AstraZeneca PLC (AZN) 2012 Q1 法說會逐字稿

Okay.

Well hello, everyone.

Welcome to our first quarter results' call.

This is David Brennan.

Simon Lowth is also here with me and he's going to run you through the financial results in just a moment.

Before I ask him to do that, I wanted to make a few comments about the announcement about my decision to retire as Chief Executive Officer, which we announced this morning.

After more than six years in one of the best jobs in the industry, and a challenging job at that, I think the time is right now to stand aside and to pass the reins to a new leader.

I think the Board made a good decision in appointing Simon as Interim Chief Executive, as of June 1, and I'll hand over my responsibilities to Simon on that date as well.

Putting Simon in place as Interim CEO has my full support.

I think the Board believes, and we discussed yesterday, that vesting authority in the team that's accountable for the day-to-day running of the business into the future is really the best way to ensure both continuity and clear leadership during the transition period.

So to me, that makes perfect sense.

I believe also the Company has an exceptionally strong executive team in place; something that I'm actually personally very proud of.

And I believe, under Simon's directorship, the team will continue to provide strong collective leadership while the Board carries out a thorough search, both internally and externally for my successor.

The pharmaceutical sector is experiencing pressures, the likes of which I've not witnessed in my 36 plus years in the industry.

And, despite that, I really do remain very confident that AstraZeneca has the capabilities, the courage, the determination to be successful in the future.

If we maintain our focus on meeting the needs of patients around the world, and on delivering on unmet medical needs with our medicines, I believe that we can, and will, continue to deliver attractive and sustained returns for our shareholders.

The time for reflection on what has been a long and rewarding career for me with AstraZeneca is going to have to wait until I hand over my responsibilities.

For now, up until June 1, my attention will remain 100% focused on delivering on our strategy.

But, for the record, I do want to say that I'm proud of what we've achieved over the last six years or so.

We've built some, I think, some of the world's leading products in Nexium and Crestor and Seroquel and Symbicort, and these products have made a really meaningful difference to the lives of patients around the world.

We've established a leading position in emerging markets, and have continued to invest there.

We've reshaped research and development, and we've taken some difficult, but necessary decisions, to reduce our cost base, allowing for increased investment where growth opportunities do exist.

And we've also returned considerable value to our shareholders.

And, finally, the other thing I'd point out is that we've led at a sector level too.

For example, we have led the debate on restoring trust in the pharmaceutical industry by introducing bold policies on interactions with healthcare professionals, which have been rolled out globally.

It's been a genuine privilege for me to lead the Company over the last six years or so.

And I'm looking forward to a new chapter, including spending some more time with my family; something that's really very precious to me.

So, with that, let me just turn my attention to why we are here today, which is to talk about first quarter results, and reflect, I think, what is a very challenging revenue picture for us.

In the announcement today, we also highlighted that we've strengthened the pipeline, through both our collaborations with Amgen, to co-develop five clinical stage projects in the field of inflammation.

It's a good opportunity to invest in innovative science, wherever it originates.

Earlier this week, we announced the agreement to acquire Ardea Biosciences for about $1 billion in net cash, which brings with it a promising project in Phase III development for the chronic treatment of hyperuricaemia in patients with gout.

And lastly, we're very pleased that the CHMP has issued a positive opinion for European Union approval of FORXIGA, which is the brand name for dapagliflozin, our new diabetes medicine, from our collaboration with Bristol-Myers Squibb.

And we look forward to bringing it to the market once it receives final approval from the European Commission.

Returning to the numbers for just a minute, the revenue performance, in the context of the anticipated loss of exclusivity on several brands and challenging market conditions, had made for a very difficult start for the year.

We're determined to focus on what we can control.

We're moving with pace to implement the third phase of our restructuring, as you'll have seen by the extent of the restructuring charge that appeared in the quarter.

Delivery on these plans, continued discipline on our operating costs, and the benefits from a lower-than-projected tax rate, is only going to partially mitigate the downward pressure on revenues.

So, as a result, we've lowered our core EPS target for the full year to the range of $5.85 to $6.15.

And, with that, Simon, I'm going to hand over to you and let you cover the details of the quarter, so have at it.

Well, thank you, David, very much indeed and good morning to everybody on the call.

I'm going to focus on five topics.

I'll start by summarizing the headline numbers.

Then I'll cover the revenue performance by region and for selected brands.

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

I'll briefly touch on cash distributions to shareholders, and then, finally, I'll close with our thoughts on guidance for the full year.

So on to the headline results.

Total Company revenue was $7.3 billion in the quarter; an 11% decline in constant currency terms.

Exchange rates were neutral to first quarter revenue.

Now, the dominant feature of our revenue profile for the year will be the impact from the loss of exclusivity on several brands.

And, in the first quarter, 8 percentage points of the revenue decline is attributable to generic erosion.

That's chiefly for Nexium in Europe, Arimidex and Merrem globally, and for Seroquel IR in the US.

Generics for Seroquel IR launched at the end of March.

In line with our established practice, following a generic launch, a returns reserve was taken against the estimated trade inventories, and this amounted to $223 million.

So although the prescription declines won't affect the product until the second quarter, we have already experienced some of the impact in first quarter revenue.

The disposal of Astra Tech accounted for 1.7 percentage points for the revenue decline, as there was $141 million in revenue in the first quarter of last year.

We had a small impact on revenue, just under 1%, from disruption in our supply chain associated with the implementation of a new enterprise resource planning system at our plant in Sweden.

