AstraZeneca PLC (AZN) 2005 Q2 法說會逐字稿

Ladies and gentlemen, welcome to the AstraZeneca Second Quarter and Half-Year Results conference call.

Chairing the call today is Sir Tom McKillop, AstraZeneca's Chief Executive.

We also have David Brennan, Executive Director North America, Jon Symonds, the Chief Financial Officer, and Dr. John Patterson, Executive Director Development.

Before we begin, I'd like to make -- remind participants that the Company intends to make use of the Safe Harbor provision 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 can 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'll now turn the call over to Sir Tom McKillop.

Tom.

Thank you, Ed, and good afternoon ladies and gentlemen.

I thank you for joining this conference.

It's a pleasure to be presenting such excellent results.

But before we start analyzing these, a few words on today's other announcement.

As I'm sure you know, this morning the Board announced that David Brennan would succeed me at the end of the year.

Career development and succession planning are taken very seriously in AstraZeneca.

And over recent years the Board has been carefully preparing for the change, first of all of our Chairman and then the CEO.

AstraZeneca has an extremely talented Executive team who work really well together.

I'm delighted that after a rigorous process the Board has selected one of the team, David, to take the Company forward to what I'm sure will be a prosperous future.

I will be responsible for delivering this year's targets, but I'm looking forward to working closely with David and all my colleagues to ensure a smooth transition.

Now back to the results, and after a brief summary I'll hand over to David to take you through some of the product filing.

Then Jon Symonds will look in more detail at the financial performance, in particular the key factors underlying these excellent results, and also explain the thinking behind our increased earnings guidance for the year.

Finally, John Patterson will take you through the development portfolio, now that he has concluded a detailed review of all the projects.

The headline results for the second quarter show sales over $6b for the first quarter ever, up 16% actual or 15% at constant exchange rates.

Operating profits are also a record, at $1,718m, up 63% as reported and 53% at CER.

Earnings per share for the quarter are $0.75, up 40% at constant exchange rates.

These results for Q2, on top of a strong first quarter, deliver a record set of figures for the half-year, with sales up 12%, operating profit up 44% and earnings per share up 37%, all at constant exchange rates.

It's a very good feeling to be reporting such strong results and it's also good to see that our shareholders will benefit, with the dividend increased by 29% in dollar terms and even more in sterling and kronor.

Share buybacks amounted to $1,163m in the half.

And as Jon will explain, we're raising our year-end buyback target to $3b.

So with that, I'll hand over to David.

Thank you, Tom.

I'll spend the next few minutes reviewing our global sales performance, examining the growth drivers that underpin our strong first half performance.

The first observation I'd like to make is that the top line performance was strong in all regions of the world.

Sales in North America were up 13% at constant exchange rates, fueled by a 15% increase in the U.S.

And in Canada, excluding the generic erosion on Losec, the rest of the product line was up 14%.

Sales in Europe were up 8%, which is much stronger than the mid-single-digit growth rates in 2003 and 2004.

In Europe, the 28% decline in Losec was more than offset by 13% growth in the rest of the portfolio.

Sales in Japan were up 9%, and in other markets sales were up 15%.

We're particularly encouraged by our performance in eight key emerging markets that we have targeted for growing our business.

You can see that we have the second fastest sales growth of the Top 20 companies in these markets.

We highlighted China in our Analysts' Meeting last October.

Since then, we have added an additional 400 sales representatives and successfully launched Iressa.

Sales in China are now annualizing at around $250m, with sales up 38% in the last 12 months.

AstraZeneca is the leading multinational provider of prescription medicines in China and is also one of the fastest growing.

Now, looking back at global sales, our strong global top line performance is the result of having well-differentiated brands competing in the top growth categories in the industry.

Here are the Top 10 product categories ranked by absolute dollar growth - Oncology, Statins, PPIs and so on down the line.

AstraZeneca has at least one growth brand in six of the Top 10 classes.

I'll spend the balance of my time on our Top 5 growers, which as you can see here, grew by 32% in aggregate, over $5b in the first half.

First Nexium.

The global PPI market is worth $22b, growing at 4%.

In the first half, Nexium sales were up $2.3b, up 22%.

Sales in the U.S. were up 18% to just over $1.5b, and sales outside the U.S. were up 28% to $745m.

In the U.S., Nexium's share of total prescriptions grew to 28.5% in June, up another 1.6 share points since December, the only leading product to grow share over this period.

Nexium volume growth, as expressed in extended units, was 17% in the second quarter, well ahead of the market.

Realized price was again neutral in the second quarter but it doesn't change our view that for the full year realized prices for Nexium will be somewhat lower than last year.

The strong volume growth in the U.S. has been achieved despite increased supplies of Prilosec OTC in the market.

In addition, while we continue to see opportunities for growth from the launch of the NSAID indication, in the short term it's been a slight drag on the PPI market as a whole, as any increase in the way of co-prescribing of PPIs with NSAIDs and COX2s has been more than offset by the significant decline in total prescriptions for these pain relief products.

So with this strong U.S. performance, combined with the 28% growth in Nexium sales outside the U.S., Nexium's share of the PPI market continues its momentum.

Now, turning to Crestor.

The global Statin market is worth $27b, growing at 9%.

Crestor sales in the first half were $590m, up 72%.

Sales in the U.S. were up 83% to $338m, with non-U.S. sales up 57% to $252m.

Tracking our progress in markets outside the U.S., you can see here that Italy has now joined the ranks of markets with double-digit prescription market share, and in France market share has increased to 5.7%.

In the U.S., it's been tough going but our determination is undiminished.

In March, the safety profile for Crestor was reaffirmed and revised the labeling, and then the FDA's comprehensive denial of public citizens' petition.

This was followed by the launch of our revised DTC campaign in April.

And as this graph demonstrates, we were successfully rebuilding our market share until a further round of negative publicity at the end of May.

This was in the wake of the review published in the journal Circulation on May 23.

Conclusions from that review were incomplete and therefore misleading, and stand in direct contrast to the FDA's statement in March.

Just last week, a preliminary review of Statin's safety, conducted by the National Lipid Association, is reported to confirm the recent FDA analysis.

We continue to believe that the weight of evidence confirms a very positive benefit/risk profile for Crestor.

