AstraZeneca PLC (AZN) Q2 2017 Earnings Report, Transcript and Summary

Good afternoon. Welcome ladies and gentlemen to the AstraZeneca's Half Year 2017 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 the 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 the Chief Executive Officer, Pascal Soriot, for the call is about to start.

Good afternoon everyone. Pascal Soriot here. Welcome to the first half results conference call and webcast for investors and analyst. We're encouraged in the U.K. in our global headquarters and we have people on the phones and the webcast. As always, the presentation is available on AstraZeneca.com for you to download. Please turn to Slide 2. This is our usual Safe Harbor statement. Please turn to Slide 3. Today, we plan to spend about half an hour on the presentation and then leave almost one hour for Q&A. We have lots to talk about today and it's very important for us to put all of today's news into context. If you want to ask questions from the phone, you can get in the line already now by pressing star one. There is also an option to ask questions online as part of the webcast. As we would like to provide everyone with an opportunity to ask questions, please limit to one question per person. This will make it fair for everyone. Thank you for your help here. Today, I'm joined by Marc Dunoyer, our CFO; Mark Mallon, our EVP for Global Product and Portfolio Strategy, Global Medical Affairs and Corporate Affairs; Jamie Freedman, EVP for Oncology, the Oncology Business Unit; and Sean Bohen, our EVP for Global Medicines Development and our Chief Medical Officer. Please turn to Slide 4. So this is our agenda for today. And I would like to ask you to move to Slide 5. These are the highlights for the first half. On our conference call today, we'll be making comments on our financial performance using core reporting metrics and at CER at constant exchange rate, which are both non-GAAP measures. So, with the formalities behind me, I will now kick off. In summary, the business performance for the first half of 2017 was in line with expectations. Total revenue declined as anticipated and reflected the tail impact of Crestor and Seroquel XR, the U.S. loss of exclusivity and some phasing of externalization revenue. On the other hand, sales from growth platforms increased overall. They now account for 70% of total revenue. Emerging markets were up 6%. Within this region, China continued to perform well and we saw the launch and the first sales of Tagrisso. Outside China, there were impacts from the economic and geopolitical situation in some countries. Our Respiratory business continued to be impacted by U.S. Symbicort while the medicine remained the global leader in its class. And for new CVMD, Brilinta continued with its high growth and in diabetes Farxiga continued to be the world leader in its class despite subdued U.S. performance due to price and managed care access. But overall Farxiga, delivered very good result. Japan was up 6% and actually accelerated in Q2. Tagrisso expanded on its impressive global launch and recorded the first sales in China as I mentioned a minute ago. Finally, earnings per share were underpinned by continued cost management and other operating income. So, please turn to Slide 6. The pipeline news flow continued since the last results announcement. We were of course disappointed by today's MYSTIC progression-free survival readout and we now have to wait for the overall survival data in the first half of 2018. But we were pleased by a number of successes including the PACIFIC trial. Let me cover a handful of new items. First of all Imfinzi, the Imfinzi news include the tragic and now the U.S. launch in bladder cancer as well as the early positive PFS results obtained from the PACIFIC trail. Earlier today, we provided an update on progression-free survival for MYSTIC where there is no PFS benefit and we need to wait until first half of 2018 when we expect to get the full picture of the clinical profile with the overall survival final analysis. On the other hand we met the single primary endpoint of progression-free survival in the FLAURA trial for Tagrisso, which we are very pleased by when you see the growth coming from Tagrisso in this first half. We think we now got clinical data to unlock more value for patients and that's causing again to help our ambitions in lung cancer. Next news is Faslodex. It obtained a forward in first-line breast cancer in the EU and in Japan and Lynparza was accepted for review in the EU and in Japan in second line ovarian cancer based on the SOLO-2 trial. Unfortunately, Bydureon for type 2 diabetes didn't show statistically significant reduction in cardiovascular events in the EXSCEL outcomes trials, but the safety profile of this medicine was reconfirmed. In respiratory, Bevespi was accepted for review in EU for the treatment of COPD. We need to wait for the STRATOS 2 trial for tralokinumab to fully characterize the clinical profile for severe, uncontrolled asthma. Outside our main therapy areas, our externalization efforts were boosted by the approval of Kyntheum for psoriasis, for partnership with focused dermatology companies like Valeant in the U.S. and LEO Pharma in Europe, we've been able to bring this medicine to patients in need of better therapies. Given our strategic focus on the three main tiers, AstraZeneca is not able to provide the same support to a dermatology medicine as our partners are underpinning the strategy caution or for the decisions to externalize. There are more pipeline milestones that show and we'll speak to later. We will also cover todays new in detail. Please turn to Slide 7. When we look at New AstraZeneca, we continue to see growth. Product sales grow by 4% and more underlying. Mark Mallon will get back to this later. As we move forward and very soon exit the presently for Crestor in the U.S., we will start to see this growth become more visible and we look forward to keeping you updated on this journey. I will now move to Slide 8. As we begin returning to growth, our focus on commercial execution will increase. A good example is today for instance, Brilinta and also Tagrisso. We also launched Qtern in Europe and have got Imfinzi in the U.S. At the end of the year, we anticipate the launch of benralizumab, our first biologic medicine in respiratory disease to treat severe uncontrolled asthma. On the news flow slide, we were able to more tick marks for Imfinzi approval and the exciting data from the PACIFIC trial in Stage III unresectable lung cancer. I believe this is an indication that is still under estimated. It has a lot of potential and we'll be by ourselves in that indication. We also recognized however that the MYSTIC PFS results are disappointing and now that we need to wait until first half of 2018 before we get the final OS data and therefore the full picture of the clinical profile of Imfinzi in lung cancer and the combination. On the other hand today's news from the FLAURA trial for Tagrisso is very encouraging and it's supports our focus on lung cancer and the benefit we can bring to patients. There is a lot more pipeline news flow expected over the remainder of the year. In summary and despite some disappointment and some successes, together with management team, we are very committed to delivering our return to growth and to deliver the value and the benefit of the pipeline to patients in need around the world. I have to say that I'm very impressed by the progress we've made and we would like to thank every colleague in the global AstraZeneca network for the contribution. I'm very proud to be the CEO of this company. I look forward to continuing on our journey and I would like to say that I'm very, very committed to seeing this implementation of these strategies through. Speaking of our journey, please turn to Slide 9. I'd like to touch on the collaboration that we've announced earlier today with our partner Merck. The primary purpose of the collaboration is to accelerate and to expand the potential for Lynparza and essentially make Lynparza the PARP inhibitor of choice. This collaboration of assumes Lynparza as the leading PARP inhibitor for IO combinations and also with the leading PD-1 in terms of clinical trials ongoing. Jamie will elaborate on this further in his section, but essentially the collaboration will also enable further studies to be initiated faster than we could have done ourselves and in broader patient population. In a nutshell, we actually partner products where we believe we can create more value with our partner and here there is clear benefit in partnering with Merck who is a very strong company, a company that shares our focus on science and has a strong IO presence and in combining Lynparza with Keytruda on the one hand and durvalumab on the other hand we believe we can make Lynparza a much bigger product. The total deal value is was set to $8.5 billion, which we consider very attractive for Lynparza. And just as a short reminder, $8.5 billion for half of this asset which four years ago was written off in the books of the Company, we believe is actually a reflection of the valuation that a very respectable company is actually able to see in Lynparza and we believe together with our partner at Merck we can make Lynparza a big product. With this I will now hand over to Mark Mallon. Mark, over to you.

