AstraZeneca PLC (AZN) 2005 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to today's AstraZeneca Q1 results conference call.

For your information, today's conference is being recorded.

At this time I would like to hand the call over to your host today, Mr. Seage.

Please go ahead, sir.

Thank you, operator, and good day, ladies and gentlemen.

I am Ed Seage, Investor Relations for AstraZeneca.

Chairing our call today is Jon Symonds, our Chief Financial Officer.

Also joining on the question-and-answer period is Mike Rance, Vice President of Corporate Affairs, and the rest of our Investor Relations team.

Before we begin I would like to remind the participants that the Company intends to make use of the Safe Harbor provisions of the U.S.

Private Securities Litigation Reform Act of 1995.

Speakers on this call may make forward-looking statements with respect to the financial conditions, results of operations, and business prospects for AstraZeneca.

By their nature, forward-looking statements involve risks and uncertainties.

There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements.

The Company undertakes no obligation to update forward-looking statements.

I will now turn the call over to our Chief Financial Officer, Jon Symonds.

John?

Thank you and good afternoon, ladies and gentlemen.

As always, I will start with the call with some brief opening remarks touching on the highlights for the quarter, and then we will turn straight to your questions.

First the headline numbers; and as a reminder, beginning with the first quarter of 2005, all of our financial statements have been prepared in accordance with international accounting standards.

Sales in the quarter were 5.7 billion, up 13% as reported, 9% in constant currency, with exchange benefits adding 4%.

Operating profit was up 34% in constant currency to 1.45 billion.

That is the highest profit we have recorded since the formation of AstraZeneca.

Earnings per share at $0.63 was up 33% in constant exchange rate terms.

Free cash flow of $1.3 billion, a significant improvement on the 721 million generated in the first quarter of 2004, was fully distributed by dividends of 1.1 billion and share repurchases of almost half 0.5 billion.

So all around, a strong start to the year with both a solid top line and a very good performance on the cost management front.

I will go through each of these elements in a little more detail, together with our thoughts on how we expect the year to unfold.

Let's first look at the sales performance.

Sales growth was 9% in markets outside of the U.S. and 10% in the U.S. market.

Central to this was the performance of five key brands, Arimidex, Crestor, Seroquel, Nexium, and Symbicort, which grew by 29% to reach almost $2.5 billion in the quarter.

These products represented 43% of total sales, up from 36% a year ago.

In the U.S., sales are now tracking closely with underlying demand thanks to the smooth operation of our Inventory Management Agreements.

Wholesaler stocking did, however, occur in the first quarter last year; and after adjusting for this, the estimated underlying sales growth in the U.S. in the first quarter was 17%.

In Europe, we have highlighted in the press release that around three days of extra shipments were included in this quarter, ahead of a new system implementation at the beginning of April.

These sales will fully unwind in quarter two.

I will now look at some of the individual product performances, and first Nexium.

It was another strong quarter for Nexium.

Worldwide sales were up 11%, including a 30% growth outside of the U.S., with Europe providing the majority of this growth.

In the U.S., sales were up 3%.

But that is in comparison to the first quarter last year that included wholesaler stocking.

As you will have seen in the press release, dispensed unit volume grew by 15%, nearly double the prescription PPI market.

So market share is still growing, and in unit terms we are now neck in neck with Prevacid for market leadership.

This volume growth of 15% translated into 15% value growth, indicating minimal pricing impacts in the quarter.

However, we still continue to believe that for the year as a whole some of the volume growth will be eroded by lower net realized prices, partly as a result of our decision to target some Medicaid business, but also as the sector continues to remain price competitive.

Sales for Crestor in the first quarter were 273 million, double the first quarter last year.

Market share continues to grow in Canada and in Europe, but clearly the quarterly progression in sales has been affected by the trends in the U.S. market.

We saw a decline in prescriptions, together with the inevitable inventory contraction that occurs when there is a shift in growth expectations.

New prescription market share for Crestor in the U.S. was 6% in March, slightly ahead of the 5.8% share in January.

For the latest week, the week ending 15th of April, new prescription share was 6.2% and the dynamic share was 8.3%.

Since the beginning of March, however, three events have occurred from which we expect to regain momentum.

In early March, revised labeling for Crestor was approved for the U.S., which provides the most up-to-date information about the appropriate use of Crestor.

