AstraZeneca PLC (AZN) 2013 Q1 法說會逐字稿

Good afternoon.

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

Before I hand over to Simon Lowth I'd like to read the Safe Harbor statement.

The Company appends to these slides 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 operations and financial performance of AstraZeneca.

Although we believe our expectations are based on reasonable assumptions, by their very nature, forward-looking statements involve risks and uncertainties and may be influenced by factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements.

Any forward-looking statements made on this call reflect the knowledge and information available at the time of this call.

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

I will now hand you over to Simon Lowth.

Well, thank you, operator, and good afternoon to everybody on the call.

Let me start with a couple of things.

Firstly, to tell you that -- all of you that I've contracted some sort of cold over the last couple of days, so I will take occasional pauses as we go through this call to take a glass of water.

So I hope you'll forgive me for that.

But as we move then into the call let me just start by saying that we posted a set of slides on the investor page of our website and they'll follow along with my presentation.

And what I'll try to do as we go through is cue the slide numbers as we go along so that you can follow.

So, turning to the first content slide, which is slide number four in the pack, it's been a few short weeks since our Investor Day on March 21 and at that meeting Pascal and the AZ management team laid out a clear articulation of our strategic priorities; firstly to achieve scientific leadership; second to return our Company to growth; and third, and importantly, to be a great place to work for AZ people.

And I'd say that the energy of the entire organization is focused behind undertaking the important task of executing on these priorities.

And over the last few months in the run up to and, of course, following that meeting, we've made good progress.

Our drive towards scientific leadership has been enhanced by four important business development agreements, so with Moderna Therapeutics, the Karolinska Institute, AlphaCore Pharma and then BIND Therapeutics, all of which put us at the cutting edge of important new technologies that will bring important new medicines to patients.

Our five growth platforms, so that's Brilinta, the diabetes franchise, emerging markets, respiratory, and then Japan, well, all five contributed incremental growth in the first quarter, although clearly they couldn't make up for the expected revenue loss from patent expirations in the quarter.

And we're also working apace to simplify our business and to drive continued productivity, as evidenced, as you'll have seen, by the quick start to phase four of the restructuring program that we laid out at the Investor Day.

So good progress on implementing our three key strategic priorities.

But our focus today, of course, is the first-quarter results and I'm going to cover five topics.

So I'll first summarize the headline numbers; then I'll cover the revenue performance by region and for selected brands; and then I'll turn to the core operating performance and put an emphasis on the key drivers of operating profit and margin; I'll briefly touch on restructuring and cash flow; and, finally, I'll close with our thoughts on guidance for the full year.

So on to the headline results and that's slide five in the deck.

Total Company revenue was $6.4b in the quarter.

That's a 12% decline in constant currency terms.

Revenue declined by 13% on an actual basis as a result of the negative impact of exchange rate movements, chiefly the Japanese yen.

Once again, the dominant feature of our revenue profile in the first quarter is the loss of exclusivity on several brands; Seroquel IR and Atacand in many markets and Crestor in Canada.

These three products alone were down more than $900m compared to last year.

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

So core operating profit in the quarter was down 21%.

Core operating expenses were 4% lower than last year in constant currency terms, but revenue was down more.

And, together with the impact of lower core other income, this drove the core operating profit decline.

Core earnings per share in the quarter were $1.41 compared with $1.87 last year.

The 21% decrease in constant currency terms is in line with the decline in core operating profit, as the benefit from a lower number of shares broadly offset the higher tax rate in the quarter.

Adjustments to core financial measures, at $0.60 per share, were the same for both periods, although with a different mix.

We had higher restructuring last year and higher amortization this year.

When applied to the lower core EPS base in 2013 this resulted in a larger decline for reported EPS compared to core EPS.

So overall reported EPS was down 31%, to $0.81.

So those are the headlines for the first quarter.

Let's move on to slide six and look at the first-quarter revenue performance.

Now, when I refer to growth rates here it will be on a constant currency basis.

The first thing to mention on revenue is that we've made a slight boundary change to our regional breakouts for revenue.

What is reported in Europe is now revenue from Western Europe combined with many markets that were previously reported under emerging markets.

We've provided eight quarters of restated history to help you calibrate your models and you can find these on the investor page of our website.

So with that bit of housekeeping out of the way, let's look at the revenues.

Revenue in the US was down 16% compared with the first quarter last year, driven by loss of exclusivity for Seroquel IR.

If we exclude Seroquel IR, the rest of the portfolio increased by 3% in the quarter.

First-quarter revenues include $78m related to our share of sales of the Amylin diabetes portfolio, which wasn't in the prior period, and there was growth contribution from Symbicort, Brilinta and the Onglyza franchise.

Revenue in Europe was down 16% in the quarter, chiefly due to the loss of exclusivity for Seroquel IR.

There was also a generic erosion on Seroquel XR following some adverse patent judgments and at-risk launches, particularly in Germany.

The continued impact from the loss of exclusivity for Atacand and Nexium also fueled the revenue decline.

Revenue in established Rest of World was down 17%, and that's largely a Crestor story, the loss of exclusivity for Crestor in Canada and, on top of that, pricing pressure in Australia.

Revenue in Japan was up 5%.

We saw good growth for Nexium, good growth for Crestor and, indeed, for Symbicort.