Market share has already begun to recover from a relatively modest decline from this last episode, and we'll get a better read once we have a few more data points clear of the July 4 holiday period.

For Symbicort, we currently compete in the non-U.S. portion for roughly half of the $6b market for fixed combination products.

First half sales for Symbicort were just over $500m, up 21%.

Market share in Europe is now over 30%.

Turning to Arimidex.

Arimidex continues to build on its market-leading position among aromatase inhibitors for the treatment of breast cancer.

Hormonal treatment for breast cancer is a $1.8b market, growing at 31%.

First half sales for Arimidex were $553m, up 50%.

Tamoxifen continues its steady decline but it still holds 61% of the global market by volume, so there is plenty of headroom for continued growth of the newer products.

Market share progress continues in the U.S., with Arimidex now holding 31.6% of total prescriptions, up a market-leading 4.6 share points since December.

We are achieving steady share growth in Europe as well.

And at the end of last month, Arimidex was granted the adjuvant treatment indication in the U.K., which under mutual recognition will expand the label in Germany, Italy and Spain.

The last product I'll highlight is Seroquel.

The global market for antipsychotics is $14b, growing at 13%.

Seroquel's sales in the first half reached $1.3b, up 37%, on a 34% increase in the U.S. and 44% growth outside the U.S.

In the U.S., and indeed in many markets worldwide, Seroquel growth is significantly out-pacing the atypical market.

So, in summary, continued strong performance from our key growth products, up another 27% in the last 12 months, has led to balanced revenue growth in all major regions in the first half of 2005.

Now, to show how this top line growth has driven our P&L in the first half, let me turn the presentation over to Jon Symonds.

Thanks, David, and good afternoon everyone.

Let me now turn to the financials and what lies behind the excellent first half performance.

In many ways it's a simple explanation, as shown here.

Strong top line, delivering 12% growth over the half year in constant currency, which when combined with effective cost management and real productivity improvements, creates a massive drop through to the bottom line, translating into 37% earnings growth and an increase in the operating margin of 6.4 percentage points to 26.7%.

I want to spend the next few minutes going through some of the factors behind this, to give you the confidence that we have created a strong performance platform from which we can continue to deliver earnings and margin growth.

In other words, it's a continuation of the trends I described in January, which demonstrated the increasing impact of the growth portfolio in reported sales, together with the peaking of fixed costs in the middle of 2004, with the investment behind the launch program flattened off.

Well, the 2005 trend lines are clearly in the direction we were targeting at the beginning of the year.

It's fair to say that both the top line and our cost management have been stronger than we anticipated, hence the increase in our earnings guidance.

So let me look at the two trend lines in a little more detail, first the top line.

There's no doubt that it's the growth products that are driving performance; in aggregate grown by 25% to $6.6b, adding almost $1.5b of additional revenue over the first half of last year.

David has been through the product performances, so I don't need to go into any of the product details here.

It just remains for me to confirm that over the six months it's been a pretty clean performance, with some U.S. inventory contraction being offset by a True-Up or Managed Care accrual.

This produces one or two anomalies in the -- at the product level and these are dealt with in the press release.

For this analogy I mentioned, that's underlying this, and that's the quality of our performance in the markets outside of the U.S., markets which represent 56% of total sales.

So if I just aggregate the sales growth curve between the U.S. and rest of world markets, you see here the U.S. profile, marginally explained by patent expiries.

If I now look at the rest of world market, we see a much less volatile and improving performance.

Undoubtedly, it's the same growth products that are making a major contribution, grown by 27% in the six months to $3.2b of sales value.

But there's also been a step-change in the quality and consistency of our performance across all of the major markets.

Europe's growing at 8% above market growth, Japan 9% and the other markets by 10%.

Based on these trends, our expectations of sales growth for 2005 have been firmed up from mid single digit to approaching double digit in constant currency, and currency could add a point or two to reported sales.

So given what we've seen in the first half, where do we see sales growth flowing in the second half?

You can see here the quarterly trends across the half year.

In the second half, we have the seasonal third quarter dip in Europe, but you can also see the strength of the fourth quarter last year, which was about $0.5b above the other quarters and represented 27% of the year's sales.

We don't expect the fourth quarter profile to be quite as marked this year and this will dampen down some of the annual year's growth.

Now let me turn to cost management and what lies behind our performance for the first six months.

It's productivity, not cost-cutting, that's driving performance.

For sure, we're cutting out unnecessary and non-value-adding expenditure.

But we've always put investments in products and pipeline ahead of short-term profit, and there's no change to that attitude now.

As you see here, the cost profile on a rolling annual basis is clear.

The launch investments peaked in the second quarter last year and the annualized rate of reported cost growth is now running at around 3%.

And this rate will decline further, recognizing that reported second quarter fixed costs only increased by 1% and in constant exchange rate terms were lower still, with a 3% decline.

So for this reason, we believe the reported fixed cost growth will be 3% or below for the year.

In January, I described some of the productivity initiatives we were working on, to realize more value from our cost base.

I also emphasized that this was a company-wide initiative and was not based on a few major projects.

So let me give you a view on some of the progress, firstly gross margin.

When you strip away the non-manufacturing costs in cost of goods sold, such as the Merck payment, currency and the fair-value adjustments, underlying gross margin improved by around half a percentage point.

Some of this is undoubtedly improved mix, but there are real productivity improvements too.

For example, while sales grew by 12%, materials consumed fell by 4% and site costs or the fixed manufacturing costs actually fell by 2%.

SG&A declined in CER terms by 2% over last year and including a $75m provision for the fine imposed by the E.U.

Excluding this, sales and marketing costs were lower than a year ago, driven by two global initiatives - sales force effectiveness, that has seen in the U.S., for example, a 37% increase in sales per rep, and a marketing excellence program that's ensuring that our marketing spend is increasingly targeted to the opportunities of greatest return.

R&D costs were 6% below last year in CER terms and 9% lower in the second quarter.

Some of this is due to phasing, as the second quarter last year was relatively strong, but we're also managing the spend better.

We've got the same number of patients in clinical trials as we had a year ago, but the spend is down, as we brought more of the trials in-house as opposed to using outside CROs.

