AstraZeneca - Q4 2022

Transcript

Operator (participant)

Good morning to those joining from the U.K. and the U.S. Good afternoon to those in Central Europe. Good evening to those listening in Asia. Welcome, ladies and gentlemen, to AstraZeneca's full year and Q4 2022 results conference call for investors and analysts. Before I hand the call 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 the 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 call. There will be an opportunity to ask questions after today's presentations. Please use the Raise a Hand feature to indicate you wish to ask a question at any time during the call. I must advise that this conference is being recorded today. With that, I will now hand you over to the company.

Andy Barnett (Head of Investor Relations)

Thank you, operator, and good afternoon, everyone. I'm Andy Barnett, Head of Investor Relations at AstraZeneca, and I'm pleased to welcome you to AstraZeneca's fourth quarter and full year conference call for 2022. We will also present our guidance for 2023 on today's call. As usual, all materials presented are available on our website. Please advance to slide two. This slide contains our usual Safe Harbor statement, where we're making comments on our performance using constant exchange rate, or CER, core financial numbers, and other non-GAAP measures. A non-GAAP to GAAP reconciliation is contained within our results announcement. Numbers are in million U.S. dollars, unless otherwise stated. Please advance to the next slide. This slide shows the agenda for today's call. Following our prepared remarks, we will open the slide for questions.

We will try to address as many questions as we can during the allotted time, although I would ask that participants limit the number of questions you ask to allow a fair chance for others to participate in the Q&A. As a reminder, to ask a question, please use the Raise a Hand function in Zoom. Alternatively, you can click the Q&A button and write your question in online. Please advance to the next slide. With that, Pascal, I'll hand over to you.

Pascal Soriot (CEO)

Thanks, Andy, and hello, everyone. Welcome to today's call. We can move to slide five. We delivered a strong 2022 performance, finishing the year with total revenue and EPS at the upper end of our guidance range, which I'm sure you will remember we upgraded twice during the year. We reported total revenue for the full year of $44.4 billion, which represents an increase of 25% at CER. Core EPS was $6.66, which is up 33% compared to the prior year. Our business fundamentals remain strong, supported by our diverse portfolio of products and also our broad geographic footprint. It is from this base of strengths that we are announcing our 2023 guidance. We expect core EPS to increase by a high single digit to low double-digit percentage.

Given that we anticipate a very substantial decline in demand for our COVID medicines in 2023, this guidance is clear evidence of the strength of the underlying business as well as our commitment to delivering improved profitability. Please advance to slide six. Excluding our COVID medicines, we now have 12 blockbuster medicines, and we've made remarkable progress in our pipeline over the year, with eight positive phase III readouts and a record 34 regulatory approvals in key markets. Our pipeline momentum continues to build, and I'm pleased to tell you that we are planning to initiate more than 30 additional phase III studies in 2023, and we believe 10 of these trials have blockbuster potential. Here are just a few examples of phase III trials we are initiating based on promising data we saw in the year.

In oncology, we are moving our next-generational oral SERD, camizestrant, into the adjuvant breast cancer setting, we are progressing two bispecific antibodies into several new phase III trials. Following our proposed acquisition of CinCor, we intend to initiate a phase III trial of baxdrostat in hypertension. Lastly, we have an opportunity in rare diseases to raise the standard of care once again for patients with hypophosphatasia with ALXN1850, our next generation phosphatase alpha. Please advance to slide seven. In order to stay at the forefront of scientific innovation, we are also making strategic investments in new platforms and technologies that have potential to drive additional waves of innovation, with a few examples listed here.

