expect still very good access for Crestor in the Tier 2 marketplaces. The only place where you might start to see a subtle shift in our contracting strategy, as I mentioned before, there are just certain very, very small segments of the business, the state Medicaid populations that, for us, simply aren't worth pursuing from a contractual basis. But the broad commercial platform, we believe, is quite sustainable going into 2013.

Tony, thanks. Martin, to you for dapa, FORXIGA, SGLT2.

Thank you, Simon; and thank you for the question, Peter. Not really much more to report in the US. As you know, the FDA are requesting more data to get a better assessment of the benefit/risk.

It's not crystal clear the way forward at the minute. We were very -- working very closely with our partners, Bristol-Myers Squibb, and with the FDA to define that way forward. We're still confident about the molecule and our ability to get it approved.

Of course, just to comment on Europe, more positive news there in terms of the positive opinion from the CHMP, and we're looking forward to the EC decision in due course.

Martin, thanks very much. Julie, let me turn to you on the tax issue. Let me just comment on Amylin. And rightly, Peter, as we showed, the majority of the Ardea consideration went into tangible assets, and that just reflects the value we see in the medicines, and in that case projects that we were acquiring.

The accounting for Amylin, we'll obviously disclose when that transaction is completed by our partner Bristol-Myers Squibb and the collaboration starts. I'm not going to prejudge that, but I think it's fair to say that we see significant value in the product and, therefore, expect that it will be predominantly an intangible asset. But obviously, we'll disclose that fully at the time.

Julie, over to you on the tax rate.

Okay. Thanks, Peter, for the question. Well, with regard to the tax rate, we're expecting the second half to return to more levels for the Group tax rate. So on a core basis, about 24%; on a reported basis about 25%.

Obviously, we have trading flows running between 100 countries across the Group, and therefore, we will have a number of tax audits open at any one time. And clearly, the settlement that we received in the second quarter caused us to have a very low tax rate in the second quarter of 8% on a reported basis and 10% on a core basis. But basically in the second half, we expect to return to more normal levels of tax.

That's helpful. Thanks.

Julie, thanks for that. Tim Anderson, Sanford Bernstein.

Can you quantify the likely dilution from Amylin in 2012? I'm trying to put that in the context of the tax benefit that you're saying will be an offset.

And then on respiratory, Symbicort's a big product, but it's at the tail-end of its lifecycle. I'm surprised you don't have more late stage offerings in your respiratory pipeline. You show a variety of assets in Phase I or Phase II, but is there really much you can do at this point to improve on existing therapies or to fend off competition?

And on that same topic, can you update us on when you think generic versions of Symbicort could potentially launch in Europe or other parts of the world?

Okay. Well, look, Tim, thanks for that. Martin, can I ask you to address the question on the respiratory franchise? And, Tony, if I may, any update or any inside perspective you want to share on the potential for generics in that marketplace. And then we'll come back and talk about the Amylin earnings impact.

Martin?

Yes. Thank you, Simon; and thank you for your question, Tim. I'd make a couple of comments.

First up to say that we believe Symbicort's still got a long runway. It's a terrific combination there and doing very well, as Tony described, and we believe will continue to do well.

You're absolutely right, Tim. In terms of our respiratory portfolio, it's an earlier portfolio. It involves both large molecules from our MedImmune R&D laboratories, and small molecules also from our Molndal facility.

Clearly, we would like some late stage products, and as in other areas where there's high unmet medical need in breaking science, we're looking for partnerships in that area and will continue to do over the next period.

Thanks, Martin. Tony, Symbicort potential generic alternatives?

Yes. As Martin suggested, I think it's important to recognize that Symbicort has performed extremely well in a number of our markets around the world, not just in the US. We're seeing phenomenal performance in Japan where it's over a 35[%] market share. We're seeing great uptake in the number of markets. So I just want to put that in context.

But specific to your question, we're aware that a first EU submission of a budesonide/formoterol product was made in April, and it would be -- for us, it wouldn't be appropriate to speculate as to the time of approval of that product.

