AstraZeneca PLC (AZN) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the AstraZeneca first-quarter results 2010 analyst call, hosted by Simon Lowth, Chief Financial Officer.

My name is Sharon.

I'm your event manager today.

During the presentation, your lines will remain on listen only.

(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 for an introduction.

Thank you, Jonathan.

Thank you and good afternoon.

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

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

Also on the call are members of the finance and the investor relations team.

30 PM UK time.

So before I hand over to Simon, let me read 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 the call may make forward-looking statements with respect to the operations and financial performance of AstraZeneca.

And as you know, 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 forward-looking statements.

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

Simon.

Thanks, Jonathan, and good afternoon to everyone.

I'm pleased to be able to present a strong set of first-quarter results for AstraZeneca.

We delivered good revenue growth and earnings performance, which was slightly ahead of our expectations.

Key products like Crestor, Seroquel and Symbicort, continued to perform strongly in the marketplace.

And we saw revenue growth in all major regions, including another strong quarter in emerging markets.

And continued cost discipline enabled us to generate operating profit growth ahead of revenues.

Part of the strong performance was, of course, due to the net adjustments to tax provisions as a consequence of the previously announced settlement with the UK tax authorities and developments in other transfer pricing matters.

Today, I'm going to cover four topics on the call.

First, I will summarize the headline numbers for the first quarter, then I will describe first-quarter revenue performance by region and by our key brands.

I will then touch on the other line items in the P&L and our cash position in the quarter.

And finally, I will explain our thinking around guidance for the full year.

You will have seen from today's press release that we achieved revenue in the first quarter of just over $8.5 billion.

That's a 7% increase in constant currency terms.

Currency movements lifted actual revenue growth to 11%.

Core operating profit for the quarter was up 10% at constant currency to $3.9 billion, chiefly as a result of the increased revenue and slightly lower spending in R&D and SG&A.

This was partially offset by lower gross margin as a percent of revenue, largely driven by product and regional sales mix and lower other income.

You will recall (technical difficulty) apologies.

We had an interruption there from a moment.

Let me go back.

So the core operating profit for the quarter was up 10% at constant currency to $3.9 billion, chiefly, as I said, as a result of the increased revenue and slightly lower spending in R&D and SG&A.

This was partially offset by lower gross margin as a percent of revenue, largely driven by product and regional sales mix and lower other income.

You will recall last year's quarter included the gain from the Abraxane disposal, but this was partially offset this year by the royalty income from Teva's relaunch of their generic competitor to Pulmicort Respules.

Core earnings per share in the quarter was $2.03 compared with $1.58 last year.

This is a 23% increase at constant currency, well ahead of the growth in core operating profit, reflecting the movements in tax provisions.

These lowered the effective tax rate for the quarter to 21%.

As we mentioned when we announced the tax settlement, we expect the full-year tax rate to be around 27%.

Making the bridge from core EPS to reported EPS in the quarter, the usual adjusting items -- restructuring and the MedImmune and Merck related amortizations were broadly similar in both the current and prior year periods.

As a result, reported EPS at $1.91 grew at the same rate as core EPS; that's up 23% for the quarter.

News flow on the pipeline since the comprehensive update at the full-year results is summarized in the press release.

During the quarter, we launched the new indication for Crestor in the US based on the JUPITER trial, as well as the new indication for Seroquel XR as an adjunctive treatment to major depression.

Although it's too early for either to have had an impact on the first-quarter results, we look forward to these new claims supporting continued growth in market share going forward.

We also added another major late stage development asset to the pipeline with the worldwide license agreement with Rigel Pharmaceuticals for their investigational compound, Fostamatinib or R788 in development for rheumatoid arthritis.

We anticipate starting the Phase III program in the second half of this year.

On the negative side of the ledger, we had the disappointing results from the first Phase III trial to report on Recentin.

For Crestor, as you know, we and our partner, Abbott, announced receipt of the complete response letter from the US FDA at the end of March, and I have nothing new to report on that front.

I will now turn to our first-quarter revenue performance.

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

We achieved revenue growth of 7% in the first quarter.

As expected, the uplift from Toprol-XL and H1N1 was substantially less than that seen in recent quarters.

Excluding these two products, the 7% growth becomes 6%.

As promised at our Emerging Markets day last month, we've enhanced our regional revenue disclosure.

