AstraZeneca PLC

Thank you, Operator, and welcome, everyone. I'm Andy Barnett, Head of Investor Relations at AstraZeneca, and I'm pleased to welcome you to AstraZeneca's first half 2022 conference call. All materials presented today are available on our website. Slide two has our usual safe harvest statement. We will be making comments on our performance using constant exchange rates or CER, core financial numbers and other non-GAAP measures. A non-gap-to-gap reconciliation is contained within the results announcement. Numbers used are in millions of US dollars and for the first half, unless otherwise stated. Please advance to slide three. This slide shows our agenda for today's call, and in a moment, I'll hand over to our CEO, Pascal Sorio, to begin. Following our prepared remarks, we will open the line for questions. We ask that you limit yourself and limit the number of questions that you have to give everyone a fair opportunity to participate in the Q&A during the allotted time. As a reminder, for those on the phone, please join the queue for questions by pressing star 1 1. With that, please advance to slide 4, and I'll hand over to Pascal.

Thank you, Andy. Hello, everyone, and welcome to this half-year call. So if we move to slide 5, please. We continue to deliver through the first half of 2022, both in terms of commercial performance as well as moving our pipeline forward. Total revenue increased 48% versus prior year to $22.2 billion, and core EPS increased by 44% to $3.61. Given the strength of our underlying business as well as increased demand for COVID-19 medicines, which delivered $2.5 billion of revenue in the first half, we have updated our revenue guidance for the year. We now expect revenue growth for the full year to increase at the low 20s percentage. Guidance on EPS remained unchanged, and we continue to expect a mid to high 20 percentage increase as we continue to invest in our pipelines. We've also confirmed an interim dividend of $0.93, reflecting the Board's intention to increase the dividend to $2.90 for the full year of 2022. Looking across our business, we delivered revenue growth from all these areas, reflecting not only the breadth of our portfolio, but also the depth in each of our respective disease areas. In the first half of the year, we reported several important late-stage data readouts, including fast CIGAR and heart failure, Ultomeris in NMO, and Infinsi in non-small cell lung cancer. And we received significant approvals, enabling commercial launches. Please move to slide six. In order to maintain our ambition for long-term industry-leading growth, we will need to maximize our launches and continue to invest in our great pipeline and our research technologies. First, our pipeline successes have driven increased need to resource commercial launches. With competition increasing in many markets, investing smartly to optimize our launches has never been more important. Spend on market development for medicines like Evusheld is also important if we are to unlock the full potential of this medicine. Based on emerging data, we need to act fast and invest to win with high potential pipeline opportunities. And we have several medicines, as you see here on the second column in this chart, We have several medicines where recent data has pointed to the potential for major clinical advances and sizable commercial opportunities. So we've listed here, as you can see on this chart, the successes we've experienced in the last few months, but also in the middle, the priority assets that we are fully resources for maximum potential. There is a continued need to invest in early discovery research and new technologies to accelerate the rate of pipeline growth. And you can see here a number of those technologies. And in particular, in ADCs, we've made tremendous progress in the last two years. And Suzanne will highlight a little bit more examples of this. In addition to our goal of reducing SG&E spend as percentage of sales over time, in R&D, we have set bold internal targets to drive efficiencies for the use of digital solutions. For example, we have invested in remote data collection for many of our global trials, as well as the use of real-world evidence and data science to optimize trial design to improve the success rate. This improvement will make our trials more efficient, more accessible for patients, and reduce our indirect impact on the climate. We've also worked to internalize clinical operations to drive further efficiencies. A rigorous approach to portfolio prioritization is also being applied, which is enabling the directing of investment being the most promising medicine and the discontinuation of development for others, such as the three that are mentioned here. These decisions are difficult, but given the breadth of our portfolio, are increasingly important. So as you can see here, we are not only investing, but we're also driving productivity improvement very aggressively. Together, these investments will help us deliver our ambition for low double-digit CAGR through 2025 and industry-leading growth thereafter. We want to remain a fast-growing company beyond 2025, and we are confident we have in our hands what it takes to be a growing company until 2030 and hopefully even beyond 2030. At the same time, we remain committed to increasing operating leverage And so despite the need to invest in new launches, our pipeline and technologies will remain focused on improving operating margin. We're confident that this combination of industry-leading growth and operating leverage will drive shareholder value. So please move to slide seven. We look forward to a productive back half of the year, and we have several phase three redarts, including the Emerald One trial of mFINZE in local regional liver cancer. The first phase III readout for CAPIVA-30 in HR-positive HER2-negative breast cancer and the MESINA trial of Fasenra in EOE. And in 2023, we expect more than 20 phase III readouts. The next couple of years are going to be extremely rich in clinical readouts. We are well-positioned to deliver industry-leading growth through 2025 and beyond, as I said. and I look forward to sharing more exciting news as our pipeline progresses. Please advance to the next slide, and I will now hand over to Arana to walk you through our financials in the first half of the year.