But I would also just like to remind us that the turbuhaler device retains patent protection in 2019. So oftentimes when we see the potential for a product to come into the marketplace, we still believe that there is an opportunity for us to differentiate versus those brands and retain a sizeable [proportion] of our business.

Tony, thanks for that. Julie, Amylin amortization?

Yes, sure. Thank you for the question. The expansion of our collaboration with BMS will result in a dilution in 2012 and 2013 earnings. And after amortization, this will be in the range high single digits to low double digits per share.

The corresponding pre-amortization amount, if we exclude the amortization charge, will be in the low single digits per share. And both measures become accretive from 2014, and we expect meaningful accretion to occur thereafter.

Thanks, Julie. We've now -- we've got a question that came in on the WebEx from Paul Major at Redburn. Paul's question was that -- an observation that core SG&A spend has been reduced through the first half. But Paul's question was how sustainable is this trend, and to what extent is it being driven by the faster than expected realization of the benefits from the ongoing restructuring program? Would we comment on the relative level of underlying SG&A we might expect in 2013 compared to the 2011 base?

Tony, you touched on some of this in your remarks, but I don't know if you'd like to address Paul's question for us.

Yes. Certainly, Simon, I'll be happy to go into more the sales and marketing components, and then round out as you see fit on the other pieces.

Yes. Okay.

What I would say first and foremost, Paul, is when we went through our restructuring across the commercial organization, the first thing we wanted to do was minimize disruption at the country level and try to mitigate impacted customer-facing roles. So our initial focus and energy went into the above country infrastructures that we thought that we could improve upon and make more efficient.

That translated into moving from five regions to three. It meant that we were moving from our commercial resources, again, above country from seven sites to three.

We also, we're taking a hard look at our overall selling forces, and we have seen a flow of selling forces. And we take a hard look at that, as you might imagine, not just every year but every month. And we want to make sure that where there is opportunity for growth, that we continue to resource appropriately at the level needed. But as our portfolio evolves, so does then our mix and shift of our selling resources.

So we have seen a gradual trend moving away from the developed markets in total sales for size in favor of where there is significant growth opportunities in the emerging market sizes.

Where we have reduced our selling forces, even in some of the established markets, we've augmented that with some of our new channel work that we've talked about in the past. And what we have seen now is great examples where these new selling channels are augmenting our share of voice, and in many cases, actually improving our share performance, but at a lower cost.

And so our overall sales and marketing ratios we would say are more than industry competitive. We continue to find ways to improve upon those. But we're not shy about investing where we see opportunity, and so it will change and flux as the opportunities in the portfolio.

And, Tony, let me just -- I'm going to make a couple of quick comments on G&A. And I think Martin might use this opportunity to talk a bit about the progress of the restructuring productivity in research and development.

But quickly, Paul, on G&A, the big areas of G&A are in IT, finance, HR and, to some extent, just the facilities and the infrastructure. And on those -- and remember, G&A can be one-third or more of the SG&A. And what we're engaged in here is a program of bringing those support activities into essentially regional service centers, investing hard in IT to improve those efficiencies.

We're I think midway, perhaps more than midway through that process, and that's continuing to help us to lower the G&A costs. And, of course, we're also absorbing though that SG&A line, for example, the excise fee in the US. So the underlying reductions are somewhat stronger.

But the key point to make, and Tony made it, is the focus is on above-market activity; it's on the enabling support activities, the back offices, if you like. And where we see opportunities to invest in the front line to drive growth, we will be doing that.

That's on SG&A. Martin, quickly on research and development and progress there.

Yes, very quickly, Simon. And, Paul, you know we embarked on some significant change in research and development starting 2010. And if I could just give one example of that which highlights this; in 2010 we had 21 R&D sites. By the end of this year, we'll have 10. These site closures were made in two waves. And really, to get to the heart of your question, the second wave has been rapid. We've moved through that very quickly allowing us to realize the benefit.