Finally, there are a whole series of initiatives directed at improving our infrastructure costs, and we're tackling areas like facilities, IS costs, travel and so on.

Our experience so far is that each step forward identifies new possibilities and therefore, we can see plenty of scope for further progress, although some investments may be necessary to access even higher levels of efficiency.

So let me bring the financial review to a close by addressing the revised 2005 outlook and shareholder return.

The anticipated increase in sales are approaching double digits and the continued flattening of the costs base enables us to conclude that earnings per share is likely to exceed $2.75 for the year.

And of course, the usual caveat, the currency and fair value adjustments apply.

This should lead up -- leave our margin around 27%, which is a significant acceleration from our earlier projection.

We believe there is more to go, for but having just got to the cusp of achieving our longstanding target, I'm not minded to set a new one just yet.

In terms of shareholder return, we're following the strategy we set at the beginning of the year, which means that higher performance yields higher shareholder returns.

Higher profit leads to higher dividends.

Hence the 29% increase in dividends, significantly more in sterling and Swedish kronor because of the stronger dollar.

And higher profits lead to stronger cash flows and increasing share buybacks and we've now increased our buyback target from $2b to around $3b for the full year.

All of the factors I've described lead us to believe that we're building a more robust business, founded on strong products and outstanding execution across all parts of the business, such that we see an excellent outcome for 2005 and good earnings growth for the two following years.

I'll now hand you over to John Patterson, to update you on the driver of long-term performance, the product pipeline.

John.

Thank you, Jon, and good afternoon.

In the last six months, since my appointment as Executive Director of Development, I've taken the opportunity to undertake a detailed review of all of the development projects, as well as an in-depth review of our organization and processes.

Whilst a number of moves, particularly in Clinical and Regulatory, were already ongoing, we've recently introduced significant changes to the Development organization, with the objective of improving our capability and capacity through a greater project focus, more efficient, effective decision-making and stronger project technical and medical review.

Other changes have also been made, to learn both from the past and to respond to future needs that our growing early-development portfolio will place upon the organization.

Whilst organizational and process change is important to improve our operability, everything we do in that area should be focused on making sure that we can deliver more high quality products through to regulatory approval.

And it's that delivery that I would now like to make the focus of this presentation.

So let me tell you about the Development portfolio, starting with the marketed products.

You've heard today's good sales performance from the growth brands from Jon and David, and I want to now update you on how we intend to continue to build on that success.

Starting with Seroquel, I'm pleased to be able to say that the Bolder II trial has now fully recruited, at greater than 500 patients.

And we now have a target to complete our bipolar depression submission in the United States around the end of this year and ahead of our original schedule.

The Seroquel Sustained Release program is on track for filing in the first half of 2006.

This program comprises three pivotal submission studies.

Other life-cycle management programs will build on findings with Sustained Release and explore Maintenance Therapy.

We are committed to continuing to develop and broaden this important medicine.

Turning now to Crestor.

Our challenge is to build on the excellent efficacy and safety profile that underpins this product, after more than 5m patients treated.

The emerging pharmacoepidemiological database confirms our confidence in the product and the Galaxy program is a significant part of our effort to widen its utility.

We have now completed seven of these studies, as listed on the slide, and a further six have now completed recruitment.

We have over 48,000 patients globally in Galaxy and four key studies are due to complete in 2006, which will not only confirm the profile but also show Crestor's impact on the pathology of the disease.

A summary of the Galaxy studies is on the Investor Relations website.

In addition to the Galaxy program, we have a number of other important programs, including the GISSI Heart Failure trial.

This important collaborative group study is now fully recruited and should generate data in 2008.

We're also expecting to announce a further major Crestor clinical investment later this year, which should be seen as a clear marker of our continued confidence that Crestor has a very good risk/benefit ratio.

Turning now to Symbicort.

I'm pleased to be able to tell you that following a constructive meeting with the FDA in June, we're on track to file the important Symbicort Asthma pMDI NDA in the United States.

As you have heard already, Symbicort [indiscernible] continues to perform well outside the U.S.

And with the completion of two major new studies, we're on track to file the Symbicort Maintenance and Reliever Therapy, previously known as Single-Inhaler Therapy or SIT, by the end of the year in Europe.

The design and size of the two major studies, SMILE and COMPASS, are shown on these slides that you can study at leisure.

Data from these two large comparative studies will be released in time for the anticipated launch.

With Iressa in non-small cell lung cancer, we're working on two fronts, which can be broadly separated geographically into the West and the East.

In the West, we're continuing with our FDA sub-part H commitment, which as well as the Eiffel study, included a large head-to-head comparison with chemotherapy, Study 721.

In addition, we will now initiate a focus-development program in the second half of this year, designed together with an extensive science package and Study 721, to provide data to FDA to allow us to exit sub-part H and also seek European approval.

In the East, based on wide acceptance of Iressa and Eiffel, we will undertake programs expanding into earlier stages of lung cancer, as well as development in head, neck and breast cancer across all regions.

Now I'd like to turn to those products in our late-stage Development portfolio, including Exanta.

Firstly, Thrombin Inhibition, which I will cover as a single entity.

We continue to launch Exanta for short-term thrombosis prevention post-orthopedic surgery, and are initiating a new study called EXTEND for 35-day use post-surgery.

However, we recognize that our major opportunity is to determine the potential for Exanta in atrial fibrillation.

We remain in discussion with FDA over the next step.

And following discussions with the EMEA and the French authorities, we now intend to make a new regulatory submission for stroke, stroke prevention, in the fourth quarter this year, using the new E.U. centralized procedure.

The regulatory package will include ongoing science report data, where liver effects and metabolism have been extensively investigated.

The regulatory hurdle remains high, but we have not given up on Exanta.

We will review Exanta and 0837 strategies together in the fourth quarter, when we will have a significant cohort of patients treated with 0837 for more than three months.

More than 100 patients have already completed three months dosing on 0873 in the trial, and there has been no liver signal to date.

The Galida Phase III trial program is progressing well.

The combination of PPAR alpha and gamma properties has produced Phase II data that show both improvement in control of glucose and lipids, data that has been recently shared with you at the June ADA meeting.

