AstraZeneca PLC (AZN) 2003 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the AstraZeneca conference call.

For your information, this call is being recorded.

Today's question and answer session will be conducted electronically.

If you wish to ask a question, please press the star or asterisk key followed by the digit one on your touchtone phone.

At this time, I would like to turn the call over to Mr. Seage (ph) of AstraZeneca.

Please go ahead, sir.

Thank you operator.

Good day everyone.

I would like to add my welcome to AstraZeneca's third quarter and nine months results call.

Joining me on the call today is Chief Financial Officer Jon Symonds and of course Mike Grasse (ph) and the rest of our Investor Relations team.

Before I turn it over to Jon, I would like to read the following statement.

The company intends to utilize the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995.

Participants on this call may make forward looking statements with respect to the operations and financial performance of AstraZeneca.

By their very nature, forward looking statements involve risks and uncertainties and results may differ materially from that expressed or implied by these forward looking statements.

The company undertakes no obligation to update forward looking statements.

So now I will hand over to Jon Symonds.

Jon?

Thanks, Ed and good morning everybody from Boston.

I will be brief with my opening remarks, particularly as we gave such a comprehensive review of the products at our Annual Business Review earlier this month in Wilmington.

So I will concentrate on the numbers and key product highlights where particularly wholesale stock movements have affected the margins, together with the impact of currency.

Finally, I will look at the full year outlook and what this means for the fourth quarter business shape.

So let's start with the headline numbers.

For the 9 months, sales were $13.9b, that is up by 8% in reported terms, inflated from a 2% underlying constant exchange rate growth by 6 percentage points of currency benefit.

The key growth in launch products continue to show strong momentum, up 56% for the nine months to $6b enabling us to offset $2b of sales erosion from patent expiries in the US.

Operating profits were down by 7% in CER terms, but only down by 1% in reported terms and down6% of currency benefit on operating profits as well.

Earnings per share for the 9 months of $1.40 per share, against $1.39 last year, followed the same pattern with reported growth of 1% and an underlying decline of 6%.

For the third quarter, sales of $4.8b were very strong, stronger than most of you were expecting.

Sales were up 5% in constant exchange rate terms, and by 12% in reported terms.

There are three points to make.

First, currency, where the continuing weakness of the dollar, particularly against the euro, added [inaudible] points of sales growth in the quarter.

Secondly, the third quarter of 2002 was comparatively weak.

It was the lowest quarter last year, principally on de-stocking in the US.

Thirdly Wholesaler Stocking in this quarter as well.

We saw some new stock-building on Nexium this quarter, ahead of a price increase which went into effect on September 15.

In aggregate Nexium went from an under-stocked position at the end of the second quarter to around $100m of excess inventory at the end of the quarter and the Toprol-XL where the price change was effective part way into the quarter, stocks are not unwinding as quickly as we initially thought.

The bottom line is that the estimated $200m of excess inventories at the end of Q2 have increased to a net amount of $300m and most in it Nexium and in Toprol-XL.

None of this however, should detract from the underlying demand trends in the US which remain very strong.

Prilosec, Zestril and Novadex are down, of course.

But the rest portfolio grew by 59% in aggregate and by 39% after adjusting for the Wholesaler stocking effect.

Operating profit was up 20% in the quarter or 6% in constant exchange rate terms.

The currency benefit is much larger on profit than it was on the sales line, and I will come back to this when I look at margins.

Earnings per share for the quarter at $0.47was 20% higher than 2002 in constant exchange rate terms.

Let me now turn to a few product highlights.

Nexium continues to grow strongly - up 86% for the 9 months.

Prescriptions in the US market were up 52% in a PPI market that is growing at 13% per annum.

Market share was up again to 23.2% at the end of September.

Generic competition in the PPI market remains confined to Omeprazole, although with two generics launching at risk and OTC Prilosec, this segment is significantly more turbulent than it was.

But we continue to carefully manage the financial risk associated with the continuing erosion of Prilosec.

Zestril sales for the year to date were $88m, including $56m from the US launch following its approval in August.

