AstraZeneca's CEO Discusses Q4 2012 Results - Earnings Call Transcript

| About: AstraZeneca Group (AZN)

AstraZeneca PLC (NYSE:AZN)

Q4 2012 Earnings Call

January 31, 2013 7:00 pm ET


James Ward-Lilley – Head-Investor Relations

Pascal Soriot – Executive Director, Chief Executive Officer

Briggs Morrison – Executive Vice President, Global Medicines Development

Simon Jonathan Lowth – Executive Director, Chief Financial Officer


Sachin Jain – Bank of America Merrill Lynch

Alexandra Hauber – JPMorgan

Tim Anderson – Crédit Suisse AG, Research Division

Peter Verdult – Morgan Stanley & Co. International Plc

James Ward-Lilley

Good afternoon everybody. Welcome to AstraZeneca's Q4 and full-year 2012 results. Happy to take questions and support, whatever questions we have for today. Without further ado, I’ll hand over to Pascal Soriot. Pascal?

Pascal Soriot

Thank you, James, and good afternoon, everyone. It’s my pleasure to see you all again. Welcome to our 2012 full-year results presentation.

First, let me set the stage for today’s agenda. I will make some opening remarks, summarizing the key events for 2012, the headline numbers for the full year. I’d also review our commercial performance, looking at our revenue trends in our key regions and for our key brands. Then Briggs, Briggs Morrison who is our EVP for Global Medicines Development, will review our pipeline progress in 2012. Simon, you all know Simon very well, our CFO will present our 2012 financial performance and provide you with our thinking for guidance on 2013, and then I will conclude with some observations from my first 90 days at AstraZeneca, ahead of our capital market today that we’re planning for March.

I'm also pleased today to say that we have in the room, Ruud Dobber. Rudd is our commercial head for the European region, and he is also an interim leader for the global products strategy function. So, we’ll all share your questions and Simon has committed, he will actually take all your very hard questions, and leave me with the easy ones.

So, if I start with our performance in 2012, our results really reflect a period of significant patent expirations as you all know, and although, all challenging market conditions for the entire world.

Our revenue was down by 15% in constant currency terms and reflects the loss of approximately $4.5 billion in revenue from the loss of exclusivity on several products, with Seroquel IR being the biggest driver. Core EPS was down 9% for the year to $6.41, that is about the latest guidance we provided. We have to say core EPS benefited from favorable impact of two tax related matters, and also from the sale of the Nexium OTC rights, the second tax related matter took place in the last quarter. Reported EPS was $4.99, which is down 29% compared with last year, but as a reminder last year we included large gain from the sale of the Astra Tech assets.

The full year dividend was maintained at $2.80 per share. We successfully drove the performance of many of our brands that within market exclusivity. These six brands altogether accounted for $600 million in incremental revenue on a constant currency basis. We also made great progress on the pipeline this year, which is three important regulatory approvals for new medicines in Europe: first, Forxiga, which is a new first-in-class treatment for diabetes on SGLT2 inhibitor and so for the feedback from our customers is very good, very early days, but good feedback, Zinforo, a new one cephalosporin antibiotic and Caprelsa, a smaller new orphan treatment for advanced medullary cancer of the thyroid.

In the U.S. also I want to point out that the FluMist Quadrivalent was the first four-strain influenza vaccine to be approved by the FDA.

Our portfolio in Japan was strengthened by three approvals, for Symbicort, the SMART dosing regimen, and the approval of the COPD indication, but also the approval for Nexium for use in combination with low-dose aspirin. You will hear all the details on the pipeline from Briggs in a few minutes.

Finally, among the many transactions and alliances we forged in 2012, the [big reason] to speak are: firstly, the collaboration with Amgen on five clinical projects in the field of inflammation, one of which is in late stage development; second, is the acquisition of Ardea Biosciences, which both it’s a three molecule for the treatment of gout; and finally our diabetes alliance, which was expanded with Bristol-Myers Squibb’s acquisition of Amylin, and as you know, [after second buying] of our share of that exciting portfolio, so we now have a full portfolio of products in diabetes.

Moving to the next slide, the full year revenue performance when I refer to growth rates, will be on a constant currency basis. If you look at this by region the U.S. declined by 21% driven by the loss of exclusivity for Seroquel IR, revenue in Western Europe was down 19%. The Loss of patent protection on four products Seroquel IR, Atacand, Nexium, but also Merrem accounted for more than 60% of the revenue decline, in addition to continued headwinds from government interventions which the whole industry is dealing with as you know in Europe.

Revenue in Established Rest of the World was down 14%, largely due to 31% decline in Canada as a result of generic competition for Crestor and Atacand. Revenue in Japan was down 5%, the biennial cost reductions are key factor of growth.

The underlying strength of our in-market performance for Nexium, Symbicort and Seroquel IR was not reflected in our reported sales, simply due to ordering patterns from our marketing partners in Japan. Revenue in other established was negatively impacted by the loss of exclusivity for Seroquel IR and Merrem, as well as the challenging pricing environment for Crestor in Australia we experienced a substantial price reduction there.

So in total Crestor sales were down 8% in Australia to around $350 million. Revenue in the emerging markets was at 6% in the fourth quarter which allows us to bring the full year growth rate to 4%. As you will remember the first half of 2012 was impacted by the supply chain issues and we have been recovering progressively since then.

We had good growth in China where revenue was up 17% for the year. Amongst our other larger markets, we had good performance in Russia and Romania, Saudi Arabia.

Overall, our growth rate was really affected by weak performances in four markets: Turkey, which was heavily impacted by government pricing interventions; Mexico where we had generic competition, and clearly a tough market environment; Brazil, was the loss of exclusivity for Crestor and Seroquel IR, and also India where our revenue has been impacted by local supply issues. Together those four markets accounted for more than a $160 million in constant currency revenue decline for the full year.

If we look at it from a brand perspective now, this slide provides you with a snapshot of revenue for our key brands and there are really some real bright spots among those products in our portfolio that are not impacted by loss of a patent protection. Crestor, of course, experienced loss of exclusivity in Canada, but excluding Canada sales we had 2% for the year.

Symbicort, had a good year with sales reaching over $1 billion balance for the U.S., in the US for the first time, very strong results for Symbicort. Despite the loss of exclusivity for Seroquel IR we achieved 4% growth for Seroquel XR. And we also had a strong year, another strong year for oncology products Iressa and Faslodex in particular.

A good performance for the Onglyza of family which is developing very nicely, and the inclusion of Byetta and Bydureon from Amylin are there about $111 million in revenue since the addition of this products to our portfolio from the third quarter, which is slow, but steady progress on Brilinta, and we’ll come back to this, but as you can see on the bottom of the slide, loss of exclusivity took a large toll. We have a substantial headwind from those current expiries, on Seroquel IR globally, and regional losses on Nexium, Atacand and Merrem.

Detailed commentaries on our brand performance are in the press release. I just want to provide some additional color on five products in the portfolio, Crestor, an update on our Brilinta launch, the performance of the Onglyza franchise, also some color on Symbicort, and finally a brief look at Nexium and its performance in Japan.

Let me start with Crestor. The sales in the U.S. were up 3%. Total prescriptions were done just 1.4% for the year, which totally is a very resilient performance in the face of multiple atorvastatin generates starting May 30th last year.

If you look at the next slide, that shows you the net dynamic volume trend. The red area marks the number of patients who are newly starting the statin therapy with Crestor. The blue represents the patients who have switched to Crestor from another statin. The grey line below the axis is the number of patients who are switching from Crestor to another statin.

And finally, the important plan is the yellow line, which is the net result of all those additions and losses. And, as you can see this yellow line on the chart, you can see the increase in net dynamic volume that appeared in the last six months of 2011. This was following the label changes for simvastatin in the removal of the 80 milligram dose from the market. The Crestor volume was already on the downward trend from this back around the time of the limited launch of generic atorvastatin in November 2011. And, we did lose a bit more around following that launch. But overall, I think it is a fair to say that, that based on the right hand side of the graph that demonstrates that Crestor dynamic volumes have held up very well and stabilizing, even with the influx of multiple atorvastatins in May.

And that is confirmed by this chart that shows you the total prescription for Crestor in United States. And, of course, it goes up and down as I described a minute ago, but importantly you can see that in the last couple of quarters we see signs of stabilization.

Total prescription in the fourth quarter of 2012 was at 6% lower than last year. Some of which is a function of the prior period ramp-up. We also had a small decline in the second half of 2012 related to volume losses in the low margin Medicaid business, but overall, as I said, a very resilient performance in total prescriptions.

