AstraZeneca PLC (AZN) Q3 2012 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen. Welcome to AstraZeneca's Third Quarter Results Analyst Conference. Before I hand over to James Ward-Lilley, I'd like to read the Safe Harbor statement. The company intends to utilize the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Participants on this call may make forward-looking statements with respect to the operations and financial performance of AstraZeneca. By their very nature, forward-looking statements involve risks and uncertainties, and results may differ materially from these expressed or implied by these forward-looking statements. The company undertakes no obligation to update forward-looking statements. There will be an opportunity to ask questions at the end of the presentation. [Operator Instructions] We now cross you to AstraZeneca's headquarters where James Ward-Lilley will start the meeting in a few moments.

Good afternoon, and welcome to AstraZeneca's Third Quarter and 9 Months Results. Delighted to welcome you to the analyst call for the business today. I will hand over in a moment to Pascal Soriot, our new Chief Executive Officer. We'll then hand on to Simon Lowth, our CFO, after which there will be time for Q&A. So without further ado, I'll hand over to Pascal, our Chief. Welcome.

Thank you, James, and good afternoon, everyone. As I just joined AstraZeneca on October 1, it should come as no surprise to you that I'm going to leave the presentation of our third quarter results in the capable hands of Simon, but I did want to join the call and introduce myself to those of you who follow AstraZeneca. In addition to the well-known challenges that confront the pharmaceutical sector as a whole, the loss of exclusivity of several of our brands in major markets has largely defined the financial performance in the first 9 months of 2012. We will continue to meet these challenges with determination and focus on delivering against our targets. So in my first few months, I'm working on 3 priorities: first of all, getting out and visiting with as many people as I can particularly in R&D and commercial, and I have done some of this already in the last 3 weeks; second, meet with shareholders and other stakeholders to clarify their expectations of the company and importantly, of me in my new role; and finally, to immerse myself in the ongoing annual strategy update. On this last point, I want to be clear, I will take as much time as necessary to engage with the organization and work with the board to see this strategy update to its conclusion and not work to some arbitrary timetable. So what should you expect in terms of communications? I think it will be reasonable to expect that in addition to the 2012 financials and our normal outlook for the coming year, I will be in a position to share with you my initial high-level thinking regarding strategic priorities and general direction of our annual results conference at the end of January with an aim to flesh that out with more granularity in detail over the following months. As I said when I joined the company, I'm excited and honored to have been asked to lead AstraZeneca, and I'm really looking forward to playing my part in restoring the company to growth and to scientific leadership. Now let's turn to the third quarter results and for that, I will hand over to our Chief Financial Officer, Simon Lowth. Simon, over to you.

