AstraZeneca PLC (AZN) 2008 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the AstraZeneca third quarter and nine months conference call.

My name is Jan and I'm your event manager today.

During the presentation your line will remain on listen only.

(OPERATOR INSTRUCTIONS).

Now I'd like to hand over to Jonathan Hunt.

Thank you.

Welcome, ladies and gentlemen, to AstraZeneca's third quarter results conference call.

Chairing today's call is Simon Lowth, CFO of AstraZeneca.

Also on the call are members of the finance and Investor Relations team.

Before I hand over 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 Securities Litigation Reform Act of 1995.

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

By their very nature, forward-looking statements involve risk and uncertainty, and results may differ materially from those expressed or implied by these forward-looking statements.

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

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

Thank you, Jonathan, and good afternoon to everyone.

Against the backdrop of these trying times in the financial markets and, indeed, the broader economy, I am pleased to be able to present another good set of quarterly results for AstraZeneca.

We continue to perform well against the targets we committed ourselves to at the beginning of the year.

Today I'm going to cover five topics on our call.

First, I will summarize the headline numbers for the third quarter and for the nine months.

I will then describe third quarter sales performance by region and by our key brands.

Next I'll turn to operating profit and highlight the key drivers of our continued growth in core operating profit.

I will then review our cash performance and our debt and capital structure where the short answer is that we are well-positioned to weather the turmoil in the financial markets and the wider coming.

Finally, I'll explain the upward revisions to our targets for the year.

You'll have seen from today's press release that we achieved sales in the third quarter of nearly $7.8 billion.

That's a 3% increase in constant currency terms.

The quarter ended and the nine months year-to-date sales outturn is right on track with our guidance of a low to mid single-digit increase for the full year.

You will also have seen that the beneficial impact of currency movements added a further 6 percentage points to sales growth, to 9%, on an as-reported basis.

Core operating profit for the quarter was up 15% in constant currency to nearly $2.8 billion, chiefly as a result of the increased sales, improvements in our core gross margin as a percent of sales as well as the positive impact of continued efficiencies in our R&D expenditures.

Core earnings per share in the quarter were $1.32 compared with $1.04 last year.

This 20% increase in constant currency, the core EPS, was ahead of core operating profit growth as a result of lower net interest expense in the quarter and the lower number of shares outstanding.

For nine months, sales were up 3% in constant currency.

Core operating profit was up 10%, and core EPS was up 8%.

I will now turn to our third quarter sales performance.

Of the avoidance of doubt, when I refer to sales growth rates, they will be on a constant currency basis.

We achieved sales growth of 3% in the third quarter.

Sales in the US were unchanged, but the $141 million decline in the sales of Toprol-XL was offset by 5% growth in the rest of the US business.

Sales in the rest of the world were up 6%.

In our established markets sales in Western Europe were unchanged with the volume growth offset by price declines.

Strong performance for Crestor fueled the 5% sales growth in Japan and the 18% increase in Australia in the third quarter.

We continue to drive strong growth in our emerging markets business, where sales were up 18%, including a 35% increase in China.

We have recorded our second consecutive quarter of sales in excess of $1 billion in our emerging markets.

As I've said in the past, despite our investment program in these markets, we are achieving profit growth ahead of sales growth in our emerging market segment.

Turning now to our key brands, globally Nexium sales were down 2% in the quarter to $1.3 billion.

The sequential improvement over the 4% decline last quarter was due principally to a smaller decline in US sales.

Nexium sales in the US were down 8%, where, as we guided, the negative price variance against the prior-year quarters has progressively narrowed such that realized prices in the third quarter were down around 10%.

We do expect further narrowing of this variance in quarter four as well.

Good execution of our commercial strategy has resulted in a resilient performance in the US PTI market in the face of strong growth omeprazole and pantoprazole.

Nexium dispensed retail tablet volume is up more than 2% year-to-date.

The other major brands have seen double-digit declines in their retail volumes.

Nexium sales in the rest of the world grew at double-digit rates on a 22% increase in emerging markets and a 7% increase in our established markets.

Nevertheless, we continue to expect a mid single-digit sales decline in Nexium worldwide for the full year.

For Crestor, global sales were up 28% to $922 million.

Sales in the US were up 23% to $420 million, fueled by the atherosclerosis indication.

Crestor prescriptions in the US increased by more than 12% compared to the third quarter last year, at nearly three times the market rate.

Crestor is the only branded statin that has increased share during 2008.

