AstraZeneca PLC (AZN) 2002 Q4 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to AstraZeneca's 2002 annual results presentation.

This is today's program.

After a quick look at the headline results, I will review the product highlights and report on the progress we have made on the transformation of the portfolio.

Jon Symonds will then take you through the financials in more detail and provide some additional context and commentary around the financial guidance for 2003, published in the press release this morning.

Then of course we will take your questions.

So first, the headline numbers.

Sales increased by 9% in constant currency for the full year to just under $18b.

Operating profit was up 5% to $4.3b and earnings per share before exceptional items reached $1.84, up 7% in constant currency terms.

You will have seen that we have made a provision of $350m to cover potential settlement costs related to the previously disclosed investigations into Zoladex sales and marketing in the US.

This brings the statutory EPS number to $1.64 per share.

The dividend is unchanged at $0.70 cents per share for the full year and we've repurchased an additional $1.2b of shares for cancellation in 2002.

All in all, a good set of results, well ahead of our base case financial plan at the beginning of 2002 and indeed slightly ahead of our updated expectations in October.

2002 was a year of significant achievement for AstraZeneca, but mixed with a couple of disappointments.

In addition to these good results, we were extremely pleased with the Court's decision to uphold the validity of important intellectual property for Prilosec.

A vindication of our principle defense of these patents.

Of course the appeals process is now underway as well as a second wave of patent cases yet to be heard.

So this matter hasn't reached final closure yet, though there is not much we can add today.

In the meantime there is no question of about the outstanding market performance of Nexium, with sales almost reaching $2b in 2002, but more on Nexium later.

In addition Seroquel joined the ranks of the mega brands in 2002 with sales going through the $1b mark.

IRESSA was approved in Japan and is off to an excellent start.

We made the first regulated filing for EXANTA in July and we received the first regulatory approval for CRESTOR in the Netherlands, but disappointingly we also encountered some delays to the regulatory reviews for IRESSA and CRESTOR in the US.

On balance, a very successful year.

I used this slide a year ago to illustrate our strategy of completely transforming AstraZeneca's product portfolio from one reliant on four mature patent-vulnerable brands.

The one with many fast growing products having years of exclusivity ahead of them, laying the foundations for sustainable growth in 2004 and beyond.

Let's look at the 2002 sales performance with this in mind.

What progress did we make in the year?

Setting aside the outcome of patent files, I put the focus last year on getting two things right, two things that we could control - driving the product - the growth products, and successfully launching the new products.

Well how did we do?

First the growth products.

We highlighted these five brands - Seroquel, Faslodex, Atacand, Zomig and Arimidex as key drivers for our growth in the near term.

Here is where they stood at last year's presentation with sales just over $2b.

And in 2002 another outstanding performance, with combined sales up 40%, $900m of growth to over $3b.

I will take a minute to comment on just two of these.

Seroquel was a star performer, it's become our newest mega-brand with sales over $1.1b, an increase of 67% over 2001.

You can see that cash market shares continued to rise in many of the major regions of the world, including an outstanding performance in its first year on the Japanese markets.

We also continued to see steady growth in new prescription market share in the US.

Seroquel's product profile is extremely competitive.

Our position in the market is well established and we have new growth opportunities ahead, such as the recent filing in the US for mania associated with bi-polar disease, with filings planned for Europe later this quarter.

So we believe that Seroquel will continue to grow despite competition from new entrants.

The second product I'll mention is Arimidex.

The landmark findings from the attack trial in early breast cancer are now being incorporated into product labels and being adopted in clinical practice.

You can see from this chart how the publication of these data add an immediate impact on the growth projectory for Arimidex, consolidating its leading position in the market place.

Monthly prescriptions for Arimidex in the US doubled from December 2001 to December 2002, even though the formal indication for early breast cancer was only approved in September.

So a very exciting year for Arimidex and more to come.

So these five growth products made a big contribution to the transformation of our portfolio.

But what about the new product launches?

In 2001, Nexium and Symbicort, both early in their global roll-outs, achieved combined sales of $651m.

Today Nexium is launched in 76 countries, Symbicort in more than 40.

We have launched Faslodex in the US and IRESSA in Japan.

Together these newly-launched products contributed $2.4b in sales in 2002.

Let's look at the launch products in full.

Nexium sales in 2002 were nearly $2b.

This is the third fastest brand ever to reach that milestone.

Here's the latest prescription data from the US market.

Nexium's share of total prescriptions in the US is now over 20%, up more than 8 percentage points in the year.

And there is good reason to be optimistic about the prospect for continued growth for Nexium.

First of all the PPI market is still high-growth market.

You can see in this chart the top ten therapeutic categories as defined in the IMS data.

At the top the PPI market.

Its 20% growth rate translated into the largest growth in absolute dollar terms of the top ten classics, some $2.7b worth of growth in the 12 months ended September.

It is also interesting to note from an AstraZeneca prospective that we are about to launch CRESTOR into the number two class for dollar growth, and that our billion dollar brand Seroquel is well established in the third rank class.

So AstraZeneca is well pleased with products in the top three segments of the market.

But back to Nexium.

The second reason for being bullish on Nexium is the market share we have achieved among GI specialists.

Nexium share of total prescriptions written by gastroenterologists is now over 27% and growing, and this share is well ahead of our share of the total market - exactly the right profile.

We have used specialists prescribing as a leading indicator to where the broad GB market is heading and this is good news for Nexium going forward.

There will also be important life cycle developments in 2003.

We will be filing for a new indication, instage symptom resolution, as well as for a new formulation IV Nexium.