Well, thank you, Pascal, and good morning, afternoon to everyone on the call. I'll focus on 5 topics. First, I'm going to summarize the headline numbers. I'll then go on and cover the revenue performance by region and for some selected brands. I'll then turn to the core operating performance and I'll -- with an emphasis on the key drivers of operating profit and margin. I'll briefly touch on cash distributions to shareholders and then finally, I'll close with our thoughts on guidance for the full year. So on to the headline results. Total company revenue was $6.7 billion in the quarter. That's a 15% decline in constant currency terms. Revenue declined by 19% on an actual basis as a result of the negative impact of exchange rate movements. The dominant feature of our revenue profile in the third quarter, as indeed it has been for the year-to-date, is the loss of exclusivity on several brands. Seroquel IR alone was down more than $850 million, and the disposals of Astra Tech and Aptium accounted for 1.8 percentage points of the revenue decline. I'll discuss the regional and brand revenue performances shortly, but let's just now continue with the headline numbers. Core operating profit in the quarter was down 14% in constant currency to $2.6 billion. The decline is broadly in line with the revenue, but to be fair, core operating profit did benefit from the $250 million proceeds from the sale of Nexium OTC rights. Benefits from restructuring and disciplined management of operating costs are also playing their part in helping to mitigate the impact of revenue declines on earnings. Core earnings per share in the quarter were $1.51 compared with $1.71 last year. That's an 8% decrease in constant currency terms, with the benefit from net share repurchases providing the uplift compared to the core operating profit trend. Reported EPS were $1.22. That's down 50% at constant currency compared with $2.56 last year, which, of course, included the $1.08 per share from the sale of Astra Tech. So those are the headlines for the third quarter. It's a broadly similar picture for the 9 months in constant currency terms with revenue down 15%, core EPS down 11% and reported EPS down 36% versus last year. Now returning to the third quarter revenue performance, and when I refer to growth rates, they will be on a constant currency basis. Revenue in the U.S. was down 19% compared with the third quarter last year, driven by loss of exclusivity for Seroquel IR. Excluding Seroquel IR, the rest of the portfolio increased by 6% in the quarter. Third quarter revenue includes $44 million related to our share of sales of the Amylin diabetes portfolio following completion of the alliance expansion in August. Revenue in Western Europe was down 20% in the quarter. Loss of exclusivity on 4 products, Seroquel IR, Atacand, Nexium and Merrem, accounted for 70% of the revenue decline. And in addition, we faced continued headwinds from government interventions. Revenue in Established Rest of World was down 18%, largely due to a 43% decline in Canada as a result of generic competition to Crestor and Atacand. Revenue in Emerging Markets was up 6% in the quarter. Revenue increased by 23% in both China and Russia. Brazil returned to modest growth as the impact from the loss of exclusivity for Crestor and Seroquel IR is now behind us. A weak performance in Mexico in the face of challenging market conditions continues to negatively impact our performance, reducing revenue growth in Emerging Markets by more than 2 percentage points. We hope to see some stabilizing the trend in Mexico once we pass the 12-month anniversary of the at-risk launch of generics for Crestor. This slide provides a snapshot of revenue for our key brands. As you see, we grew revenues for the key brands that retain market exclusivity in most of our major markets, except for Crestor, where we've had generic competition in Canada since April. Excluding Canada, worldwide sales of Crestor were up 7%. Crestor -- sorry, Symbicort had a good quarter on strong growth in the U.S. Seroquel XR was up 8%. We had another strong quarter for our oncology products, IRESSA and FASLODEX. Saw a good performance for ONGLYZA and slow but steady progress on Brilinta. But as you can see at the bottom of the slide, loss of exclusivity continues to take its toll on Seroquel IR, Atacand and Merrem. Nexium has generic competition in Western Europe, but we also had a decline this quarter in Japan where sales in the third quarter last year was launch stocking, whereas demand so far this year has been significantly constrained by the riotanke [ph]. Riotanke [ph], recall, is the regulation that restricts prescriptions to products in their first year on the market into Japan to just a 2-week supply, and that has ended the launch uptake. Riotanke [ph] was lifted at the beginning of October, and we are now seeing a significant ramp-up in daily sales. We look forward to a solid performance for Nexium in Japan going forward. There are detailed commentaries on brand performance in the press release, but I'd like to provide some additional color on 3 products: Crestor, an update on the Brilinta launch and the performance of the diabetes franchise. So first, Crestor. Crestor sales were $1.5 billion in the quarter, and that's down 3% due to generic competition in Canada. As I mentioned earlier, if you exclude Canada, global sales are up 7%. Crestor sales in the U.S. were up 11% to $833 million. Total prescriptions for Crestor in the third quarter were down a bit more than 3% compared to just under 1% growth in the statin market. Now I'm going to turn to a slide that we've used in the past to look below the surface of total prescriptions and look at the dynamic components to illustrate the trends. If we look at the yellow hash line, which is net dynamic volume, you'll note the strong uplift beginning in June of last year following the label change for simvastatin. So part of the slight downturn this quarter is due to the strength of the prior-year period. Now Lipitor first went generic at the end of November 2011 and then multisource generics arrived at the end of May, and you can see that the dynamic trend is quite resilient before and after May 2012. I'd like to now take the same data and look at it by payer channel in order to illustrate the second driver to the quarter's TRx performance. On the left is the same dynamic data we showed earlier but isolating the majority of retail business. That's commercial managed care and Medicare Part D, and it shows the same trend as before, got a bump from the simvastatin label change last year and then relative stability spanning the 2 Lipitor loss of exclusivity dates. On the right is the same data for Medicaid fee-for-service channel. The half-year results, you may recall Tony Zook mentioned, that we were no longer pursuing this low-margin business going forward, and you can see the volume erosion beginning in July. So I hope that gives you some greater insight into the volume trends for Crestor, relative stability in the face of multisource generic atorvastatin, but a weakness against a strong third quarter a year ago that was driven by the simvastatin label change and a small decline in the current quarter as a result of our decision to not chase low margin Medicaid business. So against the low single-digit decline in total prescriptions, how did we generate 11% revenue growth in the quarter? Well, there was a little bit of inventory movement year-on-year, but mostly this growth is driven by price. So far this year, we've been able to achieve an increase in net realized prices for Crestor, but we also said that this would come under pressure once we had to contend with multiple generic atorvastatins, and this is proving to be the case as we complete the contracting cycle for 2013. We look to be in a good position