AstraZeneca PLC (AZN) Q1 2017 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen and welcome to AstraZeneca's Q1 Results Analyst Conference Call. Before I hand over the call to Pascal Soriot, AstraZeneca, I would like to read the Safe Harbor statement. The company intends to utilize Safe Harbor provisions of United States Private Securities 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 those expressed or implied by these forward-looking statement. The company undertakes no obligation to update forward-looking statement. There will be an opportunity to ask questions after today's presentation. [Operator Instructions]. We will now hand you over to AstraZeneca for the call is about to start.

Hello everyone, I'm Pascal Soriot. Welcome to the first quarter results conference call and our webcast presentation for the investors and analyst. We are in London today, where we are also hosting the Annual General Meeting this afternoon. We have people on the phone and on the webcast. The presentation is available online for all of you to download. Please turn to Slide 2; this is the Safe Harbor statement so moving onto Slide 3. We plan today to spend about 30 minutes on the presentation and then leave 30 minutes for Q&A. In total, we have exactly one hour together and we need to end on time as another company has a conference call starting in one hour. If you want to ask questions from the phone, you can get in on the line already now by pressing star one, there is also an option to ask questions online after the webcast. And we need to stay on time, please limit questions to one per person. This is to make it fair to everyone on the call. Thank you for your collaboration, we start. As usual I'm joined by Marc Dunoyer, CFO. Mark Mallon, our EVP for Global Portfolio and Product Strategy, Global Medical Affairs and Corporate Affairs and Sean Bohen, our EVP for Global Medicines Development and our Chief Medical Officer. We also have online Jamie Freedman, Business Head for Oncology. Please turn to Slide 4, so this is agenda today and move to Slide 5. So before we get started on financials just a reminder that we made refinements in our results announcement this morning. Emphasizing actual growth rate alongside growth rate at constant exchange rate. On our conference call today, we'll be making comment on our financial performance at CER which is a non-GAAP measure. With the formalities behind me, I'll now kick off. So in summary, we had a good start to 2017. Total revenue declined in the quarter primarily reflecting the tail of the last of US exclusivity for Crestor. New AstraZeneca which we define as the three main priority areas and the established medicines in the emerging market grew by 6% in the first quarter. The emerging markets were really a highlight and they were up 9% and they're now the biggest sales region in AstraZeneca. Within this region, China continued to perform well and so regulatory approval and launch for Tagrisso and approval for Forxiga. Our respiratory business delivered stable performance despite the ongoing challenges in the US and Symbicort remained the global leader by volume market share. In diabetes, another competitive field Farxiga continued to grow in all market. Despite subdued US goals due to the affordability programs and managed-care access. Brilinta continued to excel. Tagrisso was expanded on its impressive launches in the US and Europe and in Japan and now we are also accessing the private market in China. The core earnings per share declined was limited to 4%, given the continued cost focus, but also due to the continued sales progression of the New AstraZeneca. Now we'll turn to Slide 6. Our pipeline delivered very strong results since the last result announcement. This is most transistor [ph] of highlights for a long time. Let me cover handful of news items. First of Tagrisso news included the conversion from accelerated to full approval in the US and the EU and the important approval in China, that follows the very accelerated regulatory review. In the meantime, we've also launched Tagrisso in China with very good start. Lynparza received the regulatory submission acceptance and Priority Review in the US for the 2nd line application in ovarian cancer as well as an Orphan Designation for the same cancer in Japan. As the first ever type inhibitor Lynparza met a Phase III primary endpoint in BRCA-mutated metastatic breast cancer. Forxiga received the approval in China and SGLT2 class including Forxiga showed encouraging CVD outcome data in the CVD-REAL world study. Diabetes, the new Bydureon autoinjector was accepted for US regulatory review. The disappointing news was that we received a complete response later for ZS-9 in the US. However there are more milestone that shown we speak to later on a good start to 2017, should bode well for the rest of the year. Please turn to Slide 17. So when we look at New AstraZeneca it was another strong quarter where product sales grew at by 6%. All CRP areas contributed and so did the established medicines in the emerging market. As we move forward, these areas will be the key growth drivers as we exit the major patent losses for Crestor in the US. By July this year comparisons will ease and we look forward to keeping you updated on our return to growth in product sale. This graph in the light gray shading shows you that we are reaching the end of the impact of this large patent expiry. Please turn to Slide 8. As we begin returning to growth, our focus is increasingly on commercial execution and we've already launched Bevespi and Qtern, this year. At the end of the year, we anticipate the launch of Benralizumab our first biologic severe uncontrolled asthma. In bladder cancer, Durvalumab, US PDUFA date remains this quarter. We're also encouraged by the positive Phase III data for Lynparza and Metastatic breast cancer. There is also more new pipeline news flow expected over the next few quarters with MYSTIC and FLAURA as two important highlight. With the opportunity in 1st line lung cancer shared between Tagrisso and our IO medicine. We have the chance to become a leader in the treatment of lung cancer and so far we remained very confident in the MYSTIC bar refinement. With this, I'll now hand over to Mark Mallon.

