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Edited Transcript of AZN.L earnings conference call or presentation 27-Jan-11 12:00pm GMT

Q4 & Full Year 2010 AstraZeneca PLC Earnings Conference Call

London Jul 18, 2019 (Thomson StreetEvents) -- Edited Transcript of AstraZeneca PLC earnings conference call or presentation Thursday, January 27, 2011 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David Brennan

AstraZeneca PLC - CEO

* Martin Mackay

AstraZeneca PLC - President of R&D

* Simon Lowth

AstraZeneca PLC - CFO

* Tony Zook

AstraZeneca PLC - EVP, Global Commercial

* Jeff Pott

AstraZeneca - General Counsel

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Conference Call Participants

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* Jo Walton

Credit Suisse - Analyst

* Mark Purcell

Barclays Capital - Analyst

* Tim Anderson

Sanford Bernstein - Analyst

* Sachin Jain

BofA Merrill Lynch - Analyst

* Peter Verdult

Morgan Stanley - Analyst

* Keyur Parekh

Goldman Sachs - Analyst

* Mattias Haggblom

Danske Markets - Analyst

* Gbola Amusa

UBS - Analyst

* Nicolas Godet

Exane BNP Paribas - Analyst

* Justin Smith

MF Global - Analyst

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Presentation

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Operator [1]

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Good afternoon. Welcome, ladies and gentlemen, to AstraZeneca's annual results analysts' conference. Before I hand over to the auditorium, I'd like to read the Safe Harbor statement.

The Company intends to utilize the Safe Harbor provisions of the United States Private Security Litigation Reform Act of 1995. Participants on this call may make forward-looking statements in respect to the operations and financial performance of AstraZeneca. By their very nature, forward-looking statements involve risk and uncertainty, and results may differ materially from those expressed or implied by these forward-looking statements. The Company undertakes no obligation to update forward-looking statements.

(Operator Instructions). You will now be joined to the auditorium, and the call will be starting in a few minutes. Thank you.

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David Brennan, AstraZeneca PLC - CEO [2]

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Okay. Sorry for the slight delay. There were a few other people coming in, so we thought we'd just give them a couple more minutes. So, I'd like to welcome all of you and say good afternoon to those of you that are here with us in London, and I'd also like to thank the people that are joining us on the webcast for our full-year results conference today.

I'm going to start with a review of what I consider to be the key events of the past year, take a look at the headline results for the full year 2010, and I'll give some highlights on the revenues on both a regional and a brand basis. Martin Mackay, who's here, will then follow with his review of the year from an R&D perspective, and give you a pipeline update.

And then, finally, Simon will do a quick review of the fourth-quarter results, but focus more on a review of the P&L for the full year. He'll also go through the midterm planning assumptions that we provided at this time last year, to give you a sense of how we updated them, and then he'll conclude with our 2011 guidance. And then we'll open up for questions from both here on the floor, as well as from on the conference.

We've got members of our executive team here, as well, from the commercial organization, from R&D and from the legal area, so we'll probably have some other people participate in the Q&A as well.

Now, at last year's presentation we affirmed our commitment to the business model that at its core is driven by investment in innovative prescription based biopharmaceutical research and development, combined with world-class supply capability and of course commercial excellence on a global basis. There are other business models, but our view is that if shareholders want to diversify their portfolio they don't need us to do that for them. So, we are going to focus on what we believe we do best, where we have the requisite skills to succeed and where we believe we can deliver real value for patients and for shareholders.

In the end, it comes down to execution, and against the four pillars of our strategy that you see here we continue to make good progress. On growing the business, despite the generic competition, we've generated strong growth in key brands such as Crestor, Seroquel XR and Seroquel Symbicort. And we're driving double-digit growth, revenue growth, in the emerging markets.

On the business reshaping, the first phase of our restructuring program has delivered $2.4b in annual benefits. And we're now well into phase two, and there's another $1.9b to go for over the next couple of years.

Then, on the pipeline, although there were some disappointments this year, we're tackling the issue of R&D productivity head on, with energy and with conviction. And we're doing it all within a culture that stresses innovation, that stresses accountability and integrity.

So, overall, I would say good progress on those fronts. In my view, here are some of the key developments from last year. I certainly believe that the Company turned in a very resilient performance, given the market challenges that we faced in 2010. We were able to hold revenue flat with 2009, on a constant currency basis, despite having to absorb $1.6b revenue hit in the US from generic competition on several of our products, combined with the absence of the H1 pandemic flu vaccine revenues that we had in 2009, like the rest of the industry.

We also had to navigate through US healthcare reform and European government pricing intervention. So, I think a number of moving parts there, but pretty good performance when you look at it year on year.

I think we were able to accomplish this by the result, by driving good growth in our ex-US markets, which were up 7%. And that includes a strong 16% growth in our emerging markets business, which grew to over $5b in revenue. And we're well on our track -- on track towards our 2014 goal of doubling this business from last year. And to note, China became a over $1b revenue market for us last year as well, so good growth there.

Two key brands also achieved $5b milestones, Crestor and the Seroquel franchise, fueled by a strong performance for Seroquel XR, which in its own right grew to over $1b.

2010 was a year where our commitment to driving shareholder returns was visibly evident. We increased the dividend by 11%, to $2.55 for the full year, in keeping with our progressive policy to maintain or grow the annual dividend each year. We were also slightly ahead of our net share repurchase target for the year, executing a $2.1b net share buyback in 2010. And Simon will have more to say about this during the financial review.

The year was also marked by some significant developments on the legal front. We won an important affirmation of the strength of our intellectual property with the US court decision upholding our patent for Crestor in the United States. Secondly, we've reached agreements in principle to settle nearly 25,000 claimants in respect of product liability litigation for Seroquel.

On the research and development front some good progress was made, tempered by some disappointing news on some of our pipeline projects. The entire R&D organization has embraced the comprehensive change program we set in motion last year with energy and with commitment, led by a group of strong leaders, and that headed, of course, now by Martin, who's the President of our R&D organization.

The highlight of the year, I think, was the first regulatory approvals for Brilinta, or Brilique, as it's known in Europe, where we received approval in December. As you all know, in December we also received a complete response letter from the US Food and Drug Administration. And I'm very proud of the way Martin's organization marshaled its efforts to provide our response to that complete response letter just last week. I think it was a real achievement and a quick turnaround to respond to the questions we were asked.

While Brilique was the highlight, it was not the only approval we received last year. We also had approvals for Vimovo, in the United States and in Europe, Kombiglyze XR in the United States, and some important lifecycle management indications for both Crestor and for Seroquel XR. So, some good news.

Together with Bristol-Myers Squibb, we submitted regulatory files in the US and in Europe before the end of the year for Dapagliflozin. It's potentially a first-in-class new medicine for the treatment of type 2 diabetes.

As for the disappointments, as you know, we stopped further development of Motavizumab for RSV prophylaxis, and we stopped developing Certriad for mixed dyslipidemia. We had some disappointing results for Recentin in the colorectal cancer and glioblastoma trials. The first of the Phase 3 trial results for Zibotentan also missed their primary endpoint, although work continues in other areas of the prostate cancer spectrum.

So, with that as a backdrop, let me now turn to the headline results for the full year. And when I refer to growth rates, they'll be on a constant currency basis.

Revenue for the year was unchanged compared with 2009, at $33.3b. As I mentioned at the opening, we overcame some revenue headwinds in the US with very good performance in our rest of world markets.

Core operating profit was $13.6b. That was also unchanged from the prior year. Core earnings per share were $6.71. That was slightly ahead of our latest guidance and up 5% for the full year on a lower tax rate and lower net finance expense, combined with the impact of fewer shares outstanding as a result of the buybacks.

In bridging from core to reported earnings, adjusting items in aggregate were broadly similar, year on year. There were some large swings on some of the individual items. Restructuring costs and intangible impairments, for example, were nearly 2 times the 2009 level. These were largely offset, though, by the $0.40 gain this year that arose from changes made to the benefits under certain of our Group's post retirement benefit plans, chiefly the UK pension plan.

The net effect of that is that the reported earnings was $5.60, which was up 7%. And that was broadly in line with the growth in core earnings as well.

The dividend, as I said, was increased by 11% to $2.55. And the cash returns to shareholders were further enhanced by the $2.1b net share buyback program. So, a good return profile.