Overall, TRx share for Crestor in the US is 9.3%, but amongst cardiologists, our share is over 13%.

Crestor is a global success story with more than half its sales outside the US.

Sales in our rest-of-world markets were up 33% to $502 million.

We saw good growth in Western Europe, and in the emerging markets, Canada, Australia and in Japan.

Next up for Crestor is the presentation of the JUPITER trial results in just about a week's time at the American Heart Association meeting in New Orleans.

Global Seroquel sales were up 4% in the third quarter at just over $1.1 billion.

As I flagged in our second quarter results, third quarter 2007 included approximately $80 million in initial stocking sales for Seroquel XR, and that effects the year-over-year growth rates in the US, where sales are down 1%.

If we adjust for this, then US sales would be up around 10%.

Total prescriptions were up 7% in the quarter with 43% of this growth attributable to the XR formulation.

In other markets, Seroquel sales were up 18% to $381 million, with sales in Western Europe up 20%.

The lifecycle management program in support of Seroquel XR is now starting to deliver approvals.

Earlier this month we received US approval for bipolar mania and bipolar depression.

Major depression has been filed and is under regulatory review in both the US and in Europe, as is generalized anxiety disorder, which was submitted in the US back in May and then just last week in Europe.

It was another good quarter for Symbicort as sales were up 25% to $501 million.

Sales in the rest of the world were 9% ahead of the third quarter last year, reaching $437 million, despite what most would acknowledge as being a mild season.

Sales in Western Europe were up 6%, and in emerging markets sales increased by 19%.

In the US sales in the third quarter were $64 million.

In the US we continued to make steady inroads into the dynamic portion of the market, particularly in new patient starts.

Of our target core universe, trial rates are now over 85% for respiratory specialists, and Symbicort's share of patients new to combination therapy is nearly 29%.

Trial rates for target primary-care physicians has increased to 48% with one in six new starts going to Symbicort.

That gives a blended share of new starts to the overall fixed combination market of 18.4%, which is a good leading indicator as to where new prescription share can go, and that's now at 10.6% in the latest weekly data.

I'll now turn to the third-quarter P&L and the drivers of the growth in core operating profit.

I'll focus here on core margins and profit.

The press release does, of course, contain the statutory numbers and a detailed reconciliation to our core measures.

As with sales, when I refer to growth rates, they will all be on a constant-currency basis.

Core operating profit rose by 15% to nearly $2.8 billion in the quarter, or by $349 million in constant currency.

Sales increase and an improvement in gross margins as a percentage of sales is largely responsible for the core operating profit growth, which was also aided by lower R&D expenditures in the quarter.

There were small offsets from slightly higher SG&A and distribution costs and lower other income.

Core gross margin at 81.3% of sales was a 170 basis point improvement over 2007 in constant currency terms.

Principal contributors were lower Merck payments as a percent of sales, efficiency gains and favorable product mix, partially offset by higher royalty payments.

Core gross margin for the full year at constant currency is now likely to be ahead of 2007, although probably not at the level achieved for nine months this year.

Core R&D expenditures were 7% lower in the quarter.

We continue to make great strides in our R&D productivity and efficiency initiatives while keeping largely to plan on project delivery.

I know I guided to a low to mid single-digit increase for the full year, but at this run rate R&D expense is expected to be flat for the year.

Core SG&A expense was just 1% higher than last year but the benefits of productivity initiatives and spending discipline, particularly in the established markets, has largely offset our increased investment in emerging markets.

Core other income for the third quarter was $162 million, $35 million lower than 2007, chiefly on lower one-off gains in the quarter.

The improvements in gross margin and the leverage from R&D and SG&A being lower as a percent of sales have increased our operating margin by 360 basis points at constant currency to 35.7% of sales.

As a result, the 3% increase in sales has resulted in a 15% increase in core operating profit.

Quick updates on our productivity and synergy initiatives.

There were $117 million in restructuring and synergy charges taken in the quarter, bringing the nine months figure to $365 million.

Our guidance was for two-thirds of the remaining program costs be charged this year; and, consistent with this guidance, I think we will be at or slightly north of $650 million for the full year.

And we're on track to deliver two-thirds of the total target of $1.4 billion in annual benefits by the end of this year, the full amount to be delivered by 2010.

Let me now turn to cash flow.

Cash generated from operating activities has increased by nearly $1.5 billion in the first nine months of 2008 compared with last year, chiefly on the increase in operating profit, [short] appreciation, amortization and impairment costs.

