astrazeneca (azn) earnings report: q2 2015 conference call...

CompanyName:AstraZenecaPLCCompanyTicker:AZNSector:HealthCareIndustry:Drugs

EventDescription:Q22015EarningsCallMarketCapasofEventDate:83.45BPriceasofEventDate:33.74

©2014TheStreet,Inc.Al l R ightsReserved Page1of27

AstraZeneca(AZN)EarningsReport:Q22015ConferenceCallTranscriptThefollowingAstraZenecaconferencecalltookplaceonJuly30,2015,07:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

PascalSoriot;AstraZeneca;CEO,ExecutiveDirectorMarcDunoyer;AstraZeneca;CFOandExecutiveDirectorLukeMiels;AstraZeneca;EVPofGlobalProduct&PortfolioStrategyandCorporateAffairsMondherMahjoubi;AstraZeneca;HeadofOncology,GlobalProduct&PortfolioStrategyElisabethBjork;AstraZeneca;VP,LateClinicalDevelopmentRobertIannone;AstraZeneca;HeadofImmuno-oncology,GlobalMedicinesDevelopment

OtherPart icipants

JamesGordon;JPMorganChase;AnalystAndrewBaum;Citigroup;AnalystSachinJain;BofAMerrillLynch;AnalystMatthewWeston;CreditSuisse;AnalystTimothyAnderson;SanfordC.Bernstein;AnalystAlexandraHauber;UBSInvestmentBank;AnalystKerryHolford;ExaneBNPParibas;AnalystJeffreyHolford;Jefferies;AnalystNicolasGuyon-Gellin;MorganStanley;AnalystRichardParkes;DeutscheBank;Analyst

MANAGEMENTDISCUSSIONSECTION

PascalSoriot (CEO,ExecutiveDirector):

Hello,everyone.ThisisPascalSoriot,CEOofAstraZeneca.Welcometothefirsthalf2015resultsconferencecallforinvestorsandanalysts.Slidesarepostedonlineforyoutofollowviatelephoneorwebcast.

I'mjoinedtodaybyMarcDunoyer,ourCFO;LukeMiels,ourExecutiveVicePresidentforGlobalProductandPortfolioStrategyandCorporateAffairs;aswellasMondherMahjoubi,HeadofOncologyinGlobalProductandPortfolioStrategy.Wealsohaveanumberofcolleaguesonthetelephoneline,inparticularElisabethBjork,whoisourInterimCMO.It'sgreattohavesomanyofyouonthephoneandonlinetoday,andwelookforwardtotakingyouthroughtheresultsandourachievementssofarin2015.

SopleaseturntoSlide2.Beforewegetstarted,thisistheusualSafeHarborstatement.

MovingontoSlide3.Theplantodayisformetoprovideashortoverview,thenhandovertoLukeforanupdateonourproductsandgrowthplatformsandthentoMarcforthefinancialsandguidance.Fromthere,we'llthentakeyouthroughexcitingnewsanddevelopmentsinlungcancer,andthenwe'llendwithconcludingremarksbeforewetakeyourquestions.Weplantohaveabout45minutesforthepresentationsandasimilaramountoftimefortheQ&A.




MovingontoSlide4.Withinthehalfyearresultstoday,totalrevenuewasup1%to$12.4billion.AndQ2markedsixthconsecutivequartersoftoplinegrowth.We'reverypleasedwiththisperformance,whichlookedunlikelyonlyoneortwoyearsago.Themainreasonsbehindthisperformancearethefivegrowthplatformsthatgrewcollectively11%inthefirsthalfandnowcomprise56%oftotalrevenue.

CoreEPSwasstableinthefirsthalf,reflectingthepromisedreductionincoreG&Arelativetototalrevenueandasustainedincreaseincoreintheinvestment.

Wedeliveredstrongnewsflowfromthepipeline,includingtheapprovaloftheIressaintheU.S.andtheregulatorysubmissionofAZD9291inlungcancer.

Wealsohadexcitingimmuno-oncologycombinationdataatASCOinJunewhereweshoweddurvalumabPD-L1.Asareminder,durvawasformerlyknownasaMEDI4736.Sothecombinationofdurvaandtremelimumabcamenicelytogetherasapotentialnewtreatmentforlungcancerandothertypesofcancer,inparticularforPD-L1negativepatients.We'llhearalotmoreaboutlungcanceraswegofurtherintotoday'spresentation.

Finally,weareabletogrowourtoplineguidancetoday.Totalrevenueforthefullyearisnowexpectedtodeclinebylowsingle-digit%versusthepriorguidanceofamid-single-digitdecline.CoreEPSguidanceatCERfortheyearisunchanged,andcoreEPSisexpectedtoincreasebylowsingle-digit%,reflectingthecontinuedacceleratedinvestmentinR&D.

MovingontoSlide5.Asmentioned,therewascontinuouspipelinenewsflowduringthesecondquarter.Fulldetailsarelistedontheslides,butpleaseletmehighlighttheincreasingpresenceinlungcancerwiththeIressaU.S.approvalandAZD9291regulatorysubmissionintheU.S.andtheEU.IwanttohighlightthefactthatintheUnitedStates,wewereabletostartthepromotionofIressafourhoursafterwereceivedtheapproval.SoreallykudostoourU.S.teamthatdidastellarjob.Andit'sreallyademonstrationofourcommercialstrengthintheU.S.butaroundtheworldaswell.

Japanfollowsthisquarter,whichisrecordspeedforoncologyregulatoryresubmission.Soasyouknow,wehavebighopefor9291inJapanbecauseinAsia,ofcourse,EGFRmutatedlungcancerisveryfrequent.

WeobtainedtheU.S.PriorityReviewforBrilintatoexpandthelabeltoincludethePEGASUSdatainpost-myocardialinfarction.AndweobtainedregulatorysubmissionacceptancesforCAZ-AVIinseriousinfectionsandforcediranibinovariancancerbothintheEU.CAZ-AVIisofftoastrongstartintheU.S.marketwhereit'sbeingsoldbyourpartner,(Allergan).

Ascanbeexpectedinourbusiness,therewasonetrialthatdidnotmeetitsprimaryendpoint,selumetinibinuvealmelanoma.It'sasmallindicationandaspecificcombination.Wedonotseeanyimpacttotheongoingtrialsinothertumortypesandwithothercombinations,andwedonotseeanyimpacttotheoverallprospectofselumetinib,whichasyouknow,isreallyfocusedonlungcancer.WedeliveredonPhaseIIIstartsforPT010programinCOPDandforanifrolumabinlupus.

Lastlybutimportantly,wehadanexcitingASCOmeetinglastmonthwherewesharedthecombinationdatafordurvaandtremelimumab.WefoundthedoseforPhaseIIIandannouncedmultiplenewPhaseIIItrialsinlungcanceraswellaskeytrialsinnewtumortypelikegastric,pancreasandbladdercancer.Outsidethestudytumors,weareworkingwithourpartner,Celgene,tobringdurvalumabtopatientswithmorphologicalmalignancies,andwehavegreathopeforthishematologycoreindications.

PleaseturntoSlide6.Andhere,youwillseethekeyfinancialsandourguidance.Totalrevenuewasup1%inthehalfyear,2%inQ2,partlyreflectingtheincomefromthestrategiccollaborationwithCelgenehematology.ButIreallywanttohighlightthatthegrowthandtheperformanceisverymuchdrivenby




ourproductsoverall,soit'sverymuchaproductsalesperformance.Andourupgradedguidanceisonthebackofthisproductsalesperformance,notonthebackofexternalizationrevenue.

SothisperformancewasaccompaniedbytheverystrongperformancefromourgrowthplatformsImentionedamomentago,andthey'realldoingextremelywell.Theyrepresent56%ofoursalesnow.

CoreSG&Acosttototalrevenueratioreducedto35%inthesecondquarterfrom44%inQ4'14and39%inQ1thisyear.Withtheaddedbenefitfromexternalization,wecancontinueredeployingresourcesintothepipelineandfollowourstrategy,whichistofocusonscienceandinnovation.

CoreR&Dexpensesgrewby24%inthefirsthalfasweacceleratedinvestmentin15newmolecularentities,andPhaseIIIareunderregistration.ImportanttorememberthateventhoughourinvestmentinR&Disgrowingalot,ourproductivityistremendouslyincreasingwhenyouconsiderthemassiveamountofnewprogramsthathavemovedintolate-stagedevelopment.WeexpectcoreR&Dforthefullyeartoremainingrowthmode,whichismadepossiblebytoday'sincreaseinrevenueguidance.

CoreEPSforthehalfyearwasstableandincreased3%inthequarter,andhence,byone-offtaxbenefit.Totalrevenueforthefullyearisnowexpectedtodeclinebylowsingle-digit%versusthepriorguidanceofamid-single-digitdecline.CoreEPSguidanceatCERfortheyearisunchanged,andcoreEPSisexpectedtoincreasebylowsingle-digit%,reflectingthecontinuedacceleratedinvestmentinR&D.

Tosumup,giventhecontinuedtoplineperformanceandearlystepswe'vetakentoreduceSG&Acosts,I'mencouragedbytheprogresswemadeinthefirsthalf.AndIwouldliketosaythatweareverymuchontrackwithourplans.Iwoulddaresayingeventhat,weareslightlyaheadofourplansandweareveryconfidentforourmid-tolong-termtargets.

Andwiththis,I'llhandovertoLuke.

LukeMiels (EVPofGlobalProduct&PortfolioStrategyandCorporateAffairs):

Thanks,Pascal.Nextslide.Thankyou.Solookingfirstatthegrowthplatforms.Theseareakeycomponent,ofcourse,toachievingourmedium-andlong-termrevenuegoals.Andthesolidperformancequarter-after-quarterisbuildingourconfidence.

I'llcovereachoftheseinmoredetaillater,butbroadly,RespiratorymaintainedshareinthedevelopedmarketsdespitecompetitiveheadwindsandgrewstronglyinEmergingMarkets.Brilintacontinuedtogrowandoutgrowthemarket.ImportantregulatoryguidelineandclinicalnewsflowisexpectedinthecomingquartersforBrilinta.DiabeteswasdrivenbytheprogressionofstrongproductlaunchesandAstraZeneca'sglobalcommercialcapability.EmergingMarketsshowednotablestrength,particularlyinChina,andJapanreturnedtogrowthinthesecondquarter.

PleaseturntoSlide9.TurningtoourRespiratoryfranchise.Itgrew9%inthefirsthalf,outpacingmarketgrowthofaround7%.PerformancewasdrivenbytheresultsfromourEmergingMarketsbusinessandtheavailabilityofournewproductsinkeymarkets.

Symbicortremainsstable.Andinthefirsthalf,U.S.salesweredown1%,withvolumegrowthoffsetbyadditionalaccessandcopayassistanceafterrecentformularychanges.TherecoveryandsubsequentgrowthofshareintheU.S.sincetheformularychangeinJanuaryspeaktothestrengthenandalsotheresilienceofthebrandandthepreferenceofpatientsthatwe'vesignaledinthepast.InEurope,thebusinessremainsimpactedbyuptothreeanaloguesnowinthemarket.

SymbicortandPulmicortbothhadnotablegrowthinEmergingMarkets,particularlyinChina,inasthmaandCOPD,thelargepatientpopulations.AndthetrendfromacutetochronicmaintenancetreatmentcontinuedtomakeChinaasignificantopportunity.ForPulmicort,up43%andremainsaleadingproduct




inChinawitharunrateofnearly$0.5billionayear,whileaswelooktothefuture,Symbicort,up64%,isincreasingrapidlytoapproximately1/4ofthat.

Astothenewproducts,TudorzaandEklira,singlebronchodilators,niceprogressintheU.S.andalsoEurope.DuaklirdualbronchodilatorlaunchisprogressingwellandcontinuestogainshareunderAstraZeneca'spromotion.Andit'salsoapproaching1/5ofthedualmarketinmarketssuchasGermanyandtheU.K.Intotal,around10countrieshavelaunchedsofarwitharound10moretocomelaterintheyear.

