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AstraZeneca plc (NYSE:AZN)

Q4 2013 Earnings Call

February 6, 2014 7:00 AM ET

Pascal Soriot – CEO

Marc Dunoyer – CFO

Briggs Morrison – EVP, Global Medicines Development & Chief Medical Officer

Mene Pangalos – EVP, Innovative Medicines & Early Development

Ed Bradley – SVP, Innovative Medicines, Oncology at MedImmune

Ruud Dobber – EVP, Commercial Operations, Europe

Analysts

Alexandra Hauber – UBS

Sachin Jain – Bank of America

Andrew Baum – Citi

Seamus Fernandez – Leerink

James Gordon – JPMorgan

Gail Porter – Goldman Sachs

Amy Walker – Morgan Stanley

Kerry Holford – Credit Suisse

Tim Anderson – Sanford Bernstein

Pascal Soriot

All right, let’s get started. Good afternoon everyone. And welcome to our Full-Year 2013 Results Presentation. It’s really nice that so many of you could actually make it today despite the tube strike.

As you can see, I’m actually joined today on the platform by Marc Dunoyer, for his first quarterly results as our new Chief Financial Officer. Welcome to you Marc. Marc will take us through the business performance, the 2013 financials. And then spread out how we will guide for 2014.

You’ll also hear from Briggs Morrison, and many of you know Briggs already. Briggs is our Executive Vice President for Global Development and our Chief Medical Officer. Briggs and his team will become more and more familiar to you I’m sure over the coming years as attention shifts to our growing pipeline. And it’s a pipeline that is balanced with small and large molecules. But also primary care and specialty care products. So believe we have a well balanced portfolio of products.

To help you keep track with our rapidly maturing pipeline, what we decided to do is that on moving forward, we’ll provide you with an updated pipeline table every quarter, not just twice a year.

And maybe one more thing to point out before we get started, we’ve actually listened to your feedback and we’ll try our best to get through the presentation today as quickly as we can so that we can address your questions and wrap up decision in less than 90 minutes that we usually dedicate to this meeting.

So, if I had to choose to one word, actually to describe 2013 I would use momentum because I think we’ve made good progress and we are on a good momentum. Some of you have heard me say at last month’s JPM Conference in San Francisco. I believe we’re on a journey. And our journey starts with rebuilding our pipeline.

Looking back over the last 12 months, it’s clear that we have made progress in this area, we’re building momentum. But there is still a lot of work ahead of us. In 2014, we’ll actually continue to advance the last-stage pipeline and we’ll focus on the three core CRP areas that we selected and we communicated last year to you.

Our goal is that by 2017, our revenues as we said before will be broadly in-line with our 2013 revenues. And we actually believe we can return to goals faster that than many people who have been focusing so far.

And finally, this graph, this charts shows you our ultimate objective is to employ, to leverage the strength of our science to become a leader, a science leader and of course a commerce leader in each of our core CRP areas.

So, before we turn our attention to the future, I’d like to touch on 2013 performance. The headline here is that despite having to navigate the anticipated loss of exclusivity on several brands, we actually delivered a set of financial results that were in-line with our expectations.

Revenues, we have done 6% at CER to $25.7 billion as we continue to invest to invest in our pipeline and our growth platforms, core EPS declined by 23% at $5.05. And our commitment to our progressive dividend policy is reinforced by the payment of the second interim dividend of $1.90 which brings the total annual return to $2.80 per share.

Now, if you look at our global revenues by region, the U.S. and Europe are of course continuously impacted by the general competition and the government’s interventions, nothing new there. The good news is that I imagine markets that have had growth in the high single digits as we communicated early last year and importantly on a steady basis quarter-to-quarter.

And Japan progressed by 4% at CER, this is under-estimating our performance, our full performance in Japan as I would show you later.

Now we laid our three strategic priorities during our Investor Day in March last year, the first one was to achieve scientific leadership in our core TAs, the second was to return to rolls as quickly as we could and the last but important one was to keep building a great place to work.

AstraZeneca is a great company and we want to keep building our current share of simplify how we operate and make decisions faster than we have in the past. Good example of this is how we’ve integrated the diabetes business we’ve done that very, very quickly.

In 2013, we’ve made good progress against all those priorities but I will focus today on the first two. So, if I start with scientific leadership, we added six projects to our late stage pipeline as you can see here. And we built momentum in the area of scientific leadership.

We’ve nearly doubled number of programs in Phase 3 for registration compared with the previous year. And that’s really a great achievement. And importantly those new projects, strengthen each of our core TAs.

We’ve also identified 19 potential Phase 3 starts in 2014 and 2015 from our internal pipeline. As you can imagine we’ll have to be very selective, very active also but certainly very selective in terms of the projects we move forward out of our pipeline but also on the business development part.

2013 was very rich in terms of business development activities as you can see here and we’ve certainly strengthened again our core TA. 2014 we’ll see ourselves focused more on execution and progressing what we have in our pipeline.

Targeted acquisitions and partnerships have clearly helped us especially in oncology where our innovative immunotherapeutic portfolio is attracting more and more attention. We can talk more about this later. Briggs will highlight some of those projects later on his presentation.

And of course, our biggest single transaction for the last 12 months is the acquisition of the over half of the diabetes alliance from our colleagues at BMS. And that gives us the opportunity to strengthen this franchise and now that we have it completely in our hands.

And finally, importantly we’ve made great progress, transforming our R&D model to build this biotech culture, supporting some of the decision, fast decision making and innovation.

In March last year, if you remember we announced plans to establish free global project centers including an important one in Cambridge that we are going to build. And that move will place our scientists on the path of one of the world leading bioscience’s hotspots.

And importantly, we’re not waiting for the construction of this site. We’ve accelerated our relocation and in fact several hundred people will start moving to Cambridge to rented facilities this year. And we want to take advantage of the science environment in Cambridge as quickly as we can.

So, we also made good progress against our goal of returning to growth. And as you can see from this slide, each of our growth platforms played their part in the overall 10% increase in revenue. We added almost $1.3 billion of sales out of this growth platforms from a base of $12.5 billion you see here the addition of those five growth platform. And I’ll briefly touch on each of those in turn.

Now, if you look at Brilinta, full-year revenues were $283 million, it is fair to say that we are doing very well in Europe and very well in countries like Australia, Canada. And in some of those countries, we now have leadership position with Brilinta in the OAP market. So, this actually demonstrates the potential of this product and it demonstrates what it can do when marketed.

Of course driving growth in the U.S. remains our main priority. It’s clear that we still have some challenges to overcome in the United States. We’re not where we would have wanted to be. We, actually this chart shows, you where we were making some positive movement.

Our plans, the new plans we put in place in the U.S. last year came in full force only by August last year. And we’re starting to see some impact but unfortunately the DOJ investigation suddenly impacted us negatively in the latter part of 2013. We’re still focused on this product, we still believe we can succeed and our U.S. team is very committed to return into a goals trajectory for Brilinta. But it’s clear that the bottom-line is, we’re doing very well ex-U.S., still more work to do in the U.S.

So, as we look at this product, we are continuing to invest to realize the significant potential that Brilinta offers. I think it is important to remember when we look at our penetration that we only access this 20% ACS segment that you see at the bottom here thanks to the PLATO study and the indication we have today. So we need to remember that.

And we also need to remember the potential that we come from additional studies. And so, in addition to of course strengthen our commercial efforts, we are still working very intensively on last-cycle management, in particular the large 21,000 patients biggest trial for Onglyza, the first one that we read out in Q1 2015. And then we have Socrates for fall, nuclei for PAD that would help us. And lock more potential out of Brilinta.

If I turn my attention to diabetes now, I guess we made a clear statement of our commitment to diabetes when we announced our plans to acquire the other half of the alliance. So it’s really nice to see that we completed the transaction very quickly. And we kicked off the integration process less than two months after the signing the deal.

