AstraZeneca PLC

Good afternoon, Europe, and good morning to the US. Welcome, ladies and gentlemen, to AstraZeneca's Half Year Results 2020 presentation, conference call, and webcast for investors and analysts. Before I hand over to AstraZeneca, I would like to read the safe harbor statement. The company intends to utilize the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Participants on this call may make forward-looking statements with respect to the operations and financial performance of AstraZeneca. Although we believe our expectations are based on reasonable assumptions, by their very nature, forward-looking statements involve risks and uncertainties, and may be influenced by factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. Any forward-looking statements made on this call reflect the knowledge and information available at the time of this call. The company undertakes no obligation to update forward-looking statements. Please also carefully review the forward-looking statements disclaimer in the slide deck that accompanies this presentation and webcast. There will be an opportunity to ask questions after today's presentations. If joining on the telephone press star 1 to indicate you wish to ask a question at any time during the call. For those on the webcast, you will find an on-screen text box in which to type your question. I will now hand you over to the company.

Hello everyone, it's Pascal Soriot, CEO of AstraZeneca. Welcome to our first half 2020 conference call and webcast for investors and analysts. As always, the presentation was posted to AstraZeneca.com earlier today. and we've also sent it to people on our distribution list. So if we turn to slide two, this is the usual safe harbor statement. We will be making comments on our performance using constant exchange rates or CER, core financial numbers and all other non-GAAP measures. A reconciliation between the non-GAAP and the GAAP data is contained in the results announcement and all numbers used are in million US dollars and refer to first half 2020 unless stated otherwise. If we want to turn to slide three, we plan to spend about half an hour on the presentation and then do Q&A for 45 minutes. We aim to end at 1.15 UK time. If you keep questions short, we'll try and keep answers short too. For those on the phone, please join in the queue for questions by pressing star one. There's also an option to ask questions as part of the webcast We ask you to please ask one question only, and thank you for that. In the speaking order, I'm joined by Dave Fredrickson, our EVP for the Oncology Business Unit, Ruud Dobber, EVP of Biopharmaceuticals, Marc Dinoyer, our CFO, José Baselga, our EVP of Oncology R&D, Menefine Gallos, our EVP of Biopharmaceuticals R&D, and also joining us for the questions are Pam Cheng, our EVP for operations and IT, and Leon Wang, who is the EVP in charge of China in the emerging markets. So we'll move to slide four. This is the agenda where we plan to cover all the key aspects of the results today and moving then to slide five. In the first half of 2020, performance underpinned. A leading response to COVID-19, the business was resilient and where COVID-19 had an adverse impact, all the medicines compensated. Total revenue advanced 14% in the half and we estimate only a modest benefit from COVID-19 stocking. New medicines advanced by 45% and we saw continued strong progress across all CRP areas and also in the emerging markets. In a quarter, respiratory was impacted from pulmicort in China, but as I said earlier, and other medicines more than compensated. Co-operating profit grew by 23% despite 13% lower other operating income. With a tax rate of 21%, Core EPS ended at $2.01, up by 26% and much more than revenue, delivering operating leverage. As a result, our guidance is unchanged today. We continue to see strong progress in the pipeline, mostly on regulatory approvals. And finally, the leading response to the COVID-19 pandemic includes advancing a vaccine candidate while repositioning other medicines. You've heard a lot about the vaccine candidate, but we also have other projects, antibodies, but also Calcoins and Sarsiga trying to help patients with COVID disease. There is a relentless focus on patient access, supply, and of course, employee safety and continuity of our work. So if we turn to slide six, looking at the pipeline news flow since the results announcement in April, just mention a few highlights. There were a number of approvals for Limpaza across multiple cancer types and geographies. Since the launch at the end of 2014, Limpaza has seen significant progress with more to come. Plastiga received its important approval in the US for heart failure. and the inhaled respiratory portfolio increased its reach with Bevespe in China and importantly, the closed triple combination medicine breast in the US. Outside approvals, it's really encouraging to see the progress for HER2 in breast and gastric cancers. Later on today, Jose will cover the expanded collaboration with Daiichi Sankyo on the new antibody drug conjugate. All in all, another great period for the pipeline. If I move to slide seven, the second quarter of 2020 was the seventh quarter now with strong growth in total revenue. Again, this was driven by the new medicine. Tagrisso crossed now the quarterly one billion mark with Limparza and Infinsi continuing their strong growth trajectories. The growth from the new medicine is now coming from a broader range of medicines as we saw in the first quarter revenue from Crossey Lugo in a rare disease indication. In total, new medicines added $2 billion of additional revenue, further diversifying growth and sustainability. As a result of our strategy execution, new medicines now make up more than half of our revenue. Please turn to slide eight. The increased business diversification, you can also see it through oncology, Now more than 40% of product sales. Across AstraZeneca, specialty care medicines account for more than half of the business. Combined, China and the other emerging markets make up 35% of sales, with growth in ex-China markets at 15%, and in China 14% despite the COVID-19 impact on Pulmic Corp, which I'm sure we will talk about later. In summary, the results for the first half support the guidance and also a future of sustainable growth across medicines and geographical markets. AstraZeneca remains strategically well positioned in the current environment, and we are well prepared to remain an important partner for healthcare systems globally, as evidenced also by the vaccine effort. Before I hand over to Dave to cover our oncology business, I would like to express my sincere thanks to all AstraZeneca co-workers across the globe that have made this and our response to COVID-19 possible. Everybody has done an absolutely stellar job across the entire company despite sometimes very challenging circumstances and I'm very, very grateful for everyone's contribution. So with this, Dave, over to you. Thank you, Pascal.

Thank you, Pascal. And if we can, just as I go through this, I plan to update on the performance of our oncology business before handing it over to Ruud, who will give an update on biopharmaceuticals and emerging markets. We are pleased to report a strong growth in total revenue of 31% for oncology to $5.3 billion and a half, a business that's now annualizing at over $10 billion. We're seeing regional expansion, particularly outside of the U.S. as our lifecycle efforts start to take effect. The new launches are progressing well, which is supported by additional news flow of data and approvals. Please turn to slide 10. Starting with our lung cancer franchise, we are pleased to report that both Tegriso and Infinsi showed strong growth in the quarter at 45 and 52% respectively, with revenue of $2,954,000,000 respectively. Tegresso is now approved in 86 countries in the first-line setting, and in the half we saw continued expansion in countries with national reimbursement, which now totals 28. U.S. Tegresso revenue was up 30% as demand growth continued despite some negative inventory movements, and we see strong growth from Europe and emerging markets as reimbursements and launches take effect. Japan was impacted by the previously mentioned price cut in November last year. Infinsi reported $954 million in the half, with the majority of revenues still coming from the U.S. at $574 million, with a growth of 21% as we've reached high levels of penetration in the Pacific Stage 3 non-small cell lung cancer setting. We're now launching the Caspian Indication in extensive stage small cell lung cancer in the U.S. following approval earlier in the year. Outside the U.S., we are starting to see revenue of infancy pick up, particularly in Europe and emerging markets, with revenue of $167 million and $63 million. Japan delivered $124 million, and the China launch of Pacific still happened in the first quarter, despite the COVID-19 pandemic, and we anticipate NRDL negotiations to commence next year. Please turn to slide 11. Limparza showed continued progress with product sales of $860 million and a half, up by 60%, with half of sales coming from outside the US. This reflected growth across all regions as we continued to roll out the breast and ovarian cancer indications in the major markets of the US, in Europe, and Japan. US sales were $406 million, up by 55%, with continued increase in demand as Limparza maintained its leadership in the PARP inhibitor market Thank you for joining us. driven by the uptake in ovarian and breast cancers following the previously mentioned 14% price cut as of April of this year. Please turn to slide 12. Turning now to the new launches, CalQuintz in chronic lymphocytic leukemia and in HER2 and third-line HER2-positive metastatic breast cancer. I am pleased to report CalQuintz revenue of $195 million and a half predominantly in the U.S. with the new label in CLL taking effect at the end of 2019. The launch feedback has been very encouraging as the impressive Phase III data are resonating very well with physicians. We're encouraged to see expansion in our prescriber base with around 70% of all new starts in CLL coming from new to Calquins prescribers and about one in three CLL patients now starting on Calquins. Following the INHER2 launch at the beginning of the year, we're pleased to have reported $36 million in collaboration revenue based on $76 million of sales booked by Daiichi Senkyo in the first half of 2020. INHER2 has now achieved approximately one-third patient share in the third line setting. Before I end, I'd like to thank all of our oncology colleagues for what they do every day to benefit the patients and our company, especially during this global pandemic. I'll now turn over to Ruud for an update on our biopharmaceuticals business and emerging markets.