To date, we have not only been able to build a sizable pipeline, but one with the potential to add significant value to patients and their treating physicians, as is clearly evident from the many accolades that our medicines received this past year. As you can see, we are working on today, we are working on tomorrow, which is 2025 to 2030, and we're also working on the long, long term with those new investments in new technologies. Please advance to slide eight. Today we're announcing our ambition to launch at least 15 new medicines by the end of the decade, which will support our ambition to deliver industry-leading revenue growth over the long term. Looking first at 2023, we're confident this.

that the strengths of our underlying portfolio will enable us to outgrow expected revenue declines from our COVID-19 medicines. Over the midterm, excluding the COVID medicines, we're on track to deliver on our previously stated ambition of low double-digit total revenue, CAGR growth through 2025, which is expected to come from our existing medicines and new launches. When we look to the long term, we're on track to deliver industry-leading growth well beyond 2025. Underpinning this confidence is the strength of our commercial portfolio, but also the extensive pipeline we are developing. Additionally, while the portfolio has a relatively low exposure to loss of exclusivity compared to peers, we take a very proactive approach which starts many years in advance.

As you can see here, we have three examples where follow-on medicines have been identified and trials underway or being initiated to replace revenues that may be lost following the few patent expiries that are expected to occur before 2030. Of course, the focus here is on Farxiga franchise management, Lynparza replacement with the PARP1, and the switch of Soliris cells to Ultomiris. Coupling the scale and promise of our pipeline with our strong track record of delivery and the growth outlook for our company is very exciting indeed. Importantly, we also have a clear trajectory to reduce greenhouse gas emissions, with targets that have been verified by the Science-Based Targets initiative. Finally, we remain focused on our ambition to improve operating margins, as we stated before.

Now we'll hand over to Aradhana to take you through our financials and provide more insight into our 2023 guidance. Over to you, Aradhana.

Aradhana Sarin (CFO)

Thank you, Pascal, and good afternoon, everyone. As usual, I will start with our reported P&L. Please turn to slide nine. As Pascal mentioned, total revenue increased by 25% in 2022, ahead of our fiscal year guidance of a low 20s % increase. Excluding COVID-19 medicine, total revenue increased by 15%. Collaboration revenue increased by 56%, partially driven by higher Enhertu sales. As a reminder, we book our share of gross profits from most major markets as collaboration revenue. For Tezspire, we book our share of gross profits from the U.S.'s collaboration revenue, and ex-U.S. sales booked as product sales. Please turn to the next slide.

Our core gross margin on product sales increased by six percentage points to 80% in 2022, driven by lower Vaxzevria sales compared to the prior year and favorable product sales margin with higher proportion of oncology and a full year of Alexion medicines. In the fourth quarter, a $335 million cost of inventory write-down and other termination fees negatively impacted core growth margin by approximately three percentage points. Core R&D costs increased by 24% in 2022, driven by initiation of a number of new late-stage trials in areas where we have seen promising data, as well as a full year of Alexion R&D costs. We have also increased investments in early research, including discovery and new platforms and technologies to maintain scientific leadership. R&D as a percentage of total revenue remained in line with our expectations around 21%.

SG&A investment increased by 21%, reflecting a full year of Alexion costs, as well as new launches and pre-launch support. As Pascal mentioned in his introduction, we received 34 regulatory approvals in major markets last year, which also impacts SG&A costs as we need to invest behind these launches. Core SG&A costs as a percentage of total revenue decreased in line with our commitment to deliver operating leverage. Our core operating margin was 30% in 2022, an improvement over 2021, when our operating margin was 27%, reflecting the impact from Vaxzevria sales. We continue to focus on steadily improving our margins without compromising on our top-line growth ambition.

Core EPS of $6.66 was in the upper end of our full-year guidance and was impacted by the Evusheld cost I previously mentioned, but benefited from a lower tax rate for the year, partly as a result of much lower tax rate in fourth quarter 2022. The core tax rate in the fourth quarter was 10% due to favorable one-off adjustments, IP incentive regimes, geographical mix of products and profits, and adjustment to prior year tax liabilities. Please turn to slide 11. Our cash flow performance continues to improve, and in 2022, the net cash inflow from operating activities increased by $3.8 billion to $9.8 billion, driven by strong conversion and continuous focus on cash generation.

