AstraZeneca PLC (AZN) 2003 Q4 法說會逐字稿

Good afternoon everyone.

Welcome to our Annual Results Conference.

2003 was in many ways a remarkable year for our Company.

In these opening comments I want to highlight some of the accomplishments.

But, more importantly I want to show how the results for 2003 lay the foundation for a new era of strong growth.

Jon will take you through the results in more detail, including some excellent product performances.

First the headline results.

Reported sales of $18.849b were up 6% in actual terms or flat at constant currency.

A remarkable achievement bearing in mind the daunting task of replacing sales lost to generic competition, some $2.7b in the US alone.

This performance confirms the strength of our sales and marketing forces around the world.

Operating profit at constant exchange rates was down 11%.

However, reflecting the investments we were making in R&D and marketing to drive the growth portfolio.

As a result, EPS for the full-year were $1.78 representing a 3% increase at CER on a statutory basis.

But, down 9% after stripping out last year’s exceptional items.

You will recall that the dividend was increased by 10% at the half-year.

The Board has recommended a 15% increase in the second interim dividend, bringing the total for the year to $0.795, an increase of 15.6%.

During 2003 we also returned $1.2b to shareholders by way of share repurchases.

Completing the $4b program we began in 1999.

You will also have seen in today’s announcement that the Board has authorized a further $4b repurchase program to be completed by the end of 2005.

The most striking feature of the 2003 results is the underlying strength of our sales growth across all therapeutic areas, save, of course, for those products, which lost exclusivity, notably Prilosec , Zestril and Nolvadex.

The GI sales were up 61% after excluding Prilosec.

Cardiovascular was up 20% when you exclude Zestril.

Oncology was up 26% when you take out Nolvadex.

Neuroscience and Respiratory were up 12% and 15% respectively.

So, right across the board very strong underlying growth.

Now with most of the sales lost to generics behind us, it is this strong underlying growth which should now propel total sales.

Jon will talk more about individual product highlights later.

But, another way of looking at the sales result is shown here.

The growth in GI, Cardiovascular, Respiratory, Oncology and Neuroscience and the Others more than offset the $2.7b owed, created by the lost sales of Prilosec, Zestril and Nolvadex.

I believe this is an achievement of which our employees around the world can be truly proud.

Other highlights for the year include the launches of Crestor.

Again, Jon will update you on Crestor’s progress in more detail.

Let me say right up front that we are very pleased with the results to date and we remain confident in our expectations for this highly effective and safe product.

As you know, I have set a target of a 20% market share and, from the results to date, I believe 20% or better is clearly achievable.

Another highlight was the first regulatory approval for Exanta in France for the prevention of thromboembolic complications, post orthopedic surgery.

In addition massive regulatory submissions for the important chronic indications, particularly stroke prevention association with atrial fibrillation.

That was filed on time at the end of last year.

We also received regulatory approvals in the EU and US for Seroquel in the treatment of acute bipolar mania.

That should keep the Seroquel momentum going nicely.

On the development front, 14 new chemical entities progressed from one stage of development through to the next.

Including Golida(ph) with its exciting potential in metabolic disorders.

Steadily improving productivity in discovery resulted in a further 15 high quality new projects entering development.

What stands out for me in 2003 is not so much the performance of any individual product, marketing company or function, but rather the aggregate achievement across the entire business.

Two years ago we showed you this slide.

At that point it represented our ambition to transform the portfolio from the mature to the newer high growth products.

I promise you this is the last time you will see that slide.

Because it is essentially a job completed.

In two years the shape of our portfolio has been completely altered.

In doing so, we have increased reported sales by $2.6b.

Since creating the Company in 1999 we have moved quickly to build our commercial and R&D strength and transform the product portfolio.

This has established a sound platform from which we are confident we can deliver strong growth over the next several years.

Our confidence derives from the momentum behind our growth products.

As you can see year-after-year we are delivering outstanding growth from this group of products.

We believe we have plenty of ammunition to keep this growth going.

During the period of transformation we received great support from our shareholders, reflected in the excellent share price performance over the past five years, significantly out performing the index of major pharmaceutical companies.

I want to thank all of you for that support and also to make clear we recognize this premium market valuation is not simply a reflection of past or current performance, but much more importantly, it is your expectation of delivery going forward.

Delivery is our number one priority.

Over the next several years we are determined to deliver top tier financial performance based on strong top line growth, margin expansion and increased earnings.

To rank us among the best of our peer group of large carp global pharmaceutical companies and we expect to deliver this performance while maintaining our drive for continuous improvement in productivity throughout the whole organization.

In today’s tougher environment the most efficient and effective companies will gain a competitive advantage so long as they can keep a sustained flow of quality innovative new products.

That is why we focus much of our effort on expanding and redesigning our Discovery and Development activities to ensure that delivery of the next wave of products.

Big progress has been made with our in-house activities.

This is now being complemented with active in licensing of technology and products.

The recently announced deal with Amgenics(ph) on monoclonal antibodies is one example of how we can selectively add to our own R&D strength.

As well as expanding the business through new products, we have also embarked on a program of broadening the geographic spread of the business.

By strengthening our operations in the rapidly growing markets beyond Europe and North America to the expanding Healthcare economies in Latin America, Asia and Eastern Europe.

Astra Zeneca is already experiencing rapid growth, well above the market averages in many of these markets, as you can see from this slide.

For example, we are the fastest growing Western company in China.

We expect to become one of the leading prescription drug companies in many of these important emerging markets.

While delivery of top tier financial performance is clearly our number one priority over the next several years, we also want to ensure that we are building sustainable growth for the long-term.