Net debt at $9.7 billion is down from $10.4 billion at the half-year.

Of our outstanding gross debt of $13.4 billion at the end of the quarter, around $2.5 billion is due within one year.

When due, we currently anticipate repaying the $2.5 billion of short-term debt from current cash balances of some $3.5 billion, and from business cash flows without the need to refinance.

This is consistent with the plan we laid out for the rating agencies, which is to reduce our level of net debt outstanding to our targeted level of $6 billion to $7 billion over the next two to three years.

We take a conservative approach to managing our $3.5 billion of cash, and we have not experienced any credit-related losses on our cash balances.

We invest in AAA-rated liquidity funds and US Treasury funds.

Given the current environment, we have moved the majority of centrally held cash into US Treasury's.

We may also use bank deposits, but only for a very short maturity, and with select banks only.

We've got approximately $4 billion in one and five-year committed facilities as a backstop to our commercial paper program, all of which remain undrawn.

As for share repurchases, you'll have seen that for the nine months we completed net share repurchases of $485 million.

We've taken the decision that no further share repurchases will take place in 2008 in order to maintain the flexibility to invest in business.

The Board will review 2009 share repurchases in the light of anticipated market conditions and business investment opportunities and we'll provide that update at our full-year results announcement in January.

I will conclude my remarks with an update on our full-year guidance.

You will have seen from the press release that we've increased our guidance for the full year to earnings per share in the range of $4.90 to $5.05.

There are two drivers to this upgrade.

First, stronger operating and financial performance, the principal factors being the improved gross margin and the lower R&D spend that I mentioned earlier.

And secondly, the revised range includes the $0.06 of currency benefit that was realized in the third quarter 2008 compared to our guidance basis, which was based on Q4 '07 average rates.

With the exceptional volatility in the currency markets at the moment, I won't predict the currency impact in Q4, though the fourth-quarter outlook implied in our full year guidance is still pegged to Q4 '07 rates.

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

(OPERATOR INSTRUCTIONS) Gbola Amusa, UBS.

Thanks, I have three questions on Crestor and JUPITER.

First, I am a bit intrigued by the potential for the JUPITER data to be considered for the NCPA [TP4] guidelines, which were due in early '09.

Could you confirm first whether or not the data are being considered, perhaps in an embargoed form, or will be considered after the data are presented?

Second, if guidelines are updated and have a Class IIa recommendation for statins and/or Crestor, hypothetically, what impact does that have on '09 sales, given that a new JUPITER label may come in 2010?

And then, lastly, in a post-JUPITER world, what is your review from a resource allocation perspective on the real competitor for Crestor?

Is it Lipitor or Vytorin?

Thanks.

Thanks very much.

As I mentioned, the results from the JUPITER trial will be announced at the AHA in just over a week's time now, and I might sort of just speculate on the development of both the regulatory and the marketing program for Crestor beyond that.

I think, turning to sales in '09, and we are obviously building from a very strong base for Crestor in the course of 2008.

The first nine months, we have grown the brand at 24% across the globe.

That's 37% in our emerging markets, 62% in our established rest of the world, 14% US, 17% in Western Europe.

And that just reflects the strike of Crestor as the most potent statin and, in addition, the market's reaction to the athero indication.

That's the core that has been driving Crestor.

We'll have to wait for the JUPITER results to understand how we can then take the brand forward into 2009.

Are you able to comment at all on whether or not the guidelines, the data will be considered, if there is a hold waiting for the data?

No, I'm not in a position to comment on that at this point.

Gbola, it's Jonathan.

I think you're right.

Our expectation, or at least our understanding, is that the guidelines committee are planning to meet in 2009.

I just think it's in the second half of the year, is the expectation.

I know if you go to their web site, they have some notification there on when they next intend to look at it.

Beyond that, we can't really comment.

We look forward to the data in a week or so, and we'll take it from there.

Paul Mann, Morgan Stanley.

First of all, on Zactima, is it still your intention for us to see or for data to be filed in 2009?

What is the chance we will see data during 2008?

Secondly, just looking at the cost savings and your targeted cost savings versus what you have achieved so far, obviously you are doing extremely well.

Is there a chance you could exceed your target?

What is the longer-term outlook for cost savings in the current program?

And then, finally, in your budgeting for 2009, is there any initial budgeting force for R&D and SG&A growth in 2009, or do we have to wait until the full year results for that?

For Zactima, we remain on track to file in '09, as we said earlier.