Thanks Pascal and I'm pleased to be here again to update you on the performance of our growth platform. So, let's jump right in. Next slide please. I will cover our non-oncology growth platforms and then hand over to Jamie to cover our new oncology. The growth platforms as Pascal mentioned demonstrated overall growth in the quarter despite the continued headwinds in respiratory and the combined revenue of our growth platform has represented and impressive 70% of total revenue in the first half, momentum we're seeing in the emerging markets in Japan and in new oncology. Next slide please. Starting with emerging markets, we continue to deliver in-line with our long-term performance targets of mid-to-high single digit growth in product sales. In fact, when you take out the revenue from divestments, growth in the half was more than 10% across emerging markets. And growth in China of 8% in the half was mainly driven by new products, new launches of Forxiga and Tagrisso and on the strong performance of Brilinta. Importantly, for our long-term business, we have seen five of our medicines added newly to the Chinese national reimbursement drug listing, one of the best performances of any company in China, and including most importantly Brilinta. Outside of China we continue to see headwinds in Saudi Arabia and Venezuela due to challenging economic environment in those countries. But other parts of the emerging markets performed well and notably Middle East and Africa with growth of 28% in the first half of the year. Next slide please. The respiratory franchise sales continue to see challenges in the half with downward pressure in the U.S. being slightly offset by emerging markets and established rest of world performance. As expected with Symbicort, we continue to see challenges with global product sales down 10%, is reflecting price headwinds in the U.S. and competitive dynamics in Europe. We don't see a lessening of competitive pricing pressure going forward, however Symbicort continues to lead volume share in the ICS/LABA class globally. In U.S. and Europe, Symbicort product sales declined by 19% and 10%, respectively. Symbicort emerging markets delivered growth of 4% with Symbicort China sales up by 18% in the half. We've launched and extensive Symbicort campaign to highlight its strong differentiation versus competitors. The campaign focuses on the 39% greater reduction in exacerbations versus Seretide and SABA, a seven times improvement in asthma control days versus baseline standard of care. In fact this was achieved with 25% lower ICS dose in Seretide and SABA. Next slide please. Touching briefly on Bevespi and the U.S. launch is going well with new-to-brand prescriptions almost at 15% after only six months. The performance is ahead of what you would expect to see before to market launch. And actually right, we're the only one LAMA/LABA growing market share in the U.S. But the growth of the LAMA/LABA class continues to be below expectations. We still believe that has an important role to play with COPD patients and we continued to believe that Bevespi offers unique proposition with the Aerosphere technology supported by a differentiated clinical profile. I'll remind that Bevespi is the first of our portfolio of new product launching on our new pMDI platform utilizing the Co-Suspension Technology that enables consistent delivery of one or more medicines from a single pMDI. Next slide please. The new CVMD sales were up 4% despite intense competition with a strong performance in emerging markets offsetting slower U.S. performance. Brilinta delivered product sales of almost $0.5 billion in the half with 28% growth notable performance seen in the U.S. and emerging markets including China. The overall diabetes franchise exhibited a softer half with sales down 4%. U.S. sales declined by 9%, as a result of intense pricing pressure and competition from market share. Farxiga maintained 40% volume market share globally and continues to be the leader in value market share with product sales of $457 million in the half and 22% growth as Pascal highlighted. Farxiga continues to deliver strong growth in Europe and emerging markets with sales up 24% and 83%, respectively. In the U.S. Farxiga product sales were down 1% due to managed care access and affordability programs than a competitive market. Moving forward, we're working to optimize our affordability programs in the U.S. As we wait for CV outcomes from the DECLARE trial, the CVD-REAL study has already demonstrated the CV benefits of the SGLT2 class in Farxiga in a real world setting. These data has been well shared and accepted by the medical community. We continued our effort highlighting the overall benefits of Farxiga which include excellent glucose control weight loss, cell structure and improving tolerability profile. Next slide please. Finally touching on Japan, we continue to grow the product sales up 6% in the half driven by Tagrisso and Forxiga. Forxiga is the leading SGLT2 class in terms of value sales and the class itself is exhibiting strong growth in Japan. Our Diabetes business in Japan is up 21% in the first half. As mentioned we continue to have great success with Tagrisso in Japan. I'll at this point turn it over to Jamie and he'll tell you more about that and the rest of our new oncology portfolio.

Thank you, Mark. Hello everyone. I'm going to cover the oncology franchise. This quarter is the first quarter since 2010 that we've achieved $1 billion in product sales. This is a 20% since the previous year. For the first half, we've achieved $1.9 billion in sales which is 19% improvement in terms of previous year. This is primarily driven by four products; Faslodex, which is an older product, has seen renewed growth due to expansion into first-line. We just panned out yesterday actually that we got approval in Europe for the FALCON trial which is a first-line metastatic breast cancer. We hope to hear soon about the U.S. and we've also seen combination used in second-line with CDK4/6 inhibitors. This is 16% growth and about $250 million in sales for the quarter. For new oncology products, we're half-way to achieving our goal of six medicines by 2020. Three have already been delivered. Tagrisso has shown very strong growth globally particularly in Asia; Imfinzi, we initiated our strategic launch in May 2017 and I'll cover that in more detail; and with Lynparza, there has been continued strong news flow. We announced our SOLO-2 results which is the second line we've been setting for ovarian cancer that was very impressive and more recently for metastatic breast cancer with BRCA initiation. Next slide please. So, Tagrisso has shown strong growth quarter-on-quarter. This is primarily due to emerging markets and established rest of world. In Japan, we've had the highest testing rates of all at about 96%. In China we had the fastest launch in the history of AstraZeneca in May with sales starting to pick up. In Europe, we've see more reimbursements most recently in Italy for total of 14 markets and Europe for partial or full reimbursement. And in the U.S. we're starting to see testing rates for T790M-mutaitons in second line increase due to education around ctDNA/plasma retesting. We've previously reported the first-line results in Phase I that had an impressive progression-free survival of 19.3 months. We just announced today the results of FLAURA which is the pivotal trial in first-line EGFR mutant non-small cell lung cancer that we're positive and you'll hear more about that from John. Next slide please. For Imfinzi, we received accelerated approval in second-line bladder cancer and launched in May. We've only been on the market for a couple of months and we've already seen 35% share of voice which is second to other competitors. This is really a strategic launch to set us up for Stage III unresectable non-small cell lung cancer based in the positive PACIFIC trial where we met the progression-free survival endpoint which is the primary endpoint of the trial. We anticipate regulatory submission in the second half of this year. This is a tremendous opportunity for us with about 100,000 Stage III lung cancer patients where there is no other PD-1 or PD-L1 inhibitor. This has the pontifical to be a blockbuster and we're two to three year ahead of the competition. Next slide please. With Lynparza, we remain a global leader. We are the first on the market with ovarian cancer. Now there's competitors, and we are the first to announce positive results in second indication for our PARP inhibitor which is metastatic breast cancer. We've seen steady growth particularly in Europe. In the U.S. we've seen some headwinds as a result of still have to the fourth-line indication in ovarian cancer and we have a very high pill burden. SOLO-2 results in the second line maintenance setting were submitted for regulatory submission and we hope to hear back in the third quarter, and as a result of that when we can launch, we'll be able to reduce the pill burden from 16 capsules a day to four tablet a day and also be in a second-line maintenance setting which would make us very competitive. We have a very favorable safety profile. A development program with Lynparza is extremely robust. The goals are to move to earlier line settings with the SOLO-1 trial reading out at the beginning of 2018 and will position us in first line maintenance ovarian cancer. Eventually, we're going to have the OlympiAD results that will put us in the adjuvant breast cancer setting and then we have additional indications with pancreatic cancer and prostate cancer. We have several combination trials under way with VEGF inhibitors including bevacizumab and cediranib that will expand the activity of Lynparza beyond BRCA mutation and then beyond that we have an extensive DDR portfolio to combine with Lynparza that will put us in different segments of different diseases as well as the immuno-oncology combinations. Next slide please. Pascal mentioned earlier that we entered a strategic collaboration with Merck and this is a critical partnership that we believe will maximize the value of Lynparza, by combining two immuno-oncology agents, one a PD-1 inhibitor Keytruda which is one of the leading immuno-oncology agents as well as Imfinzi. And the goal behind it is enhanced activity in the BRCA mutant step population but also to expand beyond BRCA mutations into the wild-type population. We're pursuing this not only with IO but DDR and VEGF inhibitors and this is something that Merck will participate in with us as well. Next slide please. The goal around the partnership is Merck has the most number of clinical trials in immuno-oncology with a 39% in multiple indications that's shown in the light green segment and in the darker green segment is Imfinzi, also very active in clinical trials. The two of us together would have by far the most clinical trials with immuno-oncology and by partnering with each other and combining with Lynparza, we should maximize the value of Lynparza. Next slide please. So, in summary, around the Merck collaboration, we combined the capabilities of two main oncology players. We established Lynparza as the preferred PARP inhibitor backbone of PD-L1 and PD-1 inhibitors. It accelerates the Lynparza development with Keytruda. We maximize the potential number of treatment options and as Pascal mentioned, the total value of the deal is $8.5 billion. And with that, I'll hand it over to Marc Dunoyer to cover finance.