for formulary access in 2013 and broadly similar to the high access we currently enjoy, but this is coming at the expense of price. I don't want to get too far ahead of our financial guidance for next year, but I think it's prudent to be thinking of net price declines for Crestor in the U.S. next year. In the Rest of World, I already mentioned the big driver and that is loss of exclusivity for Crestor in Canada. Now turning to Brilinta. Sales were $24 million in the quarter, with $15 million from Western Europe and $7 million in the U.S. In the U.S., we continue to make progress on the key launch metrics. In particular, I would note the increase in trial rates amongst interventional cardiologists as well as the nice uptick in unrestricted access in Medicare Part D. We have recently prioritized driving trial and utilization where we're already on formulary and protocol, and that is helping drive prescriptions. You can see here from the latest data that total prescriptions in the third quarter are 55% higher than in quarter 2. So progress to be sure, but much, much more to do. In Europe, the picture is a continuation of the growth trends that we saw in the second quarter as you can see here in Germany. Bear with us. So in Germany and in the Nordics, so there's Germany. Let's move on to the next slide in the Nordic region and in Italy. We launched in France in July, so it is still very early days, but initial indications are that we're having a launch trajectory on par with other successful launches in Europe. Finally, the diabetes franchise. Revenue for ONGLYZA was up 42% to $84 million in the quarter. Much of this is still in the U.S. where alliance revenue was $62 million. Total prescriptions for DPP4s in the U.S. are still growing strongly, up 21% in the quarter. Our franchise share was 17.7% in September, and that's up 1.2 percentage points since December with ONGLYZA holding steady while KOMBIGLYZE XR market share is up. We're now in a position to begin launching KOMBOGLYZE, that's the combination of ONGLYZA and metformin immediate release, in Europe over the next several months. So I'll now turn to the third quarter P&L. I'll focus here on core margins and profits. The press release does, of course, contain the strategy numbers and a detailed reconciliation to the core measures. As with sales, when I refer to growth rates, they will be on a constant currency basis. Core gross margin in the quarter was 81.1% of sales. That's down 10 basis points compared with the third quarter last year. Now there are some moving parts below this broadly flat surface. But an unfavorable product mix and higher royalties as a percentage of revenue were broadly offset by benefits from the absence of Astra Tech and a lower net expense related to the Merck arrangements. Core SG&A expense was down 12% compared with the third quarter last year. Restructuring benefits, the absence of Astra Tech costs and continued discipline in managing costs were partially offset by new sales and marketing spend associated with the Amylin diabetes portfolio as well as amortization of the related intangible assets. I expect the run rate for SG&A in the fourth quarter to be higher than this quarter. Core other income more than doubled in the quarter based on the proceeds from the sale of OTC rights for Nexium to Pfizer. And for the year-to-date, the movement of the U.S. commercial contribution for Zomig from sales to other income is also affecting the comparison to last year. So that leads to a core pre-R&D operating margin of 55.7% of revenue. That's above the top of our 48% to 54% panning range and 2.2 percentage points higher than last year, and that's largely on the Nexium OTC benefits to core other income. As I said earlier, restructuring and spending discipline is doing its part on mitigating the revenue decline but of itself will be insufficient. Core R&D investment in the quarter was $1.1 billion. That's a 3% decrease versus last year. Benefits from the restructuring program in R&D has enabled us to show a decrease in R&D spend while absorbing the partial year effect of bringing on board the new projects from business development such as Amgen, Ardea and Amylin, which otherwise would've exerted an upward pressure on R&D spend. Core operating profit was $2.6 billion in the quarter. That's 14% lower than last year. Core operating margin was 39.4% of revenue, 30 basis points higher than last year. Turning to our productivity program. For the 9 months, we've incurred $1.2 billion of costs associated with the third phase, and that was combined with the $8.3 billion charge in the fourth quarter of 2011. So we're on pace to take most of the $2.1 billion in program costs by the end of this year, and we remain on track for delivering the estimated $1.6 billion in annual benefits by the end of 2014. Cash generated from operating activities was $4.1 billion for the 9 months compared with $4.8 billion in the same period last year. Lower tax payments and net improvements in working capital only partially offset the lower operating profit. For the 9 months, cash outflows on externalization activities reached $4.8 billion driven by the acquisition of Ardea and the intangible assets associated with our collaboration with Bristol-Myers Squibb on Amylin. Net cash distribution for shareholders for the 9 months was $5.9 billion through net share repurchases of $2.3 billion and dividends of $3.7 billion, being the combination of the second interim from 2011 and the first interim in 2012. We announced the suspension of further share repurchases on the 1st of October. So finally, turning to guidance. As we expected, our financial performance for the first 9 months largely reflects the ongoing impact from the loss of exclusivity for several brands in key markets, particularly Seroquel IR, but also for Atacand, Merrem, Crestor in Canada and Nexium in Europe. And the disposals of Astra Tech and Aptium obviously also weigh on the year-on-year comparisons. In addition, we continue to face the same challenges that the whole sector's facing: government interventions, payer pressures and the headwinds of a sluggish recovery in the global economy. Benefits from our restructuring programs and continued discipline in operating expenses have provided headroom for reinvestment in the business, while also partially mitigating the impact of declining revenue on core operating profit and margin. As I mentioned in our first quarter results call, despite continued pressures on revenues and margins, the company will continue to invest to drive future growth and value in sales and marketing to support our new products in growth markets and in research and development to progress value-creating assets within our portfolio and through further business development. Based on the performance to date and the outlook for the remainder of the year, the company continues to anticipate that the revenue for the full year will decline in the range of the low to mid teens in constant currency terms. The company's core EPS target for the full year also remains unchanged in the range of $6 to $6.30. For the 9 months of 2012, recall that core operating profit and EPS includes one-off items totaling $0.35 per share. That's $0.19 from the tax settlement in the second quarter and then $0.16 from the sale of OTC rights for Nexium in this quarter. Currency was neutral to core EPS versus our guidance rates for the first 9 months, but I would remind you that the forward look is based on the January 2012 average exchange rates upon which our guidance was based. It takes no account for the likelihood that average exchange rates for the remainder of the year may differ materially from the January 2012 average. So let's now move on to the Q&A session. [Operator Instructions] So with that, can we have the first question, please, operator?