A few weeks later the FDA, based on a thorough analysis of clinical trial safety data and postmarketing data involving more than 15 million prescriptions and 4 million patients, formally rejected Public Citizens' position to remove Crestor from the market.

And earlier this month, we're back on the air with a new direct to consumer campaign for Crestor.

We're under no illusion that there will be an instant transformation in market share, but we do expect to rebuild momentum as the year progresses, based on Crestor's outstanding efficacy, with a comparable safety profile to the class.

For Iressa, sales were $81 million in the first quarter, a decline of 15%.

How the ISEL trial results impacted the quarter differed by market.

Sales in Asia-Pacific including China were up 18%.

In Japan, sales were off by 8% to 26 million.

During the quarter, there were a series of Expert Committee meetings advisory to the Japanese MHLW which resulted in a positive conclusion.

They recommended no change to the indications for Iressa in Japan and recommended that prescribes information be updated to align with the Iressa-specific treatment guidelines issued by the Japanese Lung Cancer Society.

In the U.S., we voluntarily suspended promotion while the FDA assessed the implications of the ISEL data.

Sales in the quarter were down 41% to $30 million.

Following the shift at the end of 2004 to record Iressa sales on a usage rather than a shipment basis, these sales largely represent prescriptions dispensed to previously treated patients who, in consultation with their physician, wish to continue treatment with Iressa.

In March, new prescriptions for Iressa were nearly 70% below the level achieved in November 2004.

Arimidex was probably the star performer in the quarter, with sales up 49% to just over $250 million.

It is the only aromatase inhibitor indicated for the primary adjuvant treatment of early breast cancer, which is driving increased utilization.

In the U.S. market, for instance, Arimidex-shared new prescriptions for hormonal treatments for breast cancer climbed to 31.4% in March, a market-leading 1.3 points increase during the quarter.

I will leave the sales commentary here, not forgetting that we have also had strong performances for Seroquel, up 39% to 633 million, and Symbicort, up 23% to 247 million.

I will let the press release speak to the factors underlying the performance in the quarter for these products.

Now let's look at our cost performance margins and how we see the full year unfolding.

In terms of quarterly progression, we see the reverse of last year's trend, with profit growth for the year somewhat biased towards the first half, as sales growth maps onto a flattening cost base.

While the first quarter has undoubtedly been a good start, it is too early to make any new calls on the year's performance as a whole, although clearly the first quarter increases our confidence in the outcome for the full year.

When taken with the second half of 2004, this quarter is the third consecutive quarter where our spending discipline is clearly in evidence.

Combined R&D and SG&A expenditures were virtually unchanged in reported terms, representing a 4% decrease in constant currency.

I believe the primary reason for our improving cost management is the focus on productivity we talked about in our year-end results conference.

It's also fair to say that the quarter was a little below our expected trend rate, as a number of marketing programs -- Crestor DTC for example -- were phased towards the end of the quarter.

So expect to see a higher SG&A in quarter two.

This profile however resulted in SG&A contributing the largest part of the 4.6% operating margin improvement to 25.3% in the quarter, well ahead of the 23 to 24% we expect for the year.

Gross margin was lower by some 1.8 points, compared with last year despite a slight benefit from currency and from lower payments to Merck.

Although underlying margin improved, it was not visible as it was offset by IFRS fair value adjustments on foreign exchange contracts and a one-off payment for the termination of the Zomig partnering agreement in the U.S. with Medpointe.

We expect gross margins to improve over the remainder of the year to the target we outlined at the beginning of the year.

But as I am sure you're beginning to appreciate, it is not easy to forecast fair value adjustments.

Taking all these factors together, I believe the performance metrics we gave you with the 2004 results remain valid and, hence, our guidance for the year is unchanged.

We expect currency to be broadly neutral over the year as a whole, with the $0.01 benefit in quarter one unlikely to change significantly over the remainder of the year if rates stay where they are today.

One final point is that this performance is reflected in a very strong cash flow, with free cash generation of 1.3 billion, nearly double the 721 million generated in the first quarter last year.

This cash has been fully distributed by dividends and share buyback, and we remain well on track to deliver the $4 billion of free cash flow this year.

Finally, upcoming news flow.

As you know, we are expecting the first results of the SAINT I trial for the stroke compound Cerovive shortly.

When we have completed our analysis and have these results, we will of course inform you.

SAINT I is the first of several key development milestones during the course of this year.

As this and other development milestones are reached, John Patterson will be updating you on them.