We are ready to make the investments to achieve this.

We believe we can create the headroom to do so.

Equally we are conscious of the importance of maintaining discipline, so there will be no stupid deals.

That then is the big picture as I see it.

Sorry that was not a reference to anything in particular.

That then is the big picture as I see it.

Let me finish now by focusing on some immediate priorities for 2004.

Crestor is central to our ambitions, it is off to a very good start and we are confident we will make it a major mega brand.

The Oncology portfolio is a very high quality business and, as I showed earlier, it is growing strongly with a lot of scope for further growth from products like Casodex, Arimidex, Faslodex and Iressa.

Nexium and Seroquel are already mega brands.

Now we are focused on establishing them as the brand leaders in their respective classes, particularly in the US.

We begin the rollout of Exanta in the post orthopedic setting and we aim to achieve first approvals for the medically and commercially much more important chronic indications.

Exanta is a truly breakthrough product with huge potential.

But, we recognize and we are ready for the regulatory issues, which will undoubtedly arise.

We must also maintain the progress of projects through the development pipeline and the flow of innovative new products into development.

Again, I repeat we will carry all of that out while maintaining our drive to improve productivity.

So, 2004 will mark the beginning of a new period of strong financial performance.

As I am sure you have already noted, we expect to deliver EPS for 2004 in the range of $2.00 to $2.15.

Our aim is clear, sustained top tier financial performance measured against the peer group of large global pharma companies.

Now I’ll hand over to Jon.

Thank you Tom.

Good afternoon everyone.

Before coming to the products, which underpin our growth expectations I want to cover a number of financial aspects.

The headline results for the year and Q4.

Quarterly phasing of sales and profits, margins and some more detail behind our 2004 earnings guidance.

As Tom has said, a good set of results, which turned out significantly better than we expected at the beginning of the year, helped, of course, by currency, lower Prilosec erosion and good management of costs, but impossible to achieve without the generation of $2.8b of new sales from the growth portfolio.

Growth, which takes our growth in launched products to $8.2b of sales and now over 40% of our total sales base.

One of the key targets we set ourselves for 2003 was the importance of establishing the new product portfolio on the market and demonstrating our future growth potential through a strong exit from 2003 into 2004.

While we are in no doubt that we have achieved this, you could easily be forgiven for doubting us, simply by looking at our Q4 performance, where sales were down 8% in constant currency and operating profits were down 26%.

In one sense Q4 is entirely explicable, because we met the earnings targets we set in October.

It is worth unpicking them a little and looking at three factors.

Firstly, the quarterly sales pattern for 2003 against 2002 with comments on wholesaler inventories and finally our underlying cost base.

In 2002 we saw three quarters’ of sales in a relatively narrow range, followed by a very strong Q4.

But we note that for 2003 as a whole that sales in constant currency were unchanged over 2002.

However, if we look at the quarterly progression for 2003 you can see a distinct pattern of quarters 1 and 3 above last year with quarters 2 and 4 below.

Even though on this basis Q4 does not look out of line with previous quarters for 2003.

As you are well aware, one of the factors affecting this pattern has been wholesaler stocking across the year.

Stocking in Q1, de-stocking in Q2, stocking again in Q3 and finally de-stocking in Q4.

For the year as a whole we feel comfortable that wholesaler inventories have not distorted sales.

In Q4 we have moved from $300m of excess inventory to less than $100m.

As we have also mentioned before, we are expecting to enter into inventory management agreements with wholesalers.

This should give us even more visibility in managing inventories going forward.

Our ambition on costs has been to limit our underlying cost growth to around 5% in constant currencies.

In the event, underlying cost growth came out at 5.8% with R&D growing by 3.6% and SG&A by 7%.

As with the sales trends, we can see here that it has not been an even distribution across the year, with costs growing by 3.5% in the first half and by 8% in the second.

Of course the second half has been influenced by product launches and SG&A grew at around the double digit mark in both Q3 and Q4.

Don’t think that we have sacrificed everything to focus on Crestor or just to meet its cost target.

As you have also seen we have invested in emerging markets, China and Mexico particularly.

We entered into three research collaborations in the final quarter and we have added to our skill base in Discovery.

We have been able to achieve all of these things through focus, and indeed belief that many of these new activities have to be financed from efficiencies within existing activities.

Q4 has also tended to be influenced by heavy R&D spending.

We have attempted to flatten it out, but for the last three years around 30% of the annual spend has occurred in the final quarter.

It is not ideal, but it seems to be the industry trend.

Turning now to margins, you can see here that for the year as a whole, operating margins declined by 2.6% to 21.8%.

I have included Q4 margins in the pack, but won’t cover them here, as many of the reasons I have just gone through mean that it is not representative for the year as a whole, or indeed as a marker of our exit.

We estimate currency to have had no impact on margin.

Although, as you can see here, currency was positive to gross margin, but negative to R&D and SG&A.

So, on aggregate we can say that the decline in margin was a simple consequence of increased fixed costs on a flat sales line.

I have already talked of the influences on R&D and SG&A, which leaves gross margin to cover.

As expected we have seen positive benefits to gross margin.

A large part of which is the benefits of mix, which produces a lower proportion of contingent payments to Merck.

Over the course of the year this has benefited gross margin by 1.7 percentage points.

These payments are now down to just over 6% of total sales.

It is apparent from this that underlying gross margin declined by 0.7 percentage point, largely due to one-off items.

The provisions of bulk drug facility taken in Q3 and a number of smaller items in Q4.

These, together with the R&D research collaborations charged in Q4 depress margins for the year by a bit below 1%.

