AstraZeneca PLC (AZN) 2006 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to today's AstraZeneca Q3 analyst conference call.

For your information this call is being recorded.

At this time I would like to hand the call over to your host today, Mr. Jonathan Hunt, please go ahead sir.

Thank you operator, and welcome ladies and gentlemen.

Chairing the call today is AstraZeneca's Chief Financial Officer, Jon Symonds.

We're also joined by Dr. John Patterson, Executive Director of Development, and the Investor Relations team.

Before I start I would like to read the following statement.

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

Participants on the call may make forward-looking statements with respect to the operations and financial performance 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.

Before we move to the financial performance with Jon Symonds I want to hand over to John Patterson to make a few remarks on this morning's other announcement, the NXY SAINT II results.

John.

Thank you Jonathan.

Good afternoon or good morning.

As you know development of drugs in the field of stroke is a very high risk endeavor and as we've said to you on a number of occasions previously we regard this development of NXY-059 as being in that category.

So the results this morning shouldn't have been a total surprise to you although they are a disappointment to stroke patients and, of course, to ourselves.

We're comfortable, however, to say that the SAINT II study was a very well designed and run study, that it had high power and that there was little or no chance of there being a false negative result from the study.

What SAINT II has shown us is that there are no positive results either for the primary or secondary endpoints or for any of the sub-groups.

And therefore we are left in the situation where we have decided that we will terminate development of NXY at this point and will be handing it back to our partners, Renovis.

I'm satisfied that we gave, in what is a very difficult area of stroke treatment, every opportunity for the stroke to recede and we have a robust result.

I think you should put this in context with some of the positive results we've had from our pipeline in the recent past including Symbicort FDA approval, Symbicort in Europe for the SMART indication and, of course, most recently of all we've had the Seroquel bipolar depression result.

So putting that in context remembering that R&D, particularly with novel medicines in area of high medical need, carries some risks and we've seen that today.

We are committed to delivering the pipeline that we set out to deliver.

We set out our priorities to you in the June R&D day and we're determined to carry them through.

That's really all I was going to say, Jonathan, by way of background.

And I'm now going to hand over to Jonathan Symonds who's going to take you through the third quarter results.

Thank you John, good afternoon everyone.

As usual I plan to cover the following areas in the financial results of today.

The review of the headline numbers, I'll take you through some of the key product highlights, with commentary on cross-trends, margins and currency, and our latest thinking on the outlook for the full year.

And I'll leave ample time for your questions and answers.

First the headline results.

We've delivered another excellent quarterly performance.

Sales increased by 11% in constant currency to just over $6.5b.

Operating profits were up 24% in constant currency and earnings per share were $1.01 versus $0.76 last year, which is constant currency growth of 34%.

For the nine months it's a very similar picture.

CR sales growth of 11%, operating profit up 29% and that includes the $109m divestment gain we recognized in the second quarter of this year.

And earnings per share at $2.93 were up 38%.

As I discussed during last quarter's call we've provided you with sales and earnings per share excluding the U.S. sales and earnings contribution from Toprol-XL for both the current and prior periods.

This I believe we give greater line of sight to the strength of the underlying business performance if and when we see a generic entry.

On this basis for the nine months the underlying business produced 11% sales growth and earnings per share growth of 38%, not dissimilar from the aggregate numbers.

However looking forward to 2007 earnings excluding Toprol-XL will be the only reliable anchor point for 2007 given that there are probably even more scenarios for generic competition in 2007 then there were in 2006.

You should also be aware that as I'll be providing guidance in February excluding Toprol-XL it will make sense for you to begin to align around this number and also strip our Toprol-XL from your own numbers.

Right now there are a wide range of estimates for 2007 and it's unclear to me how much Toprol-XL there is in 2007 consensus numbers.

As has been the pattern for some time five key products, Nexium, Crestor, Symbicort, Arimidex and Seroquel continue to be the engines for sales growth.

These products combined are up another 21% to over $3.3b and now comprise more than 50% of the total sales for the Company.

And I'll touch now on some of the key product highlights.

First Nexium.

Local sales for the third quarter were up 13% to $1.3b and for the nine months up by 12% to nearly $3.8b.

Last quarter we fired the sharp price reductions in Germany and these have weighed heavily on performance outside of the U.S. in the third quarter.

Non-U.S. sales were up by 6% but excluding Germany sales grew by 11%.

Nexium sales in the U.S. were up 15% on a familiar recipe, clear product differentiation, and sensible volume price trade-offs leading to continued strong volume growth, which more than offset the price concessions.

What is also becoming familiar is the fact that only two products are growing in the PPI segment, Nexium and Ameprozol, and in a market that has picked up pace in the last quarter and is now growing at 13%.