We haven't confirmed plans for -- to when we will be presenting data from that.

We will be able to update you as our plans harden.

In terms of the cost savings program -- yes, the program, the restructuring program, is very firmly on track.

In addition, we are delivering efficiencies across the business, and that remains an absolutely central plank of our strategy.

And we'll update you at the full-year results in January on how our efforts translate into our thoughts for the future shape going forward.

Kevin Wilson, Citi.

Two questions, one on SG&A and one on cash, working capital or cash.

On SG&A, could you give us a sense of how much of SG&A is G&A, and how much is S, and how much you think you can reduce that by eliminating the duplication of functions around the world?

As I understand, you have an HR, for example, and many others.

Could you give us some sense of the opportunity to be leaner in SG&A?

And also, as part of that, when do you think you will have revised selling models out in the market?

And secondly, on cash generation, we have talked with you in the past about the opportunity to reduce inventories in the business and you seem to be making good progress.

If I calculate it correctly, from this set of figures, you've certainly brought those inventories outstanding down.

How far down do you think you can get it?

Can get it below 100 days?

Thanks very much.

Kevin, let me deal with the working capital point first.

We believe that we've got amongst the fastest cash conversion cycles amongst -- within the sector.

And that's both a combination of performance on inventory, but also on receivables.

We do think there's more to -- further improvement that we can make, and that is an important part of the various productivity improvement programs we have around the Company, to convert every dollar of profit into cash in the bank, [just putting it in] as fast as possible.

I think there's further scope to go on inventory, and I think over the course of '09 we should be seeing that coming down over time, gradually.

If I turn back to SG&A, the SG&A cost splits roughly a third G&A, two-thirds of sales and marketing.

And on G&A, we do indeed -- we have developed as a business with our G&A functions developed and decentralized around the Group, and there are undoubtedly opportunities to undertake particularly the more scaled intensive activities, whether it be in financial transaction processing, payroll types of activities, that can be brought into shared services in a smaller number of locations.

There are clearly further efficiencies to drive for.

And they will be a significant part of our program to drive efficiency going forward.

So there's plenty more opportunity for us to improve efficiency across the business.

In terms of sales and marketing, we are adapting our sales and marketing organizations and commercial models on a continuing basis and responding to different to forces, pressures, payor/patient needs in markets.

We have, to give a couple of examples, we have clearly taken significant action in our western European sales and marketing organization to respond to reference pricing we've found in a number of markets.

We've looked very hard at our frequency and coverage model and focused our resources on the most valuable segments, and that paid off well for us.

We've also been interesting hard in technology in the US market and, more generally, CRM technologies, detailing technologies, linking our detailing effectiveness to prescribing.

And we think there's further opportunities to adapt our commercial model, looking at the full range of activities currently undertaken by our sales reps and exploring ways of delivering some of those activities in more efficient ways.

So this is an area which is a huge focus for us.

We like to think we have been reasonably innovative in our sales and marketing approaches.

We intend to remain so.

Graham Parry, Merrill Lynch.

Another question on costs.

You're obviously doing a fantastic job there.

But what I was wondering is, as you find more ways to cut costs, is there actually a possibility of a more formal increase in your cost saving targets?

And second, to what extent do you think, by taking out costs at this stage, you are actually reducing cost flexibility for [when you lose patents on]?

For example, Seroquel or Arimidex later in this decade or early in next decade?

Are you actually creating a larger earnings cliff, or do you think there's going to be wholesale changes in the cost structure at that time frame that you can look at as well?

Secondly, on the buyback, just paring it back, it has been pretty slow so far this year.

I'm just wondering what your thoughts are for 2009 and if you're conserving cash for strategic opportunities.

Are you actually seeing absolute opportunities in front of you?

What sort of size of deals are we talking about, and what kinds of levels of interest cover are you still comfortable with?

Well, starting with two questions around the cost program, we drive cost efficiencies through a combination of restructuring programs, but also just continuing efficiencies and continuous improvements in all parts of the business.

If, as you can imagine, at any time, we are looking at parts of the business, examining whether there is further restructuring that would be that -- create value and strengthen the business.

If we confirm those [in terms of] plans, we will be coming back and making formal announcements about that.

But I'd anticipate, in the environment we face, that over the course of the next year or two there are going to be further restructuring through the business in certain parts.

So that's on one aspect of it.

Secondly, in terms of reducing cost flexibility, absolutely not.

I have two points to say here.

