AstraZeneca PLC (AZN) Q1 2015 Earnings Report, Transcript and Summary

Hello, everyone. This is Pascal Soriot, CEO of AstraZeneca. Welcome to the Q1 2015 Results Conference Call for Investors and Analysts. Our slides are posted online for you to follow via telephone or webcast. I’m joined today by Marc Dunoyer, our CFO; Luke Miels, our EVP for Global Product and Portfolio Strategy & Corporate Affairs; and Briggs Morrison, our CMO and EVP for Global Medicines Development. It’s great to have so many of you on the phone and online today. And we look forward to taking you through our presentation. So if I move to Slide 3, the plan today is for me to introduce, then hand over to Luke for our products and growth platforms, and then to Marc for the financials and the guidance. Briggs will end with the pipeline update, before we welcome all your questions. We plan to close the call in one hour as we also host our Annual General Meeting here in London today. Moving to Slide 4, Q1 2015 was a good start to the year and supports our goal for the year. We saw continued strong pipeline news flow and now we have 13 potential new medicines that are either in Phase 3 or under registration. I’m delighted that we announced this morning a strategic collaboration with Celgene to develop MEDI4736 in haematology. Q1 was the fifth consecutive quarter of top line growth. Our total revenue grew 1% and we saw the growth platforms at 13% in growth. They now account for 56% of the total revenue. The launches of Lynparza and Moventig are progressing well. With Lynparza, our first new cancer medicine in many years, we are making a very important difference to the lives of many women with ovarian cancer. We’ve also made substantial progress with externalization and we’re on track to deliver on goals and achieve the guidance for the year. And I also would like to say, even though these are early days, the launch of Moventig is progressing very well. If I move to Slide 5, we continue our progress with our pipeline in addition to the highlights that I mentioned on returning to growth with so many from the pipeline. First of all, we submitted lesinurad to the FDA and our submission was accepted. We had positive top line results from our Phase III study with PT003, our Pearl LABA/LAMA combination. We had positive figures, especially results for Brilinta and we submitted with the U.S. and the European authorities. Selumetinib received Orphan-Drug designation by the FDA, and also tremelimumab received it for mesothelioma. We had Fast-Track by the FDA for MEDI4736 and for MEDI8897, so very rich quarter from the pipeline news flow. The pipeline is strong and we are well on track to deliver the promised regulatory submissions in 2015. We have seven this year, five next year and we are well on track to deliver the seven or eight potential submissions for 2015 and 2016. And this will lead to further business growth in the future. If I move to Slide 6, the growth platforms experienced a total growth of 13% collectively, and you can see here very nice results for Brilinta that grow 45%. Our diabetes franchise grew 47%, respiratory by 7%, the emerging market 18%. Japan experienced a slight decline in the quarter still due to price effects, but also very strong quarter for some products last year, last year in particular Symbicort. But moving forward, we expect that Q1 was the last quarter with a negative growth - a core EPS of - at $1.08 is very much supporting our guidance for the year from a core EPS view point. If I move to Slide 7, I would like to spend a little bit of time talking about acceleration and collaboration. We announced early - earlier in the quarter a collaboration with Daiichi Sankyo to commercialize Movantik in the United States, it’s a very important collaboration. Daiichi Sankyo would start promoting Movantik in the United States next month - early next month, and we have great hope for Movantik in the U.S. marketplace. And this morning, we announced a very important strategic collaboration with Celgene for MEDI4736 in haematology. Celgene is a really premier haematology company. And together with them, we will jointly develop MEDI4736 for use in blood cancers on its own and in combination with existing medicines and pipeline molecules. We are pleased to work - to be working with Celgene, and we believe that we can have a great collaboration in haematology. They have many years of experience in this filed in the history of innovation in multiple myeloma in over blood cancers. Our initial focus will be MEDI4736 in lymphoma and multiple myeloma, but over time this collaboration could be expanded. Later in the presentation, Marc will cover the deal in more details and what impacts they have from a financial point of view. With that in hand - with that in mind, sorry, I will hand over to Luke for comments on products and growth platforms. Luke, over to you?