Thanks Pascal. I'm pleased to be here with all of you today to talk about performance of the growth platform and we'll get started by moving to Slide number 10. So our growth platforms continue to demonstrate overall growth in the quarter despite a stable performance in respiratory. The combined revenue, our five growth platforms represented almost two-thirds of our total revenue in Q1 and momentum was clearly seen in emerging markets and in new oncology. I'll touch on the performance of emerging markets in Japan, but I'm going to focus most of my remarks on respiratory, new oncology and our cardiovascular and metabolic platform which we'll refer to new CVMD. This group's together Brilinta and our both diabetes products and medicine. Slide 11, please. So first turning to emerging markets. We continue to remain on track to deliver a long-term performance goal of product sales in the mid to high single-digit range. Emerging markets as Pascal mentioned is now AstraZeneca's largest sales region. With the growth being driven by the growth product Brilinta, Forxiga and respiratory. China continues to be a key driver where we recently received as Pascal mentioned approvals for Forxiga and Tagrisso. Turning to Slide 12, taking a look at our respiratory franchise. Sales stabilized in the quarter after challenging second half of 2017. With downward pressure in the US being offset by strong emerging markets performance. Symbicort continue to grow unit volume up a few percent and continues to lead the ICS LABA class globally. Product sales were down by 8% reflecting pricing headwinds in the US and competitive dynamics in Europe. This product was offset by the positive emerging markets and established rest of the world growth. In the US, Symbicort product sales declined by 21% to slight volume growth. We continue to see significant price rising and as previously mentioned the effect, the pricing pressure to be strongest in the first half of the year. In Europe, Symbicort product sales were down by 9% with continued pressure from both branded and analog competition. Emerging markets delivered growth of 10% with Symbicort sales in China up by 24% in the quarter. And Pulmicort continues to grow further. Up to 14% in the quarter with volume emerging markets growth of 28% mainly driven by time. Bevespi launched successfully in January in the US but from in line with the previous launched products in the class and early feedback from positions to spend positive. We plan to make a regulatory submission for Bevespi in the EU soon. Turning to Slide 13, just taking step back for a moment from sales in respiratory. We really believed our overall respiratory strategy is well positioned to take advantage of the expected market expansion over the next 10-year. Significant unmet need still exists with Asthma and COPD currently effecting 600 million individuals worldwide. The inhaled market is forecast to grow in volume particularly in the emerging market with new treatment approaches driving further expansion. Biologics forecasted accelerated growth further due to increased penetration and earlier use of biologic and our respiratory portfolio is well positioned for this evolving market. With Benralizumab, which is been accepted for regulatory review in the US, the EU and Japan. Tralokinumab, the Phase III data readout in the second half of this year and Tezepelumab, which met its primary end point in the Phase IIB trial pathway. Our ambitions in respiratory go beyond our current inhaled and biologics portfolio. We will continue to push the boundaries of science in our early pipeline with the goal of early intervention and ultimately effecting a disease modification. Slide 14, please. Now turning to New CVMD, which represents our on patent medicines and CV Metabolic Diseases and that support our return to growth strategy. The New CVMD sales were up by 6% despite intense competition. The strong performance in emerging markets upsetting weaker US performance. We continue to focus on Brilinta and in diabetes Farxiga and Bydureon. Brilinta delivered product sales of $244 million in the quarter with 27% growth. Notable performance was seen in the US, in China and emerging markets. We remain confident that Brilinta will become a $1 billion blockbuster product this year. Brilinta emerging market sales grew by 54% to $60 million, with China sales increasing by 68%. US sales increased by 24% reflecting updated guideline and in Europe sales were up 12% and Berlin continues to outperform the OAC [ph] market in this region. In diabetes, we continue to focus on the two medicines that have the potential to offer a CV benefit. Farxiga and Bydureon. Our diabetes franchise exhibited a softer quarter with minus 1% sales growth. Product sales in the US declined by 7% results of intense pricing pressure and competition from market share. Europe exhibited growth of 1% with Farxiga offsetting losses Onglyza [ph]. Farxiga maintained a 40% share globally with product sales of $207 million in the quarter and 25% growth. We expect growth will be supported by the broader knowledge in the medical community of the CVD REAL-data confirming the morbidity and mortality benefits of this class of medicine. In the US Farxiga outgrew the SGLT2 class and product sales were up 2%. Subdued affordability programs and managed-care access. Farxiga delivered strong growth in year and emerging markets with sales up 24% and 90% respectively. And Bydureon return to growth in the first quarter to 14% growth driven by the US and established rest of the world. Sales of $153 million in the quarter. We are also very excited to announce that the FDA has accepted the autoinjector for regulatory review in the US. Please turn to Slide 15. In Japan, we return to growth. Product sales were up 3% in the first quarter driven by Tagrisso, Forxiga and Nexium. And this included 6% decline in pricing as result the national price cut in April 2016. Tagrisso sales continue to grow in the Japanese Yen sequential quarterly growth with 7%. T790 testing levels are now at 85% of which about a quarter is from the new blood-based test for the T790-mutation. In March, Lynparza in Japan. Lynparza was awarded the Orphan-Drug Designation for ovarian cancer. It ensures a shorter regulatory review. We anticipate a second new oncology launch in Japan in 2018. Slide 16, please. Finally. Turning to new oncology, 2017 continues to be an exciting year for us. New oncology product sales of Tagrisso, Lynparza in the US and rest of, were $236 million in the quarter. Tagrisso continue to demonstrate strong uptick in the US, Europe and Japan. The global product sales of $171 million and 48 regulatory approvals. In China, we have launched Tagrisso in April with a few months ahead of industry benchmark just after a few weeks between approval in the first sales really remarkable performance by our teams across the globe and in China to make this happen and this included obtaining the import license. Lynparza Q1 product sales were $57 million up 32%, we continue to see growth driven by higher testing rate in market penetration. We also saw increase in competitive pressure in the US. We will look to expand the current news is [indiscernible] trial data in 2nd line maintenance of ovarian cancer and we look forward to further label expansion trials outside of ovarian cancer like breast cancer where we have new data now. So to conclude, overall we saw solid performance from our growth platform. We're looking forward to the next wave of launches and together they will drive the emergence of AstraZeneca as the New AstraZeneca. Thank you for listening and I'm happy now to turn the focus to Marc.