And I'd say two really important things about the speed that we moved at. First of all, we did it with the greatest respect for colleagues in AstraZeneca that left the Company over this time. And secondly, and also very importantly, we haven't missed a beat in terms of the portfolio.

So we continue to progress the late stage, the mid stage and early stage programs at speed, and we've made a real point of making sure that we were able to do that through this significant change.

Martin, thanks for that. And, Paul, I know we extended beyond SG&A, but I think it's important that you will understand not just the pace with which we're moving, but the way in which we're doing it to protect the portfolio.

Now let me come back to the lines. Brian Bourdo, Barclays.

On Brilinta, Tony, it was interesting that you chose to describe it as a third-to-market antiplatelet in the US. Just wondering if that's how we should think about the market for hospital-initiated drugs these days, driven more by cost considerations rather than things like mortality benefits, because they'll perhaps fight tooth and nail to save costs.

And just wondering if you could give us any idea of the number of patients on therapy in that market that are reimbursed?

Thank you very much.

Brian, thanks for the question. And, Tony, over to you on Brilinta. I think it's an interesting question about the dynamics in this market.

Yes. Brian, I think when I conveyed that it's third-to-market, it just is an additional challenge and hurdle to overcome. We're not saying that it's not going to happen, we're just being realistic that when you come third to market entrant, there are added hurdles going through the formulary and protocol process that are involved.

And so we recognize that. We're continuing to push hard. We're optimistic about the value that Brilinta will bring patients in the US marketplace. As you have seen, we've made steady progress on the key indicators that we are continuing to drive, and we're looking forward to seeing greater uptake of the brand.

But when I used the third-to-market entrant, I was just trying to explain that it does pose additional challenges for us in the marketplace.

Clearly, the mortality benefit is still the dominant driving force, and we believe that will be the differentiator for the brand over time. In the short term, of course, the cost matters to formulary and protocol teams, but we believe the long-term value, that that's the key differentiator for this brand.

Thank you.

I guess it's also fair to say that we're investing already in quite extensive lifecycle management around the brand, Brian. Martin, do you want to just touch briefly on the lifecycle management program for Brilinta?

Just very briefly, we have the Pegasus study, which is over 20,000 patients, and we also have the Euclid study now on peripheral arterial disease. So we really believe in the molecule and believe we can build it through lifecycle management, as described.

Great, okay. Well, Martin, thanks very much indeed. Sorry, Tony, you've had a follow-up?

I'm sorry. I didn't address the other part of your question. I won't go into the total numbers that we are covering within the US, though I mentioned that our overall reimbursement and unrestricted access is at 66%, which is up 8% quarter on quarter.

Where we need to continue to drive improvement is in the unrestricted part D segment of the marketplace. Today, we're at 34%, which is up 25% from where we were a quarter ago, but we know it's still an area for us to improve, especially as we want to pull the product through into the retail segment.

Right, okay. Tony, thanks. Seamus Fernandez, Leerink Swann.

Martin, having maybe one question for Simon and one for Martin. Simon, in your interactions with the Board, can you update us a little bit with regard to what you see as the greatest needs for the business in the next six months; and then perhaps over the next five to seven years, if you can possibly go that far out?

And then, Martin, in some recent meetings with the Chairman, people have mentioned and moved toward more of an open source type platform. Can you just talk to us about what your vision is for what that open source type platform might actually be and how that evolves going forward?

Thanks a lot.

Great. Well, thanks for those questions, Seamus. So let me focus on -- you refer to it as greatest needs. Let me term it as priorities, opportunities for our Company.

In the near term then, I think -- I mean, these are very clear and you probably will know what they are. We've got some great brands in the marketplace. We've got very strong positions in a number of geographies around the world, and we continue to create the headroom and put investment in order to drive growth where we've got exclusivity, where we've got growth in the marketplace. And that is priority number one.

We are very focused on that across the business, and we meet on a very regular basis to test and probe and understand where we can put more investment work to drive our current portfolio.