These should provide new opportunities to grow the brand.

So we are confident in the growth prospects for Nexium.

What about the other recently launched products?

Sales of Symbicort have shown steady progress since its first launch in 2001.

Sales in Q4 went through $100m and this is without the benefit of the US market.

The indication for the treatment of COPD is under review in the European Union.

Later this year we expect to file for the use of Symbicort as a single-therapy treatment for asthma and we are now into the Phase III program for registration for asthma in the US.

Now let me turn to oncology where in 2002 we added two new products to the range, IRESSA and Casodex.

The therapeutic potential of IRESSA in patients with previously treated non-small cell lung cancer and with no other treatment options has been widely recognized with up to 20% of patients showing tumor shrinkage and up to 50% of patients showing quality of life benefit through symptom relief and stabilized disease.

As you know the rapid adoption of IRESSA following the launch in Japan last year was accompanied by reports of adverse events including interstitial lung disease, or ILD.

Now I would like to take just a few moments to put these reports into context.

Lung cancer is a complex and devastating disease and these seriously ill patients often have extensive lung damage.

ILD is a known complication of lung cancer and is often associated with other lung cancer therapies, especially radiotherapy.

Because of this complexity, it is difficult for doctors to accurately diagnose and isolate the causes of ILD.

ILD has been observed in patients receiving IRESSA, in Japan, globally in clinical trials and in our expanded access program.

In the placebo controlled impact study the incidents of ILD observed was in line with current clinical experience and showed no statistical difference between drug-treated and placebo-controlled trials.

To date, there is no established causal relationship between IRESSA therapy and ILD, but we will of course continue to explore it.

In Japan we have implemented the MHLW recommendations on the use of the drug and we are working closely with Japanese experts and authorities.

We at AstraZeneca continue to believe that IRESSA is an important advance in cancer therapy and we expect to introduce it to other markets during 2003.

During the period after its introduction in Japan, some 20,000 patients have been treated with the drug, a significant proportion of the available patient population has already been reached.

Sales for the year were $67m and with the speed of adoption seen, it is not surprising that a plateau in monthly sales was soon reached.

In the US we have been in active dialogue with the FDA and have submitted further safety data including information from the impact study.

The FDA has extended its review to May 5 to incorporate this additional information into their analysis and we expect positive outcome.

European submissions based on the ideal data will go in during the current quarter.

Now turning to Faslodex.

It achieved sales for the year of $35m in the 8 months since launch in the US and the sale momentum is building steadily.

Later this quarter we plan to file the regulatory submission in the EU for second-line treatment of advanced breast cancer.

So as we enter 2003 we face the coming year in a very strong position, relative to our transformation challenge.

We have continued the record of achievement with these five growth products, driving sales to over $3b in 2002.

On top of that we have added $2.4b from the four recently launched products, creating a foundation of over $5b rapidly growing products.

And we believe that we are well positioned to absorb most of the generic erosion expected for Prilosec, Zestril and Nolvadex in 2003.

To fully resource the essential growth drivers including the launch programs for IRESSA, CRESTOR and EXANTA.

Whilst delivering earnings per share in the range of $1.50 to $1.65 per share, which is well within the range of current market expectations.

And following the planned launches of CRESTOR and EXANTA later this year, we believe all the elements should be in place to drive strong sales and earnings growth for 2004.

I will now hand over to John to review the 2002 numbers in more detail, and to explain the thinking behind our guidance for 2003.

Thanks, Tom.

Good afternoon.

The message coming from the first part of the presentation is clear that the new products are growing strongly and providing the momentum to the portfolio transformation.

Here are the headline numbers you have already seen and I will now take you through the financials in more detail, starting with sales profits and margins for 2002, before finishing with a broader prospective on the 2003 earnings guidance given in this morning's press release.

So let's start by looking at sales.

As you've seen the year finished strongly and at $17.8b for the year, sales were ahead of pretty well all forecasts.

And at $4.9b for the quarter, sales are by some margin, the highest we have ever reported.

Sales for the year grew by 9%, and here's the quarterly phasing, showing sales growth in every quarter and a growth of 10% in [CER] terms in the fourth.

But this does not convincingly make Tom's point about the business momentum.

So let us strip away the Prilosec, Losec business and the profile is clear to see An average growth rate of 23% for the year.

On the portfolio products it was just over $13b.

And I could show you the effect of removing Zestril or Nolvadex, both of which will largely disappear in the US next year.

But I think the message is clear.

Exchange had an impact in the fourth quarter, we estimate it around at $75m to sales, and I will say more on currency later.

But there were also some products whose sales patterns were influenced by wholesalers stocking.

So let us look at the pattern of sales in the US across the four quarters, which highlights the fluctuations attributable to wholesaler buying.

Strong in the first quarter, and weaker in quarters two and three.

As best we can estimate, and there is no precise answer to this, reported sales rate growth rate of 10% for the year is a fair reflection of underlying prescription trends.

But for the fourth quarter we have indicated that underlying sales growth is closer to the 10% average for the year, rather than the reported 16%.

It is more a reflection of product trends in the prior years rather than this year.

But we believe, if anything, the overall levels of inventory are a touch below average.

If we exclude Prilosec from these figures, you will see the pattern emerging across the four quarters.

Tom has already covered most of the product highlights, but let me comment on Prilosec.

The first point to make is that the [Cutco] generic launch was so late in the year that it had no meaningful impact on either prescriptions or wholesale inventories.

So you've got a pretty clean performance for 2002, where for the year as a whole [declined] in the total value of our Prilosec business of 21%, was in line with reduced prescriptions.