Firstly, that we will drive to improve efficiency and reduce our cost.

And we'll drive to do that in as rapidly and as fully as we can to build a better business.

We won't be colored by, is there a better timing, particularly a delay of doing that; that simply wouldn't enter into our thinking.

We want to improve the efficiency as rapidly as we can.

The second aspect of flexibility, is we are seeking to build flexibility by variablizing as much of the cost base as we can so that we are in a good position to withstand different changes in the top line going forward, whether that be patent expiries or, indeed, pipeline successes and products coming through.

We need to be able to ramp up or ramp down, and that's a very important part of our approach to costs.

So, in terms of share buyback for 2009, I think we said in the press release that we'll update you with the full-year results announcement in 2008 and we will be reviewing the program for 2009 in light of market conditions and business investment opportunities.

I think the fourth question was about the nature of opportunities.

Externalization is a central plank of our strategy.

We are always looking for value-creating product in-licensing and product acquisition opportunities, as indeed we will look at value-creating spin-outs and partnerships.

And you've seen us do both of those over the past year or so.

That's a core part of our strategy.

We have -- at any time we will be in a whole range of discussions, project valuations and negotiations.

Our focus is on science and products to complement our R&D, in-house R&D and our market positions in our core therapeutic areas -- oncology, respiratory, [DB], GI, C&S.

That remains our focus.

We don't have any specific opportunities that I would draw attention to at this point, merely say that our focus remains around our TAs.

And I think, in the current environment, we certainly have not seen any diminution of the opportunity flow coming to the business.

Rather, we would anticipate there could be more opportunities going into '09, and we want to preserve the flexibility we have to take advantage of those.

Michael Leacock, Royal Bank of Scotland.

Thanks very much for taking my questions, I just had a couple, if I may.

Firstly, is there any sort of inventory effect in terms of Crestor in Europe, particularly with your approval in Germany recently?

Secondly, Simon, I wonder if you might just address a little bit more the Nexium pricing.

You have been very clear about the guidance for a narrowing of that price variance for this year.

Would you be able to make some comments about how you expect that to look going forward, particularly as we go into perhaps a rather new environment in the US in 2009?

I think the first is, there is no particular trends or issues I would cite in terms of Crestor's stocking.

It has very much been a business as usual quarter in that regard.

In terms of Nexium pricing, we described for the course of 2008 that the net price, the quarter-on-quarter net price reduction would narrow over the four courses of the year, and as you have seen, we have pretty much done that each quarter.

And we've said that in the fourth quarter, we expect that gap to further narrow.

So that remains our view for '08.

That, of course, reflects, Michael, the strategy that we put in place in mid-2007 to really sharpen Nexium's value proposition relative to the other branded PTIs that led to some changes in our pulmonary position and our pricing with some of our major accounts in the US.

And it was that that led to the lower prices in the fourth quarter of '07 that then flowed through in '08.

So then, looking into '09, I'm not going to provide guidance on Nexium for '09 today.

That will be a flow sort of, really, from our sales and marketing efforts and our discussions around Nexium's formative position.

As we go into '09, we feel well-positioned.

We'll be able to update you more fully in what is now three months' time.

Marietta Miemietz, Societe Generale.

A couple of product questions, please, the first one on AZD0837, the stability issue.

I was just wondering if you can shed a little bit more light on that.

Should we really think of that as a very minor technical issue that will get resolved over time, or is that actually something that could potentially send you back to the drawing board, and you have to redo Phase II trials?

Second product question, just on Crestor in Germany.

Have you actually been able to escape the jumbo reference groups?

And, do you think that you will be able to continue to do that?

And then just a couple of small financial questions, please.

One is just the quarterly core EPS impact off Pulmicort Respules.

And then the second, just wanted to clarify on your full-year '08 guidance, it obviously implies a Q4 '08 that is much weaker than Q3.

I was just wondering if there is any specific cost-saving effects that we should watch out for, or if that's just generally an element of conservatism.

So 0837, as you know, as you enter into Phase III, the medicine that's used in Phase III becomes that which is -- from which the registration is based.

It's important that the batch that's used or the batches that are used in Phase III meet all of our marketed medicine criteria.

We undertake a variety of tests on those Phase III batches, including various stability tests.

The batch for 0837 did not meet all of our stability criteria.

We are therefore undertaking the normal investigations to identify the recourse of that and we'll be in a position to bring more information on it when those investigations are complete.

The Crestor -- we are very pleased to have gained approval for Crestor in Germany and a number of other European markets in the last quarter.