Second priority is progressing the pipeline and strengthening the product portfolio, and in research and development, pretty much anywhere you go in any of our sites, you will find four crystal clear priorities that the research and development organization are working on. It's progressing the late phase, it's bringing through the proof of concepts, it's conducting the lifecycle management programs, and it's supporting our business development agenda; which brings me to the other component, which is pursuit of our business development agenda.

We're pleased with the three more significant deals that we've done in the first half of this year with Ardea and Amgen and Amylin. We've talked about those on this call. But there's a whole host of business developments and collaborations going on across research and development which Martin will address in a moment.

So that's priority number two, strengthening the pipeline; strengthening the on-market portfolio.

And the third priority is ensuring that we continue to maintain our position we feel as one of the more efficient and productive peers in our sector, because we need to maintain the margins from delivering that brand portfolio in order to fund that reinvestment while continuing to provide good returns to our shareholders.

So three pretty clear priorities, honestly, Seamus. Sell the products, get more at the right price, and maintain productive to get returns to our shareholders.

Looking beyond that, those three priorities will certainly govern everything we're doing, but I think when you look longer term, clearly then we're starting to think about the evolving shape of the pharmaceutical marketplace and where we need to continue to further strengthen our commercial position, our product portfolio, in order to ensure we're very well positioned for the continued strong fundamental growth we see in some markets. And that could start to look at where we're doing research and development in Asia. It could look at expanding our product portfolio; as you know, we've made early strides on this in BGX.

The other longer-term priority is, and I think Martin will touch on this now, is driving that earlier portfolio, making certain that we're really positioned in terms of discovery and early development in those areas of unmet need and (inaudible) that will drive the future. And that probably is a good handover for you, Martin, to talk about what (inaudible) described as an open architecture, I think Seamus was describing.

Yes, thank you, Simon, and thank you for the question. I'd love to spend some quality time with you, Seamus, to go through this in some detail, but in the interests of time, let me just hit the high points of how I see this.

I do believe our ecosystem will change dramatically over the next five years, and open source will be one of those ways, certainly not the only way.

And I think you will have read recently we are involved in a number of precompetitive consortia with large companies, small companies. We recently did deals with the National Institute for Health and the Medical Research Council in the United Kingdom; and some really interesting things going on in Asia in terms of open sourcing.

If you add into our portfolio the fact that we work with biotech companies such as Nektar, Rigel, Forest, and of course we have some excellent peer-to-peer relationships with Amgen, Bristol-Myers Squibb, Merck, and of course with GlaxoSmithKline; and actually, GlaxoSmithKline one we do with a third party at the University of Manchester in information space, which is very much an open source type idea.

Where does that come to in terms of the way that we work? If I look at the virtual medicine unit that I've spoken about and you've read about in neuroscience, so this group has been going for a few months now. We hired a tip-top leader in Mike Poole, an MD/PhD steeped in the art of neuroscience. He in turn has hired just outstanding people and appointed people from within AstraZeneca. There's now a group of about 30 people based in Cambridge, Massachusetts.

They've already done two company deals. They did what I think is just a wonderful academic deal just within the last two weeks; four academic centers with true leaders in the Alzheimer's field. And last but not least, they inherited a legacy portfolio from the existing work, and they've now pushed that along with two first-in-human starts, and two first Phase II starts.

So in answer to your point, Seamus, there's a lot happening. We are very much involved at every level of collaboration, every level of open source innovation, and we truly want to be a partner that people can come to because we're good people to work with. Again, let's spend some time when we're together going through some of these details on that.

Seamus, thanks for your questions. Let me move on. Mark Clark, Deutsche.

I just wanted to drill into the emerging markets a little more. Two things, really. Firstly, the 8% figure you mentioned for Q2 as the underlying run rate in emerging markets, how exactly have you calculated that, and should we expect an even stronger run rate in the second half given that the comps start easing in Lat Am?

And secondly, just on China. Your growth rate there is at the low end of the big cap pharma field. Most are reporting figures in the range of about 20%. I just wondered if you could just tell us why you're slightly underperforming peers there and what can be done about that.

Thank you.

