AstraZeneca PLC (AZN) 2008 Q2 法說會逐字稿

Good afternoon, and welcome, ladies and gentlemen to AstraZeneca's second quarter and half year 2008 results conference call.

Chairing today's call is David Brennan, CEO of AstraZeneca. Also on the call are Simon Lowth, Chief Financial Officer, and Dr. John Patterson, Executive Director of Development as well as the Investor Relations team.

Before I hand over the call to David, I'd like to read the customary 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.

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

Good Jonathan, thank you. Good afternoon ladies and gentlemen. Thank you, also, for joining us on our webcast and our conference call. And as Jonathan said, we'll cover second quarter and half year 2008 financial results.

The program is pretty straight forward. I'll make some brief opening remarks. And then, as Jonathan said, Simon Lowth is here. He'll take you through the details of the financial results for the quarter, and Dr. John Patterson will then provide his customary semi-annual review of the R&D pipeline. And then after our presentations there will be plenty of time to take questions.

So, why don't I just do a quick intro for you? The first half of 2008 has really seen some significant accomplishments for the Company. With a solid performance in the first half now under our belt, we've been able to increase our full year target for earnings per share by $0.15.

Around half of this is from currency, and the other half is from improved operating and financial performance. And Simon will fill you in on the details of how we did this in his guidance remarks in just a few minutes.

Market conditions in the established markets of the US and Western Europe continue to be challenging. The overall rates of growth in those markets have slowed to low single digits, and because you all know, healthcare cost pressures are increasing. These factors are clearly impacting our business.

That said, the geographic diversification of our business continues to be a source of strength. We are driving strong growth in the emerging markets. Our sales in these markets increased by 20% in the second quarter leading to a new milestone. This is the first time sales in emerging markets have exceeded $1b in a quarter.

Since the year end results report in late January we have also successfully mitigated two very significant near term risks to our business performance by reaching a settlement of the Nexium patent litigation with Ranbaxy. And earlier this month the successful outcome of the summary judgment motion in the Seroquel patent litigation, upholding our valid intellectual property.

We continue to execute on our comprehensive company wide plans to reshape our cost base. We are firmly on track to deliver the interim target, which is to deliver two-thirds of the total program benefit of $1.4b in annual benefits by the end of this year, with the balance of the planned savings to be delivered by 2010.

Since inception we are now just over 60% through the anticipated $2b restructuring and synergy provisions. These programs are not just reshaping the cost base, they are bringing a focus to the need for changes in the way we operate so that we are prepared to compete effectively in the more challenging market conditions that we are facing.

Regarding our most important priority, the research and development pipeline has been further strengthened during the first half of the year as you will have seen from the pipeline table.

John will take you through the details, but the highlights certainly include the regulatory submissions for ONGLYZA both in the US and in Europe. We've also made two new Phase III program decisions for the antithrombotic AZD0837 and the anti cancer treatment MEDI-561, which is a development collaboration we have with Infinity Pharmaceuticals.

This increases the late stage portfolio to 12 projects in Phase III or registration, compared with five projects in 2006. There is also progress in the early and mid stage pipeline to report, which I will leave to John to do.

And before I hand over to Simon, who will cover the details for the second quarter, here is a quick look at the headline results for the first half of the year.

Sales in the first half were up 3% in constant currency terms. And with the 7% uplift from currency, sales were up 10% on a reported basis. Core operating profit increased by 7% at constant exchange rates.

Below the operating line we have an increase in net interest expense from the debt financing of the MedImmune acquisition. As a result, that 7% increase in operating profit becomes a 2% decrease in core profit before tax.

The share repurchases since the beginning of 2007 have given rise to a 3% increase in core earnings per share in CER terms to $2.53 per share. You'll have seen that we resumed share repurchases in the second quarter, and we are still anticipating around $1b in repurchases for the full year.

Reported earnings per share were $2.14 a 3% decrease at CER compared with last year. That's a result of the Ethyol impairment charge taken in the first quarter of 2008 and the inclusion of six months of MedImmune related amortization, which was only partially offset by the lower restructuring and synergy costs during the first half of the year.

It has been over a year since we acquired MedImmune. We are pleased that the integration of the Cambridge Antibody Technology and the AZ Biologics assets has gone smoothly. And there are now more projects than ever in the biologics segment of our pipeline. And we are continuing to grow and invest in this important area of our business.

Finally the Board has recommended a first interim dividend of $0.55.

In summary, a first half performance that leaves us well placed to deliver on our increased full year target.

And with that, what I'll do is hand over to Simon Lowth and let him take you through more specifics. Simon.

Thank you David. I'll cover five topics this afternoon. First I'll summarize our financial results for the second quarter. I will then describe the main drivers of our second quarter sales performance, looking at trends by major region and for the key brands.

Next, I'll explain the key drivers of our core operating margin improvement, and how we've successfully translated top line growth into faster growth at the bottom line.

I'll then briefly review our cash flow performance for the year to date. And then finally I'll update our financial guidance for the full year, in particular, to explain the basis of the increase in our full year earnings guidance.

David summarized the first half results, so I will now turn to the results for the second quarter. Sales were up 2% at constant exchange rates to $7.95b. As you would expect, the weaker dollar has had a positive effect on the top line, adding 7% to growth. So sales on a reported basis are up 9%.

Core operating profit was up 3% in constant currency terms. But improvements in gross margin and efficiencies in R&D being partially offset by some higher SG&A costs and lower other operating income compared to last year.

Core operating profit was up 14% on a reported basis with currency adding 11% to growth. Core EPS was up 7% on a reported basis. But stripping out the currency benefit it was down 4% in constant currency terms.

The decline in core EPS for the quarter is driven by the increased net interest expense which has more than offset the rise in core operating profit.

You'll recall that the acquisition of MedImmune was completed in June last year. As a result we had only one month's worth of interest expense on the MedImmune financing in the second quarter of 2007, whereas we've had a full three months worth of interest expense in this quarter.

Reported EPS was $1.11, a 4% increase in constant currency terms, chiefly because restructuring and synergy costs were significantly lower than those incurred in the second quarter of 2007.

I'll now turn to our second quarter sales performance. And for the avoidance of doubt, when I refer to sales growth rates, they will all be on a constant currency basis.

So, starting with an analysis of sales trends by region, sales in the US were down 4%, primarily due to the decline in Toprol-XL sales due to generic competition. In the first quarter the full in season sales of MedImmune offset the decline in Toprol.

In this quarter, however, MedImmune's off season sales have been insufficient to offset the $268m decline in Toprol. So if you strip out Toprol-XL then the rest of the US business actually increased by 4% in the quarter.

In contrast to the first quarter in which you will recall that we saw some destocking of around $200m, we have experienced an inventory build in the second quarter of around $100m, or about two days sales. Again, this is well within the range of normal limits.

Market conditions in Western Europe do remain difficult and sales there were up just 1%. Sales in Japan rebounded strongly from the soft first quarter after the biannual price reductions in April.

Once again, we have seen a strong performance in our emerging markets. We increased our sales there by 20%. And as David mentioned, quarterly sales exceeded $1b for the first time.

We continue to invest to drive that growth even further with increased sales and marketing effort deployed against our key markets and key brands. Despite this investment, we continue to grow contribution in our emerging markets faster than sales.

So, turning now to our key brands and again, my comments on sales growth rates will all be on a constant currency basis.

The five key brands combined grew by 8% in the second quarter, up from the 4% growth that we saw in the first quarter. As you can see, we had good double digit sales growth for Seroquel and Symbicort, and a 27% increase for Crestor.