And that rounds out our program for Crestor.

We now have approvals in really all of the European markets of note.

And the next step, clearly, is to work through access and pricing within those markets, including Germany.

Too early to be able to tell you how that will unfold.

Clearly, a strong product, and we look forward to seeing how we can best bring that into the German market.

Finally, on two financial questions, Pulmicort Respules's EPS contribution -- I think all I would say is that it's around about a $1 billion product annually in the US, and we provide the sales for the nine months in our press release.

And therefore, you can see what the sales for the remaining quarter is.

And in terms of gross margin, your cost to support it, I think you can imply that from the nature of the product and translate that through into an EPS.

So I'll leave you with that.

But the overall sales in the US are about $1 billion.

And in terms of the guidance, our guidance reflect two things.

Firstly, you need to bear in mind that the fourth quarter is based on Q4 '07 rate, so make certain you've factored that into your thinking.

But it reflects continued strong performance of the business, and I think I've been very clear on the individual line items of the P&L in terms of our expectation for the remainder of the year.

Just one other thing on Pulmicort Respules.

I'd go back in check in the press release.

It's worth looking at the litigation section there because you've got both the time scales for the Pulmicort Respules, trial, which is in the 12th of January, 2009.

So we have a time line for that.

And also, yesterday, we filed with the court the request for a preliminary injunction to disbar Teva from bringing a product to market ahead of the trial in January.

Tim Franklin, Dresdner Kleinwort.

You mentioned that profit growth was ahead of sales growth in emerging markets.

I just wondered if you could maybe give a little bit more color on that at all.

And maybe tell us what are your most prominent products, particularly in the core emerging markets that you cover.

And then on JUPITER, do you think the success of Crestor in this area will prompt trials in other groups of patients with high CRP levels, such as rheumatoid arthritis patients?

For example, who are at high risk of cardiovascular events?

We start with the emerging markets.

The profit growth is indeed ahead of the sales growth in those markets, and this really reflects the fact that we've had a long-term strategy for investing in and developing our emerging markets.

We've built a marketing company structure, and along with that some fixed costs in those markets.

And as we build our sales in the markets, we get operating leverage off that fixed cost base.

So that's what's driving the profit growth.

We've got -- in our core emerging markets, in effect, we've got critical scale in terms of the fixed infrastructure for a market.

We're now leveraging that with continued sales growth.

In terms of the product portfolio in our emerging markets, it's a different pattern around the different markets.

But, Ed, why don't you pick up and give a little bit more color around that?

Sure.

If you look at our top five brands globally, obviously these are Nexium, Crestor, Seroquel, Arimidex and Symbicort, with the exception of the Arimidex, those are all in the top six in our emerging markets as well.

So a very much similar pattern; but the difference would be, other than Arimidex is, you've got Zoladex and Toprol and Seloken in those markets, and they have a larger contribution [than we do] (multiple speakers) globally.

Other than that, you would see roughly that the portfolio that drives our global market is, in fact, the same ones that are driving the emerging markets.

(multiple speakers) again that our sales concentration in our emerging market (technical difficulty).

If you looked at the ratio of the top five products in our mature your markets, that ratio is probably 10 percentage points, at least, lower in our emerging markets.

And finally, on JUPITER, publishing the results in -- at the AHA, I'm sure that that will engender considerable debate within the medical and academic community, and may well be the other sort of studies, or indeed, look back at prior studies that will -- so we'll have to see how that whole debate unfolds post the 9th of November.

Tim Anderson, Sanford Bernstein.

Hoping you can talk about formulary positioning of a couple drugs going into 2009.

For Crestor, what's the outlook for unrestricted Tier 2 access in '09 relative to 2008?

Should we expect some degree of contraction?

And for Seroquel, same question.

Now that generic Risperdal is available, do you expect there to be any formulary slippage at all in Tier 2, in terms of unrestricted access?

And on Pulmicort Respules in the US and the threat of generics, ignoring the legal dispute, in your opinion are there any pure regulatory impediments to improving generics?

Sometimes the steroid products, FDA has had concerns about bioequivalence, but I'm not sure that applies in this situation.

Let me deal with the first -- the final question on Pulmicort.

We filed a citizen's petition where we sought clarification from the FDA on how bioequivalence would be demonstrated, and we believe that that's an area that still has not been satisfactorily resolved.

And it's something that, indeed, forms a part of the litigation process with Pulmicort.

