AstraZeneca PLC (AZN) 2011 Q2 法說會逐字稿

Good afternoon, and welcome to AstraZeneca's second quarter, and half year results analyst conference call. Chairing today's call will be David Brennan, CEO of AstraZeneca. Joining David are Simon Lowth, CFO; Tony Zook, Executive Vice President for our Global Commercial organization; and Martin Mackay, President of R&D. As ever, the IR and finance teams are also on hand.

Before I hand over to David, I'd like to read the follow safe harbor statement.

The Company intends to utilize the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Participants on this call may make forward-looking statements with respect to the operations and financial performance of AstraZeneca. By their very nature, forward-looking statements involve risk and uncertainty, and results may differ materially from those expressed or implied by these forward-looking statements. The Company undertakes no obligation to update forward-looking statements.

So with that, let me hand over to you, David.

Great, Jonathan. Thank you, and hello, ladies and gentlemen. Welcome to our webcast and our conference call to go over AstraZeneca's second quarter, and half-year results for 2011. I'll start with a review of the key events, since the full-year results back at the end of January; and then, we will look at the headline numbers for the first half.

As Jonathan said, Simon Lowth is here. He'll take you through the second quarter and focus on revenue by region, and key brands. And then, he'll also walk through the P&L, and the factors that have led to the $0.10 increase to core EPS guidance for the full year.

And Martin Mackay is also here. Martin will finish with a brief update on pipeline developments, since his comprehensive update of the pipeline back in January.

And we will leave plenty of time for your questions. But let me begin with an overview of some of the key developments of the past several months. Since we are a Company committed to an innovation driven global by our pharmaceutical strategy, I'll start with the important news on the pipeline.

Last week, as I think you may know, the US FDA granted approval for Brilinta in the United States and now, this is great news for AstraZeneca. But even more importantly, it's also great news for patients. More than 1 million people are affected by acute coronary syndrome in the US each year. And now, with Brilinta, we can offer physicians, and patients, a new and more effective treatment option than clopidogrel, to help reduce the rate of heart attack and cardiovascular death in these patients.

I want to thank the many people at AstraZeneca who worked extremely hard to achieve this important milestone. We'll now begin the process of working with hospital formularies, with protocol committees, government and managed care reimbursement bodies, to bring this medicine to patients, navigating these steps, which are necessary, before Brilinta will become available to a substantial number of the approximately 100,000 patients per month in the United States that suffer an acute coronary syndrome event. And that'll be the key focus for the next 12 months.

With the US approval, Brilinta's now approved in 41 countries. But, of course, as we've said, approval is just the first step. So far, we have reimbursement in seven markets, which means that we currently have access to a small fraction of the incident ACS market at this stage of the launch rollout.

The other significant pipeline event was the US FDA Advisory Committee review of Dapagliflozin, a new diabetes medicine we're developing, in collaboration with Bristol-Myers Squibb. The short story is that the vote on the question of whether the efficacy and safety data provides substantial evidence to support approval of Dapagliflozin was six yes, and nine no.

Needless to say, we have a lot of discussions with FDA ahead of us to determine the way forward. And I know Martin will share a few of his thoughts on Dapagliflozin, and on Brilinta, in his presentation, in just a few minutes.

Our strategic focus on a prescription-based biopharmaceutical business model gives rise to the second important event in the first half; our pending sale of the Astra Tech business to Dentsply International for approximately $1.8 billion in cash, which we announced last month.

Astra Tech is a leader in dental, and in neurology and surgery products, services and support. And it's a good business. But it's not core to our biopharma strategy. The high degree of interest, and the competitive nature of the review process, is evidence of the value that the employees of Astra Tech have built in the marketplace.

We believe that this transaction represents an excellent outcome for AstraZeneca's shareholders. And, as we announced today, the net proceeds from the pending sale, when completed, will be used to step up our share repurchase program. Depending on the timing, this could increase the 2011 program to a net $5 billion level. Simon will cover the details of this a bit later.

My last comment, before I move onto the first half results is on developments in the market environment, and the impact that continued government interventions in the marketplace are having on our Company, and the industry as a whole.

When you consider the impact on the revenue and the cost lines, we estimate the impact on AstraZeneca of these interventions at around $600 million, globally, in the first half of 2011. If you extrapolate this across the industry, you're talking about billions of dollars per year.

Now, we all understand that these are demanding economic times for governments, and for the private sector. We also understand the need to control the rate of growth in healthcare expenditures, driven by the upward pressures from aging populations, and chronic diseases in the developed world, and the demands for greater access to care in the developing economies.

We've been taking significant actions to be responsive to these pressures. We've undertaken significant restructuring of our cost base; we're in the midst of a significant change program in R&D to make every dollar of R&D expenditure as efficient and as productive as possible, focusing on medicines that can truly make a difference. And we're engaging payers earlier in the development process.

The medicines that we discover and develop are part of the solution to lowering total system costs, not the problem. But too often, the short-term focus is simple price cutting, not unlowering the total cost of care.

We need to stay engaged at this higher level, together with policymakers; we must find a middle ground that's responsive to pressures on the public purse, while preserving the necessary incentives for the investment needed to deliver the next wave of breakthrough medicines to patients across the globe.

Now, on to our business performance for the first half, and some of the headline numbers; I'll start with revenue. Total revenue was down 3% in constant currency terms, but there's quite a dynamic picture below that headline number.

On the one hand, for key brands that retain market exclusivity, we continued to win in the marketplace. We have good double-digit growth for Crestor, for Seroquel XR, and for Symbicort.

On the other hand, we lost considerable revenue to generic competition for Toprol-XL in the United States, and for Nexium in Western Europe, and globally, in the case of Arimidex, Merrem, and Casodex. So a big impact from generic competition.

It's a similar picture if you look at the regions. Sales declined in the US, and in Western Europe, where we bear the brunt of the generic penetration, and the government price interventions, in contrast to the sales growth in the established Rest of World, and in emerging markets.

Now, moving down the P&L. We're continuing to drive for efficiencies, and productivity, across the entire cost base. But we also continue to invest in R&D, in support of some important late stage clinical programs that began to ramp up in the second half of last year, and in early 2011, and to continue to grow our biologics capability.

We're also making appropriate investments in sales and marketing to fuel our growth in emerging markets, and to support product launches. We also pick up the excise tax component of US healthcare reform on the SG&A line. Simon will pick up this theme when he runs through the second quarter figures to give you some specifics.

Core operating profit was down 7% in the first half to $7 billion. Core earnings per share in the first half were $3.96, and that is a 3% increase. The uplift from the core operating performance is the result of the tax settlements between the UK and US tax authorities that we announced in the first quarter, as well as the effect of the share repurchases.

Now, in bridging from core earnings per share to reported, total adjusting items were higher in the first half of 2010, chiefly on the restructuring side. Therefore, the growth in reported earnings per share, up 7%, was higher than it was for core EPS.

The Board has declared a first interim dividend of $0.85 per share, and Simon will put that in the context of the progressive dividend policy, and the balance we're trying to strike between the interim and the final dividend on an annual basis.

Net share repurchases in the first half of the year totaled $2.2 billion; that was just over half of the $4 billion target for the full year. As I mentioned earlier, that could increase to around $5 billion, subject to the completion of the Astra Tech sale.

I'm going to now turn things over to Simon, who will cover the second quarter and some other financial matters including guidance. Simon, over to you.

Thank you, David. Good afternoon to everyone. First, I'm going to review the profit and loss account for the second quarter. I'll then focus on the revenue performance at the regional and brand level. I'll touch on cash performance, dividends and share repurchases, and then finally, I will explain the upward revisions to our targets for the full year.

So firstly, let me turn to the core profit and loss account for the second quarter. Press releases, of course, contain the statutory numbers, and a detailed reconciliation to these core measures. When I refer to growth rates, they will all be on a constant currency basis.

We achieved revenue in the second quarter of just over $8.4 billion; that's a 2% decline in constant currency terms. The picture that David painted for the first half is also played out in the second quarter revenue. Generics provided a more than $0.5 billion drag on revenue, split roughly evenly between the US and Rest of World.

