AstraZeneca PLC (AZN) 2007 Q2 法說會逐字稿

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  • David Brennan - CEO

  • Well good afternoon everyone.

  • Thank you for joining us this afternoon, welcome to our meeting where our goal is to review with you our financial results for the first half of the year and discuss some very important aspects, some of the things that are going on, changes that are taking place in our business.

  • I will start the meeting with an overview of results and where we stand, as well as the work that we've been doing to address our productivity challenge, and the challenge that I laid down to our entire organization in February, when we reported the beginning of our restructuring program.

  • I will then ask John Patterson to come up and provide you with an update to the changes in the pipeline, as well as our R&D productivity initiatives, since we last reviewed this comprehensively with you when we were together in February.

  • Then finally here at his last AstraZeneca quarterly results meeting, Jon Symonds is here, and he will take you through the financial data as usual.

  • At the end of that we will take questions both from you here with us in London, as well as folks that are online, and we will try to alternative back and forth, and cover as much ground as we can.

  • As you will have seen in the press release the quarter's results have had an added layer of complexity as we begin to reflect the impact of the acquisition of MedImmune.

  • As we step up our changes and the pace of our productivity initiatives and the restructuring charge that comes with them, we are going to do everything we can to help you understand that, to make it as transparent as possible.

  • And by now, as I said you've seen the second quarter results, and the first half results, which we published a couple of hours ago.

  • So let me just quickly go over it.

  • Constant currency sales for the first half were up 8%, earnings per share were up 15% excluding restructuring costs and the impact of the MedImmune acquisition.

  • I think these results are complimented by our strengthened late phase pipeline, which as you all know, we are counting on to deliver the next wave of value to us in the medium term.

  • The outlook for the industry remains quite challenging.

  • Events such as the withdrawal of Vioxx a couple of years ago, and more recently the criticism of Avandia I think illustrate all too clearly the heightened sensitivities within regulatory agencies, and within society around product safety.

  • And I think these sensitivities are often amplified as they are played out in the media.

  • The trust of patients is being eroded as a result of some this, making it even more important for pharmaceutical companies to continue to further embrace high standard and responsible behavior in all aspects of our business.

  • Before we get into further details of our financial performance, I'd like to talk about what we are doing to drive performance across the AstraZeneca Group, including our approach to responsible leadership.

  • I've spent a considerable amount of time since last year getting the entire AstraZeneca organization aligned with the three strategic priorities that we presented to you when we were together in February.

  • And we've added a fourth priority, which is the need to continue to change our culture and behavior in order to successfully drive our business as we prepare for what we see to be a more challenging future.

  • Internally, we refer to these priorities as the four pillars that underpin our aspiration and our core purpose, which is to make a meaningful difference to patient health through great medicines.

  • In doing that, we believe we will create value for shareholders and for society.

  • The four strategic priorities are strengthen the pipeline, grow the business, reshape the business and change our behavior and our culture.

  • And what I will do is take these in turn this afternoon and give some examples of the progress I believe we are making on each one.

  • Let me begin with strengthen the pipeline.

  • The focus for this initiative clearly lies within our R&D organization.

  • John Patterson, Jan Lundberg who runs Discovery and their leadership teams have been working within the organization to drive out complexity, and create a drug discovery and development process that is faster and more flexible.

  • This means challenging every stage of the R&D process to seek ways to produce results more quickly, and reduce the time it takes to move from the initial selection of compounds to successfully bringing drugs to market.

  • Since February, 20 projects have progressed to the next phase of development, including two new molecules that entered Phase III, increasing our Phase III portfolio to eight projects.

  • And seven new candidate drugs have moved from Discovery Research into the development organization.

  • As you know our externalization program continues.

  • In addition to acquiring the rights to two promising late stage compounds earlier this year, Saxagliptin and Dapagliflozin through our diabetes collaboration with BMS, we also completed the acquisition of MedImmune during the second quarter.

  • You've heard a lot about MedImmune over the past few months, and you will hear more about how it fits into our portfolio at our Biologics Review Day in December.

  • So I am not going to go into much detail here today.

  • However, let me remind you of the benefits that AstraZeneca gets from the acquisition of MedImmune.

  • Following our initial collaborations a few years ago with Abgenix and CAT in the biologics area, we began to take advantage of the exciting opportunity offered by biologics as an alternative to small molecules in tackling disease.

  • That led us to acquire CAT last year, and to see the additional potential biologics could represent to our future portfolio.

  • The acquisition of MedImmune fulfills this potential.

  • And it allows us to accelerate our work in this important area and achieve our biologics ambition much more quickly.

  • In the weeks since the acquisition we've made meaningful progress on creating the new MedImmune within AstraZeneca.

  • We've taken steps to integrate CAT into MedImmune.

  • And we've secured synergies of $450m by 2009 growing to over $500m by 2010.

  • At this level the acquisition remains cash accretion to earnings per share by 2009.

  • We made decisions to keep a greater degree of operating independence for MedImmune than we originally envisioned.

  • This model of being operationally independent and strategically aligned, will allow us to achieve our highest priority, which is strengthening our pipeline.

  • We can very effectively drive what is an exciting biologics pipeline quicker, and should see projects entering the later stages of development sooner than we first expected.

  • I am very pleased with the progress we've made so far during these first phases of the transition.

  • And we will say more about the potential of the combined pipeline and our plans for the business in the fourth quarter.

  • I continue to be impressed with the people, the science and the product portfolio that we've acquired.

  • Our partnership is in its infancy.

  • However, it's already clear that bringing together MedImmune and AstraZeneca offers a richness that we had dared not to expect.

  • David Mott, who leads MedImmune, is here today to answer any questions you may have about what's been accomplished so far, and I encourage you to ask any questions about MedImmune when we get to the Q&A.

  • The second strategic priority is to grow the business.

  • Here we are looking at how best to grow our key brands, going beyond the pill and supporting patients who are taking our medicines, to leverage the global sales and marketing operation that is recognized as among the best in the industry.

  • This initiative also addresses what needs to be done to grow our business in emerging markets, leveraging the investments that have already positioned us a leader in rapidly growing markets in Asia Pacific and China as well Mexico, Russia and Brazil.

  • Our presence in many other emerging markets is continuing to grow too and our sales continue to show very good growth in those areas as evidenced by a sales increased of 21% in the second quarter.

  • Highlights of in-market progress with some key products in other areas include the successful launch of Symbicort in the U.S.

  • where the initial stocking has amounted to more than $30m of sales.

  • The continued rollout of Symbicort SMART outside the U.S., where we are seeing lighter use of the product and the approval of Seroquel XR for schizophrenia in the U.S.

  • And Seroquel has a number of other lifecycle programs to come later this year and into next.

  • The third strategic priority is our drive to reshape our business, to take account of the current challenging environment, and to be positioned well for the future.

  • In February we announced a major program to improve asset utilization in our supply chain.

  • At that same time I laid down a challenge to every part of the business to look for ways to improve productivity and to reduce costs.

  • And the people in the business have responded.

  • We are tackling procurement.

  • We are simplifying business functions.

  • We are adapting our sales and marketing model.

  • And as I said before, we are doing everything we can to drive out complexity in different parts of the organization.

  • Implementation of the supply chain strategy started in March.

  • And we've announced cost reduction programs at several sites, including the U.K.

  • Sweden, Germany and the U.S., reflecting our changing manufacturing needs.

  • We've also started the process of optimizing our manufacturing requirements across the remaining sites.

  • Today we are increasing the provision for this program as it has exceeded its original targets.

  • In the last few months we've reviewed our European sales and marketing activities.

  • And as you've seen we've announced our intention to reshape the sales teams, to better match the needs of the markets they serve.

  • Our in-market organizations are challenged to be right-sized for the opportunities that exist.

  • And the changes that we are making now reflect our assessments of the changing conditions that we face.

  • We've also identified opportunities to reduce the cost of our business support infrastructure.

  • A new long term contract with IBM, which was announced, last week, forms part of this.

  • And we are looking at other parts of the business support areas to make additional changes as well in the future.

  • In R&D we've been addressing the implications of the disease area strategy that we shared with you in February, by completing and terminating projects that were outside of our focus areas.

  • We've carried out a review of our global regulatory team and we've also announced the creation of a single data management center to drive significant efficiencies by streamlining the way we manage data in the R&D organization.

  • So we've really stepped up the pace in our drive to improve productivity.

  • The total implementation cost of these programs is around $1.6b with payback by 2009.

  • And when fully implemented we will be realizing $900m in annual benefits by 2010.

  • Finally, in order to start to continue the change of our culture and behavior, a factor that's critical to our success in delivering on these strategic priorities, we formed an extended leadership group, including the top 200 leaders in the organization to drive through the organization the changes that we believe we need to make.

  • We've made changes to strengthen our performance driven reward structure for senior managers.

  • We are rolling out the AstraZeneca leadership capabilities to build the skills of today's leaders as well as the leaders of tomorrow for our organization.

  • The first half of the year has been marked by significant events in the industry, as well as the transformational event for AstraZeneca in the acquisition of MedImmune.

  • Looking forward, I feel very confident in the ability of this leadership team to continue to deliver the action oriented agenda that I've outlined here today.

  • In the current environment it's clear that success will lie with those companies who are lean, agile and able to manage through the challenges, and take advantage of the opportunities that lie ahead.

  • It is also clear to me that values such as honestly, integrity and transparency have never been more important for companies in our industry.

  • We are focused on delivering the initiatives I've been talking about for the last few minutes.

  • And we know that when we are successful in delivering them, it will deliver value for patients, shareholders and, of course, our employees.

  • Now let me quickly move onto the headline results.

  • Sales in the second quarter were $7.2b up 10% as reported, a 6% increase at constant exchange rates.

  • Reported operating profit was down 11% in constant currency, and reported EPS at $0.95.

