AstraZeneca PLC

LSE:AZN

Earnings Call Transcript 2018-Q3

[Operator]

Good afternoon Europe, and good morning to the U.S. Welcome, ladies and gentlemen, to AstraZeneca's year-to-date and Q3 2018 results. Before I hand over to AstraZeneca, I'd like to read the Safe Harbor statement. The company intends to utilize the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Participants on this call may make forward-looking statements with respect to the operations and financial performance of AstraZeneca. Although we believe our expectations are based on reasonable assumptions, by their very nature, forward-looking statements involve risks and uncertainties and may be influenced by factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. Any forward-looking statements made on this call reflect the knowledge and information available at the time of this call. The company undertakes no obligation to update forward-looking statements. Please also carefully review the forward-looking statements disclaimer in the slide deck that accompanies this presentation and webcast.I will now hand the conference over to Chief Executive Officer, Pascal Soriot.

[Pascal Soriot, CEO & Executive Director]

Hello, everyone. It's Pascal Soriot here. Welcome to our year-to-date and third quarter conference call and our webcast for investors and analysts. We have people on the phone and the webcast. The presentation, as always, is available on astrazeneca.com for you to download. So please turn to Slide 2. This is the usual Safe Harbor Statement. As a reminder, today, we'll be making comments on our financial performance using core reporting metrics and at constant exchange rates, CER, which are both non-GAAP measures. All numbers we refer to million U.S. dollars, and growth rates will be at CER and for the year-to-date, end of September period of 2018, unless otherwise stated.Please turn to Slide 3. We plan to spend about 45 minutes on the presentation, and then we'll keep time for Q&A. [Operator Instructions] There's also an option to ask questions online as part of the webcast. [Operator Instructions].Today, I'm joined, as always, by Dave Fredrickson, our EVP of Oncology; Mark Mallon, our EVP for Global Products and Portfolio Strategy, Medical Affairs and Corporate Affairs; Marc Dunoyer, our Chief Financial Officer; and Sean Bohen, our EVP of Global Medicines Development and our Chief Medical Officer.Please turn to Slide 4. This is the agenda and that -- these are the topics we plan to cover today. In addition, Sean will spend a little bit more time on the year-end update on the late-stage pipeline and a look forward to 2019 and '20 where our pipeline news flow remains busy and very important.Turn to Slide 5. I'm really pleased to report that AstraZeneca returned to sustainable growth in Q3 and cumulatively year-to-date. This is really a major milestone for us, for the entire management team, for the company as a whole and for every one of our colleague around the world making this possible by their dedicated work for patients. Our main therapy area of Oncology, New CVRM and the main therapy area of Respiratory combined grew by 19% year-to-date and 27% in the third quarter. Medicines outside our focus continued to decline, supporting the ongoing pipeline and now also top-line-driven transformation. Please turn to Slide 6. Importantly, beyond the fast growth, accelerating growth of the new products, you can see that the older products that have been declining are becoming smaller. Over the past few years, we have reduced the contribution from older medicines in decline and off-patent. But we've increased, of course, the exposure to high-growth medicines in our therapy areas for the future. Oncology, New CVRM and Respiratory combined now make up more than 70% of the total sales. The other medicines remain relatively stable in the Emerging Markets, and the other medicines outside the Emerging Markets are declining. But now they make up only 15% of our total sales and they're starting to bottom out. Unlike in the past, the new medicines in our 3 main key areas are now more than able to compensate, and we see sustainable growth in the total portfolio going forward. On top of it, of course, the new products are gaining momentum as we launch in more markets and with more indications. I will now cover the details of the quarter and the reason for optimism.Please turn to Slide 7. If you look at the details, our sales increased by 2% and by 9% in the quarter, 2% year-to-date. We saw strong performance by the new medicines that are up 76% in China. And it is less offset now, as I said earlier by divestments and by generics, the adverse impact is more limited. Total revenue declined by 8%, reflecting lower externalization coming in the third quarter. On externalization, we expect the fourth quarter to improve. As a reminder, some new deals may also come as other operating income. So the new medicines that are important to our future added more than $1.8 billion in incremental sales versus the year-to-date period last year and they grew by 76%. Oncology was up 44%, with Lynparza, Tagrisso and Imfinzi all performing very well. New CVRM was up by 12%, with Brilinta, up 18%; and Farxiga, up 32%. Respiratory was up by 2%, also a return to growth. Symbicort remains in a competitive environment. We experienced growth in volume, but negative price pressures. However, Fasenra and Pulmicort are now doing extremely well, in particular Fasenra. We'll cover that later. It's doing incredibly well. Finally, the Emerging Markets continued with a strong growth, driven by China, which is up 27% year-to-date and 32% in the quarter. Core EPS achieved $1.88 year-to-date, in line with our progression this year and the level of externalization. And our guidance is on track for the year.Please turn to Slide 8. We continued to make progress with our pipeline, which remains as important as ever to drive our sales growth in the future. There were a number of milestones for Lynparza, including the first approval in China and also another milestone important one was the presentation of the first-line ovarian results in BRCA mutant. Approvals were also achieved for Tagrisso in Japan, Imfinzi in the EU, Lumoxiti in the U.S. Lumoxiti, which is treating a rare disease, later entered a collaboration with Innate. The DECLARE trial with Farxiga delivered positive data and met the primary endpoint of a reduced cardiovascular risk on the composite endpoint of hospitalization for heart failure or cardiovascular death. In Respiratory, we also achieved a number of milestones, including the first submission for closed tripod-inhalation medicine PT010 for COPD and also a number of other milestones for Symbicort, Duaklir and Bevespi. So in many ways, our Respiratory business has also moved up a gear. Unfortunately, and this is the kind of business we are in, sometimes we experience setbacks. Anifrolumab didn't make the primary endpoint in systemic lupus. It is disappointing for patients. It is disappointing for us, of course, but that is what we do. We take calculated risks on a variety of products in our pipeline.If we turn to Slide 9. When we set out the new strategy a few years back, not everyone believed that we could return to growth. Hopefully, with today's results, it's clear that we've achieved an important inflection point. If you look at the graph here on the left-hand side, we've been really in sales decline since 2012. And in fact, I'm often reminded that we've been in sales decline since 2010, driven by the final expiries of very large products, Crestor, Nexium, Seroquel and a few others. And for the first time now, we experienced a very strong quarter as you can see here. So it is clearly an important inflection point for the company. In the coming quarters and the years, we'll make it sustainable. So we are now back to growth, and we have suddenly, clearly a long runway in term of growth over the next few years. As we said in July, sales growth this year would be weighted towards the second half of the year, so more growth in the third quarter. There would be a little bit less in the fourth quarter because we will be comparing the fourth quarter to a very tough fourth quarter last year where we had a couple of one-offs, gross-to-net adjustments in Q4 2017. So a bit of a tougher comparison in Q4. But with 9% sales growth in the third quarter and 2% year-to-date, we are completely on track with the guidance for low single-digit growth rate in sales for the full year.Please turn to Slide 10. If we go one step deeper and we look at the individual medicines, it is really nice to see that the performance of these new products, which in total added more than $1.8 billion in incremental sales versus last year and collectively grew by 76%. Tagrisso, as before, is the main contributor. And it's important to point out here that on a run-rate basis, Tagrisso is now a $2 billion product, growing rapidly, followed by Imfinzi. And here, I would say that Imfinzi is reaching the stage where it will be a, on a run-rate basis, $1 billion product, so very fast ramp-up. Farxiga is growing very nicely. Lynparza is doing well. Fasenra is doing well. Brilinta continues to grow. So really pleasing sales development for our new medicines, and we are expecting further growth over the coming quarters and years. So if you turn to Slide 11, looking at product sales across our main therapy areas. Again, we are back to growth, including in Respiratory. Let me share a few highlights here. Oncology, surpassing $1.5 billion in the quarter, grew 44%. Probably the fastest-growing diversified Oncology franchise of any company at the moment and making up close to 1/3 of AstraZeneca. New CVRM is currently made up of Brilinta, diabetes and Lokelma, and in the future, roxadustat. Collectively, this product grew -- products grew by 12% to now more than $1 billion in the quarter. Respiratory was up by 2%, but grew by 5% in the quarter. Growth, of course, is impacted negatively by the price pressure on Symbicort, but Fasenra and Pulmicort were now more than able to offset that. We continue to be very pleased by the market uptake of Fasenra and the ongoing launch. We'll talk more about that a little later. Other medicines were down by 23%, reflecting the loss of exclusivity for Crestor in the EU and Japan, plus the effect of divestments. This line will remain in some decline as we focus our efforts on the main therapy areas, but the impact of the decline here will become more and more manageable moving forward. And finally, and importantly, the Emerging Markets delivered a very, very strong performance, with 12% growth, China growing 27%, and in particular, China growing 32% in the quarter to almost $1 billion in the quarter 3. So very, very strong performance in China. Before I hand over to Dave, my sincere thanks to every colleague in AstraZeneca who is working very hard to realize this inflection point in sales and the return to growth and the benefit we bring to patients in need all over the world. Over to you, Dave, for the Oncology review.