Prescription levels reduced by the success of Nexium, as well as from the other promoted PPIs.

As I have said throughout the year, we have attempted to manage both the physical and financial exposure to the Prilosec inventory chain and at the end of the year we think the wholesaler chain is well below the month's supply.

Even though there was no financial impact from generic competition in 2002, it is worth taking a look at what's happened to recent prescription data.

You can see here the most recent week, the week ending January 17, Prilosec is still holding a 47% share of total prescriptions.

We must of course be cautious with only 6 weeks of data available.

We won't be able to draw any hard conclusions for a while yet.

But it's clear that the erosion rate is significantly less than that observed with either Prozac or Zestril at a similar stage.

Seemingly consistent with [Cutco's] inability to fully supply the market.

We're obviously monitoring the situation closely and I'll come back to this again when I cover the 2003 guidance.

Finally on sales, you will have seen that we made a minor change in the definition of sales.

By including in sales cash discounts that had previously been included in cost of sales.

An adjustment of $287m on sales of nearly $18b obviously has no impact on either reported profits or earnings per share.

Nevertheless, we want all of our financial policies to match what is now seen as best practice.

You can find all of the product-by-product reclassifications for both 2001 and 2002 on our website.

Let us now turn to profits.

The quarterly profit trends, you can clearly see the first-half bias.

The first and second quarter profits well ahead of last year, and the trends reversed in the second half.

These trends are the consequence of the phasing that we have been talking about throughout the year.

The largest component of our costs base is R&D and SG&A, which at the beginning of the year we expected would increase by around 10%, including the possibility of a CRESTOR launch in the late third or fourth quarter.

Here are the quarterly trends for the year, aggregating to a 10% increase in constant currency terms.

Although this outcome is the same as the beginning of year estimate, the mix is not, and this is entirely consistent with our approach to cost management.

Where, because of the uncertainties in our launch programs, we've tried not to commit to costs but we are certain that they're needed.

Consequently we've spent less on SG&A, more on R&D with the IRESSA and CRESTOR trials have continued.

And as patient recruitment rates increase towards the end of the year.

In actual dollars, these trends have been inflated by the weakening dollar, particularly on the R&D line where the exchange movements are particularly marked, and in the fourth quarter alone, currency inflated reported R&D costs by around 5%.

These trends are reflected in the margin reconciliation that overall margins declined by 1.2% to 24.4%.

In macro terms this is explained by a 0.9% reduction in other income and across all of the other category currency reduced margins by 0.3%.

However, when looking at the operational components of the business, improving gross margin offset the increased R&D spend, with SG&A broadly neutral in margin terms.

As we highlighted in the press release the fourth quarter SG&A costs did include some productivity enhancing provisions.

Though you need to be careful when extrapolating forward from the fourth quarter cost base.

I've mentioned currency a few times already and it's an important factor, not only in the last quarter but also for 2003.

This slide clearly shows what's been going on in the year - strong dollar at the beginning, rapidly turning around, weakening significantly from the third quarter onwards.

As you are well aware, a strong Euro and Yen benefits reported sales, but a strong Sterling and Swedish Krona increases our reported costs.

The net effect for the year and for the fourth quarter on earnings per share was pretty small.

But during quarter four, 2% was added to sales.

I've already shown you the inflation on our cost base.

As current dollar rates are weaker still, for the trend of higher sales, higher costs will continue into 2003.

But as you can see a pretty significant impact in quarters one and two if the dollar continues to remain weak.

Before dealing with guidance to 2003, let me finish 2002 with a wrap up on a couple of other items.

We've held the tax charge of 26.8% for the year, excluding the fact that no tax relief has been provided on the Zoladex provision.

For 2003 and 2004, we now don't to expect a tax charge to go below 27% because we are now seeing a slightly different mix of product and territorial profits than we were a year ago.

Cash flow for the year was very strong, largely driven by an operating cash flow of $5.7b, $1.6b higher than 2001 or nearly $2b higher after exceptional tax cash flows have been taken into account.

Tax and CAPEX were similar to 2001 and even with share buy-backs and dividends of $2.4b, our net cash flow for the year was a positive $900m, strengthening our year-end cash position to $3.8b.

The Board has also reconfirmed our dividend policy, of targeting a level of dividend cover comfortably within the range of two to three times.

The buy-back extension was announced last year and we would expect to complete the remaining amounts of around $1.2b during 2003, as scheduled.

So to 2003 targets, let me take it piece by piece starting with sales.

Our sales expectation is for a small decline, somewhere in the low single digits, in constant exchange rate terms.

This is built on two core components, firstly a continuation of the strong momentum in the growth products as seen in 2002.

That's shown by the 23% growth in the portfolio excluding Losec, Prilosec.

We expect this to continue into 2003 and even with a full year's generic competition to Zestril and Nolvadex mid to high teens growth in this portfolio is a realistic expectation.

The other factor is, of course, our expectations for Prilosec, here there are two aspects to consider.

Firstly the overall declining trends in prescriptions for the esomeprazole molecule, we saw 21% decline in prescriptions in 2002 alone.

Secondly, the rate and the depth of generic erosion, which is largely dependant on [Cutco's] capacity to supply although the impact of this is very much linked to the volume of prescriptions as well.

And there is the legal proceedings in the Appellate Courts, as well as the second wave of generic companies which will determine the number and timing of potential future entrants.

As you'll understand the interaction of these assumptions produces a wide range of outcomes and we ourselves are updating our own internal forecast each time there is a new piece of information.

However, our sales guidance is based on our current view of the rate of decline of Prilosec and the momentum in the rest of the portfolio.