The risk/benefit ratio for Galida will be elucidated in the Phase III program, which to date has enrolled 11,000 patients and randomized more than 4,000.

The beginning and end of the bars in the slide represents first patient and projections for last patient, but not data locked for reporting.

Many of you have noticed the Creatinine signal from Phase II.

That has also been found with fibrate.

This signal could represent good or bad news and we're conducting in-depth mechanistic studies to fully understand this observation.

The SAINT I study with Cerovive represents the first-ever positive study with a neuroprotectant in the treatment of stroke.

The clinical experts working with us on this program are convinced that the effects we have seen are clinically, as well as statistically, significant, although slightly smaller in magnitude than originally calculated in designing the study.

As a result, we have modified SAINT II and increased the patient numbers to 3,200 after consultation with the FDA.

Furthermore, a number of modifications will be made to the statistical methodology applied to SAINT II.

In particular, the protocoled parametric test for the NIHFS secondary endpoints was inappropriate, as the data in SAINT I do not follow a Gaussian distribution.

With more appropriate non-parametric testing, a non-significant trend in the favor of Cerovive is present in the NIHFS test in SAINT I.

The safety profile for Cerovive has not revealed any unexpected effects and, subject to recruitment and results, we are giving this drug our very best shot and are scheduling our license applications in the second half of 2007.

Moving now to oncology.

I am pleased to give you two pieces of very good news on Zactima, the proposed trademark for 6474.

Firstly, we're taking it into Phase III development in non-small-cell lung cancer, the Phase II studies having reached their progression-free survival endpoint.

We will be developing both 300mg of monotherapy and 100mg in combination with cytotoxics in the Phase III program.

The second piece of good news is that it's likely that the first NDA will be for medullary thyroid cancer.

This relatively rare mutation-driven tumor has a very reliable biomarker, namely calcitonin.

Zactima has shown pre-clinical evidence of effect against RET [cirocene kinase].

And this has now translated into man, where an ongoing Phase II study, every one of more than a dozen patients has shown at least a 50% reduction in circulating calcitonin, together with some objective disease regression and stabilization.

We recently completed end of Phase II discussions with FDA on both of these tumors and plan to file for orphan drug status in thyroid cancer.

There is a lot of excitement in the VEGEF field and you must all be aware of the recent data with Avastin.

As a monoclonal antibody, it binds to an important ligand, VEGFR 1 and 2.

This has led to real benefits in a number of tumors in man, but we've approached this target through our signaled transduction work with small molecules.

In 2171, we have a molecule that hits and blocks all three VEGEF receptors inside the cell, regardless of ligand.

The clinical data we now have on this compound shows it to be orally active, with a manageable profile and capable of being dosed once a day.

We are accelerating this exciting molecule into late-phase development and also now have a place -- have in place a clinical research and development agreement with the U.S.

National Cancer Institute for 2171.

In summary, this table shows you our late-phase development program of new molecules and major line extension work. 2171 and possibly other candidates will join them by year-end.

The Phase II projects are listed on this next slide.

I told you at the end of January that we were working hard to turn molecules into medicine, but also that we would be undertaking an in-depth assessment of the program, to focus on those candidates judged to have the greatest potential.

So let me review them, starting with cardiovascular, where I've already talked about 0837 in the context of Exanta.

The 6140 Phase IIb study, [disperse two], will complete shortly and we will be making a data-dependent decision on this reversible anti-platelet agent later this year.

You are also familiar with our novel anti-arrhythmic 7009, and the news here is mixed.

The drug continues to look interesting as an intravenous agent, to convert patients from atrial fibrillation to sinus rhythm.

But we have some unwanted and unexpected non-cardiac-related observations in the oral program and these have caused us to pause while we investigate them further.

9684, a CPU inhibitor, is also in man as a fibrinolytic.

And in the other therapy areas we have 4054, an endothelin A antagonist, continuing to be investigated in non-hormone-sensitive prostate cancer, whilst 9056 is in Phase II for rheumatoid arthritis, but we have terminated the osteoarthritis program.

And 7371 is completing Phase II for overactive bladder but has been terminated in the GI area.

Finally, after completing two large Phase IIb comparative studies of 0865 against Nexium, we've taken the tough decision to terminate work on our [pcampcla] for the treatment of acid-related disorders.

And we'll be concentrating our development efforts on acid-related disorders on Nexium life-cycle management.

The plain truth is that despite excellent and rapid inhibition of acid secretion, 0865 has failed to demonstrate any clinical advantages over Nexium.

Nexium is a great medicine and a very hard act to beat, and we're now convinced that advances in this area do not seem to lie with further acid inhibition.

There is still real unmet clinical need in SGERD, where symptomatic relief is not always complete, even with optimum PPI therapy.

Consequently, we are continuing our early phase research into agents which affect lower esophageal sphincter control.

This slide summarizes our large and very broadly based pre-clinical and early clinical development pipeline.

This is not the time to review this part of the portfolio in any depth, and I'm simply giving you this picture to remind you that we have a large, early portfolio of exciting and novel molecules.

And we'll provide more information to you at our next R&D update.

However, it is worth pointing out that AstraZeneca is no longer simply a small molecule company.

We have two biologicals in development - 8593, a recombinant protein for haemostasis, and 3102, a monoclonal antibody for Alzheimer's disease.

And we're expecting to nominate the first monoclonals from our Abgenics and CaT collaborations in the near future.

Furthermore, our licensing activities have borne significant fruit and are illustrated here.

I'm particularly excited by the recently announced Avanir collaboration, where the lead compound should enter the clinic at the end of the year.

And in the last 24 hours, we've announced a further anti-cancer collaboration with Astex, on Protein Kinase B, as well as an asthma and anti-inflammatory collaboration on selective Glucocorticoid Receptor Agonists, the so-called soft steroids, with Schering AG.

In summary, I've shared with you today our development pipeline and some of the exciting small and large molecules in the portfolio.

We've made a number of changes, both to the molecules within the pipeline and with our organization, to improve our capacity to develop these potential new medicines.

I'm more than ever convinced that we in AstraZeneca can be a highly effective and successful R&D driven organization.

We will turn molecules into medicines.

Thank you for your attention, and I am now passing you back to Tom McKillop.

