AstraZeneca PLC

Good day. Welcome, ladies and gentlemen, to AstraZeneca's year-to-date and Q3 results 2021 conference call and webcast for investors and analysts. Before I hand over to AstraZeneca, I'd like to read the safe harbor statement. The company intends to utilize the safe harbor revisions 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 conference call and webcast. There will be an opportunity to ask questions after today's presentations. If joining on the telephone, please press star 1 to indicate you wish to ask a question at any time during the call. And for those on the webcast, you'll find an on-screen text box in which to type your question. And with that, I will now hand you over to the company.

Thank you and good afternoon everyone. I'm Chris Sheldon, Head of Investor Relations at AstraZeneca. I'm pleased to welcome you to AstraZeneca's third quarter 2021 conference call. All materials presented today are available on our website. Slide two has the usual safe harbor statements. We will be making comments on our performance using constant exchange rates or CER, core financial numbers and other Thank you. Thank you. Thank you. Executive Team. In a moment, I'll hand over to our CEO, Pascal Soriot, to begin. Please turn to slide four. Following our prepared remarks, we'll open the line for questions. We'll ask that you limit yourself to one question and one follow-up question to give a fair opportunity to participate in Q&A during the allotted time. As a reminder for those on the phone, please join in the queue for questions by pressing star one. Please advance to slide five, and with that, Please, Pascal, over to you.

Thank you, Chris, and hello, everyone. The third quarter of 2021 was an important milestone for our company with the addition of our Alexan colleagues. Alexan has been a remarkable, diversified readiness portfolio with significant growth opportunity. And a great part of this success is due to the talented team globally, and I very much look forward to seeing all With the inclusion of Alexion from the 21st of July, we saw total revenue for the year to date of over $25 billion, an increase of 28%. If you move to slide six, if you don't mind. Yes, thank you. The revenues excluding the COVID-19 vaccine for pandemic use grew at 17%. The breadth of our now expanded portfolio allowed us to continue to deliver on our growth ambition in the face of ongoing industry-wide pressures related to effects of COVID-19, which is still having an impact on patients visiting doctors or going to hospital. Total revenue in the quarter came very close to $10 billion, $9.9 billion precisely. A remarkable milestone, which of course was aided by our COVID-19 vaccine sales. but still excluding the vaccine, we experienced tremendous growth. The core EPS of $3.59 is at 23% of our prior year and excluding the vaccine, the growth is 17% reflecting continued leverage in our business. As a reminder, our vaccine has been supplied at no profit and therefore the vaccine sales here today deliver no profit. Operating expenses growth in the quarter reflect in part the costs associated with the vaccine The integration of Alexion and most importantly our continued investment in our strategy to sustain an industry-leading pipeline and support our recent launches. We will now progressively transition our vaccine to a for-profit approach but our price will ensure the vaccine is affordable for low and middle income countries and therefore the profit will remain limited. We've updated our full year revenue guidance to reflect the contribution of our COVID-19 medicines in the fourth quarter. The great majority of our COVID-19 cells in Q4 will remain pandemic cells with no profit. Therefore, the Q4 profit arising from our vaccine cells will remain quite limited and will be offset by the limited investment in our long-acting antibody combination AZD7442. There is a limited investment that we need to do ourselves that is not covered by contracts we have with government. But essentially, the limited profit from the vaccine is offset by the limited cost of the AZD 7442 development. And overall, the COVID medicines will not contribute to profit in 2021. So it's important to remember that the EPS guidance that we give reflects the performance of the underlying business, being the so-called quote unquote old AZ plus Alexion. So it's a new AZ with Alexion, but excluding the COVID assets. Aradhana will provide additional details on this important update later in the presentation. All of our disease area franchises are doing well. We demonstrated broad-based, double-digit growth with oncology growing at 16%, and in biopharmaceuticals, CVRM growing at 10%, respiratory immunology at 12%. For rare diseases, the total revenue was $1.3 billion. with year-to-date growth not meaningful due to the limit of the reporting period, but in line with our expectations. And for Q3, it's important to remember we didn't have a full Q3 as far as election is concerned, so we didn't have the full extent of sales, but also not the full extent of R&D spend and other costs. We committed to following the science, and our pipeline news flow in the quarter has been extraordinary, really, with eight positive late-stage readouts across seven medicines. with the potential to change the standard of care in multiple diseases. So if you turn to slide seven, the performance in the field was strong across our diversified disease areas, as well as across geographies. If you look specifically at the emerging markets region, growth was 10% year to date, excluding the contribution of the COVID-19 vaccine. China grew by 2% in a quarter due to price and volume pressures, as well as stock compensations to distributors. related to VVP and NRDL negotiations. The volume of key medicines is growing very strongly in China, but it's not fully compensating for past pressures. It is clear that China is slowing down, but will remain a very important market for us. And over the next few years, we expect to continue growing with, of course, a valuable growth rate depending on the year. but still a very important market that will contribute greatly to our company. And the slower growth in China was compensated by the emerging markets that grew 30% in the quarter. So overall, the emerging markets, including China, grew by 12% in the quarter, again, excluding COVID-19 vaccine, which reflects the strength of our global footprint. We will provide additional commentary on China performance later in the presentation. So please move to slide eight. So if we look at the lead stage pipeline delivery, we'd like to highlight a few regulatory approvals for three medicines, Farciga for CKD in the EU and Japan, Safnelo for SLE in the US and Japan, and Ultramiris in the EU for children and adolescents with PNH. So we await regulatory decisions with great excitement for AZD7442, a long-acting antibody in COVID-19 prophylaxis, and also in oncology for HER2, in second line HER2-positive breast cancer. And we are, of course, in the process of discussing potential orders for Evusheld Lab with countries around the world. So if you move to slide nine, I will now hand over to Aradhana Sarin on UCF4. who joins us from Alexion where she was the CFO. For those of you who have not met Aradhana, I know you'll be as impressed as I am with her knowledge of the industry, her sense of the business, and her passion for our mission to help patients and follow the science. Again, a warm welcome to Aradhana and our Alexion colleagues. Over to you, Aradhana.

Thank you, Pascal. I will be covering our financial performance for the third quarter and year to date 2021. Please turn to slide 10. Total revenue grew by 28% year to date and by 48% in the third quarter. This includes our COVID-19 vaccine. Excluding the vaccine, total revenue grew by 17% year to date and by 32% in the third quarter with strong performance across our key disease areas. Our reported EPS in the third quarter was negative at $1.10, impacted by an impairment charge of $1.2 billion following a strategic decision to discontinue the development of Renurad from the acquisition of Ardea in 2012. Our reported numbers are also impacted by a number of adjustments following the consolidation of Alexion. One of the main adjustments is an inventory where previously Alexion held this at cost, whereas now it is recorded at fair value. As a result, cost of sales for the group was inflated by $1 billion charge related to the unwind of the inventory fair value up list. On a reported basis, we expect the cost of sales to continue to be high for the next 18 months or so until this inventory is sold. We also incurred higher amortization charges this quarter as we start amortizing the Alexion medicines over their useful economic lives. These changes do not have an impact on our core results. Please turn to the core P&L on slide 11. The core gross margin was 74.1% year to date driven by the vaccine. Excluding the vaccine, we saw a small decline in gross margin in line with our previous comments on increased pricing pressure in China and profit sharing arrangements on several successful medicines. Core operating expenses increased 20% with ear-on-ear comparisons impacted by the addition of Alexion from 21st of July. Excluding the COVID-19 vaccine, core operating expenses increased by mid-teens percentage. Higher R&D costs are also reflected, reflective of pipeline success in the last quarter with numerous successful late-stage readouts, as well as our substantial investment in R&D for our long-acting COVID-19 antibody combination beyond the level of government funding. The increase in SG&A costs reflect the addition of Olexion, increased investment in new launches, including Cetanillo in lupus and Farcega in CKD, as well as significant pre-launch investment following successful phase three data for Inheritu, Lymparza, Desipelimab, and PD27. From an ear-to-ear comparison basis, you may recall that the SG&A cost in third quarter 2020 declined 1% compared to 2019 because of COVID-related lockdowns and cost reductions in areas such as T&E. This also skews the SG&A growth comparison. Core earnings per share of $3.59 include the negative impact of 3 cents from the vaccine with a 1 cent benefit in the third quarter. Now turning to slide 12. In the quarter, we saw further improvement in our core operating profit mix, and core operating profit increased quarter on quarter, benefiting from the inclusion of Alexion despite lower other operating income. We're updating our 2021 guidance to provide further details around the contribution of our COVID-19 medicines. While we continue to expect low 20s percentage increase in total revenue excluding the contribution from the COVID-19 vaccine in line with our prior guidance, we now expect total revenues to increase by mid to high 20s percentage inclusive of fourth quarter vaccine sales. We anticipate vaccine sales in the fourth quarter to be a blend of our original agreements and new commercial Vaxxavaria contract but with the vast majority coming from pandemic agreements. In line with prior years, we expect a step up in total revenue in the fourth quarter. Any net profit from commercial vaccine contracts in the fourth quarter is expected to be modest and to offset continued investment in R&D and supporting activities such as pharmacovigilance for our COVID-19 medicines, including the long-acting antibody, resulting in no material EPS contribution from these medicines in 2021. We still expect core earnings per share to be between $5.05 and $5.40 at constant exchange rate for 2021 in line with our prior guidance. Please turn to slide 13. Net debt increased to $24.7 billion following the completion of the Alexion transaction. That leaves our current net debt to EBITDA ratio at around 3.1 times. Our EBITDA is, however, reduced by the $1 billion unwind of the Alexion inventory fair value adjustment discussed previously. Excluding this non-cash impact, Our net debt to EBITDA ratio would reduce to about 2.7 times. As previously communicated, we're committed to rapidly reducing our debt. Our capital allocation priorities remain unchanged. In no specific order, we aim to maintain a strong investment grade rating while continuing to reinvest in the business. We will also continue to explore strategic value enhancing business development opportunities and remain committed to a progressive dividend policy defined as stable or increasing dividends. I will now hand over to Dave Fredrickson.