Thank you, Mark. Hello, everyone. I'm going to spend the next two minutes taking you through our financial performance in the first quarter. Could you please turn to Slide 18? As usual, I'll begin by showing the reported P&L numbers before turning to the call numbers. Total revenue declined by 10% in the quarter impacted by the entry of the US multiple generic for Crestor in July last year. Externalization revenue increased by 3%, as previously highlighted we expect sustainable and ongoing part external revenue to increase overtime and in the first quarter, this increased to 32% of total revenue from 21% in the whole of 2016. Please turn to Slide 19. If we now turn to the core performance, we can look further down the P&L and see that our gross margin in the quarter was down at constant exchange rate by 1 percentage point to 83.6%. Effecting the change in mix of sales including the impact of [indiscernible] partly offset by the resilience of some legacy medicine in established market and the growing influence of specialty care medicine. The absolute gross margin benefited from foreign exchange. It is important to note that we do not anticipate virtual high gross margin to continue over the full year. However, I would like to make an additional remark. There was no real change in gross margin from emerging market now being the largest sales region. Core R&D cost declined by 3% in the quarter and core SG&A cost declined by 12%. This decline reflects our focus on cost control and support full year commitment of [indiscernible] broadly stable, as well as reducing core SG&A cost. Again, we do not anticipate such similar reduction in core SG&A cost of over full year. Core other operating income increased to $333 million including a gain on disposable of short-term investments as well as milestone receipt from Pfizer. The growth accelerating the quarter was 17% which was within the 16% to 20% range we have indicated for the full year. As Pascal mentioned a moment ago, the core EPS decline of 4% was limited by the favorable sales progression of New AstraZeneca in our relentless focus on cost. Please turn to Slide 20. This slide will be now familiar to you. Illustrates the important progress we have made towards taking cost out of the business. I'll just mention core R&D decreased by 3%, whereas core SG&A cost decreased by 12%. The SG&A declined equivalent to 1 percentage point of total revenue was partly driven by the simplification and long standard for the centralisation of share services including back and mid-office activity. We recently launched the Global Business Services organization which overtime will increase the level of integration and allows to focus on cost further. We remain committed to continue reducing our cost base this year. Please turn to Slide 21. To conclude I want to reiterate, the 2017 guidance which is at constant exchange rate. I expect low to mid single-digit percentage decline in total revenue. Core EPS is anticipated to decline by low to mid teens percentage. Our set of guidance the total percentage revenue and other operating income is still expected to be ahead of that in 2016. The standard goal in ongoing income is expected to increase as a proportion of actual revenue in 2017 and beyond. We anticipate that core R&D cost will be broadly in line with 2016 and as I just mentioned now. We plan to make further reduction in core SG&A cost. As I highlighted before, valuation in performance between quarters can be expected to continue with year-on-year comparison again to ease in the second half as we begin to lap the impact on the loss of Crestor in the United States. Our capital-allocation priorities remain unchanged. We will continue to strike a balance between the interest of the business of financial creditors and of shareholders. After providing for investment in the business reporting the progressive dividend policy and maintaining of strong investment-grade credit ratings, we will keep under reviewing any potential investment and value enhancing and immediately earning the created opportunities. With that, I'll hand over to Sean.

