AstraZeneca PLC (AZN) 2003 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the AstraZeneca half year results briefing conference call. For your information, this call is being recorded. [Operator Instructions] At this time I would like to turn the call over to your host today, Mr. Ed Seage. Please go ahead sir.

Thank you operator and good day everyone. Joining me on the call today is Sir Tom McKillop, AstraZeneca Chief Executive and Jon Symonds, our Chief Financial Officer and, of course, our Investor Relations team.

Before I turn the call over to Tom I'd like to read the following statement. The Company intends to utilize the Safe Harbor provisions of the United States Private Securities Litigation 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.

I'll now turn the call over to Tom McKillop. Tom?

Thank you Ed. And, good afternoon ladies and gentlemen. Good results for the second quarter, ahead of most expectations, have set us on track to deliver our targets for the full-year.

I'll summarise the half-year headline figures, and comment on some aspects of the increasingly challenging environment the industry is facing. Then hand over to Jon to take you through the second quarter results in more detail.

Sales for the first half were nearly $10.4b, up 15% in reported terms and 5% in constant currency. Operating profit was up 1% reported, but down 5% at CER, as a result of the phasing of the investments in R&D and SG&A.

Bear in mind, however, that the year-on-year quarterly comparisons on these expenses will get easier in the second-half. And, that this is a major factor in our projected earnings growth for the full-year.

Earnings per share were $0.97 for the first half compared to $0.93 last year. With these results the Board has recommended a 15% increase in the dividend to $0.295.

And, during the course of the first half, the Company has repurchased another 20.2 million shares for cancellation; returning just under $1b to shareholders.

Overall a good set of results, and achieved in a world pharmaceutical market that's becoming somewhat more challenging. The tremendous demand for improved healthcare is an enormous fundamental positive for our industry, but has led to Governments and other agencies taking measures to try to control costs.

Outside the US the industry continues to find itself under pressure, particularly in Europe, where average realized prices are being negatively impacted by imposed price cuts and parallel trade.

Initiatives, such as reference pricing are worrying, because they fail to recognize the importance of incremental innovation. And, while the situation in Germany may not be quite as draconian as first feared, it is the wrong direction to be heading, both for the industry and for European economic performance and competitiveness.

Meanwhile, competition in the US market is as fierce as ever. Our products are doing well in terms of market share progress. But, overall prescription volumes have looked less consistent recently. June numbers have shown a nice rebound, back after a couple of poor months, but leave open the question of where they will move in the months ahead.

The US is also in the early days of the rollout of the Medicare Discount Cards. A new source of some pricing pressure, although hopefully with offsetting volume gains. And, all of this in the run-up to a Presidential Election.

As I've said on a number of these occasions, 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 new and innovative products. So, there will be no let up in our drive in AstraZeneca for continuous improvement in productivity throughout the whole organization.

Whatever the climate, AstraZeneca is well placed to deliver on our target of top tier financial performance for the sector; driven by the sales growth from 11 key brands, Nexium, Symbicort, Atacand and Crestor in primary care.

The oncology products, Casodex, Arimidex, Faslodex and Iressa, and then Zomig and Seroquel; with the recent addition of Exanta following its first launch in June.

These products delivered 55% sales growth in the first half and, in aggregate realized over $9.1b of sales in the last 12 months. Jon will take you through the market performances for several of these brands in a minute.

But, first I want to talk briefly about Crestor. Crestor sales were $3.36m in the first half, with sales more than $200m in the second-quarter; boosted by the excellent launches in France and Italy.

In France, Crestor got off to a flying start. Share of the dynamic market for new and switch patients has been over 20% for most of the 17 weeks since it's been on the market. This has already resulted in a cash market share of pharmacy dispensing of 2.8% of the total statin market.

In Italy we achieved even more. With a 6.1% cash share in just 15 weeks. In the 3 early launch markets, Crestor's share of total dispensed prescriptions in the latest months was 9.3% in Holland, 10.9% in Canada and 3.7% in the UK.

In the US Crestor's share of new prescriptions was 6.8% in the week ending July 9. This is down on prior weeks, partly since it included the July 4 holiday. But also as a consequence of the unfounded challenge on Crestor's safety.

The allegations are based on inappropriate and misleading interpretation of selective and incomplete data. And the resultant unbalanced publicity does a disservice to doctors and their patients.

We have strongly refuted the Public Citizen Petition in a filing with the FDA. And, we will be resolute in defending and promoting Crestor. Simply because we believe it brings outstanding benefit to patients.

Experience from the first round of such negative publicity in March, suggests that we should see a fairly quick recovery in prescriptions. And, the daily sales trends are already showing this. It's worth you looking at the slides we have just put up on our website, where you will see rolling aggregate daily data, demonstrating a clear recovery.

