AstraZeneca PLC (AZN) 2006 Q4 法說會逐字稿

Okay. Well, good afternoon from London. Good morning to some of you who are listening in other places, ladies and gentlemen and welcome to our annual results presentation for 2006. We are, for the next 90 minutes or so, we plan to review our performance from 2006, including giving you some insight into what drove that performance, and how we believe that will position us for the coming years. We'll also review the status of the pipeline and the progress we've made in R&D during the last year, as well as what we're expecting during 2007. And, finally, we'll open the floor to questions to address what's on your mind, what you'd like to talk about.

I'm joined on the podium today by Jon Symonds and John Patterson, and you will be hearing from each of them in just a few minutes. We also have with us today for the Q&A session, as well as for after the session when we have some coffee, some key members of our management team. So if there are specific questions you have you can feel free to seek them out.

A year ago I stood on this platform and outlined my priorities for 2006. Anticipating my first year as Chief Executive as AstraZeneca, I stated, at the time, that the priorities were to maintain business momentum from top line growth, improve productivity and strong cash generation, and further strengthen the pipeline, tapping internal and external sources of growth. Today, as I look back on what has happened during the past year, I'm pleased to report that AstraZeneca has delivered another top tier financial performance, continuing the momentum that has been building for the last three years.

As for strengthening the pipeline, it is still a work in progress. There have been positive developments, improving productivity in our own laboratories and bringing in external opportunities. But we recognize that more needs to be done, and I am determined, and the people of AstraZeneca are determined, that more will be done to increase the flow of new products to sustain our long-term growth.

I'll go into a bit more detail on these elements of our 2006 performance in just a few minutes before John Patterson covers the R&D update. But, first, let me just give you a quick overview of the headline financial results that we recorded today.

Sales for the full year were nearly $26.5b, up 11% as reported and on a constant currency basis. Operating profit was up 28% at constant exchange rates, and operating margin improved by an impressive 3.8 percentage points to 31% of sales, even after a 15% increase in our investment in research and development. Earnings per share were $3.86, up 34% in constant currency. Further, the Board has recommended an increase in the second interim dividend, bringing the full-year dividend to $1.72, which is up 32% over last year. Along with net share repurchases of $3.1b, total cash returns to shareholders exceeded $5.3b in 2006.

And 2006 marks the third consecutive year of exceptional financial performance, following the emergence in the patent explorations we faced in 2003. The 2006 reporting season is not yet complete, but if we assume that those haven't yet reported achieved their consensus expectations, our compound sales growth of 12% and EPS growth of 30%, will place us right up there among the best three year performances in our peer group.

And we know that excellent performance starts with the top line. We have built a solid top line performance on the momentum we have created behind five key growth products, Nexium, Seroquel, Crestor, Arimidex and Symbicort and combined sales of $6b in 2003 to over $13b in 2006. And they were up 23% in 2006 -- excuse me -- with a strong performance from each of those brands.

Looking at which regions of the world are generating our impressive sales growth, it's not surprising that North America has again accounted for the majority of the sales growth, with sales in the U.S. up 16%. And I think you'll find, if you look at the data from IMS, we are one of only two companies in the top 10 that had double digit sales growth in 2006. Market conditions in Western Europe remained very difficult. AstraZeneca was among the better performers in Western Europe last year, but price erosion and other government interventions to reduce spending on pharmaceuticals have really taken their toll on sales performance in the region.

And, once again, we have seen excellent performance and growth from the emerging markets segment with sales of some $2.8b, up 22%. This is high quality business for us with good profitability and we will continue to invest resources appropriately there to drive future growth in these markets.

So, we have maintained strong top-line growth and we will continue to invest appropriately to create value across the markets and across our broad portfolio. We recognize the environment remains tough as AstraZeneca, and the entire industry for that matter, faces a stronger headwind of patent expirations and the continued pricing pressures from governments and private payers. That said, as we stated back in June and we reiterate today, we believe we can continue to grow our sales in line with the expected growth rate for the industry through the end of the decade.

In order to deliver this level of performance, we know we have to keep the pressure on productivity, relentless discipline in resource allocation to drive out inefficiencies and approve effectiveness in all parts of our business. In 2006, we made great strides in leveraging our top-line sales growth and cost discipline into a nearly four point margin improvement. We are taking these actions now while in a position of strength with our business growing to be sure that we maintain our competitive edge in what is becoming a very challenging environment.

And that's why we've taken a further step in our drive to increase productivity, with today's announcement of the new productivity initiative to improve asset utilization in our production operation. Over the next three years, we plan to rationalize production assets. The plan involves the proposed reduction of approximately 3,000 positions, subject of course to all the requisite employee consultations and in accordance with local labor laws. I want to emphasize that I'm acutely aware of the impact that these changes will have on some of our colleagues and their families and the communities in which we operate. We will do everything we can to provide proper support and benefits to our colleagues who are impacted, and we will work closely with community leaders wherever possible.

But we won't stop here. We've already demonstrated our ability to improve efficiency throughout the Organization, and I'm challenging all functions in this organization to find ways to free up additional resources to reinvest in our pipeline and to enhance shareholder returns. So today's announcement is another step in our ongoing program to improve productivity and efficiency.

The third element under maintain momentum is strong cash generation and, as you can see here, we've had steady year-on-year growth in cash returns to shareholders, with dividends and share repurchases totaling over $5.3b in 2006. As you'll have seen in the press release, we have increased our share repurchase target for 2007 to $4b net of share issues. This is a continuation of our policy of fully distributing free cash after first satisfying the needs of our business.

So I think it was, by any measure, an excellent financial performance for the year. But we start out 2007 with a clean sheet of paper and we'll have to raise our game to keep delivering at this level.

Our efforts to strengthen the pipeline, it was a mixed picture. Notable progress was made with new development projects and accessing new science to strengthen the pipeline, tempered somewhat by the ground we lost in Phase III with Galida and NXY-059. As you know, a year ago I implemented a restructuring of our Strategic Planning and Business Development function, charging Jon Symonds with oversight of this critical function. As a result, we have significantly extended our Business Development capability, increasing our capacity to pursue promising external opportunities.

Since December 2005, AstraZeneca has completed 12 significant business development transactions, including three company acquisitions and nine significant research collaborations, including the recently announced collaboration with Bristol-Myers Squibb to develop two compounds to treat diabetes. Together, these initiatives have added five Phase II and two Phase III molecules to our late stage development pipeline. Again, a good beginning for accessing opportunities externally, but there is still more to do.

As to our internal R&D productivity, we have also made good progress, from excellent execution on important lifecycle management programs to strong output from discovery research, and a real drive to reduce cycle time across all phases of development. As a result, we've increased the overall size of the pipeline in 2006, as you can see here. Although the pipeline still carries a bias towards early stage, that is pre-clinical and Phase I projects, Phase II is deeper aided by our efforts in externalization, and several of our Phase II projects come to their Phase III go, no-go decision points in 2007. So we could be looking at an expanded list of Phase III projects from our existing portfolio by the end of the year. And we will continue to use our Business Development activities to find more opportunities wherever we can.