Thank you Jamie and hello everyone. I'm going to spend the next few minutes taking you through the financial performance in the first half. If you could please turn to Slide 25. As usual, I will begin by showing you the reported P&L numbers before turning to the core performance. Total revenue declined by 9% in the half with product sales impacted by visible effect of Crestor and Seroquel XR losses of exclusivity in the United States. External revenue declined by 1% as previously highlighted we expect the sustainable and ongoing proportion of the external revenue at the high of 34% in the first half to increase over time. Please turn to Slide 26. We now turn to the core performance. We can look further down the P&L and see that our gross margin in the half was stable at constant exchange rate at 83%. This reflected the mix of sales and the growing influence of specialty care medicine together with the impact of the losses of exclusivity and the resilience of some legacy medicines in established market. Important to note, that we do not anticipate such a high gross margin over the full year, given the phasing of supply cost and for non-repetitive benefit, that will not be seen in second half. Core R&D cost declined by 4% in the half and core SG&A cost declined by 9%. These reductions reflected our focus on cost discipline and should profit our full year commitment of keeping core R&D cost broadly stable and reducing core SG&A cost. Again, we do not anticipate such a reduction in core SG&A cost over the full year as we saw in the first half. Core other operating income and expense more than doubled in the half, but reflecting the level of disposal activity as well as a milestone received from Pfizer. The core tax rate in the half was 19% in line with 16% to 20% range we continue to anticipate for the full year. As Pascal mentioned a moment ago, we increased in core EPS in the half was primarily driven by continued focus on cost as well as the increase in other expense and income. If you could please turn to Slide 27. This familiar slide illustrates the important progress in reducing our operating cost base. As I've just mentioned, core R&D cost declined by 4% in the half, whereas core SG&A decreased by 9%. One example of what we are doing is prioritization, making that we have the right people and resources focused on the best medicine and opportunities. We also recently launched a global business service organization, which over time will increase the level of integration and allow us to focus on cost further. We remain committed to continue reducing our operating cost base this year. Please turn to Slide 28. Turning to our operating profit margin, you may have noticed that we have achieved a 30% gross margin for a number of consecutive quarters. That's even being before the overall pipeline delivers in a way we anticipate. We also know that our gross margin is being supported by the growing influence of specialty care medicine scales. Core R&D investments is not targeted as a ratio to product sales and core SG&A cost has the capacity to reduce further to recognize the long-term operating leverage opportunity. However, expanding upon the success of the pipeline, we would also want to retain some flexibility to invest in our return pipeline and lost opportunity. In short, as a big patent lease cycle end this year and as the pipeline delivers, New AstraZeneca has the potential to deliver a growing margin while keeping strong flexibility and pipeline opportunity. Please turn to Slide 29. To conclude, I want to reiterate the 2017 guidance which is at constant exchange rate. I expect a low to mid-single digit percentage decline in total revenue, core EPS is anticipated to decline by low to mid-teens percentage. Outside of guidance, the total of external revenue and other operating income is still expected to be ahead of that in 2016. As I mentioned, the standard burden ongoing income is expected to increase as a proportion of external revenue in 2017 and beyond. We anticipate that core R&D will be broadly in-line with 2016 and as I've just mentioned now, we plan to reduce core SG&A cost this year. As highlighted before, variation in our performance between quarters can be expected to continue with year-on-year comparison beginning to ease in the second half, particularly as we begin to lap the impact from the loss of Crestor in the United States. Finally you have seen capital allocation priorities before and they remain unchanged. We will continue to strike a balance within the interest of business, our financial creditors and our shareholders, also providing for investment in the business, supporting the progressive dividend policy and maintaining a strong investment grade credit ratings will keep under review any potential investment in value enhancing and immediate earnings and creative opportunities. With this, I will now hand over to Sean.