The teams have already been meeting country by country and the feedback is incredibly good so far. But 4,000 people joining us from BMS who are very committed, very excited about building this unique franchise.

So, with the U.S. launch of Forxiga that is scheduled for tomorrow actually, we have an early opportunity to demonstrate the strengths of this alliance. I think it is fair to say here that I’m glad that our works evolved in 2013. You know very well we faced pretty challenging environment.

Exenetide, the franchise would certainly would be challenged in the first half of the year but the latter part of the year we saw an improvement in the market shares that we’ll show you in a minute.

As you can see here, we have a changing trend for this franchise toward the end of 2013 and we see a further acceleration in the early part of January. So this Bydureon is suddenly good news. We see a stabilization of Byetta, an increase in the share of Bydureon and total goals in the Exenetide franchise.

So, if I’m with the risk the uttering of the news is very good here because it’s been articulated very well. Symbicort, grew by 10% last year to $3.5 billion. And in the U.S. we increased our share by seven points as this chart shows you. We also saw very strong share growth in many markets around the world in China in particular and Japan also so, very strong results around the world with Symbicort.

And I think what is also now is to see is the progression of our market share in the United States as we see here. In the U.S. the sale is reached about $1.2 billion then we are at 23% with Symbicort. And we grew 7 percentage points in terms of share. And again we see a further acceleration in the early part of 2014, so 2014 looks like a good year again for Symbicort in the U.S. but certainly around the world.

If I turn to the emerging markets, now what we kind of put here is despite rapidly changing economic circumstances, we actually achieved the growth rate that we guided for. We guided for high-single digit growth rate in the emerging market. And we delivered 8% growth rate for the full year.

What I think is really important to keep in mind is that it was a sustained growth rate quarter-to-quarter. And it’s, even the last quarter, we have reported 6% but if you’re just for the inventory decline in capital markets in particular, Mexico in fact our growth rate was again 8% in quarter four.

What I also wanted to attract your attention here is the success we are experiencing in China. We are now growing by 19% in China for the whole year. And as the chart shows you, we outperformed the market which is strengthening our position, number two position amongst multinational companies. So 19% growth rate here versus 14% for the market defined by multinationals are defined as double market, is really a very strong sign of our performance in China.

And finally I wanted to turn to Japan, where again I think we achieved great performance there. Despite the negative impact of the yen of course, which had a substantial negative effect on our top-line in Japan and globally because it was very substantial.

Our underlying performance in Japan is very strong. The reported growth rate is 4% here but the in-market growth rate is about 11%. And in fact in 2013, we gained three places, our ranking moved from 12s to 9s in Japan in 2013. So, very nice progression supported by growth of our – all our key products.

You can see here maximum of course was in launch phase, we increased our share but also crossed two point a bit more than two points of market share increase and Symbicort more than four points of market share increase. So across (inaudible) portfolio in Japan, very, very strong performance that is a little bit, unfortunately negatively impacted as we adjusted inventory with our distributors. And ex-factory says are only reporting 4%.

So that concludes my remarks. I will now hand over to Marc, who will take us through the financial in more detail before Briggs take us through the update on the pipeline. Thank you.

Marc Dunoyer

Good afternoon everyone. Today is my first result presentation as a CFO of AstraZeneca. It’s a great honor and a pleasure for me to be here. Today I would like to focus you on the key priorities that’s, in our business. Our main strategic priorities are to achieve scientific leadership and return to growth.

With this in mind, we need to invest in our improved pipeline and also support our commercial growth platforms. As a CFO, I will focus our business on cash flow to sustainability to service our shareholders’ distribution commitments and maintain a healthy balance sheet.

Today, I will review the numbers for the fourth quarter and the full year as well discussing the key drivers of operating profit and margin. I will also update you of our announced productivity program, the stability of our cash generation as well as our decisions on shareholder distributions. Finally, I will close with effort on guidance for 2014.

The revenue line for the fourth quarter is declining by 4% at constant exchange rate, is a 2% negative impacts of ForEx. Compared to September, year-to-date 2013 the rate of decline has been decelerating. I don’t intend to go into any detail on the fourth quarter accounts, as it’s very similar to the full year.

Core EPS was $1.23 in line with expectations and declining at minus 25% at constant exchange rate.

Pascal covered the overview of the full-year performance in his opening remarks. The impact of ForEx on the full-year revenues is negative 2% leading to a sales decline of 6% at CER. The core EPS was $5.05, the currency headwinds lowered our core EPS by $0.17 in 2013.

I will now turn to the P&L for the full year and focus on core margins and profits. The press release contains the statutory numbers and a detailed reconciliation to the core measures. When I refer to growth rates they will all be at constant exchange rate.

The core gross margin was 82% of revenue. This is down 50 basis points compared with last year, driven primarily by unfavorable product mix. The core SG&A expense was up 7% compared with last year driven by investments in growth platforms as well as a full year of annualized expenses.

Recession benefits and spending discipline did not sufficiently offset the increased investments in growth. The excise fee imposed by the enactment of the U.S. healthcare reform measures amounted to 2.7% of core SG&A expense for the year.

Core other operating income for the year declined by 30% reflecting the $250 million milestone from the sale of Nexium purchasing rights in the prior year.

For 2013, the pre-R&D operating margin was 49.2%, in the middle of the range we had indicated namely 48% to 52%. However, core pre-R&D operating margin is not a metric that we would work brought on going forward as we progress with transition from a predominantly primary care company to a mix of primary care and specialty care. The company will focus on managing its core operating expenses including R&D, SG&A and other operating income.

Core R&D expenditures were up only 1% to nearly $4.3 billion despite taking on additional cost associated with successful business development activity. This was possible due to strong cost control and flexibility in the rare location of resources. Core operating profit was $8.4 billion, 22% lower than last year. Core operating margin was 32.6% of revenue, 690 basis points lower than last year.

Turning to our productivity program for the full year, we have incurred $1.4 billion of cost associated with the fourth phase of the restructuring including the footprint and other changes that we announced back in March 2013.

The program as outlined in last March would result in estimated headcount reduction of about 5,050 positions over the 2013 to ‘16 period is a $2.3 billion of restructuring cost, resulting in an estimation of $800 million of annual benefit by the end of 2016 when a program is completed.

It is now believed that previously announced restructuring activity will cost $2.5 billion. The program has been expanded to include additional activities to create further headroom in our investment activities and the total program cost would now be $3.2 billion of which $2.4 billion will be cash cost.

These initiatives will result in annual benefit of $1.1 billion of annual benefit by the end of 2016 and affect 5,600 positions. The impact of these new initiative has really been communicated internally. For the purpose of model in this cost and benefit will be predominated SG&A related.

As we stated in December last year, when we announced our plans to acquire BMS share of our diabetes alliance there would be opportunities for efficiencies that flow from combining the two diabetes teams under AZ’s sole control. However, we only completed this transaction a few days ago, so we’re in at an early stage in that process.

We carefully assess resource needs for markets and above count of operation on a case by case basis, weighing up the potential for sales upside alongside the cost dimension. In that respect, our approach is same as for the rest of our business.

Lower tax payments and positive movement in working capital offset the lower EBITDA for the year, resulting in cash generated from operating activities of $7.4 billion for the year compared to $6.9 billion in 2012. It is worth noting that in 2011 when the business generated and EBITDA of over $15 million net cash from operations, while cash from operations was $7.8 billion. The strength of cash generation is an important feature of our business.

This stable cash generation from operating activities means that despite cash outflows and business development and acquisition of about $2.3 billion, we generated net cash flows after distribution of $1.4 billion. So we ended up the year with a net cash position of $39 million.