In just a moment, John Patterson will update you on all of the efforts that are designed to increase the rate at which we can convert our early stage pipeline into an enlarged portfolio of late stage projects that can achieve ultimate registration and launch into the marketplace.

Well, the -- so the priorities for the business remain clearly in focus. For us, it's all about delivery. And I will continue to challenge the entire Organization to dig deeper, to pick up the pace, to drive top line growth, productivity and financial performance so we can reward shareholders now, and, just as importantly, build the pipeline we need to sustain growth well into the future. And I'm confident that we are up to the challenge. I think I'll leave it there for now and turn over to John Patterson to provide you with some more insight into the efforts that we're taking to strengthen our pipeline.

Thank you. John.

Thank you, David. Good afternoon, ladies and gentlemen. And good morning to those of you joining us electronically. I've now had the responsibility of leading our Development Organization for two years. My first year, 2005, was a crucial year. It allowed me to identify what we do well and what we need to do differently. Last year, 2006, has been a year of action. We have now built the foundations of a stronger and better organization. I believe we are making progress, progress in increasing the size of the pipeline, progress in accelerating the speed of development and progress in the direction of our future discovery research efforts.

As you've heard me say before, the pipeline is my and a number -- the Company's number one priority. Whilst there's still work to do, over the next 20 minutes I'll highlight how we're delivering on our commitment to develop a pipeline of medicines that address unmet patient need, deliver value to society and will sustain our growth for the long term.

When we last met in June 2006, I stressed that a successful pharmaceutical company needs to have continuous flow of exciting and differentiating molecules capable of sustaining growth in the short, medium and long term. Bearing in mind the long product -- the product gestation in this industry, we are actively managing each of these time horizons on a daily basis.

In the short term, our business needs will be met through lifecycle management and delivery of Phase III programs. In the mid-term, we're driving our Phase I and Phase II pre-clinical projects towards proof of concept or proof of principle as rapidly as possible. We recognize that we will need to continue to externalize both tactically to fill potential gaps and strategically, to access the enormous world of science that exists out there.

In the long term, in addition to our current capabilities, we are also seeking to transform research at AstraZeneca with a strategic move into biological, as well as a major commitment to the use of novel biomarkers and imaging. We recognize that the world is changing, and a country such as China and India, offer opportunities as world-class centers for research and development, as well as vibrant emerging marketplaces.

Today, I'm going to reverse the order and start by presenting some actions that we've taken that affect the long term before then moving onto the medium and, finally, to the short term.

During 2006, we concluded an important review of our disease area discovery and development strategies. This review focused on identifying and aligning those areas that we believe combine breaking science and high unmet medical needs with our strengths, skills and capabilities to create long-term advantage. We're using this yardstick to direct our internal investments and discovery research as well as setting our externalization priorities. Based on this review we have made some important decisions.

We will build our capability in diabetes and obesity, analgesia, infection and inhalation. Our Boston expansion program, announced recently, and today's announced Arrow Therapeutics acquisition, are clear examples of our intent in infection. We can now add a broad antiviral capability to our growing antibacterial strength. We are maintaining our activities and focusing on many of our core areas such as asthma, atheroma and oncology, to name a few. To support our strategy we will invest further. However, it won't all be incremental. To ensure that we have the necessary resources to deliver the strategy we have taken some tough decisions to exit those areas that we believe no longer offer meaningful innovation or sufficient financial return. They include areas that have been core to our previous success, such as hypertension, and parts of GI.

Going forward, we must, and will, be a more flexible organization, capable of entering and leading research areas in a way that we haven't done in the past. You'll recognize the mantra of 'quality on time' from my previous presentations. It's the one term that I believe is synonymous with strong R&D performance. It's what we wish AstraZeneca to be known for, high quality. I mean both the properties of the molecules, the decisions we make about them and the people that discover and develop.

We've also been focusing on increasing our speed of the development process from beginning to end. I'll highlight some examples of pilot projects where we're making a real difference in improving our cycle time. And where we see successful pilots, I can assure you we will move quickly to make this the standing -- standard operating procedure for our project team.

And then, finally, cost. To some degree, this is shorthand for efficiency and effectiveness. We will focus our efforts on high value added activities and find ways to reduce overlaps and costly inefficiencies.

We are applying all these three criteria across all phases of R&D, including discovery. For instance, during the early part of the discovery process, such as lead identification and lead optimization, project starts last year reached record levels. Our focus on quality projects and timely delivery has seen us shave valuable months off and remove white space from all phases of development. In early research, for example, as illustrated here in pilot projects, we've reduced the lead optimization part of the process down from 24 to six months, and we're implementing efficiencies such as this all the way through the continuum.

We have set ourselves the task of being amongst the best in the industry in terms of speed through development, with a target to be in the upper quartile of industry timescales. Our goal is project delivery from selection to approval in a median of eight years. We have mapped out all the steps and are committed to their delivery. Whilst we can't turn the clock back on some of our later phase projects, we're already driving the early phase projects faster. And, for example, a record 12 first exposures in man were achieved in 2006, on average 10% faster than in 2005. And, already this year, we have a further three.

We are changing our clinical and regulatory activities to enable us to move quicker and be more successful. We're applying leading statistical decision theory to the design and analysis of Phase II and proof of concept study, which allows to achieve robust decisions with smaller, better clinical trials. In some cases 40 to 60% smaller, saving both time and cost. We're also embracing new technology. For example, all new clinical studies from now onwards will be web enabled. We're more interactive with the regulatory authorities and involved with them in piloting new techniques in areas such as biomarkers and chemistry and pharmacy, both of which could lead to faster approval. We've also seen that wherever we achieve quality improvement we also reduce cost and move faster.

So I'd now like to turn to the pipeline. The updated table is in your handouts and is now on our website. Overall movement in the portfolio, over the last year, while 20 projects or molecules exit the pipeline, 26 progressed, while 35 entered. Of the 21 entering the pre-clinical phase, just over half were first-in-class molecules, continuing our progression over the last three years to a more balanced risk profile from 2003 where 80% were unprecedented molecules. In addition, the CAT acquisition brought three further pre-clinical large molecules.

The pipeline has now grown to 120 from 106 a year ago. In addition to the projects entering the human phase of testing, project progressions, licensing and acquisitions means that our Phase II pipeline has grown from 13 to 18. You can see the growing impact of our internal and external activities on this slide. We now have a bigger, faster-moving, lower risk pipeline than we had even in June last year. We are making real progress, but, as ever, there is more to do.

I'd now like to update you on individual projects that have an impact in the short term, starting with Phase III. The PLATO study of 6140 is now recruiting, with over 170 active centers, while AGI-1067, the ARISE study run by AtheroGenics, has reached its protocoled number of events and they are in the process of study close-out. Only when the database is locked and the code broken will we know the true benefit-risk ratio of this high-risk, high reward and groundbreaking project. AtheroGenics hope to have the results in time for the American College of Cardiology meeting at the end of this quarter.

The Phase III studies of Zactima are all up and running in second line treatment of lung cancer. Our Phase IIa study in hereditary advanced medullary cancer of the thyroid, a rare tumor, is now maturing and the patient cohort has passed the three month follow up and met its primary endpoint. Whilst we've started a randomized study, we'll be discussing the possibility of an earlier registration of this awful -- excuse me -- this orphan indication with regulators in an awful disease.