PleaseturntoSlide10.SotodayisagreatopportunitytohighlightthebreadthanddepthofourRespiratoryfranchisestrategy.Andit'ssomethingthat'snotalwaysunderstoodbyeveryone.

StartingwithourestablishedproductslikeSymbicort.Thisisaproductwhichwillbenefitovertimefrombeingusedearlierandinmilderdisease.WealsohaveexpandedourpresenceininhaledmedicinesandbuiltacomprehensiveportfoliowithuniquedeviceofferingsaugmentedbyacquisitionsoftheAlmirallproducts.Fromthere,combinationtherapyisincreasinglybecomingthestandardofcare,andwelookforwardtobringingthefirstpillmedicinetopatients.The03dualbronchodilatorisdifferentiatedbypMDIdelivery,whichisgoodforCOPDpatients.Andit'sontrackforregulatorysubmissionacceptance.

Next,thefirstpatientisnowbeingdosedinthePhaseIIIprogramforPT010inCOPD,andthebenefitofthetriplebeingcontrollingexacerbations.

Thirdly,wewillbuildourRespiratorycapabilitiesinthebiologicswiththepotentialtomodifytheunderlyingdisease.WehaveongoingandfullyrecruitedPhaseIIIstudiesforbenra,whichtargetstheIL-5receptor.That'sfullyrecruitedinasthma,Imustsay.Andwe'llhavedataassoonasnextyear.PhaseIIstudiesarealsounderwayfortralo,whichtargetstheIL-13pathwayincludingIPF.Thesetargetedtherapiesusebiomarkerstoidentifypatientswhoaremorelikelytobenefitfromtherapy.

Letmecontinuetocommittofindingfutureinnovativerespiratorytreatments.AndwealsohaveanemergingportfolioofpotentiallydiseasemodifyingandinhaledproductsincludingtheP38inhaledinterferonandotherpurchaseinearlierclinicalstudies.

PleaseturntoSlide11.ForBrilinta,themedicinegrewat42%inthehalf,outpacingtheunderlyingmarketgrowth,withparticularstrengthinEmergingMarkets.IntheU.S.,weachievedaPriorityReviewdesignationforthepost-MIindicationinQ2.Andweexpectanupdatedlabelthisquarter.TreatmentguidelinesfortheU.S.andEUarealsoexpectedtobeupdatedinthesecondhalf.Untilthenewlabelisissued,wedonotexpecttoseeanysignificantcommercialuptakeaswecannotpromotethebenefitsofPEGASUSyet.

Thenextdatapointsforthe(inaudible)programarePhaseIIIresultsforSOCRATES,whichweexpectinthefirsthalfof2016,instroke,andtheEUCLIDtrial,whichisinPAD,whichweexpectinthesecondhalfof2016.Eachoftheongoingoutcomestudieshavesignificantpotentialtobringadditionalbenefittopatientsandroughlyaboutthesamesizeintermsofcommercialpotential.

Pleaseturntoslide12.IntheU.S.,Brilintaremainsabrandedoralanti-plateletmarketleaderasmeasuredbynew-to-brandprescriptions,andwedelivered10%newbrandprescriptionmarketshareduringQ2,whichisanewmilestoneforthemedicine.AsforEurope,Brilintacontinuedmarketsharegrowthacrosscountries.Andwithmorenewindicationsexpected,asjustdiscussed,thereisroomtofurtherexpandtheusageofBrilintaandtheprovenbenefititbringstopatients.

Nextslide.LookingatDiabetes.Encouraginggrowthof32%inthefirsthalfwasdrivenbyFarxigaandBydureonPen.Diabetessaleswerealsoupafull88%inEmergingMarketsinthehalf.Secondquarterwasthefirstquarterwithanapples-to-applescomparisoninDiabetes,reflectingfullownership,andthis




showeda21%growthversusanestimated14%growthinthemarketfornon-insulindiabetesmedicines.Andwe'realsoverypleasedtogrowaheadofthemarket.

Onglyza,thesaleswereup4%globally,drivenbyEuropeandEmergingMarkets.TheU.S.,however,wasdown16%,andtheU.S.continuedtoexperiencechallengesfromthecompetitivemarketwithmorethan30brandedmedicinesandthedeprioritizationofoursalesforceforOnglyza,whichfocusedonFarxigaandBydureon.FollowingtheAdCommeetinginApril,there'sanongoingreviewoftheSAVORtrial,andweawaitthelabelupdate.

ForFarxiga,continueditsstronggrowthacrossallgeographiesincludingEuropeandEmergingMarkets.U.S.,totalprescriptionshiftfortheFarxigamarketfamilyremainsataround27%,andthisisinagrowingmarket.We'realsoexcitedaboutthecontinuedsuccessofFarxigaasweprepareforsaxa/dapa.AndBydureonsaleshadagrowthof41%,aheadofthegrowingmarketofGLP-1medicines,reflectingasuccessfulglobalPenlaunch.

Nextslide.Thanks.Farxigahasmaintainedover80%oftheshareintheSGLT2class.Anduniquely,Europenowrepresentsmorethan25%oftotalproductsales.FortheBydureonPenintheU.S.,volumescontinuetogrowdespiteanincreasinglevelofcompetition,andconversionisuptobetween55%and60%.AttheendofQ2,thePenislaunchedintheEU5,theNordics,Japanandamongothers,withfurtherlaunchesexpectedintherestoftheEUandtheRestofWorldmarketsinthesecondhalf.

Nextslide.Thanks.Thischartprovidesyouaperspectiveontheparadigmandwhereourproductssitwithinthat.LikeRespiratory,wewantedtofirstemphasizethebreadthofourproductportfoliothistimeinthisarea,butwealsowantedtoillustratespecificallythepotentialopportunityforsaxa/dapa.Givenitscombinationofstrongglucosecontrolandweightreduction,saxa/dapahasanaturalplaceinthetreatmentalgorithmbeforetheuseofinjectables.Itexpandstheuseandconvenienceoforalmedicinesandalsosimplifiesthepatientaccessinmanycountries,withthepotentialshifttoearliertreatmentandmovingthemarketfromanideaoftreat-to-goversustreat-to-file.Thismayfurtherexpandthemarketpotentialforsaxa/dapatothebenefitofmanypatients.WelookforwardtothePDUFAdateforsaxa/dapainOctober,andwe'llkeepeveryoneupdatedasweprogresswiththereview.

TurningnexttoEmergingMarkets.Therewasacontinuedstrongperformanceinthehalf.AfteraverybriskQ1,with18%growthoveralland28%inChina,Q2normalizedto9%growth,inlinewithourlong-termview.ChinasaleswereslowerinQ2withagrowthof10%,equatingto19%overtheyear--overthehalfyear.

Growthwasspreadacrossallmaintherapeuticareas.Inthefirsthalf,Respiratorywasup38%--sorry,30%inEmergingMarketsto$556million;Brilinta,up80%to$47million;Diabetes,up88%to$117million;andfinally,Oncology,up18%to$483million.Goingtothesecondhalfof2015,ourexpectationistodelivercontinueddouble-digitgrowthinChina.

Slide17.Thankyou.ForJapan,aswesignaledtoyouinthepastquarter,it'sreturnedtogrowthinQ2withanincreaseinsalesof6%and2%forthefirsthalfoverall.Further,Q2providedanapples-to-applescomparisonaswelaptheregularpriceadjustmentthatoccurredlastyearandaffectedanumberofproducts.Thekeygrowthbrands,Crestor,NexiumandSymbicort,togetherrepresented52%oftheJapanesebusinessandalsorenewedgrowthinQ2andeithermaintainedorincreasedmarketshares.Aswelookforward,weplantosubmitAZD9291forregulatoryapprovalinQ3inJapan,whichisonlyonequarteraftertheU.S.andEUregulatorysubmissions.Thisisinlinewithourstrategyofbringinginnovativemedicinestopatientsassoonaspossible.

Nextslide.ForLynparza,thelaunchiscontainingstrongly.Afterjust6monthsinanarrowindication,there'sastronguptakeintheU.S.Weestimate50%penetrationintheU.S.patientpoolofaround1,400




patients.There'salsoveryhighbrandawareness,andmorethan2,000womenhavestarted--1,000womenhavestartedtherapy.Productisnowlaunchedin10countriesandisthefirst-in-classPARPinhibitorthatprovidesavaluabletreatmentoptiontoBRCA-mutatedovarianpatients.WelookforwardtocomingdataonLynparzaintheclinicaltrialsprogrampotentiallytofurtheruseofthisimportantmedicine.

InadditiontoIressa,asPascalhadsignaled,itwasapprovedintheU.S.,first-linemetastaticEGFRmutatedlungcancer.Andwemadethesalesveryquicklyafterthat.Welookforwardtobringingmorechoicetopatientsinthissetting,andIressaisanimportantsteppingstonefortheexpectedlunchofAZD9291laterthisyear.

Finally,theMovantiklaunchisofftoanencouragingstartintheU.S.WelaunchedatthebeginningofApril,andDaiichiSankyohadcommittedandcontributedfromthebeginningofMay.Morethan50%ofthebusinessisfromnewtherapystarts,andwehaveasignificantnumberofpatientswhowerepreviouslyonOTCmedicinescomingacross.Andwehaveaveryrapiduptakewithover3,000users.MovantikhasnowbeenavailabletopatientsinNordiccountries,andadditionallaunchesareplannedinthesecondhalfoftheyearinEuropeandCanada.

Andwiththis,I'llnowhandovertoMarcforthefinancials.

MarcDunoyer (CFOandExecutiveDirector):

Thanks,Luke,andhello,everyone.I'mgoingtospendthenextfewminutestakingyouthroughthefinancialheadlinesforthefirsthalf.Iwillthencommentontheimprovedoutlookforthefullyear.

Ifyouwanttoturntonextslide.Lookingatthefirsthalf,wedeliveredanotherrobustperformance.AsPascalsaid,totalrevenuewasup1%despitetheimpactoftheU.S.BrandedPharmaceuticalFeenowtreatedasadeductionfromproductsales.Externalizationrevenue,mostlyweightedtowardsthefirstoftheyear,underpinnedthetopline.Ourgrossmarginonproductsales,improvedfurtherthistimetoover83%,hadverynicecombinedbenefitfromthegrowthplatforms,themixofproductsalesandmanufacturingefficiencies.

AsIsaidpreviously,wewilldeliverlowercoreSG&Acoststhisyear,bothinvalueandasapercentageoftotalrevenue.Thisfocus,whichIwilltakeyouthroughinamoment,ledtotheintendedreductioninthecoreSG&Acostratiointhesecondquarterthistimeto35%oftotalrevenue.

Thiscombinationoftoplinegrowth,astronggrossmarginandimprovingoutlookforcoreSG&AenableustocontinuetheacceleratedinvestmentincoreR&D,whichwasup24%inthefirsthalf.Mondherwillshowyouinamomentthesignificantimpactthisinvestmentisgoingtohaveforpatientswithlungcancer.

Totalrevenueforthefullyearisnowexpectedtodeclinebylowsingle-digit%versusthepriorguidanceofamid-single-digitdecline.CoreEPSguidanceatCERfortheyearisunchanged.CoreEPSisexpectedtoincreasebylowsingle-digit%,reflectingthecontinuedacceleratedinvestmentinR&D.