[David Fredrickson]

Great. Thanks, Pascal. I want to take an opportunity to update you on performance of our new generation of medicines. We'll start with oncology, and then I'll hand it over to Mark Mallon, who'll go through a summary of CVRM, Respiratory and Emerging Markets. If we could turn to Slide 13. We're really happy to announce that total Oncology is now up to 28% of our total product sales, and as Pascal mention, it's now growing at 44%. The 4 new medicines delivered $1.2 billion in incremental sales versus the same period of 2017, and that was with continued growth coming from Lynparza, while also Tagrisso and Imfinzi continued their launches in their new indications in first-line EGFR mutated non-small cell lung cancer and unresectable Stage III non-small cell lung cancer, respectively. We continue to see encouraging uptake of Calquence in the smaller mantle cell lymphoma indication as we prepare for that larger chronic lymphocytic leukemia indication with pivotal Phase III readouts coming next year. As for our legacy business, which I won't talk more about after this slide, Faslodex trajectory has maintained as the expanded labels and combinations with CDK4/6 inhibitors start to take effect. If we could turn now to Slide 14. On Lynparza, we saw ongoing progress with sales of $438 million in the year with growth across all of our regions as we continue to roll out the broader label in ovarian cancer and the breast indication in the U.S. and in Japan. In the U.S., sales were $233 million for the year where Lynparza continues to be the leading medicine in the PARP inhibitor class as measured by total prescription volumes in this very competitive market. Quarter-on-quarter, sequential sales were impacted by inventory in the U.S. as we withdrew capsules from the market, but the underlying demand was strong with over 10% growth. Increase in demand came from the all-comers label in second-line ovarian cancer as well as from the emerging breast cancer indication. And as you would expect, we see the majority of use in ovarian with emerging use within breast cancer. Within Europe, sales were robust at $137 million year-to-date, up 37% versus the prior year, reflecting increase in BRCA testing rates as we roll out additional launches across Europe and secure reimbursement in several markets with the inclusion of the broader EU ovarian tablet label. Japan is off to a very nice start following the second quarter launches in ovarian and breast cancer and now has $25 million in sales year-to-date. We also see encouraging signs in China, which Pascal had mentioned we launched in the third quarter, and we are the first PARP inhibitor contributing to the $33 million in the Emerging Markets sales. The ongoing collaboration with our partner Merck progresses in the field force and beyond, and we continue to look forward to an exciting next few quarters of delivery for what we believe is the leading PARP inhibitor. So if we could, please turn now to Slide 15. Now turning to our lung cancer portfolio and starting with Tagrisso, which is the #1 medicine in the Oncology portfolio and the company's third-largest selling medicine. Tagrisso demonstrated continued growth of 91% with $1.2 billion in sales in the year, year-to-date and that's as the first-line label launches start to take effect. Tagrisso, as Pascal mentioned, is now annualizing at $2 billion. The U.S. exhibited good growth with sales of $580 million as we continue the first-line launch. And in the U.S., Tagrisso has now achieved approximately 60% new patient share in the first-line indication. This is up from the 50% that we commented on last quarter. And it is starting to now become implemented as standard of care, and further, we saw reinforcement for the recent inclusion on the NCCN guidelines as Tagrisso is the preferred regimen in Category 1. Europe demonstrated a strong year-to-date with $222 million in year-to-date sales and growth of 68%. This medicine is now reaching more patients in the various countries across this region. And we continue to see our reimbursement efforts paying off as we are getting reimbursement in the first-line indication. Japan had sales of $191 million year-to-date, up by 18%. And really, this reflects very focused activities to continue to drive success in the second line, but now we're beginning to commence our launch efforts for the first-line indication and we're seeing success there. Finally, on Tagrisso in Emerging Markets, we saw $266 million in sales in the year with China contributing the majority. We're quite pleased to see Tagrisso added to the National Reimbursement Drug List or NRDL, for second-line T790M-mutated patients, and we do expect to see the NRDL take effect from the new year. We could potentially see some slower growth on a quarter-over-quarter basis as some patients wait for the implementation of Tagrisso under the NRDL program in the new year, but we certainly see this as a nice opportunity for long-term growth. Please now turn to Slide 16. Continuing in lung cancer, following the Imfinzi approval in the U.S. for the PACIFIC indication of unresectable Stage III non-small cell lung cancer in the first quarter, we are realizing an inflection point with $371 million in sales for the year and the vast majority of that coming from the U.S. and the lung indication. In the U.S., we see roughly half of the PACIFIC-eligible patients in the setting are getting an immunotherapy, the majority of those are getting Imfinzi. And we continue to see a positive impact on chemoradiation rates in the U.S. as more patients are becoming eligible for Imfinzi now within this setting. During the period of the third quarter, Imfinzi was also added to NCCN guidelines as Category 1, further strengthening the standard of care in this setting. Initial feedback on the launch from physicians and patients is quite good as we continue to drive physician education efforts to address this area of high unmet need in this potentially curative setting. Imfinzi secured approvals in a number of additional countries for the PACIFIC indication, including EU and Japan. Sales outside of the U.S. are gaining momentum as we look to launch and gain reimbursement in the relevant countries. And in Japan alone, we delivered $9 million in the quarter following a July approval. And we're excited to bring Imfinzi to more patients across the globe in this area of unmet need through the rest of the year and 2019.For my final slide, please turn to 17. Turning now to our emerging hematology franchise, I'd like to reflect the continued progress we are making in hematology, a platform that we're building upon for the years to come. Calquence continues to perform well with sales of $38 million year-to-date in our fast-to-market, second line relapse refractory mantle cell lymphoma indication. We estimate that over 1/3 of patients in the approved indication are now treated with Calquence. And we've also seen, importantly, an increase in the use of patients who are BTK/I-naïve patients. We look forward to 2 Phase III chronic lymphocytic leukemia data readouts expected in 2019. And then also, as Pascal had mentioned, Lumoxiti was recently launched in the U.S. as our first medicine from the antibody drug conjugate platform within the niche, but high unmet need disease of hairy cell leukemia. We entered into a collaboration with Innate in October where Innate will take on the marketing of Lumoxiti. We also gained access to a number of pipeline molecules from Innate. Lumoxiti takes us now to 5 oncology approvals since the end of 2014, and we are incredibly excited to be one step closer to the 6 new medicines in our Oncology business that we set out to achieve by 2020. We continue to appreciate the opportunity to bring what science can do to as many cancer patients as possible. And with this, I hand it over to Mark.

[Mark Mallon]