Please turn to slide 30. First of all, many thanks, Dave, and today I'm pleased to talk to you about the biopharmaceutical business. Total revenue of biopharmaceuticals comprising new cardiovascular, renal, and metabolism and respiratory and immunology were $4.9 billion and a half, growing at 9%. Starting with new CVRM, revenue was up by 11%, despite intense competition in diabetes, with total revenue at $2.3 billion. Growth for both FASEGA and Berlinda continued, with double-digit increases. FASEGA revenue reached $848 million in the half, with 21% growth, maintaining volume market share leadership globally, with strong volume growth across all regions while benefiting from the SDLT2 glass growth. In the United States, Fartiga saw a reduction of 12% as price declines took effect, though volumes continued to grow due to the Declare launch. Outside the US, which accounts for 72% of revenue, we saw strong performances with volume-driven growth increasing. Europe revenue was up by 29%, and emerging markets revenues were up by 59%, benefiting from the China NRDR listing. Relinta delivered revenue of $845 million with 70% growth, driven by a strong performance in emerging markets, up by 40%. We also had continuous growth in the United States and Europe, up by 9% and 5% respectively, with underlying demand continuing in the U.S., and Europe experienced some negative COVID stocking impact in the quarter. The majority of use is still in the acute setting and Berlinda continues to outgrow the market in all regions. Please turn to slide 14. Turning to respiratory and immunology, we reported revenue of $2.7 billion with a 7% growth in the half impacted by COVID, destocking and pulmonary cord, notably in China. Ex-Pilmicord Respiratory grew 14% in the quarter. Underlying Simbicord growth was strong in the quarter with $1.4 billion with a growth of 26.5% and 15% in the quarter. The U.S. saw particularly strong growth, up 46% to $558 million due to demand growth following the launch of the authorized generic and a resilient ICS LABA market. Globally, Symbicord remained the leader in value and volume market share in the ICS LABA class. Pulmicord was down 32% in the half with a revenue of $477 million, mainly driven by the COVID impact on the business in China, especially the pediatric nebulization segments. We continue to focus on growing revenue of Symbicord and other at-home solutions ahead of Pulmicord. Please turn to slide 15. Now I will focus on the new launch medicines. Facenra contributed $426 million of revenue in the half, with the bulk continuing to come from the United States, Germany, and Japan. In the US, Facenra is performing very well against new competitors, up by 31%, with $272 million in revenue. Europe and Japan revenue were $88 and $46 million, respectively. The launch of Breast 3 for CPD is progressing well, with revenue of $11 million in the half, with launches taking place in Japan and recently in China. And of course, we just saw the approval in the United States last week, while the EU regulatory review is progressing with anticipated decision this half. Lokelma had revenue of $28 million and a half, mostly from the United States, and we maintain leadership in the new-to-brand prescriptions. China and Japan launches are progress as well. On Roxodustat, we reported collaboration revenue of $11 million and a half, coming from China following the initial launch and the recent NRDL inclusion. Now I will move to the emerging markets. Please turn to slide 16. Emerging markets, where total revenue grew by 15.5%, continued to track ahead of our long-term performance ambition, which is to grow sales on average by a mid- to high single-digit percentage. Outside China, total revenue was up by 15%, with growth spread across all regions. China delivered stable growth of 40%, as we saw some impacts on the COVID-19 pandemic, notably with Pumacort, as previously mentioned. The addition of Limpaza, Forsythia, and Roxadustat to the NRDL effective January 2020 contributed to the revenue performance. New medicine grew by 79%, now contributed almost to a third of the total revenue in the region, with a strong performance driven by oncology and new CVRM. With this, I will now hand over to Mark.

Please turn to slide 17. Thank you, Ruud, and hello, everyone. I want to take you through our financial performance in the first half, as well as a reminder of financial priorities and guidance for the full year. Please turn to slide 18. I will start with the reported P&L before commenting on our core performance. As Pascal mentioned earlier, total revenue grew by 14% in the half, which included only a modest impact from COVID-related inventory movements. Within total revenue, we also delivered a 107% increase in collaboration revenue driven by the success of Limparza and Honor2. Please turn to slide 19. Moving to the core P&L, this slide clearly demonstrates our early progress in improving operating leverage. Our gross margin ratio reached 81% in the half and increased by one percentage point in the second quarter to 84% versus previous year, reflecting the mix of product sales and manufacturing efficiencies. GoRMD expenses increased by 9% in the half, partly a result of focused investment in the pipeline, including the development of Honor 2. Merck A frank contribution in 2017 to the development of Limpaza, recorded at that time on a balance sheet, was gradually released to the P&L until last year. This therefore impacted the comparative performance. CoSG&A expenses increased by 5% in the first half, driven by additional investment in the China expansion and further support for global launches in oncology. Co-operating income declined by 13% to $604 million, while our core tax rate was 21%, in line with the indicated range for the full year. Our core earnings per share ended at $2.01 for the half, up by 26%, demonstrating the progress we are making. Please turn to slide 20. Turning to net debt and cash generation, our net debt has increased by $1.7 billion since the end of last year to $13.7 billion. Encouragingly, there is a 30% improvement in EBITDA to $4.1 billion, as well as a $688 million increase in net cash from operation, reflecting a constantly improving underlying business performance. The level of net debt was in line with our expectations given that our first half sees the payment of a larger second interim dividend. We also made the second of two $675 million payment to Daiichi Sankyo as part of last year's agreement on HONOR II. Please turn to slide 21. This familiar slide continues to demonstrate our progress. As I mentioned, the 14% gross in total revenue was converted into a 26% increase in co-earnings per share. Our co-operating margin rose by 2 percentage points to 29%, even with a 13% reduction in other operating income. The operating leverage is apparent in the first half, and co-operating expenses represented 57% of total revenue versus 61% a year ago. I wish to reiterate that improvement in our P&L will lead to increasing cash generation over time, which will then help us deliver our balance sheet further and helping us to focus on priorities like our progressive dividend policy. Please turn to slide 22. Finally, I will turn to guidance for 2020, which, as I mentioned a moment ago, is on total revenue and co-earnings per share at constant exchange rates. I have no hesitation in retaining our guidance for the year. In the current circumstances, however, we will keep a cautious view over the remaining global impact of the COVID-19 pandemic, and there is always the potential to see further variations in our performance between quarters. In 2020, like in 2019, we are aiming to increase operating leverage, driven by a high single-digit to low double-digit percentage increase in total revenue and this is anticipated to drive growth in core APS of a mid to high teens percentage. I'm also happy to reiterate our longstanding capital action priorities. With this week news on our growing collaboration with Daiichi Sankyo, we have seen another example of our most important capital action priority, which is reinvesting in the business. We also look to keep our strong investment-grade credit rating as well as retain our focus on our progressive dividend policy. And with that, I will now hand over to Jose.