We are also planning to address a series of business-related topics with you over the course of the year, including a briefing by Jan Lundberg on the progress in discovery in September.

We are currently evaluating the best timing for a full business review, including an R&D update.

But given the anticipated timing of news flows, it may be more appropriate that this is held in the first half of next year.

Now I will turn the call back to the operator to begin the Q&A session.

(OPERATOR INSTRUCTIONS) Max Hermann, ING Financial Markets.

Just two quick questions, firstly on Crestor.

Could you give us a little bit more light of the outcome studies from the GALAXY ongoing research program for 2006?

To just get us a better feel for when clinical data will come through that may alter the Crestor projections at the moment in script trends.

Did you mean 2006 or 2005, Max?

2006, because I believe the actual outcome studies on efficacy are primarily not going to report until next year.

Okay.

The second question was just on the Medpointe, just to give us a bit more light what has actually happened with Zomig and the Medpointe agreement.

Okay.

I will deal with the second one, and Mike will pick up on the Crestor outcomes study.

We did decide in the quarter that we would not prolong the arrangement that we had with Medpointe.

This accounted for the fact that Zomig sales were very low, because in anticipation of that we did not make any shipments to them during the latter part of the quarter, so as not to build up inventory in their hands.

The payment adjustments are really to take back inventory, as well as to -- some form of compensation for the termination.

Some of that compensation reflected in earlier termination than the contract provided for; therefore, an element, a large element of it represents really the cost taken in Q1 that will unwind over the remainder of the year.

That is one of the explanations for the slightly lower gross margin this quarter than I am sure you were anticipating.

Mike?

Let me just summarize where we are up to with GALAXY.

Obviously it is a big program involving around 40,000 patients.

There are 11 studies ongoing, and many of those are longer-term outcome studies?

The ones I think that will come to fruition earliest are the atherosclerosis studies looking at the impact of Crestor on atherogenesis.

Of course, we reported an important one of those at EAS a couple of weeks ago, the ORION study, which is a small but very sophisticated study using MRI imaging.

We got an interesting result on the impact of Crestor on plaque and particularly on the lipid-rich necrotic cores that I think are seen to be significant in the disease.

The next raft of outcome-related data will come in '06, in the second half of '06, and will include the ASTEROID study, which is the intravenous ultrasound study that we are running; and METEOR, which is looking into the medial thickness.

So they are, if you like, intermediate in terms of moving from lipid endpoints to pathology of the arteries prior to us delivering the outcome-related data in the longer-term studies.

Thanks, Mike.

Next question, please.

David Moskowitz with FBR.

Just one question on Nexium.

You talked about an unfavorable comparison year-over-year; and yet if I look back to the first quarter of 2004, I see that you only had zero.

You had zero growth in that quarter.

So you are talking about stocking that quarter.

And again, year-over-year, '04 over '03, I only see zero growth result there.

Also, just on the gross margin, you guys talk about an expected improvement to your target.

Can you just refresh us on what that target is for the year?

Ed has done the year-on-year calculations on Nexium, so he will give that in a moment.

On gross margin we had estimated or projected at the beginning of the year a 1 to 2 point improvement in gross margin.

That is still our target, notwithstanding that, as I mentioned earlier, there were someone one-off items that took us the other way in quarter one.

On Nexium, David, you are quite right.

We have reported zero growth in Nexium Q1 '04 versus Q1 '03, despite the fact that we saw stock building in the first quarter last year.

Because then you have to forensically go back to the Q1 '03, where we saw significant wholesaler stocking, well above what we saw in Q1 '04.

So on that basis you saw zero growth in the year of '04.

But it was against two Q1s, the '03 and '04 periods.

Both had stocking in them.

The good news is that these kind of comparisons will start to diminish, because really from the second quarter of 2004 we really started to normalize shipments to underlying demand.

So hopefully this is the last of the competing calculations.

The robust way to look at the underlying demand is the dispensed unit volume, which we said was (technical difficulty) 15%.

That just conflicts with some of the data we're getting here in the U.S., which is somewhere around the high single digit range.

Can you just explain that a little bit?

I don't know what you are looking at, David.

We look at the IMS data and extended units, which takes prescriptions, but also looks at tablets per prescription and also captures basically the additional prescription size that we get from the mail-order segment, which is the fastest-growing piece of our business.

It could well be that we had moved last year to extended units, because that reflected most accurately the type of the mix of the business that we have gotten.