In the Rest of the World, sales were down 9%, but if you exclude Canada we’re unchanged. We continue to do well in Japan, where Crestor is actually the number one statin by volume share of the market. As you can see here in the next slide, we continue to grow our share of new patients, in Japan even after the launch of generic atorvastatin, and so then Crestor is the largest statin there.

In the emerging markets, sales were up 4%, 14% if you adjust for the loss of exclusivityin Brazil and in Mexico. Now, let me turn to Brilinta. We have actually now launched in 82 countries, sales are still modest at about $89 million for the year. But, if you look at the next slides in the U.S. we see steady progress in the growth in total prescriptions. In the fourth quarter, [Chris] were 46% higher than in the third quarter.

As we start the New Year, we have seen a real boost to our market access. We now have unrestricted preferred access to more than 50% of covered lives in the commercial plans but also in Medicare Part D. And, we see a steady improvement in access in both Part D and commercial plans that is up more than 20% points in commercial and 30 points in Part D compared to the third quarter.

We know that physicians’ concerns are about plan reimbursement, and affordability for patients, and that has clearly hindered the product trial. This improved access should really help us move forward into the year, and we are doing a number of other things which we could talk about later if you wanted to.

Outside the United States, our good perform on since Germany continues. If you look at the data from our survey panel, we have leveraged a strong protocol adoption to maintain number one share of ACS initiation in the hospital, and this graph actually shows you the total IMS audit data where our share of the total prescriptions in the OAP market in the hospital is measured. And, you see a clearly improving trend, and a very encouraging development of our prescriptions here.

This is a 13%, this is a lower number than our ACS panel, but the panel measures new to – new initiations. and this number is also include other indications not on the ACS use, but using of antiplatelet products in other indications, but overall a very nice progression and our retail volume market share again all usage is also rising very quickly.

Our second important country in Europe and it’s a very important one for Brilinta, because it’s the largest OAP market in Europe and the latest market for which we have some early launch stocking to report. Again it’s still very early days, but we’ve had a faster protocol update and show this year’s initiations then one we launched in Germany. And even on six months of data penetration of the hospital and retail volume for all OAP usage is on part with the prasugrel launch have taken its first six months, despite are being [sold] to market, so again here on France is pretty encouraging market development.

And if we move to the next slide a final word on Brilinta, we’ve received approval in China in the fourth quarter, of course, this is only our first step, we now must achieve listing on the [RBL] before we can really drive revenue there.

So let me now move on to the Onglyza franchise. I will share the alliance revenue for the Onglyza franchise was $323 million for the year, which is up to 53%, much of this is still in the U.S. where the alliance revenue was about $237 million. If you look at the scripts now for the Onglyza franchise in the U.S., they were up 45% for the year, which is well ahead of the DPP4 market growth of about 22% and our share is steadily improving.

Our total franchise share was up 1.3 percentage points during the year with the growth coming from Kombiglyze XR on the background of a stable Onglyza market share. The sales in the rest of the world for Onglyza were up 56% to $86 million. We have now launched Kombiglyze XR in Brazil and in Mexico. In Europe the first launches of Kombiglyze took place in the fourth quarter of 2012, which should really help performance in Europe where the combination products are very important.

Symbicort had another good year, very important product for us in the next few years. Sales in the U.S. reached the $1 billion milestone for the first time. We have achieved steady growth in total prescriptions, and the market share is up 2 percentage points over the last 12 months. We are now at 22%. Importantly our share of new patient [start] is 28% which gives you an idea the upside that is still ahead of – is still there for Symbicort in the United States in term of our total prescription share.

The sales in the rest of the world were unchanged for the year of about $2.2 billion. And importantly we continue to do very well in Japan, helped by the approvals of the SMART regimen for also the COPD indication.

The last product I would like to talk about is Nexium, we’ve achieved a steady financial performance in the U.S. in a highly generic PPI market, and our slowly declining volume is actually partially offset by higher realized selling prices, a mix effect which is due to the loss of low-margin business in Medicaid.

But, really what I wanted to talk about is Japan, and as you will remember, Nexium sales in Japan were treading water for most of the year essentially due to the provisions under the Ryotanki that limited prescriptions for new products in the first year on the market to just about two week supplies, so that certainly limited next year.

And the two week limit where it’s lifted in October and the performance was really accelerated. And, if you look at the next slide, it really shows the tremendous success we have experienced with Nexium, which is now the most successful launch ever in Japan, a great performance by our commercial team in Japan, which is really an outstanding team.

I like to stop here and turn the presentation over to Briggs, who will review our 2012 pipeline progress. Thank you.

Briggs Morrison

Thank you very much Pascal. Hello everyone. My name is Briggs Morrison. I’m the Executive Vice President of Global Medicines Development. I have been with AZ about a year and held a similar position at Pfizer before that in multiple development positions at Merck before that. I am a medical oncologist by training.

Today, I want to give a brief update on the priorities for R&D at AstraZeneca, on our portfolio including the pipeline movement, some highlights from 2012, and the late stage update, and the anticipated news flow 2013. So, we set some clear and focused priorities to achieve scientific leadership, progress the pipeline, and rebuild the phase III portfolio, enhance R&D productivity, strengthen our capabilities in translational science and personalized medicine, and foster a culture of high quality and innovative science.

As you’ll see our phase I and phase II pipeline is shaping up in our investments in large molecules are particularly taking effect. We’ve felt good momentum in the portfolio, and it’s important that we now pull these through to patients.

So, let’s look at our pipeline movements since 2011. Pipeline now includes 84 projects, of which 71 are in the clinical phase of development, and 13 are either launched, approved, or filed. There are 11 NME projects currently in late stage development, either in Phase III, are undergoing regulatory review. And during 2012, across the portfolio, 39 projects have progressed to the next phase, 12 molecules entered human testing and 19 projects were discontinued.

This slide shows a detailed view across our Phase I, II, and III, both small and large molecules. There is a lot on it, it’s hard to read, but you should have a copy. You can see that, we now have a good balance of small and large molecules today with the large molecules making up about 45% of our portfolio.

The work we’ve done in the last few years has injected real quality into our pipeline. This is reflected particularly in the phase I and II portfolio. I think it does quite well for what we can expect to enter into phase III in the coming years, and I will touch more on that later in the presentation.

So, last year there was a lot of good activity in the pipeline as Pascal mentioned, we saw for example the launches of Zinforo, Forxiga and Komboglyze in Europe, Oxis, Symbicort SMART and Symbicort COPD in Japan, and Phase III starts for brodalumab and CAZ AVI.

In the fourth quarter, we also have the approval for Brilinta in China, and I am going to start with Brilinta, as I talked a little bit more about some of our late stage assets. So Brilinta continues to make great progress in terms of its availability around the world now with approvals in 88 countries, it’s under review in further 18.

PARTHENON is our life cycle management program for Brilinta, which we have continue to invest now as over 50,000 patients have enrolled in the number of large outcomes trials. We’ve completed to file our acute coronary syndromes file in Asia and anticipate submitting for approval in Japan in the second quarter. Our PEGASUS-TIMI-54 study in patients who have had a previous myocardial infarction is also progressing well is on track for filing in 2015.

We recruited our first patient for the Euclid trial, for patients with peripheral artery disease in December of last year. Peripheral artery disease or PAD affected about 27 million people in Europe and North America and is currently insufficient evidence on how best we medically manage these patients resulting a substantial healthcare cost. We anticipate filing the Euclid trial in 2016.

We’re also investing significantly in investigator sponsored trials. In the fourth quarter, Brilinta was added to the ACCF/AHA guidelines for the management of patients with ST-elevation myocardial infarction elevation, so called STEMI patients. This brings to 11, the number of global guidelines in which Brilinta is considered standard of care.

In November, the European Commission approved Forxiga for the treatment of type 2 diabetes in the European Union, so the first SGLT2 inhibitor to be approved in regulatory approval anywhere in the world and it provides physicians with a completely new option to improve glycemic control with additional benefits of weight loss and blood pressure reduction.

We’ve now launched Forxiga in the UK, Germany, and Denmark and received Therapeutic Goods Administration approval in Australia. We have constructed discussions with the FDA about the Forxiga NDA in the United States. We will be providing additional data from ongoing studies and expect to resubmit to the middle of this year, assuming a standard six months review, we think we will hear back from the FDA by the end of this calendar year. We’re excited about the future of the dapagliflozin franchise and estimated a marketing authorization for a dapagliflozin, metformin immediate-release fixed dose combination that in the fourth quarter of last year. We expect to begin enrollment and declare large cardiovascular outcomes trial by the end of this year.

