AstraZeneca PLC (AZN) 2008 Q1 法說會逐字稿

Good day and welcome to the AstraZeneca quarter one results analysts conference call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr.

Jonathan Hunt.

Please go ahead, sir.

Thank you, operator, and welcome, ladies and gentlemen.

Chairing today's call is Simon Lowth, Chief Financial Officer with AstraZeneca.

We've also got the IR team and some of the finance team on the call as well.

As you know, today we also have our AGM, which starts immediately after this call, so we will be focusing on running to time today.

But before I hand over the call to Simon, I'd like to read the usual Safe Harbor statement.

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

Participants on this call may make forward-looking statements with respect to the operations and financial performance of AstraZeneca, and by their very nature forward-looking statements involve risk and uncertainty and results may differ materially from those expressed or implied by these forward-looking statements.

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

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

Simon.

Jonathan, thank you, and good afternoon to everyone.

It's been a busy period for AstraZeneca, since we last convened for the full year results back in January.

We continue to drive the current portfolio to increase revenue.

And our restructuring and productivity initiatives continue to expand operating margins and deliver profit growth, while we invest in our pipeline of future products.

To this end, we've made the first of three regulatory filings scheduled for this year, with the U.S.

filing for motavizumab in January.

And just last week we took a major step to providing increased clarity and stability for our business with the settlement agreement with Ranbaxy concerning the Nexium patent litigation.

But today we need to cover the first quarter's financial performance and I'm going to cover four broad topics.

First, we'll look at the headline numbers and a high-level reconciliation between our reported results on a statutory accounting basis and core earnings, which is the basis upon which we provide our financial guidance.

I will then cover sales, looking at performance by region and by our key brands.

I'll then move to the drivers of financial performance and I'll use the P&L on a core basis to describe these results.

Where it's relevant, I'll try and call out those elements for which the first quarter run rate may not be indicative of our expectations for the full year.

And finally, I'll put this quarter in the context of our targets for the year.

Sales were up 4% at constant currency, to $7.7b.

As you will recall, our guidance for the year is for sales growth in the low to mid single digits on a constant currency basis, so the quarter is in line with these expectations.

As you would expect, the weaker dollar has had a positive effect on the top line, adding 6% to growth.

So sales on a reported basis are up 10%.

Core operating profit was up 12% on a constant currency, up 21% as reported, with the currency impact on profit being higher than for sales at plus 9%.

Core earnings per share were up 9% at constant currency, to $1.28.

The growth in core operating profit and the benefit of fewer shares in issue is partly offset by the increased net interest expense.

With the currency benefit, core EPS was up 19%.

As you will have seen in the press release, reported operating profit was down 5% in constant currency terms.

This reflects the impact of three principal exclusions from core earnings.

Firstly, the amortization related to MedImmune in the amount of $109m.

Secondly, restructuring and synergy costs, which were $117m in the quarter.

And then finally, an additional one-off item, that is the charge of $257m for impairment of the intangible assets related to Ethyol, MedImmune's oncology product.

As you know, with acquisition accounting, each of MedImmune's marketed products and development projects were assigned intangible asset valuations.

In the case of Ethyol, some pharmaceutical industries have commenced an at-risk launch of their generic product ahead of the conclusion of ongoing patent litigation, and so we've had to recognize an impairment of the Ethyol intangible asset as a consequence.

Since these intangibles are related to the acquisition accounting for the MedImmune transaction and we exclude this amortization from core EPS, to be consistent we've excluded this impairment from core EPS.

I will now turn to the first key driver of earnings growth, increasing revenues.

All my comments will be on a constant currency basis.

We achieved a sales growth of 4% in the first quarter.

This was a good achievement in an increasingly challenging environment.

Our top line growth reflects the inclusion of MedImmune sales for the quarter of $533m, and this more than offset the $267m year-on-year decline in the U.S.

sales of Toprol-XL.

Headline sales in the U.S.

were up 5%, although underlying sales performance was rather better.

Across most of the brands, wholesalers seem to be de-stocking during the quarter, although within the normal limits of the distribution agreements.

This de-stocking amounted to some $200m reduction in sales compared with the prior quarter.

In our established markets, Western Europe continues to be tough.

Sales were down 1% in the quarter, with sales growth for Seroquel, Symbicort and Crestor offset by declines in Losec and Nexium.

Sales in Japan were up 4%.

We have seen the typical pattern of sales growth being a bit soft in the quarter, ahead of the biennial price cuts.

The top wholesalers hold back until the price cuts take effect in April.

Sales performance in Australia was excellent, with sales up 29% on a strong launch for Crestor.