Globally, Nexium sales were down 4% in the quarter. Sales in the US were down 12%, but the US team is doing a good job in managing the maturity phase of Nexium's life cycle in this market.

We estimate that ex-factory volume growth for Nexium was 11% in the quarter. Most of this was due to strong growth from lower priced non-retail channels.

In the critical retail segment, we grew dispensed retail tablet volume by around 40 basis points despite the continued share gains for generic omeprazole and the launch of generic pantoprazole. Therefore, it's the net price decline that has driven the sales decline in the quarter, as indeed has been the case for the past few quarters.

Now you will recall that most of the net price declines experienced in 2007 occurred during the fourth quarter. So we will see large negative price variances through this year up until the fourth quarter when the year on year net price differential will narrow.

In the rest of the world, Nexium sales were up 11%, with sales growth of 36% in emerging markets being the principal driver. Based on the first half performance and the outlook for the rest of the year, we continue to expect a mid single digit sales decline for worldwide Nexium sales for the full year.

Crestor sales increased by 27% in the second quarter to $916m. Crestor sales in the US were up 18% to $415m fueled by the promotion of the new atherosclerosis indication. Crestor is the only branded statin to gain share this year with market share up 0.5% to 9.1% of total prescriptions.

Prescriptions were up 8% over second quarter last year. And we've also gained ground in new patient starts. And we are showing net gains among the patients that are switching statin therapies.

Outside the US we had another excellent quarter with sales up 37% to just over $0.5b. Sales in Western Europe were up 19%. Canada posted a 30% increase and in Japan sales were up 150%. And Crestor's dynamic share in that market is around 24% closing to within just 4 share points of Lipitor.

Seroquel sales were up 11% in the quarter to $1.1b. In the US, sales were up 8%. Total prescriptions grew by 6% compared with the second quarter last year, which is twice the market rate. Prescription market share was a market leading 31.6% in June 2008.

While promotion of Seroquel XR has been confined to just the schizophrenia indication, it still accounted for 40% of Seroquel prescription growth in the quarter.

Looking ahead to the third quarter, when you look at phasing of US sales growth for Seroquel, do keep in mind that there was around $80m of initial stocking of Seroquel XR in the third quarter last year that will not recur this year.

Sales in the rest of the world were up 18% to $379m. With most of the major lifecycle management programs for Seroquel XR now waiting regulatory approvals, we will see a global roll out of XR launches in bipolar disorder, major depression and generalized anxiety disorder starting late this year and into 2009.

Arimidex sales increased by 6% to $490m in the second quarter. Sales in the US were up 13% to $201m, mostly due to inventory movement and price as prescriptions were up just 1% in a flat market.

Arimidex in the US is nearing maturity. Although we are still the market leader in new patient starts, the incidents of breast cancer is declining. More importantly, we are now starting to see the effect of patients reaching the end of their five year treatment regime. And as a result, the total number of patients under treatment at any one time will peak in 2008 and then start to decline slowly over time. Arimidex sales in other markets were up 1% in the quarter to $289m.

Finally, turning to Symbicort, global sales are up 12% in the quarter to $518m. The lion's share of this business is outside the US where sales are up 6% to $461m. More than half of the sales growth came from our emerging markets where sales are up 29%.

Sales in the US are on track at $57m for the quarter. Our product trial rate, amongst our target specialist, is now approaching 80%. And 27% of their new patient starts for fixed combination therapy are going to Symbicort.

The trial rate in primary care is also growing. More than a third of primary care physicians have tried Symbicort, and Symbicort is being prescribed for one in six patients newly starting combination therapy.

Overall in the US, Symbicort new prescription share of the combination market is now 9.1% in the week ending July 18, with a new patient share of 17.6%, which is a strong leading indicator.

Having described the sales trends I will now turn to the P&L and the drivers of growth in core operating profit.

I'll focus here on core margins and profit as this is the basis upon which our guidance is based. The press release does, of course, contain the statutory numbers, and a detailed reconciliation to our core measures. And as with sales, when I refer to growth rates, they will all be on a constant currency basis.

In the second quarter, core gross margin increased to 82% of sales, an improvement of 170 basis points. This increase was primarily due to reduced contingent payments to Merck, resulting from the lower proportion of sales accounted for by Nexium and Toprol in the US. And in addition, gross margin benefited from improved product mix and efficiency gains, partially offset by higher royalty payments.

Core R&D expenditures were level with last year as we continue to progress the key discovery and development programs with greater efficiency. Our productivity initiatives in R&D are delivering ahead of our initial expectations, along with restructuring benefits and portfolio changes.

Core SG&A expense was up 5% in the quarter. This increase reflects the inclusion of a full quarter of MedImmune SG&A, increased sales and marketing investments in the emerging markets to drive the top line, and some increased legal expenditures.

Core other income was $51m lower than the second quarter last year. The one off disposal gains in this quarter were lower than those in the prior period.

Overall, on a constant currency basis, core operating margins increased by 30 basis points, driving core operating profit growth of 3% compared with sales growth of 2%.

For the first half, core operating margin increased by 140 basis points, due again, to improved gross margin, delivery of the R&D program with improved efficiencies, and partially offset by some increased SG&A. The improved operating margin drove core operating profit growth of 7%, compared with 3% growth in sales.

Let me now turn to the cash flow. This is a dimension of business performance, upon which we have placed increased emphasis over the course of this year. In particular, we are seeking to improve the conversion of profit into cash flow through tighter working capital management and we are bringing an increased discipline to the evaluation and allocation of capital to investment in our physical plant, our systems and indeed, to externalization.

We've seen these initiatives bear fruit during the first half of this year with net debt and thus interest costs below our initial forecasts due to a combination of improved operating cash flow and lower capital investment. This is one of the key contributors to the increase in our earnings guidance for the full year.

As you can see here, cash generated from operating activities, has increased by over $1.1b in the first half 2008 compared with last year due principally to increase operating profit and improved working capital utilization.

We have deployed that $4.3b of operating free cash flow into the $2.6b payment to Merck as part of our phased exit from that venture, the $0.6b investment in capital and intangible assets to drive future business growth and productivity, and the $2.2b distribution to shareholders through the final 2007 dividend and the first stage of the 2008 buyback program.

Overall, net debt increased, but to a lower level than we had originally anticipated, from $9.1b to $10.4b.

Let me conclude with an update on our guidance for the full year. We have increased our target for core earnings per share by $0.15, with the new range between $4.60 and $4.90 per share. We've maintained a $0.30 range to accommodate business uncertainties that the challenging market conditions present.

Around half of the $0.15 uplift to guidance is due to currency. This is the further benefit realized in the second quarter compared with the rates used in our original planning assumptions, which were the fourth quarter 2007 average rates. For the second half, guidance is set on the base case planning assumption of Q4 2007 rates.

As you will recall, our estimate for the sales and earnings sensitivity to movements in our major currencies versus the US dollar, were provided in conjunction with the full 2007 results announcement. And we've included again in the half year slide pack.

Turning to the other half of the $0.15 increase, this is related to operating and financial performance improvement. Here is our current view of the main points of guidance that we provided at the beginning of the year. We still expect sales growth to be in the range of low to mid single digits at constant currency.

Core gross margin is still expected to be flat against last year, again at constant currency.

R&D expense, with our latest view on productivity and portfolio changes, is now looking like low to mid single digit growth in constant exchange rates.

We now anticipate core SG&A expense growth in low single digits with our efficiencies on track and incremental investment in emerging markets and some increased legal costs. Core other income is still looking unchanged versus 2007.