So for Onglyza, the SAVOR-TIMI 53 trial is fully recruited and the follow-up is ongoing. This study complies with the new FDA requirements for assessing cardiovascular risk for patients with type 2 diabetes. As the trial progressed, we recruited more patients more quickly than anticipated. We increased our enrollment number from 12,000 to 16,500. This increase in sample size allowed us to accrue the events more quickly than we had planned.

We and our partner BMS expect to submit the data from SAVOR to regulatory authorities around the world in the second half of this year, which is two years ahead of our initially planned timelines.

For Symbicort, in June Symbicort SMART was approved and launched in Japan, the COPD indication was approved in August and launched in September. PATHOS is a real world evidence study and the impact of different COPD management strategies and outcomes for patients that was shared at ERS. 19,000 patients years of data this is a largest and longest real world study to compare the effectiveness and safety of Symbicort compared to fluticasone and salmeterol and patients with moderate-to-severe COPD.

Specific to the U.S. the next step for Symbicort is the submission of the breath-actuated inhaler which is on track for our 2014 filing. Also to talk about the other molecules that are in Phase III. For naloxegol the Phase III KODIAC studies are progressing well. KODIAC is designed to investigate the safety and efficacy in the naloxegol as a medicine to relieve constipation, which is a side effect of the prescription use of opioids for chronic pain management.

We announced the top line results from KODIAC-04 and KODIAC-05 and KODIAC-07 in patients with non-cancer related pain who have opioid-induced constipation. We released those results in November of last year. More phase III data from both of those trials will be presented at DDW in May.

Enrolment in KODIAC-08, which is a long-term safety trial, is complete and those results are expected this quarter. We remain on track for regulatory submissions in the U.S., Europe, and Canada in mid-part of this year, of course, pending our full analysis of all the trials and – from all the data from all four trials and a pre-NDA meeting we have with the FDA.

CAZ AVI is innovative combination of an established antibiotic ceftazidime with a novel inhibitor of bacterial resistance called avibactam. CAZ AVI aims to treat hospitalized patients with complicated inter-abdominal infections, complicated urinary tract infections, and hospital acquired pneumonias including ventilator-associated pneumonia.

We enrolled our first patient in the phase III study in 2012. Brodalumab is anti IL-17 receptor monoclonal antibody that we are developing in collaboration with Amgen. This is the study for the treatment of psoriasis, and phase III was initiated in the third quarter of last year. Psoriatic arthritis phase II trial was also completed and we're in the middle of analyzing that data.

Fostamatinib is the first oral kinase inhibitor with selectivity for the spleen tyrosine kinase so called SYK kinase, development for rheumatoid arthritis. Our phase III OSKIRA program is on track to report in the second quarter of this year with the anticipated filings in the U.S. and Europe at the end of this year in the fourth quarter.

Our acquisition of Ardea last year brought in the phase III asset Lesinurad. Lesinurad is the selective uric acid reabsorption inhibitor that primarily targets URAT1 and 04 in the proximal renal tubule cells that regulate the excretion of uric acid from the body. It’s being developed as an oral once-a-day chronic treatment for gout, and it’s been studied in an ongoing phase III program including as an add-on to allopurinol in patients who do not reach their target serum uric acid concentrations with allopurinol alone.

We think due to its complementary mechanism of action and its tolerability profile it has the potential to fundamentally change the way that gout is treated by helping the majority of patients actually get to their goal of 6 milligrams per deciliter in serum uric acid. So we are targeting regulatory submissions in 2014.

Now in 2013 there are five programs that could potentially progress to and start Phase III. In 2014 there are an additional 11 programs. Now, not all of these will make it, but this figure clearly reflects the progress we’ve made in our phase I and phase II pipeline that I mentioned earlier. And our consistent focus on quality, I think increases the chances that these molecules will progress and start phase III.

This year as well as the upcoming phase III starts there are many milestones anticipated, further phase III results for fostamatinib and naloxegol, several submissions including Brilinta in Japan and Forxiga in Japan and China, and the launch of FluMist Quadrivalent flu vaccine in the U.S. to just name a few.

So I think as you can see our focus on quality, innovative science in our labs and the enhancements to our approaches are beginning to play out. Continuing this momentum over the next two years, what I believe resulting a significant increase in our phase III new molecular entity programs as we progress the pipeline.

I will speak more about additional opportunities we are creating with our pipeline with Capital Markets Day in New York in March. And now I’d like to turn the microphone over to the man who answers all the hard questions Simon Lowth.

Simon Jonathan Lowth

Thank you, Briggs. I am going to cover six topics. I’ll recap the headline numbers for the full year and the fourth quarter. I’ll cover our core operating profit performance and I will emphasize the key drivers of operating profit and margins. I will update you on the progress of Phase III of our restructuring program. I will describe our cash performance and our decisions on shareholder distributions. I will make the bridge from our core P&L on the old basis to our new definition of core financial measures, and then using this new cores of baseline, I will close with our thoughts on guidance for 2013.

And Pascal covered the overview of the full year performance in his opening remarks. To complete the picture, we bridge from core earnings per share of $6.41 to a reported earnings per share of $4.99 with the usual adjusting items for restructuring, amortization impairments and legal provisions. Our core earnings per share declined by 9%, reported earnings per share fell by 29%. The faster decline in reported EPS is due to higher restructuring and amortization costs in 2012, and of course $1.08 benefit in 2011 from the sale Astra Tech.

Attention tends to go into any detail on the fourth quarter that accounts the revenue picture is similar to the full-year, core EPS however benefited from the favorable adjustment to differed tax balances related to the reduction in the Swedish Corporation tax rate.

So, I'll now turn to the P&L for the full-year. And, I'll focus here on core margins and profits. The press release does, of course, contain the strategy numbers and a detailed reconciliation to the core measures. When I refer to growth rates, they will all be on a constant currency basis.

Core gross margin was 81.2% of revenue. And, that is down 90 basis points compared with last year, which benefited from these settlements with PDL Biopharma in the first quarter. For 2012, there were benefits from the absence of Astra Tech and Aptium, and there was also a small uplift in the second-half from the accounting treatment of the Merck Second Option. And countering those upsides there was an unfavorable impact from product mix.

Core SG&A expense was down 12% compared with last year. Restructuring benefits, and spending discipline were partially offset by increased investment particularly in emerging markets, and the inclusion of the amortization expense related to the Amylin intangible assets acquired in the expansion for the diabetes alliance.

The excise fee imposed by the enactment of US healthcare reform measures amounted to 2.8%of core SG&A expense for the year. Core other income for the year was up 24%, reflecting the $250 million from the sale of Nexium OTC rights.

Core pre-R&D operating margin was 53.2% of revenue, that is 90 basis points lower than last year, as the benefit from higher core other income was more than offset by higher core cost of sales and core SG&A expense as a percent of revenue.

Core R&D expenditures were down 11% to nearly $4.5 billion. And we did absorb significant new spending on in-licensed, acquired, or partnered projects during the year. However, these are more than offset by restructuring benefits and by significantly lower intangible impairments in 2012 compared with last year. The volatility related to impairments is one of the reasons. We move to our new definition of core measures.

Core operating profit was $10.4 billion, that’s 18% lower than last year. Core operating margin was 37.3% of revenue, 160 basis points lower than last year.

Let me turn to our productivity program. For the full year, we’ve incurred $1.6 billion of costs associated with the third phase of restructuring that we announced back in February 2012. If you add in the $261 million, the Seroquel was charged in the fourth quarter of 2011, that means we’ve around $300 million left to go against the total program estimate of $2.1 billion and most of this will be taken in 2013. Actions involving around 6,300 of the estimated 7,300 positions that will ultimately be impacted have been completed. Total annual benefits of $1.6 billion by the end of 2014 are targeted from this phase and we estimate that around $350 million were retrieved by the end of 2012.

Now bringing together all three phases of restructuring. We have reduced gross headcount by around 27,000 positions. After reinvestments, we have achieved a net reduction of over 15,000 positions.

Cash generated from operating activities was $6.9 billion for the year compared with $7.8 billion in 2011. Lower tax payments only partially offset the lower EBITDA for the year.

Cash outflows on externalization activities were $5.1 billion, chiefly related to the purchase of the Amylin intangibles and the $1.1 billion acquisition of Ardea. We ended the year with a net debt position of $1.4 billion.

Now turning to cash distribution to shareholders. The second interim dividend is $1.90, which brings the dividend for the full year to $2.80 maintaining the same dividend as last year. This is consistent with our progressive dividend policy by which we aim to maintain or grow the dividend each year. It’s a policy that we are committed to going forward.

We’ve revised the basis by which we have set dividend cover. Previously, you may recall the dividend cover target was two times based on reported earnings before restructuring costs. Now, with the adoption of our new definition of core financial measures, the dividend cover target is now two times based on core earnings on the new definition. We believe that is this core earnings measure is a better indicator of the cash cover for the dividend.