Looking at the regional revenue performance, I'd point to the 16% growth in emerging markets as a key highlight. We did also manage to grow revenue in Western Europe, as volume growth was able to more than offset the government interventions that we experienced on pricing. If you look in the established rest of world markets, our Canadian business had mid-teens growth. And we also grew revenue in Japan, despite the biennial price reduction; another good performance.

An overview of the key brands shows two $5b franchises, as I said earlier, Crestor and Seroquel, and they're growing strongly; a Nexium franchise that was just under $5b and it's holding up very well as it is in its mature phase. Symbicort was another strong performer. Our overall business was up 20%. The Arimidex performance this year reflects the onset of generic competition in the US, from mid 2010, and generics are expected in Europe from February 2011 onwards, from next month.

If we look at the brands in detail, once again, growth rates are quoted on in constant currency terms. The Crestor sales were up 24% for the year, as I said, over $5b now to $5.7b globally. It's growing well ahead of the statin market in all major regions of the world. In the US, for example, total prescriptions were up 12% against a market growth of just 3%.

New indications based on the JUPITER study are supporting this growth. Our strong brand position for patients at elevated cardiovascular risk is the key to supporting the brand once Lipitor's patent expires. You can see that we also achieved at least 20% growth in all three of the rest of the world regions, as well. So, a great performance for Crestor.

The Seroquel franchise reached sales of $5.3b. That was a 9% increase. That performance was driven by the 67% increase for Seroquel XR, which as I said before is now a $1b product in its own right. By year's end, Seroquel XR accounted for 24% of the global franchise revenue. That was 17% of franchise revenue in the US and 38% in the rest of the world.

For 2011, we look for continued growth for XR, including further rollouts of the MDD indication in Europe, as well as launches for both bipolar disease and MDD in the emerging markets.

Nexium. Nexium sales were unchanged, at just under $5b. Sales in the US were down 5%, but the whole PPI market was down 0.5% in dispensed volume, so our market share held up reasonably well. And we did this without direct sales force support in the US, just the new channels that we put in place, things like digital customer service representatives and telemarketing, all new and different ways to reach our customers there.

You can see that we grew Nexium across the rest of world markets. Sales in Europe were up 2%, despite the onset of generic competition in some markets that lost data exclusivity in March of last year. But on balance, the generic approvals have just come through more slowly than our planning assumptions from last year.

We had 18% growth in emerging markets. That was led by a 36% increase in our business in China. And as we continue to defend our intellectual property, the pace of generic approvals and launches will really determine how Nexium sales evolve during 2011.

Symbicort. Symbicort sales were up 20% for the year, to $2.7b. Sales in the US were up 48%. Total prescriptions were up 44%, compared to a 4% increase for the overall fixed combination class. So, Symbicort's share of new prescriptions for the steroid/LABA combination products increased to 19.5% in December. That was up another 2 percentage points in the year.

The 59% increase in established rest of world is driven by the strong launch uptake of Symbicort in Japan, where our volume share grew to over 23% in November. Western Europe was up 5%. As yet, we've not seen any generic approvals since the data exclusivity in the 10-year markets expired last August, and we all know that the regulatory path to approval in this product category is challenging. Sales in emerging markets also showed strong growth. They were up 23%.

On Arimidex, there's not really much new to say about Arimidex. The 22% decline in sales was driven, as I said, by the launch of generics in the US at midyear, so US sales were down 44% in the year. Exclusivity expires in the major European markets next month.

So, that's a quick review of some of the key brand performances. As you all know, the press release contains a lot more detail on the key brands and any products that I've not covered.

Now, next year, Brilinta will be included in the key brand commentary, so I think I'll finish my portion of this presentation with just a few words of how we're approaching the launch of this important new medicine.

Brilinta has now been approved in 30 countries, including those in the European Union, Iceland, Norway, and others under the trade name Brilique. And most recently, in Brazil, it was also approved there; it will be called Brilinta. It's under regulatory review in a further 21 countries, including the United States, where as I said we've made a rapid response to the CRL. And I know Martin will touch on this in his remarks.

It's a great opportunity to launch a very important new medicine, bringing to the market a more effective anti-platelet treatment to reduce the risk of heart attack and cardiovascular death in patients with acute coronary syndrome, or ACS. As you may have seen from the published prices in some of the early launch markets, our pricing approach I think reflects a strong value proposition, based on the PLATO data.

The burden that acute coronary syndrome places on patients and the healthcare system is high. More than 3m new cases of ACS present annually in the G8 markets alone, and that includes more than 1m in the top five European markets.

In terms of our plans for launch, as you would expect, the US launch is dependent upon completing the FDA review. And we are awaiting confirmation on the timeline for the FDA's review of our recent submission. We've started the launch process in the UK, in Germany and Denmark, this month. However, the majority of the European launches will occur in the second half of this year, following the pricing and reimbursement negotiations and approvals that need to take place.

Besides the regulatory approvals and pricing, there are two other factors that I think are going to influence the ramp-up, the rate of the ramp-up, of this launch as we get started. Brilinta is a product where most therapy starts occur in the hospital, rather than in the doctor's office. With these products, you have to navigate the formulary and treatment protocol reviews before you can get usage. The reviews happen on a local hospital by hospital basis, and the timeline for this process is in the hands of the institutions, not ours.

The final factor that will certainly govern the pace of uptake in year one is the rate at which new ACS patients present over the course of the year, in relation to where and when we have launched the product.

These are all worth keeping in mind, these things, when you're considering how quickly the market can be penetrated in the first launch year, however large your peak year sales aspirations really are.

That concludes my overview of the 2010 performance. What I'll do now is hand over to Martin, who will review 2010 from the research and development perspective. Martin, over to you.

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Martin Mackay, AstraZeneca PLC - President of R&D [3]

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Well, thank you, David, and good afternoon. Today, I'm going to give a brief update on where we are with the R&D strategy and our transformation goals. I will also talk about our portfolio performance in 2010, and then finish with a review of a selection of our late-stage programs.

Our strategy recognized that we needed a dramatic change in R&D performance. Last year, we decided to address this in the leadership and operating model transformation. In terms of the portfolio, we conducted a root and branch attrition analysis, to make sure we learned from our failures, and we reviewed every single R&D program. We decided to invest in a number of key capabilities, and also set out to access the very best of external science. Lastly, we made hard decisions to close some of our sites and to reduce our internal headcount. I will show some examples in the next few slides.

I would not normally show a slide of leaders to this audience, but I thought it was the best way to illustrate the extent of change we've seen with a few examples. We conducted an extensive review across the R&D organization, and this resulted in a large-scale change in who leads R&D. We've attracted talented people from across the industry and globe, as well as appointing superb talent from within AstraZeneca. In fact, over half of our senior leadership has now changed. I believe that the changes were necessary, and now it's about pipeline delivery.

My second focus was to set clear accountabilities for leaders. We constructed a simple operating model, with Mene Pangalos and Bahija Jallal leading our small molecule and large molecule research engines, respectively. At proof of concept, Anders Ekblom and a very experienced team of drug developers take ownership of the programs. The model has single points of accountabilities, actually with fewer but higher hurdles.

We also conducted a root and branch review of our portfolio, to learn from the failures, and there were some very clear issues that came to light. We asked a number of fundamental questions. Did we have the right target engagement? Were we confident in efficacy based on the level of understanding of human biology? Did we have the right tissue exposure and duration suitable to deliver clinical efficacy? Was preclinical and clinical safety supported by the knowledge of both on and off target toxicity? Did we have the evidence and ability to identify the patients most likely to respond to our medicines? And did we have a differentiated value proposition against current and future standard of care?

Successes across the industry invariably scored highly against these criteria, whilst failures scored poorly. We have applied this framework to our portfolio.

If we turn now to the latest update on the R&D pipeline, you can see an early impact. We've made tough decisions in terms of terminating programs, as well as progressing those considered to have the highest potential. For the first time since 2004, we see a total -- a reduction in the total number in our pipeline. In addition, and not shown on this slide, the portfolio review has reduced the number of compounds in the preclinical phase. In fact, approximately 30% of programs were stopped here.

In the long term, we believe that a smaller pipeline, which is more carefully scrutinized for quality and value, will serve us well. I will certainly not be seduced by the vanity of large numbers, but rather we will be very careful stewards of the money invested in us.

We believe that building the capabilities shown here will be essential to improve our productivity. The R&D and commercial organizations are working together on an integrated payer strategy, to deliver the best reimbursement dossier. Personalized healthcare aims to deliver the right treatment to the right patient, at the right dose, at the right time. This enables us to focus our discovery and translational efforts to the right disease segment.