Thank you, Marc. I will run through the late-stage pipeline events occurring since the last results announcement, today's important news and highlights of recent data presentation. And I will wrap up with a list of our upcoming news flow. Please turn now to Slide 31. As in Q1, it was and equally busy three months where we mostly saw progress in each therapy area. Imfinzi got U.S. approval in bladder cancer, our first biologic and our first immunotherapy. The PACIFIC trial met its progression-free survival primary endpoint during a planned interim analysis and we are now very excited to be working with regulators to bring Imfinzi to patients with Stage III unresectable non-small cell lung cancer. As you saw, MYSTIC did not show benefit on PFS and we now will await the final overall survival in the first half of 2018. This is a disappointment for us and as we've said on several occasions, we need overall survival to fully qualify the clinical profile of the IO medicines which is why we refined the MYSTIC trial design. Further in lung cancer, Tagrisso met its primary endpoint in the first-line FLAURA trial. Lynparza had regulatory submission acceptance in the EU and Japan for second line ovarian cancer. In type 2 diabetes, Bydureon met the primary safety objective in the cardiovascular outcomes trial. It did not reach the statistical significance in show superior CV benefit over placebo. These data will be shared at EASD later this year. Further on data readouts, we had some mixed news with tralokinumab not meeting its primary endpoint in severe uncontrolled asthma, although the study did provide valuable information regarding potential in a sub-population of patients expressing a specific biomarker. These learnings have been incorporated into the second Phase III study of tralokinumab, STRATOS 2. Staying or respiratory, we had regulatory submission acceptance of Bevespi for COPD in the EU. Last week, we learned that our partner LEO Pharma received European approval for Kyntheum, formerly known as brodalumab and marketed as Siliq in the U.S. Please turn to the next slide. In June we took our science to ASCO and shared 100 abstracts, including updates on Lynparza, Tagrisso and Imfinzi. We shared the OlympiAD data for Lynparza and BRCA-mutated metastatic breast cancer which made the planned recession. We also shared health-related quality of life data in ovarian cancer from SOLO-2. For Tagrisso, we shared encouraging data from AURA3 for patients with EGFR/T790M mutation positive non-small cell lung cancer and CNS metastases, strengthen the case for Tagrisso move to first-line EGFR mutated lung cancer and its ability to cross the blood brain barrier. And for Imfinzi, we highlighted the data included in our recent approval for bladder cancer and further non-small cell lung cancer data from Study 1108. Please turn to Slide 33. As you all know a large unmet medical need remains in non-small cell lung cancer. This slide illustrates the depth and breadth of AstraZeneca's commercialized and late-stage potential medicines in this disease area. Scanning the EGFR mutated tumors with small molecules like Iressa and Tagrisso and addressing the non-EGFR and non-ALK mutated tumors with Imfinzi and tremelimumab. AstraZeneca's ambition is to provide treatment option for as many patients with non-small cell lung cancer as possible. Over the past three months, we have received three major data points. PFS for PACIFIC and MYSTIC and we are waiting for the overall survival for both trials, when we receive the positive results from Tagrisso in the FLAURA trial with only one primary endpoint progression-free survival. We are working on regulatory submissions for PACIFIC and FLAURA at the moment and we hope to bring these two opportunities to patients as soon as possible. Please turn to Slide 34. This slide highlights the status of the three recent news items and the progress that we have made in non-small cell lung cancer today. First with the positive progression-free survival readout from the PACIFIC trial with Imfinzi in Stage III unresectable non-small cell lung cancer, we will make regulatory submissions as soon as possible this half. We believe this is a very meaningful opportunity. Second, we have announced the MYSTIC PFS data. We are disappointed that the combo of Imfinzi and tremelimumab and Imfinzi alone monotherapy did not show a benefit on progression-free survival. I will come back to this in a moment. Third, we had the good news from Tagrisso that met it single primary endpoint in the first line FLAURA trial, not only was the trial statistically significant, but also clinically relevant. The two positive news items will increase our presence in lung cancer across stage and key segments of the market. This is good news for patients and for the Company as well. Please turn to Slide 35. As just discussed MYSTIC did not meet i's progression-free survival endpoint. Both for the combo and monotherapy and both at the 25% PD-L1 expression cut point. We are continuing the trial to assess overall survival for both monotherapy and combination therapy, which are the remaining primary endpoint. We expect these readouts to come in the first half of 2018 and as we have previously mentioned, all trails of this nature have interim analysis built into the statistical analysis plan. However, we do not comment on the exact timing of those interims. We remain confident that overall survival is the best measure of efficacy in immuno-oncology and look forward to keeping you updated with our progress. Turn now to Slide 36. As a reminder, there is more to come beyond progression-free survival from MYSTIC. We recently saw PACIFIC and we are currently studying either, Imfinzi or Imfinzi + treme in six other randomized controlled trials. Studies include ADJUVANT with a disease free survival endpoint to PEARL first line trial in the Asian patient population as well as POSEIDON with chemo combination with IO therapy. AstraZeneca's commitment to immuno-oncology remains strong and non-small cell lung cancer is at the forefront of our overall strategy in oncology. Please turn to Slide 37. Concluding on immuno-oncology, here is a familiar side including our trials in head and neck and bladder cancers, as well as non-small cell lung cancer. KESTREL has been moved into the first half of 2018 due to a slower than expected event rate causing a slight timeline movement from the end of 2017. Next year we will have final overall survival data from both MYSTIC and NEPTUNE as well as results from DANUBE in bladder cancer. Next slide please. Looking now beyond immuno-oncology, I want to highlight the additional news items in our overall oncology portfolio that we expect to share between now and the end of 2018. Acalabrutinib, where we are looking to update you on next steps, as a reminder, we generally communicate regulatory submissions acceptance, once we have heard back from the regulatory agency. Faslodex continues to make strides in first-line breast cancer and regulatory approvals to Lynparza in second-line ovarian cancer and regulatory submission in first-line breast cancer are forthcoming. Similarly, opportunities for moxetumomab in leukemia and selumetinib in thyroid cancer round out the broad range of news items that you can expect to see from AstraZeneca in the next few quarters. Next slide please. Moving away from oncology for a moment, I wanted to highlight some of the important science happening in our CVMD therapy area. At ADA we recently share additional CVD-REAL finding supporting the benefit of SGLT2 inhibitors over other oral anti-diabetic medicines in both all-cause mortality and hospitalization due to heart failure. Also, data on DURATION-7 and DURATION-8 showing added benefit when combining Bydureon with either Farxiga or basal insulin. At ESC in August, with our partners the TIMI Group, we will share new data from the PEGASUS trial in high risk PMI patient, and that EASD in September, AstraZeneca will participate in an EASD sponsored discussion panel on SGLT2 inhibitors as a novel treatment for type-1 diabetes, as well as present, exciting 24 weeks data from the DEPICT-1 trial of Forxiga in type-1 diabetes. Further, we announced today that the DECLARE trial timeline is being moved forward to the second half of 2018 from 2019 previously. With that, I'd like to end with a snapshot of upcoming news flow from our late stage pipeline. Next slide please. As you can see from the slide, 2017 will continue to be a busy year, and activity will continue in the 2018. We've now broken 2018 into first and second half. Before the end of 2017, we expect to receive U.S. regulatory decisions on Faslodex in the first-line setting, Lynparza in second line ovarian cancer, the Bydureon autoinjector and benralizumab for severe uncontrolled asthma. We will also be submitting Lynparza in breast cancer, Tagrisso in first line EGFR mutated non-small cell lung cancer based on today's news, and of course Imfinzi based on the PACIFIC trial in stage III unresectable lung cancer. There is certainly still the potential for a faster market opportunity with acalabrutinib. Please note my previous comments and when we generally announced potential regulatory submission acceptance. In 2018, we expect the final MYSTIC OS data, plus a number of other news items including Lynparza in first line ovarian cancer based on SOLO-1 and first data readouts for the IO trials, KESTREL and EAGLE in head and neck cancer. We also see data on PT010 and COPD. Starting this time next year, we'll begin to see readouts for lupus and bladder cancer, and have the potential for quite a few regulatory submission before the end of 2018. Thank you all for your continued support and thanks to all the hard working people who come to work at AstraZeneca every day to make this happen. Now, I'll hand back to Pascal for closing comment.

Thank you, Sean. So let me summarize. First of all, the first half was in line with expectations. U.S. organic growth produce sales by 4%, our final shares are on track and we reconfirm our guidance. Second, the pipeline is advancing at pace with 12 new potential medicines in Phase III under registration. The oncology pipeline in particular is progressing, Tagrisso and Lynparza are ahead of expectations. We recognize of course that the MYSTIC news are a disappointment, but we also need to hit a positive surprise with the PACIFIC trial, which is a very large opportunity that will belong to us for a period of time. We are looking forward to sharing further news flow that we think has the potential to mark a meaningful step change for AstraZeneca. In particular, the details of the PACIFIC and the FLAURA Phase III trials in lung cancer, which we hope to present very soon. We will now go to the Q&A. For people on the conference call, please remember to press star one to ask a question. We will also take written questions from the webcast. Can I please remind everybody to limit questions to one to be fair to everybody, thanks in advance?

Over the last many weeks, you had suggested that you would provide a fair bit more in your top line at least for MYSTIC than a normal top-line release. But to me it seems pretty scant on details given the materiality of it. I am hoping you can say at least whether there is a trend on PFS and whether it might have just been a powering issue. Kind of related to this, is there working hypothesis for q while, the monotherapy with durva didn't hit on PFS and 25% above. Are you confident that that's not an indictment of PD-L1 approach of versus the PD-1 approach?