IfyoucanturnyoureyestoSlide21.TurningtotheP&Linmoredetail.Totalrevenuegrewby1%inthefirsthalfand2%inthesecondquarter,enhancedbytheCelgenecollaboration.EncouragingprogressinthecostofsalesandthegrossmarginImentionedamomentagowasaccompaniedbybettercoreSG&Aperformance,especiallyinthesecondquarter,whichallowedthestronglevelsofcoreR&Dfundingtocontinue.Thecoretaxratefellto14%inthefirsthalfafterone-offbenefitinquartertwo.Weanticipatethefullyeartaxratetobeinthelowerhalfofthe16%to20%rangeoutlinedearlierintheyear.Excludingthetaximpact,theunderlyingcoreEPSperformanceinthesecondquartersupportsthefullyearguidance.




PleaseturntoSlide22.CoreSG&Acostreductionhasbeenakeyfocusforthebusiness,andwearenowbeginningtoseeearlyprogress.I'mpleasedthattheratioofcoreSG&Atototalrevenueat35%was3percentagepointslowerthanayearagoandafull4percentagepointslowerthanquarter12015.

WeareclearonthefiveactionsthatwearetakingtoreducecoreSG&Abydollarvalueandrelativetototalrevenuethisyear.Wearecontinuingtoimproveoursales,marketingandmedicaleffectiveness,whichincludesleveragingprogramsgloballyratherthanonacountry-by-countrybasis.Wearecentralizingselectfunctionsandprocessestodelivercentralizationandeconomiesofscale.Thirdpartyspendhasbeenreducedaswefullyengagedwithoursupplierstoensurewearegettingmaximumvalue.Asmentionedlastquarter,wearegoingtodeliversavingsacrossanumberofareas,includingoursupportfunctioninIT.Andfinally,footprintoptimizationwillcontinueinboththeU.K.andU.S.Thisisanencouragingstarttotheprogram,andIlookforwardtoupdatingyouonfurtherprogresslaterintheyear.

PleaseturntoSlide23.AsImentionedearlier,ourfullyearguidance,whichisatconstantexchangerates,reflectsanimprovementinthetotalrevenueguidance.Totalrevenueisnowexpectedtodeclinebylowsingle-digit%givenourperformanceinthefirsthalf.WiththeacceleratedinvestmentincoreR&Dasmoreofourproductsbecomelatestage,weexpectcoreEPStoincreasebylowsingle-digit%thisyear.Thisguidanceisunchanged.

Althoughnotguidance,wealsotriedtohelpyouunderstandtheimpactofexchangeratemovementsintheyear.Basedoncurrentexchangerates,totalrevenueisexpectedtodeclinebyhighsingle-digit%.WecontinuetoexpectfullyearcoreEPSatcurrentratestobebroadlyinlinewith2014.

TurntoSlide24.Finally,Iwanttoturntotheoutlookfortherestoftheyear.Lastquarter,wehighlightedthatontopofourbusiness-as-usualexecution,weincorporatedcoreSG&Asavingsandtheaccelerationofexternalizationrevenuesintoourfullyearguidance.Asyoucanseefromtheresults,wehavemadeearlyprogress,particularlyinthesecondquarter.WeexpectfullyearcoreSG&Acosttobedownversuslastyearwhere2015externalizationrevenuehaslargelybeenrealizedinthefirsthalf.

IlookforwardtothesecondhalfwhereweexpecttocontinuetheprogresswearemakinginparticularoncoreSG&A.Thankyouforlistening,andIwillnowhandovertoMondher.

MondherMahjoubi(HeadofOncology,GlobalProduct&PortfolioStrategy):

Thankyou,Marc.Goodafternoon,everyone.Afewweeksago,actually,inChicago--orlastmonth,wesharedwithyoutheprogressofourpipelineandgaveyoutheperspectiveacrossdifferenttumortypes.Today,wechosetofocusonthediseaseareaperspectiveinordertohelpyoureallygetthebreadthofourportfolio,butatthesametime,asenseofourstrategy.Andwechoselungcancerasoneofthefirstindicationsbecauseofveryobviousreasons.

Firstofall,thisisoneofthedeadliestdisease.It'sthenumberonecancerkillerforbothmenandwomen.Itcausesmoredeathsthancolorectalcancer,breastcancerandprostatecancercombined.AndaccordingtotheWHO,1.8millionnewcasesarediagnosedeveryyear.Andeveryyear,1.6milliondiefromlungcancer.Sohugeunmetmedicalneed.

Butatthesametime,AstraZenecahasahistoryinlungcancer.Wehavebeenpioneerindeliveringnovelmedicinetotreatlungcancer.IressawasthefirstEGFRinhibitorsdevelopedforlungcancer,targetedtotheEGFRmutatednon-smallcelllungcancer.Anduptonow,morethan240,000patientsweretreatedwithIressa,andseveralhundredsofthemarestillinremissionformorethanadecade.AndasPascalsaid,weareextremelypleasedthatIressaisnowapprovedintheU.S.,bothinfirstandsecondline.




Wedidn'tstopthere.Wecontinuedtodowhatwearebestat,followedthesciencetoaddresskeyareaofunmetneed,andinparticular,triedtounderstandwhypatientsbecomeresistanttofirst-generationEGFRinhibitors.Actually,wedesignedanddevelopedAZD9291toovercomeoneofthemostfrequentmechanismofresistancetofirstgenerationoftyrosinekinaseinhibitor,whichistheT790Mmutationfrequentin60%ofpatient.AZD9291isprogressingextremelywell,andwearedelightedtoannouncethatwecompletedsubmissionintheU.S.andinEuropeearlyJune.Iwillcomebacklateron,onourstrategyandplanforAZD9291.

Sowearecommittedtocontinuetoworkanddeliverbreakthroughinnovationthatcantransformthetreatmentoflungcancerandimprovepatient'slife.Andwefirmlybelievethatwehavetheportfoliotoachievethisambition.Wehaveapipeline--aportfolioofnineproducts,fiveofthemareinthelatestageandfourareintheearlystage,coveringmultipletargetsandcombiningbothsmallmoleculeandimmuno-oncology.

Let'smovetoSlide27justtoprobablyputthingsintoperspectiveandprovidesomecontextonthesignificantchangethatweareseeinginthelungcancerlandscape.Solungcancerisaveryheterogenousdiseasefromaclinical,biological,histologicalbutalsofromamolecularviewpoint.Itiscomprisedoftwohistologicsubtype--thesmall-celllungcancer,verywelldefined;andanothersegmentlesswelldefinedandwhichisthenon-smallcelllungcancer.

Actually,overthepastdecade,severalsubsetsofnon-smallcelllungcancerwerefurthercharacterizedanddefinedatthemolecularlevelbythetypeofmutationthatoccurinmultipleoncogenes.YouarefamiliarprobablywiththeEGFR,withtheAKT,withtheALK,withtheBRAF,withtheKRASandmultipleothermutationthataredrivingspecificsegmentofthisdisease.EGFRandALKaretheonlytwomutationwithapprovedtargetedtherapy.AndwithAZD9291,wearewellpositionedtoreshapetheEGFRmutatedlungcancerscape.Sothat'sitfromasmallmoleculeviewpoint.

Nowimmunotherapyistransformingthelungcancertreatmentparadigm.Itprovidesoneofthemostpromisingoptioneventhoughthereisstillworktobedonetobetterselectpatientanddevelopeffectiveandsafecombination.PD-L1expressionisemergingaspotentialpredictivemarkerforthebenefitfromanti-PD-1,PD-L1monotherapy.AndyetanotherwaytosegmentthismarketisthelevelofexpressionofPD-L1.

WeknowthatPD-L1positivepatientsderiveclearbenefitfromanti-PD-1orPD-L1monotherapywhencomparedtochemotherapy.Buttheyrepresentonly25%to30%ofthepatients.ThevastmajorityofthepatientshavelowexpressionoftheirPD-L1,oreventually,areconsideredasPD-L1negative.Andforthosepatients,thebenefitofimmunotherapyseemsmodest,andthereisclearlyaneedthereforotherstrategy,andinparticular,combinationstrategy.AndwefirmlybelievethatAstraZenecaispositionedtoleadthislungcancertreatmentparadigmchangeandestablishimmunotherapyasatreatmentbackbonewhiledevelopingthenextwaveofcombination.

MovetoSlide28togiveyoumoreperspectiveontheEGFRmutantsegment,andinparticular,AZD9291.AZD9291isontracktobefirstandbestinclass.Itrepresentsclearlyabreakthroughintheindustry.Inalittleovertwoyears,wewentfromfirstinhumanbackinMarch2013tosubmissioninEuropeandintheU.S.,asIsaid,inJunethisyear.Regulatorysubmissionisforthesecondlineindication,T790Mmutation,andwereceivedBreakthroughTherapydesignationintheU.S.andacceleratedassessmentinEurope.Earlyaccessprogramisinplace,whileweareworkingwiththehealthauthoritytoensurepatientshaveaccesstotheAZD9291assoonaspossible.

Butthesecondlineindicationisjustthefirststep,andAZD9291isimportantselectiveEGFRinhibitorthatisactiveinsecondlinebutworksequallywellinfirstlineandearliersettingofthedisease.WeareveryencouragedbythedatawesharedwithyouatASCOinfirstline.AndinadditiontothefirstlinePhaseIII




trialthatweinitiatedearlierthisyear,wearestartinganewtrialintheadjuvantsettingtoassessthebenefitofAZD9291forearly-stagedisease,StageIBtoIIIA.

OnSlide29,youhaveprobablyasummaryofourstrategyintheEGFRmutantsegment.Today,withthepositioningofIressaand9291sequentiallyinfirstandsecondline,butasIsaid,wearemovingthemonotherapyof9291intheearliersettingofthedisease,bothinadjuvantandinthefirstline.Andmoreimportantly,weareworkingonimprovingthedurabilityofAZD9291activitybycombiningittoimmunotherapyandcombiningthistodurvalumab.Inaddition,wehaveearlyPhaseIbdatasuggestingthatthecombinationofAZD9291withaMEKinhibitororwithaMETinhibitorcanpreventthedevelopmentofmechanismofresistance.SoweareworkingonalsotryingtoescapetheresistancetoAZD9291whenusedinsecondline.Veryboldandambitiouslifecycleplan.

NowmovingtoSlide30,andagain,bringingtheimmuno-oncologybackintothetopicoftoday.I-Oistransformingthewaywetreatcancerandislikelytobecomethebackboneoflungcancertreatment.ThereisagrowingbodyofevidencethatsuggestslungcancerpatientwithPD-L1positivetumorderivedgreaterbenefitfromPD-1orPD-L1monotherapyandhaveimprovedoverallsurvivalwhencomparedtopatientswithPD-L1negativetumors.

SothereisstillhighunmetmedicalneedforthePD-L1negativetumorsforwhichthemonotherapyisprobablynotenough.Andthereareclearlythreestrategicapproach--wecancombinePD-1orPD-L1withchemotherapy;wecancombinewithsmallmoleculetargetedtherapy;Andfinally,wecancombinewithotherimmunotherapyapproach,andinparticular,othercheckpointinhibitors.Andweareextremelyencouragedbythepromisingdatawe'veseeninourPhaseIbtrialcombiningdurvaandtremelimumab.Notonlywehaveaverystrongscientificrationale,buttoday,wehavetheclinicalevidencethatthecombinationofananti-CTLA-4andananti-PD-L1canprovideabetterbenefitforpatientwithPD-L1negativetumors.Andtheresponserateweobservedisextremelyencouraging.It'sfivetimeswhatweareusuallyseeinginmonotherapyinthistypeofpatient.Finally,thecombinationissafewithaverylowrateofdiscontinuation,whichpromptedustomoveitintothePhaseIIIprograminlungcancerandalsoinothertumortypes.