In terms of clinical trial design and interpretation, we are identifying best practices to improve the overall effectiveness and speed of clinical decisions. And for predictive sciences, we are using translational medicine to better link preclinical and clinical data, helping us to make earlier decisions.

How is our core business doing in the meantime? And David alluded to some of the programs I'll discuss. 2010 was a year of some good successes, tempered by those very clear disappointments. The approval of Brilique and Vimovo has been mentioned. And together with Bristol-Myers Squibb, we have a new once-daily fixed-dose combination of Onglyza/metformin called Kombligyze XR, which we recently launched in the United States. We have also submitted Onglyza/metformin IR fixed-dose combination in the EU.

David talked about Brilinta, and I will speak about the complete response letter in a moment. We have made some submissions in the EU and US for Dapagliflozin and Vandetanib. And we submitted our antibiotic ceftaroline, now branded Zinforo and Axanum in the EU.

At the same time, lifecycle management continues to add value. We have had new indications for Crestor in the US and the EU, based on data from the landmark JUPITER trial, and for Seroquel XR in the EU as an add-on treatment for major depressive disorders. We have started Phase 3 programs for TC-5214 and Fostamatinib.

However, our internal performance has been disappointing in terms of securing approval for late-stage projects. And we have had complete response letters for Motavizumab and Certriad, which we have since discontinued. As David also mentioned, we had disappointing trial results in Recentin and Zibotentan.

Now, let me turn to our late-stage assets, where I'm going to highlight five of our projects. In December last year, December 16 to be precise, the FDA issued a complete response letter for Brilinta. This is our top priority in R&D. The additional analyses requested were produced by the team, and last week we announced that we had replied. The additional analysis of the PLATO trial requested in the complete response letter focused on interactions between ticagrelor and high-dose aspirin.

We believe these supplementary analyses support the hypothesis that the apparent difference in treatment effect observed in the US and non-US patient subsets in PLATO is most likely a reflection of an underlying interaction between ticagrelor and high-dose aspirin. We remain of the view that either a play of chance or this interaction are viable explanations for the efficacy differences observed in this subset of US patients in the PLATO trial.

The CRL did not request that additional studies be conducted as a prerequisite for approval of the NDA. We remain confident in the submission, and are now waiting to hear if we can expect a two-month or six-month review period.

The next program I will update you on is Fostamatinib that we in-licensed from Rigel last year. It is the first oral spleen tyrosine kinase, or Syk, inhibitor in development as a novel approach for rheumatoid arthritis in adults who have failed to respond adequately to therapy.

We commenced our Phase 3 program, called OSKIRA, in September last year, and this was only six months after the deal was signed. Recruitment is going according to plan, and we will meet our 2,000 regulatory filing date, of course assuming positive results. We intend to commence a Phase 2b study that explores Fostamatinib as a monotherapy in rheumatoid arthritis, and this will provide information in the absence of DMARDs.

In the neuroscience area, our most advanced program is TC-5214, which we have licensed from Targacept. It is a neuronal nicotinic receptor modulator, a novel mechanism of action relative to standard antidepressant agents, and is initially being developed for major depressive disorder in patients with inadequate response to first line SSRIs or SNRIs. More than 50% of MDD patients currently don't achieve remission after initial antidepressant therapy.

The key Phase 2b results are shown on the right. All patients received Citalopram during the first eight weeks, and were then randomized to either TC-5214 or placebo. All patients continued to receive Citalopram throughout the study. The placebo group is denoted in red, the TC-5214 group in blue.

Dosing in the Phase 3 RENAISSANCE program commenced last summer, and the program is again progressing to schedule. In addition, a long-term safety study has completed enrolment. We anticipate a US NDA submission in the second half of 2012, and EU filing in 2015. In addition, a Phase 2 study to assess TC-5214 as a switch monotherapy treatment for MDD is targeted to start in the first quarter of this year.

Let me now turn to our next generation cephalosporin antibiotic, Zinforo, which forms part of our collaboration with Forest Laboratories. We have the responsibility for the development, regulatory approval and commercialization of Zinforo in all markets outside of the US, Canada and Japan. Zinforo is a new extended spectrum and well tolerated antibiotic which has shown good activity in two important types of hospital infections, namely complicated skin and soft tissue infections and community acquired pneumonia.

The key clinical data supporting our Zinforo filing in Europe is depicted on the right of the slide. There were four pivotal Phase 3 studies, two CANVAS studies in cSSTI and two FOCUS studies in CAP. All four studies were non-inferiority designs versus active comparators and met their primary endpoints, demonstrating a good efficacy and tolerability profile, including MSRE activity in the skin trials. Our EU regulatory filing was submitted in December last year and today I can confirm the EMA has accepted our filing earlier this week.

One of the most exciting projects in the late-stage portfolio is a first-in-class SGLT2 inhibitor, Dapagliflozin, which we are co-developing with Bristol-Myers Squibb. On the right-hand side of this slide, you can see a depiction of the mechanism of action of Dapagliflozin, which is novel for antibiotic drugs and works independently of insulin, resulting in excretion of glucose and associated calories in the urine.

Data from five pivotal Phase 3 studies are now in the public domain and suggest a product profile that is encouraging, with differentiated patient benefits. This includes a potential benefit in uncontrolled patients with type 2 diabetes who require HbA1c reduction and the additional benefit of weight loss. In the Phase 3 studies, genital infections and urinary tract infections were generally higher in the Dapagliflozin group, but they were mild or moderate, generally responded to an initial course of standard treatment, and very rarely led to discontinuation.

Further data from the Phase 3 program will be presented later this year. Together with Bristol-Myers Squibb, we filed in December 2010 for regulatory approvals in both the United States and EU.

So, in summary, 2010 was a year of significant change for AstraZeneca R&D. We made hard decisions around people, our portfolio and the way that we work. I came to AstraZeneca to lead a successful R&D organization, one that will create value for shareholders, help patients and be admired by our colleagues. I believe that we have set a clear path, and now we must focus on delivery of the portfolio.

I'd now like to hand over to our Chief Financial Officer, Simon Lowth.

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Simon Lowth, AstraZeneca PLC - CFO [4]

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Thank you, Martin, and good afternoon to everyone. Today, I'm going to cover six topics. First, I will briefly summarize the headline numbers for the fourth quarter. I'll then return to the results for the full year, for my review of our financial performance in 2010, with a focus on the core P&L. I'll provide an update on our restructuring and productivity improvement program. I'll then touch on cash performance and the increased cash returns to shareholders delivered this year. I will revisit the midterm planning assumptions for 2010 to 2014. And finally, I'll review our financial guidance for 2011.

So, turning first to the headline numbers for the fourth quarter, we achieved revenue of $8.6b. That's a 3% decline in constant currency terms, or minus 4% if you include the negative impact of currency movements. The revenue decline in the US was 12%, as a result of the generic inroads and the H1N1 flu vaccine comparisons. This was only partially mitigated by the 5% growth in the rest of world.

Core operating profit for the quarter was down 2% at constant currency, slightly less than the decline in revenue, as a result of operating efficiencies and higher other income.

Core EPS was up 1% at constant currency, to $1.39. Lower net finance expense and fewer shares outstanding as a result of the buyback provided the uplift to core EPS growth, compared with the slight decline in core operating profit.

Making the bridge from core EPS to reported EPS in the quarter, total net adjusting items in the fourth quarter of 2010 were $0.11 lower than last year. Restructuring charges and intangible impairments, that's chiefly Motavizumab, were higher than last year. But the increase was more than offset by the $0.40 gain related to retirement benefit changes that David mentioned earlier. Net of these adjusting factors, the growth rate in reported earnings per share was 11% in constant currency terms, to $1.15, compared with $1.07 in the fourth quarter 2009.

I'll now return to the results for the full year, and for a review of the main elements of the P&L. And I'll focus here on core margins and profit. The press release does, of course, contain the statutory numbers and a detailed reconciliation to the core measures. And when I refer to growth rates, they will all be on a constant currency basis.

Now, the starting point is revenue, which for the full year was $33.3b. That's unchanged compared to 2009. Core gross margin, at 81.2% of sales, was 160 basis points lower than last year. Now, you'll recall that we took an intangible impairment on Lesogaberan in the third quarter of 2010, and there was a provision release that benefited the third quarter of 2009. And this large unfavorable variance in Q3 accounts for more than half of the full-year decline. The balance of the decline in gross margin for the full year is due to higher royalties and an adverse regional and product mix that was only partially offset by operating efficiencies and lower Merck payments.