We're now providing product sales breakdowns under four regional headings -- the US; Western Europe; established rest of world, which we are defining as Canada, Japan, Australia, and New Zealand; and then the emerging markets, which covers all our other markets.

In the US, revenue growth was 2%.

Adjusting for Toprol and H1N1 flu vaccine, revenue was off 1% in the quarter.

Revenue in Western Europe was up 7%.

Revenues for the established rest of world was up 12% on good double-digit growth in Japan and Canada.

Revenue in emerging markets was up 19%.

This reflects growth from key brands, as well as from the broader portfolio.

Within this region, revenue in China was up 36% in the quarter.

Now, turning to our key brands, up again with Crestor.

Worldwide sales of Crestor increased by 27% to $1.3 billion.

Across the world, Crestor is growing well ahead of the statin market growth rate.

In the US, sales were up 22%.

Market share of total prescriptions increased to 11.5% in March.

Dynamic share is now nearly 16%.

Crestor sales in the rest of world also grew strongly, up 32%.

Sales in Western Europe were up 30%.

Sales in the established rest of world were up 37% on strong growth in Canada and Japan and sales in emerging markets were up 29%.

So another very strong quarter for Crestor.

Next, I'll look at Nexium.

Sales were $1.2 billion.

That's unchanged versus last year.

Nexium sales in the US were down 7%.

Dispensed retail tablet volume in the first quarter was down around 6% compared with the first quarter of 2009.

Although market share in March is actually slightly ahead of where we closed out in December.

Average net selling prices were lower by around 6% in the quarter, so some of the ex-factory sales variance between periods is due to inventory movements.

Nexium sales in the rest of the world were up 10%.

Of note is the 21% increase in emerging markets, which includes good growth in China.

Sales in Western Europe were also up 8%.

Global Seroquel sales were up 13% to $1.3 billion.

Sales in the US were up 14% to $930 million.

Total prescriptions for the Seroquel franchise were up 1.4%, as the 210% increase in Seroquel XR more than offset declines in the immediate release formulation.

Seroquel XR now accounts for 13% of total franchise prescriptions in the US.

In other markets, Seroquel sales were up 12% to $394 million.

Sales of Seroquel XR nearly doubled and XR now accounts for 29% of franchise sales outside the US.

This strong growth for Seroquel XR in all major markets is not simply cannibalization of Seroquel IR.

Most of the Seroquel XR business is coming from either new starts or switches from other therapy, not switches from IR.

It was another good quarter for Symbicort, where sales were up 29% to $701 million.

In the US, sales in the first quarter were up 75% to $173 million, fueled by continued growth in asthma and in COPD.

Symbicort's share of new prescriptions for fixed combination products in the US increased to 18.4% in March, up a full point since December 2009.

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

Sales in the rest of world were 18%, ahead of the first quarter last year to $528 million.

Sales in Western Europe were up 11%.

Sales in the established rest of world increased by 59% as a result of first launch sales in Japan.

And sales in emerging markets were up 27%.

Alliance revenue from ONGLYZA was $4 million in the quarter.

In the US, we continue to make progress on leading indicators.

Brand awareness is almost 65%.

We've made good progress in securing assets and reimbursement with covered lives at 85% and Tier 2 access at almost 50%.

And we're gaining around 800 new trialists per week.

And our share of new starts on DPP-4 medicines has grown to around 1 in 6.

So we're making good progress in penetrating the DPP-4 segment, although it must be said that the DPP-4 market itself hasn't grown as quickly as we might have expected.

Synagis sales in the quarter were $459 million; that is down 16%.

The new guidelines issued by the COID have negatively impacted usage in the US, where sales were off 25%.

Sales of Arimidex were up 7% in the quarter to $511 million.

With patent expirations from June, this is certainly one of the factors to consider when modeling the quarterly phasing of revenue for 2010.

In Europe, however, we have successfully generated the appropriate clinical data and in accordance with an agreed PIP, or pediatric investigational plan, which may result in a six-month extension to the [SEC] in some markets, which we are seeking on a country by country basis.

Pulmicort sales in the US were down 47% in the first quarter due to the relaunch of Teva's generic for Pulmicort Respules in mid-December 2009.

They captured nearly 80% of the dispensed prescriptions in the first quarter.

Our royalty on Teva's sales is recognized in the other income line in the P&L.

Toprol-XL sales in the US, including the sales of the authorized generic, increased by 34% in the quarter.

