AstraZeneca PLC (AZN) 2006 Q2 法說會逐字稿

Welcome, ladies and gentlemen, to AstraZeneca's half year conference call.

During the call today, AstraZeneca's Chief Executive, David Brennan.

Also on the call are Chief Financial Officer, Jon Symonds, and Executive Director of Development, John Patterson.

We're also joined by the Investor Relations team.

Before I hand over to David, I'd like to read the following statement.

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

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

By their very nature, forward-looking statements involve risk and uncertainty, and results may differ materially from those expressed or implied by these forward-looking statements.

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

With that, I'll now turn the call over to David.

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

As you'll have seen in the press release issued earlier today, AstraZeneca has achieved another excellent quarterly financial performance.

Here are the headline figures for the second quarter.

Sales were just over $6.6 billion, an increase of 8%, as reported, and a 10% increase on a constant currency basis.

Operating profit at over $2.1 billion was up 30% in constant currency.

The operating profit included a $109 million gain on the divestment of the U.S. anesthetics and analgesics products to Abraxis Bioscience.

This is a result of the agreement announced in April and closed in June.

If we exclude that one-off gain, operating profit was still up a very healthy 23% over last year.

And earnings per share were $1.02 versus $0.75 last year.

That's constant currency growth of 41%.

The divestment gain contributed around $0.05 to EPS in the quarter.

Now, looking at the half year, sales were $12.8 billion, constant currency growth of 11%.

Operating profit growth was 31%.

Excluding the divestment gain, operating profit was up 28%.

And earnings per share at $1.92 were up 41% at constant exchange rates.

The board has recommended a 29% increase in the first interim dividend to $0.49 per share, and we repurchased $1.6 billion in shares during the first half of 2006 compared to around $1.2 billion in the first half last year.

Five key products - Nexium, Seroquel, Crestor, Arimidex, and Symbicort - continue to be the engines for our double-digit top line growth in the first half.

You can see here that on a moving annual total basis, combined sales for these products have reached just under $12 billion.

These products had an excellent first half with combined sales of over $6.2 billion, a 23% increase on a constant currency basis.

Jon Symonds will provide more color on the individual product performances shortly.

Looking at the sales performance by region, I'll focus on the constant currency growth.

Sales in North America were up 12% in the first half, including a strong 14% increase in the United States.

Sales in Europe were up 8% on good volume growth, partially offset by price erosion.

However, in Germany, sales are unchanged in the first half, where volume growth was offset by price erosion on Nexium as a result of the sharp decline in reference prices for the PPIs.

This is a situation that we're watching carefully.

Sales in Japan are up 4%, an improvement on the first quarter growth rate which reflected the usual destocking ahead of the biennial April price cuts there.

Sales in the rest of the world remained very strong, up 16% in the first half, as we continue to see strong growth in the emerging markets of China, Eastern Europe and Latin America.

At the beginning of the year and again at our business review meeting last month, I outlined my key priorities for this business for 2006 and beyond.

As we report our second quarter results today, we continue to make steady progress on these priorities.

The business momentum remains strong.

Top line growth is in double digits for the first half of the year, driven by the strong performance of our five key products.

We continue to drive productivity.

Our underlying operating margin, excluding the one-offs in other income and currency effects, is up 4 percentage point.

We're putting our strong cash generation to work.

We've increased the interim dividend by 29%, and we repurchased another $1.6 billion in shares.

That's $3 billion returned to shareholders in the first six months.

As I said back in June, many of the ingredients for continuing our momentum can be found in our current product range, and effective life cycle management is the key to realizing our high ambitions.

We're delighted with the approval of Symbicort in the United States.

Hats off to John Patterson and his development team for submitting a strong package and building a good working relationship with FDA to progress the application to an approval in just one review cycle.

We made our first regulatory submission for the once daily sustained-release formulation for Seroquel SR, with the filing in Europe on track before year end.

Strengthening the pipeline both from internal and external sources remains the key priority.

Progress continues here as well with the completion of the CAT acquisition, which, in addition to its excellent technology platform, brings with it four compounds that have moved into our development pipeline, two in the clinic and two preclinical.

And we've established an exciting collaboration with Abbott in the cholesterol market, agreeing to co-development of a single pill that is a fixed-dose combination of Crestor with Abbott's next-generation TriCor, ABT335, for the treatment of mixed dyslipidemia.

So, as I said in June, we know what we need to accomplish to grow the business.

Just as importantly, we've laid it out so that you know too.

It's all down to effective execution, and the people of AstraZeneca are up to the challenge.

We're working every day to improve on how we execute against this plan.

With that, I'll now turn over to Jon Symonds, who will review the product and financial performance in greater detail.

Good afternoon, everyone.

I'm going to start with the performance of our five key growth products and then talk about three financial topics, firstly about cost and margin trends.

Then I'll come to the financial impact of the anesthetic divestment and the completion of the CAT acquisition.

Finally, I'll describe how it all fits together into our financial guidance for the full year.

First, the products.

As David mentioned, our five key products continue to be the engine that drives our excellent top line and earnings performance.

David showed you the half year performances, and I'll now focus on the quarterly trends, where combined sales were $3.3 billion.

That's up over 21% over the second quarter of last year and now represents just under 50% of our total portfolio.

Turning first to Nexium, sales in the second quarter were almost $1.3 billion.

That's an increase of 8%.

If you look at the sales performance more closely.

The figures showing the U.S. up by just 5% might appear a little weak, but I want to remind you that if you go back to the second quarter of last year, you will recall that we made some adjustments to our managed care rebate accruals in the U.S. business.

A substantial proportion of those rebates accrual adjustments was against Nexium.

So, when you adjust for that and allow for some small inventory movements, you'll see that the robust underlying growth continues.