The investment we have done in business development, have been in-line with our three core therapy areas. The deals also address what we failed to address, either in our pipeline or in excess to cutting edge science. We intend to continue this focus across business development in 2014, although we do not anticipate the deal flow continuing at the same rate.

Turning to cash distribution to shareholders, the second interim dividend is $1.90 which brings the dividend for the full year to $2.80 in-line with our policy to maintain or grow the dividend over the investment cycle, which is a policy that we are committed to going forward.

The board regularly reviews the distribution policy and its overall financial strategy to continue to strike a balance between the interest of the business of financial creditors and our shareholders.

Having regard for business investment, finding the progressive dividend policy and meeting our debt service obligations, the board currently believes it is appropriate to continue the suspension of the buyback which was announced in October 2012.

The financial performance for the full year 2013 was defined by the significant revenue decline associated with the loss of exclusivity for several products. Despite this revenue profile, investment to drive future growth and value remain necessary. Investment in both the pipeline and the gross platforms will continue in 2014. For 2014, challenging market conditions will persist, including continued government intervention in price.

The revenue impact from the loss of exclusivity will continue to affect our performance. For the full year 2014, the company anticipates a low to mid-single digit decline in revenue on a constant currency basis. This continued investment in the pipeline in growth platform to anticipate core EPS to decline in the teams.

We also are concerned in our commitment for our progressive dividend policy. The above guidance assumes a U.S. Nexium generic entry and of May 2014.

Finally, I can reconfirm our revenue guidance for 2017, which we expect to be broadly in line with 2013. I believe that AstraZeneca is on track to return to growth and that we’re gaining momentum on our turnaround journey.

I would now hand over to Briggs.

Briggs Morrison

Thanks very much, Marc. It’s really a pleasure to be here today to share with you our R&D progress for 2013. Now little bit of our aspirations for what we’re going to do in 2014 and a bit in ‘15 and ‘16.

I think it’s fair to say that ‘13 was a very important year for AstraZeneca’s R&D organization as we continue on our journey to be recognized scientific leaders in the therapeutic areas in which we operate.

In 2013, while continuing to invest in our discovery and early portfolio, we’ve also rebuilt our Phase 3 portfolio through a combination of progressing our own molecules and supplemented that with some business development.

So, I showed you this slide when we met together in March. And what I said at the time was that we anticipated between 5 to 7 new molecular entities were progressed into Phase 3 over the ‘13, ‘14 time period. I’m pleased to report that we are clearly on track for this goal, in fact we believe we will be at the top-end if not higher in terms of the number of new molecular entities that progress into Phase 3 over the ‘13, ‘14 time period.

In ‘13, there were four molecules that we hoped would progress into Phase 3, all four molecules are now in Phase 3 and Phase 3 trials have begun. If we look at the cohort that I showed you in 2014, not surprisingly there have been changes to these molecules because they were in Phase 2 and that cohort has evolved.

So the first thing to note is that 6765 has been terminated, we’re not going to be progressing that one, someone is bringing me a new clicker. Thank you. And a number of molecules that we had hoped would get into Phase 3 in 2014 are now going to move over into our 2015 cohort.

Two of the molecules that we talked about when we met in March are still in our cohort to go into Phase 3 in 2014 and have been supplemented by some additional molecules which I’ll talk about in just a minute.

So, this is an ugly and unreadable slide and Pascal has asked me to please stop showing ugly and unreadable slides. The only reason I show you this slide is because I showed it to you last year and I wanted to show you that of the things we said we would do in general we’ve accomplished those things.

The things that were missed were obviously the Fostamatinib, our team did a good job of getting us clear and interpretable data but we did not progress that to registration because of the profile. CXL did not meet our criteria to move into Phase 3 and the psoriatic arthritis program for rheumatoid did not start in ‘13, it will start in ‘14.

Now perhaps a better view of what we accomplished in ‘13 is shown here. Since we spoke with you last year about the same time, we had three additional approvals, dapagliflozin referred to as Forxiga in the U.S. was approved to renew the combination of our SGLT2 inhibitor dapagliflozin plus metformin was approved in Europe. And the (inaudible) flu vaccine was approved in Europe as well.

We’ve had a number of regulatory submissions including olaparib being filed in Europe, we are on track to file olaparib in the U.S. as well this year. And these regulatory submissions will hopefully lead to some additional approvals as this year and early into next year.

I talked about the Phase 3 starts and I’ll say more about the early pipeline and some really promising data that’s come from a couple of molecules in that pipeline in our lung cancer – in our oncology franchise, in particular and I’ll talk about those in a moment.

So, as the pipeline has progressed, we’re clearly ahead of where we had hoped. So again this slide you saw when we spoke in March. The panel on the left shows in the lighter color what we anticipated our NME at the Phase 3 and registration pipeline would look like. So, we said at the end of 2012, we had six. We hoped by the time 2013 ended we would have reached and that by 2016 we’d be around 10 to 11.

Because of the work we’ve done advancing our own internal molecules and supplementing that would be deemed we’re now at a 11 molecules in Phase 3 or registration of any 2013, clearly exceeding what we had our goal was going to be, great news for the R&D organization and great news for our pipeline.

This has put a bit of pressure on the R&D budget. So, what I show you on the right panel, remember we met in March, I said that we anticipated at about 40% of our R&D dollars would be spent on late development, 60% on early. We had to redeploy resources and R&D to fund this growing late stage pipeline.

And so, as we close the books on 2013, we actually spent 45% of our R&D dollars on late development and 55% on early. And as we stand here today and look at our budgets for 2014, that’s going to shift to about 50-50. So it’s about 10% of the R&D dollars have moved from discovery and early development into late development which in round figures is about $400 million, we’ve also obviously been working very hard to improve operational efficiency so that we can handle this growing late-stage pipeline with this R&D spend.

This is what the pipeline looks like today. And I’m not going to go over in detail. I’ll just make a couple of key points. Number one, I think it is pretty robust in Phase 1, Phase 2 and now in Phase 3, a nice combination of both small molecules and biologics adhering to our strategy of being excellent in both of those.

You’ll see the color coding show our core therapeutic areas with predominant, a lot of activity in oncology, the rear portfolio has sort of an even distribution across the whole portfolio and cardiovascular metabolic is near. We’re continuing to try to grow that part of our pipeline.

And then you’ll see a couple of other molecules in the areas that we’re being more opportunistic. 14 new molecules have gone into Phase 1 since Elbert in 2013 heat molecules progressed into Phase 2. So, although we’re rebuilding the Phase 3 pipeline, I think it’s important for people to understand the early pipeline is continuing to progress and continuing to grow as well.

Pascal mentioned 19 possibilities we have to take molecules into Phase 3 over this year and next year. As you can imagine, we know more about the molecules that are in potentially we’ll start Phase 3 in 2014 than we do about the ones in 2015. And I’m sure as we come back here next year, some of the molecules in 2015 will change just as the cohort that I showed you for 2014 in March has changed.

But we do feel comfortable knowing the 2014 cohort and we predict probably four or five of these will start Phase 3 this year. So, again if we go back to what I said in March, ‘13 and ‘14, five to seven, you can see we’re clearly at the top end of that range, because we put four in ‘13, we put another four in even this year would be at eight. So, clearly I think we’re on track with that goal what we had said we would do in ‘13 and ‘14.

And I’m going to make a couple of comments about some of these key molecules that we have in our 2014 cohort.

So, the first one is our anti-PDL1 antibody. I think a molecule of great interest to many people. On the right hand panel, it’s some data that we had showed at pervious scientific conference. This molecule is rapidly making its way through Phase 1 dose escalations.