Most importantly, the facts are squarely on our side. Evidence from more than 12,000 patients in the clinical trials safety database reviewed when approval of Crestor came. And now, over 40,000 patients in trials, together with a recent analysis of post marketing safety data based on over 6.5 million dispensed prescriptions; continues to show the overall safety profile of Crestor as similar to that of the other marketed statins.

The new guidelines encouraging physicians to treat more aggressively, to even lower LDLC levels, is also excellent news for Crestor, with its outstanding efficacy profile. I have no doubt that in the end good science will prevail. And, that Crestor will continue to build a very successful position in this market.

Before handing over to Jon, a quick update on our expectations for the full-year.

You will have seen in the press release that we continue to anticipate EPS within the target range of $2.00 to $2.15. We expect very good earnings growth in the second half, fueled by continued strong performances from our key brands, together with a significant slowing in the rate of cost growth.

As I mentioned earlier, the precise outcome could be influenced by exactly what happens with overall prescription volume trends, and net realized pricings. As well as some reversal of currency gains to date, which Jon will address in his remarks.

So, over to Jon Symonds, to take you through the second quarter results.

Thanks Tom and good afternoon everyone. As usual there are a few things to go through in these numbers. And, before taking your questions, I'll comment on the headline numbers for the second quarter; where we are on wholesaler stocking and in particular how the inventory management agreements are working out.

A brief overview on the sales and prescription trends for our major products; and cost margins and currency and how they all fit together in the second half.

First the headlines for the second quarter. Sales were nearly $5.3b, up 11% in Constant Exchange Rate terms and 19% in reported terms; exchange adding 8%.

Operating profit was up 15% in Constant Exchange Rate terms; exchange added 10 points giving a 25% reported growth. And, EPS were $0.50 in the quarter versus $0.39 last year.

I'll spend some time going through the US performance in a moment. But we shouldn't lose the opportunity to record some impressive performances around the world.

Overall sales outside the US for the quarter were up 7%, with Japan growing 13% and the rest of the world markets, which include Asia and Latin America, grew by 17%. All excellent performances, in contrast to Europe, which continues to be difficult, despite our highly competitive portfolio.

So, let's now deal with the US. Reported sales in the US increased by 17%, with an underlying growth of 11%. And, in this context, underlying growth is a combination of both volume growth and price adjustments.

Reported growth rates above underlying would normally lead you to conclude that inventories had increased, but they haven't. In fact, we believe excess inventories declined by $175m in the quarter. And we saw even larger destocking in 2003, hence the higher year-on-year growth.

But, it's going to get easier in the quarters ahead, because, as you're well aware, we've entered into inventory management agreements, or IMAs with the three largest wholesalers.

We transitioned to the new arrangements during the second quarter; arrangements which give us a clearer picture of inventories of wholesalers. And, as I mention we estimated that in the quarter excess inventories declined by $175m to $75m at the end of June.

Those of you quick on the ball, will realize that this implies a higher excess inventory at the end of March, than the $200m we estimated last quarter. It's an adjustment of less than a day's sales, however.

So, the bottom line is underlying sales growth in the US business of 11% for the quarter, and sales up 7% in the rest of the world. And with growth products growing 35%, both in the US and globally, it's a strong performance from a strong portfolio.

I'll touch on the highlights of just a few of our key products, and first Nexium and the PPI market.

Reported sales in the US were up 39% in the quarter. Putting stock movements aside, we estimate Nexium's underlying sales growth to be 14% for the quarter, with stronger volume gains slightly offset by a small price negative.

Volume growth has two components; first total prescriptions in the US for Nexium were up 11% in the quarter, helped by a nice rebound in the June data, where prescriptions were up by 13%.

The second component is the mail order channel. This segment continues to grow faster than retail. And with a typical mail order prescription dispensing a 90-day supply, versus 30-days for retail, this lists the growth rate in total tablets dispensed to 18% for the second quarter, versus last year.

So, what's happening with new prescription trends in the PPI market? We know there are four significant factors affecting the market. Prilosec OTC, emerging price competition among generic Emeprazole products, more intense rivalry among the branded players in the RX market, and shifting managed care practices. None of which, we believe have yet reached steady state.

As for Prilosec OTC, our basic prediction has been broadly correct, that the vast majority of the impact would hit the prescription Emeprazole segment, with a lesser effect on the other branded PPIs. And the June new prescription data illustrates this point well.

In the month new prescriptions for the total PPI market were down 4%, including a 40% decline for prescription Emeprazole products. Take those out and the remaining branded products were actually up 5%.