The second quarter performance also reflects the impact from government price interventions. This was partially mitigated by the double-digit growth in the brands that retain exclusivity, namely Crestor, Symbicort, Seroquel XR, and double-digit growth in emerging markets. I'll come back to revenues later, but let's just continue down the P&L.

Core gross margin was down 2% in the quarter, in line with revenues. Core gross margin in the quarter was 82.7% of sales; that's marginally ahead of the second quarter for 2010. Now for the full year 2010, you'll recall core gross margin was 81.2% of sales; for the full year 2011 I expect core gross margin will be somewhat higher than last year.

Core SG&A expenditures were up 9% in the quarter. Around half of this increase is attributable to two items that are not in the prior year numbers. The first should be no surprise; it's the excise tax arising from US healthcare reform that's recorded in the SG&A line, and this amounts to around 2.5% of the SG&A increase in the quarter.

The other is a one-off. The launch of an FDA approved generic version of Entocort in the US triggered a contractually required termination fee related to our marketing and distribution agreement for Entocort in the US, and this accounts for another 2% of the increase.

The remainder of the net increase in SG&A is the continued investment in emerging markets that is driving our double-digit revenue growth there, and its support for product launches. Investments in this quarter were only partially offset by efficiency and productivity savings that continue in SG&A.

Part of this is just phasing; we're not going to spend at this rate for all four quarters. In fact, based on planned expenditures for the second half of this year, and the quarterly phasing of SG&A spend last year, for the full year 2011 I expect SG&A to be broadly flat in constant currency terms. So the 2% revenue decline becomes a 7% decline in core pre-R&D operating profit, since core other income is basically awash year on year.

Whilst I'm on other income, much of our economic interest in US Entocort came through other income, and with the contract termination and generic competition, we won't hit the $800 million level I'd previously guided. It'll probably be just under $700 million for the full year.

Core pre-R&D margin in the quarter was 52.7% of revenue, largely due to the previously mentioned US excise tax, the one-off contract termination fee, and investments in emerging markets and product launches. Core R&D investment in the quarter was $1.1 billion; that's an 8% increase.

Restructuring is generating productivity savings, but we are also supporting several late stage clinical programs that began ramping up in the second half of 2010 and early this year, and we continue to increase investment in biologics. Intangible impairments were also a bit higher, compared with last year.

This leads to a core operating profit of $3.3 billion in the quarter; that's 10% lower than last year. Net finance expense was just slightly lower than last year. Core earnings per share in the quarter were $1.73, compared with $1.79 last year. This is a 5% decrease at constant currency. Core earnings per share benefited from a lower number of shares outstanding as a result of share repurchases, and a lower tax rate.

I appreciate that modeling our tax rate is challenging, especially reconciling the effective tax rate on a core basis, compared to that reported on a reported basis. So I'll refer you to page 13 in the press release for our updated guidance on both reported and core tax rates.

As to the core adjustments to earnings, the key difference is much lower restructuring costs this quarter, compared to the second quarter last year, which is why the 5% decline in core EPS becomes a 3% increase in EPS on a reported basis. While I'm on restructuring, we charged $138 million in the quarter and the program is on track for costs and benefits as previously disclosed.

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

As I mentioned at the outset, revenue in the quarter was down 2%. And you can see here the impact that generic competition and government interventions had on our two largest regions. Revenue in the US was down 3% where we had to absorb US healthcare reform, and almost $300 million in sales lost to generic competition, mostly Arimidex and Toprol-XL. Revenue in Western Europe was down 9%, largely on generic erosion for Nexium and Arimidex, and government pricing interventions.

Revenue in established Rest of World was up 4%, with Crestor driving the growth in Canada, Japan, and Australia. Emerging markets revenue increased by 10%; Nexium and Symbicort accounted for 45% of the revenue growth in this region, but there was also good growth with the oncology and cardiovascular products as well.

Turning now to revenue at the brand level, I'll begin with Crestor. Worldwide sales of Crestor increased by 15% to $1.7 billion. Across the world, Crestor continues to grow ahead of the statin market growth rate. In the US, sales were up 17% to $796 million; total prescriptions were up 2.4% compared with 1% for the total statin market.

After a soft first quarter in market share performance, when generics tend to get a bounce from the annual rollover in managed care plans, we have seen some recovery, which is especially evident in the dynamic share, so that's the share of new and switch patients in the statin market.

We started seeing some improvement in April, but the real market event was the FDA's June 8 safety advisory on simvastatin. In just three weeks after this notice, simvastatin lost more than 12 percentage points of dynamic share. We've picked up nearly three points of that, slightly better than our pre-event relative market share position would predict.

Crestor sales in the Rest of World were up 12% to $918 million. Volume in Western Europe grew in double digits, although lower prices reduced reported sales growth to 7%. Sales in established Rest of World were up 19% as sales in Japan, Canada, and Australia all grew at double-digit rates. Sales in emerging markets were up 8%, which reflects the impact of generic rosuvastatin in some our Eastern European markets.

Turning to the Seroquel franchise, second quarter sales were up 11% to $1.5 billion. In the US, franchise sales in the second quarter were up 13% to just under $1.1 billion. Focusing on Seroquel XR, total prescriptions were up 19% in the second quarter, compared with last year, and well ahead of the 4% growth in the atypical antipsychotic market.

Although Seroquel IR prescriptions were down 2.6%, the total Seroquel franchise was still up 0.5%. In the US, Seroquel XR accounted for 16.9% of franchise prescriptions, and 18.7% of franchise revenue in the second quarter.

Seroquel franchise sales in the Rest of World were $443 million; that's a 5% increase fuelled by a 36% increase in Seroquel XR, which now accounts for 41% of franchise sales in these markets.

Symbicort sales were up 14% in the quarter, to $802 million. In the US, sales in the second quarter were up 14% to $206 million. Total prescriptions were up 10%, compared with a 3% decline in the US market for fixed combination products. Symbicort share of total prescriptions reached 19.2% in June; that's up 2 percentage points over June last year, despite the launch of a new entrant. Market share of patients newly starting combination therapy is 26.1%.

Symbicort sales in the Rest of World were 13% ahead of last year to $596 million. Sales in Western Europe were up 3%, and that's despite the impact of price reductions in Germany. Sales in established Rest of World increased by 57%, reflecting continued strong growth in Japan, as well as double-digit growth in Canada and Australia. And sales in emerging markets were up 24%.

Alliance revenues from Onglyza were $46 million in the second quarter, of which $33 million was in the US. Total prescriptions for DPP4 product in the US market are up 22% year to date, and that's compared to a 15% growth rate at this time last year. So this is an encouraging trend.

Kombiglyze XR, the once daily, fixed to those combinations of a DPP4 inhibitor and Metformin was launched in the US during the first quarter, and it's given the total franchise a nice lift. Total franchise prescription share of the DPP4 market reached 14.1% in June, of which 2.7 percentage points is Kombiglyze XR.

Combined share of new DPP4 starts was around 25% in the latest week, with 36% of these coming from Kombiglyze XR. Franchise revenue was $13 million in the Rest of World.

The approval in the US for Brilinta was certainly welcome news. In the context of David's earlier observations about the journey from regulatory approval to protocol adoption, I think the key message, from a second quarter revenue perspective, is that revenue is very much a lagging rather than a leading indicator of the pace of the launch rollout.

For example, in Germany, it's by far the largest market for which we have approval and reimbursement. There are a 1,000 or so target hospitals that we estimate account for 80% of ACS discharges. So far, we've achieved protocol approval in around 15% of these hospitals, which is in line with our expectations. And where the product is on protocol, we are getting good trial rates.

So that's a quick review of some of the key brand performances in the second quarter. The press release provides more detail on these, and the other brands that I haven't covered.

Let me now turn to cash flow. Both EBITDA and working capital are broadly in line, compared with the first half last year. So the decrease of $1.9 billion in net cash generated from operating activities is driven by the tax and interest line, from the various settlements that have been made and some year-on-year phasing differences.

In terms of the application of cash, we started the year with net funds of $3.6 billion. We are exercising good discipline on CapEx and other investments, and we distributed nearly $4.9 billion to shareholders closing with a net funds position of just over $1 billion.