Pascal showed at JPMorgan all the cohort expansions and all the individual tumor types. And we’re doing combinations both with tremelimumab and in a partnership with GSK with their BRAF MEK inhibitor. I think the key thing here is that at ASCO this year, we’ll be giving a full update on where we are with this program. And we do anticipate that this will start Phase 3 registration trials this year.

The second molecule in our oncology pipeline that we’re quite excited about is 9291, a next generation molecule for the treatment of patients who have non-small cell lung cancer driven by mutations in the EGFR receptor.

Again, on the right panel is some data that was presented at lung cancer conferences showing some early efficacy data from 9291, we’re continuing to see very nice activity with this molecule, this molecule will also start Phase 3 registration trials this year. And again we’ll give you a fuller update on this one at ASCO. There will be a full analyst briefing at ASCO on our whole oncology portfolio by the leaders of our oncology franchise.

A molecule that we didn’t talk about in March, because it wasn’t in our portfolio in March was Roxicet. This is the molecule that we had – are developing in partnership with FibrinoGen. In simple terms the way this molecule works, if you think about athletes, like to go to high altitude to train. The reason they go to high altitude to train is that the low oxygen content in high altitudes triggers the body’s normal physiologic process to increase the number of red blood cells, to increase your red blood cell mass.

What this molecule does is, essentially mimic that physiologic process to increase red blood cell mass and therefore can be used to treat anemia. The promise of this molecule is that it will be able to treat the anemia both of chronic kidney disease and the anemia of end stage renal disease with an oral agent.

And because you don’t get these very, very high levels of erythropoietin that you get with the ASAs, potentially that will have a much better cardiovascular safety profile. Remember the erythropoietins were associated with increased cardiovascular risk. So the potential here is for an oral molecule that doesn’t have cardiovascular risk for both chronic kidney disease and end-stage renal disease. And we think this is a very important area of unmet need.

The molecule has started Phase 3 in Europe; Stella’s is running that part of the program. We intend to start the U.S. and China studies this year with filings potentially in 2016 in China and 2018 in the U.S.

And finally, I’ll just make a comment about our base inhibitor. Again, very briefly I think people know that Alzheimer’s disease is believed to be caused by deposition of beta-amyloid in the CSF. That amyloid comes from a precursor protein that we all have endogenously. And one of the key steps in releasing amyloid from the precursor protein is an enzyme called base.

It turns out that there are certain families that has abnormalities genetic, in-born abnormalities of their precursor protein that makes them very susceptible to base cleavage. They get high levels of amyloid and they have rapid development of Alzheimer’s disease.

There are other families where the precursor protein is resistant to the cleavage by base they less amyloid and they have a lower instance of Alzheimer’s disease. So the genetics of validating base is part of the mechanism of Alzheimer’s seems to be quite strong in humans. What we’re trying to do is to make a molecule that will mimic that protective effect – that protective mutation inhibit based activity and thereby slow the progression of either prodromal or early Alzheimer’s disease.

And the right hand panel is dated has been presented by our scientists, showing that we get very profound diminishing of a-beta in the CSF patients. This molecule will start registration trials. I want to be very clear that this is not – I wouldn’t necessarily call this a Phase 3 trial because we don’t have the level of confidence that we would normally have to put something into Phase 3.

But the molecule seems very, very promising. And we think the right thing to do given the public health need is to move this molecule quickly into registration quality trials.

So, finally, of course the goal of R&D is not simply to build the Phase 3 pipeline. The goal is to get that Phase 3 pipeline through Phase 3, get to molecule, submit it to regulators for a regulatory approval. Hopefully get those approvals with favorable labels, submit value docs to payers so that they won’t need for it. And eventually have physician’s right prescription so patients can take these medicines.

So the next major step of course as this pipeline progresses are key submissions. And what I’m showing you here are anticipated or potential submissions, ‘14, ‘15 and ‘16, above the date line our new molecular entities. And below the date line our key life-cycle management opportunities. And I’ll just call your attention to a couple.

Number one is 9291, the molecule I talked to earlier about for patients who have EGFR mutation, specific mutations in AGFR for lung cancer. That if the program goes as we’re seeing it progress right now, we think we can file that in 2016.

There is also the Brilinta Pegasus program which we intend to file in 2015, that data should read out early next year and we should file in ‘15. Another important molecule or important combination molecule is our SGLT2 inhibitor dapagliflozin combined with our DPV4 inhibitor saxagliptin, the saxadapo (ph) combo, we hope to be able to file that at the end of this year. And there are few others but I’ll take questions on those.

So, again, I think it’s been I think a very good year for AstraZeneca’s R&D organization. And hopefully you’re getting the sense that we have a sustainable R&D model that can regularly overtime continue to generate important innovative medicine and put four molecules into Phase 3 last year, we think we put four or five into Phase 3 this year. And as Pascal said, we’re going to have to be picky but it’s possible we need to put another four to five in next year as well.

So, I’ll stop there. And turn things over to Pascal for the questions or closing and then questions.

Pascal Soriot

Thanks, Briggs. So, we’ll now open the floor to questions. Just because the AstraZeneca R&D team is so excited about the pipeline and they all want to talk to you about it. We, on top of Briggs today, we have Mene Pangalos, who heads our Easy IMiD Research and Early Development Organization and on the alternative front we have Bahija Jallal, who leads MedImmune engages work together with Ed Bradley, some of you may know Ed is in-charge of our immuno-oncology pipeline. And we also have here with us today in the room, Ruud Dobber, who is the Regional Vice President for Europe. And also he’s kindly accepted to be the acting head of our global products project.

So, with that I’ll now open the floor to questions. Who wants, Alex Hauber, you want to go ahead.

Question-and-Answer Session

Alexandra Hauber – UBS

Alexandra Hauber from UBS. I just have this two non-pipeline questions and then I go into the pipeline. Just looking at your sales guidance for this year, the declining sales of low single digits, I would assume that the consolidation of diabetes broadly cancels out the maximum impact. So that means the rest of the portfolio should still be down 3% to 4%. Would you just roughly tell us what, so that the key moving parts in that thing, in that Nexium-X diabetes portfolios are that are declining?

Secondly, the 2017 outlook implies you have a gap of $7 billion to fill from Nexium, Symbicort and Crestor roughly. I would assume diabetes applies that’s about $3 billion to $4 billion including obviously the impact from consolidation. Now, in diabetes you just have tools to play. So, can you just give us roughly in that a, is it sort of $3 billion to $4 billion incremental from the diabetes roughly to ballpark or is it much larger thing coming from the pipeline? And then within guidance, is really what’s going to be the key growth driver here?

And then finally, moving to the pipeline, on your base inhibitor, a number of competitive molecules you’ve had safety issues. How many patient exposure actually have you had to know that this company is reasonably safe. And also if that is not the Phase 3, what are you going to do instead, a fairly large Phase 2 and in which confirmation?

Pascal Soriot

Okay. So lots of great questions. So, let me, maybe Mene, you want to take the base inhibitor question in a minute. Let me just comment on the guidance. Starting with 2014 and Marc, do you have anything to add, please jump in. But the big moving part for 2014 there of course Nexium. We still have a little bit of effect of so quite with the big moving part is the Nexium management.

You know there is a certain level of uncertainty around Nexium in terms of the timing of entry of the generic or generics depending on what’s in our place. And so, as we communicated the assumption we’ve used here is that we see the 1 January can’t treat at the end of May this year. That’s really the biggest moving part.

Then, we also have very – sorry, Symbicort is going around the world but the assumption in our guidance was that we would have the impact of analogs in Europe, will they make it or not, we have to see. But certainly there is an impact from those in Europe whether it’s to tell you.

As far as 2017, and of course diabetes will play all. As far as 2017, I can’t give you specific numbers as you would expect. The drivers of diabetes for sure Brilinta, Symbicort is we believe a driver. And again the emerging markets in Japan, there is no real great surprise there.