Given the proximity of the launch to the end of the quarter, the majority of these US sales represent initial wholesaler stocking and we gave you the impressive statistics on the speed and reach for this program at the annual business review.

I know you were all following the weekly scrip trends. 1.9% market share of new prescriptions in the week ending October 10, and it is still early days and sampling continues to be a major part of our early launch.

But we are encouraged by the response we are seeing from physicians, patients, as well our managed care customers.

We continue to make progress in all of the early launch markets, but there is not much more color to add to what you heard in Wilmington.

Iressa (ph) sales were $136m for the 9 months, $70m in the quarter alone.

Sales in Japan were $27m, the highest quarter so far this year, indicating a return to confidence as well as a more balanced perspective of the benefits and risks.

Sales in the US were $36m, a doubling of the $18m that we achieved in the second quarter.

US prescriptions continued to build to more than 6,100 prescriptions at the retail in September alone, bringing the total prescriptions since launch in the US to more than 22,000.

Finally on products, Seroquel (ph) passed the $1b mark for the 9 months.

Up 31%.

We have just received clearance in the EU via Mutual Recognition, for the use of Seroquel in the treatment of mania associated with bipolar disease.

For the quarter it is also worth pointing out that US sales were up 79%, which is well ahead of the underlying prescription growth of 35%.

Although this high growth rate is the result of wholesaler stocking movements, it is more a consequence of the heavy de-stocking that we saw in the third quarter of 2002.

But at the end of Q3 Seroquel's inventories, if anything were below normal and this ought to lead to a strong Q4 performance.

I will leave you to pick up the remaining product highlights from the press release.

Before I discuss the trends on costs and margins, let me set the stage by addressing currency.

As a reminder for AstraZeneca the weaker dollar boosts our sales line, but the effect is mitigated on our operating profits by an increase in our Sterling and Swedish Kroner cost base.

However we have also said that if the sales currencies of the euro and the yen do not move in parallel with the Swedish Kroner and Sterling, it would affect our operating profits and would be significantly more or less than the impact on sales.

As you know, the trend for the year so far, is for a weaker dollar and over the last six months particularly, the euro and Swedish Kroner have been around 16% stronger against the dollar, whereas Sterling has been around 10% stronger.

So this pattern ought to see a slightly stronger effect on profits, than on sales.

Let me deal with the 9 months first, where currency changes tend to even themselves out, and then I will look at the third quarter.

Over the 9 months we have seen this exchange rate pattern produce a positive 6% currency benefit on sales and a 6% benefit on operating profit, giving a broadly mutual impact on margins.

Operating margin for the 9 months is 2.1% lower than last year.

Gross margin is up by .8 points, which is more or less offset by the decline in operating income, leaving combined R&D and SG&A costs accounting for most of the decline in margin.

Overall both of these cost lines continue to remain well controlled and we should be around a target growth rate of 5% for the year, with most of the growth in selling costs, as you would expect.

For the third quarter, the greater currency benefit on profits themselves derives from several factors.

The continuing weakness of the dollar and the pattern of exchange rates between the sales and cost currencies has enabled more of the sales benefit to drop through to the profit line.

But in addition, we have also generated gains on the hedging of our sterling and Swedish Kroner cost base as well as seeing a higher overall of proportion in dollar denominated costs in 2002.

Consequently while currency benefited sales by 7%, it benefited profits by 14%.

So, for the quarter in isolation, operating margin is up by 1.4 percentage points over last year.

Gross margins improved by 1.5 percentage points, nearly all of which was from currency.

Underlying this is a positive effect on gross margins, from lower Merck payments, largely offset by a provision taken in the quarter for the disposal of a surplus manufacturing facility.

Combined R&D and SG&A are up 7% in constant exchange rate terms, as SG&A increases to support product launches.

Other operating income was also a favorable variance in the quarter.

As we enter the fourth quarter, the dollar appears weaker still, so it looks like more of the same for the current quarter, although I would hesitate to predict the same effect on profit as we saw in the third quarter.

The constant exchange rates, we estimate that fourth quarter earnings will include around a $0.05 benefit from currency, but this is fully factored into our earnings guidance.