We continue to drive double-digit sales growth in our emerging markets business, where our investments to expand our presence are providing good returns.

First quarter last year was strong and we're up 11% over that this quarter.

And sales in the Asian emerging markets, including China, were up 22%.

Turning now to our key brands.

Globally, Nexium sales were down 9% in the quarter, due principally to declines in U.S.

sales.

In the rest of the world, sales were up 1% on good growth in Canada and the emerging markets.

Nexium sales in the U.S.

were down 15%.

In the branded market, which we've defined as PPIs excluding omeprazole, we edged up market share by around 60 basis points, despite the launch of generic pantoprazole at the turn of the year.

However, the total pantoprazole molecule was also up some 140 basis points, so our cautious outlook at the full year results conference regarding this market event was warranted.

Volume in the U.S.

for Nexium was broadly unchanged.

Dispensed retail demand was flat and the increase in non-retail shipments was offset by trade de-stocking in the quarter.

The Nexium sales performance is the U.S.

is due to net price declines.

It's important to remember the phasing of the net price declines over the four quarters of 2007, with most of the full year effect being realized in the fourth quarter.

Net prices in the first quarter of 2008 are only slightly lower than the fourth quarter exit rate, but are significantly lower than the first quarter of 2007, which had not yet reflected the dynamic changes to prices that occurred last year.

This is going to be a feature of the next couple of quarters, with unfavorable price comparisons straight through until the fourth quarter, when the year-on-year price differential will finally narrow.

Based on the performance in the first quarter and our assessment of the outlook for the rest of the year, we expect a mid-single-digit decline in Nexium worldwide sales for the full year.

For Crestor, sales in our rest of world markets are now higher than sales in the U.S.

Outside the U.S., sales were $419m, a 32% increase.

I already mentioned the successful launch in Australia.

Sales in Western Europe were up double digits.

Crestor sales in Japan more than doubled and our volume market share is now over 13% in Japan.

Market share was 8.8%, back when we announced the full results for 2007.

Crestor sales in the U.S.

were up 3% to $353m.

The statin market in the U.S.

has softened.

Total prescription growth has slowed to around 5% in the first quarter over last year.

I mentioned earlier that we've seen some de-stocking in the U.S.

and Crestor is one of the products affected.

Crestor's share of total prescriptions was 8.75% in March.

It's the only branded product to have gained share in the quarter, so we're seeing a positive impact from the atherosclerosis launch.

We're also encouraged by the trend in new patient starts and our net switches versus all other statins.

Both are up since the athero launch.

Seroquel sales were up 10% in the quarter.

Sales in the U.S.

were up 7%.

Total prescriptions were up 8%, almost twice the market rate, and Seroquel XR accounted for about 25% of this growth.

In other markets, Seroquel sales were up 17%.

2008 is the culmination of a large lifecycle management program in support of Seroquel XR.

At the moment, XR is only indicated for schizophrenia, but the submissions for XR treatment of bi-polar mania and bi-polar depression are now under review in the U.S.

and in Europe.

For major depression and generalized anxiety disorders indication, the new indications that will be unique to the XR formulation.

The depression package has already been filed in the U.S.

and filings for anxiety in the U.S.

and depression and anxiety in Europe will follow over the course of 2008.

Turning to Symbicort, most of its sales are still outside the U.S.

Rest of world sales were up 9% in the first quarter to $427m, with more than half the increase coming from Western Europe.

In the U.S., sales in the first quarter were $44m.

There were no sales in the first quarter 2007, as we launched in late June.

Product continued to gain momentum in the U.S.

in the first quarter with both the specialist and the primary care prescribers.

Of our target core universe, trial rates are now over 80% for allergists and 70% for pulmonary specialists.

Share of patients new to fixed combination therapy is over 26% in the specialist group.

Primary care trial rate has increased to more than 29%, and share of patients new to combination therapy has increased from under 9% at the end of December to over 14% in the latest week.

In the overall market, Symbicort's new prescription share is 7.8% and its new to combination therapy share is 15.2% in the week ending April 11.

Now let me turn to the other items in the P&L, as we explain how the 4% increase in revenue was leveraged into a 12% increase in core operating profit, and again this commentary is on a core basis in constant currency terms.

Core gross margin increased to 80.9% of sales, an improvement of 60 basis points over 2007.

Lower Merck payments as a percent of sales, combined with the efficiency gains and favorable product mix, were partially offset by higher royalty payments, chiefly due to the inclusion of Synagis sales in the first quarter of 2008.

Core R&D expenditures were down 2% in the quarter.