I think what I can tell you is that as far as diabetes, the growth drivers that really are Bydureon and Forxiga and the combination of SGLT2 dapa and Onglyza. I think this fixed combination product is really going to be a very valuable, very important growth driver in the diabetes portfolio. So, we have great expectations for that fixed combo which has not everybody has. So certainly it will be an important product.

Now, the 2017 guidance we gave that boasts we broadly now with 2015 realize on all of those growth drivers and some new product launches of course. But it’s essentially the platforms I’ve mentioned here. Mene, do you want to cover the base question?

Mene Pangalos

Certainly. The first question is around the toxicity and the major toxicity that they’ve been seen in the base, which are driven primarily chemo-type, long QT prolongation and hyper-toxicity, which I think is actually specific to Lily’s molecule.

So, we’ve tested our molecule extensively, pre-clinically, we have a very large margin – actually we have no evidence of any QT prolongation. And from hyper-toxicity perspective it’s absolutely clean.

So I think our molecule and in terms of the a-beta lowering, even our molecule is lowering a-beta by about 70%, a very, very potent molecule, not similar to MERC’s molecule, actually this tends to Phase 3. And then the other molecule is around the ISO MERC, we believe is somewhere ahead of that as well.

In terms of trial design, what we’re doing is integrated Phase 2, 3 trails. So we have interim looks the data that is registered, that could be registered would be a pivotal trial of successful. But we’ll take interim looks of which will likely kick-off a second Phase 3 program all depending on the data filed.

Pascal Soriot

Sachin. Go ahead.

Sachin Jain – Bank of America

Sachin Jain of Bank of America. I have two financials and then a couple of product questions please. Firstly on SG&A, you saw a 7% CER increase of full year ‘13. Could you give us any color on what level of increase we’re looking at for ‘14 particularly given the consolidation of the diabetes cost base. So, I’m guessing is that between $750 million to $900 million additional consolidation.

And given that through December, I think you were commenting you expected SG&A to be flat as a percentage of sales. And does that statement still stand?

The second question is, related to your comments that you’re moving away from the pre-R&D margin target longer term. Any color on margin progression out full year ‘17 relative to the flat sales outlook. And what cost flux you have at the sales of the lower year expectations as you see it?

And then a couple of product questions, firstly on erythropoietin had press releases on renal toxicity and you still view that as significant asset. About that toxicity any color you can give? And secondly on 9291, I see it listed as a 16 filing. Any comments on breakthrough status and faster market strategies? And then the last one is on tremelimumab. And I understand you got a head tested versus the large late this year. Just any color on why you believe you can show your superiority versus larger, and some color from the Phase 2 data given that nobody else ran those studies initially? Thanks.

Pascal Soriot

So, quite a number of great questions too. Where do we start? You want to cover Briggs the question around renal toxicity, and also 9291 you can do. You would understand Sachin that as far as we do have first two market strategy, we can’t be very specific as to what they are for obvious reasons. But Briggs, go ahead.

Briggs Morrison

We used to remain excited about the molecule that the study that read out was mono-therapy in patients who can’t tolerate (inaudible) inhibitors. So it’s a small, very refractory population of patients who clearly need therapies. And there with mono-therapy you did see some renal toxicity.

In the Phase 2 trials, the combination where you add (inaudible) looked much less toxic to the kidney than the mono-therapy. So we’re not – we don’t think the monotherapy informs what we’re going to see from the safety profile from the combination. And we’ll get that data later this year.

We can cover right through the pharmacology of why that is, but there is a scientific reason why we believe in only less and we did see less of it in the Phase 2.

For 9291, we don’t really comment on our regulatory strategies but all I can say is we have met with regulators and we think to plan that we have of moving that rapidly through to potential registration in 2016 is something that is quite viable.

And then the last one tremelimumab, the reason we went head-to-head Stellar, is that Stellar seems to be the emerging sort of best biologic in Stelara system. We in collaboration with Amgen felt that to really show that you have a significant advance in this area, you have to be able to show that you’re better than Stelara, you show that you’re better than TNF inhibitor we think it’s too low of a bar.

If you look at Amgen’s Phase 2 data, it is quite impressive particularly when we look at the passive 100. And so we did some modeling of the data they had and the data Stelara had and the data that the Amgen had. And we have a reasonable degree of confidence that we’ll beat Stelara.

Pascal Soriot

As far as this, it’s clear though that the combination data we’ll get this year are going to be very pivotal because if we see the same renew, some data are very aggressive and some don’t have a viable product.

But as Briggs said, there is a good reason to believe the combination we would not see the same rate of the trans-events and the Phase 2 data confirmed this. Marc, do you want to cover maybe the financial questions, SG&A and R&D margin?

Marc Dunoyer

I’m not going to give you any indication on the line-by-line R&D or SG&A and so on. But as explained in my talk that we continue to invest beyond of those platforms so this would be one factor. And the other is basically the mechanistic impact of the sales reduction. So, if you look at the margin, if you were keeping the same level of these product, it’s like increase in the SG&A cost on the year. But I won’t give you more position than this.

What we’re going to look at is basically the operating expense as a whole, R&D, SG&A and other operating income. This would be a key metric we’re going to watch very carefully within our already program of expenses.

Pascal Soriot

We have given estimates Sachin, but it’s still market and from the top-line and the core EPS. Maybe the one thing that they could add is for our guidance is which we have said is our commitment to the dividend, it safe and seven year dividend policy. And as you know the dividend policy includes a dividend and a dividend cover. And I think this a very important part of our strategy and our commitment to shareholders.

And as many of you know we have certainly good reasons to support that and stick to this. So, with all these elements I’m sure you can model the cost evolution. The key here is we’re going to manage those expenses as a whole because of the changing nature of our portfolio specialty care, primary care means that they may be over time over the next three years. Changes in how we split SG&A and R&D expenses.

As you know very well, when you have a specialty care business, you tend to spend more doing last cycle management, new indications and certainly less in SG&A. So, that makes this kind of change.

So, we’ll then move maybe to one question of online, Andrew Baum from Citi. Do you want to go ahead?

Andrew Baum – Citi

I have a question. You’re developing treme for mesothelioma medicine, pretty exciting although small Phase 1 data. Given the outlook for these second and third line patients, have you sought a breakthrough status for trememesothelioma and should we assume potential commercialization as early as 2015 given the ongoing Phase 3 and the survival times for these patients?

Secondly, if you could comment what news flow on the immuno-oncology portfolio, we’re actually going to get at ASCO this year. And then finally I didn’t hear anything in relation to tremelimumab in ovarian cancer. Have you decided whether to file on the back of that Phase 3 data yet for ovarian? Thank you.

Pascal Soriot

The Ranbaxy assumption and Symbicort Briggs, in Europe. As I mentioned during my presentation, the assumption that we have taken for the year 2014 is an introduction of the single-generic on May, at the end of May 2014. We are aware that there various scenario possible playing out during the course of the year. But we are constructed our plan and therefore provide you the guidance on our EPS based under the assumption. And you also ask us the question I think on Symbicort analog?

Andrew Baum – Citi

That’s right.

Pascal Soriot

Andrew?

Andrew Baum – Citi

Yes, in terms of generics the timing…

Pascal Soriot

We expect the introduction of Symbicort analog in the course of 2014.

Marc Dunoyer

As you can imagine Andrew there are always moving parts in a budget or in a guidance some upsides and downsides. And certainly the biggest moving part is next year and the timing of – the timing of the generic countries. So you can, from what we tell you, you can model a variety of scenarios of course. And then Symbicort analog is also a scenario you can model. But with – you have to look at, that’s why we give you a range of forecast, you have upsides and downsides in the budget. Briggs, do you want to cover the…

Briggs Morrison

Andrew, let me – I’ll take two of the questions and then we have Ed Bradley on the line, maybe he can tell you specifically about the news flow at ASCO. So, for tremelimumab we do have a randomized Phase 2 trial ongoing in mesothelioma. And as you say there has been publications on single-arm trials and of course we monitor the patients that are in our randomized trial. And there is an opportunity there for that to be a registration opportunity.