All told, however, I believe the annual margin to be a reasonable marker of the exit margin.

In the final part of the financial review, let me turn to the outlook for 2004 and the key assumptions behind it.

The clear message, as Tom has already spelt out, is the commitment to deliver top tier financial performance for 2004 and beyond as compared to our peers.

For 2004 we express this as an EPS target of between $2.00 and $2.15.

Without doubt the key performance driver is maintaining the momentum of the growth portfolio, which will become increasingly visible in our top line.

As the remaining patent expiry exposure in the US is around $1b diminishes and as you can see here, by Q4 2003 sales of Prilosec, Zestril and Nolvadex in the US had fallen to $115m, but we should see the remaining impact wash through the sales line pretty quickly.

Including patent expiries, we are targeting underlying sales growth in the mid teens, around half of which will be added by currency.

As to margins, we expect to see further improvement to gross margins.

Principally from lower payments to Merck.

I should add though that we expect the gross margin benefit to mix on Merck products to bottom out in 2004, and potentially rise again thereafter.

On fixed costs growth in R&D and SG&A on a reported basis will be in the high teens, which because of the European cost base will include a substantial element of exchange.

In CER terms we expect underlying cost growth to be around the double digit mark.

The impact of currency is more difficult to quantify on profit.

But while we see it positive to EPS overall, in margin terms it could be negative and offset the gross margin benefit, leaving 2004 operating margin broadly unchanged from 2003.

We have highlighted the key sensitivities to our guidance.

I will talk about Seroquel, Crestor and Nexium in a moment.

Clearly we are going to have to update you on currency on a quarterly basis.

Back to the products and the source of growth for 2004 and beyond and just to remind you of the momentum, this slide clearly depicts the dynamic nature of our growth portfolio.

As the patent drag diminishes the real power of this portfolio’s potential will be increasingly visible.

Let me conclude my review of 2003 with a brief look at the performances of some of our key growth products and how they will drive our performance going forward.

I’ll start with Crestor.

The Crestor launch rollout began in the Netherlands in February bringing a compelling product profile to the market.

Crestor lowers LDL by up to 63% across the dose range.

Crestor gets more patients to goal.

Crestor’s HDL raising is maintained across the dose range.

Crestor is well tolerated with a safety profile comparable to the other marketed statins.

Crestor has now been approved in 44 markets and launched in 25.

We estimate that since launch, more than 750,000 patients have been treated with Crestor and more than 1.5m prescriptions have been dispensed.

Among the early launch markets were the Netherlands, Canada and the UK.

This chart shows the market share of total prescriptions we have achieved to date in these three markets.

Ranging from 2.9% in the UK, the market typically slowed to adopt new products. 6.9% share in Canada, and this is now a share of the whole Canadian market now that reimbursement has been secured across all product provinces. 8.2% market share in the Netherlands.

Clearly there is much to be pleased with in these first launch markets.

Now let me update you on progress in the US since we launched in mid-September.

We have a number of data sources we are using to track our launch and I am going to refer to three of them today.

First, of course, is the IMS New Prescription Data.

Like all of you we are tracking this data on a weekly basis.

Data that’s the foundation of our product forecasts and ultimately for tracking our performance.

As you can see here, we are seeing a steady build in new prescriptions and market share, now up to 4.6% in the latest week with noticeable breaks in the trend as expected, but at Thanksgiving, Christmas and New Year holiday periods.

Holiday volatility aside, this weekly new prescription data has another limitation.

In chronic care markets such as statin, many new prescriptions are in reality simply continuations of existing treatments to an established patient and they don’t really represent an opportunity to initiate new therapy.

To answer the question as to how Crestor is doing in this dynamic market we use the Varispan VectorOne Audit.

Their new to brand share measures our share of the dynamic market that is new and switched patients only.

As you can see here, Crestor is already the number three product in market share in the un-switched patients, but a 13.7% share in the latest week.

Considerably higher than our 4.6% share of weekly new prescriptions.

Both the IMS and Varispan data, as good as they are, still miss an important element of the launch program.

Since they are counting prescriptions filled, they give no insight on the role of product sampling in the initiation of new statin treatment.

We know sample levels are very high in this class.

As you know we track launches with a variety of market research, including product awareness, intention to treat and panel data on initiations of therapy, whether by sample or prescription.

For these data we estimate that Crestor is already the second most selected statin to initiate treatment and is being used around 20% of the time.

Although the entirety of the US data paints a consistent picture the launch is off to a good start, with the IMS data showing a 4.6% share of new prescriptions and market share.

With the Varispan data showing an even higher market share among new and switched patients of 13.7% and other market research data which shows our market share of new initiations, including samples, to be over 20%.

That is why we are confident about the prospects of Crestor going forward.

Turning now to Oncology.

Sales of our Oncology products reached $2.7b for the full year, which was a 26% increase if you exclude the generic impact of Nolvadex.

Casodex had another strong year, sales were up 22% to $854m increasing usage in earlier stages of prostate cancer is driving the growth chiefly in the markets outside of the US.

Faslodex sales grew to $77m, all in the US market at the moment.

Although we received a positive opinion from the CP MP late in the year, with formal European approval expected shortly with launches following from the Q2 onwards.

Iressa sales for the full-year were $228m evenly split at around $100m each in Japan and the US.

Japan shows good growth quarter to quarter and the US finished the year with more than 42,000 prescriptions dispensed since its launch in May.

Finally Arimidex sales were up 46% to over $500m.

Continued acceptance of the drug in the adjuvant treatment of early breast cancer.

Arimidex is the only aromodose(ph) inhibitor with this indication and it has more than one million patient years of experience behind it.