Thank you John, and I want to correct a number I gave you for the share buyback at the half year.

The correct number is the one in the press release, $1,182m.

I believe I gave you $1,163m.

So a minor correction there from me.

Well, I hope you'll agree that, after some product disappointments in the second half of last year, we've delivered an outstanding performance in the first half of 2005.

And now we'll be happy to take your questions.

Please remember to state your name and affiliation before posing your question, and we'll take the first question from Andrew Baum.

Andrew?

Hello Tom, it's Andrew Baum here.

Three questions, if I may.

First, you refer during the call to the pricing strength within the European market.

I wonder whether you could just explain whether there's been any demission in reimbursement pressures?

Because your company does not seem to be anyone's benefit that there's pressure on other parts of the value chain, on pricing rather than on the product.

Second, for John, John Patterson, two-part question.

One, you referred to the Creatinine elevations with Galida.

Could you just characterize the anaemia and neutropenia that we understand you're seeing with the drug?

And whether you're seeing it in the therapeutic doses you're taking forward into the Phase III?

And what percentage of your patients are showing those signals?

And then the second part of the question relates to the Corona and Explorer trials with Crestor, when you anticipate having that data in-house?

Jon Symonds, could I turn the European pricing question over to you?

Yes, in the half-year there's been a little bit of negative pricing, very small single digits.

Because I think if you remember last year, when we had the full effect of the German reimbursement prices, for example, we saw quite heavy aggregate pricing effect.

But it's really working its way through the system, but we've not seen any major initiatives across Europe this year.

So, with a relatively small price effect, we've seen good volume growth which has really been driving our performance across Europe, and it's pretty well across the board.

Maybe at the pharmaceutical, political level I could add to that, Andrew.

I think a lot of politicians and policymakers across Europe have realized, that the policies they have been pursuing in relentlessly pushing down prices, have actually damaged the European base of pharmaceutical industry.

Now that doesn't mean to say that there isn't going to be pricing pressure.

Of course, the pricing pressure will continue but I think we're seeing, hopefully, early signs of more sensible, longer-term based approaches to reinvestment in Europe.

Now John Patterson, the Creatinine and other aspects of Galida, and also the Corona/Crestor trials.

Okay.

Andrew, let me deal with your questions in reverse order, if I may.

The Corona data we expect to see in 2008, and Aurora is scheduled in 2007.

Regarding Creatinine, Galida, anaemia, and neutropenia, etc.

Yes, we see biochemical changes and hematological changes in the Phase II data, and obviously they're a great focus of our work moving into Phase III.

I don't think we should make any further comment until we have all the data available to us.

But clearly if we saw them as a major concern, we wouldn't be doing an extensive Phase III program with the product today.

Can you give us -- because the Creatinine was made public at AJA, but anaemia and neutropenia [instance] it's only described qualitatively.

Could you give us an indication of the incidence and the magnitude at those dosages, which you took forward to Phase III.

And I think I've just described qualitatively as well, haven't I?

When the data are available and clear we'll give them to you, Andrew.

And then just a final tag on 2171.

Could you give an indication what you mean by expediting, i.e., we will see -- do you have a breadth of Phase II?

And finally, what effication would you be taking it into?

Okay.

We've treated more than 300 patients with this product to date in the Phase I, and we believe we have enough data to move rapidly towards Phase III.

We are putting together an innovate program for the product, and soon as we have the full details on that and are willing to share it, we'll do that.

Thanks John.

I'm going to take an email question from Dick Turner of Jefferies, which I'll read out.

Was any significant component of the sales outperformance due to inventory stocking in the quarter?

And was the Nexium growth influenced by increased discounting or rebating?

Jon Symonds, start with you.

Yes.

I'll take this one slowly because there's quite a lot of movements in the half year, in the quarter.

Let me just take US sales in aggregate.

For the half year we've got reported sales growth of 15%, and underlying sales growth of 16%, and I think what we've seen across the half-year is slightly lower inventory levels.

If you remember, although we've got the inventory management agreements, they can still flex within a range.

And we're probably around $100m lower on inventories at the end of the quarter.

And that's been offset by release of managed care accrual estimates.

If we just spend one second on that.

Each quarter we estimate, what we believe the realized value of our shipments into the wholesaler chain are.

Because obviously we ship them in at 100 and don't know at that time -- at that point which customers they're going to, or what volume levels they'll achieve, so we may guess this.

We generally chew those up in the second quarter of the year, when we get the annual statements in.

And so we've seen the release of provisions, at just slightly above the inventory level movements that we've seen.

So net net, I believe that the overall half-year position is a fairly true one.

What we saw in the second quarter was reported US sales of 20%, and underlying sales of 17% which is largely the effect of the rebate releases.

The main product that was affected by this, although the effects are different where some inventory levels went up and some inventory levels went down.

But I think the main product that was affected by this was Nexium, with 17% demand growth in the second quarter and 35% reported sales growth.

With the difference between those two numbers broadly evenly split between inventory effects and price effects.

And although that price effect was largely rebating I think, as David said in his presentation, that we believe the underlying price effect on Nexium for the year to be slightly negative, as we've been saying for the last two or 3 quarters.

Although as of the half-year, it was still fairly neutral.

I think the key tonal point here is that is a very clean set of numbers.

There is nothing artificially driving these numbers.

I'll take a question now from Tim Anderson, Prudential.

Thank you.

A few questions if I could.

Gross margin came in quite strong in the quarter.

I know you've mentioned foreign exchange as having a big contribution to that.

I'm wondering if there is anything else that might have been one-time in nature here?

And then, a second question on Symbicort.

I realize you're talking about filing in the fall.

I'm wondering if you can maybe give us your confidence, on whether you think that will be a fairly clean and smooth regulatory review, or if it could end up being a lot of back and forth?

And the last question, maybe to David.

I know you're not talking too much on future strategy, what your vision is, but I'm wondering it -- at what point you will?

What would be the most logical timing and venue for that?

Okay.

Jon, once again start with you on gross margin.

Yes, gross margin.

As I said in my opening remarks, the underlying gross margin we believe has improved by about 0.5 percentage point.

And what you saw in the first quarter was a gross margin lower than anticipated because of fair value adjustments.

