AstraZeneca PLC (AZN) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the AstraZeneca third-quarter results 2009 analysts' -- analyst call.

My name is Sharon, and I'm your conference event manager.

(Operator Instructions).

I would like to advise all parties this conference is being recorded for replay purposes, and now I'd like to hand over to Jonathan Hunt.

Thank you, Jonathan.

Thank you and good afternoon.

Welcome, ladies and gentlemen, to the third-quarter results conference call.

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

Joining Simon for the Q&A session is Anders Ekblom, Executive Vice President, Development, and also on the call are members of the finance and the investor relations team.

Before I head over to Simon, let me remind us all of the usual Safe Harbor statement.

The Company intends to use 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 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 the forward-looking statements.

So with that, let me turn the call over to Simon.

Thank you, Jonathan, and good afternoon to everyone.

Today, I'm pleased to present another strong set of quarterly financial results for AstraZeneca, fueled by sales growth and operational leverage.

We've also made some progress on the pipeline.

Since the half-year results, we've received U.S.

and European approvals for ONGLYZA and we've already launched in some markets.

We've submitted our first regulatory application for Brilinta in Europe.

And we announced two more important collaborations for late-stage development projects with Forest Laboratories and Nektar Therapeutics.

Of course, this progress is somewhat tempered by the withdrawal of the regulatory submissions for Zactima.

On today's call, I'll focus on five topics.

First, the headline numbers for the first quarter and the nine months, then I'll cover the third-quarter revenue performance by region and by our key brands.

Third, I'll turn to the third-quarter core operating performance with an emphasis on the key drivers of operating profit and margin.

I'll briefly touch on cash performance and our steadily improving net debt positions, and finally, I'll explain the increase in our core earnings-per-share target for the full year.

So, turning first to the headline numbers for the third quarter, we achieved revenue of $8.2 billion.

That's a 10% increase in constant-currency terms.

You'll also have seen that the adverse impact of currency movements on the topline reduced the reported revenue growth rate to 5%.

As I noted last quarter, in addition to good underlying operating execution, there are clearly some unanticipated revenue upsides that are contributing to our strong revenue performance in Q3.

Includes the upside from Toprol-XL in the U.S., which accounted for $221 million of constant-currency revenue growth in the quarter, and revenue from U.S.

government orders for our H1N1 influenza vaccine.

That was $152 million in the quarter.

[Muting] these two items, global revenue growth was 5% in the quarter, in constant-currency terms.

Core operating profit for the quarter was up 29% in constant currency to $3.6 billion, chiefly as the result of the increased revenue.

The added contribution from improved gross margin and lower R&D expenditures was partially offset by higher SG&A expense and slightly lower other income.

I'll return to these when I discuss third-quarter operating margin.

You will also note that currency provided a 1% boost to core operating profit, in contrast to the 5% drag on revenue..

There is a mitigating effect on our operating costs that more than offset the negative revenue impact in the quarter.

Core earnings per share in the quarter were $1.68, compared with $1.32 last year.

This is a 27% increase at constant currency.

Now making the bridge from core EPS to reported EPS in the quarter, we have the usual adjusting items.

Restructuring, MedImmune and Merck-related amortization, as well as an intangible impairment.

These were broadly similar in both the current and prior-year periods.

Additional core adjustments this quarter include legal provisions totaling $108 million, or $0.07 per share, which have been taken with respect to various federal and state investigations and civil litigation matters relating to drug marketing and pricing practices.

This brings the total legal provisions to $538 million for the nine months.

As we noted in the press release, we have reached an agreement in principle with the U.S.

Attorney's office in Philadelphia to resolve its investigations related to Seroquel's sales and marketing practices.

This accounts for $520 million of the $538 million provided for in the nine months.

Net of these adjusting factors, reported EPS increased by 22% at constant currency to $1.46.

After the nine months, revenue increased by 8% at constant currency, 5% excluding Toprol-XL and the H1N1 vaccine.

Core operating profit was up 29% and core EPS was up 28%.

I'll now turn to our third-quarter revenue performance.

And for the avoidance of doubt, when I refer to revenue growth rates, it is on a constant-currency basis.

In looking at our 10% worldwide revenue growth in the third quarter on a regional basis, revenue in the U.S.

was up 14%, or 3% if we strip out the Toprol-XL and H1N1 flu.

Revenue in the rest of the world was up 7%.

In our established markets, revenue in Western Europe was up 3%; revenue in Japan was up 9%, chiefly on growth of Crestor and Seroquel; and we continued to drive good growth in our emerging-markets business, where revenue was up 15% in the third quarter.

We expected this rebound from the 8% growth reported in Q2, and we remain on track to double-digit revenue growth in emerging markets for the full year.

Turning now to our key brands, beginning with Nexium.

And again, in all instances, the growth rates will be in constant-currency terms.

Nexium revenue in the third quarter was down 1% to $1.24 billion.

Revenue in the U.S.

was down 12% to $689 million.

Dispensed retail tablet volume decreased by about 1% in the quarter.

Average realized prices were down by around 13% in the quarter, and for the nine months they are down 9%, in line with our expectations for a high single-digit price decline for the full year.

In the fourth quarter, we will, of course, be watching the market closely for the potential impact of the launches of OTC in esomeprazole and the first generic entry against [Prevacid] may have.