Andinthenextslide,youhaveaverycomprehensivesummaryofwhatwearedoingwithimmuno-oncologyandwithdurvaandtreme,inparticularinthelungcancer,theninepivotaltrialsthatareongoingcoveringthefullspectrumoflungcancerfromearlytolatestageandcombiningdurvalumabwithtremelimumab,combiningdurvalumabwithchemotherapyandcombiningdurvalumabwithsmallmoleculesintheEGFRmutantsegment.WearethefirstcompanytostarttrialintheadjuvantsettingandintheunresectablePhaseIII.AndweareextremelyproudtoannouncethatourMYSTICtrialandtheCAURALtrialhavealreadyrandomizedthefirstpatients,whicharereadytobedosed.Soextremelyambitiousprogramthatwillrecruitmorethan5,600patients.

Slide32isanicesummaryofourleadershipstrategyinlungcancer.Westartwithourfoundation,theEGFRmutantdisease,developingsecondlineapproachbutatthesecondtimemovingAZD9291inearliersettingofthedisease,expandingtoanewsegmentwiththeimmuno-oncology,andinparticular,thecombinationofdurvaandtremelimumabintheadvanceddisease,thirdlineandfirstline.ButwealsoexplorenewsegmentsliketheKRASmutantwiththecombinationofselumetinibandchemotherapyaswellasotherpotentialsegmentsinthelungcancerscape,andinparticular,thesmallcelllungcancerwhereweknowimmunotherapyplayamajorroleandweareworkingondevelopingdurvaandtremeinthatsettingaswell.

Lastslideisabriefsummaryofwhat'scomingnext.WorldCancerisinacoupleofweeks,andwearedelightedwith100%acceptance.Twentyfiveabstractswereacceptedatthemeeting.AndwewillsharedataonIressa,9291andongoingtrialwithdurvalumab.WewillhavealsoanotherupdateendofSeptemberattheEuropeanCancerCongressthatwillcoverlungcancerandothertumortypes.Butthe




newtumortypescomingfromourstudy1108andtheupdateonstudy006combiningdurvaandtremewillcomeprobablyearly2016.

Withthat,IhandoverbacktoPascalfortheclosingremarks.


Thankyou,Mondher.SoifyouwanttoturntoSlide35.Iwouldliketofinishbytakingyouthroughtheusualscorecardthatwehavesharedwithyoueachquarter.

Sincethelastupdate,we'vetakencareoftheregulatorysubmissionsforAZD9291,cediranibandCAZAVI.Butwealsosawselumetinibnotmeetitsprimaryendpointinuvealmelanoma,whichasIsaidbefore,isasmallindication.Thecoreofthisprogramisinlungcancer.Asforbrodalumab,wehaveconductedaninitialevaluationofthedata,whichconfirmsthatbrodademonstratedstrongefficacyinpsoriasisandindicatesthattheobservationsofsuicidalideationandbehaviorareunlikelytobecausallyrelatedtobrodalumabtherapy.WhilecontinuingthetransferoftheprogramfromAmgen,we'reproceedingwithafullanalysisandevaluatingpotentialpartneringoptionsinparallel.Wewillcommunicateourdefinitivedecisioninduecourse.Aswemoveforward,we'llkeepyouupdatedontheprogresswearemaking.

TurningtoSlide36.Betweennowandtheendoftheyear,weexpectanumberofcatalystsincludingregulatorydecisions,submissionsandmajordatapresentationsandreadouts.Asitrelatestoregulatorydecisions,weexpecttohearinDecemberonlesinuradintheU.S.,inSeptemberforBrilinta'snewlabelintheU.S.andinOctoberfromtheFDAonsaxa/dapa.ThetimingofnewsonAZD9291isunknown,butweanticipatebringingthesemedicinetopatientsassoonaspossible.WiththerecentlaunchofIressaintheU.S.,wearereadytogo.Wealsoexpecttomakeadecisiononbrodalumab'spotentialregulatorysubmissionoutsideJapanaswellasreceiveregulatorysubmissionacceptanceforPT003inCOPD.We'llalsosubmitAZD9291inJapaninrecordtime.

AsMondhermentioned,thereisplentyofdatabeingpresentedonAZD9291intheautumn.Andfinally,ourMedImmunecolleaguesarelookingforwardtopresentinganifrolumabdataonlupusatACRinNovember.Weexpectdatafromtremelimumabinmesotheliomaanddurvalumab,thePD-L1antibodyinthirdlinePD-L1positivelungcancer.

MovingtoSlide37.Summarizingthefirsthalfof2015.Totalrevenuegrew,andwenowhavehad6consecutivequartersofgrowth.Wenowhaveanimprovedoutlookforthisyear'stopline.CoreEPSwasstableaswereducedcoreSG&ArelativetototalrevenueandincreasedcoreR&Dinvestmentsinlinewithourstrategytosupportourinnovativepipeline.Wesawverygoodnewsflowfromthepipeline,andweareontracktodeliveronourlong-termgoals.

IwanttofinishwithamessageonSlide38andreturntosomeelementswe'vediscussedwithyouinthepast.Ourfirstgoalannouncedearlylastyearwastohave27revenue--2017,sorry,revenuebroadlyinlinewith2013revenueatconstantexchangerates.Inordertoillustratethecurrentprogressonourjourney,wehaverecalculated2013totalrevenueonthechartatcurrentrate.Asyouallknow,currencychangesovertime,butthisisourcurrentstartingpoint.Nobodyknowswhattheexchangeratein2017willbe.Itcouldchangeintheotherdirectionagain,butwewantedtomakealike-for-likecomparison.

Since2013,wegrewourtoplinein2014by4%atconstantrate.Andwearenowguidingtotalrevenuetobedownlowsingle-digitin2015.Thismeansthatbytheendof2015,wewillalreadybeatthesamelevelas2013.Acoupleofyearsago,noonewouldhaveexpectedthat.Theforecastwasto--forAstraZenecatodeclinemuchmorethanthat.

Formid-nextyear,asyouallknow,wewouldexpect--weareexpectingtoseecompetition--genericcompetitiontoCrestorintheU.S.marketplace.Thisisasignificantandsizablebusinessforus,ofcourse.




Ontheotherhand,wealsoexpectacontinuedstrongperformancefromourgrowthplatforms,includingtheEmergingMarkets.Weexpecttoseeincrementalsalesfromnewproducts--Lynparzaforsure;IressaintheU.S.;MovantikintheU.S.,whichisshowingaveryniceearlystart;and9291aswegetapprovalandstartthelaunchfullout.Twoofthiswillhaveapositivefullyearproductsalesimpactin2016.Thenthepotentialnewproductsalesfromimmuno-oncologyPT003.NewusersofBrilinta,inparticularthePEGASUSdata,whichasyouknow,wehaven'tbeenabletopromotebecausewehaven'tgottheminthelabel.Butbytheendofthisyearandintonextyear,we'llabletopromotethis,andweexpectapositiveimpactonBrilintafromthat.Wehavealsosaxa/dapa,asLukejustexplained.

Inshort,ourjobandourchallengeistomitigatethelossofCrestorbylaunchingandgrowingmajornewproducts.Animportantmessageherealsoisthatwe'regoingtomovefromaveryconcentratedportfoliosupportedbytwoorthreeverylargeproductstoaportfoliothatismadeofalargernumberofproductsthatallaregrowthdrivers,andtherefore,theriskacrossourportfoliowillbemuchless.Theotherkeymessageiswewillseemoreproductsinspecialtycare,inparticularoncology,andthatovertimeshouldhelpuswithourprofitability,asyouknow.

Withthisnewrevenuesin2016,weareconfidentaboutdelivering2017revenuesbroadlyinlinewith2013.Andinfact,theconsensus,asyouseeonthisgraph,isshowingsomesimilarnumbers.Wearealreadyhalfwayto2017.Wemadegoodprogress,andwehaveanexcitinglaunchprogramaheadofus.It'sthiscombinationthatunderpinsmyconfidenceinourcompany.

QUESTIONS&ANSWERS


Withthis,Iwouldliketothankyouforyourattention,andwe'llnowbegintheQ&A.Pleasegoahead.

ThefirstcallerisactuallyJamesGordonatJPMorgan.James,goahead.

JamesGordon (Analyst-JPMorganChase):

Hello.Thanksfortakingmyquestions.Ihadafewoncologyquestionsandoneonthebasebusinessaswell.Ontheoncologybusiness,onewasIsawthebiosimilarAvastinprogram.MyquestiononthatwaswhendoyouthinkyoucouldstartcombinationstudieswithAvastinwithyourimmuno-oncologyagents?Andalso,wouldyouinitiateitwithAvastinorwouldyoudotheinitialtrialswiththebiosimilarimmediately?

AndanotherquestionwasjustclarifyingthatforPD-L1pluschemoforthecombostudies,whendoyouthinkyoucouldstartthePhaseIIIprogram?

Andthethirdoncologyquestion,whichisontheNEPTUNEstudy.Sothat'saversionofMYSTICbutwithanoverallsurvivalendpointinfirstline.Isacrossingovergoingtobeanissue?OrwillyoustoppatientsfromcrossingovertothePD-L1therapyifthey'reintheplaceboarm?

Thenonebasebusinessquestion,whichwasjustcontractingfornextyear.DoyouthinkpricingandmixisgoingtobeanybetterforDiabetesandRespiratorynextyearbasedondiscussionsyouhadsofar?Orshouldweassumesimilarpressures?


Thanks,James.Soquiteanumberofquestions.MaybeIcouldallocatethequestions.IthinkwehaveRobontheline,andRobwillcovertheNEPTUNEquestion.ThePD-L1combo,Mondher,doyouwanttocoverthatone?AndLuke,ifyouwanttoaddressthecontractingquestions.Willthatbeokaywithyou?And




maybe,Mondher,youcouldalsocommentontheAvastinprogram.

Justaveryquickcommenthere,James,isjusttoansweryourquestionthatIhavereadalittlebitabout,Imean,essentially,ourideawiththisbevacizumabprogramisreallytolookatcombination.We'renotlaunchingintoabiosimilarprogram.Wearedoingwhatwesaidwhatwewoulddobefore,whichistolookatcombinationsandtrytodevelopregimensthatwecan--thatwecanoffertopayersatamanageablecost.Andsowe'llconsiderbiosimilarslikeAvastininthecontextofthatstrategy.

Nowmaybe,Mondher,youcouldcoverthis--sayafewmorewordsonthatandcoverthePD-L1comboquestion.


Yes.SoyouaskedaquestionaboutwhetherweareusingourownbiosimilarortheAvastinproductforcombination.Theanswer,fortheongoingtrial,weareusingAvastin.Ofcourse,thebiosimilarhastogothroughtheregulatoryprocess,andwewillbestartingthecombinationwithourownbiosimilarwhenit'sapprovedbythehealthauthority.

ForthePD-L1chemotherapy,wecannotdisclosedetailsaboutthedesign,andwewillbesharingthiswhenitispostedontheclinicaltrials.gov.ButweareworkingonimplementingthePhaseIIIwiththesamepaceaswe'vedonewithMYSTICandNEPTUNE.ForNEPTUNE,IwillhandovertoRobtogiveyoumoredetailsaboutthedesignofthetrial,andinparticular,thecrossoverquestion.

RobertIannone (HeadofImmuno-oncology,GlobalMedicinesDevelopment):

Yes.SoNEPTUNEisaverylargeglobaltrial,whichwillinitiateveryshortly.AndwethinkcrossoverwillbeminimizedgiventhecurrentavailabilityofalternativePD-1therapiesacrosstheglobe.


Thanks,Rob.Contractingquestion.


SoJames,weexpectanumberofdecisionsoverthenextcoupleofmonthsinDiabetesandalsoRespiratory.ButIthinkit'sfairtoassumethatthepressurewillremainonthosetwoareas,andthat'scertainlyourplanningassumptionfor2016.


Yes,absolutely.We'llhearmoreoverthenextmonthortwo.Thenegotiationisongoingnow,butcertainly,wedon'texpectthatthingswillimprovedramatically.It'sgoingtobeaverycompetitivemarketplace,nodoubt.

AndrewBaumatCitigrouphasthenextquestion.Andrew,doyouwanttocoveryourquestion?Andrew?