However, the first quarter 2007 had the intangible impairment charges associated with the termination of the AtheroGenics and Avanir collaborations.

Excluding these, core R&D expense was actually up 4% and activity levels for R&D projects are on plan.

We're also seeing good progress on productivity initiatives, which helps to mitigate increased pipeline cost and the addition of MedImmune.

Core SG&A expense was up 2% with the inclusion of MedImmune SG&A, which was not included in the prior period.

Excluding the MedImmune component, core SG&A is 2% lower than last year, due to the effects of continued efficiency improvements.

Core other income for the first quarter was $151m, $13m higher than 2007, with the inclusion of MedImmune being partially counterbalanced by lower one-time gains and royalty income.

There's an accounting reclassification that affects other income.

As you all know, amortization of the intangible assets arising from the MedImmune acquisition have been in the accounts since June of last year, running at $109m per quarter.

They'd all been included in SG&A, but now the amortization related to MedImmune's licensing and royalty income streams has been reclassified from SG&A to other income, which is where the revenue is recorded.

As a result of this change, my guidance that we expect other income for this year to be around the same as 2007 still applies on a core basis.

But with this amortization expense, other income on a reported basis will be lower than the 2007 statutory number.

The improvements in gross margin and the reductions in R&D and SG&A as a percent of sales have increased our operating margin by 250 basis points at constant currency, to 36% of sales.

As a result, the 4% increase in sales has resulted in a 12% increase in core operating profit.

While operating margins have increased in the first quarter, our guidance on margins for the full year stands, namely maintain core gross margin flat on 2007 levels, hold core SG&A expense flat and increase our R&D -- core R&D expense, all on a constant currency basis.

A quick update on our productivity and synergy initiatives.

They're all on track to deliver two-thirds of the total target of $1.4b in annual benefits by the end of the year, with the full amount to be delivered by 2010.

An excellent example of what we're accomplishing is the restructuring in many of our sales and marketing organizations in Western Europe, the better part of which took place in 2007.

We're now delivering broadly the same level of sales with smaller sales forces in our largest marketing companies.

We charged a further $117m to the first quarter accounts for restructuring and synergy programs, bringing the total provisions for the program to date to a little over $1b.

Turning to cash generation and net debt, you'll have seen in the first quarter statement that our net debt has increased in the quarter compared to the year-end position.

This was expected.

We paid out $2b for the final dividend for the year and in March we made a net payment to Merck of around $2.6b, as part of the scheduled exit provisions of the Merck arrangements.

Our cash generation remains strong and we still intend to reduce our net debt position over the rest of the year, while also planning share repurchases of around $1b subject to business needs.

Turning briefly to our arrangements with Merck, you'll recall that in February, when we announced Merck's decision not to exercise the first option, we promised you additional information on the accounting impact of these events.

And I'd call your attention to note six in the first quarter accounts, where this is presented in some detail.

I don't propose dealing with this topic in my formal remarks, but I'd be happy to take questions as part of the Q&A if that's needed.

So let me conclude this presentation with a brief update on our financial guidance.

Based on the underlying business performance to date and our assessment of the prospects for the rest of the year, we believe we're on track to achieve our full year targets.

You will have seen, however, that we've increased the target range for core EPS for 2008 by $0.05, with the new range now between $4.45 to $4.75 per share.

This increased target reflects the positive impact on earnings per share from currency movements that have been realized in the first quarter.

For the remaining quarters, guidance is based on our original assumptions for currency, that is, the fourth quarter 2007 average rates.

And to assist you in assessing the impact of currency fluctuations for the remaining three quarters, you'll recall that we provided a currency sensitivity table in our full year results presentation and this remains available on our website in the investor section.

I think I'll wrap up my formal remarks here and turn the call back to the conference operator to begin the question and answer session.

Thank you.

(OPERATOR INSTRUCTIONS).

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

Please go ahead, sir.

Yes, good afternoon.

A few questions, please.

First, I wondered if you could give us any guidance with regard to restructuring charges you now expect to take between now and year-end for the year, for the synergies program.

Second, there is, as you've probably seen, a little bit of misunderstanding, it would appear, with regard to the earnings guidance and the upgrade.

Maybe you could clarify that.

As we understand it, the $0.05 upgrade is specifically due to first quarter and assumes -- would assume for the rest of the year that the currencies for Q2, 3 and 4 actually went back to the average rate you saw in fourth quarter last year.

And then third, just with regard to R&D, are you still anticipating, on a core constant currency basis, high-single-digit growth, because you did talk about efficiencies in that area?

Okay.

Well, thanks, John, for that.

Let me start with the R&D, your third question.