Thanks, Pascal. So overall the growth platforms had consistent and substantial growth for the quarter and now represent 56% of total revenue. If you look at each of these growth platforms starting with Brilinta on the next slide, global sales were $131 million, up 45% with initial signs of the positive results for PEGASUS, a reinforcing confidence in the ACS indication, and the PLATO dataset particularly in the U.S. There were some impact on - of the branded pharmacy in the U.S., which is around 3% with Brilinta. Regulatory submissions on the back of the PEGASUS study were also fall in March in the U.S. and EU. The U.S. continued to remain strong and consistent growth during the quarter, delivering 64%. Europe was up 21%, and emerging markets went from $13 million to $23 million for the quarter, driven largely by China and Russia. If we look at NBRx in the U.S., you can see this is a continuing upward trend sustained by the strong performance post ACC. Brilinta recently also received FDA approval to be crushed and administered mortar with new label update further differentiating from other members of the class. In Europe, our ACSD-strategy [ph] has continued to grow and our focus is now on achieving market lead status in all the remaining countries and also supporting patients to remain on treatment 12 months in advance the label expansion. The diabetes, again, a promising performance, strong overall, driven by old parts in geographies at the global level. Globally, Onglyza sales were up 19% driven by emerging markets in Europe, where it continues to outgrow the market in volume. In the U.S., they did remain under pressure with Onglyza declining 8% due to competition and the fact that we are very much focused on Farxiga and Bydureon at this point in time, and time is needed to see, if there is any impact from the outcome. Turn to Farxiga, continues to grow strongly, as the class expands with cell split evenly between the U.S. and rest of world with $76 million. U.S. total RX share of the Farxiga family remained steady at around 27%. And we did take a step down in share after formally changes in January, which we had signaled to you in the past, and there are some pressure from the new launches. However, we are confident that we can address this and our aim is to maintain the volume in preparation for the launch of SAXA/DAPA. In the EU, it remains the leading SGLT-2, with close to 90% class share and this continues to grow. We also have a number of markets launching throughout 2015. For Bydureon, the good news continues with the Pen in the U.S. all volume and share metrics are up since the launch of the Pen with an increase in prescribing amongst existing rises, but we also have a number of new trials. And interestingly the trend continues with 79% of patients being initiated on the Pen being new to the brand. Globally, Bydureon volume continues to grow and outplace the class 28% versus a 11% globally. The next U.S. launches have now started in quarter one and quarter two. Respiratory, again, it’s very consistent, a solid quarter with no change to the 2015 outlook that we communicated to you at the 2014 Q4 earnings call. The Symbicort U.S. was at 1% at constant rates with volume growth offset by some price pressure, despite the loss of Caremark, Symbicort has gained around 2%, 1.9% NBRx, around 0.8% TRx shares in the first two months. In Europe, we’re also able to differentiate and actually grow volume by around 1%, the pressure on price remained, but the resilience of this portfolio was clear with this performance. Symbicort and Pulmicort continue to grow in emerging markets driven by China, and Duaklir EU launch rollout is on track, and we’ll give you more information in quartet two. Overall, if we look at the patents in emerging markets, we can see the strong performance of Pulmicort. But there is some clear EPI trends there both in asthma and COPD with many of these patients, even if they’re treated or treated in a short setting rather than a chronic maintenance setting. We’re confident that our combination of in-market capability, attractive devices, and established brands, as well as a broad pipeline pace is in a sound position to address this high unmet need. For emerging markets themselves, if we look at it on the macro level, strong broad-based growth in emerging markets, both in terms of geography and the products. You can see on the right-hand side of the chart respiratory 35%; diabetes 115%; and oncology 16%. We continue to grow - outgrow the market in China as measured by IMS. There was some volatility in the industry in China because of the timing of China New year, but again, we expect the underlying demand to land it around 18%. The Japan, Q1 sales declined by 2%, impacted by the very strong sales in quarter one 2014. And this was driven by price changes that impacted a number of products, as well as the introduction of the consumption tax. Symbicort was an example of that. Symbicort was the exempt from the price cut, but saw strong demand from wholesalers before the introduction of the sales tax in 2014. Lifting of the rio-tanki [ph] for two competitors had some initial impact, but now as you would see on the right-hand side actually had stabilized. Nexium grew strongly in Q1 despite the launch of new competitor. Revenue is up $89 million and growth 23%. Market share improved in February and March on the back of strong market growth of the segment, and Crestor continues to do well. We expect stronger performance in quarter two without these factors. We also had some exciting launches. Movantik, again, we are now booking our results had launched the 1st of this month with initial reports indicating a positive reception with physicians and increase times with rep, previously announced the co-commercialization was expected to improve this uptake in our commercial presence. Also ex-U.S. launches in early days is very much on track. For Lynparza, we have a good trajectory in the U.S. and the leading indicators such as BRCA testing is up 60% at Myriad. Also the prescribers are largely in the community setting with 88% of patients having started treatment still on medicine, but again data and the duration is not available yet, and we’ll provide more color on this at ASCO. No real hurdles at this point. In terms of BRCA testing rates, outside the U.S., we’ve seen a doubling in the last three months post-approval and brand awareness is very high, which is a positive signal as we launched the product in the second-half. Broadly speaking, this is an important first step as we build our oncology capabilities. Oncology represents 12% of our sales overall, again, we are building critical mass in the U.S. in preparations for the pipeline, and we’ll provide more update on that at ASCO. I now hand over.