This brings me to my final comment before opening up for questions.

The outlook for the year end and the likely shape for the business for the fourth quarter.

You will have already seen from the press release that we expect full year earnings per share to be at, or just above the top end of the range that we gave you with the half year results.

It has been a remarkable year in many ways, particularly managing the massive portfolio transformation.

It has made forecasting for us, as well as for you, a challenging task.

We have certainly benefited from currency and a surge in generic competitions to Prilosec than we anticipated at the beginning of the year.

But these factors should not detract from the underlying sales performance from the rest of the portfolio, together with very good control of costs.

As we enter the fourth quarter, a few things are clear about its shape.

Firstly, generic competition will be severe against the $900m of Prilosec, Zestril and Nolvadex (ph), recorded in the US in the fourth quarter of last year, although to what extent the Prilosec sales decline will accelerate as a result of more generic competition and OTC Prilosec, remains to be seen.

However, as I mentioned earlier, I believe our forecast is taking most of this risk fully into account.

Secondly, we know what we are planning to spend in the support of the product roll outs and on the R&D front.

We have a building business momentum as evidence by the 56% growth in the ten TP growth [inaudible], that are radically reshaping the business and our priority is to fully support them in the market place.

Underlying costs are therefore likely to be ahead of last year's heavy fourth quarter, but will continue to support the new portfolio into 2004.

The other factor that is tough to forecast is the $300m [inaudible] in Wholesaler stocks, mostly as we said in Nexium and Toprol XL.

How much of this will unwind in the fourth quarter, is also an open question.

We can only base our outlook on the expectation that inventories will normalize, but again, the outcome is not completely in our hands.

One thing we are very certain, in 2003 we have built that solid platform to drive growth in sales, margins and earnings per share for years to come.

I will now hand you back to the operator to begin the question and answer session.

Thank you.

The question and answer session will be conducted electronically.

If you would like to ask a question, please do so, by pressing the star key, followed by the digit one on your touchtone phone.

We will now take our first question from Jim Anderson (ph), of Prudential Securities.

Hi.

A couple of questions on Crestor (ph).

Can you just talk about the biggest hurdle you face in marketing this product in the US?

For example, is that the market is happy with the existing therapies, or are the competitors creating perceived safety concerns, or is this contracting effectively with managed care companies?

What is it exactly?

Then can you comment on the accuracy of the IMS data that is rolling in and what specifically would that true share figure be if we normalize for sampling?

The last Crestor question is, just your comments on the Lancet article that is out today that potentially gives your competitor some ammunition?

Thanks, Jim.

There is a lot in that question.

In terms of the marketing of it, many of the things that you say are true.

It is a competitive market and we clearly are aiming to compete with Merck and Pfizer and we talked about our ambition in that, many times in the past.

Although clearly you do need substantial amounts of dollar investments in terms of a fully equipped, fully trained sales force, in terms of the sampling programs, in terms of the amount of market preparation and physician education and so on.

All of that does cost money.

But as you heard very clearly at the Annual Business Review, we also want to be smart with what we do.

We want to make sure that we do get effective value from what marketing support we put in there, so that we are targeting the right people.

Clearly, it takes time for all of those things to flow through in the IMS data, but we obviously see the IMS data like you do.

But what we are really more interested in is some of the softer feedback.

What are the patients telling us?

What experiences are they having on Crestor, as opposed to other [inaudible]?

What are the doctors seeing across a wider scope of their patient base?

Are they really seeing the significant reduction in cholesterol that they can achieve with Crestor?

It is coming through also in what I think that there was a very rapid uptake in managed care.

For sure there will always be some managed care organizations that are more conservative and will wait to come in, but I think the 50% statistic at this stage is pretty good.

What it does mean, to come to your second point, is that obviously a single data view of progress of a launch of this scale on daily prescriptions, or weekly prescriptions, or monthly prescriptions, simply isn't going to give you a full richness of what we are doing and achieving to date.

There is no doubt that the sampling plan program that we have is significantly greater than anything we have done before, and significantly greater than [inaudible] and clearly that is, and will suppress the data.