We estimate that that underlying growth is around 14% for the quarter and maybe a point higher for the six months.

We continue to have excellent volume growth in the U.S.

PPI market, and once again it's concentrated on Nexium, where dispensed tablets are up 20% in the quarter, and on omeprazole, with 48% growth.

All the other brands combined were down by 5%.

We remain comfortable that the combination of a differentiated product profile along with judicious volume/price tradeoffs we're making will continue to build on our market-leading position in the PPI market.

Sales in the other markets are also doing well.

In fact, they're up 13% in the quarter.

But Germany was weak, and the sharply lower reference price for PPIs in this market is causing us some concern for the future of the market in Germany.

If we turn now to Seroquel, you can see that sales in the second quarter are up by 28% to $849 million.

There was good growth in the U.S., with sales up 30% to $620 million.

Total prescriptions are up by 13% through June, with the second quarter a little below this.

But, that's well ahead of our two largest competitors.

Reported sales growth in the U.S. is ahead of prescriptions, and that's a result of favorable price changes as well as some destocking for Seroquel in the second quarter of last year.

Sales in the other markets were up by 24%, with Europe up 20% and Asia Pacific up by 30%.

We achieved another important step in the life cycle management of Seroquel just last week, with the regulatory submission of the once daily sustained release form of Seroquel in the U.S.; and the filing in Europe is planned for later this year.

Add to that the fact that the PDUFA date for the review of the bipolar depression indication in the U.S. is coming up at the end of October, you can see that there are exciting times ahead for this very important product.

Now Crestor.

Crestor had another strong quarter.

Sales growth was seen in the U.S., up 47%, and in other markets, where Crestor grew 58%.

In the U.S., the introduction of generic pravastatin, followed by the launch of generic simvastatin a couple of weeks ago, has distorted the new prescription market share statistics.

So, until this works its way through, we need to focus on absolute volume progression.

As you can see here, steady growth in new and total prescription volumes, with new prescriptions up by 62% in the second quarter.

As you know, the total prescription market share is less susceptible to the distortion from generic launches.

There was an 8% market share in the latest week.

That's up from 6.3% in December 2005.

You recently had a very full of Crestor at the business review, and the only thing to add is that we continue to be encouraged by the market share-- by the market developments for Crestor in all markets.

We've also seen good volume market share progression in other markets as well, with Italy, Canada and the Netherlands all in double digits and France nearly there at 9.6%.

Arimidex had another strong quarter, with sales up 31% to $379 million.

U.S. sales were up 28% on a 26% increase in total prescriptions.

Market share in June was 36.7%.

That's up another 2 percentage points in the last 6 months.

Sales in other markets were up strongly as well, a 32% increase, including a 37% increase in Europe.

Earlier this month, some key markets in the EU, including the UK, Germany, Italy and Spain, approved a new indication for Arimidex.

For those women who did not initiate their therapy with Arimidex, there is now the option to switch to Arimidex following two to three years of tamoxifen treatment.

This makes Arimidex the first and only aromatase inhibitor approved for both primary adjuvant use and following two to three years of tamoxifen.

Finally, Symbicort.

Sales in the quarter were $308 million, up 25%.

This brings sales in the last 12 months to just under $1.1 billion.

As we all know, that's all outside of the U.S.

As David mentioned earlier, there's good news to report for the U.S. with the earlier than expected approval.

John Patterson can answer your questions in the Q&A session that will follow, but we're naturally excited about the prospect of competing head to head with GSK with a stronger label and, of course, with a primary care team in the U.S. that has proved itself capable of competing against the best in the industry time after time.

We expect to be on the market around the middle of next year, and you can rest assured that it won't be a day longer than it needs to be.

So, all in all, another strong quarter for top line growth, driven by our five key brands.

Now, let's turn to the rest of the P&L.

David has already given you the headlines, so I won't go through them again.

But, the main point from my perspective is that we continue to demonstrate the operational leverage that we can deliver from a strong top line, even with a healthy increase in R&D expenditure.

With this quarter on a 10% top line growth, we've increased operating profits by 23% and the operating margin by 3.2 percentage points, in both cases, excluding currency and the one-off gain on the divestment of the U.S. anesthetics business.

Bearing in mind the comprehensive review of operating performance we gave you at the business review in June, I'm sure these trends are now clear to you, so I'll only refer to a few aspects.

Gross margin at 79% of sales is 0.4 percentage points better than the second quarter of 2005.

The favorable sales mix, operating efficiencies and lower payments to Merck were partially offset by a negative currency effect.

With the high volatility of exchange rates within the quarter, maybe we lost some of the natural hedging between sales and costs, and as a result we saw a 2% negative effect on sales grow to a 6% negative effect on profits.

This was the result of the high volatility of the dollar within the quarter and the impact this has had on cash settlements of both internal and external transactions.

Most of this exchange impact has ended up in gross margin, as we don't allocate currency across the cost lines.

In constant currency, R&D costs grew by 15%, including a $38 million charge associated with the discontinuation of the Galida development program.

Excluding this, R&D expense was up by 10% on increased investments across the entire portfolio.

Turning now to other income.

As we mentioned in the press release, other income includes the recognition of a proportion of the gain on a divestment of the U.S. anesthetics business to Abraxis Biosciences.

The total amount of this gain is $235 million, and, of that, $109 million has been recognized this quarter.

The remaining $126 million of the gain will be taken over the duration of the five-year supply contract.

As we reported in the first quarter, other income also includes a higher level of royalty income.

This is going to continue for the next quarter as well, and then we expect it to drop off in quarter four.

By taking all of the performance variables together, we see the outcome for 2006 to be in the upper half of the $3.60 to $3.90 range we set at the first quarter.

Two things are worth pointing out.