The extended unit growth is somewhat in excess of new description trends.

Thanks very much.

Thank you.

Can I have the next question, please?

David Beadle with UBS.

Just a couple of quick questions.

The $50 million of additional sales that you saw in Europe, was that pretty much across the board or where there certain products affected in particular?

I know you said that the U.S. appears to be fairly flat from a stocking point of view, but you have commented on Seroquel potentially seeing a bit of stocking, and it looks to be about $25 million or so.

I just wondered if that is the right sort of ballpark.

Then just a couple of things on Galida and Symbicort.

Are we expecting anything on Galida at the ADA?

The one for Symbicort, I know there has been a sort of ongoing look at whether you're going to file with the original inhaler or whether you had a fallback policy.

I just hit on (ph) sort of reiterating guidance as to when you're thinking about filing in the U.S., whether you had made that final decision?

Okay.

The 50 million was fairly widely spread.

So we had not seen any specific product distortions, M-class for three days (ph).

It is actually quite difficult to really identify that which is specific pre-demand and that which is just normal trading.

So I think in the aggregate, 50 million doesn't really distort the picture, although obviously it flattens the European growth by a point are so.

On Seroquel, notwithstanding my comment about in aggregate, there are no distortive inventory movements this quarter.

There are some movements in individual products.

Because the way the contracts work is that we have target ranges of inventory holdings, usually expressed in days; and depending on whether you are at the lower end of the range or the upper end of the range you can get some modest effect in quarter.

Your calculation of around $20 million is probably a fair one.

On Symbicort, we have made no new statements on that this quarter because in our view nothing has changed from the previous statement.

So earlier guidance remains, our intention of filing around the second or third quarter.

On Galida, Mike?

Galida, David, there will be some new data at the ADA, but it is more texture on the Phase Iressa.

There won't be anything on the Phase III studies.

Thanks very much.

Next question, please.

Andrew Baum with Morgan Stanley.

Three questions for Jon.

Firstly, I wonder whether you can give us some color on what is driving, which territories are driving the 30% Nexium growth; and your perception of the sustainability of the growth and particularly pricing in Europe.

Second, the tax rate.

Obviously this quarter is abnormally high; but the tax rate for the full year is going up.

Can you give us a sense of beyond this year, is it going stabilize at 29% or does the mix push higher than that?

Finally, a number of your peers are beginning to talk more optimistically about the impact of Medicare modernization on their business, an impact for 2006, 2007.

I wonder whether you could give us some more updates if (ph) you have given -- you have had the benefit of maturing conversations with drug benefit providers?

The 30% growth rate in Nexium was pretty well spread across the European markets, with all of the principal markets seeing good volume growth in quarter.

France, Italy, Germany, Spain, the UK, and so on.

I think we feel that PPI market in Europe is pretty robust.

If you test the underlying disease incidence, and what you might regard as the underlying market growth and demand growth in Europe, you can get to the sort of high single digits.

Then if you add to that what we believe is a strongly competitive profile, then I think we rightly have strong ambitions to sustain Nexium growth.

There are pricing issues.

We have gone through repricing in Germany, and that is reflected in a bounceback this quarter.

But I think as I have said to you in the past, we expect our European businesses now to take these effects on the chin.

If they see imposed (ph) price reductions, then we don't see that as opportunity to reduce profit levels.

So I think our Nexium business outside of the U.S. is pretty robust.

The tax rate, yes, it is higher than we expect it to be for the year.

I could give you an incredibly complex explanation for this.

Yet for the next couple of years, and it could be two, it could be three, we are seeing a different mix of earned profits between higher tax markets and lower tax markets.

That is really what is shifting the rate from the 27 towards the 29% that we are experiencing this year.

We are doing what we can to reduce it; and certainly the distribution of profits that we have today are not what we see in the long term.

So it will come back down again.

But as I said to you, making long-term projections on tax rates is quite difficult.

So take 2ish for the next two or three years, and we will guide you if it (inaudible) different.

On the Medicare modernization act, some things are clarifying.

But I think an enormous amount still needs to be resolved.

We, like many other companies, have gone through the first stages of the bidding process and have submitted bids into the new organizations.

I think the next six months will determine what the effect is.

And given the sort of mix of both products, of portfolios, of pricing, I think it is a bit early to tell which side of the line we will there be on.

I think in six months time we will have a better view.