Revenue in emerging markets was up 9% in the quarter.

That's an improvement from our exit rate in the fourth quarter of 2012.

Although increases in Saudi Arabia, stable revenues in Brazil and Turkey played their part, it was really the 21% increase in China that was the primary driver of performance.

China sales were fueled by good growth for Seloken, Nexium, Crestor and Iressa.

Looking towards the rest of the year, in addition to continued growth in China we expect to see a broader set of markets contribute to the overall emerging markets' performance.

Slide seven provides a snapshot of revenue for our key brands.

In addition to the regional growth platforms of emerging markets and Japan, as you can see here, our brand growth platforms, Brilinta, diabetes and Symbicort all contributed incremental revenue in the quarter.

Crestor was down 11%, but it would have been flat except for the generic erosion in Canada.

Then at the bottom of the slide you can also see the significant impact from loss of exclusivity for Seroquel IR and Atacand.

Detailed commentaries on brand performance are in the press release, but I'd like to just provide some additional color on three growth platforms, so Brilinta, diabetes and Symbicort, and I'll also touch on Crestor.

So firstly, Brilinta, and that's slide eight.

Sales were $51m in the quarter, with $30m in Europe and $15m in the US.

We continue to implement our plans to build this important brand that we outlined in our Investor Day a few weeks ago.

On slide nine we've rolled forward this graph of Brilinta's new-to-brand performance in the US for the most recent weekly data and it shows a continuation of the growth trend from January, with the usual dip for the Easter holiday week.

We exit the first quarter with weekly new-to-brand volumes up 30% compared to the entry point in January.

Performance outside the US continues to build.

We can increasingly use the regular IMS data to track progress instead of relying on survey data.

And you can see on slide 10 these graphs showed steady progress in markets like Germany, Italy, the UK and Australia.

Now turning to the diabetes franchise, starting on page 11 -- slide 11, revenue for Onglyza was up 27% to $90m in the quarter.

Alliance revenue in the US was $64m.

That was up 19%.

Now, total prescriptions for DPP4s in the US has slowed, but were still double digits in the quarter, up 10%.

Total prescriptions for our franchise of Onglyza plus Komboglyze XR were up 9%.

Now, we did lose share during the quarter.

Our market share of TRx's was 16.1% in March and that is off by 170 basis points from December 2012.

This is an increasingly competitive category.

We've experienced some losses of preferred formulary positions in managed care plans, as this experienced a decreasing share of voice relative to competitors.

We are focused on pulling through volume where we've got strong access and we will continue to compete vigorously in this market.

Outside the US our share of Alliance revenue from Onglyza was $26m.

That's up 53%.

And there've been further European launches of Komboglyze during the quarter.

Moving on to slide 12 and, first, the GLP-1 franchise.

The first quarter includes $69m in revenue from our share of the Alliance's Byetta and Bydureon sales in the quarter.

The re-launch of Bydureon by the Alliance has driven weekly new-to-brand volumes to a 15% increase compared to their October baseline, with new-to-brand share up 1.5 percentage points in that time.

And starting April 1 the Alliance has now assumed responsibility for the exenatide products outside the US.

Forxiga revenue was $1m in the quarter, reflecting the fact that the launch rollout in its very early stages following approval in November of last year.

The initial feedback we're getting from physicians is really quite positive towards this new treatment modality.

Now, as seen on slide 13, Symbicort sales were up 14% to $826m.

Sales in the US were up 32%.

Symbicort's total prescriptions were up 15% compared to just 3% for the fixed combination market and our share of total prescriptions and share of new patient starts were both up during the quarter.

Sales in the Rest of World were up 7% on growth in Europe and continued market share penetration in Japan on the back of the launches of Symbicort Smart and the COPD indication.

And then finally, turning to Crestor, that's on slide 14.

Now, sales were down 11% in the quarter, to $1.3b, due to the loss of exclusivity in Canada, while otherwise sales would have been flat.

Sales in the US were down 4% to $652m.

Total prescriptions were down 7% compared to the first quarter last year.

Realized prices were up, but that's attributable to the Medicare coverage gap adjustments that were put through in the first quarter last year.

Otherwise, realized prices would have been slightly lower in the quarter.

And we continue to expect lower pricing for the balance of the year.

Sales in Rest of World were $671m, down 16%.

Excluding Canada, Rest of World sales were actually up 5% on some good growth in Japan and in China.

As you model Crestor revenues for the rest of the year you should recall that a ruling from the court in Australia invalidated three patents and we would expect that generics will achieve listing for reimbursement around the mid year.

I'll now turn to the first-quarter P&L, which is on slide 15.

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 82.2% of sales.

That is up 90 basis points compared with the first quarter last year.

Product mix was unfavorable.

However, core gross margin benefited from lower core Merck expense related to the second-option amendments implemented in the middle of last year.

Core SG&A expense was down 2% compared with the first quarter last year.

Benefits from restructuring programs and overall lower selling and marketing expenses in developed markets more than offset [selective] investments in support of emerging markets in Brilinta as well as taking on our share of the selling costs for Byetta, Bydureon and Symalin.

Core other income was 36% lower than last year on lower Zomig royalties and the absence of some one-offs in the first quarter of 2012.