Firstly, this range now includes the gain on the divestment of the U.S. anesthetics business as well as a full consolidation of Cambridge Antibody, these two items broadly offsetting one another when the amortization of the CAT intangibles is taken into account.

Although we haven't finalized the acquisition accounting, we would expect this amortization to amount to around $80 million per annum.

Secondly, as the guidance points out, the amount of Toprol-XL profits that are at risk from here amounts to $0.24.

None of the generics have to date been granted an ANDA, so they can't bring a generic to market.

You can see that we are now beginning to change the way we present performance, and that's excluding Toprol-XL.

This gives a clear line of sight to the underlying business performance and allows you to overlay whatever assumptions you want to make for Toprol generics.

This will be particularly important when it comes to next year.

Toprol is a short term value play that we want to maximize, whereas the underlying growth rates will tell you more about the longer term business prospects.

So, from here on, we'll be increasingly focusing on the underlying business performance.

Thank you, and I'll now return you to David to begin the Q&A session.

I think we'll go right to the Q&A session, and why don't we start with Tim Anderson from Prudential.

Thank you very much.

On the PPI category, Wyeth recently claimed they have the best tier two penetration in the U.S. with Protonix, yet if I look at script trends, you're the ones gaining business and not them.

So, if they're correct and Nexium has less tier two penetration, I'm wondering what accounts for the volume uptick with your product.

Is that all Medicaid-driven gains?

And then on Symbicort in the U.S., I'm hoping you can give us an idea of what you think are the competitive advantages with the formulation you'll be launching in the U.S. relative to Advair.

Okay.

Well, let me comment on PPIs and tier two.

I have not seen Wyeth's comments, so that's a hard one to be specific about, other than to say our formulary position from a managed care perspective as well as a Medicare perspective for Nexium is very good, and it's the reason that we are so successful.

You can take a look at what's driving the growth in the market, as Jon pointed out in his comments, and the only two products that are gaining share are Nexium and generic omeprazole.

We have good tier two access in the U.S.

I think it's having a significant impact on our positioning.

So, not much more to say about it than that.

John Patterson, do you want to comment on Symbicort and the approval?

I mean, we're delighted with the approval.

John's team did a great job.

But, we've got work to do.

Obviously.

And, we're delighted with the label as well.

So, I would just simply say if you look at the label, you'll see that our speed of onset is significantly shorter, as we've always said, than Advair; and that speed of onset does turn into clinical advantage when used with patients.

Okay.

Thank you very much.

Thanks, Tim.

Can we go to Alexandra now?

Alexandra, go ahead.

Yes.

Good afternoon.

I have three questions.

Firstly, can you [inaudible] how much of the international Losec sales come from Japan?

And then also, on a similar vine, how much of the international Nexium sales come from Germany?

And then just, since you mentioned Germany as a concern, how low will you go with your price adjusting it down for the reference price before you say we'll stop going lower and then we're just going to lose the business?

Then just a question on the CAT acquisition.

You said it's just roughly offset.

The impact this year is just roughly offsetting what you make from Abraxis.

Now, I guess, what you mean by Abraxis - that's not only the $109 million gain but also the ABRAXANE royalties you get later on in the second half.

So, should we assume that the impact of operating income - the negative operating income contribution from [inaudible] is more like $140 million.

And also if you could just briefly quantify how much negative contribution you had already in the second quarter, since you already consolidated eight days of CAT?

Thank you.

Well, I'll let Jon come back on CAT in just a moment.

I think somebody's taking a look for the Losec in Japan numbers.

On Nexium in Germany, though, let me comment on that first because I think the situation is one where there has been continued pricing pressure.

We have positioned Nexium as a differentiated product.

To date, that's served us well.

With the reduction in prices, it does create a much more dynamic market.

We will continue to go forward and argue that the differentiation matters to patients.

We recognize there will continue to be pressure in that market.

We're not going to talk about where we would go to before we stop.

I think we're doing everything we can, Alex, to stay competitive in there.

I'll ask Jon to just comment on Losec in Japan and, if we want to, Nexium in Germany.

Losec in Japan is about $100 million in the six months.

Nexium in Germany is about the same amount.

Cambridge Antibody and Abraxis.

Cambridge Antibody - we didn't consolidate eight days.

It's absolutely de minimus.

So, the only thing that we brought into the half year accounts is the balance sheet.

On the full year, we expect to, obviously, bring in their R&D, which is running at about $60 million a year or something like that.

We've got $80 million, as I said, of amortization, which will be offset by the Humira royalties.

So you can see that it's a modest negative but nothing very substantial.

Really, in our mind, what we're offsetting against that is the $109 one-off gain on Abraxis because it's going to be quite difficult to keep isolating all the elements around Abraxis because, of course, we will get royalty income.

But we are also giving up the sales and incomes from the anesthetics and analgesics business.

So, just concentrate on the $109 million going one way, and maybe two-thirds of it going the other way as being-- as the net effect that I was really referring to.

Okay.

Thank you.

Good.

How about we go to David Moskowitz.

Several questions.

I think I'll start with the operating income line.

It looks like you're comfortably above that 30% level which you guys targeted.

Can you talk about what that looks like in the back half of the year and then, of course, going forward?

Also, I'd like some information on the stability issues regarding Symbicort that are prohibiting you from launching for 12 months' time.

Thanks.

Okay, David.

Well, why don't I ask Jon to comment?

We clearly have had strong delivery in our operating income over the last several quarters, over 30%.

But, Jon, do you want to comment about the second half guidance based on what we said at the business review in June?

Yes.

We're really not-- the only element on margin that we really-- that I would refer to as being different from what we've said before on this year's target is obviously the one-off gain on Abraxis, which adds about a point of margin.

So, in terms of the underlying margin, we're still around just a bit ahead of the 30% marked target that we've talked about through the year end results and the first quarter.

There's not really much change in that.