As you can see on this chart Arimidex is the runaway market leader in its class.

This next chart demonstrates that there is still plenty to go for.

The [indiscernible] study shows Arimidex to be more effective than Tomoxifen(ph) in adjuvant treatment.

This indication is now approved in some 57 markets.

As you can also see here, 77% of the market by volume is still Tomoxifen(ph), but as the treatment paradign shifts towards Arimidex there is plenty of headroom for future growth.

Seroquel sales are now just under $1.5b up 27% in constant currency.

It is the only product among the three leading brands in the atypical anti-psychotic market to increase market share in the face of new competition.

As this familiar chart shows Seroquel month-by-month continues to close in on market leadership and the new prescription share in the US market.

There is weekly data suggesting it is already in second place.

With recent approvals in the US and the EU for the treatment of acute bipolar mania, we expect the momentum for Seroquel to continue.

Nexium had another outstanding year with sales up 62% to $3.3b.

We talk a lot about Nexium performance in the US, but here is a chart which shows our market share in some of the other markets we don’t normally talk about.

There are some good performances across the world, not to mention some outstanding ones in Scandinavia.

Sales growth in all of these non-US markets increased by 60% over the year.

As you have seen this morning, we are continuing to expand the breadth of the Nexium indication with the filing in the US and EU for prevention and healing of [end staid] associated ulcers.

Turning now to the US, Nexium’s market share growth in total prescriptions in the US PPI market continues.

It is now the number two product in overall market share.

With a market share of over 25% in December that is up nearly 5 percentage points in the last year and it is closing in on Prevosid(ph).

Among gastroenterology specialists Nexium took over the number one ranking in prescriptions some time ago.

Nexium’s share with this key group of specialists is now over 30%.

We have always seen the specialists as a lead indicator.

So we look for the total market to take its lead from these experts in the field.

More than that, market leadership in this class as well is a realistic aspiration.

Nexium turned in this strong performance in a US PPI market that saw considerable change in 2003.

With the introduction of several generic immeprosol(ph) products and in Q4 the introduction of Prilosec OTC.

This chart shows the growth in total prescriptions for PPIs in the first three quarters of 2003 versus the previous year.

As you can see growth was steady at around the 13% to 14% mark.

But in the final quarter growth in the PPI market fell to just under 2% coinciding with the introduction of Prilosec OTC.

As you will see it is really a story of two separate markets.

It was the prescription and metrazol(ph) segment which took the biggest hit.

Total prescriptions for all the metrazol products declined by 35% in Q4 versus last year.

In stark contrast the other branded PPIs still grew and in Q4 with the same trend as the previous three.

Most importantly, from our point of view, Nexium prescriptions grew at twice this rate, up 26% in Q4 2003.

It appears that we have seen quite a limited impact from Prilosec OTC on the growth prospects for the branded segment of the PPI market and for Nexium in particular.

We look for another strong performance from Nexium in 2004.

I think you can see why, if the momentum generated by these and the other growth products that I haven’t had time to mention, why we’re excited by the prospect of delivering the picture of strong sales and profit growth that Tom has just painted for us.

With that, I’ll hand this back to the question and answer session.

Thank you very much Jon.

We’ll go straight into the Q and A. Could I remind you to state your name [inaudible].

Members of the telephone audience, if you wish to ask a question please press ‘*1’ on your digital telephone at this time.

Once again, please press ‘*1’ now.

[inaudible] currency offset.

If you didn’t have a currency offset, would margins in all four still be largely flat over ’03?

Secondly, just in terms of resource allocation to Crestor.

From the business update we know they have five sales forces behind the product, but in recent days we have seen people like [indiscernible] hiring and other forms of [indiscernible] reps through onto the market.

Have you considered taking additional resources and allocating them to Crestor?

Okay Jon if you want to take the financial one, then I’ll get David to comment on the US Sales force.

Yes would have been improved but for currency.

I think maybe [indiscernible] are hiring because they are a bit worried, however, David?

Yes, we have looked at the overall promotion in the statin market.

We have reallocated some our resources in a sensible launch and they have taken out some additional contract sales support actually for some of our other products.

So, not a significant change in what we were doing before.

I think if you take a look at the share voice that we delivered right from the get go in October, November, and December – sorry I haven’t seen the December data, I saw some preliminary.

Our share of voice is tied or leading in the class and for our targeted positions we are leading in detail minutes as well as primary detail.

So we have been able to deliver to the targets we want at a level that we said we would deliver at and we haven’t had much change at all in sales force.

Thanks David.

I’ll take one more and then I’ll go to – as usual we have people able to call in, so I’ll go to the first of those after another question from the audience here.

Nobody, right, we’ll go to Catherine Arnold then at Sanford Bernstein.

I have a couple of questions.

First of all could you tell me what your working capital policy is for growth products like Crestor, Nexium, Seroquel and proforma [indiscernible] inventory levels?

Then I am wondering if you could give us an update on your plans for direct or consumer advertising for Crestor.

Lastly Jon I don’t know if you could comment on this.

I know two days ago Merck gave guidance that Astra supply sales for ’04 should be about $1.9b flat with ’03.

I am wondering if that guidance aligns with EPS guidance that you have given.

Okay, let me deal with the DTC Crestor and then hand the other two over to Jon.

We are all ready, we will be going with DTC early in the year, the precise date I am not prepared to reveal today.

But we are all prepared.

Jon?

Thanks Catherine.

Our working capital policy on launch products and growth products is never to be with a shortfall in the market.

Therefore, although we do have pretty strict working capital targets, we layer them across products with different characteristics.