Though the underlying problems have now been largely resolved, we do anticipate further limitation in the supply chain in some markets in the second quarter, as production responds to ongoing demand for filling back orders and restoring normal inventory levels.

Government interventions continue to impact AstraZeneca and, indeed, the biopharma industry generally.

We estimate that our revenue impact at around $370 million in the quarter.

I'll discuss the regional and brand revenue performances shortly, but let's continue with the headline numbers.

Core operating profit in the quarter was down 18% in constant currency to $3 billion, chiefly on the revenue decline.

But also core gross margin, in the first quarter last year, benefited from a $131 million gain from settlement of some patent disputes with PDL BioPharma.

Core earnings per share in the quarter were $1.81, compared with $2.23 last year.

That is a 19% decrease in constant currency terms.

Again, a large one off in the prior-year period has had a big impact.

Last year's first quarter benefited by $0.39, as a result of agreements reached between the UK and US Governments over certain tax matters.

So if we exclude the one offs in gross margin and tax from the prior period, core EPS in the first quarter would have increased by 2% versus last year.

Adjustments to core earnings are significantly higher in the first quarter of 2012, due to the restructuring charges.

So the 19% decline in core EPS becomes a 39% decrease in reported EPS.

So those are the headlines for the first quarter.

Returning to the first quarter revenue performance, and when I refer to growth rates, they'll be on a constant currency basis.

Revenue in the US was down 12%, compared with the first quarter last year.

I already mentioned the Seroquel returns provision.

US healthcare reform had a $205 million impact.

This includes around $38 million adjustment in the Medicare coverage gap discounts related to 2011 utilization.

We had been accruing, based on estimates, and now that the actual utilization is known we do need to make a catch-up provision.

Revenue in Western Europe was down 19% in the quarter, largely due to further penetration from generics for Nexium, Arimidex, and Merrem, and downward pressure on prices from government interventions.

Revenue in Established Rest of World was down 9%.

Japan was down 10%.

This was on general destocking ahead of the biennial price reductions and the quarterly phasing of shipments to marketing partners for Crestor and Symbicort.

The in-market demand for both products was up year on year.

Canada's 8% decline is largely due to generic competition for Nexium and Atacand.

Revenue in Emerging Markets was up 1% in the quarter.

Now, you'll recall, in our full-year results in February, that we expected a weak first quarter in Emerging Markets.

China was up 13%.

Three markets -- Brazil, Turkey and Mexico -- account for more than 40% of the shortfall from our recent double-digit growth rates.

Brazil is down 15% on loss of exclusivity for Crestor and Seroquel IR.

Turkey is down 18%, chiefly on government price interventions.

And Mexico is down 25% on some challenging market conditions.

We expect a rebound in Emerging Markets over the remaining three quarters of the year, but whether we'll be able to claw back all of the first quarter shortfall, and achieve double-digit growth for the full year, is hard to call at this point.

But there's no question that it will be a challenge.

Now this slide provides a snapshot of revenue for our key brands.

We grew revenues for the key brands that retain market exclusivity, except for Symbicort, which would have been up were it not for the phasing of shipments in Japan that I've already mentioned.

Crestor was up 2%, to $1.5 billion.

We had double-digit growth for Seroquel XR.

ONGLYZA revenue more than doubled.

But, as you can see on the bottom of the slide, loss of exclusivity has taken its toll on Nexium, Seroquel IR, Arimidex, Toprol-XL, and Merrem.

Detailed commentaries on brand performances are in the press release, but I want to provide some additional color on two products; Crestor's performance in the US, following the launch of generic atorvastatin, and an update on the Brilinta launch.

First to Crestor.

We now have four full months of data on the statin market, post generic Lipitor.

And, in its wake, Crestor's performance has remained resilient.

Crestor total prescriptions in the first quarter 2012 were up 2.1%.

That's slightly higher than the 1.8% increase in the total statin market.

And this is largely due to stability in the 94% of the Crestor volume that is continued therapy.

We thought that there would not be significant switching for patients who were doing well on Crestor, and that has been our experience to date.

We thought that there would be some churn in the 6% of the volume which is dynamic; that's around 4% from new starts, and around 2% from patient switches from other therapy.

So that's a thin sliver at the bottom of the first chart which we've blown up into a larger scale on the next slide.

Crestor volume of patients who are new to statin therapy is holding up very well, which is the area in red.

The purple wedge is switches to Crestor.

And that has eased somewhat, as some of the pool of patients that used to switch to Crestor from simvastatin has moved to atorvastatin.

And, as we expected at the outset, there was some increase in patients switching from Crestor to atorvastatin on economic grounds, but there has been some recovery in that trend in recent weeks.

All in all, the market is evolving in line with our expectations.

A quick note on the ex-factory sales in the US.

They were flat in the quarter, with the increase in prescriptions offset by a slight decline in realized prices.

And that's attributable to the Medicare discount adjustments that I mentioned earlier.

Turning to Brilinta.

Sales were $9 million in the quarter.

Brilique is really starting to pick up steam in Germany, which is the major market, with the most launch experience.

Brilique is reported to be on protocol in 79% of target hospitals in March.

The latest market research data indicates that, in these hospitals, we're now the leading product for initial therapy for ACS patients, with a market share of 37% of new starts.

In the US, there were no reported ex-factory sales, as we continued to work down the launch stocking that remains in the channels.

But we continue to make steady progress on the leading indicators.

Brilinta is now on formulary in 68% of the top 400 target hospitals.

Protocol access in these institutions is now 20%; and that's up from 14%.