Comparisons will get tougher going forward, particularly now that Watson has just received approval for the 100 milligram and 200 milligram dosage strengths.

Although it looks like Sandoz's possible reentry is now likely to be pushed back into 2011.

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

I will focus here on core margins and profit.

The press release does, of course, compare the statutory numbers and is detailed reconciliation to the core measures.

And as with sales, when I refer to growth rates, they will be on a constant currency basis.

Core gross margin, at 81% of sales, was 180 basis points lower than the first quarter last year.

This is principally due to product and regional mix differences with a little bit of higher royalties, which was only partially offset by lower contingent payments to Merck.

At this point, I think that the gross margin in the quarter is representative of the run rate for gross margin for the full year.

Core SG&A expense was 1% lower than last year.

Continued investment in emerging markets and launch preparations were offset by operational efficiencies across Western Europe and the US.

Core other income of $270 million was $23 million less than Q1 last year, and the disposal of Abraxane is in the year-ago period.

And this quarter, in addition to some small one-offs, we booked the Teva royalty in here.

It's a bit lumpy this quarter because of the initial stocking in addition to end market demand.

So I would caution against annualizing the first-quarter number for the full year.

In fact, given that we had two large disposal gains in 2009, core other income is likely to be lower than last year.

That leads to a core pre R&D operating margin of 56.3% in the quarter.

I hope my comments have given you a feel for why we expect the full-year pre R&D margin to be close to the upper end of our midterm planning assumption of between 48% to 54% of revenue rather than running with the first-quarter figure.

Core R&D expenditure was $973 million.

That's 6% lower than last year, as increased investment in Biologics was more than offset by productivity initiatives and lower project costs resulting from several late-stage development projects completing their first Phase III programs.

Our core operating profit was nearly $3.9 billion.

That's a 10% increase.

Core operating margin was 45% in the quarter.

That's 120 basis point improvement over the first quarter last year.

Turning to our productivity initiatives, there were $95 million in restructuring charges taken in the quarter as the new programs that we announced in January are still very much in the consultation phase.

The overall program is on track after costs incurred and benefits being realized.

Let me now turn to cash flow and capital structure.

In the first quarter, we of course pay the second interim dividend from 2009, which combined with net share repurchases of $90 million in the quarter resulted in $2.5 billion in distributions to shareholders.

Factor in the investments in externalization activity in the quarter, and payment of the first installment of the tax settlement with the UK tax authorities, and not surprisingly, we have moved from a slight net cash position at year end to net debt of $759 million at the end of March.

As regards share repurchases, we still intend to undertake net share repurchases of up to $1 billion in 2010.

The final point I will cover before moving to Q&A is our guidance update.

Putting aside the impact to core earnings resulting from the lower tax rate in the quarter, we did achieve good revenue and underlying core earnings growth that was slightly ahead of our expectations.

We do face some challenging revenue comparisons in the remaining nine months, chiefly with Toprol-XL and H1N1 vaccine sales in the US, and the patent expiry for Arimidex.

But that said, based on the good first-quarter performance and the outlook for the remainder of the year, we've revised our financial target for the year.

With a modest increase and a narrowing of the range, our new target for core EPS is in the range of $6.05 to $6.35.

Back in January when we provided our midterm planning assumptions for revenue, as well as our specific financial guidance for 2010, we made reasonable assumptions for the impact of pricing pressures and other governmental healthcare reform measures that could affect our business throughout the world, including a view on the impact of US health care reform.

Therefore, no changes to our guidance is needed based on the recently enacted US reform legislation.

So no adjustments to guidance, to US healthcare reform, but to help you with your modeling, I would estimate the revenue impact for this year based on those aspects of the legislation will take effect in 2010 to be approaching $300 million, and probably a bit more than double that for 2011 when the other elements of the legislation kick in.

Just to be clear, there are no currency-related changes to our full-year guidance.

As a reminder, our core EPS guidance is based on the average exchange rates that prevailed during January 2010 when the targets were communicated.

The actual rates in the first quarter haven't given rise to any meaningful currency variance on core EPS versus our guidance basis.

Going forward, this guidance takes no account that the likelihood that average exchange rates for the remainder of the year may differ materially from the January 2010 average.

And 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 think I will wrap up my formal remarks here and turn the call back to the conference operator to begin the Q&A session.

(Operator Instructions).

Tim Anderson, Sanford Bernstein.

Thank you.

And thank you for the increased geographic breakdown.