And when the board adopted the progressive dividend policy it recognized that some earnings fluctuations are to be expected as the company transactions through this period of exclusivity losses in new product launches.

The board’s view is that the annual dividend will not just reflect the financial performance of a single year taken in isolation, but it will reflect its view of the earnings prospects for the group over the entirety of the investment cycle. And likewise it recognizes the dividend cover in any given year is likely to vary from the two times cover target.

Prior to suspending the 2012 share repurchase program, we executed net share repurchases for $2.2 billion. The board will continue to keep under review the opportunity to return excess cash to shareholders through periodic share repurchases. However, the board has decided that no share repurchases will take place in 2013, in order to maintain flexibility to invest in our business.

As we announced last quarter beginning with the first quarter of 2013, will be updating our definition of core financial measures. The principle change is to exclude all intangible asset amortization and impairments with the exception of information systems related intangibles. Now we provided the reconciliation for the four quarters of 2011 and the nine months of 2012 back in November. And in today’s press release, we’ve included the reconciliation for the fourth quarter and full year 2012. I know that many of you have already adjusted your 2013 modules that others may yet to do so.

And just to be absolutely clear, here is the core P&L for 2012 reconciled to the new basis. I’ll not take the time to go all away down all the accounts here. I’ll now just point out the core gross margin against this new basis; I’m not expect to see some decline in 2013. And the other item I would call out is of course that the new core EPS figure is $6.87 for 2012 versus $6.41 on the old basis.

I will now turn to our guidance for 2013, and it’s in the context of this new core base line. Now the financial performance for the full year of 2012 was defined by the significant revenue decline associated with the loss of exclusivity for several products. Seroquel IR alone declined by $3 billion; regional losses of exclusivity for Atacand, Nexium, and Crestor combined for a further negative impact of more than $1 billion. Against this revenue profile, spending discipline and restructuring benefits can only be expected to partially mitigate the impact on core profits and margins, particularly as investments to drive future growth and value are to be made.

A larger decline in core EPS for 2012 was averted by the favorable impact of two tax-related items, $0.19 from the tax provision release in the second quarter and $0.18 from the adjustments to deferred tax balances in the fourth quarter, 2012 was also benefited from $0.16 from the sale of OTC rights for Nexium in the third quarter. So together those three items amounted to $0.53 per share headwind as we moved into 2013.

So for 2013, we expect challenging market conditions will persist, including continued government interventions in price. The revenue impact from the loss of exclusivity will continue to affect the revenue performance, with the first quarter particularly challenging since Seroquel IR and Crestor in Canada have not yet reached the 12-month anniversary since generics entered the market.

For the full year 2013, the company anticipates a mid-to-high single digit decline in revenue on a constant currency basis. Productivity and efficiency programs will continue to deliver their target levels of savings. These will provide the necessary headroom to invest behind key growth platforms and in progressing the pipeline, with the aim to hold core operating costs combined core R&D and SG&A expense to hold core operating cost in 2013 to a slight increase compared with 2012 on a constant currency basis. Core other income is expected to be under $600 million for the year.

The reported tax rate for 2013 is anticipated to be around 23%, and with our revenue and operating costs profile in line with our guidance, core EPS will decline significantly more than revenue in 2013. Now in January 2010, the company outlined planning assumptions for revenue and margin evolution for the period 2010 to 2014, with 2013 guidance now in place and in the context of an update to corporate strategy these planning assumptions for the remainder of the period been withdrawn.

Financial guidance for 2013, has been based on January 2013 average exchange rates for our principle currencies, and takes no account to the likelihood that average exchange rates for the remainder of 2013 may differ materially from these rates. I’ll hand back to Pascal, Pascal?

Pascal Soriot

Thank you, Simon. I just wanted to close this session with a few thoughts on my first three months at AstraZeneca. And it’s too early for us to share any views as to what our strategy will look like we wanted to do this at the end of March as we had communicated to you earlier. We really want to do a thorough job of analyzing options, and looking at our business, and developing priorities and strategies in detail. And, also my priority for the first three months was really to get to know the people, understand the organization, understand the culture, understand how this company works, what it is we do very well, and what we could do better.

And, as you can imagine an organization of that size is not something you get to know very quickly, and fundamentally the most critical piece is to understand the people, and then particularly the critical leaders that are making this company work.

So, I have gone around the world, I’ve visited about 15 sites in many countries. I have visited every single research and development site. I have gone to many of our commercial organizations. I have had many [time], also I must have interacted with more than 8,000 people. I have met many, many of our leaders. I have had many round tables of eight to ten people; cross-functional round tables in various sites; most have around 35 or 40 of those which enabled me to hear from 350 to 400 people.

And I think I have now a good sense for the organization, and what it is we do well, and what we need to improve. And as I have shared with some of you in the last few weeks, one of the things that really struck me the most that at AstraZeneca is that despite two or three years of waves of restructuring the people are still very, very much delighted, sometimes a little bit disoriented, of course, as you can imagine, because you saw the headcount reduction that the company has experienced in the last few years, and you can’t do these without impacting people. But, incredibly engaged and committed passionate group of people, and very committed to doing the right thing, and committed to the success of the company.

Second thing is the collaborative spirit is quite unique actually. I’ve worked for many companies, I have been in many different places, and the level of collaboration in the organization is quite remarkable.

I also believe we have tremendous science, we got great scientists around the world, and it’s not only missing this, I have talked to, as you can imagine many opinion leaders, many people I know from my past lives at the previous company or other companies in oncology, and diabetes and cardiovascular medicine.

We’ve also run a series of meetings, Advisory Boards probably spent in total close to two weeks doing this with some of the top leaders in the world, top scientists in oncology, in metabolism, cardiovascular medicine et cetera and typically what I heard was that AstraZeneca in science ranks in the top three companies in the industry three, four companies in the industry, so fundamentally good fundamental science and fundamental scientists.

Now so you might ask me what it is that, what is it that you need to do then to leverage this, and why is the pipeline of the – what you would, what you could expect it to be. And I think really over the last few years, this, we have as a company become a little bit complicated, and in many ways out of this complications are bit conservative, and complicated with a quite a number of management players, a great collaborative culture, but also as a result of very consensus driven with sometime lack of clarity of decision-making that leads to many committees, and not necessarily a happy decision making.

So one of the things we need to do it was a clear resounding message from many of those scientists is select the assets that can do well in and commit to those and prioritize them and we haven’t been able to do these very well I must say in the past, and that is certainly something we will do better in the future, but fundamentally many strengths and strong biology, strong understanding of biology, a strong biologics unit from small molecule. And if I could have my first slide maybe I wanted to share with you a few reasons why I believe this company can do well.

And if you look at it, AstraZeneca has strengths in biologics, it has strengths in small molecules of course and that’s the heritage of AstraZeneca. It has strengths in immunotherapeutics and also it has quite unique civil engineering technologies. And there is biologics, immunotherapeutics and antibody technologies, they are part of the many, main organization today, but part of it is the CAZ heritage, the Cambridge Antibody Technology here in Cambridge, UK.

So, we have quite a unique combination of capabilities, we are not the only ones having some of those but to the extent we have them, I think we have a very special place. And if you look at the pipeline itself, if you look at the next slide, this is a complicated chart like many of those pipeline charts are and I just want to leave you with two messages here. One is if you look at Phase I, Phase II or in Phase III you have two columns.

The left one is the small molecules, the right one is the biologics the large molecules and what this tells you is that our pipeline is about 50-50 small and large molecules. It’s not reflected in the Phase III, the development portfolio of course too early for this, but many of those products are progressing now through as for the development program. And so, 50-50 is the first message I want to leave you with, the second is if you look at the colors and if you look at the top color, the red color, you will see a lot of oncology programs there.

And I guess the message to you is we’re going to be a rebuilding oncology, cardiovascular medicine that which is close to my heart, oncology is also close to my heart, and I'm very happy to have Briggs leading our development function because Briggs is an oncologist by training and oncology of course is very close to his heart. So this is clearly what one of the things we are going to do is rebuild our oncology pipeline. And finally, as you can see here, I know it’s written in small letters and I have to read, but we have a very rich program of life-cycle management extensions around Brilinta, around our diabetes franchise.

So a very good program, the key for us is to pick the winners out of this pipeline and move them forward and commit and invest in those. So clearly this is what we are going to do, we're going to invest in this pipeline and build it organically. And finally, it is sometimes we have to see because when you faced with headwinds like we have faced losing current protection for Nexium, Seroquel et cetera. The top line of course is very substantially negatively impacted by all of that.