Other lifecycle management opportunities are also being explored with 18 other tumors, both as mono-therapy and in combination with chemotherapy. Tumor types include breast and prostate cancer.

Recentin is the new trademark for 2171. All the studies we outlined in June are now running, with both Japan and China participating. More than 700 patients have received this medication, and whilst we're focusing on first-line treatment of lung and colorectal cancer, the signal search program is broad. In the last month, that program brought us some exciting data in glioblastoma that were published in Cancer Cell.

In line with our stated focus on diabetes, our co-development and co-marketing alliance with BMS brings Saxagliptin into the portfolio. It's a once daily oral DDP-IV inhibitor. Currently, there are a number of ongoing Phase III studies in type II diabetes, both as monotherapy and in combination. Data was represented at the June ADA with a planned NDA submission in the first half of 2008. We've already established joint teams and we'll be up and running very shortly.

The second compound from BMS is Dapagliflozin. It's an orally active sodium glucose co-transporter-2, better known as SGLT-2 inhibitor, again for type II diabetes. We're expecting Phase IIb data in 2007 and a Phase III decision will be made later this year.

David told you how well our leading products grew in 2006. Our lifecycle management program delivered a significant number of regulatory submissions and approvals in the year. The mixture of new indications, formulations and territories will help us to continue that growth. Today I will not cover all products in depth, but simply mention a number of highlights.

Already in 2007 we've submitted the Crestor atheroma package, which is based on METEOR, ASTEROID and ORION studies, of which METEOR will be the pivotal controlled study. In addition, we have EXPLORER, a study which shows unprecedented LDL reduction for Crestor in free combination with ezetimibe, whilst our new fibrate fixed combination program with Abbott augments the ongoing GALAXY program, which includes a number of outcome studies that are due to mature over the next two to three years. The Crestor team have also made good progress with the pharmacoepidemiology program and delivered the ECLIPSE study during the year.

Seroquel has been growing very well, supported by its indications for acute bipolar disease. Here I'm showing you two new studies looking at relapse prevention in the chronic situation in bipolar disease. These Seroquel bipolar maintenance data, on the back of standard lithium-based therapy, are an example of the many positive studies with the current formulation. The data are important as they provide us with a potential platform for further growth, based on extending treatment time.

The new SR formulation was submitted for approval in the U.S.A. and in E.U. last year. The PDUFA date is May 17. The extensive lifecycle program which is focused on the SR is continuing to differentiate Seroquel from other atypical anti-psychotics outside schizophrenia and is our highest lifecycle priority. In this large program, 13 depression and anxiety studies are now ongoing. There will continue to be a good flow of Seroquel data to support our sales and marketing effort looking forward.

Outside the U.S.A., Symbicort turbuhaler SMART has been submitted in 45 countries and is already approved in 27. Clinical data consistently shows excellent efficacy and there is strong support for the concept in the latest GINA guidelines issued in November.

In the United States, we received approval for Symbicort pMDI in adult asthma. We continue to plan for a U.S. launch around the middle of the year, although achieving this launch timeline is dependent upon successful transfer of technology and completion of the required validation batches. In parallel, we're progressing the lifecycle work, including both pediatrics and COPD studies. I'm also pleased to be able to tell you that the Japanese asthma turbuhaler license application has been brought forward to the second quarter of this year.

Our move into biologicals is going well. Half a year after acquiring CAT we are delighted with the progress we are making. We have announced expansion plans, and the first CAT-derived product has been selected and entered scale-up. In addition, the IMV for the fusion protein 8015 is now open and first exposures will start this quarter.

2006 was another busy year in our externalization strategy. We opened new opportunities in all our therapeutic areas and in all phases of R&D. They cover everything from technologies to imaging and are a real testament to our desire to access the best science and the best compounds wherever they can be discovered. The Therapy Area portfolio teams are rising to the challenge that I gave them 18 months ago. Together with their Business Development colleagues they have grown the in-license part of our pipeline which now makes up approximately 25% of our overall projects in development.

So, in summary, 2006 has been a year of real progress. Progress in increasing the size of the pipeline, progress in accelerating the speed of development and progress in the direction of our future discovery research effort. It's also been a year of delivery. With quality data delivered on time we can make the right business decisions on our products. We know we will have project attrition as we go forward. It's in the nature of the R&D based pharmaceutical industry. But, through the efforts that we've made in the last two years, and our continuing determination and drive, we will, and are, building a strong pipeline.

Thank you for your attention and I'd now like to hand over to Jon Symonds who will take you through the business performance.

Thank you, John and good afternoon or good morning. Well, the main purpose of this presentation is to go through the 2006 results. I also want to cover the 2006 performance and the targets for 2007 in the context of our longer-term ambition that we set out at the business review. And I'll also address sales, key products and operating margin, as well as the key moving parts. And I'll finish with a review of cash flow and shareholder return.

So here is the 2006 scorecard against the expectations we set at the beginning of 2006. And, yet again, we've comprehensively met them, with sales growth, operating margin expansion and EPS growth all exceeding our expectation, primarily as a result of outstanding execution in the marketplace, and a real focus on the underlying performance metrics necessary to turn 11% sales growth into 34% earnings per share growth.

But, as we go forward into 2007, I'm going to talk about an ex-Toprol basis of performance as this is the basis upon which we've communicated our targets today. I know that many of you still have Toprol-XL in your estimates for 2007, but what is clear is that we would have given a low probability to the outcome we actually achieved for Toprol in 2006 and this, therefore, makes me cautious about predicting Toprol sales for 2007.

So to orientate you on our starting point, here are the 2006 numbers with and without Toprol. And there are two things I want to point out. Firstly, with the exclusion of Toprol-XL, and the Merck-related payment, gross margin is slightly lower. And, not surprisingly, operating margin is lower by 2.6 percentage points as there's virtually no cost allocated to Toprol. And, secondly, none of the underlying key performance metrics have been affected at all.

Of course, many of you will be sitting there thinking well, 2006 was a good year, but what really matters with -- is the future. And I have to say that that's my attitude too, and why I want to put 2006 into its wider context. Here's a snapshot of the performance metrics I showed you in June that charted progress for the first quarter of 2006. During the remainder of this presentation I will demonstrate that both 2006 and the targets for 2007 are firmly on track.

Of course there's been positive and negative events in the months since June, but, as I hope was clear in the summer, our target outcome was not dependent on a single event as we'd taken a robust view of the business as a whole. I believe, today, that the Company can meet those expectations and grow to the end of the decade at a sales tagger in line with the market, which we quantified then at between 6 and 8%, and grow earnings per share ahead of this. And, just for clarification, this is on the basis of reported sales and not after making adjustments for Toprol.

It's self-evident in this industry that sales drive profits, and effective resource allocation and cost management drives profitability. So, as you see here, a healthy separation between sales growth and cost growth is the key to accelerated earnings per share growth and margin expansion. And the trends since the business review have, if anything, strengthened, and, for the year as a whole, 11% sales growth converts into 3.8 percentage points of margin improvement and 34% growth in EPS.