It implies that the second half may be a little softer than the first half, and I think that's primarily because some of the R&D costs have been centered on the second half.

So we really expect to see the kind of rates of growth that you've seen in the first half for R&D, increasing a bit into the second half.

So, second half margins may be a little lower than the first half, but it doesn't really change any of the fundamentals that we've been describing for some time now.

Good.

We'll go to John Patterson for Symbicort in just a second.

I just wanted to say I imagine there will be a number of questions about our launch plans and specifics.

So, let me ask John to say what we're going to say about our plans for the launch, because at this time, we'll give you a sense of a few things we need to get done in order to get to market.

John can do that and then I think we will have covered all of the Symbicort that we're going to cover.

Okay.

I think the first thing to say is that we don't have a stability issue.

We actually have a very good shelf life for this product.

We've decided that it's not long enough for us to go to launch at this point.

We made some changes to the device during the course of development, which is not unusual.

And, as a result of that, the long term stability on the final device is still rolling through.

I'm absolutely confident that that will come through and give us a positive result, but it takes time and it has to go through another review cycle with the FDA.

It doesn't go through an NDA review cycle; it has to be reviewed by the FDA-- I think you have to understand that-- before we can actually prolong our shelf life for the product.

I think the other thing to say is it is not uncommon for inhaled agents such as this one to have a gap between the NDA being approved and the first launch because manufacturing of these is not a simple matter, and it takes a while to make sure you have adequate launch stock available, to make sure that the patients and the market are not disappointed.

So the bottom line is we have very good stability data.

We're confident that we're going to have new data that supports a longer shelf life.

And as soon as we have that, we will go.

Good.

Let me go now to Andrew Baum.

Three questions, if I may.

Firstly, I'm somewhat surprised that your U.S.

Seroquel sales aren't stronger.

Is this simply because dual eligibles have been all mocked up in the first quarter and unlikely-- there's no flow through effect for Q2?

Second, I wonder whether you'd share with us the dosage that is being developed for fixed-dose Abbott combination and whether it's going to be 5 milligrams or 10 milligrams.

Then, finally, on your negotiations with managed care organizations for 2007, could you give us some sense of whether the degree of discounting or rebating is a moderate tweaking compared to 2006 or looks to be something more significant?

Thank you.

Okay.

Well, let me ask John to comment on the dosage for Abbott, and I'll make a couple of comments on Seroquel.

But, I'll ask Jon Symonds to do that as well, for he was in the U.S. again to review our program there.

I think our business is strong in the U.S., Andrew.

With the growth rates that we're showing and the volume uptick that we saw, there was a switch with dual eligibles at the beginning of the year.

I think it's difficult to estimate how much of it all got done in the first quarter because there was difficulty with the implementation and execution of the program.

I think some people got delayed for several months.

But, we see that growth continuing.

We see the market growth picking up a little bit and are pretty optimistic about it.

John, you want to comment on the plans for the Crestor development program with Abbott and how much we'll cover?

I'm going to disappoint you, Andrew, because, as you wouldn't be at all surprised to hear, we are testing a number of different doses of all of the molecules, as you would expect when you're developing a fixed combination.

And when we've selected the doses that we're going to go forward with, that will be the point to talk about it.

But, today, there are a number of doses being tested.

We'll make our selection based on data.

And as for managed care, I would just say last year when we were putting the managed care contracts in place, there was a recognition at the time of the difficulty we would have in being able to evaluate how the program was running after just four or five months in 2006, so we could project out 2007.

So, a number of the contracts were for a couple of years.

Now, Jon has just reviewed this situation in the U.S.

Jon Symonds, would you maybe give a little bit more color to my comments?

I think there's nothing really new to add to the kind of comments that we've made in the past.

I think we view managed care pricing and the volume elements that are tied to that contract as an essential element of how we manage the value of all of our brands.

I think we've been quite successful in the past of actually offering discounts that produce greater volumes.

And that remains our philosophy within a market where, inevitably, the discussions each year get more and more competitive.

But I think we not only have a good contracting group in the U.S., we have good products in which to develop win/win contracts.

On the managed care-- sorry, the Medicare contracts, where they've already been opened up 2007 formularies, as David says, we were seeking to try and get two-year deals.

I think that has been so much going on in Medicare, and it's been so difficult to really distill all of the trends, I suspect that we'll see in 2007 a continuation of what we saw in 2006.

But, we see these as much as a competitive opportunity as an erosion of price - in fact, more a competitive opportunity.

Good.

Thank you, Andrew.

We'll go now to John Murphy.

I want to come back to Symbicort, if I can, please - a couple of questions for John on this.

First, if he can give us any feel at all with regards to U.S. sales force expectations for what obviously is a critical launch for you.

Second, if you could give any comment as regards timing on filing for COPD.

And, third, as to whether or not you're going to look to file for flexible dosing in asthma as you have currently on your label in Europe.

Okay.

I'll take the first part on U.S. sales force, just to say obviously this will be a significant product for us in the marketplace.

We're excited to be there.

We've had the experience of competing in Europe.

We know the profile of our product and how it performs.

I guess, regarding the U.S. market, we recognize that it's a very dynamic market in terms of patients' needs, just because of the nature of the disease, the types of exacerbations and frequency.

So, we're excited to become part of that dynamic as soon as we can.

Let me turn to John and ask him to comment on the timing for COPD as well as the flexible dosing comparisons.

As far as COPD is concerned, we gave you an update in June to the time tables, and that said 2008.

That's what we're sticking to.

So, we will be delivering in 2008 in the first half, and, of course, we will also be producing a pediatric formulation for less than 12 years old in a similar time frame.

We haven't given you any information on flexible dosing for the USA to date.

David, would you care to put any figure at all on potential U.S. sales force for this product?

No; don't need to.