In the rest of world markets, Nexium revenue was up 13%, to $554 million.

Revenue in Western Europe was up 11%.

Revenue in emerging markets was up 30%, including a 55% increase in China.

Turning to Seroquel.

Third-quarter revenue was up 12%, to $1.23 billion.

In the U.S., Seroquel revenue was up 14% to $851 million.

Total prescriptions for the Seroquel franchise increased by 2.4% in the quarter, with all of the growth attributable to the Seroquel XR formulation.

The launch of XR has driven our dynamic share in bipolar disorder, which is the focus of all our promotional efforts now, by 440 basis points since the beginning of the year.

As we've completely transitioned our commercial efforts to be 100% behind XR in the bipolar indications, rather than Seroquel IR, we have seen the IR formulation lose some ground while Seroquel XR accelerates and grows faster than the market.

We are pleased that the net effect was that the Seroquel franchise share increased in the third quarter by around 12 basis points.

Our ability to drive Seroquel XR growth faster than the decline in Seroquel IR would, of course, be strengthened by the addition of an approval in major depressive disorder, and we continue to look for FDA action on our response to the CRL around the end of the year.

Seroquel revenue in the rest of the world was $380 million, up 9% despite a 73% decline in Canada due to generic competition.

The bipolar indications in the Seroquel XR formulation are driving this growth.

On September 29, we received approval under the European mutual recognition procedure for the bipolar maintenance indication for both Seroquel and Seroquel XR.

Revenue in Western Europe was up 17% and revenue in emerging markets was up 15%.

Crestor revenue was up 30% in the quarter to over $1.1 billion.

Revenue in the U.S.

was up 25% to $523 million.

Crestor total prescriptions increased by 25%, compared with 6% growth for the U.S.

statin market.

Crestor's share for the total prescriptions in the U.S.

continued to increase, reaching 11% in September.

Crestor revenue in the rest of the world was up 34% to $624 million.

As in the U.S..

we are growing share at a pace that is three to four times the statin market in both established and emerging markets.

There was good growth in Western Europe, Canada, Australia, and Japan.

Looking forward, regulatory filings for a label change to include outcomes data from the Jupiter trial are now under review in the U.S.

and in Europe.

We've been informed that the U.S.

supplemental NDA will be discussed at an advisory committee meeting on 15 December this year.

The last of the key brands I want to cover is Symbicort.

Symbicort revenue in the third quarter was up 22% to $562 million.

Revenue in the U.S.

increased by 95%, to $125 million.

Symbicort accounted for most of the nearly 8% growth in prescriptions of fixed combination products in the quarter, paced by continued penetration of the asthma market as well as the launch of the COPD indication.

Symbicort's share of new prescriptions for fixed combination products increased by 270 basis points in the quarter, reaching 16.6% share in September.

Market share of patients new to fixed combination therapy is now over 26%.

In the rest of the world, Symbicort revenue increased by 11% to $437 million.

Revenue in Western Europe were up 8%.

Revenue in emerging markets were up 22%.

A few words now on ONGLYZA in the U.S..

In the third quarter, we recorded $9 million for ONGLYZA revenue from U.S.

stocking following the U.S.

FDA approval on July 31.

Just as a reminder, this is recorded as alliance revenue in our P&L.

Our partner, Bristol-Myers Squibb, manufactures ONGLYZA, and then books ex-factory sales.

So our alliance revenue recognizes our share of the gross profit in the collaboration.

We've made good progress to date in the U.S..

We are steadily building brand awareness, trial usage, and intent to prescribe.

Managed-care access is also progressing well with access to around 75% of covered lives, with 28% already at Tier 2.

And we are growing ONGLYZA's share of new patient starts for DPP-4 products, around 7% in the week ending October 9.

Outside the U.S., we've launched in Mexico, the UK, and Germany, with more to come in the near future.

There are four other products that are also worth mentioning to provide the complete context of performance in the quarter, as well as looking forward.

I've already mentioned Toprol-XL in the U.S.

and its contribution to revenue growth in the third quarter.

As you may know, Watson received approval for their generic version on 3 August, just days after we reported our first-half results.

However, they only received approval for two dosage strengths.

That's the 25 mg and 50 mg tablets.

Those strengths account for about 70% of total prescriptions for Toprol-XL and less than that on a revenue basis.

So, based on their limited range and their market penetration to date, unless one of the other players, either [KV] or Sandoz, return to the market soon, we're probably still looking at some upside compared to the scenarios we were modeling at the half-year.

For H1N1 influenza vaccine, you've seen that we booked $152 million in revenue in the third quarter from our contract with the U.S.

government.

We now have orders for more than 40 million doses with a total contract value of $453 million.

Again, that's right at the top of our finish-and-fill capacity expectations when we recast guidance at the half-year.

And it also looks like, based on scheduled production, that most of the revenue will be recognized in 2009.

Now Casodex.

You can see in the third-quarter numbers that we are now experiencing the rapid erosion expected when an oral-dosage form loses exclusivity in the U.S.

market.

As a consequence, U.S.

sales in the third quarter were down 80%, to $14 million, compared to $71 million in the third quarter last year.

That said, the generics were approved in July.

So compared to our planning assumptions of generic entry in April, we're probably $80 million ahead of where we thought we would be.

Again, I offer this observation chiefly to help you construct the appropriate 2009 base in which to refine your 2010 forecast modeling.