There will be further pressures on gross margin for 2011, as a result of the enactment of the excise tax on product produced in Puerto Rico, which will be recorded in cost of goods, not on the tax line. However, I still expect core gross margin to be above 80%, consistent with our midterm planning assumptions.

Core SG&A expense was just under $9.8b, that's 2% lower than last year, as investments in emerging markets and recent launches were more than offset by operational efficiencies across our established markets. Now, as expected and flagged, this investment was weighted to the fourth quarter. But that said, the fourth quarter spend in absolute terms was below the prior-year quarter.

Core other income of $910m was a touch under 2009. Last year, we had the disposal gains related to Abraxane and the Nordic OTC business 2010, including the royalties on Teva's sales of generic Pulmicort Respules.

Core pre-R&D margin therefore was 53.5% of revenue. That's right at the top end of our planning range, although it is lower than last year, as the gross margin decline was only partially offset by the efficiencies in SG&A.

Core R&D expenditures were 4% lower for the full year. Increased investment in biologics was more than offset by lower project costs and by operational efficiencies. The lower project costs are the result of several late-stage projects completing their clinical trials. This was partially offset by the start of Phase 3 programs for TC-5214 and Fostamatinib in the second half of the year.

Core operating profit was $13.6b. That's unchanged at constant currency. Core operating margin was 40 basis points lower, with the impact of lower R&D expense and operating efficiencies only partially offsetting the decline in gross margin.

I'll now turn to an update on the progress of our restructuring programs. The first phase of the restructuring program is now complete, and it's delivered exactly as planned. We've achieved annual benefits of $2.4b by the end of 2010, and a gross headcount production prior to reinvestment decisions of 12,600 positions. The cumulative restructuring costs associated with phase one which were incurred over the 2007 to 2009 period were $2.5b.

Now, we kicked off phase two of restructuring with our financial results announcement last year. This included additional productivity improvement initiatives in the supply chain and in SG&A, in addition to the significant change program within research and development. When completed, these will result in the realization of a further $1.9b in estimated annual benefits by the end of 2014.

Now, in terms of the phasing, around half will be realized by the end of 2011, with most but not all of the remainder by the end of 2013. Of the estimated $2b in costs anticipated for this phase of the program, we charged $1.2b in 2010 and the remainder will largely be taken in 2011.

So, how has total headcount been affected to date as a result of our business reshaping efforts? Well, through the end of 2010, we've reduced headcount by the 12,600 positions from the first phase, together with nearly 2,700 from early returns on the second phase, amounting to a total of more than 14,000. Now, this has provided the headroom to increase our investments in biologics and emerging markets, leaving a net reduction in 6,400 full-time equivalents. And this has been an important driver of the more than 9 percentage point improvement in our core operating margin over this period.

So, let me now turn to cash flow. Now, net cash from operating activities would have been more or less in line with last year, were it not for the payments related to Seroquel sales and marketing practices in the US and the payment of the first installment in respect of the UK tax settlement. These payments contributed to the $1.1b decline in net cash from operating activities, to $10.7b in 2010.

Now, for management purposes, we make our investment decisions on the basis of pre-R&D, post-tax cash flow. This is a non-GAAP measure. It amounted to $13.5b in 2010. Of this, we invested $3.3b in after-tax R&D expenditures, including the acquisition of Novexel and late stage in-licensing deals with Targacept and Rigel. There was $1b in capital expenditures, as well as the $647m payment on the Merck first option.

So this represents a reinvestment rate of around 37% of cash flow, to drive future growth and value. This is a bit under our planning assumption of a 40% to 50% reinvestment rate, but that is taking a view over the entirety of the planning cycle, not a point estimate in any single year.

Now, our commitment to shareholder value is evidenced by the $5.5b in cash returned to shareholders. That's a nearly twofold increase in cash returns, compared to 2009. It's a result of an increased dividend and the resumption of share repurchases. After the increased levels of investment and returns to shareholders, the residual cash flow increased our net cash position to $3.7b at the end of 2010, compared with $535m in 2009. Now, our net cash position of $3.7b is comprised of gross debt of $9.1b (sic - see presentation) and cash and cash equivalents of $12.8b.

So, let me just put our net cash position in the context of the Board's thinking on capital structure. The Board intends to maintain a strong investment grade credit rating. It also believes that it's important to preserve balance sheet strength, particularly during periods of revenue transition. And given our rating objective and the pension position, we remain comfortable with carrying gross debt at the same order of magnitude as our current position.

Alongside gross debt, we do need to hold a meaningful cash balance to meet operational funding needs and periodic settlements of liabilities. We don't have a fixed target for our cash balance. It will fluctuate with business needs. But the size of the current balance was clearly considered in the Board's decision to target $4b in net share repurchases in 2011.

This is the first year of implementation for our progressive dividend policy, by which we aim to maintain or grow the dividend each year over the planning cycle. With the announcement of the second interim dividend of $1.85, this brings the dividend for the full year to $2.55. So that's an 11% increase.

You'll recall that when we declared the first interim dividend at the half-year results, we said that the Board intended to rebalance the first and second interim dividends, with the aim of setting the first interim dividend at around a third of the prior-year dividend. So I would expect to see this aim manifest when the first interim dividend for 2011 is declared in July.

As previously stated, we executed $2.1b in net share repurchases in 2010. And based on its annual review of the cash position of the Group, our investment priorities and other anticipated calls on cash, the Board has approved a target of $4b in net share repurchases for 2011.

Now, last year we outlined our planning assumptions for the 2010 to 2014 period. And over the course of the year, I said that we would aim to review these on an annual basis and assess the need for any mid-course calibration. In the main, our assumptions remain robust over the period. The macro assumptions remain valid. There was a lot of attention last year, as US healthcare reform and government interventions in Europe. And whilst these pressures remain a key factor in the environment, we still don't think of them as step changes that would require a material rethink of our assumptions.

So, let me now review our specific assumptions for revenue, for margins, cash flow and business reinvestment.

Well, first and most importantly, we continue to plan on the basis that total Company revenue will be in the range of $28b to $34b over the 2010 to '14 period. The key drivers will continue to be strong commercial execution that will fuel the growth for our key brands that retain exclusivity and drive continued double-digit growth in our emerging markets, while patent expirations will be the chief source of downward pressure on the top line.

Not surprisingly, given the pipeline developments over the course of 2010, we have lowered our latest risk adjusted view of the potential revenue contribution from the recently launched and pipeline products. You'll recall that our starting point last year was in the range of $4b to $6b. We've adjusted this down to the range of $3b to $5b.

It is important to keep in mind that pipeline estimates are dynamic. They fluctuate, based on news flow from the data that's continuously being generated during the development program, from regulatory actions, and indeed from competitive developments in the marketplace. If in the end it turns out that estimates for pipeline revenue stay in line with this lower planning assumption, then total Company revenue in 2014 is more likely to be around the middle of the $28b to $34b planning range, and you'll recall last year our aspirations leaned closer to the top than the bottom of the range.

Based on continued strong execution on productivity improvement programs, disciplined management of costs, we still plan for core pre-R&D operating margin in the range of 48% to 54% of revenue. And our plans for driving strong cash performance over the period and the allocation between reinvestment for future growth and value and cash returns to shareholders remain firmly in place.

My last topic before handing back to David is our guidance for 2011. Revenue comparisons in the US market related to Toprol-XL, Pulmicort Respules and pandemic flu vaccine should moderate over the course of the year. For Arimidex, however, we will feel the full effect of the generic competition in the US that started mid-2010, and then beginning in February in Europe as well. So this would suggest a quarterly phasing to year-on-year performance in comparisons that will be more difficult in the first half of the year than the second.

We will also have to navigate the full-year impact of healthcare reform in the US. Our latest estimate suggests around a $700m impact for the full year of 2011. We estimate that between a quarter and a third of this will hit the SG&A line via the excise tax. The rest will be absorbed on the revenue line.

Now, in line with recent experience, we also continue to expect a negative impact on revenue in Europe from government interventions that will be around mid single-digit levels.

On balance, we anticipate that revenue in 2011 could range from flat to a low single-digit decline compared to 2010 on a constant currency basis. The extent of generic competition will be among the variables that could determine where we land within that range.

