AstraZeneca PLC

Well, a warm welcome, everybody, to AstraZeneca's fourth quarter and full year 23 results presentation conference call and webcast for investors and analysts. I'm Andy Barnett, head of investor relations. And before I hand over to Pascal and members of the executive team, I'd like to cover some important housekeeping points. Firstly, as I'm probably sure you realize, all the materials are already on our website for your review. Here is our forward-looking statement, which I'd encourage you to take the time to read. We'll be making comments on our performance using constant exchange rates, or CER, core financial numbers, and other non-gap measures. A non-gap-to-gap reconciliation is contained within the results announcement, as you'll have seen. All numbers quoted are in millions of US dollars, unless otherwise stated. This slide shows the agenda for today's call. Following our prepared remarks, we'll open the line for questions. Of course, if you want to ask a question in the room, you raise your hands. There'll be roving mics. For those online, please use the Zoom function to raise your hand. As usual, we'll try and get to as many questions as we can through the course of the call. But if you limit the number of questions you ask at once, it'll give others a fair chance to participate. And with that, Pascal, I'm going to hand over to you.

Thank you, Andy. Good morning, everybody, and welcome to this London Stock Exchange, where we are celebrating our 25th anniversary as a company, merging Astra from Sweden and Zeneca from the UK quite a number of years ago. But I want to start... my talk with this slide. And this slide is important because I want to recognize or celebrate the fact that not only it's our 25th anniversary, but importantly, we actually did achieve the goal we set ourselves 10 years ago to reach $45 billion sales in 2023. And in fact, I could argue we overachieved it because at the current exchange rates, our 45 billion gold probably is closer to 40 billion. And I don't want to say that just to kind of pat ourselves on the back, even though I'd like to do this and celebrate our team's effort, but I want to mention it because We always did this with our eyes on the long-term and growth. And we are embarking on another 10-year cycle. And we have announced an R&D day because we want to refresh our strategy and show you what we are planning to do over the next 10 years. But we got this $45 billion through ups and downs, and I have to say often a lot of skepticism, But always with our eye on the long-term growth rate. And that's what we're going to do. We believe we can grow. And we believe over the next 10 years, we will deliver superior growth. And that's, of course, going to drive our profitability as a result of it. But our growth and sustainable strong growth is really what we are after. and we've done this whole following the science and again we're embarking on a new cycle and we're investing in new science that will shape the future of medicine and shape the future of this company and we can talk more about this we have achieved this whole discipline investment even though we often have extensive debates inside the company, and Aradna is challenging everybody to be even more disciplined in terms of our investment, but we've constantly focused our investment on where we can deliver the most growth, and also continuously focusing on oncology, cardiovascular disease, respiratory disease, more recently increasing our investment and keeping our eye on immune diseases, and finally rare diseases. And the company we have today and the team we have today is very different from what it was 10 years ago. And it's really rewarding to see the progress we've made and the strengths we have developed in our portfolio, but also in the strengths of the talent in the company. The way we operate in oncology today and the same in the other TAs is very, very different. And it gives me confidence we can actually deliver another cycle of very strong growth over the next 10 years. So importantly, we delivered our upgraded guidance for the year. 15% growth, excluding COVID. We had guided to increasing to low teens. So 15% is slightly better. On the EPS front, we grew by 15%, which is also slightly better than our upgraded guidance for the year. And in the quarter four, we saw an opportunity because we had a tax benefit. We saw an opportunity to invest to drive further growth and stronger growth next year and the years after. As we are launching new products and expanding our footprint, you saw that the emerging markets out of China grew by 35%. China itself is rebounding and growing again. So China is back again on the growth trajectory, and this year should be another good year. We've been improving our operating margin. You see a drop in 21, but that was a bit of an artifact because it's driven by the very large COVID sales we experienced. And of course, those were at no profit. So it dilutes our operating margin. But essentially, you can see our continuous progress. And I wanted to say today that we are committed to our goals of mid-30s in the midterm. And of course, long term, will be depending on our growth opportunities and our pipeline in particular. So we are doing three things, as I've said before. We're driving, we are focusing on today, we're driving growth, top-line growth and operating margin, so we deliver our financial goals, and that now is 2024, really. We're building the pipeline, continuously building the pipeline, so that we drive growth tomorrow, which is 25 to 2030. And we are investing in new technologies and