The line of Sachin Jain is now open.

It's Sachin Jain from Bank of America. A couple of questions. Pascal, appreciate it's early days, but I just had a couple of high-level questions for you. Firstly, on capital allocation. Is there a time frame in which you will review the buyback? Clearly, you've stopped it for the time being to retain flexibility. Are you fundamentally against buybacks as a source -- as a use of cash? Related on M&A, prior management has commented that they weren't interested in large-scale M&A, the size of MedImmune or above. Do you retain that view, or do you want to keep a more flexible stance? Secondly, there are quotes on the wires from the media call this morning that a pipeline review outcome is expected in the first quarter. Can you just provide the context of that? Astra's been through many pipeline reviews in recent years. Is there anything different about this one? Thirdly, in small group meetings with investors, I think, in recent weeks, you've been focusing on Brilinta and BYDUREON trajectory as something that you would focus on. And just a brief overview of your assessment of the launch trajectory to date and what you think is needed from here? And then finally, a very quick question for Simon, I wondered if you could frame the Crestor price declines into next year. Is something around the mid single digits reasonable to think about?

I counted to 5 on that. I think we said in the Q2 call, we'll try and limit it to 2 going forward. I know I might disappoint Peter Verdult, but it gives you a bit of a prep for that. But Pascal, if you want to start?

Yes. Thanks, Sachin. Great questions. I'll try to be fast, so we give everybody else a stand [ph] to ask questions as well. Capital allocation, I'm definitely not fundamentally against buybacks. The decision we made, together with Simon and the board, was really to give us flexibility. And of course, we might revisit that if we don't find better use of our cash. I have no fundamental objection to buybacks per se. Acquisitions, I would like to retain flexibility. Essentially, we are doing a review of what we could do, and I want to be open-minded and basically look at the options that are open to us. So I don't have much more that I can say at this point. The pipeline, the context in that is that we, and when I say we it means the executive team here at AstraZeneca, now we identify the series of critical questions which I want to engage the organization around to find -- to develop plans to find solutions to address, one of which is the mid- to late-stage pipeline. And what I want to do here is look at whether there are assets that could be accelerated and others that could be de-prioritized. We have got a number of assets in the pipeline, and I think there are further choices we can make. I'm totally aware of the fact that some reviews have taken place in the past, and this is all good work. And I don't expect massive changes, but I believe we can make some changes. And I can't comment more on those changes at this point as you can imagine. There's a team looking at this, and we have reviews planned end of November, early December. And in the meantime, I'm visiting around these sites and talking to people. So we will have some outcome of the discussions by Q1. Brilinta, you probably remember that I was involved in the commercialization of Plavix for a number of years in the United States, and I was working in collaboration with BMS at the time and it was before joining Roche. And so I've looked at this and the market, of course, has changed, and things are no longer what they were 7 years ago, of course. I accept all of that. But I've looked at the products, and I think Brilinta, quite frankly, has a lot going for it. It is the better product in the class, and I think we can do better with this product. We can do well. I also think AstraZeneca is a good commercial -- it's a great commercial organization. To be frank, we didn't show our best game with Brilinta, but we are actually taking corrective measures. And my hope is that -- my belief actually, not only my hope, my belief is we can do quite well and this product has potential. And there is also -- that's also one of the questions that we are working on right now. There's an entire work stream looking at Brilinta and looking at how do we accelerate the growth of this product, which is really a company-transforming product, quite frankly, if we succeed with it. I think I've covered all your questions.

BYDUREON?

Diabetes.

Yes, yes, so I mean diabetes, I think they are -- let me back up a little bit. We, at AstraZeneca, we are facing a number of challenges and of course, the bigger challenges are the patent expiries. But I also believe we have a number of growth platforms and the 3 biggest ones, in my opinion, are Brilinta, diabetes and the Emerging Markets. And clearly, what I want to do here is how -- look at -- how do we actually turbo boost the growth of those 3 platforms. There are others. I would say respiratory as a franchise is something we can strengthen and has potential. I think Japan also is good. And I think in the midterm, the biologics platform is really a good growth platform potentially. So we have quite a few cards in our hands, short and midterm, and diabetes is, of course, a critical one. So we have to work with our partners, BMS, to see how do we build this franchise to establish ourselves as a leader in diabetes. And BYDUREON, of course, is one of those. Now I'm sorry if I can't be very specific. You know that I like to talk about products and data, but it's -- these are early days, and I'm engaging in this review process and I don't want to comment too much at this point.

Pascal, thanks. And Sachin, just to your final question on Crestor, I don't -- it's really much too premature to go beyond just some initial thoughts I shared in my opening remarks. I suggested it would be prudent to think of net price declines for Crestor. Exactly what the price outcome will be is going to be a function of the concluding process of discussions and negotiations with our customers, but also mix effects and so forth into next year. So I think that's probably, Sachin, something we should come back to Q1, and you'll have some evidence from the run rate in the first part of the year. We've got, I think, #2. Peter, you're #2 on the call with 2 questions, we hope.

Two questions. Peter Verdult, Morgan Stanley. One for Pascal and one for Simon. Apologies if some of this has already been addressed, but I had to deal with another set of results when the call started. But Pascal, just coming back to capital allocation. I realize it's too early to talk about your new strategy, but I would like to get a sense for how you're thinking about the progressive dividend policy that's in place going forward. Are you considering all options? Or when it comes to planning, do you envisage this from any intact? And then on for Simon, just on the cost trends. Your ability to manage the cost base has surprised the market positively. It seems to point or suggest to me upside risks to current EPS guidance for this year. So I'm just trying to get a sense as to what's the impact that you're considering in Q4 that prevented guidance from being raised, and whether there are any phasing issues that we need to consider whether it be on R&D or SG&A that helped in Q3?