We saw CapEx of $1.1 billion, driven by investment in manufacturing capacity, R&D equipment, and Alexion integration. We anticipate CapEx to increase in 2023 to support business growth and sustainability priorities. In 2022, we had deal payments relating to past transactions of just above $2 billion and we anticipate a similar level in 2023. Our net debt decreased by $1.4 billion to $22.9 billion. Our net debt to EBITDA ratio decreased to 2.5x. If adjusting for the Alexion inventory fair value adjustment, which does not impact our cash flow, the ratio decreased to 1.8x. Most of the fair value inventory from Alexion has now been expensed with just over $100 million, more to come in 2023.

Our capital allocation priorities remain unchanged, with number one priority being reinvestment in the business. Please turn to slide 12. I'm pleased to share our 2023 guidance with you. As a reminder, all our guidance is at constant exchange rates. We expect total revenue to increase by low to mid-single digit percentage. Excluding our COVID-19 medicines, we anticipate total revenue to increase by low double-digit percentage. As implied by the guidance, we anticipate a substantial decline in COVID-19 revenue with minimal Vaxzevria sales. This guidance assumes some antibody sales, including revenue in 2023 from our next generation antibody, AZD3152. We anticipate the core gross margin will benefit from lower COVID revenue, and that we will see a slight improvement versus pre-pandemic levels. We will continue to focus on continuous margin improvement while managing the impact of inflation on the cost of raw materials and goods.

In China, we expect to return to growth in 2023, with 2022 having been more of a transition year due to pricing dynamics relating to VBP and NRDL. Of course, the shorter term impact of the current COVID wave in China is difficult to predict. While maintaining our strong focus on cost management and operating leverage, we will continue to invest in the pipeline and core operating expenses are anticipated to increase by low to mid-single digit percentage. Collaboration revenue and other operating income are anticipated to increase versus 2022. Increase in collaboration revenue is partly driven by continued strength in Enhertu sales, as well as certain success-based milestone payments. Other operating income anticipates certain expected transactions that may or may not materialize during the course of the year. The core tax rate is anticipated to be between 18% and 22%.

We have previously highlighted that the U.K. tax rate is anticipated to increase from 19% to 25% in April. We will also start seeing implementation of the global minimum tax rate in many countries. Core EPS is anticipated to grow by high single, low double-digit percentage at constant exchange rates. Based on average January FX rates, we anticipate a low single digit adverse FX impact on both total revenue and core EPS in 2023. With that, I will hand over to Dave to take you through our oncology performance.

Dave Fredrickson (EVP of Oncology Business)

Thank you, Aradhana. We're pleased to report, please turn to slide 15, oncology total revenues for the full year 2022 grew 20% year-over-year, underpinned by 19% growth in product sales. In the fourth quarter, oncology delivered total revenues of over $4 billion, reflecting a 12% increase year-over-year. We saw strong double-digit growth in product sales across the U.S., Europe, and emerging markets, with established rest of world impacted by rising COVID-19 hospitalization rates in Japan. Turning now to our individual medicines, Tagrisso global revenues grew by 12% in the fourth quarter. In the U.S., fourth quarter growth was fueled by continued ADAURA momentum and increased FLAURA duration of therapy. We saw solid growth of 17% in Europe, despite impact from pricing clawbacks in certain markets. China Tagrisso revenues in the fourth quarter were impacted by hospital budget management.

Execution in China remained strong. We expect demand to outpace the pricing impact following NRDL re-enlistment, which will take effect in March. Lynparza remains the leading PARP inhibitor globally, with fourth quarter product sales growth of 17%. We received a milestone tied to the European approval of PROpel in the quarter. We saw double-digit sales growth in the U.S., Europe, established rest of world, and the emerging markets, supported by increased penetration in breast, ovarian, and prostate cancers. Turning now to Imfinzi. Revenues grew 27% in the fourth quarter, fueled by new indications in the U.S. and Europe. We saw robust U.S. growth of 37%, reflecting rapid launch uptake in biliary tract cancer. We saw strong initial demand for Imjudo for use in combination with Imfinzi following FDA approvals for HIMALAYA and POSEIDON.