Thank you and welcome Aradhana. Slide 14 please. So we're pleased to report that our oncology total revenue grew 16%, a good performance showing the momentum of new launches and the diversity of our portfolio in the face of continued headwinds from COVID-19. With that said, diagnosis rates continue to improve and are now around 5% to 10% below pre-COVID levels. The quarter included strong performances from Calquinson and Hertu, solid delivery from Limparsan and Finzi, and on Tigrisso, the year-to-date showed growth. However, sequential sales for the quarter were slightly down due to China dynamics, which I'll explain shortly. So let's turn to slide 15 and go through some of the specifics. In the U.S., underlying volume demand for Tigriso continues to grow at low single-digit rates, with rising first-line duration of treatment and increasing adjuvant use driving sales, partially offset by lower second-line use and the pandemic impact on diagnosis and testing. More specifically, in adjuvant use, we're pleased with the good progress we've been making in moving physician practice. However, it takes time for the relatively small number of new starts in a setting that is 20% to 25% of the size of the first-line metastatic market to move the dial on overall prescriptions. In emerging markets, growth in the year to date was 1%. Within that, we've seen strong growth in EM outside China as Tegresso gained reimbursement in more markets. In China, the strong volume growth we are seeing in the first line and second line is still catching up with the price discount for NRDL inclusion in March. Following the NRDL change, in the second quarter we saw inventory build and a bolus due to first generation TKI switches in the front line. In the third quarter, we are down sequentially as those factors were not at play. We're confident we're moving the needle in China in frontline and maintaining robust share in second line. We expect continued volume growth to offset the cut in price that we took in the coming months and for Tigriso to resume top line growth in China at that point. Turning to our immuno-oncology franchise, Infinsi grew by 17% in the year to date. We're very pleased that we continue to grow Infinsi over the last several quarters despite the pandemic solidifying and growing Pacific and driving successful launches of Caspian in the face of competition. All of that sets a great foundation for launches and some of the potential new indications that Susan will speak about in a few moments. Please turn to slide 16. Lymparza continued to deliver strong growth across tumor types and territories, increasing product sales by 31% to $1.7 billion in the first nine months of the year. Lymparza remains the class-leading PARP inhibitor across four tumor types. U.S. sales were up 26%, driven by greater use in ovarian, prostate, and adjuvant breast cancer, and we were pleased to see the NCCN guidelines updated to include Olympia during Q3. Europe and established rest of world showed good growth in ovarian and prostate cancer supported by continued growth in HRD testing. China benefited from strong volume growth due to the expanded ovarian cancer indication in the NRDL from March, offset by the associated price cut, as well as similar, albeit smaller, inventory phasing headwinds in Q3 as seen with Tigrisso. Please turn to slide 17. Calquence continues to make strong progress towards blockbuster status, driven by a robust share performance in the U.S. in chronic lymphocytic leukemia, where it has reached 52% new patient share. Calquence has continued to show good momentum in Europe as well, with several launches, including France, Germany, and the U.K., off to good success. Moving on to Inher2, the year to date saw good momentum in third-line breast and second-line gastric cancer. That success came against a backdrop of new clinical data that establishes tremendous opportunities for HER2 in the years to come. Susan will talk to the data from Destiny Breast O3 in a moment and won't steal her thunder, but within HER2, now the established leader in third-line HER2-positive breast cancer, we have the critical platform to really drive changes in the standards of care in second line once these data get approved. I'll now hand over to Susan to discuss R&D progress.

Thank you, Dave. Please turn to slide 18. I want to take a minute to recount the outstanding results from the Destiny Breast O3 trial that were presented at ESMO. We saw a highly clinically meaningful and statistically significant improvement in progression-free survival compared to trastuzumab DM1, as well as a trend in overall survival at this very immature analysis. NHER2 truly has the capacity to change the standard of care by demonstrating superior benefit over trastuzumab DM1 in patients with HER2-positive metastatic breast cancer in the second line. As a result, we were pleased to see the recent ESMO guideline update adding in HER2 as the new standard of care in this setting. No new safety concerns were identified, and importantly, no grade 4 or 5 treatment-related interstitial lung disease events were observed. This is very encouraging for the potential use of an HER2 in earlier lines of therapy. We also saw in HER2-granted breakthrough therapy designation stations by the FDA on the back of the Destiny Breast O3 studies, a real testament to the importance and impact these data will have on patient outcomes. During the period, Limpaza became the first PARP inhibitor to generate positive data in first-line metastatic castration-resistant prostate cancer in combination with abiraterone in an all-comers population. Prostate cancer is the second most common and the fifth leading cause of cancer death in men globally, and new chemotherapy-free options are desperately needed. Please turn to slide 19. Gastrointestinal cancers such as liver cancer are common and have seen limited innovation when it comes to improving clinical outcomes for patients. Recently, we reported back-to-back positive readouts for our immuno-oncology franchise, with Himalaya in hepatocellular carcinoma, and Topaz-1 in advanced biliary tract cancer. Both indications have a large unmet need as recognized by their US orphan drug designations. These data open up the potential for infirmity and Tremolimumab in a broader array of settings and brings us closer to our goal to improve long-term survival for patients with different gastrointestinal cancers. In Himalaya, a single high priming dose of Tremolimumab added to infirmity, known as the steroid regimen, resulted in a clinically meaningful improvement in overall survival when compared to the current standard of care. This regimen was selected after careful analysis of clinical and biomarker data from various trials with different tremulin and lab dosing schedules. In the TOPAZ-1 trial at a planned interim analysis, Infimsi, when used in combination with standard of care chemotherapy of gemcitabine plus cisplatin, demonstrated an improvement in overall survival in patients versus chemotherapy alone. This is the first major global treatment breakthrough in first-line advanced bilaterally tracked cancer in over a decade. Our development plan for infirmity in liver cancer does not stop here, as we eagerly await results from the Emerald 1 trial, which will evaluate the use of infirmity in patients with local regional hepatocellular cancer who are not amenable to curative therapy. This is in line with our strategy to move into treating earlier stages of disease. Emerald 1 will read out in the second half of next year. Please turn to slide 20. And now, what's next? We have multiple phase three trials starting across our pipeline. MONA-OLA-1 is a trial in first-line ovarian cancer for Limpaza, and also have the VOLGA trial in muscle-invasive bladder cancer for Mthimsi. We'll also start a new trial for Inher2 called Destiny Lung 04, along with Tropion Breast O1 for Dethypotamab Daruxican with our collaborators Daiichi Sankyo. We also have two new bispecifics that have entered phase one trials in solid tumors. AZD2936, which is a PD1 TIGIT bispecific, as well as AZD7789, a PD1 TIM3 bispecific. Both of these have the potential to become next generation immuno-oncology therapies. I look forward to updating you on the progress of these and other programs soon. I'm now going to hand over to Ruud to take you through the biopharmaceuticals and emerging markets performance in the period. Please turn to slide 21.