So it's hard to see that they are underlining those opportunities, but they are and I have talked about those before, if I get down to the last slide beyond the pipeline which we drive our future growth. Brilinta is still I believe a growth driver $89 million last year doesn’t feel like it is a massive growth driver, but I believe we can do hard work and clever work and we suddenly can turn this product into a full growth driver. It will be a slow steady progress, I'm hoping I believe that by the second half of 2013 you would see a different trajectory for this product and we had science that we actually can do it.

The second is diabetes and our alliance with BMS, diabetes is a disease that is a progressive disease as you know, patients tend to progress they receive one, two, three treatments and receive combinations and there is a room for variety of products we have of course as we plan we have a DPP4 for Onglyza we have combinations. And we have now FORXIGA, SGLT2 and [EBITDA] which was just launched in Germany and so far this is very early days of course but so far he is getting pretty good reception.

The emerging markets have always been important for AstraZeneca, which is a company that was one of the first ones to identify the potential of those countries, we have tremendous presence in many of those markets, in particular in China, because when you talk about the emerging markets typically you really mean China, it’s the biggest potential out there. We had 5,000 people about – that’s about the size of our presence in China we have a very large sales force, we have a tremendous leadership team and I believe that moving forward we can drive growth, faster growth in China then we have in the recent past.

The fourth one is our respiratory franchise, Symbicort certainly will face challenges in Europe is under the analogues or not generics or clearly the market dynamics are different certainly that would impact us negatively but in the U.S. we have tremendous potential you had what I said (Inaudible) $1 billion what we achieved we have 22% share, 28% new patients initiation so a lot of potential, like to remind you as there was a $5 billion products release a lot of room for growth in the U.S. and the emerging markets and China in particular, in Japan we have a growth potential for Symbicort. And we will build our respiratory franchise with our own portfolio there is quite a number of products that address the respiratory field in our portfolio but also we will be looking at licensing and partnering of course.

And the last one is Japan. Japan is a market that has been stable for the last few years. It’s starting to grow steadily 3%, 5% a year. Again in Japan we have a tremendous leadership team and a tremendous organization. We have a lot of products that are still have growth potential Symbicort for sure, next year, Crestor many others so Japan will be one of our growth platforms.

So clearly, beyond these patent expiries we have potential for growth. So my conclusion is that there is a way forward for us, organically as for this plan of expiries by delivering better on what we have in our hands, the portfolio of course but also that the pipeline but also what, what we have in the marketplace, compliment this with a string of pearls business development strategy finding the right opportunities out there, and doing the right thing developing and commercializing them, there is opportunities for us to PARTHENON further, just like we’ve done with in general we’ve done with BMS and bring our capabilities to bear to better market to develop products where we have expertise.

And finally, as I said before we would suddenly be open to initiatives that are more, transformative deals. But I also wanted to tell you that the probability, the likelihood of this is lower, because there are not so many they have to make project sense, we have to be able to approach and that is approached and that’s deliver on something like this, many of those large acquisitions are difficult to execute and so there have to be operationally feasible and finally and importantly they have to create value of course. But we’re going to be open to all of this and I really believe that our base plan which is execute on what we have and complemented with business development can actually take us all the patent expiry the cliff, we are facing and then start growing again at some point in time in the not to distant future.

So that’s really what I wanted to share today, and the message is we are committed to science, we are committed to innovation, we are committed to our growth plan we’ll invest in growing our platform, we’ll invest for long-term growth. We will return to growth one way or another and we will share with you more of our plans, not only our strategies and our plans, but also our pipeline and share all of this with you in March invite you all to join us March 25. So you can get a sense for why we are so excited and why we believe we can actually turn this company back to growth.

Thank you so much. And I’ll open the floor for questions now.

Question-and-Answer Session

Unidentified Analyst

(Inaudible) from Lumera, thank you. Just a couple of questions on Crestor do you have any plans to have any dose discrimination on pricing when Simvastatin went against Lipitor they end up dropping the lower dose by about 30%, I believe. if you look at the prescriptions you can see the two lower dose of amount even the 20 milligram is going negative in U.S. the two lower dose is makes sense because they are similar to Lipitor so if you were to give some price way on the lower doses, and both of them keep the price higher on the higher doses which are quite unique.

And secondly, in terms of pricing for Crestor overall for next year, you managed to go down in the U.S. keep pricing quite high and realize some of that despite lots of volume, will you were to keep pricing high for next year in Crestor in general, many thanks.

Unidentified Company Representative

I think the – I’m not sure I got the first question, if let me just try and if I don’t – if I didn’t get it, you can always ask again. In the United States in 2012, our price didn’t decline much. In fact, what happened is that we lost the Medicaid business, we lost volume out of the Medicaid business, our net price was more or less stable because of the effect of the Medicaid, losing the Medicaid business which is at the lower price. For 2013, the price will show some decline. The good thing is we know what it is going to be and we know that we have good coverage and good reimbursements for 2013 because we have completed our one-off negotiations with Managed Care, so there will be some pressure on price in the United States in 2013. I won’t tell you how much but there will be some price pressure, yeah.

Unidentified Analyst

Hello, yeah. Thank you, that’s the answer to my second question, but the first question was around Crestor pricing by its different doses, the four different doses of Crestor. When one looks at the prescriptions you can see that the two lower doses the 5 milligram or the 10 milligram are the ones that are suffering the most, 20 milligram a little bit. Which is to be expected considering. As a physician myself, we tend to think that the 5 milligram and 10 milligram similar to the 20 milligram and 40 milligram Lipitor. When Pfizer faced the same issue with generic simvastatin we saw them drop the, the price of lower dose Lipitor down to be able to compete with the Generic to Simvastatin in my case but you have any plans on changing the price of Crestor by dose. So since you keep the higher dose is better higher priced but drop the pulse of a lower dose to try to maintain some share in the face of doing it (Inaudible) 2014 and beyond typically.

Pascal Soriot

Our focus is really to, our focus is on the patients who need high dose because that’s really where you can see the best clinical benefit. So our focus for Crestor is the processed ACS patients and value to line those patients who need higher dose we are clearly with the (Inaudible) better benefit than atorvastatin and in that state being we’ve been able to defend the use of Crestor quite really without having to adjust our price to dramatically or we suddenly adjusting the price of the small dose I can’t tell you precisely whether we have specific plans for the low dose we can get back to you on this one and there is Simon you know the answer.

Simon Lowth


Pascal Soriot

One thing I can tell you is that the absolute commercial focus is the higher dose where really the benefit is.

Sachin Jain – Bank of America Merrill Lynch

Sachin Jain, Bank of America. Three questions please and firstly on cost growth you’ve alluded to some growth in 2013 I wonder if you can give us any color 2014 and 2015 is it fair to assume continued growth and I guess that comment in the context of the savings program as you got roughly $1.3 billion left and in that phase 13, 14 and is a potential for greater cost growth once a saving program begins to slow or even come to an end and second question just within your sales guidance you can give us some color on just to what imagine market growth is achieved and given that your growth rate for the fourth quarter is still running around 6% I think and then the third question in R&D just real top down question on the slides you put up on phase II to III progression decision this year and next year as soon as give us any color on your average time those compounds are been in phase II I guess an external perceptions a lot of those compounds been sitting there for a while, is that perception correct or not, thank you.

Pascal Soriot

Thanks Sachin so maybe, Simon you could take the first two and Briggs will take the part of the (Inaudible) question.

Simon Lowth

Certainly, so if we start with probably a second one first, which was on emerging markets so the – I think Pascal had described some of the pressures actually faced in 2012, in the emerging markets, we’ve had good underlying growth in markets like China and Russia, but some specific issues as you described in Turkey, India, Brazil, and Mexico.

In addition of course we have to train in the first half really from the supply chain issues which impacted emerging markets. As we move into 2013, we do expect the growth to recover in some of those drains on 2012, sort of annualizing out, so we’d expect to see some stronger growth going into 2013. And continuing good fundamentals in a number of those core markets and we are investing behind those, so some acceleration the first to your questions on the costs, we do see costs as you said productivity improving programs restructuring continue to deliver benefits.

The phase III program the remaining benefits when we described the benefits we are already familiar with this, we described it as the annual rate at the end of that year. I would expect sort of a – the remaining benefits those to be reasonably easily faced between sort of 2013 and 2014. Most of the costs coming in 2013, but the benefits blowing out in 2014 if you then come and look at the cost run rates, I mean 2013 that’s a combination of the restructuring productivity delivering, but as you saw actually from my headcount but that bridge, we’re reinvesting, where we can see growth potential, you saw that in the movement headcount and that’s certainly a feature as we go into 2013, we are investing behind our growth platforms in sales and marketing in emerging markets, but elsewhere. We are investing across the pipeline and that certainly is leading to the guidance we’ve provided for 2013, which is to hold the increase to a slight increase. 2014 and 2015 we’ll update you when we get to those years; it’s going to be shaped by the nature of the investment opportunities that we face in fact that helps you on that.