In the fourth quarter, we reported Calquence total revenues of $588 million, reflecting 53% growth driven by increased penetration across key markets in the growing BTK inhibitor class. In the U.S., we saw destocking in the quarter, which reduced by half the third quarter inventory build following the launch of the maleate tablet formation. We expect this inventory build to be fully depleted by the end of the first quarter this year. Finally, Enhertu total revenue was up 224% in the fourth quarter to $216 million. In the U.S., Enhertu achieved approximately 50% new patient share in second line HER2-positive metastatic breast cancer and over 40% of HR-positive HER2-low post-chemo new patient share. Turning to slide 16, you'll see important near-term performance drivers across our key oncology medicines.

Turning first to Tagrisso, we anticipate gradual DoT expansion in the first-line setting and continued ADAURA momentum. As previously mentioned, we still anticipate a mandatory price reduction in Japan to take effect in 2023. To date, we've seen a strong launch for Imfinzi in biliary tract cancer, and we're establishing Imfinzi in combination with Imjudo in lung and liver cancers. These are both tumor areas where we're building out our global presence, and these investments will position us well to deliver on future launches across the portfolio. Lynparza remains the leading PARP inhibitor in first-line HRD-positive ovarian cancer, where we continue to improve HRD testing rates. In BRCA-mutated breast cancer, we continue to drive testing and share, particularly in early HR-positive breast.

In late December, Lynparza, in combination with abiraterone, received European approval in prostate cancer with an all-comers label reflecting the strength of the phase III PROpel trial. In the U.S., we continue to work with the FDA on the PROpel approval following the agency's request for more time to conduct their review. Calquence continues to gain momentum in frontline CLL and exited the fourth quarter with 64% new patient share in the U.S., which we expect to be durable in the face of competition. We're excited about the recent positive CHMP opinion for the maleate tablet formulation, which will address an important patient need and allows for combination with PPIs. We see continued demand for Enhertu in second line HER2-positive metastatic breast cancer and strong adoption in HER2-low. We're excited to expand HER2-low in Europe following the recent approval of DB04.

As Susan will next recap, we look to file CAPItello-291 for HR-positive advanced breast cancer patients following strong phase III results. With that, I'll now hand it over to Susan, who will cover key pipeline progress since our last report, as well as new opportunities we're progressing into late-stage development.

Susan Galbraith (EVP of Oncology R&D)

Thank you, Dave. Please turn to the next slide. We had our largest ever presence at the San Antonio Breast Cancer Symposium in December of last year, demonstrating the high potential of our breast cancer portfolio to redefine the treatment paradigm. A key highlight was phase III data for CAPItello-291, which demonstrated that capivasertib plus Faslodex led to a statistically significant and clinically meaningful improvement in progression-free survival versus an active control of placebo plus Faslodex, with a 40% reduction in the risk of disease progression or death in the overall trial population. CAPItello-291 validates the use of AKT inhibition to address acquired resistance to endocrine therapy and CDK4/6 inhibitors regardless of a biomarker and offers a potential new standard of care in second-line therapy for patients with estrogen receptor-driven disease.

We look forward to the submission of the data with the U.S. FDA granting us a Fast Track designation. For camizestrant, our potential best-in-class next-generation oral SERD, the phase II SERENA-2 trial showed improved progression-free survival, providing confidence that camizestrant can become the backbone endocrine therapy of choice across all ER-driven breast cancer. With two pivotal phase III trials in the metastatic setting ongoing, SERENA-4 and SERENA-6. We'll soon initiate our first trial in the early setting with CAMBRIA-1. This is an extended adjuvant trial that will evaluate whether switching from standard of care endocrine therapy with or without abemaciclib to camizestrant after two to five years improves invasive breast cancer-free survival in patients with ER positive and HER2-negative early breast cancer at high risk of recurrence.