But as to how many people are using it and what the underlying data would be on a normalized basis, is simply the sort of extrapolations that I wouldn't want to give and I don't think that we can do them reliably either.

So far as the Lancet article is concerned, we have responded fully to it.

But it is clear in our view that the conclusions reached are flawed.

They are unbalanced and don't take into account the full facts around our development program, which has been one of the largest product developments, in any product, in any class.

It has had extensive regulatory reviews.

As you have seen in the press release, we have now got over 200,000 patients using it in real life.

We are clear that this product is safe and its safety profile is consistent with other statins (ph).

You will see from our response that it is a pretty robust response and I don't really want to say any more about the Lancet article than that.

It will be clear from our response what we think of its quality.

Okay.

Thank you very much.

We now move to Stuart Hern of UBS.

Good afternoon.

Thank you very much.

Three quick questions.

First of all, could I just check that the full cost of the initial [inaudible] program, [inaudible] program was taken within Q3 and would it be against the SG&A line?

Secondly, just talking about your comments on the currency benefits in the third quarter, if you just look at the constant currency growth in sales and operating profit and try and work out what the margin would have been at constant currencies, I get about $0.02 EPS benefit from currencies.

Is that reasonable?

Finally, as regard the 50% of covered lines on Crestor, would it be possible to give us an idea of what the split between the second and third tier in the [inaudible] is?

Thank you very much.

The cost of sampling is included within SG&A, more or less as it is incurred, so you wouldn't provide in one quarter the totality of the sampling plan, although clearly the reach for Crestor program which was started and completed in the third quarter will be fully charged, but of course you need to recognize that the cost of sampling to us is in its manufacturing cost and not its retail value, so there clearly is a big discrepancy between those two costs.

The currency benefit - yes, you can look at this in a whole heap of different ways and I would mentally put it in the $0.02 - $0.03 range.

There are lots of different ways that you can quantify it, but it is of that sort of order and obviously part of it are hedging gains, rather than the underlying drop through.

Apart from 50% of covered lines, I don't really want to go into the specific of individual contracts and what we have set out really is to achieve as far we can parity.

But I think, as you know, there are so many scheme variants and so many scheme options available to employees and employers and they can chose whatever package of products that they want, from a high-priced package to a low-cost package that makes generalizations on formulary positions really quite difficult to summarize in a single statement.

But we have always sought to get parity wherever we can, because we think the competitiveness of Crestor is apparent from its data.

Great.

Thank you very much indeed.

We move now to Andrew Baum of Morgan Stanley.

Four questions, if I may.

The first one is you have given the inventory levels for the whole business and for Nexium.

I wonder if you could help us by giving the number of months where you are currently and what you consider normal for Prilosec, Nexium and Seroquel?

The second question relates to -- you obviously [inaudible] of the product, the larger incentive for inventory stocking by wholesalers.

Aside from price rises which obviously gives us a flare before the price rise, what can you do to try and control the level of inventories at what you consider to be a satisfactory level?

The third point is on the formulary for Crestor.

Any update for the number of lives covered and in addition to WellPoint (ph), are you aware of any other managed care organizations which have come out and said 'we're not going to cover this product?'

Finally, just a split between the currency movement and hedging in terms of the EPS impact?

On the inventory level question.

You will need to recognize, as I am sure you all do, that this is an art rather than a science.

Our own techniques for evaluating inventory levels improve progressively each quarter.

We do have--normal inventory levels do vary for products.

They are not all necessarily the same.

Some of the big products, Nexium for example, tends to run on relatively short supply chains and you would normally anticipate the inventory levels being less than a month.

Others may be a little bit more than a month.

But generally the vast majority of products run between the half a month to one and a half months.

It is rare that normal levels of inventories get beyond that, although you can do so, if for some reason supply gets interrupted.

Then the wholesalers tend to increase their level of safety stocks.

With Prilosec, we are relatively unexposed to a tail of products on that, partly because the supply chains tend to be relatively short on Prilosec anyway, and secondly that we have been quite cautious in evaluating what the potential financial risk is on that supply chain at any point in time.