This meant tablet volume growth for Nexium was very healthy at 19% in the quarter, although the growth rate in September eased a little to 15% because we felt the impact of the loss of the United Healthcare Plan contract from their non-Medicare business from September 1.

Although no-one likes to lose a customer, contract wins and losses are a constant fact of life in this dynamic, competitive market.

A major component of our success in the U.S. in recent years has been our Managed Care strategy.

I'm confident that when we net the wins and losses, not just for Nexium but for Crestor and Seroquel and all our key brands, we remain very well placed in both the Commercial and Medicare Part D segments as we approach 2007.

And we have the opportunity to strengthen it further as we begin to approach Managed Care with Symbicort from the middle of 2007.

Turning now to Crestor.

Crestor delivered an outstanding performance in the quarter and is getting better.

Sales were up 62% to $536m.

That's the first time sales in the quarter have exceeded the $0.5b mark.

And it's a very balanced performance geographically.

Sales were up 59% in the U.S. and 66% in other markets.

Prescription performance continues to show momentum.

The U.S. statin market is growing double digit in new and total prescriptions in the year-to-date.

Crestor's share of new prescriptions in the latest week reached 9.6% and dynamic share has reached 14%, hot on the heels of Vitorin.

In other markets Crestor's volume market share now exceeds double digits, in France, for example.

Another notable highlight is that we recorded our first commercial sales in Japan now that we've successfully completed the interim post-marketing surveillance report.

This is a major step forward for Crestor and its getting major focus and from our Japanese marketing partner [Shianogi].

Finally for Crestor you will have seen from the R&D outdate in the press release that the METEOR trial has completed on schedule.

While the data won't be published for a while yet we're confident that the findings from METEOR with data from ASTEROID and ORION, will together, form the basis of our regulatory submissions for atherosclerosis which is planned to be in the first half of 2007.

Symbicort sales were up 11% in the quarter, 19% year-to-date to $861m.

And we're very pleased to have successfully completed the EU approval for Symbicort Maintenance and Reliever Therapy or Symbicort SMART.

With this new treatment approach patients can now achieve excellent asthma control using only one inhaler for both maintenance and relief of asthma symptoms.

Launches for this new asthma treatment concept will take place over the coming months.

As for the U.S., launch preparations are moving along well and we remain on track for our planned launch in mid-2007.

Next, Arimidex, sales in the third quarter were up 24% to $382m and for the year-to-date have now crossed the $1b mark.

In the U.S. sales were up 28% to $156m and in August Arimidex reached an important milestone.

Its share of total prescriptions exceeded Tamoxifen to become the market leader among hormonal treatments for breast cancer.

In recently published consensus findings an international panel of experts agreed that aromatase inhibitors such as Arimidex surpassed Tamoxifen as the most effective treatment option for post-menopausal women with early hormone sensitive breast cancer.

And based on the prescription data it would appear that these findings already resonate amongst the physician community at large.

Arimidex sales in other markets increased by 22%.

Finally, Seroquel.

Third quarter sales were up 19% in the U.S. and 20% in other markets, totaling $848m.

Two major regulatory milestones have also been completed, with FDA approval for bipolar depression at the end of last week making Seroquel the only single medication indicated for both the manic and depressive phases of bipolar disorder.

Secondly we filed for the once daily SR formulation hit for Seroquel in the U.S. back in July and we submitted in the EU only last week.

Before turning to the P&L, a quick update on our externalization program.

During the quarter we completed four deals.

The collaboration with Abbott to co-development a combination of Crestor and Tricor.

The research and commercialization agreement with Pozen to co-development and market a fixed dose combination product, Ezomeprazole and coated Naproxen for the treatment of chronic pain, both additions to the late stage pipeline.

And there are two earlier stage deals with Dynavax and Schering AG.

So we continue to make good progress with the strengthening of our pipeline from external sources.

You will also see from the financial pages of the press release that we sold the [Hemera] royalty stream which we obtained as part of the Cambridge Antibody acquisition for $700m.

While we don't have an immediate need for cash, it does, I believe, signal a necessary balance sheet discipline to preserve our investment capacity given that the intangible amortization of Hemera added nothing to our bottom line.

And as our biological strategy matures over time I've no doubt that this and more will be reinvested to support future growth.

So on to the financials.

Operating profit was up 24% in the quarter.

Operating margin increased by 3 percentage points to 32.3%.

Currency was neutral on operating profit but had a 1% negative effect on earnings per share.

Excluding currency and other income underlying margins increased by 2.3 percentage points from further operational and product mix improvements at the gross margin level and from sales and marketing leverage offset by an increasing R&D spend.