And I am sure we will be returning to these assumptions in subsequent quarters.

For the reasons I've already given, currency will be positive on the sales line, based on current exchange rates, could well reach 5%, which could well mean that we will not see a decline in sales in 2003.

As to margins, we will be adopting the same approach to cost management as we have to in the past, making sure that we don't commit to cost until we have too, ruthlessly prioritizing resources to those parts of the business which needs them most, and making sure that we drive through the productivity improvements that we have been talking about for some time.

Nonetheless, with a continuing investment in the late stage pipeline, we expect R&D and SG&A costs to grow in constant exchange rate terms, although at about 5%, half the rate seen in 2002.

The margin impact of these investments will be cushioned to some extent by continuing improvements in gross margin and portfolios continue to shift, to higher margin products don't carry payments to Merck.

So taking all these factors together, we expect margins to be lower.

Currency will reduce margins by between a 0.5% and 1% even though the overall impact of currency could well be neutral to positive on earnings per share we'll obviously update our currency assumptions as we go through the year.

As for the rest of the P&L, the only points to make are that interest rates yields remain low.

I've already talked about the tax rate and the share buy-back program, giving a bottom line earnings per share expectation of between $1.50 and $1.65, using current exchange rate assumptions.

So this is another key year we're following the launches of CRESTOR and EXANTA all the elements of the portfolio should be in place to drive strong sales and earnings growth in 2004.

I now hand you back to Tom to chair the question and answer section.

Thank you Jon.

Before we take the first question.

Two points I would like to make.

One the usual one, could you state your name and affiliation before placing your question.

The second one is to give you early warning, we are planning the business review for this year to take place on October 2 and in the United States at Wilmington.

We hope many of you will be able to attend that.

Now can we have the first question?

Thank you, Alexandra Hauber from Bear, Stearns.

I have three questions.

First on the Nexium US sales.

When you compare US scripts with US sales it looks like sales are running ahead at about 15% of scripts.

Was there some stocking in the fourth quarter figures.

By the way, if you just do the same analysis on Prilosec, I've confirmed what you said about Prilosec, that for the full year sales are in line with prescription trends.

The second question is a bit complex.

We understand that earlier this week that Merck did not change their guidance after the [indecipherable] that they still expect only single-digit decline in supply income they get from you.

I am aware that Merck supply income is not directly correlated to market sales of Prilosec and Nexium.

So that I would like to ask whether you think Merck extremely bullish or did they not ship very much in 2002 to use [at their decline comes off below base].

And if you have those shipments, does it also result in lower royalty in 2002 to Merck , or is the royalty not really correlated to the Merck supply income?

I know that this is not the same thing.

And thirdly just very briefly the [pink sheet] from the January 13 speculated that, I am sorry to come back to that subject, IRESSA might have to go back to - to get another ODAC.

Do you have any comments on that?

Well as you say it's quite a complex question the middle of which really I think you should address to Merck rather than us.

Certainly we are not responsible for Merck guidance.

We will comment in part on that.

I would simply say that we are not aware of any intention to go to another ODAC.

We have certainly not been notified of such.

I'll ask David to comment a little bit on scripts and sales for next year in the US, and Jon maybe you can begin talking a little about Merck guidance and the supply income and so on.

I think for the most part of that question you're about two days too late.

Most of it should have been directed towards Judy.

What I can say is that and I think this point has been made a number of times, is that it need not be a correlation between the way they look at it, the business, and the way we look at the business.

All I can say really is how we deal with it.

The big part of the payment to Merck as far as we are concerned, is the contingent amount, sort of the payment that is made on sales.

We recognize that when the sale is made.

That is deferred and that part of the payment is deferred until we finally recognize that sale in the market.

We obviously pay manufacturing cost for the product, but I think that's where you probably have to look at.

And that is I think probably the area that causes a difference between the way they may look at it.

But if we share production targets and so on so there shouldn't be any difference in the underlying fundamental assumption but clearly the accounting can differ.

David, the Nexium script and sales numbers.

Yes.

I think our view of this is that, as Jon stated, we are pretty close.

We've had some I think buy-in and buy-out for the latter part of the year but on average for Nexium our demand for scripts are actually, the sales and scripts are pretty close.

For Prilosec, that just as [Cutco] launched as Jon said at the end of the year I think there was still a fair amount of Prilosec in the distribution system.

Really the time will tell over the course of the next few months, how much [Cutco] is actually able to supply and how quickly that will be used up in the supply.

So I don't see the same correlation between scripts and sales.

I think as Jon said we're pretty close to demand being aligned with sales.

You're probably aware that the IMS data on wholesaler stocking is a bit less reliable than it was because some wholesalers are not contributing their data to that database.

That partly underlies the comment Jon made that it's really quite difficult.

There is quite a judgment involved in trying to reach stocking levels.

I would say it's getting more difficult rather than easier.

We, our whole intent as a company is to take out any funnies, to try and ensure that there are no great surprises and if underlying both parts of your question were is there really a big lumpiness I can tell you if we thought that we would be declaring that right up front because there is no mileage and big shocks coming through.

As far as we can see it's a pretty clean picture that we're putting forward.

Okay next question.

Andrew Val (ph), Morgan Stanley, a couple of short questions.

The first one is to what extent has the delay in CRESTOR to a lesser extent Astra aided the revenue acceleration of your existing products.

Just to think about when you do have CRESTOR on stream to give a sense of where we should be forecasting the momentum business.

The second point is to get an update from you on the evolution of the managed care of that environment particularly in terms of the magnitude of co-pay increases and where your sense is what the direction of that is over the next 12 months.