new products to shape the future of medicine and drive long-term growth. And what I call long-term growth is what I often refer to as being the day after tomorrow, and it's 28, 29, and beyond. Ultimately, our goal is to remain a high-growth company for the next period of time, 10 years and beyond. You can see here that our revenue is spread across a variety of therapy areas, but oncology, as you know very well, biopharma, as you know very well, in rare disease. And we had growth across all therapy areas. Oncology, 21%, CVRM, 18%, RNI, 10%. Of course, VNI declined because we had a massive decline in COVID sales. And rare disease grew by 12%, which is more than most people expected, and actually more than we ourselves expected. If you remember, we guided that we could grow by a single digit this rare disease business. But in fact, we're delivering low double-digit growth rate. And Mark will talk more about this. All geographies did very well, 14% in the US, 20% in the emerging market, which is 35% ex-China, and 8% in China. And you can see here the growing importance of the emerging markets outside of China. In Europe, we grew by 17% and established rest of the world 8%. Japan is starting to be impacted by the loss of exclusivity of NXIVM, of course. But still, 8% growth is a pretty nice number there. So again, well-diversified growth across geographies and across our disease areas. So tomorrow, so this is today and tomorrow is really the pipeline, during the pipeline. We guided earlier this year that we had a goal of 30 new phase three. We've achieved 27. We're short by three that are a little bit delayed and starting in the early 24 instead of 23. But 27 is a very large number of phase three starts. Importantly, 10 of those have a potential to be blockbusters, either new products or new indications. Blockbuster, of course, being more than a billion. So we have 10 of these phase three trials that, if they are successful, will deliver a billion dollar sales or more each. We also achieved 24 regulatory approval across major markets. And finally, we got approval for four new medicines, and we are on track to deliver 15 new molecular entities, launches by 2030. And as you can see on this slide, those approvals, those new medicines, range from biopharma, which is supra, to oncology, which is trucap. Again, back to BioPharm with Wenhua and Plontersen, and also rare diseases, Alexion with Danicopan's Voidea approval in PNH. So across the whole pipeline, we are launching new medicines. And finally, what I call the day after tomorrow is really these new technologies, those new platforms. So what are we trying to do here? First of all, we have, we believe, a tremendous opportunity to leverage our growing pipeline of antibody drug conjugates with our IO by specifics. So in the ADC space, we started with this collaboration with Daichi Sankyo that you know very well. We've now built our own internal portfolio of ADCs. We have six ADCs. ADCs that are totally owned by AstraZeneca with unique targets and unique warheads. And there's more to come. We can talk about it later, but we are working on multiple targets and warheads. And finally, importantly, we can combine those with our bispecifics. And we have three of those, two that are more advanced. and are very exciting products. And we believe in oncology, this ADC combination with IO can totally transform the way cancer is treated and position us as one of the few companies that has the potential to leverage these combinations. We work on cell therapy because we believe cell therapy will be an important technology for the future. Today, those are mostly CAR T's in hematology. We want to take this into solid tumors. We want to take this into allogenic, off-the-shelf cell therapy. And we also want to take this into immune diseases. And we've started working on this. So what we have been doing is leveraging our own internal effort and our own internal technologies and combining these ways, putting together a series of technologies and platforms that has really the potential for us not to deliver what I was just talking about, which is moving into solid tumors, moving into allogenic cell therapy, and moving into immune diseases. And we now have a complete set of what we need. Now it's a question of integration and execution, but we have the technology that are required to achieve what our long-term goal is in cell therapy, and you've got listed here neogen, quail, selectees, gray cell, and all of those together will enable us to build what we want to do in oncology and biopharm. Another technology that we believe will shape the long-term is T-cell engagers, and again, we've done that with our own internal effort and complemented with BD. The BD we do is not a random BD. It's always with a view to build a strong presence in some of the technologies we've identified. And we've done this with DC. We're doing it with cell therapy. We're doing it with T-cell engagers. And finally, we do it in gene therapy with a focus on rare diseases. If you are in rare diseases, you really have to have a gene therapy approach complementing your portfolio. And, of course, here you know well the Pfizer gene therapy portfolio acquisition and complemented with the Selectis collaboration. So this is really what we believe is going to drive a little bit of mid-term growth with the HECO's collaboration and some of the ADCs, but mostly looking at driving growth 28, 29, and beyond so we can deliver growth today, tomorrow, and the day after. So with this, I'll hand over to Aradna, who's going to take you for the final shots. Over to you.