Thank you, Mark, and hello, everybody. I will provide an update on our oncology medicines since our last call. As usual, I am joined by Manny Pangalos, who will discuss biopharmaceuticals and upcoming news flow. Please, let's turn to slide 24. Now onto the recent highlights in oncology, all showcased at the virtual ASCO 2020 meeting this quarter. On the left, the groundbreaking phase three data of the ADORA trial, where degrees were showed unprecedented disease-free survival in the adjuvant treatment of stage 1b to 3a EGFR-mutated normal cell lung cancer. Treatment with Tegrizo after surgery with curative intent reduced the risk of disease recurrence or death by around 80%. In the middle, news from NHER2 where we presented positive mid-stage data in gastric, lung, and colorectal cancer. NHER2 recently received orphan drug designation as well as breakthrough therapy designation in the U.S. for a third line gastric, highlighting the vast unmet medical need in this set. And HER2 also received breakthrough therapy designation in metastatic HER2 mutated non-small cell lung cancer. Other ASCO highlights from our pipeline include the sustained final overall survival from INFINSI in the Caspian trial, where INFINSI maintained a 25% reduction in the risk of death versus chemotherapy alone. We also presented phase one data from our from our oral search AZD9833 in which an overall response rate of 16.3% and a clinical benefit rate of 42.3% was observed in a heavily predicted population where 53% of patients had received prior treatment with Faslodex and 50% had received prior treatment with CDK4-6 inhibitors. AZD9833 is now progressing in two later trials, and it is a testament to our confidence in its efficacy potential and safety profile. Other news in the quarter include the profound trial overall survival publication in the New England Journal of Medicine. The profound indication, which was approved by the US FDA in May, So, LIMPARSA become the only PARP inhibitor to improve overall survival versus standard of care hormonal therapies in a biomarker-based subset of metastatic, castration-resistant prostate cancer patients. Let's turn now to slide 25, please. As we announced, let's please move to slide 25, if we could. As we announced earlier this week, We are very excited to strengthen our ongoing ADC collaboration with our partner Daiki Sankyo by including the Trap2 Medicine DS1062. We believe that this is the best-in-class medicine with great potential in reshaping the treatment of metastatic lung cancer, a continuing healthcare challenge worldwide. Of note, 45% of non-small cell lung cancer patients are diagnosed in a metastatic setting and currently only 5% of these patients are still alive after five years of diagnosis. Using the same successful linker as in HER2, the TREP2 target has high expression in most solid tumors, providing the potential for a broad applicability. With a lower drug antibody ratio of four, we consider its safety profile to be manageable. Compelling efficacy data in non-small cell lung cancer was presented by Daikin Sankeo, at DGS ASCO, where DS1062 showed a 27% overall response rate in unselected last-line, post-platinum, and post-IEO non-small cell lung cancer. On the merit of this data, we will be pursuing phase III trials in non-small cell lung cancer soon. We'll further trials in other tumors, such as triple negative breast cancer, and we'll include combinations with immunotherapies. Let's turn, please, to slide 26. Lastly, I would like to take you through a quick update on our progress on a few of our exciting new oncology medicines in earlier development. As mentioned earlier, following the positive phase one trial, we'll soon be kicking off an exciting phase three program for our oral cert in breast cancer. We also will be starting phase three trials in advanced uterine cancer for our B1 inhibitor at our certificate. on the back of promising Phase II data. We also have new inclusions on this slide since April, like our B-cell maturation antigen antibody drug conjugate, MEDI2228, and our CDK9 inhibitor, AZD4573, both for the treatment of blood cancers. As for the progress on what's now, Regarding our patent inhibitor in Parsa, we can confirm that we will start soon a new phase three trial in colorectal cancer with our partner Merck. We look forward to updating you on the progress of these medicines and others in the near future. With this, I will hand over to Mene. Please turn to slide 27.

Thank you, Jose, and hello to everyone on today's call. We're really proud to be at the forefront and highly active in the pursuit of tackling the COVID-19 global health crisis. Last week, as many of you will know, we published data in the Lancet for our Phase 1-2 COV-001 trial as part of our collaboration with Oxford University showing that the vaccine AZD1222 was tolerated and generated a robust immune response in terms of both neutralizing antibodies and T cells. Late stage trials are currently ongoing in the UK, in Brazil, in South Africa and are about to start in the United States. After the evaluation of more than 1,500 antibodies for the ability to bind and neutralize the SARS-CoV-2 virus spike protein, we've identified AZD7442 The combination of two monoclonal antibodies, licensed from Vanderbilt University, which will be starting phase one trials in the next few weeks. Through our proprietary YTE technology, we've extended the half-life of these antibodies with predicted dosing of around every 150 days. This makes AZD7442 ideal for both prophylaxis and treatment regimens. A feature detailing AZD7442 neutralizing potency was published in this month's Nature. Please turn to slide 28. I'll now highlight the news presented at recent CVRM congresses. At ERA EDTA in June, we presented a number of sub-analyses from the Phase 3B dialyze trial that showed that Leukelma was effective across all groups of hemoglobinous patients with hyperkalemia. The concomitant RAS inhibitor therapy, nor EGFR level, appear to limit normokalemia, and the medicine is effective in hemodialysis patients with severe hyperkalemia. As a reminder, the dialyzed trial showed that 41.2% of CKD patients maintain normal potassium levels pre-dialysis compared to only 1% receiving placebo. For Roxadustat, Fabian Esteles presented data from the Dolomites Phase 3 trial in non-dialysis patients, where results showed non-inferiority of Oxidustat versus Darvipoietin Alpha in the correction of hemoglobin levels during the first 24 weeks of treatment. At this year's ADA Congress, sub-analyses from Farsiga's Phase 3 DAPRHF trial showed a reduced incidence of type 2 diabetes in patients with heart failure with reduced ejection fractures. During the period, we also received approval from the US FDA for use of Farcega in heart failure with reduced ejection fraction with or without type 2 diabetes. We also showcased one of our new medicines, Catalatide, our glucagon and GLP-1 dual agonist, which continues to progress in the clinic for NASH and is about to enter clinical trials in diabetic kidney disease. Liver and kidney are the key target organs of the hormone glucagon, and we recently highlighted the role of glucagon in resolving inflammation and fibrosis in a paper published in Nature Metabolism underlying the potential for cacti in the treatment of NASH. And finally, we shared news earlier this week regarding Farsega's DAPA CKD trial where Farsega met its primary endpoint of the composite of worsening of renal function or risk of death in adult patients with chronic kidney disease with and without type 2 diabetes. Exceptionally, the trial also met every one of its secondary endpoints in this population, making Farcega the first medicine to significantly reduce the risk of death for many cause in CKD patients. Please turn to slide 29. And now for the update for biopharmaceuticals and what's next in our pipeline. I'd like to highlight a couple of new programs out of the slides since April. In CVRM, we have a molecule called AZD9977, which is a new mineral corticoid receptor modulator, which we're going to use in combination with Barcega. We believe AZD9977 has a lower risk of hyperkalemia relative to other MR antagonists, and so it's ideal to combine with Barcega and to develop in heart failure patients with CKD who are largely undertreated currently with MRAs. In respiratory and immunology, our INHALE-JAK program continues to move forward with two molecules in development for use in asthma and other inflammatory lung conditions. We also have a bispecific against nerve growth factor and tumor necrosis factor where initial data gathered so far in osteoarthritic pain shows levels of analgesia exceeding those that we would expect from standard of care. We believe this medicine has the potential to address a very significant medical need in both OA pain and neuropathic pain. throughout the year we look forward to updating you on the progress of these and other medicines in the biopharmaceuticals pipeline and the IR team also remind me to say please take a look at the new appendix slide on upcoming what's next milestones added based on your feedback from the cell cell analysts please turn to slide 30. I'll end by taking you through some of the key items of upcoming news flow in the second half of the year across our entire pipeline in oncology We're expecting European regulatory decisions for INFINZI in small cell lung cancer and for LIMPASA in first line ovarian cancer, second line prostate cancer, and in HER2 in third line plus HER2 positive breast cancer. We also start regulatory submissions for the ADORA data for TIGRISO and we'll have data readouts for INFINZI in stage 3 non-small cell lung cancer with Pacific 2. In biopharmaceuticals, we're anticipating regulatory decisions for farcega heart failure in the EU and Japan, bralinta in stroke in the US, roxidustat in anemia in CKD in the US, and PT10 in Europe. We'll commence regulatory submissions for farcega in chronic kidney disease, EU, and China submissions for bralique in stroke, anafromab in lupus, and AZ-1222 for SARS-CoV-2 vaccinations following data readout towards the end of the year. In terms of other data readouts, we'll have data from the OSTRO trial for Fasenra and nasal polyps, as well as the results from the Navigator and Source trials for tezopelomab in severe asthma. With that, I'll now hand back to Pascal for closing comments and please turn to slide 31.