A familiar story now, but one which will requires constant focus and attention.

As we've indicated for some time we've spent the greater growth of R&D spend to accelerate in the second half of the year.

We saw this in the quarter.

R&D was up 19% in constant currency terms versus the easy comparison with the third quarter of 2005.

In addition to the increase resulting from higher activity levels in our in-house portfolio and from externalization projects.

The [cab] in the quarter also brings in $31m of R&D spending from Cambridge Antibody which accounted for around 4 percentage points of the 19% growth.

So where do I think R&D costs will be in the fourth quarter?

I believe that these quarter three trends will continue particularly given the incremental cab costs such that R&D to sales will be around the same percentage of sales, or maybe a little higher than that which saw in quarter three.

We've not yet evaluated the close down costs for NXY.

We know there's $12m of intangibles but I wouldn't expect the other costs to be very significant.

We continue to hold a tight line on SG&A while making the investment necessary to sustain sales growth.

SG&A was up 4% in constant exchange rate terms in the quarter and 6% for the nine months, well below the sales increase, which enabled us to increase R&D and still show margin improvement over last year's third quarter to 32.3%.

As with last year the fourth quarter tends to account for slightly more than 25% of the sales and marketing spend and it's a natural point to begin to think about new promotional campaigns for the New Year.

It is therefore possible that we could see SG&A costs in excess of the fourth quarter last year.

But for the year as whole we should see around 4 points of operating margin improvement which is pretty good by any standards.

Finally there are two other points to think about in quarter four, one is currency where we would expect today's rates to take a couple of cents off earnings per share compared to the fourth quarter of last year.

But secondly you will have seen that there is volatility introduced into the tax charge as a result of the way the tax relief is calculated on unexercised share options that it's based on the share price, the amount of relief moves with it.

And as you've seen the strong share price movements in quarter three have given rise to a higher tax credit.

Taking all of these factors into account we've increased our guidance to $3.85 to $3.95 but the most likely outcome being around the middle of this range.

Finally shareholder returns.

Our ability to convert profits to cash remains strong with free cash flow in the quarter of $4.8b, some $0.5b ahead of 2005.

So far this year we've paid $2.2b in dividends and repurchased shares of just under $3b.

On the face of it this suggests that we've already reached our $3b target share repurchases for the year.

However during the quarter we adjusted our rate of repurchases so as to be able to absorb shares issued on option exercises.

Consequently net of share issues we're more or less on track to achieve the repurchases net of new issues at around $3b for the full year.

That's more than enough from me for now.

I'll now hand you back to the operator so we can begin the question and answer session.

Thank you. [OPERATOR INSTRUCTIONS].

We will now take our first question from John Murphy from Goldman Sachs.

Please go ahead sir.

Thanks very much indeed.

A couple of questions please for Jon Symonds.

Jon, firstly, just to return to strategy and outlook, NXY probably wasn't in your estimates but noting, for example, your comments on Reuters in regard to the tax position, should we expect you get more acquisitive to supplement the near term late stage pipeline?

And what are your priorities there in terms of top-up pipeline, are you looking maybe to supplement earnings by a two to three years' basis already or just build a pipeline over the longer term?

Really does anything change here at all?

And then second, you mentioned a number of Toprol scenarios, and just linking that with another comment that came across Reuters, in all of these scenarios can you continue to improve margins through 2007?

Okay John.

Taking your first point I think it is important to emphasize that the aspirations that we set out in the summer did not depend on every product in the pipeline being successful.

Clearly we had signaled throughout that NXY was of a high risk nature and therefore it would be somewhat of a surprise if we had assumed complete success on that.

That said, I believe that the targets we set in the summer remain robust.

If anything there have been more positive events around the earlier Symbicort launch, the performance of Crestor as well as in-licensing two late stage products that I think leave that as a robust profile for the business.

On Toprol-XL, I'm glad you took the message John because it is very difficult to unpick what's in consensus.

And we are now internally looking at the business and managing the business exclusive of Toprol because we just don't know how to forecast sensible numbers for next year.

That said, in that underlying business I believe we can continue to improve our margins.

We've not yet finalized the mix of investment programs that we want -- that we will put together for next year.

Clearly investment in, continued investment in R&D is a major priority, but we're still looking to improve the leverage that comes from gross margin and from our ability to leverage sales growth above sales and marketing costs.

So I think the picture of the coming years remains very much as it was in the summer.

So just to be clear Jon, we should take margin comments all excluding Toprol just because, as you say, the complexities and not really understanding where consensus is anyway, so not being able to provide sensible guidance on that basis.

I think you should look -- the underlying business is what we're driving.

Right now Toprol, we're just now seeking to maximize cash.