In summary, against a challenging external environment, we've turned in a solid financial performance in the first half. We've absorbed the generic erosion to Toprol-XL, and still increased sales by 3%.

Our productivity initiatives in R&D are delivering ahead of our initial expectations. We are increasing our investment in emerging markets, and are still delivering an improved operating margin. And finally, our cash performance is ahead of our plan.

So with that, let me hand over to Dr. John Patterson who will provide an update on the progress of the R&D pipeline since the beginning of the year. John.

Thank you Simon and good afternoon everybody.

Over the past few years I've talked regularly about the four key components of the AstraZeneca R&D strategy. In the short-term, we seek to maximize our marketed products through our life cycle management activities.

Secondly, we are building our portfolio by increasing our discovery and development productivity. We've invested considerable time and effort improving the quality, speed and cost efficiency of our discovery and early development, to bring more projects into the Phase III program and faster.

Finally, in the medium and long term, balancing our portfolio by complementing our internal efforts with externalization, as well as accelerating and delivering our biologic strategy.

This is an exciting time for R&D as we are now seeing concrete results from this strategy. We are delivering on our promise on all fronts.

Over the next 20 minutes I plan to review the significant number of achievements in the first half of 2008, starting with an update of key developments in our Phase III and life cycle management activities, followed by an overview of our pipeline.

So far this year we've delivered 12 life cycle management regulatory submissions, as well as two of the three new substance submissions we set out to deliver this year, namely Motavizumab and ONGLYZA.

We are making considerable progress, reducing our cycle times and our costs, but without compromising the quality of our portfolio. We've increased our Phase III pipeline to 12 projects. This is a considerable increase from this time two year's ago.

Our externalization efforts and the narrow focus of our disease area strategy are also producing results. One clear example being the Type II diabetes area where our deal with BMS has delivered a submitted regulatory package as well as dapagliflozin in Phase III.

And then finally by way of introduction, our relationship with MedImmune is now one year old. And we are still on track to deliver a strong biologics portfolio.

I'd now like to take you through the key developments of the last six months, starting with Motavizumab. Motavizumab, through its increased pre-clinical potency, could be a real step forward in respiratory syncytial virus.

The BLA submitted for premature infants and infants with chronic lung disease was delivered in January 2008, and is currently under review.

The congenital heart disease study data is currently being analyzed in-house. And we are on track for the US supplementary submission planned for the first half of next year, as well as the EU submission for all high risk infants within the same timeframe.

Finally, the Phase III Native American study accrual has now been completed.

I am sure that by now you realize that ONGLYZA is the trademark for the selective DPP-4 inhibitor with the generic name saxagliptin.

The second key achievement of the first half of this year was the ONGLYZA announcement that we made last Wednesday jointly with our partners BMS. We delivered the regulatory submission to the FDA on June 30, and have recently received validation of the MAA from the European Medicines Agency 15 months earlier than previously planned.

The submissions are based on a comprehensive Phase III program, conducted in addition to standard therapies as well as in treatment live patients as monotherapy. The program included studies that evaluated the drug as well tolerated and up to 80 times therapeutic clinical doses. The overall ONGLYZA data set involved more than 4,000 patients.

Data presented during June's ADA meeting showed significant reductions in all key measures of glucose control. And you can see on the slide effects on hemoglobin A1c, fasting and post-prandial glucose as monotherapy and in combination. The remaining Phase III data is planned for disclosure at the European Diabetes meeting in September.

ONGLYZA is an important opportunity for us, as Type II diabetes is a growing global problem. Its prevalence is expected to grow from 190m to 330m by the year 2030.

2008 is also a key year for Zactima, a potential new medicine for non-small cell lung cancer and in medullary cancer of the thyroid. All four second line lung and thyroid registration studies, namely the ZEST, ZODIAC, ZEAL and ZETA studies, completed recruitment on schedule.

These studies are powered to achieve benefits measured through progression free survival as the primary outcome, with overall survival as a secondary endpoint.

Event rates have slowed below predicted levels in the three lung studies, as you can see illustrated here on the ZODIAC graph. The studies remain blinded, and the code will only be broken after the completion of the studies.

As a result of this event rate slowing, the results will consequently be delayed by one quarter, which means that data will still be available to us this year. But the submission date has been revised to the first half of 2009.

We still plan to submit the non-small cell lung cancer and thyroid regulatory applications in parallel in the revised timeframe.

Continuing with the key developments in our Phase III program, the PLATO outcome study of AZD6140, a reversible platelet inhibitor being tested in acute coronary syndrome has completed recruitment, and we've entered the 12 month follow up window.

Approximately 18,600 patients have been enrolled to this study. And this is obviously a key milestone for this project, as it means subject to the event rate, we are on track for the EU and US submissions planned for the second half of next year.

Moving onto Recentin, this oral VEGF receptor inhibitor, is currently being assessed in a wide range of solid tumors both by ourselves as well as through [Acrada] with the US National Cancer Institute.

Back in February this year we announced progression of this project into Phase III for first line colorectal cancer. We are on track for the EU and US submission in colon and recurrent glioblastoma both of which are planned for 2010.

In addition, there have been a number of external presentations showing encouraging data in other tumors, including renal, prostate and ovarian cancers.

With regards to lung, we are reviewing our strategy in this indication and plan to share the final data from the Phase II/III BR24 study at a meeting before the end of the year.

All of our other Phase III projects are making good progress and are on track for their previously announced milestones. 4054, our endothelin A receptor antagonist, is being developed in M1 and M0 hormone resistant prostate cancer. We plan to publish the Phase II data during the fourth quarter of this year.

PN400, the project we are running with Pozen, is using a fixed combination of enteric-coated naproxen and immediate release ES-omeprazole in patients who would receive an NSAID for pain relief in arthritis. And this too is on track for its NDA submission, which is scheduled for the first half of 2009 as all Phase III pivotal trials have now fully enrolled.

The Phase III program dapagliflozin, a potential first in class agent for Type II diabetes, is progressing well with seven studies currently ongoing between ourselves and our partner BMS.

The Phase IIb data presented at the ADA this year, demonstrated that dapagliflozin induced glucosuria, consistent with its mechanism of action, improved glycemic control, lowered weight from the base line, showed little propensity to cause hyperglycemia and was well tolerated over a 12 week period.

Finally Crestor/TriLipix, a combination of Crestor with Abbott's TriLipix, previously known as Abbott-335, is on target for its NDA during the second half of next year.

In the past six months we've had two additions to our Phase III portfolio. Firstly MEDI-561, a potential first in class inhibitor of heat shock protein 90, being developed together with Infinity, is planned to commence a Phase III registration trial in refractory gastrointestinal stromal tumors, so called GIST, this quarter. In addition to this orphan indication, a program of Phase II trials in a number of tumors is ongoing.

And then finally in Phase III, the latest small molecule entry to our pipeline AZD0837. 0837 is a once daily oral anticoagulant. It's a selective and reversible direct thrombin inhibitor. It's being investigated for the prevention of stroke and systemic embolic events in patients with atrial fibrillation.

As I am sure you know, atrial fibrillation is the most common sustained cardiac arrhythmia with approximately 7m patients worldwide diagnosed today. Whilst its prevalence is increasing to an estimated 12m patients expected by the year 2020.

Atrial fibrillation patients have a five-fold increased risk of stroke. Anticoagulation is effective treatment. But warfarin, as shown in this graph, is hard to control and has serious limitations, such as an increased risk of bleeding and a narrow therapeutic window and numerous food and drug interactions, such that many patients who should be anticoagulated today, are not.