That's helpful.

I have a question on emerging market operating margins.

Glaxo has shown that their margins in emerging markets are about half of what they are in established markets.

They've suggested that the gap in margins versus established markets is likely to persist at about these levels into the future.

I'm hoping you can tell us what your view of operating margins are in the emerging markets going forward and what they are currently.

And then second question is on Symbicort and the potential for generics in the US eventually.

As a product that's a metered dose inhaler, it seems like generics to Symbicort could have an easier time getting to market versus the dry powder inhaler like Advair; so my question to you is when should we expect generics in the US to your Symbicort?

Sure.

Tim, thanks for the question.

Let me address the emerging market margins, and I'll asked Jonathan to just touch on the Symbicort position.

So, with our -- in our Emerging Market day that we held a month or so ago, we set out the current level of emerging-market margins across our total emerging market portfolio relative to the average margins that we see across our Western markets.

If you take the average of the Western markets -- North America, Western Europe and so forth and call that 100, the emerging markets in the 70% to 75% of that.

We also showed on that date that emerging markets have actually been growing.

And they've been growing on the back of continued sales growth on the back of the fixed investment we've made in our marketing companies in emerging markets, so we are getting operating leverage.

And in addition to that, an important part of our cost reshaping program is to take infrastructure such as finance transactional processing, IT and various other business support services, and deliver those through shared services on a regional basis, which then allows us to drive some productivity improvement.

So we've been improving in emerging market margins; they're sitting at sort of 70%, 75% level.

And I think as the business goes forward, the aspiration inside the Company will continue to close that gap versus the established markets.

Yes, Tim, and on Symbicort, I suppose one of the things you need to think about is that Symbicort is with different IP depending on where you are in the world.

The key fact for the US is that the IP runs until October 2014.

So maybe you were basing the question more on the IP situation in the rest of the world.

Don't forget also we've got three different device types, two different types of Turbuhaler.

It is a PMDI in the US.

Certainly from our experience with developing that and getting it through the regulatory authorities in the US, I don't think it's a simple task.

There's certainly some complexity in meeting the FDA's requirements.

And then, the other -- we'll just come back to the business drivers there, we're seeing good performance with Symbicort globally.

Japan is in the early launch phase.

We only brought that into that market at the beginning of 2010.

And you're also starting to see a good performance in China with given the NRDL listing that happened at the back end of last year.

So that's a positive for the rest of this year.

Thank you.

Gbola Amusa, UBS.

Thanks for taking my call.

A couple questions.

First, on the Crestor patent case, and I know you may not be able to say much, but could you instruct us a bit on the logic behind the new infringement actions against the generic challenges on Crestor?

And what if any benefit that gives by going through a new round of litigation?

Second, on China, you're at 36% growth in the first quarter.

I've heard different estimates of the market growth.

Would you let us know your understanding of what the Chinese market grew in the first quarter?

And then lastly, have there been any major changes in terms of supply chain and operations metrics in the recent quarter versus previous quarters, whether it's capacity utilization, leadtime processing, ATI outsourcing etc.?

Okay.

Well, thanks very much indeed for the questions.

Let me deal with your third question, as I'll do them in reverse order.

Supply-chain operating metrics, no, we have not seen any change in trend.

We're driving our supply chain through the asset strategy and lean improvement programs to reduce our unit costs to bring down inventory through the chain, and at the same time, maintain the high levels of customer service in terms of stock availability that's been a feature of our business.

And we haven't seen any sort of change in those metrics.

In terms of China, we're obviously pleased with the 36% growth.

That is slightly higher than the growth that we recorded in the last year.

And it's also -- I don't have to hand the growth in China in the first quarter, but we've been, over the recent couple of years, growing slightly ahead of the market.

And I have every reason to believe we can continue to sustain that.

In terms of the Crestor matters, on the two patents, associated the latest patent infringement actions, we haven't received approval for the indications associated with those patents until the first quarter.

So obviously after approval of the new indication, we amended our Orange Book listings for Crestor to include the two patents and at the same time, took action on the generics for infringement of those patents.

So that's really the background for that.

Sorry, Jonathan, you want to add something?

Yes.

Just so we're [very] clear, remember the two new patents the one on slide 2 and the 618 patent are both method of us patents.

And of course they're independent from the cases in front of judge [pharma] at the moment, which is around the substantive matter of patents.

So different IP, different issues.

Clearly on a different time course.