  • However, the reported numbers are significantly impacted by the inclusion of MedImmune and $376m in restructuring changes from our productivity programs.

  • Excluding those two items, adjusted earnings per share were $1.19 in the second quarter, which is 13% higher than the $1.02 we reported in the second quarter last year.

  • It's a similar picture for the half year.

  • Sales were up 8% in constant currency to $14.2b.

  • Earnings per share, adjusted for MedImmune and the restructuring costs, were up 15% over last year in constant currency.

  • The Board has recommended a 6% increase in the first interim dividend to $0.52.

  • And net share repurchases were on target for the first half of the year.

  • They were just over $2b.

  • In a few minutes Jon Symonds will take you through all the details of the financial performance, and all of the moving parts that make up today's announcements.

  • Right now I will just make a few comments on the sales performance in the quarter.

  • Looking at regional sales performance in our established markets, both in the U.S.

  • and rest of world, sales growth was single digits, up 6% in the U.S.

  • and 3% in established rest of world.

  • In contrast, sales in emerging markets were 21% ahead of last year.

  • And building our business in these markets remains a key strategic priority.

  • Looking at the key brands, the five growth drives combined for solid double digit growth in the quarter to just under $3.8b in sales, although Nexium growth has clearly slowed in the quarter.

  • Nexium sales in the second quarter were $1.3b which was unchanged at constant exchange rates, as a 1% decline in the U.S.

  • for the quarter was offset by a 2% increase in other markets.

  • If we drill down on the U.S.

  • performance you can see the issue.

  • This is our customary plot of unit -- of dispensed unit volume in the U.S.

  • market on a quarterly basis.

  • As you can see for the four quarters in 2006 Nexium volume growth was well into the teens, and we were generating this growth alongside the rapid growth of Generic Omeprazole.

  • All other brands were down in the aggregate.

  • This year it's a different picture.

  • Nexium volume growth is still up some 5% year to date, but tailed off to 3% for the quarter.

  • Omeprazole volume is up a further 48%, and the other brands are still struggling.

  • In order to compete more effectively in this changing market we need to adapt our Nexium strategy, and we will do that.

  • For Nexium to continue to grow we are going to have to take share from the other brands at a faster rate than we had before.

  • Clinical differentiation remains the lynch pin for Nexium's position in the market.

  • But in this increasingly competitive environment we may also need to make Nexium more attractive to patients and to payers in selected accounts.

  • In any event we anticipate that there will be a wider spread between volume growth and revenue growth than we have seen historically going forward.

  • But we are determined that with this refinement in strategy we will maintain Nexium as the market leader in the branding PPI market.

  • At the beginning of the year we were looking at single digit sales growth.

  • At the current rate that is looking more like low single digits.

  • In other markets Nexium sales growth is doing well in emerging markets and in Canada, which more than offsets some of the declines that we have seen in Western Europe.

  • Let me move on to Crestor.

  • Crestor sales in the second quarter were up 38% to $678m.

  • U.S.

  • sales were up 30% to $353m.

  • The U.S.

  • statin market grew by 10% in total prescriptions in the second quarter.

  • Crestor prescriptions were up 28%.

  • However, the last six months have been challenging in terms of market share progress, with Crestor share holding steady at 8.6%.

  • This chart really tells that story.

  • The top line is the market share growth for Generic Simvastatin since the beginning of the year, coinciding with the approval and launch of multiple generic Simvastatin products.

  • It's clear that this has given managed care plans a powerful incentive to tilt their formularies to drive Simvastatin utilization and it has resulted in more than 5 share points of growth in the first six months.

  • The line at the bottom of the chart, a nearly mirror image decline in market share for Lipitor.

  • In the middle a relatively steady state market performance for Crestor and Vytorin.

  • A reasonably resilient performance compared to the market leader.

  • So what do we believe can rekindle our share growth?

  • First, after the initial burst of formulary driven switches from Crestor to Simvastatin at the beginning of the year, we are now seeing a gradual improvement in that trend.

  • If that continues, our rate of new patients starts and switches to Crestor should ultimately come through in market share growth.

  • An indication for Atherosclerosis also offers an additional platform for differentiating Crestor's position in the market place.

  • And the PDUFA date for that FDA review for this indication is in November of this year.

  • Crestor sales in other markets were up 47% in the quarter.

  • We are seeing excellent growth in France, in Italy, in Canada as well as in several other markets.

  • And the launch in Japan is off to a good start.

  • Crestor is already up to a 6.7% share of the market in value terms.

  • Moving on to Arimidex sales were up 10% in the second quarter to $430m.

  • In the U.S.

  • sales were up 14%.

  • Total prescriptions increased 9% in the first half, and Arimidex remains the market leader with a 38% market share, 16 points clear of Femara.

  • In other markets, sales were up 7% including a 13% increase in Japan and a 16% increase in the emerging markets.

  • On to Seroquel, global Seroquel sales continue to grow in double digits with sales up 11% in the second quarter to $963m.

  • Sales in the U.S.

  • were up 9%, total prescriptions increased 12% in the first half, twice the anti-psychotic market growth.

  • Seroquel is the only single agent indicated for both the manic and depressive phases of bipolar disorder.

  • As a result, we are seeing good growth in this indication, albeit at a lower revenue per prescription because of the lower doses being used.

  • The launch of Seroquel XR, the once daily extended release formulation for Seroquel, is underway.

  • Trade stocking is nearly complete and detailing starts next week.

  • The attributes of Seroquel XR should improve our competitive position in the schizophrenia segment of this very important market.

  • The XR regulatory submission is under review in Europe as well, and we are planning for launches beginning in 2008.

  • Sales in other markets were up 17% on good growth in Western Europe and in emerging markets.

  • Finally Symbicort.

  • Global sales in the quarter were up 25% to $414m.

  • For the first time we can report sales of Symbicort in the U.S.

  • As I said we booked $30m in stocking sales ahead of the launch, which took place on June 25, in the U.S.

  • We are excited about the potential for Symbicort in this market.

  • Access to managed care is better at this stage of the launch than we had achieved with Crestor or Nexium.

  • We've already achieved formulary access equivalent to Advair in plans that reach 55% of covered lives.

  • And this is growing by the day.

  • The early stage of the launch is focused on specialists and primary care detailing will follow shortly.

  • Sales in other markets outside the U.S.

  • were up 15%.

  • As I said before we are rolling out the Symbicort SMART treatment concept in Europe, with recent launches in Germany, France, the U.K.

  • Spain and Italy.

  • And it is making a difference in the market.

  • For example, our market share is up 2.5 points in just five months since the Symbicort SMART launch took place in Germany.

  • So in summary, I believe we've delivered a solid underlying performance in the second quarter and the first half, although we do see slowing growth in some segments of the market.

  • We've made excellent progress on the pipeline.

  • We've greatly expanded our efforts to drive productivity to adapt to a challenging environment.

  • And the biggest event of the quarter we successfully completed the acquisition of MedImmune in June.

  • And while we are making changes in all parts of the business, to be well prepared to compete now and in the future, we know that the key to success is our ability to bring differentiated products to the market, which can truly make a difference in the lives of patients.

  • With that I'll hand over to John Patterson to provide you with a more detailed update on progress and research and development.

  • And to talk about where MedImmune fits into this exciting picture that is emerging in our R&D organization.

  • John.

  • John Patterson - Executive Director Development

  • Thank you David.

  • And good afternoon or good morning ladies and gentlemen wherever you are.

  • I am really pleased to be able to share with you today the excellent progress that we are making in developing the AstraZeneca pipeline.

  • And to give a degree of detail behind the headlines that you will have read in the press release, and already heard today from David.

  • We've been working hard to increase the size of the pipeline, with particular attention being paid to the later phases.

  • Our quality on time initiative has now been running for one and half years, and we are seeing real evidence of an accelerated delivery with significant time reduction in the early phases of development and increasing numbers of products moving forward.

  • We are building pipeline momentum as our portfolio increases to 157 projects, of which eight are now in Phase III, representing seven new medicines.

  • At the same time, we are actively lowering the risk of our portfolio.

  • The MedImmune acquisition has been a transformational event for the Company's research and development organization, growing our whole science and capabilities base and accelerating our biologics strategy.

  • The Abgenix, CAT and MedImmune externalization projects give us the capability to discover, develop and manufacture monoclonal antibodies, vaccines and anti-virals with the capacity to take eight biologics per annum into development.

  • Together with the highly skilled and experienced MedImmune and CAT workforces, we're now in a position that would have taken us many years and significant learning to achieve.

  • We're now more than capable of delivering our promise of 25% of new molecules offered for Phase III development being biologics and, in so doing, have created a larger, more diverse and richer R&D pipeline.

  • It covers organic chemistry, genetically engineered and fermentation derived molecules and anti-virals.

  • When you add in the manufacturing capacity, we're now a fully fledged biopharmaceutical company, capable of delivering the whole value chain from discovery to the patient.

  • I've talked before about accelerating the delivery of our pipeline and described the quality, speed and cost virtuous triangle.

  • These are the activities that would lead to an improved R&D performance, with an eight year time to market target.

  • I'm sure you've heard many companies describe their ambitions in this area.

  • I'm now in a position to give you many real examples of the progress that we've made.

  • The shortening of our pre-clinical timescales has led us to achieve 14 first time in man exposures already this year, which is more than the whole of 2006, which was in itself a record year.

  • We've also used biomarkers and personalized medicines to reach rapid go/no-go decisions in cancer in particular.

  • Our next step is to create a culture of continuous improvement to both embed the gains that we've made and create further benefits.

  • Already to date, we've succeeded in shortening our composite median development times from first formal toxicology to planned approval by more than 18 months, whilst significantly increasing our throughput of candidate drugs.

  • We will achieve upper quartile industry performance by 2010, as further speed and quality performance actions are introduced.

  • This achievement is all the more significant because we're doing this while we're increasing the throughput of projects and doubling the number of Phase III molecules.