We did get a question in on e-mail, asking about are there other products - more products at risk from German price reforms as well as Nexium?

I think, clearly, the PPI class is already experiencing that.

We saw it in the statin class last year.

There was a dynamic that changed things.

The German government has health reforms in place, as well as a statement that they value innovation.

We believe that the products that we're bringing to market are innovative, and we'll look to continue to demonstrate that and to differentiate our products there.

But, we recognize that there's a lot of pressure there, and it's difficult to project where it will go beyond the first two big reference price classes.

We'll go now to Marcel Brand.

Thanks for taking my question.

I have a question regarding your longer term strategy regarding the dose levels of Crestor.

I still see a very high-- excuse me-- the vast majority of sales you generate are with the 10 milligram dose.

Do you have any strategy in place to increase the 20 milligrams in order to push through the message of obviously higher efficacy and get a differentiation versus generic Zocor at the 40 milligram dose?

I think that the data that's been presented many times, both in our label as well as through other studies have shown that efficacy, and physicians know it.

Clearly, 10 milligrams is always the recommended starting dose, and we stick with it.

But, if you take a look at the Asteroid study, where the dose was at 40 milligrams, some of the data that's coming through is utilizing some of the higher doses.

I think we see a large majority of people getting-- reaching their cholesterol goal on 10 milligrams.

John Patterson, do you want to comment on that? 80% of people get to their goal on 10 milligrams.

That's right.

And 80% is the usage that you would see as well.

We're absolutely sticking with a 5 or 10 milligram start dose, and for the vast majority of patients, that's adequate.

Only going to titrate upwards for those where there's a severe need.

It's quite common to undertake a lot of these outcome studies at the highest dose in the dose range in order to try and miss a false negative.

So you'll see that across all of the statins and, in fact, in most products.

That doesn't mean that we're going to change the range of doses.

It is 10 milligrams starting for most people, 5 and 10 in some areas.

Good.

Thanks, Marcel.

At this point, we'll go to Jo Walton.

Just a few clarity issues, please.

You said that the amortization for CAT would be around $80 million a year and that that would match Humira royalties.

So, you're saying that Humira royalties will be, broadly speaking, $80 and amortization, broadly speaking, $80.

Can you confirm what the impact will be from the ABRAXANE deal?

Are you going to be getting roughly the same amount of co-promotional income as you will be amortizing, or will it be a different balance there?

Okay, I think I'll ask Jon, really, to comment on both of those.

Jon, do you want to start with amortization and Humira and the tradeoffs?

I thought when you said there were a few questions coming up, there was more than that, Jo.

I was scribbling them down.

I think we expect the amortization of the CAT intangibles, which, I have to say, are preliminary at this stage because we only completed the acquisition on June 30, and we do have to go through a full valuation process.

Indeed, in terms of the intangibles that we will be recognizing, a substantial part of it will be what we judge to be the capitalized value of Humira.

So, to a very large extent, the Humira benefit will be knocked out by amortization, but the amortization will exceed the value of Humira because there are obviously other intangibles in there as well.

So, CAT, at least for the near term, will have a negative impact on our bottom line.

ABRAXANE is a little bit more difficult to unpick.

Clearly, you've got the $109 million we recognized today, and there's another $120-odd million to come in over five years.

But, as we said in the press release when we announced this deal, we expected it to be neutral to marginally negative this year but thereafter be positive because we really do believe that ABRAXANE has a huge potential.

We're determined to achieve that value, and therefore it should exceed the value of all the lost profits foregone on the anesthetics business relatively quickly.

And, can you please confirm whether you think that your sales force in aggregate number in the U.S. that you have today will be enough to continue what you are doing and launch Symbicort?

Or, are we likely to see an increase in marketing investment?

And, a final question on the length of your contracts.

I know you've said you've tried to do two-year deals.

Broadly speaking, in your managed care portfolio, what sort of visibility if you maybe got-- I don't know-- 20% or 30% of your sales where you're relatively secure what your price will be next year, and has that changed over, say, last year?

Have you got more or less visibility for the future?

I'll comment on the Symbicort part and let Jon comment on the contracts.

Right now, our plans in the U.S. are to keep our sales force at the size that it is.

I think we've got the-- There may be some modification from a specialty perspective.

But in the primary care side of things, we have actually dropped down a little bit over the course of the last year, dropping some contract selling organizations that we felt were giving us excess-- more capacity than we needed.

We're trying to, and have, significantly improve the productivity of our sales forces measured by a lot of the IMS metrics around numbers of calls, time spent per call.

And there's an awful lot of overlap in the audiences between the primary care products like Crestor and Nexium and Symbicort.

It's that overlap, I think, that makes us recognize we can deliver a competitive share of voice in the market.

So, right now, our plans are to go forward as is.

Jon, do you want to comment on contracts?

[inaudible].

The sales force is a very dynamic thing that we review three to four times a year.

We are determined to improve the operating leverage through the businesses we've described.

The sales force is a significant part of it.

We expect that if we were to make investments, we'd get significant value on it.

But, as David says, we're trying to manage or optimize our total sales force.

It is very difficult to generalize on managed care, to pick up all the points in your question, Jo, because there are as many different contracts as there are managed care organizations.

We try and adopt common principles, but each one has its own unique features.

What we always try and do is to try and link the value proposition of our product with its pricing.

You don't get two-year visibility on pricing.

You might get a year or more visibility on formularies, but the pricing can be quite dynamic.

I think, as I've said several times already-- I think what is key to us is managing the value volume proposition.

I think we do that pretty well.

I'll finish by asking if you could say what the contribution of price was to your U.S. sales growth in the first half.

Okay.

We'll take a look for that.

I would go back to Marcel's question, for just a second, though, Jo, to say I wanted to remind everybody that Crestor is flat priced in the U.S.