That leads to a core pre-R&D operating margin of 51.5% of revenue and is 350 basis points lower than last year as the slightly higher core gross margin as a percent of revenue is offset by the lower core other income and the higher SG&A expense as a percent of revenue.

Core R&D investment in the quarter was $963m.

That's 7% lower than last year.

We continue to realize savings from our restructuring programs.

The phasing of clinical project costs also drives the favorable variance as spending winds down on Phase III trials for projects like fostamatinib and naloxegol.

These savings provided more than enough headroom to accommodate the spending for new in-licensed acquired or partnered projects.

Now, you'll recall that we've guided to core operating costs, so that's combined core SG&A and R&D costs, being held to a slight increase in 2013 in constant currency terms and that is, indeed, our expectation.

So I would view the 4% decrease in these costs in the first quarter as a matter of phasing.

We will continue to make the investments behind the growth platforms and pipeline through the course of 2013.

Core operating profit was $2.3b in the quarter.

That's 21% lower than last year.

Core operating margin was 36.4% of revenue, 4.4 percentage points lower than last year.

Just a brief word on restructuring.

On slide 16 you can see the scope of what we are now referring to as phase four of restructuring.

And this combines the initiatives newly announced last month compared with the actions -- or together with the actions that remain to be implemented from the phase three program that we announced back in February of 2012.

Total program costs are estimated to be $2.3b and you can see here that we've charged $543m to the P&L in the first quarter.

Turning to slide 17, cash generated from operating activities was $2.2b in the quarter compared with $1.5b in the first quarter of 2012.

Lower tax and interest payments partially offset the lower operating profit in 2013, whilst a one-off pension fund contribution drove higher outflows in the first quarter last year.

We also paid the second interim dividend from 2012 in the quarter.

That amounted to $2.3b.

So finally, turning to guidance, and that's slide 18 in your pack, we continue to expect a mid to high single-digit decline in revenue in constant currency terms for the full year.

We will continue to face headwinds from loss of exclusivity.

Indeed, since the start of the year we've received an adverse ruling on Crestor patents in Australia and we'll see continued erosion of Seroquel IR, Atacand and for Crestor in Canada.

However, the prior-year comparisons will improve as the 12-month anniversaries are met.

So despite the new challenges and the double-digit revenue decline in the first quarter we maintain our revenue guidance for the full year.

It's actually a similar story on costs.

Despite the 4% decline in combined core SG&A and R&D expense in the quarter, this is a matter of phasing, and we continue to expect a slight increase in core operating costs for the full year in constant currency terms.

With a revenue and cost profile in line with guidance we continue to expect core earnings per share to decline at a rate significantly higher than the decline in revenue this year.

One final item.

As you will recall, on April 1 the US District Court for the district of New Jersey ruled one of our patents protecting Pulmicort Respules invalid and further ruled that the generic defendants do not infringe a second patent.

In that announcement we disclosed that revenues of Pulmicort Respules in the US were $135m in 2012 and royalties represented an annualized value of approximately $260m under core other income.

There is currently a temporary restraining order in place while the US Court of Appeals for the Federal Circuit considers our pending motion for a longer injunction pending appeal.

We have no further news to report at this time, but just to remind you that should additional generics enter the market both Pulmicort sales revenue and royalty income will come under significant pressure and I'm sure you'll want to adjust your models accordingly.

As for currency, exchange rate movements created a 4% negative variance to core EPS compared to last year, but it was neutral to core EPS versus our January 2013 guidance rates in the quarter.

I would remind you, though, that our guidance takes no account of the likelihood that average exchange rates for the remainder of the year may differ materially from the January 2013 average.

So, with that, we'll now move on to the Q&A session and I'll ask the operator to come on and provide instructions and then get into your questions.

(Operator Instructions).

Thank you, operator.

Now, I see Tim Anderson of Sanford Bernstein.

Tim, over to you, the first question.

Thank you very much.

A couple of questions, if I can.

On Crestor, previously the Company said that they expect the product to hold up pretty well through generic Lipitor in the US.

In Q1, as you pointed out, prescriptions were down 7% year on year.

And I'm wondering if you can talk about what you expect with this product in the US.

Going forward to its patent expiration in 2016 do you think the decline in prescriptions in the US specifically could continue to accelerate?

And then another question, which is, are you willing to say yet -- is Astra willing to say when they think the trough year will be in terms of revenues or earnings?

Tim, thanks very much for those two questions.

On Crestor, we continue to believe that Crestor has a very clear positioning in the statin market for higher-risk patients and we continue to see the brand perform well.

The impact in terms of first-quarter performance was particularly associated with changes in managed care and formulary position.

But, Ed Seage, would you like to pick up and talk a bit more about what we saw in the first quarter and how we see the brand moving forward and then I'll pick up Tim's second question?

Sure.

It's really not a function of actually losing positions in managed care.

It's the function of plan years rolling over, patients enrolling in new coverage schemes.

We typically see at the beginning of every year an uptick in the number of switches away from Crestor to generic products.

And that's exactly the same pattern we saw this quarter, where you see net switches from Crestor increase.

And we've already seen -- and, again, like we've typically seen a recovery in that net switch rate as we exited the quarter.