But right now, the bidding process is at its most frenzied.

Frankly I am a little bit surprised if people can see all the way through it.

I think it is still too difficult to call, Andrew.

Okay, thanks.

Next question, please.

Timothy Anderson with Prudential Equity Group.

A couple questions.

On Nexium, just hoping you're willing to quantify what the net price change could be across your whole U.S. book of business for the product in '05.

Did I here you right that you're only playing the price card really with Medicaid?

Or are you also playing with price with managed care, private managed care plans as well?

Then on Toprol-XL, if you can give us a litigation update there and likely timing of a court trial.

On Nexium, I think we are looking at small single digit price erosion.

I don't think it is anything that will significantly erode the underlying volume.

For sure the Medicaid business was more price competitive than the other book of business.

As I have explained to you before, we saw good reasons for doing that, into the spillover that the Medicare markets have into some wider prescribing markets.

In terms of other contracts, I think you have got to recognize that the PPI market is very competitive, and there are frequent negotiations going on with major contractors.

I believe that our position, given the quality and the strength of the product that we have, and the type of business that we have been targeting, leaves us in a fairly robust position.

But it is competitive, and we are fighting hard to maintain our progression.

Toprol-XL, I don't think there is anything more to say on that.

We do have a practice of updating each quarter any changes on litigation.

You will see that there are one or two there this year, some more personal than others.

That is where we would communicate whether there had been any changes in trial dates or timing.

I don't think we have a date set yet for the Toprol case.

Okay, thank you very much.

Jo Walton, Lehman Brothers.

Three quick ones, please.

Just a little confused about the Medpointe payment.

Was there a significant payment out in the first quarter that will somehow be reversed in the other quarters?

Or is this a onetime payment and then something to do with inventory reverses in the other quarters?

Second one, just to clarify.

Should we be expecting roughly the same sort of amount in IFRS adjustments?

Obviously we have not seen these sorts of things before.

But is it your best guess that it will be up or down by up to 50 million in a quarter, is the sort of thing we should look at?

Finally, on costs, you say you are a little reluctant to change your guidance so early in the year, but you have been doing fantastically in terms of costs.

Your costs are growing way way lower than your sales at the moment.

Can you tell us a little bit more about some of this phasing issue?

I believe you just mentioned the lack of DTC spending for Crestor really in the first quarter.

So are there any other things that are significant spending, either in R&D or in SG&A, that is absent from the first quarter, that is going to be a meaningful number in the subsequent three quarters?

Medpointe, some elements of it were -- there was an element of inventory repurchase.

There was also, because we had taken the product back earlier than we had anticipated, there was some margin or profit adjustment.

But given the fact that no shipments had been made in February or March, we think that having the product back earlier we should be able to recover via future sales of Zomig in '05 that compensatory cost.

But either way, it is not so significant as to distort our gross margin targets over the course of the year.

On the IFRS adjustments and volatility, I think we do have to get used to these.

I certainly had to get used to it when I saw it as the numbers came through in early April.

I think 50 million is probably an outside.

I wouldn't -- I can't feel that we will get that sort of level.

And certainly some of the FX fair value adjustments that we took in quarter one we would expect to be a significant part of the annual effect.

So I am inclined to think that this is the outer edge of it.

But having said that, I am sure will return to it in later quarters.

I wouldn't go to the extent of four times 50 in the forecast.

On costs, I will take that as a compliment. (technical difficulty) I think we have done pretty well on our costs.

To some extent we have done better in this quarter than we thought.

There are undoubtedly one or two things that are pushing us, that have pushed from Q1 into Q2.

But I think we are looking to sustain a high level of cost performance.

That is certainly an element that we will be looking at hard as we go into quarter two, is what is the cost performance and what is its sustainability?

Right now, we still feel that the guidance that we gave you at the end of the year, that the fixed cost base would grow 2 or 3% below sales, i.e., small single digits, we still could be in that territory.

There's certainly some investments that we're still making in R&D, and we are still investing sales and marketing resources in some emerging markets.

So it will grow.

But I think we are encouraged by what we have seen this quarter.

And we will certainly be having a hard look in quarter two as to whether this is sustainable or we can do better.

But don't expect minus 3 in Q2.

We will be cost positive in Q2.

Thank you.

Next question, please?

Stuart Harris with HSBC.

Three questions.