Thanks, Luke, and hello, everyone. I’m going to spend the next few minutes talking to you through the financial headlines for the quarter, and then I’ll go to the outlook for the year. Looking first at quarter one, I want to highlight four headlines. Our performance supports our full-year guidance, which I will reiterate in more detail. Secondly, externalization is now an important business as a rule for us. We assume a certain level of externalization within the guidance we provide. Our commitment to R&D and our science-based pipeline remains unchanged. Pascal has already talked to you about the group progress we’re making, so we need to continue to support the accelerating pipeline. And finally, core SG&A investment cost will be a primary area of focus throughout the remainder of the year, as we implement a number of initiatives designed to reduce this cost from the highs of 2014. Turning to the quarter one P&L, total revenue grew by 1%. As you may remember, we now include externalization revenue on always product sales to form the total revenue. The quarter one 2014 performance on the slide reflects this change. Product sales declined by 3%, the result of the U.S. market entry of Nexium generic product from mid-February, as well as an adverse impact from the change in accounting for the U.S. Branded Pharmaceutical Fee. Our cost of sales declined by 8%, reflecting both an element of product mix, as well as productivity savings in manufacturing, this decrease over 2 percentage point increase in our gross margin on product sales to 83.4%. Core R&D investment, costs were up 24%, the result of the relatively low base in the first quarter of last year as well as acceleration in the pipeline and additional cost by acquisition in 2014. I do anticipate a smaller growth rate in R&D investment over the full year than the 24% seen here. Core SG&A investment cost up were 10% in the quarter, partly reflecting the comparison. Investment we made to support recent brand launches, including Farxiga and Lynparza, as well as pre- and post-launch activities for Movantik. Investment was also maintained in the pre-launch activities for the late-stage pipeline, including the oncology portfolio. The core tax rate, remain unchanged versus last year and finally core EPS was $1.08, down 3%. Taking across a look at core SG&A cost, you can see here the reduction in the quarter versus quarter four last year, where at that time, core SG&A cost had peaked. The underlying year-on-year increase at CER was 10% in quarter one, and 2% at actual rates. As I said earlier, core SG&A will be primarily of our focus throughout the remainder of the year, as we reduce cost from the high of 2014 both at the dollar level and as a percentage of total revenues. To accomplish this, we will look at a number of initiatives, improving of sales and marketing effectiveness, value raising more marketing programs globally rather than on the country-by-country basis. Secondly, we’ve been to deliver savings across a number of areas including procurement, IT and support functions. And third initiative, we involve further optimizing our geographic footprints. As you can see from the chart we’ll be facing some easier core SG&A comparison as we move through the rest of the year. We are committed to delivering this cost programs. Moving now to guidance, as I mentioned earlier, a full-year guidance which is at constant exchange rate is unchanged from that published last month. Total revenue is expected to decline by mid-single-digit percent. Consistent with our business model, we will continue to pursue you externalization opportunities from collaboration, whilst licensing select product and technologies. Looking at core EPS, we expect it to increase by low-single-digit percent this year. On top of our businesses’ usual execution there are two further contributors to how we have constructed our guidance. Firstly, the core SG&A saving that will decline by value and percentage over the full year. And secondly, the externalization opportunities I talked about earlier that continue to accelerate. What we haven’t disclosed is what we think the size and proposition of core SG&A savings and externalization revenue will be, but I want to be clear that both will be significant this year. Finally, I’d like to give you a little more detail on the two transactions, Pascal talked about a moment ago. These transactions were in line with our strategy of delivering value both through our own development and commercial capabilities, as well as through external collaboration. The co-commercialization agreement with Daiichi Sankyo for Movantik in the U.S. last month, made us recognize $200 million upfront payment to externalization revenue in quarter one, whilst allowing us to maintain manufacturing and revenue recognition of product sales. With our collaborator, we got this important new medicine and at the sometime retain our significant interest in the long-term success of Movantik, in what is our largest market. The second transaction announced this morning, is a strategic haematology collaboration with Celgene to develop and commercialize MEDI4736 in the treatment of blood cancers. Under the terms of this agreement we will receive $450 million upfront, as externalization revenue related to 4736. Also included in the deal Celgene will cover development cost in 2015 and 2016 and after that 75%. We will manufacture and recognize product sales once commercialized. We will also pay royalty to Celgene, over time the collaboration could expand to include other assets. As I said earlier, we’ll continue to pursue externalization opportunities where it makes sense for the long-term growth of our business. Thank you for listening and I will now hand over to Briggs.