AndrewBaum(Analyst-Citigroup):

Hello.Couldyou--


Yes.Goahead.





Hello.Canyouhearme?


Yes.


Hi.Sorryaboutthat.Threequestions,please.Firstly,therehasbeensignificantdiscussionaboutthecostburdenforMedicareandalternatepaymentmodels.Givenwe'regoingintoapresidentialelectionyearandAstraisbecomingincreasinglygearedtowardsoncology,anythoughtsonbothnoiseandultimateevolutionandtimelineforchangesinMedicarereimbursementwillbeinteresting.

Second,Luke,perhapsifyoucouldcommentontheoutlookinChinaintermsofpricing.Severalofyourcompetitorshaveoutlinedincreasingpressureonpricinginthatmarket.

Andthenfinally,givenyourlegacypresencewithCrestorandmorerecentlywithEpanova,perhapsyoucantalkaboutyourinterestinCETPinadditionasaninterestingmodalitytocontinuetoextendyourcardiometabolicfranchise.


SoLuke,doyouwanttocoverthelasttwo?AndMondher,willyoucoverthefirstonelateror--yes.


Sure.SoonCETP,wewouldn'tspeculate.IfwelookatChina,Ithinkit'sfairtosaythatthereisastructuralslowinginthemarket,whichIdon'tthinkisasurprisetoanyonewho'sfollowingtheoveralleconomyinChina.

Thatbeingsaid,whereourfocusis--Imean,clearlywehaveastrongpositioninthelargeEasternprovinces,butaswegotolower-tiercitiesintheWest,wehaveaconcentratedexpansionprogramthere.Also,ourmixofproductsrightnow,thereisalotofvolumereflex.Ofcourse,ifyoudoseepricingpressurewithproductssuchasCrestorandNexium,youdotendtoseeanoffsetintermsofvolume.

Soagain,webelievewecangrowaheadofthemarket,buttherewillbesomemorepricingpressure.Butagain,thatshouldbeoffsetbyuptakeinvolume.

Ifwelookintothefuture,again,ifwelookatproductssuchasPearlandalsotheoncologyportfolio,againwe'rewellplacedifwelookatthe5-to10-yearhorizon.


AndalthoughthisevolutioninChinaissomethingthatwehavebeenexpectingalongtime,we'vesaidmanytimestherewillbe,asLukesaid,pricepressure.AndsoweareexpandingintheWest,andwehaveaverysubstantialexpansionprograminChinatounlockgrowthpotentialinthoseareasthatareeconomicallydeveloping,soweexpecttomaintainthis.

ThesameforMedicare,we'veexpectedcostprices--costpressures,sorry,inoncologytogrow.Everybodyistalkingaboutdiabetesandrespiratorypricepressures,butthosecostconsiderationswillexpandtotheentiremarketplaceincludingoncology.Sowehavebeenexpectingthis.Andthat'sessentiallywhywe'veembarkedonthiscombinationstrategy,wherewethinkwehaveourplansinplacetomanagethetotalcostofcombinations.

Mondher,ifyouwanttoaddanything.





Yes.Thankyou,Pascal.Asyouknow,Andrew,thecombinationstrategyissomethingwedon'tknowactuallywherearewegoingtogobecausetherearesomanypotentialcombinationforsomanysegments.Butthenameofthegameisthatthemoreassetsyouhaveinyourportfolio,andmoreflexiblyyouhaveinnegotiatingtheprices.Soclearly,theabilitytohave,inourportfolio,27differentenemies,bothsmallmoleculeandinimmunooncology,helpusinthisendeavor.

Thesecondelementis,clearly,thebiosimilarstrategy,andwheneverit'spossibletoinclude,genericsintheportfoliothatcanhelpmanagethepressureontheinnovativedrugissomethingwewilldo.

Andlastbutnotleast,Ithinkwehaveclearly,withthedurationoftherapy,onewaytolimitthecostand--tomakealongstoryshort,wearelookingatinnovatepricingmodelwherewecanlookatthediseasefrom--lookattreatmentfromadiseaseperspectiveratherthanfromaproductorfromacycleperspective.Icannotprovidemoredetailhere,butthinkoflungcancerasanentirebasketofdrugsthatcouldbeused.Andthisisprobablyalsosomethingthatwewillleveragegiventhemultipleassetswehaveintheportfolioforeachindication.


SomaybewecanmovetoSachin.Sachin,doyou--SachinJainatBankofAmerica,doyouhaveaquestion,Sachin?

SachinJain (Analyst-BofAMerrillLynch):

Hi.Thanksforthequestions.Acoupleoffinancialandacoupleofproduct.FirstlyonSG&A,acoupleofslidestalkingaboutitdecliningasapercentageofrevenues.That'sobviously,influencedbyexternalization.Ithink,it'sroughlyflatyear-on-yearinpercentageofsalesanda1%declineinCER.Sogiventhat,whichdoesn'tseemaparticularlyaggressivedecline,canyoujustsortofgivesomecoloronwhatCERdeclinesyou'relookingatfortherestofthisyearandthenmoreimportantlyinto'16asyouthinkaboutoffsettingtheCrestorpatentexpiryandthevariousone-offincomesthatyou'vehadthisyearthatprobablywon'trepeatnextyear?

Secondly,aquestiononSlide38,whichyoutalkedabout,Pascal,oryoulistedthevariousproductlaunches.Ithinkwhenyoufirstgavethefullyear'17guidancethecommentswaslimited,pipelinecontributionwithinthat.Giventhevariouspipelinelaunchesyou'renowlisting,Iwonderedwhetherthepipelinecontributiontomaintain'17flathasincreasedgivenvariouspressuresyou'reseeinginthebasebusiness.

AcoupleofproductquestionsontheOnglyzaFarxigafixed-dosecombination,justwonderingwhatyourperspectiveonthepotentialheartfailuresafetylabelisasyouheadintothePDUFA.Andifyoudohavethatsafetylabel,howdoyouthinkyoupositionrelativetoJanuviamonotherapy,whichmightnothavethatorthecompetitorfixed-dosecombination,whichalsomightnothavethat?

AndthenafinalquestionjustontheI-Olungpositioningpost-ASCO,andnowyou'vehadmoreopportunitytotakefeedbackfromKOLs,IjustwonderyoucouldgiveusanupdatedperspectiveofyourI-O,I-Oinlungrelativetochemocombinationfirstly.Andthensecondly,relativetoBristolwheresomefeedbackremainsatBristol'sfirstmoveradvantageinsecondlinewillgivethemasubstantialhaloeffectinthefirstlinesetting?


Okay.Thanks,Sachin.Mondher,maybeyoucancoverthelastone.I'llaskElisabeth,whoisontelephoneline,tocoverthesafetylabelforOnglyza.Andmaybe,Luke,ifyouhaveanythingyouwanttoaddtothis.




Thepipelinequestionactually,Sachin,westandbywhatwesaidbefore.Imeanthe--Iwouldsaythepipelinecontributionwillnotbemassiveby2017.Asyoucanexpect,weareinlaunchmode.Iwouldsayit'sprobablygoingtobealittlebitbetterthanwhatwehadexpectedofcourse,becausewehavemademoreprogresswithourpipelinethanweexpectedbackin2013orearly2014whenwemadethatforecast.

9291isprogressingverynicely,actuallyfasterthanwethought.MoventigisnowonthemarketintheU.S.anddoingwellsofar.Lynparzaisonthemarket,eventhoughinasmallindication,isdoingwell,anditwillbeexpandinginotherindications.Sothegreatercontribution,butstillfromarelativelysmallbase.

SoIthink,broadlyspeaking,wecansaywearemoreorlessontrackwithin.Overalongerperiodoftime,Ithinkitwouldbefairtosaythatthere'sprobablyabitofdownwardpressureonourforecastindiabetes,asyouallwouldexpectfromthepricepressureinthemarketplace.Andthereisupwardpressure,positivepressureonouroncologyportfolio,productsarelookingprettygood.

Sowe'restillconfidentthatweareontrack.Probably,itwasslightlydifferentmixofproductsoverall,whichactuallyisapositivebecausetheproductsthatareoutaremoreprofitable.Andoverall--butoverall,Iwouldsaymoreorlessontrack.

AsfarasSG&A,I'llaskMarctogiveyoumorecolor.Butjusttocorrectmaybecommentsyoumade,actually,Sachin,yousaidmarginaldeclineversuslastyear,Q2lastyear.IfyougobacktoMark'sslide,theSG&Awas38%ofsales.AndQ2thisyearis35%.Sowehaveadeclinethere.Andweexpecttocontinuemanagingthesecosts.Mark,doyouwanttocommentthere?


Yes,Ithinkthe--

SachinJain (Analyst-BofAMerrillLynch):

That'sasapercentageofrevenues,whichincludesexternalization,Ithink.ButImaybewrong,excludingexternalizationisflatand1%CERdecline.


Isee,yes.


Sojusttocoverthis.SoIthinkweneedtoseethisasatimeseries.Ifyoulookatquarter4oflastyear,quarter1ofthisyear,wheretheSG&A,we'restillincreasingatplus10%.IthinkyouwillseethatthereductionoftheSG&Aonthesecondquarterwasquiteimpressive.Andwearenowayontheendofourefforts.Weneedtoredoubleoureffortstobeinlinewithwhatwehaveprovidedearlyintheyear,whichiswewillhaveanSG&A,whichisunderthelevelof2014andalsotheratiowillbeundertheratioof2014.Soweneedto--andwearedeterminedtocontinueoureffortsinthatdirection.


Elisabeth,doyouwanttocoverthis,theOnglyzalabelquestion?

ElisabethBjork(VP,LateClinicalDevelopment):

Yes.AndI'mveryhappytodothat.WearestillindiscussionswiththeFDAaroundwhatthesafetylabelassayswillbeforOnglyzabasedonthe(inaudible).ButIcan'tcommentexactlyonwhatthatoutcomeisgoingtobe.




WhatIcansayisforthecombinationofsaxa/dapa,weareignoringthepotentialtodomoremechanisticworktoseereallytheimpactofthetwopartsthere,remindingeverybodyofthefactthatalsodapahaveasmalldiureticeffectthatverywellcouldcounterbalancewhateverisseenwithsaxa.Sowehavealotofconfidenceinthecombinationintreatingpatientsbroadlyandacrosstheboard.


Yes.AndIwouldalsoadd.Ifwe--it'spotentiallyyoucanoverreadtheresultswithOnglyzabecausewe'dmadethedecisionlastyeartoreduceresources.Andthenearlierthisyear,wefurtherreducedresourcesaroundOnglyzatoconcentrateonFarxiga.SoImeanwhatsaxa/dapaoffersis--Imean,isprofoundefficacyaroundA1C,averystrongweightreduction.Andagain,there'sanotherfactor,wehavetheadvantageofbeingonecompanypromotingacombinationofourowntwoproductswhich,asyoucannodoubtimagine,givesusafairamountofflexibilityintermsofhowwemarketthatandstructurethatandpricethatcompound.Soweremainconfident.


Thanks,Luke.AndImeanthekeymessageasyoucanhearit,Sachin,isthatOnglyzaisasecondarypriorityforus.Infact,ourtwoprioritiesareFarxigaandBydureonasyousaid.Andthekeyquestionforusasfarasthelabelisthecombinationandwhatlabelthecombinationisabletoget.AndtheadditionalmechanisticworkElisabethwasreferringtoisveryimportantinthatcontextofthecombinationofthetwoagents.

Thefinalquestiononlung,Mondher.


Yes.Actually,Sachin,youhadtwoquestions.OneisabouttheIO-IOcombinationandfeedbackfromKOLsandinvestigators.It'sconsistentwithwhatwehadseenatASCO,verypositive,pleasedwiththesafetyprofile,theverylowdiscontinuationrateand,ofcourse,thehighresponserateobservedinthePD-L1negative.