So it's a fairly typical -- what I would call almost a seasonal effect, where you see that [with] a rollover of plan years we see an uptick in switches to generic which then unwinds over the course of the quarter.

Yes.

And I think, Tim, we have seen -- as we watch, obviously, the scripts pretty closely and, I think as Ed was saying, we've seen a trend back once we'd moved through those changes in formulary positions.

I'd also say that when we look at the prescribing base for Crestor it remains some mid 90s of people who are continuing on with their Crestor therapy.

We see very clear positioning of the brand for higher-risk patients.

We see real resilience in the higher dosage.

But it's fair to say where we do see pressure on the script volumes it tends to be in the lower dosages, which is exactly what we'd have expected.

And I think, Tim, you're going to see that story continue out over the coming years, with some pressure in the first part of the year, but then continued resilience with Crestor patients going forward.

Your second question -- sorry, Ed, did you have a comment to make?

One other thought is, if you recall, about around about the mid year last year we started seeing a decline from our Medicaid segment business and that will annualize until mid year as well.

So that's another factor in the early-year performance to keep in mind.

Yes, thanks, Ed.

To your second question, Tim, on the trough year, I think you all know it's a question that a number of people have asked us and we've been rather stubbornly resistant in giving a precise 12-month period.

And our reason for that is we don't want the organization -- we don't want us to be focused on one particular 12-month slice.

The shape of the revenue profile for the Company is going to be defined by the interplay of three factors.

We see continued resilience and stability in the established products within our portfolio, particularly aided by good growth in emerging markets for some of those established brands.

We know that loss of exclusivity will continue to impact the top line, with the most notable event still to come being Nexium in the US and then Crestor in '16 and '17.

So when we return to growth it's going to be a function of our success in driving our growth platforms.

They all grew in this first quarter.

We're investing heavily behind them, but we don't want to concentrate down on one particular 12-month window.

I know you'd love us to give that, Tim, but we just don't think it's right for us to be focused on that.

We need to drive the business for success over the long term.

Thank you.

So -- no, Tim, thanks a lot.

I'm going to move to the second question on the line here, which I think Peter Verdult from Morgan Stanley.

Peter, your questions?

Simon, it's Pete here, Morgan Stanley, just a few.

We've heard from a number of companies recently this week on reporting that inventory levels across retail pharmacies in the distributor channels in the US running at uncharacteristically low levels.

Just wondering whether that's been a factor for Astra and, if so, whether you can give some sort of a ballpark quantification?

Secondly, can I just dig a bit more on the diabetes franchise?

The landscape is well known, the formulary lost on Caremark is well known, but it does seem that the franchise versus the expectations are quite soft.

I just want to know what explicitly you're going to do to try and reaccelerate those trends and whether there's any update as to when the SAVOR data will be released.

And then, lastly, just a very quick one.

If the Phase III data for OSKIRA -- the last few OSKIRA programs, fostamatinib, matched the same sort of profile that we saw in OSKIRA-1, is it fair to say that Astra will not proceed to file that product for rheumatoid arthritis?

Thanks.

Okay.

Well, Peter, thanks for the questions.

Let me perhaps deal with them in reverse order and perhaps ask Ed to comment on inventory levels.

So, on OSKIRA, we're going to wait for the data from the remaining OSKIRA trials.

I'm not going to speculate on the outcome of those.

And there's not that long before we'll see the results and we can then assess the medicine and the prospects in the light of those.

In terms of diabetes I think our -- this remains an absolutely critical growth platform for us.

We, as an alliance, have got a strong portfolio.

We and BMS are clearly very committed to the long-term success of the business.

Onglyza and, indeed, exenatide continue to show decent year-on-year growth and we've seen a pretty encouraging start for Forxiga.

But, as you picked up Peter, and indeed we have, we've seen some headwinds to that growth.

I think you've all seen a slowing in DPP4 growth and, in part, that's got to do with the annualization of the slowdown and substitution out at other categories last year.

We've seen intensifying competition and that's put share of voice under pressure in some markets, particularly the US.

And, as you yourself referred to, and I mentioned in my notes, we've seen a loss of some key formulary positions, particularly Caremark.

So those have been some headwinds.

But we're taking a whole series of actions in order to ensure the long-term success of that business.

We're stepping up a sales and marketing investment behind the brands and remain committed to that.

We've obviously put increased investment behind Forxiga where it's approved, and, as I mentioned, encouraging start for that brand in markets like Germany.

And of course we're getting stuck into the launch and promotion of exenatide in the Rest of the World markets from April 1. SAVOR is going to be an important catalyst.

I think (inaudible) here Q2 I think is when we'd expect SAVOR.

No new news on that for you.

So Q2 we've got the Forxiga filing in the US around the mid year and then, of course, the dual-chamber pen for exenatide for Bydureon in Q3 for the US and then Q4 for Europe, so a lot of activity and investment, Peter, behind the portfolio and we look forward to seeing that continue to grow over the remainder of this year.

In terms of inventories in the US, we obviously have distribution service agreements with the majority of our customers and that contains the amount of inventory within ranges, and there are penalties either side.

But, Ed, is there anything in particular you want to add if -- that we've seen?

Yes.

There's nothing in aggregate that's worth calling out.