Turning to the first interim dividend; the Board has recommended a first interim dividend of $0.85. Now it's important that this be seen in the context of the Board's two objectives when it comes to the dividend.

First, the overall progressive dividend policy, by which we intend to maintain or growth the full-year dividend each year. The second is the aim, over time, to adjust the balance between the relative weighting of the first versus the final dividend. And here, the aim is to set the first interim dividend at a level of approximately one-third of the full dividend for the prior year, which in 2010 was $2.55.

So this interim of $0.85 is in keeping with its objective, and is around 33% of the $2.55.

The Board also is committed to returning cash in excess of our business requirements through periodic share repurchases. So let me just touch on where we are for share repurchases at the half-year, and the plans for the second half.

You'll recall that the Board has set a target of $4 billion for net share repurchases for 2011 and, through the end of June, we were more than half way there with net share repurchases of $2.2 billion. Today, we announced that the Board's intent is to augment this target level by the net proceeds from the sale of Astra Tech for approximately $1.8 billion. How much of this executed during 2011 is a matter of the timing of the sale. The later it is in the year the harder it will be to complete the full additional amount in calendar 2011, but it will all go to shareholders.

Our best estimate at this time is that, for the full year 2011, net share repurchases could increase to the $5 billion level with any remaining balance of the Astra Tech proceeds carried over to 2012.

My final topic, before handing over to Martin, is our guidance update. The underlying performance in the business in the first half has evolved in line with our expectations. We're driving the performance of brands where we retain exclusivity; we're focusing on productivity and on efficiency; we're investing to drive growth in emerging markets and to successfully launched the new products, all while absorbing the impact of generic competition and government price interventions.

Revenue for the full year still looks to be a flat to a low single-digit decline on a constant currency basis, with the year-on-year comparisons becoming less demanding in the second half. We have increased our target for the full-year core earnings per share by $0.10. The new range is between $7.05 and $7.35 per share. The $0.10 increase is based on two factors below the operating line.

Around $0.06 or so is due to the re-phasing and expected increase in net share repurchases. The second item, around $0.04, is the beneficial impact from exchange rate movements realized in the year to date, compared to our guidance rates which, you will recall, are the average rates that prevailed in January 2011 when the targets were communicated.

So let me just be very clear on this; this $0.04 is for exchange benefit that is already booked. There's no exchange rate impact embedded in our forward look for the second half; that is still based on the guidance basis January 2011 rates.

As ever, our guidance, going forward, takes no account of the likelihood that average exchange rates for the remainder of the year may differ materially from the January 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.

So underlying business performance is in line with our expectations; core earnings per share target raised on the back of share repurchases and the first half exchange rate movements.

So I'll now hand over to Martin for his research and development update. Martin.

Thank you, Simon. I'm going to give you an update today on where we are with our late stage portfolio. My focus will be on Brilinta, Dapagliflozin, and late stage trial program including NKTR-118, our project in opioid-induced constipation, which moves into Phase III in the first quarter. I'll finish with a top line summary of upcoming milestones.

In conjunction with this morning's results, we also published our half yearly update of the clinical development pipeline. So first, a quick word on that. We currently have 88 projects in clinical development. This is down four from full year, and proof that we are following through on the scrutiny that I spoke about in January, advancing only those projects that meet the most stringent selection criteria, and being prepared to remove those that don't.

Over time, this dynamic will lead to an increase in the overall quality of the pipeline and, as you know, I believe that, over the long term, our relentless focus on quality leads to lower risk and, consequently, better returns. You will also note from the pipeline table that we've continued our practice of guiding to future filing dates on a much broader geographical basis.

So far this year, we've seen seven product approvals in the major regions and BRIC markets, including Brilinta in the US last week, Onglyza in China in May, and Nexium in Japan in July. Our pain medicine, Vimovo, continues its launch rollout and to receive additional marketing authorizations.

Caprelsa, for the treatment of advanced medullary thyroid cancer, was approved in the US in April. In Q1, high dose Faslodex got improved in India, and our flu vaccine, Fluenz, was approved for the first time in Europe. In both the US and the EU, Onglyza received label enhancements for patients with renal impairment.

We have submitted Brilinta in further markets, including China. Our quadrivalent flu vaccine, MEDI-3250, in the US, as well as Dapagliflozin and Caprelsa in BRIC markets. Clearly, the highlight of the year so far has been the progress we've been making around the world with Brilinta, most notably with last week's US approval.

Since the EU marketing authorization in December, we have significantly expanded Brilinta approvals beyond Europe covering 41 countries now, including the European Union, US, Australia, Canada, and Brazil. Where we have achieved pricing reimbursement already it is broad, and that the product labels reflect the full extent of the PLATO data. And government authorities are showing a willingness to reimburse for the broad ACS patient population studied in the trial.

We are also happy with the pricing we are achieving, with governments and other peers seeing Brilinta as superior to branded clopidogrel, and willing to reflect that superiority in a premium price, despite the availability of generic clopidogrel in these markets.

Health economic data from PLATO showed Brilinta to be cost effective, even compared to generic clopidogrel, which helped further demonstrate the compelling value proposition of Brilinta versus a widely used generic. This is of interest to payers looking to lower overall healthcare expenditures.

There's more work to be done, both in completing the step-wise launch process David talked about, and also in completing the regulatory reviews ongoing in a further 43 markets including China, Russia, and India.

And we've already turned our focus to future life cycle management. With a PEGASUS-TIMI 54 study, we are working on extending the scientific knowledge about the benefits of Brilinta one year to three years following an ACS event. And we've recently started a second smaller study called [Atlantic], in STEMI patients who are to be treated with an artery opening procedure known as PCI.

Current treatment guidelines recommend initiation of antiplatelet therapy as soon as possible, but there are limited data on pre-hospital administration in the ambulant setting. The aim of this study is to determine whether initiation of Brilinta as early as possible can lead to improved outcomes for these patients. The Japanese registration program has also progressed to Phase III with a target submission date of 2013.

Turning briefly to the US approval. I believe the label is a strong one; it fully reflects the patient population and the excellent data from the PLATO trial, and gives us a unique cardiovascular mortality benefit claim over clopidogrel. The boxed warning gives appropriate prominence to the data on bleeding, and on the impact of higher aspirin doses on the effectiveness of Brilinta.

The warning states that maintenance doses of aspirin above 100 milligrams reduce the effectiveness of Brilinta and should be avoided. I see this to be in line with the general trend in the US towards a greater use of lower maintenance doses of aspirin. Real world data from PLATO also suggests that more than 40% of US patients are already receiving low dose aspirin in clinical practice.

As you know on July 19, the FDA's Endocrinologic and Metabolic Drugs Advisory Committee met to discuss Dapagliflozin, our SGLT2 inhibitor developed with BMS. Clearly, we had hoped for a positive vote from the Advisory Committee, but in reflecting on the Committee's deliberations I'd make a few points.

There was a clear call for additional information to fully characterize some important aspects of the benefit risk profile for this compound, as well as general appreciation of the need for new treatment options for this disease. And many of the Committee members found aspects of the product profile interesting; oral dosing; novel insulin independent mechanism; the potential for weight loss rather than weight gain; the low potential for hypoglycemia.

As the agency said at the end of the meeting, the balance of these questions now moves into the hands of the reviewing division and clearly, there is a discussion that needs to take place to find the appropriate way forward. We remain committed to the broad clinical development program for Dapagliflozin, and will focus our efforts on working with the FDA between now and the PDUFA date on October 28 to address these outstanding questions.

Let's now look at some of our late stage trial programs. NKTR-118, an oral peripherally-acting opioid antagonist, which we are developing with Nektar Therapeutics, moved into Phase III and is being investigated for the treatment of opioid induced constipation, or OIC. Opioids are widely prescribed in pain management, with over 250 million prescriptions written annually in the US alone. And some 50% of patients taking them long term suffer from constipation. Of these, only 40% to 50% gain effective relief with current treatment.

NKTR-118 is designed to block opiate receptors in the GI system, and thus alleviate OIC without counteracting the analgesic effect of opiates in the brain.