Trial rates amongst all interventional cardiologists have increased to 15.4%.

And, as you can see on the left-hand chart, since we rolled out the full complement of promotional materials in November of last year, understanding of our key differentiating attributes, that's cardiovascular mortality reduction, is starting to gain traction.

Our latest market research indicates that 17% of interventional cardiologists rank Brilinta as providing the greatest cardiovascular mortality benefit of any oral anti-platelet agent.

We know, from our experience in Germany, that, as awareness and belief in this differentiating attribute increases, trial and adoption follow.

On the right-hand side of the slide, in the first quarter we have seen an encouraging inflection point in Brilinta total prescriptions from the trend line upon which we exited 2011.

Based on the PLATO data, Brilinta has the potential to save thousands of lives, if used instead of the current standard of care.

So we would have liked to have seen a faster uptake.

But, because of the complex steps to achieve hospital access, we knew that this would be a slow journey to adoption.

Having worked with many key institutions in the US, we know it can take up to a year to ensure a new medicine is widely available for use in a particular institution.

Process friction is real, but so is our belief that Brilinta's clinical profile will ultimately drive strong usage.

You'll have seen yesterday's announcement of our collaboration with The Medicines Company, starting with a co-promotion agreement in the US.

They're a respected organization, with a strong network in interventional cardiology, and we look forward to their support of our promotional efforts.

I'll now turn to the first quarter P&L.

I'll focus here on core margins and profit.

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

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

Core gross margin in the quarter was 82% of sales.

That is down 190 basis points compared with the first quarter last year, but more than 80% of this is related to the PDL settlement.

Core SG&A expense was down 9% compared with the first quarter last year, as restructuring benefits and overall lower sales and marketing expenses in developed markets more than offset selected investments in emerging markets and a slight increase in the excise tax from US Healthcare Reform.

Core other income was 25% higher than the first quarter last year.

This is largely the result of the Zomig deal in the US, where marketing rights have been licensed to the impact laboratories.

As a result, we now recognize the commercial contribution from Zomig in other income, not sales.

That leads to a core pre-R&D operating margin of 55.5% of revenue.

That's above the top of our 48% to 54% planning range, but it is down 170 basis points compared to the first quarter last year.

The revenue and gross margin was only partially offset by the lower SG&A expenses and the higher other income.

Core R&D investment in the quarter was just under $1.1 billion.

Now, that's a 2% increase; largely attributable to a net increase in intangible asset impairments compared with last year.

We took the remaining $50 million impairment related to TC-5214 in the first quarter this year.

For the full year, I expect core R&D expense will be lower than last year in constant currency terms, both on an overall basis, and if you exclude the impact from intangible impairments from both periods.

So this leads to a core operating profit of $3 billion in the quarter; 18% lower than last year.

Core operating margin was 40.8% of revenue, and that's down 360 basis points.

Turning to our productivity program.

One-third of the projected $2.1 billion total cost for the Phase 3 of restructuring was taken in the first quarter.

That's an indication of the pace at which the organization is implementing these plans; in particular, R&D, which accounted for $445 million of the $702 million charged in the quarter.

Most of the restructuring costs will be taken in 2012.

And we remain on track for delivering the estimated $1.6 billion in annual benefits by the end of 2014.

Cash generated from operating activities was $1.5 billion, compared with $1.9 billion in the same period last year.

With the benefits arising from our disciplined management of working capital, we were able to partially offset the reduction in operating profit, and the $500 million contribution to the pension fund.

Net cash distributions to shareholders in the first quarter were more than $3.4 billion, through a payment of $2.5 billion for the second interim dividend from 2011, and net share repurchases of $912 million; broadly in line with the pace required to complete the $4.5 billion target for the full year.

Another potential call on cash in 2012 is the Merck shares option, or the second option, as it's also known by.

Now beginning in May, we have a six-month window to exercise the shares option; the first of three opportunities to do so.

A notice of exercise would trigger an appraisal process to establish the value payable on closing the option, which is largely based on the net present value of the future annual contingent payments on Nexium and Prilosec in the US, and some other items.

We've not yet decided whether we will exercise this year or not.

From a pure strategic freedom-to-operate perspective, our preference would be to exit the arrangement at the earliest juncture.

But, ultimately, a decision as to whether we exercise in 2012 will be informed by whether the range of values that will emerge from our modeling of the various appraisal scenarios are attractive in economic terms.

Finally, let's turn to guidance, and we knew it was going to be a challenging year, with the main elements of the revenue profile being the loss of exclusivity on several products, particularly Seroquel IR.

Disposal of Astra Tech and the ongoing disposal of the Aptium business also contribute to the decline in revenue.

There are several other factors, however, which, while individually not large, collectively do exert downward pressure on our revenue expectations for the full year.

We certainly expected government interventions on pricing to continue, but they are now looking to be at the upper bounds of what we'd anticipated, both in Europe as well as the impact in the US from the Medicare coverage gap adjustments.

We continue to have confidence in, and will vigorously defend, our intellectual property.

Now we prevailed in the US trial on the Seroquel XR patent, but we have also had an adverse judgment in the UK, and we've had some at-risk launches in Europe, and we've rulings in other jurisdictions pending.

And we expected the revenue trends in emerging markets to be phased towards a weak Q1.

And I've called out the three markets that are the main drivers of the variance.

While we're aiming for double-digit growth for the year, it will be a challenge to get there.

Finally, we've seen an impact from our supply chain issues in the first quarter, and there will be some carryover of this into the second and possibly the third quarter.