If you'd say -- there's always to's and fro's at the brand level, again, nothing really material, but in terms of directionally Nexium was probably slightly flattered by the changes -- the differences in inventory movements between this quarter and the quarter year ago, and Seroquel was probably penalized a bit.

But that's the only directional brand issues I'd even point out.

Yes.

But nothing of a real dollar value that you'd really worry about.

Yes.

So, Peter, I hope that helps you in that one.

Okay, thanks.

Let me move to Sachin at Bank of America.

Sachin, over to you.

(Inaudible) related to US managed care access versus Lilly.

Firstly, just a follow on, on Onglyza, how do we think about net pricing from here, given your comments that you would -- that you intend to compete vigorously?

Secondly, on Brilinta, Lilly in their release yesterday mentioned lower effective selling prices for Effient.

Are you seeing any impact on Brilinta pricing or formulary positioning that we should be aware of?

Secondly, just to clarify a comment on Bydureon, where you refer to new-to-brand volumes being up 15%.

Does that include or exclude Byetta switches?

And any comments here on the total franchise?

And then finally, on Brilinta, and to slide nine, where you point to an inflection in the US trends, any comment to whether you feel that is enough to get to consensus sales at roughly $300m this year and $500m next year?

Thank you.

Right, well, thanks very much indeed.

So let me pick up briefly on Brilinta.

Ed, you might want to pick up the Onglyza one on -- in terms of pricing and just check (inaudible).

But on Brilinta, no, we've seen good progress in terms of extending our managed care access with Brilinta.

And that has come on the back of, I think, an increasing recognition of the progress we're making in getting the brand onto protocols, onto formulary, the continued steady growth in prescriptions.

And that's enabling us to expand managed care coverage for the brand.

And that's coming with consistent pricing.

So we're not seeing that growth in managed care access coming at the expense of pricing.

Onglyza, and any particular comments on the net pricing there that --?

Well, I certainly wouldn't make any forward-looking statements about our pricing strategy, but I could tell you the price was net positive in the quarter.

Yes, thanks.

And so the investment there -- and it's going to be focused, Sachin, on ensuring that we've got the right level of sales and marketing investment behind the brand, clarity of message, clarity of positioning.

Those are the levers that we'll be pulling.

And then of course on Onglyza we've got the SAVOR study also to look forward to, as we discussed earlier.

In terms of the exenatide franchise, yes, new-to-brand volumes, so Bydureon I mentioned up 15% and growth 1.5 share points in MBRX.

And of course a fair chunk of that is coming at the -- well, Byetta at the same time has been losing ground.

And overall, though, the net exenatide franchise has grown year on year in total prescription terms, I think from memory, about 7% and, again, the focus looking forward is to sustain that.

We continue to put a significant effort behind Bydureon, as we think that the weekly dosing has a genuine point of differentiation.

But we think there is more we can do with Byetta and so the Alliance is going to put renewed focus on Byetta to ensure its unique positioning as the once-daily is also appreciated by physicians.

And we've made pretty good growth in the number of prescribers for the franchise as well, but clearly more work to do as we go through the rest of the year.

And then finally you had a question, I think, on slide nine, and -- around the Brilinta trajectory.

And I think I'll just, I think, Sachin, reframe the comments that we made at our Investor Day, which is, as we've now built formulary access -- I think it's about 62% on our target hospitals, protocol up to almost 50.

We've expanded managed care access.

We think that it's now the right time to further step up our promotional and scientific investment.

And we laid out -- we've probably put about a 50% increase there.

And we laid out many of the levers a few weeks ago.

And you'll recall those; more investment in the field; more investment in medical programs; getting nurse practitioners out there.

And we continue to think that the step-change in terms of acceleration of share, while we've seen some of that in the quarter, we're really looking to the back end of the year to see those investments which are ramping up in this quarter to start to pay off.

So let's come back to that, I think, in the end of third quarter, fourth quarter.

So, Sachin, thanks for the questions.

We've got Matthew Weston from Credit Suisse also waiting on the line.

Matthew, over to you.

Thank you very much.

And three questions, if I can, the first on bringing the phase 4 restructuring timing forward.

Could you explain your reasoning for doing that, given that you only ran us through it in detail a couple of weeks ago at the New York event?

Is that because a number of headwinds have accelerated?

Or, fundamentally, why are you bringing that forward?

Secondly, with respect to Pulmicort Respules generics in the US, can you just tell us whether or not generics were actually able to ship in the 24-hour period between the verdict and your injunction, and whether we will actually see a financial impact in Q2?

Or whether or not you were able to get your injunction in place before any generic product was shipped?

And then finally, on net financials, the $93m that was booked in Q1, you mention FX gains, but you don't break them out.

Is $93m a good run rate for us to take for quarterly for the rest of the year, or should we assume some differences going forward?

Okay, Matthew, thanks for the questions.

So firstly, on the restructuring, as you recall when we laid out the phase four restructuring program we indicated that it comprised really four elements.

The first element -- and if you take the 5,000 positions, the first element of about 1,000 were positions associated with the final stages of phase three, but we brought them into phase four just so that we had one program that we could communicate against.

And, Matthew, some of those actions were already underway, so it wasn't really an acceleration.

It was just that they were already in train.

The second aspect was about 2,500 positions, were again further SG&A savings, a reasonable proportion were related to sales force reductions in established markets with loss of exclusivity.