Thank you, Susan. Please turn to slide 22. In CVRM, total revenue was up 10% to $6 billion, with the vast majority of growth coming from Farsiga's continuous strong performance. Farsiga grew 51% and remains the largest single contributor to AstraZeneca's growth. Farsiga also continues its remarkable progress as the fastest growing SGLT2 inhibitor globally. making gains in volume market share boosted by successful launches in heart failure and chronic kidney disease. Following the results of the DAPA-HF trial, we were pleased to see the European Society of Cardiology guidelines updated to include Fasiga as first-line treatment for heart failure patients with reduced ejection fraction. Additionally, EFC guidelines now also recommend novel potassium binders such as LoCalma to treat hyperkalemia, which is great news for patients. Locama revenues more than doubled to $122 million. In the United States, Locama reinforced its leadership in the branded potassium binder market, reaching 58% share of prescriptions. And in Japan, its market share increased to 41%. Please move to slide 23. Turning to respiratory and immunology, total revenue was $4.5 billion with a growth rate of 12%. The year-on-year growth benefited from the effects of COVID-19 on last year's formicort cells. Facenra delivered product sales of $901 million, up 32%, and is the leading respiratory biologic prescribed for eosinophilic asthma globally. Facenra's performance has been driven by sustained growth in new to brand patient starts in both the US and the EU. Recently, Facenra was granted orphan drug designations in eosinophilic gastroenteritis and eosinophilic gastritis, and a fast-track designation for the treatment of EEG with or without EEG by the US FDA. BreastTree, with product sales of $130 million, continued its global launch trajectory, rapidly gaining market share in the fast-growing triple-fixed-dose combination class. BreastTree is now approved in 36 countries, including China, where we are seeing patient volume increase following NRDL inclusion earlier this year. Symbicort sales were $2 billion, a slight decrease of 3% against a tough comparison from COVID-19 related stock last year. Symbicort remains the number one ICS Lava globally and has to date received 42 approvals worldwide for its use as a rescue therapy for asthma. Please turn to slide 24. Now onto the emerging markets. Excluding revenue from the COVID-19 vaccine, total revenue grew 10% to $7.5 billion. Growth in China for the period was 8%, and growth for emerging markets ex-China was 14%. Decreaser grew 1% in the emerging markets, reflecting the impact of inventory phasing in China, which Dave described earlier. Forsiga has had remarkable growth of 74% in the period, as it continues to benefit from increased patient access in China following NRDR inclusion last year as well as broader access across other markets in the region. Plumicoid in China experienced some recovery from the impact of COVID-19. This comes ahead of the anticipated impact of its inclusion into the VVP program in October. Outside of China, we saw broad-based growth across all regions. Excluding the impact of the COVID-19 vaccine, total revenue growth increased by 9% in Asia Pacific, 12% in the Middle East and Africa, 28% in Latin America, and 15% in Russia. I will now hand over to Mene to cover the R&D advancements in the period.

Thank you, Ruud. Please turn to slide 25. Our respiratory and immunology portfolio continues to deliver, and in August, Safnello, or anafrolumab, was approved to treat moderate to severe systemic lupus erythematosus in the US and in Japan. In Europe, an ad hoc expert group meeting has been scheduled where we look forward to discussing the clinical data. This quarter, we also announced positive high-level results for the Mandala and Denali trials for PT27. our fixed-dose combination of albuterol and budesonide, and we anticipate regulatory submissions to be completed in the first half of next year. Also in the quarter, tezopelimab was granted priority review for the treatment of asthma, accelerating the review timelines of this much-needed treatment option, and tezopelimab also received orphan drug designation for the treatment of eosinophilic esophagitis. Please turn to slide 26. We continue to see accumulating real-world evidence that shows the enormous contribution our COVID-19 vaccine, VaxEvria, has made in preventing hundreds of thousands of hospital admissions and deaths. And we were really proud to be one of the recipients of the Pre-Gallion Roy Vagelos Pro Bono Humanum Award for the development of our COVID-19 vaccine. Turning to AZD7442, which will be known as Evershield, We announced positive results from both the PROVENT prophylaxis study and the TACKLE phase 3 trials, which is a treatment study. And AZ-7442 is the only long-acting antibody combination that has demonstrated the ability to both prevent and treat COVID-19 disease. In prophylaxis, there is a significant unmet medical need to protect vulnerable populations who have an inadequate response to vaccines. such as those who are immunocompromised by disease or their therapy. And AZD7442 is a convenient intramuscular injection and has the potential to protect these individuals for up to 12 months. We anticipate emergency use authorization in the US towards the end of the year and have active review processes across Europe and the UK. We recently presented data from the MELDI and MEDLI trials for Nusevamab which showed it is highly effective at reducing medically attended lower respiratory tract infections and has a similar safety profile to Synergis. Regulatory submissions for Nusevamab are expected to complete in the first half of next year. And finally taking a look at what's next, if we turn to slide 27 please. This quarter we saw our results for catarotide, our GLP-glucon co-agonist for the treatment of NASH and diabetic kidney disease, which we presented in due course, as well as Phase 2 data for AZD8233, our PCSK9 inhibitor for dyslipidemia. We also initiated Phase 2 trials for AZD4604, our inhaled JAK inhibitor for the treatment of asthma. Please go to slide 28 as I now hand over to Marc to cover rare diseases.

Thank you, Mene. I'm happy to join you today in my new role as Chief Executive Officer of Alexion and excited to be part of Alexion's next chapter with AstraZeneca. To echo Pascal's earlier comments, I want to thank all of the Alexion employees across the globe for their continued dedication to the patients we serve. Since it is AstraZeneca first quarter with Alexion, I wanted to briefly provide an overview of the business to let more of you become acquainted with rare disease. Please turn to slide 29. The combination of AstraZeneca and Alexion presents a unique opportunity to accelerate AstraZeneca's strategic and financial development. Alexion has five approved medicines for the treatment of over seven rare and devastating diseases, including the leading C5 franchise comprised of Soliris and Ultomeris. Alexio has a strong commercial and financial track record, achieving best-in-class conversion to Ultomeris in less than 18 months from launch, and delivering over six billion in total revenue in 2020, representing 21% growth from prior year. This performance relates to the period before the merger with AstraZeneca. On the R&D side, we continue to innovate in complement with novel C5 inhibitors, including a subcutaneous formulation of Lutomiris and Alexion 1720, a subcutaneous mini body. Outside of terminal complement, we have two olfactor D medicine, and we also have Alexion 1820, a subcutaneous anti-property with potential application in multiple disease areas. Overall, we have a diversified development portfolio of novel technology platforms and medicines that have the potential to deliver attractive growth opportunities. Turning now to slide 30. This is an early look at how we plan to establish scientific bridges between Alexio and AstraZeneca to build a stronger combined organization. On the development side, we continue to see potential to apply Alexio's leadership in complement science to AstraZeneca's broader immunology efforts, as well as bringing AstraZeneca-rich precision medicine expertise to rare disease. In early research, Collaboration with AstraZeneca gene editing, gene therapy, and oligonucleotide capabilities has potential to lead to the development of novel rare disease medicine. I look forward to seeing this initial effort progress towards new opportunities to deliver transformative medicine to patients. Please turn to slide 31. Rare disease year to date total revenue was $1.3 billion. representing 6% quarter-on-quarter pro-forma growth. Total revenue in the period was driven by strong Solaris volume growth in neurology indications and successful conversion to Ultomeris. Looking ahead, we expect growth to be broadly in line with that of the new and large AstraZeneca on a compounded growth rate basis. We reported positive phase III for Ultomiris in generalized Myasthenia gravis with compelling efficacy observed as early as one week and sustained out to 52 weeks. Unfortunately, we announced discontinuation of the Phase III for Ultomiris in ALS on the recommendation of the Independent Data Monitoring Committee. While this was a high-risk program, we are nonetheless disappointed in this outcome. who reported positive Phase III results for Alexion 1840 in Wilson disease, demonstrating superiority versus standard of care on the primary endpoint of copper mobilization. Finally, Alexion exercised the option to fully acquire Kellum Biosciences and accelerate the Phase III development of KL101 in aminodosis, but rare plasmacy dysplasia characterized by autonomous proliferation of plasma cells with overproduction of monoclonal immunoglobulin G. Please turn to slide 32. Total revenue for Soliris declined by 2%, impacted by prior order timing in emerging markets. Ultomeris grew by 31% in the period, driven by strong conversion from Soliris, and 40 new country launches year-to-date. Strength seek grew by 8% in the period due to underlying growth in the United States. Finally, what's next on slide 33? In July, we saw the first patient in our phase three ultramarine trial in complement mediated thrombotic microangiopathy. one of the multiple label extension opportunities. We also made progress with election 1850 on next generation asphotase alpha now in phase one for the treatment of hyperphosphatesia, a rare genetic bone disorder often diagnosed in infancy or early childhood. As we move to slide 34, I will now turn back to Pascal for closing remarks.