  • Some real examples, both in discovery and development, including speeding up of lead optimization, reducing all one month toxicology studies by more than one-third and finding ways of delivering first clinical exposure within days of regulatory and Ethics Committee approval, all of this whilst not compromising on safety.

  • We're moving faster in pre-clinical, faster into man and faster into patients.

  • We've put in place programs to optimize our Phase II studies to make them fit for purpose, saving both time and cost in the process.

  • These are just some examples of our quality and time initiative, which spans the whole of R&D.

  • In parallel, we're looking to become a more lean and agile organization, an exercise that started ahead of our MedImmune purchase, but which has now gained further momentum as we seek the synergies across the new portfolio.

  • We've already announced changes within R&D that will lead to the reduction of 700 full time equivalents through data management consolidation and de-layering and, under our new regulatory leadership, providing focus and driving efficiency gains.

  • Our disease area strategy has been implemented, but the MedImmune acquisition provides increased opportunities in areas such as anti-virals and vaccines, and we'll be revisiting and reviewing our disease area strategies over the coming months.

  • As we grow our biologics capabilities, we'll continue to review and right size our overall discovery capability in small molecules, whilst taking every opportunity to deliver our development projects through a leaner, more agile organization.

  • You'll all be familiar with this AstraZeneca pipeline table.

  • Since the full year results in February, there's been tremendous progress.

  • Normal attrition accounts for 16 projects being removed from the table.

  • We've had 20 progressions, of which 14 are phase progressions and six are line extensions.

  • And we've had 53 additions, including MedImmune.

  • The shape of our pipeline is changing, reflecting the great progress we're making, particularly in renewing the later phases.

  • Since the full year results, the AstraZeneca pipeline has increased significantly, from 120 to 157 projects, including 124 new chemical entities, aided by the MedImmune and Arrow acquisitions.

  • Since the April announcement, we've seen the numbers in the pipeline marginally decline as we successfully delivered projects, prioritized and made choices.

  • The balance of the pipeline has improved significantly.

  • It's now composed of 20% biologics, excluding MedImmune pre-clinical and lifecycle.

  • We can observe a 50% increase of total project numbers compared with two years ago.

  • The pre-clinical component has obviously increased and the record number of first time in man exposures has significantly increased our Phase I pipeline.

  • In fact, Phase I has almost doubled since February.

  • This means that we're expecting a record number of Phase II transitions during 2008, which will subsequently flow through to Phase III on a data driven basis.

  • We're also lowering the systemic risk of our pipeline through managing our ratio of best in class versus first in class.

  • So however we look at it, overall we see clear improvements in the size as well as the composition of our pipeline.

  • Having shown you the tremendous progress that we're making in the overall pipeline, now let me turn to our late phase portfolio.

  • We're clearly building pipeline momentum.

  • Phase III has increased to eight projects, compared with five back in February.

  • Our Phase II program is also moving forward rapidly and a number of projects have shown proof of concept during the course of the year and entered Phase IIb.

  • With our increased development speed and focus on biomarkers, we expect to see a record number of progressions continuing over the next 18 months.

  • And I'll now cover the later section of our portfolio in some more detail.

  • Our large Phase III head to head comparison between 6140 and Clopidogrel is progressing well, with over 4,000 patients on study today.

  • It's on track to deliver the previously announced timescale.

  • The same is true of Zactima, where the primary indication is second line non-small cell lung cancer.

  • Our program looks at combination with Docetaxel, a direct comparison with Tarceva and combination with Alimta.

  • We're also looking at third or fourth line patients who failed on EGF receptor antagonists.

  • We shared with you our exciting Phase II data in hereditary medullary cancer of the thyroid, and we're now running a Phase III study in this relatively uncommon tumor and already, we've recruited more than 50% of the patients into this controlled study.

  • Timing of the proposed license application for thyroid in the United States is running together with or just behind the cancer NDA.

  • In addition, we have a broad cross-tumor signal search program and the results of breast cancer and hormone refractory prostate cancer trials will be available in the second half of this year.

  • Recentin is our other Phase III cancer product and it's recently been presented at both ASCO and AACR.

  • In addition to our extensive Phase II/III programs in colorectal cancer and non-small cell lung cancer, we now have evidence of activity in Glioblastoma in Phase II, with data suggesting both improvements in cerebral edema and progression-free survival benefits.

  • In addition, there is encouraging efficacy evidence in renal cell cancer and, through our NCI clinical research and development agreement we have 23 approved and 16 active studies in various tumor types.

  • Our lung cancer Phase II/III study is being run in collaboration with the National Cancer Institute in Canada, while we're running the colorectal program ourselves.

  • Go/no-go decisions for Phase III will be made in the first half of 2008.

  • You should be aware that, as with all Phase II/III programs, no data will become available if the data monitoring committee supports the continuation of the program, as all patients will then be included in a blinded fashion in the ongoing Phase III study.

  • The exception is our HORIZON I, which is a study in second line colorectal cancer, which will generate data as it's a straightforward Phase II study.

  • We're aware of the recent Avastin Cassidy data and have taken the appropriate steps in our program to mitigate against similar results.

  • The Glioblastoma results have led us to initiate a new Recentin Phase III program.

  • Our three arm Phase III study in Glioblastoma is starting in the second half of this year and creating great excitement and interest in the oncology community.

  • Saxagliptin, an oral DPP-IV inhibitor for type II diabetes, is the fourth of our pre-existing Phase III projects.

  • This joint development program with BMS is nearing completion and data were shared at the American Diabetic Association conference recently.

  • They show that, in combination with metformin, this potent agent significantly improves hemoglobin A1C and fasting plasma glucose over a six month dosing period.

  • Saxagliptin is well tolerated and has not been associated with either weight gain or hypoglycemia.

  • The NDA for both mono and combination therapy will be filed in the first half of 2008 in the United States and the following year in Europe.

  • Now, let me turn to the first of our new chemical entities that have entered Phase III since I last spoke to you.

  • 4054 is a specific endothelin A antagonist, which has undergone a significant 300 patient placebo controlled Phase II study in patients with hormone resistant prostrate cancer.

  • The full study and the impressive overall survival benefit, which is now mature, will be presented in September at the ECCO meeting.

  • Tolerability was good, with the adverse events being those that might be predicted from its pharmacology.

  • An extensive Phase III program will start in September, covering mono-therapy and combination therapy in M0 and M1 patients.

  • We believe that the profile of 4054, together with our understanding of this field, will lead to this agent being the first in class alternative to chemotherapy for hormone resistant prostate cancer.

  • Dapagliflozin, a selective SGLT2 inhibitor, is the second of our two diabetes projects in collaboration with BMS.

  • The Phase IIa program was recently presented and it confirmed the pharmacology in man with increased glucose excretion in the urine, coupled with reduced plasma glucose.

  • The Phase IIb completed earlier this year and we've agreed to initiate the Phase III studies, having met all of our success criteria.

  • The Phase III program will also start this quarter and we strongly believe that Dapagliflozin can be both first and best in class.

  • Our MedImmune acquisition brought with it a new monoclonal antibody for Respiratory Syncytial Virus, RSV.

  • Motavizumab, also known as Numax, is expected to file its BLA by the end of the year.

  • The major neonatal efficacy study has already been presented and the package will be completed during the course of this autumn.

  • The increased potency over Synagis and pre-clinical profile lead us to believe that it could have a utility beyond RSV prevention.

  • However, the first BLA will be for prevention of infection in at risk babies.

  • With three cancer drugs, a new infection treatment and two potential primary care diabetes agents now in Phase III, alongside a best in class anti-platelet drug, we now have a broader, more balanced Phase III portfolio, with potential for first in class, best in class and primary care.

  • However, the improvement story doesn't finish there.

  • Our Phase II program is moving forward rapidly and a number of projects have shown proof of concept during the course of the year.

  • I'll now highlight just some of them.

  • 3480 is a neural nicotinic receptor agonist, which we licensed in for the symptomatic treatment of Alzheimer's Disease and cognitive deficit in schizophrenia.

  • We've now confirmed the early promise of this agent and it has now entered definitive Phase II studies.

  • In a one month study in rheumatoid arthritis, 9056, an oral agent, has shown benefits on ACR20 response rates.

  • The data will be presented in November at the American College of Rheumatology meeting.

  • It too has entered Phase IIb, together with 5672, another oral anti-rheumatoid agent with a different mechanism of action, which will run in parallel, thus giving us two alternative mechanisms and tolerability profiles for symptom relief and disease modification in rheumatoid arthritis.

  • Our small molecule cancer program is also progressing well, with 6244 in Phase II for metastatic melanoma signal search studies in nine other tumor sites.

  • Both 6244 and 2281, the DNA repair inhibitor, have been part of our externalization program.

  • Both have biomarkers which may help patient selection and both are now first in class opportunities.

  • 2281 is now in Phase II for BRACA mutation positive breast and ovarian cancer, having shown clear signals of efficacy in ovarian cancer in Phase I.

  • We now have a number of monoclonal antibodies in clinical development for asthma.

  • MEDI-528 is an IL9 antagonist, which is in Phase II, with positive Phase I challenge data, whilst CAT354 and MEDI-563 will enter Phase II shortly.

  • Most exciting is the early data on MEDI-545, an antibody for interferon alpha, which has already shown activity in Phase I in systemic lupus.

  • In the time available today, I've not been able to cover all of the exciting early developments, but obviously I'll be happy to answer your questions on any of the projects.

  • Turning now to our marketed projects, we continue to drive lifecycle development to maximize the products.

  • The Seroquel XR formulation is a good example.

  • Launch for schizophrenia, as you've already heard, is imminent in the United States, whilst the EU launch is on track for the first quarter next year.

  • We have submitted supplementary NDAs for bipolar maintenance and relapse prevention, whilst the XR bipolar depression EU package will be submitted in the first half of 2008 and the U.S.