Thank you, Amineh. So if we can turn to slide 32 before the Q&A session, I wanted to leave you with these slides for a few moments as a summary of our strategic achievements. First of all, we have a global presence, and it is a very important aspect of our company. We have a balance of specialty and primary care, and we have a leading business in the emerging markets, also with significant R&D base. And that is important because in times of change, Having a global presence and a diversified geographical footprint and a diversified specialty and primary care business really helps bring some resilience to the company. The other aspect of the resilience of the company, of course, is the fantastic commitment that our employees all around the world have shown during this very challenging period of time. Second, we have a strong pipeline with 17 phase three medicines and significant lifecycle projects.

And as you heard today, there's a lot more coming in the early and mid-stage pipeline.

And finally, and as we always said, our financials are improving and we've delivered on our goals. With a number of new medicines and nine blockbuster products, we've returned to sustainable revenue and earnings growth. And we are now focused on operating leverage and cash flow. So with this, We'll now move to the Q&A. For those on the phone, please remember to press star one to ask a question. We will also take written questions from the webcast. Can I please remind everyone to limit questions to one to be fair to all of our callers. Thanks in advance. And perhaps now we can take the first question from the conference call. That seems to be from Sachin Jain at Bank of America. Sachin, one question or maybe two, but please not three or four. Thank you.

Thanks very much, Pascal. Sachin Jainbank from America. I promise two questions. First is on guidance. The bottom end of the sales guide at high single digit implies limited growth in the second half of the year. It seems conservative given the trajectory. Anything we're missing or is there scope to raise guidance of 3Q? And then one question from Mene on the recent vaccine data published. Your perspective on the strength of the data versus competition? The market seems to have concluded it's not as competitive. So any thoughts there? Thank you.

Thanks Sachin, so maybe I could ask many to answer the vaccine question after making a quick comment that again we're competing against this virus and data and efficacy safety data is one thing but you know manufacturing billions of doses is what we all collectively need to achieve because there will be a need for lots of vaccine. So maybe you can cover this question and then Mark could cover the sales forecast, if I may call it that way.

Thanks, Pascal. So first of all, I think we're very pleased that both our data shows that we're getting a good level of neutralizing antibody presentation in the patients that are vaccinated with the two doses. as well as a good T cell response. The study remains on track. As you know, we've dosed now nearly 12,000 patients around the world in the UK, Brazil and South Africa. We're about to start the phase three program in the US. With regards to you saying that the vaccine looks less effective, I'm not sure what you're basing it on. I know people have compared neutralizing antibody levels next to convalescent patients We're showing that our antibody response is in the range of where convalescent patients are. I would caution you about comparing assays that are done in different labs because the assays are very different in terms of their IC50s, IC80s, or IC100s. The standards are different, and actually the convalescent samples are different as well. So in our experiment, for example, 86% of our convalescent patient samples are from civilian hospitalized subjects. If you look at the Moderna and Pfizer patients, convalescent samples, less than 20%. So it does make quite a big difference because neutralizing antibodies are very different in convalescent samples. So very difficult to compare, but I would say I'm pleased that everyone's vaccine seems to be generating good neutralizing antibody responses and now also generates a very robust T-cell response.

Thanks, Mene. Sachin, we have very clear data showing that depending on the type of patient you take, Are there severe patients in hospital or less severe? The level of antibodies in these convalescent patients varies very, very dramatically. So you really have to be careful what is the comparison, convalescent group. And then as Mene said, there's also this question of assays. At the end of the day, the truth will come out of the clinical studies. And as Mene said, hopefully we have several vaccines anyway, because that's what we need. Marc, do you want to cover the sales question?

Yes, rapidly so, Satinor. Product sales grew by 13% for the first half, and for the year, the total revenues are planned to grow high single digits, low double digits. We do not expect, we're obviously very cautious about the speed of the recovery from COVID-19. We do not expect an enormous change in the trend, But we do expect a continued, you know, progressive recovery, not a fast recovery. And this is why we believe the reiterating of guidance of high single digit, low double digits for total revenue remains adequate.

The one thing we've all learned with this virus is that it's incredibly unpredictable. Every expert in the world has made predictions about the evolution of the disease and most of the time they've been wrong. So, you know, we don't know what's going to happen in the fall and in the winter, how much of disease there will be. So, you know, it's a very uncertain environment that we're living in until we get a vaccine. Thank you. Sorry, Tim Anderson as well for research. Tim, go ahead.

Unrelated, I guess, to current Q2 results, generics are starting to get approved in China, so it seems like it's just a matter of time until volume-based procurement kicks in. And we estimate maybe this happens in 2022 or so, which is important because this is a billion-dollar product for you guys in China. I think it's actually the biggest drug by any multinational in China. So should analysts be modeling a big decline in emerging markets, Omicorps starting in that type of time frame, and how to kind of the weak Q2 results layer into how to think about this. And then just a quick question, Nursevimab, San, if you're holding an investor day on this asset today, maybe you can remind listeners So two great questions, Tim.

The VBP question, I'll ask Leon to cover this. And it's not so much an emerging markets question, it's more of a China question. So maybe, Leon, you could cover and and the VVP question in general will be on Filmico. And very quickly before Leon does that, this Fevimab question, it's a sort of, from an economic viewpoint, it's a 50-50 deal. So that's how we agreed. And then, of course, the management, the operationality of it depends on countries and by and large, Sanofi takes the lead, but economics are that of a partnership. Leon, do you want to cover the VVP?

Yeah, I think in China we actually focus quite much not just on VVP, but on actually launching new products very fast and also getting them into a reimbursement listing very fast. I think that's our main focus. But of course, VVP this year we have a lot last year already. We have a loose one tender for Crestor BVP and we win the BVP tender for ERISA So I think for BVP brand we try our best to consumerize and also to really focus on the loyal customer and the patients and a lot of Chinese patients are still stick to the original brand as we observe So AstraZeneca is becoming the largest online and also offline pharmacy company already. So I think VBP, we can not say we do not decline our sales, but I think we try to minimize the impact to the current business. At the same time, we are growing rapidly the growth platform and newly launched products and the newly reimbursement listed products. So in 2018, we have many products getting to... Reimbursement Listing, and now they are growing fast. In 2019, we have also Limpaza, Fosiga, and Roxa, and they are also doing well. In 2020, we are also getting Tagreso, Firstline, Infinsi, Locale, Marlins, Espresso, so it's a long list of reimbursement entries. So I think that's the China government strategy, and AstraZeneca is positioned as the best company in covering all the channels and also almost every tier of the city. So it's a very solid number one company in China, so we believe we can make China and the emerging market continue to grow.

I'm sorry, but is Pulmicor specifically at risk for VVP over the next coming years?

Yeah, I think Pulmicor, we don't know when, but I think when there's enough number of generic getting to 0.5 and also 1 milligram to SKU. Getting to the VBP, definitely it will be in the next one or next two or next three VBP round. But I think Tomicor has its special thing, it's a pediatric using drug, so most of the Thank you very much. Thank you very much.

So, Tim, what Leon said is really important. I mean, first of all, if you look at Pilmicort, we will be impacted. We don't know exactly when, and you have to have several generics to be put in VBP, but it will happen at some point. But here, what Leon and his team are doing is consumerize the product to rely on people wanting to buy their trusted Pilmicort, and they buy it online or they buy it in pharmacy. We're also developing home nebulizing products. We're working with device companies to promote the use of home nebulizers. So that's one piece. The more important piece is also what Leon mentioned is, you know, the history of treating asthma in China has been reacting to asthma attacks. We need to shift this to treat to maintenance and convince doctors to treat patients on a maintenance basis. And the potential for Simbicort and in particular Bracetree Thank you very much.