Thanks, Dave. Now moving to New CVRM, our medicines in cardiovascular, renal and metabolism. Sales were up 12% despite intense competition with the year-to-date sales at $2.9 billion. Growth for both Farxiga and Brilinta remained strong with double-digit increases globally. Brilinta delivered sales of $945 million with 18% growth so far in the year-to-date. And that was driven by strong performance in Emerging Markets, up 31%; and continuous growth in the U.S. and Europe, up 16% and 12%, respectively. So we continue to be very pleased with the performance of Brilinta.Farxiga delivered sales of $994 million in the year-to-date with 32% growth, maintaining volume market share leadership globally. Farxiga saw a growth of 24% in the U.S. gaining in-class share due to improved competitiveness across health care plans. Outside the U.S. where we have 58% of our global sales, we've seen encouraging performances with volume-driven growth increasing with Europe, up 25%; and Emerging Markets, up 57%. In China, we are pleased to have delivered reimbursement in 8 provinces so far with further discussions underway. We're looking forward to sharing the detailed results of our positive DECLARE study during the American Heart Association in just 2 days' time.Turning back to the U.S. in the fast-growing GLP-1 market, our autoinjector Bydureon BCise is a key driver, with the Bydureon franchise continued its growth up 19% growth globally in the quarter. And importantly, we estimate that over half of our new patients to the franchise are starting on Bydureon BCise. Next slide, please. Turning to Respiratory. With 5% growth in the quarter, we've now returned to growth in the year-to-date at 2%. During the quarter, the ongoing challenge of price competitive environment in the U.S. for Symbicort was offset by solid growth in Japan and Emerging Markets and including the launch of Fasenra. Our Symbicort product sales were down by 9% with a reduction in decline during the quarter of 7%, mainly due to the U.S. pricing pressure slightly moderating this quarter. Volume growth was seen for the second quarter in a row, and global market share leadership was retained. U.S. Symbicort sales were down 19%, and Europe was down 8%. However, in Emerging Markets, Symbicort exhibited continued growth, up 12%. And growth will be further supported by the updating of guidelines from the Chinese Journal of General Practitioners to incorporate the SYGMA data, recommending that Symbicort or ICS formoterol as an option for all asthma severities. Pulmicort was up 7% with sales of $897 million. Emerging Markets was the driver of this growth, up 16%.Please turn to Slide 20. As Pascal mentioned, Fasenra continued its strong start with sales of $172 million in the year. The launch continues to perform in line with our expectations given its highly competitive clinical profile. In the U.S. and Germany, Fasenra is now the leading novel respiratory biologic in terms of new patient starts. With new patient start leadership in the U.S. now coming from both from allergists and pulmonologists. In Japan, Fasenra is the leading biologics both in terms of new patient starts and value regardless of class. U.S. sales were $129 million, and Japan delivered a strong early uptake with $26 million. Sales in Europe were $17 million with majority coming from Germany as we continue our launches in other countries. The strong clinical profile of Fasenra has contributed to its ongoing successes, combined with the significant achievement of our teams at executing against the plan. This is reinforced by an industry-leading support program to help Fasenra gain appropriate reimbursement in order to provide access to more patients. In the quarter, we presented data from the BORA trial. BORA is a Phase III extension trial of patients who have completed 1 of the 3 pivotal trials for Fasenra, SIROCCO, CALIMA or ZONDA. In the BORA trial, Fasenra given for an additional 56 weeks as an add-on treatment showed a safety and tolerability profile similar to that observed in the placebo-controlled registration trials with no increase in the frequencies of overall or serious adverse events. The improvements in efficacy measures observed with Fasenra in the registration trials were maintained over the second year of treatment. Within the more than 30 markets that have launched to date, we are now leading the IL-5 class in terms of new patient starts. We look forward to other countries coming onboard for the remainder of the year as they initiate their launches. Please turn to Slide 21. Emerging Markets continue to track in line with long-term performance targets with 12% sales growth in the year-to-date. China delivered a strong performance again, as Pascal mentioned, with 27% growth. China benefited from the addition of more medicines to the National Reimbursement Drug List last year and the ongoing launch of Tagrisso, which has already received -- Tagrisso has already received NDLR listing and will come into effect early next year. At the same time, we've now -- had 6 of our main products added to the updated essential drugs list, these are Pulmicort, Symbicort, Iressa, Brilinta, Crestor and Forxiga. Outside of China, we continued to see the impact from divestments, an estimated negative impact of 10%. At the same time, challenging economic conditions continue to negatively impact our business in Russia while in Brazil, we delivered strong double-digit growth.Finally, strong performance continued across our main therapeutic areas in Emerging Markets with Oncology now a $1 billion franchise, up 39%; new CVRM, up 39% as well; and Respiratory, up 15%. With this, I'll hand over to Marc.

[Marc Dunoyer, Executive Director & CFO]

Thank you, Mark, and hello, everyone. I'm going to spend the next few minutes taking you through our financial performance in the first 9 months of the year. Please turn to Slide 23. As usual, I will begin with the reported profit and loss before turning to the core numbers. As Pascal mentioned earlier, product sales increased by 2% in the year-to-date, supporting our guidance for the year. It is worth remembering that the collaboration with Merck delivered around $1 billion of external revenue by itself in the first 9 months of 2017, which explains that the external revenue declined by 81% in the year-to-date. I do, however, anticipate a significant sum of external revenue and other operating income to be recorded before the end of this year. Although external revenue will decline as a proportion of total revenue from what is already a small number, I want to be clear that we remain focused on creating further external opportunities in the future. As we have begun a long-awaited return to growth, I'm pleased that we have reduced restructuring cost in the year-to-date by $374 million to $271 million. We have also reduced CapEx by $121 million to $728 million. Anticipated declines in both restructuring cost and capital expenditure over the full year.Please turn to Slide 24. Moving now to the core profit and loss. Our gross margin ratio for the year-to-date fell as expected by 2 percentage points to 80%, driven by the comparative impact of positive manufacturing variances in the first half of last year as well as the inclusion of the profit share with Merck. Importantly, the ratio was stable in the third quarter at 79% and very much in line with the second half of 2017. Total core operating expenses increased by 2%, with a 6% decline in core R&D cost outweighed by 7% increase in core SG&A costs. Our core tax rate was 19%, within the range of 16% to 20%.Please turn to Slide 25. There was limited externalization revenue in the quarter, with $10 million of upfront income and ongoing external revenue of $64 million. It is worth highlighting, however, the growing contribution from the collaboration with Merck with $170 million of milestones payments received in the year-to-date. We also see potential for significant revenue in the fourth quarter as option payments, together with $100 million of option payments next year. We also anticipate a further $150 million milestone receipt before the end of this year. It is important to note to that there will be a regular stream of milestone payment from Merck over time, which will reduce the viability in externalization revenue. Please turn to Slide 26. As I mentioned earlier, core R&D cost declined by 6% in the year-to-date, although I do not anticipate such a decline over the full year at constant exchange rates. Despite maintaining a high level of activity, we continue to deliver the benefits of productivity initiative, improved resource utilization, simplification and improved development processes, which are all helping to deliver cost reduction. Reinvestment in our business remain one of our capital allocation priorities and this more targeted investment approach to R&D is delivering consistent results from our pipeline. Core SG&A cost increased by 7% in the year-to-date, reflecting the investment in new medicine launches and in China. As I said to you in July, we closely monitor our sales performance, and if we see that our investments continue to drive excellent results, we will retain flexibility in our investment approach. Given the performances from the new medicines and in China, I now anticipate core SG&A cost at constant exchange rate to increase over the full year, broadly in line with those seen in the year-to-date.Please turn to Slide 27. Turning to Brexit. It has mainly operational impact for AstraZeneca. Our focus, however, is on getting uninterrupted supply of medicine to patients. We are taking a number steps to ensure the continued supply, some of which are shown on the slide. The U.K. government has confirmed that it will accept EU-tested medicine in the event of no deal. We are working hard to coordinate variation to licenses and thousands of packaging material changes across AstraZeneca. And as the U.K. pulls away from the EU, we are focusing on the reduction of mutual interdependence as well as replicating critical production processes both in the U.K. and the EU. To protect long-term supply to EU patients, we are duplicating batch testing of 27 medicines currently performed in the U.K. for EU release in Sweden. To safeguard against friction at borders, we will move stock from the U.K. to European distribution centers to be as close as possible to customers. We will also build an additional 6 weeks of stock for U.K. supply in line with the government request and 4 weeks extra stock for EU supply. We're also speaking to the European Union and member state governments around the acceptance of U.K. testing standards. Operationally, we've been preparing for Brexit since the referendum in 2016. I want to reassure to you that over Brexit we'll relatively limited impact on AstraZeneca. We keep preparing carefully for Brexit to ensure that no patients are denied our medicine.Please turn to Slide 28. And I would like to conclude with our 2018 guidance, which is on product sales and core EPS at constant exchange rates. The product sales performance in the year-to-date was in line with expectation, so I keep my guidance for low single-digit product sales growth over the full year unchanged. I continue to anticipate the sum of external revenue and other income will be less than that of 2017. We anticipate substantial transaction and potential for Merck income being recorded in the fourth quarter. We're on track to deliver guidance of a core EPS of $3.30 to $3.50 at constant exchange rates. Finally, our capital allocation priorities remain unchanged given the performance so far this year, the success of our new medicines and the pipeline that is key to our return to growth. With that, I will hand over to Sean.

[Sean Bohen]