  • submission will go in during the fourth quarter this year.

  • We've previously told you that we have an extensive program of studies in major depressive disorder and anxiety.

  • I'm pleased to be able to tell you that the first pivotal depression studies have now completed with positive data and with indications, as well, that Seroquel XR is also an active molecule in anxiety.

  • We're on track for a U.S.

  • submission in depression in the first half of 2008.

  • One of the key questions that the scientific and medical community have asked is whether the properties that Seroquel is displaying across a spectrum of psychiatric diseases is unique to Seroquel or common to atypical anti-psychotics.

  • This table shows you that one of the things about atypicals is that each of them is just that, i.e.

  • atypical and different, and that there are significant differences in the binding and targeting characteristics to Serotonin, Norepinephrine and Dopamine.

  • These differences, exemplified by imaging techniques, have recently allowed us to understand why Seroquel works across the range of indications and can be differentiated from typical and atypical anti-psychotics as well as anti-depressants.

  • We've also made progress with other key lifecycle management opportunities.

  • Crestor lifecycle studies continue to roll out.

  • We now have EU agreement to include the METEOR wording in the Crestor label and the FDA action date for the atheroma indication is later this year.

  • Our outcome studies are maturing and we're expecting to receive data on or before the previously indicated timetable.

  • We continue to explore the potential for combination products with fibrates and cholesterol absorption inhibitors, including our own AZD4121, which is now in clinical development.

  • For Symbicort, we submitted the JNDA for asthma and an sNDA for a dose counter.

  • For Iressa, the INTEREST study has now completed and met its primary objective, demonstrating equivalent survival for Iressa and Docetaxel in pre-treated non-small lung cancer patients.

  • And finally, FluMist.

  • The new, better formulation had a positive FDA advisory board for the expanded label and we're now working with manufacturing to respond to the FDA warning letter in time for the next flu season.

  • Turning specifically to MedImmune, the MedImmune purchase was completed on June 18 and we've already agreed our R&D operating model and had our first high level view of the total AstraZeneca/MedImmune/CAT/Abgenix derived biologics pipeline.

  • The programs and technologies are highly complementary and we're now entering into a phase of detailed analysis of this really very exciting and industry leading portfolio.

  • We'll complete this review over the course of the autumn and are pleased to invite you to a Biologics R&D Review Day, which will be held on December 6 near Washington DC, where you'll be able to share with us the whole portfolio in greater depth and detail than we have today.

  • To make AstraZeneca fit for the future and to renew our business we've shown you today how R&D is accelerating project delivery, delivering more projects and increasing our momentum in every part of the process.

  • We now have eight Phase III projects, with a balance across first and best in class, acute therapy and primary care.

  • We've transformed our science base with the CAT and MedImmune purchases.

  • Nevertheless, we will continue to enrich our science and our portfolio from both inside and outside the Company.

  • AstraZeneca's pipeline is moving faster, it's larger, more diverse and lower risk than ever before.

  • It will be delivered by a leaner and more agile R&D organization, which is delivery focused and cost efficient.

  • As always, we will be data driven, critical and challenging of our projects, but I am confident that the progress that we've made will now lead to a significant enhancement of the AstraZeneca product portfolio over the coming years.

  • Thank you for your attention and I'd now like to hand over to Jon Symonds to give you in-depth on the financial numbers.

  • Jon Symonds - CFO

  • Good afternoon, everyone.

  • We've still got a lot of ground to cover, so let's get straight into the agenda here.

  • Here is what I'm going to cover.

  • Firstly, the headline results and how all the moving pieces fit together.

  • A review of where we are with MedImmune, performance, synergies, acquisition accounting, and why we also want to move to core EPS going forward.

  • Restructuring program, costs and benefits.

  • How the underlying business is doing and our expectations for the remainder of the year.

  • Finally, our current thoughts in relation to capital structure.

  • So here are the moving pieces in earnings per share in the second quarter.

  • Reported EPS for the quarter of $0.95.

  • Restructuring costs amounted to $376m or on an EPS level, $0.18.

  • The MedImmune impact was a loss of $0.06, leaving an underlying earnings per share of $1.19, up $0.13.

  • And you can also see here from the box that, excluding Toprol-XL, which gives you a line of sight into the guidance we set at the beginning of the year, earnings per share is up by 15%.

  • And in the backup slides, you'll see that there's an equivalent analysis for operating profit and also the movements for the half year.

  • Let me turn to MedImmune and there are three things I want to cover - the numbers in the second quarter, synergies and acquisition accounting.

  • Firstly, as you can see here, there are a number of components in addition to the underlying trading performance.

  • The bottom line is a loss of $0.06 or $140m, including incremental interest cost of $37m, which gives you the full line of sight to earnings per share.

  • I wouldn't expect to separate interest in this way in subsequent quarters.

  • In addition, there are one off charges relating to the acquisition of $49m and amortization of intangibles amounting to $35m.

  • This leaves you with an underlying trading loss of $19m for the month of June.

  • As we go forward, MedImmune will introduce a degree of seasonality into our results, as both Synagis and FluMist are seasonal, with sales following the infection season, which broadly means that all sales are made in quarter four and in quarter one, meaning that we expect a further trading loss in quarter three before the business turns to profitability in the fourth quarter.

  • So turning to synergies, at the time of the acquisition, we targeted synergies of towards $500m, and we now have committed synergies of $450m by 2009, rising to over $500m in 2010.

  • This exercise is now complete and we're moving on to what this combination is really about - creating the scientific synergies that come from putting our small molecule capabilities together with the biological skills of MedImmune and CAT.

  • And it's here where the enthusiasm is really growing.

  • Both David and John have already said this, but I also want to emphasize that over time I believe that you will see why this is an outstanding acquisition that gives AstraZeneca a unique and non-repeatable opportunity to achieve critical mass in biologicals, small molecules and in vaccines.

  • So let's look at the numbers.

  • As well as deciding to do a lot of things to extract the maximum amount of synergies, there are also some things that we decided not to do, particularly in the SG&A area.

  • And two of these were actually in the original synergy case.

  • We decided not to fully integrate the MedImmune pediatric sales force or collapse all of the sales and marketing infrastructure around it, because we believe this will yield more in revenue synergies over time by leaving it intact.

  • Secondly, we'll not integrate MedImmune into the AstraZeneca transaction platform till 2010, because it will cost more in the long run if we were to do it now.

  • This means that the SG&A synergies at $105m are lower than originally anticipated, but this shortfall has been made up elsewhere.

  • The other main change to the shape of the synergy plan has been an increase in the synergies relating to MedImmune's biological platform, which now stands at $205m.

  • Now that we've been through their assets in-depth, we believe that we can utilize MedImmune's Gaithersburg capacity much more extensively, enabling us to significantly reduce the plans for expansion at CAT and at AstraZeneca's existing biological activities in Gartuna in Sweden.

  • We've also begun to review the two portfolios in detail and the knock on effects of a larger biological portfolio on our small molecule activities.

  • We're assessing how much disease and small molecule capacity we need post MedImmune and we're targeting a capacity reduction of around $115m per annum.

  • It's fair to say that these particular savings are still being worked through in detail and we've not yet fully announced all the underlying plans, but we'll do so in the coming months.

  • Alongside the manufacturing savings, which take us to a total of $450m, we can also completely suspend future biological capacity expansion beyond the logical expansion of the MedImmune facilities.

  • And these were real investments, in excess of $500m, without which AstraZeneca would not have had any ability to develop the biological compounds coming from either CAT or the highly productive Abgenix collaboration.

  • Lastly, and by no means least, I can confirm that this synergy program, together with our current view of MedImmune's prospects, fully supports our original guidance that the acquisition is accretive on a cash basis in 2009.

  • Let me now turn to the accounting treatment of the acquisition.

  • We've now done the asset by asset assessment, using the strict accounting requirements, which have produced a conservative assessment of value, principally through a high discount rate - 11% - and through the non-recognition of many assets that were an important part of the business case.

  • The synergies or new indications to products, for example.

  • That said, this conservatism actually produces a significantly lower amortization charge of around $420m a year, compared to our original estimation of $750m per annum.

  • This amortization charge is the amount at the operating profit level.

  • The after tax effect will be neutralized by a deferred tax relief to offset the fact that there's no tax relief on the underlying intangibles.

  • These intangible assets, just like goodwill, will be subject to annual impairment charges.

  • And as we've attributed specific values to both the marketed and pipeline products, it's possible that this charge could be higher if a product had to be stopped before it reached the market.

  • In preparation for this and in anticipation of the accounting amortization that will arise after we've made the payments to Merck next year, we will be moving to an alternative measure of earnings per share that we've termed core EPS.

  • The definition of this is included in the back of the pack, but essentially it adds back restructuring costs and acquisition amortization and, should it occur, goodwill impairment.

  • We won't add back product amortization or impairment charges from in-license products, as these are essentially a normal part of doing business now.

  • So from this quarter onwards, you'll see us disclose a core EPS measure in addition to statutory EPS.

  • We'll start to use this as part of our earnings guidance from 2008.

  • Now, to restructuring.

  • We signaled with the full year results and the announcement of the supply chain restructuring that we were considering restructuring other areas of the business.

  • The success of the early implementation of the supply chain reorganization has given us the confidence to accelerate and broaden this program, as well as expanding across other parts of the business.

  • The press release should give you a good feel for the total program which now stands at $1.6b in implementation costs, yielding aggregate benefits in excess of $900m per annum by 2010.

  • Most of these programs have been announced internally and are progressing through the employee consultation process, but here's a high level summary.

  • The supply chain program, which kicked off in February, has made excellent progress.

  • The program is now expected to result in a $750m charge, up from the original estimate of $500m, principally due to an expansion in its scope.

  • Secondly, we've undertaken a strategic review of the sales and marketing resources required across Europe for the next three years, resulting in programs across 13 countries, which will reduce headcount by around 1,800 positions.