I'll now look at some of these trends a little more closely. And, starting with sales, you can see that the moving annual total and the quarterly actual trend lines are moving in a very firm and clear direction. In fact, quarter four last year we crossed the $7b sales mark for the first time. I'll cover sales by product in a moment, but, before then, I wanted to emphasize our sales performance from a geographic perspective.

I believe that the growth rates we are achieving here, 16% in the U.S., and 7% in the rest of the world, are right at the top of the industry performance table. And it's not entirely down to just having good products. The quality and the consistency of our sales and marketing activities around the world really are a differentiator. And it's even more striking when you split the rest of the world between established and emerging markets. Almost $3b of sales and a growth rate of 22% in the emerging markets is an outstanding performance and it has profits to match too. This analysis also highlights the challenges of growing in the more established markets, as David has already mentioned. And it's a challenge that we're prepared to tackle head on.

So, with that said, now let's turn to the key products. And you've seen this on many occasions, the success in recent years has been driven by the sales of five key growth products, which now represent sales of over $13b in value, and which grew by 23% for the full year. So let's look at Nexium first.

Nexium sales for the full year topped the $5b mark for the first time, a 12% increase over last year. Sales in the U.S. were up 13% on a rather strong growth in tablet volume, up 17% over 2005. In contrast, all other PPI brands declined by almost 4% during the year. Nexium and generic Omeprazole accounted for all of the growth in the market. But, as we expected in this highly competitive market, realized prices were lower and there were formulary wins and losses during the year. But, on balance, we enter the 2007 plan year with a formulary position in the commercial managed care arena and in Medicare Part D as good, or even slightly better, than it was in 2006.

You will no doubt have noted that pricing in the fourth quarter in the U.S. was affected by provision releases. Without this, the 4% positive price effect would have been around a 3% price reduction. It's hardly falling off a cliff. In other markets, we saw good volume growth in France and Italy, partially offset by price erosion in Germany which continues to be a very difficult market to operate in. In aggregate, the rest of the world sales were just over $1.6b, up 10%.

So another strong performance for Nexium, and we expect Nexium to continue to grow in 2007. However, given its large base, and as the Medicare volume benefits begin to annualize, it's looking like a single digit growth rate for 2007.

Before leaving Nexium, you'll have seen the recent European Patent Office decision ruling that one of the European substance patents for Nexium would be rejected. While disappointed with this decision, AstraZeneca has confidence in the intellectual property portfolio that protects Nexium. This portfolio includes process method of use and additional substance patent with exploration dates ranging from 2009 through to 2019. The revocation of this European substance patent should not have any substantive impact on our ability to uphold and enforce our Nexium patents in the United States. AstraZeneca has several U.S. patents covering Nexium, all of which can be differentiated from the European substance patent that was found to be invalid.

Seroquel sales are now approaching $3.5b with sales in 2006 up by 24%. U.S. prescription growth of 12% was well above the anti-psychotic market and our two largest competitors. This was the second year in a row where Seroquel was the only product among the top three to increase prescription market share and we now have market leadership and over 30% share in the U.S.

Bipolar depression was launched in the U.S. just before the year end and that puts us in a unique position to offer a single product effective at both poles of bipolar disorder. For the record, the lifecycle initiatives are included here on the slide, but John has already covered the key points.

Crestor was the star performer for the year. Annual sales were over $2b for the first time and sales were up 59% versus 2005. Sales in the U.S. were up 57% to $1.1b and, here, the statin market in the U.S. grew in double digits, with new prescriptions for the market as a whole up by 17%. Crestor was up by 58% and it outpaced the other brands in market share gains for the year. We enter 2007 with a strong managed care formulary position, as well as a significantly improved position on Medicare Part D formulary. This will support further strong volume growth in 2007.

Outside of the U.S., sales reached $880m, a 61% increase. We're building on our double digit volume market shares in Canada, the Netherlands, Italy and France. And we've also launched in Japan and Australia in the second half of 2006.

Arimidex sales were just over $1.5b, a 29% increase, with the U.S. up by 29%, Europe up by 30% and Asia-Pacific up by 27%. Prescriptions in the U.S. were up 21% and Arimidex has now surpassed Tamoxifen in August to become the market leader in volume terms, and we're also leading in France and Japan too.

Symbicort had another good year, achieving an 18% increase in sales to almost $1.2b on the back of continued growth in the market and market share gains across Europe. Symbicort SMART was launched in Sweden in November and further European launches will roll out during the course of 2007, underpinning growth prospects throughout the year. So with the launch of -- with the launch in the U.S. still to come, there's plenty to go for Symbicort.

So let's now turn to profitability and operating margin. Again, the trend lines are clear, with 10 points of margin added since the beginning of 2004. Of course, it's been driven by the top line, but strongly supported by more effective resource allocation and by cost management. And, as you've seen with the proposals to restructure our manufacturing base, there's still a determination to get at the productivity benefits that still remain.

So getting into more detail on 2006, here are the components of the improved margins. And you see the mix effect with improvements in growth margin and SG&A easily absorbing the higher spend on R&D. The shape of the movement between quarter four and the full year identify a number of things. Flattening gross margin benefits, an increasing benefit from SG&A, an increasing rate of spend on R&D and continuing benefits from other income. I'll come back to the first three in a moment, but I'll cover other income now.

In 2006, we saw a substantial increase in other income from $193 to $524m in 2006 and there are two main components to this, as you can see - an increase in royalties and an increase in one-off gains. I expect neither of these components to be at the same level in 2007 with our current expectation of other income being around a half to two-thirds of what it was in 2006. Of course, one-off gains are unpredictable by their nature and we are actively looking to use our existing assets as creatively as possible when looking for future deals. So, if this picture changes, we'll let you know.

So, if you think about performance, it's fair to say that margin improvement in 2006 was flattered by other income to the tune of almost 1%. But, equally, our expectations for further margin improvement in 2007 could have been a half a point higher.

Let me now briefly comment on the core components of margins.

As can be seen here, gross margin improvement has clearly plateaued around the 79% mark, with quarter four being affected by asset provisions. When you strip these out, gross margin is probably closer to an underlying 80% and that's where we want it to be - right at the top end of the industry performance curve. As I've mentioned on several occasions to you in the past, there comes a point where the efficiency of an individual site has been fully optimized and the next step is to address capacity utilization. And this is a step that we are proposing to take now with the elimination of excess capacity within our supply chain.

As David has mentioned, the program we are proposing, and it is, of course, subject to full and proper employee consultation, is to downsize our asset base with potential restructuring costs of $500m, and a reduction of about 3,000 positions. As we go through the consultation process we will get a much clearer view as to the timing and recognition of these costs and the benefits and how they spread over the next three years. The cash component of the restructuring cost is around $300m and the benefits will run on into the next decade and should enable us to protect our 80% gross margin.

I don't intend to say much on SG&A and R&D as I think these trend lines speak for themselves. We are determined to keep the trend line on SG&A on a firm downward slope and, equally, we've seen a steady increase in R&D to sales ratio since the middle of 2005.

So how do we think about 2007? Firstly, we aim to continue to hold SG&A costs growth in 2007 to the low single digits again. R&D costs have been growing strongly in recent quarters. Some of this is being driven by the maturing of our own portfolio but also through external addition. We've added significantly from the outside with the acquisition of CAT and the in-licensing of several late stage products. And these, together with the collaboration with BMS, will push R&D costs strongly forward again in 2007 such that we expect growth to be well into the teens.