In terms of managing inventory levels, it is something that [inaudible].

I think that as you start to see from other pharmaceutical companies reporting their earnings, I think that you can see that we are very transparent and have always been very transparent.

To the extent that I can get solutions on managing wholesaler inventories, it costs me money for the benefit of reporting stable quarterly earnings.

I would much rather explain variations to you, than spend the money.

Having said that, we are, and have been looking at implementing inventory managements agreements and we have got a form now that we are comfortable with, with most of the large US wholesalers, some of which could be implemented in the fourth quarter.

However, the implementation of this and getting the timing right is a key factor, so I can't promise that we will get it in place this quarter.

But if we do, then hopefully we will start to see a flattening of, or a more predictable trend of sales that line up more closely with underlying prescription trends.

I don't think the formulary percentage has changed in a meaningful way from the comprehensive update that Adele (ph) gave you a few weeks ago. [Inaudible] point is one that is said that they would prefer to wait.

I think they are recognized as being cautious and conservative in adopting new products so for every WellPoint, there is a list of other managed care organizations who are very happily coming in and coming quickly and you always get a spectrum of views and that's life.

But I am not aware of anybody else who has publicly come out in the way that WellPoint has.

A rough split on the currency, it may be a little over one third down to hedging.

I guess there is just one final question.

Should we continue to expect [inaudible] improvement in Europe, before year end?

We hope so, but I can't guarantee a date.

It is has been imminent for some time.

Thanks.

Our next question comes from Jo Walton (ph) of Lehman Brothers.

I wonder if you could just help us a bit more on the stocking.

You've talked about the level of stocking relative to normal levels and how that is this year, but if we look at just a quarterly performance, there was a very low level of stock last year.

I wonder if you could just tell us what the swing in stock, [inaudible] what the impact was in the quarter from the third quarter of last year to the third quarter of this year?

Using perhaps next year as an example, you have highlighted a sales growth of 114% and a $100m of excess stocking.

If I take that out, you have still got 86% growth but the prescription growth is only about 45%, so year on year, there appears to be more than $100m of stocking.

A second question, again looking at the Nexium price rise.

Can you tell us what the [inaudible] rise was and could you give us an idea of whether you think these price rises are in reality, going to stick, giving that Prilosec effective pricing or the generics are presumably coming down?

The third one, just looking at the marketing costs.

If I can push you a little bit more, you said, I think that the marketing costs in the fourth quarter would be high again, like they were in the fourth quarter of last year.

Will they be as high as they were in the third quarter of this year, or does that third quarter number represent the peak?

Thanks Jill.

Your calculations on Nexium are directionally right in the sense that the absolute analysis of increase of wholesaler inventory on Nexium is around $100m more than it was.

But if you look at it quarter on quarter, the swing is obviously more than that, and it is probably closer to $150m.

Our underlying calculations from Nexium, for example, is around 60% demand growth.

Of course you have then got to think about some of the second order effects in that Nexium will carry today, more inventory in absolute terms, because it is a bigger product and therefore is that an inventory swing, or is that just normal to normal?

But I think that what you are starting to highlight is the number of moving parts of this and what in aggregate, if you exclude the patent expired products in the US and the reported growth was 61% and the underlying demand growth ex wholesaler inventory movement is about 40% and the big swings really are in Nexium and Seroquel, which we have already mentioned.

The others not being materially in absolute terms, although in percentage terms they could be more significant.

Ed, on pricing?

I think the list price increase on Nexium in the September price change, I believe was on the order of 2.5%.

We don't always realize 100% of that list price increase because of the management care rebates and things like that, but we are not concerned that in absolute terms that a Nexium pricing posture versus Omeprosol (ph) is going to dissuade people from adopting, and continuing to adopt and prescribe a drug on the basis of its differentiated profile.

Finally on the marketing costs.

I think the total envelope is bounded by the fact that we view costs in aggregate for this year to be around the 5% mark.

It won't be 5.0%, but it will be around those marks.

Clearly there is a shift with more of that growth being in sales and marketing than it is in R&D.