Thanks very much, Marc. So I’m pleased to report on our pipeline progress over the first quarter and to provide you some updated guidance on items of track at the year-end call. If we can go forward to Slide 28, please, so I’d first like to highlight two important data readouts that occurred in the first quarter. The Phase III PEGASUS run out positive and was both presented at the ACC and published in New England Journal. And in addition, our LAMA/LABA program that came to us through the pro-acquisition also readout positive and we’re now working on summarizing this work in regulatory dossiers to be submitted later this year. We also had some important regulatory updates in the quarter. U.S. submission for lesinurad for the treatment of gout was accepted and our team is actively working with both FDA and EMH progress towards regulatory approval. The PEGASUS results were filed both in the U.S. and Europe, and what I believe is actually record time, recall the results, where announced in January, we have now filed in both U.S. and Europe. Quite importantly, we had a successful advisory committee meeting regarding the SAVOR trial with the committee voting that SAVOR study demonstrated that the use of saxagliptin in patients with Type II diabetes has an acceptable cardiovascular risk profile while also voting that the FDA should supplement the product’s labeling to add the new safety information that we derived from SAVOR. We’ve received orphan designation for both tremelimumab and selumetinib and Fast-Track designation for 4736 in the third line population. I’d like to emphasize that we believe this Fast-Track designation indicates continued FDA interest in this specific population of patients and I’ll say more about that later. We’ve also received Fast-Track designation for MEDI8897, our high-potency, extended half-life engineered anti-RSV monoclonal antibody for the prevention of lower-respiratory tract illness caused by RSV in infants and young children. We move onto the next slide, Slide 29. Those of you who attended our Investors Day in November of last year, what we call that we discuss two areas of focus in R&D over the 2015-2016 time period. The first was to achieve 14 to 16 NME submissions and 8 to 10 approval, half of them each from NMEs and half from line extensions. And as Pascal mentioned in his opening remarks, we believe that we’re still on track for that. But the second area focus was to achieve 12 to 16 high quality Phase II start. And that is why on the left panel here, I’m emphasizing the pre-clinical and clinical data that was presented at AACR last week. Those of you who attended will have seen data presented on a number of important targets in oncology including data with olaparib in prostate cancer, preclinical data with our selective oestrogen receptor down-regulator AZD9496 in ER positive breast cancer, which is now in Phase I clinical trials, clinical data with our dual TORC inhibitor AZD2014, both in combination with Faslodex in ER positive breast cancer and in combination with platinum ovarian and squamous lung cancer. You will have also seen elegant science mapping the molecular basis for the resistance to 9291 in EGFR mutant non small cell lung cancer, and some preclinical data on the combinations of EGFR inhibitors with our MEK inhibitor, selumetinib. These and other programs enhance our confidence in achieving our goal of the 12 to 16 high quality Phase II starts over the next two years. On the right panel of the slide, I show the updated progression-free survival curve from our AURA study of 9291 in patients with non small cell lung cancer, we’re relapsed after treatment with the first generation EGFR inhibitor and have T790M mutation. This data was presented at the recent European lung cancer conference and provides additional confidence in the clinical profile of this existing compound, which we remain on track to file in second quarter of this year. On the next slide on 29, I show a similar slide to the one that I showed you at our year-end results meeting that we held in January. On the left is reminder of some of the highlights of things we will present at ASCO. There’s, of course, a key highlight involving our Phase Ib trial of the combination of 4736 plus treme. That trial, of course, primarily designed to identify a dosing schedule and to characterize the safety of the combination, but there is also a preliminary efficacy data from that trial and we’ll be sharing that with you at ASCO. We’d also like to make you aware of investor science event we’re going to hold on June 1. We will give a much more detailed update on oncology efforts. I should note that we have 61 abstracts accepted for presentation, of which six of those are oral presentations. On the right side of the slide are some data highlights that I suggest you can watch out for as the year progresses and I think I’ve just covered the first item on the list and I mentioned the 2014 the AZD2014 data which is presented at AACR. Next slide is the late stage pipeline key news flow through 2015. I introduced this slide to you at the Investors Day presentation in November as a means of highlighting key news flow over the year. I’ll first note that there are three new entries on this table compared to when I first showed this to you in November. That is the selumetinib entry, the treme entry for mesothelioma and the CAZ AVI regulatory submission in the EU for serious bacterial infection. As far as new progress along this chart, the new green checkmarks, I’ve noted that PT003 positive Phase III data readout, lesinurad submission and the PEGASUS Phase III result and regulatory submissions. Pascal has touched on the Moventig launch. And again in today’s press release we’ve communicated that, anifrolumab is the agent we will be taking into Phase III for lupus. The Phase II data will be presented at an upcoming scientific meeting. 36, I would just like to repeat what we said a number of times regarding our approach. Our non small cell lung cancer program addresses multiple clinical presentations. We’re the only company with an adjuvant trial ongoing and the only company with a registration trial in patients with locally-advanced unresectable disease. Both represent significant segments of patients and we have the potential to be first in both. In terms of metastatic disease, the so-called Stage 3B 4 disease, ATLANTIC is a fast to market strategy targeting third-line patients, patients who have failed two prior therapies. This is the indication for which we achieved Fast-Track designation from the FDA. And as I said, we think this signals their continued interest in this opportunity. I’ve indicated that this opportunity depends on two things, strong data from the trial itself and a lack full approval in PD-L1 positive patients from any of our competitors. We don’t yet have the data from ATLANTIC, so we can’t comment on the actual data, although we’re optimistic based upon our earlier trials. However, I will also add that we have not yet seen the impending full approval of any agents in PD-L1 positive patients. And therefore, as of today we believe this opportunity is indeed viable and we are focused on getting the data and potentially preparing a submission as quickly as possible. I do hope to be able to show your green checkmark on that entry later this year. I also want to comment on the MEDI-treme combo. What I have in this table is as I discussed earlier, the presentation - the Phase I presentation at ASCO. As I indicted earlier, we have a dosing schedule and we are initiating trials both in non small cell lung cancer and in squamous cell head and neck cancer. And we will say much more about the strategy at our ASCO meeting. So with that, I will turn things back to Pascal.

Thank you, Briggs, great summary of our pipeline progress. On the Slide 33, please, thank you. Before we end the presentation I just wanted to leave you with this highlights from the first quarter. I guess the key message is we’re very much on track, implementing our plans, and we are very excited with this collaboration with Celgene. I think it will really open haematology as a field for 4736 and places us in a very, very strong position from a competitive view point as we develop our platform in this field and we look forward to working with our colleagues at Celgene. With this, I hand back to the operator and we can open for questions.

Sachin, got you. Go ahead.

Hi, I have few questions please, if I could. Firstly, from Briggs on CTLA-4 PD-L1 combo in lung, that combo Phase III study you referenced eminently is in PD-L1 negative and in a later line of patients. I’m wondering what you needed to see in terms of data or visibility you need from regulators to move that into PD-L1 positive or earlier lines of therapy. Just noting that Roche’s aggressive first line program and Bristol’s combo program is also in Phase I. Second question for Luke on Symbicort, U.S. sales down 1%, scripts up 18%, maybe you can just rationalize a difference between price and the co-pay assistance program you referenced and how sustainable that co-pay assistance is? And lastly questions for Marc. Just firstly any drivers of the very strong first quarter gross margin and how sustainable is that? And then finally, just a clarification on the unchanged top line guidance, when you guided a full result it was the sales mid-single-digit decline, the guidance is now revenues mid-single-digit decline. Have that revenues includes externalization revenues and the guidance has unchanged? So just wondering whether there’s been any underlying downgrade of product sales in that? Thank you.

Thank you, Sachin. So let’s start with the first question, treme PD-L1 - in PD-L1 positive questions. Briggs, do you want to address this one?

Sure, thanks. The trials that we have announced so far ARCTIC we have the combination only in the PD-L1 negatives and in the PD-L1 positive as it’s a monotherapy. And that is really to be the formal contribution of components trial to show that the combination exceeds individual MEDI4736 and treme. In third line patients we believe that a rapid way for us to demonstrate the contribution of components. But we do have plans and again we’ll talk about this at ASCO to move that combination into earlier lines of non small cell lung cancer and of course we also have the program in head and neck cancer which we’ll talk more about.