Now, consistent with what I said earlier, core gross margin should be above 80%, but will probably be lower than 2010. Core pre-R&D operating margin should remain comfortably near the top of the planning range, but below 2010's level. Net finance expense should be broadly in line with last year. And core other income, barring any unusual items, should be around $800m. We expect the tax rate to be around 27%. Our core EPS target is based on the January 2011 average exchange rates for our principal currencies, and on that basis we anticipate core earnings per share to be in the range of $6.45 to $6.75.

Of course, we're taking no view of the future movements for currency, so going forward this guidance takes no account of the likelihood that average exchange rates for the remainder of the year may differ materially from the January 2011 average. As usual, I would point you to our currency sensitivity chart to help you flex your own estimates on the currency impact to sales and earnings.

So, that concludes my review of 2010 performance and our outlook for 2011. I'll now hand back over to David.

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David Brennan, AstraZeneca PLC - CEO [5]

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Great. Well, thank you, Simon, for that update and, Martin, for your update as well. We'll move on now to the question and answer session. Just before I take the first question, I have to remind everyone we have people on WebEx, a couple of hundred people, as well as about 150 people in teleconference. And I need to remind the people who are on the TC that if you press star/one you can get in the queue for a question, and those on the WebEx can type them in and they'll show up on one of these screens up here. So, with that, I'll open up questions to the floor here. Let's get started. Jo.

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Questions and Answers

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Jo Walton, Credit Suisse - Analyst [1]

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Three quick questions. Crestor, you saw very strong revenue growth last year, which was half RX, half price benefit. As we move into a period with generic Lipitor in the US, can you give us some idea of what you would expect, whether in the last year before this major statin goes off-market you would expect everyone to benefit from strong prices, or whether you're already having to provide additionaldiscounts to position yourself in a post-generic Lipitor phase?

Secondly, on R&D, you've cleared out a lot of projects. If we look at this, are we seeing more than the normal rate of attrition? This industry needs to see an improvement in R&D productivity, but if we look and see what's happening it seems to be going down. Is there just an additional clear-out, or are we still seeing an ongoing decline in the rate of R&D productivity?

And related to that, a final question on the biologics side. You've got nearly -- around 3,000 more people in biologics. What are they actually doing, and when are you going to get a return for that investment?

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David Brennan, AstraZeneca PLC - CEO [2]

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Okay. Good. We have Tony, who's running our Global Commercial organization, here. Tony, I would certainly make the comment about the Crestor revenues in a post-generic Lipitor world to say our belief is that that is going to put some pressure on managed care formularies, as well as on physicians. Nonetheless, I think we've positioned the product reasonably well. So I'll throw that to you in just a minute. And then, Martin, maybe I'd ask you after that to comment on the R&D attrition rates, as well as what's going on in biologics.

But Tony, why don't you start with just your views about the world post generic Lipitor?

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Tony Zook, AstraZeneca PLC - EVP, Global Commercial [3]

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Yes, because your question was specific to the run-up, what we see happening. As you know, we've positioned Crestor in the marketplace for the patients with dyslipidemia, but also with risk factors. And so, by doing so, we've actually been able to have a positive impact on our price, year on year. And so, while there is discounting in the marketplace, our actual net price per tablet has actually had slight improvements, year on year.

This year, our access rates for Crestor are as good as they have ever been. In fact, if you look to the commercial book of business, our access rates are in the mid-80% ranges. And if you look to Medicare, our reimbursement rates for access are in the mid-90s, and we have not had to see differential price adjustments at all in the run-up. We are seeing some of our competitors becoming more aggressive in that space, but we've resisted that price battle because of our positioning, and we think we can do the same as we head into this year.

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David Brennan, AstraZeneca PLC - CEO [4]

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Good. Martin, do you want to comment on attrition rates, changes, what you see happening in the industry (multiple speakers)?

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Martin Mackay, AstraZeneca PLC - President of R&D [5]

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Certainly, David. I'll make a couple of points about productivity, and then move to your biologics question. Actually, rather than reducing R&D productivity by cutting the pipeline, I think it'll have the opposite effect. And I say that because for the last 10 years a lot of the industry was predicated on this notion that i

f you increase the numbers going into -- first in human testing, you would get more out the other end. Well, it's been clear from 10 years' analysis that whilst we certainly put more into development, we haven't had more out the other end.

So, hence our focus much more now on the quality and the value of those programs, rather than the numbers going into the pipeline. So the slide that I showed where we look now at are we engaging the target, do we get the right tissue exposure, are we hitting the right patient population, are much better predictors of success than a numbers total. So my sincere view is that we'll move to a time when you'll see that upturn in productivity because of this.

In terms of biologics, I'd mention a couple of things. We have about 25% of our portfolio now that are of a biologic nature. So that's what they're working on. It's clearly an early portfolio, with our MedImmune group in Gaithersburg and the group in Cambridge. It's early. They're working on some, I think, terrific targets. I could talk at some length about early programs, but I won't, that I think are doing very well. I'd like you to think about it in this way.

One of the reasons I joined AstraZeneca was this notion that we had a very replete toolkit. So the idea that a scientist, a Chief Scientific Officer can say here is a great target in oncology, and now we will apply the best modality to it, whether it be a small molecule, a large molecule, a vaccine, and have all those tools to hand. We've got a magnificent range of tools in AstraZeneca. And that's exactly what's happening in the portfolio.

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David Brennan, AstraZeneca PLC - CEO [6]

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Good. Thank you, Martin. I'll take one more from the floor here; then I'm going to go to Tim Anderson from Sanford Bernstein on the next one.

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Mark Purcell, Barclays Capital - Analyst [7]

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Thanks very much. It's Mark Purcell from Barclays Capital. The first question, in terms of emerging markets, can you discuss your view of pricing pressure in this market as an aggregate, I guess especially for branded generics, in light of the Chinese price cuts last year?

Secondly, there was a quote on the newswires about single billion dollar acquisition opportunities. Could you describe what a single billion dollar acquisition opportunity is, and which areas you're looking in?

Number three, turning to R&D. On Olaparib, you've terminated a breast cancer development program. I just wondered if you could share your reasoning with us on that, and whether ovarian cancer is the only area in terms of solid tumors you're looking to progress that compound.

And then, on Fostamatinib, the Syk inhibitor, I wondered how you're using predictive biomarkers at the moment to determine how you take the RA monotherapy trial forward, and the potential in oncology indications such as NHL. Certainly a number of players are using gene panels to look at TNF responder and non-responders at the moment. Thank you.

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David Brennan, AstraZeneca PLC - CEO [8]

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Good. Thanks, Mark. I'll save the Fostamatinib and Olaparib for Martin, and the single billion dollar acquisition for Simon. Tony, maybe you want to comment -- I'll make a comment about branded generics.

Generally, and that is because it is an out-of-pocket market primarily in the emerging markets, there is pricing pressure, as you would expect. The prices don't get to the same level as you see in the developed markets. But nonetheless, there's an appreciation of the brand, primarily from a quality perspective. And I think the ability to associate our name, for example, AstraZeneca, with products and use our organizations to represent them in the market conveys the quality message that we really want to get across to customers and to payers. And I think Asia's a great example of that, because there's a high degree of attention paid to quality.

As to the China price cuts, Tony, I don't have a specific answer on that. I don't know if you want to make a comment.

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Tony Zook, AstraZeneca PLC - EVP, Global Commercial [9]

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Yes. I would echo much of what you said. Mark, with the emerging markets it's hard to give you one answer, because there are so many diverse models that are in place. But David's right on the branded generics side. It's very much an out-of-pocket market. And that's why we want to be very specific in the branded generics segment and (inaudible) generics segment, because there we have seen the prices go down, as you would have expected them to.

In China what we're seeing, and in a number of our markets, we're seeing exceptional volume growth. You know the pricing systems there start for us with the national reimbursement drug list and then go to the provincial drug list. And once they get to the provincial drug list is when we really begin to see volume uptake. And of course that triggers a little bit of pricing pressures that then comes back to us from the market, but it's not significant and it's not suppressing the volume growth that we see for the business.

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David Brennan, AstraZeneca PLC - CEO [10]

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Good. Thanks. Simon, do you want to comment about our acquisition approach in general? I'm not sure the single billion dollar aspect of it is perfect but how do you want to characterize that?

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Simon Lowth, AstraZeneca PLC - CFO [11]

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No. Thanks, Mark. The strategy for the Company, Mark, as you know, is a very clear focus on innovation driven pharmaceuticals. We've set out a strategy which is principally organic in nature. And as we set out our midterm planning assumptions, we laid out our view on revenue and pre-R&D margin, which then drives, as I described, the pre-R&D cash flow. And our strategy is investment of 40% to 50% of that in essentially organic investment in our business and in in-licensing. And the majority of that 40% to 50% is into R&D. And that's absolutely the core of the strategic development of the Company.