I doubt whether the third quarter numbers will necessarily be the peak.

Obviously currency plays a little part in that, but we will look at a sustained investment in Crestor into the fourth quarter and we will see the full year effect next year.

Thank you.

The next question is from Catherine Arnold from Sanford Bernstein.

Thank you for taking my question.

A couple of points.

First of all, could you give us your general sense for the burn off of the sample program for Crestor?

Are we early into the burn off, or mid, or late, such that the patients that received these samples per your best estimates, are now approaching the pharmacy for refills?

The second question relates to COGS.

John, if you could remind us of your comment about the currency effect in the quarter on cost of goods, but in the context of to what extent the sequential quarter pattern that we have seen over the last four to five quarters, has been impacted by currency and product launches?

Obviously what I am trying to tease out here, is what do we have coming through as far as that gross margin improvement because of the change in product mix, and how much of this has either been helped or hurt, over the sequential picture by currency and one time events?

Lastly, in terms of Nexium, obviously we are a little over a month into the Prilosec OTC availability - I was wondering if you could comment on your experience in terms of reshuffling of formulary positions within the category that are either favorable or unfavorable to existing brands and what impact that has been specifically for you on Nexium and Prilosec?

Thanks, Catherine.

I wish I could help you with the sample burn off.

I wish I had it myself, to be honest.

But whereas we know what is translating into prescriptions, what you don't know at any point in time, whether the samples are sitting in a store cupboard in a physician's office, or whether they are all out with patients, whether patients have got a 30 day pack, followed by a 7 day pack and so on.

So the burn off is really a very difficult subject to get under the skin of and I suspect that if I tried to speculate more beyond that, I would probably not help you, rather than as I try and help you.

So I can't give you anything that is useful on that Catherine.

On the COGS, we are seeing and have seen a pattern for a while now and the most visible pattern really has been the declining overall percentage of COGS attributed to the payments to Merck.

That is simply a mathematical shift as a result of the transformation products that are coming through with less payments to Merck.

I think that as we start to go beyond here, I think you will certainly start to see a flattening off of that benefit and Prilosec works it way out of the system and Nexium keeps growing and then you start to introduce Symbicort (ph) and Exanta (ph) in the US, there is a possibility that it will hit its bottom in 2004 and may start to slightly creep up.

In terms of really getting at the underlying benefit in cost of goods, it is not yet fully visible, partly because all of the currency cost and hedging particularly go on the cost of goods line, because the vast majority of it is associated with hedging cash flows from the supply chain.

There have been some one-offs.

We referred this quarter to the disposal of a surplus drug facility and also in the early stages of major product launches, you do tend to get inefficiencies in the way you allocate overheads to stock.

Having said that, the [inaudible] is correct and an important part of the transformation is the transformation of the underlying cost of goods and we will certainly want to make that more visible next year.

With Nexium, I referred to it in my comments the turbulence that is going on in the PPI market and it is certainly clear that the Ameprisol (ph) previously subject to prescriptions is now finding its way into the OTC market.

It is not just OTC Prilosec that is aggressively promoting itself, but it is also some of the other products that we would regard themselves in that category as well.

So far, and it is certainly clear that there is no knock-on into Nexium and you can see that the OTC Prilosec take out has come out of the generic companies.

The other thing that is beginning to be apparent is the formulary shifts.

One of the interesting features in this is that this could be beneficial to Nexium in that either all the PPIs simply get reduced to the same formulary position or alternatively, that Nexium could be singled out as being an alternative that with demonstrated benefits over an above Ameprisol.

Either way, and much the way that I commented on Crestor, [inaudible] equivalent is good enough for us to really strongly promote Nexium.

If we can get a better formulary position, so much the better.

So it is early days yet, but the formulary shake around looks as though it could be neutral to beneficial to Nexium.

Thank you.

We now move to Mark Preston (ph) of Deutsche Bank.

Mark Preston.

Thank you very much.

Good afternoon and good morning to everyone.

I have three or four questions.

Just on Nexium, Jon, on what you were talking about there, I guess your scrip growth of 52% [inaudible] of 80%.