We do indeed expect to see core R&D expenditure to rise for 2008.

We gave guidance that it would rise at high single digits.

As we've said today, we've left our guidance unchanged.

We are, though, seeing the benefits of efficiency and productivity coming through and we'll be able to update you on that and the impact of that as we go through the year.

But our guidance remains unchanged.

The -- dealing with the guidance on restructuring for 2008, the costs, we said that two-thirds of the remaining $1b of restructuring and synergy costs would be charged in 2008 and that remains our guidance for the year.

And on the EPS guidance, you did indeed summarize, I think, it well.

To be absolutely clear, and that's what we'd thought to do here, our underlying guidance, absent currency effects, for the full year remains unchanged.

We have added $0.05 to the earnings guidance to reflect the currency benefit experienced and realized in the first quarter for the year.

For the remaining three quarters, we have essentially assumed in the guidance the same currency rates, which were the average for the fourth quarter of 2007, upon which we provided the guidance in the first place.

We also provided you with a sensitivity table, which will allow you to assess the impact of potential currency movements for the remainder of the year, subject to your views on currency.

That's great.

Thanks very much.

Does that help with the question on (multiple speakers) currency?

Is that clear?

Yes, that's very clear.

Thanks a lot.

I think if you took the currency sensitivity we've provided, look at the average rates in the fourth quarter in '07 and the first quarter of '08, you'll find where we get the $0.05.

Thank you.

Our next question comes from Marcel Brand from Cheuvreux.

Please go ahead, sir.

Yes, thanks.

My questions have been answered.

We now move to Kevin Scotcher from HSBC.

Please go ahead.

Thanks for the question.

I have a question on Seroquel and the overall U.S.

anti-psychotic market.

You talked about the slowdown in the market.

And it looks to me by looking at both the Abilify and the Zyprexa numbers, just like yours, that between Q4 and Q1 the rate of growth in reported sales has slowed by about 4 percentage points quarter over quarter, i.e.

Q4 over Q4 the year before and Q1 over Q1.

Can you talk generally about what's going on in the market?

I would have expected growth to accelerate, given that Abilify now has an adjunctive approval for depression and Seroquel continues to roll out in bi-polar depression.

The market growth that we've experienced for Seroquel is slightly up for the first quarter on the overall -- is up for the first quarter in terms of overall growth for Seroquel.

And we've obviously gained share and therefore have taken approximately half the growth in the market.

So our focus has been on building Seroquel's position in the marketplace and we've been pleased with the performance.

Indeed, 25% of the growth that Seroquel's enjoyed has come from XR, obviously launched that in the last year and that's got off to a good start.

Clearly, the core priority for us during the course of this year is to roll out the lifecycle management program to get the extended range of indications between XR -- on XR and indeed some unique indications for XR, and have confidence that will continue to drive Seroquel going forward.

Can I just follow up, because your comments imply that you expected the market to slow down, therefore.

So I'm wondering, therefore, what growth you expect in the market for the rest of the year.

Kevin, I'm struggling to find where we said that the market for anti-psychotics was falling below expectations.

I think we made that comment about Crestor's market [was sluggish], slowing down.

But TRXs for the anti-psychotic market are still up 8%.

I think last year was about a single-digit growth, maybe just barely 10%.

So it's not miles off what the full year growth rate was.

Our growth rate in scrips is 8% and the market was growing about 4.5%, I think.

And Kevin, just to build on that, I think your question had within the sense of it probably the most important fact is that for Seroquel the growth rates and the expectations for the future are very much determined by the delivery of the new indications.

They'll add to the differentiation we have already in the marketplace, and that's really where we've got to focus our efforts.

Thank you.

We will now move to Graham Parry from Merrill Lynch.

Please go ahead.

Thanks for taking my questions.

I just had a question on the operating ratios that you delivered in the first quarter, as compared to Q1 last year or fourth quarter last year.

They do seem quite low.

You're probably about 200 -- even after we've stripped out one-offs and restructuring, about 200 basis points better at the COGS and R&D lines than the fourth quarter.

So are these good ratios to be thinking about for the rest of the year, or are we expecting to see some quarterly cost phasing that mean those ratios deteriorate through the course of the year?

Also, could you detail for us what the realized cost savings from the restructuring program were in the quarter?

And then, on Nexium, volumes steady, you said, versus fourth quarter and pricing as well, but the sales down 10%.

So if not price, what is it that's actually accounting for that decline versus fourth quarter?

Thank you.

I can take the Nexium question, Graham.

9% is the global number.

It's 15% decline in the States and that's on flat volume, so the implied price variance is as it was stated.

It's a double-digit price decline.