And, Nexium did better still, up 8% in June. That said, Prilosec OTC appears to have taken a significant number of existing patients from the prescription Emeprazole market, as well as sharply reducing their new patient starts.

Of course we're conducting market research to learn more about these Prilosec OTC users. How many are classic OTC self-treaters, and how many were prescription candidates sent to the OTC market by managed care practices.

Another question is, how many of these OTC users might become candidates for a switch to Nexium, if symptoms persist, as has been the case in the prescription market. If this segment becomes large enough we may chose to address it directly in our marketing campaigns.

In the meantime, we want to grow our market share in the branded prescription segment, through clinical differentiation and highly effective managed care partnerships; to increase the depth of penetration in those key accounts where we already hold strong positions.

As always, we remain willing to offer rebates on a pay for performance basis where we define success as growing both tablet volume and revenue.

With all the discussion on the US market trends, we shouldn't forget that Nexium is a strong global brand. Worldwide sales were up 36% in the quarter. Sales outside the US were up 27% and by 32% in the first half. Sales outside the US in the last 12 months are now over $1b.

A quick word on a couple of other products. Symbicort had another good quarter, with sales up 42%. Symbicort has grown into a $700m brand in the last 12 months, and with the US launch still to come.

Two oncology highlights are also worth picking out, Iressa, sales of $103m in the second quarter. Sales in Japan up 33%, and retail prescriptions in the US during the second quarter were nearly 26,000. That's a 17% increase over the first quarter of 2004; with a clear pick-up in the trend line since the publication of the gene mutation data, and more confidence in the class since ASCO.

Arimidex sales increased to $191m in the quarter, up 56% in Europe and up 31% in Japan. In total prescriptions in the US are up in a similar fashion, with an increase of 43% in the second quarter versus last year.

And, finally, Seroquel, one of those products that really swings around on the inventory movements, with the US sales up 93% in the second quarter, versus the soft comparison of a year ago.

Fortunately the prescriptions tell a clear story, steady underlying growth in prescriptions, up 33% year-to-date, and market share up another 2.4 points in the first half.

And this is a global growth story as well, second quarter sales are up 36% outside the US, particularly in Europe, where market share gains have accelerated since the launch of the mania indication.

Turning to the financials. Overall the shape of the P&L in the second quarter, is very much as predicted. With the comparison of R&D and SG&A against the lower spending level in the first half of last year, the main dampener of profitability.

But, as we enter the third and fourth quarters this comparison will become easier, and the second half margin should be better than that of the first half.

There are essentially four points to make. Firstly, let me get currency out of the way, it runs through every line in the P&L. The impact on sales in the second quarter was a positive 8%, but increasing to a positive 10% at the operating profit line.

The profit impact is higher than exchange rates would imply, because of hedging gains in quarter 2 against losses in the prior period. And, this turn around is worth around $50m. With the 1% margin improvement in the second quarter a little less than half was contributed by these currency movements.

For the remainder of the year we expect to see today's mix of currencies being neutral to profits. But, as our hedging gains are locked-in for the rest of the year, at a level below the second half of last year, we can see around half of the $0.06 benefit at the half-year, reversing in the second half.

Secondly, we've continued to see benefits from product mix on gross margin, coming from lower proportional payments to Merck. These have now fallen to 5.2% of sales, improving gross margins in the second quarter by 0.8% and by 1.1% in the half year. The benefit for the year shouldn't improve much from here, but given the lower currency impact, some of this benefit should now be visible as margin improvement.

Thirdly, we are at or close to peak on SG&A spending, with combined R&D and SG&A spending growing 13% in constant currency terms, above the first half of last year. We should now start to see lower percentage increases quarter-on-quarter, with an annual spend likely to be a little below the constant currency double digit mark we forecast at the beginning of the year, as we continue to be disciplined in our resource allocation.

Finally, other income has benefited margin by around 1.3%, principally from the gain on the disposal of the Scandinavian generics business. This gain was a little over $50m and came in a quarter earlier than we had expected. It's always difficult to predict the phasing of such items. But I suspect that for the year as a whole, will be around $50m to $100m ahead of last year's total.

So far as guidance is concerned, it's all to play for in the second half, where continued growth in the top line from the key growth products, matched with a flattening R&D and SG&A cost line puts us in a strong profit position.

Tom has already covered the key judgmental factors, which make it too early to indicate just where in the range of $2.00 to $2.15 the final outcome is likely to be.

Now I'll hand you back to the operator to begin the question and answer session.

Thank you sir. [Operator Instructions] And, we will now take our first question coming from Stuart Harris with UBS. Please go ahead.

Yes, good afternoon. The currency question has just been answered. So, a couple of other questions. First of all, on the side-effect reporting data that you've put forward for Crestor versus the other statins, as regards rhabdo rates. Can we just find out for Crestor, are or the sort of reported rhabdos inclusive of a definitive [indiscernible] test.