Thank you, Marc. I will end on this slide, number 35, please, that illustrates our news flow. Can I get slide 35? It illustrates a new flow across the company in the coming months. In oncology, we anticipate data from a HER2-desinibras4 trial in HER2-low breast cancer in the first half of next year. as well as multiple infinity readouts across lung and cervical cancers. In CVRM we will have data from the delivered trial for Farciga and HFPEF and in rare disease data from Ultimeris and NMOSD. We remain on track to deliver our full year guidance and I would like to reiterate that our APS guidance reflects the performance of the underlying business and is not influenced by our COVID medicines. We are also excited with the busy clinical news flow ahead. I'm very, very proud of our colleagues on current dedication and focus and the addition of Alexion will increase our commitment to bring transformative medicines to patients around the world. Thank you all for joining and we'll now take the questions.

36, please. Thank you, Pascal and team. We'll now go to Q&A. For those of you on the phone, please remember to press star 1 to ask a question. We'll also take written questions from the webcast. Can I please remind everyone to try and limit themselves to one question and one follow-up to be fair to all callers. Thanks in advance. Perhaps now we can take the first question from the conference call. Back to you, Pascal.

Thank you, Chris. So we'll take... First question is from James Gordon at JPMorgan. James, go ahead.

Hello, James Gordon from JPMorgan. Thanks for taking the questions. The first question is about 2021 guidance in the implied Q4. So... We're about halfway through Q4, but it's an unusually wide guidance remaining, sort of plus or minus 25%. So as things are looking now, is the bottom end of the guidance range still fairly plausible? And what would put you at the bottom versus the top for the year? And in terms of sort of spend, normally Q4 is quite a lot higher on OPEX than Q3 for Astra. So on an underlying basis, X consolidating more of Alexion. Would that normal trend be expected as in a sort of big step up in OPEX in Q4 versus Q3? So that's the first question, please. and the follow-up I'll do now as well which is just some opex beyond this year. So what are the moving parts? I can see there's quite a few phase three initiations planned and some of which you only book half of and also a bit more promotion but are there also significant offsets? So for instance China's slowing and other trials completing. So how much of the spend is going to be incremental versus there could be some offsets or some reallocations we look forward to?

Thanks, James. So last comment in a minute, but let me just make a high level point here is that, you know, our expenses vary quarter to quarter. And so we have sometimes a high Q3 or low Q4 and sometimes vice versa. This year, or last year, I should say we had a relatively low Q3 in terms of expenses, in particular R&D expenses. And as you can look at, if you look at it for last year, we had an increase in spend in Q4. And this year, we don't expect that to happen the same way. So, you know, what you have to look at in Q4 is the AD expenses. And then, of course, add a full quarter of election expenses and then the COVID R&D expenses on top. But as it relates to AZ, Q4 is not going to be like previous year where we have an increase in expenses versus Q3. Aradhana, do you want to add more color to this?

No, I think you've covered a number of the aspects. So we're reiterating the guidance for the EPS. There is obviously quarter-on-quarter variability. But also fourth quarter will include a full quarter contribution from Alexion, which this quarter was not a full quarter. And then there is some seasonality, as you know, on the top line as well with Flumist and some other products. And generally, we expect fourth quarter revenue to be strong. And then on the expense side, again, some of the elements that Pascal mentioned. So if you think about our fourth quarter, and the AZ underlying business, which again, you know, would be probably in more in line with fourth quarter last year, which obviously was a, you know, was different versus third quarter, but, and then a full quarter of expenses, both the R&D and SG&A from Alexion, plus on top of that, some of these COVID related expenses where we're investing behind the antibody and the vaccine.

And remember also that the vaccine sales attract pharmacovigilance costs, right? So we get enough margin, a small growth margin that covers those costs. And so we get to zero profit. But we have pharmacovigilance costs, just like everybody else does. And that also affects the R&D line. But the key message is don't expect Q3, Q4 to evolve like last year. and then you can see why we reconfirm our guidance. Should we move to the next question? Simon Baker, Redburn, Simon?

My questions. Firstly, one for you, Pascal. I just wonder, given all the recent developments, if you could give us your latest thoughts on proposed drug pricing reform in the US following the collapse and reemergence of the Democrats' proposals. and then secondly one for Mark on Alexion. One of the things that was touted when the deal was proposed was the much larger geographic footprint of Astra versus Alexion and I was just wondering if you could give us a timeline of when we will start to see revenues for the Alexion portfolio coming through in new territories as they're pushed through the AstraZeneca infrastructure. Thanks so much.

Thanks Simon. Can I maybe ask Ruud actually to comment on the U.S. pricing regulation and if Dave you have anything you want to add to what Ruud will say please feel free. Over to you Ruud.

Yeah of course and thank you Simon for the question. First of all I think it's fair to say that AstraZeneca is in favor of a potential reform of the U.S. healthcare. Out-of-pocket costs for too many patients are too high which will damage the accessibility for patients to get the right medicine at the right time. Equally, I think it's fair to say that some of the legislation is clearly not favorable for the whole industry. We don't believe that direct negotiations of the government with individual companies is it going to make a lot of sense but it's also fair to say that there's still a lot in the air at this stage it's far from Final. So let's wait and see how it is evolving. We are in active discussions with policymakers, influential politicians, in order to bring our arguments in front of them. So let's not speculate too much about the final results, but let's work constructively with each other in order to try to mitigate as many as possible the risk potentially we will face as an industry.

Thanks for Mark. Yes. So thank you for the question on the larger footprint of election. We are already working very actively to establish teams, dedicated teams where election was not present until now. And we also engage in local regulators to gain approval and access. So realistically, I believe the first approval could be obtained in the course of 2022. But I would probably see the first revenues to be generated from 2023. Great.

Thanks so much.

Thank you, Marc. Next question is Tim Anderson. Unless, Deb, you do want to add anything to the US? No?

Thank you, but I think Ruud covered it.

Good. So next question is from Tim Anderson. Tim, go ahead.

Thank you. Just on Alexion again and your move into rare diseases specifically, just your updated thinking and assumptions about competitor products that are coming after Solaris and Ultimeris. So, for example, Novartis has Iptacopin, an oral product, doing a true head-to-head versus your two products in PNH. I think that reports out mid-2022. I'm wondering if you can remind us again what you assumed on competitive threats like that or other products like Roche's Crevalumab when you were trying to figure out what Alexion was worth. And then just building on the last question that you got in new geographies, can you just talk about rollout of Alexion products in China specifically?