And we couldn't sue until those things were listed in the Orange Book.

And that didn't happen until we got the change of label in the US that was underpinned by the JUPITER data.

Thanks, Jonathan.

Good add.

Okay.

Andrew Baum, Morgan Stanley.

Thanks for taking the questions.

Firstly on Nexium, a patent question.

The data protection expired in the 10 European countries on the 10 of March.

Is it your understanding that the regulatory reprocess for the generics has already begun, and therefore we should expect potential approval sooner?

Or is in fact your expectation that they are only starting to review it now, and therefore it may be pushed somewhat later?

So any sense you have on that would be helpful.

And then secondly, on Crestor, could you just characterize a little bit further these additional patents?

Whether you are taking legal action in the same court as the composition of matter patents, so is it the same jurisdiction, same judge or a different court?

And then finally, to what extent do you think these patents could be used to actually extend your existing anticipated [life], assuming you actually won in the existing first patent action?

Well, in terms of Crestor IP, it's in the same jurisdiction.

I can't really comment further.

This is a recent action as to how that will unfold.

Nor can I sort of comment on how the implication of that will unfold over time.

So, not really more to add on that matter.

In terms of Nexium, and you are right, the [fixed-year] markets, which are typically the smaller markets, as you know, data exclusivity expired some time ago.

And with a lot of data exclusivity, we do of course have intellectual property surrounding Nexium, and we, as you know, have been taking action in many markets successfully in those six-year markets against a number of generic companies.

Ten-year markets, data exclusivity, indeed, expired in March.

In those markets we also continue to have a series of patent protection, which we will continue to defend.

We don't have visibility into the particular status of any approval process in those particular markets.

I can't shine a sort of deeper market on that light.

Jonathan, do you have anything to add?

Yes, just so that you've got the countries right; the ten-year markets principally are Belgium, France, Italy, Luxembourg, the Netherlands, Germany, Sweden, and the UK.

We don't know the time course through those markets because it depends on the approach the generic companies choose to take; whether it's a bridging approach from a six-year market which puts it on a shorter time course; if it's a de novo application, then it's a longer time course.

The only one that we're aware where there is an application in is in Sweden.

But again we don't have any visibility of who that is or when it went in.

Thank you very much.

Kevin Wilson, Citi.

A couple of questions.

One, on Crestor, a comment please on whether you do have any pricing power back in the US, given the value volume data you gave out in the press release.

And secondly, China, just getting going, I believe.

Can you talk a bit about where the other emerging -- remind us of the other emerging market opportunities for Crestor to drive that growth figure?

And also a question on the royalty situation.

Actually with Symbicort, I understand you pay royalties to Sanofi on Symbicort in the US.

Is that a flat rate?

Is it stepped?

Will it become material as you go forward?

And finally, on the royalties to Teva on the Pulmicort generics, are there any time areas to that?

Do they end after a couple of years or are there any other factors we should consider in modeling that going forward?

Okay.

On Teva, we obviously get a royalty payment from Teva, as I described, through the other income line.

And that [persists] well there in the market, and there's no particular time profile that I would draw out.

There are some changes in the royalties levels in the event of other generic entrants.

Kevin, we set that out at the time of the original press release.

In terms of Symbicort, the royalties are at a very small level.

Not something that I would think should be sort of meaningful in your forecasting of Symbicort.

Ed, did you want to pick up pricing power on Crestor?

Yes, if you look at the spread, Kevin, between the ex-factory sales growth of 22% and the prescription growth rate of 15%, a bit less than half of that is probably due to price.

There is some inventory movements in the year-on-year comparisons that fill in the delta.

In terms of emerging markets, and when that -- sort of really beyond globally.

As I mentioned at the regional level you saw strong rates of growth in the sort of 20s and indeed even higher in our established rest of world markets with Crestor.

Kevin, I wouldn't draw out any particular markets that we see Crestor as an opportunity across our geographic portfolio.

And, we're seeing pretty comparable rates of growth in most markets.

Keyur Parekh, Goldman Sachs.

Good afternoon.

Thanks for taking my question.

I actually have two if I may.

Kind of first one, can you just help us think about the progression for the core pre-R&D operating margin as we go through the rest of the quarters for the year?

So I know you're reiterating your guidance and in light of the 56.3% number this quarter, I think it would be very useful if you can pick it up as you see it for the rest of the quarters.