Finally, Pulmicort Respules in the U.S..

Now for the nine months, revenue was just under $0.5 billion.

That's down 23% as a result of the inventory overhang in the market from Teva's at-risk launch back in November last year before we settled the patent litigation.

Just as a reminder that under the licensing agreement negotiated last year, Teva begins sale of its generic budesonide starting on December 15 this year.

Going forward, we will continue to book and report AstraZeneca's branded U.S.

Pulmicort Respules in the Pulmicort family sales line.

However, the revenue we earned from the royalties on Teva's sales will appear in the other income line of the P&L.

I 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 the core measures.

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

Core gross margin at 84.9% of sales was a 270 basis-point improvement over the third-quarter 2008.

The usual contributors to our improved gross margin in 2009 are at work here -- lower Merck payments, efficiency gains, [abable] product mix, partially offset by higher royalty payments.

But there was another factor driving the positive variance in the third quarter.

During the quarter, we successfully resolved an issue related to a third-party supply contract, which triggered the release of a related balance-sheet provision that was being held while PSU remained open.

This provision accounted for two-thirds of the margin improvement in the quarter.

I now expect core gross margin for the full year to be up to 200 basis points higher than 2008 on a constant-currency basis.

Core R&D expenditures were 9% lower in the quarter.

Increased investment in Biologics was more than offset by continued productivity and efficiencies in R&D.

The third-quarter 2009 spend also reflects lower intangible asset impairments compared with the third quarter 2008, as well as lower spending related to those projects that have advanced from active Phase II development to preregistration status this year.

Core SG&A expense was 7% higher than the third quarter last year.

But I'd look through the quarterly phasing and call attention to the nine-month increase of 1% as more indicative of the full-year trend.

We continued to drive efficiencies in our underlying SG&A costs in order to release the resources to invest in growth in emerging markets and to fund the launch preparations for the new products.

I still expect the combination of R&D and SG&A to come in broadly flat in constant-currency terms for the full year.

Core other income for the third quarter was $143 million, just slightly below $162 million in the third quarter of 2008.

As I flagged at the half-year, most of the year-on-year increase in other income is now behind us.

I still expect core other income for the full year around $900 million.

Core operating margin for the quarter was 44% of sales, compared to 35.7% in the third quarter of 2008.

220 basis points of this improvement were related to currency.

The operating margins improved by 610 basis points on the constant-currency basis.

This is a result of efficiencies and increased operating leverage against the strong 10% revenue growth.

Turning to our productivity program, we've taken restructuring charges of $112 million in the quarter, bringing the year-to-date total to $374 million.

The program is on track for both costs incurred and benefits being realized.

We now turn to cash flow.

Cash generated from operations increased by $1.9 billion in the first nine months of 2009, compared with last year, driven by strong underlying operational performance and improved working capital management.

Cash distributions to shareholders were nearly $3 billion through payment of a second interim dividend from 2008 and the first interim dividend for 2009.

Net debt at $3.2 billion is down almost $1 billion from the half-year and by nearly $4 billion since December 31, 2008.

Now finally, I'll explain now the factors behind the increase in our core EPS guidance for the full year.

As I said at the half-year, business performance in the context of tough global economic conditions has been better than we'd anticipated.

This together with good operating execution and some unexpected revenue upsides, including Toprol-XL and delayed generic entry for Casodex in the U.S., combined to drive our strong performance in the first half.

This trend has continued in the third quarter, including an uplift from initial revenue from the H1N1 influenza vaccine.

And the outlook for the remainder of the year has been boosted by several factors.

As I already mentioned, Watson's approval of only two strengths of Toprol, the additional orders now totaling some 40 million doses for H1N1 influenza vaccine, and that's at the top end of our estimates and we had a production schedule that would put most of the revenue into 2009, and then we've seen the release of the provision within cost of sales, which further benefited gross margins in the third quarter.

We're also saving 29% tax rate for the full year, which we called out is a 50 basis-point reduction from our earlier guidance.

For revenue, we now anticipate constant-currency growth in the mid to high single digits.

And for core earnings per share, we now anticipate core earnings in the range of $6.20 to $6.40 per share.

If you take this and solve for the fourth quarter, it does imply some deceleration on the topline and our EPS, compared to the nine-month runrate.

As you'd expect, the uplift from Toprol-XL, although still positive, should be substantially lower than the average over the first three quarters, and the same goes for Casodex in the U.S..

I've already flagged the increased generic competition looming in the U.S.

PPI market for next year.

The other variable is anticipated stocking levels in the U.S..

As we exit the year, we've renewed our distribution agreements with all of the major wholesalers in the U.S..

Under the revised terms of these agreements, they will be committed to carrying lower levels of inventory than before.

If they choose to fully implement this change in Q4, then there will be a destocking impact compared to the typical inventory build seen in the fourth quarter last year.

It's difficult to call, but we're assuming that reported U.S.

revenue growth in the fourth quarter may be adversely affected by inventory movements.

As is our usual practice, this guidance is on the same currency basis we've used all year, that is the January 2009 average weights.

So far in 2009, despite the volatility, currency has been broadly neutral to that assumption.

We are, of course, taking no view of the future movements for currency.

So going forward, this guidance takes no account of the likelihood that average exchange rates for the remainder of the year may differ materially from the January 2009 average.