Thank you, Marc. And I would now like to run through the late-stage pipeline events since the last result announcement. The highlights of recent data presentation and then wrap up with a look at our upcoming news flow. Please turn to Slide 23. As you can see here, it was quite a busy quarter. With progress in all therapy areas and as you will see through my presentation we anticipate this type of continuous through the year. To highlight approvals achieved led conversion to full approval for Tagrisso in the United States and the EU. Approvals for Tagrisso and Forxiga in China. Qtern was approved in the United States for type-2 diabetes and the approval for Siliq for psoriasis by our partner. For regulatory submissions accepted. Lynparza was accepted in the United States for 2nd line ovarian cancer supported by data from SOLO-2 trial and Study 19 trial. This submission was granted priority review. The Bydureon autoinjector in the US was accepted. This anticipated approval makes medicine more convenient to patient to administer. Symbicort specifically for exacerbation and COPD and Benralizumab in China for severe uncontrolled asthma. We received the second complete response letter for ZS-9 related to manufacturing issue. We remain committed to bringing this important medicine to patient with hyperkalemia and are currently working with local regulatory agencies to accomplish this goal. Complete the picture, we had the positive Phase III trial for Lynparza OLYMPIAD and this compared Lynparza to chemotherapy in metastatic breast cancer. As many of you know, we will have these data to present at ASCO in June. Please turn to the next slide. At recent oncology medical meetings, we have kept up the positive momentum with data presentation. We've presented updated bladder cancer data from Study 1108 as a reminder we're under regulatory review in the US following our mid-December announcement of submission acceptance with a PDUFA date in this quarter. We had additional concordance data on PD-L1 diagnostic assays with an effort to reconcile various existing test for PD-L1. We had Lynparza's SOLO-2 data at the Society of Gynaecologic Oncology Meeting presented in March and early data at the AACR meeting on a number of our medicines and innovative biomarkers including more advance data on our TLR7/8 agonist in solid tumors and Lynparza combined with temozolomide in 2nd line small cell lung cancer. You can turn now to Slide 25. With this slide I'll conclude on oncology. This slide will be familiar to you demonstrating our commitment and expected upcoming Immuno-Oncology data readout from Phase III trial ongoing. First a few update, we had last patient began dosing in KESTREL since the last update on the pipeline as well as in DANUBE for the global trial which excludes China. We had first patient dosed in PEARL, which is a 1st line IO trial specifically in Asian patient and we also had a first patient dose in CASPIAN. CASPIAN is not listed on the slide it is a Phase III trial in small cell lung cancer. For data in mid-2017 as you all know will have the first data from MYSTIC. This will be the final PFS analysis. We're confident in recent trial refinement that we discussed last quarter and shared with you. You also know that some of these refinements have found their way into other programs and other indication namely the NEPTUNE and KESTREL trial. In the second half of 2017, we'll have the first data for ARCTIC in 3rd line PD-L1 low negative non-small cell lung cancer patient. This pushed out from our expectation in the first half of 2017 because of a slower accrual of events as we described in the result announcement that we circulated this morning. Further in lung, we expect data from PACIFIC in stage III unresectable non-small cell lung cancer. We will also see KESTREL data in 1st line Head and Neck cancer. Next year again will be a busy year with final overall survival data from both MYSTIC and NEPTUNE in non-small cell lung cancer. Of course there are interims for overall survival before that in these trial. Further we expect readout from DANUBE in bladder and EAGLE and Head and Neck Cancer. We've also added our new POSEIDON trial to the overview now. If our durva-treme combo with chemotherapy also durva with chemotherapy and compared with standard-of-care chemotherapy. This is based on the encouraging Phase I data we shared with you late last year at the World Lung Cancer Meeting. We look forward to keeping you updated on our progress of our upcoming announcement in our IO portfolio. To Slide 27 please. Moving onto data from our CVMD portfolio. At the ACC meeting in March we shared the results of an exciting real-world evident study called CVD-REAL. This is the first large real-world evident study that kind evaluating the rate of hospitalization for heart failure and of death from any cause in patient with type-2 diabetes on SGLT2 inhibitors compared to other medicines for the treatment of diabetes. The study included more than 300,000 patients with type-2 diabetes from around the world and approximately 87 of these patients did not have existing cardiovascular disease. The CVD-REAL results aren't robust consistent and confirmatory data set showing that the treatment with the SGLT2 class cuts the rate of hospitalization for heart failure and death from any cause by approximately 50%. This is the first several compared to the analysis of CVD-REAL. The study is ongoing and there will be for future analysis conducted and presented in these data sets. On the right-hand panel of the slide, other outcomes trials are underway including EXSCEL with Bydureon with data expected in the second half of this year, which is earlier than previously expected again the change in expectation for data readout is due to faster than expected event rate. We also have declared with Farxiga with data in 2019 at the latest. If two additional Farxiga outcomes trial started this year, one of those in heart failure and one in chronic kidney disease, both in patient both with and without diabetes. And I can also share with you today, that we recruited the last patient into the STRENGTH study for EPANOVA. This is an outcome trial in combination with statin conducted in 22 countries worldwide with data expected in 2019. In summary, our goal in CVMD is to reduce morbidity, mortality and organ damage by addressing multiple risk factors of cardiovascular metabolic diseases for the long-term benefit of patient. As now go onto Slide 28, this is our news flow that is expected in 2017 and 2018 and you can see from the slide these are both very busy, very exciting year for AstraZeneca. By the end of 2017, we expect to have receive six additional regulatory decision and we'll have had first data readout for MYSTIC, PACIFIC, ARCTIC and KESTREL as well as for SOLO-1 the 1st line ovarian cancer with Lynparza and FLAURA in front line EGFR Mutation non-small cell lung cancer with Tagrisso. We will see the potential for a fast market opportunity with acalabrutinib reading out and anticipate submitting this year as well. Outside of oncology we'll see data from the Bydureon Outcomes trial EXSCEL is mentioned. And the first Phase III data for Tralokinumab in severe uncontrolled asthma. In 2018, we will have additional regulatory decision based on ongoing reviews and an additional round of first data readout including for NEPTUNE, DANUBE and EAGLE. We'll also see data on roxadustat for anemia, benralizumab and PT010 and COPD and anifrolumab in lupus. With this much going on, you'll likely appreciate that we're busy moving the pipeline forward to bring benefit to patients worldwide and as well to benefit our shareholders. And with that, I'll hand back to Pascal. For closing comments.