So maybe let me quickly address the first one, Peter. Thanks for that question. I know it's in everybody's mind, so it's an important one to address. Let me just confirm or reconfirm, I would say that our dividend policy is very stable, and we -- I just like to restate what we've said before. We'll stick to our table to go to improving dividend [indiscernible], the dividend policy. So there's -- I wouldn't want to say here our written [ph] flexibility. I think we are committed to this dividend policy.

And Peter, to your question about cost trends, good question. Probably, sort of looking at the SG&A run rate, which I think did come in a little bit lower than I think the consensus we collate had come up with. Actually, if you look at our run rate over the first 3 quarters, Peter, it's been pretty steady. It does reflect the combination of actions we took at the end of last year and the beginning of this year around our above market sales and marketing, our channel mix but also our G&A cost base. So we have seen a reduction, pretty steady reduction, in the course of this year quarter-on-quarter. As I mentioned in my remarks, the fourth quarter is typically quite a busy year for us as quite a lot of investment activity does tend to take place, and this year's no exception. We're pleased actually with some signs of strong recovery in a number of emerging markets. You saw China, Russia with strong growth. We continue to look hard, I think Pascal mentioned this, at our growth platforms. We want to ensure that we're investing fully behind those. So we do expect to see the SG&A rate up in the fourth quarter relative to the third. And that, I think, is one of the factors that weighed on our decision to retain our guidance range for this year. Perhaps just if I may take you up, just to elaborate from that, because investments in the fourth quarter is one factor that would drive the outcome in the fourth quarter. And the second is it's been a dynamic, some will say, volatile year. We've had government pricing interventions, generic activity. And it does remain perhaps more uncertainty on those fronts than we've seen in prior years, and that's also weighed on our decisions to keep the range. And then obviously, Peter, you'll recall last year, we had a number of intangible impairments in the final quarter. And with a portfolio which is more externalized, we do, therefore, run with more potential for intangible impairment decisions. And it's those factors which have led us to leave our earnings in the range of $6 to $6.30. We can see scenarios where we might be at the upper end of that. But equally, we can see scenarios that we could be at the lower end of that. Peter, I hope that helps you. Next question, Tim Anderson of Sanford Bernstein. Tim? Tim Anderson - Sanford C. Bernstein & Co., LLC., Research Division: If I could just go back to one of the earlier questions just so I understand, Pascal, your view on M&A. Are you kind of suggesting that all options are on the table at this point? And within that same line of questioning, your preliminary views on drug company diversification, Roche was pretty much a pure play. Astra is too, and I'm wondering if you think pure play is the right way to go. And then second question, you talk about restoring Astra's scientific leadership. To me that means rebuilding R&D, which suggests that you could see R&D costs increase. So I'm wondering if you can talk about whether it's possible to rebuild R&D without increasing investment and kind of what in absolute terms R&D investment at Astro might look like going forward?

Thank, Tim. The first question regarding M&A, yes, I mean at this point, we really want to be completely open-minded and look at the early options that we have. So I can't be more specific than this, quite frankly. But I don't have any restricted view, and we've discussed it here and everybody's on the same page. We will look at all options that make sense to create value for this company. In terms of diversification and pure -- versus pure play, I'm a believer that the core of this company is innovation. I'm a believer that we are here to actually discover and develop medicines that are differentiated and help patients. And so I'm a supporter of the previous choices that were made to not be in a pure generics or in OTC and diversify in those fields, and we will confirm that and I'm completely aligned with this. I think we can diversify within our core focus of innovation. And if we do this, we would do it around businesses that would be innovation-driven and would have synergies together with our core pharmaceutical innovative business. So essentially, we are really focused on innovation. And finally, R&D rebuild, when I talk about scientific leadership, it doesn't mean spending more money. Scientific leadership is, I think, you could call it productivity. You're not going to be a scientific leader because you spend lots of money. You're going to be a scientific leader because you're productive, because you have the best scientists in the world and you have the best science in the world and you come up with products that everybody else would like to have. So my priority would be to make sure that we actually build an R&D organization or continue building an R&D organization that is one of the best in the industry. So I really have productivity in mind. Now it may well be that over time, we have to increase R&D. I mean, of course, you have to be open to all possibilities. But I will not do this. I would only do that when I'm sure that our productivity is good, and I think base camp one is productivity focus. There's no doubt about that. Tim Anderson - Sanford C. Bernstein & Co., LLC., Research Division: Yes, I guess if I just look at who are commonly viewed as the scientific leaders in pharma, they tend to outspend their peers on R&D as a percent of sales which -- that's why I asked the question.

Yes. No, and it's a good point. But I mean, outspending your peers is a good thing if you produce a lot of value out of what you spend. So in the end, the debate is not how much do you spend, it's how much do you produce out of what you spend. And if you're able to produce a lot out of what you spend and create value in the long run, that everybody should be happy starting with our shareholders. And certainly, our customers will be happy. But I don't think we are here yet. I mean, I think really our focus over the next -- in the near term is really about productivity.