As usual, I point you to our currency sensitivity chart to help you flex your own estimates on the currency impact to sales and earnings.

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).

Sachin Jain, BAS-ML.

Thanks for taking my questions.

Just a few, if I could.

Just when you are talking about the core EPS guidance upgrade, you mentioned kind of a one-off factor.

I just wondered if you could clarify whether there are any underlying -- major underlying improvements in that guidance upgrade.

And then second, just a couple of questions on pipeline aspects.

On Brilinta, flag in the press release aspirin dosages as a potential factor.

I was wondering if you could give us any details on any difference in dosage U.S., ex-U.S., any reasons for that given the trial protocol was very prescriptive as to what aspirin doses were used.

And then, just back on the P&L, you stopped the share buyback roughly a year ago, talking about investing for the business.

Now getting back close to being cash neutral, I'm just wondering if you could just update us on your thoughts on balance-sheet structure and potential for change in cash distribution.

Thanks.

I think in my remarks I set out a number of factors driving our revised guidance for the year.

We've obviously had a strong first half with good performance and less headwinds than we'd expected from the economic performance, and then, obviously, the Toprol-XL and revenue was -- came through.

We've seen that trend in the third quarter, and then have the H1N1 influenza vaccine.

So I think I've described the factors that have driven the strong performance in the nine months.

And those -- that performance you will see built into our overall guidance for the full year, but no, the factors I called out in addition to that good underlying performance for the fourth quarter of Toprol, H1N1, the cost of sales provision, and the tax rate, I think those are the four things I'd probably point to for the fourth quarter.

On the second question around Brilinta, I'll ask Anders to tackle that.

But if I may, just on your final question, we did indeed suspend the buyback at the end of 2008.

We did so, in part, given the difficult conditions in the credit markets at the time, when we had a back stage in active commercial paper program.

We've obviously run through that now.

But we also had an eye on what we envisaged would be increased opportunities for in-licensing and product acquisition, and we wanted to have the balance-sheet flexibility to do that.

We've been very active.

We've been involved in a number of projects and discussions.

Indeed, you saw in this quarter two late-stage collaborations that we've announced with Forest and Nektar.

We are pleased with those collaborations and we're actively seeking other such opportunities.

I will provide an update on our distribution policy as usual at the end of January with the fourth-quarter results.

That's probably the time to return to your question.

So Anders, do you want to address the question on Brilinta?

Yes, Simon, thank you very much and good afternoon.

I would like to start by saying that since the presentation of the Brilinta results in Barcelona at end of August at ESC and the publication in the New England Journal of Medicine, it's been a fantastic journey.

A lot of positive feedback on these quite extraordinary results.

As you remember, the primary efficacy variables are very strong, and we have these, what I would say, unusual data with respect to cardiovascular mortality and even all-course mortality coming in.

Lately, it's a very large trial, and we have done a lot of sub-group analyses that you know what it says in the press release that it's actually 66.

Four of those were deviating from the overall result and one was with respect to geography.

We've analyzed that and we could see that there is a discussion around the North American cohort with respect to the advantage of the CAGR load being left there.

Various reasons have been put forward as sort of in a hypothesis-generating mode.

One was [plave jones], and we talked about treatment patterns and other aspects as well.

And while we don't have a definitive explanation to date, our analysis suggests a possible association between those and the primary efficacy results, but just -- it would have a reduced efficacy with increasing aspirin dose.

I just want to highlight that this is part of an ongoing analysis of various hypotheses.

We will continue to do that, and as results come in, we will publish them and discuss them with you going forward.

I just want to end by another comment around this sort of large [fight] we have, or rather the large data from Plato, that this will generate scientific, clinically very important data going forward.

So you will have a constant stream of things coming out to be discussed.

The next opportunity will be at the American Heart Association in November, where we'll have eight presentations covering various (inaudible).

Just a quick follow-up.

Do you actually have the data on what the difference in aspirin dose was, ex-U.S.?

I think I was pretty clear on what we have.

It's part of the continuous generation of data and hypotheses, and we will publish this as we go forward.

Kevin Wilson, Citigroup.

Thanks very much.

Three questions.

Just returning to Brilinta, a specific question, what plan do you have to study further any potential interaction between aspirin and Brilinta's effect?

Secondly, thinking about the U.S.

market, where you have a sensational track record of delivering performance with your brands in very competitive markets, do you think the world has changed in terms of new-product launch trajectories?

I'm not particularly picking at ONGLYZA's apparently slower start than some observers think, but I'm interested in whether or not you think we all need to think more carefully about trajectories of new-product launches now and in the future.

And thirdly, do you have what you need in the portfolio to grow your non-U.S., non-European business on the targets that you have for it?

Kevin, thanks very much indeed.

Why don't I just -- to continue with Brilinta, and just ask Anders to address the first of your questions?

Anders?

Okay, Simon, and thanks for the question.

I think you have to sort of -- to highlight here.

As I said, this is sort of continuous work we do with our investigators.

We're exploring all kinds of aspects of the place to file, because it's a very rich file and it produces a lot of good opportunities for us to understand the disease and how we treat this disease.

So we are discussing this with our investigators, and as we come forward with sort of further proposals for trying to [test drive], we have to come back and discuss that with you.

Thanks, Anders.

Kevin, on the U.S.

market, no, we haven't changed our views about what is required to ensure success of a new product launch in North America.