And what we saw in this quarter was gross margin slightly higher than we'd anticipated, largely because of some currency gains.

So I think this -- I think taking the half year as a whole, I think be about 0.5% improvement in underlying gross margin is a fair measure of what we've achieved.

Because the fair value adjustments and the currency effects more or less offset one another across the half-year.

Okay.

And then, David, why don't you take the future strategy bit, and we'll deal with Symbicort afterwards.

Okay.

Well, I certainly can hope you'll understand that with the announcement being made just a few hours ago, it's a bit difficult to project out any detailed answers to questions like that.

I can assure you the next several months I'll be working with our management team, as well as with Tom, to ensure a smooth transition.

And there'll be plenty of time for questions like that come the new year.

Okay.

Thank you very much.

John, Symbicort?

Yes.

The question is the confidence in the review of the Symbicort.

Well, we don't try and second guess what the regulators are going to say.

It's always a mug's game to do that.

What I can tell you is that over the last 6 or 8 months, we've generated a lot of CMC data on Symbicort that give us great confidence to answer a number of the questions, that were posed to us last year in our pre-MDA meeting.

However, having said that, this division of the FDA doesn't have the fastest reputation in the world.

So you have to balance out those two things in coming to your own conclusion, I think.

Okay.

Thank you all very much.

Thank you very much, and now I'll go to David Moskowitz at Friedman, Billings, Ramsey.

Yes, thanks Tom.

I appreciate it and congratulations on a good quarter.

So a couple of questions.

First of all back to the managed care rebate reversals.

Jon, you mentioned 3% of US sales, so I'm getting to about $82m in the quarter.

Can you confirm that?

And then on to Cerovive products.

We're hearing from the marketplace, from a competitor, that the FDA could be requiring for a [Schemex] Stroke 3 outcome measures, modified rank and NIH, and also the [Bartle] scale.

Can you talk about whether or not the FDA is going to be looking for that third endpoint?

Thank you.

Okay, thank you.

Jon Symonds.

Yes.

No, I said the managed care rebate release was a little bit above the $100m inventory decline.

So it's a bit more than you're suggesting.

So it's in the $120m, $130m range.

And John Patterson, Cerovive.

Yes.

The FDA has been absolutely clear with us.

There is only one primary endpoint that it is interested in, which is modified ranking.

Other endpoints, including NIH and [Bartle] are definitely secondary.

Thanks very much, John.

Now I'll take another email question from Juan [Lera] at HCMNY.

Juan?

Sorry, I have to read that one out, a bit difficult.

What was the impact on R&D cost from the discontinuation in the development of 7 projects?

Okay, let me try and answer that Tom.

First of all, I'm not sure I recognize 7 projects.

Let me just say something.

Early projects come and go all the time.

There is a huge turnover in our early portfolio and maybe you're counting some of those.

So we expect in any one year a significant percentage of those projects to come and go.

When it comes to late phase development obviously that's bigger money, more serious.

Let me just say we have as many patients in clinical trials this year as we had in the same -- first half of 2004.

So what you're seeing to some degree on the R&D cost, particularly on the D side, is an improved efficiency of effectiveness of the organization.

Particularly in the clinical area where, as Jon said, the lower use of CROs and the greater productivity within our organization, is beginning to pull through on some of the costs.

Thanks John.

I'm going to Kevin Wilson now at Citigroup.

Kevin?

Thank you Tom.

A question on Seroquel.

Could David, perhaps, comment on the recent retail TRX growth of the atypical market, and Seroquel in particular, which may seem to have slowed down a little over the last 3 months?

And could you also comment on the effective net price increase that you achieved, in this period over last year.

And also, linking through to that, looking forward to 2006, talk about any impact on Seroquel pricing and positioning that Medicare modernization might have?

Okay, David?

Well, the -- we look at Seroquel and continue to recognize for the last year, for the last couple of years, it's been the fastest growing product in the category.

We have seen some slowing down of the entire category and -- as well as Seroquel and TRX is the last couple of months.

And we've strengthened our efforts to make sure that we pick it right back up again.

I think we see very, very good clinical data that we continue to use.

We're obviously now promoting the bipolar mania claim to a select group of primary care physicians, as well as reinforcing our business in the rest of the market for schizophrenia.

So, I think we've seen the market slow down a bit, can't speak to exactly why that is.

It may have bounced back just a little bit the last couple of months, and our expectation is we'll be back on the growth curve fairly shortly.

Around on the net price increases, Jon do you have it?

Yes.

I think the net price effect in the US was a very small, 2% or 3%.

It was a bit more coming back with the managed care accrual.

Yes, increase in pricing, yes.

And I don't think we want to project out 2006 in anyway.

I think we'll take that as it comes.

Worth pointing out, of course, that the atypicals have made more penetration already in the US than in the rest of the world.

And there's a lot of good growth opportunity for Seroquel outside the US, and we are seeing some very impressive performances with Seroquel outside the US.

I'll now go to Alexandra Hauber at Bear Stearns.

Alexandra?

Yes, good afternoon.

Thanks for taking my question.

Four questions.

First on Zactima, the [indiscernible], I understood you're using 100mg with chemo and 300mg monotherapy.

A -- Can you just confirm this, and secondly, I wonder why that is?

Is it that with 100mg what you're seeing is [indiscernible] for getting [indiscernible] you're often -- you need 300mg?

And then also on Zactima, can you specify the [setting] you're looking at.

Is it chemotherapy in first line and mono in salvage?

Then a question on 709, the non-cardiac observation you're referring to.

Are they the latest to the oral administration, or because you actually give it chronic -- does the oral -- in the oral version?

Then a question to Jon, you mentioned that -- or to David actually.

Nexium was a broadly price neutral in the US, which I find a bit surprising given that your competitors have been pointing out, that you have been picking up key contracts, and that's why you've increased your market share.

Could you elaborate a bit on that?

And then final question is actually on the tax rate.

You haven't been mentioning that, because of the change in geographic distribution of your sales, you're seeing changes in the tax rate.

Could you elaborate on the broad taxes that you see affecting you, on the geographic factors where sales are going in?

And whether this is going to be -- we are going to see a long-term change in the tax rate?

Thanks Alexandra.

That's quite a canvas.