Great. Tim, thanks. Alexandra. Alex of -- next up. Alexandra Hauber - JP Morgan Chase & Co, Research Division: Alexandra Hauber from JPMorgan. A lot of questions have already been asked. I have just a couple of small questions on pricing actually. In the U.S., a lot of products are running significantly ahead of their prescription run rate, and you've already explained Crestor. I assume there is a similar effect with Nexium. So average realized net prices have increased, but we do not have a change such as multisource generics that you already have had for some time. So are these average net price increases for Nexium a bit more sustainable? And then also on -- similar question. Basically, if you look at Seroquel XR, the price increase which you have taken, which is quite a massive one, seems to just stick. Same thing for Symbicort, and Symbicort actually shows to grow even stronger than pricing and prescriptions combined. So is there some stocking in there? And then in Europe, the decline was the same as in the second quarter despite the fact you didn't have a supply issue. So does that mean pricing has got worse? Or is this just the incremental effects on -- from Atacand which we're seeing this quarter also impacting the European performance?

Okay. That's great. We're going to count those as all pricing questions and therefore one question. But let me deal firstly with Europe. I think you just answered your own question. We've had essentially a greater cumulative effect from patent expiration. The pricing dynamics through the year has not intensified in the third quarter. We've faced a very demanding pricing environment all year. It's not abated, but it's not intensified. And for those on the call, we talked in the past about European pricing facing sort of low to mid single digits. We're comfortably in the mid digit zone this year. Coming back to your U.S. questions, let me just canter through them very quickly. Start with Symbicort, we did see, as you all have seen, good growth in the quarter and indeed year-to-date on Symbicort in the U.S. The majority of that is actually coming from volume growth, not price. And the slightly confounding factor, Alex, is that the script trends which we cited of 12% excludes some quite healthy growth amongst the veterans administration part of our business. So we've had good growth in that part of our business, which has given us an underlying volume growth in excess of the retail TRx growth. So I hope that helps you on Symbicort. It's essentially a market share volume benefit and I think reflects the strength of that brand and the commercial performance behind it. If you go to Seroquel XR, that indeed is a brand that has benefited from strong net pricing power, both in the quarter and year-to-date, and reflects the fact that it brings a strong differentiated proposition to certain patient segments. And as you've seen, the share of Seroquel XR, we saw a little bit of a dip in switches to IR right at the time of genericization. But actually since then, we haven't experienced that. I think that's a further testament to the fact that it's well positioned separately to Seroquel IR in the marketplace and can sustain that price premium as a consequence. On Nexium, actually this is mainly a mix effect, and we just had a business moving towards high-price realization segment. So it's predominantly a mix effect. I hope that gives you what you needed, and thanks for the question. We'll return now to Mattias Häggblom at Danske Markets. Mattias? Mattias Häggblom - Danske Markets Equities, Research Division: Mattias Häggblom, Danske Markets. I have 2 questions, please, both for Pascal, I'm afraid. Firstly, you've known AstraZeneca as a competitor for many years, but now you have come to know it as your company for less than 1 month, though. What during this very brief period of time has surprised you the most? And secondly, one, it's obviously too early for detailed strategy thoughts. I'm interested in hearing your general thoughts on true acquisitions versus in licensing an asset, how to best balance those and what drives the preference for each of those decisions, if your supplier can choose [ph]?

Yes, thanks, Mattias. Actually, AstraZeneca was never a big competitor of Roche where the 2 companies operated in different fields. In oncology, of course, there is a clear competition with [indiscernible] Tarceva. But in the great scheme of things, there was limited competition. But never mind, this was not your question. Your question was about what surprised me the most, and I must say what really excited me -- and it was -- it was also a little bit of a surprise when you consider the change that this organization has gone through and the challenges that it has gone through over the last couple of years and the fact that we all know there are still challenges ahead of us. What was really or what is really impressive is the incredible level of commitment and enthusiasm that exists here. It's really truly a great company with a great culture. I knew that before. Well, I thought I knew that because before coming here, because I had been told by a number of people, but I saw it with my own eyes. The level of commitment and willingness of people to do well and do the right thing is really incredible. So there's a strong base to work from. But there are also quite a number of challenges and certainly a lot of things we will have to address and change over the next few months if we want to turn ourselves around. In terms of acquisitions versus pure product business development opportunities, quite frankly, I don't have any religion here. Of course, the simpler approach and where there is a lot more opportunities in the products area and that's certainly where the bulk of our efforts go. But sometimes products are companies. If you look at Amylin, it certainly [ph] was a product/company opportunity. So I don't have any specific religion. Our efforts is very much on products, of course. But as I've said earlier, we'll look at all the opportunities there. Since I talked about Amylin, by the way, I was trying to be a bit fast earlier answering Sachin's question, but in diabetes, we just got approval for FORXIGA in Europe.

We're waiting.

We're waiting for approval, sorry, for FORXIGA in Europe, and we should, hopefully, get that very soon. In the U.S., we are -- we've just started promoting, sorry, Amylin, BYDUREON with both sales forces, BMS and AstraZeneca since about, I think, 2 weeks now. And so there's a lot of growth potential ahead of us in the diabetes franchise.