Thank you, Briggs. I should have also introduced Mondher Mahjoubi, who is here with us today, in case you have more questions on oncology. As I imagine you will have Mondher as the head of our oncology franchise as you probably remember. Symbicort, Luke, do you want to cover this question?

Yes, so, Sachin, I mean, exactly as you said, pricing and volume pretty much balanced each other out. In terms of the 25 guarantee coupon strategy, I mean, our focus really is to maintain share in Caremark and also enable TRx growth in NDC locked plants. And if we can do that and prevent spillover, then we can maintain our share and have a discussion on another day, so essentially that’s the background to that.

Good. Marc, the…

So two questions, thank you for these questions. On the gross margin you have noted the improvement of productivity and also the impact of product mix. On the first quarter, we expect that for the remainder of the year we should be in a similar territory. To address your second question on the guidance, product sales versus total revenues, we provided confirmation of our guidance last month. And we then explained to you that there will be no impact on the guidance for the accounting change. So basically, do not anticipate a downgrade of product sales for the year. We’ll note down whenever guidance for the product sale for the year hit us.

The impact on externalization revenue on the total sales, Sachin, is not to an effect of really substantially changing the guidance, which we don’t specify to the decimal points. If you member, it’s a range, so with the externalization revenue, we’re still in the same range. We could expect that we will be in the better place of the range, but still in the same range, should we move to Alexandra? How about Alexandra, do you want to go ahead?

Hello, good afternoon. Just a couple of questions, basically on the Celgene, can you just clarify that exclude - this is focused exclusively on PD-L1 and doesn’t cover your work you’re doing with both the [Four-H and mizenomab] [ph], and if it doesn’t whether that’s potentially expanded later on? And the second question is for Briggs on Slide 30, where you highlighted on the right the data we should be watching. I think I understand why we should watch some of those. For instance, I think you have said before that, so the listeners maybe able to - maybe follow the base on that Phase II data that can you just go through the individual basic [ph] points that says where there is a potential fast to market exit strategy based on that data. And just a quick follow-up on Symbicort, so this is the 19%, 20% difference between prescription and value, is that a fact that we can view going forward, or is that still [indiscernible] kind of thing in the first quarter?

Thank you, Alexandra. The line is really not very good, so personally I have not understood all the questions. So maybe we can start with the question for Briggs. Hopefully, Briggs understood it. Briggs, do you want to go ahead?

Yes, I think, Alexandra, your question was on Slide 30, the data highlights to watch as the year progresses, some of those are Phase IIs and I think your question was where any of those potentially fast-to-market opportunities. So obviously the tremelimumab mesothelioma trial although called Phase II is randomized trial that could lead to regulatory submissions early next year. The early data that you may have seen with the tremelimumab in papillary renal cell carcinoma could also represent a fast to market strategy. Some of the combinations the Phase II work with 2014 because there in combination takes a little more work to demonstrate those components.

Thanks Briggs, and the first question I hopefully I got it actually, Alexandra. This alliance with Celgene PD-L1 is in haematology and today it is focused on PD-L1 it could be expanded potentially, but the agreement we announce at this stage focused on PD-L1 in haematology only. And essentially, we say this has really a transformative alliance in haematology, where we don’t really have the capabilities yet. We have strong capabilities that we have been building in solid tumors but haematology is very specific. And we believe that together with Celgene we can do a lot better than we would have on our own. So hopefully this was really your question, and if you want more details then we ask Mondher in a minute. And as far as Symbicort, let me just add that maybe look if you want to add more but the sort of, I had to call it rebate, if you want is a mixture of rebate and also the cost of those co-pay assistance. The co-pay assistance is not necessarily something that will last forever, it’s a strategy we are implementing. We could keep it or we could remove it depending on access, depending on manufactures. And so it’s very at this stage - I wouldn’t want to comment too much in terms of how this would evolve over time. Mondher, do you want to add anything on…

Yes, very quickly to say that. First of all, we have already ongoing 31 clinical trial in immuno-oncology testing PD-L1 is on monotherapy or in combination in a variety of tumor type, almost 22 methods. So the addition of haematology will either will further expand our footprint in immuno-oncology in both solid and liquid tumor. And the second piece is that, yes, PD-L1 4736 is the first step in this collaboration. But as you know, Alexandra, the multiple hallmark of the RU cycle that are essential in the heme disease. So of course it will include other both small molecule and also biologics that we are looking forward to partner with Celgene.

Thank you, Mondher. Tim Anderson with Bernstein. Tim, do you want to go ahead?

Thank you. I have a high level question that you may not like very much, but it relates to the earning targets of the board that’s set for the company and how that maybe impacting strategy. So as you’ve disclosed before you essentially have to hit around €420 million in earnings to get paid. But as we saw last quarter, we saw this quarter that’s not exactly where the earnings numbers naturally want to fall. Revenue seems to be declining a little bit faster and the spending is ramping up quicker. So to offset that in certain instances you’re selling off assets to book asset sales and the whole thing is a bit artificial. But beyond the pure financial mechanics of this, the bigger risk I wonder about is whether you can end up regretting selling off some of the assets you have over the long run by giving too many pieces way or returning into too many collaborations which can start to get messy. Usually, pharma companies are asset gatherers, not asset distributors, but I know you’ve certainly been bringing in assets as well. So I’m wondering if you could just kind of address these points, and whether - it’s really the right strategy to have those earnings targets and whether it’s artificially dictating how you approach the business. And then another question on the ATLANTIC trial you talk about the progress of competitors being a gaining factor, whether you could file early on that, because your compound has a PD-L1, that’s mechanistically slightly different than Merck and Bristol. So isn’t the only relevant competitor here whereas with their PD-L1, and whether they file early in that biomarker positive population?