We've got a very strong commercial capability. We've got a very strong position in markets around the world. We've also -- and I think you've seen this over the results. We've got an operational capability and are disciplined in driving cost management productivity. We do look at opportunities to leverage that commercial capability, operational capability, to drive revenue cost synergies, and we will look at small bolt-on acquisitions. Primary focus has been looking at that to aid our emerging market business. We might look also at some of our established markets, but these are very much in the mode of small bolt-on acquisitions, leveraging revenue and cost synergies, and obviously at all times bringing the sort of investment discipline that you'd expect us to.

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David Brennan, AstraZeneca PLC - CEO [12]

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Good. Thank you. A couple of product questions. Over to you, Martin.

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Martin Mackay, AstraZeneca PLC - President of R&D [13]

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Thank you, David. As you know, Olaparib is a PARP inhibitor. At least ostensibly, you could use that as a pan-tumor treatment. That's the basis of it. We decided to focus on serious ovarian cancer and really focus our attention to that in the first instance, and wait to see how those results play out in Phase 3. Then we'll revisit, because obviously breast cancer and the medical need there is hugely important, and other tumor types. But we'll revisit that on the basis of Phase 3 results. That's Olaparib.

And in Fostamatinib, the quick answer is yes, absolutely. As you know, there's been an explosion of science around the pathways and pathway mining. And in fact we're using it in two ways, not only in terms of the clinical trials we're running, but also in terms of looking for new mechanisms and new targets in this area, because as much as we've done to date there's massive room for medical need in that indication and we want to do even more.

Lastly, I would just say not restricted to rheumatoid arthritis. Both this mechanism and others that we're unfolding you could see being applied to autoimmune diseases in general. So it's a very full program at the moment.

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David Brennan, AstraZeneca PLC - CEO [14]

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Good. Thank you, Martin. Mark, thanks for the question. Can we get Tim Anderson, if he's still on the line? Tim?

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Tim Anderson, Sanford Bernstein - Analyst [15]

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Yes, I'm here. Thank you. A couple of questions. The first is on your long-term guidance that goes to 2014. You now say it may come in the middle of that range. The prior guidance was for the upper end of that range. So it seems like that's a delta of maybe $2b or $3b, and it looks like only $1b of that delta is explained by the lower pipeline estimates, so I'm wondering what the difference -- where that's coming from.

And also, previously you talked about returning to sustained revenue growth after 2014, but I don't think I saw that language now and I'm hoping you can clarify.

The second question is on the SATURN trial and the timing of that. When would be the earliest that we could see any form of results? And am I wrong to think that that is a very important trial to get right?

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David Brennan, AstraZeneca PLC - CEO [16]

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Okay. Good. Thanks, Tim. Simon, maybe I'd let you talk a little bit about the guidance, especially at the end of the period, and the impact of both the reduction in the sales from expected new products being slightly reduced, but does that in some way suggest we're not coming out of the period with sustained growth post-2014, I think is the question.

And then, Martin, I'll go back to you. And there is a written question there around SATURN, so maybe you can incorporate your answer around both -- you read that one and this. Simon, over to you.

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Simon Lowth, AstraZeneca PLC - CFO [17]

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Okay. Well, look, Tim, thanks very much for the question. As I said in my remarks, we absolutely reaffirm the primary components of our midterm planning assumptions. We will remain in that revenue corridor of $28b to $34b, pre-R&D margins in the range of 48% to 54%. The only refinement we've made, having looked at developments over the year, is on that pipeline component. Reflecting the developments during 2010, we've moved it from $4b to $6b down to $3b to $5b. I think that's the only change.

I wouldn't read any more into our remarks. Obviously, if you bring that in, reaching towards the top end of the range, which was our aspiration, we now see that perhaps being more towards the middle. But I think the key thing to focus on is only one change, which is in the pipeline, from $4b to $5b to $3b to $5b. And it's a dynamic situation.

The second part of your question, we haven't changed our view on the outlook beyond the 2010 to '14 period. The focus of our planning assumptions, though, is in that time period.

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David Brennan, AstraZeneca PLC - CEO [18]

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Good. That's great. SATURN?

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Martin Mackay, AstraZeneca PLC - President of R&D [19]

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Yes. I'll -- as you suggest, David, I'll combine both Tim's question and Vishal's question that's come up on the screen there. The quick answer to your question, Tim, is that we will have results in the second half of this year. There may be a tiny bit of detail which gets to one of Visha's points.

As you know, this is a study to compare 40 milligrams of rosuvastatin with 80 milligrams of atorvastatin. I think it asks a really important clinical question in terms of the effect of lowering LDLC, raising HDLC on the progression of coronary artherosclerosis in an IVA study. There's around 650 patients in either leg. There was a run-in period and then a 24-month follow-up.

One thing I would say, having come into this and reviewed SATURN and the other studies around Crestor, as you can imagine, I've been quite interested in this area. I think you have to look at the body of clinical evidence for Crestor and look at the ASTEROID study, the METEOR study and of course JUPITER. They're magnificent pieces of work, really showing the benefit of this statin.

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David Brennan, AstraZeneca PLC - CEO [20]

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Okay. Good. Thank you. Let's go back to the floor here. On the front, please?

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Sachin Jain, BofA Merrill Lynch - Analyst [21]

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Sachin Jain from Merrill Lynch. Actually, my first question would just be a follow-on to your SATURN comments. My understanding from the trial design publication was the study was predominantly designed to detect differences in HDL between Lipitor and Crestor, given that the LDL and CRP changes at the two doses you've chosen are very similar. So I wondered if you could just clarify your comments on that.

And then the second question was a very quick one for Simon on Astra Tech. Any color on the process? And how would you use the cash proceeds from that, should they come this year?

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David Brennan, AstraZeneca PLC - CEO [22]

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Okay. Why don't you comment on the SATURN question and the HDL aspect of it?

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Martin Mackay, AstraZeneca PLC - President of R&D [23]

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Yes. Very simply, Sachin, you're right. It was predominantly around HDLC raising.

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David Brennan, AstraZeneca PLC - CEO [24]

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And, Jeff, Stephen's asked a similar question on Astra Tech on the screen here, just how should we be thinking about the potential disposal and cash. So do you want to handle both of those?

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Simon Lowth, AstraZeneca PLC - CFO [25]

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Sure. Well, thanks to both of you for the question. Astra Tech's a very good business. It's in some fast-growing markets, such as dental implant, and it's been performing well. We get -- it's not a business which is central to AstraZeneca's strategy. We've had a lot of interest expressed in the business over time. We felt that it would be responsible and in our shareholders' interests to undertake a process to evaluate options for the business, and that's the process that we have just initiated.

It's very early in the process. I'm not going to prejudge the outcome of it. What I would say is that the Board's decision on share repurchases for this year of $4b net repurchases is independent of the outcome of the Astra Tech strategic review.

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David Brennan, AstraZeneca PLC - CEO [26]

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Good. (Multiple speakers).

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Sachin Jain, BofA Merrill Lynch - Analyst [27]

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Can I ask a quick follow-on, hopefully?

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David Brennan, AstraZeneca PLC - CEO [28]

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All right, quick.

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Sachin Jain, BofA Merrill Lynch - Analyst [29]

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Sorry. Just on the HDL issue, do you have any data that supports that the 5% difference in HDL can support the way the study is powered?

And then, a follow-on, should SATURN then be negative, how do you think about Crestor next year?

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Martin Mackay, AstraZeneca PLC - President of R&D [30]

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So, on the former, we have some evidence, but not in a trial this size or this controlled. And second, in terms of the negative piece, I would rather wait on the results to see this. To speculate on what we will see there, it's just too early.

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David Brennan, AstraZeneca PLC - CEO [31]

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Good. There was a question up in the back there. Yes, please?

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Peter Verdult, Morgan Stanley - Analyst [32]

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Yes. It's Peter Verdult here from Morgan Stanley. Just two industry questions for you, David, and then a quick one on tax for Simon, please, and then a question on R&D, please, Martin. The market's clearly attuned recently to the rising risk from enforcement actions across the industry. I'd like to hear your thoughts on the matter, both from an industry perspective and how it relates to Astra going forward.

Also, we've seen moves in the industry to change the US sales model away from incentivization based on prescriptions. Do you see this being adopted widely across the industry?