Okay I'll give David the first shot at the managed care environment.

But on the CRESTOR, IRESSA delays, and I'm presuming you meant IRESSA Andrew?

Yes.

IRESSA is not an issue because the sales force in oncology is a very targeted sales force.

There aren't big savings there isn't a lot of effort to be redirected.

When you have a new product you go and talk to Oncologist, they want to hear about it.

So, I don't think it's an issue in the Oncology area.

I said last year and I think people probably concluded I was trying to find some reason to be optimistic but I can remember saying that the delay in CRESTOR actually gives us a bit more time with Nexium.

I also pointed out that there is a 70% overlap in prescribers for Nexium and CRESTOR.

So yes we've been able to focus effort on not just Nexium but products like Seloken and Toprol XL in the United States.

Of course we've redirected our sales force and it will have helped to some extent but I wouldn't conclude from that that when CRESTOR comes along then it's going to be a big problem.

Because you have this good overlap, we have worked out quite carefully how we think we can get to the key prescribing audiences and we're fairly optimistic that the introduction of CRESTOR will not lead to a loss of focus on other products.

David, do you want to first go with managed care environment.

I think the first point to make Andrew on that is that I think there is definitely some slowing taking place in the overall US market.

The IMS data certainly shows that the overall value has come down from 15-16% down into probably the 12% range and some people speculate that some of that is due to some slowing of people refilling prescriptions, the change in the economy and people not wanting to spend as much money on that.

But your question specifically about the co-pays and the impact of tiering I think we see it is having an impact on access.

I don't think it has in any negatively affected anything that we're doing.

I think that we've been dealing with this for a few years in the market.

The strategy for making sure products are accessible through the tiering process as part of our contracting strategy.

I think we've done pretty well in making sure the products are available through the large managed care organization.

So there is some push back.

I think if you've seen one you've seen one and some employers certainly treat it differently than others, but overall I think the impact on managed care has probably been some increase in utilization overall of pharmaceuticals.

Okay.

As in previous years we have given people the opportunity to come in by telephone and I'll take the next question from Susanna Herbmack (ph) in Handels Bank, Susanna

Yes Susanna Herbmack from Handels Bank.

We have a few questions we would like to have further details on, if you can give us some guidance on the SG&A lines for 2004 when you have a full year cost for the CRESTOR launch.

Then also we wonder if your guidance in terms of 2003 is assuming 300 million [capsule] capacity from the generic producer i.e. 50% of marketing in volume.

That's primarily the two key questions.

The third one is your hopes and outlook for Seroquel now that we will have a [indecipherable] in the market.

Okay Jon why don't you have a go at the SG&A and indeed the basis of market share on generic omeprazole.

I think you probably know where I'm going to go on the first one, 2004.

I think what we said for 2003 really is much the same as the approach that we took in 2002.

We are trying to manage our cost base dynamically.

We are trying to make sure that we don't put cost where it doesn't need to be or to put cost where it's more difficult to take out if it's subsequently found that it's in the wrong place.

So we will continue to allocate resources very carefully.

I think we've seen as went through 2002 quite a different mix of cost and resource allocation because they were driven by some of the external events, which were only assumptions at the time.

I think we will see precisely the same flow during 2003 as well.

So until we start to get through the shape of 2003 and we start seeing where the launch program is looking and obviously there will be more investment in CRESTOR in 2004 than there was in 2003 simply because it will have a full year's launch cost behind it.

We're certainly not going to commit ourselves here to any target ranges of cost growth in that year because I want to be sure that we get the optimal mix of cost.

So I think you're going to have to track it along the same way as we do, make sure that we are targeting our cost spend to the areas that is needed at the time that it is needed.

On generic capacity, clearly there is a lot of speculation out there that there is maybe 50% capacity and who knows how long during the course of the year that will stay.

It could be 50% or through the year it could be more and certainly we don't want to get in to a position with our own forecast where we're dependent whether [Cutco] do or don't change there production forecast.

For now we're clearly basing it on, the starting position is that it is 50% degradable and it certainly looks from early prescription trends that that's where it's heading.

I think the other dynamic that I was trying to draw your attention to is that it is not a single measure of the capacity.

It's also part of the forecast of where you think the omeprazole volume will go and the number of prescriptions and you will get different outcomes depending on how you interplay those two assumptions.

Certainly it's not as simple as taking 100% of omeprazole and dividing it by two.

That was really some of the scope of the issues that we have in our own models and it's partly the basis behind the range of outcomes in the guidance.

I don't think we want to be fixed here to a fixed point that we certainly would only be speculating on assumptions as you are.

I think we've all got to work through it as we go through 2003 to see what transpires.

But we think we try to take account of the impact in our guidance.

Thanks Jon.

As far as Seroquel is concerned, I would love if we could make Seroquel the number one anti-psychotic drug in use.

Because frankly I think it's a product with outstanding profile.

I am not going to bore you by lecturing you yet again on the only one without EPS at any dose level, no [pro-lactin] effects, [neutral weight] and so on.

It just happens to be true.

It's a very good product.

I think it's nicely set up for the mania assorted with bi-polar.

This is a different group of patients, generally much more functional, much more concerned about side effects and we think that Seroquel should do extremely well in that setting.

Now [Abilify] has come in, it's a good product and I would expect that it will do reasonably well.

The view we take, or I take to be more precise, is we will continue to grow Seroquel.

The growth will be a bit less than it would have been had [Abilify] not come in because obviously [Abilify] is going to take part of the market.

How big?

We will have to wait and see.

And there will be a launch to learn about that product when it's in widespread use.