Just talking again about the gross margin, if you look at the 2.5 percentage point decline on the underlying basis that you talked about, if you add back -- if you add fair value adjustments, the IFRS fair value adjustments, it is 2.1 percentage points down.

You have talked a lot about the Medpointe transaction.

I just wondered, if it had not happened, sort of real-real underlying gross margin in the first quarter, what would that have been versus Q1 2004?

Secondly, in terms of the Symbicort U.S. filing, following up on David's question, I think one of the issues is maybe a superheating test.

I know you said there is nothing new since you last talked about this.

Have you actually seen those superheating data, or are you saying there really is no new information that you have received whatsoever to change any timing of the filing?

Thirdly, any comment -- Glaxo is obviously talking about the concept data, head-to-head, Advair versus Symbicort.

I just wondered what your comments on their protocol, on the way that Symbicort was dosed, would be?

Thanks.

Gross margin, I think we would have been net-net on an underlying basis slightly below last year; maybe half a point, something like that.

But it is always very difficult to pull out what is truly nonrecurring and what is underlying.

Because there's always some form of inventory adjustment or provision or something that goes through gross margin.

But the best we can look at, it would have been below.

On Symbicort, I didn't say we had not had any new information.

We just said that we hadn't changed the target.

Clearly information is coming through.

We still believe that we are on track to file in Q2, Q3, So to that extent, no news is good news.

Okay.

Mike?

Concept and SUND.

I guess, Stuart, I think our position on this was made pretty clear when GSK first published these results.

The study has been well set up by GSK to put Seretide in a good light.

The issue is dose.

We have 10,000 patients in our AMD studies, and we have got a solid set of data that supports the adjustable maintenance dose thesis that we have been putting forward.

But that starts on a baseline of two inhalations per day.

The concept protocol resulted in a fairly large proportion of these patients being treated with one inhalation a day, so there is no question that in the concept study, relative to the data that we have, Symbicort was significantly underdosed.

Are docs told that in Europe?

Because it did seem in concept that the patients were told, sort of, go away and take it when you feel like it.

Obviously your reps only talk to doctors who are saying, well, twice a day baseline and as needed over and above that.

That is obviously the message.

Doctors in Europe understand, I presume, yes?

We have got a beautifully simple flywheel that we hand out to physicians and patients.

It tells them exactly how to use it and enables them to assess what they need against the severity of their attacks.

I think it is quite clear that the use of Symbicort in this trial was less than optimal; and that in our view explains the outcome.

Thank you very much.

Next question, please.

Michael Leacock with Nomura.

Just a couple of questions if I may on promotional issues.

Firstly, I wonder if there is anything can say to give us a bit more color on your revised campaign for Crestor?

I think you got the new campaign started very recently.

What is the sort of key message there?

Have you had any feedback about how that is going?

Secondly, you guys have mentioned SG&A as somewhat lower in this quarter.

We have seen other companies also reporting a lower SG&A figure.

Is this a sign that perhaps the competition in the market is less lessening in some way?

I am just thinking about the general industry trend here in terms of marketing costs.

The DTC campaign I think really fully rolled out in the last week or so.

I think you can get access to the DTC ad; and if you call the IR team afterwards they can probably point out to you where you can see it.

It is different.

I think we have listened to what people have said about DTC campaigns, whether they are fair and balanced.

I think it is a very simple ad that deals with the benefits.

It is clearly focusing on those patients that need to address significant cholesterol reduction and is balanced against the risks associated to it.

It is a similar style that we're adopting with our current Nexium promotion; and in the next few weeks, we will be rolling out a new campaign for Nexium that is trying to educate patients and physicians around the impact of NSAIDs.

I think for us it is important not just in terms of a sign of confidence in Crestor, but I think it is important as a contribution to the debate about the appropriateness of marketing in the U.S.

There is certainly no lessening of competitiveness in the U.S. certainly around our core products.

We are certainly not seeing any company changing its share of voice significantly by pulling back.

That said, I think the industry does have to address the fact that it (indiscernible) spends $2 for every $1 on R&D.

It is not what many of our stakeholders want us to distribute our investments in that way.

I think we are all looking at ways in which to fundamentally improve our productivity.

So I think it is not a surprise that the industry is addressing this.

But unfortunately, competitiveness isn't diminishing.

Certainly our intention is to use these productivity measures to improve our productivity and our intensity, whilst doing it cost effectively.

So I think you could see these trends continuing a bit in the U.S.