So what do we know about 0837? It's been extensively and intensively investigated in pre-clinical and clinical trials, details of which are on the slide. More than 900 atrial fibrillation patients have been dosed to date, with the longest exposure being 16 months.

We have demonstrated a positive overall benefit risk profile for 0837 when compared with a vitamin K antagonist such as warfarin in the prevention of stroke in patients with AF.

As you might expect from our Exanta experience, we have scrutinized the tolerability in general and the liver effects in particular. Our comparative Phase II study showed that 0837 was well tolerated and no excess liver risk was seen.

We are confident that there is a considerable opportunity for AZD0837. It could be a highly effective medicine that strikes the right balance between preventing stroke and risk of bleeding, because there is a predictable relationship between dosage and blood levels, while at the same time it has a low PK variability.

Our Exanta experience, as well as our biomarker capability and the extensive modeling conducted, have proved very useful in selecting the proposed dose in AF patients.

The extended release formulation is once daily with no relevant food and low to moderate drug interactions. Most importantly, it reduces the plasma peak to trough variation, which we see as key to safe predictable anticoagulation.

We plan to start recruitment into Phase III this year, and we expect to present Phase IIb data nest year.

Although we support all of our marketed products, I would now just like to highlight four of them as the most important life cycle management programs, starting with Seroquel.

This is a large and comprehensive clinical development program that has delivered differentiated data, providing a strong platform for Seroquel XR growth.

As you can see from this slide, there has been tremendous progress in our regulatory activities since I last presented at the beginning of the year. The list of submissions delivered is extensive.

The two remaining submissions to be delivered are Seroquel XR for bipolar maintenance in the United States and for generalized anxiety disorder in Europe. They are both on track to meet our fourth quarter 2008 timeline.

The slide also lists approvals and PDUFA dates. Approvals are beginning to come through, and as the claims breadth increases beyond schizophrenia we can further establish the XR in the marketplace.

Iressa is the first and only EGF targeted therapy to demonstrate survival as good as single agent chemotherapy in pre-treated, advanced non-small cell lung cancer, with better tolerability and superior quality of life to the chemotherapy.

In May 2008 an MAA was submitted to the European Medicines Agency seeking approval for Iressa as a treatment for locally advanced or metastatic non-small cell lung cancer in patients who had been pre-treated with platinum containing chemotherapy. If approved, this will offer these patients another much needed treatment option.

The other key recent study of Iressa is IPASS, which stands for Iressa Pan-Asian study conducted in Japan and across South East Asia. IPASS exceeded its primary objective and demonstrated superior progression free survival for Iressa compared to intravenous carboplatin/paclitaxel doublet chemotherapy. In addition, Iressa again demonstrated a more favorable tolerability profile and superior quality of life to the chemotherapy.

IPASS is an open label randomized parallel group study, which enrolled 1,217 clinically selected Asian patients with advanced non-small cell lung cancer who had not received prior chemotherapy, whose tumors were adenocarcinoma's and who had either never smoked or were long term ex-smokers.

The full data is still being analyzed, and detailed results of this exciting study will be presented at the forthcoming medical congress.

Supplemental NDAs were submitted in the US for Symbicort for use in COPD and for pediatric asthma, specifically six to 11 year olds in April and June respectively. We are also on track to file supplementary data for the pMDI formulation in Europe for asthma and COPD later this quarter.

And last but by no means least in the life cycle programs that I want to cover today is Crestor, back in March we announced the early closure of JUPITER due to unequivocal evidence of efficacy. We aim to present the results of the study at the American Heart Meeting this coming November.

You will also hear the results of the GISSI heart failure study, the independent outcome study of Crestor in unselected heart failure patients, at the ESC meeting in September.

And finally on Crestor the SATURN study, a direct head to head comparison between Crestor and atorvastatin, which is looking at plaque progression and regression is ongoing and actively recruiting.

Let me focus in now on our R&D productivity and the overall pipeline picture. During the first half of the year we've continued our efforts to improve our speed, quality and cost efficiency. This is paying off as we've seen clear evidence of a stronger portfolio which is progressing faster without cost increases.

In January, we guided you towards a high single digit year on year R&D increase. Our improving productivity and efficiency, together with portfolio changes such as an early end for JUPITER and Recentin lung cancer, lead me to lower that guidance to low to mid single digits as an increase for this year. We are doing more and moving faster whilst controlling the cost base.

Focusing our attention on Phase I as an example, we've reduced our cycle times considerably since 2006, as you can see from the graph, and are already close to achieving our 2010 Phase I target of 10 months.

This has been coupled with a significant reduction in our project costs, as we are stopping failing projects earlier. And for those that do progress we are seeing a reduction of approximately a third versus 2006 figures in Phase I.

It is these efficiency benefits, coupled with our restructuring efforts and portfolio changes that have led to the revised 2008 guidance.

So looking at our pipeline today it now includes 143 projects, including 100 projects in the clinical phase of development. Since the last update on January 31 this year, 20 projects have progressed to their next phase, including seven molecules entering first human testing.

15 compounds have been added from discovery research, whilst three have been withdrawn. It's worth nothing that discovery is playing an active role in improving the productivity and speed of the whole R&D process.

So in summary, as you can see from this bar chart, we've built a stronger and more balanced pipeline. We are seeing clear evidence of delivery of the strategy we announced two years ago. And we are on track to deliver our 2010 targets.

We've achieved the portfolio breadth we require to launch, on average, two NCEs per year from 2010 onwards. We've more than doubled our Phase III pipeline since 2006, and we are building our Phase II portfolio.

The flow of projects from Phase I to Phase II is clearly visible, and indicates a dynamic shift in the composition of our pipeline. At the same time our discovery and early development productivity has increased in order to sustain our future portfolio growth.

Of course, we can still get better. In particular we need to continue to build our mid-phase portfolio through progressions and in licensing. At the end of last year we mentioned an unprecedented level of Phase IIb decisions that will occur this year. So far we have had three positive progressions and are expecting 10 other project decisions before the end of 2008.

By this time next year that bow wave of projects should have led to a considerably strengthening of Phase IIb as the current Phase III projects move into registration.

I believe we've demonstrated real progress, and evidence of improvement on many fronts. However, we can't afford to stand still and we will seek to continuously improve with the same vigor and intensity until we've meet and exceeded all expectations.

So thank you for your attention, and I'd now like to hand over to David Brennan to summarize.

Great John, thank you and thanks to you Simon as well.

Now, just to let you all on the line we are going to go to the Q&A session in just a couple of minutes. But I've been asked by the conference operator to remind you. (OPERATOR INSTRUCTIONS). You also have the opportunity to put questions in from the Internet, and you can start doing that now. I have a couple of quick summary comments, and then we will go to the Q&A.

And, as I said, before we take that first question let me just wrap up the formal remarks. I think that John's presentation has captured the real sense of momentum that has been building in R&D.

That said, I would echo John's important comments that the pipeline remains a work in progress, and in the end what really counts is advancing these projects through regulatory approval and on to the market. And that's the next phase of what we are looking forward to.

John also cited the great strides being made in productivity and cost efficiencies in R&D. And I must say we are achieving that throughout AstraZeneca. And as I said in my opening remarks we are on track to deliver the target of $1.4b in savings by 2010.

And finally, as you heard from Simon's presentation, despite the challenges in the marketplace, we continue to deliver on our financial targets. We've grown sales despite the generic inroads to Toprol XL.

We've further improved operating margin. We are generating strong cash flow. And we've announced an increase to the interim dividend. The end result being that we are on track to deliver our increased earnings per share target for the full year.