Thank you, Marc. I would now like to take -- to share an overview of our pipeline progress this year and take a look forward at our upcoming news flow. Can we please turn to Slide 30. Our level of pipeline news flow continues to be unprecedented. There was strong progress with all our new medicines during the year, bringing new benefits to patients across all therapy areas. Within our New Oncology medicines, Lynparza strengthened its lead in ovarian cancer, with positive data in the SOLO-1 trial and received approvals in major markets for breast cancer. We continue to establish our lung cancer franchise with approvals for Tagrisso and Imfinzi across several markets worldwide, building on the unprecedented data from the FLAURA and PACIFIC trials, respectively. In CVRM, approvals for Lokelma in the U.S. and EU, kickstarted our growing renal portfolio. This year, we had positive top line results in Duaklir with our SGLT2 inhibitor, Farxiga. And we also submitted Forxiga for type 1 diabetes in the EU and Japan based on novel findings from the DEPICT trials. Also, in Type 2, the Bydureon BCise device is now available to patients in the EU. Approvals in asthma for Fasenra and COPD for Bevespi are delivering our respiratory franchise as is FDA breakthrough therapy designation for tezepelumab in the U.S.Please turn now to Slide 31. With our new oncology medicine, Lynparza is cementing its position as the PARP inhibitor of choice across different tumor types. Today, we can tell you we have submitted the remarkable SOLO-1 data in the EU, Japan and China. Approvals for first-line maintenance therapy following chemo and BRCA-mutated ovarian cancer, coupled with its already widespread use as a second-line maintenance treatment will establish Lynparza as at leading PARP inhibitor in ovarian cancer. Added to this, next year, we will have data from the Phase III POLO 1 trial which tests Lynparza first-line use in patients receiving bevacizumab maintenance therapy. This indication could further broaden the use of Lynparza. Beyond ovarian, we are the leading PARP inhibitor in the treatment of germline BRCA-mutated metastatic breast cancer with approvals secured in the U.S. and Japan and more markets to come. In 2019, we will continue expanding the lifecycle program for Lynparza with data readouts for the POLO trial in pancreatic cancer and the PROFOUND trial for prostate cancer. Looking at PARP inhibition in combination with immuno-oncology, we are expanding our testing of Lynparza together with Imfinzi. In addition to DuO-O in ovarian cancer, we have a new combination trial, which will explore Lynparza and Imfinzi in non-small cell lung cancer.Please turn to Slide 32. Now moving on to Tagrisso, our leading EGFR inhibitor. Tagrisso is now the standard of care for the treatment of EGFR-mutated, first-line metastatic non-small cell lung cancer, and in the second line for patients with the T790M mutation. The FLAURA data are truly exciting, and have shown that Tagrisso has an unprecedented medium progression-free survival of 18.9 months compared with the 10.2 months for placebo, almost double -- actually for placebo for first-generation EGFR inhibitors. We expect final data on overall survival, the ultimate goal for any cancer, any cancer treatment to be available in the second half of next year. Looking at the use of Tagrisso an earlier stages of the lung cancer, we anticipate data in the adjuvant setting with the ADAURA trial and in the locally advanced setting with the recently announced LAURA trial to readout beyond 2020. Patients in over 80 countries are benefiting from Tagrisso, which has the potential to significantly impact long-term patient outcomes.Turn now to Slide 33. Moving on to Imfinzi. At the World Conference on Lung Cancer in Toronto, this September, we showed overall survival data to support use of Imfinzi as the standard of care for Stage III unresectable non-small cell lung cancer following concurrent chemoradiotherapy. In the PACIFIC trial, Imfinzi reduced the risk of death by nearly 1/3 on the back of an unprecedented improvement in median PFS of more than 11 months. Patients in over 40 countries are now benefiting from the PACIFIC regimen. Today, we are announcing a new Stage III trial, PACIFIC-5, to explore Imfinzi following sequential chemoradiation predominantly in Asian patients. And also, the new ADRIATIC trial, looking at patients with Stage 3 limited disease small-cell lung cancer, who have not progressed following chemoradiation. We have a high volume of readouts in the near term looking at Imfinzi, both as a monotherapy and in combination with tremelimumab and/or chemotherapy. These trials include MYSTIC in metastatic non-small cell lung cancer and EAGLE in second-line head and neck cancer this year. In 2019, data from KESTREL in first-line head and neck cancer will be available as well as late-stage lung cancer readout from NEPTUNE, POSEIDON and CASPIAN. In bladder cancer, we now have 7 approvals worldwide for Imfinzi as a second-line treatment, and we expect results next year for its first-line use. Building on this, the new NIAGARA trial is looking at earlier-stage bladder cancer, specifically muscle-invasive disease. And NILE is testing Imfinzi as a first-line bladder cancer treatment with chemotherapy. In terms of our next-generation immuno-oncology portfolio, we have recently strengthened our collaboration with Innate Pharma to gain access to some exciting early-stage compounds, including full rights to monalizumab a first-in-class humanized antibody against the NKG2A checkpoint receptor and an option on the anti-CD39 monoclonal antibody.Please turn now to Slide 34. With established leadership positions in solid tissue tumors, we have also made encouraging progress with our hematology franchise. We achieved our first antibody immunotoxin conjugate approval this year with the U.S. approval of Lumoxiti following its Priority Review for third-line use in hairy cell leukemia. Our BTK inhibitor, Calquence, is expected to be approved outside the U.S. for mantle cell lymphoma in the coming months. In chronic lymphocytic leukemia, an indication with a larger population size, our first 2 Phase III trials are due to read out in the second half of 2019.Turn now to Slide 35. Turning to CVRM, our platform of cardiovascular outcomes trials that are primed to address long-term risk factors for patients with Type 2 diabetes, heart failure, renal disease and dyslipidemia are reading out. Positive results from DECLARE, are outcomes trial for Farxiga, will be presented on Saturday at the American Heart Association meeting in Chicago. The trial achieved one of its primary endpoints, a statistically significant reduction in the composite endpoint of hospitalization for heart failure or cardiovascular death in a broad population. Looking forward to 2019, we expect to have results for Brilinta's outcomes trial THEMIS in patients with coronary artery disease and Type 2 diabetes in the first half of the year. In 2020, we will see results from Brilinta's THALES trial in acute ischemic stroke and transient ischemic attack; Epanova STRENGTH trial in mixed dyslipidemia and hypertriglyceridemia, and Farxiga's DAPA-HF trial in heart failure patients with reduced ejection fraction and then data from Dapa-CKD in chronic kidney disease.Finally, we have recently announced a new Phase III trial called DELIVER, which looks at the effect of Farxiga in key population, heart failure patients with preserved ejection fracture. The Dapa-HF and DELIVER trials evaluate Farxiga use in both diabetic and nondiabetic patients. Please turn to Slide 36. Taking a look now at our growing renal franchise, we received approval for our best-in-class hyperkalemia treatment, Lokelma, in both the United States and EU this year. At the American Society of Nephrology meeting earlier this month, we announced positive data for our HARMONIZE global trial evaluating the use of Lokelma in patients in Japan, Korea, Taiwan and Russia. The HARMONIZE Asia trial, due to read out in 2019, will support an application in China in 2020. In collaboration with FibroGen, we have an extensive clinical program underway for roxadustat, our first-in-class oral medicine for the treatment of anemia caused by chronic kidney disease and end-stage renal disease. And we expect to receive our first regulatory decision in China by year-end. Efficacy data for the phase -- from the Phase III ROCKIES and OLYMPUS trials will be available this year as well data from our partners FibroGen and Astellas. We will file in the U.S. next year based on pooled cardiovascular safety data from the total ALPINE program.Turn now to Slide 37. Moving on now to inhaled respiratory medicines. This year, we have made good progress with Bevespi, our fixed-dose dual bronchodilator and the first medicine on the aerosphere platform. Bevespi is now approved in the U.S. and Canada and received a positive CHMP opinion in the EU last month, in addition to regulatory submissions in both Japan and China. PT010, also on the aerosphere platform, is a close triple medication being evaluated initially for the treatment of COPD and eventually asthma. The KRONOS Phase III trial in moderate-to-severe COPD, which was public -- published in Lancet Respiratory Medicine showed a 52% reduction in exacerbation in comparison with dual LAMA/LABA. KRONOS data has been submitted in Japan and China, and we anticipate submission in the U.S. and EU plus a regulatory decision in Japan to come next year. The next trial read out in the program in the second half of next you will be ETHOS, evaluating the efficacy of PT010 in moderate-to-very severe COPD.Please turn now to Slide 38. And finally, a look at our science-led Biologics portfolio in respiratory disease, starting with Fasenra. Marc covered the BORA trial earlier, so I will just say we continue to be pleased with Fasenra's profile and long-term safety and efficacy. Last quarter, we initiated OSTRO, a Phase III trial in nasal polyposis and we expect data readout in 2020. On to tezepelumab. Following strong results from the PATHWAY Phase IIb trial in 2017 in which tezepelumab showed a significant reduction in the annual asthma exacerbation rate compared with placebo in patients with severe, uncontrolled asthma, we hope to see similar results in PATHFINDER, Tezepelumab's Phase III program. The first data readout from PATHFINDER is due in 2020. Tezepelumab was awarded breakthrough therapy designation status from the U.S. FDA in September 2018, making it the only molecule to be granted BTD for the treatment of asthma, a testament to showing compelling efficacy and safety in Phase IIb for severe asthma patients without an eosinophilic phenotype.Turn now to Slide 39. To conclude, I would like to remind you of some of the key news flow to come. For Lynparza, we hope to move forward in breast cancer with an approval in the EU and to advance in the first-line BRCA-mutated ovarian cancer with submission of SOLO-1 in the EU, Japan and China with first regulatory decisions expected from the second half of 2019. For Tagrisso, next year, we anticipate a regulatory decision for its first-line use in China where as many as 30% to 40% of non-small cell lung cancer patients have the EGFR mutation, plus the overall survival readout from FLAURA that I referred to earlier. In Immuno-oncology, we expect a high volume of data readouts across several tumor types for both -- for Imfinzi, both alone and in combination. We anticipate data for roxadustat plus the first regulatory decision based on efficacy data in China this quarter and submission in the U.S. next year. For Bevespi in COPD, we hope to receive a decision from the EU and submit in Japan by year-end. With this, thank you, everyone, for your continued support, and thanks to all the hard-working colleagues in AstraZeneca who come to work every day to make this happen. Now I will hand back to Pascal for closing comments.