  • Within IS and business support, we're embarking on a $450m program, also involving around 1,800 positions.

  • The renegotiated global outsourcing contract with IBM, which received a lot of publicity last week, is one element within this, but there are others too.

  • John Patterson has touched on the productivity efforts in R&D, in areas relating to implementing the disease area strategy, streamlining global regulatory affairs and driving efficiencies throughout our clinical organization.

  • We expect to account for around $900m of the costs in 2007, with most of the balance - that's around $450m - being charged in the fourth quarter.

  • While we don't expect to announce any more products -- projects that'll be charged in 2007, it's fair to say that we still haven't finished exploring further opportunities to reduce our cost base and improve future profitability, although, just to be clear, future projects are unlikely to be near the scale that we've been talking about here.

  • So finally, we come to the underlying performance for the second quarter.

  • You can see that we get to a solid performance, with sales and profit, excluding Toprol, up by 7% and 14% respectively, well on track to achieve the targets that we set at the beginning of the year.

  • And as you can see here, after stripping out restructuring costs and the impact of MedImmune, we're still pushing margins upwards, although not to the extent that we've seen in recent quarters.

  • Although the operating leverage from our sales and marketing and manufacturing activities is still visible, with margin benefits from both of these areas adding 3.1 percentage points of margin improvement, it's now being partially absorbed by an increased R&D spend.

  • Indeed, this is the pattern that we've been predicting for some time, with both the higher volume of activity that John's described as well as the addition of in-license products, such as those from Bristol-Myers.

  • The R&D ratio has now increased to 16.9% of sales on an actual basis, although the strengthening of sterling and the Swedish krona against the dollar has increased this ratio by 0.5%, as you can see from the constant currency calculation of margin improvement.

  • The only other point worthy of note here is other income, which, in the quarter, benefited from sales of non-core products in Scandinavia.

  • And this was a disposal that we anticipated to occur in the second half of the year that was completed ahead of expectation.

  • Our expectations for other income for the year are now approaching last year's total of around $0.5b.

  • This excludes MedImmune and their HPV royalties, which will also be recorded on this line too.

  • So how does the year now stack up against the expectations we set in February?

  • Despite the pressures on the top line that David has already flagged, we still think high single digit top line growth will be the out turn, with further underlying margin expansion.

  • And as a result, we've narrowed the base business expectations to $3.90 to $4.05.

  • Adding MedImmune to the mix - and there's a lot in this mix - their projected trading performance for the balance of the year, the one-off charges we saw in the second quarter, intangible amortization, synergies in financing costs, this equates to a loss of around $0.30 at the EPS level and now produces a full year target EPS of between $3.60 and $3.75 per share.

  • In terms of phasing, I'd remind you again of the seasonality of MedImmune's sales pattern, which means that it's likely that their underlying trading will make a loss in the third quarter before their sales really kick off in quarter four.

  • So going forward, the outcome for 2007 has the following components.

  • Business performance, including MedImmune of $3.60 to $3.75, excluding restructuring and Toprol.

  • Toprol is still running at about $100m a month or $0.04 at earnings per share.

  • We think generic competition to the 100mg and 200mg strengths is imminent and these strengths represent about half of the current monthly profit run.

  • And restructuring charges, at $900m, is around $0.44 for the full year.

  • Last but not least, capital structure.

  • We've laid out our thinking on this in the press release as to how we'll use the opportunity the refinancing of MedImmune brings to set our capital structure for the longer term.

  • As you can see here, we've moved from net cash of $6.5b at the beginning of the year to net debt of $10b at the end of June.

  • To approach the refinancing, you have to have a number of anchor points and the first priority that the Board has set is to maintain a strong investment grade credit rating.

  • We're currently in discussions with the rating agencies at the moment and, as they're due to issue their reports shortly, I'm not in a position to be more specific at this stage.

  • Suffice to say that we are looking to retain a strong investment grade rating.

  • Secondly, the underlying gross debt of $15b will need to be worked down over a reasonable period to its longer term sustainable level, which we think to be about $8b to $9b gross or $6b to $7b net of cash.

  • This will be done over a three to four year period, recognizing that there's likely to be a substantial payment to Merck the first half of next year.

  • Thirdly, the Board is clear that, while the pipeline is improving, it can still be further improved.

  • Therefore, external opportunities still need to be sourced, albeit with an emphasis on later stage deals where possible.

  • Finally, and it does come at this point in the sequence, share buyback.

  • The Board understands the importance that shareholders attach to this, but believes that, given the priorities listed above, neither the size nor certainty can be attached to future share buybacks that has been the case in the past, until the core level of debt has been reached.

  • As we've repeatedly said, dividends are a return from profits.

  • Share buybacks are a return of excess capital.

  • We're clearly deploying our capital much more aggressively now, and the level of buyback will be assessed each year.

  • The Board currently envisages the 2008 buyback to be in the region of $1b.

  • We have, of course, kept 2007 at the $4b level that we promised at the beginning of the year.

  • We've gone through a lot in the last 20 minutes or so, but hopefully I've given you everything that you need to fully digest the results and make your assessments of performance for the remainder of the year.

  • And I'll hand back to David to begin the Q&A session.

  • David Brennan - CEO

  • Great.

  • Thank you, Jon.

  • And thank you, John, for reviewing the R&D situation.

  • And what we will do now is move on to Q&A.

  • David Brennan - CEO

  • I'll just remind the audience here live that we also have people who are online.

  • We will start here live with the first question and then we'll move on.

  • Andrew?

  • Andrew Baum - Analyst

  • Thanks.

  • It's Andrew Baum at Morgan Stanley.

  • Four questions, two for John and two for Jon.

  • So for John Patterson, Saxagliptin, perhaps you could indicate whether you've met with the FDA and whether they have confirmed that they will accept your filing as of first half 2008, given the issues associated with DPP-IV aas experienced with Novartis.

  • Second, on your endothelin receptor antagonist, perhaps you could outline why you're more confident, given recent experience with Xinlay, the Abbott compound.

  • And then for Jon Symonds, post 2008, after you've made the Merck payment and also the associated cost restructuring, should we assume that that $1b is going to be subject to upward revision and what kind of levels do you think should we be using in our models?

  • And then a second question is - and you indicated some of this - what percentage of the $900m of synergies is effectively -- or not synergies, of restructuring benefits, is actually going to eaten up by R&D investments?

  • How much is going to come through.

  • David Brennan - CEO

  • Okay, good.

  • John Patterson, you want to start off?

  • John Patterson - Executive Director Development

  • Okay.

  • Thanks, Andrew.

  • First of all, we believe we have a complete and robust Phase III program for Saxa that's capable of being filed next year.

  • The FDA has not asked us to do any specific extra studies and, in particular, any renal study.

  • We have in that package and will have pharmacokinetic data on renal insufficiency and the drug has been well-studied at multiples of up to 40 times the upper dose in Phase III.

  • However, we're not blind to what's going on in the outside world and we've actually initiated a contact with the FDA in relation to DPP-IV in general and the issues with galvis.

  • We're consulting with them.

  • That is ongoing and, as and when we get to the end of that consultation process, if there's anything to say, we'll say it.

  • David Brennan - CEO

  • 4054?

  • John Patterson - Executive Director Development

  • Yes, on 4054, I'm very confident that we're going to get the right result in Phase III, for a couple of good reasons.

  • One is we think we've learnt from some of the designs from the other study in terms of how you actually treat subsequent treatments with the drugs in Phase III and, in particular, to concentrate on overall survival in the patient population where PFS, progression free survival, is very hard to measure.

  • The second thing is there's a significant pharmacological difference between them, in that, by being an endothelin A antagonist without the B, we believe that the B, in our pre-clinical pharmacology, is actually a negative finding and actually mitigates against the activity of the drug.

  • So having selectivity for endothelin A, we believe, gives a significant difference between the drugs.

  • David Brennan - CEO

  • Good.

  • Thank you.

  • Jon?

  • Jon Symonds - CFO

  • Yes, thank you.

  • I hope, over the last three or more years, that we've demonstrated a set of financial policies that are very heavily focused on shareholder return.

  • Indeed, the share buyback program that we've adopted over that period has been very much with that in mind.

  • I think it's absolutely clear now that there is a new stakeholder on the horizon and the Board is clear that until we reach the desired level of long term debt, that stakeholder is going to stand pretty firmly amongst our priorities.

  • And so, until we get to the core level of debt, I think the Board is going to want to make the assessment of buybacks in any one year to be dependent upon that level as well as the business opportunities that the Company seeks.

  • But I think we haven't given up the philosophy of shareholder return and I think if, at that point, we still see strong cash flows, then I think share buybacks will come back more firmly on the agenda.

  • I think in terms of the benefits of the synergy program, or the restructuring program, I think it's a bit too early to say, Andrew.

  • I think what firmly lies behind this program, as David has described, is a belief that the business has to be significantly more competitive, focused and efficient, and we're driving these out now.

  • It is also very clear that success in this industry is highly dependent on product flow, and we have prioritized R&D spending for the last year or two and no doubt will continue to do so.

  • But I think we really would want to see how the business shapes before deciding it's all going to drop through or it's all going to be reinvested or a mix in between.

  • I think there is certainly a bias towards investment in products in the future.

  • David Brennan - CEO

  • Good.

  • Why don't we go to the screen here?

  • Number one, Chris Schott from Bank of America.

  • Chris Schott - Analyst

  • Great.

  • Thank you.

  • Just two quick questions for you.

  • First of all, regarding your -- regarding Medicare Part D.

  • As we start looking out to 2008 and you're having initial discussions with payers, is your impression that the formularies, just broadly speaking, are going to be as inclusive as we see currently?

  • Or are we going to start seeing some of these plans start to be more selective with the products they cover at tier two?

  • And then a second question, just a quick question regarding the guidance for the rest of this year.