One more point to add is usually the volume of VBP volume is 50-60% of the total market volume. And among this 50-60%, another 50-60% times this 50-60% is like 30-40% at the end is on the VBP tender. So the rest of 60-70% is really not a part of the VBP. So that's something maybe people neglected. So maybe overly pessimistic.

Thanks, Leon. Louisa Ekstra, Bernberg. Louisa, go ahead.

Hello. Thank you for taking my question. Maybe to come back to Sachin's question on the guidance, but I mean, looking at the first half, EPS growth is well ahead of your full year guidance. So I just wondered if there's any cost constraints to highlight for the second half. And I'm particularly interested in the gross margin, which saw a nice uplift in Q2. despite the fact that within that you have the pay away to Mercon Limpaza which is growing so could you address the gross margin and I wanted to confirm no COVID vaccine sales within your guidance for 2020 and if not is that because the Brazilian data probably isn't enough to get you an approval this year and why would that be? Is there something about the trial design, the single dose or Lack of elderly patients that might constrain you there. Thank you.

Thanks. Thanks. We have several questions here. So I'll ask Mark to cover this, starting with the last one. There will be no profit from the vaccine this year. I mean, I'll let Mark cover the accounting of this vaccine. We will be delivering vaccine this year, assuming, of course, the vaccine works and is safe, which, you know, we keep our fingers crossed it will be the case. But there will be no profit. That's the important piece. So Mark will cover the accounting of this. In terms of the guidance, I also asked Mark to answer, but remember also we are transitioning away from other income. So essentially we're turning to a business that, if you look at EPS, we're turning to a business that is powered by our core growth drivers. We've always said we are going through a transition period, pruning, simplifying our portfolio, reinvesting in our pipeline, and transitioning across to a different type of business, and that's what we're doing. So don't forget also this piece. Marc, over to you.

Thank you. So we'll try to take your questions one by one. First of all, on the EPS, first half we are posting $2.01, which is very much... Thank you very much. Thank you very much. So I feel that the profit achieved in the first half in value is a good surrogate for the second half. Talking about gross margin. So gross margin, when we looked at the first quarter, the gross margin was between 78% and 79%. And I indicated that one should not look at the quarter by quarter gross margin but more should look at the cumulative term on the full year. And I indicated then that, you know, the gross margin would probably be in 2020 around 80%. Now, we have seen in the second quarter this progression of the gross margin, which is 84%. This is due predominantly to the biologicals due to two reasons. First of all, we consolidated, we closed, we sold one site, site of Boulder, and consolidated on Frederick or biological production. That was one factor. We also had increased volume on our biologicals for anti-cancer but for other products also. So this has improved the volume and the absorption on Frederick. So this has improved the growth margin. There is also another factor which is a greater absorption on the non-biologic on the other small molecules. So you have three factors that have contributed to make the second quarter gross margin higher than average. Now, if we're going to look forward, what will be the gross margin for the full year 2020? You know, we thought it would be about 80%. And if the greater absorption that we have seen continues to some extent, we believe it will be between 80 and 81%. for the full year. Talking about the vaccine numbers, our guidance for the time being does not include any impact of the vaccine. What Pascal has indicated, which is a no profit assumption, I wouldn't want you to draw conclusion that we are not going to sell the vaccines in 2020. We obviously do everything we can. Thank you, Marc. The accounting of it may also vary from

Deal to deal because sometimes we get reimbursed for our expenses, sometimes we invoice and we have a commitment that the price we charge is reflecting of a no profit commitment. So, you know, we'll have different types of accounting for some of those deals. Mene, do you want to comment on the data and the program itself?

Yes, it's because I want to correct Louisa a couple of statements. So the studies that we have running in the UK, Brazil, South Africa, and soon to start in the US will all be two-dose studies. And the data readouts from either the UK study, the Brazilian study, or the South African study, or a combination of those could be sufficient for regulatory approvals around the world, just to be clear.

The one thing maybe I would add, Louisa, is that there is one variable we do not control, and that The case for everybody. And that's the rate of infection. As you can imagine, if the attack rate is low, it's going to be hard to show statistically meaningful benefit or reduction of infections. And that's why we have quickly moved into Brazil and South Africa, where the infection rate is high, where we tend to have a better chance to show efficacy or lack of efficacy, but at least a statistically meaningful result. but that's the kind of variable that none of us developing vaccines can control and that influences greatly the timing of getting the results of our trials, of course. Michael Lushton, Michael at UBS, go ahead.

Thank you very much for taking my questions. Two, please. One, just interested in and I guess this is for Leon, the change of the agreement in China for Ruxudustat, whether there's any operational rationale behind that, any color would be helpful. And then sorry, Mark, just going back to the accounting around the vaccine. So my understanding is at the moment, this is netted in the P&L line by line. So whatever expenses you occur are then netted against the money or the funding that they have received. How is this done on a cash flow basis? So the The substantial effort you've been making over the last few months, is that just all in in the cash flow, in the operational cash flow number, or is there also some netting and it comes in below that line? Any color there would be helpful, thank you.

Marc, do you want to cover both questions, including the Roxa-China agreement? Because, of course, you've been very much involved in that one.

Yeah, okay. So let me start with the vaccine accounting. So first of all, I'd like to On the P&L, as Pascal said, there's more than one contract. Therefore, it's not done in an uniform manner around the world. But more often than not, we will book sales either to governments or through licenses and so on. So there will be a line available. We will book it on revenues. And we will have also cost of sales, I mean, cost of manufacturing. We may have some other costs involved. So it won't be netted. It will be netted in economic terms because we have a no-profit commitment. But it's not netted on the accounting statements. So, you know, the economic result will be neutral for the vaccine, but it will be represented on our P&L on the adequate line. As far as cash flow is concerned, most of the time we try to match the sort of commitment that we have to make to subcontractors or various parties with the commitment that we receive either from governments or from supranational organizations and donors, but it doesn't always work. So we have usually a small time lag between the commitment that we make and the payment of the loan or the grants that we receive. But at the first half of the year, this cash flow impact is limited. We expect it to be a bit larger for the remainder of 2020. But the other point I wanted to say, there will be no netting. There's no netting at all. In other words, We will receive some subsidies, some grants from some parties. It will be booked in our cash flow as subsidies. And if we make commitment to a subcontractor, we will also book it where it should be booked on our cash flow statement. So therefore, this will become visible and apparent to all. On Roxadustat, so we have renegotiated the agreement In China to facilitate the collaboration between our own organization and Fibrogen, but also to take into account the change of the regulation of the Twin Voice rule to be more in line with the principle of the contract that we had signed in 2014, I believe. So it was basically to adjust to the new regulation of China and to try and keep the principle that we had agreed upon several years ago. I believe this contract, the new contract, the new terms of the contract are going to be easier for the two local organizations to collaborate with each other. And this is why we did this negotiation. But the economic terms are not changed overall. It's just Different terms.

Thank you, Mark. So the next question is from James Gordon at JP Morgan. James, over to you.

Hello, James Gordon, JP Morgan. Thanks for taking the two questions. The first question was about the COVID-19 vaccine and how to think about neutralizing antibodies. So COVID-19, it might be that revaccination is going to be required. And the one question has been about whether you can reuse it. But do you know what proportion of patients end up getting neutralizing antibodies when they get given this chimp adenovirus? And do the neutralizing antibodies mean it doesn't work at all? Or do they just mean you get lower efficacy and you'd have to dose it up higher? And also, how long do the neutralizing antibodies last for? Do we know that? So might it be that the neutralizing antibodies fade out at the same pace as the protective antibodies? So that was the first question, please. And then the second question is just on TROP2 differentiation and where you develop it. So there is a TROP2 asset already out there, Tridelvi. Is the main differentiation the antibody ratio or the link or something else? And do we think that you're going to develop this for everyone, as in all comers, or just in high TROP2 patients? Because when I look at the efficacy, I saw the 27% efficacy quoted on the slides. But I think in the two-thirds of people with a high TROP2, you get about three times the efficacy versus the low TROP2. So what do you think about that, please?