[Pascal Soriot, CEO & Executive Director]

Thank you, Sean. Please turn to Slide 41. Before we end, let me give you a short summary. We're really pleased by the improving financials and the return to growth in sales in the year-to-date, but most importantly, in quarter 3, more than 9% at CER. We promised an inflection point, and we delivered it. Total revenue was held back by lower externalization. We see potential for significant income in the fourth quarter from Merck. And we also recently announced further streamlining of our portfolio, including Nexium in some markets. Depending on the structure, such agreements, I either realize as externalization revenue or other operating income. We remain focused on productivity as shown by the 2% increase in total core operating expenses while we continue to invest for growth and in China. Our ongoing launches and the performance of the new medicines keep us optimistic about the future. We realized more than $1.8 billion in incremental sales for the new medicines and 76% growth. China also is doing incredibly well. The pipeline has continued to deliver important news flow, which will support sustainable growth moving forward. So all together, we are clearly on track with our 2018 guidance today. I will stop here, and we now go to the Q&A. [Operator Instructions] We'll also take written questions from the webcast. [Operator Instructions] Perhaps, we can start with the first question from the conference call, and I will ask Emmanuel Papadakis at Barclays to ask his question. Go ahead, Emmanuel.

[Emmanuel Douglas Papadakis, MD & Head of European Pharmaceuticals Research]

It's Emmanuel Papadakis from Barclays. I have lots, but maybe I better start with in order of priority with the cash flow question for Marc. Would just love to hear you reiterate or not your thoughts about still delivering a level of free -- of cash flow from operations, rather, in line or ahead of 2017's $4 billion. We're obviously a long way from that figure year-to-date, maybe if you could just remind us in terms of the working capital movements as well year-to-date. And if I could throw in a relevant addendum. Your level of comfort on current dividend cover will also be appreciated.

[Marc Dunoyer, Executive Director & CFO]

Thank you for these multiple questions on the cash flow. So if you look at the cash flow for -- the cash flow from operations for our year-to-date September, we can see that we are achieving about 400. This is lower than what we had last year at the same time period. This is due, primarily, to lower EBITDA. And of course, the EBITDA of 2017 was supported by a strong external revenue on our contract with Merck. So this is one of the reason. And on the working capital, if you look at the inventories, receivables and payables, there are not large differences between '17 and '18. However, we have had several settlement of litigation that came out from provision, and this has deteriorated the cash outlay for short-term provisions. And then you asked me a question about the dividend. I think the dividend cover, we will have, I mean, definitely, in 2018, our EPS guidance is between $3.30 to $3.50 so that's going to be clearly lower than usual for '20 guidance that we [ have thought ] in the past. So it is a fact that 2018 will be a sort of a lower EPS in comparison to previous year. But we will still maintain our dividend policy, which is progressive dividend policy where we maintain or increase whenever we can. So I have no special comments on the dividend, which have been reconfirmed time over again by our Board of Directors.

[Pascal Soriot, CEO & Executive Director]

Okay, thank you, Marc. We'll go to next question, Tim Anderson. Go ahead, Tim.

[Timothy Minton Anderson, Managing Director of Equity Research]

I have a question on Tagrisso. So impressive uptake in Emerging Markets and especially in China, yet in China, it's only approved for second-line use. You note how the first-line application could be approved in later 2019. My question is, how you think that will actually affect uptake relative to today? I'm wondering if it's possible that first-line approval could end up actually not having that great of effect as China might push use of first-generation drugs like Tarceva and Iressa in the first-line setting and keep Tagrisso relegated to second line even with the first-line approval. So you have NDRL -- or NRDL listing for second line, would you likely get that for first line as well? And then just one quick question on BR31, which is an ADJUVANT trial, is that registrational for Imfinzi? Because it's a cooperative group trial and cooperative group trials are not registrational?

[Pascal Soriot, CEO & Executive Director]

Thanks, Tim. Two great questions. Maybe, Dave, you can start and then Sean will add.

[David Fredrickson]

Yes, I think, Tim, there's both a potential and the filing question in the Tagrisso piece. Why don't I talk about the market potential component. Sean can speak to the filing. And then you can talk about BR31 afterwards. So in terms of Tagrisso, maybe just to a start, while your question was front line focused, I think it's worth just taking a moment on second line. As you know, we've been launched into the private pay market in China for some time now, and we've seen growth in our sales in China as a result of that. And certainly, one of the things that we're encouraged by was the NRDL listing as it opens up the market to quite a bit more patients within second line. So we estimate that around 115,000 patients will be treated with the first- or second-generation TKI. And of those, from a market potential perspective, we think that about 1/4 of them will be tested and found positive for the T790M mutation. So that gives a sense of the size of the population. And I think that we certainly count on our operations and commercial teams to be able to drive the uptake that we'll have within NRDL. In terms of first line, Sean, maybe good point to transition to filing discussions there.

[Sean Bohen]

Sure. Yes, Tim, thanks for the questions. With regards to Tagrisso, firstly on China, as you correctly captured, and we expect the regulatory decision from CFDA next year. And I think the question is what will that do to uptake and where does NRDL fit. So the first thing is that all those initial approvals, really, China is a private market at that point. So individuals who are able for that indication to pay for the drug will have access to drug. So there will be some use that way. The other thing I'll point out is, obviously, the duration of use, because the duration of freedom from progression or death is much longer and the first line is actually per patient who initiates quite a bit longer in the first-line therapy. The next part is what will happen with NRDL, and I would add there that uncertainty from what the Chinese government will do, but also when they would do it, whatever it might be. So we just -- I think we go step-by-step, first approval, approval will lead to a launch, again to a private market, and then we'll start the discussions with the Chinese government. On to BR31 ADJUVANT trial for Imfinzi and non-small cell lung cancer, you are correct, the trial is sponsored by the Canadian ClinicalTrials Group. And the question was is it registrational. Our intention is that it is registrational. The group has a history of doing trials that have enabled registration in lung cancer. They were previously called NCI Canada. And during that period, were able to conduct trials that support registration. And of course, we work very closely with them during the conduct of the trial to make sure that the quality of the data that results will enable regulatory filing and will meet muster when inspected by regulators globally.

[Pascal Soriot, CEO & Executive Director]

Thank you, Sean. Next question is from Sachin Jain. Sachin, go ahead.

[Sachin Jain, Managing Director]

Sachin Jain from Bank of America. Just at a very high-level financial question. It's clearly positive to see the sales inflection for the first time as you mentioned perhaps now for a number of years. I wonder if you could talk to when we would expect that to flow through to EBIT. And I know it's early and we get formal guidance on '19 next year, but I wondered if you could just talk to some of the moving parts as we think into next year, lower down the P&L, so just color on SG&A growth given the slightly higher guidance for this year, broader comments on the underlying margin leverage and whether do you expect that to offset however one-off income plays through next year.

[Pascal Soriot, CEO & Executive Director]

Thanks, Sachin. So I think it's a good question. I think it's important to remind everybody of what it is we're trying to achieve in this strategy we've got. So first of all, we have to rebuild the pipeline. So we went into 3 steps. One is we rebuild the pipeline because we didn't have any new products. Two is we launched these new products and we turned the pipeline into commercial successes and then top line growth. So we are in the period right now where we're driving top line growth and we have to drive this as hard as possible. And the next phase is to drive the top line growth -- to take the top line growth down to the bottom line. So yes, clearly, we expect the operating margin to improve over the next year or 2. We said that we would expect operating margin to reach industry norm 30% and beyond as we move beyond 2020. And certainly in the meantime, what we're doing is continuing to streamline the portfolio, generate income through this activity then cover the dividend. I just want to repeat them and I want to be clear, with the dividend cover, we will certainly maintain the dividend as we go through this period of time. And we almost at the end of the tunnel, if I may say so, we can see the light at the end of the tunnel. The top line growth is strong and if we continue and as we look at 2019, it will continue happening like this. So what we have to do is over the next period of time '19, '20, we'll manage our expenses to drive top line growth. And we're going to focus now our attention to what you might call underlying growth of our EPS of our profit, excluding externalization. So we may get some greater visibility and you can be reassured that the business is moving in the right direction. I can't really be too specific, I'm sorry, just in terms of giving you guidance for the expenses. We'll do that early '19. But suffice to say, we are very clear that we need to increase the operating margin. To do this, we need to drive top line growth but manage the cost. And it's not only SG&A. It's the totality of SG&A and R&D that we have to manage, of course.

[Sachin Jain, Managing Director]

Can I just have a clarification? You mentioned a focus on underlying growth into '19. Does that imply guidance models have been on an underlying basis?