I'm just wondering, is there any chance that Crestor is being over reported, because you're actually seeing - reporting rates for Crestor in its launch phase post the BACAL experience, compared to the other statins.

I guess the second question. We've seen from the IMS dose data that the dosing per scrip of Seroquel has increased over the past couple of years, maybe 20% or so. I'm just wondering, on a dollar value per scrip basis, what sort of comment you'd make there. Have we actually seen an increase in dollar per scrip in the US market?

And thirdly, I just wondered, there's obviously an awful lot of speculation from people, as to what the introduction of Vitorin will do to the statin market. And I just wouldn't mind hearing your comments on that. Thank you very much.

Okay. Let me deal with the side-effect question around Crestor. What we are reporting there are adverse reaction reports that have not been verified, followed-up and so on. So, it's raw data that is being reported.

And, when you follow-up many of these cases, then they turn out not to be related to a drug. That is not just around Crestor, that's the common caution that takes place really with all adverse reaction reporting.

There are also effects known in the industry, such as the weber effect or weber effect, where is you have heightened awareness you undoubtedly get increases in the spot - the normal spontaneous reporting rates. So, you have to be very careful how you handle all these things. They are all very well marked, all very well understood by regulatory authorities and the big experts on epidemiology and diverse reaction reporting.

And, I can assure you, we've consulted many of the leading figures in this field. So, all the data around Crestor is raw on adverse reaction reporting, and will suffer from these factors.

That is why - that is one of the elements there is complete nonsense being talked. And, the message that is come in by people like Public [indiscernible]. The message that has come out from the regulatory authorities, I think has been very clear and very consistent. They have not seen any particular safety signal. And that I think is the most important thing here.

As far as -- And, I hope that answers your questions CK in turn. Some of them will have measures, some will not have. And, they all have to be weeded out and sorted out. We are absolutely consistent and clear that there is nothing unusual in Crestor.

But in terms of the other statins Tom, presumably they were data that were collected pre the BACAL experience? Yes, okay.

Absolutely. If you compare launch data with launch data, then you will see -- You would have a lower awareness of -- Arabdor(ph) was not known, was not reported at all, as a classification when Zocor was launched for instance. But, that does not mean Zocor doesn't have Arabdor.

A lot of these drugs, if you get enough into the muscle tissue, by their mode of action, will cause a degree of muscular effect. That I think is very clear pharmacologically.

So, this -- Hopefully now what we are seeing, and I mentioned this in my comments. What we're seeing is the clinical community understanding these things very well. We're getting very positive feedback from the physicians. The pity of the most recent thing is it got very high publicity and caused unnecessary concern for many patients. But, when that works its way out, then I would anticipate very good return to growth. And, we're already seeing that. So, look at the prescription trends we put on the website, based on aggregate daily data, and you'll see that.

Now going to Seroquel, dollar per scrip. You're right the average doses being used has being going up steadily, and that should be reflected in better value per scrip. But I can't - I don't - sitting here I don't actually have a hard number I could give you on that Stuart.

As far as Vitorin is concerned, very interesting I think. I think Merck and Schering-Plough the joint venture have some -- They have some interesting decisions to make on pricing here. I think that will be a big factor about Vitorin. But, stand back from it, Vitorin is nothing more than a combination of two existing products. A fixed combination of two products that are available on free combination today.

Unless they do something pretty dramatic in terms of pricing, I do not believe that it is going to make a really, really big impact beyond that, which you would normally see for a fixed combination of two available products. It is not a new product. It is a fixed combination of two available materials. And, there's lots of history in the industry about how those kind of products tend to perform.

If, however, they want to highly cannibalize Zocor(ph), then you could see quite a lot of business going into Vitorin. But I don't think that's going to impact Crestor, particularly. Crestor, simply, in our view, is the best statin. Its get better LDLC, ups HDL, got a number of other very attractive features to it. And, you have the opportunity, if you started a patient on Crestor in adding in ZT(ph) on top. If you really -- If it's a very difficult patient and you want to do that.

If you start someone in Vitorin, then you don't really have that option. It doesn't make any pharmacological sense.

So, we're not terribly worried about the impact of Vitorin on Crestor. But, I accept that Vitorin in itself could do some very good business for the joint venture, if they chose to cannibalize.

Has that -- I hope that's answered your question Stuart?

Perfect. Thank you very much indeed.

Thank you. And, our next question is coming from Mr. Tim Anderson with Prudential Securities. Please go ahead.

Hi, thanks. A couple of questions. Durascan is that $50m figure a pre-tax or after-tax number?