  • That $0.30 dilution association with MedI, if we were just to consider the underlying business and interest impact, what would be the dilution associated with MedImmune this year, again maybe taking away the one-time charges and the amortization?

  • Thank you.

  • David Brennan - CEO

  • Okay, good.

  • The Medicare Part D question is a good one.

  • Tony Zook is here.

  • Tony runs the North American business including the U.S.

  • The contracting process has been underway for a while.

  • I think we've had, in the U.S., a pretty good view of what the opportunities for 2008 will be.

  • The first round of contracting two years ago were really two year contracts and then we went back into negotiation.

  • And Tony, maybe you can comment on what you -- where you think it's headed from a formulary perspective and a tier two perspective.

  • Tony Zook - EVP North America

  • Sure, David.

  • Chris, I think the short answer to your question is the great majority of 2008 contracts have already been established and the formularies are pretty much locked and loaded.

  • And we haven't seen any real significant shift whatsoever in formularies restricting access in any way, shape or form.

  • Our tier two access is very much in line with where we were through 2007.

  • There is, obviously, a strong push in tier one to go generic first, but the tier two access rates really have not changed, David.

  • David Brennan - CEO

  • Okay, good.

  • Thanks.

  • And Jon, on the guidance question, the $0.30?

  • Jon Symonds - CFO

  • Yes, there's a little bit of unraveling that's necessary.

  • I think you can work out very clearly what we think the amortization is and the interest that will yield a profit contribution from MedImmune in the seven months that we own it.

  • One thing I would just point out that part of the acquisition accounting fully values the inventory that MedImmune has on hand, so that when that gets unwound you virtually make no profit on the unwinding of its existing inventory.

  • So without that, it does contribute to the bottom line, but that's pre-amortization and obviously doesn't fully overcome the interest charge at this stage.

  • David Brennan - CEO

  • Okay, good.

  • Let's go back to the floor here and then we'll take an email question that's come in.

  • I'll give that one to Jon in a moment.

  • Right here Alex?

  • Alexandra Hauber - Analyst

  • Alexandra Hauber from Bear Stearns.

  • I've also got four questions and it starts with a follow up to Andrew's last question about how much of those $900m will be able, potentially, to drop through.

  • Just trying it in a different way, about a year ago, when you gave us your map to 2010, you roughly provided an outlook for the operating margin to stay in the lower thirties.

  • Then we had the first restructuring program announced in February, which cost $500m, and you gave an indication then that that probably wouldn't boost the margin, that's just to safeguard and protect the gross margin.

  • Now, we have an additional $900m.

  • And obviously I do realize that I haven't included MedImmune in all of this, but, if you keep MedImmune out of the picture, why do you think it's now -- what has changed compared to a year ago why you think it's going to be more geared towards investment without actually the margin improvement?

  • That's question number one.

  • And then a question on the -- It's just a clarification question on the MedImmune synergies.

  • You speak to biologics investment not required.

  • That's $205m in savings.

  • I'm a bit confused what is investment and what is cost.

  • Is that ongoing costs of an investment?

  • Just if you give some clarification on that.

  • Then, David, you mentioned that you're going to play the spread between volume and pricing for Nexium and obviously I think that means you're going to make further concession in the price.

  • Do you have something very concrete in the back of your mind, as in actually what the prescription going forward, should we assume they already come at lower prices?

  • And the final question is an update on or a bit more clarification on the update you gave on FluMist.

  • In the press release you said you expect to still deliver the lower end of the MedImmune guidance, as in delivering about 75% more than last year.

  • Can you roughly tell us what exactly constitutes the bottleneck to determine that 75% rather than 100%?

  • Is it because you have to do lot by lot checks because of the current quality control issues?

  • David Brennan - CEO

  • Okay, good.

  • Lots of questions.

  • And we'll come back to the FluMist in a minute.

  • Since David is here, he can handle that and also come back to the Nexium issue in a moment, Tony, on the volume and price equation and some of the mix.

  • But Jon, maybe you could comment at first on the reinvestment and the margin issues.

  • Jon Symonds - CFO

  • I absolutely did not say that none of it would drop to the bottom line.

  • What I didn't say was it all would, necessarily, either.

  • I think there clearly are some choices.

  • We talked about R&D heading to the 17% or 18% mark by the end of the decade.

  • I think it's probably more likely to get to the higher end of that, given the speed at what -- that John is moving at now.

  • If you take out -- six months, nine months out of a development program, you do get more projects running into the later phase, so I think there is an additional bonus of cost there.

  • Equally, we haven't changed today the template performance that we see.

  • We still see the ability to generate strong margins.

  • This may give us the opportunity to grow them in excess of what we said last summer.

  • I just don't think, at this stage, that we really want to call out exactly how this is going to get reinvested, but don't take to what I said to Andrew's question that there's nothing going to drop through or you're not going to see it visibly.

  • This is an important program.

  • I think on biologicals not required.

  • I think the simplest way to answer this is to say that our view is that we would have had to have spent or invested at least $200m in enabling CAT to develop, manufacture and optimize the antibodies that are coming through their development programs that we now don't need to spend, because we've got the assets and the capabilities at MedImmune.

  • So these would have been revenue costs.

  • These were people, they were headcount, they were expenses, they were development costs.

  • These would have been in our R&D costs for the year.

  • MedImmune brings all of that capability with it and therefore we don't need to make it.

  • So I know we've talked in the past about it as costs avoided.

  • These were real sums of money that we wouldn't have had products in development if we hadn't have spent it.

  • David Brennan - CEO

  • David, do you want to comment on FluMist and where we are?

  • David Mott - CEO

  • In addition, let me just add a comment to Jon's about investment versus operating cost.

  • He's absolutely right, we expect to avoid about $205m a year in incremental operating costs on the AZ biologics side.

  • In addition, as you'll remember from his slides, there is around $500m in actual capital investment that can be avoided because of the significant capital already in place at MedImmune in our main manufacturing site in Frederick and in Gaithersburg, Maryland, where we have our pilot production facilities and capabilities there.

  • And with respect to your question on FluMist, we've actually made tremendous progress with the FDA over the last several months in negotiating what we expect to be final labeling for the label expansion below five years of age for young kids in the U.S.

  • and have that, we think, ready to go.

  • We also have made progress with the FDA and finalized our post marketing commitments.

  • What we're waiting on right now and will be the gating issue on where we end up versus prior guidance is getting complete with a warning letter on our manufacturing facility here in the U.K.

  • It was received in late May.

  • We are currently working with the agency on that.

  • In fact, we had a conference call yesterday afternoon.

  • And our current expectation is that we'll be out of that, if all continues to progress, in time for us to begin shipping in September the vaccine.

  • Assuming that, shipping beginning by around the beginning of September, we should be toward the bottom end of that prior range of 4m to 5m doses of flu vaccine for this season.

  • If there were further delay, then obviously that would jeopardize that.

  • David Brennan - CEO

  • Good.

  • You want to give that to Tony?

  • Tony -- You have one?

  • All right, great.

  • Go ahead on the Nexium and the volume and price straight off.

  • Tony Zook - EVP North America

  • Okay.

  • I think those are good questions.

  • The challenge that we face I think David highlighted quite well, which is the generic Omeprazole up 50% in the quarter.

  • For us to continue to grow, we have to continue to leverage our platform of efficacy, first and foremost.

  • We believe we have a competitive advantage there and we're going to continue to leverage that.

  • But we also know that we're going to have to continue to take share within the branded segment to an even greater degree than we have in the past.

  • The first half of the year, we're up about 0.6 share points in the branded segment.

  • We need that to accelerate.

  • That means we're going to have to increase our access selectively.

  • We're not going to do this across the board, but where there's opportunity to grow volume and we think at a reasonable value equation then we will do so.

  • And so I think what you will see is, in the first half of the year, our net price per capsule's been actually relatively stable in the marketplace, but I think you will see some widening of that in the second half.

  • A good example of that would be the Defense -- DoD contract that we just secured.

  • That goes in effect right now, so you will see some widening as a natural cause of that.

  • David Brennan - CEO

  • Okay, John you want to handle this question CORONA trial question, and then we will go one more to the floor, and then we will go to Sebastian on the screen here.

  • John Patterson - Executive Director Development

  • Okay, the question when will we see the results of the CORONA trial?

  • The simple answer is, the CORONA study has now completed very recently, and so we are now collecting the information and we will processing it and as soon as we have that data we will be in a position to talk about it.

  • Just to remind you, that's a study in heart failure patients.

  • It's just a straight vanilla LDL lowering study.

  • It is in Ischemia patients, but not patients who would have been candidates for a statin primarily based on their LDL.

  • So it's a broadening of the indications for a statin type of study rather than trying to show that it's the best in class.

  • David Brennan - CEO

  • Alright on the floor here back Kevin.

  • Kevin Wilson - Analyst

  • It's Kevin Wilson from Citigroup.

  • I've got three questions.

  • One for John or David.

  • Could you talk a bit more about the intellectual property buried inside MedImmune?

  • You haven't really expanded on that.

  • Are there technologies, processes things that you may interest and talk more about later in the year?

  • And secondly, David, could you talk about the political situation in the U.S.

  • and how you see it panning out over the course of the next 12 months, 15 months?

  • And finally, also for David, on the issue of staff morale, how is it being taken in the European organization?

  • Excuse me, how has it been taken in the European organization with these large number of job losses?

  • David Brennan - CEO

  • Okay, I'll start and then David I will come back to you at the end for the IP comments about MedImmune, maybe a comment on what's there.

  • I'll start at the bottom of the list there Kevin with staff morale.

  • I think the announcements that we've had clearly do have an impact overall.

  • What we have tried to do is move clearly and quickly within each of the organizations that are affected, with a message to the people who will be affected that they are and to the ones who aren't that we need to be able to get back to work.