So the changes between the doses really put the burden back on Crestor to deliver, and it doesn't create an economic burden on the managed care organization or a windfall for us if dosing changes.

We took a very deliberate decision to be responsible with the pricing when we introduced, and we'll stick with it.

Jon, do you want to--?

The U.S. growth was substantially all volume - very small price effect.

Thanks, Jo.

Thank you.

Let me go to Jerry [Brinmeyer].

Thanks for taking my question.

Can you shed some light on why you think Toprol-XL generics have not yet entered the market?

And, given your statement in the release that you now expect full year 2006 EPS to be in the upper half of your expected range, $3.60 to $3.90, is that an indication that you do not expect Toprol-XL generics to enter the U.S. this year?

Also, on Nexium, is the second quarter managed care accruals a one-off, and can we expect U.S. sales of Nexium to trend closer to script growth in the second half?

Okay.

Well, let me comment on the generics first.

I mean, clearly, we're just not in a position to comment on when the generics might come.

I think, as you all know, there haven't been any approved yet.

So, that would be the first event that we'll take note of.

The other thing to remember, I think, as many of you know, is that, because of the unique generic laws in the United States, there are exclusivity opportunities for filing early.

So there could be just one product from different companies at different doses, depending on when they are approved and introduced.

It sounds complicated, and I just use that example because it is.

It's why we haven't tried at all to project out what it will-- what we expect to happen, because we've got as many scenarios as everyone else does.

I think as we started at the beginning of the year to try to be very visible about the value of Toprol-XL, and now, as Jon describe it a few minutes ago, there's a value opportunity, and we want to look at our business without it so we can see what's the true underlying growth.

As it relates to the guidance, I'll go ahead and ask Jon to just comment on how that does line up with guidance.

Jerry, we haven't changed the way in which we presented Toprol at all this year.

Each quarter, we give you the amount of Toprol-XL that is in our forecast for the full year that we haven't earned and therefore is at risk if generics came in virtually any day.

Clearly, you've got some conditions in advance before that would happen.

But, what we have really changed is to say, look, there's only so long you can keep dealing with this uncertainty.

As we look at next year, we think it's easier to start talking about the business without Toprol because, frankly, if we came to the forecast at the beginning of '07 that had 12 months of Toprol in it because we hadn't seen any this year, I think that assumption would be even harder to-- would be hard to justify.

So, next year, we'll start talking about the business ex Toprol, and we'll try and help to the extent that we can about what Toprol would be.

But I think it's still going to be difficult to predict.

On Nexium, to some extent, you're always looking forward in terms of what will today's sales to a wholesaler be realized when they're consumed by a managed care organization because we never accurately know where those shipments are ultimately going to end up.

So, to some extent, we're always looking at the estimates around managed care accruals.

The adjustments that we made in 2005, however, were of a magnitude that we wouldn't expect to repeat.

So, to that extent, there's a one-off effect, albeit within an area that we constantly reassess.

Thank you, Jerry.

We have another question in my e-mail, and then I'll go to Michael Leacock.

The question by e-mail, first, though is if you're looking to do more deals like CAT and Abraxis, what therapeutic areas are likely to be targeted, and are there therapeutic areas where you need more critical mass?

John Patterson, would you comment on that, please?

Yes.

I think it's worth just looking at the contrast between Abraxis and CAT because I think it gives you the answer.

CAT is all about accessing an opportunity to develop bioproducts all the way through to early phase clinical development across all our therapeutic areas.

It gives us a chance to expand our capability to hit targets, and it gives us access to a science that we didn't previously have in house.

Abraxis is about accessing a marketed product that's right in the middle of one of our therapeutic areas that helps us tactically to increase our sales and make our forces more efficient over the short to medium time.

And there's everything in between.

So, the answer is our externalization, as we said to you in June, is about tactical needs on the pipeline; but they're also very much about the strategic externalization to make sure that we get all the great sciences out there.

Good.

All right.

We'll go to Michael Leacock.

Just a brief question on Symbicort, if I can.

I notice from the approval letter from the FDA-- it says that they are deferring submission of the pediatric studies in patients 6 to less than 12 years until December '07.

Does that mean that you had actually submitted some studies, and the FDA is putting them back, or is that not the case?

I'm just wondering following on from that, how low can you go in terms of the age group that you expect to be able to use Symbicort in?

Okay.

I think, John, do you want to comment on that first?

Okay.

In order to go to that kind of age group, 6 to 12, one needs a lower dose inhaler.

We got a pediatric waiver as part of our license application some time through that said we didn't need to address this group, although they're an important part of the target population.

So, it's simply a matter of them reminding us that we had a waiver, but we still have to address it.

And address it we are doing.

As far as how low can we go, the answer is below 6 years of age, it's quite common for children to have some difficulty in working with these devices.

You can use things like spacers to help, or you can use nebulizers and various other techniques.

So, generally speaking, they are used a bit below 6 years of age, but it's not a huge market without doing things with other devices.

Thank you very much, John.

Good.

Thank you, Michael.

We'll go to Graham Perry now.

Thanks for taking my questions.

Firstly, just on Toprol-XL, I was just wondering have you reduced rebates to managed care at all on the product since the loss of the patent trial, and is that contributing in any way to your second quarter margins?

Secondly, I was just wondering if you could give any feel for the impact of Part D on the growth in the quarter, particularly in Nexium, and your thoughts for the full year on that.

Also, a few more details, if possible, on the royalties that you're expecting to tail off next year, both in terms of the size and what the source of the royalties is.

And then just on the Abbott deal, two questions there.

I wanted to just check when we could expect to see some data on ABT335, whether that would be pivotal data or whether you expect to run more studies for that product.

And then, finally, just perhaps a little bit more on the rationale behind the economics of the deal.