Okay. Well, Mark, thanks for that. I think that fundamentally, we continue to see the emerging markets, although it's a pretty heterogeneous group of markets, but I think all tied together with some very strong fundamentals. Large, growing, increasingly affluent populations desire by individuals and governments to expand access to healthcare and medicines, and that creates a fundamentally attractive area of opportunity for us. And we will continue to invest very hard to capitalize on that opportunity with our product portfolio.

In terms of the growth, I think the calculation is relatively straightforward. We can identify very specifically back orders and/or sales lost associated with the supply interruptions. By removing those, we expose essentially the underlying growth rate of 8%.

But I think probably hand over to Tony in the first instance to talk a bit more about, I think, questions on China and comparators for the rest of the year.

Thanks, Mark. On China, we did post strong growth of 12%. If you look to the underlying demand in China, actually growth was a bit stronger than that; it's 16%. And if we would exclude the ERP issue that Simon had mentioned earlier, it would have been closer to 20%.

And several parts of our portfolio in fact are showing substantial growth; our cardiovascular business is up 22%, our respiratory business is up 37%, our oncology business is up double digits. And so we do expect China to pull through and continue to post strong results in the second half of the year as we move forward.

As Simon said, in the broader context of emerging markets, in addition to the growth we expect coming from China, there are a series of other markets that we need to continue to take complete advantage of. We're pleased with what we're seeing in markets, for example like Russia, that are also up 15% for the year on the backs of some very strong brand performances.

And so there is a mix as you would expect across the emerging market portfolio. There are some challenges, like we see in Eastern Europe and a few others. But all in all, we do expect our growth rates to pick up, as Simon suggested, in the second half.

Thanks, Mark. And I think as Tony said, in China particularly, I think that -- and you saw in Asia the supply chain interruptions did impact the relative growth rate versus the market and our peers. Tony said we've outperformed in many segments, one or two therapeutic areas not quite as up with the market, and Tony knows that's the job for the second half and beyond, and we're very focused on it.

Kerry Holford, Credit Suisse.

Matthew Weston on behalf of Kerry. Two questions, if I can; the first with respect to the supply chain interruption. Do you have any concerns that there could be some permanent disruption to your brands, or should we anticipate that in the second half of this year, and particularly going into 2013, we should have a full rebound in sales of the products in question? And if you could actually just walk us through product by product which are the top three or four which were most impacted.

And then secondly, previously Astra has given medium-term guidance for $2 billion to $4 billion worth of sales from new product launches and probability-adjusted pipeline, I think it was by 2014. Given the progress with Brilinta and the pipeline, I wondered if you were still confident in that range, and whether or not you now include the Amylin deal and Ardea as being important to get into it.

Okay. Well Kerry, thanks very much indeed -- sorry, Matthew. I beg your pardon, Matthew. Let me ask, if I may, on the supply interruption, and I think the points I made in my remarks that -- and earlier, that we're now back at well over full production. We're responding to demand; we're replenishing supply chain inventories.

And during this period, we have been very focused indeed on meeting patient needs and have had very limited impact on patient demand. But, Tony, perhaps you could just touch on the question around which were the particular products, and anything you'd like to add further in terms of likely impact for the remainder of this year.

Yes, Matthew, the brands that were primarily impacted were Symbicort turbuhaler, Nexium and Atacand. Those were the brands that we felt more impact. And you asked if we believe that there is any permanent damage to the brands from a brand loyalty/brand perception. No, we do not believe that. We believe that we've done a good job of managing at the local levels, and have kept physicians abreast of what was happening. And we are already beginning to see some rebound relative to share performance with those brands.

So again, it was limited. There were other brands involved, but the ones that were most involved were Symbicort turbuhaler, Nexium and Atacand, and we feel confident that we're on a rebound performance in the early days so far.

Tony, thanks for that. And then to your second question, Matthew, about the prospects beyond this year. As you know, our custom and practice is to review during the course of the late summer, and then through into the autumn we undertake our annual update of strategy business plan, and then we update the market in terms of our midterm guidance at the end of January at our full-year results. And that's exactly what we will do this year.