Thank you for the questions. So let me take the second question because it's already in great part responded to it with the question of Simon. So if we look at the example of China, we have already established a dedicated team locally and we are engaging local regulators to gain access to the market. We hope to gain approval maybe in the course of 2022 and possibly sell these products from 2023. So I think the general answer that I provided, China could be a good illustration for it. Regarding your question on competition, we are well aware of the development work done by Novartis on the oral factor B. in BNH and other renal indications. We're also well aware of the work done by Roche with the C5 inhibitor. I mean, this is not something that we discovered recently. We were aware of it. We believe Soliris and Ultomiris will remain very strong leaders in their class due to the excellent efficacy, short-term and long-term efficacy, in the legacy indication, PNH atypical HUS, but also in the neurology indication where Solaris is presently indicated and where Ultomeris has recently read out very strong phase three results showing very rapid onset and durable efficacy over 52 weeks. This is the strength of Alexion. We believe we have enough strength to maintain the leadership in this class. The class is going to evolve. There will be competitors entering, but also Alexion will be moving on to other indications in the future.

Thank you, Marc. Next question is Michael Luchten. Michael, go ahead.

Thank you very much. One follow-up question to your R&D commentary, please. I think last quarter you talked a little bit to the fact that the COVID-19 R&D was maybe going to come down over time. It sounds like you're now saying this is going to stick around and thinking about your commentary about the vaccine being commercial for next year. Should we assume that an incremental R&D is actually going to run at this sort of level for longer? That's question number one. And then question number two on Togrisso. I take your comment about Togrisso in China with the phasing. But can you talk a little bit to the risk that maybe the inventory level is also impacted by a competitor being on the NRDL now since earlier this year? And if that's not a risk, could there be a risk that this impacts your performance for Togrisso for the fourth quarter? Thank you.

Thanks, Michael. I mean, the first comment, the first question about R&D I think what you need to do each time is look at the quarter and look at what I might call quote unquote all day Z. Then add Alexion and for Q3 we had two months plus a portion of July. For Q4 we'll have a full quarter of R&D expenses. And then the third piece is the COVID assets. And what we said before is still true is that if you look at the COVID R&D spend, you have two types. One is The first part is directly correlated with the volume of vaccine we deliver. And as you saw at the end of September, we've delivered 1.5 billion doses of vaccine globally. and we continue with our deliveries. And of course, the pharmacovigilance costs are linked to this volume of vaccine delivered. They're covered, as I said, by the limited gross margin we get, but they're still quite substantial. And then next year, you'll have lower volume because we will have new orders, but of course, the pandemic will be behind us, so we'll be talking mostly about boosters and also Some deliveries to countries that haven't gone through their first two doses. So lower doses and therefore lower PPV pharmacovigilance costs, sorry. And then the R&D is sort of the same. We're now left with a little bit of R&D costs related to the new vaccine. And, you know, vaccine AZD2816 looking at multiple variants of concern. and then also some expenses around the lab, but this will decline. So net-net is R&D expenses for COVID should not be next year the same as this year for sure. And if you look at the quarter-to-quarter and dissect this, you would see that our AZ R&D expenses are essentially what you would have expected, but then you have to add election and you have to add COVID. So I don't know, Aradhana, if you want to add to this, and if not, then we'll ask Dave to cover, I guess so.

Yeah, Dave, go ahead.

Great. Thanks, Michael, for the question. And I hear the question on competition, but I'm going to also, I'll answer that, but I want to take the opportunity just to also maybe provide some more color on China, since I know there's some questions there. So In Q2, we commented that the frontline demand growth was robust and that inventory did factor into the China sales. And this is pretty typical around the NRDL timing, right? Obviously, the inventory levels get drawn down in anticipation of a price reduction. And so we saw now in Q3 that frontline demand remains strong. The second line share has been resilient. And right now, inventory levels are consistent with the historical patterns. I mentioned this in the prepared remarks, but we did also see, and we see this now, that we did get a one-time benefit from some first-generation TKI switches in the frontline setting in the second quarter, and that was one time, and so those didn't carry into Q3. But with that said... We expect volume growth to offset the significant price reduction that we took just only six months ago, and we would expect that to happen in the months ahead, and that from then, top-line growth will kick in at that point. On your question specifically on competition, it's obviously a pretty dynamic marketplace here. There's lots of new competitors that are entering. Right now, as I said, the front-line competitors Thank you very much. Thanks, David. And the volume growth in China is very substantial.

So as soon as we've washed out the price effect, we should see some growth next year. Sachin, Bank of America. Sachin, go ahead.

Thank you. I'm not sure I quite followed it. I think I understood, Pascal, that you said fourth quarter wouldn't see the usual pickup. I thought Aradhana then said that the Astra underlying would be flat year on year. If I take last year's fourth quarter, SG&A and R&D being in line, add on Alexio, and that still points to sequential cost growth versus the numbers you printed for third quarter. So I just want to be crystal clear on that interpretation. And given that variability third quarter to fourth quarter, with third quarter high growth, fourth quarter more flattish. What's the best indicator of cost growth into 22, please? So that's question one. Question two is just shorter and simpler. On Limpaza, Dave, we discussed a number of scenarios at 2Q on the data strength being wild type and prior ADT failures. Where within that spectrum has the data landed? Obviously, no hit in all comers, but any color on the strength. and confidence in that being a multi-billion opportunity. Thank you.

So Sachin, I mean, we don't give guidance quarter to quarter, but I think your assumption is, your assumption of building Q4 in line with Q3 for AZ and then Alexion and COVID on top is a fair one for both R&D and SG&A. I think it's fair. Aradhana, anything you want to say on this one as well?

No, I think for fourth quarter, again, we've not given guidance per se, but the building blocks are what we mentioned, which is, you know, if you look at fourth quarter, AZ underlying for last year, you look at, you know, the Alexion fourth quarter, which, you know, will be a full quarter and then additional expenses relating to the COVID-19.

The second question from Sachin was on Propel and I mean I think Sachin on this couple of things I mean I obviously at this point we've only shared the high-level results and and we'll have to present the data at an upcoming meeting, I think. So within that, I'm not going to give Too much insight into how we're feeling about the full results. I think we've got to let that continue to get analyzed and work through. But I think just to reiterate some of the things that we talked about last time, if approved, Propel is a blockbuster plus opportunity. There are a handful of variables, data, and regulatory that are going to affect, I think, the ultimate size of the opportunity. The whole market is obviously quite large in terms of the frontline metastatic castrate-resistant prostate cancer market. I think that the things that we're going to have to learn more about as we share these data is class share is going to be impacted by the fact that first remember that part combination treatment in this setting is an entirely new approach to the treatment of these patients. I think that physicians and we've got both urologists as well as Medical oncologists are going to take a look at the magnitude of the RPFS benefit and ITT. They're also likely going to want to look at HRR mutants as well as wild type. I think that they'll consider prior NHA status. And then obviously there's quite a bit of competition with four or five competitors. So there's a lot of variables that are at play. So it's a big, meaningful market, blockbuster plus. And I think that as we get to see more of the data and share more of it with clinicians and obviously with health authorities, we'll have the ability to help further refine and help with where the modeling is.

Thank you. I wonder if Aradhana wanted to comment at all. I know you're not providing guidance. We're just on cost growth trends into 2022. What's the best predictor, the 3Q trend or the 4Q trend?

We'll provide guidance for 2022 when we provide the full year results.

Okay. Thank you. Next question is Steve Scala at Cowen.

Thank you. I have a couple questions, and I apologize for another Q4 question, but you were asked a couple times about the wide Q4 EPS range implied in the full-year guidance. What are the biggest uncertainties over the next six weeks that are creating the inability to narrow the range at this time? Or is it that the company knows exactly where it is headed within the range, but you're just not choosing to change the prior guidance? I assume if you were headed for the low end of the EPS range that you would have told us that today. And then the second question for Dave, what percent of US to GRISO sales go through Medicare Part D? Thank you.

Thanks, Steve. I mean, your assumption is fair, and we are absolutely on track. There's no concern on our side as it relates to our guidance. Didn't narrow it. I mean, maybe Aradhana wants to cover this, but we thought, you know, we stick to what we have here. There was no specific reason or concern. Aradhana, do you want to address this?

I mean, generally, we give guidance for the year. This year, we updated the guidance in the, you know, at the close of election, given that was a major transaction. But other than that, I think we're reconfirming guidance and You know, we don't want to give sort of every quarter further updates.