Okay, Tim. Thank you so much. Sean, I think it's for you this one.

Yeah. Okay, Tim. Thank you for the question. With regard to what's being disclosed here, we actually have disclosed more than we usually do. Usually, in high level results we disclosed just the outcome positive or negative of the primary endpoint that's being evaluated at the time and we did that. That primary endpoint was the Imfinzi treme combination for PFS in tumors expressing – tumor cells greater than 25% PD-L1. We also then went on – we didn't firmly test the secondary endpoint because obviously once you fail with primary, you aren't recycling that power. And we did however because we know it's relevant to everyone to get a sense of what happened with a monotherapy in that same patient population. We went on to say that we did not meet the criteria had we been able to go to monotherapy that would have made that positive, so that we think is quite a full and transparent disclosure. With regard to the design of the trial, we are very confident that the trial was adequately powered to show a clinically meaningful PFS benefit. With regard to confidence going forward, the PFS endpoint has not been a very reliable endpoint for predicting benefit. And in immuno-oncology, there are certainly cases where it has been positive and in line with overall survival. But there have been multiple cases particularly in second line non-small cell lung cancer where progression-free survival has not shown a benefit, but when you continued overall survival, the benefit is shown that isn't in fact in part. Why we change the clinical trial design of MYSTIC to elevate overall survival to a primary endpoint to allocate the majority of the power to overall survival, and also increase the size of the trial to enable that.

Fair. And then PD-L1 as a general approach?

Well. PD-L1 is that at this point in our minds a validated therapeutic approach in non-small cell lung cancer. We talk about PACIFIC data unfortunately without yet having a venue at which to actually share with you, but we have conveyed our confidence that it's a clinically meaningful benefit, and it will mean Imfinzi is brought to patients with non-small cell lung cancer.

I would only add actually, Tim that you cannot really – we cannot actually say PD-L1 and PD-1 are different. I mean nivolumab in first line lung also didn't show PFS benefit. So, I think there is viability from studies to study, that's probably the best we can say, but I don't think we have evidence that there is difference between PD-1 and PD-L1.

Thank you.

So we'll move to Richard Parkes of Deutsche Bank. Richard, go ahead.

Thank you. My question, I've got a bunch on MYSTIC, I am going to skip those and ask something about FLAURA. I just wondered if you could talk about the context in which you've gauged clinical meaningfulness as the FLAURA data. I wondered if you've taken into consideration obviously, the option physicians have to sequence degree sort of in the second line setting. And obviously, that sets a high bar to what needs to be demonstrated to make this maybe clinical practice changing data. So, my second question is, is this data likely to be practice changing as well as clinically meaningful? And just cut out as well when would we expect survival data from FLAURA to mature?

Thanks Richard. So maybe Sean, if you want to comment, and then also should later on Jamie if you have anything you want to add from a sort of payers and clinical practice front?

Yes. So obviously, what we are reporting with high level results is again a bit scant for us to give you details. We found a highly statistically significant and we believe clinically quite meaningful difference in progression free survival. It is an endpoint that is in a first-line setting is a robust regulatory endpoint. And we do have an interesting design to the trial and patients who got the standard of care first generation. If they have a T790-mutation on their progression, they within the trial have the option crossing over to Tagrisso. So, as time goes on, we're going to be able to really characterize this better, but we are quite confident in the results we have now. With regard to timing of overall survival, overall survival is a key secondary endpoint. The primary endpoint was PFS that has been met. We will continue to follow for a couple of key secondary endpoint, the second progression PFS-2 as well as overall survival. We can't give you a timing on that now because trial, it's the event driven and it's quite immature takes a while for that endpoint to actually mature because there are not only the option of going to Tagrisso if you have T790M mutation that for all patients to progress on the trial there is the option of chemotherapy in the second line setting. And I'll let Jamie comments on it.

In terms of the sequencing, why we believe it will be used in first line as opposed to second line in patients who develop the T790M mutation. You'll recall that about half the patients do not develop T790M mutation. And so they wouldn't be eligible for Tagrisso if they waited until second line. So that's one point. Second point is some patients actually don't make it the second line because of death. So, we believe the clinically meaningful results will play into why it should be prescribed. And the third is that it crosses the blood-brain barrier and treats, and we believe prevents brain metastases, which is another reason to ease it up front, because a significant number of patients will present with brain metastases from the beginning. So, we feel confident that it will be used in first line and it will be a great option for oncologist.

Thank you.

Thank you, Jamie. Next question is from Andrew Baum at Citi. Go ahead, Andrew.

Good afternoon. Could you confirm that there was an interim overall survival analysis at the time of the PFS, and that did not meet just the hurdle and as for the trial ongoing until the next interim. Am I correct in my understanding of that? And second, perhaps you could comment given the change in outlook potentially say in relation to MYSTIC how impacts your cash flow. How that impacts both dividend strategy as well as the anticipated run rate R&D for the Company?

So let me just quickly address the second one and you can address the first one, Sean. The second one, Andrew is, when we do our plan as you know, we do our risk adjusted plan. And then whether it just happened in the last recent past days, we have adjusted PACIFIC in our forecast to close to 100% across. Of course it's not approved yet, so until it's approved 100% that's close to. And when you see the data, I am sure you will agree with us that the chance for approval is pretty good and the impact of this data set will be last. So, we've gone from actively low probability of success in our plans, because that figure is not guaranteed across to a close to 100%. So this is going to be a substantial opportunity same for FLAURA. On the other hand of course we have to adjust MYSTIC in our forecast ups and downs, and of course we would have preferred to have everything in positive, but ups and downs of overall, we believe we can continue to secure the dividend, and if Marc later on wants to add anything he will. But I think you know we at this stage, we see no reason to feel that this dividend is not secure. Sean, do you want to cover the first?

Sure. I think as you know Andrew, we don't comment on interim analyses when they would occur, you know whether and what the outcome is. So I can't really comment on it other than to say yes, there are interim analysis, and yes there is an independent data monitoring committee that looks at interim and as well as the safety and conduct trial as its ongoing.

Thank you. We'll move to question online maybe. I think that's going to be for you. Sean, can you please walk us through all the hypothetical reasons why in IO drag that didn't show a PFS benefit, put through NR benefit, especially as you don't seem to believe in pseudo-progression with the checkpoint inhibitor. And the question is from Steve Scala, Cowen for you Sean.

Yeah. Okay. So, all of the hypothetical reasons probably not, but I can probably get through some of the major ones. So, pseudo-progression is one of them, not to say that we don't believe in it, but we do think it's uncommon. It could contribute inflammation around the tumor that is marked as progression, but actually represents an immune response to the tumor may impact the beneficial. I think perhaps the thing that we've wondered about most is if the speed of a onset of IO therapies such that you may find that tumor has some time to grow before the full effect has taken and you will get a progression score, but when that immune response comes, you get a benefit down the road that shows up an overall survival. I think is important to recognize, these are post hoc explanation for very real data that we have seen repeatedly in second line head and neck cancer and at least – and also in – second line non-small cell lung cancer and also head and neck cancer where trials have shown overall survival benefits that were not indicated earlier with progression free survival. There were two other questions I think in Steve's email. One was what percent of patients – one was about the interim, look I already answered that. The other one was what percent of patients in MYSTIC had greater than 25% tumor cell PD-L1 expression. So the MYSTIC percentage was consistent with what we had said before, which was about 40% to 45% first line patients have that level of PD-L1 expression and that's what we saw.