You should also recognize that an outcome of the externalization program is that we will carry intangible assets in the balance sheet that are subject to impairment tests as key milestones are reached. We now carry additional intangible assets of approximately $1.5b in the balance sheet, which relate to acquisitions and licensing, of which around $300m will be tested by key milestones in 2007. In other words, if everything goes according to plan, then there's no P&L impact but, at the other extreme, the maximum impairment could amount to $300m.

So, in summary, it's clear from our 2007 target that the business fundamentals are still firmly in place. There's another year of strong top -- another year of strong growth on the top line. There are further steps to manage costs to increase operating leverage and, if all goes well, we could see an increase in operating margin of up to 1.5 percentage points, although currency may offset some of this. And there's an EPS target range of $3.80 to $4.05, or an underlying growth well into the teens.

Of course, this is all without Toprol and while I'm unable to give you a forecast with any confidence, the current scenario of only one generic strength on the market yields around $100m of profit per month, which is certainly not to be ignored when it comes to cash flow. So this brings us to cash flow and shareholder return.

First, I want to spend a few moments on our external investments in 2006 because it's not easy to derive what it was from the cash flow statement. Our net investment in acquisitions and licenses in 2006 amounted to $902m, comprising acquisitions and milestone payments capitalized on in-licenses, less the proceeds from the disposal of Humira. This investment will naturally grow over time as in-license products start hitting milestones. In fact, our actual spend in 2007, together with milestone commitments for the year, already approaches $500m. So we are using our balance sheet capacity, but wisely. And there's no better example of wisely than the recovery of over half of the investment in CAT through the sale of the Humira revenue streak. Not only was this an outstanding deal, but it was also a clear demonstration of our commitment to maximizing cash flow.

So let us turn now to our scorecard against our commitment to fully distribute cash flow. And the first part of this equation is, of course, maximize cash flow. Our record is good, as you can see here. In fact, our underlying cash generation is incredibly strong coming not just from profit but also from excellent working capital as well. And you see cash flow is rising from $4b in 2004 to over $7b in 2006. So the stronger the cash flow, the more we distribute. And we remain committed to fully distributing cash -- free cash flow by dividends and share buybacks. And when a final -- when the increase in the final dividend is taken into account, we've got pretty close to a full distribution.

As far as the future is concerned, we are very clear on shareholders' desire for more tensioning of the balance sheet and for the release of the cash to shareholders. Indeed, it was recognition of this that led us to our full distribution policy in the first place. And since adopting this policy in 2005, dividends have grown in dollar terms by 83%, and in 2006 the increase amounted to 32%. So shareholders have had the full benefit of the sustained improvement in operating performance over this period. During this period, we have also returned $7b in share repurchases, or over 9% of the share capital.

We also have commitments to Merck exit payments from 2008 onwards and I expect we will progressively move towards a geared balance sheet structure. The key question is how quickly should we move to get there. Personally, I believe the pharma industry will become geared and will follow a shareholder return strategy that is more cognizant of the changing circumstances of the industry. No longer can we use growth as a justification for lower returns. However, I am equally clear that any adjustments should not come from a single act of financial engineering, but a progressive shift that marries with shareholder return with the need to invest in a stronger future. And it's in this light that the Board has considered a distribution for 2007 and has decided to maintain the existing policy. Notwithstanding the increasing impact of the externalization program, or the commitments to Merck which begin to flow in the first quarter of 2008 onwards, the Board is confident that it can increase the share buyback program to $4b in 2007, which is at the run rate we achieved in the second half of the year.

So, in closing, I believe the Company's financial health to be robust and the prospects at the end of the decade remains strong. Our top line performance is excellent and the commercial machine behind it gets better and better. Our determined inclination to deliver improved productivity remains as strong as ever. As you've seen, we're prepared to embark and put more substantive steps to achieve it.

We recognize also that shareholder demand for higher returns and we're meeting them head-on.

And finally, having spent a substantial amount of my own time in the last 12 months supporting John and his efforts to strengthen the pipeline through leading our externalization strategy, I am clear that not only are there opportunities outside, but that AstraZeneca is also a compelling partner. If, together with the internal improvements in the pipeline John has already described, will build a successful long-term future for shareholders and all our stakeholders.

And, with that, I'll hand you back to David to begin the Q&A session. Thank you.

Thank you, John and Jon. I think that was a good review to give you some inside process to the pipeline as well as the financials and the strength of the business from our perspective and so we can go to Q&A. I just want to remind everybody, because we have a number of people who are participating remotely, we will be going back and forth between the live audience and some of our colleagues who are out there in cyber land. So, with that, why don't we start at the back and work our way up.

Yes. Thank you very much. It's Stuart Harris at HSBC. Just looking at Nexium, if I understood correctly, you talked about what would have been a 4% benefit in the fourth quarter because of the TRICARE payback and without that it would have been a 3% price negative. Being analytical, if we assume there's a 7% effective price cut in the quarter, is that the sort of level we should look at going on for 2007? And how does that quarterly performance, if indeed I'm right in that there is an effective 7% price cut, compare for the first nine months? Shaking your head means I'm being stupid.

No, you're not being stupid but it wasn't 7%. It was very -- it was a 7% swing when you take the TRICARE provision out. So what we were trying to show that it wasn't a plus 4, it was a minus 3 because of the one-off TRICARE release. So the underlying price erosion in quarter four was around the 3%.

Compared to the previous three quarters does that mean more or less?

Yes. I think it's more or less that level. 3 to 4% net-net.

As for the rest of the year you're happy that that's the sort of level that negotiations are at? That's where you're on formula throughout the rest of the year?

The levels of discount relate to product utilization and market share achievement, so it's difficult to just project out and say for X period of time it's going to be this because it's -- these are performance-based contracts. So, based on the performance, and you saw it, we had good share performance in the U.S. and good growth, our discounts get a little deeper and we've always been in a position, I think, our strategy's been willing to give a little bit of discount to try to drive share. So it's a difficult one to push up. But I think we expect there to continue to be the trade-off between price and volume.

How about there.

Thanks. It's John Murphy at Goldman Sachs. Firstly, could I ask you a question about Symbicort, as to why you chose now to make a specific comment regarding the U.S. and regarding production? Arguably, that was implicit in your timelines anyway. Has anything changed at this time?

Second, on atherosclerosis, in which I think the brand name's going to be easier to pronounce anyway, are we going to see Phase II data at ADA, or what are we going to see there?

And third, you talked about price pressures but have you taken any price increases either the back-end of the fourth quarter or early first quarter in the U.S.?

Okay. Good. Well, why don't I just make a comment about Symbicort and then ask John to further comment and comment on BMS and then I'll talk a little bit about price increase.

Symbicort, when we made the announcement of the approval last summer, we said there were a number of steps that needed to and we're now getting to the latter part of the critical path. So we're -- and we've been asked several times what are the steps? What are the issues? So part of it is about being more complete with the disclosure. John, I think.