But again, I think the key point is it's a function of the year-ago comparator rather than further deterioration of price compared to the exit prices we had in the fourth quarter of last year.

Turning to restructuring, Graham, we provided guidance for the full year.

But in terms of benefits, cumulatively, two-thirds of the $1.4b targeted benefits would be in the P&L in 2008.

The benefit in the P&L for the first quarter is in line with that, so somewhere in the order of $200m.

And your first question was related to operating margins.

We explained that operating profit for -- profit margin for the first quarter was indeed up by 250 basis points to 36% of sales.

We've seen strong operating margins in the first quarter, but our guidance on margins overall remains unchanged for the full year.

Okay.

Thanks very much.

Our next question comes from Tim Anderson from Sanford Bernstein.

Please go ahead.

Thank you.

On page two of your press release, you describe the productivity investment initiative in Western Europe and you talk about delivering about the same level of sales with smaller sales forces.

And I am wondering if you can give us any hard figures behind the statement.

To me, that language suggests maybe sales are slightly lower than what they would have otherwise been, but I am wondering how that stacks up against what the percent reduction in the sales force would have been in these territories.

So I guess you could answer that on like an operating margin perspective, what's been the bump up in the operating margin as you've restructured in these Western European markets.

And then a product question, which is on the back of the news about the JUPITER trial and also enhanced results, there were several big revisions up on future Crestor forecasts by the folks that cover your company.

And I am wondering if you'd be willing to comment about what you think about some of these big increases, or how you see this playing out over time.

Let me just start with Western Europe.

The overall sales were down in revenue terms by about 1%, although volumes actually were up.

And the reduction in our sales and marketing organization resourcing in some of the key markets was substantially -- down substantially more than that, and therefore we've seen a marked improvement in productivity coming through in a number of those markets.

Turning to Crestor, the three aspects to that, the first is that the athero claims obviously came on our label at the end of last year.

That's now fully embedded in the sales force.

We've rolled out the DTC campaign starting in February and we are seeing the results coming through from that, in part in NRx share which has shown some up-tick, but more importantly when we look at both prescribing intent but also dynamic shares, for example, up from 10.2% to 11.5%.

So we are certainly seeing the positive momentum from the athero claim.

And I think the two other developments that you mentioned, we do think that from the ENHANCE perspective has reinforced the use of statins, and clearly in Crestor we think we have the most powerful statin.

And the JUPITER study is also positive for the brand.

Clearly, there's a lot of data that needs to be received, reviewed, analyzed, and we will be able to update you on the implications of that towards the end of this year.

I don't know, Jonathan, anything you want to add to that?

Yes.

This specific element around the change in consensus or analysts' forecasts, there were one or two that caught the eye.

I think there was a couple of analysts who were actually coming off a very low base.

If you look at what happened within consensus overall, I think numbers went up about $400m, $450m for 2012/2013, so nowhere near as big a change as I think you were hinting at with the question.

And I know -- I think I know what the answer to this question will be, but what do you think about that average change to the Crestor forecast?

I guess I am trying to figure out if you think there's going to be a major market impact on future sales of Crestor from JUPITER and (multiple speakers).

I couldn't pass out what was in the analysts' minds as they recast their forecasts.

It could be the differentiation we get from the STELLAR data on LDL and HDL.

It could be the new athero claim.

It could be general disruption in the market.

Or it could, as I think your question points to, be the JUPITER study.

But for the specific impact of the JUPITER study, we haven't seen the data yet and won't see it till the fourth quarter.

It's probably a little bit premature to be predicting.

Thank you.

Our next question comes from Michael Leacock from ABN Amro.

Please go ahead.

Thanks very much for taking my question.

As I've got the opportunity of asking, Simon, about the cost of goods, in the quarter you had a very good performance with, I think, cost of goods something like 1.5 percentage points better than the market was expecting.

And looking forward, with your outsourcing policy, Rambaxi has suggested they will be making 50% of your U.S.

Nexium supply, it looks like the general direction for cost of goods is a very positive one.

I wonder if you can give us a bit more scale and perhaps some timing on the benefits of your outsourcing policy on this particular cost line.

The -- we are indeed making progress in terms of driving efficiency, both from the asset strategy we have in place, ongoing productivity initiatives.

And that is impacting our cost of goods and you are seeing that come through in the quarter.

The guidance over the course of 2008 for percent gross margin remains unchanged.

Clearly, at the gross margin line there's movements in cost of goods coming through, but then also other effects such as royalty and Merck payments.

Looking ahead, the continued development of our asset strategy and outsourcing of API is an important part of our overall program to drive efficiencies.