Pascal Soriot

I remember just as on the as far as the emerging markets Sachin, if you look at China we grew by 17% last year, I think we can grow faster than that in China. We have many products that really have pretty good potential there, I mean Crestor is only a $100 million in China is growing faster, but it’s only starting, the potential is still enormous. Nexium is growing it can do very well; (inaudible) tremendous potential in China, Seroquel is growing we can’t suddenly do better than 17%. So the growth in those countries should overall accelerate as Simon was saying.

Simon Lowth

Briggs, do you want to?

Briggs Morrison

Yeah, so the pipeline tells you when you get those molecules start of the phase they are in, so you can go down and take a look and I think it is fair to say that some of the ones that are in the potential may have been there longer than one would have liked. I think the sense of urgency that we as a leadership team are bringing to the portfolio is exactly that, to look at that what we have and ask what are those molecules as Pascal said, that we need to accelerate get them into phase III and get them out the patients. So what happened in the past as what happened in the past, what we are focused on as what do we have for substrate today and why can we move it quickly forward.

Sachin Jain – Bank of America Merrill Lynch

Sorry, just I have a follow-on for those ones that are been sitting there for a while, do you have additional data or just greater conviction is driving the decision just to clarify that.

Simon Lowth

Yeah, so I can give you an example so olaparib was one that has we do have additional data, we've done additional studies, and we had longer term follow up on patients that were in trials that we've done and from that data which you’ll I think most of it we presented at ASCO in May for June you'll see that there is new information that gives us greater confidence about the molecules.

Pascal Soriot

This is typically an example where I think one of the thing so that company will need to do better is identified by market and have a better personals that can approach because so that probably would developed in all commerce, and in fact we find now that like imitation saw really the population is the most likely to respond to this drug, but sort of we're like two years behind the borders of it, and so we have new data as Briggs was saying that is very encouraging study so now what we need to do is move forward in investors development.

Sachin Jain – Bank of America Merrill Lynch


Alexandra Hauber – JPMorgan

Alexandra Hauber from JPMorgan, four questions please. Firstly on the top line you gave quite a range can you just let me tell us where the key uncertainties or in your forecast.

Secondly on the gross margin I think you said that maybe kind of little bit year-on-year never surprised about that given that you’re going to have a full year benefit of the option two accounting that’s also a large proportion of alliance revenue which I think come to you at a 100% gross margin. Can you just explain where the negative mix effect is coming from and why so strong?

Third question Symbicort obviously being great success story in the U.S. in these markets that’s have been going up in a straight-line, but at a $1 billion and 23% market share you no longer the little guy is trying to catch up so what is driving how certain are you let it in continue to drive further market share gains it is simple as that as long that new patient market share is staying significantly about the overall market share are you confident that you can get additional 4% share in (inaudible) and the last question is on moxetumomab, which you said you have, I am not actually can’t remember and which – where the decisions have to be taken I think whether it’s need to be taken forward. Let's assume it is going to be taken forward, this is anti-CD22, so how why we applicable is that in hematological toxicity and how aggressively would you bring this forward, or would it be vary step by step going into various active populations first.

Unidentified Company Representative

Simon, do you want to take the first couple of questions, et cetera, [androgen] and maybe Roth you would take this [Inaudible].

Simon Lowth

So, I answered on the gross margin and I dictated that the first – we see some time with pressure on gross margin in 2013. That’s comparing on a new Core versus new Core, so we're looking through the most effect so isn't to drive for all this. You have raises the alliance growth particularly from (Inaudible) a bit of a benefit. But its being offset, but is the proportion of ourselves in emerging markets growth, I tends to put (Inaudible) pressure on the relative mix and the geographic mix and we'll (Inaudible) for full year effect from so (Inaudible) following through. So its really a function of geographic and product mix, nothing very significant I would also say, is I'm really we're continue to work very hard from the supply chain efficiency standard point to mitigate that mix effect and the course this would wide pricing environment we face.

And service of the revenue and you ask to think what some on the uncertainties are and I think that (Inaudible) is all of us there is government pricing [Indiscernible] and we have said this to you before up until really the last 12 to 18 months, we been able to forecast pretty very accurately as it turned out the annual price effect particularly in Europe in some of our key markets. What we found in the last 12, 18 months is we are getting, less predicted price interventions of various forms and in some markets coming back several times the different types of programs. So I would say first uncertainty is price interventions, particularly in Europe, but in some other markets.

The second is that what has characterized our revenues in the last 12, 18 months have seen some loss effects considering some well-followed, well-appreciated markets where the patent has expired. We do also have a number of patents, particularly formulation patents, where we continue to defend our intellectual property, but we had generic companies launching at risk. You may have followed for example Seroquel XR in Germany would be a good example of that.

And if you also look at the notes to the accounts today, you will see where we tabled out in the various patent proceeding matters we are involved in. And clearly, some of those have some binary outcomes around them. So I would say government price intervention, loss of exclusivity, but actually in some of the markets that may not be attracted closely as in the past in the European markets, Australia. And those are two main uncertainties and in providing you with a range in terms of our revenue decline that builds in the range of outcomes that we could insist. I hope that helps.

Unidentified Company Representative

If I get your question right about the Symbicort’s performance in the U.S. Let me first echo some of the words Pascal was using that we are very pleased that the growth is there. We believe we have a very strong team in place locally in order to further boost the performance moving forward. We are very strong in asthma historically. We feel that we are gaining market share in the COPD segment. So that all in all together gives us the confidence moving forward that to the Symbicort can gain substantial market share moving forward in the U.S. marketplace.

Briggs Morrison

So in answer to your question about marketing, I think was your last one, yeah. So I think what you’ll see as you know quite well in oncology, it’s not uncommon that a molecule can work for multiple indications. You'll see that with olaparib; you'll see that with selumetinib; you'll see with [MOXI]. So it’s the lead indication, it’s actually a small orphan indication hairy cell leukaemia, the data is quite compelling and quite impressive and so we feel compelled obviously to get that done, to get that out. But as you correctly note, there is a broader envelope of opportunities there that we will continue to explore.

Pascal Soriot

Does that answer your question, Alexandra?

Alexandra Hauber – JPMorgan

Well, basically it seems that you have seen the hairy cell data already. So the question is does that make you confident enough that you can go for a really broad rollout, or will this more stay in – is there anything why the molecule view more over than in an ET application of hematology?.

Briggs Morrison

So I think if you’re asking about the larger sort of lymphoma indications, I don’t think we have enough hard data yet theoretically it makes sense. But I think getting the dose as scheduled right and some of those other indications we are still working on.

Pascal Soriot

Sorry. And then maybe after that question, we’ll ask Tim or Jo who on the phone to ask their question.

Alexandra Hauber – JPMorgan

Of the spend that you can and I realize we’ll get a greater update on March just give us some sense of how you are thinking between kind of mid-term and the long-term whether how you are thinking about returning aspect of growth kind of between those two different timeframes. Secondly Simon kind of from a dividend cover perspective, you mentioned you’re looking at kind of a two extra core EPS over an investment cycle. If you can just gives us a sense for how long that investment cycle is. Is it three years to the five years kind of how long should we think about that? And thirdly, just for housekeeping purposes, what are you assuming for the outstanding patent litigation for Crestor in Australia in your guidance for 2013?

Unidentified Company Representative

In term of the first question, yeah, I mean sort of we’ll have to wait until March I guess the – I see our story in sort of three phases really; the short-term, mid-term, and the long-term. And the long-term is clearly about rebuilding R&D and improving productivity in R&D and we certainly have started working on developing plans and metrics for this. The short-term is clearly accelerating the walls of the growth, the platform I talked about earlier, because we have to unlock and the potential of products like Brilinta like diabetes et cetera, so it’s clearly a short-term price. And the mid-term is navigating through this patent expiry phase and returning to growth. And I know you’d like to know where we will bottom out and when we will start growing again. And we removed our 2014 guidance and the intent is not to introduce a new one. That’s very clear, so I don’t have a specific number I’d give you, but the only thing I can tell you is that we’re certainly working as hard as we can to return to growth as early as possible. I hope it is very helpful, but also I can say this sorry, Simon?