So, with that, I'll open the floor up to your questions. And as I said you can signal star one on your telephones or you can use the Internet.

In the Q&A session, why don't we go to the line two, Andrew Baum from Morgan Stanley. Andrew welcome.

Thank you, good afternoon. I know that you dedicated three pages to 0837 in your PowerPoint presentation. Three quick questions on that. First, as far as I am aware I think this is the fourth small molecule antithrombotic to go into Phase III clinical trials in AF, and these trials aren't cheap, $200m, $300m. How are you thinking about risk adjusted ROE in terms of this investment and given you are late to the party?

Second question, as far as I am aware this is the first antithrombotic to have gone directly into AF without jumping through the hoops of orthopedic, which may potentially be considered de-risking to some degree. What additional risk are you taking on by this new development paradigm?

And then my last question is if memory serves me correctly, in the Phase IIa trial there was an elevation in creatinine at some of the dosages. What have you seen in the Phase IIb data? And additionally, have you looked at patients with renal impairment as many of these patients invariably will have? Thank you.

Okay Andrew, thank you. I am going to just go right over to John. We know this marketplace, and from our experience with Exanta very well and recognize what the characteristics of a successful product could look like. So John, why don't you talk about the profile and what we're trying to accomplish?

Okay. Thanks, Andrew. As far as the phase III program is concerned, yes, they're not cheap. But obviously we do look to make sure that what we're doing makes sense from every perspective, both technically and commercially.

There are two factor 10As and an oral thrombin inhibitor ahead of us. But we've looked at them very carefully. We think they're not perfect. And we think there are things that we can do that actually smarter and can learn from our Exanta experience that will allow us to do a good program and bring a very competitive molecule through to the marketplace.

For instance, we actually went back and developed the extended release formulation because we wanted to get rid of the peak/trough variability and to be able to really control the level of anticoagulation so that you can walk that tightrope between controlling the emboli and not getting bleeds.

As far as going direct into atrial fibrillation is concerned, our experience from Exanta was that actually going into short term indications initially didn't give you the kind of information you needed to be more comfortable about the risk/benefit of the product in chronic therapy and AF. And in fact, in many ways, it got in the way because the way orthopedic surgery is treated is very different on different sides of the Atlantic. There are different dosage regimes as well to be used in that circumstance around surgery. And we actually felt it was better to go to what we thought were the key population direct.

And then your memory is good. We did see a small transient elevation in creatinine in the phase IIa studies. That is repeated throughout the program. It is completely reversible. It is what is seen with a number of agents and is not actually a renotoxic phenomenon. It is a straightforward creatinine phenomenon. And unlike other agents that have very significant changes with creatinine that are symptomatical pathognomonic of renal impairment, this is not the case here. And there are a number of drugs in the marketplace that do exactly the same. And there's no clinical significance.

Thank you, John. Thank you. Andrew, thank you. We'll go to Marcel Brand and then there's an email question from Kevin Scotcher we'll take after that. Marcel?

Yes. Thanks for taking my question. The first question on SG&A. Comparing the first quarter of this year to the second quarter, I guess emerging market investment and the MedImmune SG&A that affected both quarters. And particularly MedImmune, if I recall, had always higher SG&A in the first and second quarter. So all those forces were also in the place in the first quarter, so we have a big jump here from Q1 to Q2. And I'm wondering to what extent that has been driven by those legal charges and if you could maybe explain how big those are?

Second question is what has allowed you to file saxagliptin earlier in Europe?

And the third question, did you have any discussions with regulators on your Phase III of development program in general with 0837 so far? Thanks.

Okay. Well I'll make a comment about SG&A generally. I do really think you need to look at the first half of the year as the guidepost for that. I think we are going to see variations from quarter to quarter. You picked up the annualization of taking Medi in for the whole year as an impact. And I think when Simon was making his comments he pointed out that we have made some incremental investment in the emerging markets as well as there were some legal expenses.

But Simon would you like to add anything about the first and second quarter SG&A?

No, I think you've largely covered it, David. I think first I should start that we have a restructuring program, as you all know, that is driving improvements in our SG&A efficiency. But in addition to that we've got a wide range of other productivity improvement programs underway. And these are all delivering targeted reductions in SG&A around our business. For example, in our Western European sales forces, our IS infrastructure and overhead expenses generally. That program remains firmly on track.

You'll also recall, as we set out our guidance for the year, that we expect how these efficiencies in SG&A will be offset by the incorporation of Medi's SG&A for the year. Marcel, I think you were drawing attention, rightly, to the fact that in the second quarter we have the full year incorporation of Medi, but obviously given its seasonality, very little sales from Medi carrying that. So the second quarter does represent a slightly anomalous picture for looking at overall trends in SG&A.

So key point, driving improvement in SG&A, offsetting the incorporation of Medi. It's fair to say we've made increased investments in our emerging markets relative to our initial expectations for the year to drive growth and profit and value in those markets. As I stressed in my talk earlier, my remarks earlier, this is profitable growth for us. And where we see further opportunities to invest for faster growth we will pursue them.

And in addition there have been some increased legal expenses. Part of this is phasing. No single significant item. I think just reflection, perhaps, of increasing cost in litigation, particularly in the US.

Good. Simon, thank you. I think that does give a bit more detail.

John, There were two questions. One was about the earlier saxagliptin/ONGLYZA filing in the EU, why were we able to do that. And the other was did we have any regulatory discussions around 0837. So let me give those to you.

Yes. Okay, David. As far as saxa is concerned, our original plan was to file later in Europe based on our earlier understanding that extra data was going to be required for Europe. What's happened is that as things have matured around this particular class and as we've developed a very good database of 4,000 patients with a very good benefit/risk ratio, we felt more confident to go earlier.

We had discussions with the rapporteur and the co-rapporteur and on the basis of those discussion made our filing which I stressed is not just in filed but has actually been validated by the EU and therefore accepted for filing at this point.

As far as 0837 is concerned, you can bet your life we've had discussions with the regulators, particularly with the FDA. Significant discussions about the size and the powering of the phase III and what the endpoints should be and, of course, sharing with them the Phase II data. So we are going into Phase III with eyes widely open.

Good. John, thank you. Marcel, thank you for your questions. I'll take an email question here and then I'll go to Graham Parry who's on our line two. But let me take the email question first. It's from Kevin Scotcher at HSBC.

The question is does your guidance range include a positive outcome as your assumption to the Pulmicort Respules citizens' petition and summary judgment in the US?

I would say, as you all know, there are a number of moving parts within our business that we try to accommodate the guidance around. This has been a consideration, and maybe I can ask Simon to comment on that.

I would say, more generally, the issues around the challenges we're receiving on intellectual property, as you all know, are now very different than they used to be. I think we now consider this part of how we need to operate regularly to do business to be able to accommodate the potential ups and downs of the scenarios. We're very confident in our intellectual property. But we have a lot of considerations, as you heard at the beginning of the year around Nexium and Seroquel and now as we look to the future.

But Simon, do you want to pick this one up specifically?

Yes. The $0.30 range in our guidance reflects the range of uncertainties, both upside and downside, that we see around our business plans for the year. One such uncertainty would be alternative outcomes to the ongoing Pulmicort Respules litigation. And needless to say, we will continue to vigorously defend our intellectual property and rights in that matter.

Excellent. Thank you. I'm going to go to Graham Parry next. Graham from Merrill Lynch.

Thanks for taking my questions. Firstly I just wondered if you could give us a bit of feel for the currency sensitivity on cost lines that you're expecting for the remainder of the year. So, for example, if FX rates stayed as they were at the moment, should we expect to see an improvement -- continued improvement in growth margin in reported terms?