And then secondly, on the ONGLYZA sales, obviously, the sales number this quarter may not be representative of the underlying trends due to sampling and couponing and stuff like that.

But can you give us some idea of the underlying revenue trends and what this represents on an ongoing basis?

Sure.

Listen, let me address the core pre-R&D margin.

Ed, why don't you sort of expand on the remarks I made earlier on ONGLYZA?

Why don't we do ONGLYZA first.

Do you want to pick that up?

Yes, as you mentioned, Simon, the early indicators, the leading indicators if you will, which is awareness, trial, usage, new starts, are all -- we're making pretty good progress there.

I think when you look at converting that then into revenue, yes, of course we do do sampling, so there is some sales displacement there.

But I wouldn't call it anything unusual from a typical large primary care launch.

So I don't think there's anything unique to ONGLYZA in terms of sales displacement.

I think the revenue you are seeing is a reasonable reflection of the dispense demand.

One thing I think when you think of the ramp-up in ex-factory sales in new product launches, I'm minded of looking back to the Symbicort launch in the states, where, as I recall, I think our second quarter and third quarter on the market were like $9 million and $14 million in sales.

So it isn't unusual to see that it takes a while for that leading-edge of the new patient starts to actually start rolling into refills and then accumulating revenue.

So I would point to Symbicort as a good example of where relatively muted ex-factory sales two and three quarters after launch, whereas now you've got kind of an annualized run rate of north of $600 million on that product.

So I don't know if that helps shed any light on that.

Ed, thanks.

On our core pre-R&D margin, as I said in my remarks, we did achieve pre-R&D margin core of 56.3%, but that our expectation for the full year was, as in fact we said at the beginning of the year, to be close to the upper end of our midterm planning assumption between 48 to 54.

So as you correctly pointed out, some easing back of pre-R&D margin.

Drivers of that again, I flagged a couple of those in my remarks.

The first is we anticipate the first-quarter gross margin percent to be a reasonable sort of indicator for the full year.

But that we saw operating income, encourage you not to think about the first quarter as being an annualizable level for the full year.

Not least because we had a particular contribution from the start of the Teva royalty payments, which goes through other income.

And then, so sort of [gian] broadly in mind operating income down.

And then the other sort of contributor, we do see as I mentioned, some tougher revenue comparisons year-on-year with particularly Toprol-XL, H1N1, but also patent expirations, sort of patent expiration on sort of generics and Arimidex.

So those hit the -- or provide some pressure on the top line, and that can then feed through to some tightening in margin for example around the SG&A line.

So those would be the drivers I would call out for you as you think about the rest of the year.

Hope that's helpful.

Steve Scala, Cowen.

Thank you.

I have two questions.

First on Brilinta.

What has been the tone of discussion with FDA regarding approval, given that North American cohort experience in PLATO?

Would you say that discussions to date leave you fully confident of approval in the US in September?

Or would you stop short of saying that?

And secondly, when will we get MEDI-545 data in SLE?

On the Q4 call, AstraZeneca said it was coming soon, and then we thought it was coming in Q1.

To my knowledge it hasn't come yet.

So can you update us on MEDI-545?

Thank you.

Okay.

We don't sort of share the nature of interactions of ongoing regulatory filings.

So I'm not going to comment further on Brilinta.

Jonathan, MEDI-545, do you have the latest view on that?

Yes, David, it's not there yet.

I would expect that sometime in the second half of the year.

Thank you.

Gavin MacGregor, Credit Suisse.

Thanks for taking my questions.

Two if I may.

Firstly, R&D was particularly low in the first quarter, about 11.6% of sales.

Just want to get a sense of whether this is a sort of new level that we can forecast going forward, given your expectation for a greater proportion of in licensing deals.

And then secondly, on the RSV franchise, the new guidelines that came out last year have obviously hit Synagis quite hard.

Have you had any ongoing discussions?

Are there any possible changes that can bring this back up?

What did this change in terms of your view on motavizumab?

And is there any risk of a write-down on Synagis in motavizumab going forward?

Thanks very much.

Okay, Ed, do you want to pick up sort of COID guidelines and impact?

Yes, clearly they have had an effect.

And clearly we have had extensive dialogue with that organization as well as other organizations that also set similar guidelines and payor discussions.

Because we believe that some of the decreased utilization is quite contrary to our product labeling.

And we have some real issues with whether that's good care or not.