Thank you, John.

Next question, please.

Kevin Wilson, Citigroup.

It was just a question regarding the share-based payments in the quarter.

Could you give us a sense of what that was? (multiple speakers) between the three line items.

I can't (ph) do the latter part.

I think it was 30 to $40 million, something like that.

As a principal I am not going to answer all the questions about what the IFRS effects will be.

Because I refuse to maintain a separate set of UK books under the old basis.

That is not a comment I've made (indiscernible) to you.

I have made it to my own team that we have got to move once and for all.

I think the fair value adjustments are valid ones to communicate, and I would expect to do that in the future.

But 30 to $40 million, about a quarter of what we expect to see over the year.

That is pretty much in line with what we all expected (inaudible).

Thanks.

Stan Westburg (ph) with Orman (ph) Equities. (technical difficulty)

(technical difficulty) questions.

I wonder if you could specify what the recent FDA warning for use of antipsychotics in elderly patients can mean for that psychotic market in general and Seroquel in specific.

There seems to be some different meanings over how extensive this off-label use is.

Secondly, I believe you had a mandatory price cap for Nexium in France.

Did that in any way impact the growth rates for Nexium outside the U.S.?

Thank you.

On Nexium, in France;

Ed will comment on Seroquel in a moment.

I think as I was saying, it is life in Europe.

Actually the performance in France in the quarter was very good.

So I don't think it is distortive either way, that it has given us an abnormally high or low.

It is just part of life in Europe.

Seroquel, Ed?

I think as you said, it is an elusive number.

I am not surprised we will be seeing widely divergent estimates out there.

Because it is not -- a couple of things.

One is, it's a non-approved indication, so in terms of actual priory (ph) market research we have to quantify that market, it is not something that we actively promote to, so there is not a lot of off-the-shelf data on it.

Secondly, you have to kind of triangulate it.

There is no audit you pull off the shelf that gives you kind of the intersection of age and prescribed indication.

So again you are kind of looking at several pieces of data and trying to create a mosaic.

That said, certainly Seroquel is probably no different than the market as a whole.

As best as we can triangulate, the low end, if you looked at strictly diary studies that talk about usage in dementia, you are probably looking at single digit kind of levels for the marketplace, in terms of exposure to that indication.

If you look at prescriptions by age, you get a kind of crude instrument that says how many patients might be over 65; you're kind of in teens range.

But then you have to look at value not just volume there; it is generally lower priced.

So it is certainly not at the upper end, I think, where I've seen some observers talking about 25, 30% exposure.

It is clearly not at that level of magnitude, we don't believe.

In terms -- next to only saying, how much business might be in that demographic, the next question of course is, what might be the impact of the labeling?

Of course, the labeling hasn't even been changed yet.

We are in discussions with the FDA.

Quite frankly it is too early to call, if you say where these prescribers might go in terms of possibility of alternative therapies or alternative ways to manage these patients.

But I would say in the context of what we have as a very strongly growing franchise with indications where we can actively promote, where there is healthy growth, our team is thinking that whatever impact it would be would be modest; that we could take it in stride within our growth aspirations for Seroquel.

A key point there, Stan, is that really on picking where the prescriptions come from, because as Ed said, a lot of it goes in labeling -- in indications that we don't promote.

It's always been challenging.

I think we are also dealing with a pretty sophisticated physician population as well, who do make decisions in a light of a good understanding of the product and what its optimal usage is.

So I think the team is right in saying they don't see a significant effect; but of course we will be tracking that, too.

The next question, please?

Graham Barry (ph) with Merrill Lynch.

I had a couple of inventory questions.

I just wondered if you could actually quantify the stocking effects in Seroquel and Crestor in quarter.

Then a couple of pipeline questions as well.

Just on Cerovive, could you clarify exactly what stage we're at there?

If the data have actually been unblinded, so you are in final data analysis at the moment?

Then on the ORION study, it didn't actually hit the primary endpoint, which is arterial wall volume.

Any reasons why you think that might be the case?

I know this is in a new measurement method, you are using MRI rather than ultrasound.

But perhaps if you just talk to the results of that study a little bit as well, thanks.

I am reluctant to unpick (ph) too much of this inventory, because as I say some of it moves within perfectly legitimate boundaries.

I think the previous estimate of Seroquel around the 20 million or so mark was probably not far off from our own calculation.