That's why, on balance, we've revised our revenue expectations to now be in the range of a low to mid-teens decline in constant currency terms, rather than the original low double-digit guidance.

The second to the third quarters are likely to be the toughest.

Now, against the backdrop of this challenging revenue picture, we're proceeding apace with the third phase of the restructuring, and we will, of course, exert discipline in our operating expenses.

We expect core pre-R&D margin to be in the upper half of our planning range, but below last year.

But we will not compromise on the investments that will drive growth and value.

We'll continue to make sales and marketing investments behind new launches, and in our growth markets.

We'll continue to invest to progress the late stage pipelines, and in business development opportunities.

We're counting on productivity and restructuring to mitigate the investments behind these projects, which is why I expect R&D expense to be down in constant currency terms for the year.

Finally, we'll also invest to rebuild inventories in the supply chain, following the implementation of the enterprise restore system in our plant in Sweden.

There's a change to the tax rate, which is now expected to be lower than the 24% we projected at the beginning of the year.

We're now estimating a 22% effective tax rate for the full year.

That's the result of the UK tax rate reduction, resolution of some tax audit issues in the first quarter and variations in the levels and mix of profitability in different jurisdictions.

However, the delivery on restructuring, ongoing discipline and operating expenses and the lower tax rate will only partially mitigate the downward pressures on revenues.

And, as a result, we have felt it prudent to lower our core EPS target for the full year to the range of $5.85 to $6.15 per share.

Currency was neutral to the first quarter core EPS, but I'd remind you that the forward look is based on the January 2012 average exchange rates, upon which our guidance was based.

It takes no account of the likelihood that average exchange rates for the remainder of the year may differ materially from the January 2012 average.

In summary, it has been a tough quarter as we face the challenges of generic competition and government action on pricing and the other factors that I just discussed.

But we continue to drive the performance of brands that retain exclusivity.

We're quickly implementing the third phase of restructuring.

And our resilient cash generation supports investment in innovation as well as strong cash distributions to shareholders.

And in the last few weeks we've announced the significant collaboration with Amgen, an agreement to acquire Ardea Biosciences and these are examples of the kinds of opportunities that we'll continue to pursue to create value.

So, with that, I think we'd now be delighted to take your questions.

(Operator Instructions) So perhaps we can have the first question, please.

Sachin, Merrill Lynch.

Just three, if I may.

Firstly on the wires you've been quoted as saying your annual strategy review is ongoing and outcome in the second half.

I wonder if you could just allude to the questions that are being asked as part of that.

Is the scope of that review any different to how it normally would be, given the business pressures that you're facing?

Second question on emerging markets.

We've seen most of the companies that have reported so far have -- struggling in emerging markets, low to mid-single-digit growth rate.

I was just wondering if you could reappraise us of what emerging market expectations you've got within your long-term guidance and the confidence in that?

And then the final question is on M&A.

Clearly you have had deals and you're alluding to deals of similar nature.

I wonder if you could just remind us of the scope of M&A that you're looking at.

I think David had commented at the full-year call that there was no upper limit to deals.

I wonder if you could just triangulate those comments.

Thank you very much.

First of all, let me deal with them perhaps in that order.

In terms of annual strategy, it's an annual process through which, as an executive team and a Board, we review our strategy, our investment plans and our outlook as a business.

We always ask ourselves pretty broad-based questions about where we think the sector's heading, the sorts of options that we could explore as a Company.

We test those pretty hard and, as you'd expect ,and gauge the Board on those questions.

And this year we'll follow the same process and I'm certain that the breadth of questions will be as broad as we've seen and, obviously, we expect to have new Board members and a new Chairman and I'm sure they'll bring some fresh ideas, fresh perspective to stimulate our thinking.

So that's the process that will be underway as we go into the summer and latter part of the year, and I'm sure will be broad in scope.

In terms of emerging markets, I think we continue to see very strong fundamentals for the growth of our business out into the future.

And we've talked, Sachin, about this before.

The populations are expanding, people are living for longer, they're more affluent and are more demanding of the standard of healthcare and the medicines that they wish, and that provides a huge driver to our business.

And we continue to see very strong healthy growth in markets like China, in Russia, in the Middle East and, indeed, underlying growth in markets like Brazil.

So we will continue to invest very hard to realize that opportunity.

We're investing in our sales and marketing resources and expanding those.

We're investing in market access plants in markets like China and Russia.

And we've also, as you've probably seen, recently acquired a business in China to broaden our product portfolio in order to access the broad market.

So we'll continue to invest behind that opportunity.

We've seen a weak first quarter and, as I mentioned, it's going to be a challenging year to bring back to our double-digit expectations.

And that really does reflect the prior-year comparators in the context of some generic entry in Brazil, very important market for us; pricing, as I -- I cited Turkey.

We've had pricing at a smaller scale in one or two other markets, and some tough conditions in Mexico.

But we'd anticipated much of that, albeit it's probably been a bit tougher than we'd expected.

So I think it's a near-term issue, but we remain very confident in the prospect for our emerging markets business.

In terms of your final question, our priorities in terms of business development in M&A, I think, are clear and ones that we've been pursuing very actively.

The first is to complement our late-stage and strengthen our late-stage pipeline, and that's through peer collaboration, such as the one that we announced recently with Amgen.

It's through more traditional in-licensing deals, and we're very active in a number of situations.

But it's also where we can see strong products that complement our capabilities, whether that's commercially or development, to acquire attractive late-stage assets, and you saw us do that with Ardea, with the acquisition that we'd announced earlier this week.