Yeah, and we are on track. I mean, Steve, there's really no concern that made us, I mean, that drove our decision. It was just sticking to what we had said half year. I mean, we're absolutely on track. Dave, you want to call the second question?

Yeah, Pascal, can you just come back to me on that one? I want to make sure I get Steve the right one on this. And so can we just come back? I understood the question. I need to just come back on the answer to it. Can we come back just right after the next one?

Yeah. Sorry, it's me. So we'll come back to it a bit later. So next question is Andrew Baum at CT. Andrew, go ahead.

Question to Susan and then one for Dave. So Susan, could you talk to your confidence on the bystander effect being clinically significant and how dependent is the outcome of Destiny Breast 04 on that given a sort of heterogeneous patient population? And then second for Dave, just following on from the conversations about US drug pricing proposals and I completely understand that there's a significant uncertainty between what is circulating and what may ultimately get passed. But taking what has been proposed as the final outcome, How should we think about the potential risk to Tegreso from lower price entrants? And I'm thinking of aminertinib. If the PBMs are now on the hook for 60% of catastrophic coverage, do you anticipate that that would precipitate widespread use of step edits, prioritization, and the like that could exert a significant downward effect on volume or pricing for Tegreso within the Medicare Part D segment of the U.S.? Thank you.

So I can take the first question. Thanks, Andrew. So I do think the bystander effect is important. The basic design of the molecule is to have a linker that's stable in the peripheral circulation and cleavable in the tumor microenvironment. We've shown that that makes a difference preclinically, and I think the totality of data across the INHER2 program, not just from the J101 data, which was in low HER2 breast cancer, which showed Thank you very much. from prior designed ADCs. So I think that does end up in the confidence in the design of DBO4, and we look forward to seeing the data in the early part of next year.

Thanks, Suzanne.

Oops, sorry. Yeah, that'll go. So thank you, Andrew, on the question. Let me also just start on Steve's question. Part D represents 20%. of the U.S. to Grisso business. And it's relevant, obviously, to the question that Andrew you asked as well. I mean, I think, Andrew, on this particular piece, that certainly the resolve of plans to try to put into place mechanisms to manage their share of catastrophic will unlikely be emboldened. by the increased percentage if it goes through as it said. I still think that it's important to keep in mind that one, ALMO needs to be able to get approved in the United States with a different comparator arm. We don't know where OS is going to net out and obviously China only study. I also think that physician prescribing preferences as it relates to that clinical benefit or clinical strength that we see right now does remain to be an important area of influence. So we'll have to see exactly how it plays out, but I think that those are the ways that we're thinking about it right now.

Thanks, Dave. Mark Purcell is the next question. Mark, over to you.

Pascal, thank you very much. The questions on investment discipline supporting the industry-leading pipeline, you've got clearly a very broad set of organic opportunities in front of you, and you mentioned the potential for BD. So just sort of in general, Pascal, given you've sort of given us in the past sort of AstraZeneca underlying revenue growth, X for X on X vaccine of double digit, should we also be expecting R&D growth to support that being roughly double digit growth going forward? And then secondly to the Some of the products where there's been updates. Could you sort of help us understand next steps now for the cotodutide and PCSK9 molecules, whether they're going to jump into Phase 3, yes or no? And then for the MPO, you mentioned you're now going to start a Phase 2B, Phase 3. Clearly that could be a very complementary molecule alongside farcega potential accommodation molecules. So maybe, Mene, if you could tell us sort of what the plans are for 4831, that would be really useful. Thank you very much.

Thanks, Marc. I mean, the R&D spend is relatively straightforward. We've said before that it would be in the low 20s, you know, 20, maybe a little bit more than 20, but around that kind of number all the time. That's the kind of spend that I think we need to maintain. And of course, we need to have the projects. If we don't have the projects, we'll reduce. But we tend these days to have more projects than we can fund, so We cap the IMD spend and we prioritize, and it's sometimes painful, but we do prioritize heavily. And we said that what we're going to do is, over time, reduce SG&A, and that hasn't changed, and we continue working on this. You saw in Q3 we have more leverage. Of course, Q3 to Q4, I think there's a calendarization issue of expenses that maybe not everybody had really considered. but overall we continue driving operational leverage and that will continue to happen with NSGNA spend as a percentage of cells that reduces. On the other question, Minit, do you want to cover this one?

Yeah, I can say that catalytide data will be presented soon, the PCSK9 data we have in hand, I mean all of these programs have met the GO criteria for moving As Pascal said, they've all got to be reviewed and prioritised and go to governance and then we have to formally make the Phase 3 investment decision based on the business case and the opportunity. So whilst we have, I think, the data set to move to Phase 3, we also need to have the business case to move to Phase 3 as well and they have to stack up against other opportunities that we have. But we're quite a bold one, I have to say, from a biopharm perspective. Thank you.

Thank you. and many on the 4831 product, the MPO. Could you help us understand what the plans are there?

It is. It's an integrated program, so we'll have interims of us, and if we meet the interim analyses criteria, then we'd move into the phase three part of the study.

Got it. Got it. Thank you.

Thank you. Thank you, Marc. The next question is Richard Parks, and we'll try to keep our responses short. Richard, over to you.

Hi, thanks for taking my questions. So firstly, I recall that on a call post-announcement of the Alexion acquisition, Mark was asked if he was comfortable around the trajectory of consensus, AstraZeneca, top line and margins pre the deal. And he stated that, in fact, internal planning assumptions suggested upside to that. And for that reason, I think consensus assumed an uplift in margins next year and then improvement thereafter. I just wonder if Mark's comment on underlying margin assumptions still stands, or if anything's changed over the last 12 months, either be it pressure from VBP or simply a desire to invest to a greater degree and might depress profitability. And so that's the first question. The second is just on China VBP headwinds next year. You've obviously now got visibility on what I wondered if you would be willing to quantify what kind of headwinds you'd expect in 2022. Thank you.

Aradhana, you want to cover the first one, and Leon could cover the second one?

Yeah, I think the first one is really around the question is one of operating leverage, and we're always focused on improving our operating leverage. Balanced obviously with investment in the business and as Pascal, you've heard him and I'm sure my R&D colleagues will attest that we have more projects that we can fund. And then there's always some quarter on quarter variability, but our mission is to be You know, at sort of the, you know, 30% plus for the base business and Alexion on top. Alexion will now, you know, going forward obviously is part of our core business and our mixed shift in terms of the specialty versus primary care will continue to evolve and, you know, where we see margins going will depend on You know, how that mix evolves, which of our programs are more successful. And, you know, we also have some partner programs which have lower margins. But, you know, our ambition is continuously the same, and we are very much focused on operating leverage. I think there were some R&D questions for Mene.

No, it was a VBP question for China. Yes.

So regarding VBP for 2022, I think the batch six this year is still insulin, and they could be coming first half of next year, batch seven. And one of our major products, I think, silicon Zoc, could potentially be impacted next year. But based on our past experience, VBP tender, we usually will not win the tender and we get a 20% to 30% price cut. and lose some volume and maintaining a majority of the loyal patients. So I think gradually the sales is flattening out. So I think there's impact. I think the largest impact next year will be Permacord VBP impact actually happened already in October this year and will continue to have impact on Permacord business.

Thanks, Leon. I mean, in terms of VBP, which are the impact, I mean, we've had quite a number of products affected this year, which affect this year, next year. But in terms of new batches, as Leon explained, next year, we are much less affected, fewer products. And Serokin is really the main one. So the next question is Matias Egblom. Matias, go ahead.

Thanks so much for taking my questions. I have two. So with a public offer for Sobi, where AstraZeneca has an 8% shareholding and roughly a $640 million position, and given the acceptance period has now been extended twice, I'm not sure I've seen AstraZeneca's view of the offer. And tied to this and given your recent acquisition of Alexion, can you remind me if this is a strategic position or a financial one? And then secondly, with two antivirus for COVID close to be rolled out in the marketplace, Can you talk about what role you think the antibody cocktails, including long-acting prophylaxis, will play in light of these recent developments? Thanks so much.

Aradhana, do you want to take the first one and Manny the second one?

Yes, so we can't really and don't really comment on our financial positions. So we can't really comment on your SOBI question.