And in terms of the specific question, the pipeline revenue potential, we revised that to $2 billion to $4 billion at the beginning of this year, and clearly, we're very committed in terms of delivery of our launches and pipeline to meet that goal. And we can update you I think in end of January.

So, Matthew, thanks. Sorry, Martin, you wanted to add something?

Just very briefly, the question that Matthew asked, would the Amylin products be added to that $2 billion to $4 billion, and the answer is, no. We have the list of products that are within that window, and as Simon says we're still confident about being within that range.

Jeff Holford, Jefferies.

Firstly on the net share repurchases. Slightly surprised at the run rate here for the first half given where the share price has been. Have you seen any volume restrictions or other factors that's making it run at what to me seems to be a slightly low rate given the target for the full year?

And then just secondly, can you give us some sort of idea of how much resource is being spent in the US promoting Brilinta, and how do you on an ongoing basis keep evaluating whether you're putting too much against that product, both on the marketing side and in terms of post-marketing development?

Thank you.

Okay, Jeff, thanks. I can deal very quickly with the first one. We -- I think as Julie mentioned, we've done a share repurchase at $1.9 billion, and we run a regular program. Yes, there can be some restrictions around trading; we try to put irrevocables in place. But we're on track with the goal for the year. The absolute gross number nets down because of options exercises which typically do happen in the first part of the year, and that's not an atypical pattern.

Tony, on Brilinta and resourcing.

The selling resource within Brilinta in the US is certainly something that's been an area that we continue to focus on. We want to maintain a strong [share of voice] presence, but we also recognize that this is in a hospital dynamic. And so we have our CV specialty teams are focused on Brilinta in the US. We have 300 hospital reps; we have another 250 CV specialty reps, and this is their focus.

As you know, we also have a great partner on board with the Medicines Company who bring 100 specialists that have a very deep knowledge of the [interventionist] space.

And so we're quite confident in what we're looking at from a resource perspective for penetration of Brilinta in the US marketplace.

I won't go into the total A&P spend for obvious reasons, but we tend to look at these things every quarter. We tend to look at all of our brands; we want to know exactly the value that we're creating with our investment, and if we need to make changes we do so, both up and down. And that's something that we discuss actively as a senior team across the organization.

Thank you.

Tony, thanks for that; and Jeff, thanks for the questions. Keyur, Goldman Sachs.

I just wanted to follow up on something I think you've been quoted on regarding business development and M&A saying we should think of deals this year as being representative of acquisition hopes to do in the future. And I was just wondering if you could provide some color around that. Is that in a sense of the size you're talking about; is that in sense of the mix between pipeline and currently marketed products you're talking about? Just anything more on that please.

Thank you.

Thanks for the question. Yes, I think -- our business development priorities, I touched on this a little bit earlier, are to strengthen our pipeline, late stage pipeline and our on-market portfolio. That's the primary focus for the business development effort and where we're putting in the majority of our effort, and likely if we -- it's where the investment will be concentrated.

Having said that, and I think Martin made this clear, there's an enormous amount of collaboration, externalization going on and investment going on earlier in the pipeline, but that tends to below the radar screen of you guys.

And if I then talk about priorities and late stage pipeline and on-market portfolio, we're looking at opportunities that are -- clearly benefit from our global late stage development regulatory access pricing commercialization capability, particularly that capability in primary care and specialty care led sectors. And that's certainly what you saw with the gout program, with the collaboration with BMS in diabetes.

We're also looking at opportunities that are strongly synergistic with our areas of priority, research and development, and I think inflammation is an area that we see huge unmet need and we've got some real capability. And we saw great value in a combination with Amgen.

So fit with that global development commercialization capability, primary specialty care led, and also links into our areas of therapeutic and disease area expertise in research and development.

And in terms of structures that we'd look at, I think in the first part of the year, you saw a collaboration with a peer in Amgen. You saw an outright acquisition of a Phase III asset. You saw an expansion of existing collaboration with Bristol-Myers Squibb. We've got -- let's think about the things we've got in out late stage pipeline; much more traditional in licensing deals with Rigel and NECTA.