Yes, as we said, previously we've talked about stability. That's all settled. These are the last things left on the run-in and we're trying to give you as clear a picture as you keep asking for.

In terms of SGLT2, what we've said, and what Bristol have said, is later this year it should enter Phase III. We haven't given the timescale on it and, as the data is still very much in their hands you'll have to ask them whether it's going to go to ADA or not.

Good. And Tony Zook is here from the U.S. Tony, do you want to comment on price in the -- can somebody get a microphone up here for Tony? Price in U.S.

Sure. Relative to price in the United States, we are on an annualized basis. We have one price increase per year and that went into effect in the early days of January. And the price range is varied from, on average, about 4 or 4.2% up to about 6%, depending by brand.

[inaudible], is there any comments about pricing in the rest of the world market that you'd like to make? I mean, much more restricted but.

The comment we can make is that in Europe, as you say, we are under pressure of the Government. There is many Governments in Southern France, in Germany, in Italy, in all the key countries. And there is a price pressure on our product. It is quite difficult to forecast precisely because the Government in Southern China are difficult to predict precisely but the pressure is continuous. We know that and we have anticipated that.

Good. Thank you. Let's go to one from the screen here. Tim Anderson from Prudential. Tim, can you hear us?

Yes. Can you hear me?

Yes, sir. Go ahead.

Thank you. A couple of questions. Just going back to Symbicort and what you've mentioned, can you just say what your cost level is in your guidance for launching mid '07. Is it high, medium or low?

And, on TRICARE, you breakout [these are already given] but total revenue impact fourth quarter from TRICARE across the book of business.

And then, on '07 earnings guidance, I appreciate that you've given that without Toprol. Can you give it with Toprol because at that stage you will have Toprol sales in future earning periods like 2008 will be better compared to that? Thank you.

On Symbicort, we really haven't gone high, medium and low. We've tried to be as clear as we can. We're on a critical path. We've got a couple of things that have to get done for us to go. At this point, we have stuck with our view that we can make a mid-year launch contingent upon the technology transfer and the validation. So, until that happens, we won't -- I don't think we want to handicap it. Jon, on TRICARE.

Yes, the TRICARE release is about $100m an [in close of] where it broadly offsets the impact on the revenue line of using Toprol revenue recognition onto a prescription basis.

I think, Tim, I've given you enough to triangulate between no Toprol and Toprol as it stands today. And I think, right now, I believe every combination of outcomes is possible in between that. But you should be able to triangulate it now.

Alright. Thank you.

Good. Back to the floor here. Kevin.

Kevin Wilson from Citigroup. A couple of questions, please, David. Are there any circumstances under which you will not co-develop Saxagliptin?

And secondly, on Nexium, the prescription trends in September seem to show volumes slow up and that seemed to continue, at least for the data we were looking at, through the end of '06. Could you comment on the volume trends in -- and maybe there's something we're missing in IMF by looking at that but it certainly seemed quite weak, relative to the growth in the first nine months. Maybe it's the doughnut hole, maybe it's something else.

And, perhaps, a clarification on the Crestor METEOR and atheroma package. Could you give us a sense, Jon, of when that -- you would expect an FDA action on that?

Alright. I'll let Jon maybe comment on the BMS and the Crestor issue and on the Nexium volumes. I'll make a comment and then ask Tony Zook to comment on his view of what's going on in the U.S. I think, obviously we saw an uptick in volume and use both of, as you saw, on the slides John put up of Generic Omeprazole and Nexium overall and it varied in 2006. But part of that probably had to do with the enrollment rates in Medicare as much as anything as our contracting positions didn't change much. Again, Tony, can we get you a microphone and maybe you could comment on your view of the later data in the year.

Yes, sure. I think a couple of points to make. If you are looking at quarterly rates, and you contrast it back to quarterly rate of '05, there were two one-time events that I think we need to take into consideration. Back in '05, we had a very strong fourth quarter because of a relationship and a contracting issue that we had with one of our PDMs. And then, of course, in the latter part of '06, we were disappointed by the decision taken by United and that affected our market share by about a point during that period, and since then we've been able to stabilize and get back on a growth trajectory. So just take those two points into consideration.

And as we start into January, as David said, it's a very volatile month because of Medicare and other issues. But the underlying extended unit growth, for the PPI market, looks to be about 14% or 15% for January and for Nexium at about 10%. So still growth in volume.

Good. John, on BMS and on Crestor.

As far as Saxagliptin is concerned, the only way I can conceive of us not taking it forward is if it doesn't meet its target product profile. It's partly a way through Phase III. If we see a safety or an efficacy issue, then obviously that's the case. But if you're thinking of other circumstances, we don't believe there are any.

As far as Crestor METEOR package is concerned, first of all it's Crestor atheroma package of which METEOR is the pivotal study and there are two others. That was submitted mid-January. I can't remember the exact date. I'm sure Mina could probably tell you. And you will see some data at the ACC.

Great, though, come back to Andrew in minute but let me go back to the screen for a minute. Phil Anon from Exis.

Good afternoon, gentlemen. A couple of questions. First one. You mentioned that a number of Phase II compounds were facing go-no decision in '07. I wonder if you could give a flavor which compounds could be actually on the Phase III slide in '08.

And also, you mentioned that you -- both that the industry was going to lead with more leverage. I wondered what were the implications for AstraZeneca and if you would consider to make more acquisitions and life with equity ratios of 0.3 or more going forward. Thank you.

Alright. Thank you, Phil. John, do you want to comment about the Phase II transitions to Phase III and maybe what a few of the key projects are? I'm not sure we put them all out there yet.

We haven't so, but certainly, I said in my presentation that Dapagliflozin, the CSTLT2 is going through its Phase III decision point later this year. There are three others, assuming the data comes through. We haven't actually said what they are and I think we should leave it there from the program.

Good. Jon, will you comment on the gearing or the -- because you made a few points on that.

Yes. I think we -- hopefully, I've been clear directionally where I believe we will go, but the extent to which we take it will be determined by opportunities. We absolutely haven't set any target ratios. It is quite clear that the Board will wish us, at all times, to maintain a high quality credit rating. But, within those parameters, we've got plenty of resources to meet opportunities as they come. And, I think, that's the position that we want to be - able to move quickly, be flexible and to take opportunities as we see them. And I think that's what the balance sheet capacity is there to allow us to do.

Good. Andrew. Can we get a microphone up front and then we'll get over for one more and then we'll go to Jo Walton. So, Jo, hang on. We'll go two questions and then come to you.

Andrew Baum, Morgan Stanley. A couple of questions. Firstly, on the cost line, for Jon. You talk about taking 3,000 jobs out over the next three years. When we're thinking about modeling the cost reduction we should put in our P&L, should we be thinking about $300m or is that too high? Could you give us some sense of where that should be?

Second, you're indicating them to come in from a supply chain. Should we anticipate that there's additional scope for productivity improvement by tackling the marketing field forces, SG&A in Europe or is that off the agenda for now?

And then finally, on the same theme, should we look at the whole productivity gains you've achieved so far as the end of the beginning or the beginning of the end in terms of how much more is there to go?

And then the final question is for John Patterson on Recentin. When will we get the first data from the Recentin trial versus Avastin in colorectal -- metastatic colon/rectal cancer? When should we anticipate that data?