We've obviously had the experience with Symbicort, where I think there was a perception it got off to something of a slow start.

But as you've seen, we've continue to gain momentum with Symbicort, and in last quarter, as you will have seen, the growth of Symbicort accounted for pretty much the growth in that fixed combination market.

So, I think we take from that it's very important to gauge the success of a launch over an extended period of time, rather than simply the first few weeks and months.

ONGLYZA, different category, different products, and there will be differences between products.

We're making good progress in the U.S..

We are pleased with the progress that we're making in building brand awareness, trial usage, and intent to prescribe, and it's worth just reminding you that we are achieving that prior to receiving back the comments on our promotional materials from DDMAC, so we expect to have those and to be able to roll out those promotional materials by early to mid-December, which will obviously give us further resources behind the launch program.

We also -- I think it is important to secure good managed care access, and we feel that we are progressing well there with, as I mentioned in my remarks, access to about 75% or so of covered lives.

So, I think three key points.

No, we haven't sort of fundamentally changed our views of what it takes to succeed.

Two, for you to gauge the success of a launch over a period of time, not just the first week or two.

Every product is somewhat different with the sort of progress we're making on ONGLYZA.

To your first question, we believe that we have a strong portfolio of products that is helping to drive our growth in emerging markets, a combination of a strong portfolio of product and a first-class sales and marketing capability across our emerging-market portfolio as two key ingredients that are helping to drive the 15% growth that you saw in the quarter and, indeed, 13% or so for the full year.

The portfolio really is the same, broadly the same products that we have in, for example, our markets of North America and Western Europe.

[Also], brands like Crestor, Nexium, Seroquel, Arimidex, and Symbicort, which are, of course, a very significant component of our product range in our portfolio and sales in the Western market.

Those are still at a slightly earlier stage in their growth, and therefore, represent a smaller proportion today in the emerging markets.

But obviously, that gives us more scope to grow into the future as we look ahead.

The only other thing I would add is that in the emerging markets, there is a substantial segment of the market, indeed the majority of the market, is in what I think that many term branded generics.

These are brands, products that have gone past patent expiry, but where patients, physicians, payors value a brand of the generic.

That's, of course, quite an important part of our business in emerging markets today.

It's a part of the business that we will look to grow, and we are actively looking at putting our brands on perhaps other generics in order to build that business in certain markets.

At this stage, we are pursuing that organically.

So hopefully, Kevin, that deals with the three questions.

Open to the next question.

Tim Anderson, Sanford C.

Bernstein & Company Inc..

A couple of questions, please.

On Crestor, your sales growth in the U.S.

pretty much exactly matched prescription growth, despite taking list price increases that in total across that period were in the teens.

And I'm wondering if this suggests that you have no effective pricing power in this category of drugs in the U.S.

because of managed care and that sort of thing, or was there simply just channel flux in Q3 that might have obscured any sort of pricing power?

And second question is really related to long-term guidance.

I think investors have a fair amount of apprehension about what the long-term growth profile for AstraZeneca looks like when you get out to 2012 and 2013 and that sort of thing.

There is more and more drug companies seeming to give long-term guidance, and I'm wondering when we can expect AstraZeneca might do the same.

Tim, thanks very much for your two questions.

Starting with Crestor, if we look out over the course of the year, so it's nine months to date, we are very pleased with Crestor's performance in the U.S..

We've seen sales up 30%, TRX up 24% or so.

As you say, that has been broadly in line with what you've seen from the IMS prescription growth.

We've had overall net prices broadly remaining constant over that time period and, yes, we've seen list price increases, but across our U.S.

portfolio, as you know, we provide a variety of volume-related incentives, rebates, and discounts to our managed-care customers, and therefore, the mix of business through different managed-care customers can have an impact on overall net price, and I think that's what you've seen and drew attention to.

But we remain very pleased with the performance of Crestor in the U.S.

on the back of strong market share gains in a growing market.

In terms of looking ahead, the Company -- we have a very clear, focused strategy to develop our business as a innovation-led, integrated biopharma business.

We are investing hard behind a global and high-quality sales and marketing capability to drive the topline of our existing product portfolio, and I think our results to date further evidence that the success we're having in fulfilling that strategic objective.

Secondly, we're on a course to reduce our cost base in absolute terms and in -- to improve the various flexibility of our cost base, and again, you've seen the progress that we've made in that and the increased operational margins that we're getting on the back of that cost reduction and operating leverage.

And thirdly, we are investing in a portion of the free cash flow that's being delivered by our marketed product portfolio in R&D.

And I think we are pleased with the progress from the pipeline over the past year.

We've had -- the approvals of ONGLYZA and [ressa]; we've filed [search react] de novo and Brilinta now in Europe.

But to file Brilinta in the U.S.

by the end of the year, and then, this quarter, a couple of late-stage in-licensing collaborations.

So, that third aspect of our strategy, again we are pleased with the progress that we've made.

And it's that strategy that drives all the actions we take across the business.

We don't intend to give a mid-term outlook, and I think we'll be able to update you our thoughts on 2010 at the end of January, as we do in normal.

So, that's it very much.

If I may, can I just go back to, I think, Sachin's question?

Sachin, I just managed to look at it up.

I think you'll find this in the New England Journal paper on Plato.