But we are not revising down our expectations for Seroquel because of the introduction of the Bristol-Meyers product.

We've taken that into account and our forward thinking.

Tom I've heard that you are giving guidance on $3b that's the potential for the product.

Is that something you can confirm?

You've hear that I was going to guide you on $3b.

I heard from the market that you did say that for the conference recently.

Is that true?

I don't believe I have ever said that and it would be out of character with me to give away a forecast like that.

Okay.

No, no.

But you may very well think that's a realistic figure Susanna.

Okay we'll take one here.

Thanks it's Mark Clark from Deutsche.

Can I ask on CRESTOR, you showed us at the annual business review a chart showing a very low level of [myopathy] compared with the label on Lipitor.

Can you confirm that the extra data that you're about to submit to the FDA shows a similarly low level of [myopathy] and no evidence of [rabdamyalysis].

Thank you.

Yes.

The studies are complete, the data is all being analyzed and written up.

We now have a huge database of course, the information that will be submitted to the FDA is on a much larger database.

The picture, the profile coming out on CRESTOR is outstandingly good.

We have no reason to change our view on [myopathy] or [rabdamyalysis] on the last time we briefed you.

Excellent profile.

And as you've seen from some of the published clinical data since we last gathered that the efficacy is excellent.

So no basis to change plans.

I am going to take a second question by telephone now from Rudolph Basir (ph).

No sorry, Brian Garnier (ph).

Can you hear us?

I'm sorry we can't hear you.

Hello could you speak up or is it a bad line?

Why don't you come back to us on a different line because I'm sorry we can barely hear what you're saying.

Try again on a different line.

Sorry Brian.

One here.

Che Wilton (ph) from Lehman.

Three questions please.

Firstly, could you tell us a little bit about what you think any impact of European Health Care Reform maybe in 2003 we seem to have more countries doing it than we have historically.

Secondly I wonder if you could take us into a little more detail on why you think you only need to grow your SG&A and R&D by 5% this year versus 10% last year, when this is the year when you have more drugs being launched.

Is that just that we'll end up with launches so close to the end of the year that perhaps the majority of the spending moves into the 2004.

My third question, I need to clarify what appears on the tapes.

There are comments where you were saying you would be producing top-tier pharmaceutical sales and earnings in 2004 and beyond.

Is that a realistic scenario when you have got a full year effect of generic [omeprazole] in 2004 and a full year effect of the launch cost of CRESTOR.

And a supplement to that might me whether you can up date us on what you think the marketing is.

You've seen a huge growth in the [statin] market.

It was the second largest dollar grower you said.

Presumably that is also mirrored in the amount of marketing spend and you are now going to be substantially later than you originally anticipated.

So some idea on what sort of marketing costs you might need.

Gosh.

Which order should we take these in?

I think Jon you can comment on the 5% SG&A and R&D and while you're doing that I'll think about the answer to the last one.

That I can deal with.

It probably comes back to the answer in the previous question.

Clearly there is a, one of the dynamic is that the CRESTOR launch will not be a full 12-month cost next year.

We believe, and this is an important fact, that we are doing things more efficiently.

So there are productivity improvements in the way that we are allocating our resources.

I think the final and probably the most important point for 2003 and this will come through in 2004 as well.

If you take that, the momentum chart of those products are growing strongly if you think that where they are in their launch phase, take Nexium for example the volume coming through at much faster rate than the costs going in.

Indeed some of those products the cost are now really starting to flatten out so you've got a completely different contribution margin shape as you go into 2003 and 2004 than you would have had in 2002.

Where we were still gearing up as the first full years costs of Nexium for example.

When you start to think of those costs going to flatten out the contribution drop through is pretty substantial.

So there's really three parts to the question.

One is - or three parts to the answer I should say.

One is that momentum, contribution momentum.

Secondly is the productivity and the resource allocation efficiencies that we are driving out and thirdly, yes, in 2003 we wouldn't have a full years launch of CRESTOR.

Let me take your third question initially.

What I have said consistently and this statement is not a new one.

We in AstraZeneca should be aiming to try and manage this transformation period as smoothly as possible and to be coming out of this year, 2003, with a very good exit rate that will lead to top-tier financial performance both in sales and earnings in 2004 and beyond.

That has been a consistent pattern.

I hope you've heard that many times from me and that is certainly strategically how we have been trying to run the business.

I would point out that in 2000 people thought was going to be difficult, 2001 was going to be a really big dip and we came through that nicely. 2002 was going to be disaster year and we got record sales and profits, so far not bad. 2003 - big challenge.

We've given you our best shot at guidance today.

If we can get the exit momentum that we're looking for and it will depend on the timing of launches and so on and if we can get that exit momentum then we should be seeing the kind of growth that will lead to top tier performance 2004 and beyond.

It will of course depend on how our competitors perform as well but that we really get into that upper quartile or whatever.

Now as far as the marketing costs are concerned, yes, undoubtedly this is a very competitive field in the starting class.

Undoubtedly Pfizer will try very hard to see us off with the effort that they put behind defending Lipitor.

We've done a lot of thinking about how we're going to handle this.

We are quietly confident that with the profile we have and with the resources that we are in mind to put behind it that we will be able to achieve just what I've said.

There is no point in setting very weak and easy targets.

It's not going to be easy to achieve in the first year of the 2004 and beyond period, the top-tier performance.

So your question is correctly directed.

That's going to be the most difficult part maybe of achieving that.

But directionally, that's where we are going whether it's moved by a quarter or whatever will depend on a whole variety of factors.

I am not sure that I really want to develop it much more than that.