The Phase III Kodiac program started unrolling in March. It consists of two efficacy studies of 630 patients each, which compare two doses of NKTR-118 and placebo. A 52-week long-term safety study assigns patients to open label treatment of either NKTR-118 versus traditional treatment chosen by the physician. Kodiac also includes one four-week study of patients with cancer-related pain.

Building on results from Phase II, Kodiac will aim to establish a substantially improved lower GI function by increasing the frequency of spontaneous bowel movements in patients with OIC, whilst simultaneously preserving opioid mediated analgesia.

The first regulatory filing of NKTR-118 is being planned for 2013.

Other Phase III clinical programs are on track too. The Fostamatinib Phase III development program, OSKIRA, in rheumatoid arthritis is progressing well. We expect the first set of data in the second half of 2012, and remain on track to meet the planned US and European filing dates in 2013.

In addition to the three pivotal combination studies, we commenced a further Phase IIB study during the first quarter, OSKIRA-4, which explores Fostamatinib as a monotherapy in RA, and will provide important information on the profile of Fostamatinib without concomitant treatment with a DMARD.

In Neuroscience, our novel neuronal nicotinic channel modulator, TC-5214, licensed from Targacept, is progressing through its Phase III clinical program called renaissance. This program investigates TC-5214 as an adjunct to SSRI SNRI therapy in major depressive disorders. Readouts from the first completed study will become available in Q4, and all study results will be available by Q2, 2012. We continue to anticipate the US NDA submission in the second half of 2012, and EU filing in 2015.

The Saturn trial investigates the effect of 40mg Crestor and 80mg atorvastatin on atherosclerotic disease in patients with coronary artery disease. The last patient visit occurred in June, and we are now awaiting the completion of the IBIS data analysis, and expect the first full scientific presentation of the data at the American Heart Association meeting in November.

Let me summarize the key milestones coming up in the second half of the year. We expect Brilinta to be filed, approved, and launched in further markets. Final reimbursement decisions are expected by NICE in the UK, the French Transparency Commission, and in Canada and in Germany.

Vimovo is anticipated to continue its launch in over 20 more markets this year. And we're expecting regulatory decisions on Axanum in the EU, and on high dose Faslodex and IRESSA first line in Japan in Q3 to Q4. The US PDUFA date for Dapagliflozin in October 28.

We're planning to further broaden the Symbicort market to reach more patients in Japan, and will submit Zinforo in several emerging markets.

As regards CAZ-104, our beta lactam/beta lactamase inhibitor combination, for the treatment of serious Gram-negative bacterial infections, we are discussing with regulators potential trial designs. A decision on Phase III progress will be taken jointly, with Forest Laboratories.

Depending on the review of all available data, and the resolution of certain formulation challenges, Olaparib, in serious ovarian cancer, may obtain a Phase III decision towards the end of this year.

This concludes my portfolio review today. With the organizational improvements I spoke about in January, our improved rigor in drug candidate selection, and the momentum we have built since, I believe we're on the right track to creating long-term sustainable pipeline value.

Yet, I will not rest to continue to adapt the organization to ensure we have the right priorities, the right structure, and the right level of investment in place to successfully deliver great medicines to patients, and value to our investors.

David, back to you.

Great, Martin, thank you very much. Simon, thank you for covering as much as you did as well. So it's time to move onto questions. (Operator Instructions).

Alexandra Hauber, JPMorgan.

A couple of questions. Firstly, on the gross margin, you're now guiding that this is a bit ahead of last year, and I think until recently that was a bit below last year. Can you just tell what has changed; whether that's FX or whether that's mix? I noticed in the US you're still taking very good price increases.

Also, it's the second quarter where you're basically blaming the low cost of goods on cost savings, so I'm wondering what that means, how that be phased out dramatically over the half year.

Moving onto Brilinta. You, obviously, seem to be very happy with your label. In my mind, the bleeding language was somewhat surprising, given that the bleeding didn't seem to be so bad in the PLATO study. So I'm wondering, where does this bleeding language actually come from, and do you expect it to have any impact in the marketing?

Also, you mentioned the timelines -- sorry, you talked about the protocol adoption in Germany. How long do you think it takes you to get to something like 80% protocol adoption? Is that something which is going to take very fast, or is that something that's going to take you two to three years? And is that going to be a similar procedure in other countries?

And also, on Brilinta, I think you mentioned a recent trend towards lower aspirin doses in the US. Could you just elaborate on that? Because I'm actually surprised that you said that comment, given the Oasis study that reported two years ago, which showed, particularly if combined with a high Plavix loading dose, you do get better outcomes with a high aspirin dose.

Okay. Alexandra, thank you for a number of questions. I think we'll probably move those around a little bit. Simon, we probably should let you start with the question about the gross margin, and the effect on currency versus mix, as well as the COGS question for the year. And then, I'll ask Tony and Martin to comment a bit on the Brilinta issues. But why don't I let you go first?

Well, thanks, Alex, for the question. Gross margin, I think we've seen, obviously, the benefit from the PDL settlement, which show a benefit of the gross margin in the first quarter. We see that running through for the remainder of the year.

Of course, there are multiple impacts on gross margin. We have net price effects, some ups, some downs; we've got some mix effects, in terms of the overall product range. But I would say that the main impact that lifts our gross margin expectation here is PDL. And then probably, the productivity and efficiency drive, giving us a slight advantage, relative to the net price and mix pressures.

So I wouldn't read any more into it than that, but hopefully, you've got a sense of some positive momentum on the gross margin line for the full year.

Good. Thank you, Simon. Why don't I go onto Brilinta? The first question was around bleeding, and the perception of bad language; as well as the third part was around aspirin doses in the US, high dose versus low dose. Martin, do you want to comment on both of those?

Yes, very happy to, David. And thank you for the question, Alexandra. Just to reinforce what you said, we are very pleased with the US label. The label clearly endorses Brilinta's use across the full spectrum of ACS patient studies in the PLATO trial. So hence, our pleasure with it.

In terms of the bleeding that you specifically refer to, we actually believe the box warning gives appropriate prominence to the data on bleeding. I'd certainly point to the comparative aspect, where the label clearly states that Brilinta, like other anti-platelet agents, can cause significant, sometimes fatal, bleeding. So we believe that is appropriate for it.

In terms of the aspirin doses, and the trend towards lowering, a couple of things here. We do believe there's a trend towards it. The real world data on PLATO clearly showed that already, over 40% of US physicians were prescribing low dose. This, clearly, is different in the rest of the world, where it's over 90% in terms of lower dose. But nevertheless, we believe that that trend will continue.

Where I would really point, Alexandra, is to the PLATO data. And one of the great things about this trial is, this now gives -- and the approval, obviously, gives the physician a great option now. And if you look at the PLATO data with Brilinta, and low dose aspirin, showing clearly the mortality benefits we speak about, we believe that that will have a very good uptake in clinical practice.

So just to be clear, sorry, the trend, you weren't really referring to some sequential data. You're just saying it is already quite high, the low -- if [40% is a] respectable number, then we can change that?

That's correct.

And Tony, the question about the adoption rates, and the protocol adoptions; the question is, how fast do you get to 80%. I don't know how you want to handle that.

Alexandra, I would say that a key part of the strategy for Brilinta is to win at initiation. And that means we need to map out the hospital formulary and protocol decision process, hospital by hospital, country by country, that we launch into. I would suggest that that processing flow would take closer to a year, versus the kind of time that you were speaking of, to cycle through. But very much, that's dependent on launch timing and sequence in that country.

Okay, good. All right, Alexandra, thank you. Tim Anderson, Sanford Bernstein.

A couple of questions. The guidance, sorry if I missed it, but did you reaffirm that full year core pre-R&D operating margin would still be at the top end of the previously given range?

Second question is on tax rate. You've discussed before, and today as well, about how the rate would go down in 2011, because of the Q1 provision release. Can you tell us how much of that will spill over into 2012?