IthinkthefactthatwehavebeenabletorandomizealreadythefirstpatientinMYSTICisclearlyasignofthisexcitement.Wehaveallthebignamesandthebigsitesparticipateinthistrial.Andeveryoneislookingforwardtodevelopthefirstchemo-freeregimeninfirst-lineinnon-smallcelllungcancer.

Withregardtoyoursecondquestionabouttheavailabilityofnivonowandthehaloeffect,Icannotcomment.WhatIcansayisthatthesecondlinetrialwasagainstdocetaxel.Docetaxelisapproved,buthasaverybadsafetyprofile.Andtheresponserateaswellasthedurationisnotasgoodaswhatwehaveinfirstline.Infirstline,standardofcarehas15,16-monthmediansurvivalresponserateintherangeof40%.Soit'sreallyhardtothinkthatthemonotherapycanbeatsuchcombinationofchemotherapy.Butagain,Ithinkonlydatacananswerthisquestion.


Thanks,Mondher.Sowe'lltakemaybeonee-mailquestionandreturntotheonlinequestionsinaminute.Sothee-mailquestionisforyou,Marc,it'sfromKristoferLiljebergatCarnegie,giventhelowtaxrateof14%inthefirsthalf,whatisthetaxrateassumptionin'15forthecoreEPSguidance?


InmypreparedremarkIhadcommentedonthis.Weanticipatethefullyeartaxratetobeinthelowerhalfofthe16%to20%rangethatwehaddescribedearlierintheyear.Sothat'sthebestindicationwecanprovide.





Thanks,Marc.Returningtotheonlinequestions.JoWaltonatCreditSuisse.

MatthewWeston (Analyst-CreditSuisse):

It'sactuallyMatthewWestonforJoe.Anumberofquestions,please.Thefirst,Pascal,onbrodalumab,youhavemadeyourpositionclear.Ithinkinthepastyou'vealsosuggesteditmaybeaproductthatneedsapartner.Haveyouhadanyexpressionsofinterestsinceyou'vehadtherighttoreturnbackfromAmgen.

Secondly,onIressaintheU.S.andthelaunch.Canyoutellushowyou'retryingtopositionthatwithmanagedcare?Areyouusingittotryandmakewayforasmoothridefor9291andthinkingofastrategywhereyouofferbothproductstofirstandsecondline?Orareyoutreatingitasacompletelyseparatelaunch?

Secondly,--orsorry,thirdly,youmadecommentsaroundsaxa/dapa.Howdoyouexpectthattobepositionedinthemarket?It'salwayssurprisedusthatGlyxambiisalreadythereandseemstobebeingforcedtoofferexactlythesamediscountsandfreeaccessasthesingleagentnewmoleculesdespitethefactthatithasnodirectcompetition.Sodoyouthinkyou'llbeabletopositionthatproductwithlesscompetitiveordoyouthinkitwillbemoreso?

Andthenfinally,anumbersone.Workingcapitalinfirsthalflastyear,therewereinflowsof$700millioninfirsthalf.Thisyearthereseemtobeoutflowsof$760million.Marc,canyoutelluswhat'shappeninginworkingcapital?


Okay.SoMarcwillhavethisquestion.Thebroader--thanks,Matt,manygoodquestionshere.Thebroaderquestion,we'veactuallyhadseveralexpressionofinterest.Infact,we'vealso--we'vealreadyreceivedoffers,andweareconsideringthoseandengagingindiscussionswithpotentialpartners.Butitwasreallyencouragingtoseethatwedidn'tgetone,wegotseveralexpressionsofinterestfromavarietyofpartners.

Butthekeyisreally,firstofall,togothroughthedatainmoredetails,andthat'swhatwearestilldoing,andsuddenlydecidehowweprogressthistogetherwiththepartnerthatwewouldselect.

TheIressaquestion,letmejustgiveitatryand,Mondher,ifyouhaveanythingyouwanttoadd.Forusactually,the--firstofall,the--bringingIressatopatientsisreallyexcitingbecausethisproductweinvented,webroughttopatientsaroundtheworldeverywhere,sowewantedtobringittoU.S.patientsaswell,secondly,itisanicelaunchforouroncologysalesforce,thelungoncologysalesforce,andtheycanreestablishcontactswithkeycustomers,introduceaproductthatmanyoncologistsintheU.S.know,ofcourse,fromtheirglobalexperienceandhistoricalexperience.Soit'skindofanicetrainingground,ifyouwant,foroursalesforce.

ButIalsohavetorevertbacktoMondher'sslide,whichshowedyouclearlythatintheinitialphase,9291willbelabeledforsecondline.SothereisaneedforfirstlineuseforIressaforaperiodoftimeoverthenextfewyears.As9291getsdevelopedandapprovedforfirstlineuse,we'llbeabletoshiftourfocusto9291.Butinthemeantime,clearlyIressagoesintofirstlineand9291inresistantformofEGFRmutatedcancer.

Andfinally,itisalsotruethatfromaprice--fromanaccessviewpoint,certainlyhavingtwoproductstotreatlungcancerhelpsusalittlebit.Butit'sessentially,really,aportfolioplay,ifyouwant,addressingthevariousneedsoflungcancerpatients.Andthesaxa--Mondher,anythingyouwantedtoaddnow?Okay.Sothesaxa/dapaquestion,Luke,dowanttocoverthatone?





SoImean,Ithinkit'salwaysgoodtobefirsttomarket,buttherearesomeadvantagesinbeingsecond.AndIthinkthisisoneoftheexampleswhere,Imean,we'reactivelylookingatthepositioningofthisproduct,thecontractingstrategy.Andagain,IthinkwebelievethatwehaveacompetitiveofferingforthereasonsIoutlinedbeforeandalsothesimplicityofonecompany.Andwehaveagoodunderstandingofwhatdrivesbehaviorsaroundcombinations.

Sothat'sprobablyallI'llsaytoday,butwe'llcertainlycommunicatemoreonthisaswegetclosertothelaunch.


Mark,doyouwanttocomment?


Yes.Soregardingthemovementintheworkingcapital,thelargestvolumescomesfromtheunfoldingofrebatesofNexium,therebatesthatareduetomanagedcareorganization.Thishasbeenthelargestmovement.Therearetwoothermovementstoconsider.WehaveintegratedtheinventoriesofActavisAlmirallinthefirsthalfoftheyear.Andtherewasalsoathirdfactor,whichistheoutflowofexpensesthatweincurredinthelatterpartof2014which,obviously,we'reatarelativelyhighlevel.Sothesearethethreemainfactors.

Letmemention,though,thatwearestillmakingprogressonourreceivables.Andwehave--wearecontinuingourefforts,inparticular,tocollectoverdues,andwehaveimprovedourreceivablebyafewdays.Thetradevariables,ifIincludethespecificcaseofNexiumintheUnitedStates,havealsoimproved.Sowearecontinuingoureffortsonworking--towardsaworkingcapital.


ThenextquestionisfromTimAndersonatBernstein.

T imothyAnderson (Analyst-SanfordC.Bernstein):

Afewquestions,please.Iguesswhenwelookatspendingratios,itdoesseemtousmoreappropriatetolookatthe%ofproduct--asa%ofproductrevenuesbecauseexternalization,obviously,it'snotsomethingthat'sgoingtocontinueinperpetuity.WhenIlookatR&Dspendingonthatbasis,ithit23%inthequarter.It'sbeensteadilymarchingup,ofcourse,you'remakingpipelineprogress.Myquestioniswherecanweexpectthatratiotosettleoutasyoureallylookbeyond2015,butinto2016and2017?Is23%agoodrunrateorcouldactuallygohigher?

Secondquestionisonexternalizationitself.It'sobviously,beenasourceofcontroversyforsomeinvestors.Andmyquestioniswhetherthere'sanychancethatthecompanywouldreconsidertheearningstargetsthatkindofdrivethatneedtodoexternalization.Isthatsomethingtheboardmightreconsider?Orshouldweexpectthat'sgoingtocontinue?

Andthenlastquestionisondurvalumab.Inthepast,you'vetalkedaboutyourearlyfilingstrategy,howthat'spartlycontingentonwhathappenswiththecompetition.We'vegotMerck'sapplicationendingbeforeFDA.Wecouldgetadecisionfairlysoon.AndifthatgetslabeledjustinPD-L1positivepatients,thatcouldpotentiallycloseyourwindow.AndI'mwonderingifyou--I'massumingthatyouhaveaviewonwhatMerckmaygetbecauseofthatdirectimpactitwouldhaveonyourproduct,andI'mhopingyoucansharethatview.





SothankyouverymuchTim.Sothreequestionshere.Maybe,Robert,whowillgiveyouacoupleofminutestoanswerthis.I'llturntoyouinafewminutestocoverthedurvalumabquestion.

Imean,justtoaddresstheexternalizationone.IthinkwhatIwouldliketosayhere,Tim,isthat,tobehonest,ifwedidn'thavethesegoals,wewouldprobably--forsure,infact,surelydothesameaswearedoingtodaybecausewhatwearedoingreallyispartneringwherewedon'thavethecapabilitiestodevelopandmarketproducts.Imean,thebestEBITDApartnerwhichreallyisagreatexampleofthis,thepartneringofMoventigwithDaiichibecausewedon'thavethepresenceinthepatient--theprescribersgroup,sorry,thatwewantedtotargetintheU.S.Thosearegoodexamplesofpartnering,wherewedon'thavethecapability,andwewillkeepdoingthisespeciallyinareasthatarenot(inaudible)areas.

We'dalsodoitinour(inaudible)areaswhereweneedthesecapabilities.Imean,theCelgenedealtobehonestformeissortofmind-bogglingthatpeoplearekindofwonderingaboutitbecauseit'sano-brainer.Imean,we'repartneringwiththebesthematologycompanyintheindustry.Nobodyhasanyvalueforhematologyintheirspreadsheetsfordurvalumab.Wearepotentiallygoingtocreateenormousvalueinhematology.Ofcourse,we'llhaveonly50%ofthatvalue,butitwillbe50%ofalargevaluebecausenowwehavetheabilitytobealeaderinthefieldofhematology,whereasbeforewewouldhavebeensortoftrailingthepackandbuildingcapabilitiesthatwedon'thave.Wehavestrongcapabilitiesinsolidtumors.Wealsohaveafewhematologistsinourcompanywithnohematology,butwedon'thavecompany'scapabilities,ifyouwill.

SoIwouldstilldothatbecausestrategicallyitmakessense.Italsostrategicallymakessenseforustokeephoningourportfolio.Webuyassetsbecausewebelievewearebetterownersofthoseassetsthanthecompanythatissellingthoseassets.Inthesameway,wearesellingassetsthatwedon'tbelievewearethebestownerfor,andifwecanextractimmediatevalueforthoseassetsthatwouldbedeclininginourhandsbecausewearefocusedelsewhere,whynotdoit.Andthen(Entocort)isagoodexampleofthis.Itenablesustoreallyfocusoureffortsinwhereweneedtobefocused.

Andfinally,whatwedothroughallofthisisgeneratingcashflowthatenablesustoreinvestinourbusinessanddeliversourdividendcomfortably.SoIreallydon'tbelieve,Iwouldmanagethebusinessverydifferentlybecause,attheendoftheday,thecompanyhastobeprofitable.It'sprettysimple.Imean,wehavetodeliverourcashflow.Wehavetopayourdividends.Andsothegoalwouldnotchangedramaticallywhatwedoquitefrankly.

Butasfarastheboardchangingit,IwouldleaveyoutoaskthatquestiontoourChairmanatsomepoint.Butquitefrankly,again,itwouldnotchangeourapproach.