But that said, despite those ongoing engagements, it has taken a bite out of Synagis, both in the Q4 of last year as well as the Q1 of this year.

So in terms of that, robust debate and discussion based upon the science, but nevertheless seeing an impact in the marketplace.

And I think that some, in terms of your specific question on impairment, we were aware and obviously understood the COID guidelines.

We have built a forecast impact of that into our forecast for the RSV franchise.

We undertake impairment reviews on an annual basis.

We've done that subsequent to the COID guidelines at that even last year.

We haven't seen a trigger event to redo that.

But it's something we look at in the final part of the year.

But at this stage, the information is very much [to be full].

[I've] conducted the review and there was adequate headroom.

If I come to R&D, the R&D ratio, you called out at the 11.3% level at the core.

In fact, in actual dollars, it's almost spot on, but a 6% decline in CER.

As I mentioned in my remarks earlier, we've got three dynamics here.

In the first quarter, the continued investment in Biologics.

Some completion of Phase III programs, drugs like Recentin, Certriad and so forth, but also just continued impact from productivity initiatives across R&D, other contributing factors.

As we look forward over the course of this year, we'd anticipate the in-licensing -- particularly, obviously continued pipeline progression of the in-house portfolio, but also five in-license projects in the back half, back quarter of last year, beginning of this year, will be moving into development programs for many of those.

And we would expect to see that coming through the R&D expense line.

More generally, and I think I've made this point before on these calls, we don't set R&D investment as a percent of sales.

We set it on the basis of millions of dollars of investment to support our R&D strategy to deliver our outlook goals of two [NMEs] on average per year.

What it is as a percent of sales is more a function of what the sales are at any particular time.

We invest dollars, not percentages.

So I think as we go forward, that percentage will move around; it's as much to do with sales as anything else.

And Gavin, just one thing to complete this on the RSV.

Remember of course on motavizumab, we have responded to the FDA's CRL back in December of last year, and that sets us up for an advisory committee, which is on the 2 of June.

It's in the press release.

Thanks, Jonathan.

Mark Clark, Deutsche Bank.

Good afternoon.

A couple of questions please.

Firstly, I wonder if you could just talk us through the competitive positioning of Toprol-XL.

(technical difficulty) launched certain of the doses I think it was in August last year, and yet your revenues in Q1 were above those in Q4 last year.

So I wondered if you could talk us through the market share grab there.

And secondly, what proportion of sales are accounted for by the new dosages that Watson will be supplying?

The other question I have related to inventories.

You mentioned that there's a small amount of inventory build in Crestor and Nexium.

Are those the only two products that were materially affected?

Thank you.

Okay.

If we look at the inventory point in the first quarter, yes, there was a bit of inventory [build], which I mentioned on Nexium.

That's the main contributor in the first quarter.

I wouldn't call out any other sort of thing that really gets the point of being meaningful.

So that's on inventory.

And Ed, do you want to pick up Toprol -- tough questions?

The competitive position and the percent from the new dosages?

Sure.

I'm not surprised that you find it a bit of a conundrum.

There's a couple things going on there.

One is the IMS data we find tends to underreport the volume of some of the players there, so that in itself is tough to necessarily triangulate the ex-factory sales.

But then you have the issue that we pick up revenue recognition as we shift to par and there's a lag time there.

So it's another confounder in terms of directly linking it to dispensed volume.

And of course, it's not just a volume issue there because it's also price there.

And as the market pressures either wax or wane depending upon a number of players in there you see some price volatility.

It also contributes to your sales realization.

In terms of the new dosage forms, the 100 and 200 milligram dosage forms, if you look at it on a broad basis, it's probably a 30% of the volume in that marketplace.

And given the gearing on price for the higher delivery on dosage points, it's probably a bit higher than that in revenue terms.

Thank you.

So can I just push you further?

Does that talk about lack of revenue recognition and what's happening with Watson?

Does that necessarily mean that Q1 will definitely mark the peak for the year?

I wouldn't want to get drawn into any forward-looking statements on a product level forecast other than to say we have said that the year-on-year comparisons will be challenging more so because of the launch of the two new strengths.

So there will be more competition on 100% of the franchise instead of being confined to 70% of the franchise.

That's fair.

We've got an important part of the franchise that we've now got generic approval on.

It's fairly recent.

We'll have to see how that unfolds and a range of different outcomes is built into our overall guidance for the remainder of the year.

Okay.

Thank you very much.

Seamus Fernandez, Leerink Swann.