And then two questions on Crestor. On the SATURN trial, might you top line results, ahead of American Heart, once the scans are full analyzed? And last Crestor question is, are you confident that, in the US, following Lipitor's patent expiry, that Crestor -- are you confident Crestor will be able to post positive year-on-year growth for the next many years downstream of this event? The product's doing well now, but I'm just wondering how Lipitor might change as between potential price erosion of Crestor, as well as volume loss?

Thanks, Tim. I'll save the two Crestor questions for Tony. I'll make a comment about one of them, probably after he's finished. But why don't I go back to Simon first, again, the question around guidance and the specifics on the -- Simon, the pre-R&D margins at the top of the guidance that we've given; as well as the tax rate question, and the bleed-over into 2012, how much can you bring to that? Thanks.

Sure, okay. Tim, thanks for the questions. At the beginning of the year, we indicated that we anticipated core pre-R&D margin for 2011 to be the upper end of the 48% to 54% corridor that we set out at the start of our midterm guidance. And we still see that to be the case. I think there's -- talked about today -- we've pulled our gross margin view for the year up a little bit. But you'll also note, Tim, that I said that our other operating income number we expect to be a little bit lower, because of the Entocort impact.

But overall, we still expect pre-R&D margin, core pre-R&D margin, to be towards the upper end of the range we guided to for the midterm.

Turning to tax rate. We set out, on page 13, the expectations for the full-year 2011 tax rate, which you'll have picked up by now; 19% on a reported basis; slightly higher than that, between 21% and 22% on the core rate. But that's for 2011.

We're not giving guidance beyond 2011, but what I would say is that we generally face an environment of corporate tax rates coming down. If you take our two key markets, UK and Sweden where, for example, a lot of the business, [or the intellectual property space], they're both sitting about 26% at the moment. And as you also probably know, the UK has reduced its rate further, going forward.

So I think we face an environment, Tim, with some downward pressure on corporate tax rates. But we'll update you on our expectations for 2012 at the beginning of 2012 with our full year results. Thanks, Tim.

Good. Thank you, Simon. Martin, do you want to comment on whether or not we're going to release any of the SATURN data before the AHA?

Yes. Thank you, David, and thanks for the question. Tim, as you correctly allude to, it's our intention to publish the scientific data at the American Heart Association in November, later on in the year. Given that we haven't seen the data yet, I'm not going to predict how we will, in fact, and if we will publish before that.

Good, thanks. And before I turn over the atorvastatin second question to Tony, I would just say, we're very happy with the performance of Crestor in the market again this year. It's trending towards $7 billion, with a significant growth rate, and a lot of energy in the organization behind it.

A couple of big events, as just said, about SATURN and, of course, the generic atorvastatin to deal with next year. But Tony, do you want to comment on where you think we're going to go once the atorvastatin market becomes generic?

I will, David. And Tim, thanks for the question. Tim, obviously, I'm not going to go into multiyear forecasts with you, but what I can do is share with you the dynamic that we expect to occur in the marketplace with the introduction of a generic atorvastatin, and what we think is essential for our ongoing success.

First and foremost, we believe that the most important thing to do for Crestor is to continue to position it for that moderate to high risk patient. Because in that patient population, we believe we have a product profile that is much more resilient than to some of the pricing tendencies that have occurred in the marketplace. And it allows us to claim a strong patient population, based on efficacy.

When atorvastatin goes generic, we would expect two pricing sensitivity points. There will be, obviously, some managed care organizations that would want to move to a predominantly generic formulary. In fact, some may even move to generic only, but we think that that will be a very small minority.

Crestor, we believe, we still have strong positioning in many, many of the formularies across the country. And we think that there's going to be a reset, obviously, in share, when that first hits the marketplace. But Crestor has been resilient through these types of actions before, and we think it will be in the future as well.

Thank you.

Tony, thank you. And I would just finish by saying, we have a couple of markets outside the US where we have generic atorvastatin, and it's not had a significant impact. Spain and Canada, I think are two. So we have a couple of different analogs running, but I think we've got a point of view about where it will go.

There's a question someone wrote in. I'll do that one, and then I'll go to Peter Verdult from Morgan Stanley. But the question that was written in is about Crestor US TRx grew by 2.4% in the quarter, but sales grew by 17%. Could you explain that? It's from Marcus Bellander at Carnegie. Tony, you want to handle that one?

Yes, sure. Marcus, as David mentioned, globally, Crestor certainly has been a strong driver for us with double-digit growth.

In, I would say, markets outside the US, the dominant driver of growth has been volume driven, which is offsetting some of the government intervention issues that David mentioned earlier.

In the US, we see more modest volume growth, and you saw that in the TRx number. And combine that with mix, we get modest volume growth. But what we do see is a positive pricing effect in the marketplace for Crestor in the US. And that's due, in a large part again, to the brand positioning that I mentioned earlier.

Now, moving forward, we think we can see opportunity for volume growth additions with some of the dynamics that are occurring in the marketplaces, as Simon mentioned, as did David, with the simvastatin issue that's hit the US. We see opportunity to accelerate new brand share there. But, again, modest volume growth, but a strong pricing impact in the US.

Peter Verdult, Morgan Stanley.

Sorry to labor the point, but two questions that have been previous asked, SATURN and Crestor.

On SATURN, my understanding was that we'd hear nothing for this, pre the presentation at AHA. The way you answered the last question, Martin, are you saying that we could see top line data before that? Or is my working assumption correct?

On Crestor, Tony, are you saying that, essentially, the 15% net price uplift to explain the Crestor number in Q2 for the US?

And then lastly, Martin, on the Brilinta label; with a competitive product in ATS, which also had bleeding language come on to the label, we saw the commercial revenues of that product significantly disappoint the initial market expectations, despite showing superiority to clopidogrel.

So without putting words into your mouth, the way I should be understanding this, are you essentially saying that the claim on CV reduction trumps the increase in the bleeding risk, when you think about Brilinta and its uses, going forward?

Thanks, Peter. I think I'll probably go to Martin first around the AHA or not, Martin.

And then the Brilinta label and your view on the relative benefit of the cardiovascular morbidity and mortality decreases balanced up against the bleeding risk.

Yes, I'll take the AHA piece. Peter, as you ask, really just repeat to say that we certainly intend to show the scientific data at the AHA, but would like to see the data first before deciding on any other way. So I wouldn't predict if we will publish ahead of time and how we would do that.

Certainly in terms of the Brilinta, Peter, I think you've hit the nail on the head. In terms of the bleeding risk, Brilinta, like other anti-platelet agents can cause bleeding. That's very clear in the label, and very well known. But what we have shown with Brilinta, and this superiority piece which, compared to clopidogrel is this cardiovascular mortality benefit. And we certainly see that as being a profound advance in the treatment of ACS patients.

And to answer your question about is there a the difference between the 2% prescriptions and the 17%, a 15% price increase, the answer is, no.

We don't usually split out the difference, but because of the mix effect, the increase in the numbers established per prescription etc., our volume numbers are higher than the prescription numbers. But price played a significant role in that.

Thanks.

Andrea Bici, Martin Currie.

Congratulations on a good quarter. Can you comment on the slow ramp of the Vimovo launch? You did refer to it being launched in other countries and the opportunity. But why, in your mind, has it been slow so far? And what are doing, from a sales force perspective, to improve that?

Okay, well, that's a good question. I'll make a couple of comments, and then see if Tony wants to add to it.

I think, in terms of the US launch, it's really underperforming, due to lower demand. I think generics are a very formidable competitor in the US market. And we've learned a number of things as a result of the initiatives that we've taken.

So we're working on more and better access for the product; getting more focused on a competitor right now, to be very specific about one position; think about what to select. If they're thinking in the context of a brand rather than a generic, then we'd like to position our brand as one they might connect.

I think we've had some trial, and we have experimented a bit with the level of promotion that we need to put on it. I think getting the trial list built in does take time.

So the resources we put behind it were appropriate for what we thought the size of the opportunity would be. But given the performance, I think we understand the market better now, and we've adapted; we're making changes as to what we're doing.

I'll turn over to Tony in a minute, but just to say, we also have in the Rest of World, a number of activities going on. We're going to file this product in a number of markets, and believe that there is some runway for it as we move outside the United States.