That's the first priority, strengthen the pipeline.

The second is we've got a very strong commercial capability around the world.

We actively look for portfolios and marketed product to bring into the Company.

We've done some smaller acquisitions in our emerging markets.

But that's an area we continue to look for good opportunities.

We're very active at the moment and I'm sure we'll be doing more over the course of this year.

Just a quick follow on, what is --

Alexandra, JPMorgan.

Three questions, please.

Firstly, is your long-term revenue guidance of $28 billion to $34 billion range at risk?

If you're declining this year by low to mid-teens, and then some more in 2013 as Seroquel and Crestor Canada have to analyze and the Atacand erosion comes on top, you should fall below $28 billion in 2013.

The second question is coming back to the emerging market point, because I think all of us asked ourselves a critical question, whether this is, indeed, just phasing or the long-feared dramatic slowdown of emerging market sales, as all the usual headwinds of pricing and generics eventually also play out in these markets.

And I hear you, on the one side, arguing drivers are a growing more affluent population, but the European driver was always going to be an aging population and that doesn't result in rising sales either.

So what markets, other than China, do you really see growing double digit in the next few years sustainably?

Just any sort of reassurance that you think that something close to double digit is possible.

It's quite interesting, by the way, that you're talking in terms of Brazil for underlying growth.

That doesn't really -- it isn't really confidence aspiring in the growth potential of this market.

The third question is about the deal you announced last night with The Medicines Company.

There seems to be some indication that you may think about collaboration also on Cangrelor, which I actually find difficult to understand, given that if the Phase III for that product works out, it would probably compete for share with Brilinta.

So can you just maybe tell us under which conditions there would be a collaboration on that product or not?

Let me start with your first one and just talk about the revenue.

As we've described, we'd expected to see low double digit, low-teens decline in revenues this year for, predominantly, loss of exclusivity on key brands.

As we've said today, for a number of individual factors, none individually large but collectively contribute to us lowering those expectations, low to mid-teens for this year.

And that's the position for this year.

It's been -- we've seen a bit more pricing pressure in Europe and the US; we have seen generic launches at risk, and I called out particularly Seroquel XR; some pressures in one or two markets in the emerging markets; and then, finally, the supply chain limitations on supply we've experienced.

So those are the four factors I called out.

When we look beyond this year, we review our mid-term planning assumptions as an integral of the annual strategy review that I described, where we look at what's happening in our main markets, the investments we're going to make.

And it's through that process that we take a very thorough look at our future projections, and that's ongoing in the latter part of the year.

We update the market in January.

That, as you know, has been our practice and that will remain our practice.

What I can do for now is reiterate that we continue to expect sales in the revenue corridor of $28 billion to $34 billion.

That's the guidance we provided at the beginning of the year, and that remains in place.

But, obviously, the increased pricing and generic pressures and the pipeline progress caused at the beginning of the year to say that the center of gravity for revenue through to 2014 is going to be in the lower part of our range, and that remains our view, as we'd expressed at the beginning of the year.

So thanks very much for that question.

And there was a third question, which was The Medicines Company, where we've entered into an agreement with The Medicines Company and that's an opportunity for us to bring further resource, further capability, alongside Brilinta in the US.

And, indeed, it is a broader development and commercialization collaboration.

But Ed, I don't know if you want to elaborate?

Quite right.

The agreement is an agreement to also develop plans for collaborating, possibly on Angiomax and Cangrelor, as you mentioned, Alexandra.

We wouldn't necessarily consider it to be a direct competitor to Brilinta in the extent that Cangrelor is an IV product for injection, so it would only be used in the very acute phase of the in-hospital stay.

It would not really be competitive against the vast majority of the oral anti-platelet market, which outpatient retail pharmacy therapy.

So we see that as potentially very complementary.

You've got patients who cannot either take oral medications or perhaps where the fast onset/offset of a injectable product might be appropriate for patients who are on the cusp of whether they're going to need angio -- either cabbage surgery.

So those are areas where we think they could actually be a good fit.

Ed, thanks for that.

We've got a question come in from email from Eric Le Berrigaud and he's asking, is a 22% tax rate reasonable also going forward over the next two to three years?

And let me deal with that first question.

I think we've benefited, as I mentioned, this year from three factors, which has allowed us to lower our tax rate.

The first was the change in the UK corporate tax rate, as you'll all be aware, and that's clearly a factor which will play out as we move forward and give us some benefit to the tax line.

Secondly, we have resolved a number of tax audits.

As a second contributor, that's more of an impact for this year, and won't affect the situation for subsequent years.

Thirdly, we talked about a product and geographic mix that was taking us into areas that have a lower marginal tax rate.

Difficult to call how that shapes up over the years going forward.

So I think the indication we gave you at the beginning of the year was that the 24% we saw for 2012 was something that felt pretty sound basis for the next few years.

I think you can recognize there's a bit of downward pressure on that, given the UK tax rate.

And that's probably the best guidance I can give you at this stage, Eric, and we'll be able to update you as the year progresses.

Eric had a second question, which was, is it possible to be more specific about which products were impacted by the implementation of a new IT system in Sweden?

And yes, indeed, Eric, we can give you a bit more information on that.

So our plant in Sweden is probably most significant in our supply chain.

It's an important facility for us.

And the products which are concentrated there are Symbicort, Oxis, Pulmicort, Rhinocort, so the respiratory products, but also Nexium, Atacand and Seloken ZOC.

So, Eric, I hope that helps you.

We're going to move to a second emailed question, from Kristofer Liljeberg, and this was a follow up on investments in emerging markets.