And then, on Iressa, the survival study data, could it be added ACR in March of 2005, or would it more likely be at ASCO in June of 2005?

And, on Nexium in the rebate structure, just to clarify. There's still been no change to the rebate structure for Nexium in 2004? And, do you anticipate any changes to that structure for the remainder of the year?

Jon, why don't you take Durascan and deal with the Nexium rebate number when you're at it.

Durascan is pre-tax. Nexium - I told you in my comments that we'd seen a 14% underlying growth with volume growth above it and a small negative price effect. So, there is price competition, but that was intended to reassure you that we're not seeing significant erosion in realized prices.

In going forward, I also said that we may use rebates - more rebates. But these very much in the context that we have a very focused client base. I think part of the strength of, or the pull-through of Nexium in its market performance has been through a very concentrated customer base. And, we're quite prepared to raise the lid on rebates to raise the market share out performance.

So, what ever we do going from here on rebates will be aimed at improving total revenue, not growth in volume at the expense of value. So, our -- Our pricing strategy has not changed. And, we're not anticipating it to change significantly either.

And your -- The third element question Tim was on Iressa, and the timing of information from the trials that are underway, the key trial.

We haven't given dates, and we haven't - certainly haven't indicated when we might publish. And, that is largely because it is going to run-rate driven.

You know it's a study roughly twice the size of the Tarceva study. So, we've got plenty of power there. But we need to see appropriate levels of event leads before we'll be able to determine exactly when the analysis will done. And, we will be reporting that to regulatory authorities and deciding on the publication strategy when we are clear about that.

So, I'm sorry you're just going to have to wait a bit longer before we can guide you on that one.

What is the after-tax amount of that Durascan sale?

Probably about the same amount as the pre-tax.

Okay. Thank you.

Thank you sir. And, our next question is coming from Mr. Mark Purcell with Deutsche Bank. Please go ahead.

Yes, thank you very much. Good afternoon everyone. I have four questions. Firstly, I wondered if you could give us some details on the two products that shifted from phase 1 to phase 2. I think it was 7371 in the GI business and 9056 in the cardiovascular business.

The second question is Seroquel. You're clearly growing very strongly in Europe. I believe you still haven't launched it in France. So, I just wondered if you could update us on the timing there.

Thirdly, on Nexium, I understand the 11% volume growth reported via retail, 18% adjusting for mail order. Also, there was some wholesale inventory pressures through the rationalization program, which I thought after Q1 were to the tune of about $70m to $100m. If I do indeed add those back in, I guess I'm coming out with a value growth rate in the first half of 22%. So, I guess the question is, is my maths correct? And, therefore -- And, if not, have we seen that $70m to $100m of de-stock come out of the product.

And then lastly, I know historically you've had a 27% EBIT margin target for this business. And I just wondered if you could update us as to roughly we should expect that level to be reached?

Okay, Mark. I'm going to dump the question on the early development compounds. The reason for that is, we will deal with the whole development pipeline in October, when we have the business review. The date of that business review is October 6 for those of you who want to put it in your diary, and hopefully that's plenty of you.

Seroquel France - you're right. When we were filing Seroquel in Europe, France were a bit reluctant to come to the table. That we hope will change. There's a lot of interest now in Seroquel in France, and we certainly want to get it launched in France. And, indeed, we think it will go very well. The regulatory submission is schedule for Q4 in France.

And the third part Jon, Nexium wholesale inventory impact?

The broader question around it Mark has been a huge amount of effort in the second quarter to begin to reconcile what were estimates that we were making with, particularly with the three key wholesalers, with the actual data, that we are now able to see. We have full transparency into - the wholesalers that have signed under the IMA.

So, there has been some recalibration. I talked about the $50m recalibration or so in the second quarter. And, overall, we probably would say that we've seen a bit over $100m of additional inventory in the chain, now that we've got that - we've got that transparency. And, some of the adjustments have been around Nexium.

The unwind in the quarter is about - is between $50m and $75m. And a reasonable chunk of the $75m that remains is in Nexium. So, I think while I appreciate that you like to do the ins and outs and the calculation of the underlying growth. Unfortunately we've moved one or two of your goal posts such that you can't - you can't do the calculation, and I've got all the data in mine that gives me the 14%.

But there have been some quite big swings on inventory. Don't forget last year it was a very big de-stocking as well. But, I'm comfortable that the 14% reflects our new estimates on inventory movements.

And the 27% EBIT margin target Tom?

27% margin target. Still our target, we haven't given a date.

Okay, and Tom, could you just update us on discussions on Crestor with the Spanish authorities as well as the general authorities. And, timing in Japan I guess would be another question too?