[Pascal Soriot, CEO & Executive Director]

This is the one thing that we are thinking through. I think certainly being a little bit clearer as to what the underlying growth is, is suddenly going to be very much at the top of our mind. But we see what we do with guidance per se, but certainly, we'll make sure that -- I mean, our focus is on that, and we have to see how much details we're going to give on that. But we're thinking it through because it's really key to make sure everybody understands the underlying business is now in a period of very fast growth, and the top line growth is going to drive earnings growth. No question about it. So we're going to move to the next question, Peter at Handelsbanken. Peter Sehested, go ahead, Peter -- sorry, the question is online. Apologies. I'll have to read it. So the question is being early in the product lifecycle and late in the R&D lifecycle, we're seeing 2018 SG&A cost being higher than initially anticipated and R&D lower. But in '19 -- but in '19, 2020, we are still early in the product lifecycle, and you must not be complacent in order not to fall into a 2006 like patent cliff in the future. Sorry, I'm going through the question here. This line of thought implies continued strong growth in SG&A in 2019 and maybe slight increase in R&D cost, potentially putting at risk the top line growth to materialize into bottom line, the market is expecting. Please reassure us on your commitment to deliver on consensus expectations.Yes, let me just repeat what I said a minute ago. We're very clear that we need to increase operating margin, drive profitability up, take the top line growth to the bottom line, improve our cash flow. There's no doubt. And we said it before, I'll say it again, the plan is to manage for this transition period and then start reducing our debt across 2020. So that is very, very clear. And that is what we're going to do over the next year and continue to do in 2020. Jack Scannell at UBS. Jack, go ahead.

[Jack Scannell, Co]

I've got a long-term question. There's a new challenge that faces people like us now in oncology, and that is that so much as being discovered, that drugs that were pretty good 2 or 3 years ago are being rendered obsolete before their patents expire. So you've done it to Tarceva, Iressa and Gilotrif. You're hoping to do it to ibrutinib with Calquence. So if we think about Tagrisso, where there's a patent expiry in 2032 in the orange book, what odds would you give on Tagrisso making it to patent expiry without being rendered technically obsolete as a first-line agent in lung cancer?

[Pascal Soriot, CEO & Executive Director]

That's a great question, Jack. And I think technology, of course, is evolving rapidly these days. But I mean, it's taken us 5 years to get to where we are with Tagrisso. And I would like to remind everybody, and I'll ask Sean to also comment on this, but I'd like to remind everybody like 5 years ago everybody was saying that there's lots of competitors around you, around Tagrisso that is. And many of these products have just disappeared. So it's not that simple to develop an agent as exquisite as Tagrisso that penetrates the blood/vein barrier as effective as it is. Now having said that, we certainly should not be complacent, and we're working ourselves on the next generation of Calquence. And also, more importantly, how do we manage the patients who progress on Tagrisso and develop resistances that escape efficacy from Tagrisso. Now can we say by 2032 Tagrisso will be the only agent out there? Probably hard to say. But I think we have quite a few years ahead of us where Tagrisso can still enjoy a pretty nice position. But, Sean, over to you.

[Sean Bohen]

Sure, Pascal. Thank you, Jack, for the question. Again, I will reiterate what Pascal said, 2032, that's a ways off, so certainly, a tremendous amount can change between now and then. At the same time, I think if we were to see an agent that had a really viable opportunity to displace Tagrisso in the normal lifecycle of a drug, say, 5, 6, 7 years in terms of development to launch, we really haven't seen anything that has the attributes that are required. Obviously, T790M is something that a lot of companies, including AstraZeneca, have targeted. As Pascal said, I think it's the central nervous system penetration and ability to really treat a common area of the body where metastases advanced actually are quite lethal and are untreated by other agents probably provides a pretty good period of protection for us.

[Pascal Soriot, CEO & Executive Director]

I'll give another example, Jack, because I think you raise a very important question. Many of us, quite frankly, a few years ago thought in immunotherapy things would move much faster than they actually have. I mean, people saw the number of new targets come up, new combinations. And in fact, we, by now, should have a number of those. OX40, if you remember, was one of those, and there were many others. And in truth PDX, if I may call it this way, still the mainstay of immunotherapy combination with chemo. And I do believe new combination of immunotherapies will emerge, but it's probably not as fast as we could have thought a few years back.Jo Walton at Crédit Suisse. Jo, go ahead.

[Jo Walton, Managing Director]

Can I ask about Fasenra, perhaps just on the same theme of new products coming in and making other ones potentially obsolete. But how could you compare Fasenra and Dupixent now that you've seen the Dupixent label?

[Pascal Soriot, CEO & Executive Director]

Thanks, Jo. I think Mark will be, Mark Mallon will be delighted to talk about Fasenra. Over to you, Mark?

[Mark Mallon]

So I mean, the first response is that we continue to be very confident in Fasenra and our profile, and we think this is a great medicine for treatment of eosinophilic severe asthma. We've got a wealth of data through our Phase III studies. We just shared the most recent results of the BORA study, vast improvement in lung function, great reduction in exacerbation, great reduction in OCS use and really favorable dosing approach with once every 2 months or 8 weeks. And the mechanism of Fasenra with it targeting directly the IL-5, bringing killer cells to the eosinophils, a unique mechanism, is sort of exquisitely designed to target eosinophilic asthma. And the feedback that we've gotten from physicians is outstanding. And so if you take that profile and compare it to DUPIXENT, they're going to be patients on which DUPIXENT, based on will be seen on the label will be attractive, for example, overlap patients between atopic dermatitis and severe asthma, obviously, will be a place that we'll go. But it is -- we have to really see how the 2, the IL-4, IL-13 really plays out in a broader audience. We need to understand about how that in some patients we see an increase actually in the eosinophilic levels in response to the medicine. All that has to play out as physicians get a chance to use it. The most important thing I would say is the unmet need is so high in severe asthma. And so with only 1 in 10 severe asthma patients eligible for a biologic getting them, I think would be good to see this market expand. Maybe there'll be some patients that -- certainly, there'll be patients that DUPIXENT is a good option for. But we're confident for our target patients, which are very large, where the unmet need is high and where the evidence is, both from the clinical studies and the physicians and patient experience, is really outstanding. And so we remain confident.

[Pascal Soriot, CEO & Executive Director]

Thanks, Mark. I think that's key point actually, Jo, is the growth of the biologics class treating asthma, I mean, is potentially enormous. It would have been a bit like comparing 2 new TNF inhibitors 15 or 20 years ago in rheumatoid arthritis, that would have been missing the point that patients needed more biologics treatment, and I think it's the same here. Of course, there will be competition, and of course, we recognize that DUPIXENT is actually our true competitor. But I think, also, we need to hope that companies collectively will help patients be better treated. And through this expand class, 10% of patients get a biologic and that should be getting one. What we hear from Fasenra, as Mark told you, is speed of action is important to physicians, full depletion of eosinophils and the efficacy is pretty good for patients with eosinophilic disease. And I would say also because there's a lot of talk around home use, we have a home use program. But what we have from physicians is, in severe asthma, we're not talking about moderate asthma here, we're talking about patients who are severely ill. In severe asthma, being able to bring the patient every a couple of months to the office to inject Fasenra is also good from a compliance viewpoint and follow-up. So all those, I think, things make Fasenra pretty competitive agent in the marketplace. Luisa Hector at Exane. Luisa, go ahead.

[Luisa Caroline Hector, Pharma Research Analyst]

So switching to diabetes, I just wondered whether you have any comments on your dual GLP-1/GCGR in Phase II? And whether we might see some data soon? And any thoughts on the outlook given some of the positive data from Lilly recently? And then just checking on Forxiga, the filing time line and how soon you might expect the DECLARE data to impact sales? And then maybe just to check on Brexit since you have the slide. It looks like the impact on cost of goods is probably manageable, but are you assuming some of that input -- impact to the stock build in the fourth quarter of this year? And I assume it's all within your guidance, if that's the case.

[Pascal Soriot, CEO & Executive Director]

Thanks, Luisa. So Sean, do you want to cover the first 2, and Marc Dunoyer might cover the third one.

[Sean Bohen]

Okay. The first 2, okay, so do Farxiga, DECLARE as well. Okay, sure. So thank you for the questions. So starting with the MEDIO382, that's the molecule you're referring to which is the GLP-1/glucagon dual. So with that molecules, Phase IIb is ongoing, and we are looking at the data. We'll plan to present it when we have it, and really our decision as to where to go next will depend upon our review of that data. You mentioned the Lilly molecule. It's slightly different to GLP-1/GIP. So we're not -- we'll have to look at the data, look at their data and understand whether the mechanisms might be similar or different in terms of the effects they produce. The DECLARE question, so we'll present the DECLARE data on Saturday at AHA, and I think you'll get a chance to see what we think is a really extremely meaningful effect both in terms of the reduction in hospitalization heart failure or cardiovascular death, which is the primary endpoint that was met, but also the opportunity to go into a much broader patient population, which is not only Type 2 diabetes patients who have had an index event that would be secondary prevention. But recall, 7,000 such patients in DECLARE. There are also 10,000 primary prevention patients. Patients who have not had an index event, so really, a much broader spectrum. And we intend to file that data. We will do it as soon as we can get the filing together. And it's probably for Mark to talk about what he expects the impact to be once -- should we get that data on the label and when we do.