Thank you, Sean. Please turn to Slide 30. Before we end let me quickly summarize first of all we had a good start to 2017 in particular the emerging markets now became our largest sales region. New AstraZeneca Group excelled by 6% and our final shoes on track and we reconfirmed our guidance. More importantly the pipeline is advancing a pace with 12 new potential medicines in Phase III are under registration. The oncology pipeline in particular is progressing ahead of our expectation. With Tagrisso, Lynparza and the Immuno-oncology program progressing quite nicely. We're looking forward to sharing further news flow that we think has the potential to market a meaningful step change for AstraZeneca. In particular, the 1st line data for Tagrisso and of course the MYSTIC trial data in lung cancer. We'll now go to Q&A. for people on the conference call, please remember to press star one to ask a question. We'd also take written questions from the webcast. Can I please remind everybody to limit questions to one to be fair all of our callers and like to thank you in advance?

And we'll take the first question from Sachin Jain at Bank of America. Sachin over to you.

Sachin Jain, Bank of America. One question for Sean on POSEIDON. I wonder if you could just brief review your perspective of the data you presented at World Lung, and whether you have any additional data in-house. In particular focusing on your perspective on the safety of the Triple given the physician feedback seems to be some concern around feature like for toxin isolation. And then if you could just touch on, what chemo sequencing you're looking at in POSEIDON given that study at World Lung I think investigated concurrent chemotherapy? Thank you.

Thank you for the question Sachin. So we do have a little more data than what's presented at World Lung and that's just because you have a cutoff time for when submit the abstract and actually do the presentation and prepare it and then we have more follow-up. I will say, it's Phase I data, so it is limited but what we felt we saw and what we presented and what has borne out so far is that, we get the toxicity of the combo and the toxicity of the chemo, but we don't really see an enhancement of the two when combined, that we're able to tolerate getting them together and we are giving them together concurrently I guess that was the other question about what does POSEIDON do, very similar to what you saw at World Lung in terms of how they are given because as we said, we felt that was a manageable toxicity profile.

Thank you, Sean. Tim Anderson at Bernstein. Tim, go ahead.

Question on the Arctic and the delay, you say that events are occurring more slowly but this is 3rd line lung cancer trial which is fast progressive disease and chemo, doesn't work very well in 3rd line and such a pretty low bar to cross, so I thought that events would actually come in quite fast. I'm wondering if you can say whether you changed any aspect of the statistical design of ARCTIC here in recent months such that it would delay the readout. And then second question on the ELCC abstracts from yesterday about coming European Lung Meeting. There's an abstract from the lung map study that shows quite weak response rate with durva monotherapy even in PD-L1 positive patients which is kind of surprising and I'm wondering if you can give us your thoughts here.

The first question is I'm going to try and simplify it. The question is did we change the analysis plan or the level of maturity we asked for out of ARCTIC in order to do the analysis. The answer to that is no, we have made no changes to the analysis plan. The maturity required was pre-specified in order to demonstrate the frequent effect we were anticipating and looking at the number of patients that we had on the trial, reminding you that ARCTIC is a bit complicated. It has a three to two, two to one randomization so it's different arms. We had forecast that we would be getting you data sooner, so obviously the event rate is lower than we anticipated as well but that's the reality of it, it's not something that we changed or manipulated, it's pre-specified and it's taking that long for events to accumulate that could be because our treatment effect is good or to be honest, it could be that we got more favorable prognosis patients than we had anticipated and so they're just doing better independent of treatment. With regard to the question in ELCC. You know the small data set, it's absolutely true that, the point estimate bounces around. We look at our data in aggregate, we remain confident 1108 is probably the thing we presented most on and shared most, with regard to PD-L1 positive and durvalumab and we feel that durvalumab is quite consistent with the class, so that's, we have confidence in our program.