Ed, did you want to touch on formulary position in the US brands?

Sure.

Basically, our prospects from what we've seen from -- obviously what we've already done in terms of contracting for 2009 [addresses] the fact that we'll be in a better position overall on Tier 2 access for Crestor in '09 compared to where we were in '08.

And for Seroquel, despite -- I mean, it's early days yet for genetic Risperdal to be in the market, but we have yet to see any significant changes in formulary positions in that class.

I think the conventional wisdom still holds there, which is that that class, in particular, just needs to be more differentiated in terms of the physicians, patients and, indeed, mental health advocates wanting to see broader ranges of choices because of the unique nature of that disease.

And so we have not, as yet, seen any significant change in formulary position on Seroquel.

Marcel Brand, Chevreux.

Simple question on restructuring expense.

If I remember correctly, I think your guidance was about $670 million or so in the beginning of year of restructuring costs.

Could you tell us how the phasing of that is going to happen, and particularly, of course, in view of the next quarter and next year?

And a question on Seroquel.

The FDA is adding additional safety information for children, even though the product is not approved for the use in children.

So the FDA must do that for a cause.

Is it that there is significant off-label use also in children?

And if so, could you maybe let us know what the percentage of off-label use in children is, and maybe, at the same time, also give us an update on off-label use in elderly patients?

Let me deal with closing of the restructuring.

Again, do you want to talk a little bit more about the Seroquel questions?

In terms of the phasing of the restructuring, we have now taken charges for the first three quarters of $117 million in the first, $131 million in the second, $117 million this quarter.

In my introductory remarks earlier, I confirmed that we were still on track for around about the $650 million [closing] for the full year.

So, as you can imply from that, in the fourth quarter it will be a rather larger quarterly charge taken in the first three quarters of the year.

So it has been very much back-end loaded for the course of this year.

Ed, do you want to talk about the Seroquel?

And restructuring in 2009?

Could you give an indication there as well?

What we said in terms of our guidance was that two-thirds of the remaining program costs would be charged in 2008.

And when you -- if we consider we've had a total restructuring program that amounted to about $2 billion, we took charges of just a shade under $1 billion in 2007; the $650 million, broadly, for 2008, and so you can work out, therefore, the remaining restructuring charge to come from the programs announced to date, and most of that will come through in 2009.

In terms of Seroquel, firstly, in terms of off-label use, we are certainly aware that physicians are able to use a drug as they see fit for a patient population.

But, since it is absolutely not a commercial focus of ours, it's not data that we have at hand here.

In terms of the specific issues, in terms of Seroquel in children, we have just submitted that SNDA for the US.

And because we are submitting new data to seek a claim, it's in our purview to also suggest that the label gets changed with that data that's being submitted that's part of the package.

So it's not a question of having to wait for an approval.

We just think it's a prudent thing to do to change the label based upon the information we have at hand.

And, since you are talking about a different patient population in the adults, there are just some particular things to keep in mind in that younger (inaudible) population.

Broadly the same side effect profile that you see in the older adult population -- in the adult schizophrenia bipolar patients, but just with a particular emphasis to monitor those in the young population because they are still in their growth phase.

So, things like prolactin changes or thyroid changes are something you want to be more sensitive to in that patient population.

So there's no radical change in the color or the nature, just prudent advisory that when trial data is in your hands for a new patient segment, you want to update the label with the best available information.

But would you give us an idea about current off-label use in those two groups?

I believe I already said that we wouldn't have that information readily at hand because it's not a commercial platform for us.

Off-label means we don't promote it, so therefore we don't have that data.

Stephen Scala, SG Cowen.

I have two follow-up questions on JUPITER.

First, can you clarify if there will be a simultaneous publication in a major medical journal, along with the presentation of the data on November 9?

And secondly, can you remind us of the predefined interim stopping criteria for JUPITER that governed the DSMB action way back in March?

Typically, trials are not stopped unless they have achieved a much higher hurdle than the primary end point.

Is there any reason why we should not assume that that was the case in this situation?

Thank you.

Sorry to sort of disappoint you, but I think the answer to both of those is the same, is we can't really comment.

It's certainly the stopping criterion on in the public domain, simultaneous publication really would be a matter for the editors and the publishers of the journals to comment on, and not one for us.

But we will see all of the answers to that in about a week and a half's time.

Mattias Haggblom, Danske Bank.

Firstly, if I look at the average of your guidance range pre and post your Q3 results, you have basically upped your guidance by 22.5% -- sorry -- $0.225, of which $0.06 comes from currencies and the rest from operation outperformance.