So if you have got products facing patent expiry, they have one policy.

If you have got mature products they have another.

But the critical part of the policy for the growth products in Crestor in particular is that we don’t want David or any of Bruno’s markets ever to be short of it, and therefore we do allow inventories in those cases to run as high as we believe is necessary to support market growth.

As regards Merck guidance, somehow I suspected this question might come up.

It is our forecast which Merck use.

We provide them with forecast of forward sales.

So I can assure you that our forecasts are entirely consistent with the forecasts that we have given [indiscernible].

Having said that I think it is fair to say that there are quite legitimate reasons why our views and Merck’s views are not identical.

Because we have different sequences in those product flows.

They ship product to us, which they may well realize profit on, on that point of shipment.

But, we receive those products they go to our inventory and we recognize the contingent payments at the point that we sell into the market.

So it is quite possible that there is a difference in recognition between the way we record contingent payments and the way Merck records contingent payments.

But I can assure you that the underlying basis of the forecasts are the same because they are our forecasts which Merck use.

So, I think as has been attempted in many cases in the past, it is actually very difficult to do a reconciliation because there simply isn’t enough information to unpick what each of us do.

But I can assure you that the content of those forecasts are identical.

Yes?

Thank you, Jonathan Knowles from Capital Research.

You indicated that revenue guidance was 15% for the year, or mid teens, so let’s call that 15% and that half of that was currency.

So underlying let’s call it 8% for a round number.

You have also indicated for 2003 that the underlying pharma portfolio grew 25% in constant currency excluding the generic hit, which are now largely gone.

That’s your number here.

How do you reconcile a sales line growing 25% suddenly slowing to 8%?

We have talked about mid teens clearly, and I think a substantial part of that is currency.

But there is also $1b, this is constant currency, this is taking out currency, this is 8% compared with 25%.

There is $1b of further generic erosion still to come through.

So you have got to unpick it in that way.

The forecast that I have given for mid teens is inclusive of further generic erosion.

$1b is about 4% in the sales line.

So if you add 4% to 8% that brings you to 12%.

How do you reconcile this from 25% to 12%?

I can assure you that the data we have given you is internally consistent and we can and it does work through.

But I haven’t time to go through it individually [indiscernible].

[indiscernible] sales guidance and take the last quarter of the year off or something?

I don’t think so.

I don’t think so Jonathan, no.

Max Hermann from ING.

I have three questions.

Firstly on the margin target I believe a few years ago now you talked about 27% as a margin goal.

I guess the industry leading players have maybe 35%, you talk about 6% margin going to Merck.

Does that mean that 27% is easily achievable and, can you give us a time frame on that?

Secondly on Crestor and Japan, can you give us a bit of an update on the timelines there?

Are we still on track for a first half launch?

Finally, on Exanta is there a chance that you could get expedite review in the US for Exanta?

Okay, I’ll begin that and maybe get Bruno Angelici to comment on the position of Crestor in Japan.

The margin of 27% is still a very realistic target for us.

We are not going to give you a precise time point of when we believe we can reach that.

Jon also indicated that yes it is 6% but bottoming out.

Then we will go up again, the level of payments to Merck.

Assuming of course, some of the products like Exanta come through, that would undoubtedly hit the payments to Merck level.

We believe that 27% and then the payment level to Merck would take us well up into the [30%s] and they represent a pretty efficient running of a company that is in a good product flow and investing in its R&D on an ongoing basis.

I think that is a sustainable but demanding target the 27%.

As far as expedited review for Exanta is concerned, let’s be very clear this is a decision for the FDA, it is not for us.

The timetable is simple, you file, and the FDA have 45 days in which to consider your filing, whether or not they will accept it for review.

We are not yet at that point, so we have had no communication from them on whether or not they will review it and whether or not they will consider an expedited review.

There is no guarantee that at the 45 days they will take a decision on expedited review.

So this is all to go for.

I have also said repeatedly that this is a massive filing, huge, with multiple indications.

Even given tremendous dedicated effort by the regulators this is going to take a considerable time to review.

It is a big complex filing.

So we will just have to wait and see what the response from the regulators is.

But we are very clear in Astra Zeneca the benefit to risk ratio for Exanta in our eyes is significantly better than Warfarin.

Therefore this drug should be approved and should do exceedingly well in medical practice.

Now Bruno would you like to comment on Crestor in Japan?

We expect to launch Crestor in Japan during [Q3] subject as you say to the approval [indiscernible] but we are fairly confident.

Hi it’s Dan Yo at ABN Amro.

I was just wondering, given the pressure on pricing we’re seeing in the industry, what scope do you think there are to increase the prices, particularly on Nexium and Crestor.

But even over your whole portfolio would you be looking at maybe 3% in the US and 1% globally?

Or are your price increase forecasts coming down from that?

I’ll give a quick comment and then maybe again get David and Bruno to give their view from their areas of market responsibility.

Historically in the US the nominal prices of products have been going up roughly in line with inflation.

However, the realized value has not.

There has been an increasing level of discounting going on.

So, even though you get a 3% increase in your nominal price, you’re probably giving most of it away in discounts and, typically across a big range of products, you’re probably seeing something like 20% discounting level.

That has taken away a lot of the price growth.

In the rest of the world there are hardly any countries where you can get price increases.

So to assume a 1% across the rest of the world would seem pretty ambitious to me.

In fact, when you factor in the price cuts being imposed on us in Germany, Italy and many other markets, I doubt if there will be any real price increase.

But why don’t we start with Bruno, your view about pricing across the rest of the world Bruno?

Basically as you said.