The question was, how much are you expanding SG&A costs this year in those markets?

And the answer to that is that we're seeing an increase in our SG&A costs in a number of different markets.

I would call out markets like Russia, China.

The Middle East is the market we've been investing in -- heavily increasing.

And then actually some smaller markets, which are growing very fast for us.

Call out Vietnam, I call out India, as being a couple of markets where we've seen strong growth over the last 12 months.

So we're investing hard in those markets.

Probably, Kristofer, your question prompts me to realize that I didn't answer Alexandra's second question, about emerging markets.

And Alexandra, forgive me for that.

We were in the middle of that, experiencing some technology issues here, in making sure the phone calls come through, which we'll update you on in a moment.

But, coming back to your question on emerging markets, we continue to see, as I mentioned, very strong fundamentals driving underlying prescription growth, underlying demand for medicines.

And that's why we feel confident about the future prospects, and why we're investing hard behind them.

You're right, though, Alexandra, that there are pricing pressures in a number of markets.

We'd anticipated those, and it means that, to realize and get value from that underlying prescription growth we have to be as efficient in those markets as we are in our established markets, and we're looking to broaden our product portfolio to give us some more products that are able to access the mass markets at, in some case, more competitive price points.

And that's what lay behind, for example, our investment in our branded generics capability in India and also behind the acquisition we've recently made in China.

So, hopefully, I've addressed those two questions.

I'm being informed that our phones are still out, so I'm afraid if you want to put questions to us while we address that, if I could ask you to email your questions to us, I'd appreciate it.

We have a question coming in, I think, from Peter at Morgan Stanley.

So, Peter, you've asked if we can talk a bit about capital allocation and capital discipline, given the revenue challenges being faced and the public comments about the willingness to pursue business development more actively, and, linked to that, what leverage we're comfortable of taking on, and how would we see BD opportunities potentially impacting the progressive dividend and buybacks.

So, Peter, thanks very much for that question.

I think the starting point, as we think about capital allocation, is to recognize the strong and resilient cash-generation capability of our business.

And you've seen that again during this quarter, notwithstanding it's been a demanding quarter.

You saw that our cash flow held up very well, notwithstanding the decline in operating profit.

Of that cash being generated from our core business, we reallocate into in-house R&D, but also into in-licensing of late-stage compounds, something like 40% to 50%; that's the guidance we've provided.

The residual is, therefore, available to fund our progressive dividend policy, which we remain absolutely committed to.

And then the remainder is available for investment in the business in further BD activity, and where we don't see good opportunities in a 12-month period, we will return that to our buyback program.

So the investment of 40% to 50% back into the late-stage pipeline is the first plank, but we certainly have, given the cash balances we have, and the residual cash after our progressive dividend policy, we have the flexibility to pursue our BD and bolt-on strategy where we see good opportunities.

And if we do not see opportunities that meet our sort of value criteria, of course, we will return cash to our shareholders through our share buyback program.

So, Peter, hopefully that gives you what you were looking for on that question.

Gbola, UBS.

I think those of us on the line were all cut off, so apologies if these two questions have been asked already.

On your revenue, the shortfall is pretty broad on products and on geographies.

Could you comment on whether reduced promotion was a possible factor for the broad shortfall, and whether it signals to other effects later this year on your financials?

And then, secondly, on emerging markets again, we saw Crestor go generic in Brazil, and previously in Eastern Europe, affecting your growth.

Are there other major drugs that will go generic in major emerging markets in 2012 and 2013?

Let me deal with your first question, and the answer is, absolutely not.

We continue to invest very hard in sales and marketing promotional activity behind our brands, where we see growth potential; and particularly where they're protected with patents, where they're protected with brands in emerging markets.

So we're investing as hard in those areas as we have always done, and, indeed, we're developing for the multiple challenge for promotions alongside that.

Where we have been removing, reducing, our sales and marketing level and resource has been in the wake of genericization; for example, Seroquel IR in the US.

So the most attractive returns and paybacks we get as a business is investing behind our brands, where we've got growth.

And that's what we remain absolutely committed to.

Given the efforts we're making on restructuring and [productivity], we're able to do that while bringing our SG&A costs down, as you saw.

So that's the first, I think, question.

So no, absolutely we continue to invest very hard behind brands where we see growth.

Your second question is, are there other generic risks in emerging markets.

So I would say that the two that are characterized, latter part of last year and this year, where we have seen some generic entry often at risk and we, therefore, continue to take action through the courts to respond to that, are Crestor, where we're protected by formulation not substance matter patents, and the same on Seroquel.

And I think we called out already the main ones that we see and you'll see those in our legal proceedings note.

Ed, I don't know if there's anything else you could add to that, if you want to.

Yes, what's worth mentioning is that in Eastern Europe there actually was no patent estate there.

So it's a question of when the data exclusivity expired in those markets, we attracted the generic competition.

I'd say, on balance, if you look going forward, most of the patent expiries in emerging markets are probably similar to what we're going to see in the developed world; which is Nexium in selected markets, you've got Atacand coming up at the back end of this year, and Seroquel IR, as we expected.

Yes, I think the distinction often in those markets is that, while we may lose cash and protection, we continue to drive and can compete effectively with brands recognizing the premiums that are frequently paid in those markets for the brands.

James, do you have something to add to that, having led a number of our emerging markets?

Yes, (inaudible), as we've talked about as well, a number of markets, like China and also in Russia and across the Middle East and Africa, we already see multiple generics and we have never had patent protection for a number of our products.