  • I think the management process that's been put in place both around communication, around working with the unions to make sure people understand.

  • And then having kind of at the top of the list the importance of the effect on the employees, and what we can do to make the transition as smooth as possible, has been our highest priority, because we recognize it's a significant event.

  • So, our Chairman was just in Germany, came back and said he felt like they had done a very good job in managing it and he felt what the issues were, met with some of the people.

  • And at the same time with people who were staying, and felt we were getting a pretty good balance.

  • And I think that is typical of what's also happened in Italy, and in the U.K.

  • and Switzerland where we've made other decisions.

  • So that's a tough one.

  • The political situation pre-election a tough one to call.

  • Being on the Pharma Board I get a number of different insights into that.

  • There will be attempts at a number of different types of legislation.

  • But it's difficult to see how much of it will really get through because there seems to be that there are some bigger fish to fry right now.

  • And it seems like a lot of it will take place after the 2008 elections when the potential exists for a change overall, and maybe a different mindset.

  • Hard to read.

  • I think the pharma and biologics is a good example because there were some political statements made about people saying we are going to put a follow on biologics legislation through, because it should be just like generics.

  • And then as people began to unravel what some -- the complexity of those issues, they recognize that you can't just push legislation like that through and call a follow on biologic or generic, because it's just not the case.

  • And it's the same with importation, I think we saw one of the Democratic Senators very uncharacteristically bring forward safety language for the Importation Bill that was approached.

  • Because somebody who really understands what the issues are around importation recognizes that there has to be some kind of safety provision and not just a bill that says lets go ahead and put importation in place and see what happens.

  • So there is some balance that takes place in a lot of these issues.

  • And when that happens I think there is some rational decision making that happen.

  • David do you want to comment on IP and MedImmune, maybe give people a sense of some of the things that are in place, the sub-culture some of the other pieces?

  • David Mott - CEO

  • I'd be happy to come in on that.

  • MedImmune has a very broad portfolio of intellectual property, both property protected by patents and property protected by know how and trade secrets.

  • We've been at this since 1988 when the Company was formed, and have really been one of the early leaders in protein antibody engineering as well as vaccine development.

  • I would characterize our proprietary position as falling into several main areas.

  • First of all if you think about antibody technologies, really all things related to antibodies MedImmune has a very deep portfolio of existing patents, patent applications, trade secrets and know how.

  • In addition, next generation antibody technologies, protein engineering, scaffolds, antibody derivatives all of those areas are areas where MedImmune has been doing very, very significant research, and has existing patents and patent applications and trade secrets.

  • On the vaccine side of the business we also have real core capabilities that are industry leading.

  • In the areas of live attenuated vaccines, also in the areas of vectored vaccines and subunit vaccines.

  • Many of you may be familiar with the HPV vaccines currently being launched by both Merck and GSK around the world.

  • Much of that early technology was really developed in our labs in Gaithersburg at MedImmune, the virus like particle technology that lies beneath and enables both Merck and GSK's vaccines was developed up through Phase II at MedImmune, and then licenses to GSK and subsequently Merck.

  • So a lot of core expertise in the vaccine area as well as in the antibody area.

  • Another area that I would highlight where we have very strong capabilities and proprietary positions is in our process development and manufacturing of biologics.

  • Clearly MedImmune has been a world leader, if not the world leader in protein production.

  • With synergies now we have commercialized the manufacturing process where we see about 3 grams a liter of bulk production with 85% to 90% purification yields, which is absolutely world class.

  • We actually have a new process ready to go into commercial developmental synergies which is over 5 grams a liter.

  • So continuing to move that forward.

  • We also have led the transition out of animal protein containing production processes.

  • And now have all of our processes at the company are animal protein free, which is another big technological advance.

  • So as you think about scaling up production of, and then optimizing commercial yields for production of proteins that is another area where MedImmune has tremendous proprietary positions and world class capabilities.

  • Specifically around patents our lead product Synergist, which is the largest commercial product currently in the portfolio generating over $1b a year in revenues currently, has a very extensive patent protection that goes well out into the future.

  • The first composition of matter patent doesn't expire until the fall of 2015, and then we actually have additional patents formulation, and other patents that run through 2023.

  • And as John Patterson mentioned in his presentation we have a next generation antibody against RSV that we hope to actually replace Synergist with in the marketplace that has patent coverage that will go out well into the 2020's timeframe.

  • So very strong intellectual property.

  • David Brennan - CEO

  • Thank you David.

  • Let's go to question number two on here, Sebastien Berthon from Exane Paribas, Sebastien.

  • Sebastien Berthon - Analyst

  • Yes, hello.

  • Two questions please, one is to come back on the guidance you have put towards the end of last year on the sale side.

  • It was your target to be at close to around the pharma -- the pharma market growth until 2010.

  • Is it still something you believe is achievable given the slowdown in some of the products and a number of pipeline disappointments?

  • And secondly with regards to Dapagliflozin following the Phase II results, to what extent may urinary infections could be an issue for the profile of the drug?

  • David Brennan - CEO

  • Okay.

  • I will take the first one.

  • I think the pharma market growth issue is something that we will continue to target ourselves towards.

  • I think there has been some view that maybe the projections would go down a little bit.

  • But I still don't see, with our portfolio, any reason why we should not be growing in line with the market from a value perspective globally.

  • I believe we can and should be able to do that.

  • And so that will be our target.

  • John do you want to take the Dapa question?

  • John Patterson - Executive Director Development

  • Yes I think it's a good question.

  • Diabetics do have an excess incidence of urinary tract infections.

  • And increasing the sugar in the urine is obviously a concern to some people.

  • In the studies to date there has been a relatively low incidence of UTI's and it's been absolutely manageable, and very few people have come off the study as a result of it.

  • Obviously its one of the key things we will continue to look at as we go through the program.

  • But to date it's not been a big issue.

  • David Brennan - CEO

  • Okay.

  • Let's go back to the floor then we will go to -- there's a quick email question, and then Steve Scala has a question on line here.

  • On the floor at the back please.

  • Marietta Miemiotz - Analyst

  • Marietta Miemiotz from Dresdner Kleinwort.

  • A few questions please, the first one is on 4054.

  • My understand was that the oncology community overall was moving more from overall survival to progression free survival, specifically because overall survival tends to be more distorted by subsequent treatments.

  • So I am not sure how you expect to avoid some of the issues that people have just raised earlier in the meeting by focusing more on overall survival.

  • My second question relates to the gross margin.

  • I completely understand that given the uncertainty around R&D you don't want to commit to a certain operating margin development.

  • But just to clarify, at the beginning of the year when you announced the supply chain rationalization program you said that the $500m spend was needed to protect margins.

  • I now understand from the press release that now that you've stepped that up you actually see potential to improve the underlying gross margins.

  • Can you just confirm that that is the case?

  • And my final question really relates to the SG&A restructuring, and I am just really having some trouble understanding that conceptionally because presumably a lot of that is not actually fact.

  • And I don't really see any of your competitors doing anything on a similar scale.

  • So maybe you can just give us a little bit of flavor as to why you suddenly realized that you have so much cost you can take out, where functionally speaking, a lot of the savings are coming from?

  • What products are really going to get reduced promotional support?

  • And whether there actually is a risk that you will ultimately have to reinvest in the business given that the benefit are basically, from this, are going to be coming through just when the next generation of products are launching?

  • Really trying to better understand the whole concept of this SG&A restructuring.

  • Thank you.

  • David Brennan - CEO

  • John do you want to take the question on overall survival versus progression free, and what some of the issues are?

  • John Patterson - Executive Director Development

  • Your comment is absolutely right taken across cancer as a whole.

  • But there are some specific issues about prostate cancer that make a difference.

  • These are patients who have bony metastasis, usually multiple bony metastasis.

  • And, of course, they are osteoblastic not osteolytic.

  • And as a result, the bone -- the only thing you have to measure on PFS is the bone scan, and multiple hot spots don't tell you whether there is healing on new lesions.

  • And the only other thing is pain.

  • So actually progression free survival is a hugely difficult area to go with in hormone resistant, end stage prostate cancer, which is where we are.

  • The second thing is that usually in tumor studies there are multiple different therapies given post the therapy that you are measuring.

  • And, therefore, you get a compounding view results by those subsequent therapies.

  • Because these are people who have virtually reached the end of the line there is virtually no other therapy.

  • And what we are doing is making sure that those do get chemotherapy and they are going to be the minority, have it in balance between the two groups and they are followed up in the appropriate way.

  • Hence the specific issue of PFS versus overall survival in prostate cancer.

  • David Brennan - CEO

  • Okay, Jon do you want to talk a little bit about the margin issue, and certainty versus uncertainty.

  • Jon Symonds - CFO

  • Yes, no I think the logic is good.

  • The first program was to predict gross margins around 80%.

  • We now are accelerating and expanding that project.

  • So it either increases the confidence it will keep at 80% or potentially it will do better than that.

  • So its -- we have expanded the scope and the opportunity that we see around making our cost of sales more productive.

  • David Brennan - CEO

  • Okay and I will take the SG&A.

  • I'd like to separate the sales and marketing expense from the G&A expense and start with G&A, as I think was said during one of our presentation, we are really focused on trying to significantly reduce and operate more efficiently in a lot of the support areas.

  • And you see that in the IBM contract in reductions in support staff and the areas where we can either operate more efficiently or get it done by someone else better.

  • I think on the sales and marketing side what you see us doing is sizing ourselves for the opportunities that exist in the market.

  • So Germany is an example where last year the reimbursement for Nexium was reduced by 40%, we had sized our business there around Nexium as well as around Crestor which was not introduced there.

  • We have waited for a while to see how we could work it up.

  • But ultimately decided we needed to size our capacity to take advantage of the market opportunity.

  • And we've done the same thing in some of the other markets where you see changes take place.

  • The same situation with Nexium is happening in Italy, and we need to hold our leadership in those markets accountable for that.