The key point in Europe last year we had to face a significant price cut imposed by Government in Germany, Italy and in Norway.

So clearly the price was under pressure.

There is no reason to believe that it is going to change drastically over the next few months or next few years.

So I believe the opportunity to increase price is simply not there in Europe.

Japan is a better situation, but we have the annual cycle of price cuts, which is traditional in Japan.

For the rest of the world there is a little bit more flexibility in certain markets, but at the end of the day it is not very significant.

David the US?

Tom I think you covered the discounting issue in the US very effectively.

To demonstrate that you cannot realize all that price.

Probably the other big issue for the upcoming year in the United States will be the MediCare Discount Card where we will be participating in discounting for MediCare recipients who sign up for these cards through the organizations that are going to sponsor them.

So again, not an opportunity to rise prices, but rather yet another pressure on the price point that we’re dealing with in the market.

Now I’ll go to Tim Anderson in Prudential Securities.

Thank you very much.

A couple of questions.

The first is with [indiscernible] for market sharing filed in the US.

It appears that the LDL reduction with that product might be as good as Crestor.

I am wondering what your expectations are for the uptake of that product in the US when it launches relative to what Crestor's uptake has been today?

Do you think it will be more or less, or the same.

Then just going back to the price issue, at least in the ulcer market.

Wyatt’s(ph) have said that for their products for tonics in the US they expect to see sales growth lag scrip growth with increased rebating to mass care companies?

I am wondering what your comments are on this and what you see happening on the contract front in the US with this PPI [indiscernible].

Okay.

I think David, we will hand this over to you.

Zocort's(ph.) ATR uptake and the [indiscernible].

Well I think the [indiscernible] combination really doesn't have any advantage over Crestor, so I don't have any reason to believe this, especially because it is a combination product that clearly limits flexibility both in terms of dosing as well as monitoring side effects.

That is why combination products have not been as successful in the United States.

So I still think that Crestor, with the profile that it has with LDL lowering and the HDL raising, is clearly a better product than the [indiscernible] combination.

Regarding pricing and contracting in the US in the PPI market, yes, it is certainly becoming more competitive, I think.

We are clearly positioned well because unlike some of our competitors, Prilosec clearly has the perception and we have been able to demonstrate it through clinical trials and other ways that the efficacy of the product is superior to the other products in the market.

I think the market values that and that is one of the reasons why we are on our way to be the leading product in primary care and why we have already done that with gastro-enterologists.

Yes, there is pressure in the market, but I think efficacy demonstrated in this class continues to matter and we will stay competitively priced, as well as make sure that we have access on managed care formulas.

I think that the core difference for us is that we are promoting on clinical differentiation. [Pretonics] has none, and I think that for a long time I have suggested to you that [Pretonics] in value terms will be under really significant pressure.

I think that is what you are seeing.

Thank you.

Alex Evans from Deutsche Bank.

A couple of questions.

Firstly on Japan.

It seems like sales in the fourth quarter have slowed to about 3% or 4%.

I think it was underlying because it was certainly more robust than that during the first nine months of the year.

I was wondering if you could talk about that.

Also on Exanta and marketing as well, I was wondering Jonathan, if you could talk about the phasing of SG&A spend through 2004 and also at what point you made the decision to start ramping up your sales force and marketing effort for Exanta launches in the US, especially for the chronic indications?

What kind of marketing effort do you think you will put behind it in terms of the number of reps?

That kind of thing, if you can tell us.

I can deal with the Japan one, very simply.

Iressa was launched in the fourth quarter - a very big quarter for Iressa in Japan, so I think that is a significant factor.

The underlying performance of our business in Japan is very good.

So I wouldn't read anything into that particular fourth quarter year on year comparison.

Jonathan, do you want to pick up Exanta, initially?

Well I think for the first part, I think there will probably be a bias towards the first half in terms of SG&A growth, given the fact that we saw two strong quarters at the end of 2003.

Having said that, you can never fix marketing spend for each quarter, because we take a pretty dynamic view as to what resources these products need.

We spend a lot of time making sure that in each quarter we are allocating resources towards the right product.

So we never give one product simply an additional resource, without looking at the totality of the portfolio.

The same will be true for Exanta.

We won't lock in to the launch plan for that until we are clear on what timing we have and what label we have.

So we will keep flexible on Exanta.

Clearly we are preparing for a wide range of scenarios that include both an early launch and a later launch and we will make sure that we get the resources in at the right time.

But I wouldn't necessarily think that this requires a substantial ramp up of sales force.

Again we will be looking to how much more productivity we can get out of what we have got first.

I will get John Patterson to say a word in a moment about the strategy offset in Exanta.

It will not be anything like the Crestor launch.

It is a totally different situation in terms of competition and medical practice, but John, would you like to comment?

Thank you Tom.

I think there are two very different issues.

One is Europe and one is the United States.

Dealing first with Europe.

Our intention of orthopedic surgery, which is a hospital indication is very much driven by influencing the key [indiscernible] there.

It is going to be an expert-driven market.

This is an area where there are anti-coagulant clinics, hematologists and orthopedic surgeons who have to be influenced strongly.

It is not a primary care market, initially.

When we go out with the chronic usage either in Europe or chronically in the United States, then it is a very different issue.

But again, we are not talking about a 'big bang' theory.

This is all about changing medical practice, getting people used to a very different activity and that will require a lot of medical education.

It will also require a lot of work and we have been doing a lot of work in the area of value packages in order to support the introduction of this product.

We have a lot of questions coming in from outside, so perhaps I can go to Justin Stebbing of Calypsos.

He has hung up.