And also, obviously there's a Supreme Court case coming up in March between the State of Vermont and IMS regarding the freedom of the industry to use individual prescribing records. I was wondering if Astra intends to submit any amicus briefs relating to that case. I'll start with those two.

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David Brennan, AstraZeneca PLC - CEO [33]

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All right. Good. Thanks. Well, our General Counsel's here. I'll let him comment on the IMS and Vermont thing. I'm not sure exactly where we've got to. Relative to the enforcement, and I'll let Tony comment on incentives, although I have a comment about it too, this is a very serious issue in terms of the increase in enforcement actions, and you see it across the industry. It relates primarily to sales and marketing practices, and to some degree to manufacturing practices, and it has accelerated in the last couple of years especially.

So it's something that I think we take very, very seriously, both at a company level, I can assure you we can, but being a member of the industry trade group Pharma in the United States as well as FP for Europe and IFPMA, our NGO in Geneva which I'm now President of, I can tell you that this is a topic where the industry has stepped up significantly in terms of trying to put in place more general codes of practice that we all adhere to which we think going forward position the way we do business in a much better way than some of the things that have happened in the past.

Certainly, within AstraZeneca, we focus a great deal on implementing our own code of conduct. We train 60,000 plus employees, every single person, every year on this subject. And then we have special training programs in the marketing and sales areas, as well as in the R&D area, to make sure people really understand the standards by which we want to operate.

So, as it relates to the future that we've disclosed, there are other investigations and things going on there in the press release. And you can read what we've said about them, which is we can't disclose a lot of information about them. They're ongoing investigations, as you would expect. We're cooperating, but more importantly, within our own organization, we're trying to deliver the message about how we want to operate in the future.

On the incentive side of things, I would just say that the incentive systems vary across markets and across regions, just based on the quality of information that's available. And while IMS data in the United States gets down to very, very significant levels of detail, that's just not the case in other places around the world. And so its utility relative to that kind of information varies greatly, and we have other systems in place.

As it relates to what's going on specifically with incentives, Tony took over the Global Commercial organization last year. Maybe, do you just want to comment about your view on incentives in general, because you're changing some things, so?

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Tony Zook, AstraZeneca PLC - EVP, Global Commercial [34]

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Yes. I would only be adding on much of what David's already said on how we view our responsibility and accountability to look not just at incentives but at the total program, on how we interact with our stakeholders.

From an incentive perspective, we have evolved our thinking relative to financial measures as being the dominant driver, and have begun to expand out a number of other parameters. And as David said, it differs by geographic region, based on availability of data. We think of things like customer service, quality of interaction. We have broadened it out to include a lot more than just pure financial. And so we can't speak to what industry will do, but from our own perspective we're going to continue to evolve. Will there be a member of financial in the future? I can't say specifically, but we are evolving our thinking and have done so this year.

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David Brennan, AstraZeneca PLC - CEO [35]

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Good. Jeff, do you want to comment at all on IMS Vermont, amicus briefs in the industry or us?

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Jeff Pott, AstraZeneca - General Counsel [36]

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Yes. I'm not aware that we have any intention to do our own individual brief, but we'll look at it and determine whether we're going to join in an industry brief as the time comes.

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David Brennan, AstraZeneca PLC - CEO [37]

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Okay. Good. All right.

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Peter Verdult, Morgan Stanley - Analyst [38]

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Just on the financial question, Simon, a quick one on tax. You -- obviously, 27% for the year 2011. Could you make any broad comments about the potential sustainability of that, longer term?

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Simon Lowth, AstraZeneca PLC - CFO [39]

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We provide guidance on our tax rate for just the one year ahead. What I would say, though, is that you've seen our tax rate trending down. We guided for 29% a couple of years ago. We're at 27% for 2011. That reflects really the trends in corporate tax rates in many of the markets that we're operating in. If you look at the UK and Sweden, two big important markets for us, you're now at 27% in the UK, 26.3% in Sweden. And you can see that in the UK, for example, there's a trend down to 24%. So, a reduction from history through to 2011. I think 2011's a good place to start, as we look forward.

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David Brennan, AstraZeneca PLC - CEO [40]

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Good. Thanks. All right. I'm going to take one on the floor. Then I will go to the telephones for Matthias and Gbola Amusa, but give us one minute to get to the phones. In the back, first, the guy behind you. You.

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Keyur Parekh, Goldman Sachs - Analyst [41]

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Sorry. It's Keyur Parekh from Goldman Sachs, and I've got four questions. Simon, starting with the fourth quarter gross margin, you speak about pressure on gross margins from a geographical mix perspective. Can you elaborate a bit on that, and specifically tell us how much of that is from emerging markets?

Secondly, as we look at 2011 guidance and think about the mid-point of that range relative to where consensus was, the $2b incremental buyback over what consensus was modeling and the 200 basis points lower tax rate gives you about $0.40 in additional earnings for 2011. What were we getting wrong on the operating line for 2011?

Thirdly, Martin, on Brilinta, obviously AstraZeneca has done a lot of work on trying to understand interactions between aspirin and Brilinta. We've seen the AdCom discuss and debate this a lot. Can you give us some flavor on what the FDA was looking for, in the sense of the additional analysis? Should we think of it as being of impact from a labeling perspective, or is it more fundamental to the actual approvability of the drug in the US?

And lastly, Tony, if you can update us on what your tier two status is for Crestor in the US and what it was in 2010.

And lastly, just to specify you do expect positive pricing impact for Crestor in the US in 2011. Thank you.

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David Brennan, AstraZeneca PLC - CEO [42]

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Okay. That's a handful of questions. Simon, I'm going to throw gross margin and geographic mix to you. Kevin Wilson wrote a bit of a question about emerging market cost inflation and expectations on revenues as well. I don't know if you want to maybe just include that in your response, and I'll let you also cover guidance and tax.

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Simon Lowth, AstraZeneca PLC - CFO [43]

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So let's start with gross margin. I think that the business has faced some pressures on gross margin from mix. These are partly to do with geographic market, but more actually to do with products. As you think about some of the oncology products that have faced patent expiry over the past couple of years, that's been a pressure for us, and that's the principal pressure. A little bit from markets. I'll come back and talk more generally about emerging markets in a moment.

So, some product and to a lesser extent geographic market pressures on gross margin. The other factor that I drew out in my remarks you'll recall was the impact of the Puerto Rico excise tax. And that, as we say, is accounted for through the cost of goods. So that's a second pressure.

But bear in mind a very significant component of our restructuring program has been focused on making our supply chain activities across the world more efficient. We've made very good progress on that, and we continue to see further opportunity to drive efficiencies across our supply chain. Secondly, the procurement program which we've now had up and running - we're probably into the third year of that - is continuing to deliver very good savings for us, year in, year out.

And it's the combination of some of those pressures on mix, but offset by the continued progress we're making in driving efficiencies, which gives us confidence to stand behind the -- our view on gross margin of being at the above 80% level as we go forward.

Before I move and talk about the broader point, let me touch on Kevin's question, asking to discuss emerging market cost inflation and the impact on expectations of the cost of growing revenues in these markets. He also asked about our ERP programs, which link into it. So I'm going to just deal with those two, if I may, specific questions.

So, Kevin, in our emerging markets, yes, there typically is higher cost inflation, particularly if it's personnel driven, in our emerging markets. We have another inflationary pressure in our emerging markets, which is that we're investing very hard in markets which are giving us very strong growth, and it's amongst the fastest payback best investments that we make. So there are some pressures on the cost line, particularly at SG&A.

However, we've got a number of levers that we can and are pulling hard to offset those. Obviously, when you're growing your business at 16% per annum and you're doing it through an infrastructure you've established, you get operating leverage.

In addition to that, we've got now a strong track record in introducing different approaches to sales and marketing of our product in our established markets. And Tony is engaged in a very active program in bringing some of those approaches, different approaches to sales and marketing, more efficient approaches, in a targeted way across our emerging market portfolio as well. So there's a second innovation in the way that we go about our business.

And thirdly, we're involved in looking at each of our activities around our markets and thinking about activities that can be performed centrally in shared service centers, prospectively outsourcing them. My own function, finance, would be a good example. Our finance activities for our emerging markets are now principally driven out of shared services in India and Kuala Lumpur.

So we can offset some of those pressures with those three levers. And those are in fact driving, over time, movement up in our emerging market country contribution, as we shared with you in this room 12 months ago at our emerging market presentation.