Thank you, Pascal, and good afternoon, everyone. As usual, I will start with our reported P&L. Please turn to slide nine. As Pascal has already highlighted, total revenue grew by 48% in the first half benefiting from a full quarter of Alexion sales and higher revenues from COVID-19 medicines. Our collaboration revenue increased to $551 million in the half, partly driven by increased and HER2 sales. As a reminder, Daiichi Sankyo books and HER2 product sales in most Western markets, while we record our share of gross profits in those regions as collaboration revenue. We record our share of the R&D and sales and marketing cost in our P&L. We will, however, book product sales in China upon launch. Our reported gross margin continues to be adversely impacted by the Alexion fair value uplift, which we anticipate to continue for another six months or so until the inventory is sold. Please turn to slide 10. Turning to the core P&L, Our core growth margin increased by six percentage points in the first half to 81.1%, with the second quarter benefiting from the phasing of cost recognition associated with the fulfillment of Vexeveria contracts, as well as favorable currency movements. While quarterly fluctuations of the growth margin may continue, we still expect the ex-COVID-19 group core gross margins this year to be relatively stable compared to pre-COVID levels. Our core operating expenses increased by 33% in the first half, driven by the addition of Alexion, which given timing of the consolidation had no contribution in the first half of 2021. To echo Pascal's comments, the increase in cost also reflects continued investments in R&D, where several positive readouts in the last several months have ungated additional trials. We also recognized a one-off charge of $89 million in the second quarter relating to a discontinued project. The pace of approvals following our pipeline success necessitated investment in new launches, resulting in a 29% increase in SG&A costs in the first half. but again, compared to a 2021 number, which did not include Alexion. SG&A costs during the period also reflect increased investment behind the launch of Evushel, where we're focused on driving end market demand. We continue to work to expand capacity following the recent dosing update. Our core operating margin was 33.1% in the first half and 31.2% in the second quarter benefiting from higher growth margins. On the net income line, we benefited from a lower tax rate in the second quarter, which was driven by favorable adjustments when we filed our 2021 tax return in major jurisdictions. Variations in tax rate between the quarters are expected to continue, but we still anticipate a core tax rate of 18 to 22% for the full year. Second quarter core EPS of $1.72 in the second quarter represents an 89% growth. We saw some FX headwinds following the strengthening of the U.S. dollar in the period, which impacted our revenue by more than $500 million in Q2 alone versus on a CER basis. If rate remains at the level seen at the end of June, we anticipate a mid-single digit adverse FX impact on both total revenue and core EPS for the full year. Please turn to slide 11. Today we are updating our full year guidance. We now anticipate total revenue at constant exchange rates to grow by low to mid 20s percentage, which reflects the strength of the underlying business and an updated outlook for our COVID-19 medicines. We expect COVID-19 revenues broadly flat to 2021 with, of course, a different mix of Bexseveria and Evusheld. We're also updating our guidance for core operating expenses, which are now anticipated to grow by a mid to high teens percentage. This, as Pascal touched upon in his introduction, is mainly driven by additional investment in R&D as we continue to invest in long-term growth including promising medicines such as DataDXT, new launches across the globe, as well as a broader investment in digital and AI capabilities, to name a few. Looking ahead, we expect our R&D expenses in the second half of the year to be broadly consistent with the first half as trials progress. We have had very limited divestments so far this year, and we now anticipate other operating income in the second half to be at similar levels as in the first half of around 200 million. Our 2022 outlook for China and emerging markets remains unchanged. Our core EPS guidance for the full year also remains unchanged with an anticipated growth of mid to high 20s percentage. Beyond the specific guidance, like all other companies, we're also being impacted by the current macroenvironment And we have seen a number of countries reporting high inflation numbers recently, which may ultimately also impact our cost base. You saw that our distribution costs increased by about 32% in the half versus 2021, reflecting not only higher freight rates and inflation, but also higher volumes, including Alexion. Unlike some other industries, we're limited in our ability to pass on cost increases to our customers. Please turn to slide 12. We continue to see improvements in cash flow generation, and in the first half, our net cash inflow from operating activities increased by $1.7 billion to $4.5 billion. In the second quarter, we paid $775 million to Shugai following a legal settlement on Altamaris, and in the first quarter, we paid the first of three payments, $920 million to the former shareholders of Asserta. The two remaining payments of similar amounts will be paid in 2023 and 2024. As we've previously highlighted, that we also anticipate cash flows relating to prior business development transactions, including Daiichi, of just above $1 billion this year. Our current net debt to EBITDA ratio is three and a half times. If adjusting for Alexion fair value inventory adjustment, which does not affect our cash flow, the ratio is 2.1 times. Our capital allocation priorities remain unchanged, and we continue to invest in our business in order to deliver long-term sustainable growth. Consistent with our announcement in February, with an increase in dividend to an annualized $2.90 per share, the board has approved an interim dividend for 2022 of 93 cents to be paid in September. With that, I will hand over to Dave to take you through our oncology performance.