Tony, anything else you want to add about the US?

David, I think you encapsulated it. Certainly, we're not satisfied with the overall performance of the product. And I do think that the performance does reflect a challenge of bringing a product into a highly genericized marketplace.

As you said, we have seen trial and we're learning from the trial, and we can adapt our resource mix, leveraging some of our new channel work, in addition to other means.

We are committed to bringing the product forward. And I think that this does require more activity on our part and better focusing targets.

Okay, so we're committed. Andrea, thank you. Steve Scala, Cowen.

Okay, so I have two questions on Crestor. First, what is your expectation for the amount and pricing of generic Lipitor in 2012? Does AstraZeneca expect this to be a typical generic erosion curve? Or does AstraZeneca believe this will be unusual in any way, perhaps due to manufacturing complexity and, therefore, potentially, benefiting Crestor?

And the secondly, if you've already addressed this, my apologies, but what is the status of Crestor inventory in the US? I think destocking was cited for the weaker Q1 numbers. So are we back to normal levels, or where do we sit? Thank you.

Okay, well, I'll ask Simon to take the inventory question in a moment. But maybe I'll make a comment about our view on the market and ask Tony what --

Obviously, we've modeled this a number of different ways, because there are different erosion curves that you can use; if you go outside the United States then the curve is slow. You can look at the simvastatin curve in the United States and see that it had a larger impact.

I think, as Tony said a minute ago, our focus is on the higher risk/medium risk naive patients that are new to therapy, who need more than just a mild to moderate lowering of their cholesterol because they have multiple risk factors.

I'm not sure whether I would classify where we're going to be as a benefit or not. Tony do you want to --?

No, David, I think you've hit it on the head. Steve, I don't think that we are looking at any significant difference in erosion models and curves, based on practice in the US behavior.

And David has already covered nicely the dynamics in the Rest of World markets.

Simon, over to you on inventory.

Sure, Steve, we did indeed have a little bit of destocking the first quarter, and that's recovered in the second quarter. But if I look at the year-on-year growth, quarter on quarter, stocking has a very limited impact on the overall year, or quarter-on-quarter growth.

Good, thank you. Mark Clark, Deutsche.

I had questions about Crestor, but I think you've just answered those.

Also, just following on from the issue of wholesaler inventory movements, do any of the other key brands reflect any movement of US wholesale inventories? I'm looking, for example, at Seroquel IR, scrips are down, and yet you've actually had a reasonably good quarter in the US.

Okay, well, Simon do you want to comment on that? I know price is an element of that, some factor of that involved. But is there anything specific?

No, I think on Seroquel, there's also been volume effect, which is volume and mix effect. We've also had some pricing power on Seroquel.

But if I look across the main brands in the US, you're right, Mark, probably Seroquel's the one where we've had a little bit of year-on-year impact on growth from stocking.

So a bit of replenishment in this quarter on the Seroquel franchise, but the bigger drivers I think are the wider market dynamics of growth in the XR business; overall franchise suffering a bit as IR goes down, but we continue to have good pricing power on that product.

Thank you.

Okay, thanks Mark. Gbola Amusa, UBS.

Apologies if any questions have already been asked. SG&A, given your disproportionate increases in the quarter, can you comment on whether Seroquel, Crestor or Nexium have seen any increases in promotion, and whether there are big increases in share of voice?

And then on Brilinta, would you comment on two competitive issues? One is whether you think that this label is differentiated versus Effient.

And two, whether it's good enough to compete against higher dose Plavix, given the issues there.

And then lastly, I recall Oasis-7 a New England Journal of Medicine Editorial mentioned that opponents of higher dose aspirin should concede [to see modified] clinical practice. Has the use of low dose aspirin actually changed in the time since that editorial came out? You mentioned 40%, is the number different than, let's say, a couple of years ago?

I'll give that one to Martin in a minute. He can think about it, and I'll give Martin the labeling question in the competition with high dose Plavix.

Tony, I'd go to you on were there increases in promotional activity around Seroquel, Crestor and/or Nexium? But Gbola, just before I let him answer, you're talking about just the US, or are you talking about globally?

Particularly the US.

Okay, so in the US Tony, Seroquel, Crestor, Nexium promotion in the first half of the year.

I would say that, if you look to the general plan that we had, no, there hasn't been any significant alterations in the overall strategy or in the resourcing. But I would say, David, globally there has been where there's been significant opportunity for any of these brands around the globe.

So we have seen step up in investments and opportunities for Nexium, for example, the Japan launch and preparation for that, and in other markets for Symbicort where we now get the benefit of the PRDL listings in China, and the same with Crestor. So there have been increases globally, but in the US the mix has been roughly the same.

And before I go to Martin on the other questions, Simon, maybe you'd just give some comments about SG&A in general, because there are some questions?

I think it would be helpful to do that. I think, as we described in our release, and indeed in my remarks earlier, we did see an increase of 9% in the quarter, but you'll recall that about half of that growth came from US healthcare reform and the termination penalty on Entocort.

If you look at the remaining half of growth, Gbola, that basically splits down into two slices. It's the investment in emerging markets where we're continuing to invest both in field sales, but also promotional activity. And I guess that probably the main markets where we're seeing significant growth would be China, Brazil, Russia were probably the three I would call out, that we see particularly strong returns when we put in additional resource.

And then the second component of that growth is actually a net increase in our sales and marketing in our established markets, and that's net of continued drive on efficiency. And that increase reflects, I think, the preparations for launch behind key brands as well, as Tony mentioned, some more share of voice behind one or two of the brands where we've got continued exclusivity.

So that's the shape of the growth in the quarter. But as I mentioned, for the full year, part of this is phasing. You'll have noticed, if you look back last year we saw quite a step up in SG&A actually in the latter two quarters. We expect the phasing for this year to be rather smoother and, therefore, as I mentioned in my remarks, our current view is SG&A spend for the year actually to be broadly flat.

Simon, thank you very much. Martin, over to you then on the label versus Effient, competing with high dose Plavix, and then the question about has the paradigm for high dose aspirin shifted in a couple of years.

Thank you, David. And thank you for your two questions, Gbola, and I'll take it in the order that you asked.

In terms of the benefits over Plavix and other antiplatelets, clearly our label endorses the use of Brilinta across the full spectrum of ACS patients studied in PLATO, which we see as being very important. And it will allow us to promote a cardiovascular mortality benefit, i.e., superiority over the standard of care which is, of course, clopidogrel.

And of course, this now makes the Brilinta the only antiplatelet to demonstrate a reduction in cardiovascular death in patients with ACS. And again so that would be the comparison with Effient. I won't go into more detail on that at this stage.

In terms of the low dose aspirin, I don't actually know how that's changed over the two year period that you mention. What I do know though, that from the real world data from PLATO already over 40% of physicians are using low dose aspirin.

More importantly now, though, Gbola, with the approval of Brilinta, physicians have a choice. And it is very clear from the PLATO data, and in fact indicated in the label, that Brilinta with low dose aspirin gives this very clear cardiovascular mortality benefit.

And what about people who support high dose Plavix as a way to get Brilinta efficacy? There are a lot of docs out there who still like to use it.

I would just turn directly to the label and where we show the comparison with clopidogrel as it's indicated just now. There are a number of tables in the label, as you've probably seen, which show the benefit of ticagrelor clearly.

Thanks, Gbola. Gavin Macgregor, Credit Suisse.

Three questions please. Firstly, you're now running with a cash balance of about $10 billion. Does this continue to feel like the right level of cash to hold, going forward? That's for Simon.

Second question is focused on emerging markets and the growth trends you've seen over the last four quarters where, about second quarter last year, we were about 18% growth. This has gradually come down to 10% this quarter this year. Anything that you should highlight there; is that going to continue downwards?

And then thirdly, again on Brilinta, the US label states that you should discontinue Brilinta five days prior to any surgery, which is the same as the Plavix label. If I remember rightly, this was always meant to be somewhere where Brilinta would differentiate itself against Plavix because of the reversibility. So how disappointing is that, and does that lack of differentiation to Plavix cause any headwind do you think? Thanks.