I am not going to provide further guidance at this point as to where that's going to get to into the future, but we clearly see this as a positive trend and will contribute to margins into the future.

Thank you, Simon.

Thanks, Michael.

Our next question comes from Steve Scala from Cowen.

Please go ahead.

Hi.

This is a bit of a follow-up to the question just asked.

But can you just clarify where does Astra obtain the Nexium raw material now, and by what company is the finishing done currently?

And as was just asked, I was going to ask for you to quantify the impact on the P&L, perhaps with greater precision.

And also, how does it change the economics to Merck?

And then lastly, would you expect any continued efforts from Teva to overturn the patent, or would you anticipate that the barriers and timeframes are simply too great?

Okay.

Sorry, there was a bit of interference on the line for me.

Could you just repeat the second part of your question?

I picked up, you wanted to understand where we sourced -- where we are producing Nexium and formulating a patent today.

Can you just clarify, there was a crackle here, the second part of that question?

Yes.

Well, and could you maybe say with greater precision the impact on your P&L by virtue of the change in the sourcing and in the economics to Merck?

I see.

Well, let me deal, first of all, with the question on where it's sourced.

We are producing the Nexium API within our current manufacturing network, primarily in Dunkirk in France.

We are doing formulation packing in a number of areas, including some that is being done on our behalf by Merck.

So that's where it's being done today.

In terms of the overall arrangement moving forward, clearly the -- our sourcing arrangement with Rambaxi is done at a competitive rate.

We wouldn't expect there to be significant changes in gross margin as a consequence of that.

And then your final question, I think, on the ongoing litigation with Teva, we continue to have confidence in our intellectual property.

We are vigorously defending it.

And the litigation with Teva, though it continues, you'd need, I am afraid, to ask them what their intentions were, but I hope our intentions are very clear.

Thank you.

Thanks, Steve.

The next question comes from Kevin Wilson from Citigroup.

Please go ahead.

Thanks very much.

Simon, could you talk a little bit about your personal view of return of cash to shareholders?

I am thinking here of the balance between share repurchase and dividend.

Clearly, you've made very clear what your plans are for return to a modest level of share repurchase later this year, but I am interested whether you think that there is scope for an increase in the payout ratio in the future.

Secondly, could you give us a bit more color on that de-stocking of -- in the first quarter?

Roughly how much of it was Crestor?

And if any of the other major brands, if you can give us a rough proportion that would be helpful.

And finally, on the now very clear basis for your guidance on the FX move, we -- like Sean Murphy actually used my very wording, you'd think we were sitting together when he asked the question, but exactly the same way.

However, there is -- as a background to that, is there any chance that there is something we are missing here in your choice of guiding in this way, as one can imagine that you might get a further currency benefit in the second quarter?

But perhaps there is something that's going to result in guidance not being raised by that same amount in the second quarter.

So if you could give us some confidence or color on whether there is something we are not thinking about here, and why you haven't done a more conventional way of altering your guidance.

Thanks.

Okay.

Kevin, no, the -- let me deal with that one first.

The -- I'm glad to hear that it's clear.

And the -- what we sought to do is separate the guidance on the underlying performance of the business in the absence of currency where -- currency movements where our guidance is unchanged, and reflect the same confidence about the outlook for the year as we had back in January.

No change in that regard.

In terms of currency, we have added the currency benefit that has been realized in the first quarter.

And when we get to the second quarter, we will then make very transparent the benefit that's been realized or not at that point and provide that in the guidance.

And we've provided you with the sensitivity now, as this will allow you to do that in anticipation as well.

Does that help?

Does that answer your question on the currency point, Kevin?

Yes, that's fine.

There's nothing --

Untoward there.

No, not at all.

Our guidance on the underlying performance of the business ex-currency is unchanged.

That's fine.

Thank you.

The -- turning to the de-stocking by brands, I mentioned a figure of around about $200m and the -- that is across our major brands.

And it has been experienced on Crestor, also on Nexium and on Seroquel.

I think if you look at it, it's broadly the order of magnitude is proportional to their sales contribution.

Correct.

So Seroquel and Nexium would carry the bulk of it and the remainder would be Crestor.

Thanks.

We don't have plans at this stage, Kevin, to change the dividend and buyback policy, which is very clear, that tend to grow our dividends in line with earnings per share before restructuring and synergy costs and to maintain two times cover, and to return surplus capital within the year after, pursuit of what we see as good investments, and debt pay-down commitments that we have, and obviously the dividend, to return that through share buybacks.

And we see that as providing a good balance between both dividend and buyback as a means of return.