  • So it's -- I don't think of it as fat.

  • I really think of it as where are the opportunities, where do we want to be investing because by the same token we are increasing the numbers of people we have in emerging markets like Asia Pacific.

  • We've added in China, we've added in Mexico and Russia in the last year where there are market opportunities that present themselves in a different way.

  • And we will continue to do that.

  • The same thing has been done in the U.S.

  • where there is more reliance upon contract sales organization.

  • So it's not a significant -- an AstraZeneca issue.

  • But we do go up and go down the ladder a little bit.

  • And I think you should expect us to continue to do that.

  • I think -- our target is to improve our overall SG&A to sales to make it much more industry competitive.

  • John do you want to take the quick question on the email, and then we will go to Steve Scala.

  • John Patterson - Executive Director Development

  • Yes, the question is, does guidance presume FluMist availability in the U.S.

  • and if we do not launch FluMist where does guidance shift to?

  • I think the simple answer that $0.15 variation in our guidance is about $350m $400m.

  • So I think we've got that risk covered.

  • David Brennan - CEO

  • Steve Scala at SG Cowen, are you still there Steve?

  • You've been hanging for a while.

  • Steve Scala - Analyst

  • Yes I am thank you.

  • Two questions, what has Glaxo's response been to your modest dip down on Symbicort in the US?

  • Have they met your discount or are they arguing some sort of superiority?

  • And I am curious as to why AstraZeneca is going to specialists first when the product doest represent any sort of novel concept.

  • Why not just flood the market with your message?

  • And then secondly with respect to your Nexium outlook, is there an embedded assumption on why a success in protecting Protonix from an at risk generic launch next week, or is something like that not considered?

  • David Brennan - CEO

  • The second one was about -- is the Nexium strategy contingent upon the potential for a Protonix's generic launch is that considered or not.

  • So do you want to take the first one around the GSK response, and the specialists versus primary care?

  • John Patterson - Executive Director Development

  • Yes, let me deal with the second one first on specialist and primary care.

  • Just to put it into context it was literally just a gap of about two to three weeks.

  • It was a matter of just us rolling out the training messages etc.

  • So our specialist launch started about three weeks ago, and our primary care launch in fact starts this week.

  • And so it's not a significant gap, but we did want to get to the pulmonologist, and make sure that they were well aware of our core messages as we then brought messages forward into primary care.

  • So the launch effectively with primary care starts this week and we are very excited about that.

  • Relative to our managed market access, you'll have to be very specific with your question I guess to Glaxo.

  • But I can tell you what's happening in the U.S.

  • market dynamic.

  • Right now we have achieved access rates in excess of about 55% of the covered lives.

  • So we believe that we are in a very, very good position.

  • In fact its one of the strongest positions we have ever had going into the launch within the U.S.

  • market.

  • Payers seem to be very, very open to the idea of having alternative products available to them.

  • And so that has been very well received and it has not taken significant discounts to do that.

  • And I think the strong message around speed of onset of action has also played very, very well.

  • So we're well positioned in managed care, better than we've ever had at launch anywhere in the market place.

  • David Brennan - CEO

  • Okay and Nexium strategy as it relates to assumptions about other products, I mean its --

  • John Patterson - Executive Director Development

  • No, it's purely on our basis.

  • David Brennan - CEO

  • Good I am going to ask everybody to limit to one or no more than two questions.

  • If you have more than that we will go back to the floor and then we will go to the screen real quick, Andy Kocen at Redburn Partners, but let's go to the floor first.

  • Next question.

  • Michael Leacock - Analyst

  • Its Michael Leacock from ABN Amro.

  • Just one general question really.

  • You just quoted the stabilization in market share through the generic erosion of a (inaudible] class really in the statin arena, similar thing seems to be happening in the Nexium area now.

  • What do you think your risks are for the rest of your portfolio?

  • And then what's the real implication for the longer term headline pricing of the products and price rises going forward?

  • David Brennan - CEO

  • I'll take a shot at that.

  • I think that what we see, there are some similarities between the statin and PPI markets right now.

  • And I think what we are seeing emerging is that there is a market for the low price generics as a first line therapy for a lot of people, and then there continues to be a market for our branded product that has a better profile.

  • I think it's very evident in the statin market.

  • And knowing the PPI market we see people who definitely want to have Nexium, and we have managed care plans that want to have it on their formulary and push us to be more competitive with it.

  • But the fact is I think we are going to see over time two very significant segments emerge.

  • And we recognize that Crestor is a product that is better suited for patients that are higher risk not necessarily low risk people who just need a statin for starters.

  • The same with the PPI.

  • To the rest of the portfolio I think its probably less of an issue.

  • I think with the atypical anti-psychotics as John said in his talk the one thing you can see in that chart he showed, is that they atypical in the way patients respond to them.

  • And that uniqueness, given the nature of the psychotic disease and the issues people are dealing with in that area, are significant enough to allow for differentiation.

  • So I think we've got a pretty clear -- there will be some pressure I don't doubt that, but I don't see it in any way equating to what's going on with statins and PPI's.

  • Do you want to add anything to that?

  • Alright can we go to Andy at Redburn Partners, one or two questions Andy.

  • Andy Kocen - Analyst

  • Yes, just the one thanks for taking my question.

  • It's on the right sizing of your marketing and sales in Europe.

  • You just said the changes you are making they look to be related to factors that have happened already or come in the near term say Germany and Italy.

  • So does that imply when Nexium goes generic in Europe in 2010 that there will be scope for much further and deeper cuts?

  • Or is this partly a reaction to that impending event?

  • David Brennan - CEO

  • It's difficult to project out the situation in 2010 in Europe given the -- what we see happening right now.

  • The market has slowed in growth now down to -- overall value growth in Europe is 1% or 2%.

  • So I think we will really look a year or two in advance and try to anticipate what those markets will look like and size ourselves accordingly.

  • Hopefully by 2010 we will be having some product launches around some of the new products, in which case we expect to be using up a lot of our primary care capacity.

  • And that's why we are trying to maintain it and keep it in place, because we have outperformed the market overall with our primary care products across those markets.

  • So we want to keep the capacity in place and get it utilized.

  • That's why we've been so active in licensing and business development.

  • We will go to Jo Walton on number two on the screen, Jo.

  • Jo Walton - Analyst

  • Thank you.

  • Just two quick questions.

  • Could you please tell us roughly what the R&D spend is that you've externalized in the first half of the year?

  • I think we all still find it quite difficult to get to grips with the new capitalization for the policy.

  • But now that you have this relationship with Bristol, under the old way of looking things, how much R&D spend are you putting in that we are not actually capturing through the R&D charge?

  • David Brennan - CEO

  • Jon you want to take a shot at that?

  • Jon Symonds - CFO

  • I mean if you take Bristol Meyers, I think the upfront payments were something of the order of $250m in the balance sheet.

  • And substantially more of that going through the cost.

  • So I believe that if you structure these deals properly with upfront then following when you get risk milestones, the vast majority of the development spend comes through the P&L.

  • So I don't really believe that we are distorting the R&D cost in the way that you think.

  • But that could well be a subject for quite a session some time (inaudible).

  • Jo Walton - Analyst

  • Jon on the market you managed a two point improvement in your SG&A in the second quarter of this year --.

  • David Brennan - CEO

  • Sorry, I am going to then take Chairman's prerogative.

  • We are almost out of time, and I wanted to give Jon -- thank -- to recognize Jon as this is, as I said before, his last session with us, and thank him for everything that he has done to contribute to the success of AstraZeneca both the creation of AstraZeneca as well as the success of it.

  • I've worked with Jon for a -- since the time of the merger.

  • As I said to him before, we've been colleagues and then we became friends, and we've worked well together.

  • But more importantly I've been able to see the contribution that he has made.

  • And I just would like to acknowledge to all of you who participate with us like this pretty regularly that Jon will be missed as a colleague, and as a friend.

  • And we certainly wish him well in his new role.

  • And we will look forward to catching up with you in your new role.

  • I thought maybe you had a few reflections that you might like to give us before you go.

  • Jon Symonds - CFO

  • Yes thank you.

  • I think this is analyst conference at least 40, I haven't quite added them all up; I know its 30 consecutive AstraZeneca results conferences.

  • But I think it must be well over 40 with Zeneca.

  • I think I'd really just like to leave you with a few of my thoughts.

  • Number one, this is an outstanding organization, and it's an outstanding organization that has been founded from having outstanding people in it.

  • And I think if you look over the seven years of its formation, and the challenges that we faced at the time of the merger with, why do you put two companies together that's got 50% of its top line under threat?

  • How do you deliver industry leading synergy levels at the time?

  • How do you get over the disappointment of the pipeline three years ago?

  • I think in each case this organization has delivered.

  • So when you think of the challenges that the company and the industry face as you look at it through a spreadsheet, don't forget the people that lie behind it, because they can do extraordinary things.

  • I think the second point I'd like to just make absolutely clear in case there is any shred of doubt, I was involved in the identification, evaluation the negotiation, the pricing and the implementation of the MedImmune acquisition.

  • And I think that you will see this to be an outstanding deal that gives AstraZeneca and the outstanding people within MedImmune a real competitive advantage by having capabilities that are simply not available anywhere in any form in the market today.

  • And I think the third point is this is a management team that is tackling the industry in a way that I don't believe anyone else is.

  • Just add up the number of major initiatives that are going on here.

  • And I think that this is a management team that is determined to succeed.

  • Final point is a really big thank you for everybody here, and everybody that I've been involved with through the market.

  • It's been challenging, but on every occasion it's been constructive, it's been fair and you've taught me a lot, and I thank you for that.

  • David Brennan - CEO

  • Jon, thank you.

  • Great, with that then let me thank everyone for your attention today, as well as for your questions and for your interest.

  • And we will be around for a few more minutes.

  • And thanks to all of you on the line as well.