We’re not projecting yet just when we think we might be able to file that we’re still sort of estimating sample sizes and what the treatment affect would need to be. So, I can’t give you a firm answer on when we think we’ll file that way.

In terms of tremelimumab, you’ve seen the data from the MRC trial, what we’re doing is working very closely with the MRC investigators to sort of recapitulate the analysis to make sure that in our hands with the data they have we get the same answer they got essentially.

Once that work is completed and so far as we’ve been doing that work it seems to be a very nice study, with a very nice data. We will see in parallel are discussing with regulators filing that both in the U.S. and Europe, if all goes well, that could happen this year. But we still need to dig through the data and make sure that we feel it of regulatory quality.

I think maybe Ed should take that.

Pascal Soriot

Yes, Ed, are you on the line? Do you want to cover up this portion about the news flow with tremelimumab to immunotherapy portfolio?

Ed Bradley

(Inaudible).

Pascal Soriot

Thanks, thanks very much. Should I, maybe there is another question online from Seamus Fernandez with Leerink. Seamus, do you want to go ahead and then we’ll return to the room.

Seamus Fernandez – Leerink

Sure, thanks very much. So a quick question on just again, can you just clarify a little bit how we should be thinking about SG&A. It sounds like we should be thinking about SG&A being roughly flat and possibly increasing. And then I have a couple of questions on the pipeline.

Ed, it was a little bit difficult to hear you on that update from the line. So, maybe if somebody in the room could maybe clarify what Ed was saying in that regard. But in terms of the potential updates that we might see on PDL1 and tremelimumab combination, it would just be helpful to know the timeframe within which we could see that.

And also, Ed, if you could give us a little bit of color on your views as to the potential differentiation of your PDL1, specifically as it relates to the prospect of either, the anti-drug antibodies really not showing up and potentially having a better efficacy profile? Of course you really view the potential of this product as most enticing or exciting in combination with other therapies.

And then a last question, the respiratory biologic portfolio, I know that’s something that nobody has really asked about at this point. But my understanding is that you have some potential data coming on tremelimumab at ATS. Possibly, that study, that product is in Phase 3. Also you had (inaudible), my understanding is that you are going to have some important Phase 2 data to make a decision on a go-forward basis. Just wondering if you can update us on both of those programs? Thanks a lot.

Pascal Soriot

Briggs, that’s for you.

Briggs Morrison

So, what Ed was saying about update is that the dose escalation of PDL1 as mono-therapy. The cohort expansion both in terms of safety and preliminary anti-tumor activity and some data on the PDL1 treme combination.

In terms of the differentiation, I think it’s perhaps a little earlier at this point for our molecules to be able to say and some of the parameters you asked about in terms of anti-drug antibodies, of core efficacy or safety, that will evolve. But I do think we do see the potential of the molecule in combination as well as in mono-therapy. And again we’ll the oncology group will give us a full data on that ASCO.

In terms of respiratory biologic, yes, (inaudible) are antibody against the EGFR receptor. It has started Phase 3 and you’ll see on the slide we tend to definitely think as long as the enrollment goes as planned we’d be able to file that in 2016. And the Phase 2 data will be at ATS.

Tremelimumab Phase 2 data will also be at ATS and you’re correct that we are, it was on my list of things to potentially start Phase 3 this year. So, we’re going through that data and going through our internal assessment to decide if we want to move that into Phase 3.

Pascal Soriot

And Ed, there was a question again on SG&A, I mean, just kind of repeat what we decided we would do is guide you on revenue and EPS and core EPS. And again, reconfirm because it’s really important, reconfirm our commitment to the dividend. And finally to manage the expenses as a total cooperating expense base. But not give specific numbers line by line.

I think the one thing that I can probably say that we’ve said before is that Sachin had notified earlier, taking on both the diabetes alliance of course the other half of the alliance I mean is – it means taking on board revenue but also cost. And what we are doing is looking for synergies across the entire portfolio and entire sales force which we can manage now in a much more cost effective manner not only in the U.S. but elsewhere around the world. So, certainly we are hoping to generate cost savings out of this better sales force management.

Shall we return to the room?

James Gordon – JPMorgan

Thank you, James Gordon from JPMorgan. And I have a couple of financial questions, one product one pipeline question. On the financial I understand you don’t want to give exactly line by line numbers. What can you say beyond 2014 just in sense of general trends where R&D spend could go because you talked about increased investment. Should we think of that as increased investment or an absolute basis? So that will be the first question.

One other financial question was just about the tax rate was bit low this quarter, what the tax rate might do beyond Q4 and then for 2014?

In terms of product questions, I was looking at the filings and there wasn’t anything for criteria monthly and that’s out 2016, so can you give us an update on where we are criteria monthly and when could that essentially file to let us work?

And then just, one pipeline question, on the place, can you – have you seen any increased instance of patients falling over, I think that was an issue for some of the base inhibitors?

Pascal Soriot

Okay, thanks James. Should we start with the last one maybe, Mene the base question.

Mene Pangalos

No.

Pascal Soriot

Okay, good. But you’re on, maybe Briggs, you can cover this in a minute and Marc, you could cover the tax rate if it’s okay. One thing that as far as expenses I think one thing we could also have said as it relates to the period of 2014 – ‘17 is you have to think about our portfolio as 2014 is really sort of a long/short.

We’re investing a lot in the BT, we’re investing a lot still in Brilinta. We’re boosting the growth of Symbicort around the world, in the U.S., China, everywhere. And we’re also boosting our roles in the emerging markets. So, it’s really a kind of heavy investment here in many ways to boost our growth.

And I think as you look at from there onward, you have to think of, we have a relatively substantial expense base that we can manage over time. So we should not always think that this is going to be in an investment mode forever. That’s also I think too important to keep in mind.

Mind you, Marc, do you want to cover the…

Marc Dunoyer

I would caution you not to use the data from the fourth quarter and trying to extrapolate then going forward. I would rather recommend that you look at the guidance we have provided about a year ago on the overall tax rate for the year 2013. And going forward is the tax rate should be broadly in-line or it should be no matching or change with what we have provided to you one year ago.

But do not use quarter-by-quarter because as you may have noticed there was a distortion due to the I mean, an impairment on the fourth quarter.

Pascal Soriot

To talk about the tax rate and financials, so quarter by quarter this really have to interpret. Briggs, do you want to cover the Bydureon question sorry.

Briggs Morrison

Obviously the Bydureon franchise starts with the door chamber pen which has been filed. You saw on the slide that next year we anticipate filing the auto-injector. And then we’re still working on the monthly to make sure that the formulation actually works. So, we don’t have it, I can’t give you a firm data when we think that’s going to get filed.

Gail Porter – Goldman Sachs

Good afternoon. It’s Gail Porter from Goldman Sachs and I have four questions please, two for Marc, one for Pascal and then a product question please.

Marc, I found it very curious that all of your commentary was about focus on the cash-flow from an internal management perspective and yet when I look out over the next five years, the discrepancy between your cash flow and core earnings just keeps on increasing. So can you help us think about why that’s the case?

Secondly, if as you look at the guidance for the tax rate going forward you said not to expect meaningful change. I think at the start of the year, the guidance was still about 23% you come in at 21%. Was there anything exceptional about 2013 that wouldn’t repeat in 2014 from a full-year perspective?