Thank you, Gavin. Why don't I just ask Simon to comment on our cash levels at this point, just to give you all a sense of how we think about our shareholder return in the context of overall return?

Thanks, Gavin, for the question. I think we've laid out our policy on cash generation and deployment. Clearly, the first call on our free cash flow before R&D is reinvestment in the business to drive future growth and value.

We've indicated that we expect to reinvest 40% to 50% back into the business for that purpose. And then the residual cash flow, obviously there's some debt service obligations and some liabilities we need to meet from time to time, but after that, our commitment is to return that cash to our shareholders through a combination of our progressive dividend policy, and a rolling program of share repurchases, the quantum for any year we announce at the beginning of the year.

Turning back to the absolute cash balance, we've said a further couple of things around our policy. The first is that we're comfortable with the current gross debt level in the $8 billion to $9 billion range, and also that we do need to run our business with a cash balance for meeting operational purposes. But that is a cash balance below the current level, which clearly, subject to other investment opportunities we see, gives continued capacity for support of our share repurchase program.

Thank you, Simon. On the emerging markets question, I'll certainly let Tony talk about it as he's engineering the strategy. But I go back to what we said when we had the emerging markets review day some time ago. Obviously, it's a diverse group of markets, and so they don't necessarily all act the same, as I'm sure you know. And we see fluctuations from time to time in the levels of demand, which are impacted by the overall economics.

But I'll tell you, our view is that the fundamental drivers for what will drive increased use of healthcare resources and pharmaceuticals remain the ones that we saw. First of all, there's an increase in the amount of disposable income that's available, and as people gain that affluence, to whatever degree it is affluence, they spend some of it to make sure they get access to good healthcare.

Western diseases, also moving into some of the eastern markets for reasons that we all know, but those diseases are more oriented towards our product portfolio. And I think there are better healthcare treatments available, and people would like access to them.

We're on track, I think, to hit the 25% target we said we thought that segment of our business should be by 2014. Simon mentioned it, I mentioned it; we are growing in those markets, we've made investments, they do slow down, but we have well over 14,000 people working in some of these markets. And it's a pretty significant commitment.

Now Tony, you have concerns about a particular set of markets, or anything like that?

David, I think you nailed it. I think the fluctuations market by market can occur, but when you look at it from the macro sense I think we're very much aligned with some of the forecasts that have been out there with IMS and others, that roughly 70% of the Pharma growth can still come out of the emerging markets over the next five years. And we do see country opportunities that play well into our portfolio; for example, we see ongoing investment in Russia; it's an exciting opportunity for us.

All the points that you mentioned, plus there's huge unmet medical need there. We see rates of death in males significantly higher than norms in other countries at much lower ages, and the primary reason is cardiovascular disease. And when you marry that up with our strength in cardiovascular disease management, there's opportunity.

So at the macro level we still see very, very positive trends, but it is a country-by-country issue that we manage strategically.

Thank you, Tony. Martin, do you want to comment about the discontinuation periods that are cited in the label?

Certainly, David. Thank you, Gavin. Certainly, our label does say, when possible discontinue Brilinta in that way. But, of course, the overriding reason to use Brilinta will be the mortality benefit that we demonstrated in the PLATO trial, and not equivalent convenience when undergoing surgery. I keep coming back to this mortality benefit that we clearly showed.

Good. Seamus Fernandez, Leerink Swann & Co.

Maybe you can update us on plans for and timing of the Nexium PPI option with Merck, and your expectations there? Your partner has made it pretty clear that the continuing partnership is not included in their expectations, so they're anticipating that you will execute that option. Just wondering if you can provide a little bit more clarity in that regard.

And then as we've talked to key opinion leaders on Brilinta, some of the feedback that we've gotten has been with regard to how can they actually control aspirin dosing when you've got various doses of aspirin on market available, and the possibility of harm, relative to Brilinta, as a possible perception. How do you get past that, and is there even a way in the future to perhaps package Brilinta with baby aspirin, so that you can actually put that control into the physician's hands a little bit more? Thanks.

All right, well, why don't we start maybe, just let Simon talk a little bit about the arrangements with Merck, and where we could end up.

We have this option in 2012, I've been part of some aspect of this since Merck did the deal with Astra in 1981 or so. And so we've had lots and lots of iterations around this in those 30 years. But Simon, do you want to tell us where we're going to be next year?

Well, Seamus, we have an option -- it is our option to exercise. We cannot exercise that option in 2012, or we cannot exercise the option in 2017. We've not made a decision on that, and we won't make a decision on that, until we move into 2012, when the first option period opens up.

Clearly, we'll make that decision on the basis of a host of factors, of which one will be the appraised value of the future contingent payments. But there will be other considerations as well. But you'll hear more about that as we go into next year.

Okay, good. And Martin, maybe you want to talk a little bit about how we believe aspirin will be used, given the context of the therapeutic option that Brilinta now represents which, as you said, is a decrease in cardiovascular death?

Thank you, Seamus. For me, the absolutely greatest motivation to get the aspirin dose right is the mortality benefit that we've demonstrated as part of PLATO. I would have thought that would have been an overriding motivation.

But added to that, Seamus, we do have a REMS; we'll have a medication guide with each prescription. We'll work diligently with healthcare professionals on the use of Brilinta and low does aspirin. And I'm confident, with the overwhelming data that we've seen here, that that will be common practice, and that physicians will take that treatment option.

In terms of the piece that you speak about, the combination, we're now really in a robust plan to look at life cycle management. And we'll look at combinations, as we'll look at other things with Brilinta, to make sure we maximize the potential of this.

Interestingly, in terms of aspirin control, it's not really coming up in our market research at all. I think that's an important point. And again, as I keep coming back to, when physicians look at the mortality benefit, that will be the motivator.

Thank you. Mark Purcell, Barclays Capital.

I have three questions. David, you're not the first CEO this week, to about the risk of EU price cuts having the potential to go too far, which is the quote on the newswire. So I just wondered if you could highlight some of the regions in Europe, where you feel there could be further healthcare reform issues. And out of the $600 million exposure this year, you could highlight the European reform component, please.

Secondly, Simon, you mentioned a reduction in the price of Symbicort in Germany. Could you help me understand what motivated this, and whether this is going to spread across Europe, from a reference pricing perspective?

And the last question maybe for Martin. I just wondered if you could help me understand, on the countries who have decided and the countries that have yet to decide, how they look at the cost effectiveness of Brilinta versus generic Plavix.

I'm looking at this clearly too simplistically, the number [needed to treat of] 53, per [MINCV] death event. A price I would guess versus fully generic Plavix of $5.70, something like that, means that you're basically -- it's about a cost of $110,000 to save an event.

I'm just trying to understand, particularly ahead of the French and UK and Canadian decisions, how they're considering the cost effectiveness of Brilinta over generic Plavix.

Okay. Good. Well, why don't I just talk a bit about some of the price cuts, the issues that we've seen. Obviously, price cuts are not new, especially in Europe. We have planned in the past for low single-digit price reductions as part of our planning process on an annual basis. They've moved to mid single digits now.

As recently as this week, in Spain, we've also had the price reductions the latter part of last year, in Germany, and I believe, in Italy. So I wouldn't necessarily cut it by region. You know the situation that we found ourselves in, in Greece.

On the other hand, some of the countries have been working with the trade associations, locally, to try to understand are there other ways for them to reach their targets. And one of the examples I always use is the willingness of some governments to reimburse generics at a level that's well above the efficient generics price that you see in some of the most established markets in the world.

So I don't know what too far is. I think my comments really, Mark, were just intended to say, policy matters, and the decisions that are being made about pricing, and the impact of that is causing the industry to make decisions about where we're going to invest, what we're going to do.

In our case, we've decreased the amount of investment that we're making in Western Europe in the marketing and sales side, as well as in the research and development side. We've shifted some of that around, and as the situation changes, we'll continue to make those decisions.

But it's not obvious to me that price cuts create the incentive to reward the innovation that we're spending $4.5 billion a year on to create new drugs. And so it tensions the system, but beyond that, we've got to run an efficient business.

I've a point about the price cuts in Germany, but Simon, do you want to say something about it?