One thing I would add, maybe Steve to watch on in term of why you can get an OS benefit when you can see your PFS benefit is, it's not only theoretical reasons. They evidence of the fact that it happens, there is about seven studies in fact where an OS benefit was shown when there was no PFS benefits. And out of these studies, four are in lung cancer. So there is quite a lot of evidence where that not meeting a PFS endpoint, I mean not meeting, it doesn't mean that you may not see through the OS endpoint. So we have to be patient and see and wait for this overall survival result. So we go to Sachin Jain with Bank of America. Sachin, go ahead.

Hi. Thanks for taking the question. I'll take the question on Lynparza data if I may. You've referenced access to Keytruda on multiple times. Could you just talk about the need to access Keytruda relative to any changed confidence in influencing the value map? And related, I was wondering if you can frame sort of the various aspects this deal, what was the main driving factor to the financial attractiveness of the $8.5 billion in securing externalization over for a period of time versus an MPV increase in Lynparza just to frame a debate for us? Thank you.

Thanks Sachin. The question is – the answer is very simple, is that as I said before, we partner assets when we believe that we can create more value with a partner, i.e. we increase the MPV of the asset. So of course, you can imagine it's much more obvious to see that we can achieve this when it relates to an asset that is non-core, because we have no capability, no presence and therefore a partner that has expertise in the field will do better than we would. It is less obvious to see when it relates to core asset that I believe we are going to show this with [indiscernible] mythology resurging. Of course we have to do the positive clinical results, but that's sort of the obvious part, but if the combination works, obviously no doubt. When I look at how fast we are progressing with this program and how well we are doing with our partner, you know I have no doubt they will create more value with them than we would ever have been able to do on our own. As it relates to Lynparza, some story and then here that brings me to your first question, here the value creation essentially comes from the increased effort that would be both to combining Lynparza with PD-1 and PD-L1. We have total confidence in durvalumab. We are so realistic, and then durvalumab will not get 100% share of the immuno-oncology market. Treme is a great product. Merck is a great company. They are going to get the share of this market, and therefore combining our efforts, the [indiscernible] to combine with Lynparza clearly will make Lynparza bigger than if we were trying to do that by ourselves simply with [indiscernible]. So that's really the logic behind it intimately a bigger MPV. Now move to Simon Baker, Exane. Simon, go ahead.

Thank you. Thank you for taking the question. I am just continuing it from where Sachin was asking on the deal with Merck. There are two schools of thought in the market this morning, one suggesting that the size of the potential payments would indicate that the consensus assumptions for Lynparza have been significantly underestimated. And others believing that you are giving away long-term value for short term cash. Now, that the difference between those two is the nature of the contingency on these payments. So, I wondered if you could give us a little bit more color on how and when the $6.2 billion or so dollars of contingent payments have trigged. Thank you.

Yeah. It's a great question. Thank you for attracting everybody's attention to the fact that I personally think half of the value that – the value we receive for half of the asset is actually the even the secure value is more than what is in the consensus for the totality of the asset. And so essentially we have created value beyond what is in the consensus today. But Simon, to answer your question more specifically I'll hand it over to Marc Dunoyer.

Simon, thank you very much. So you have seen the upfront of 1.6, you have seen the options, short term options for 0.75 so that's 2.35, and then you have the 6.15 of contingent. Approximately one-third is linked to regulatory milestone, and two-third is linked to sales milestone, of course they come over time.

We will actually disclose soon in more detailed scheduled and also some guidance as to how we will be accounting for these various payments over time. So we'll move to a question on line. And I think Mark Mallon this time this is Mark, going to be for you. An email from Jo Walton at Credit Suisse, and it relates to U.S. primary care particular diabetes Farxiga in respiratory and the impact of price pressures. So the question here is that, this price pressure on this reduction is it a result of a deliberate policy to set promotion dollars, assume, Jo is implying that we are sacrificing the price for promotion. Obviously it impacted by patent expiries and competition, patent expiries that offset to annualized, so when – and so when Mark the decline is, for you Mark?

So, our focus whether we're trying to get medicines to get some as many patients as we can. So, first thing I would say is we are not trying to minimize or reduce promotional efforts and exchange for lower prices or vice versa. We are trying to get a right combination to get this to as many patients as we can. In terms of the dynamics in the marketplace, I think you know as we've seen in many places along we've seen this in Europe, I mean I think realistically we are going to continue to see pricing pressure as this countries and the U.S. is no different side of find ways to balance the cost. I think suddenly things like a generic or analog add pricing pressure, and so when those come in, you have an increase in pricing pressure and over time it will stabilize. I think it's hard for us to say, there is so many different factors in each market when that will happen. Right now what we are focusing on is making sure we are medicines as many people we can. People believe when we have great medicines like Farxiga and Symbicort which we are, and making the case where the value of the medicine and bringing most simply new medicines that are going to make a difference and have a higher value. So, we've launched Bevespi. We've got benralizumab launching soon in the respiratory waiting for the DECLARE study coming up and also demonstrate the value of Farxiga. We've got new products like [indiscernible] coming all of these will have I think high value to payers and to patients, because they have the value they can provide.

Thanks Mark. We should go back to Jeff Holford at Jefferies. Jeff, go ahead.

Thanks for taking my question. So, I wondered if you could comment first on the relative level of crossover that you think you are going to see or are seeing in the MYSTIC study. And then just how that impacts your confidence in the ability to hit on overall survival following not hitting on progression free survival? And then if you can just make a very quick comment on why it just seems to be taking a bit longer than expected to get acceptance of the filing on acalabrutinib I thought we would have had an update on it by now? Thanks very much.

Thank you, Jeff. I'll ask Sean to cover both of those questions we can't comment, we can't give you the details on the crossover, but yeah, we can be confident that it doesn't impact so much the, go ahead…

Yeah. We can't give what we are referring today as high level results and there is a lot more detail for us to look at as we look at the detailed information in the trial. We remain confident that overall survival is more meaningful endpoint and what adequately powered in order to see a clinically meaningful benefit with monotherapy or with combination, but we can't comment on the rest of those details. Of course crossover goes both ways in these trials, wondering that if you get chemotherapy and you progressed on it, you could crossover to PD-1/PD-L1 agent. The other is that if you get one of the IO arms and you progress you can get treated with chemotherapy because it will be chemotherapy naive, so that will benefit the overall survival on those arms. Moving on to acalabrutinib acceptance, we are on target for what we had hoped in terms of acknowledgement of acceptance and timing of submission. So I am not quite sure what to say about the expectations, it may just be that your expectations are different than ours.

Yeah. I mean on this one we are totally inside the normal range of 60 days between submission and acceptance of filing. And we of course do confirm when we have filed. I can only tell you we are within the normal range that you would expect there.

That's helpful. Thanks.

We'll move to Vince Meunier at Morgan Stanley.

Hello. Thank you for taking my questions. I mean one question back to the American collaboration. I mean how would you intent to allocate the $1 billion or $1.6 billion upfront payment. Do you want to return that to the shareholders, maybe doing a bit of buyback or would you prefer to make bolt-on-acquisition or just invest that in the business. And related to that question, I mean do you consider potentially acquiring more IO combinates to derisk the IO portfolio, because when they say that, if you just have PD-L1 drug which is the core of your IO portfolio. And if you have a program like MYSTIC, the entire portfolio then is at risk and maybe it's better to have different assets. So would you consider buying more assets in IO?