And I think I mentioned, actually, in -- on the Investor Day that in markets like Germany and France we've already initiated some of those actions.

So not really an acceleration, just a program moving at pace.

And then the third area was the R&D footprint changes.

And that is a slightly longer-burn program that takes place over the course of the next two to three years.

So that's running very much to our schedule.

So the scale of the charge taken this quarter reflects the residual of the phase three program, plus the sales and SG&A changes that were underway.

And then also where we have got known changes with identified movements we will take the -- we will take a provision against -- where there's very clear and known changes and where we've announced them we will take the provision.

So there will be a provision taken which won't translate into cash for some time.

So those are all of the factors which meant that a half of the 1.3 -- well, slightly under half the 1.3 we expect for this year being taken in the first quarter.

In terms of your second question, which was the Pulmicort injunction TRO we'd in place, the -- I think we're not aware of generics being shipped into channels.

And, that being said, if there had been it would have been at low volumes, so we haven't seen a discernible impact.

But clearly it's a space that we'll need to watch over the course of the next few weeks.

Your final question, I think, was the net financing cost, which you had indicated was running, I think you said at $93m.

And you were asking for whether that was likely to be a rate for the remainder of the year.

It's a reasonable guide.

The movement in FX gains is a pretty small part of the total.

I think it's in high single digits from memory.

So I would expect you'll see the first quarter as being a reasonable guide for the full year.

With that, move to -- sorry, so, Matthew, hopefully we've dealt with your questions.

Now move to Steve Scala at Cowen.

Steve?

Thank you.

Would you give us a rough sense of how the economics to AstraZeneca of a unit of generic Crestor sold by Watson will compare to a unit sold by AstraZeneca when it launches in 2016, given your very sizeable 39% fee?

And then, secondly, should we expect emerging market growth to continue at a similar rate in 2013 as we saw in the first quarter of the year?

Thank you very much.

Thanks.

So let me deal with the emerging market growth.

So we saw good growth in the first quarter, 9% or so.

As I mentioned in my remarks, a lot of that growth was driven by China, where we saw strong growth, at 21%, and we're now -- our business in China is now back growing faster than the market.

I also mentioned that, while we've seen some growth in the first quarter from one or two markets, such as Saudi, we'd -- the growth, a lot of it, when you do your arithmetic you'll see came net from China.

But as we look forward for the remainder of the year we expect to see continued strong growth in China.

And we'd expect to see a slightly more diverse contribution, although a contribution from a broader set of markets.

So I think we feel pretty good about the emerging market prospects for the full year and expect to see a broader contribution.

As you know, we guided to high single-digit growth in emerging markets and that's where we are in the first quarter and that remains our outlook.

I think your second -- your first question, which was around Crestor and the settlement with Watson which permits them to enter the market earlier than the expiration date, and, of course, we get a royalty from Watson, as we disclosed.

I'm not able to work through the math for you, because it depends on Watson's price and I'm not going to speculate on that at this stage.

But I think you can make an assumption on that.

And the rest of the pieces are there for you in terms of calculating what that would look like.

But I think the royalty is clearly an important net back for us.

Steve, thanks for those questions.

Brian, over to you at Barclays.

Thanks very much, it's Brian Bourdot from Barclays.

It sounds like the two-question rule has gone, so I have four, please; first question on Onglyza; second on naloxegol; third on Symbicort; and fourthly on the geographic definition changes.

Firstly, on Onglyza, just wondering if you can give us the new-to-brand sphere that you captured in the first quarter, please?

Second question on naloxegol.

I see you're still in talks with the FDA.

I was just wondering if there's any update on the petition for scheduling that you submitted to the DEA.

Thirdly, on Symbicort, I was wondering if you could update us on the status of any generics being sold in any markets and your expectations for generic entry in Europe and the US.

And, lastly, thank you very much for the 14 pages of restatements on geographic sales.

I was just wondering does that reflect changes to the way that you operate as well.

Or is this just simply an accounting thing?

Thank you very much indeed and I hope your cold improves soon.

Thank you very much for that.

Given your last comments, I won't chastise you for the fact you promised you'd only give two questions.

So in terms of your -- dealing with your final question, the geographic change, we have moved essentially what we used to frame as emerging Europe and grouped that into Europe.

And that reflects a couple of things.

Firstly, in -- as the way that those markets have evolved over the last few years they increasingly represent -- or they increasingly resemble and have characteristics of some of the other European markets, rather than the emerging markets such as the China's and the Middle East's and the Latin America's of this world.

So the nature of competition, the nature of demand and their prospects start to look more like the Western European markets.

And, secondly, as I think you will recall from our Investor Day and, indeed, before, we now have one senior commercial leader responsible for the European region, looking after both Western and the former Eastern Europe; that's Ruud Dobber.

So that's -- there's a couple of reasons.

And we hope that will be helpful for you in laying out the restatement historically so you can track it going forward.

Coming back to naloxegol, the discussions with the FDA are ongoing and I'm not able to update you on the status of the -- with the DA on the controlled substance component.

Typically, that follows decisions from the FDA, so I wouldn't have expected to be able to give you an update at this time.

We'll keep you posted on that.

In terms of Symbicort, we have not seen any new generic or analogue activity in Europe or, indeed, in the US.