It's the best set of objectives and analysis we think we can do at this point.

Healthcare reform okay.

I'm optimistic maybe I'm one of relatively few people who is optimistic about the European healthcare position.

For the first time certainly in a long, long time I think politicians in the commission, in the member states and people in the industry are really recognizing what has been happening in the European scene.

We have seen evolved a series of almost arbitrary individual actions in different countries, which has been seriously damaging the pharmaceutical industry in Europe.

More than that it's been leading to significant threat of problems concerning patient access to new medicines.

So I think that our industrial policy, economic policy issues and social policy issues as well as health policy issues at stake in Europe.

And people for the first time are really beginning to think about what do we really need to do.

That is being heightened by the potential enlargement, the addition of ten more countries to the European Union.

I don't quite know what case we will make progress but I think there is a good chance we will be able to make progress in addressing some of these things and clear a good quality and more stable European market.

But I accept I am on the optimistic side of this maybe as President of [FBR] I've got to get out there and try and help to make this happen.

You can only do that if you believe that you can have an impact.

So that's the thinking I have behind it.

There are lots of problems in Europe but I'm not deeply pessimistic.

One of the big incentives I think for European politicians is the recognition that we have a brain drain going on.

We have people moving their R&D resources progressively away from Europe and investing more in the US.

That really worries European politicians.

And when you couple with that their desire to see biotechnology grow quickly in Europe well they can forget that if they cannot create a good environment for the established pharmaceutical industry.

Those are the carrots for European politicians that lead me nearly to my optimism.

Now we will try and take Brian I hope on a much better line.

Brian.

Yes, Good afternoon. [Indecipherable] from Brian Garnier.

I've got a couple of questions regarding the [final 3582].

First [indecipherable] management communicates quite heavily on entering to Phase III in the very short-term is that something that you can confirm or not.

Second point, could you remind me the number of patients who have been enrolled in Phase 2 notably in the US and the specific indications that occurred [indecipherable].

A third point on this product, as you have said so far anybody [indecipherable] that may represent a significant marketing advantage [indecipherable] may be more generic are you ....

One other [indecipherable] I'm 100% sure of [indecipherable] patent situation on final in Europe and in the US.

I think this is a lovely question for John Patterson.

John.

Thank you very much for those questions and I'm not going to be very helpful I'm afraid but let me try and give you what I can. [Syanod] is in phase 2 trials, it is progressing well through those trials.

We have no reason to believe that it's not going to continue to do so.

But until we see the data on the phase 2 trials we're not going to predict exactly when it's going to go into phase 3.

So I am afraid the answer to question one is when we're ready, when we've got the data we will take it through to phase 3.

In terms of patient numbers, same comment applies.

We have good enrollment it's going well, we will start to see data rolling out during the course of the year and let's see where we go from there.

Finally, no we haven't seen a positive trend that we're prepared to share or a negative trend that we're prepared to share.

We've got the data, we have not got the data.

The trials are on going and as and when we have data that we could or should share we will share it.

Finally are we sure of the patents?

We believe we have a very strong position in the patent area, we are very comfortable with those patents, nothing has changed since we've last spoken.

Thanks John.

It sounds to me like you must be an investor in night [indiscernible] Brian.

But good luck anyway.

We'll take a question here.

I just wondered if I can get some clarification - Nick Turners from Jeffrays by the way - clarification on the contribution of wholesaler stockings in the fourth quarter.

The graphic that you showed implied a level consistent with that that we saw in the first quarter which was around $200m and would that be the sort of ballpark that we're talking about.

And then two related questions on IRESSA.

From the point of you of adverse event reporting is it a sort of random event across the whole patient population that have been taking IRESSA.

Or alternatively are seeing adverse event reporting in the deaths in patients who have been on the drug for longer.

Then the last point in the IRESSA issue would be - I think if I am remembering correctly interstitial lung disease occurs much more frequently in radiotherapy and you have been targeting the use of IRESSA along side radiotherapy I believe.

Have you re-looked at the strategy of coupling this drug with radiotherapy.

Thanks

Jon do you want this, wholesaler stocking.

Wholesaler stocking.

Let's just deal with the big picture first.

In Q1 we did say the results were inflated by about $200 million of wholesaler inventory, which at that point we said would unravel through the course of Q1 and through the course of the year.

This partly explains why the two following quarters were lower.

The reason why we had so much stock coming in the first quarter was largely because we were at low inventory levels at the end of 2001.

And so when you then compare 2002 against a lower stocked quarter it does produce a rate of growth in the US of around 16%.

Now there are some specific items in the fourth quarter Accolate for example I think Xylocaine and maybe Zomig, which we've highlighted.

Then Seroquel, which was really a factor of coming in very low at the beginning of the year.

So net-net our conclusion is that for the year the 10% growth rate in the US is pretty good.

The fourth quarter is higher than it would be on a normalized basis but it's largely a result of coming into 2002 with a low inventory.

As we said on numerous occasions, this is imprecise calculations but we do try and triangulate in as many different ways as we can using internal and external data and that's our best judgment.

I don't think there are any other distortions that we haven't otherwise disclosed.

The IRESSA event data.

The [epond] incidence of events is higher in Japan than elsewhere.

I say [epond] because there has been such a high public profile on this with a lot of media coverage that you expect when that happens you get a lot reporting.

We know that some of these cases perhaps quite a significant number of these cases actually don't have ILD and you can establish that clinically.

So they are non-ILD cases.

This is a very interesting question because it's exactly the kind of question that - the sort of thing that we are trying to deal with, with the Japanese authorities and people are interested globally.