Certainly for Crestor, one of the factors that does explain the sales value performance in the U.S. was that, yes, again, (ph) the lower anticipated demand.

There was some burn off of inventory and it could be about the same order of magnitude, but a lot more difficult to compute on Crestor than it is on Seroquel.

On Cerovive we have not got the data.

When we do get the data and do understand it, we will be making an announcement in due course.

Shortly was the word I used earlier on.

Mike, ORION?

Yes, you are absolutely correct, but I think this is a very sophisticated study and the data we showed at EAS demonstrated, first and foremost, that we got good dose-related LDLC lowering.

There was not a reduction in plaque, but there was an arrested progression of plaque.

Those data were nonsignificant.

The key observation for us, and I think for the principal investigator, was this observation around these lipid-rich necrotic cores.

I for one was saying, when we saw this data, that they were things that I certainly didn't want to have.

But they were significantly reduced.

Now what the implications of that are to the long-term benefits of Crestor therapy, we will have to wait and see.

But what we're getting is confirmation that the lipid profile that we have, which is very effective LDLC lowering, coupled too with confirmation of the increases in HDL, which is a differentiator between Crestor and Lipitor at the higher doses, could have clear benefits on artery pathology that might lead to outcome benefits.

But we can't make those studies run any quicker, but we think it's an exciting result.

Yes, that is the bottom line.

We think it is an important study and an important result.

I know you have got a busy afternoon.

I think we have got time for one more question.

If there are others in the queue, we will get your names and IR will get back to you over the course of the rest of today or tomorrow.

But if we can just have the last question now, please.

Mark (technical difficulty) Deutsche Bank.

(technical difficulty) I have hopefully four.

The first one is just on Arimidex; you talked about the market share gains at 1.3 percentage in the U.S.

Give (technical difficulty) in Europe, which is obviously the lion's share of the business.

The second thing is just on your R&D day.

You are saying it is likely to be in the first half of '06.

But there might be some important (indiscernible) decisions to be made in oncology and also in cardiovascular with 0837 and 6140 data (technical difficulty) second half of the year.

Does that mean that those decisions are deferred to the first half?

Or are they going to be making any decisions in the second half?

Quickly on Nexium, your are doing the -- in NSAID DTC campaign.

I just wondered if you had actually seen any benefit from the COX-2 NSAID situation to date; and whether you can confirm that going after a small price discount at Medicaid is likely to be offset by pickups in volume.

Then the last one is just on SG&A and R&D phasing.

You talked about some of the specific issues within SG&A.

Were there any notable impacts on R&D with respect to phasing in Q1, Jon?

I will deal with these very quickly.

I think on Arimidex, there is really nothing to point out.

The product has got a very strong affinity and a strong position growth.

In Europe it was up 42%, Japan 38%.

So I think it is essentially the same message in the Rest of World as it is in the U.S.

Certainly we have a fully synchronized global marketing plan for Arimidex, so the kind of messages and rationale that you hear in the U.S. is exactly the same as the message and rationale in the rest of the year (ph).

On the R&D day, I think what we have been grappling with is, is there enough to pull it all together giving time to the news flow.

What I did say was that as we reached critical decision points that we wouldn't defer them off to next year; that we would try and tackle those as they came along.

Certainly we will try and involve John Patterson in that, either via one of the quarterly conference calls or as the event dictated.

It is certainly not our plan to go silent on some of these things where there is important news to give.

On NSAIDs, I think rather like the discussion on Seroquel where it is rather difficult to isolate what some of the trends are, there clearly still is some noise in the prescription data around OTC and the higher product volumes that have gone into the market this year.

I think the primary view that we have on NSAIDs at this point is that most physicians are still really trying to come to terms with, what do we do?

There clearly has been some mixed flow of news in the U.S. following the FDA hearing; and then the withdrawal of Bextra and so on.

So I think it is not yet clear which way it is going, which is why we want to flush it out a bit more in the second quarter with a specific campaign.

As regards R&D, there is not much more to stay on that on phasing.

Q3 tends to be seasonally low;

Q4 tends to be a bit higher.

Beyond that there is nothing dramatic in the trend line.

Thank you.

Okay, well, thank you all very much indeed for your time and your attendance.

As always, if you have any follow-up questions or if there is anything else you wish to clarify, please don't hesitate to contact our investor relations department.

Thank you very much and good afternoon to you all.

That will conclude today's conference.

Thank you for your participation and have a good day.