Secondly, I was just wondering on Zactima, when you will communicate the data to the market. So I think you'd previously said the guidance would be -- you'd communicate something around the time of filing. But could we still hear something before the end of this year if you actually have the data in-house yourselves?

And then thirdly on 0837 I was just wondering if you could actually remind us a little bit more detail on the Phase IIb data endpoints used and how the product compares versus warfarin. And as you go into Phase III, you're looking for non-inferiority or superiority here?

And then finally on the drug/drug interactions, you said low potential for drug/drug interactions. I was just wondering which drug you do see an interaction with. Thanks.

Okay, Graham. That's plenty. Some of that's going to go to John. We'll go to that in a minute. I think the sensitivity of the cost line to currency we had decided to play it pretty straightforward on a quarter by quarter basis. But why don't I ask Simon to just comment on how we've handled it so far to make it clear on what our expectations are for the rest of the year as to how we would handle it.

Okay. Sure. Graham, thanks for the question. We've -- we set out our guidance, as you know, for the full year based on fourth quarter '07. And we have added, to date, $0.12 of currency benefit realized to date for the first half and the remainder for the second half is the -- is set back at the quarter four '07 guidance rate.

In terms of looking ahead for the second half of the year, we provided in the pack today but also on the website, a table which sets out movements in sales and earnings for a 10% relative movement in our currencies versus the dollar. You will be glad to hear we back test that little ready reckoner against our results and it proves to be a good predictor. So I would simply advise you to apply that to whatever your currency assumptions are for the second half to get a handle on the impact on sales and earnings.

To give you a bit more granularity and to help you in that analysis, if you look at the schedules on page eight for the second quarter and page nine for the first half, in our press release, we've shown the relative movements in the cost as a percent of sales in actual and in constant currency terms. And that might give you also an indication of at least relative movements for the first half. I hope that helps, Graham.

Excellent. Simon, thank you. And then John, there were a couple of questions, the one around Zactima, the data date timing and then 0837 on the IIb data, the superiority versus non-inferiority question and then the interactions on drug/drug as well as our experience at IIa. So if you could give a picture on those.

Okay. So briefly, Graham, from Zactima's perspective we will see the data in-house during the course of the fourth quarter. And we'll put that program together. Therefore we're likely to be able to say something about the program at the annual results. I don't know whether we'll be able to say anything about it before then. But certainly, our intention will be the annual results at the latest.

As far as 0837 is concerned, you asked a series of questions. I think the best thing to say is we're going to be putting the Phase IIb data into the public domain next year and you'll get a chance to look at the issues that we addressed there. As far as Phase II is concerned, there was a good program. We have done a very wide kinetic review, looking at potential interactions with both food and drugs and we'll share that with you next year as well.

Phase III, the power of the program. We're looking there at obviously both power to differentiate in terms of bleeding and power to make sure that we're as good as well controlled anticoagulated patients and therefore non-inferior in terms of efficacy. We will, no doubt, be filing the protocols for the Phase III program, again probably around the turn of the year. And you will get a chance at that point to look at those protocols.

Thank you, John. Thanks for that question. We'll go to now Brian Bourdot at Deutsche. Brian?

It's Brian Bourdot from Deutsche Bank. A few questions on the R&D side for John Patterson and a couple of questions for Simon Lowth please. Firstly, on Recentin, are you able to give us any color about the dose used in some of these other cancers, like glioblastoma, renal, prostate, compared with lung cancer which we saw in balance and toxicities?

Secondly, Iressa, the INTEREST study, would you potentially be able to file that in the US? And also would you perhaps look to be launching Crestor in markets like Spain and Germany following the JUPITER decision. Do you have any plans there?

And just on the financial side, I guess, Simon, I was wondering if you could give us some kind of ballpark number in terms of how important legal charges were this quarter compared with last year.

And also you talked about cost savings, about how cost saving scenarios were running ahead of expectations. Would you just stop after you achieve the target in cost savings, or do you see any potential to deliver perhaps above target? Thanks very much.

Okay. That was plenty. I'll let John think about the cancer questions for a minute. I didn't quite catch the first part of it. I don't know if John got it all, if not, we may need you to repeat part of it.

I would just say around the approach that we have taken on the cost savings programs, and certainly Simon can comment more as well, I think our mindset around this is one of continuous improvement. We expect within our organization that we're going to continue to be able to drive efficiency in the way we operate and the things that we do. We are not trying to cost cut our way to success. We're trying to create efficiencies and a mindset within this organization about what it takes to run it really efficiently.

But -- so, but John, let me go over to you. There was the Iressa US question, the planned -- any plans for Crestor Spain and Germany, and that initial cancer question.

Which was Recentin dose in other tumors, I think, David. Okay. So let me try and go through those.

Recentin dose in other tumors or Recentin dose generally, we have used Recentin at doses between 20mg and 45mg in a number of different studies. The most commonly used dose has been 30mg and occasionally 45mg. So the bottom line is the dose is tending to come down, especially in combination with chemotherapy. What we find it this is an incredibly potent agent. And when you give continuous VEGF inhibition with this agent, as you do, we have to watch the tolerability.

So the bottom line is I think the renal data has already been published, and so you should be able to see the dose from what was published at ASCO. And the other tumors will be dosed in that range.

As far as Iressa and INTEREST is concerned, that study is primarily going to be of value in Europe and in Japan and the rest of the world. We do not expect that we will file an NDA in the United States. And at this point in time we have no plans to file an NDA where comparative benefit or non-inferiority such as this is not recognized by the oncology division at the FDA, who are looking to have overall survival benefit for the agent.

I think Crestor, in terms of the countries where it's not yet sold in Europe, which is, I think, Norway, Spain and Germany. We are in the process of starting up a repeat EU MR submission which will actually include those three countries, together with Poland and Malta.

Okay, John. Thank you. And Simon, would you like to comment on the legal this year versus last year and maybe the trend we're seeing here as much as anything, and then anything else you wanted to add about the cost savings and our approach on these programs?

Sure, okay. Brian, we do not separately disclose legal costs. What I would say is that they are up year on year. And I suspect David, in terms of trends, that's probably a trend that we'll see continuing across the sector.

Turning back to the cost and productivity improvement, we are well on track, as I said earlier, on our restructuring program which the goal for this year is to get two thirds of the $1.4b benefit into the P&L during the course of the year. We're well on track to do that. But I think it's important to say, and I think David made this point, driving productivity is not simply about periodic restructuring. It's about instituting continuous improvement in everything that we do.

And I've been impressed with the progress that we've made during the first half of this year in that regard. I think you saw it very visibly in R&D. You can see we're delivering against our discovery and development pipeline in doing so, at levels of cost and productivity which surpassed our initial expectations at the beginning of the year. And that's great evidence of the progress that we're making. And yes, there's going to be more opportunity for us. And those opportunities won't disappear. We'll keep on finding new ways of doing what we do better.

That's good. Thank you, Simon. Thank you, Brian, for your question. I'm going to do a quick question from email here and then I'll go to Jo Walton at Lehman Brothers. But the email question is can you -- given better-than-expected cash flows, could you comment on the potential to accelerate share buybacks next fiscal year?

And it's a pretty straightforward one. The Board takes the decision around share buybacks as we look at the entire expected picture for the year, including the cash flow. So it's not a decision we would make until the review with the Board at the beginning of next year and something that we would announce with our year end results. And before that we won't be making any additional comments on it.

Okay, let's go to Jo Walton at Lehman Brothers. Jo.