Okay. So thanks very much, Tim. I’ll ask Briggs in a second to answer your ATLANTIC question. Let me address the first one. Actually, it’s not that I don’t like, I actually I like the question, because it enables me to address really a fundamental point, which is this collaboration. It’s really interesting that some people would think with selling part of assets. I mean, I think, what we’re trying to pursue really is a strategy where we maximize the potential of each of our assets. And what that means and we turn the science to a great science and the productivity we have in our biotech units into reality for patients and for our shareholders. And so the question is it’s time, what’s the best way to do that? And we’ve decided to focus on oncology, cardiovascular, diabetes, respiratory medicine, and for the rest, we can’t do everything, it’s not only a question of money and profit, it’s also a question of focus of our organization and ourselves as a management team. And so in the other therapy areas, as we said before, we look for partnerships, we’ve done that with our best in EBITDA and we’ll do all those things like this. And when it comes to oncology, of course, I can understand that some people would wonder why would you partner something, which is in your oncology business. And fundamentally, I think, it’s really important to understand that haematology is different. I mean, I’ve been involved in haematology and in solid tumors myself with my previous company. So I think I sort of understand the difference between the two. And I don’t think you sort of wake up one morning as haematology company. We have a history - AstraZeneca has a history of strength in oncology, in solid tumors. Now, over time, we are starting to lose these capabilities, because we didn’t have much product. In the last two years, we rebuilt those capabilities. And - but it’s not that easy, it takes a bit of time. In haematology, we concluded that we are better off partnering with a strong company that would enable us to turn this period one opportunity into really a big opportunity. So what we are doing here is partnering something that in the end in our hands probably we would have had less value than if we do it together with a top company. So I would potentially understand the challenge if we had partnered with a sort of a company that has no expertise in haematology. But when you partner with a company like Celgene, what it does is hopefully, send a signal that we have a great product. But importantly, send a signal it is a great product in haematology has a chance to be a leader, and it would be much, much bigger than it would have been in our hand. So we are really going to create a lot more value. So haematology is really a special case. And clearly, we do this out of strategy of maximizing our products. The financials are helpful, but if we needed to generate short-term profit, we have many, many other options believe me to divest whatever products that are not part of our core, I mean, all the companies have done that in the past. We can do this. We’re not doing this. We’re kind of creating value long-term with this haematology focus. Hopefully, over time people understand the difference that it will create for PD-L1 in haematology. Here, we have a chance to win the race and be a real leader in that field. Briggs, do you want to cover the PD-L1 ATLANTIC question?

Yes. Tim, thanks for the question. So to be clear the accelerated approval regulations, offer an opportunity to show benefit over what the FDA considers to be existing approved standard of care. So I think that competitor has actually made some public comments about - question about the PD-L1 positive patient. And had said that in the PD-L1 positive population, should there be evidence that an agent provides an improvement over except its standard of care. They would - people tend to look at that type of an application. I don’t think it matters what the mechanism is of the agent that shows an improvement over standard of care in PD-L1 positive patient. So, yes, of course, Roche is a key competitor, but we consider Merck’s program in PD-L1 positives to be an important competitor to watch as well.

Pascal, I’m trying just go back, I wasn’t just referring to the Celgene deal. But just - but general idea that board has said a number that’s kind of forcing you guys to re-categorize revenues and things differently than most of your competitors would just book at lot of assets sales as continuing operations revenues?

Yes, I mean, sorry, I’m - maybe I should have to address that one more specifically. I mean, this is a target that we have, which I think overall is actually a good target, because we have to define our profit here. But more importantly, I don’t think we should necessarily conclude. This is forcing us to do things we would not do otherwise, because what is doing here is, in fact, what we’re doing here is implementing the strategy that we communicated last year, which is - we everybody - every company has limitation resources. Everybody has to make a choice, series of choices. So we could have decided we’re going to stop a great variety of projects. We’re going to close a number of research efforts, which is what many companies do. We said no, we have great scientists, great science, and we’ll take this science and bring it to patients to create value. And, of course, it’s not going to be a 100% value left with us. But we’ll get 50% of a bigger value. I mean, the base in EBITDA is another good example. It would be bigger with Lilly than it would have been in our hands and we keep 50% of a bigger pie, if you will. So we’re basically implementing a different strategy. It’s a strategy, which is a mixture of what a biotech company would do and what a large pharma company would do, and we don’t want to necessarily to be a large pharma company like everybody else. We have biotech units. We set our business up that way, and now we want to kind of allow them to turn these products into reality. Otherwise the alternative is, we stop doing CNS activities. We stop doing an infection. We stop doing a variety of things. We said no, we will turn these products into reality differently. So, I mean, so it’s maybe a long answer. The €420 million no doubt is suddenly a target that is not necessarily easy to achieve, but everybody has challenging targets. But I really don’t think it is necessarily forcing us to do things that are bad, because we are actually going to focus ourselves on the few things we do well, and the rest will look at partnerships. And your point about not having too many partnerships is a good one, and suddenly one that we’re considering. Of course, we don’t want to have so many partnerships that becomes and widely to manage. Should I ask Andrew to jump in? Andrew Baum, do you have a question?