Presumably, a combination product would not be able to be priced at a premium to Crestor in the current pair environment.

So, you're effectively looking at giving away half of your Crestor profits to Abbott.

Does that perhaps give us some insight to the level of threat that you perceive Crestor from torcetrapib?

Thanks.

Okay.

Well, I'll start with Part D. I'll ask Jon Symonds to comment on the Toprol-XL question on reduced rebates and effect on second quarter margin as well as the royalties for next year.

And then John Patterson, would you comment on the data timing - whether it's pivotal.

I don't we've said much about the economics on Abbott.

But, you can handle that.

The Part D from the beginning-- From the latter part of last year, I said, and I think we've continued to say, that we felt that it would be difficult to read the impact until we had several months of experience under our belts.

The run up to the enrollment period, as many of you know, which ended in May, included a substantial proportion of increase in enrollment taking place.

In the last month or two, it was not, I don't think, very even - evenly distributed.

I think people waited to make sure they understood what the best option for them was.

All that being said, there's clearly been an increase in volume growth in the market.

Some of that is on the back of managed care, but some of it is clearly the benefit that some nearly 10 million seniors and Medicare patients are now eligible for this benefit.

I think it's going to take a few more months to really understand how much of an impact that's having.

We positioned ourselves very competitively with our contracting for Part D. We see the volume going up, and we feel the pressure on pricing.

So, we recognize that what we thought would be happening is starting to happen, and I think we are watching and participating very rapidly.

Jon, do you want to comment on Toprol-XL and royalties?

Yes.

Graham, you can piece together eleven months' profits on Toprol-XL from the paragraph in the press release, because we've given you the six-month EPS of $0.26, and we've given you the next five months of $0.24.

So, you can assume that the total income on Toprol for the year is a little above 50, which is a little stronger than that, which we gave you for the eleven-month in January.

I know we perhaps we have given you the full twelve months.

But, I think you can pretty well see that, although we see Toprol having a slightly better impact on the bottom line, it is not by any means been the cause of our aggregate performance this year.

On royalties, we've never really broken it down into the individual combinations because there are a number of things in there.

I think we've been as clear as we can be on the aggregate that the kind of rate that we've seen in the first and second quarter of this year will continue in quarter three; then it will step down.

We're not going to go into the other individual pieces.

The other thing I would just point out is that the Cambridge Antibody amortization as it comes through in quarters three and four will go against other operating income.

Okay.

And, John Patterson, will you comment on where we are with Abbott and how we see it positioned with Crestor?

Okay.

I think the first thing to say is what is the scientific and medical rationale?

There you have an agent from Abbott that will decrease triglycerides and increase HDL combining with Crestor, which decreases LDL and increases HDL.

So, it's a great combination in terms of patient benefit.

That's the first thing to say.

There's a good medical rationale for doing it.

In terms of the combination, I think as I said earlier, we're going to pick the doses over the next couple of years and pick the right agents to go together.

We're working with the FDA to agree a trial program, and we said at a preliminary level we look to get the license application in around 2009.

It's really probably far too early at this point, therefore, to comment about the economics of how these things fit together.

We'll see what the market looks like at the time, Graham.

Thank you for your question.

We'll go now to Kevin Wilson.

A couple of questions.

Could you remind us on the launch schedule for Crestor what major markets, if any, are left or minor markets are left that we should pay attention to that have yet to get that product launched?

Secondly on product launches, could you remind us on a broader base what is yet to be launched in Japan from the current line up?

And, then, a broader question for John Patterson on acquiring pipeline assets.

Could you comment on the price you're seeing those who have them are seeking for them?

And does-- perhaps, Jon Symonds, you might want to comment.

Does IFRS accounting allow you to up the ante somewhat and [inaudible] the ante, which means, essentially, that the price of those assets are rising, in effect, partly to the accounting treatment?

Thanks.

Okay.

Good.

Well, certainly launches of Crestor to watch-- I think, as you all know, we've been in the midst of a post-marketing surveillance program in Japan, which is the next big market to watch.

That post-marketing surveillance now is fully enrolled.

We have data from it.

Some of that data has been reviewed, and we expect, I think, to get going with Crestor in Japan as a result of the review of that data.

I don't have specific timing around it at this point, but that would probably be one to watch.

I think Australia has recently launched as well.

Other product launches in Japan will include Symbicort, and Pulmicort Respules was also approved in Japan for launch in September.

Then, the line up, John, further down the road, in the next couple of years?

It's pretty well what you'd expect to see for the rest of the world, with one or two questions about some of the lag products as to whether they're going to go there or not.

Okay.

Good.

John, do you want to comment on cost of deals and how that's affecting how we're approaching it?

And then, Jon Symonds, maybe you can--

Maybe Jon and I can do a couple act.

First of all, Jon always remind me that things may go on the balance sheet, but eventually they come off it.

And, therefore, we can't simply do licensing deals and think that the money's gone away to the balance sheet.

There is competition for every licensing deal that we do.

I think that's the important point.

You're almost never alone out there when there's something with an interesting asset.

And, the rules are still there - the later the phase they are, the more expensive they are and the more you have to share with the inventor.

That does drive you into phase 1 and phase 2 deals, and they are, anyway, the ones where there are more deals available.

So, the bottom line is it's been competitive for a while.

I don't see it changing dramatically.

We're not getting desperate, if that's what you're thinking, as an industry; but we're certainly very competitive in trying to get the right deals.

And, Jon, your view on it from the accounting perspective?

Well, I think if anybody came to me with a proposal that says we can pay above economic value because there was an accounting advantage, they wouldn't get it considered for very long.

So, if that isn't a clear answer, Kevin, I don't know what is.

Clear as ever, Jon.

Thank you.

Thank you, Kevin.

Why don't we go now to Martin Hall?

Yes.