Martin Hall of HSBC, are you there?

Yes, indeed.

Two quick questions.

Just on your Exanta comment on the priority review.

My understanding was that whilst the FDA does give it to you, it is up to the company to ask for it.

So have you actually asked for a priority review from the FDA on Exanta?

Secondly for Jon.

I noticed your comment about a wholesaler inventory program in the United States.

Wherever we have seen this from other companies, there has been a significant impact on both sales and margins.

Does your guidance for 2004 include all potential impact from such a program?

Thanks, Martin.

The answer to your first question is yes.

We have asked for it.

Jon, do you want to respond to the wholesaler inventory?

The answer to this one too, is yes, as well.

We have signed one agreement with one of the US wholesalers and have agreements in principle with others, so we are confident that we can get these agreements in place during the course of the first quarter.

Part of the way that we have been managing the inventories through the year, and certainly in the final quarter has been in anticipation of this.

Clearly if you are going to enter into inventory management arrangements, it is a lot better to do it at the point when inventories are at a low point in the cycle and that is where we think we are at the end of the year, and why we believe that we can manage the implementation of these agreements during the course of 2004, without any change to our guidance.

Of course it is only at the point that you sign these that you actually get access to the data that they have got and while there may be some issues to reconcile, we are nonetheless confident that we can implement these without a discontinuity.

Thank you very much.

Just one question, if I may.

You showed the Nexium growth year on year growth data for Q4, which is good, but there is a suggestion if you look at the January data, that there has been quite a noticeable slow down in year on year growth.

Have you seen that as well and is there any color you can give?

David, do you want to respond to how January is beginning to look?

We have the weekly data for January and I think that the volume certainly for Nexium has held up.

I think we have seen the market slow down from the double digit growth that it had, but it is nowhere near as low as including the Neprosol(ph.) graph that Jon showed us earlier.

I think it has slowed down a little bit, but it holding up pretty well.

More importantly we see Nexium continuing to gain volume, so we are pleased with that.

A question back to Jon, on the margins relating to foreign exchange.

It would be a great help to try to pinpoint what might happen in 2005 if we were to have a stable currency situation.

Is this kind of margin impact in this year if currencies were flat in a 100 basis point kind of range?

Also with regards to margin development, to get to the 27% that is obviously a 500 basis point improvement.

Let say it takes three years, a 150 a year, is it going to be a linear progression do you think or one that has a front end to it because of the leverage of Crestor and the potential launch of Exanta in 2005.

Well I will start by giving you my forecast for the dollar in 2005, Mark.

Clearly it is a very volatile position and our best estimate of the impact of currency in 2004 is that it will take out the best part of what would otherwise be an improvement in the underlying margin.

As Tom has said, it still remains our belief that 27% is a viable target for this business with the portfolio that we have got.

It is going to come not in one year and I think probably in a linear fashion it is probably fair, without giving any guarantees because clearly there are other factors that have affected it.

Tom has also said that we are looking to maintain the long term potential of this business, rather than to maximize any one year.

So the short cut to your question, Mark, is that we believe that underlying margins will recover and get back towards the 27% target.

The currency in the short term is something that is quite difficult to predict and unfortunately it looks as though today that it ought to wipe out most of the margin improvement.

Jon, just on that question, I am not trying to forecast the future, I am trying to find out the analytical answer to something that can be determined for 2004.

That is, if the exchange rates were constant relative to the 2003 base, you are telling us margins would have improved and if we can get a sense of what that margin uplift would have been, we can make our own assumptions whether we will get it next year or not, if exchange rates are stable from today.

So just on 2003 versus 2004, if you flex [indiscernible] back the rates to stable, no effects impact, what could have margins improved this year?

I think FX may take around 1.5% off margins this year.

I hold you to that and I understand that it is quite a complicated issue.

If exchange rates were to stay stable in 2005 relative to 2004, I should anticipate something like 100 to 150 basis points of margin improvement.

Is that correct?

I think Mark that we are getting down to the model you need to do Mark.

I have given you enough broad indications without showing you my model.

It will depend very much on the sales trajectory for a whole variety of reasons.

This takes me back to Jonathan's earlier point.

I think that you are premature, rather than wrong, Jonathan.

I will put it that way.

Kevin Foster(ph.), SG Cowen.

One question, Jonathan on the costs overall.

You mentioned SG&A, but the first half, second half split is obviously going to be very important and very different for all the costs?

Secondly, can somebody comment on Seroquel outside the US where you have got very dynamic growth, have you put more money behind Seroquel outside the US?

Finally, in terms of billion dollars exposed to generic, does that include or exclude [Plendil].

Is there any risk that you see in 2004 to [Plendil] generics?

Just to get a new face or two, we will have Ulf Setter(ph.), who is responsible for Europe, deal with Seroquel in Europe and then I will get Martin to comment on the second part of your question.

On Seroquel Europe, we are investing.

As Jonathan indicated, we are rolling out bipolar mania indication and we are catching up with our competition in terms of share voice.

Right now we are having a strong growth from market share this year and we are further investing in the bipolar mania indication for 2004 and expect the market share to continue to grow.

So we are positive about it.

Regarding Plenbil(ph.) we do have a case in the US pending, but no further to add.

We haven't received a firm schedule, so I don't believe Plenbil will be at exposure.

We do have a very strong IP on that product.

I have an email question from Geoffrey Stevens at Lombard Audier.

To what degree has formulary positioning been a positive or a negative for the Crestor launch and how do you expect this to change during the course of this year?

David, would you like to take that up?

As we have said previously, formulary positions for Crestor got off to a good start in managed care with both BBM coverage as well as third party coverage, so I think our position thus far has been positive.