ThequestionaboutR&D,andmaybe,Marc,youwanttocoveralittlebitmore.ButjustbrieflyIwouldsay,IthinkwhereyouseeusspendinR&Dfromasapercentageofsales,productserviceorrevenue,lookatitthewayyouwantit,you'reprobablyinthesortofrightballparkofwherewewouldbe.Certainly,wedonotexpectR&Dtokeepgrowingatthesameclipasweseethisyear,that'sveryclear.

Marc,canyou--


Yes.Ithinkthisisexactlythis.Wearegoingto--wecontinuedmanagingourcost,andwehavedonesomegreateffortsonSG&Ain2015.AndthishasenabledustofueltheinvestmentontheR&D.Aswemovetotowards'16,wealsohavetomanageourcostontheR&Dline,andthegrowthwillobviouslyslowdown.Weare--it'sabittooearlytoprovideanymoreprecisecoloronthis.Andwewilldo




itaswecometowardtheendoftheyearorguidancenextyear.ButyoucanexpectaslowdownintherateofincreaseoftheR&Dinthefuture.


Thanks,Marc.Rob,areyoureadyforthedurvalumabquestion?


Yes,Iam.SoIwouldjustremindyouthatonlyfullapprovalsbasedonrandomizedcontroltrialswouldexcludeadditionalapprovalsinthesameindicationforanacceleratedapproval.ButIwouldalsoreinforcethat,toMondher'searlierpresentation,wehavemanyopportunitiestobehighlycompetitive,especiallywithourcombinationtherapyacrossindications,especiallytheveryimportantlungcancerindications.


Thanks,Rob.Mondher,anythingyouwanttoaddtothat?No?Okay,sowe'llmovetoAlexandraHauber.Wewillstartwiththequestion,AlexandraHauber,overtoyou.

AlexandraHauber (Analyst-UBSInvestmentBank):

Toquestionsleft,twoon9291,yousaidyougottosubmitinJapanthisquarter.Unfortunately,don'tknowtheJapaneseregulatorysituationverywell.Isthereanywayforacceleratedapprovalthere?Orwhenistheearliesttimeyoucanactually,notfile,butgetapprovalforit?

Alsoon9291,yousaidthefilingisforsecondlineinpatientswiththeT79mutations.VariouscommentariesfromKOLwhetherwereallyneedthatmutationasan--intheindication,doyouexpectthattobe--that,thatisactuallyrequiredorbeusedinpractice?Oristhisgoingtobeanyonewhoprogressesfromsortoffirst-generationEGFRinhibitors?

MovingontoLynparza,obviously,greatprogresshere.Butwhenisthefirst--theearliesttimeyoucangetalabelexpansioninovariancancer?Itappearsthatallthesolostudiesarestillrecruiting.Soarethosereadoutsbeingpushedout?

Andthenfinalquestionon,IstillcallitMEDItreme,thenewstudies,whichwerethosedescribedinthepressreleasetoday,butalsoatASCOinthenewindications,aretheygoingtostillstopthisyearorthisquarteroristhiscomingatsomepointinthefuture?


Thanks,Alexandra.Alotofgreatquestions.Bytheway,theMEDIiscalleddurvalumabanddurvallikedurable,durableandvaluable.SothefirstquestionisaboutJapan.We'llaskourJapaneseexpertresidentmarkettoaddressthatquestion.


Thankyou.Soit'snotexactlyanacceleratedapproval.TheJapanesecallitapriorityreview.Butattheendoftheday,it'sareductionofthetimeofthereview,anditcancomedowntoaboutninemonths.TheJapanesehaveregularlyreducedtheirreviewtimesand,withapriorityreview,onecanestimatethattheproductwouldbeapprovedninemonthslater.


Thanks,Marc.AndMondher,theotherthreequestions,Iguess,areforyou.





Yes.


SecondlineLynparza--secondline9291,thenLynparzalaborexpansion.


Yes.Sothankyou,Alexandra.Let'sstartwiththe9291.Firstofall,wehavetodayabodyofevidenceshowingthattheresponserateandthediseasecontrolactuallyintheT790Mmutationpositiveisextremelyhigh.Sofrom,Iwouldsay,aclinicalviewpoint,ifyouhadapatientwhoprogressedonafirst-generationTKI,Ithinkit'sextremelyimportanttobetterunderstandwherewe--whetherwehavethismutationornotbecausethebodyofevidenceinthisso-calledT790Mnegativeisstillverylimitedandverycontroversialtosaytheleast.

Wehavequestionaboutthetestingitself,aquestionaboutwhetherthefreeintervalbetweentheendofthefirstadministrationofthefirst-generationTKIandthesecondtreatmentcouldbemaybebiased.Andagain,IthinkwehaveanopportunitywiththelaunchofAZD9291toreshapethismarketandtoestablishthemutationofT790MasoneofthepredictivefactorfortheuseofthisextremelypowerfulselectiveEGFRinhibitors.

IthinkwhenitcomestoLynparza,asyouknow,Lynparzahasaverywidelifecycleplan.Wehave10labelextensioninfivedifferenttumortypes.Ofcourse,anumberofthemareinovariancancer,bothintheplatinumsensitivesecondlinerelapseaswellasintheplatinum--aswellasinthefirstline.TheSOLO2is,asyouknow,event-driventoday,thefilingisexpectedforthefirsthalfof2016.Weexpecttohavethedatabaselockedbytheendofthequarterthisyear.ButthereareanumberofotherreadoutsthatIexpectednextyear,inparticular,inbreastcancerandingastriccancerandinpancreaticcancer.SowewillhaveanumberofreadoutsfortheSOLO--fortheLynparzathatcanhelpexpandtheindication.

Forthedurvaltrial,I'mnotsureIcompletelyunderstoodthequestion.Wereyouaskingabouttheothertumortypewherewecoulddevelopthecombinationofdurvalandtreme?And--

AlexandraHauber (Analyst-UBSInvestmentBank):

Exactly,yes,thecombination.AndjustIthinkyousaiddatabaselockonSOLO2beforeyearend.Accordingtoclinicaltrialsthat'sstillrecruiting,soIshouldn'tworryaboutthat.It'sreallygoingtofinish--completethisyear.


Yes.Sowehaveavery,veryconcreteexample.Theheadandnecktrial,forinstance,thereweretwotrials,theHAWKandtheCONDOR.OneisthePD-L1positiveandtheotheroneisinthePD-L1negative.TheHAWKtrialclearlybenefitfromthefactthatnowweareopeningtheCONDORtrialbecausepatientin--atonepointintimewhentheyareontheriseinthesitetheyhavemorethanoneoption,whereIthinknowtheydidn'thavetheoptionbuttobePD-L1positive.

Soweareacceleratingtheactivationofthesitesintheheadandnecktrialinordertohave--thoserecruitmentfinishedontime.SothereisnochangeinthetimelinewhenitcomestotheaccrualforthePD-L1tremecomboinheadandneck,butalsointheothertumortypethatwealreadyannounced,whicharepancreaticcancer,gastriccancerandbladdercancer,inadditiontothelungcancerprogram.





Thanks,Mondher.SoshouldwemoveontoKerryHolford,KerryatExane.

KerryHolf ord (Analyst-ExaneBNPParibas):

Thankyou.Threequestionsplease.Firstlyonrespiratory,giventhedifficultiesthatarebeingfacedbyoneofyourpeersinmovingfromLAMAmonotherapytoLABA/LAMAcombination,I'dbeinterestedinyourexperience,yourownexperiencewithDuaklirandalsojustyourgeneralthoughtsonthetreatmentparadigmsinCOPD?

Secondly,on9291.Canyoujustremindme,howyoubelievethatproductisdifferentiatedversusthecompetitorfromClovis,whichIthinkisrunningalonginaverysimilarregulatorytimeline?

Andthenthirdly,justtoclarifyinyourguidance,beingraisedfortheyearintermsoftotalrevenues.Doesthatpurelyreflecttheadditionalexternalizationrevenues?Oristherealsoanuplifttotheunderlyingbasebusiness?Thankyou.


Thankyousomuch,Kerry.Sothreequestionshere.One9291forMondher.TherevenueguidanceMarc,maybeyouwanttocoverthisoneandLABA/LAMA.InanutshellreallytheexperiencewehavewasdirectlyonEuropesofarbecausewehaveonlylauncheditinEuropeinsomemarkets,bothintheU.K.andGermany,sofarisaverygoodexperience.Nowit'sveryclearthatitisamarketthatweneeddedicationtogrowanddevelop,there'snodoubtaboutit.Butsofarclearweareverysatisfiedwiththeprogresswe'remaking.

Luke,anythingyouwanttoaddthere?


Yes.Ithinkit'sapromisingstart.Wehavegot$24millioninrevenue.Around3.5%marketshare.Andifyouaddinourpartnerofcourse,it'saround8%.We'vehadsomegoodresultsinGermany.Daysoftreatment,ifyoulookatUltibro74%and(Inaudible)is9%andthecombinedaclidiniummoleculesis17%.

SoIthink,it'sprobablytakenlongerthanpeopleexpected.We'vediscussedthisonpastcallsintermsofLAMA/LABA.Butweremainveryconfidentaboutthecombination,andinEurope,wehaveaveryclearstrategy.Imean,withthesymptomaticpatientsisreallywherewe'repositioningDuraclearandforSymbicort,it'sinpatientswhoexperienceexacerbationsandthenultimatelyinthelongtermifyoulookatthiscohortwiththeexacerbations,thereistheopportunityforthefreecombinationfreetriple,freetriplewithEklira,whichagaincanfurtherimprovethatpatient'squalityoflife,bothintermsofsymptomsandexacerbation.

Sotheshortansweris,it'sanencouragingstart,andwe'reveryfocusedonit.IfyougorightbacktotherationalethatwehadfortheAlmiralldealatthetime,whichisayearago,fortheEuropeancomponentofthetransaction,weclearlysaidthataswehaveaveryeffectivecommercialmachineinEuropewithrespiratory.Andwhatwe'relookingforisnewproductsthatwecoulddrivegrowthwithinEurope.AndIthinksofarthesignsareencouragingwiththoseproducts.


AndMondher,anythingtoadd?





Sotherehavebeennostudiestocompare9291tootherTKIssoit'sthereforeinappropriatetospeculateonhowtheybutletmesaythatthisis--AZD9291isahighlyselectiveoncedailyoralEGFRinhibitors,thatitwasspecifically,designedtoinhibitT790Mmutationwhileavoidingtheofftargettoxicity,includingthosederivedfromtheinhibitionof[EGFR1R]suchashyperglycemia.We'realsoveryexcitedwiththepreliminaryactivityshownbyAZD9291onCNSdiseases.Andfinally,ourcombinationstrategywithothersmallmoleculefromourpipelineandwiththedurval,asIsaid,isanotherwaytodifferentiateandtopositionAZD9291asthebestinclass.


Thanks,Mondher.Withtherevenue,Imean,yousawthatattheendofJuneforthefirsthalf,essentially,ourtotalrevenueisdoingwell.Butourproductsalesaredoingwell.Sotherevenueguidanceis,ofcourse,influencedbythefactthattheproductsalesaredoingwell.Imean,theexternalizationrevenueismoreorlessinlinewithwhatwewouldhaveexpected.Sothat's--Marc,Idon'tknowifyouwanttoaddanythingtothat.


Absolutelythecase.Ithinkthe--toansweryourquestion,isitduetoexternalizationorsales?Itgoestosalesperformance.AndthethreemainproductsorfranchisesthatarecausingthisisNexium,thegenericisdoinglessimpact,it'stakinglessimpactonoursales.Thegoodprogressionofrespiratory,butalsothegoodprogressionofFarxigainparticularintheUnitedStates,butalsoinothermarkets.Sotheyare--it'sbasicallyasales,anorganicsalesstoryratherthananexternalizationstory.


Solet'smovetoJeffHolfordofJefferies.