And, Kevin, to your point about global ERP, which links into supply chain, three or four years ago we had almost 20 instances of SAP around AstraZeneca. We've now essentially moved to three primary instances in a relatively short period of time. As you know, Kevin, probably behind your question, we are in the final phases of implementing a -- bringing all of our operation sites onto an ERP, so we are making good progress. And that's part of what brings us supply chain efficiencies. It also obviously helps with working capital.

If I then move from those topics to your other question, I wouldn't dare to suggest where you're all wrong. Obviously, we're very focused on how our business comes together. But I think what we've seen in our range, we've given you some range in terms of what we think is happening on the top line. We've given you some guidance on the pre-R&D margin, which we think will stay again within the top end of the range that we provide in our planning assumptions, maybe a little bit down from 2010. And clearly we've got some additional benefits from tax rate and the share repurchase program. Thanks.

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David Brennan, AstraZeneca PLC - CEO [44]

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Good. All right. I'm going to ask us to go a little bit faster, so we can get a few more questions in. Brilinta, aspirin.

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Martin Mackay, AstraZeneca PLC - President of R&D [45]

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Yes. Very quickly, the focus of the complete response letter was on the interaction between ticagrelor and high-dose aspirin. The FDA asked for a number of sub-analyses of the PLATO data. As you know, this is an 18,624 patient study across 43 countries. The vast majority of patients, 92%, were on low-dose aspirin. In the United States, it was 50/50 between low dose and high dose. So that was the subject of the sub-analysis that we worked through.

Too premature to talk about labeling. We'll continue to work closely with the Agency, as we are, on the response to the complete response letter.

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David Brennan, AstraZeneca PLC - CEO [46]

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And, Tony, do you want to comment on tier two 2010 versus 2011, give them some color on that?

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Tony Zook, AstraZeneca PLC - EVP, Global Commercial [47]

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Yes. You were asking very specifically about preferred, so I'm assuming you want tier one, tier two. And if I look to the two books of business, if we look at our commercial, our access rates through all of 2010 showed slight improvement, quarter on quarter. We were vacillating between that 80% to 85% access rate, which was among some of the very best access rates. From a Medicare Part D, we were right around the 80% access rate across the books of business. And by the way, the reimbursed numbers are in the low 90s, so we have very good access. And I think this is an area where our team in the US is quite good. They look at the value proposition of the brand and they stick very much to the positioning.

And then you asked about the resultant impact on net price expectation, and I do believe that it will be a slight positive. We have been able to demonstrate that year on year. And I believe, from a percentage, we're talking the very low single digits, but it's still a positive versus our competitors, which have been showing a negative.

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David Brennan, AstraZeneca PLC - CEO [48]

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Good. Thank you, Tony. Listen, we are at 1.30, but we started late so we're going to stay and do a few more questions. I just want to respect if there are people here who need to go, please go. I'm going to go to the phones. I'm going to ask everybody to limit themselves to one question. Mattias, you're up. Mattias Haggblom on line two.

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Mattias Haggblom, Danske Markets - Analyst [49]

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Thanks. Mattias Haggblom, Danske Markets. Apologies for coming back to Brilinta and US, but I guess it's a lot of interest around this. I'd just like to understand better why did the FDA issue the complete response letter instead of just extending the review period by another three months, when based on your very quick turnaround indicated rather simple questions and at least answers that you were having more or less already in place. Any clarity on that for us would better understand the complexity of the process.

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David Brennan, AstraZeneca PLC - CEO [50]

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Okay. Well, sometimes I get asked when are generics coming to the market in a particular place or product, and I always say you need to ask the generic companies that question because we don't control it. And I'll let Martin make a comment, because he has some of the FDA insight, but I think that is a question for the FDA. Martin.

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Martin Mackay, AstraZeneca PLC - President of R&D [51]

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No, absolutely. It's the FDA needs to be asked. In terms of we had a three-month delay on the PDUFA date, as you know, so as I say, best ask the FDA why. The most important thing for us is we've answered all the questions in the complete response letter. We did it in double-quick time. We had a small team of statisticians working over the holidays to put this together. We submitted on January 17. And now we're looking forward to hearing from the Agency and entering into further discussions on the submission.

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David Brennan, AstraZeneca PLC - CEO [52]

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Okay. Good. Gbola Amusa on line three, one question.

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Gbola Amusa, UBS - Analyst [53]

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Thanks for taking my call. Just given the deals you've done on emerging markets last year, going forward for '11 and '12, is your strategy more to enhance distribution of existing products in new markets, or is it more to enhance the number of new products you can deliver to existing markets?

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David Brennan, AstraZeneca PLC - CEO [54]

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It's an interesting question and it is a bit of both. Clearly, one, we are taking advantage of the opportunity to take our existing product line into markets where previously we had not been successful. Not been successful, I mean we just hadn't yet accomplished what we set out to do. And of course the best example is in China, where last -- about 14 months ago we received regional approval from a pricing perspective for four products, products like Nexium IV and Seroquel, things that have been around for a while.

So we are expanding our existing line. But we've made it very clear that we are also looking, where it is appropriate, because a branded generics type of strategy is not a global strategy, it's a regional or a country-by-country strategy, to acquire some additional products and bring them to the countries where it is appropriate. We have gone country by country, prioritized the products we might get, might want, going back out. You've seen we've announced some relationships with some Indian companies to access those products. We're in the process of gearing up to get the dossiers filed in some places. In other places we've filed. So we are bringing some new products to it too. We see some upside to this in our business in the not too distant future.

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Gbola Amusa, UBS - Analyst [55]

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Thank you.

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David Brennan, AstraZeneca PLC - CEO [56]

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Thank you. All right. Back to the floor, questions here. Sir.

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Nicolas Godet, Exane BNP Paribas - Analyst [57]

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Yes. Thank you. Nicolas Godet from Exane BNP Paribas. Just a very quick one on Brilinta, a follow-up, sorry. Specifically, did you provide any scientific evidence of (inaudible) interaction between high-dose aspirin and Brilinta?

And secondly, on the share buyback, how shall we forecast the share buyback program beyond 2012? Is it fair to assume that it's an ongoing and that it will last, it will continue, or is it just a one-year program? Thanks.

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David Brennan, AstraZeneca PLC - CEO [58]

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All right. Martin, over to you on ---

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Martin Mackay, AstraZeneca PLC - President of R&D [59]

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Perhaps just very quick on the first one. No, that was not part of the questions from the complete response letter.

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David Brennan, AstraZeneca PLC - CEO [60]

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Yes. And on the share buyback, we do it one year at a time and we can't forecast it out beyond that. The Board takes a look every -- with our year-end results in January as to what the opportunity looks like. Simon, I think, lays out some options and helps them understand what the implications are. But we will be doing that on a year-by-year basis, so our guidance on the buyback is for 2011.

I'll take one more question from the floor here, and then I'll go to the telephone for one last question because we're over time. Any more here? Okay. I'll take Justin Smith's question, number one on the phone.

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Justin Smith, MF Global - Analyst [61]

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Yes. Thanks very much. It was just a quick question, actually, on the buyback. I'm still trying to understand this extra $2b delta of buyback, because clearly a driver of that must have been the victory in the Crestor litigation 12 months ago. Given we've got so much time left on the Crestor patent, I'm just trying to understand why some of that $2b delta on the buyback didn't get delivered as dividend. So some help on that would be great.

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David Brennan, AstraZeneca PLC - CEO [62]

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Okay. Simon, over to you for that one.

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Simon Lowth, AstraZeneca PLC - CFO [63]

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I think we made a decision to undertake $2b net share repurchases in 2010, and that was the decision for 2010. We've now made a decision to do net share repurchases of $4b in 2011, and that's the 2011 decision. I wouldn't -- I don't think there's a $2b gap, but that from our perspective it's one program for '10, the next for '11.

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David Brennan, AstraZeneca PLC - CEO [64]

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Is it event related? Is it the Crestor patent and therefore --?

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Simon Lowth, AstraZeneca PLC - CFO [65]

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The consideration on $4b takes into account the performance of the business across multiple dimensions, the cash we've generated, the investment opportunities, and it's in the round.

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David Brennan, AstraZeneca PLC - CEO [66]

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Yes, that's the point; exactly. So, all right. Good. Well, let me just close by thanking everyone certainly for your attendance, both live as well as by WebEx and by telephone.

Remind you that we've got a very strong focus on continuing to deliver a good performance. I think 2010 was an example of that. And we look forward to 2011 and the challenges and opportunities that it brings. So, thank you all very much.