There were formulary changes that took place at the beginning of January.

I think we were positively impacted by that as well.

Our goal is to be not negatively affected, but to be neutral.

I think it is a bit difficult to get advantaged per se but I think we are competitive in a neutral position with our formulary and what that does is to give us the opportunity to pull through.

So I think that we are right where we need to be and we are gaining formulary positions throughout the course of the year as reviews go on - or certainly over the course of the first few months that the product has been in the market.

Thank you.

Mark Purcell from Deutsche Bank.

Just picking up on that last comment, could you give us some more details on Crestor in terms of what proportion of physicians are actually prescribing the product at the moment and the proportion of patients that are reimbursed and I guess that should improve going forward?

Secondly outside the United States, when should we hear something on Germany, France and Spain in terms of approval decisions?

Could you also talk to us about Seroquel in the States?

If you look at prescription growth it is mid 30% for 2003 and sales were reported below 20% growth and I guess the product mix should be improving and bipolar has just been approved and [indiscernible] there.

So could you just tell us about the growth of Seroquel, or what we should be exiting at 2003 at and prospects going forward?

Thanks very much.

David, you can pick up the Crestor bit and then maybe we will have a word on Seroquel.

Our post launch monitoring we saw overall awareness of the product shows an awareness with primary care physicians and cardiologists for Crestor well above 90%.

This is of our targeted physicians so the folks that are in our first few [indiscernible] that are our highest priorities to get to use it.

Through early January more than 70% of them had prescribed Crestor, so I think we are getting usage, we are getting trial and I think that is picking up.

As it relates to the percentage of patients that are covered, it is a bit more difficult to, in a linear way, to track those patients specifically to those targeted physicians but probably more than 60% of the covered [indiscernible] in the United States, one way or another now have access to Crestor's new formulary.

I think there were some inventory changes with Seroquel between the end of 2002 into 2003 and coming into 2004.

I think the underlying prescription growth is really the indicator we use to take a look at what 2004 should look like.

More importantly we now have the claim for acute bipolar mania which I think will give us a lot more to say and new things to say about the product in the market and some additional promotional resources to put behind it.

We are excited about it.

I think the leading indicator is certainly the prescription growth and that is what we are following.

I think that there has been some movement in inventory as a result of the way wholesalers stock and de-stock which crossed over years.

As far as Germany and Norway in Crestor is concerned, we are in discussion with the regulatory authorities.

We have nothing new to say.

Our position was very clear.

We were not going to compromise our label at the time of mutual recognition.

We believe the label is a very appropriate label and will be resolved in due course, but we have nothing new to say today.

Jo?

Hi.

Jo Walker from Lehman.

Four quick questions.

Sorry to return to foreign exchange.

But if we just look at the currency as it is today and assume that it just continues for the rest of the year.

How many cents are added to or subtracted from your EPS, just due to currency as you see it at the moment?

Secondly, as we enter the new year, we have already heard about the formulary changes that are made perhaps more at the beginning of January than at other times.

Can you update us, particularly with reference to Nexium and what percentage of people are covered at let's say, a tier 2 position on the formulary?

Has anything changed there as we go into the new year?

The third question is on the quarterly progression.

If we actually look at the invoice sales for Crestor in the US in Q4, of course they are very low.

Which quarter do we expect to see the reported sales much more broadly match the underlying prescriptions?

Perhaps that is a question of when sampling begins to ease off and more generally, if you have got $1b worth of [indiscernible] products ramped down to come through, are we going to be seeing the first couple of quarters of this year in terms of negative growth and then an acceleration to go through to some idea of the quarters.

Then finally, I would like to ask if you could expand on your comment about [indiscernible] deals?

Mais oui, bien sur.

Let me quickly knock off a few of these things and then ask Jonathan to come back one last time with the foreign exchange.

Nexium - the story is very clear.

All we want is equivalence in the formularies and they are the only clinically differentiated product.

We will do very well in the [fine arts] of equivalence.

So we are very happy and we don't see any particular threat there.

Quarterly progression is difficult to call, but as far as Crestor is concerned, you saw the [graph].

The [indiscernible] is largely worked out, so we are seeing real sales coming through in the first quarter and I would expect to see it throughout the course of the year, but when wholesalers place orders, how much they place, quarterly phasing is an extremely difficult thing to forecast, I assure you.

The $1b phasing, is again fairly broadly spread through the year.

Jonathan?

If you look at the sales of Zestril, Prilosec and Novadex in 2003 you will see that it is pretty well equal across all four quarters and in between a decline of $600m and $700m.

So I would think it would be an erosion in the first three quarters, but obviously by the time we got down to Q4 it was $115m, so it will be over three quarters.

In terms of foreign exchange, I would say it is about 2% - 3% over 2003, you can convert that into cents, but it is about 2% - 3% provisionally through currency.

Just coming to the strategic question.

What did I mean by that?

We have very good growth ahead of us and as I alluded earlier, it is the timing of all of these things that will unfold.

We are going to deliver excellent value in earnings, I believe, to the shareholders.

At the same time, I think we are going to have the economic headroom to ensure that we go on investing in the products coming through, maybe some bolt-on acquisitions.

By that I mean product or selected things in individual therapies or whatever.

We have no plan to go crazy and throw money around in acquiring and we are certainly not engaged in merger discussions.

We are focused on driving that organic growth.

I have had the signal that we have to end.

I am sure that there will be lots of follow up questions.

Can I thank you all for your attendance today.

The Investor Relations team of course will be delighted to follow up with more specifics.

Thank you all very much.