Just going back to your comments on Symbicort, could you tell us what the shelf life in the EU is?

And, what do you believe it needs to be for the U.S. market?

Secondly, on Nexium in the United States, if you look at the prescription utilization and the ex factory sales, you can get a price per prescription.

This is actually down 7% in the first half of this year compared to the first half of last year.

Notwithstanding that you try to do two-year deals, is it realistic to believe that the price will be falling again in 2007 by the same amount?

Okay.

Thank you.

Martin, why don't I-- Just a reminder that Symbicort in the EU is in the Turbuhaler, so it's in the dry powdering device.

But I don't know the target date for shelf life.

John, do you know?

For the USA?

No.

He asked for what's the Symbicort shelf life dating in the EU.

Well, it's irrelevant to the U.S. because it's a totally different formulation.

What we'll do, Martin, is we'll have somebody from IR get back to you on that.

Do you want to comment on what we're headed for?

We want a competitive shelf life.

A bit longer than we've got today.

That's probably the best we can do at this point, Martin.

Okay.

Thank you.

That Nexium price is-- I think the kind of calculation that you're trying to do is very imprecise, but it's probably consistent with what we've said for Nexium for some time.

We're looking for strong volume growth.

We're willing to give some of that volume up through price.

Net/net, it still is a very attractive business, and it's a very attractive product.

I [disagree] that statistics do exactly bear that out, John.

I was just wondering whether you have enough two-year deals, though, that price might be maintained next year.

Or, should we still factor in an element of decline for 2007?

I wouldn't factor in the same prices because I think it is a competitive market.

But our ambition to grow the volume substantially ahead of the price erosion still remains.

Yes.

Obviously, the goal is leading share, Martin, as you know.

We'll go now to Stefan Wikholm.

Thank you.

My question was just answered.

Thank you.

Okay.

Thank you, then.

We can go now to Brian Bordeaux.

We are getting near the end of our time, but we do have time for one or two more questions.

I might have missed it before, but I just wanted to clarify the [inaudible] treatment of ABRAXANE sales.

You said at the time you did the deal, and I think repeated on this call, that you'll be receiving commission income from those sales.

I just wanted to confirm; are you going to put this through other operating income or somewhere else?

Thank you.

Jon, do you want to--?

We plan to book it through sales, but I'm currently working, or will be working with, Abraxis on how best to do that so that we don't give their numbers out before they do.

Thank you.

And, do you think, then, that you'll be booking the full amount or just--?

No.

It will be our commission.

Good.

Thanks very much.

Thank you, Brian.

All right; we'll take one more question, and that's from Mark Purcell.

Just a few questions on Crestor.

Could you remind us if the timing of METEOR-- if you're going to announce headline dates and when will you expect the four-day to be published?

Crestor in Spain - where you are with negotiations there.

Perhaps a different question on the Abbott drug ABT355.

Can you give us the HDL elevation and triglyceride reductions you've seen across the dosage range?

Lastly, on torcetrapib.

I think it was in the New York Times that [inaudible] is going to file for that drug now as a monotherapy.

Can you discuss how that could change the outlook for the cholesterol lowering market?

Okay.

Well, there's a few.

I think the timing for METEOR for Crestor is the end of this year.

And, I believe we've said that and have every reason it will be the same.

The situation in Spain is unchanged from what we said, I think, at the business review.

We are in discussions, but there's not a clear path forward yet.

I'm going to look to John, though, to answer the questions about-- to John Patterson on what else he wants to say about ABT355 and the HDL and triglyceride effects across the dosage range as well as-- I have a view on torcetrapib, but you go ahead.

Okay.

I think it would be completely wrong for me to comment on Abbott's compound, actually.

So, ask Abbott is the obvious answer to that one.

As far as torcetrapib is concerned, I'd be very happy to see data on it as a monotherapy because I don't think it will shine particularly, from what we've seen previously.

But, anything that comes into the marketplace that would allow us, if it does add something, to put Crestor alongside it is going to be good for Crestor.

So, monotherapy's not a bad idea.

Yes.

I'm with John.

I think a product like that may treat certain patients in a different way.

I think it's good for patients to have it available singly as well.

Good.

Thank you, Mark.

Last question now, for sure, and it's from Eric [LaBergar]

Two questions, please, first on Abraxis.

Could you help us understand how it will play out exactly in the P&L in the second half and the half after?

Do you book net sales?

Is it 22% net sales, or is it full sales and then there is a mechanism to give back royalties to ABRAXANE-- to Abraxis?

And, then, on Casodex and Arimidex, we are fully aware of the patents expiring in the U.S.

Could you just tell us in meaningful countries ex U.S. whether there are some expirees to look at in the coming year, please?

Listen, both of those are pretty specific.

I'll tell you what; why don't we-- rather than go through the-- Do you want to comment on the P&L [inaudible]?

[inaudible] because I think we've covered it broadly before.

The income will be in sales.

We will, of course, have our costs that we contribute to the venture as well.

The amortization of the remaining gain on the supply contract will be in other income.

And, on the second question around ex U.S.

Casodex and Arimidex, we'll have Investor Relations call you right back and run you through the main countries by date.

With that, I'll conclude the call and thank everybody for your participation.

One other point we want to make-- John, please.

There's one other material piece of information that we need to convey for event tomorrow, and that is Mike Rance, who has been leading Investor Relations for at least the last 26 quarters, which is-- which covers quite an important part of all of AstraZeneca's life, is retiring tomorrow.

Mike has been the visible face of AstraZeneca to many of you through that period.

I think he has [inaudible] all the characteristics of the Company that we would want to display, and that's highly professional, transparent and honest.

Mike, thank you very much for what you've done.

Don't ask difficult questions in future conference calls.

With that, we'll wind up today.

Thanks, everybody, for your participation.

Thank you.

Bye.