As you know, we have patent protection on our devices running in -- out to '18, '19.

We know that there are some generic analogues that have sought approval, but we haven't had any new developments on that score in the last quarter.

And indeed -- sorry, in the US device I should have -- may have misled you there.

I think the US devices from memory, Karl, '20, '25, '26.

So Europe '18, '19 and then the US '25, '26.

So no update in terms of developments in approval and, certainly, not market entry of analogues, and we continue to see those as markets well protected.

You had another question on -- sorry, on Onglyza new-to-brand share.

Ed, do you have that available?

Yes, and that was a precise number.

It's a kind of table.

I'm actually just rolling -- running a ruler across to an axis on a graph and it's broadly -- if you look at Komboglyze and Onglyza together our new-to-brand share is running around 16% give or take.

Okay, thanks, Ed.

Thank you.

So, Brian, thanks for your questions.

I'll move to Mattias Haggblom in Danske.

Mattias, over to you.

Thanks, Mattias Haggblom, Danske Bank Markets.

I'd be interested to hear what you have seen in terms of the price component in developed Europe during the start of 2013, and how it compares with the same period last year.

Is it same, worse, or is it easing?

And, secondly, in light of the strong gross margin for the quarter, historically, you guided for gross margins in excess of 18%.

But in conjunction with the Capital Markets Day in New York when you reconfirmed your previous, pre-R&D margin range you did no longer explicitly say anything about future gross margins.

So was there some thought behind that as you moved towards specialty care and large brands continue to lose exclusivity, or -- and 18% is no longer termed no longer realistic?

Or is the previous guidance of excess of 18% on gross margin still a valid comment for the longer term?

Well, thanks very much for the two questions.

So, firstly, in terms of European pricing action what we have seen and anticipate for this year is very consistent really with what we saw last year.

You'll remember that historically we had seen government price interventions in the low to mid-single digits in Europe and we'd guided really over the last 18 months or so that we'd seen that rising up to, comfortably, mid-single digits.

So rather than being in the 3% to 5% range, more saw it in the 5% to 6% range.

And that's pretty much what we have seen and expect to see this year.

So not a change relative to last year, and a continuing level somewhat above historic levels, reflecting the difficult economic circumstances in many of those markets.

On your question around margins, no, we've guided to a core pre-R&D margin in the 48% to 52% range.

As our business evolves over the next few years and moves more towards a higher proportion of specialty care there will be some movement between gross margin and SG&A.

So I'm not going to guide beyond this year in terms of how those two different components will stack up.

What we've guided to is the pre-R&D margin level, which is the level to which we'll be managing.

So thanks for your two questions.

We've got another one from Nicolas Guyon at Exane.

Yes, good afternoon.

Thanks for taking my questions.

Actually, I have two.

The first one relates to the diabetes unit.

So what do you expect from the increased FDA scrutiny regarding (inaudible)?

And the second one is a follow-up on DPP4 again.

So we've seen that recent scripts slowed down recently for the entire class, so you mentioned formulary changes for Onglyza specifically, but do you have an idea, any sense as to why the entire class is down?

Second question and last one is a pipeline question regarding naloxegol.

The recent (inaudible) just released at the DDW showed an efficacy of 10% to 15% placebo adjusted.

That is at the very low end of what competitors have achieved.

Are you comfortable with the data?

Thank you.

Sorry, so thanks for the questions.

Just let me deal with the DPP4 class first of all.

And we have seen a -- some reduction in the class growth.

It's still a fast-growing market.

I think from recollection the class TRx growth was around about 11%, I think, in the first quarter, but that does compare to about 26% in the prior period.

And we think that that's due to a couple of factors.

We have seen additional TZD generics in the second half of 2012, so the TZD market decline has stabilized and that's slowed down that as a source of growth for DPP4.

It's also fair to say that we've seen continued strong growth in GLP-1 [classes] and that's also taken some edge out of the DPP4 market rate of growth.

So those are probably the two main drivers, and, as I say, we continue to think it's going -- it will remain a growing attractive market, perhaps, not at the same rate we had seen.

I think in terms of the first question, I think this related to the recent review for the DPP4 and GLP-1 class, and I [don't know], Karl, if you've got anything -- any comments to add on that.

Well, pick that one up and then I'll come back to the naloxegol question.

No, we are continuing to work with the FDA and the EMA in this area.

They are -- there are no new findings here.

The labels in this class have already contained -- if you refer to the pancreatitis issue, that's a known effect and the FDA has just said that they are looking into this.

And we will continue to provide [all the] information there.

It's nothing specific, of course, to our products; it's for all [the] classes.

Yes, so no news on that.

It's a known issue, we don't see any new information, but we will await to see how that review unfolds.

Ed, the question on naloxegol, I think in particular the -- our views on the results from the various Codiac programs.

Clearly, it's -- I guess it's too early to call.

We're in discussions with the FDA on that, so I don't want to pre-judge the outcome of regulatory discussions.

But anything, Ed, you'd want to add on the specific number, I guess?

Yes.

I think the question was looking at the response rates and comparing them cross-trial to other competitors.

And I think -- I haven't done an exhaustive of side-by-side analysis, but my understanding in this category one has to be pretty cautious about making cross-trial comparisons, because you've got different durations of therapy in a lot of these trials.