Well our partner in Japan, our marketing partner in Japan as you know is Sheinobi(ph) and they have indicated November. You know that when you're discussing the regulatory authorities, there's always a judgment about, you know exactly when everything is going to happen. But I think that's a reasonable call from Sheinobi in November, we would hope to launch around then. Subject to discussions with the regulators.

Staying in Germany, we've been very patient. Our position is very clear. We're working the issues through with them. But we are not going to compromise Crestor's prospects in Europe, either because of ludicrous labeling or ludicrous pricing. So, nothing really new to say there. When we're clear we will let you know.

Okay. Thank you very much.

Thank you sir. And, our next question is coming from Mr. Max Herrmann with ING Financial Markets. Please go ahead.

Afternoon gentlemen. Just a few questions. Firstly, just to get a little bit of a feel on the phasing of the third and fourth quarter earnings. Whether there is any particular issues we need to bear in mind looking forward.

Secondly, just on Exanta and obviously coming up to the Advisory Committee Meeting on September 10. Whether you think that the view of the Advisory Committee Meeting on Livotox(ph) issues maybe somewhat different to the way the FDA themselves may approach the issue. I just wanted to get your views on that.

And, just a final question, just whether -- I think you've seen any impact with regards to Tarceva, whether the open access program for Tarceva may have implications for Iressa sales in the second half of the year. And, also your views on pricing of Iressa, with Tarceva obviously you don't have the hard data yet. Whether you get the survival benefit data. What are the options in terms of pricing on Iressa? Thank you.

Okay, Max thanks for those questions. Jon, do you want to deal with phasing of the next two quarters' earnings?

I think the half as a whole has some - in some senses it's easier, in that we've signaled that we think we've hit the peak on R&D and SG&A, and the year-on-year comparisons will come down. The shape of the profit drop through in the second-half is principally now a rate of sales growth. We're now well placed to see gearing on the top line coming through in profits.

Now, I'm always a little bit hesitant to sort of split it out too precisely between quarters. Because I think we try and commit the resources that the business needs when it needs it. Rather than fixing on specific quarterly forecasts.

I think the only factor I'd point out - I mean I'm leaving you to do your top line forecast. But I think the only points to mention is that typically on R&D the fourth quarter - the third quarter tends to be the lightest because of the summer breaks, and the fourth quarter tends to be heavier. So, there will be a little bit of switching between the costs, which might make the third quarter a little bit stronger than the fourth. But, essentially, it should be top line driven now, given the fact that we've got our costs pretty well under control.

Maybe just to add a little to that. There are a number of factors which will undoubtedly influence us. The break point - the end of the quarter or third quarter, many things are going to topple into third or fourth. Those can swing around and can change the numbers significantly. But you're all highly numerate. If you take the middle of our guidance here at 207/208 kind of level, you do the sum from where we are today. And, it says middle of the guidance range takes you to 28% EPS growth. Is it going to be a bit more in one quarter than another?

And bear in mind that the quarter-on-quarter comparisons probably, with generic expiry, favor a little bit more growth coming in the fourth quarter, than the third quarter. But you might see some difference in cost as Jon said.

So, we're not too worried really about the phasing. But, we've got a very ambitious target for the next half. Where we think we're really well set up now. With that momentum from our growth products, with the cost discipline in place, to really see very, very good earnings added in the next half. And, of course, on into next year hopefully, and beyond.

Exanta. We don't have -- I mean you know that the FDA will publish its review of issues for the Advisory Committee hearing. Once we've seen that, we'll be in a much better position to answer the kind of question that you pose Max.

At this stage I don't see any reason to believe that the FDA is going to - their analysis is going to ask any different questions from the database than Advisory Committee members themselves would be asking.

I think the position with Exanta is crystal clear. It is, we have an extremely effective agent. There will be questions about trial design, and all sorts of things, of course there will. But we've got a highly effective anti-clotting agent.

And, we've got the observation of liver enzymes. To me, it's going to hinge on that benefit risk analysis. And, whether or not you can risk manage the launch, so that if there turns out to be a problem for a particular patient population, for instance, we would identify it in a safe way. I think that's all what it's going to come down to.

Our belief is the benefit risk profile is immensely positive. That's what I get all the time I talk to cardiologists for instance. Cardiologists want this drug, big time. And, I think that will come through in a cardio-renal advisory committee hearing, I certainly hope it will.

But we want -- I don't want to launch this product, for instance, if I thought it had a really serious product liability issue for the Company that would be crazy. So, we want -- We want it to be approved and launched in a very controlled way that determines whether or not there is a risk in wider spread practice. That, I think, will be the essence of the Advisory Committee discussion.