Let's start with Zactima.

John?

Okay.

The 300mg and 100mg have been chosen, based on the maximum tolerated dose that we saw in the Phase II study program.

And we found that, in combination with chemotherapy, the combination of side effects and tolerability effects from the two agents together, meant that a lower dose was necessary.

So that's why we're going with 100mg with chemotherapy, whereas 300mg in mono, and it's in second line lung cancer.

This is not about salvage, this is second line with patients who are relatively good survival likelihood.

I think that answered it?

But doing both the mono and the combi in the second line?

Correct.

And 7009?

Yes.

It's certainly true that what we've seen has come on, on multiple dosing orally.

We aren't in a position or willing to give much more information than that at the moment.

We haven't seen it with the IV but, of course, you don't give the IV for a period of days, because this is a very effective agent within a relatively short period of time, of turning people into [sinus] rhythm.

So we're working through the issues to find out whether it is related to the formulation to the product itself, and as soon as we have data, we'll either be resuming the development or getting back to you with the reasons why we stopped.

Then David, Nexium again.

Sure.

Yes, I think we tried to make it pretty clear that through the first half it's price neutral, and so by the end of the year we expect that there will be some overall price decline.

Our contracts are based -- A lot of the contracts are based on share performance.

So we follow the share, and depending on the levels of share achieved, it will cause us to adjust the rebate.

It also have to follow that we have been able to increase overall market share on TRX and NRX, by over a percentage point since the beginning of the year.

So that has an impact on it as well.

But I think our expectation is we'll have some decline, we're not projecting how much.

There is a lot of pricing pressure in this market but Nexium has still the preferred prescription, PPI, because of the clinical profile and what we've been able to do to demonstrate that in the marketplace.

And Jon Symonds, tax rate.

Yes.

Alex, I don't really want to go through the ins and outs of our tax [rationale], but we did signal at the end of last year that we did see a different mix of profits. and quite simply and probably not too helpfully, we're seeing a shift of profits into higher tax jurisdictions and lower tax jurisdictions, that is taking our tax rate up to around the 29%, 30% mark.

But is it [the US] what we're seeing, or is it just like the other countries, the rest of the world countries?

Sorry?

Sorry.

Is it the US that's the higher tax rate which is causing the [inaudible - over speaking], or is it actually the other countries, which is an area we haven't focused on yet?

I think it's all over.

We think it'll be transitional, such that as the mix of profits, or the mix of product sales, across the world improve over the next two or 3 years.

We'll find that it will transition back down again, but I think for now we're indicating a 29% tax rate.

And as I say, I'm a bit reluctant to go through the ins and outs of the distribution of our profit for tax purposes.

Because I rather fear we could take it up rather too much of the call doing that.

Thanks Jon.

And now Stuart Harris of HSBC.

Yes. 3 quick questions if that's okay.

Jon Symonds, the expected currency, when you talk about a 275 guidance for the full year, what's the currency impact that's expected there?

And then two product questions.

In terms of SAINT II, have you had preliminary discussion with the FDA, in terms of changing the statistical analysis for SAINT II to look at the NIH score.

And finally, you're choosing Exanta in the press release.

You took about the R&D still being open.

Should we have much expectation for other European or the US for that product?

Thanks.

I'll deal with Exanta, and then John can pick up SAINT II, and Jon Symonds the currency.

Yes, I have said consistently that I think Exanta is an extremely effective and good medicine.

And this question overhanging it about liver is really the, for me, the only issue about Exanta, and we've made a lot of progress in exploring the signs there.

Of course, the regulators are going to be nervous when you've got a 6%, 7% incidence of elevated liver enzymes.

If we can explain that sensibly, and if we can find a good effective way of getting this product trialed, particularly post-marketing, through very good post-marketing surveillance in a wider population, I believe we're going to find a very good opportunity for Exanta commercially.

Now that's my -- I've looked at this in enormous detail, that is what I think could very well mark out.

But on the other hand we may never get there, the regulators may be too scared.

But I think this is a tremendously interesting drug, and I would love to see some route by which we could explore these questions in a very safe, patient safe, way.

But, of course, we've got 0837 coming along behind and this is an area we want to have a very strong position in.

John, SAINT II?

Okay.

Let me be quite clear with you on SAINT II.

We didn't discuss the change in number with trialists, with a European regulatory advisory board and face-to-face with the FDA.

Nothing more to say.

You said that you did or you did not?

I'm sorry.

We just have.

You have, sorry.

Thank you.

John Patterson I would not give such precise numbers if we hadn't done that.

Okay, thank you.

And currency, Jon.

Yes.

Currency for the half-year, we saw a 3% on the top line translate in to a 7% benefit on the bottom line.

Clearly that's not the usual way currency drops through.

A 3% top line effect you'd expect around 2% of it to be on the bottom line.

So there was a benefit of about half of the bottom line effect coming from one-off currency gains, which effectively came in June when the Swedish kronor rapidly devalued against the dollar.

So what we're suggesting for the full year is that, because the dollar has strengthened quite strongly across all major currencies, that we will see a reversal of the trend that we saw in the first half.

With the sales effect coming down to quite a small number, and probably half of the $0.07 effect on the bottom line, reversing in the second half.

But, of course, that's based on our view of currencies today.

But we certainly did benefit with the rapid devaluation of the Swedish kronor.

That's great.

Thank you.

Okay.

And now Louisa Betts at Lehman Brothers.

Thank you. 3 questions.

Firstly, is there any update on the [Topwell Excel] court case, the timing of that?

And then for Jon Symonds, going back to the cost line for SG&A, and the savings there.

Can you tell us whether the next year we may see, not just a deceleration in the growth, but a reduction in the absolute level of SG&A?

And if you are making these savings, you alluded earlier on to investments associated with that.

When might we hear some more on that?

And the final question, it just links back to what we were hearing from Pfizer at their second quarter.

They were talking about more selling days this quarter, in the second quarter, than the previous year, and that this will even in the fourth quarter.

Was there anything unusual for AstraZeneca in the second quarter along those lines?

Okay, thank you. [Topwell Excel], not aware of anything.

David?

No change, so no news there.

Jon Symonds, SG&A savings?

Yes.