Thank you, James. So the TROP2, maybe we could start with the TROP2 question. Rossi, you could cover this differentiation, et cetera. And then, Mene, you could cover the neutralizing antibody question, which is, as I understood it, neutralizing antibody to the vector itself. So, Rossi, over to you.

So thank you very much, James. So on the DS1062, so the big differentiation is at two levels. One is at the level of the payload. Our payload, the DDXD, is 10 times more potent than NS38. So that's point number one. Point number two is the linker. Our compound has tremendous linker stability. and that means that over a period of days, only 5% of the payload is being released, which explains the fact that you can have a safety profile that is very different from adeno-tecan. So we believe that this is the best-in-class ADC against TOP2. Applicability on multiple tumor types. The first place to go, obviously, is in osmosis lung cancer based on the clinical data that you have referred to. Also, triple negative breast cancer and bladder cancer have proof of concept that this is an approach that works. And I would say that beyond that, there are many other tumor types. So we see this as a truly pan-tumor asset. So it would apply, we will explore in small cell lung cancer, in gastric, in pancreatic, in head and neck, in cervical, etc. So I think that is incredibly exciting on that front. The data in lung cancer does not suggest that there is increased, higher efficacy at higher TROP2 levels. So although we are working very hard to find a biomarker at this point, There is no correlation in lung cancer between different levels of true expression and activity. So our plan for the phase three study is to go into an old commerce population.

Thanks, Jose. Mene?

So there's a few questions building. One is how long lasting is the protection going to be for the vaccine and by that How long is the neutralizing antibody response and T cell response? And for that, we need to go to some of the MERS data because obviously we don't know yet until we start generating data six months and 12 months out. But the Oxford group have demonstrated that they're getting long-lasting immune responses that go well beyond 12 months, say 12 to 18 months at a minimum. With regards to antibodies to the vector, Following two doses so far, I would say that's very limited. Again, there's some data they've generated with repeat dosing against other viruses. And they've gone out to four or five doses and, again, seen relatively little impact on the overall immune response to the antigen that you're trying to provoke the immune response to, so in this case, a spike protein for us of SARS-CoV-2. So I think we will be able to dose repeatedly. but it will hopefully be once every one or two years.

Thanks, Mané. So we'll try to shorten the responses because we have many questions. Matt Weston at Credit Suisse, over to you, Matt.

Thanks, Pascal. Two, please. One for Jose. Adjuvant IO, I see you've delayed the readout of the INFINSI trial in lung. I assume that's because the EGFR patients are likely to move to the ADORA regimen when approved. I'm just interested, are you reopening recruitment to add more patients or are you just running the smaller trial for longer? And then secondly, actually just to follow up to Mene's comments to James's question to do with neutralizing antibodies to the vector, I note that with other Oxford vaccine candidates, They've used a second vector, the MVA vector, for the second shot, particularly for this reason of not wanting to see neutralizing antibodies. So why didn't you do that here? Why was it not necessary?

Thank you, Matt. So maybe we could start with this neutralizing antibody questions. And then we'll move to the BR31 question. Over to you.

Short answer is because we've got a very robust neutralizing antibody and T cell response with two shots of the same vaccine. And obviously, that's a much easier thing to administer logistically around the world. Doesn't preclude us from looking at other things down the road. But in this instance, this is the easiest thing and the response is still very good.

Thank you very much. So in terms of the VR31 adjuvant study, we have announced that as a result of the positive degrees of the study, we are now analyzing the potential impact that it would have on the adjuvant-influenced studies. So the phase three trial analysis is currently being reviewed. So as a result of that, we are anticipating now a delay on the results until 2021+. I think that's just a normal reaction based on the fact that ADORA has totally transformed in a good way the therapy of patients with lung cancer.

Thanks, José. Next one is Mark Purcell, Morgan Stanley. Mark, over to you.

Yes, thanks, Pascal. First questions on your ADC strategy more broadly, if I may. and Hurt, obviously, of DX directly at ADC and TROG2 in all companies at ADC. But in terms of sort of your ADC-centric approaches, enabling IO combinations and other combinations, could you sort of help us understand your ambitions here in terms of the promise that ADCs offer sort of smart chemo to replace standard chemo and how that could enable earlier utilization, so sort of following Vis-a-vis the Mermaid Initiative and the data you've generated with Adora and Pacific. And then could you help us understand your internal capabilities here in terms of building organically ADCs, which can compete with the platform you've collaborated with, given that you've moved the BCMA ADC into Phase 1 in the second quarter. And then just a very quick one, Limpaza colorectal cancer Phase 3 trial, I don't think we've seen any Phase II data, so Jose, could you help us understand what's given you the confidence of starting what's going to be a pretty lengthy and significant Phase III program in colorectal cancer for Lempada? Thank you.

Jose, over to you. Thank you very much.

These are very good questions and long questions, so I'll have to address them quickly if I could. So in terms of the ADC program, we believe that there's a huge logic in combining ADCs with IO. So basically the way we see that is that we see ADCs in breast cancer and in lung cancer as the backbone of therapy. And we do see them as the replacement of any form of chemotherapy in that setting just because they are far more efficient and also they have a very good profile from the point of view of safety. Now, if you think about that, the ADCs induce a very fast response and it's very deep. and in non-small cell lung cancer, in the first-line setting, although IO is helping tremendously, you know, you have PFS in the first-line setting with IO alone in non-small cell lung cancer of five, six months. That's what you have. So I think with very potent ADCs, you could clearly enhance that. So it's front and center in our strategy and the same applies for N-HER2. So I think that's important. Now, I think, Mark, as you also point out, as you can imagine, when we have two assets of this magnitude, it means that we believe in ADC as a pillar of cancer therapy. So we always had at this AZ a very good ADC effort. And we have some of our own companies that are being moved forward. And what we're doing now is that we are strengthening further our internal capabilities. as much as we can. So we don't see these two ADCs just a two-off phenomenon, but rather a commitment to this very exciting area of therapy. Then, if I recall correctly, on the LIMPARSA study, the Phase III study in colorectal cancer, that's a study that's been done by Merck. We are partners, but that's a Merck-run study. The logic is quite obvious. There is a proportion, a significant proportion of patients with colorectal cancer that are sensitive to platinum, and there is a correlation between platinum sensitivity and lymphatic sensitivity. So that's a question being addressed. Now, of course, you could do a phase two, but at some point, you know, the only way to prove this is a phase three. So I totally, we totally support the approach that Merck is taking on this front.

Thank you. Thanks, José.

Richard Parks at Exxon. How about you, Richard? Hi. Thanks for taking my questions. Hopefully you can hear me okay. A couple of questions. First one for Pascal. Just wondered if you could talk about your longer-term ambition in the vaccines market. Obviously, your CapEx here is being funded by the contracts that you've entered, and the vaccine market looks like it could open up, give an improved appreciation of the value of vaccination following the pandemic. So is that an area that you would allocate your own capital to investing behind longer term? That's the first question. Second question is for Jose. On the surge program, your competitors have been pretty vocal about their belief that you're disadvantaged by the tolerability in the bradycardia and the visual disturbances. I was just hoping to get your perspective on that and whether those were on-target or off-target toxicities. Thank you.

Thanks, Richard. I'll try to cover the first one, which is a good question, and José could cover the third question. The vaccines, I mean, it's a good question. I cannot answer it as of today. You know, every year with the board, we review our long-term strategy, and those are the kind of discussions we're going to have over the next few months. I can only tell you today that our starting point was really kind of leaving our values, in fact, doing the right thing. We thought this is a vaccine that has a good profile. We can help globalize the development and the manufacturing and we can make an impact as a company on this terrible disease. And also being entrepreneurial is another one of our values. And so, you know, everybody in the company is very entrepreneurial. And so that's really why we jumped in there. We want to make an impact. We want to make a difference. And then we will see, you know, we are very entrepreneurial and we'll see where that takes us. But also we have to have strategic discussions, capital allocation. But it really starts with, you know, do we have anything? Do we have an opportunity? Do we have science that we can follow? So lots of questions, we don't have the answer.