We don't have any plans to change that at this stage, Kevin, although it's clearly something that we review on a regular basis.

The specific guidance around share buyback for this year of around $1b obviously reflects the fact that we've had the Merck payment of $2.6b in the first quarter.

We'll provide some guidance on the outlook for next year in due course, probably at the fourth quarter results update.

Thanks very much.

Okay.

Our next question comes from Paul Mann from Morgan Stanley.

Please go ahead.

Thanks for taking my question.

I've got just a couple of questions.

First of all, just looking at Nexium, is it possible to quantify the percentage of prescriptions or percentage of revenues that come from the Department of Defense, come from Medicare, maybe the private [pair] and cash?

And secondly, just having now settled with Rambaxi and you've clearly got greater visibility in the medium-term cash flows, is it possible to further leverage the balance sheet and maybe make additional acquisitions?

And if so, what should we be looking for?

Okay.

Well, thanks for that, Paul.

Let me deal with the second one first.

As we made clear at the time, certainly the Rambaxi settlement brings us greater clarity and stability, from which we can focus our attentions on investing in the business, growing it for the future.

At this stage, having taken on the additional debt for financing the MedImmune acquisition, and in line with our desire to maintain our target credit rating at AA-/A1, we have agreed with the agencies a debt pay-down schedule over the course of the next 24 months.

And from a financing strategy, that will remain our priority over that two-year period.

And I think in today's credit markets maintaining that credit ratio is a very sensible and prudent position to be in.

Obviously, we will continue to review our overall strategy and financing policy as the business unfolds, but I think for the next 12 to 24 months our focus is on meeting the commitments that we've previously made.

In terms of Nexium, Ed, do you want to pick that up for the U.S.?

Yes.

In terms of Medicare D, I think we've said in the past that if you look across our portfolio our Medicare Part D business represents something in the high teens as a percentage of our sales, and Nexium would be typical of that kind of proportion.

I think the cash market in general, I think, used to be in the order of 15%.

That's probably come down a bit now, as a result of Medicare D growth and the like, so it's probably trending down below that mid-teens level.

DOD, most of the volume in fact is not retail.

You don't see it in the prescription data at all, because it's sold into the dispensing warehouses of the -- of various military installations.

Okay.

Thanks very much.

Thanks, Paul

Our next question comes from Gbola Amusa from UBS.

Please go ahead.

Yes, thank you.

Two questions, first on the positive outcome of the JUPITER trial.

Statistically speaking, are there any preliminary bounds you can establish for a minimum number to treat patient bases, based on the finding that the trial was stopped early?

And secondly, I didn't know if this came up earlier on the call as I wasn't on, but is there a figure in terms of an estimate for inventory levels relative to normal?

Are you above or below on a dollar basis?

Okay.

On the JUPITER study, we -- as I mentioned earlier, we've obviously now got a lot of work to do over the coming months to both collect, to bring in that data, to review and analyze it.

We are not in a position to share with you any results and insights from that at this early stage.

That would be towards the end of this year.

And in terms of inventory levels, Ed, have you got a --?

Yes, I think what we try to be clear is that what we are seeing in inventory de-stocking is within what we would call the normal limits of the distribution service rings we have with the wholesalers.

So they have a target level of inventory, but they are allowed to be plus or minus a certain leeway of that, just because you can't nail it down that precisely.

So what you are seeing is de-stocking within that normal collar.

So there is nothing untoward in the way of either excess or in fact under-stocking in any particular quarter.

It's just [being able to tune] around that normal variability.

Just to clarify, it is as Ed said, it's been -- it's within normal variability.

It's just a little higher this quarter than we've seen in recent quarters and I have hence called it out for you.

I remember back in '03 and '04 you could occasionally give a dollar amount in terms of how much above or how much below.

In that year, Gbola, that was when -- before the distribution services went into effect.

And then it was much more relevant to talk about excess or -- because at that point you were talking about inventories that were building in anticipation of price rises.

You'd get a very large stock in and then the following quarter you would see that de-stocking.

So you'd have wild swings in ex-factory sales relative to underlying demand.

Again, we are not seeing that kind of thing here.

That's why we are not talking about a dollar level of inventory.

It is within the normal limits.

Okay.

Well, I guess just to follow up in a slightly different way, so we would expect perhaps that in Q2 there aren't any effects from inventory movements this quarter, any major material effects?

One can't forward anticipate how the wholesale ordering patterns will evolve.

But in contrast with those earlier periods, when you would see a big stock in, you would almost assuredly see a big stock out on the price rise speculation.

Those kind of things are usual -- are a feature of the past.