It's in the last stages of its life.

It's done phenomenally well this year and we shouldn't ignore that nor its underlying performance.

But our attention is focused on life without Toprol.

That's clear, thanks very much.

Okay.

Next question please.

We will now take our next question from Andrew Baum from Morgan Stanley.

Please go ahead sir.

Good afternoon.

Three questions Jon if I may.

First can you give us an update on Nexium in terms of Managed Care, dividing up the Commercial book from the Medicare book, can you give us a sense of net wins versus net losses specifically on United, any comments on what they're doing with their Medicare book of business, and also any sense of the duration of contracts that you've entered into?

And then the second question would be on fleshing out, it's for Dr. John Patterson, the atherosclerosis indication that you hope to obtain for Crestor.

What kind of shape wording would it get given that you're entering a novel territory here?

And finally, on working capital as percentage of sales, you obviously had great success in maintaining and keeping levels well below some of your peer group.

Should we assume that the only way is up here?

Or is there potential for any further improvements for driving through further efficiencies?

Okay, I'll start with one and three and then John can come in on atherosclerosis.

By commenting broadly on the outlook for Managed Care I was hoping to avoid getting into some of the detail on this because it is somewhat dynamic.

And even when you look at United Healthcare, there are two books of business, there's Commercial book and there's Medicare business, we still remain very well placed with Nexium on the Medicare formularies.

And even when you break the Commercial book open it goes down to a number of individual contracts with individual companies many of whom have said we still want to keep Nexium on the formulary.

So it's not really a black and white picture, Andrew, and the bald fact of we've lost commercial accounts from United it's nowhere near as simple as that.

And actually we're still putting a reasonable amount of volume through the commercial contract in United.

It is just some of them now do not reimburse Nexium.

And it's interesting that when we try and pick down the detail, there's been an interesting increase in cash business for Nexium in the last month or so which suggests some of the people that are now denied Nexium at United might be going into the cash market because Nexium was the right product for them.

So it really is significantly a lot more layers to it than the simple statement we don't have United anymore.

But when we look at our total book of business going into 2007, and this was the reassurance I was trying to give you, actually when you look across Medicare, and all the ups and downs on the Commercial book, we think that in Commercial we're at least as well placed, if not slightly better than we were in 2006 going into 2007 and probably better placed in Medicare.

So I think net-net we're still in good shape in Commercial business.

On working capital, well I think I always hesitate to say we've done as well as we can possibly do.

I think on most of the working capital metrics, particularly receivables to sales, we've got some tremendous performances across the whole Group.

And there's probably not a great deal more we can do on receivables.

I think inventory, there's still scope for more efficiencies through the supply chain, and we've always had difficulty predicting with confidence where our payables lie.

So we're not going to see the same kind of rates of improvement we've seen in the past. but there is still scope to turn in better performances.

John.

Okay, Andrew, as you know we don't usually share with you our proposed wording until we actually have the wording from any of the regulatory authorities that we're discussing with.

And I think it's appropriate that we do the same here.

But you should be aware, I'm sure you are aware, that there are already wordings out there with other statins so Fluvastatin Luvastatin, [Pravastatin], have words regarding atherosclerosis in their labels and of course, Atorva has something in the [MCD] section.

So there are different ways of approaching and obviously we're go through our regulatory interactions and come back to you when we've got something to say.

I just meant specifically on the [IRIS] through the CIMT trials that you are going to be submitting.

I know you did.

I would give you the same answer Andrew.

Alright, thank you.

Thank you, can we have the next question please.

Yes, our next question comes from Kevin Wilson from Citigroup.

Please go ahead sir.

Thanks very much.

Three questions if I may Jon.

First is could you give us a bit more tangible detail about where you're continuing to make operational efficiencies?

You've talked in the past about sample delivery, organizational structure in the sales and marketing organization.

Can you just illustrate for us where you still think you have room to go on something maybe that you've done recently that illustrates the opportunities you still have to continue to improve efficiency in the business?

And secondly on Seroquel, it's a two part question, could you give us an update on the IP challenges in the U.S. and where you stand with discovery versus Activa, and actually while we're at it, an update on the Nexium IP in the U.S. because [Rambastion and Imax], whether these may come to court in '07 or whether it will be in '08?

And finally on the sales of U.S.

Seroquel can you talk about what appears to be a bit of a slow down in the U.S. growth in the quarter and whether that is a one-off or whether you believe that the new indication will bring the growth rates back up to levels you've seen in the previous quarters?

Thanks.

It's always quite difficult to pick out operational improvements because it's invariably a product of 100s of things rather than one thing.