Jef f reyHolf ord (Analyst-Jefferies):

Iwonderifyoucouldjustgiveusyourupdatedthoughtsonbusinessdevelopment.AreyoustillhopefulatallofabridgingdealforAstraZeneca?Oristimemarchingontheprogressinyourpipelineorperhapsareyouseeinglittlevalueoutthereatcurrentmarketpricesinhibitinganypotentialofthathappeningpriorto2017?

Andthensecondly,toreallyappreciate,ifthere'sanyearlycolorontheCelgenecollaborationandwhenwe'llgettohearmoreupdatesonthetrialscomingupforthatpartnership?


SoMondher,let'sgetto--commentontheCelgenecollaboration.WhatI'mhearingfromourteamsandfromCelgenethemselvesisthatit'sgoingextremelywell.Andtheteamsareworkingvery,verywelltogether.Everybodyisenthusiastic,andwe'removingveryexpeditiously.Mondher,maybeinaminuteyoucancomment.

Onthedealactuallyquestion,Jeff,we'reconstantlylookingatoptionsofcourse,asyouwouldimagine,likeeverybodyelseisdoing.Wedorealizethatcertainlyacquisitionthatwouldbeaccretivewouldhelpasbridgeto2017faster.There'snodoubtwearewellawareofthis.Butattheendoftheday,ourcorefocusisimplementingourstrategyanddeliveringourpipeline.Andifweweretofindadeal,itwouldhavetobeadealattherightpriceandyouhighlightedyourselfthatpricesthesedaysareprettyhefty.Andyoucanbeaccretivewithmanythings.Theissueisalsodoyouhaveanappropriaterateofreturnonyourinvestment?That'sreallyalsowhatwe'relookingat.

Sowe'llcontinuelooking,butIcan'tsaythatitisreallysomethingthatwewouldbeabletodo.Certainly,




we'lldoit,ifwefindassetsthatwebelievewearebetterownersofgoingbacktotheotherquestion,wehave--thathastomakestrategicsenseforus.Wehavetobebetterownersoftheassets,meaningwehavetobeabletogeneratethesynergies,andthepricehastoberight.

Celgene,Mondher,dowanttoaddanycolortothatcollaboration?


Yes.Tosayweareprogressingextremelywellwiththecollaboration.Therehasbeenanumberofstudythatwereapprovedbythecurrentsteeringcommitteeinnon-Hodgkinlymphomabothfollicularanddlbclinmultiplemyeloma,frontlineandrelapseandrefractoryaswellasinMDSrefractoryandrelapseaswellasinfirstline.It'sdifficulttospeculateonthetimelinebecausemanyofthesestudiesarecombinationstudies,combiningdurvalwiththestandardofcare,anditwillbedatadriven.IfwehavesignificantresultsfromthePhaseI/IIwecouldprobablythinkofanacceleratedapproval.Otherwise,wewillhaveplanstogoingintoPhaseIII.Sowewillbeverypleasedtosharewithyouthedataassoonastheycome--becomeavailable.


Thanks,Mondher.NicolasGuyonatMorganStanley.Nicolas,goahead.

NicolasGuyon-Gellin (Analyst-MorganStanley):

Ihavetwoactually.ThefirstoneisaboutthePD-L1CTLA-4combo.SoBMSwillstartaverysimilartrialtotheMYSTIConefortheCheckMate-227.Designandtiminglookquitesimilar.Buttheyseemtohaveoverpoweredtheirtrial.Soanycommentonthat?Andwhetheryouhavetheabilitytopotentiallyrecruitmorepatientswouldbegreat.

Andthesecondquestionisaboutthelong-termtarget.Youmadeseveraloptimisticcommentsaboutyourabilitytohitthose2023targetsof$45billionrevenues.PleasecorrectmeifI'mwrong,butthisseemstocontradictyourDecember2014interviewinTheTimes,whereyousaidyouwouldbelookingtohitthosetargets.SohasanythingchangedsinceDecemberlastyear?Thankyouverymuch.


Thankyou,Nicolas.Soyougavemeagreatchancetocorrectaninaccuracy.Peopletendtoreportallsortsofthingsandallsortsofrumorsbytheway,asyouprobablynoticedrecentlyabouttherumoraboutusacquiringtwocompaniesthatweactuallydidn'tintendtoacquireanddidn'tacquire.

Sothisstatementaboutthelong-termtargetbeingdifficulttoachieveiscompletelyincorrect.Inevermadesuchastatement.Andquitefrankly,Istill--ourplans,whichweupdateonaregularbasis,andonceayearinNovember,wepresentthistotheboardandwe'lldothatagainthisyear.Ourplansarestillverymuchdelivering,showingthatwecandeliverthesame.

NowtheonlycommentIwouldmakehereis,asyouwouldexpect,whenyoudoaplan,youdoariskadjustedplan.Youhaveavarietyofprojectsandproductsintheplan.Andthensomewilldobetterandotherswilldolesswell.Andit'salwaysthewayitis,whenyoudoaplan,especiallyoversuchalongperiodoftime.

SotheonlygeneralcommentIwouldmakeiscertainlyweseeabitofdownwardpressureonsomeaspectsofourforecastlikeindiabetesandupwardpressureinoncology.Ihavetosayouroncologypipelineisdevelopingvery,verywellandwe'reverypleasedwiththat.Andwehavegreathopewith9291forinstanceinfirstlineayearago,mightnothave--wemightnothavebeenashopefulaswearetodaythatinfirstlinewecouldgetaprettybigopportunityfor9291therebecause,ofcourse,youhave




genericIressaandTarcevatoconsideroverthenextfewyears.

Thedata--Imeantheproductislookingandsooveralloncologyisupanddiabeteswecanstilldeliver,butclearlywehavetoacknowledgethere'sabitofpressurethere.Butoverall,we'restillontrack.ThedurvaltremequestionandtheBMSstudybeingoverpowered.Rob,doyouwanttoaddressthatquestion?


Iwouldjustsaythataswe'rerollingoutMYSTICanddiscussingwithinvestigators,it'sbeingmetwithagreatdealofenthusiasm,bothbecauseofthedatawegeneratedaroundourcombinationandtheconfidenceinourdoseselection,butalsointheoveralldesign.Andsowearepoisedtoexecutethatveryswiftlyinaglobalstudy.


Okay.We'lltakethelastquestionfromRichardParkesatDeutscheBank.Richard,goahead.

RichardParkes (Analyst-DeutscheBank):

Hi,yes,thanksfortakingmyquestions.Tofocusondiabetesactually.JustonFarxiga,InoticedthatthenewNRxintheU.S.,thegrowththerehasbeenslowing.Andalsointhecontext,ifyoulookatyourprescriptions,salesperprescriptionandcompareittowhatJ&Jreports,itlookslikeyou'realreadyheavilyrebatingthere.Ithinkyou'rearound2/3ofthelevelforINVOKANA.SoIwondered,ifyougotanyroomtheretoreacttothatpressureonyourNRx?

Andsecondly,Onglyzaisclearlysufferingfromthelackofpromotionalsupportandwhether--I'mwonderingwhetherthereisanythoughtsaroundadjustinghowthetwoproductsaremarketedtogether?Whetherthereisanysecondthoughtsabouthavingthesamesalesforcesellingthosetwoproducts?

Andthenfinally,onBydureon,thesuspensionproductisobviouslykeytocontinuingtodrivegrowththere.Iwonderedifyoucouldgiveusanymoredetailaroundthatdevice?Andwhatitbrings,andwhetheryouhavebeenabletoimprovetheneedlegauge?


Sothankyouverymuch,Richard,forthosequestions.Luke,mostofthoseareforyou.Maybequicklyonthesalesperscript,letmejustsaythatthedifferenceisnotonlyarebate,it'salsopayers--notpayers,patientsassistance,sorry.Whenwepay--whenwehelpwithco-paysandwehavefreecouponsforco-pays.Andrebatestypically,whenyougiverebates,it'shardtotakethemback.Butcertainly,patientsassistancecouponstosupportco-paysyoucanflexthatupordownofcourse.Andthat'scertainlysomethingthatwehavetheabilitytoflexalittlebit.Butwealso--we'llconsiderthisintheoverallframeworkofaccessweget.DowegetbackontoCaremarkornot?Andsoit'snotadecisionwemakeinisolationfromthegeneralenvironment.

Luke,doyouwanttocovertheotherquestions?


Yes,sowithFarxigatherewasaslightdistortioninquarteronebecauseourWACwasbelowINVOKANA.Ithink,it'saveryfairstatementintermsofINVOKANAclearlybeingfirsttomarkethasstrongeraccessthanus.Butthat'ssomethingwe'reveryfocusedon.We'vebeenverymindfulofournetprice,sothere'sfocusthere.Andhopefully,we'llhavesomemorenewsonthatinthefuture.

Thatbeingsaid,againit'saverycompetitiveproduct.Ifyoulookatpriceforthehalfyear,therewasno




changeinprice.Butwehada340%increaseinvolumeintheU.S.Soagainitremainscompetitive.

OnyourpointaboutOnglyza,it's--Imean,ultimately,unlesswe'regoingtobuildahugeamountofinfrastructureintheU.S.,wedidhavetomakeachoice,andourviewwasandourviewstillisthatFarxigaishadalotmoredifferentiationthanOnglyza.Andsowehadtomakeachoicewhereweplacedourbets.AndIthinksofarthat'sworkingout.That'sintheU.S.

However,ifyoupullbackfromthatandlookoverallglobally,Imean,we'vegotgoodgrowthinothermarketsinOnglyza,inemergingmarkets,inEurope.InEuropeforexample,wehad35%volumegrowth,translatingtoaround23%growth.SoagainthatbusinessisbuildingintheU.S.againprovidesalotofopportunityforgrowth.ButEuropeandemergingmarketsarestillveryattractive.

Intermsoftheautoinjectorandtheformulationthere,wecontinuetofocusonthat.Wethinkthereisaplaceforthat.Andwe'llhavemoreupdateonthatinthefuture.


OnglyzaintheU.S.isreallyaproductthatwillberelaunched,ifImaysaysothroughthesaxa/dapacombination.Butitcanbeapriorityforus.MaybeonelastquickcommentontheNRxFarxigaquestionyouasked.Wearestable.Infact,therearethreeweekswehaveseensomeincreaseinourmarketshare.Andinfact,therearefourelementsthatcouldhelpusdrivethisupoverthenextfewmonths.First,wehaveanincreasedDTC.WeareontimecompetinginshareofvoiceinDTC,sothatwillhaveafurtherimpact.Two,we'vedeployedoursalesforce,sowearehopingtohaveashareofvoiceimpactthere.Three,hopefully,wegetabetteraccess.We'reconstantlyworkingonaccesswithFarxiga.Sothereisanumberofthingswe'redoingtherethatgiveushope.Andalsowe'vechangedourmarketingcampaign.Sothere'safewthingsthatgiveushopeto--forthisnewprescriptionshare,whichasIsaid,overthelastthreeweekshasbeengoingupalittlebit.

Sowiththis,Iwouldliketoconcludeandthankyouallforyourattention.Justinconclusion,Iwouldliketoremindyou,ourfirsthalfyearreallyshowedverystronggrowth.We'veexperiencednowsixquartersoftop-linegrowth.We'redeliveringonofcourseSG&Acostreduction.Q2wasthefirststep,andweexpecttoseemorereductionoverthenextfewquarters.We'vemadeimportantlyreallystrongprogresswithourpipeline.Andwe'restartingtolaunchthosenewproducts,andthoselaunchesaredoingwell,wellwithLynparza,wellwithMoventigandthereismoretocomewithIressaandothersoverthenextfewmonths.

Weareontracktodeliverourgoals,ourshort-termgoals,anddeliverourguidancewithaslightimprovementofourguidanceonrevenueforthisyear.Andwe'reverymuchontracktodeliverourmid-tolong-termrevenuegrowth.Withthat,thankyousomuch.

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