Good afternoon. Three quick questions. Firstly on Crestor, your sales in the US grew substantially more than the prescription numbers. I wonder if you can tell us a little bit more about the dynamics there. This has been a very cost sensitive market. If you could just tell us a little bit more about that.

Looking at Symbicort in the US and, in fact, all of those products, the market doesn't seem to be growing very strongly. Is this an issue that patients aren't going to the doctor perhaps because of the weather, or are the prescription numbers that we're seeing screwed up by high levels of sampling, perhaps?

And finally just on the restructuring charge, can you give us an idea of how much more of the charge is likely to be incurred during 2008?

Okay. We'll let Simon work that one through while we go back to Crestor. The dynamic in the Crestor -- in the US market around Crestor, as you know, has to do with price. I think we've been pretty successful in retaining our position and our pricing in the US. Our net pricing is increased year on year. So we're not seeing that as a factor. There is some stocking that goes on back and forth between the quarters, but it is not something that we're going to, I think, try to delineate each quarter exactly how much it was.

So, Jo, we're driven by the prescription growth, by the arthrosclerosis indication, by the positive momentum that's in that market that's pushing towards the branded products. Clearly with the difficulty a couple of our competitors have had there's been some patients that have moved back and forth between the generic segment of the market and the branded segment. And we seem to be getting the preferential side of that. We're the only branded product that's grown in the market.

So that's the picture with Crestor. And it's -- we are continuing to make sure we've got a competitive level of resourcing there so that we can drive it and continue to maintain our positioning in managed care and in other formularies.

Regarding Symbicort, the feedback we've had from our gang in the US is that this is a slower allergy season and has been for a while. I don't think that it's significantly impacted by sampling. We did have some discussion about it. But generally that just didn't seem to be any of the messaging that came through.

Simon, was there anything more when we did the business review that struck you about the US market for Symbicort?

I think they said that the asth season doesn't seem to have been as pronounced, and that appears to be affecting underlying demand to an extent.

Okay. Good. And then the restructuring question, do you want to talk about the rest of 2008?

Sure. The guidance for the year was that two thirds of the remaining restructuring and synergy costs would be charged in 2008. We had initial restructuring cost of $2b. We invested about 1b of that last year. Two-thirds of the remainder therefore you're in the late $600m. That remains our guidance for the year.

You'll have deduced, Jo, that a little bit more of that is loaded into the second half than the first half of the year given mid 200s for the first half.

Thank you. It was perhaps I just wondered if it was being pushed further back. But thank you.

Good, Jo. Thanks for your question. We'll go to Tim Franklin at Dresdner.

Hi. Thanks for taking the questions. Firstly on emerging markets, you had a very strong performance there. Could you provide a view on the percentage of total sales coming from emerging markets, say, within the next three or five years. And you also mentioned about the contributions faster than sales. What sort of margins are we -- relatively are we looking at here and where could these go to?

And then the second question is with relation to JUPITER. You mentioned that we would probably hear the results at the AHA meeting. But are we likely to see any top line data before then? And when would you expect guidelines to change once we actually see the data? Thank you.

Okay. Good. Tim, thanks. On the emerging markets, without trying to put a forecast in place that would line up a percentage of the total business given that it is growing at a rate significantly faster than the rest of our business, we do it -- we see it becoming a much more substantial part of it. I think it's really dependent upon the GDP growth in those markets and the development of the healthcare systems that enable people to participate differently than they have in the past.

But our expectation is that those markets will continue to grow and that potentially more markets will come on line, places like in South East Asia, places beyond China. If you go to places like Vietnam, Taiwan, the -- if you go down to Latin America and look at the businesses that are -- the markets in Brazil and in Mexico and even some of the smaller markets, the rate of growth and the participation of people in general is greater than it's ever been. And while some, they maybe have a higher disproportionate amount of money paid out of pocket, the fact is that branded products have a place there and we're getting good growth with products like Nexium and Crestor in some of those markets as well. So it's not just our old products, it's our new ones.

Simon, would you like to comment about the profitability and the contribution to sales position and margins. We're not going to give out the specifics, but I think you're comfortable with --?

Yes. I think we are pleased with the profit contribution from our emerging markets. And, as I said, we see that contribution in absolute and percentage terms improving. The overall contribution today is not as great as some of our more mature markets. And that reflects a combination of a couple of things.

Firstly, we're investing strongly to build demand. And secondly, there are some differences in relative price levels. One of the benefits of continued strong growth is we're obviously getting more leverage off the fixed cost base that we've placed into these markets and that's what's driving the improvement in contribution.

Simon, thank you. There is a question on the email about the effects of the partial retirement. I'm sorry, John, yes, I forgot JUPITER. Go ahead.

We couldn't possibly forget JUPITER.

No, sorry, Tim.

Okay. We're all very excited about JUPITER. But I need to put what's happening in perspective. We stopped the study two years early. And we're now collecting data on some 17,800 patients out of the 90,000 screened across 26 countries. It's a huge logistic exercise. And actually getting the database clean, finding all the people who were lost to follow up, etc., within the time period that we've set ourselves to meet the American Heart deadline is, by itself, a monumental task.

So at this point in time, only the data monitoring committee and a small number of the investigators know the results, and a relatively small number of people. And until we have a clean database and we've analyzed it, we can't say anything about the likely outcomes in the way of guidelines, etc. So I think you'll just have to wait. And the chances of you seeing or hearing anything before American Heart I would say are virtually zero.

Okay. Good. And there's an email question and then I'll go to Kevin Wilson. But first let me take this one quickly. It's from Stefan Wickholm. And the question is can we give some comments about the effects of the partial retirement of the Merck agreement.

I think Simon went through some of the cash payout aspect of it in his reconciliation of what's happened to the cash position over the last year. But Simon, do you want to just add exactly how this has affected us both strategically as well as financially?

Sure. We made a payment of $2.6b to Merck. You see that through the cash flow. That was the payment for the partial retirement of the Merck agreement. Merck chose not to exercise the first option. That is now on our right in 2010 and the second option in 2012.

The partial retirement brings a number of benefits. The first is release from contingent payments on the first tranche of products. And it also, subject to our exercise of the latter options, brings us strategic freedom from Merck to develop and partner and sell drugs within our therapeutic areas. The specific drugs and therapeutic areas are described in more detail in the annual report and accounts and, in addition, in our -- we've elaborated somewhat in the disclosure today.

If I turn to what that means in terms of the P&L effects, the relief from contingent payments effectively means that contingent cash payments that were running through the gross margin have been replaced by amortization charges. And, as I indicated, I think at our last call, we have not taken any amortization charge which replaces a contingent payment that existed we have not taken out as part of our core adjustment.

However, there is some amortization that we are -- a slight increase of amortization that you can see going through the SG&A line. And that's shown in the schedules on page 8 and page 9. So that's a slight reduction from an earnings level at the reported line, but we net that out for core. At the overall gross margin level, it's broadly awash. Perhaps a slight uptick to gross margin. But those are the financial implications.

Good. Simon, thank you. Kevin, we'll go to you now at Citi and then to Marietta after you at Soc Generale. Kevin Wilson.

Thank you, David. Three quick questions. Emerging markets growth of 20%, is that a good benchmark going forward, or might it accelerate?

Secondly, Crestor in the rest of the world, you kindly talked about the opportunity in the remaining European markets. Are you now launched in all the markets in the world that matter or do you have some left? Just a bit of flavor on whether that could further move ahead.