I was going to say that, just on one quick -- perhaps, David, just putting some clear numbers around overall price cuts, and the guides we have provided. Just to say that for Mark to be really clear on this, we indicated at US Healthcare reform, we expect to have an impact around $700 million this year, for the full year. We indicated some quarter to one-third of that was excise fee, going through SG&A, the rest in revenue.

And secondly, we've said that European and other price interventions sitting at around about the low to mid single digits, historically, but really we're in the mid single digit territory for this year. And if you look at our European sales, calibrate that against mid single digits, you can see the kind of impact that we expect for this year.

We can talk more about what we see for following years when we come and talk with you in the beginning of January.

Turning to Symbicort, in Germany, we have a reference pricing regime there, which, with the introduction of a generic, led to a lower reference price point, which then gets flowed through to Symbicort. We see that as a German specific event, in that particular case, although clearly, we need to watch, and do watch clearly, relative pricing around markets to make sure that those sort of impacts don't spread further. But do you have a further comment on Germany, David?

No, that's it; I think you've covered it. And Martin, maybe you want to make a comment about the cost to achieve reductions in morbidity and mortality? We did some health economic work, Mark, so I think it's a fair question, and we did it, versus the price of generic clopidogrel as well.

Thank you for the question, Mark. As we mentioned earlier, we've had approval in 41 countries, and going through submissions now in over 40 also. Of those countries where we have a reimbursement to date, and there's seven so far of them, clearly, they've been through a similar analysis to the one that David alludes to.

One area that I would point you to in particular, though, because I thought it was a very nice draft review, and that was NICE in the UK. They lay out a very nice worked example of how they look at it, compared to other medicines, so I would point you towards that.

Good, thank you, Martin. I'm going to try to move this along, because we're finished in less than five minutes. Naresh Chouhan, Liberum.

There's a few questions on Crestor, please. Firstly, can you help us to understand what was driving the slowdown in scrips in Q2? And we obviously understand that in Q1, you're saying there's a planned roll effect. And then obviously, at the end of Q2, we had the change in the (inaudible) rules. But in between that, scrips were decelerating quite markedly. Is there any color you can give us on that?

Secondly, are you seeing patients becoming more price conscious in the statin market, and how do you think that might evolve in a post branded Lipitor world?

And then finally, are you see managed care becoming more aggressive in trying to get patients to either start on the simva or move to simva from other therapies? We've seen some evidence that managed care are increasing the number of plans with copay waivers on simva, and I was just interested to see what your take was on this. Thank you.

Okay good, well those are all US based I think?

Yes, sorry, yes, all US.

Fine, that's good. I just maybe pointed to you. I think there is a six month picture to talk about rather than a month to month, quarter to quarter, but maybe you want to give a picture of why you -- give some color to what you see happening across the Crestor market?

Sure, I think that there were two fundamental market dynamics in play. You mentioned the managed care rollover, and I think that's real, and we typically see that in the early part of every year.

And second was a fairly aggressive discounting program on part of Lipitor, with their $4 copay. And I think that moved some people in the short term. But then we saw longer term, it wasn't sustainable, and we saw our own resilience beginning to come back in the April, May time period, and then David, on top of that, the previous dynamic we already mentioned.

So we see opportunity for growth in the second half. We're going to continue to push hard.

I know it's hard to anticipate, on the second part of this question, Tony, what will happen when atorva comes out, are patients becoming more price conscious. But what's your take on where you think patients are around price?

I think healthcare has sensitized people to value, and I think as long as we can demonstrate a clear value for our product, and we can continue to position it in the right way.

The low price options have always been there. Generics have been there, in this marketplace for quite some time, and yet there's still been substantial opportunity for us to grow. And when you're a few pennies per cost of therapy per day, you can't get much lower than that. And so that dynamic has already been there.

And likewise, in the managed market question that was the bit following that, managed markets have continued to push as the primary utilization point, a generic use. And we've always seen that we are well positioned for that more moderate to high risk patient, so we acknowledge that there's a place for generic statins in the marketplace. We just believe we're the better product for people that need to be better controlled.

Good. Thanks, Tony. Mattias Haggblom, Danske Markets.

Two questions, please. A lot of questions around Brilinta and the US label, of course. I'd still be interested to hear your view on what's the potential hurdle from the REMS program will provide on Brilinta, compared with clopidogrel which has no such program in place.

And secondly, AstraZeneca has, to my knowledge, not done a significant in-license deal since February 2010 when you did a sizeable deal with Regal Pharmaceuticals. Given your cash generation patent expiries ahead, why haven't you done more recently? Is there a lack of deals that caught your interest, wrong pricing on such deals that you looked at, or is it letting the new team on R&D coming in and getting prepared, evaluating how to best supplement your in-house portfolio? Thank you.

Okay, well, certainly bringing in external opportunities from a licensing and business development perspective is one of our highest priorities. Simon leads that area; there have been a number of transactions that have had happened, some of them I think are probably below the radar screen in the first half of this year, earlier type deals or some things that are based on cooperation that we're in. I can tell you we have a number of discussions underway right now with a few partners, especially toward late stage assets.

You asked about pricing costs, etc. Simon, maybe you want to give some context to that?

I think we did do five significant late stage deals back end of 2009, and early into 2010. I would say that since that time, we've not done any significant later stage Phase IIB, Phase III in-licensing deals, but we continue to do a pretty substantial number of early stage deals, whether it's in-licensing or collaborations of one form and another.

We are as active, from a business development standpoint, during the last 12/15 months as we were in the preceding. We haven't seen -- and I would say that, not only we are as active, I would say there's the same sort of opportunity flow. I think the competitive pressures have always been there, and we haven't seen those intensify. We've probably seen people prepared to pay a little bit higher upfront for early stage opportunities in the past, so upfronts for very early opportunity has probably risen. But I would say same flow of opportunity, same competitive intensity as ever you get pressures on pricing.

We haven't seen in that period an opportunity, given the strong value focus that we bring, our focus in particular on therapeutic areas, we haven't seen the right opportunity for us. But we remain very active, and I'm sure there will be others that will come through over the course of the next 12/24 months; it's a core part of our strategy.

And, Martin, is an important part of it, too. I don't know if he wants to comment on it, but either way, I'll ask you to answer the REMS question.

Yes, I'll take the REMS question; I'd be happy to add anything to Simon's point. There is a REMS program. We don't see that as a hurdle, Mattias; we see that as a way that ensuring physicians and patients are appropriately informed about Brilinta, so we look on it in that light.

In terms of the REMS program itself, it includes a medication guide; letters to healthcare professionals, again, all on the basis of ensuring that physicians and patients are well informed about the medicine, and a website for healthcare professionals. So bottom line, we don't see it as a hurdle.

You think you're disadvantaged compared to clopidogrel who doesn't have it?

No, I don't think so at all.

Okay, good. Do you want to comment at all on licensing and how you see the world?

Only to say that we are actively pursuing licensing opportunities and continuing to push our in-house programs. We see them very much going hand in hand [supportive of both].

Good, well, I would just reinforce, it's very, very important to the way we're operating, and I think we're actively engaged in pursuing things because we're not constrained.

So let me thank you all for joining us today, I'd summarize the quarter quickly by saying the revenue and operating performance, as you heard from Simon and from I, is really in line with where we expected it to be; the double-digit growth in the key brands as well as in the emerging markets is consistent with our expectations for where there is opportunity for growth. And we've had to absorb the headwinds from generic competition from some of these price interventions that we've discussed today.

As we have been doing for the past few years, we continue to reshape our cost base; I think we're making good process, but we're not finished. And we're following how we make appropriate investments, both in the research and development side of the world, as well as in the sales and marketing side. We are putting money in where we see opportunities to do it, and that gives us an opportunity to have a dividend that we think is competitive; have share repurchases that provide strong cash returns to our shareholders, while our business goes through this transition.

So the increase in our core earnings per share target, even given the sales performance and profit performance, I think indicates the commitment we have to make sure that we continue to be an attractive and competitive investment opportunity.

So with that, I will thank you all for joining us, and bid you a good day.