And we've even entered the market after the generics have entered the market in certain cases.

And then the key issue is really three fold; our brand quality and our ability to drive a commercial brand across a country at large; the strength of the competition, and many of those markets don't have strong competition, unlike Brazil and Mexico, where you've got very strong local players; and also the structure of the reimbursement and Co-pay arrangements.

And Brazil and Mexico, to some degree, are relatively sophisticated in the structure of the market, whereas a number of other markets don't have those systems in place.

And that's why we believe there is a strong sustainability in the branded medicines, irrespective of the patent estate at large.

Thanks.

Very good.

Let me pick up -- Steve from (inaudible)'s on the line, but I thought I might just pick up a couple of email questions, just work through those, Steve, before I come back to you, if I may.

And we had a question from Tim Franklin, and I'm going to propose this one and, Ed, you may have to pick this up.

Tim's been asking, can we provide the prescription growth of Crestor in Japan?

And if we have that to hand, I'm going to ask Ed if he can pull that out for you, Tim.

If not, we will absolutely get that to you post the call.

And then another question, also from Tim, which was the fall in the strong constant currency growth in the Rest of the World market for Crestor.

How much of this is explained by the phasing of shipments to Japan and generic competition in Brazil?

Are there any other Rest of the World factors that explain the CER growth contraction for Crestor?

And the answer to that is this is predominantly the impact in Japan and Brazil.

I think those are the two main drivers of the year-to-year comparison of Crestor, Rest of World.

Overall, we continue to see strong growth in demand for Crestor above and beyond the statin market.

Ed, do you have the Japan prescription growth there for us?

Yes, the underlying market demand, which is aside from the phasing of shipments, is something in the mid teens.

Okay.

Thanks, Ed.

And then finally, on just one other question, picking up here from the calls, I've got Lars Hevreng from Enskilda.

Lars, you'd asked the rationale between first firing a quarter of the US sales force and then bringing another company's sales force to promote your biggest develop ever, Brilinta.

And this really reflects the differing capabilities that we're looking for.

We reduced our sales force at the back end of last year, particularly in anticipation of the Seroquel IR patent expiration.

And we continue to drive Brilinta very hard and been comfortable with the level of resourcing.

The opportunity with The Medicines Company is to bring alongside a very experienced sales force in that particular market area in the US, but also to explore, as Ed mentioned earlier, a much broader program of development and commercialization.

And we look forward to that.

Lars, you asked a second question.

$350 million in sales lost to government interventions in Q1 approximates 5% of revenues.

How does that compare with longer term assumptions?

It's a good question, and perhaps I can refer you to the two bits of guidance we've provided on this in the past, which is we've seen the impact of the US healthcare reform running at around about $700 million a year.

And we've said that price interventions in Europe have typically been in the low to mid single digits historically.

But we really have been seeing price interventions at the mid-single-digit range, so in that sort of 5% range.

And, indeed, it tipped a little bit higher than that in the last few months.

So the sort of decline due to government intervention is 5%.

You've described it as being in the assumptions we've made looking forward, but it is fair to say we're up there at the top end of our expectations.

So with that, Steve, you've been waiting patiently, let me come back to your question.

Steve?

Apologies if it was answered during the technology issues, but you mentioned the catch-up provision for the (inaudible) [hole].

Would you expand on why it's larger than expected?

Is there any particular product that is the culprit?

And do you think the dynamics here are unique to AstraZeneca, because this has not been mentioned by other companies?

So that's the first question.

The second question is on what date in May does the [AZLP] option two window open?

And given that the window, I assume, could open as soon as next week, I am a bit surprised that AstraZeneca hasn't made the decision yet as to whether to exercise.

Is there any information you're waiting for that could be forthcoming in the next week that would help you make the decision?

Thank you.

So jut let me -- Ed, I don't know if you'd like to comment on the coverage gap accrual.

Yes, clearly that's an area where it's difficult to estimate what patient behavior will be once they reach the coverage gap; whether they take advantage of the opportunity to get the discounted branded product, or whether they are motivated to go to a generic alternative to capture even lower out-of-pocket exposure.

So like any managed care adjustments that we do in our revenue calculations, you make some assumptions about what that utilization will be.

And then you're looking through the rear view mirror as you get actual utilization data from either the managed care plans or, in this case, the Government.

And then you look at what you've already provided for and whether you've got to make either a true up one way or the other, in this case.

So based upon the whole of 2011, we saw a slightly bigger exposure to the Medicare D coverage gap and so we had to make a catch up provision in Q1.

As you might expect, the products that are probably the biggest drivers are now Crestor and Nexium, because they're the big primary care products that have a utilization in that patient population.

Ed, thanks for that.

And Steve, in terms of the Merck situation, it starts in May.

I don't know exactly which date in May.

But the window is for a six-month period May to October.

And I think I shared with you the evaluation of the 2012 option in my remarks.

So I can't elaborate upon that, simply to say that we're going to weigh up our decision, balancing the fact that, from a pure strategic freedom perspective, we'd obviously prefer to exit the arrangement at the earliest time, and that would be 2012.

But, ultimately, that decision's going to be based upon how we weigh up the value.

So more to come on that, Steve, and we'll obviously keep you informed as we go forward.

I think we've probably got time for one more question.

And we've got Tim on the call and Tim, over to you.

This is Tim Anderson of Sanford Bernstein.

With the change up in management in the Board, I'm wondering if you can assure us that, whatever AstraZeneca's strategy is going forward, that the dividend is absolutely safe and that no business development will be pursued that puts this at risk.