So, a couple actually. First, going back to page 30 and news flow for the remainder of this year, if I look at the top four drugs, 9291, selumetinib, 4736, tremelimumab and there is five indications there. They are all for significant unmet medical disease where you already have very strong signals from these trials or from the existing trials. I guess, what I’m saying is, assuming this means you are going to be able to file all these four drugs, four, five indications, including mesothelioma, as well as uveal melanoma, maybe neurofibromatosis, obviously 9291, which means that you will have five new approval those early adds first quarter of - or second quarter of next year, given the FDA stance towards unmet medical disease. So I’m interested in comments on that whether that - within the spectrum of possibilities where you see that? Second, I’m interested in whether you participated in the Pharmacyclics process at any stage as a precursor, as an alternative to the Celgene transaction, and if not, why not? And then perhaps you could comment on your comment Marc around actually your expectations both for 2015 a little bit more color and longer-term how you are thinking about given the business needs? And then finally, in China there was recent announcements related to pricing for moving price cap. How you think that will impact your Chinese business going forward? So I apologize for the number of questions.

Yes, page 30, first of all, maybe we could ask Briggs to comment on this one, and we will hope that you might be good, but it might be right, sorry, Andrew. And if indeed, you are right, in the end it is clearly one more reason why we need to focus ourselves and we can’t be everywhere. And so we have all these launches to prepare. We have this, but we have to keep developing those products to their full potential, and that’s another reason why in haematology, we thought, we should not necessarily do it ourselves. So Briggs, do you want to cover that question.

Sure. Well, so, Andrew thanks for your question. And for sure, the scenario that you have outlined is completely possible and we are prepared for such as undertaking from a regulatory submission, regulatory defense, and potential launch of those products. And I would say I’d leave to Luke and Marc Dunoyer to comment on the commercial preparedness for those launches as well. And I will again echo with Pascal just said, I do think that the hematology deal actually is a wonderful opportunity for us to partner with somebody who can focus on some of the other diseases while we continue to focus on the whether –you correctly outlined, could potentially be five new product launches in oncology.

Luke, would you cover the China question?

So in terms of China, I think board trends remain. I mean, you’ve got high unmet need, as you go into the lower tier cities and the other provinces are still going to be a gap between what most patients can afford an innovative medicine. So that brought, patent is unlikely to change. I think capping elements like that, we have to see how that’s actually implemented at the province level. What we are seeing is more competition at the tendering level in hospitals and a lot more experimentation at the provincial level in terms of ways of accessing medicine. So, again, if we look into the future, tier pricing and combinations of access programs for the oncology portfolio is going to be critical for us to drive growth.

Thanks, Luke. In term of Pharmacyclics, although we typically do not comment on discussions we may or may not have been involved, as you can imagine. But we felt suddenly that, we needed a strong partner in haematology and our conclusion was suddenly Celgene was the best partner potentially that we could find to maximize the value of PD-L1, so that probably what I would leave it. In term of your SG&A question for Q1, I will ask Marc. There is an e-mail question from Eric Le Berrigaud. Let me read this question for everybody’s interest and you could go with both questions at the same time. And Eric’s question is, do you need further nonrecurring positive externalization revenue or other income over the next nine, months, 12 months to reach core EPS targets low single-digit goals. And do you confirm the €450 million from Celgene goes for P&L in Q2, and has an excellent positive impact for EBIT in 2015. Maybe you could cover both of those questions and…

Okay, let me try to do that. So first of all to answer the question on SG&A, you will have seen that the first quarter is slightly under the average of 2014. But we have also said that for the whole year of 2015, the SG&A will decrease in value and in percentage. So we will - we doubled our efforts and make sure that we contain the SG&A expenses for the rest of the year. We will continue our effort on G&A on general and administrative expenses, we have done this for several years. We are continuing this effort. This is basically IT. This is basically and also some functional cost. For the sales, medical, and marketing, the medical is going to increase, as we move the transition to a specialty care company. The marketing is going to be the double the expenses that are going to reduce the most dramatically. But overall, you can already take some hint at what we have been able to achieve in 2015 first quarter, but it will accelerate for the cost reduction. Regarding the question of the nonrecurring, let’s call, nonrecurring externalization. First of all, we intend to make these externalization recurring. And do we still need to do further more for the rest of the year, the answer is, yes. We have said that we will have a combined effort on the SG&A and on externalization revenues. We haven’t given the proportion, but both are going to be very important. So yes, we still have some more work to do on the externalization values. We are trying to turn this into a business model and recurring incomes.

Thanks, Marc. And in term of SG&A or so, I would like to attract your attention to the fact, you should look at the whole year or not first quarter, because you saw it slightly a bit earlier that showed you the trend quarter-by-quarter, there is a peak in Q4 last year. Q1 this year is back on trend of the previous quarters of last year. So just the mechanical effect of the blip in the increase in Q4 last year and the impact on the whole year, plus the effort that Marc described will take us to where we need to be in term of SG&A reduction. James Gordon, James do you want to go and ask your question.

All right. Thanks for taking my questions. James Gordon from JPMorgan. Two sort of oncology questions and one financial. So first question was about the combos of the PD-L1, CTLA-4 - so Q4, you sort of - the dosing have been sorted and it was administrative issues remained and it would start running shortly. But the trial hasn’t quite started yet. Can you just say what the administrative issue was, and is it something to do with the scheduling. Can you just say what does could scheduling actually mean in this context? Are you exploring another way of combining the two, say, CTLA-4 and PD-L1 or something like that?

Is it your only question, James, that’s what you said you have two questions?

So the other question was just an ASCO, one of the other piece of data we’re going to see is in melanoma, so the PD-L1 BRAF MEK, and just how promising do you see the approach, when we’ve seen strong PD-L1 CTLA-4 data [Technical Difficulty] being approach, it doesn’t look like PD-L1 CTLA-4 is a very strong approach and a very tough part to be? And then the third question was just on financials. I’m just - confirm me how it’s going to work with the Celgene deal? So the - you are going to the book all the sales, I believe then with the royalties that you’ve found will not go through the P&L, or [Technical Difficulty] arrangement where it’s an off P&L item for the royalties?