Next one. Matt Weston at Credit Suisse. Go ahead Matt.

Thank you very much. It's a follow-up question on ARCTIC. Sean, you previously said that you require the treme arm within ARCTIC to basically just justify or satisfy the FDA requirements on contribution of component to MYSTIC and so now I would like to understand the filing strategy assuming we get a positive outcome for MYSTIC in the middle of the year, whether you'll have to delay filing until you get that treme arm out of ARCTIC or whether or not you would anticipate filing MYSTIC with that data pending and then add it to the file once ARCTIC mature.

We don't anticipate any delay to the filing of MYSTIC. If MYSTIC, it turns out to be positive and enabled filing of the mono, in this case the question is of course the combo. We remain very confident in our contribution of component strategy Matthew how stable data to enable that, should the outcome of the trial, we'll report it.

James Gordon, JP Morgan. James, go ahead.

A question on the POSEIDON study, so as I understand it's got the two new oncology ingredients and the chemo and they'll be on this chemo plus PD-L1. Is there a possibility of getting a chemo PD-L1 label on the basis of the study, if the Triple therapy approach wasn't successful and in that case, it is in a way an insurance policy around MYSTIC as well?

Let me deal with the insurance policy one first and then I'll go back and talk about how the trial, what positive result would look like in that trial. So it really isn't an insurance policy, we have not lost our confidence in MYSTIC. What we have and I have mentioned this before, what we have seen and gotten feedback from treating physicians is that there are, there is a perception that Immuno-oncology treatments are slower onset than chemotherapy and there is sub group of patients that progress very, very quickly and they do not feel with that sub group of patients that they can deny then chemotherapy. So what we're doing is, we're giving them a complete data set to enable them to decide what does chemo IO look like versus the chemo that is given at standard-of-care so, in many places in the world and also obviously in the 1st line in PD-L1 low expressers. The trial is designed to compare chemo IO or chemo IO plus IO versus standard-of-care of chemotherapy. So if you beat standard-of-care chemotherapy you have a positive trial, it will then be a judgement call on benefit risk, if both arms were to be positive whether you felt like the chemo-chemo or that IO-IO chemo was superior to IO only with the chemotherapy and that would be a judgement that we would make and also that regulators would want to look at.

Thank you Sean. Jack Scannell, UBS. Jack?

Just one of the diabetes franchise. We've been doing some work on formula status, it looks like Onglyza is probably be losing form recovery class [ph] two or three years. [Indiscernible] gaining and Januvia slightly down and in the SGLT2's, Farxiga holding would jog into going up and [indiscernible] probably losing a bit. And I'm just trying to reconcile that with some of the light diabetes cells, we saw in Q1. Does this reflect any particular change in the sort of contracting dynamics that we're seeing or something else going on?

Okay, that's question for you Mark Mallon.

I think these are both fairly deep [indiscernible] and also SGLT2's are very competitive market and so they're contracting challenges and placing pressures have been found and continue to have some amount of that going forward. I wouldn't say that and that's had an impact on the sales growth for all the companies and the product. We believe that this is the class set it's going to be key factor really the foundation of the diabetes therapy in the future. We're really focusing to continue growth of the class in the first Farxiga and maintaining good access is the key part of that priority and we're going to continue to support the strong access that we have for Farxiga.

Thanks, Mark. Remember that we're on the early days of this class. It's still cost more relative to the 54s and other classes or oral and diabetic agent. The key will drive the [indiscernible] benefit, from not that of course but overtime this is where the, what's going to drive the class. Simon [indiscernible]. Simon, go ahead.

Thanks for taking the question. Just moving onto the respiratory, I noticed that the filing timeline for the PT010 for LAMA/LABA/ICS Triple appears to have shifted from 2018 to 2019 only if you could give us some color on the reasons for that delay? Thank you.

Yes, what it really has to do, it has to do with in the United States primarily, the rate of enrolment and how long we will have follow-up, in order to enable filing in COPD. And so it's just with an adjustment based on actual data as we enrol the trial versus what we have forecasted.

Next one. There is online question here. Maybe I should take one of those. Webcast question, sorry. From [indiscernible] at SwedBank. And the question is, given the fact that MYSTIC as most of the IO trial have an open label trial design, investors may have concerns that some in the end or if the recent amendments to the trial design of MYSTIC include amendment of co-primary endpoint. But also the fact that decision to start an IO Triplet study. I'm sorry that includes chemo, sorry they're adding comments. That includes chemo as announced today. So the question is becoming longer.

Do you want me to just go ahead and?

Yes, why don't you try.