That said, we can't say in any given quarter whether a wholesaler is going to place a large order at the end of -- last business day of a quarter, and you'll see that kind of swing.

Okay.

Thank you.

Thanks a lot.

We will take our next question from Alexandra Hauber from Bear Stearns.

Please go ahead.

Thank you for taking my questions.

First, just looking at the COGS ratio again, I was wondering whether that number includes any sort of FX impact which may not immediately be obvious, such as we may experience a delay to the increase of COGS via inventory sales by foreign subsidiaries or any funny effects like that.

And then perhaps a second quick question.

Your Symbicort U.S.

sales have been all over the place since the launch.

Is the current $44m now a reasonable demand figure?

Okay.

Dealing with your COGS question, no, I've -- trends on COGS we explained in the release.

And the -- we also provided you with an increase in COGS on a constant currency rate as well.

There's -- the drivers there are continued efficiency gains on COGS, which we've talked about, and then relative movements on royalties and Merck payments, which partly reflects the mix of Merck-related products running through the sales line, and also the higher royalty payments which, as we mentioned, is chiefly to the inclusion of synergies.

There are no FX effects that I think should concern you.

In terms of Symbicort, we see the sales for this quarter as a good measure of underlying demand and predictive, yes.

Thank you.

Our next question comes from Mattias Haggblom from Danske Markets.

Please go ahead.

Thanks for taking the question.

Firstly, Simon, apologies for coming back to the so-described very clear guidance, but just -- I think you touched upon this in your introduction remarks.

But I just wanted to double check how you treat the $0.12 from the impairment for the full year, whether or not that is included in the $4.45 to $4.75 or not.

And secondly, on Crestor, although it's early days, I wonder if you can talk about what possibly amendment of the label for Crestor you could seek on back of the JUPITER data, as well as if you could give us an update on the AURORA study, the other outcome study, in end-stage renal patients, and possibly also talk about the importance of that compared to JUPITER.

Thank you.

Okay.

Firstly, on guidance, the guidance we've provided is on core EPS and therefore the impairment of Ethyol of $0.12 is not -- is outside that guidance, so it does not impact the guidance that we've provided.

Turning to Crestor, as I've emphasized earlier, we will only be able to update you on the impact for the Crestor label on the back of JUPITER once we've received and analyzed the data, so that's something we'll need to come back to at the end of this year.

Jonathan, do you want to pick up the Aurora in the context of the wider program around Crestor?

Yes.

That's progressing to plan.

As you'll note in the pipeline table, we'd expect to make a filing in the U.S.

and also in Europe in the first half of '09 with that.

So we'll have the data in, in time to make that filing.

All right, excellent.

Thank you.

Operator, we probably have the time for one last question.

Okay.

Our last question will come from Alexander Lindstrom from ABG.

Please go ahead.

Thanks for taking my question.

On the U.S.

Nexium, could you state the proportion of sales of the intravenous form or -- thank you.

And also, on the earnings guidance and currency assumptions, could you please provide more detail on the basket of currencies that are included in the other line in your sensitivity table, please?

Certainly.

IV, Alex, is a very, very small proportion of total Nexium sales.

Thanks.

And in terms of the other currencies, the main currencies to -- that we include in there would be the Japanese yen, the Canadian dollar and the Australian dollar.

And we have emerging markets which all is dollar linked.

And in that case, it seems to me that the currency effect for Q4 -- Q2 to Q4 may be even higher for the remaining quarters than the $0.05 that you realized in Q1.

Could you make a broad -- could you answer that broadly?

Well, we've provided the guidance as we did, which is the guidance for the business excluding currency effects, as unchanged, reflecting continued confidence in our outlook for the year.

We added $0.05 to reflect the actual currency realized -- benefits realized in the first quarter.

I don't want to get into forecasting currency effects for the rest of the year.

But if you've got a particular view on that, you can obviously apply the sensitivities to arrive at your own view of the currency impact for the rest of the year.

I understand.

Thank you.

But I was thinking if you took the very recent rates --

Sure.

Alex, you're almost picking at the basis for predicating the guidance as we did.

We've given you, I think, all the tools you need to take a view.

Thanks.

Well, thank you very much indeed for joining the call this afternoon.

Let me just briefly summarize with three points.

In the -- in a challenging market, we've delivered performance that puts us on track to meet our targets for the year.

With the U.S.

filing for Motavizumab, we've made the first of three regulatory filings planned for this year.

And we've provided increased clarity and stability for our business with the settlement agreement with Rambaxi concerning the Nexium patent litigation in the U.S.

And with that, I'd like to wish you all a very good day.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen.

You may now disconnect.