Thank you. Thank you, Pascal. As usual, I will start with our reported P&L. As Pascal mentioned in his opening comments, total revenue increased 6% in 2023, which was at the top end of our updated guidance range. Product sales increased by 4% despite a decline of 3.8 billion in COVID-19 product sales in the year. Alliance revenue increased by 89%, driven by higher Inheritance sales in regions where Daiichi Sankyo books product sales. Turning to the core P&L, our core product sales... Sorry. Our core product sales gross margins increased by two percentage points to 81.7%. This step up in gross margin was driven by lower COVID-19 revenues in 2023. In 2024, we anticipate a slightly lower product sales gross margin percentage driven by higher sales in emerging markets increased before this product supply. higher production costs in certain facilities, as well as higher product sales for partner products and regions where we book sales and then pay out a profit share to our partners through cost of sales. Core operating costs increased by 9% in 2023. R&D costs increased by 9% driven by 27 new phase three starts in last year, including multiple trials of our PD-1 CTLA-4 bispecific borustimic and our oral SIRD camisestrant. R&D costs as a percentage of total revenue was 22% in line with our ambition. As expected, core SG&A stepped up in the fourth quarter relative to the third quarter in 2023. We increased our investment in new launches behind Whenua, TrueCap, and AirSupra, and continue to invest behind indications expansions such as Forsega in CKD and heart failure, and Infinsi across tumor types. Our full-year core tax rate of 17% came in slightly below our guidance. The fourth quarter tax rate benefited from an adjustment to deferred taxes following an intra-group purchase of certain intellectual property, offset by unfavorable tax ruling in certain jurisdictions. Overall, our P&L allowed us to increase investments in both R&D and SG&A in the fourth quarter. Core EPS for the full year 2023 was $7.26, a growth of 15% versus the prior year. As Pascal stated earlier, we have made good progress on both top and bottom line delivery in recent years, and we remain on track to deliver both industry leading growth and improve operating margin to the mid 30s in the mid term, balanced by the need for continued investment to drive top line growth in both the near term and mid term and long term. Today, we're pleased to announce our 2024 full year guidance. We anticipate We anticipate our total revenue of low double digits to low teens percentage increase and our core EPS of low double digits to low teen percentage increase as well. Collaboration revenue is expected to increase substantially, driven by success-based milestones and certain anticipated transactions. Other operating income, on the other hand, is anticipated to decrease substantially. Recall that in 2023, it included a one-off gain of around $700 million related to the renegotiated before-test agreement and another $240 million related to the sale of Palma Court in the U.S. If FX rates for February to December were to remain at average rates seen in 2024 January, we anticipate a low single digit adverse FX impact on both revenue and core EPS in 2024. Cashflow from operating activities increased by $537 billion in 2023. We continue to focus on improving our cash conversion and have already made significant progress in this area. Deal payments amounted to approximately $4 billion, of which nearly half related to past business development payments, including milestone payments to Daiichi Senkyo. For this year, we again anticipate about $2 billion in deal payments relating to historical transactions. CAPEX in 2023 was around $1.4 billion. In 2024, we anticipate a significant step up in CAPEX, potentially in the 50% range, driven by investments in new manufacturing capabilities such as API, inhaled products, and cell therapy. Our net debt at the end of 2023 was $22.5 billion, and given very recent BD transactions totaling about $2 billion, we anticipate this to remain at about the same level in 2024. With this in mind, our finance expense is expected to increase given the current interest rate environment. Our net debt to adjusted EBITDA ratio is 1.6 times on the last 12-month basis. Our capital allocation priorities remain unchanged, with our number one priority to reinvest in the business, both in the pipeline and behind new launches. We remain committed to keeping a strong investment-grade rating and will continue to pursue value-enhancing business development transactions. Towards the end of last year, we announced a license agreement with Ecogene and the proposed acquisitions of ICOSAVAX and Gracell. Finally, we maintain our progressive dividend policy defined as either a stable or increasing dividend. With that, I will hand over to Dave.