Thanks for the question. Vince, I mean first of all, I think it's good to start with reminding everybody that durvalumab works and it works very well. I mean we have approval in there, but importantly we have the PACIFIC study and it's unfortunate – unfortunate is just the timing. I'll suggest the – normally, we haven't shown you the results yet in details, but when you see the results you will agree that there is certainly worthwhile stuff. So, there is no issue with durvalumab per se. We plan on having more targets, because frankly we have lots of those. So, I have to say first of all, we have to wait for it as far as lung cancer and the mono-agent combo. Then we have additional studies in combination, in other indications bladder, head and neck. So that's for the – do that heavy combination. And then we have quite a number of new targets. So net-net is we are not planning to acquire any our targets. So at least that's not the intent at this point, I mean if something came up that was attractive we might do it, but we don't feel the need for that. In terms of what we are going to do with the cash, there is no intent to do any share buyback at this point. We will use that to reduce our debt and continue to sustain the dividend. And also of course, take some of this and invest it in our business. So, we will basically continue to do what we have been doing, essentially the financial aspect of this collaboration is discussed. It enables us to continue doing what we are doing. And then suddenly you should give everybody confidence that the dividend is not at risk at all. In terms of the pattern of a new target, Sean anything you want to add?

Yeah. It's a very rich pipeline. I am not exactly sure what we would acquire from the outside. I mean obviously, the deal that we did with Merck give Merck access to one potential combination partner Lynparza, in addition to second partner Selumetinib MEK-inhibition. We are also in the pipeline have to get our agonist the OX40 monoclonal antibodies from that I mean CB-73, a variety of potential combination partners. It's a very rich pipeline.

Of course it a very attractive financial. I constructed the [indiscernible] going back to Sachin's question, the most important aspect of this collaboration is the creation of additional value, the increase in MPV of Lynparza MPV and the collaboration with a company Merck that shares our value, shares that are focus on science, and suddenly a company we have collaborated with very successfully in the past. And that we look forward to working with again in the next few weeks and months. So moving to Seamus Fernandez at Leerink. Seamus go ahead.

Thanks very much for the question. So my question is just one, can you guys characterize the percentage of profit that the externalization strategy will contribute to your earnings this year and then separately as we look at the externalization strategy, how sustainable is that over the next call it three to four year, because I think again the sustainability of the dividend with a 50% cover is one question. But the sustainability of the dividend relative to your current cash flows dynamics given the core EPS dynamics I think is a key question or investors right now. Thanks.

Thanks. I'll ask Marc to answer that question. But we – I don't think we want to answer percentages, give you percentages where were can do is we reconfirm the guidance and the element that we put in the guidance that related to externalization. Marc, do you want to cover this and the cash flow piece?

Yes. I want to repeat the two indications that we have provided that for 2017, the sum of external revenue and other income will be greater than the equivalent in 2016. And the other indication we have provided is that, the part that is sustainable and repeatable is going to grow over time. These are the two indications we have provided and where we stand today, we are reconfirming this to guidance.

Thanks Marc. Moving to Keyur Parekh from Goldman Sachs. Go ahead.

Thank you for taking my questions. I just want to try and understand the source of your comfort around the ability to pay the dividend. If I understand your numbers correctly, you generated $338 million in cash flow from operations in the first half of this year, your dividend payment is $3.6 billion a year and you owe $1.5 billion to Acerta at 2018 if not before that. What drives your confidence in generating enough cash flow to cover the dividend given your debt is already 50% higher than where it was December last year? Thanks you.

I'll just make a couple of quick comments and then Marc can be more specific. I think you have to consider the growth that will come out of Tagrisso for instance and very, very positive overall. This is a product that has very strong clinical data including in first-line and will generate very strong growth over the next two to three years, and as we said, very profitable growth because there is no competition in that segment at this stage. Second is, should not underestimate the growth that will come from PACIFIC not as big as Tagrisso overall, but certainly a substantial opportunity. And again, no competition for the next couple of year in the PACIFIC Stage III unresectable lung cancer and then China is growing rapidly. I mean we reported an 8% growth rate but the underlying growth rate if you address for divestment is in fact 17% in China. So, as soon as we get out of this divestment part, we will return to this very high growth rate in China. So, we have a business that is starting to make a difference in China, it's very big. So, both our oral and the platforms – the growth platforms are overall growing. We believe that this is certainly going to drive sales, but also profit improvement. We have not seen headwinds in the last two three years with patent expiry, those questions will be handled. Marc, do you want to be.

Yeah, maybe two additional information. First of fall, this is – we have a pattern of cash flows which is different between the first half of the year and the second half of the year. So, we have projection for second half 2017, which you know are going to be you know much better than the first half of the year. And then on the table that you were quoting which is Page 44 of our press release, there is rectification of disposal of intangible assets which goes from I would say the top of the table and goes to the investing activities. So, in fact you have – you should cut also the 728 together in a way with 338. This being said, we have just announced today deal that is going to bring in a substantial amount of cash, so that should help us with for the cash need of the Company.

Thank you Marc. We move to question from James Gordon of JPMorgan. James go ahead.

Thanks a lot for taking the questions. The question was about confidence in PARP combos versus CTLA combos? How does the MYSTIC PFS result impact your confidence in sharing a significant RS result in MYSTIC and also to the DANUBE and KESTREL studies and just your relative confidence in CTLA-4 versus PARP as a combo approach? Thanks very much.

Did you say the relative confidence of CTLA-4 versus what?

PARP.

Sean, maybe you want to comment on this. I mean the confidence for MYSTIC, you know we have clearly to wait until we see the final OS analysis. But as I said before, there are quite a number of studies that have shown an overall survival benefit without showing a PFS benefit, and there's overall survival benefit ultimately. In lung cancer, we also have our own internal data and some of those data, we will present in Q4. We are looking at what is the best way to present this data. We have internal data showing in separate study looking at some of the suspect that you know gives us confidence, but in the end until we have the final OS analysis, we really cannot say much. Do you want to comment Sean?

I guess two things I would say starting with CTLA-4, which is the much more mature hypothesis you know being tested. We're really awaiting the outcome in MYSTIC. Again, I'll add these are things you've been seeing for over a year, but we do believe overall survival is more and [indiscernible] clinical meaningful but also the one that better shows benefits from IO therapies. MYSTIC is designed to show in Imfinzi + treme versus standard of care chemotherapy or Imfinzi monotherapy versus standard of chemotherapy. So that's how we get a positive trial. I think then it's a more complex equation about level of additional benefit if seen for the CTLA-4 combo and then benefit risk when we – when we figure out whether there is a possibility of moving forward and changing practice and getting registration. That's a matter of waiting. The two don't – the PARP combo and the CTLA-4 combo with PD-1/PD-L1 really don't inform each other. They are very different therapeutic hypothesis with CTLA-4 basically removing and immunosuppressive signal and hopefully intensifying the activation of the immune system against the tumor. PARP is a different derived from the observation that high mutational burden seen in the tumor seems to correlate with greater sensitivity to immunotherapy agent and as well, homologous combination repair defects and other DNA repair defects correlating with the high mutational burden and then how in PARP do you enhance that effect in the context of IO. So, they are very different, I would say really unrelated mechanism and so their probability of success is very much not informative of each other.

Thanks Sean. Jack Scannell with UBS. Jack, go ahead.

Two question. I guess you have – you have set your capital allocation principles and you've also said you have a risk adjusted plan. Does that effectively mean that thoughts about capital allocation, in fact is changed when the risk adjustments in plan change. So, investors shouldn't expect to see any changes in dividend policy or externalization revenue or so forth, and less so, until we saw more data on the various lung programs for example.