So we will look at different mechanisms to support that business development effort, and I think genuinely that portfolio is representative of the sorts of opportunities that we're looking at as we move forward. So I hope that gives you a sense of clarity about our programs.

So, Keyur, thanks for the question. Damien Conover, Morningstar.

I just wanted to follow up on the negative European pricing environment. I just want to see what kind of strategies that could be implemented over the next one to two years if the pricing remains challenging. Any strategies, either directly or potentially indirectly by trying to take more price increases outside of Europe, perhaps in the US and select emerging markets?

Thanks a lot.

Okay. Well, Damien, thanks for the question. I think we've said before, and I'll repeat, that we've always experienced low to mid single-digit price declines in Europe. It's been regular feature of our business for many years. I think as Tony indicated, what we've experienced, given the very significant economic challenges in Europe, is price reductions which are now really testing the upper limit of that in the mid single-digits. And I think our first and foremost priority within Europe is to ensure that our medicines get to the patients that need them, and we are working with governments to ensure that that happens; and we're making our contribution as a sector to addressing the current economic challenges.

But having said that, we clearly need to see pricing that over the midterm properly rewards innovation, properly rewards value in our medicines, and we're working at multiple levels to ensure that that happens through industry bodies, with regulators, with policymakers in each and every market.

And in addition to that, obviously, we're very focused on research and development, in bringing through medicines that bring real value to patients in these markets.

And finally, of course, we're operating an efficient business. We've been working very hard in ensuring that we can bring valued medicines to patients at ever lower cost and, therefore, can manage in an environment with those pricing pressures.

But I think it's important to say that we need to see an environment within Europe that properly rewards innovation, and we're working actively to ensure that happens.

Tony, anything that you'd like to add to that?

The only point or two I might add, Simon, is that we also have a responsibility to go to our payers with very clear value propositions. And I think oftentimes, we look at the government interventions and recognize what they're trying to manage. They are managing increased volume consumption of healthcare, but they have to do so within a restricted budget. And I think the onus of responsibility falls back to us as organizations to make sure that we are bringing forward very compelling and clear value propositions.

And that for us translates into having to have very strong working relationships with R&D. We now will not accept dossiers that are coming through our R&D organization unless Martin and I have also signed off on the value proposition and the reimbursement dossier that will describe to these governments how we can extract and they can extract value from the brands. So I think that's an important aspect.

We also are very conscious of what we do within, but as well outside Europe, where we do choose to contract. We really study these markets quite well. We don't chase poor business. In fact, we've been able to realize higher net prices per average in the US marketplace for our brands to many of our competitors because we're very discerning as to where in fact we choose to contract. And I think Nexium was a good example of that. Even this late in its lifecycle, we are seeing a price positive variance because we're choosing not to pursue certain books of business. And so I think that's something that we will continue to look at.

And when we talk about this strong partnership with R&D, we took that very seriously as we were bringing Brilinta forward into all of our global markets. And we believe that we did have a compelling, not just safety and efficacy story, but a value proposition that then enabled us to translate into a price premium of almost 20%.

And so you have to start this game very early, but don't blame the governments later if you don't have that value proposition.

Thanks Tony. Damien, thanks for the question. Naresh, Liberum.

I've got two questions, firstly on European pricing. Sorry, Tony, can I push you on this? What was the -- on Western Europe what was the actual price decline? There seems to be a bit of a divergence with Glaxo claiming they had an 8% price cut and Roche only having a 2% price cut in Europe. Could you tell us where you are?

And then secondly, Tony, you mentioned that when you come to look at Crestor pricing, if Medicare and Medicaid you can't get a sensible price, you may not sell into those channels. Could you give us a sense of how likely you think that is and what the potential impacts might be?

Thank you.

Sure, I'll give you my sense of what's happening within Western Europe. We have seen -- around the mid single-digit price erosion is what we've seen in our Western European markets in total. There have been a few markets that are slightly above that, as I had mentioned, in Southern Europe, but in total it's mid single digits for us in Western Europe.