Tarceva, not seeing any impact at the moment of open access program. I don't see why it should, particularly. As far as pricing is concerned, that's for Roche, Genentech to decide. I hope they price it high. It will be very good if they think they can price it high. Good for the class, good for us. I'm not terribly worried about Tarceva. We've got a better side effect profile. And, everything I see suggests we've got comparable efficacy and should expect comparable survival.

Thank you.

Thank you sir. And, our next is coming from Jo Walton with Lehman Brothers. Please go ahead.

Hello, four quick questions. The first one is relating to the guidance. Since you gave the guidance at the beginning of the year, foreign exchange has moved to favor dollar reporters. You've also told us that you've controlled costs, perhaps better than expected at the low end of the range. You've had two disposals, Durascan and Advanta, which is adding what $100m or so in total. So, I'm surprised with all of that, that you aren't talking about guidance very much at the top end of the range. Or, have all of those positive things been offset by perhaps slightly less sales than expected?

Secondly, to do with foreign exchange, could you just tell us where the hedging gains are taken? Is it across the board in COG, SG&A etc or is it largely in one of those items.

And, looking at the product, can you just explain why Prilosec remains so incredibly strong in the US? In fact, the second quarter number of $117m being actually higher than the first quarter number. Do we assume that this is, essentially at sort of generic prices and therefore not particularly profitable to you?

Yesterday, Roche talked about Iressa not having progressed in Europe in terms of filing. I wonder if you could update us your view on what's happening in the EU there.

And, finally, you talk about updating us on IFRS in October or November. Could you just confirm that there's nothing sort of unusual in what may happen to your restatement. We're just looking at the issue of stock options etcetera. Or just give us some comfort that this is not going to be a significant issue?

Thanks Jo. Jon's been taking copious notes of your questions. So I'm going to give him first crack. You can answer anything you want Jon, and I'll act as back stop.

Okay. Unpicking the numbers, two disposals, Durascan and Advanta. Yes to Durascan, no to Advanta. That number -- That disposal has not been completed. We hope it to be completed in the third quarter. It will be a reasonably significant profit, and it is currently outside of our guidance target.

I indicated in my comments that Durascan, we were always expecting it to come through, and it came in, in the second quarter instead of the third.

So Durascan is in the guidance but Advanta is outside of guidance?

Advanta is outside the guidance.

It always was in the guidance, it always was in the $2.00/$2.15 because we planned to sell it Jo.

Durascan that is.

Durascan.

On FX, we have tried to -- I've really tried to unpick that and to look at the two pieces that are relevant in really thinking through what just happened. Firstly what the mix of rates are doing on our profitability, and the very significant strengthening of sterling, opposite the Swedish Krona and the Euro. It has, in our view, neutralized any benefit that we expect to see in profits in the second half.

As regards hedging, because we have adopted a slightly different hedging policy from the beginning of this year, where we're largely unhedged for most transactions, but have - we take out of the money, options to cover extreme movements in currencies. We're pretty well locked-in all of our hedging benefits this year, the beginning of the year and are amortizing over the remaining quarters, such that we can see a turnaround on that in the second half.

So, a neutral effect on the base currencies, with a reversal of more profits last year, against profits that we expect to see this year. It means that the currency benefit that we've seen in the first six months halves in the second -- Halves in the second half.

In terms of the overall profile on guidance, I don't think we're really very far from the sort of shape that we talked about in the beginning of the year, in terms of underlying cost growth, which is a little bit better. We talked about a range of sales. We're still within that range, but it's moved a little bit.

So, part of the reason of not changing the guidance, is that fundamentally the shape of it is as it was if we were looking at the beginning year, subject to the comments Tom has made on US prescriptions.

In terms of Prilosec, two things on that. Number 1, we are still selling the 40mg, which is a reasonably large chunk of our business. Plus, in terms of profit recognition, or revenue recognition, we're sort of at a prescription basis of recognizing profit, rather than a shipment basis of profit. And, that means that the profile is, perhaps, a little steadier than might otherwise be seen from early recognition of shipments. Plus, also there's been one or two managed care account business that have been done in the second half.

On IFRS, I think -- We gave a reasonably - I hope reassuring commentary in the press release. Of course it's estimated at this stage, because many of the components of IFRS are still moving around. But, when we come to communicate it in October, we would expect to see a fairly modest effect on 2003 restatements, and will be talking to you about fixed components in that. Firstly, the adoption of FRS17, which if is adopted will fall within IF19 share based payments, which obviously is an additional charge. The reversal of goodwill amortization. Some small adjustments around intangibles, financial instruments and tax.

So, there are a number of pieces in it, but I think we were trying to reassure you that this isn't going to be dramatic for you. And you're certainly going to see a different picture of the business than you currently see today. But we will endeavor to give you full information, as well as the option of a conference call in October and November. Depending really where the whole International Accounting Standard process is in that time. Because, I'm sure you're all aware, there are some significant moving parts.