But the aspirin doses used -- the range of doses used within this study were 75 mg to 325 mg.

The actuals -- the break by geography, I don't think it's in the paper.

I haven't actually gotten the data to hand.

But as you know, as a generality, U.S.

clinical practice tends to use higher background doses of aspirin than is commonly used in the rest of the world.

I think that was the premise of your question.

(Multiple speakers) the next question?

Matthew Weston, Credit Suisse.

Two questions, if I may.

The first on numbers and the second more philosophical.

Really the question about numbers is, what do you think constitutes enough R&D going forward?

Clearly one of the surprises of 3Q was that R&D as a percent of sales did come down.

As you said, you've had a healthy in-licensing program, but a number of your in-house projects maybe are taking a little bit longer to come to fruition than you thought.

Should we see this as basically a natural dip as a number of projects move out of the clinic and onto the market, and we'll get back to a higher level of spending longer term, or is the current level of around $4 billion or perhaps even less a level that you think is sustainable to achieve the aspirations in the pipeline for Astra?

The second, more philosophical question for Simon comes back to Sachin's question about distribution.

Philosophically, do you have a view, dividends versus buyback?

If you do start to look at the very significant cash flow that you're generating, and also I'd be interested in your view on balance-sheet leverage, should we be looking at pharma companies with leverage on the balance sheet or should we look at them at a level of debt to equity broadly neutral?

Let me deal with the dividend and distribution and balance-sheet question first, and then come back to R&D.

I mean, I think we as a Company have a clear [shelter] distribution policy.

Our dividend policy is to grow dividends in line with earnings, where they sort of cover -- it's only a cover of two, and to return residual capital after value-creating investment in the business and debt service to our shareholders through a share buybacks over time.

That remains our policy.

I think it's an appropriate policy for us as a group.

In terms of balance sheet, we took on debt of about $15 billion to fund the acquisition of MedImmune.

We agreed to target credit ratings at that time AA minus.

We borrowed the rating forward to for a year or so, and we've got very clear metrics that we are working to, in order to sustain that credit rating.

We are slightly ahead in terms of our cash generation against the paydown and cash targets that we set at the time.

We will revisit the question of balance-sheet leverage, I think, in -- sort of over the course of the next 12 months or so, but we're very comfortable with the position we are currently at.

If I come back to your first question, which was what constitutes enough R&D, I think is how you phrased it, as a innovation-driven biopharma business, investment in R&D and how much we invest in R&D is one of the critical strategic positions for us.

We approach that decision from the perspective of the sort of level of output that we [start] to deliver and we arrive at that by looking at the overall set of disease areas and therapy areas that we are in, and the products and capabilities that we have.

And on the basis of that, as you know, we have established some goals that we work towards of two launches per annum from 2010 moving forwards.

And bringing in a third biologic as the MedImmune pipeline delivers.

So we've set up a two to three output goal.

And we worked back from that to the number of projects that we need at each of the stage in development.

We know what it costs us on average at each of those stages of development, and that's what drives us to an overall level of R&D investment that we'll be making in the business.

As we stand at this particular point in time, we are at a lower level than we were a year ago.

And that reflects, as we've said in our note, something of a, just a phasing effect, that we have taken quite a number of products out of Phase III into registration.

So, [theory] a very positive development.

And we haven't yet replenished that into Phase III, as you can see.

Looking ahead, the shape of that R&D level, we would expect to see upward pressure on R&D costs as we replenish Phase III and the pipeline matures to an extent.

We've got about the right number of overall compounds in the pipeline, about 140 in development, but they're perhaps slightly less mature in the pipeline.

So we'd see an upward pressure from that.

We're obviously working to continue to drive productivity and efficiency gains in R&D in order to absorb as much of that upward pressure from the maturing pipeline as we can.

So those will be the two forces that will guide the level of R&D investment going forward.

We can update you with that at the end of January as to how we think 2010 is shaping up.

Thanks very much for questions.

Andrew Baum, Morgan Stanley.

Just two quick questions, please.

Firstly, could you talk to the subject of Seroquel and the conversion.

Are you comfortable with the only 10% market share the extends-release formulation has out of the total U.S., given the timelines for the patent expiration?

And then secondly, on RECENTIN, my understanding is you're getting the -- a couple of data sets in colorectal, but particularly one versus placebo with RECENTIN in colorectal at the beginning of next year.

Could you just remind me in which countries do you think that data is sufficient to file under?

Thanks.

Anders, do you want to pick up this RECENTIN question?

Let me, Andrew, just address your question on Seroquel.

As some -- as I mentioned in my remarks, Andrew, we are pleased with the progress that we're making with Seroquel, and I think the -- in particular, I think that my overall comment was pleased that the net effect of the strong growth in XR and some losing ground within the IR formulations, but the net effect of that has been positive in that Seroquel franchise share increased in the third quarter by around 12 basis points.

So, headline, we are pleased with that performance.

We are seeing strong growth on a dynamic share basis from XR, and I think the performance of the franchise is going well.

As a -- just looking beyond the U.S.

because (multiple speakers)

(Multiple speakers).

Are you actively converting existing Seroquel patients to XR or is it growth coming from capturing new patients?

It's focused principally on capturing new patients at this time, Andrew.

Andrew, it's Jonathan.

If you go back and actually track it, you can do it with the IMS data and just look at -- think of it as the mix enrichment.