Right. We'll come back to that for a minute. Let me just pick up on your beginning or the end or end of the beginning. I'd tried to make it very clear, Andrew, we are trying to look at productivity gains in a step-wise fashion and we have been -- we're a couple of years into it and it's going to continue for a while. So we've charged everybody at the senior levels on our management team to take a look and say where can we get more efficiencies, what do they look like, and how do we get at them. So I would say everything's in scope, including investing for value opportunities as we have the last couple of years in some of the emerging markets, while at the same time we've reduced sales force of key Western European markets. I think Tony cut back in the U.S. from using a contract sales organization earlier last year. So I think we've been relatively dynamic.

Jon, will you pick up maybe a bit more on the cost reduction issue in general and your views on productivity?

Yes. We're clearly not yet satisfied that we've tackled it all and I think we will be of that mindset for some time to come.

As regards the supply chain restructuring, we've given you only the broad outline of it, 3,000 positions and $500m of cost, because the timing and the pace of it will evolve as we go through the negotiations with the unions and employees. I would not expect it to come in one go. So you won't see $500m in 2007. You will probably see the $200m asset portion spread over the remaining useful life of the assets concerned and the cash cost will be incurred as we start to move to the close down -- the close down phase. So, by the time we get into it, it'll be a few months from here and it will run for three years after that. So you'll need to model it over three years. And the benefits will start to run fairly quickly and our aim is to have the benefits match the cash outflows after a relatively short space of time. But we'll give you more color on that as we're in a position to tell you where it is, and what it is, and over what time frame.

Good. There was a question right here on the aisle. I'm sorry. Yes. I'm sorry, Andrew. Yes.

On Recentin, I'm sure you wouldn't let us get away with that. The definitive data is due in 2010 but we have got an interim analysis planned for some data which we'd expect to see some time next year.

Good. To the aisle, please.

I have a quick question for John Patterson. [Norma McCarthy], IMS. Your recent foray into anti-infectors, anti-viruses may that include in the future vaccines?

At this point in time, we have no intention to enter the vaccines field.

Good. Alright. Let's go to Jo Walton and then there are a couple of email questions that I want to do. So I think we'll go to John. So Phil Small's question we'll do after we talk to Jo, then we'll go back to the floor. Jo.

Good afternoon. Just a couple of financial questions. In terms of the R&D, you've said mid to high teens growth and you've alluded to this potential asset impairment. Have you included any of that $300m in your guidance for high teens R&D or could it be high teens plus the $300m?

And, just looking at the impact of the restructuring charges over time, do you think that actually materially changes what your margin could ultimately be? You've talked about getting to an 80% growth margin at the top of the industry, could you actually, with these restructuring charges, go higher or are these effectively costs that you will need to take to keep your existing targets in tact?

Good, Jo. Thank you. I'm going to just go right to Jon on that.

Yes. The $300m, probably some but not all of it. It's quite hard to budget for all of these things failing. We don't expect them to, but I'm just trying to give you a picture as to the kind of exposure that we have because it'll come out in a lump and it will be binary. But, certainly, we haven't covered all of the $300m in our estimates.

And I think on margins, Jo, it's really the latter of what you are saying. I think when we look forward, and we're actually doing this as a step to manage what we see as the business challenges going forward, of actually wanting to preserve the 80% margin over time. I mean, clearly, excess capacity has arisen for a number of reasons. One being some of the late stage disappointments that we've had, also, the continuing drive to productivity has created excess capacity across the whole network. So we're really trying to anticipate what the future might hold and we want to preserve our leading performance metrics. And, if we can take it further, we will do that too.

We'll do it. Absolutely. Let me read a quick question here. Are you happy with the due diligence done on recent in-licensed products and acquisitions? How easy is it to manage external programs and ensure that they are delivered to the same standard as internal projects from Phil Small at Alliance Trust. John?

Okay. The answer is obviously due diligence, we work very hard to do it as comprehensively as possible. And I have no reason, sitting here today, to believe that that hasn't happened. So are we happy? Yes.

The second part of the question is an important one. And that is, when others are doing work on which we're reliant, how can we make sure the standards are good enough. And the answer is, I think, we do it in two ways. The first is we actually do put teams in alongside some of these partners, especially smaller ones, to help and to make sure that they're doing things the right way. We obviously assess their -- and here it's the things like good practice etc. And then, of course, ultimately, we have stage milestones and we'll only pay those stage milestones when we've seen the data and it's absolutely clean and clear and we know where we stand.

Good. Thank you. Let's go back to the floor for questions. We'll go over there.

Hi. It's Max Herrmann from ING. Just a few questions. Firstly, just following on from the question on partnering. Having obviously now acquired CAT and had it in place for six months, can you say how much of the entrepreneurial culture is being maintained by these? I know obviously your ARROW statement today made some comments about maintaining that and whether you are going to some sort of, almost similar to Glaxo's strategy, of having centers of excellence or independently tightly run R&D centers.

Secondly, I do believe we were expecting some no-go decisions actually at the end of last year, particularly on ZD4054 for the prostrate cancer drug and AZD9684 as U.S. install in Phase II or whether there's been a -- we're still waiting for that no-go decision on those two products.

And then, just finally, on Saxagliptin, do you see product differentiation with the other DPP4s? Where do you see the profile of the product coming out?

Good. Thank you. I'll start. Our partnering activities go beyond CAT now. We have KuDOS. We made the announcement today as well and have one of our partners here with us this afternoon actually, and our strategy on this is pretty clear. We are -- we want to have relationships like that continue the way they have been. The reason that they've been successful is because of the way they've been operating and that's our strategy is to continue to do that. Bring them into the AstraZeneca family but make sure they've got the opportunity to operate differently. John's on -- chairing the Board really for CAT. We've -- do you want to comment about some of the entrepreneurial spirit there or what's happened?

Yes. In fact, we reviewed it at our Board yesterday. And I don't have a cultureometer that will tell you where we sit on the scales but we've done a number of things. Everything from retaining the name to stopping the armies of AstraZeneca, people marching down the A1 into Cambridge to try and make sure that they were seen to be having that independence. We set it up in such a way that whilst they're going to produce streams of work in relation to our therapeutic areas, we've also set up another stream that says you do what you think is best to actually deliver some novel medicines outside that, whether that's from technologies or from novel targets. So we're trying to do a number of things to give them the very clear message that we want them to carry on doing the kind of things that they do, but, at the same time, obviously, to deliver against the targets that we agree jointly.

But the way we agreed the targets, for instance, is not sort of the man from AstraZeneca goes down the road to Cambridge and says deliver three monoclonals against those targets. It's actually about putting the scientists in a room together and saying you've got to agree, and nobody has the casting vote. So that's just some examples of how we're doing that.

You mentioned GSK and certain things. I don't know how best they organize themselves. We have therapeutic area organizations and we operate in those therapeutic areas. We believe that joining the whole value chain from R&D, from discovery, through to the marketplace, is a valuable activity and we do just that. And as far as CAT is concerned, they will deliver the biological molecules that they discover up to the middle of Phase II or towards the end of Phase II and then we'll take them into the broader AZ pipeline.