[Mark Mallon]

So obviously we can't promote until the label has changed, and there's variations of rules around this in different countries around world. What I think you can say is, as Sean highlighted, there's going to be 2 important things coming out. One is that this is will be another positive evidence of impact on CV outcomes. In particular, really important complication associated with diabetes is heart failure. That's going to be really encouraging and supportive result as well as the fact that's going to be a much broader population. So I think it's very exciting news to physicians. If you look historically, major data like this has an impact on use, even before approval in many cases. So I look to pass bottles to give indication of what could happen here.

[Pascal Soriot, CEO & Executive Director]

Thank you, Mark.

[Marc Dunoyer, Executive Director & CFO]

Regarding the impact of the Brexit on our guidance, I think it's fair to say that will have a minor impact on the level of inventories. But it will also have a minor impact by way of consequence on the EPS, but this is well within our guidance range, and therefore, there's no -- we don't communicate any impact of Brexit on our guidance for 2018.

[Pascal Soriot, CEO & Executive Director]

Thanks, Marc. So we have a question by email. It's from [ Elliott ] and it's at [ Prem Avenue ]. The question is for you, I think, Dave. It's regarding Imfinzi and where we are at CRT rate. Where do you see a ceiling, a plateau from a purely medical perspective? In other words, what proportion of the unresectable Stage III lung cancer population is completely CRT or ineligible and therefore out of reach for Imfinzi?

[David Fredrickson]

So thanks, Pascal. So maybe what I can start with is some of the variability that we see right now across regions, which I think gives some sense for how high this could go, and then I'll turn it to Sean to add some color. Just if we take within Europe alone, we see CRT rates between, anywhere between 40% in some of the countries where it's lowest, as high as 70% in some of the countries where CRT rates have been adopted. And we believe that there's opportunity to grow CRT rates in all of the regions that we're in. I think your question appropriately implies that there are certain patients that just simply will not be seen as being eligible for CRT. But in terms of the real world right now, that's what we're seeing at the moment and I think suggest that there's an opportunity certainly to get to the overwhelming majority of patients being treated with CRT. Sean?

[Sean Bohen]

Yes. To add onto that, I think there are 2 opportunities that we're really looking at here. So the majority of patients who have unresectable Stage III get CRT, the vast majority do. But the one thing is that if there is a tolerability issue, sometimes what will happen both tolerability or access to the coordination that's necessary to get concurrent CRT, which is what PACIFIC studied. They will sometimes get sequential CRT either for tolerability reasons or due to availability in the geography. And as I mentioned, PACIFIC 5 is the ongoing study that really studies that too. So that's one way to access a different group of patients. We're also hearing, and I don't think this is something we can really quantitate, but we're hearing physician start to think differently around how aggressive they want to be with surgical resection of Stage III non-small cell lung cancer, given the data that's being seen with PACIFIC and whether they may choose to have the patient undergo a CRT rather than attempt a large or complex surgical resection.

[Pascal Soriot, CEO & Executive Director]

Thanks, Sean. So we have a question from Alex at BMO Capital Market. Alex, go ahead.

[Alex Arfaei, Pharmaceuticals Analyst]

Pascal, you mentioned there was skepticism about AstraZeneca's ability to return to growth and I want to build on that, please. As we enter the growth phase, I was wondering if you could revisit your 2023 guidance of $45 billion. I think that's about $40 billion to $40 billion -- excuse me, $40 billion to $41 billion that's actually adjusted now? And recent management commentary suggest that, that it was still possible. Obviously, a lot has changed since you provided that guidance, and it is significantly higher than what you'd expect? So I'm just wondering do you still believe that you can get to $40 billion by 2023? And if so, what are the ways that you can get there that are not well understood by the investment community?

[Pascal Soriot, CEO & Executive Director]

Yes, it's a great question. The plan, as we have developed it today, still takes us to that kind of level. And I see no reason at this point to change this, Alex. And to answer whether we will get there or not is hard because, to some extent, it depends on how we execute commercially. But this, we have what it takes to deliver. And then the other part is the success of our products and new indications in the pipeline. So that will happen over -- I mean, will become clear over time. roxadustat, for instance, we'll know pretty soon. Next year we'll have more data. We'll have, for instance, the POSEIDON study in immuno-oncology. We have ADJUVANT studies. We have -- with both Tagrisso, sorry, and Imfinzi, we have first-line ovarian cancer study in combination with Avastin for Lynparza. We have tezepelumab that is in progressing through the pipeline. We have -- if strengths, we've not talked about Epanova much, but its strengths is positive and we'll see this weekend the Amarin results, I mean that Epanova has substantial potential, so there's a whole range of products that are still potentially underestimated because we don't know whether they're going to work or not. But when we do our risk-adjusted sales forecast, we still are on track to get there. And it turns into, of course, I'm not disclosing anything that you cannot work out yourself, it turns into a compound growth rate of about 12%, 13% a year between now and then. So the question is can we achieve it? And the answer is we still believe we can do it, but it depends on the pipeline and how it unfolds. So more to come over the next year or 1.5 years in terms of the clinical news, really. Going back to Farxiga, for instance, that we're talking a minute ago. I think people sometimes maybe underestimate the potential of heart failure. I think we all have to understand heart failure is as costly as cancer in terms of health care cost. It's a major problem. So if we in diabetes can establish that the SGLT2 agents actually reduce the incidence of heart failure and also have a potential positive effect on the kidney, which we believe is the case, then the potential for the SGLT2 class is enormous. And of course, it's a competitive class, but still, we believe we have a good chance to succeed here. So that's really a lot of opportunities for us to grow. Let's move to Seamus at Guggenheim. Seamus?

[Seamus Christopher Fernandez, Senior Analyst of Global Pharmaceuticals]

So I just had one question. Can you talk a little bit about the safety profile as presented on roxadustat at the ASN? My understanding is again we saw a little bit of some safety dynamics there that brought forward some concern. But I'd love to just hear how AstraZeneca is thinking about those data sets, and then when we're likely to see the more complete data set for cardiovascular events differential between EPO. And then just to expand on that, could you guys talk about the opportunity in predialysis and the ability to gain reimbursement should you show an ability to kind of expand back into that market?

[Pascal Soriot, CEO & Executive Director]

Thanks, Seamus, so one question for Sean and a question for Marc. Thomas, kindly remind us to be short and sharp, so we can manage all the questions left, so over to you, Sean.

[Sean Bohen]

Okay, I will try and give you a short and sharp answer to a very complicated question, Seamus. I think there was some data at ASN. That's primarily efficacy data from Asia, it's small hundreds of patients actual events. We're talking a handful with a small difference. And my argument from the safety standpoint with unusual events you can't really conclude anything from that data. This is, of course, a complex patient population that has risk factors for cardiovascular events because they have chronic kidney disease, they often have an underlying comorbidity that cause that and they're on dialysis. So with regard to -- then the rest of the question is, so what will we know. I think the way that this will work is by the end of this year, as we have said, you will have efficacy data from our ongoing program. The largest trials there are ROCKIES and OLYMPUS. OLYMPUS being in the predialysis patient population, so nondialysis dependent; ROCKIES being in the dialysis dependent. And OLYMPUS with almost 2,800 patients. ROCKIES with a bit over 2,000, 2,100, so much larger datasets. So the efficacy data is based on hemoglobin response. What we have also guided to everyone is that the basis for filing will be an aggregated safety profile across the whole program. And because we have to aggregate multiple trials, multiple sponsors in order to do that, it will be sometime next year, first half of next year that we will be able to share that aggregated safety profile. And again, we'll have 2 versions of it. One is that which will occur from more than 3,000 or 3,500 patients who are dialysis dependent and then an even larger number who are nondialysis dependent: dialysis dependent versus ESAs, nondialysis dependent versus placebo. And I will let Mark talk about opportunity.

[Mark Mallon]

Short answer for predialysis is we see substantial opportunity and a compelling case, we think, for payers. We'll need to do a lot of education, of course, because this is something new. But anemia is clearly an issue. And people living with it, it is a problem. And CKD patients already have a lot of problems. And so having a chance to address this one will be I think really important, so we're very excited for the opportunity.

[Pascal Soriot, CEO & Executive Director]

Yes, large, large opportunity for sure. Andrew Baum, Andrew at Citi, go ahead.

[Andrew Simon Baum]

Couple of questions. I imagine that duration -- median duration of Tagrisso treatment has increased.