The ratio of XR to IR.

In the U.S., if you had IMS more broadly, you could track this in other countries.

You'd see that -- and I think we told you about this earlier on in the year.

We were really focusing the sales force in the U.S.

on XR and we've seen a real response there.

The trajectory changed during the second quarter, and you are picking up -- you positioned it as only 10%.

Actually, it's moved quite markedly towards 10% over the second and third quarter.

And that momentum, I think, predicts quite well.

What we are really looking at is where are we in 2012, not where are we in 2009.

But good to see a response.

And if you look, Andrew, just on -- look beyond the U.S.

and look in, for example, some of our European markets where Seroquel, for example, had a higher share in the schizophrenia indications, which, of course, is where we got the XR approvals initially.

We've got that XR shares of the total Seroquel franchise at up to the sort of 20%, 30% in some markets.

So that gives an indication of what we're able to achieve in market slightly further ahead in terms of the XR launch and expansion indications.

Anders, do you want to address Andrew's question on RECENTIN?

Yes, thanks.

I think sort of around RECENTIN, as you know there are two studies.

As you mentioned yourself, we expect data next year and we also expect to file late next year.

So that's sort of the sort of first testing.

The other one is that these two trials, one is against Avastin and one is sort of against placebo.

But the intent here is, of course, to use both studies and provide a package for worldwide registration, so I wouldn't have any date on a specific country.

We're going global here.

But if you don't get the -- if you don't choose superiority to Avastin and you're just left with superiority to placebo, where is that sufficient to file?

Could you repeat that?

It's quite a muffled line.

If you do not show superiority to Avastin with the active comparator trial, but you do show superiority to placebo, where does that data set -- in which countries -- which of the developed countries does that data allow you to file?

I think there are some very good questions and I think it's a bit too early to start discussing that before we have the data.

So I would like to come back to that discussion when we have the data in front of us.

But I think, as you know, we have Avastin, we have placebo, we have PFS in overall survival.

We're going to global five.

Let's discuss it when we have the data.

It's a bit too early right now.

Gbola Amusa, UBS.

Gbola Amusa, UBS.

Question on Crestor and two on Brilinta, for Anders, please.

First, on the December panel for Crestor Jupiter and on the label update that could follow, based on your communications with FDA, are you able to say that what's at stake is a change only to the Crestor label as opposed to a change for the labels of all statins?

And then, on Brilinta and aspirin, and I know a lot of data is upcoming.

But just to be clear, is your comment on the possible interaction with aspirin a comment on Brilinta patients in the U.S.

or on Brilinta patients globally?

The last one is -- can you know say whether the aspirin question relates to Brilinta and lower doses of aspirin being more efficacious than Brilinta and higher doses of aspirin, or simply that efficacy might diminish with higher aspirin doses?

Thank you very much for the questions.

Let's start with Crestor.

And as you know, we sort of got the information from FDA and it became public that we will have an advisory committee December 15.

Obviously, at this stage we don't have the questions that they would like to discuss.

But if you want me to speculate on top of my head right now before having seen them, you could argue why an advisory committee.

I think it -- you should look upon Crestor Jupiter in the overall sort of views on cardiovascular disease, and what it does is that it starts introducing a concept of [local] inflammation from a cardiovascular point of view.

If you look at on the inclusion criteria here, you have the HS DRP as an indicator of inflammation, and you have people with basically normal LDL, and you go into primary prevention state and we come up with pretty fantastic results.

So I think it's not unexpected that -- I would expect the FDA and others to try and understand what this means for this population, what it means for statin treatment overall, and those who are devoted to updating guidelines also need, of course, to consider these data.

So I think it's going to be a good discussion to be had, and we look forward to having that.

Since we have no more sort of firm data from FDA right now, we just have to come back to that more specifically in due time.

With respect to Brilinta, as I said, we have done sort of 66 subanalyses; four deviated from the overall results.

And one led us down the path of trying to understand what hypothesis could be relevant in -- with respect to the North American cohort, and aspirin was one of them.

I also said to you that this is one of several hypotheses we're exploring and I gave you a feeling for how it looks right now with respect to sort of dose versus effect of Brilinta.

We are at a very exploratory stage.

We are doing this together with our lead investigators in the place [of started this].

I would be happy to come back to that at a later stage.

There is something which I think you should think about, where Jonathan told you about the dose.

As you know, we have published the study set-up and we are in the range on 75 to 325.

So I think that provides some good guidance for thoughts.

Your questions are exactly the sort of things that we need to look at.

You're maybe getting a little bit ahead of where we are in flagging up the hypothesis.

That's something we're starting to look at.

No answers yet.

We're still investigating.

But we did say, I think in the press release, that's exactly the [sort of thing] -- we find an answer, we'll look to publish it and put it into a sort of peer review setting.

We're just not there yet.

Lars Hevreng, SEB Enskilda Inc..

It's Lars Hevreng, SEB Enskilda Inc..

On your -- the dividends, I guess the policy is to base the dividend on reported EPS adjusted for restructuring.

So I guess what's the guidance on that matter for 2009?

I always assume that the legal provisions exceeding $0.5 billion, that's going to affect the dividend.

If that's a correct interpretation.

Yes, the policy -- dividend policy is we look at our earnings -- reported earnings less than restructuring costs as the earnings from which we take judgments about dividends for any particular year, and obviously that's what we'll be able to update you on as we get the full-year results in January.