From a product perspective, Pascal you highlighted in March that Brilinta was one of the areas where you thought there was upside relative to consensus expectations going into ‘17, ‘18. Given what we have seen year-to-date do you still see that as the case. And if so, what will it take for you to achieve that?

And then lastly, as I look at your R&D budget, and if I look at company’s war playing the immunotherapy space, so Roche, Mug, both have an R&D budget that is roughly twice your R&D budget, Bristol is broadly similar but the concentration on immunotherapy is quite high. So, given your R&D budget how should we think about the choices you will make between your metabolic portfolio, your respiratory portfolio and your immunotherapy portfolio or are we missing something that you’re doing completely differently from the rest of the industry?

Pascal Soriot

Let me start maybe with the last question, Marc you want to think about the guidance facts and the cash flow questions. First of all Brilinta, I still believe that there is upside to this product versus where it is forecasted. And one question you ask here is really what needs to happen, and what needs to happen is we need to see an acceleration in the U.S. very simple, because in Europe and in variety of countries around the world we are doing very well.

I think first of all, we always need to ground ourselves in the fact that we only have an indication for 20% of the volume. And I think it’s really important because gone are the days when like 10 years ago, physicians were kind of allowed to do what they wanted and prescribe products even in indications that were not approved today.

Of course as a company we focused on the indication we have approval for but even the physicians can’t really have much flexibility because it’s only reimbursed for certain indication.

So that’s what we have access to and it’s kind of limited that’s important. But in Europe we are doing very well and in some countries we are leader, Brilinta has leadership position in terms of discharge patients after ICS and so I think here we show the potential of this product and it’s doing very well.

The other thing you have to keep in mind is this – the imagery uses this pool of prescriptions. And that is made of patients who have been on the tried on all the products for a long, long time. And so the total prescription pool is very large. But you only have a small number of new prescriptions and with the product like Brilinta, we only access the new prescriptions. And we feel the pool of time, so it takes a long time in terms of seeing the total impact.

But I would say and you hope we’re in a good place. The question is the U.S. really, and we felt we are moving in the right direction actually. We saw some nice feedback last movement until the DOJ investigation impacted us. And we hope so far we feel confident that with the result of this investigation positively with answer all the questions that we’re asked of us. And it’s been done very quickly.

So, if we are resolved into a right time to go out, we’re certainly very committed. We keep focusing on it. Our plans basically have been in place on this since August last year in the United States. And I think we have to wait till we can’t actually clear this phase of the DOJ investigation and see whether we can roll. If we can’t then we have to accept we cannot go. But I still remain confident that we have a chance to succeed even in the U.S.

And then the Pegasus data also will be very critical because they will potentially reinforce the value of this product and allow treatment beyond 12 months. So then you get access to another part of the total prescription pool and then of course the other indications.

So, the journey is still out in the U.S. we need a bit more time. The other question is an important one is how do we fund the antis. First of all, we’re in the process of looking at the plans and the cost developing those products. But we certainly are looking at options for certainly the anti-infective is an option.

We’ve decided that it’s an opportunistic area until we could look at alternative options there, we can also partner some of our products in development of the antis but some other projects we have in our portfolio. We have been approached by other companies to partner some of the products we have in the portfolio. So we can look at variety of options.

And as Briggs showed you, we’ve been shifting resources also to a late stage pipeline. And we keep doing this. And if at some point we found that we do not have enough resources to maximize the value of this scientific portfolio we certainly would look at alternative solutions, further partnering of parts of our portfolio.

But we are not at this stage yet. So far from what we have in our hands we can manage. We have a very productive actually it’s not because Briggs is here in the room but we have a very cost effective, very productive clinical development group at AstraZeneca. And we’re able to run clinical studies or effectively fasten at a relatively low cost actually.

Marc, do you want to cover the guidance and cash flow?

Marc Dunoyer

Let’s talk about the tax rate and then I’ll say a few words about the cash flow. So first of all the tax rate that you are referring to, 23% was a guidance we provided last year on the reported tax rate. And it finished, the year finished at 21.3% because of some settlement when one-side other than the other side. So, 21.3% versus 23% I mean, this is basically $50 million or $60 million difference. This is basically the position or the accuracy or forecasting in terms of settlements and tax settlements.

So, for 2014, we believe there will be no material change in the reported tax rate but of course with the same caveat on the accuracy of our projection on tax settlements. We see no major trends of change of the corporate tax rate. So again it depends on how we finalize our negotiations with those tax authorities around the world.

Turning to cash flow, if you remember the slide I presented on the cash generation, in 2013, we have a net cash flow from operations of $7.4 billion. If you just do a simple ratio of this cash flow on sales, this is close to 30%, it’s very high cash flow on sales, higher than many other companies.

And if you also look at the cash conversion cycle, we also – the company has produced very good results. So, we are not providing you any projections or guidance on the cash flow. But to just point on the results of 2013, these are two very strong measures in terms of cash flow.

Amy Walker – Morgan Stanley

Thank you. It’s Amy Walker with Morgan Stanley. I have three questions if I may please. The first one, I know you don’t want to guide line by line, but just around the gross margin evolution, that was weaker than we had expected in the fourth quarter. And presumably next year’s gross margin should be high and it’s going with patents, so that would have negative implications. Should we therefore expect gross margins to decline in 2014 in this direction as consensus seems to be looking for flat evolution at the moment?

The second question on respiratory Symbicort in the U.S. did some great growth in the fourth quarter. I think you mentioned something about a 4% share gains. So, that would imply that you took some good pricing in the U.S. perhaps, can you just talk about what’s driving that and how you expect that to evolve going forward?

And the last question, Pascal, forgive me if I’m misquoting you here. But I think when I asked you at Q3 about the potential impact of the DOJ investigation on your ramp in the U.S. for Brilinta, you said you didn’t expect limitation. Has anything changed and do you have any visibility on when all this might be concluded? Thanks very much.

Pascal Soriot

Yes, as for DOJ investigation, of course we can’t predict this, it’s out of our hands. The only thing we can do positive, that we can influence is how quickly we answer the questions that are asked of us. And here, as you can imagine, we answered the questions as quickly as we could. We’ve provided all the data that we are asked.

We understand that we’ve answered the questions so far and they need to process the information and come to a conclusion. And they may come back to us. But so far the investigation seems to be going as positively as possible.

The problem is we don’t know – basically we don’t influence the decision making process of course. And we don’t influence the timing of it. So, they need with, a lot of the DOJ to the importance of this medicine to patients because the more confusion you create.

The less likely patients are to take a medicine that says it’s pretty simple, when changing payers like Nice and EQUIG and others reimburse a product like this basically because they’ve been convinced for their clinical value. So, as for clinical value you want to make sure patients get the drug. So everyone is aware of this, but beyond this there is not much we can do but wait until they have come.

As far as respiratory, what I think I mentioned – what I know I mentioned earlier is that we gained 7 points of market share. So that has nothing to do with our pricing because I was actually talking about our prescription share. So I don’t know if I understood your question very well here. But I was talking about this prescription share, new prescription share. And that’s the goals we saw.

And of course that again takes time in translating into total prescription share because it’s only new patients. But it’s a very substantial lift in our new prescription share that we’re over time lead to increased shares and sales and in fact we grew by 26% in the United States last year. Some of it is priced but not much, most of it is really show increase.

And gross margin, again, we Marc, you want to comment on specific remark but again we don’t guide on specific line items but.

Marc Dunoyer

Obviously the timing which Nexium generic, Nexium or Nexium generic will be doing the course of the year 2014 would influence the gross margins that one factor. The other factor that you need to take into account is integration of the diabetes 50% alliance with BMS, as we were looking the revenues, enhanced revenues directly on the gross margin. Now we are going to bring it, I would say normally from sales gross margin and so on and so on. So this is also a slight mechanistic impact on the gross margin.