Is there any pattern to this?

As far as we can see from this stage from all the analysis there is no pattern to it.

It isn't as though it's particularly fast onset or it's particularly associated with one group.

We've been analyzing I think as many as 100 on 100 different bases.

We've been trying to analyze the factors, which may give light on whether there is an association with IRESSA and ILD.

But I emphasize the point I made during my speech.

At this stage there is no pattern upon and indeed there is no reason, we have no evidence to suggest that IRESSA is causing ILD.

And you do have many patients who will have been treated with radiotherapy previously and the onset of ILD is not necessarily predictable.

So it is a very complex situation but I emphasize no plausible evidence and a lot of analysis going on to cast light on it because obviously if we could identify pre-deposing factors towards ILD that would help physicians in how they treat their patients.

And the incidence are lower than other treatment options, those patients have other treatment options.

Radiotherapy we are not promoting particularly along side radiotherapy.

I think the description of the approval in Japan is inoperable or rotund non small cell lung cancer so there is no - the basis of your second part of the question is just simply not right.

But there will be patients who have received radiotherapy who have also received IRESSA.

[Inaudible]

It's something that's maybe explored of course yes.

But expect to see the incidence of - the incidence of ILD associated with radio therapy can be as high as 11%.

We're talking about an incidence down at the 1% or less level.

So, if we do that then you will see a much higher incidence associated with the radiotherapy.

Okay I'll take - I've only got time for two more questions so I'm going to take one from Stefan Wickom (ph) by telephone and then I'll take one more from the floor.

Stefan.

Yes.

I have a question regarding your guidance for 2003 - the $152-$165 US dollar interval.

I think it's a rather reasonable interval considering the fact that there were a lot of uncertainties in the year regarding product approvals and the competitive situation in the market.

But when you gave this interval, what is your assumption regarding the volumes of generic Losec entering the market.

Are your assumptions based on - or your estimates based on the current situation, with the current volumes entering the market or do you anticipate also an increase volume going into the market.

Well the basis principally - my assumptions is that the generic manufacturer will sell fairly well every capsule that they make because the incentive to the pharmacist will be certainly driving the pharmacist to switch, even though there is no economic benefit necessarily to the patient or indeed to the healthcare plan.

So we're assuming that all that they can make will be sold.

Jon gave you the view earlier that initially that capacity seems to be 50%.

As the year plays out and total net resolve declines then we would expect that 50% will become more than 50% to the generic manufacturer, less to us.

What we have assumed is that the variance then in whether they bring more manufacturing capacity later in the year or not that that will be contained in the within the range that we have given.

But if there is a dramatic earlier development for instance than anyone can see at the moment, then of course we would have to factor that in to any revision to the guidance we give you.

What we committed to do last year and we will commit again to do this year, is to keep you as you as well informed as we can as the year rolls out recognizing that there are big uncertainties.

But assume that within our range at the moment Stefan, we have some quite sophisticated modeling of the different outcomes as we see it and it's broadly contained within that range.

Okay

Okay, thank you.

Well a lot of hands up but we'll take this one.

Good afternoon it's -- at HSBC.

A question about your strategy for Nolvadex because I understand that you restricted supply to [Barr] but it seems that when the wholesalers ran out of Nolvadex you supplied them with your own generic rather than the brand.

I was just wondering can you explain that whether I got the reasoning right behind that?

The other question was just your sort of view on perhaps parallel importing particularly across Europe.

If you are going to get these other ten countries joining the EU and also do you see any problems across the Canadian or US border there?

Okay, [Barr], yes you are correct we did provide a generic to replace the [Barr] generic because of the contractual breakdown between [Barr] and ourselves.

We did that because we felt that was the right thing to do in those circumstances to put it frankly.

Patients had been receiving generic.

We did not want to be seen to be trying to exploit them in the last few months of the life of the patent.

So I think we took a very responsible position there and of course the price differential was not huge because we supplied Barr in any event.

So we have I think behaved in a very responsible, fair fashion in how we handled this and we would expect of course once the patent goes that the [indecipherable] to generic [Tolmoxin] will be very fast indeed.

As far as parallel importing in Europe is concerned this is a significant problem.

The last calculation we did of this across Europe - and I don't mean we AstraZeneca, I mean we the industry in the form of [FBR] - we were calculating that there were 3.6b Euros of sales being affected by parallel trade.

That could be costing the industry as much as 1 billion Euros in income.

Of course an awful lot of that is the underlying drive for companies moving away in their R&D investment because much I think of that money would have gone back into expanding R&D and the market in Europe.

The problem could get more acute for some products but not necessarily for all products when enlargement comes because some of the products are quite decently priced in the [enlargement] countries.

So you have to be fairly careful.

There is no sweeping generalization here.

It's addressing the parallel trade issue in Europe that I think is at the heart of this G10 initiative as it's so called and I would hope that we could make some progress on that but it will not be quick.

As far as Canada is concerned I'm sure you're all well aware of the illegal supplying of products that is taking place across the Canadian border.

There will be interesting questions about whether government or state governments even take action to block this because it is illegal.

Much of what is going - an individual can cross the border with a prescription and have that prescription filled in Canada.

It is illegal to supply it by mail in the way that it is happening.

As far as we are concerned the levels at this stage are not terribly significant, it is not seriously impacting on our numbers but we will monitor the position very carefully going forward.

So sorry that we're cutting some of your questions off but I will invite you to follow with our Investor Relations group.

We will do our best to handle all your questions.

I will remind you of October 2, United States, put it in your diary.

We'll confirm of course during the course of the year and thank you all very much for attending.

Thank you.