So, yes MYSTIC is an open label trial design. Now for a second I want to explain when you compare IO to chemo you'll be un-blinded, the investigator will be un-blinded and the reason is that, if you look at for instance the blood count in the patient, you'll know that if you get myelosuppression the patient is receiving chemo versus IO. So it's not really possible to blind, so how do we solve that, so the way we solve that for the PFS. Primary end point is that we have the response and progression called by an independent radiographic review center, a blind date independent review center, so they don't know the treatment assignment, that they should, they just get the scan and read it all the time. So that's for PFS, how you create the blind. For overall survival this is not an endpoint that's really sensitive to knowing the treatment assignment or not knowing the treatment assignment. So there it's less important and that's how the study of design incorporates that. That by the way, has nothing to do with the recent amendment that was the design of trial from the very beginning. And what was the other? And then a decision to start an IO triplet that includes chemotherapy. I think I addressed this already, that's more a pragmatic decision, we believe that there will be a place for chemotherapy in some patients with non-small cell lung cancer regardless of where IO comes in because the physicians do see these rapid progressors, they do see that the standard-of-care double [indiscernible] chemo was approved and used based on a survival benefit. So some patients will probably get chemotherapy and we just want to really establish their position, what is the benefit of using the two together and what is the safety quote.

Thank you, Sean. Just like to remind everybody actually that this IO chemo strategy, we mentioned a long time ago that we would explore that combination for the reason that Sean just highlighted, but we also said that, we wanted to explore IO-IO chemo and as a result did the Phase I study that. Of course we had to wait for, but it's not a new event, it's not a new reaction to any new development, it was part of our strategy from day one, really. Vincent [ph] [indiscernible] at Morgan Stanley. You want to go ahead, Vincent [ph].

Thank you very much for taking my question. The question on Lynparza, what should we expect in terms of sales dynamics for Lynparza [indiscernible] context of 4% decline in the US in Q1. I mean, should we expect sales to grow before this label a day and also would you anticipate off label use in breast [ph] based on OLYMPIAD.

Jamie, do you want to cover this question?

Sure. Thanks for the question. So we have seen some competitive pressure in the marketplace in the US and that's due to early entry of competitors, but we're optimistic because we've had positive news. For the solid two results and 2nd line maintenance was presented at SGL, they were positive and we filed in the US and its undergoing Priority Review. We hope SOLO-2 will be introduced in the tablet formulation which is important in the third quarter. In Japan, we've received Orphan Drug Designation and now we'll accelerate the approval timeline and then as it was mentioned previously with the positive OLYMPIAD results that we reported that will be actually presented at ASCO in metastatic breast cancer. We will be the first part inhibitor in that new indication. So overall, we do expect an uptick in sales particularly in the third quarter and then at the end of the year, the SOLO-1 readout 1st line maintenance which should also help as well.

This is Sean. I just want to add for you that. As Jamie mentioned with the presentation of the OLYMPIAD data at ASCO, that does also give us the opportunity to speak guidelines recommendation for Lynparza in metastatic breast cancer and at least in the United States, if that is branded that does sometimes drive some use ahead of regulatory approval.

His real first name is [indiscernible]. But today we'll call him Vincent [ph]. Seamus Fernandez at Leerink. Seamus you want to go ahead and ask your question. Seamus?

Hello, can you hear me?

Yes.

Okay, great. I just have two questions. The first one really is on the quality of the earnings and statements that your views that this was a good quarter. We're seeing more externalization build into the P&L and I'm increasingly challenged to think about the quality of the earnings after say in the next couple of years. Can you talk a little bit about where we should be seeing SG&A going in preliminary comments I think you said that 12% down on SG&A, this quarter is not sustainable for this year and I'm just trying to understand why that's the case, as the arms race globally continues to come down. And the second question is the enthusiasm around the emerging markets. Can you help us better understand, why you're so enthusiastic about the growth in emerging markets when China was such a slow grower in the mix? Thanks.

Okay, so first question. I'll ask Marc to cover it. But let me just say about externalization. As we mentioned before we have an overall target and a guidance for the year. But this is going to bounce around a little bit from quarter-to-quarter. So it's not because you have a last quarter that you should think okay, this is becoming very, very large. It's going to vary from quarter-to-quarter because of course the timing of this deal varies a little bit. As far as the specifics SG&A question. Marc, do you want to?

Just relatively briefly the minus 12% in reduction of SG&A in the first quarter. You need to remember, we initiated the program of productivity increase starting second quarter of 2016, so we have as a comparative based the first quarter of 2016 and therefore the 12% is more impressive than the rate that we will have for the end of the year. I don't want to give you a precise number but I can only repeat today that we will have a further reduction on our SG&A cost base for the full year.

Thanks Marc, you know in term of mid-term outlook, we've always said, we don't typically guide but on top of it. In this instance it would be really difficult to guide before we have a better view of, what kind of clinical news flow we will get. I mean we have such a number of new clinical trials that we will add and that will define the type of portfolio products we have and as a result, it will shape some extent as general ratio moving forward. We really could not give any sort of guidance even if we wanted to at this stage in term of mid-term and beyond 2017, we have 2017 guidance of course beyond that. Emerging market, Mark Mallon this time. Do you want to comment?