Great. Thanks, and we'll move on then to Nicolas Guyon at Exane.

Actually I have 3 quick ones, please, 2 first ones in Emerging Markets. So first, talking about China, another strong quarter with sales up 23%. This led China to now represent more than 1/4 of your total Emerging Market sales. Don't you think there is a risk of being overly exposed to one country? Secondly, talking about your strategy in Emerging Markets, you have no mainstream discount [ph] offer such as commodity type generics or OTC, nor a premium cancer portfolio like the one you enjoyed at Roche. So therefore, do you think that the strategy that you had about flexible pricing or dual branding could be also applicable at Astra? And my last question is just, I mean, what is life like for a French citizen running a British large cap?

I think probably the last one, Pascal, I think is probably for you. Why don't you start with that, and I'll...

Okay. Well, that's a good question, Nicolas. But the thing is that I'm still working on the accent, but I see myself as an adopted French [ph] citizen. So I don't know that I can answer that French question. Life in London is great. It's one of the great cities in the world because it's a very diverse city, and it's a great city and everybody here has been extremely welcoming. So it's very good. But again, I don't see myself as a French or anything else for that matter. I've worked around the world in many different geographies, and my family lives in Australia. So that's how I see myself. And that's important because that's how I would like to see the company develop, a fully international global company, which we are today, but we definitely need to build on that. Let me just say a few words about your questions regarding the Emerging Markets, and I think that for sure, China is big and it is -- often when we talk about the Emerging Markets, really, China has an enormous impact for those markets for any company. But I don't think we can say we are unbalanced. We have a strong presence in China. We have a strong presence in many other countries. And our portfolio, I think, the important point is that our portfolio, quite frankly, is the ideal portfolio for those countries because if you really think about those markets, in many ways, they are where Europe was 20, 25 years ago. And many of the unmet needs are in the area of infection, cardiovascular medicine, hypertension, diabetes, lipid disorders, et cetera, et cetera. Respiratory medicine, respiratory disorders are growing in importance, and that's exactly the portfolio of products that AstraZeneca has, and I think there is enormous potential there. The challenge for us is in some parts of China, for instance, like in some countries in those Emerging Markets regions. The challenge is really to ensure that patients can access our products because sometimes, they are a bit too expensive. Even a product like Crestor is sometimes too expensive for some parts of China. So the Chinese for us is really how to look at how do we get access and how do we find strategies that will enable access. And in fact, that's one of the work streams that have launched looking at this, how do we leverage our full pipeline. And quite frankly, this will be my first priority before we explore any other options, looking at additional products because I really believe we have the best portfolio for those markets.

Great. Nicolas, thanks for the questions. Let me now move on to Jo Walton, Crédit Suisse. Jo? Jo Walton - Crédit Suisse AG, Research Division: About some of the Emerging Markets outside of China and just your perception on whether a recovery that we've seen reflects strength of AstraZeneca's products or strength of the market, just your perception on growth rates for Emerging Markets. And a specific one of how you're going to be positioning sales forces, both DPP4s and GLPs. Do you find that that's going to be a difficult message to sell with both products?

Shall I start, Pascal, and then hand over to you? I mean, Jo, I think we missed the first part of your question, but I think it was sort of an overall perspective on forward growth in Emerging Markets. Jo Walton - Crédit Suisse AG, Research Division: That is correct, yes.

Particularly [ph] on China. And I think we've always felt that the fundamentals -- well, Emerging Markets is a pretty heterogeneous group that tie together with some strong underlying fundamentals of demographics, economic growth, more people living longer, higher aspirations for health care and with more money publicly or privately. And so we do believe those fundamentals remain very firmly in place. We recognize that the flip side of continuing strong demand is increasingly payers, whether they're public or private, needing to manage pricing in order to contain the revenue growth associated or cost growth associated with that. And we've seen an impact of pricing and access interventions in Emerging Markets similar to those that we've seen in other parts of the world. But overall, we think the fundamentals remain very strong. And I think as Pascal just said, we have long believed that our portfolios are very well aligned to emerging market needs. This year, our growth rates have been depressed by a couple of factors, firstly, loss of exclusivity on some brands, particularly actually Brazil and Mexico in the final part of last year; and second, with the supply chain issues. And we'd like to feel that as we move into Q3 and Q4, we're starting to get those effects behind us. But clearly, there's a lot of work to do to realize the potential of those markets, and that's going to be about making sure we've got the right product portfolio at the right level of investment. And just -- and the final -- your other questions quickly and perhaps hand over to Pascal for further comments. On the diabetes portfolio, we see this as obviously a very large disease area, growing strongly. It's a progressive disease. It's a disease of a stratified patient populations and therefore a role for different medications to play over time and indeed, multiple medications for individual patients. And there's a role for DPP4s, we believe. There's a role for SGLT2s and certainly a role and a growing role for GLPs. And exactly how that position will depend, to an extent, on the practices in individual markets. And that's obviously the sorts of issues we're working through as we progressively launch the product. Pascal, that's sort of to some extent, where we've come from and [indiscernible].