[Pascal Soriot, CEO & Executive Director]

Hello, we are losing you a little bit. Yes, go ahead. We were losing you.

[Andrew Simon Baum]

The line was interrupted. I imagine the duration treatment has increased following first-line approval. This is a bit of a loaded question. But where do you think this could go given the use of combination therapies addressing c-Met, as well as other targets in order to overcome T790M beyond progression using Tagrisso beyond progression? And then second, could you comment on your level of conviction in the differentiated safety profile of Calquence over IMBRUVICA given some recent publications suggesting that the bleeding seen as a BTK-related phenomenon rather than off-target?

[Pascal Soriot, CEO & Executive Director]

Thanks, Andrew. Sean, both questions for you, I guess. The first one is Tagrisso and how far can it go.

[Sean Bohen]

Yes, I think there were -- there was almost a commercial element in it for day I thought. But obviously, we've seen -- we see from FLAURA that we get considerable extension of the progression-free survival. And we believe that as first line becomes a standard of care, that will lead to each given patient's duration of treatment on Tagrisso being much longer just because they're benefiting for considerably longer. I think the thing that will really drive that home as we anticipate in the second half of next year is if the survival data also shows that benefit manifest in that endpoint. You ask about MET inhibitors, acalabrutinib is probably is where you're going with that. That is an ongoing testing. Interestingly, at ESMO, we're seeing some variation in the percentage of patients that may be using met overexpression, or their tumor, I should say rather using that overexpression to overcome treatment like Tagrisso. And so that's something we're evaluating in the clinical, and then also Dave and his team are evaluating the opportunity. Calquence and bleeding, we believe that the ability to differentiate Calquence based on safety is due to the incidence of severe bleeding episodes and also other severe side effects like atrial fibrillation. We are accumulating obviously a lot of safety experience with the molecule. And we believe it has reinforced the opportunity that we saw when we initially did the deal with Acerta to acquire the molecule. And ultimately, the mechanism of action of something like bleeding and severe bleeding is multifactorial. There may be a BTK inhibition component, but it's probably likely that there are other things as well. So we remain as confident as we were that we can differentiate based on safety. I think the question from CL-006 when we go head-to-head with abrutinib and generate gold standard data is do we also have an opportunity to differentiate on efficacy.

[David Fredrickson]

I think one small data point just, Andrew, to add on this, while the frontline, it's still early days to know whether or not we're getting to the durations that we saw within the FLAURA study. In the second line, we saw patients being treated to progression. And it is testimony also to the tolerability profile of Tagrisso, which I think is an important aspect of our patients getting to what we see in the studies.

[Pascal Soriot, CEO & Executive Director]

Thanks, Dave. So we have a question from Steve Scala at Cowen online, which is about the SG&A guidance. Marc mentioned that G&A, first of all, it's at CER, what you see on the P&L, and then it's 7%. And I think Marc said the guidance for the year was that SG&A would go at the rate we see at the end of 9 months, so the same similar rate. I would encourage you though to look at the totality of operating cost, R&D and SG&A, which at the end of September, as Marc mentioned are growing 2% total. Marc, anything you would like to add to this?

[Marc Dunoyer, Executive Director & CFO]

It's 7% for the quarter 3 -- 7%, sorry, for SG&A, sorry. At CER, 7% for quarter 3, 7% for year-to-date and estimated to be 7% for the end of the year. Or I said broadly in line, but around 7% would be conclusion.

[Pascal Soriot, CEO & Executive Director]

This is CER?

[Marc Dunoyer, Executive Director & CFO]

Yes, everything's at CER.

[Pascal Soriot, CEO & Executive Director]

James Gordon at JPMorgan. James, go ahead and maybe we will take this as the last question. Thomas, is it okay? James, go ahead.

[Sarita Kapila, Analyst]

This is Sarita Kapila from JPMorgan. Could you please comment on your appetite for equity funded M&A? And if a significant deal was to be pursued in the future, where would the focus likely be? Would it be on accretion or growth or pipeline optionality?

[Pascal Soriot, CEO & Executive Director]

Thanks for the question. I mean, if we were to do anything, it would be for accretion for sure because that's really -- there's no other way we could do anything else. But I have to say our focus is not on this. Our focus is really on launching this product and turning this pipeline into a reality. We still have a lot of work to do growing our top line and a lot of work to do driving increase in operating margin. We're very committed to doing this. Right now, we are in this transition period. And I would say, almost toward the end of the transition period, where we have to invest to really launch all those products. But it's very clear to us we need to drive operating margin up, and that's what we're going to be doing over the next couple of years. So that's really our focus. And any acquisition or M&A would have to be accretive, if that's -- but again, this is really not our focus. So, Thomas told me we can take one more actually, so we'll take the last question from Richard, Richard Parkes at Deutsche Bank. Richard, go ahead.

[Richard J. Parkes, Director]

I'm just going to ask one clarification and one follow-up question. The clarification is on the roxadustat safety question. I think one of the concerns with hyperkalaemia imbalance that we've seen in those studies that were presented. So I just want to clarify, when you looked at the integrated safety database of all the Phase II trials, was there any signal of increased hyperkalaemia risk? Because I know one of the Phase II studies there was an imbalance there. So I just wondered if you could clarify that? And then on Calquence, you talked about 1/3 of new patients going on Calquence in the current indication. I wondered what anecdotal feedback you were getting from physicians over the drug's profile compared to your competitor, and maybe how the tolerability is playing out in the real world. What is it driving patients to choose Calquence versus the competition?

[Pascal Soriot, CEO & Executive Director]

Great questions. Maybe we can start with the last one. David, do you want to cover Calquence? And then, Sean, you will cover the roxadustat safety question.

[David Fredrickson]

So thanks, Richard, for the question. I think, as you know, about 1/3 of share of the BTI class is now Calquence's. I think that, really, a very important additional element that we're seeing and this will get to the qualitative aspect is that we're seeing increased utilization in the BTKI-naïve patients in the second line. So a lot of the initial trial post launch a year ago was happening in third plus line patients after patients have been exposed to a BTKI. Because of the positive trial experience that physicians have had with the agent in those settings, we're seeing more and more utilization moving into earlier lines of therapy. And what that means is that it's becoming the preferred choice within the indication among the BTKI inhibitors, and we see that as very encouraging.

[Pascal Soriot, CEO & Executive Director]

Thanks, David.

[Sean Bohen]

Okay, Richard. So the question sort of had 2 elements, one is now moving to hyperkalaemia, I believe Andrew's question was actually about bleeding with roxadustat?

[Pascal Soriot, CEO & Executive Director]

Yes, roxadustat.

[Sean Bohen]

I'm sorry, yes, so roxa safety, that question is about CV risk. Again, this is a small dataset. It's very difficult to interpret adverse events that are actually known consequences of the underlying condition that you're treating. So these are dialysis -- this is a small data set on dialysis-dependent chronic kidney disease patients. These patients' kidneys aren't able to regulate their potassium levels. So in a small data set, you can easily get an asymmetry in these kinds of events that are known to be related to the disease and actually how the dialysis can be given varies, so that can change its incidence as well. Again, based on the data we have, we haven't seen anything to suggest that the safety profile is adverse for roxadustat. The limitation there is that it is small. And so the definitive data set will come from the pooling, and we will look at all adverse events over that pooled data set. But the most important one from a regulatory standpoint is the MACE cardiovascular events because, as you recall, the current standard of care, the ESAs, have a black box warning for increased risk around those events in their label.

[Pascal Soriot, CEO & Executive Director]

So you have the answer pretty soon, Richard. But based on the data we have, I mean, we haven't seen anything that makes us believe that the little signal in this small population, small study, is actually real. So let me close by saying that we are definitely at a turning point. It's an important inflection point. We're back to growth. Just like to remind you what that growth was in Q3, more than 9%. So we clearly are swinging back to growth. And that growth is driven by all our new products. And they're gaining momentum. They're growing faster and faster. Remember, Imfinzi, basically sales you see here are only the U.S. Tagrisso is more than the U.S. but many countries not even have reimbursement for first line yet, so there's a lot more to come, many new indications. So we really are at a inflection point. China continues to do well. The Emerging Markets are doing well. So that's one message: we're back to growth. The second message I wanted to leave you with is that we're definitely committed to improving operating margin over the next period of time and drive an increase in our operating cash flow, underlying cash flow, if you will. And so we're going to move as we always said from the period of time when externalization was supporting cash flow to a period of time when the cash flow comes from the underlying business. We're committed to doing these. We're committed to the operating margin. You've got to believe this. And hopefully, you will agree, so far we've done what we told you we would do. It's not always been easy. We also had a few setbacks along the way. But by and large, we have delivered the pipeline. We're launching those products, and they're doing very well. So the next period for us is really operating margin, and we'll make this happen. With this, I'll thank you again for your attention and your great interest, and I wish you a good rest of the day.