Can I just make sure I understood the question that you asked about? I wasn't sure if you were asking a question about the vaccine and the antibody or just the antibody. Can you just repeat the question, please, Matthias? Sure, Manon.

So I was wondering if the view of the long-acting prophylactic antibodies is now seen in a different light given the recent development of some polymerase and protease inhibitors.

Not at all, not at all. I mean, again, I'll put it, I'll try and articulate it reasonably. About 2% of the population, 2 to 3%, don't respond adequately to vaccines, cancer patients, hematological malignancies, transplant patients, people on chronic immune suppression, right? We can wait for them to get sick and then have somewhere between a 50% and 80% protection from severe disease, and so they stay locked up and don't go out at all. or you can give them a single injection and protect them for a year from getting any symptoms. I know what I'd rather have.

I'm not going to protect those people with using tablets every month or every week or something. It's a totally different use. Thank you so much. Next one is Matt Weston at Credit Suisse. Matt, over to you.

Thank you very much. Two questions please. The first for Dave on Tegreso in the US. I'm mindful of your comments. Patient diagnosis from COVID only 10% light of pre-COVID levels. You mentioned already seeing an impact of increasing treatment duration and you're stressing that adjuvant is only a modest 20% of frontline patients. So given those, can you just help map out how we should look to Griso, particularly in the U.S. market, evolving over the coming years? I think consensus expectations bake in quite meaningful growth, but it suggests from your comments that maybe we shouldn't. And then the second is a question for Aradhana. Specifically, Merck of its 10Q at the third quarter said it had set aside $400 million for payments to you on Limpaza. Can you let us know what you're assuming will be booked in 4Q of those 400 million? Thank you.

So on U.S. to Grisso, I think that the first Thank you very much. will wash themselves out here at some point in the not too distant future. I think that the key and core element in the U.S. is the ADORA population. While the NRX contribution to our TRXs at the moment right now is relatively modest, and I think in many respects being offset by the COVID declines, the duration of therapy is That we would expect somewhere between two and three years does really begin to over time add up. So I think from a peak year perspective, when we take a look at adjuvant, as we continue to move the key performance indicators, which is we continue to move testing rates, continue to move referrals, continue to move Adjuvant Treatment Utilization. And as we get the TRX growth, I think that we're going to see peak year have good opportunities for growth. I think it's just the time that it's going to take to get there may be a little longer than some folks were anticipating, given the speed with which we penetrated into the frontline metastatic space.

Thanks there. Aradhana, do you want to go to the first one?

Yes, so on your specific question, we don't give specifics around milestones, but that is the arrangement, as you know, that we have with Merck, and that will reflect as the milestones are earned in our estimates.

Next question is Manuel Pavadakis. Manuel, over to you.

Thanks for taking the question, Manuel Pavadakis from Deutsche Bank. Maybe I can take a couple on the Daiichi collaboration assets. So Datapotamab, I noticed, probably in Lungo 1 was not listed as a 2022 readout, so it's now more likely 2023. More importantly, You've announced the initiation of Propion Lung 08 and PD-L1 high with Keytruda. So just interested in the rationale for that. Why PD-L1 high? Why choose Keytruda over Infinzi? And how do you see that sitting with TIGIT, for example, where you also obviously have an active clinical development program? And then maybe just a couple of very short ones. Could you just give us an update on your adjuvant plan? Susan, you did mention the lack of significant ILB being encouraging for early line use earlier, but you're still yet to announce anything in adjuvant. And could you just clarify your perspective and the extent of your potential exposure to the outcome of the CGEN-DS litigation? Are you re-inclined from that or does that remain to be determined? Thank you.

Excellent. So maybe, Susan, you could cover the first one and then the second one.

Okay. Thank you. So I think the opportunity for datapotamab duroxacan is extensive in many different settings. So you will see a range of different trials that we'll be pursuing. Obviously, in PD-L1 high, pembrolizumab is an accepted standard of care. So I think the design of Tropion Longo 8, which is being run by our colleagues at Daiichi Sankyo, is logical in that regard. But we will be continuing to develop this particular ADC in a number of different settings, so you can expect to see more on that later. In terms of the opportunity for NHER2 in the early stages of breast cancer, again, We're continuing to look at the development of this agent in many different settings. And again, you will continue to see further trials that will be announced as we're ready to in the coming months and years.

Sorry, could you just tell us any perspective on TIGIT, clinical positioning on TIGIT?

So, you know, again, I think There are different opportunities for these settings. I think they add different pieces to it. Obviously, you know, I think as opposed to a drug that can have a different mechanism of action from an additional checkpoint inhibitor in that setting. So I think they're going to have, as you see, the evolution of the next wave of immuno-oncology agents and the introduction of antibody drug conjugates. I actually think there's going to be the opportunity for combinations and potentially further segmentation of the space. So I think they are different opportunities and different patients may be interested in those different opportunities depending on their particular tumor type and their setting and their underlying fitness.

So just very quickly, Emmanuel, on CGEN and Daichi Sankyo, just for everybody's benefit. So there's two things that folks can sometimes mix. There's an arbitration. There's a litigation. The arbitration, which is a private matter between DS and CGEN, is something we're not party to, and so we just don't comment on. In terms of the litigation that's going on in Texas, we're working together with Daiichi Sankyo to vigorously defend against the Segen patent. We consider that patent, which expires in 2024, to be invalid.

Thanks, Dave. Next question is Adam Carlson. I'll go to you, Adam.

Thank you for taking my question. Just the one question. In terms of initial integration costs and subsequent cost synergies from the Alexion acquisition, now that some time has passed, how do you see the dynamic between these two factors developing over time and when do you expect cost synergies to begin to be realized in earnest and will this be quite a gradual process or more of a front-loaded gain? Thank you.

Mark? Yes, so We had announced $500 million synergy from the third year post the closing. We are confirming these numbers. To your question, when do the synergies start appearing, I can just say that they will start appearing to a limited extent from 2021, but the full extent, the 100% of the synergies will be delivered in 2024. and obviously this will progressively grow over time.

Thanks, Mark. Next question is Simas Fernandez. About to you, Simas.

Thanks for the question. So I wanted to kind of come back to BBP. I think the comment was that, you know, we could see, I guess, what would potentially be a net reduction of about 50% for silicon. We've got the pressures from BBP this quarter. Really two elements to this question, trying to get a better understanding of the underlying operating profit contribution and, you know, from China going forward and the incremental pressure points that we could see as potential generics. I think we have patent expirations at least listed coming in China in 2024 for Lemparsa. and potentially also relative to Farziga. So I was just hoping you could help us clarify some of those patent timelines and when we might see generics to those products, the operating profit contribution that you're anticipating from China, if you expect that to be meaningful, meaningfully incremental going forward over the next two to three years. And then, you know, just as we think about BBP in China, is there a way to kind of help us characterize the year-over-year impact of VBP so there are a limited number of surprises in 2022.

Thanks.

Maxime, so it's one question, but it's probably a one-hour discussion. So if that's okay with you, maybe we could follow up with you separately because there are so many pieces you've raised there. I'll make a general comment, which is Over the next four or five years, we still expect on a CAGR basis, on a CAGR basis, we still expect China to go by high single digit. I mean, China is definitely going to be under pressure. We've said it before. And China being China, it moves at light speed and things happen faster than anybody expected. But we still have a strong business. We are fast-tracking the approval of our new products. So we still believe it will be a reasonable business for us. But the growth rate will not be 20-30% like we've experienced in the last few years. I mean, we are number one in the market. And, you know, we, again, still expect to grow by high single digits on a CAGR basis. We'll give more color on 22 when we get in January. But in terms of the individual pieces you've raised, we could actually follow up with you. So we get... Give a chance to the last three or four questions left. Louisa, Hector, over to you, Louisa.

Thank you, Pascal. On CalClan, it's maybe a question for Dave. I mean, it was a good quarter, just checking on what was driving growth, any stocking benefits, or is this very much the duration of use, perhaps in market share gains, rather than COVID recovery, because your competitor still talks about the COVID impact. and for many of the Savnello launch, just a little bit more color on the target patients reimbursement just so we can think about the pace of that sales ramp. And I noticed lupus nephritis phase two did not meet primary endpoints. So have you stopped development there? Thank you.