And, most importantly, you've got different primary endpoint definitions in a lot of them.

So it's hard to make cross-trial comparisons the way one might be facile with making a blood pressure trial comparison, where blood pressure lowering is blood pressure lowering.

No, I think -- Ed, thanks.

I think that is the key point that very difficult in this class to make those -- the cross-trial comparisons.

Now, it's one minute past one, and we have our Annual General Meeting today which I'm expected to attend, and we've got a couple more questions here.

So what I'd probably like to do -- Seamus, if you -- each of you, Seamus at Leerink Swann and Mark at Deutsche, if you've each got one question we'll try and handle that and then close up.

But I'll need to move very swiftly through your questions.

If you've got more I'm sure you can come back to James and the IR team and they'll pick them up for you.

So, Seamus, any -- one question, if you've got one.

I'll try now to deal with it on the call.

Sure, perfect.

Thanks so much for taking the question.

Maybe just quickly -- you mentioned the SAVOR study multiple times.

And I know I'm not asking for the scientific views on SAVOR.

But really in the market research that you've done around SAVOR what are the key questions that SAVOR will answer to really drive -- or that can drive improved DPP4 class growth, or, specifically, growth of Onglyza Komboglyze?

Thanks.

Well, thanks for that.

We are not in a position to of pre-judge the outcome of [say this] is a cardiovascular study and in some -- it was essentially set up for a no-harm test.

But, James, do you want to pick up on any work we've done around potential outcomes?

Yes.

I think, first and foremost, Seamus, it's addressing the -- I think, the previous question in terms of safety.

[Designed as a] non-inferiority, it can remove a number of the questions which are still lurking around there and being asked at the moment.

So that will be a tick, hopefully, for the class a whole and I think that can contribute to class growth.

Secondly, clearly the mortality benefit, if that is seen, that can be a major driver both again for the class and reaccelerating the growth for the class.

And obviously we believe we would be able to benefit, particularly in terms of having that data first and the advantage of that data for Onglyza specifically.

But probably too -- don't -- really in a position to pre-judge that.

Clearly, something to come.

That's hypothetical.

If that data is positive those would be the two most important things from a research point.

Yes.

Seamus, sorry if you've got further questions if you come back to James and the team afterwards.

And then finally, if I can -- and I'm sorry, I know that there's some further people waiting to put questions, Johann and Cristoph, but I'm going to take one last question from Mark at Deutsche Bank and then, with apologies, ask if the rest of you could direct your questions to James and the team after the call.

Thank you very much indeed.

Mark, over to you.

Thanks, Simon.

It's just a quick question about business development.

Pascal said at the Investor Day that this was going to be a focus in the coming months.

So far we've seen what I would term relatively early- to mid-stage R&D deals.

Is it likely that that is what we will continue to see in the coming months?

And also how much of that business development strategy is still to be determined by Mark Dunoyer, who I know has still not joined the Company just yet?

Okay, well, thanks.

I think the broad parameter shape of our business development strategy we laid out in -- at our Investor Day and the first -- the focus is on strengthening the science base, the pipeline and, where we can the, on-market portfolio for our core -- three core therapeutic areas, so cardiovascular, metabolic disease, respiratory and inflammation, and oncology.

And that will be -- those will be the therapy area -- areas of focus.

We will continue to look across the discovery development commercialization chain for good opportunities.

And you're absolutely right the four deals that we've done in the first part of this year have been earlier-stage deals in -- particularly, actually, in cardiovascular.

Oncology, I guess, is a concentration of that activity.

As we go forward we will continue to look for good opportunities in those three areas.

I think, as we all know, later-stage opportunities and on-market opportunities, there are relatively few of them.

They tend to be highly priced and, therefore, we need to be very selective about what we do there.

But I do think there will continue to be good earlier-stage opportunities.

And we're as active at the moment in terms of reviewing and discussing potential opportunities as we've been for some considerable length of time.

With Mark's arrival, when he joins us, I'm very confident that the overall parameters of the strategy won't change.

But I'm sure he'll be able to bring a lot in terms of even more crisply defining the specific opportunities and priorities within each of the therapeutic areas and he'll be working with his team to do that.

So I don't imagine a significant change in direction but, even more, I'm sure, momentum and focus behind that activity, which is a key part of our strategy.

Thank you.

So, with that, thank you to all of you for joining and for your questions.

And my apologies, I know there were two callers who weren't able to put their questions to us and, again, I'm sorry for that.

And I'd urge you to reach out to James and team to make sure your questions are, indeed, answered.

So for that thanks to all of you for joining.

Just a concluding remark really.

I think, as expected, the first-quarter results do reflect the continued impact from loss of exclusivity on a number of products, but our outlook for the year is unchanged.

We're working to a very clear set of priorities, in particular, returning to growth and achieving scientific leadership particularly in our core TAs.

And I think in the quarter we're encouraged to see that all five of our growth platforms contributed incremental growth.

And, as I just touched on in my last -- in that last Q&A, the recent business development activities have reinforced our commitment, strengthened our position in our core therapy areas and, over time, will bring distinctive science to new medicines and, hence, to the patients we serve.

So, with that, I bid you all a very good day.

Thank you.