The shift to mail order obviously increases the length of prescriptions to shift from tier 2 to tier 3.

Obviously there are rebates.

Can you give us an idea of how those two effects have benefited product mix on that product?

Secondly, just qualitatively perhaps, could you talk about how the competitors to Crestor have responded with their sampling programs as well?

So give us an idea of their sampling programs as well and to give us the possibility of how much sampling is distorting the weekly and daily prescription trends that people are following.

Thirdly, on Exanta.

I just wondered if you could comment on Supportive 5 and Supportive 3.

If Supportive 5 repeats the strong data we saw from Supportive 3, you combined the two studies together, would the FDA accept a combined study which would possibly show [inaudible], and lastly I just wondered if you could give us some flavor or guidance or outlook for 2004?

Mark, due warning - I will come to you on the Exanta point.

Two of the four, Mark I can't or won't answer.

Nexium, we have isolated the principal gap between the reported and underlying growth as being inventory movement.

Quite how you then look at that underlying movement and say how that is moving and what is the consequence of formulary changes?

What is the consequence of a higher percent being from mail order with longer scripts and so on, it is simply a piece of analysis I don't have.

What we do try and focus on pretty carefully in our analysis is where do we think the underlying ties of the PPI market is in terms of prescription pills, because I do think that that does tend to even out different prescription lengths and different formulary positions.

That is where we continue to see the PPI market continue to grow quite strongly.

It is clearly sensitive to promotion as well and that is undoubtedly a factor that has pushed it up to 13% or 14%.

On the statin market, I think that the level of sampling has increased by all participants in the industry.

We have done some calculations of what impact it has on prescriptions and I think you can take it that there has been some dampening on the total market, but I would hesitate to give you a figure, because it is based on many assumptions.

But I believe it to be there.

The fourth point - you will just have to wait for a few more months.

Mark, I guess you know the answer.

I think you are just going to have to be a little bit patient a little longer.

Supportive 5 is the last piece of data if you add to the file.

We have said that the program is on track, but you are going to have to wait just a little bit longer to get the results of Supportive 5.

Thanks.

We now go to E-trade Securities and [inaudible].

Thank you.

Most of my questions have been answered.

But I have one further question if I may.

Just on Crestor.

Just to get a like for like comparison say in Canada, have you got the figures for the percentage of the dynamic patient pool you now have, or conversely the Q2 figure for the total prescriptions for the product in Canada for the private payer segment?

As you know, in Canada, as we said a few weeks ago, we have made very speedy progress in Canada to access the public sector.

I think we last reported that we had about a third of the dynamic sector in Canada.

Our latest data will indicate that we are quite a bit ahead of that and probably pushing up towards 40%, so things are going pretty well in Canada.

Thank you very much.

Good news.

From ING Financial Markets, Max Hermann (ph).

Just a couple of further questions on Crestor.

I am looking at the launches in Canada and the Netherlands.

There was maybe a few slow weeks before you saw the dramatic ramp up, and as you say now, approaching 40% in Canada.

I just wanted to get a little bit of a feel for the level of sampling in those markets and how that compares with the US sampling and whether also the Labor Day weekend also and August week distorted the uptake in the US?

Secondly, Jon said that he would spend as much as required to ensure Crestor's success, but wouldn't give a figure.

But just in your outlook now, given your initial performance in Europe and Canada, as well as the initial market reception in the US, are you increasing your marketing spend, or lowering your marketing spend from your previous plans?

Or is there any change at all in your marketing plans and how you are addressing the US market?

Thanks, Max.

Sampling outside of the US generally is of a lower order of magnitude so that the numbers that you have seen coming through the other launch markets really aren't significantly affected by sampling.

There will be some, but it is not a characteristic of those markets as it is here in the US.

You also point out, and highlight the polls of daily and weekly data.

If you have holiday periods, new products tend not to get prescribed on this, so whenever you see a day when there are holiday days, that they will always affect the weekly scrip data, so Labor Day, or Columbus Day, or whatever day you are about to have in the US will have some impact.