I'll deal with Roche comment. Or at least -- I think you implied that Roche had made some comments on Iressa in Europe. I'm not of course, aware of that particularly.

But, what I would tell you about Iressa in Europe, is that the European authorities have been discussing and changing somewhat a little bit their approach to their review of oncology products. We are -- I'm very optimistic that we will get European approval for Iressa. Precise timing not determined yet. But, hopefully in the not too distant future.

I think we are helped enormously by the increased clarity on how these drugs are acting and why you get the percent responders we seem to get. Also, on a very survival data from large numbers in the expanded access program and so on. So, I'm very optimistic that we will get an approval in Europe and in the not too distant future. But we will have to see how that plays out the Tarceva.

Thank you.

Thank you. And, our next question is coming from Kevin Wilson with Citigroup. Please go ahead.

Tom, Jon, hi. Following up on the question on Iressa. Which country is the [indiscernible] country for Iressa in Europe?

And, secondly, what is the formal process with respect --?

Iressa has gone central. Let me -- I think Iressa's central so there isn't an [indiscernible]. Yes?

And secondly -- Thanks very much. What's the formal process in terms of FDA responding to your letter, responding to the petition from public citizens?

It is for the FDA to respond to public citizens. We have put in a rebuttal. I suppose anyone, anywhere can put in a comment. The FDA will review all that.

Historically, I am led to believe that it has taken the FDA quite a long time to formally, legally respond to these, and dismiss these challenges. But the FDA's process come out very, very clearly and indicated that there is - that they have no basis for a safety signal on Crestor. That point has been made on more than one occasion by the FDA, and indeed by the European authorities.

So, yes the formalities will take a lot longer, but I don't think that's of any great consequence.

Thanks.

Maybe we could take one more question?

Thank you. And, our last question is coming from Decan Sahou(ph) with Goldman Sachs. Please go ahead.

Two brief questions if I may please Tom. First, on Galeda(ph), I notice on the R&D update on the web there's some commentary about changes to the environment and while the clinical trials that you're conducting are progressing well, we expect to get some sort of update on time lines for that. Could you comment on that a little bit more please.

The second relates to Nexium, and this is perhaps for Jon. If you'd adjust for inventories in both Q1 and Q2 of this year, would Nexium's US sales have grown over Q1?

Jon's looking up his tables.

Thank you.

Let me pick-up Galeda. I think we're in a very good position with Galeda. We have completed our carcinogenic studies. They have been submitted to, and reviewed by the regulatory authorities. The FDA has indicated and reconfirmed following -- As I'm sure you're aware, they put out a notice on PEPA that they wanted to consider products very carefully for phase 3 study, including review of the carcino's. We went back to the FDA and asked if the clearance they had given us for phase 3 still applied following their recent statement. The clear answer to that is yes. So, we think we're in a very nice position having the carcino's done, and having phase 3 now underway.

It's also clear though, there are a lot of products in development in this class, and it shouldn't come as a great surprise, because of the central -- well the common finding of Paroxone(ph) proliferating - activating receptors in different tissues of the body. Pepa(ph) isn't limited to one particular tissue type. But you will find observations, and you will definitely find observations in rodents, in particular. This is a well known for [indiscernible] on proliferators in the literature.

So, the rodents are always going to show some effects. But the nature of these effects can vary very much from compound to compound. And the regulators are interested in reviewing across the whole class. What are they seeing here? And, that's why we felt it prudent to indicate, that depending on what attitude the reviewers take and so on, we may need to adjust our clinical program or its timing or whatever. So, we're in a very good position of having clearance for phase 3 and having our carcino's completed.

Now, I'm conscious that apparently there are still quite a few questions out there, and our hour is pretty well up. Maybe I could draw attention to a press release that has just gone out concerning Seroquel. This is the publication of the conference in the States today, of data on agitation in dementia - patients with dementia, showing very good responses, very good clinical outcomes, and the absence of any cardiovascular complications. Which has bothered other compounds in the class.

So, we think, once again, Seroquel is showing very, very good clinical outcomes in some of these further studies. And, in addition to that, the FDA has now cleared our use of 12 week data in mania, again very, very good for us. We'll be able to beef-up the promotion in mania now.

So, continuing excellent news flow on Seroquel. And, you may want to look at those - those special ECs when you have a moment.

We have also put on the web our most recent set of slides - or the slides which we will now use, as we go out talking to individual institutions. Those too should all be available to you.

And, of course, if you would like to follow-up with those remaining questions, or indeed, any additional detail, please do so with all of our investor relations team.

And, with that, could I thank you all for joining us for this conference. Thank you.