Thanks very much for the question.

I have two questions here.

In terms of EU healthcare reform and some of the proposals that are out there, can you update us on really how many new proposals are out there and under discussion in 2010?

And one of your competitors noted on their conference call yesterday that perhaps we should be watching for changes in the second half of this year.

Would you agree with that statement?

And do you think that this is something that could be material?

And then the second question really is on Brilinta.

When might we actually see some published data on some of the commentary that you gave on your Q4 conference call with regard to a potential of an aspirin interaction with that product?

Just wondering if we will see those data prior to a potential panel, which I guess we would anticipate sometime in the August or September timeframe.

Thank you.

Jonathan, do you want to pick up Brilinta in terms of time frames for any further complications?

Sure.

Difficult one to give you a timeline to.

As you know, there's some work going on in terms of producing a paper that sits with the steering committee.

We're doing some work with them.

We don't control that nor do we control the timeline for publication.

But needless to say it's something that we are trying to push forward as quickly as we can.

I just can't predict when it comes into the public domain because those bits are not in our control.

You mentioned an advisory committee.

If you hypothesize it, we have one of those.

You can imagine that in a submission to an advisory committee would be the sort of place that we would include that information as it seems to be quite a relevant subject.

So maybe that gives you one timeline.

But in terms of publication I really don't have any way of giving you a better line of sight on that.

In terms of your question, coming back to your first question, which is European pricing action, I start by saying that this has been a feature of our industry and business for many years.

And in terms of its nature and character, we see on a market within Europe where we've got strong government payors, taking pricing action on particular categories or across the total sector, periodically and typically, we have a number of significant price actions in any one year.

If I look out over the last two or three years, they broadly averaged out at similar sorts of levels and actually, a similar sort of magnitude to that which many companies, including ourselves, have indicated for US healthcare reform this year.

So, that's been very much a feature of our business in Western Europe.

In terms of this year, we see a continuation of that trend.

What that basically means is we see price reductions on an ongoing basis in Western Europe.

We've seen that in the past.

We will continue to see it.

This particular year, I think we had indication from Germany in mid-March of intentions to look at pricing action.

We've had similar sorts of actions or indications in Spain.

I think there have been a couple that I would call out in Western Europe for this year.

And obviously we had Turkey at the back end of last year, was quite a significant move.

Those are probably the ones that are highest of our internal monitor.

Thanks for the question.

Michael Leacock, RBS.

Just one question if I may.

I'm intrigued by your language that the results were slightly ahead of your expectations when the beat was about $500 million of the operating profit above consensus expectations.

Given that you guys get a pretty good sense of where consensus is, what is it that the market completely missed in Q1?

And if we underestimated the Q1 because your guidance is not changing very much, are we hugely overestimating Q2 to Q4?

I think that what lay behind comments around slightly beating our expectations is we've seen good performance in the first quarter of this year in sales, but I think also in terms of cost management.

We always saw, as we looked into the year, the first quarter being a strong year for us.

As we saw in the sort of latter part of the year, the tougher revenue comparison, Michael, sort of kidding in.

So we saw the first quarter as being a stronger quarter.

We've been slightly ahead of that.

In terms of the rest of the year, I think I called out in addition to some of the year-on-year tougher revenue comparisons, I also indicated we could see the R&D investment behind the in-licensed project starting to have an impact in the remainder of the year.

I think when we looked at the aggregated consensus that we collect, I think one of the factors that looked to be a little different for the remainder of the year lay at the gross margin level.

And we've drawn your attention to that in indicating how we saw the gross margin for the remainder of this year.

Those would probably be the main points I would draw your attention to.

Thank you very much, Simon.

And operator, I'm quite conscious of the time.

We're probably up on the time we intended to stop, given the number of other things that are going on in the market today.

So with that I think that's probably the last question.

Okay.

Well, thanks very much, indeed, to all of you for joining the call, particularly on what I know is a very busy day for all of you.

So just to summarize, you can see it's been a good start to the year.

Strong revenue and earnings performance, and also boosted by the one-off tax effect.

We face some challenging revenue comparisons ahead of us, but based on the strong first quarter and the outlook for the remainder of the year, we are pleased to be able to raise our full-year guidance.

And with that, I will bid you all a good day.

Thank you.

Thank you, ladies and gentlemen.

That concludes your comments today.

Thank you for joining.

You may now disconnect.

Have a nice day.