Again it highlights why the dailies and weeklies are only partial indicators.

I think we have got the cost of Crestor about right.

We have had a long term time to plan for it.

We do constantly review the marketing mix and I think it has been described to you on these calls before that one of the things we have attempted to create is an organization here in the US which is much more flexible in the way that it allocates its resources so we can constantly adjust the marketing mix.

We will always be critically evaluating whether we have got the spend right and the allocation of the spend right and are we doing the right things?

We wouldn't do it on the basis of two months on the market, but you can be sure that each quarter when we look at the performance, we will be reassessing what the market mix is.

But at this stage, we are definitely not contemplating any significant shifts in our overall plans.

Thank you.

Now a question from Jason Pelalis (ph) with Capital International.

Jon, two questions please.

First, you mentioned a plant closing provision.

Could you give us the pre and post tax amount there?

Secondly, and I hope without sounding critical, management's guidance has in fact chased reality all this year.

As we look forward to the fourth quarter, I heard the cautionary statement you made, but the fact is the appropriate starting place for the fourth quarter, is last year's fourth quarter, which if you take out the charge you had, was $0.45.

I think you mentioned that you expect about a nickel from currency.

The sales line is going to look very much enhanced by currency.

I think the pound made a five year high against the dollar yesterday.

While you cautioned us about inventories and about the generic effect, the fact is that the corpus of sales remaining to be lost is much, much smaller than it was earlier in the year.

I wonder if we are not into a situation here where you are still behind the game guidance-wise?

Thanks, Jason.

On the first point, the plant closure is probably less than $0.02 and probably a little more than $0.01 so it is not a significant effect.

On guidance, the facts that you raise are all relevant to the way that we have been thinking about the business throughout the year.

For sure, currency has been stronger.

I don't think that although the sterling is at an all time high, it has very little effect on our sales, because there is a proportion of the [inaudible] the UK is quite small.

It does benefit-- affect our cost base, but we have got long term hedges, so day to day movements get to be damped out.

But as I said in the comments, there will be a beneficial impact.

The generic competition has been better and that has certainly contributed part of the upgrade in guidance and I think we have got about just under 30% of the Ameprisol market still in Prilosec which is a good deal better than we were expecting at the beginning of the year, when there was an uncertain date on multiple generic entries, OTC Prilosec and the outcome of the court case.

But I think we pretty well neutralize that in terms of risk going forward, but clearly it has got the comparator of $900m of sales in the fourth quarter.

Beyond that, the business is more or less performing in the way that we expected.

There is some benefit from our cost performance which has been better than we hoped at the beginning of the year and for sure, some of the other products have individually contributed more than we thought.

But in aggregate, the underlying business is not far from our expectations.

So I see the changes in the guidance really coming from those two external events and I think one has been mutualized.

I think we are pretty comfortable with the guidance that we have got now for the remainder of the year.

The main difference, or the main uncertainty, being what might happen on the wholesaler inventories and if they don't unwind and we still remain with a few hundred million of excess inventories, then clearly that will be a direct take from next year and will add to this year's bottom line.

Jon, just to do a back of the envelope calculus, if you start with the $0.45 which seems to be the appropriate place, and you add the nickel you are talking about, then you are at $0.50.

Add that to the $1.40 you have for the 9 months, you are at $1.90 and then it comes down to the inventories and so on.

But, again, it would seem as though you are still are playing 'catch-up' on the guidance.

No.

I don't think we are.

If you look at the top line with erosion which will be below what it was last year, the cost base that it higher than last year's fourth quarter, when you are unwinding inventory, when you are dealing with high gross margins, you actually get a very exaggerated effect, or a sharper effect on the bottom line.

So I feel comfortable with the way we are calling it.

Thank you.

That concludes the question and answer session today.

At this time Mr. Symonds, I will turn the conference back over to you for any additional or closing remarks.

Well I would just like to say thank you to everybody who participated and thanks for various questions.

We look forward to engaging you again at the end of January and, as ever, if you have further comments or questions or more information that you want on the third quarter, please don't hesitate to contact our Investor Relations department.

Thank you very much.