How should we think about those $0.165 from operation outperformance?

How much came from a positive surprise in Q3, and how much have you penciled in for Q4 compared to your previous assumptions for Q4?

Some color on that, please.

And then secondly, just briefly on Crestor and patent litigation in the US; I understand now that the case is in discovery phase.

But, what would be a fair assumption of a court date at this stage?

Let's deal with the guidance.

Firstly, there are two components of the guidance.

The first is that we've increased the top end of the range.

We've done so on the back of -- and we've done so by $0.15.

We've done so on the back of stronger operating and financial performance, of which I've said earlier the main drivers of that relative to our position as we went into the third quarter has been improved gross margin, which we think to be up relative to '07 for the year, whereas you will remember our original guidance was [supposed] to be flat.

So we think gross margin will be up for the year, probably not to the level that we have sustained for the first three quarters, but up for the year.

And the second is that our R&D spend we now expect to be -- to probably be flat for the year.

And the guidance as we went into Q3 that we announced at Q2, as you will recall, was for R&D to be up by low- to mid-single digits.

So those are the two main drivers for the operating and financial performance component of the increase in the top end of the range.

The other component is the $0.06 of currency benefit that has been realized in the third quarter.

Those two together lead to an increase in the top end of our range, from $4.90 to $5.05.

Secondly, we have era the guidance range from $0.30 to $0.15.

We have done this, I think, and it's very much in line with what we've done in prior years, reflects the fact with a third quarter to go, while there are further uncertainties in our business both on the upside and on the downside, we have but one quarter to go.

So we've narrowed the range.

In terms of the Crestor situation, the trial is currently scheduled for February of 2010, and the 30-month stay applicable to each of the defendants expires in February 2011.

And I think, if we could just have one last question, operator?

Andrew Baum, Morgan Stanley.

Firstly, given AstraZeneca has been one of the more aggressive in outsourcing and offshoring, could you perhaps comment on how you see the risk of the GMP environment, given the increased sensitivity, particularly in China, of the FDA?

I noted, one of your competitors has recently put a very senior promote in charge of that part of their business.

And then, second, perhaps Simon, you could comment on the logistics of the Abbott co-promote on Crestor.

Has it started, the magnitude of the sales forces?

In terms of outsourcing, this is a core part of our supply chain strategy.

We've said that we aim to outsource all of our API over the next -- well, within the next five to 10 years.

Clearly, within that, ensuring safe, secure, quality product is of the utmost importance and priority for us.

The key to that is having high-quality supplies and having high-quality management processes in place.

And the quality and safety of the supply chain, in our view, is driven by the quality of those processes, rather than geography, per se.

But clearly, as we move down the path of outsourcing, we subject all of the suppliers that work with us to very high standards (technical difficulty) in place, all of the sorts of processes that you would expect.

In terms of the Abbott program, Ed, do you want to touch on exactly where, sort of how that's developing?

Yes, I mean we certainly haven't disclosed the specific details of that in terms of the number of representatives that they will be bringing in.

As you might imagine, that's competitively sensitive in terms of that information.

They will be detailing Crestor during the fourth quarter, I just don't yet have a real-time update as to whether it has happened as of today yet.

But certainly, if it hasn't started yet, it will happen shortly because they are planning to make a contribution to our share of voice in Crestor detailing during the fourth quarter of this year.

And that is a -- Abbott is a good example -- our relationship with Abbott is a good example of the sorts of partnerships that we see as an important part of our strategy moving forward.

You may also -- you obviously know, we have a similar partnership with Cubist on the Merrem product; that's something that's working well for us.

And if you look for those (inaudible) you may have seen that Merrem is continuing to perform well.

So that, again, is another partnership in the US that's working well for us.

Thanks very much for your questions today and for joining our call.

Let me just summarize, as we move up towards the hour.

We posted a robust set of third quarter results.

Our key brands are demonstrating resilience in the face of challenging market conditions.

Our investments in emerging markets continue to pay off in strong sales and contribution growth in those regions.

And with our strong cash performance and our debt and capital structure plans on target, we are well positioned to weather the turmoil in the capital market and, indeed, the wider economy.

And, final point, we have been able to increase our financial targets for the full year.

And with that, I wish you all a good day.

Thank you.

Thank you, thank you, ladies and gentlemen.

Thank you for joining today.

That concludes your conference, and you may now disconnect.