And the kind of programs that we talked about in the summer of following sales force effectiveness and driving every metric that we can find that supports improvement and the way in which promote our products proficiently, the commercial insight programs that help us understand much better what our product means to both patients and physicians and making sure that we are messaging in a way that resonates with their needs.

As well as perhaps moving towards more regionalization in the way we tackle markets.

Rather than having a single approach to a country, but to try and tailor the messaging and the promotional support to particular regions where either the formulary positions or the practice conditions might be slightly different.

And I think the aggregate of all of those continue to give us confidence that we can continue to drive more sales growth than costs inputs are necessary.

And that's still a feature of our ambitions going forward is to be able to sustain that for a while longer yet.

Equally it is very clear that we are absolutely not hesitating to invest where we need to.

So it's not a -- not one way traffic.

Certainly many of the sales teams appreciate the need to be more productive, as they also know that we are going to support when they come up with new opportunities too.

On Seroquel and Nexium IP, there's really no change in that.

No dates have been set and I think if there was any -- if there were any developments in the fourth quarter you should be looking to the regulatory update section to record things that we believe would have happened that are important.

On Seroquel clearly the total anti-psychotic market has slowed somewhat and we're now looking growth in the 3 to 5% range, which is lower than it has been in the past.

But I think what continues to drive Seroquel is not only the expanding indication, and from this quarter we're now able to fully promote bipolar depression, which is something that would have been coming but we've not been able to promote at all through the sales force.

So the success with Seroquel comes from expanding the opportunities to talk about new and different things.

And that's what propels it and that's what gives us the confidence it can increase -- it can continue to increase market share in the competition as it has done in the past.

So Seroquel remains at the heart of our performance over the coming years particularly with SR on its way.

Thanks very much.

Next question please.

We now have our next question from Jo Walton from Lehman Brothers.

Please go ahead sir.

Good afternoon, three quick questions please.

Could you tell us a little bit about what impact Abraxane had on your P&L?

Is there any impact yet?

Another -- lots of other drug companies are talking about a benefit from a reversal of tri-care provisions in their U.S. sales.

Is that a factor for AstraZeneca?

And could you also help us on the amount of money, just so as we understand how the new accounting works here?

The money that you are now capitalizing through your deals with, for example, Pozen and Dynavax that under the old accounting standards that we understand more easily would have gone through the P&L.

I believe you said at the beginning of the year it was about $380m, but with these additional deals I can see $60m odd here already, which presumably is just in the third quarter.

And a final one, could you help us what the long -- what the run rate should be on other operating income?

Presumably there was an element of the [Hemera] royalty in the third quarter, which will have distorted it.

So, that won't help us as an ongoing rate now you've got rid of [Hemera].

Okay, thank you Jo.

Abraxane, it's -- if -- we've only been promoting it since July.

So in terms of the -- in terms of its impact on the business, it's really -- it really hasn't had a meaningful effect.

It's beginning to show signs that the market shares through the broader promotional base are beginning to point upwards.

But it's a bit early days in that to be able to make any strong statements about it.

We have not released any tri-care provisions.

Do you have some that you haven't released?

Or is it just not relevant to you?

No, well, I think most of the industry was part of the tri-care discussion.

So we do have some provisions, but we haven't released them.

Thank you.

The accounting rules were [ISB].

We do not track what our results would have been had we applied the old standards.

It's hard enough to apply the new ones without going back.

I think certainly the two earlier stage deals, the Schering and Dynavax deals would have been written off under the old rules.

I suspect that the Abbott Laboratories and Pozen deals would have been a good up and down debate with the auditors about whether it was capitalized or not.

It's probably not absolutely that those ones are not black and white, because they are late stage they're linked to products that are on the market.

There probably would have been sufficient certainty to have capitalized those.

Thank you.

And then operating income, the -- as I mentioned in the introduction, the [Hemera] royalties are in other income, but are completely offset by amortization.

And so, even if -- even though it's in there it's a nil net effect.

The one thing that obviously does stick out in other income is the $109m one off gain on [Abrac] on the sale of the anesthetics business.

And we've also been saying for some quarters, although the amounts this quarter were a little bit more than we were expecting, is that one of the royalty streams will start to diminish in quarter four, such that the quarter four other income will be lower than in the previous three quarters and will become lower still in 2007.

So, I suspect we won't be anticipating other income in 2007 anywhere near the levels that we got in 2006, albeit there could still be one off gains depending on what deals we do.

Thank you.

Next question please.

We now have our next question from Graham Parry from Merrill Lynch.

Please go ahead sir.

Thanks for taking my questions.

Jon, you were quoted this morning on Reuters I think saying long term R&D spend could move up to around 16 to 17% in the long term.