And your guidance for 2009 on that measure?

I'm sorry?

And your guidance for 2009 on that measure?

I see.

The -- if you take off core EPS guidance, we've provided you with guidance on our restructuring program, and I think you've got a patent around -- or at least there's clear numbers you could look at in terms of the other two big adjustments on Merck and MedImmune amortization.

But our primary guidance measure is core EPS.

We've given you, I think, what you need to look at those other aspects.

But I won't go beyond that at this stage.

Okay, just final on Seroquel.

The once-daily sales, is that portion similar to the volumes we see?

Sorry, I didn't -- the line's not -- a bit blurred.

Can you give me that question one more time?

I'm sorry.

Yes, sorry.

The Seroquel once-daily sales in the U.S., the portion of total product sales for Seroquel, is that reflecting the volume share?

I see.

The two formulations were being priced generally at the same sort of level, but over time, IR is priced slightly ahead of XR at this stage.

But volumes are pretty good -- a pretty good measure, although IR's slightly trading at a slightly higher price.

Operator, I am conscious of the time.

I think we've probably got time for one more question, if there is one.

Marcel Brand, CA Cheuvreux.

A few questions.

First, could you please quantify the expected inventory reduction that you were talking about as a result of the change in distribution agreements?

And second question is, [tail] products of many of your competitors there helped during the last quarters.

It seems to be driven by an increase in SG&A in emerging markets.

That's not the case with your Company.

And could you maybe discuss that phenomenon?

Also, the size of your tail products is obviously smaller than the competition.

But still.

Last question is the -- is related to ONGLYZA.

Could you tell us if there is a certain minimal level of promotional support that you are obliged to maintain for that product?

Thanks.

Let me -- on the inventory, we're not in a position to precisely quantify that, but I think it's going to be denominated in days of the sales in the U.S.

and it's not a significant overall change.

So I would encourage you to look at overall net sales level and think about day or two of inventory, that sort of order.

In terms of ONGLYZA, we have a joint group that reviews that with our partner, and we've worked together to jointly develop the sales and marketing strategies and investment, and that differs in approach between the various markets around the world.

I -- and then your final question, with -- I think about -- sorry, can you remind me your third question?

Level of SG&A, was it, in --

No, no, it was related to tail products.

We see you with many, or actually most of your competitors, that the tail products, they increase quite a lot, particularly at Glaxo, but also at most others.

And that seems to be the result of a significant step-up of SG&A in emerging markets.

That's not the case with your Company.

I think the -- first of all, we are growing our emerging-markets business, as I've mentioned, at 15% or so.

We -- by most measures, we see ourselves as amongst the fastest-growing international pharma businesses in our emerging markets.

Much of that growth is being driven by more mature product, many of which are off patent, and we do see strong growth from I think what you described as tail products in our emerging markets.

So that is certainly a feature of our emerging markets.

If you take the emerging-markets portfolio, and we take the nine months year-to-date, you know two-thirds of that -- that sales -- gross sales is coming from product other than our key five of Crestor, Nexium, Seroquel, Arimidex, and Symbicort.

So with two-thirds coming from outside the key five, and we're growing at 15% per annum, you can imagine that those tail products are growing at a fast rate of growth.

In terms of what's driving that, it is, I think, the quality of the product portfolio, but we are also investing and growing our level of sales and marketing investment in a very targeted way across our emerging-market portfolio.

And we are funding back investment through improvements in -- and reductions in -- absolute reductions in sales and marketing costs in the more mature parts of the world.

So, we're able to get that 15% topline growth without seeing, as you've seen over the nine months, significant absolute growth in our SG&A.

It will remain a continuing part of our strategy.

No, I appreciate that.

I only referred to tail products as those that you do not disclose.

If you subtract your -- all the disclosed products from the total sales, then that is what I define as tail products, and if I take a look at that number, and that's typically small, off-patent products, they are actually declining, and significantly so over the last quarters.

Yes, and look -- what will be embedded in there is obviously the differences between the mature markets of North America, Western Europe, where you may be getting significant declines --

Okay.

Okay.

-- or indeed withdrawals versus some growth in other markets.

But I'm sure the IRC's got questions specifically on the tail products outside the 30 or so that we disclosed separately.

We can pick that up.

I think with that, we should bring the call to a close.

We're slightly beyond our scheduled time.

So, thank you very much for joining us this afternoon.

And for your questions.

Just to summarize, we've had a good performance for the nine months.

We've seen fewer headwinds from the external environment than we anticipated.

But underneath that, we've, I think, continued to demonstrate good operating execution on the topline through our cost base down to the bottom line, and we've had some unexpected revenue upside from Toprol-XL and H1N1, where we've had to respond in -- very decisively and rapidly to quite fast-changing events.

And that strong performance in response to the environment has led us to increase our core EPS target to $6.20 to $6.40, and (technical difficulty) and the pipeline, I think, continues to mature.

We've seen approvals for ONGLYZA; the first filings for Brilinta; continued success in our externalization strategy, including our agreements with Forest and Nektar.

So good performance in terms of the pipeline, albeit tempered by a disappointment on Zactima.

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

Thank you.

Thank you.

Thank you, ladies and gentlemen.

That concludes your conference today.

Thank you for joining.

You may now disconnect.