Hopefully I get your question Jack, but maybe I don't in which case, you please come back and ask again. What I think I said or what I said was that our plan is rescheduled plan, so we take all our projects, we'll reschedule them and that's what we used to a long-range forecast and look at our long-range sales profit and cash flow forecast. So, what we are going do now with those results is, we're going to put let say 100%, so they are not hopefully of PACIFIC into the plan, the same for Tagrisso including first-line and then will adjusted MYSTIC. The PFS endpoint in our long-range plan had a low probability in our plan, because you know we've always believed as we told you, we always believed that it is nonetheless again more than a PFS game and that's why we put majority of the statistical color in the OS analysis. So, in our long-range plan we have lower probability for the PFS and point to readout and so now we move into OS. So, what I was saying earlier is we do our long-range plan with this element. From what we can see today, there is no reason for us to change our long-range forecast including cash flow forecast and therefore to have a different approach to our dividend policy. Of course the next six to eight months will be very informative, because the competitive landscape will clarify. As we know there is a number of other studies that we would add. Depending on the outcome of this competitive studies and the outcome of our own ongoing studies and other indications and into next year we have OS analysis, until then it would be difficult to be clear on the total potential for brodalumab. But based on what we know today, I think – what I said earlier is that we have no reason to have a different view of future. Did it answer your question or did you have anything else in mind.

There's a total echo in my line which made my question less coherent even than usual. But actually you answered it precisely. Thank you very much.

Jo Walton of Credit Suisse. Jo, go ahead.

Thank you. My question is about the turning point for AstraZeneca and longer-term margin. Marc, showed us a slide showing really very stable 30% odd margins. Of course, some of that's being helped by disposal gains within that. So, it isn't all truly operational from an underlying perspective. I wonder if you could confirm whether you think that 2018 still will be the turning point year and what sort of operating margins do you think would be a sustainable level given the mix of business that you would expect to have in the next few years and really fancy new drugs but also a growing emerging market present. So, wondering if you could just help us on that longer-term margin objective

Thank you Jo for this question. Regarding the operating margin, I think we had said and we said this I think several years ago that the profit will grow slightly faster than of sale and we also said that from 2018 onwards, we would return to growth. I think these two elements stayed the same. At what level the operating margin will stabilize, I think it's a bit early to comment, but I think over time as we move towards specialty care and oncology taking greater share in our business, the operating margin is definitely going to increase.

Thank you Marc. I'll conclude by the way, the emerging markets business is a low profitability business. It is a business with quite a reasonable profitability expectation is growing. What has really been a burden for us in the last few years is patent expiry and losing products that were incredibly profitable like Crestor, Nexium, [indiscernible] last cycles, with limited promotion and big scale and therefore very profitable. A the same time as we had to invest in rebuilding our pipeline and rebuilding our future, so that's really what has been a burden more than the emerging markets that are actually going and delivering reasonable profitability. But as Marc said, as we move forwards and suddenly our specialty care business goes, we are launching benralizumab at the end of the year, early next year and then we launched future products the margins should over time improve, but it's too early yes to give you a target as to what the margin could be. We need still more understanding of what the pipeline looks like. So, we move to Emmanuel Papadakis of Barclays. Emmanuel, go ahead.

Thank you for taking the questions. Can you hear me? Couple of follow-ups, one is for Marc, if I could perhaps pin you down a touch further on cash flow, I think Myles questions with the Q4 results, you'd indicated 2017 would be in line with 2016 on cash flow from operations and clearly running significantly below that. Right now you said H2 will be better, but perhaps you can confirm that comment you made earlier. And the second was for Pascal, it was just a follow-on from your comment that I don't know what it was [indiscernible] you just remarked that the PACIFIC opportunity would not be as large as Tagrisso, and if I recall correctly, your 2014 un risked guidance, what was there 99.1 was around $3 billion. So, perhaps you just clarify that or quantify? Thank you very much.

Let me try this one and Marc maybe you can cover the cash flow question. Hopefully I will address your question and otherwise let me know. But what I mean to say that PACIFIC is a large opportunity, but Tagrisso as a whole is a bigger opportunity. We see Tagrisso being now with the kind of detail we have a $4 billion plus opportunity including first-line and it could go even beyond that if we have a successful Adjuvant outcome. So, PACIFIC is large. The Stage III, the unresectable lung cancer is not as large as the Stage IV lung cancer, but in the near term there will be no competitors, because we are the only product with data in that setting. So, it's a large opportunity for us, but still smaller than sort of $4 billion we see in PACIFIC. That's what I said. Hopefully that addresses your question. Marc, you want to cover the first part?

Yes. I genuinely say that as I indicated earlier on, the pattern for cash flows between the first half and the second half is very similar between 2016 and 2017. And as far the overall for the year, we estimate today as I indicated earlier that it would be a similar quantum for 2017 and 2016. So, similar pattern, similar numbers.

So, Emmanuel did that cover your question regarding the potential of Tagrisso. Maybe one thing I could also add is that, two three year ago, we gave an indication of the potential of Tagrisso and then we had a forecast in our plants for Tagrisso but the forecast we had in our plan was a risk-adjusted forecast. And we have progressed, two things happened, first of all the risk has been removed and the positive success is now close to 100% for all those indications. And two is, the product profile has improved. We have very good data date. In first line we have data in line metastases or the product penetrated the blood brain barrier, we didn't expect that three years ago. We hoped it might be the case, but we didn't have the data, so we didn't have us in that product profile. So, and finally the competitors have left the scene. So, essentially as we progressed, the product does look better, the competitors have disappeared and the probability that the risk has been removed. So, all of that has driven Tagrisso up and up and up. So, now it is very large. So we move to Mark [indiscernible], who is asking us an email question. Please could you explain your confidence in MYSTIC overall survival data reading out first half 2018 as opposed to full year 2018. This is based on even rates, so once Keytruda has cleared preparation which we are seeing relatively late with Keytruda in KEYNOTE-021G. Sean, for you.

So, the anticipated readout is based on evaporates with a level of maturity that triggers the final overall survival analysis. And the reason that we're refining it is because we're getting closer and we're better able to estimate when we will to narrow it down from a 12-month period to a six month period. It doesn't – it's not an inference from another trial. It's just standard clinical trial design and execution.

Thank you, Sean. So, we'll now actually end the Q&A and I would like to thank you very much for your great questions and conclude again and just kind of summarize where we are again for you. First of all, first half financial are in line with expectations. U.S. organic sales grew by 4%, that I'm sure is on track. We have reconfirmed our guidance. Pipeline very importantly, the pipeline is advancing at pace. We have new potential medicines in Phase III under registration. And particular, our pipeline in oncology is progressing, with Tagrisso and Lynparza looking really good and particular this recent Tagrisso news make us very confidence that it is going to be the big product we're hoping that would become. On the IO front, MYSTIC of course is a disappointment, but please consider the number of studies that have the PFS end point, not met but still there is all those benefits, so let's wait a little bit longer. But we do recognize MYSTIC is certainly a disappointment, but we have started to recognize that PACIFIC where someone is not expected, so probably it's a surprise and it has a lot of potential and a very profitable potential I would like to underline this and considering the limited competition in the segment. We're looking forward to sharing further news flows above the next few weeks and months and we think that we have the potential to returns to reach a meaningful step change for AstraZeneca in the next few months in particular when we present the details of the PACIFIC and FLAURA Phase III trials in lung cancer. So thank you again for all your support and your interest. Have a good rest of the day.