Relative to Crestor and the impact of the Medicaid business that we wouldn't pursue, it's a very small percentage of the business. It's less than 0.5% of the overall business, and so it would have a very small impact on volume but have an even more positive effect on net price per [capita].

Yes. I'd say actually, just wanted to add to your point on Western European pricing, Tony, this is heavily dependent -- this is not about a constant, an average price by all markets. This can be very different between different markets and, therefore, what we're stating and we have seen, a mid single digit, is an average of a range of markets and, therefore, individual peers in any one period is going to be heavily influenced by their geographic mix. So just an important caveat for you as you're interpreting these numbers.

Steve Scala, Cowen.

I have two questions. I understand that EPS guidance always anticipated the tax benefit realized this quarter, but why did the tax rate guidance not anticipate this?

And second, AstraZeneca previously stated it planned to exercise AZLP Option 2 at the earliest opportunity, so the question is what changed? Was it simply that you couldn't agree on valuation, or do you now have doubts about the sustainability of the assets, maybe particularly Nexium, that you didn't have before?

Thank you.

Well, Steve, thanks for that; two questions. On Merck, we had an original construct which allowed for exercise in '12 or in '17. In discussion with Merck, we arrived at an option to exercise in 2014, and in doing so at a method and a value which removed uncertainty for both parties, and also gave to us what we deemed to be and saw as a very favorable economic construct. And so I think both sides felt that that represented the optimal path forward.

So it was more about an approach which removed uncertainty for both sides, and in fact in doing that, gave us a good economic outcome.

That was on 2014, and in terms of the tax rate, I think, Julie, you touched on this. We're talking about -- we've taken a risk-adjusted view and the settlement essentially crystallized that on the positive. Steve, it could equally have been negative against us as these matters are. So they're quite [volatile]. That really captures it, doesn't it, Julie?

Yes, that captures it. Exactly, Simon. Yes.

Okay. So, Steve, thanks for that, and we've got one question here that's come in on the WebEx from Timothy Gasperoni from Sabby Capital. And Timothy is looking for Martin, timing update on Phase III programs for Naloxegol and Fostamatinib. Martin?

Thank you, Simon. Just to say for both Naloxegol and Fostamatinib, we're on track with the programs and on budget. Some more specifics; as you know, the Naloxegol programs, the KODIAC studies have got two pivotal 12-week studies, and those we'll read out in the last quarter of this year.

You will also remember we have a 52-week long-term safety study, and that we'll read out in quarter 1 of 2013. So that's Naloxegol.

In terms of Fostamatinib, this is the OSKIRA Program, the Phase III studies we'll read out in the first half of 2013, but we also have a Phase II monotherapy study, and that we'll read out late in 2012.

Well, Martin, thanks for that. I think possibly Timothy might also be interested to hear about brodalumab.

Yes. Well, we're very excited, Simon, to say the least with this program in psoriasis. It's a fine antibody. Amgen are going to be a terrific partner for us.

We also have four other antibodies. I won't go through the names of them all at this stage, but updates will be at a later date.

Martin, thanks very much indeed; and, Timothy, thanks very much for the question.

So we have now I think reached the end of the allotted time. Thank you very much indeed for joining us and for your questions, particularly on what I know is a very, very busy reporting day, so thanks again.

Our revenue, as I said -- just closing remarks. Our revenue profile for the year, we expected it to be shaped by the loss of exclusivity on some key products in a challenging environment, but despite those challenges, we continue to drive performance for brands and in regions that respond to the commercial investment we can put behind them.

As we've talked about on this call, we're controlling costs. We're delivering productivity savings to ensure our long-term competitiveness. We're investing hard in research and development to renew our pipeline for the future.

And in business development, through our collaboration with Amgen, the acquisition of Ardea, the expansion of our diabetes alliance with BMS, well, that's playing its role also to bolster both our pipeline and our on-market portfolio.

So with that, let me bid you all a very good day. Thank you.