Simon Lowth

Yes, so two questions okay, the first was about our assumptions I think on the proceedings on Crestor in Australia. You asked what we’d assumed in our outlook. And the answer for that is that we provide a range, as you are familiar with in terms of in this case the revenue decline and range is there to cover a variety of outcomes on that matter, success, or not and to meet the range of other matters, so it’s within that range. That was your question on Crestor.

In terms of the dividend cover yesterday, we are targeting two times on our core earnings for share basis. We said that we look at that sort of over an investment cycle. I mean, our industry has a long investment cycle, so we are looking at five, 10 years, because it’s driven by pipeline renewal. We've obviously been running higher than that for recent years, but that’s the target we have through that sort of time period, I hope that helps you.

Pascal Soriot

Yeah, and let me just to repeat something Simon said before, and it's really our commitment to our dividend policy. This, we wanted to reaffirm and make sure there is no question around this. Maybe what I could do is ask Tim, Tim Anderson who is on the phone to ask his question, because I know he and Jo have been waiting for questions time actually. So, Tim do you want to go ahead?

Tim Anderson– Crédit Suisse AG, Research Division

Sure, thank you. Thank you very much. So a few generic questions if I can on Symbicort, in what future year should we realistically expect to see generics or quasi generics start to come to the market in Europe, in U.S. Are you confident that this will not happen for at least the next three years?

And then, you have two products, whether it could be different fault formulations introduced in the U.S. by generic companies in the not so distant future. So with Crestor and Nexium, if those clear that necessary legal hurdles like we may, how do you view the potential share losses with those compounds in the U.S. then kind of extending that question further, is there any chance, seen different salt formulations against something like Crestor launch in Europe like we saw happen with PLA-Dex a number of years ago, where even though it was a salt that actually took quite a bit of share. And then last question is on your anti-PDO1 when we will receive data on that compound and is there any possibility of leap froging down from phase I to phase III?

Pascal Soriot

So, thank you, so much Tim, whether I will ask you to cover Tim, because if you want let me just quickly, let me just make one comment on Crestor and there is I mean I can’t have so much comment, because we don’t really comment on IP related matters we will defend our pipelines, as you can imagine the only comment may be I would make is that just to remind you that a different salt is actually not substitutable so if it, if any of those was to reach the market, which we sell in the, as you can imagine with do our best we will to avoid and we believe we have a strong case but if it happened and those products are not substitutable and therefore the impact is not the same as you would imagine from a pure generic product.

Tim Anderson– Crédit Suisse AG, Research Division

A couple of comments certainly about the Symbicort situation let’s not forget that the device market is a very special market, we still have full side on protection of the device of the (Inaudible) of 220, 19 so even if generic analogues driving to the market instead of certainly not be in our device it can have pricing implications of course, if products are closer in one (inaudible) cluster. But so far we haven’t seen any less indication that generic analogs are entering the market.

We are following it, and if they are entering, we will take the adequate action we can take from a commercial perspective if there is an infringement from a legal perspective. But so far, we feel relatively okay with that. Regarding the U.S. more or less the same situation, we have a patent protection of the device which is still for a long period of time. So I can’t say that we are fully protective as we feel that this device is clearly good enough in order to protect our business for a considerable period of time.

Pascal Soriot

When I commented a bit earlier that we expected Symbicort to face more challenges in Europe and elsewhere, I had in mind, of course, the impact of analogs which, again, is not the impact you would expect from a pure generic, but certainly will distort the pricing, but that’s the European situation. In the U.S., we don't expect anything like this to happen in the near term. And in the Rest of the World, in Japan it’s not that full event in China, we are doing very well and we also believe we can sustain the growth of Symbicort, and see if the other one.

Unidentified Company Representative

So, within the side – I’ll describe that two biotech units in late development. So PD-L1 is still in our biotech, unit, Tim. It's in phase I now. I think Pascal has pushed all of us to particularly oncology. I think about ways we can go from phase I to phase III, so as that data reads out that’s certainly a candidate to get that kind of acceleration, but it’s a little further back than being able to do that immediately.

Unidentified Company Representative

One of the things maybe to touch our attention to is the fact that we have a PD-L1, we’ll also have a CTLA-4 and so we have the potential for combination of those two agents which – it’s got an intriguing sort of a possibility for us but of course we have to see more data before we can formulate any combination strategy.

Tim Anderson– Crédit Suisse AG, Research Division

Thank you.

Unidentified Analyst

Thanks for taking my questions. (inaudible) just to press on a little bit on the respiratory portfolio on what Tim Anderson just asked is evident from your answer that you’re making the fairly reasonable assumption that Symbicort generic scene in the U.S. are unlikely nonetheless we will kind sort of exclude some of the pipeline assets which have been in Phase II since 2008 or certainly put more than three years than your pipeline in respiratory looks that as it lies and 16% of your revenues in 2012 came from respiratory growing as a proportion going forward.

Quite a significant concentration of risk there and yet you have respiratories in one of your key sort of engines there. So what is the plan there, are you looking to grow then that pipeline is that something that, that is a focus area.

So that’s one question on respiratory. This is a tough question but since you joined on the 1 of October Pascal you have often said in public forums that the launch of Brilinta/Brilique was not optimal and perhaps I haven’t sort of heard that from you in person and perhaps you can take this forum to just explain to us what the steps would remedial steps that you have taken to rectify that and what we can look forward to with regards because that was number one on your growth engine. So that’s obviously something that we need to understand and I don’t understand it properly through lack of understanding of that specific area.

And third question, and that’s more strategic, I guess. You’ve come from an organization which had a sort of diagnostic, and platform, and obviously companion diagnostics is a significant part of drug development going forward, and that may impact R&D productivity going forward. And obviously this organization that you’ve joined has suffered in the past five to six years from lack of companion diagnostics; uric acid is an example of those. If a right market was available, I’m sure we’d have had higher revenues. Do you see that has a weakness and can you address that organically not having a diagnostics platform, specifically looking on Marcus and companion diagnostics?

Unidentified Company Representative

Yeah, thanks, so much. Three question right, let me start maybe with respiratory and then Briggs can also come back. I mean we’ve Symbicort talked about. The management of respiratory would be certainly business development initiatives, but also our portfolio. And I’m not sure what you’ve exactly in mind when you said when we have asset there that have been there for a long time. On a biological side, we have assets that haven’t been there for long time, I mean they have been there for a long time because they’re in research and then in early development, but products like tralokinumab, benralizumab I mean those are products that progressing nicely through the development pipeline.

And they are new, and they will move into later stage development over the next couple of years. And maybe certainly Briggs can tell you more about this, but it is a priority for us, because I think we have strength they have boards in development and commercial and also in recession. We can live with this and build that on the back of our Symbicort presence. We didn’t – some of the things we are doing, are things that AstraZeneca had started doing, but certainly, we are expanding into a more often spinning up and some of the things we are doing are new, additional I would say.

So, what we are doing is, making sure that we address the CAZ lab as a priority and in a specific way because the prescription start there, the physicians, they are different. The patient flow is different, so you have to have a sales force that is dedicated and understand that environment. We are working on hospital protocols from (Inaudible) because essentially physicians follow protocols in that setting and you have to be on a protocol otherwise, you don’t get used, and we’ve made good progress in term of protocols inclusions in France, Germany et cetera we are 60% and above of inclusion on hospital protocols at least for the key hospitals we are targeting. We’re working on discharge, making sure we don’t lose patients from the discharge to the primary care or physician or cardiologist.

We have increased our commercial investment, certainly increased the sales force effort, increased a number of commercial programs. We have increased substantially the investment in clinical programs we’ve started. We are about to start programming stock. We have other indications we are looking at, we have unlocked substantial budgets for granting aids to specific studies that physicians are interested in addressing.

We also are looking at large phase IV studies. We’ve answered a number of good questions that are now on the label, or issues, clinical issues that are now addressed in our label, but physicians have lots and lots of questions that are not necessarily the regulatory questions, but they are clinical, daily practical clinical questions that they need – suddenly listing out is what there. So these are wide series of things we are doing to accelerate the growth of Brilinta but for sure we have increased our investment in number of areas.

And finally, from diagnostics, personal healthcare, I do believe that certainly we set for the little bit from a primary care mindset, where every drug has to be given to as many patients as possible, and as we know the world has moved and suddenly many of our R&D colleagues that AstraZeneca knew that but the question is sometimes in an organization some people know some thing, the organization doesn’t know it, or hasn’t integrated it in the way it goes about developing and commercializing medicines.

And so the capabilities were not always there to do this, in understanding, identification, of biomarkers, diagnostic test, et cetera, but also the mindset was not necessarily there. And quite frankly well olaparib is probably a good example of the that.