And we will look at this over the next few months.

Jose, the CERT question?

Yes, well, as you can imagine, the CERT is right on my alley. So I've been looking at the CERT data, not with two eyes, but actually with more than that. And I would say with two eyes and a heart. So the activity data that was reported at ASCO, you cannot compare different. You cannot do cross study comparisons, but somehow you need to look at your data and see what it tells you. What it tells me is that our patient population was the most heavily pre-treated of any other reported phase one study with SIRT. And in this incredibly heavily treated population, we had perhaps the highest response rate reported and the highest clinical benefit rate. So we are dealing with a very efficacious and likely to be best in class SIRT inhibitor. Now, the bradycardia is an untargeted effect. It's something that has been seen also by other SIRTs. I would be concerned if I did not see bradycardia because it's a very powerful class effect. The good news with the bradycardia is that the question is not how low does the heart rate goes, but rather can it recover upon And the same applies with the visual disturbances. These are visual disturbances that do not interfere with their daily lives. There is tachyphylaxis. It gets better. So we are studying this very carefully, but we are not concerned. And also, very importantly, we have not announced yet our phase three dose. These toxicity scales that are part of the clinical trials have not been adapted to the different agents. So we are thinking that it's really more relevant to perhaps present this data in a way that provides meaningful information for the drug development process. And I think here these toxicity scales in bodycardia and in eye disturbances are not helping and one more last comment if I may. We have studied extensively and there is no organic damage to any of the visual apparatus of any of these patients.

Thanks Jose. Maybe just to add, you have to remember body cardio is defined as a heart rate below 60. I take confidence in myself that my heart rate is below 60 and I'm still alive. So, you know, I think it's a question of how you classify this bradycardia and we have more work to do in defining exactly what we mean by this because it creates questions. But in fact, as Rossi explained, there's no reason to be concerned at this point. Simon Baker at Redburn. Simon, go ahead.

Thank you. My two questions. Firstly, one for Mark. A question on Two quarterly factors and any potential impact on the full year. Firstly, on the tax rate, which was higher than we expected in Q2. Does that have any full year impact? Was that just quarterly fluctuation that will wash out in the second half? And also on SG&A, where you talked about investment in launches, but presumably there was some COVID-related savings there. So I wonder if you could give us the dynamics around that and any impact that will have on the full year figure. And then a question for Ruud on Pralinta. If I look at the contribution of established rest of world sales to the total for Brilinta, it's one of the lowest of your focus key medicines. I just wonder if you could give us an update on where you see the potential for Brilinta in established rest of world. Thanks so much.

Thank you. Should we start with Marc and then Ruud, you could cover the Brilinta question?

Yes, so Simon, thank you for the question on the tax rate. So basically 21% for the second quarter. We are confirming our guidance or indication more precisely on the tax rate for the whole year. There is no change to it. As you suggest, this is obviously a quarter to quarter small, very small variation. On the SG&A, You are right to say that, like many other companies, we have had a reduced level of commercial activities and therefore our spend of SG&A has been lower than expected. But conversely, we have had a dramatic increase, although the line is a small line, on distribution costs. The capacity of freight has reduced by about 50% and the cost of freight and transportation and warehousing and everything has increased by about 30%, 30 to 40%. So you have the COVID-19 has brought some pluses and minuses. Our SDNA is growing year to date at 5%. And with this, we have invested behind several launches, and we have continued to invest for size in China.

Thanks, Marc Claude. We're in time.

Yeah, absolutely. Very quickly. So in established world markets, we are primarily talking about countries like Australia, Japan, and Canada. We lost the patent. The patent expires already in Canada. In Japan, as you probably know, the sales of Valenta is almost non-existing. So the growth potential in what we are calling the established markets Outside of Europe and Canada and international is relatively limited. But equally, we still see a very substantial opportunity in the United States, Europe, and especially in the emerging markets moving forward.

Great. Thanks, Ruud. Next one is Naresh Johan at Intron. Naresh, go ahead. Naresh, you may be on mute. We can't hear you. Okay, so... Hello?

Hello, can you hear me?

Oh, yes, go ahead, Naj.

Sorry, I'm not sure what happened there. Just a couple of questions on Tegresso, please. There were some signs that EGFR testing in the US and in Europe was down quite significantly due to COVID, but we're not seeing any impact on Is that something you have seen with respect to EGFR testing, and should we expect any impact on Tegresso and H2 as a result, or have new patients started to be pretty stable? And then secondly, on Tegresso in China. In your initial epidemiological data, you gave the potential patient population a pretty big haircut to reflect limited patient access. Now you're in the market and you can see the uptake, particularly in the first line setting. Is there any upside to your initial population data to go so in China? Thank you.

Thank you. Naresh, Dave, two questions for you.

Great. Thanks, Naresh, for the question. So on the first, in terms of the EGFR testing rates, across tumor types, we are seeing declines in diagnosis rates, and testing rates. And so that's true of EGFR testing in the U.S. just as it is true of actually all the testing that we're seeing. With that said, I think that we did see within the U.S. specifically, we see continued Low single-digit demand on Tegriso continuing to be driven, and I think that that is largely due from what we see in increase in duration of therapy and TRXs. I think, again, on Tegriso, the key thing that we've really highlighted here is that the strength of Tegriso is really the global business, which is up by 7%, and it speaks to the expansions that we're making across the globe. to bring Flora online and get national reimbursements, and then the move that we'll make, obviously, to transition to Adora. On the question within China, I think we still continue to stay true to the epidemiology data that we put out. We continue to work on making sure that we're driving access not only, of course, into the provinces but into the counties. But I think the estimates that we gave before are still holding true with the numbers that we're seeing right now.

Thank you, Dave. So, sorry, Nick, can you get me the, we have a couple of additional questions. Can I get the list, please? Nick? I don't know if you hear me. Can I get the list of questions, please?

All right, otherwise, we'll end here. Pascal, I believe Kay is next.

It's okay, it's okay, it's okay. I'm just waiting to hear from Nick. Nick?

Yeah, Pascal.

Okay, thanks very much. Christopher Wooder at CEP. Thank you very much. Go ahead, Christopher.

So the first one, to Grisso, I noticed that there's a change in potential regulatory filing. So have you held pre-submission talks yet with all the major global agencies? And then do you expect to submit in H2 only in the US or elsewhere also? And then secondly, can you quantify the impact of COVID-19 on Sgna and Q2 as a percent of well so as a percent of sales delta from last year and finally on the logistics of vaccine delivery it's been reported that actually delivering the vaccine to end users may be a challenge because you know the quantities that have been that are planned to be Thank you so much, Marc. Do you want to cover the second question? The second question was basically the impact on the SDNA level or on the cells level. I'm not sure I... SG&A, so as a sort of, if you can quantify that as a sort of, yeah, in terms of a delta in percent of SG&A to sales.

So I have mentioned earlier on that SG&A grew for the first half at 5%. And I would say that if, you know, it's a bit hard to speculate, but if COVID-19 had not taken place, I would imagine that our growth rate would have been more in line with what we have seen before, which is probably 7%. So I would imagine a 2% impact on the growth rate of LGNA due to COVID-19 related reduction of activities. But it's a very, you know, approximative view. Does it answer your question? Yes, yes. Okay, thank you.

Thanks, Marc. And the first question was about Tagresso filing. Do you want to take it, Dave?

Yeah, absolutely. So we are moving at pace across the globe with health authorities on our discussions on Adora. As you saw from the news just today, we've been granted breakthrough therapy designation in the United States by the FDA for Adora. We're also discussing Orbis countries with the FDA and other health authorities. So I think that the enthusiasm for this data set is high and look forward to more updates on filings that are happening throughout the second half as we really move towards getting ready for a variety of global launches next year.