So first of all, actually our growth in the first quarter and from China has been solid, now in the actual low single-digit number but in constant change rate, actually we have high single-digit growth and keep in mind we do have some impact of the deals that we've done in China for example we had a couple of different partnerships anaesthesia, cardiovascular and so actually our China business continues to see double-digit growth into that specifically to China, very confident we continue to outgrow the market, with the number two company there. So our position in China remains very strong. Overall we're positive on emerging markets because unmet needs so substantial across the region and I think of course there are going to be ups and downs in the emerging market economies because it's volatility, but while determining overall, we definitely are very confident on that.

If I can follow-up just a quick question. Can you just give us a sense of when perhaps we might start to see leverage in the P&L of those markets then because I think that's another key questions?

So there also a question online about the difference in margin between emerging markets and the group as a whole. Our emerging market business is definitely profitable it's not as profitable as the whole group as US or Europe, what we've said in the past. Is that it's bit less profitable than Europe, but this is not just growth. It is a profitable business for us and it is very sustainable.

All right, thanks very much Mark. Moving onto the next question Andrew [ph] at Citi. Andrew [ph] do you want to go ahead?

Couple of questions, please. On strategies for prosecuting [ph] your PD-L1. You referred to the rationale for looking at chemo combinations as wanted to address sub group of patients to urgently need treatment for symptomatic require shrinkage. Should I tap at this as indicating that you view the role of chemo as an additive one rather than necessarily showing benefits through imminent potentiation [ph]. First question and then the second question is, I'll be interested in shown on the team's view on the reported phenomenon of type of aggression with some of the PD1 and PD-L1 assets and indeed especially in your Head and Neck trials given some of them in literature. What do you think, you're missing height of progression in some of the patients in the arm of that trial? Thank you.

With regard to immuno potentiation question. I mean that's a theoretical possibility but we really take a pragmatic view as I described, that this is chemo and the benefit you get from that, plus IO and you get time to get that started. With regard to the progression, we haven't seen evidence of it. We would say in aggregate we don't really see a convincing story for heightened progression. If you - you're referring to, they're blinded now. So we don't know anything about the data and I can't really answer the question in context of a blinded trial.

But I guess at least your lung trials, that open label and if you're having a patient who's rapidly falling off a cliff, you may get some medical liaisons being approached in relation to the particular patient, that's what I was trying to.

Some lung cancer patients do very badly and probably grasp very quickly, that happens on all their therapy that would seem nothing that's pattern specific to IO.

Thanks, Sean. So we'll come back again later, Andrew if we have time. Just trying to keep one question per person and we have Manuel Pappdaclias [ph] from Barclays. Manuel, do you want to go ahead.

There's a quick one quick question for Marc on cash flow, had a relatively large negative working capital movement in the first quarter. I was wondering if you could give us a little bit more color on that and also maybe a bit of color on expectations for pricing and free cash flow for the full year in terms of comparability to last year. Should we expected in line or perhaps slightly ahead? Thank you.

Well thank you for the question. First of all, we'll address the variation quarter one '17 versus quarter one '16 so the variation as you point out is mostly on the need of working capital. There are several factors, but one of them is the increase of inventories that we need to have to prepare for the new launches. There is reduction of managed market rebate payable in the United States as we've had sales reductions on the product like Crestor for instance which was carrying very high rebate last year also another role reduction of payables because we have reduced on overall cost base and therefore the payables on the SG&A has reduced. There is also another factor that the factoring that we did, we had increased of factoring in the quarter one '16, so that's the which did not happen in 2017. So this four elements are explaining the large variation in the need of working capital. Regarding the outlook for the year, obviously we're going to continue our effort on cash generation. We're putting pressures on receivable as well as on payable. A bit more difficult to do on inventories which you know, we won't be able to content so much because we are launching new products and in particular biologic which require larger inventory.

Thanks Marc, let's take a webcast question from [indiscernible]. The question for you, Mark Mallon. Can you give us an update of the patient flows between categories and diabetes of physicians becoming more comfortable with SGLT2 class. Is the class mainly gaining from DPP-4, due to additional benefits any indicators that is SGLT2 are delaying the start of injectable CRP, any color on how patient flow into and between the categories is changing as the SGLT2 class gains traction. Any indication would be great?

So physicians are definitely getting more comfortable with class and I think that's way to describe how that's evolving is earlier use of SGLT2. So we're seeing more use in naïve patients, we're seeing more use immediately after Metformin ahead DP-54s and we're seeing physicians adding it onto the other therapies sooner and more early in the process. So far I can't say that we've got strong indication of a big change in when injectable therapy is starting. I think both that all of this is going to head to SGLT2 as people better appreciate cardiovascular benefit of the class and we're certainly doing our part to educate around the overall benefits in glucose control and weight loss of SGLT2.

Good thanks very much, Mark. We'll have to stop here. We're just getting almost 1 o' clock. So thank you very much again for your write into AstraZeneca and wish you all a great day. Thank you bye.