So that's one of the things we're doing now, the biotech unit have responsibility from research to proof of concept. So the early to go from bench to the bedside and back as quickly as possible, and deal the early development things that will capitalize on biomarker, personal healthcare and early and fast speedy, early development were. So we can indeed identify products that have potential to move from Phase I to Phase II/III, or Phase III quickly. And all that work needs to be done and a lot of work has been done already. We started doing it in the last couple of years, we need to do more of these, change the mindset of the organization and have the appropriate organizational model in place as well, which is really what we have done in this latest realignment. Briggs, do you want to talk about.

Briggs Morrison

The only thing I can say about the respiratory franchise is again I think if you think about respiratory there is asthma, there is COPD, there is interstitial lung disease, there’s a variety of things. Asthma if you think about it today, we as an industry and we as a company have done pretty well to address a lot of the medical need of asthma, but there is a unique population that I think biologically we understand better.

And so the molecules that Pascal talked about that are coming through from the maybe biotech unit. They are focused on the mechanisms that matter for the unmet need and I think that’s the right way to go after that part of that population. COPD we are still using some of the same mechanisms that are been around for a while, and I think we are still looking for those key biologic insights that you can start to segment COPD the way we segment asthma. That’s really I think where the respiratory franchise is going ahead.

Peter Verdult – Morgan Stanley & Co. International Plc

Yes, Pete Verdult from Morgan Stanley, just two high level questions Pascal, just firstly on the CNS division. You’ve made some comments about how you’re thinking about respiratory with the ongoing loss of Seroquel, how should we be thinking about this? Just a dismantling of the infrastructure as CNS declines, relying on your virtual R&D business model, or BD in partnerships to compliment the infrastructure you’ve got? And then just on the pipeline, I mean you are fresh pair of eyes at Astra. I’m sure you can tell us that you’re excited by the whole pipeline, but it is just the couple of assets that really excite you in the early stage, that I’ll be interested to hear what they are?

Pascal Soriot

Yeah, maybe I’ll ask also Briggs, because he is another pair of fresh eyes. Briggs joined the company well, maybe a year ago now, that much okay. I thought it was only nine months ago, so you have pair of fresh eyes too. CNS, I think you have to see it as we are testing a new model, and essentially from a commercial view point our presence is shrinking, there's no question about it, and we'll have to rebuild it. So we have to start from the early pipeline and over time we build it. Our priority is clearly going to be cardio-metabolism, oncology and respiratory inflammation, and to a lesser degree anti-infectives. So CNS is clearly one franchise where we start.

We’re going to have to start from the beginning again and rebuild over the next few years. Do you want to say which products you are the most impressed with, just to see whether we have the same okay. I mean I think we talked about tralokinumab for instance in asthma I think is a compound that we can move into late stage development, hopefully. We need more data, but that's a very intriguing one.

I think olaparib, even though I know some of you will be a little bit skeptical, even cynical about it, we have a chance to reposition it for the right patient population across a variety of tumor types and move it forward. I think that I'm intrigued personally by the possibilities we have to combine immunotherapies, for instance, CTLA-4, PD-L1 are combine some of our large molecules with small molecule of immunotherapies.

So, this probably would be some of the most intriguing products. Selumetinib, I have my doubts, I must say, but we have good data that are shaping up, in a portfolio like this, so it’s good to having some of the debates, so we have the internal debates. And, I am also open-minded, so certainly we will progress this product, and try because there is a good opportunity for this product.

If what we believe is right, it could actually be quite a very interesting product in combination with chemotherapy that might be the only [magnifiter] that can be combined with chemotherapy without incredible side effects because of its short-acting profile. So, we’ll have to see, of course, but those that are probably the most intriguing will be tralokinumab, and benralizumab, I guess, the combination of the immunotherapy.

Unidentified Company Representative

I maybe a little more (inaudible) selumetinib here, just because if you look at the data presented in ASCO last year, when you combine it with Taxotere response rate goes into zero to almost 40%. You get progression free survival, overall survival. I think there is, we have to figure out exactly how to combine it with chemo and that has not been the trend in oncology these days. People try to move away from chemo, but if the drug works well in that combination, and it works in combination with a number of different chemotherapies, it could actually be quite significant.

Unidentified Company Representative

And we have few tremendous people that I would trust personally who are really convinced over, give it a good shot. Maybe what I could do, I am sorry, I know that there are some more questions, I’ll give one last question, see if James he will answer to that. And I’ll hand the microphone to Jo who’s been on the phone waiting for a long time. You promise me you don’t ask a question about non-pro items Jo otherwise, I don’t give you the microphone, but go ahead.

Peter Verdult – Morgan Stanley & Co. International Plc

Hello, can you hear me?

Pascal Soriot

Answering your question

Peter Verdult – Morgan Stanley & Co. International Plc

Hello, can you hear me?

Pascal Soriot

Yes, go ahead.

Peter Verdult – Morgan Stanley & Co. International Plc

I have two quick questions, firstly just looking at the marketing cost is about $2.2 billion in the fourth quarter, your SG&A on your new core basis and of course we haven’t seen your company in the same structure as it is, but that includes some spending on the Amylin product, and is that a reasonable guide of sort of quarterly run rate or is there a heavy seasonal bias there? And how much more in terms of marketing support can we expect that you will need as you take on both the European business, which I understand hasn’t yet transitioned to you?

And secondly, on the price of assets Chief Executive of Roche Company you know well, said yesterday at the Analyst Meeting that it was very difficult to get assets in. The prices were just astronomically high for late stage assets. You had to do deals really early on to show, where you could add value otherwise it was just a basic bidding war. I wondered if you felt that there were any reasons why you might be able to show something other than just sheer money in bidding for late stage assets, because I think we will understand you’re going to do exciting things with your R&D, but they are really probably bite until 2015, 2016 and beyond and investors might want to see something a bit sooner.

Unidentified Company Representative

Thanks, Jo. Simon, do you want to address the first question? Yeah.

Simon Jonathan Lowth

So I say, Jo, on the quarterly run rate, I mean, I think the guidance that we provided for our cost base, which is continued efforts on efficiency and the benefits of our restructuring programs providing headroom, that we’re going to redeploy that headroom and that holding our core cost to a slight increase as we go into 2013 and that applies really across the SG&A and R&D lines. So, I think you’ll see some increased investments sort of showing through in your quarterly run rates on SG&A albeit at a slight increase.

And the quarterly patterns are the another piece of that, I’d encourage you to look at our quarterly patterns over the last couple of years, you generally do see a pattern of some high spend in the fourth quarter and not a typically sort of constant rate, but I would say that our ‘10 or ‘11, ‘12 quarterly rates probably are reasonably reflective of what we see going forward.

Peter Verdult – Morgan Stanley & Co. International Plc

It’s because anything we haven’t seen for the European bit of the Bydureon/Byetta, is that insignificant?

Simon Jonathan Lowth

Sorry Jo, I beg your pardon, I was include, beg your pardon, I was including that actually is one of the drivers of the investment that we’re putting back in. So, Ruud has been working extraordinarily hard in Europe over the past couple of years and has adjusted his cost base to reflect loss of that specifically in a number of markets. And actually done a done a great job in maintaining our margins for that period. Ruud, I think you will be putting investment behind our diabetes franchise, like reflective of the opportunity that we see.

Ruud Dobber

Absolutely and to answer quickly on that, we are in the transition phase if you probably know with Lilly the current marketing authorization however, and we hope to finalize that at the end of the first quarter, so, we can start promoting the Byetta/Bydureon portfolio in the European environment from quarter two onwards together with Bristol-Myers.

Peter Verdult – Morgan Stanley & Co. International Plc

Thank you.

Pascal Soriot

Licensing opportunities, Jo, I mean, I would not certainly dispute the fact that, I mean, first of all there are not so many very late stage opportunities, and secondly, certainly they are more expensive than early opportunities. So, the point is that we need to license earlier for sure. You need to license as early as possible so you can add as much value as possible. I don’t think though that it is totally impossible to find assets where you cannot value if you have specific skills in an area on global scale. But in term of late stage buying products is not the only way you can do it.

The BMS alliance that we entered into is a good example of another way to do it where we certainly are getting together on sharing expertise to develop and commercialize a portfolio of products, and so far we have done it quite well, and I really hope that Forxiga is actually going to be a nice product, the feedback so far is very encouraging. So, that is an example, the Amgen one is another example. You don’t necessarily need to buy products; you can also enter alliances and share with some value doing it.

So, there is a variety of options that are open to us out there. Not necessarily buying at full price and that’s certainly not something we will do. We will not buy products if you don’t believe we can add value and make it a financially attractive option. I don’t think my CFO will allow me to do that anyway. That’s probably not possible. Thank you so much for your great questions and see you next time, thank you bye-bye.

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