Thanks, Dave. Can we return maybe to the vaccine question? And Pam, you could cover the distribution question that was asked. But you could also give people a sense of what this scale up in manufacturing means, because everybody is always focused on clinical results. But having a vaccine that can help the world means you have to scale up the manufacturing. And that's a very important dimension that tends to be forgotten. Go ahead, Pam.

Yeah, absolutely. Thank you, Pascal. So let me just quickly give everyone a feel in terms of what have we done in setting up supply chains to be capable of delivering over 2 billion doses of this potential vaccine between the end of 2020 and to the end of 2021. So we've now are in collaborations and partnership with over 20 what we call the contract manufacturing organizations. We've got two significant sub-licenses as well in place. and we've worked very, very hard to, in parallel, as we are standing up clinical trials, to also get these supply chains ready and manufacturing, commercial manufacturing ready. We stood up these, what we call the independent sort of parallel supply chains to ensure that we can have broad and equitable assets around the world without competing with each other as well. So our main focus is to do everything we can to ensure that these commercial doses are available Should these vaccines prove ineffective? Our goal has always been if this vaccine is effective, we wouldn't have lost a single day in delivering these doses to the world. We are collaborating with many governments and entities around the world on supply and distribution. We as one company, AstraZeneca, will not be in the position of deciding who gets what vaccine and when. We are working with the government in due course to ensure that the doses are available and the government and the entities will decide who gets vaccinated and when.

Thanks, Pam. So the next question is Andrew Bohm. Go ahead.

Good afternoon. So first question for Pascal and José. A couple of your former colleagues from Genentech have founded EQRX that has a drug with a very similar profile called Amonertinib approved on the Chinese market and now they've acquired the US rights. So as you think about the competitive risk given some of the recent action of the FDA in accepting Chinese data, realistically how are you thinking about future planning and I'm sure there's intellectual property questions but I'm just interested in engaging How aware and the amount of thought you give to that product. And then second, on PT27, which the budesonide albuterol inhaler, what's your internal level of excitement? Despite the lack of innovation, we've argued at least that there is a significant medical need, but I'm interested in understanding commercially how important you think it could be within the US market. Thank you.

Thank you. So, maybe let's start with PT27. You know, at the end of the day, we follow the science, but the important piece is to address patients' needs, right? So, if you can help patients, even if the science is less breakthrough, it is exciting. So, Ruud, do you want to talk about PT27, and then we'll return to QRX and Rosé can comment?

Yeah, absolutely, Pascal. So, Andrew, I think it's almost an understatement to say that there's a lot of excitement in in the U.S. organization. And it's twofold. First of all, there's an over-reliance on short-acting beta agonists. It's causing a lot of issues, including asthma death in the United States. So coming back to Pascal's point, there's clearly a medical need. The second piece is in the United States, we don't have the SMART or the anti-inflammatory relief indication. because the FDA was never very keen in order to move into that direction. So in that sense, also from a commercial opportunity, if PP27 is successful and will get approved, it's the only product who can claim that you can have an ICS and in this case a Saba in order to treat patients across the GINA1 up to GINA5 patient population. So it's a very exciting We are beefing up our resources. We are looking into every possibility to get a good start of this product in the United States when it is registered.

Thanks, Ruud. I mean, the Symbicorte in Europe and elsewhere has changed the guidelines, and it's a huge opportunity and a way to change treatment. Hopefully, we can do the same with PD27 in the U.S., So let's move to the EQRX question. Just a quick general point, actually, Andrew, is that the FDA has said they will take Chinese data. They haven't said they will take a second-line data set to give approval for first-line or even adjuvant, right? But Jose, go ahead.

So thank you very much, Andrew. So I think your question has two aspects to it. One is particularly how this affects and I think that the situation that we have is one that is incredibly strong because we have full second line approval and also we have randomized first line data and now we have adjuvant data so it's a very solid position that we have. So I think to me, Andrew, and I think that's where you're going, is the philosophy of all this because if there is a way on the line to get trials done in China in the phase two setting with lack of the control arm. And that can lead to approval in the US or rest of the world. I think that's a model that pharma needs to consider. It's something that we will need to address in time. So it's all very fluid and very interesting. But I think that in the particular case of Tegucigalpa, The situation that we have is one that is extremely solid based on our data.

Thanks, José. So let's move to the next question. Peter Welford. Peter, go ahead.

Hi. Yes, thanks for taking my questions. Just two quick ones. Firstly, just returning again, I'm sorry, to the vaccine. It is E1222. I wonder if you could comment to give us timing at all when you may have some data on elderly and also paediatric and other at-risk patients and also is it possible for you to pool across the UK, South Africa, Brazil studies to get data sooner depending on differential rates of infections or will each study have to have its own independent event rate and then just a quick one for Mark on cash flow which is I think in the past you've been very clear with covering the dividend ex-adaichi payments I wonder if now post the second Daiichi deal, you can give us, I guess, a reiteration or perhaps talk about when, again, covering the dividend and how you look at the cash flow from that following this second, obviously, major collaboration. Thank you.

Thanks Peter. Mene, do you want to cover the first two questions and Mark will cover the cash flow questions?

Yeah, so data on different age groups is coming from the phase one study and from the phase two part of the phase three study we're running in the UK. We're getting that data in on a weekly basis. And with regards to pulling data from UK, Brazil, and African studies, the answer is yes, we can, because the endpoints are exactly the same. So we would be able to pull the data for filing.

Thanks, Mene.

Next question is Steve Scala at Cowen. Steve, over to you.

Pascal, would you like me to answer the question on the cash flow? Oh, I'm sorry, I forgot that one.

Go ahead, Marc.

I will make it as short as I can. So we confirm our plan for 2021 to cover the dividend with our net cash flows, including or, you know, taking into account this new dividend Thank you, Marc. So, Steve Cullen, go ahead, Steve.

Thank you. Questions on a few upcoming events. The INHER2 filing for gastric seems to have been pushed out in the U.S. and EU. The INFINSI TREMI filing and first-line HCC is back in 2020. It had been pushed previously to 2021. and then the PT027 data is now late 2021. It had been this year. Can you provide perspective on the reasons for these changes? And then quickly on the oral SIRD, is it safe enough for a CDK4-6 combination in the first line setting? Thank you.

Thank you. So, Mene, maybe you want to comment? on the biofarm and then also to cover on the changes in oncology and also cover this question.

Yeah, PD27 is one of the few studies we've got in late stage development that has been impacted by COVID-19 because it's a milder population. We've had to pause, we had to pause enrollment and it's the only reason to delay back recruiting now.

Yeah, we've had a number of, a couple of studies impacted by COVID. Jose, do you want to, thanks many. Jose, do you want to cover the third question? Safety in terms of combination?

Yeah, absolutely. So we are planning ahead to do a randomized phase three study with the combination we feel. We're gathering the data, but we have no concerns. Very good. You go ahead. In terms of the clinical, Thank you Jose. So we've gone over a little bit because we had so many very good questions. I'm really sorry but we now have to close.

Still a few questions that we cannot answer, but we want to be respectful of your time. If you want to share those questions with the IR team, we'll make sure we answer them separately. Let me just close by thanking you all again for your interest, and maybe quickly I'll repeat what I said a bit earlier. What you see now at play is really the strength of our global presence, our diversified footprint, our broad footprint around the world, Our balanced specialty primary care portfolio and the growth we see in the emerging market. We now have a strong pipeline with 17 phase three medicines, lots of life cycle projects, as you've heard today, lots of good questions. And there's more to come with the early and mid-stage pipeline. And finally, even though for a period of time, people had their own questions and doubts, we are showing that our financials are improving and we are delivering exactly on what we said we would do. So we're progressing. Thank you again for all your interest and I wish you a great rest of the day. Thank you. Bye-bye.