Kerry Holford – Credit Suisse

Kerry Holford from Credit Suisse, three questions please. Firstly, a product related question and it goes back to Symbicort. You’ve had a fabulous increase in market share. Glaxo pointed yesterday to the fact that a number of formulary elements, one big formulary picked in 1 February. And that reversed some of the formulary elements so that the loss of adverse and the growth of Symbicord should reverse. So just from your perspective have any major formulary changes kicking in, in February that would at least reverse some of that?

And I wonder if you could also while talking about that just generally comment on the sort of gross to net and rebate pressures in the U.S. whether you had to give significantly higher rebates, this was something you specifically decided to do to get both Symbicort and also to get Byetta by JV. I guess it wasn’t you that necessarily made that decision, it was still in the JV. Now you all are going to have to live with whatever price that JV put.

But on the formulary aspect, you could perhaps also tell us a little bit about your initial expectations for Forxiga, you’ve talked about the challenging formulary environment in Europe. And we will no doubt be looking at prescriptions. Do you think we should look for the same sort of rate of growth for Forxiga as we saw for Invacana (ph) which, can you give us some health on your initial expectations?

My other question would be about 2017. Your IR department does a fabulous job of colleting every excruciating number we could ever think of. So, you have a very good view of what we are forecasting out there. And you know that the aggregate numbers aren’t anywhere near your expectations for 2017.

So, I wonder if you could tell us where you think collectively were missing it. Is it, we have a forecast business as you haven’t yet bought or we really haven’t understood emerging markets or we just haven’t got the patents right. And really you’re going to be able to keep some of your older products going into much longer. So, just give us some health in generality there please?

Pascal Soriot

All right, thanks Kerry. I thought you were going to ask another question, but probably you kept that trying to be. Traditionally I can’t take questions. So, the formulary is, apart from the ESI from the ESI change I’m not aware of any material change, I mean, all the – I don’t know if you’ve had missing on your front.

I’m not aware of any material, I mean, there are changes constant changes of course as you can imagine but not aware how many material change in formulary status in the U.S. that would effect Symbicort negatively on a material basis.

The only one I’m aware of is ESI that there is of course an important one because it affects 20%, a bit less than 20% of commercial, so called commercialized in the U.S. marketplace.

Now that sort of brings me to your second question which is the gross to net, how do you answer that? The first thing is that on an overall basis across the portfolio, we have indeed seen increased rebates and the gross to net has been reducing. But it’s not new, it’s been happening over the last three years. It’s the addition of the U.S. marketplace. But it is not actually necessarily coming from Symbicort or Bydureon.

This ESI listing, they don’t result from very substantial price reductions at all. The total gross to net reduction really is driven very much by cost of wealth. Of course as you can imagine, we’ve seen pretty substantial pressure there.

I would say Bydureon or Symbicort, I will not see, I can’t report a very substantial increase in rebates and reduction in gross to net.

Forxiga, maybe Ruud, you want to say a few words about Europe but in particular of Germany. And as far as the U.S., we certainly have very ambitious plans as you can imagine. But of course you also have to factor in that this we’ll answer the second product in the marketplace, we’re not the first SGLT2, we’re second. And there will be competition.

But we certainly have very ambitious plans and very substantial focus on resources allocation behind this product. Beyond this I don’t know whether I can tell you a lot more. But in Europe, we can certainly comment on it in particular in Germany.

Ruud Dobber

Yes, so this is in Germany is a little bit volatile. You all know that we launched the product early last year. And I would say highly successful launch, having the trajectory lining of Genovia moving extremely quickly. And then unfortunately the GVA decision came out with no additional benefits.

So, currently we are in arbitration in order to secure a reimbursement price. The chance is we will see whether we are able to convince the arbitration board in Germany. So, as a result of the mismatch between our expectation and the expectation of the German authorities, we stop supplying the markets mid-December. The products displeases that we are in the process of launching ZGDR to the fix doors combination of dapagliflozin with metformin and thereby offering patients as well as physicians an alternative for those patients who are on the mono-components.

We are enforcing in a couple of other European markets, U.K. the Nordics and the Netherlands where we have four reimbursements. And we are still working through the reimbursement situation in big other European countries like Italy and France. With the response of the physicians as well as the patients is very positive.

Pascal Soriot

Right. Because nobody almost nobody gets an SGLT2 first line, they always – the patients always get metformin. So, when they get SGLT2 Forxiga, it’s on top of metformin. So having the fixed dose combination to launch, will enable us to shift – to move all those patients to the fixed combo and keep growing Forxiga in Germany.

2017, I think really is again hard to answer specifically. We see potential in diabetes, we see upside still in products like Brilinta, Symbicort, the emerging markets all of the above and some of our background products of course. But the guidance we gave doesn’t rely on us acquire the new business. This is organic growth coming out of our portfolio of existing and new products.

Should I take maybe the last question from Tim Anderson in the front. Tim, do you want to go ahead.

Tim Anderson – Sanford Bernstein

Melanoma and long. And then slide 44, you talk about filing timelines through 2016 with various products. Your PDL1 is not on there, so, I just want to confirm that the earliest you could file that would be something like 2017 or beyond or could it be filed earlier on the back of Phase 2 trial. This is not clear to me if you’re going from the Phase 1 programs are running now straight to Phase 3?

Second question related to this is will any of those pivotal be using biomarker in rich patient populations. I haven’t yet heard ASCO articulate any use or reviews on biomarkers.

And then the last question, a quick one, on the anti-product, I’m trying to understand your rationale for advancing the PD1 in the human development when you already have a PDL1 further along in development?

Pascal Soriot

Thanks Tim, maybe Briggs you could share these questions with Ed. Those are important questions. Maybe just before you do that, let me just say that – the plans we share are best plan, and for an number of products we talked about 9297 a bit earlier. We also have a talented plans and looking at whether we can fast-track some of those activities.

But what we’ll share with you is what we think is reasonable and higher likelihood of achieving so that we then from there we can model upside and downside to those plans. But it’s really high probability of success of the plans that we present.

Briggs Morrison

You want Ed go first?

Pascal Soriot

Yes, Ed, do you want to start maybe with – you could cover the PD1 question. Why do we have a PD1, why do we move it into the clinic when we have a PDL1. And you could also cover the biomarker question maybe if you wish?

Ed Bradley

Yes. (Inaudible).

Pascal Soriot

Yes, as for the science. I think it’s important to remember that our strategy as for as scientist is a combination based strategy. And we have reasons to believe that combination of PD1, PD1 is a possibility with all our combinations. And we as that we’re saying it’s going to be data driven. We’ll explore the variety of alternatives to find the best possible combination.

And maybe Briggs, do you want to cover the 2014 sort of anti-tumor?

Briggs Morrison

So, tumor I think it is fair to a path that it will be one of the tumor types that you described. And a final timeline as Pascal said in part would be driven by data. So obviously there are faster routes to approval or filing an approval with certain levels of activity and then they’re the longer ones.

So, what we’ll give you as our base case is sort of the little longer one assuming that what we’ve seen from our competitors makes it a little harder to go on to some of those faster timelines. But again it will be data driven.

Tim Anderson – Sanford Bernstein

Good. Thank you so much.

Pascal Soriot

I think Carl is reminding me, we should close. So, just wanted to thank you very much. And hopefully you had a chance to look at our news flow slide. If not, you can look at it in the deck that we presented to you. I guess you would see it, it’s a very, very rich news flow this year.

I’d just like to conclude quickly by reminding you that we’re making – we’re making progress with core momentum. As for an estimate, this year would be very critical for us with our oncology portfolio. And we have 19 candidates over the next two years for Phase 3 starts so we certainly have to be very focused and very selective in those. But the good news is we have a lot to choose from.

So with this, thank you so much for your participation.

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