Thanks, James. I’ll let Marc explain the financial question. The royalty is just to be very clear - royalties will be a cost item in our core results. And I’ll let Marc explain the difference and accounting treatment that is driven by the accounting standards actually we do in the two deals. So Briggs, do you want to cover the first two oncology questions?

Sure, be glad to. So the first one on ARCTIC and getting the R&D, the combination in up and running. Well, you’ll see in detail at ASCO the dose and scheduled question, it is both at dose and the schedule, and we’ll explain what I mean, you’ll see that when we present at ASCO. The administrative things are essentially working with health authorities in IRBs to get through the scientific review and the regulatory review and get the sides open and get the trial running. So that is now well underway, and we really do think that in the next couple of weeks, we’ll be able to get RMB opened up and enrolling patients.

Thanks, Briggs. So now you explain the - so just to go back to the BMS acquisition, we - it was a business combination, so we acquired assets, but also capabilities, personal, and development capacity. So we have to treat it as a business combination and this is why all the positives that are paid or to be paid to the other party have to be combined. It’s a business combination, you have to combine the asset, and then you amortize them over time. In the case of the Celgene transaction, we will book the sales. And as Pascal has just summarized value, we will also book the royalty that we have to pay to Celgene through our P&L. So it’s a very - it’s almost a simpler deal in a way than the deal of BMS integration.

Thank you, Marc. We have a question from Simon Baker at Exane. Simon?

Thank you for taking the questions. I’ve got three, please. Firstly, there were a number of references to wholesaler destocking and wholesaler movements in the U.S. So I just wonder if you could give us a little more color on outlook for the trends you’re seeing with destocking on Crestor and Onglyza and wholesaler returns post the Nexium genericization. Secondly, question for Marc. Just going back to the comments you’ve made on SG&A. I wonder if you could give us a little color on the trends in SG&A specifically, both in terms of changes and proportions of the total of SG&A now versus history? And finally, I may have missed the answer. I’m not sure if you answered a question on the booking of the Celgene payment, as to whether that will be booked in its entirety and externalization revenue in Q2? It would be good, if you could give us an answer to that. Thank you.

All right. So I’ll ask Marc to go over the financial questions in a minute. Luke, you will take care of Onglyza inventory. Nexium returns, let me just deal with this. Nexium returns, there is a bit of confusion here, there is no returns, per se, it’s actually, we have to book the - we have to take a provision for potential return. So essentially the rule is that when you lose patent protection, you have to estimate what you could have as a return and then take a provision for this. So it’s not that there is a lot of inventory in the trade that is return to us is just an estimate of what could be returned, may not be returned actually, but could be returned, and you have to take a provision for that. But before we address this, I’ve just realized, we didn’t really cover a question that was asked before on melanoma, PD-L1. And we have Mohammed Dar, the Head of our Early Clinical Development Group, Oncology on the line. Mohammed, do you want to cover the question on the melanoma, PD-L1 plus BRAF/MEK? Mohammed, do you want to go ahead?

Sure. I’ll be happy to do that. I think there is a couple of things to keep in mind. I think we’re encouraged by the early data that we are seeing with the triplet combination. So from a safety profile, which is one of the important consideration, we’re encouraging that, you’ll see the data at ASCO. I think the other component as you were mentioning, was the comparison to IPI/NIVO in front line. And so while we’re encouraged by the early efficacy data, I think long-term durability is where the question still remains, and that’s the promise of adding a checkpoint to see whether the high response rate can be maintained over time and be comparable to IPI/NIVO, and that we need to wait for the data to mature. So I think we’re encouraged by the early safety data, as well as the efficacy data, but we need more time to see about the durability of the triplet.

Thanks, Mohammed. Marc, you want to cover the…

Yes. Just very briefly, I think it’s the - on G&A, this is a continuation of the effort we have initiated sometime ago. We made already some good progress in 2014, we are going to redouble our efforts, and try to provide as much money for the sales, medical and marketing, as well as R&D. So that’s been - we have been doing this for some time, we’re going to continue doing it. There’s nothing exceptional and the rate of G&A on sales will be lower in 2015 than it was in 2014.

And the Celgene payment, booked in externalization?

So the Celgene payment, the $450 million will be recognized as an externalization revenues in the second quarter, or when the transaction is closed, because this needs to be done.

With stocking, Onglyza, that’s why we called it out, it’s around $9 million for the quarter. For Crestor, what we did see in January is slightly lower TRX share that we were expecting. I mean, there is seasonality with CV products, of course, as patients wait to see which plan their employers are going to take. So they can be reluctant to fill scrips at that point. But, again, we expect this to work itself out and NBRx is again growing in February and March. And, of course, on top of that, which is not always visible is the impact of the fee, which was employed, as I said, that ranges between 2.5% and 3% on products in the U.S., which can distort the figure somewhat.

Thanks, Briggs. So I’m really sorry. I know, we have more questions, but we have to stop at 1 o’clock, and so we unfortunately need to end our Q&A now. Let me just thank you all for joining us today and those who have still questions if you could contact our IR group, that would be great. And I’d just like to leave you with a parting thought that we believe we had a good start for the year. We’re progressing our pipeline. We’re implementing our strategy, which includes this externalization dimension, which is a sustainable part of our business model moving forward. We’re on track to deliver our goals. We believe we can deliver the guidance for the year. And the most exciting part is, we believe we’re making tremendous progress with our pipeline. So with that, thank you so much for joining us.