I think we've -- I think we're projecting to you the trends that we're seeing, and certainly the strong intention of getting more and more value out of all of the spend that we do.

I think until we have decided through the remainder of the year what the balance of investment, where we want the investment to be made, and which products it goes behind, I'm reluctant to give you any specific SG&A targets.

Other than to say that the thought process, and the philosophy that we have developed over the last year or so, will continue into 2006 and beyond.

And I think, similarly, if there are investments that are of a size that we believe we should communicate to you, then we'll describe those as we make them.

Okay, and David, US selling days?

I don't have any -- anything to report on that.

We don't have any particular issue with having our days cut short at the end of the quarter, or anything.

So can't really comment on what Pfizer said, I can't -- I haven't seen it.

Shouldn't be a big issue for us.

Now we'll go to Michael Leacock at Nomura.

Thank you.

Just two brief questions, if I may.

Firstly could I ask, perhaps David, on Crestor.

We've seen there's some fairly steady market share performance in the US, and you're clearly committed to the product.

What timescale do you think it reasonable and will you be using perhaps, to judge when that market share should start rising rapidly towards the levels we've seen in some of the European countries?

And my second question is, you mentioned some of the cost saving that you've had through the use of bringing trials in-house, rather than using CROs.

Could you perhaps quantify the scale of that saving a little bit, and more importantly, hint perhaps how much more there is to come in terms of R&D savings?

Okay.

David?

Sure.

On the Crestor recovery, I think if you go back and you take a look at the curve and the response times, each time there has been an attack on the product from a safety perspective, it's taken a bit longer to recover.

And, of course, following the statements that -- by Dr. [Graham] at the [Vioxx] hearing, it took quite a while for us to start to come back.

So I think our view is that through continued promotion, especially with the physician population that we have targeted, and in continuing with a pretty consistent and competitive, direct-to-consumer, advertising approach.

And reinforcing the risk of benefit profile and the message, we believe that we will be begin to see a recovery again some time soon.

I -- We haven't put a timeframe on it.

What's happened with Crestor is really unprecedented in the market, so it's difficult to find an analogue to compare it to.

But, as you said and as we said in our -- as I said in my comments, our commitment to supporting this project and establishing it in the role it should have in the market, is really undiminished.

We will continue to support it, to make sure it's positioned properly going forward.

Thanks David.

Now I'll go to -- Sorry, you're right, CROs.

Sorry, John.

No problem.

As far as the clinical costs are concerned, there are multiple factors at play.

We're not just simply controlling one element of the cost.

So they include things like geographic placement and a better purchasing, etc.

But in terms of specifically the CROs, we've moved from doing 73% of the work in-house to 80% of the work in-house, so if that gives you any help.

But I think the other thing we should say is, this is not a static thing, and we're committed to moving towards a very much more e-enabled clinical trials operation.

And during the course of the next two years, would hope to move to as much as a paperless society as we can get.

Thank you very much.

And now Marcel Brand, Cheuvreux.

Good afternoon.

My questions have been answered, thanks.

Okay, thank you.

In which case on to Mark Purcell at Deutsche.

Mark?

Yes.

Good afternoon everyone.

Just a few questions.

So firstly, I wondered after forecasting over [37] EPS growth rate for '05, what you consider to be good in EPS growth in '06 and '07?

Secondly, I wondered how big the database will be on 0837, for you to make that portfolio decision in Q4?

And whether there are any reasons why the two products are differentiated?

If there are any pharmacological reasons that you've seen to date, that would suggest that they are differentiated with respect to liver safety?

Thirdly, on Zactima, just wondered if there were any other exploratory studies that could crop up and present small opportunities, that we haven't realized yet.

And then lastly on Seroquel, I just wondered if you could address the outcome, or the likely outcome, or impact of the [KT] study to be published in the [Neurological] Journal in August?

And whether the SR formulation of the product may well gain additional patent protection?

Okay.

Jon Symonds, EPS, what's good?

Well, Mark, I think I might leave that one to you actually.

I think, if you take the momentum that we've created over the last 3 or four quarters, the commitment that we have got to managing our business more effectively and more productively, and work that through.

And I think you might come to the conclusion that the answer's a good one, and we'll put more -- we'll give you a bit more definition on that when we get closer to 2006.

But I think your models will show a number that we'll all believe is good, but I'm not going to put a specific range on it just yet.

Okay.

So you've got to work your own spreadsheets folks, that's the message, at least for a while longer.

John Patterson, 0837, Zactima and Seroquel [KT].

Okay.

Yes, of course, there are differences in the pharmacological profile of 0837 and Exanta.

They differ in some degree in things like that potency, interactions, etc.

So we will have a set of numbers and data on which we can make a decision at the end of the year.

The challenge is can we rule out an Exanta like liver change, and we believe we'll have enough patients in there to do that.

So that's the first question.

As far as Zactima is concerned, yes, there a significant number of both investigator initiated and through various cancer institute, clinical studies ongoing in a whole variety of tumors with a number of oncology products, not just with Zactima.

Together with, obviously, pre-clinical mechanistic work of the kind that threw up the RET Kinaze effect, that we've seen that then translated through to medullary cell carcinoma.

So you might expect to see that other things, although I don't have another tumor up my sleeve at the moment with Zactima.

As far as Seroquel and [KT] is concerned, it sounds like you know more about [KT] than I do, if you know that it's going to be published in the [Neurological] Journal in August.

We know it's coming but it's an NIMH study, and to my knowledge the companies concerned have not been involved in the study or in the data.

So we'll have to wait and see but do remember that we published a 500 patient study recently called [CAFE].

Which we showed very clearly that at the right doses, Seroquel is a very, very good agent in this area and very well tolerated.

Finally your question was on SR?

Yes, we would expect obviously to have some protection on SR going forwards.

And would that be related to an improvement in dosing regimen, i.e., more than just a simple formulation pattern?

I'll pass on that one for the moment.

Okay.

Thanks gentlemen.

And I think we need to bring this to an end, so I'll go to the last question.

Mario [Gozo] at [Somer Street Visa].

Mario?

No.

Hung up in frustration.

In which case I think we'll close there.

I would like to thank everyone very, very much for their questions, and wish you a good afternoon.