I was just wondering if you could clarify that a bit.

Do you mean by 2010 or are you talking beyond that timeframe?

And that, of course, implies some not insubstantial increases in R&D.

So, does that assume the in-licensing of products that you would then be spending on yourselves?

And is that factored into your long term margin guidance for operating margins in the low 30s?

Is that the R&D percentage of sales you're thinking in that guidance?

And then a question on Crestor, just -- you did mention stocking in the quarter in Japan.

And I just wonder if you could quantify that?

Thanks.

Okay.

I think on R&D I was really repeating exactly the same as we said in the summer that we're at the low point of the R&D cycle at 14.6 or 14.8% of sales is where we are today, that that is below what we would see as a normal level of R&D spend.

And I was suggesting that as we move to the end of the decade that we will be around the 16 or 17 percentage mark.

But I would also re-emphasize the comment that I made at the time and subsequently that we don't run R&D on the basis of the margin target.

We run R&D on the basis of the opportunities that we believe will bring value to the future business.

And, therefore, you shouldn't take 16 to 17% as a mathematical absolute, but as an indicator of where the trends will take you.

And the stocking in -- of Crestor in Japan was around $10m.

So, it's not a very substantial number.

Okay, thanks.

Next question please.

We now have our next question from Tim Anderson from Prudential.

Please go ahead sir.

Thank you very much, a couple of questions please.

With Managed Care contracts largely in place for 2007 on Nexium I'm hoping you can give us some sense of pricing concessions you may have had to make to keep your formulary positioning for that product.

And with your current asthma products in the U.S. it doesn't look like you have much of a promotional effort behind these.

So, when you launch Symbicort I'm wondering where the reps will come for that product.

I think Glaxo has something like 25,000 reps or so in the U.S. promoting their competing drug, Advair.

Okay, on Managed Care I think the -- for Nexium the formula that we've adopted in the last few years of sensibly giving price concessions where we can see incremental volume.

That has served us very well over the last couple of years and that's a strategy we'll be adopting into 2007.

But I'm not going to give you any specifics on the price discounts because frankly they vary from account to account anyway.

On asthma, well, if you're guessing where our resources will be, then GSK will be too and that's not a bad place to be at this stage.

So, we'll give you more on that as time elapses, Tim.

Okay.

Going back to Nexium, I wasn't looking for a specific number, just directionally could we expect a net price decrease on Nexium [end '07]?

Yes, you will see an adverse price but against a higher volume.

Yes, okay.

These are very carefully determined price volume equations.

Yes, thank you.

Okay, thanks Tim.

Next question please.

We will now have our next question from Max Herrmann from ING.

Please go ahead sir.

Afternoon, three main questions.

Firstly, just could you give us a little bit of more detail on the Nexium patent situation in terms of where you are in the process?

I know you've already tried to answer this.

But just to get a feeling whether we can look to expect a court date some time during 2007.

What's your best estimate of when the court date will be?

Secondly, just on -- I didn't catch the -- can you confirm what the AGI write off that -- sorry, on the NXY write off would be?

And then finally, just a little bit more clarity on your R&D strategy.

Have you got any particular therapeutic areas that you would like to build up, obviously oncology being one area that you had in the past expressed leadership ambitions in?

Thank you.

Okay, on the first two, Max, there really isn't -- I know you want to get information on this, but we don't have a court date.

And, frankly, any suggestion of whether it would come in 2007 or 2008 would be a complete guess.

I think all you can expect is that as we have said in other cases that when we do have a court date, we will communicate it to you.

But it's almost impossible to predict in advance of it happening.

NXY the intangible asset associated, it is $12m.

As far as the R&D therapeutic areas are concerned, we have four at the moment and we'll continue to invest in those.

But we do cheat because we put several therapeutic areas into each of those.

So, oncology and infection, we've recently opened some new laboratories in oncology.

And we're planning to grow infection as well significantly.

In the CBIG area we have a big focus on cardiovascular in the areas of atheroma and obesity.

Neuroscience is a growing area for us.

And in the respiratory and inflammatory areas, again we have significant efforts across all those.

And in addition to those we have signaled to you in the past that we have a medicines new opportunities area, which gives us a chance to broaden beyond our current therapeutic areas.

And I'm sure we'll be talking to you about that more in the future.

Thank you.

Thank you.

Next question please.

Our next question comes from Jerry Brimeyer from Dresdner Kleinwort.

Please go ahead sir.

Yes, and thanks for taking my question, three quick questions, two points of clarifications here.

On the 2007 Medicare formularies, particularly for Nexium and Crestor, what percent of the Medicare formularies are these drugs listed on for 2007 versus 2006?