Thanks, Simon. Yes, Jo, I mean think first of all, the Emerging Markets, we have strong growth in not only China in Russia as well and in a number of Latin American markets and the Middle East. It is clear that with the kind of products we have, some of the issues we have to deal with are price reductions. But the volume upside is extremely large. When you consider China, I think always people forget the scale of China and the fact that the economy is developing so rapidly that a lot of patients who historically could not have access to medicines are now getting access to medicines. So the volume uplift is enormous, and we'll just have to keep managing, of course, this price -- the price pressures. In terms of diabetes, this is, as I've said, one of the growth platform in my mind and it's sort of obvious. But it is clear we have to manage 3 products, and that's one of the things we are discussing with our partners at BMS. To be honest, in the meantime -- in the short term, we are in a relatively simple situation. We have in the U.S. ONGLYZA and BYDUREON. And quite frankly, different physicians will see different use of those products. But as Simon was saying, this is a progressive disease, number one. Number two, as you know, most patients end up with combination therapy and today, we only have 2 products. So you could argue you could start with BYDUREON as a first-line, but most physicians will start with a knowledge and so use ONGLYZA. And then as you progress, you might use BYDUREON in combination or alone, and before, insulin or in combination with insulin. So here, the situation is relatively simple. It will become more complicated as we prepare to launch FORXIGA because then you have 2 oral agents and one injectable, the GLP-1. But again, there is a place for all of those products because of the multiplicity of combination therapies. It may be that we have to allocate products to different sales forces to make sure we fully maximize them. We're just -- we are looking into these, and we'll do what it takes to get to the full potential of every single one of those products.

Moving on now to Mark Dainty at Citi. Mark?

Just one very quick question, just to talk [ph] down one on R&D. Do you think the company is positioned appropriately from a geographic perspective to capture as much innovation as possible?

Yes, that's -- thanks for the question. Yes, I get that question often and to be honest, I think today, science is spread around the world. And so you have to be connected to scientists in many different places, and it's not because you live next to a center, a reputable scientific center that you do better necessarily. It's more a question of mindset. But having said that, your question is a very relevant one. I can't answer that one today. To me, what is important and what I'm going to try and do -- what I will do over the next 3 months is get a good understanding of where do we have distinctive science, where do we have a chance to be differentiated from a scientific viewpoint, where do we have products that we could accelerate, so both the discovery and the development path. And then as a result, I have -- we'll have to conclude what does this mean from a footprint viewpoint. And it is clear that if you are in Boston or if you are in Gaithersburg for our MedImmune colleagues, close to NIH, close to Johns Hopkins, if you're in Boston, if you're in Cambridge, you're certainly very connected to science and this is a dimension to consider. So -- but it's not the only one. So I can't answer your question at this point. I've started visiting those sites, and we have a number of processes in place to review the pipeline, review the science. And by Q1 next year, I'll be in a better place to comment.

Thanks for the question. I think, just looking at James, we've got probably time for one more question. And Lars Hevreng from SEB, it's -- you have the final slot. Lars, over to you.

Could you just please update on the development program for the prefilled pen, the weaker version of BYDUREON? And then if you could maybe comment on the expectations on the full year cash flow, how that would be aligned with your core EPS guidance?

Well, on the -- yes, on the question of the pen, I think the timetable, I think it's from memory mid-2013 filing is the current plan, Lars. In terms of cash flow, I mean, I think -- I'm not quite sure what the question is. Is there any further guidance you're expecting or looking for me to give on cash flow for the full year? Is that...

Yes. If, I mean, we've seen the 15% decrease in cash flow for the first 9 months over the same period last year, and if we could expect to see year-over-year performance for the full year operating cash flow?

Okay. So the cash flow from operations, I think you'll need to consider that in the context of the guidance we've provided in our core EPS and therefore, the implications for Q4 in operating profit terms and the range around it. And as I've stressed, we've retained that wide range around it. There's no other discontinuities that I would call out on the other elements of the cash flow at this stage. I think probably the only other possible thing to bear in mind is that we have benefited from some one-offs. I mean, I mentioned the Nexium OTC. So there's been a little bit of lumpiness in the cash flow, but I would broadly follow what you're looking at in an earnings line.

That's it I think, Simon, in terms of Q&A. Don't know if you want to just wrap up the call?

Well, indeed. Thank you very much indeed. So thank you to all of you for joining the call today. And let me just quickly sort of -- a few final closing remarks. I mean, I think we expected this year would be a challenging year for AstraZeneca, and so it has proven. We've had loss of exclusivity on some key products, particularly Seroquel IR, and that really has driven that 15% decline in revenues for the year-to-date. We've kept our focus on management of our cost base through restructuring and for the disciplined management of costs through the business. And that, combined with the proceeds realized on the sale of OTC rights for Nexium, those have helped us mitigate the impact on core operating profit and also allowed us to step up investment in a number of areas, for example, the externalization efforts. Well, we do have exclusivity. The brands have performed well. We pulled out a few of those examples on the call, Symbicort, IRESSA, ONGLYZA and good resilience in Crestor as well. And overall, we're able to confirm our core EPS guidance range for this year. And with that, what I'd like to do is conclude our call, thank Pascal and welcome to his first analyst call, and thank all of you for joining and look forward to the next call.

Thank you so much.

That does conclude our conference for today. Thank you, all, for participating. You may now disconnect.