Maybe I would you could cover the Savnello question. The first one, I missed what product that is. So it may have been an oncology product for you, Deb, but I'm sorry I missed it.

Sorry, it was Calquence.

Calquence. Calquence. So over to you, Dave, and then the next one is Olivia.

Sure. So, Louisa, I mean, I think as we highlighted and I highlighted, pretty pleased with the Calquence performance. The specifics on the question that you're asking, I mean, we're seeing good growth in new patient starts in CLL. We're seeing also that correspond with good growth in TRXs. We see that the CLL uptake that's also taking place is happening in naive patients, and I think that's really important, obviously, in terms of getting that kind of front line. When I say naive, I mean BTKI naive patients. This is a demand story that we're seeing right now. There's probably some kind of COVID elements that are in here. It's one where though there were some COVID benefits and switches from immunochemotherapy. This is one product where we saw some benefits to that. So I think that what I would say is that for us, this is a demand story and one that I'm proud of the work that the team's doing to really establish this brand as best in class.

Okay, let me quickly address the question about Savnello for Lupus. Clearly, we see some very good early response from physicians. Equally, it's pleasing to see that we see Patients both in first line as well as controls. Reimbursement is still, of course, a work in progress, although we're quite pleased where we are. We are still very early in the launch, but there are also a couple of clearly challenges. We are still launching this product in COVID time. Rheumatologists specifically are very sensitive with respect to immunocompromised patients like SLE patients, so they want to have all their patients vaccinated with COVID. and equally, of course, we are still not having a permanent J-code, but all the signals are looking good and we have a very dedicated team in place and clearly 2022 will be the year where we will see hopefully the fruits of our efforts here, Louisa.

There was a question on lupus nephritis. Can you hear me? Yeah, we can hear you. Your question on lupus nephritis. Thank you. Although the study didn't meet its primary endpoint, there were two dose regimens. One was the normal regimen, one was an intensified regimen. Actually, the intensified regimen, Luisa, showed very encouragingly, I think, clinically meaningful benefits relative to the placebo arm. And so that is the regimen that we're taking forwards right now into late-stage studies. And, of course, this is another populational benefit from the lab, just to... Add to Ruud's comment around an immune-suppressed population that we're already going to be working with.

Next question is Victor Sendai. Victor, over to you. We're trying to rush a little bit. We're over time, but we wanted to cover your questions. Over to you, Victor.

Thank you very much. Thank you for taking my question. So I have one on the rare disease portfolio. It seems like a lot of the growth case here is in neurology for your established portfolio. But given that myasthenia grave is more of a common rare disease, I guess, versus PNH and A-house, how much is the high price a challenge for you to expand in that indication, especially given that maybe the competitive pipeline with anti-FCRNs will probably come in at a much lower price point if they get approved here going forward? Thanks.

Shall I take the question, Pascal? Yeah, go to you, Marc. So for the time being, only Soliris is approved in the two neurology indications. Myasthenagrabis is one of them. Neuromyelitis optica is the second one. The growth in terms of patients have been very substantial. You don't see the cells on Soliris grow because we are converting Soliris to Ultomeris. in the legal syndication PNH and ATP College US. So you have these two opposite factors taking place. But the growth in neurology is very strong. Most of the utilization of Soliris in myasthenia gravis is for refractory patients, for patients for which any other treatment doesn't work. We have recently opened a study, a phase three study for Ultomeris. This study is going to be filed with authorities, and we expect an approval in the course of 2022. So we will be converting Soliris patients to Ultomeris from 2022. And the label of Ultomeris, hopefully, will be wider than the label of Soliris. But there will be also, as you mentioned, other companies entering with other mechanisms. in the field of Myasthenia gravis. But the field of Myasthenia gravis is composed of very different segments, and I think Soliris and Intomeris will keep retaining a strong advantage in this indication.

Thanks, Marc. So we'll take two last questions, and then we'll have to close, so we respect your time. So Christopher at SEB, Christopher Houdet, do you want to go?

Thanks for taking my question. I appreciate it. So it's on PARP, the selective PARP. Does Merck have an option for the selective PARP or indeed any other potential PARPs going forward? And just can you, when it comes to, I mean, the choice of Zytiga versus Xtandi, can you remind us why you chose Zytiga for Propel and what are the future plans in prostate cancer moving earlier, for example? Do you risk losing out to Pfizer as novel hormone therapies move up the treatment algorithm? Thanks.

Thank you. So, I mean, we typically do not comment on our contracts, so maybe this one will. But, Dave, do you want to cover the second question about prostate?

Yeah, sure. And I certainly invite Susan to offer any comment on this. I mean, I think that in terms of this, there's – Good and growing use of abiraterone that we see across the globe, and it's therefore was a very logical NHA to include within this. Now, obviously, there's, you know, other utilizations that are non-ABI that exist, but that's the primary reason that was in there just in terms of the choice of that. Susan, do you want to add?

No, I think you've covered it. Thank you.

Thank you. So the last question, Andro Berens at Lyric. Andro, over to you.

Hi. Thanks. Just a follow-up question on the CGEN and Daiichi arbitration. I know you said you're not involved in the contract dispute, but if it does result in a royalty paid to CGEN because they're found to own a portion of the molecule, would that incremental cost impact your share of the profit? And then I also just wanted to get a clarification from Dave on his sizing in the adjuvant setting. He said, I think it was about 25% of the metastatic setting, but I thought that over three quarters of patients diagnosed with lung cancer in developed countries are amenable to surgery. So any color on the step off there.

Dave?

Sure. So, I mean, I guess on the first piece, we don't really have anything more to add other than the comments that I offered on that we're just not a party to the arbitration on that. So I think that that's where we'll stay with right now. On the adjuvant portion, we've been pretty, I think, consistent in talking about the fact that there's Far too many patients in lung cancer that are diagnosed late. And in fact, I think it's also important to remember that we're talking about patients that are 1B to 3A. And so you've got about 60, 65% of patients diagnosed in stage four. The balance of those are going to be 1A through your 3B population. So the ADORA indication itself is about 20 to 25 percent of the size of the flora indication. And I think that really the data are so impressive. that we are you know really enthusiastic to be educating the multidisciplinary teams on utilization of these data but adjuvant treatment is not something that is happening widely across the globe and it's taking us some work and some effort to really make sure that it's happening but we're pleased with the progress that we're making and I'm confident that we will make good inroads in time into this important segment where we can really hopefully bend survival curves Thank you, Dave.

I mean, let me just very quickly close. And, you know, what I want to say is we continue to deliver a very strong growth. We talked about China slowing down, and of course, we all know it's a more difficult environment, but all the parts of the business are picking up speed. Overall, we still see pretty strong growth over, you know, this year and over the next few years. We are still In line with the growth rate we have communicated in the past on the CAGR basis to 2025. And, you know, where the pipeline is looking very strong, there's more to come, more growth to come. So we continue funding, of course, this pipeline. Now, between Q3 and Q4 this year, I mean, we have definitely calendarization questions, but, you know, there's no doubt in our mind that we will deliver on our guidance. We're very, very optimistic about it. And then if you look at it in the quarter, some people were asking, we will continue getting sales momentum there with a full quarter of Alexion on top because in Q3, we didn't have a full quarter there. I think Emmanuel and Matt or Matt was asking questions about the collaboration revenue, the milestone. I would just guide you to the consensus in terms of what you have there. Expenses we've talked about. I mean, so if you take all of this into account, you can see that we expect to deliver our guidance for the year, and there's absolutely no concern in our mind. The COVID assets are delivering no profit overall, but the good news is, you know, we're moving now progressively into a profitable mode for the vaccine. It will be always a modest profitability, but it will be profitable. and the lab in particular we believe has a substantial place in prophylaxis for patients who have immune issues like transplant patients, cancer patients, patients with immune suppressive therapy, et cetera. So we see quite a big potential for this one. So, you know, Net-Net is, we see ourselves as a very, as a company growing very strongly over the next few years, and of course we will continue improving our operating margin as we've said no change to what we've told you in the past. So again thank you so much for your interest in our company and we look forward to more good news over the next few quarters. Thank you.