So that's a sort of brief outline of some of the things we're doing there.

[inaudible].

Yes. You asked one or two things. 4054, we were hoping to make a decision on it last year. The data were not black and white. They were grey, and we're allowing the study to mature later. So it will probably be one of the ones that hits a decision point later this year.

And 9684 is very similar. We have some interesting data but we've not yet get definitive data and we're working to get that.

And then your final question was differentiation of Saxagliptin. Well, it's still in its Phase III program. Part of that Phase III program is to deliver the differentiation. There are some good reasons to believe there will be some differentiation. But the first product has only been out in the market a month, I think. It's only reached adolescence. There's a lot of water to go under the bridge yet before we know what this class looks like and how it plays out.

Good. More questions from the floor. Mark. Can you get a mic?

It's Graham Parry from Merrill Lynch. I'm just wondering if you could comment, now you've had a full year of Medicare part D, what proportion of your sales is coming from part D now and what proportion of that you think was up for price renegotiation in 2007 versus what you would expect in 2008? So the basis of the question is, how much -- how many two-year contracts [signed] is one-year contracts initially.

Good. Tony, you're here. I think it would be best for you to comment on that. You know the percentage of business, '07/'08 in terms of contracting and then how much was two-year versus one-year and are you concerned going into '08. Medicare. Part D.

Medicare part D, if you look to the level of sales that went through that channel for AstraZeneca in the U.S., in 2006 was low double digit. It was right around 13 to 14% of our sales through Medicare. As far as our contracting status is concerned, we went into '06 with what we believed to be a fairly strong position and I think that bore out with some of the results that we were able to achieve in that book of business. And when we look to our contracting for '07, of course, that's already been completed and so we can say that our access rates actually have been enhanced in Medicare part D going into '07. And the '08 process is underway right now.

Good. Thank you. I saw a microphone go in over there. So. Great. Thanks a lot.

This is Alexandra Hauber from Bear Stearns. Sorry, I have to come back, again, to the production rationalization program. And what I really would like to know is -- I'm still not quite clear, was this something incremental -- an incremental element which presented your long-term plans since you presented the road map for 2007 at the ABR or was that sort of there in the background but you hadn't really started talking to your employees?

And also on that, you're talking about protecting the 80% underlying gross margins. Do you -- what makes you think that people actually have a gross margin erosion third one? What's the price scenarios are underlying this?

And, second question, your guidance is at the beginning of the year relatively wide and I was just wondering whether the timing of the Symbicort launch had any influence on that or whether that's not an element because it's not going to be profitable this year anyway?

Thirdly, you -- can you just give us roughly your idea how much the U.S. statin market is actually going to grow this year? Obviously, it's going to decelerate but by how much.

And, just finally, multi-source generic Omeprazole later this year, is that something which worries you at all or is that just going to affect probably LOSEC and not going to have much knock-on effect on Nexium?

Okay. Well, I think, certainly, in terms of our planning around our productivity initiatives and your question about what's included from June and what's not, that's -- I think that's a tougher question to answer. We expect to continue to put productivity initiatives in place going forward to the extent we understand them, we build them into our guidance as we see it, and, at the same time, we recognize that there are other things that come up during the year then we change our guidance, as we have in the last year, when we've exceeded our own expectations for what we could do. So I think to say exactly how that measures in is difficult because we've got a plan, we look at it, we lay it out and then the last couple of years we've done better than we thought we would. Jon, do you want to take it a step further?

Well, that's exactly the answer. There's a whole series of moving parts in the business to the end of 2010. We gave you a view in the summer. We said we could reach. We could grow in line with the market. You asked us what that was. 6 to 8%. I mean, I think, if we see a set of circumstances that take us outside of that then we are clearly bound to tell you. But that's quite a -- the planning range that we've got to optimize the business. So if we had a material change of shape in the business, I think we would have referred to it as that.

In terms of guidance, I actually think less than $500m of performance and performance bandwidth, for a year with all the things that we've talked about, is actually quite narrow. And that's what [$0.25] represents. So.

It's hard to pick a product and say Symbicort launch or not launch them. Our plan is what we told you. A mid-year launch for Symbicort if we -- provided we get these steps out of the way.

And U.S. statin market growth, Tony, do you want to prognosticate? And, [Bernhard], then I'm going to come to you. There's a written in question about emerging markets and what they'll be like in ten years. So, but we'll get that real quick.

I think relative to the U.S. statin market, as you said, the rate of growth may certainly slow. Dollar market this year was up about 9%. We would think, going into '07 that the dollar market will be slightly lower in that 7 to 8% range.

Okay. Good. And the multi-source Omeprazole, I think that Omeprazole penetrated the market further last year. I think that will continue. I think it was noted in Jon's slide. We -- Nexium and generic Omeprazole were the two growers in the market. That's our goal. We always felt that that was a good position and that's what we're contracted for.

[Bruno], here's a specific question. Do you have a target or ambition for how emerging markets might represent of sales 10 years from now given your increased focus on China, as an example? That came from [Christof Willberg-Spenson] at Carnegie.

Okay. It's a little bit difficult to make a precise forecast on the emerging market, but what we can say is there is a good correlation, and we showed that in a meeting a few years ago, I believe, between GDP growth rate of a country and the pharmaceutical market. A good example of that is what is going on in China. And, if you look at the Chinese market, you could see that it is now a market which is around $13, $14b. A few years ago, it was $6, $7b. Some people are forecasting this market being $23, $25b by 2010. So the growth rate is quite significant. And that is true in China but it's true in many other markets. We have seen Russia growing fast. We see all Asia Pacific growing fast.

So I will not make a precise forecast but I will say that we have been growing our business in emerging markets at the rate of 22 -- 20% per year right now. It's a $2.8b, and we have good reason to believe that we will maintain a very strong growth rate for the next few years for sure. I will not make a forecast for the -- in the 10 years okay. But it's going to be more and more important in the pharmaceutical world for sure.

Thank you, Bernhard. We're just about out of time. I'm going to take one more question from the floor and we'll take it from Mark.

Thanks. Just a couple of questions. The first one on AZ, the 6140. Just, very simply, which dose have you taken into the PLATO study?

Then, secondly, on Crestor outside the United States, does the atheroma file substantially change things in countries like Spain and do you share Shionogi's optimism that you can capture up to about a third of the Japanese statin market?

Okay, John, I'm going to ask you to at least comment on the first two.

6140, we've taken 90 milligrams PD into the Phase III program. Crestor, outside the United States, our plan is to go with those markets where we currently have the product in the market place.

To get to Spain, in the way the European creditors operate, you'd have to go in with a whole new license application and that is a different and parallel process that we're still considering how to deal with.

And for Shionogi, we're have an excellent relationship with Shionogi. And we also have a strong history, with one very widely known exception, of not giving forecasts for Crestor. And so I think we're going to stick with that principle, that we don't give forecasts, and we're very pleased that Shionogi's our partner, and we're working hard to make sure Crestor is a success in Japan.

With that, I'd like to thank everybody for your attention this afternoon. We now have some time, I think, to grab a cup of tea and talk for a few minutes.

Thank you for your questions and for being here. And for those of you that are remotely connected, thank you also for participating. And good afternoon. And good morning.