And have the [copace] for the two drugs typically gone from Tier 2 to Tier 3, or stayed at Tier 2?

And also, just a point of clarification here on Crestor, just so I'm perfectly clear.

Do you know for a fact that the regulatory agencies will accept the submission of Crestor for atherosclerosis?

Or is it a distinct possibility that outcome studies will be required prior to regulatory acceptance?

And also finally on AZD6140 when do you expect that study to be fully enrolled?

And can we expect to see the results of that study in 2008?

John, do you want to take two and three?

Okay. 6140 was your third one?

Yes.

Yes, the PLATO study has just started.

There are going to be 18,000 patients into it.

And what we said in the past is that's going to take some time to enroll.

And until we really get the recruitment rolling and we know what entry rate we have, it would be unreasonable for me to be predicting when the outcome was to come.

So, I'm sorry I'm not going to give you an answer on that.

As far as Crestor is concerned, you never have any certainty as to what the regulatory authorities are going to accept or allow until you present them with data against which they can make their decision.

So we will submit our data.

We have some views on what to say.

But, as I said to the earlier questioner, there are one or two indicators and pointers from other members of the [cutting class] as to the things that already exist in data sheets out there that might help you to at least understand what others have managed to get from their data.

John, do you want to pick up?

Yes, I'm not sure I'm going to be very helpful on the first one in that you're really asking for a level of analysis that I don't have relative easy to hand.

And I think I'd just come back to say that certainly in Part D we are in a better overall position than we were going into '06.

I think the precise construct of each individual formulary makes it very difficult to generalize about tier status in [copace].

But I think for our principle products, for Nexium and Crestor, Seroquel and Toprol, we remain in very competitive positions and don't believe that for those drugs we're in a disadvantaged position opposite the competition.

We never seek the Tier 1 status because we believe that these drugs can complete well enough on their own when faced against the principal competitors and that's where we seek to place them.

Thank you.

Next question please.

We will now have our next question from Marcel Brand from Cheuvreux.

Please go ahead sir.

Good afternoon, thanks for taking the question.

I have a question on the METEOR study.

I see in the press release it has been completed and it will be part of the planned filing.

May I assume that you have the results?

And may I assume also that the results are good enough for a filing?

And then also, could you please remind me what the design of the ORION study is?

Okay, thanks.

It's John Patterson.

I'll take that one.

Yes, you can assume that we have the METEOR results.

And you can assume that we believe they are good enough for the filing.

And the reason that we aren't releasing them today is that we can't prerelease ahead of the publication of the results of the ACC.

So, no headline results to be expected then before ACC.

That's correct.

And as far as the ORION study is concerned this is a small study which is published, which compared two doses of Crestor.

I think it was 40 milligrams and [inaudible] [10].

Looking at patients who had [internal] thickening, looking at things like MRI scanning.

What it showed was that there was a significant improvement for the higher dose compared with the lower dose.

And that both treatments go in the right direction over a period of about two years.

So a small study with high intensive investigation on two different doses of Crestor.

Thanks.

And one more question if you allow on Nexium, could you talk about the importance in the U.S. of step therapy in formularies and how you see that evolving further?

Now, what therapy?

On step therapies, some formularies like [eight] now, they ask physicians to first prescribe [Prevasit] or Metrozol and then Nexium.

And then there is obviously a negative example.

I'm wondering to what extent that currently is a problem or may be a problem in the future.

Personally I can tell you that as far as statins are concerned there are some places in the world, U.K. being one of them for instance, where low dose statin is expected to given even over the counter as a first step before people start on the more significant therapies like Crestor.

In many ways it actually fits nicely with where we're promoting the product in that we're actually looking for the drug to be given to those people who have significant disease and two or more risk factors.

So, we don't think it represents a threat to the use of Crestor.

And it may represent -- if it represents a change in medical practice it shouldn't be an issue for us with a drug like Crestor.

But my question was actually relating to Nexium.

I'm sorry.

I'm on step therapy generally, right.

On Nexium I think you've only got to look at the market share statistics to show -- to get a sense as to what's happening.

Clearly, many formularies are favoring Omeprazole, because it's -- Omeprazole's share is growing quite significantly.

But it's also quite clear what either the alternative or the preferred is to Omeprazole, which is Nexium.

And that's why I think you're seeing only two products standing head and shoulders above the rest, the majority of which are actually declining.

And that's to my mind a perfectly logical formulary with the best available generic and the best available branded drug.

And I think that we would expect to see that trend to continue.

Now, we've only got a few minutes left.

I'm conscious that one or two of you might want to join another conference call shortly.

But if we can, maybe keep the questions quite crisp to just maybe one part rather than the usual two or three.

Next question please.