And then on Symbicort sales in ex-US markets, your press release said that 60% of the sales decline was due to Japan.

But I'm wondering what the other 40% was due to.

Then on KOMBOGLYZE, if I'm not mistaken that product is being sold in the US, but in Europe your press release says they won't launch until later because of manufacturing issues and I'm wondering if you can add some clarity there?

Certainly.

So first of all, yes, we're absolutely committed to our progressive dividend policy.

And, as I mentioned in my earlier remarks, in terms of investment to drive future growth and value through business development and bolt on, that's something we weigh up against the share repurchase program, dividend is an absolutely core part of our proposition to our investors.

So our commitment to the progressive dividend policy remains absolute.

In terms of the Symbicort decline, Ed, do you want just to pick up, because obviously 60% was that movement in the stocking in Japan.

Do you want to just call out any other key items?

Yes, it was down year on year in Western Europe as well, and that's a combination of volume in some markets where you've got the Fosta product taking a better share.

But also we don't usually attribute any individual price intervention to a product.

But the European pricing interventions in Europe, in general, hit your larger products, and Symbicort's obviously one of our larger products in the European market.

Okay, well, thank you.

And Karl, do you want to pick up the technical issue on KOMBIGLYZE in Europe?

So actually we have two different products here.

So in the US we are selling KOMBIGLYZE XR, which is a once-daily extended release combination, a fixed dose combination, and that we launched successfully in January last year.

Whereas in the product which is approved in Europe in November last year is immediate release product called KOMBIGLYZE.

And here we have said that the launch is now expected in 2013, due to some technical manufacturing issues.

And the responsible company behind the production here is BMS, so they might be able to explain it better than we are.

Okay, thank you.

I think we've just about reached the end of the call in terms of time.

We had two further email questions coming in, which we didn't get to, so let me just try and deal with these quickly and to make sure we've addressed your questions.

The first came from Luisa Hector at Credit Suisse, who asked us to expand on Brilinta.

The German hospital starts translating to ongoing prescriptions once patients are out of hospital or could they be switched to generic Plavix?

So Ed, do you want to pick that up very swiftly?

Yes, we're clearly now starting to see the outpatient utilization now reflect the inroads that we've made in the inpatients' acute market share.

So we are not seeing any, as far as I'm aware, any material leakage of hospital starts not being persistent on Brilinta outpatient therapy.

James, sorry you had something to add to that?

Yes, I think it's worth reiterating.

The PLATO data is impressive and it's particularly impressive when you look at the separation of the mortality benefit, which actually increases over the 12 months.

So the benefits of using Brilinta are seen, in particular, as you progress with the therapy and, of course, that's going to apply to the patients in the outpatient setting.

Thanks.

And Luisa had a second question, which was, Ed, how many plans in the US are reimbursing Brilinta in percentage of second tier?

Yes, I don't have a precise allocation.

We have unrestricted access, I believe, to over 60% of the cover of lives.

I think we have a fairly good representation in Tier 2 but we do have some Tier 3 access as part of that as well.

And then finally I had a question from Simon King of FirstWord Pharma.

Simon's asking, reflecting on the fact that Crestor's holding up impressively against generic Lipitor, and asks what our projections are once the US 180-day exclusivity period expires and additional versions of generic atorvastatin become available?

I think I'd reiterate the comments we made on the call.

I think Crestor's proven itself to be very resilient to the entry of generic atorvastatin and I think we feel that that reflects the very clear positioning that we've established for Crestor in the market as the right treatment choice for high-risk patients.

And I went through the dynamics that we've been experiencing very much in line with our expectations.

There will come a bit more competition, clearly, when we've got a broader set of generics available.

And I think where we'll see that is more likely as we come into the contracting round for 2013.

We continue to believe that Crestor has a very important role to play in statins in the marketplace.

Just one finally, any specific, also from Simon, any specific challenges in Western Europe regarding pricing and reimbursement?

I think that was probably for Crestor but, more generally, Simon, the challenges in pricing and reimbursement in Europe are predominately concentrated in those markets where we are seeing budget deficit issues to be addressed and where governments are looking at healthcare and medicines as a particular area where they may be able to achieve savings.

And that's been something that we've seen stepped up over the last few months.

So that probably, I think, covers all of the questions.

Our apologies that we had some technical issues on the call.

I hope we did get to all of your questions but, if not, I'm sure that the IR team would be delighted to take them, if you can get in touch with them.

So let me bring the call to a close.

Just a few final comments really.

It's been a tough quarter, as we face the challenges of generic competition and government action on pricing.

But we continue to invest very hard behind brands where we see, and markets, where we see growth potential.

We've got a very full portfolio of brands, such as Crestor, Symbicort, Seroquel XR, Faslodex, Iressa, Onglyza, FORXIGA, where Symbicort -- where we can see strong growth and we're investing hard behind them.

We're continuing to make progress to improve productivity in our research and development.

We've made significant change, and I'm sure there's more effort to come.

And, thirdly, we've really seen real progress on our business development agenda in the last month and I'm sure there'll be -- we're keen to see more of that to come.

So significant activity in the Company to really drive growth into the future and, of course, our core pre-R&D margins remain, notwithstanding the difficult position, up there above the top end of our guidance range in the first quarter, with cash flow remaining very resilient and a clear commitment to our cash returns to our shareholders.

And, with that, we'll bring the call to a close.

Thanks very much for the questions and good day to all of you.

Ladies and gentlemen, that does conclude our conference for today.

Thank you for participating.

You may all disconnect.