And thirdly, on Seroquel, Seroquel IR actually in the US, the trends have been a little interesting in terms of new prescription share recently. In particular it seems like you were losing some share to Abilify following that product getting an adjunct to depression indication. How do you read that? And is that an encouraging trend should you get an approval for XR in depression? Or is it something that's just going to chew away at the Seroquel IR franchise over time? Thank you.

Thank you, Kevin. All right. Well, the emerging markets, your question about rate of growth is good and it's difficult to benchmark it because we do see probably more fluctuation in some of those markets than we have seen in the established markets. I think our experience has been this high teens, double digit growth is something that we -- has been pretty consistent. But I must admit, some of these markets do slow down for a period of time a bit unexpectedly. So I'd have trouble putting a number on it in that respect. But it's certainly outpacing the developed market by a few factors.

On the Crestor rest of the world markets, our Crestor business in rest of world has been very successful, especially the launches in Japan and Australia where we have had significant market share accomplishments and penetration into the overall market, not just the branded segments of the market.

I believe we're also approved in China, although I'm not sure the reimbursement is all worked out there yet. That will probably be next year, John said. So -- but I wonder from a regulatory perspective, are there any other major markets that you're thinking of, John, that were pending?

The major -- the mutual recognition in Europe will include Spain and Norway, for instance, where we currently don't sell. And the potential uptick in China next year, because they do a five year cycle on their reimbursement committee, and 2009 is the year that the reimbursement committee is due to meet. And therefore a number of our products could potentially get their reimbursement next year.

Yes. Okay. Good. And then the other question was about the position of Seroquel and especially in depression and IR formulation. We have developed our extended release formulation as the product to compete in that area. And while we are on the market, currently, as we have said, this would be a step wise acceleration of the extended release product and starting with schizophrenia which we're now promoting for, but it is limited. But we will move into bipolar disorder next and have filed the data for the approvals for both major depressive disorder and generalized anxiety disorder. So we see that over the course of the next year or so we'll significant expand the label and expect to be much more competitive.

John, I don't know if maybe you want to comment for a moment on the outcomes of the depression trials with Seroquel and the extended release formulation as well as the anxiety because it certainly was a bit -- it was good.

It was more than good. It was outstanding, David. Normally when you do these studies a fair percentage of them fail, even when you have positive controls in there to try and get rid of the placebo effect. We actually managed to get every single one of our anxiety studies came to a positive result, and all bar one of the depression studies came out positive. And we looked at the drug at the severe end of depression, both as monotherapy and as adjunct to standard therapy. So again, compared with the Abilify program in depression, we have the monotherapy which they don't have.

Good. Good, Kevin. Thank you. Let's go to Marietta Miemietz at Societe Generale. Marietta?

Yes. Good afternoon. A couple of quick financial questions please. The first on the phasing of MedImmune costs over the course of the year, because looking at MedImmune P&L, they would actually charge the vast majority of their cost base into Q1 and Q4, in line with when they actually report most of their sales. Based on some comments you were making on SG&A, I was just wondering whether, in your accounting, you have changed that and the MedImmune cost is a lot more evenly spread over the course of the year.

And the second question is relating to the Merck arrangement. I think you had at one point said that as you move aware from the joint venture you are free to seek tax efficiencies. And I was just wondering if that is something that you can now envisage post the partial retirement and how rapidly that could potentially be coming through.

And finally, I was wondering if you could just give us a very, very rough flavor of the Crestor lawsuit timelines in the US. Do you think there could be a summary judgment? Do you think that the full trial could have proceeded before the Waxman Hatch stay expires? Thank you very much.

Okay. Well certainly go to Simon for the first two on the Medi cost phasing versus -- quarter one and quarter four versus spread as well as the Merck tax efficiency one. I'm not quite familiar with it. So go ahead.

Sure. On the MedImmune phasing, the SG&A costs, there's really no seasonal phasing of note within the Medi cost base. There is though a growing trend within the R&D, simply that we've been continuing to step up our investment and our biologics investment, in biologics R&D, and that tends to mean that we'll see some progression in the R&D cost in Medi over the course of the year.

The question on the Merck arrangements, the partial retirement gave us great strategic freedom. That's principally in the development of our therapeutic areas, the compounds and science within it. There's no particular tax issues that that enables that I would draw out.

Okay. Great. Thank you Marietta. Thank you for your question. I'm going to take a -- there's an email question and then we'll take our last -- I'm sorry, the Crestor question. I forgot. I have it written here.

Our position on the Crestor intellectual property is not dissimilar from what our others are, which is the -- we believe we've got strong intellectual property. We have filed suits against it and started the 30-month period where we will fight it out. And the discovery schedule is to start in -- scheduled for February 2010. So that's the beginning of the parts of the process.

Relative to summary judgment and things like that that you asked for, it's really -- there's no way to comment on that. I think our position on this is pretty straightforward. We think we've got solid, valid intellectual property and we will defend it through the entire process.

So we'll take Mattias as the last question. But let me do the email question first. It's just a quick on. Why are we keeping gross margin guidance unchanged? This is from [Marcus Rutgen] at [Electa]. Given our strong performance. Simon, do you want to comment on that since we didn't change our guidance in that area?

Sure. We're ahead on gross margin for the half year, as you'll have seen, and we're pleased with that. But it reflects principally volume and mix effects, but also some earlier phasing and of the operational cost improvement program that we have underway. Given this is primarily phasing and mix fluctuations, we've retained our gross margins guidance for the year. But obviously our EPS range does reflect some range of outcomes for the business for the year, upside and downside.

Good. Simon, thank you. And then we'll take our last question for the day from Mattias Haggblom at Danske. Mattias?

Thank you David, and good afternoon. Firstly on Symbicort, I had a question on whether AstraZeneca has filed the requested additional safety information that the FDA has requested.

And secondly, does AstraZeneca have an idea on when the advisory committee discussing safety on long acting beta agonists will take place later this year?

And lastly, has this safety probe somehow affected your US launch of Symbicort?

And then also David, several pharmacies have talked recently about the need for differentiation and specifically emphasizing interest for consumer business and access to generics in their offerings. And as the world is changing, does AstraZeneca management team see a need for change of strategy as well, or is this existing strategy the one to pursue for the coming years? Thank you.

Okay. Good. I'll let John go to Symbicort in a minute. But let me take the last question first. Right now we have been very clear that we're not pursuing a global generic strategy. We will look at opportunities for branded products in markets locally and we'll execute against those. But they tend to be local strategies and not something that operate at a global level. And they really are based on the conditions in local markets. The situation in India, for example, is very different than what we see in China or in Mexico to have some branded generics in our lines.

So that's really opportunistic. We're still very focused on the human health research based pharmaceutical business that we have at hand and the one that we are pushing very hard to become much more productive and bring more meaningful differentiated products to the market. So we don't have any plans to move beyond that in the diagnostics area. We really look at diagnostics when they are closely aligned with something appropriate for one of our products that are either in development or coming to the market. Again, something that would be related to our business as opposed to a change in the business strategy.

So, John, last question on Symbicort to you around safety and where we are.

Right. Okay. This has been a pretty hot topic, not just with the FDA. Multiple health authorities actually have requested LABA safety data over the past year, including MHRA, FDA and Health Canada. In fact, MHRA has made a statement on the safety in National which is consistent with our position.

So the bottom line is we actually have submitted our data to the FDA. And we expect or anticipate, but it's entirely in their gift, an advisory committee discussion some time in the third or fourth quarter this year.

Good. All right, Mattias, thank you for the question. John, thank you for your participation here today. And it is 2.30 so I want to respect everyone's time. Thank you all for your participation in our conference call today. And if you have any other questions, please feel free to contact our IR group. That concludes our call. Thank you.