We now have our next question from [Rashna Otadia] from Bear Stearns.

Please go ahead.

Good morning -- good afternoon, thank you very much for taking my question.

I had a few questions, but I'll just limit it to AGI-1067.

Can you just give us an update on the status of AGI?

There's no comment in the press release so I presume everything's on track for the release of the data early next year.

I had a very quick second question and that was just following the disappointing SAINT II data, do you have any changes now in mind in terms of the way that you're going to pursue the rest of your neuroscience portfolio?

Thank you very much.

I can give you a simple answer to AGI-1067, because AtheroGenics, our partners, actually did a teleconference in the last couple of days and gave great detail.

But the bottom line is it's on track to deliver results in the first half of next year as we promised.

Perfect.

As far as SAINT II and effects on our neuroscience portfolio, we have no other drug specifically aimed at that particular indication in the early stage clinical development portfolio.

And we will, therefore, develop them in their appropriate indications in the appropriate way.

Great, thank you.

And I just had one other quick question.

You're cheating now, Rashna.

Just on Symbicort, is there -- with -- do you have any current -- are patients currently taking -- sorry, Seroquel off label for bipolar depression as far as you know.

Well, I imagine that there are some, because the [debate] -- the data here is very clear.

We are absolutely unable to promote against it.

And many physicians come to their own conclusions.

When you've seen in the past new indications added to the label, you've seen more of a continuation of a trend line rather than a step.

And that's probably what will happen here too.

Thank you.

Thank you very much.

Next question please.

We will now take our next question from Marietta Miemietz from DRKW.

Please go ahead.

Yes, good afternoon, just two very quick questions.

The first one relating to the Symbicort Smart roll out in Europe, now obviously the medical community is very excited about the Smart concept.

But I was just wondering in terms of the opportunity to actually gain share from Advair, whether you could provide us with some color on, A, the number of asthma patients in Europe going on to combos each year and B, the size of the dynamic segment, because it would seem at first sight that this is actually a fairly saturated and stable market.

And secondly, just to clarify very briefly on atherosclerosis for Crestor.

Obviously you can't anticipate the wording that the regulators will give you, but has the FDA actually specified a hurdle rate where they said if you make this in the METEOR study then we will accept your dossier?

Or, is more a [Corsadrovit] style situation, where basically you file and then the FDA plays it by ear and goes back to you to let you know may be actually we need mortality studies.

Can you file again in a few years?

Thank you.

I would suggest that opposite your first question on dynamic segment and roll out you go back to Investor Relations.

Jonathan Hunt will be delighted to give you those numbers.

In terms of the athero label with Crestor, we're not in a situation today where I can share with you where we stand.

When we complete our regulatory interactions with [ST] and others then we'll give you the answers to what wording we [inaudible] it'll get.

Sorry, I just meant because Pfizer basically said that because the indication is so new for [Corsadrovit] that they don't even know what hurdle rate the FDA is looking for and whether the filing will be accepted, whereas in other indications you have that hurdle rate.

So, I was just wondering where you stand on that.

Okay, with new products like [Toxetrophin] it tends to be a different situation for those that are, in fact, line extensions of a product like Crestor.

And, therefore, you probably -- they've probably had a lot more interactions with the FDA up front to try and nail that opposite their Phase III program.

With a marketed product like Crestor it's a very different situation.

Okay, it's very clear.

Thank you very much.

Right, I think we're in the last question now.

We will now have our last question from Michael Leacock from ABN AMRO.

Please go ahead.

Thank you.

And it will be just the one question, Jon, thank you.

Well done, Michael.

Sales forces, we've seen some other companies aligning their sales forces generally in a southerly direction.

I just wondered what your plans are for sales force.

Is this an opportunity for you guys?

Probably, but we're going east quite rapidly, in the Asian market and in China.

I'm not aware of the wildebeest going south.

Sorry, reductions, I think we continue to manage our sales forces on a performance basis.

And in some places they have been trimmed and in other places we've moved resources where the opportunities are.

I think the overall trend, particularly in the U.S. has been down.

But in other parts of the world we've been adding.

It comes down to the discipline around the sales force affected metrics that I talked about earlier that demonstrate value add.

But there's certainly no doubt that we're seeking to get more productivity from the allocation and distribution of our sales force.

I don't know what -- if you want to know what our numbers are then you will have to contact IR subsequently.

Okay, thank you Jon.

Okay, well, with that I would like to thank everybody for joining the call.

If you have any follow up questions then please don't hesitate to contact our Investor Relations group.

Thank you very much and good afternoon.

Thank you, good bye.

That will conclude today's conference call.

Thank you for your participation ladies and gentlemen.

You may now disconnect.