CAMBRIA-1 is a critical opportunity with the potential to increase cure rates in a population at moderate to high risk for metastatic recurrence. Plans for additional trials with camizestrant are at an advanced stage. Please turn to slide 19. Towards the end of 2022, we reported important data for our hematological portfolio at ASH. This included new long-term follow-up data from the phase I/II trial ACE-CL-001 for our BTK inhibitor, Calquence, in both the treatment-naive and the relapsed refractory chronic lymphocytic leukemia settings. We also presented interim phase I data for our AZD0486, our CD19/CD3 next generation bispecific T-cell engager. We're very encouraged by the strong objective response rates and favorable tolerability profile seen in heavily pretreated patients with diffuse large B-cell and follicular lymphomas.

Further development is planned as these results reinforce our belief that AZD0486 provides an opportunity to reach patient populations beyond those reached by current CD20 therapies. Please move to the next slide. As we have signaled, the development program for our TROP2 ADC Dato-DXd continues to expand with a new phase III trial in lung cancer. AVANZAR will evaluate Dato-DXd plus our PD-L1 inhibitor, Imfinzi, versus pembrolizumab plus chemotherapy in first-line advanced non-small cell lung cancer. This trial allows recruitment of patients regardless of their tumor histology or PD-L1 status. Will be the first to use TROP2 as a biomarker in both the primary analysis and as a stratification factor with co-primary endpoints in both the TROP2 and ITT populations.

AVANZAR complements two other ongoing trials that investigate combinations of Dato-DXd and pembrolizumab, TROPION-Lung07 in the PD-L1 less than 50% population, and TROPION-Lung08 in the PD-L1 more than 50% group. Please move to the next slide. Finally, I'm excited to update you on some progression for our bispecific programs, volrustomig and rilvegostomig, both of which will be moving into phase III this year. Volrustomig is our PD-1/CTLA-4 bispecific, and based on the longer-term follow-up data for the 750 milligram dose, we're confident to move this into late-stage trials in CTLA-4-sensitive tumors. We will be initiating five phase III trials with volrustomig this year, including in non-small cell lung cancer. In addition, our PD-1/TIGIT bispecific, rilvegostomig, is continuing to progress, with the first patients being dosed in the phase II cohort of the ARTEMIDE-01 trial in first-line non-small cell lung cancer.

Our phase II program continues to grow with the GEMINI trial in gastric cancer, and we plan to start the first phase III, with more details available later in the year. Please advance to the next slide, and I'll hand over to Ruud to cover BioPharmaceuticals.

Ruud Dobber (EVP of BioPharmaceuticals Business)

Thanks, Susan. Please turn to slide 22. Total revenue from Biopharmaceuticals grew 11% at constant exchange rates to $20 billion in 2022. Total revenue from CVRM was $9.2 billion, growing at 90% in the year, with Farxiga delivering over $1 billion in every quarter and growth of over 50%. In our Respiratory and Immunology business, we saw strong growth in our biological medicines, such as Fasenra, Tezspire, and Saphnelo. Along with continuous progress for Breztri, that growth offset the generic pressure on older medicines, such as Pulmicort, Symbicort, and Daliresp. Overall, R&I total revenue grew 3%. Total revenue from our V&I portfolio was up 8%, with COVID-19 broadly flat as expected. Please turn to slide 23.

In 2023, we are proud to be bringing the transformative benefits of our modern medicines to more patients around the world. We will continue to expand at pace into new geographies with plans for launches in over 30 countries for Tezspire and nearly 20 each for Breztri and Saphnelo. Tezspire has seen very strong momentum since its launch this time last year, and it has already achieved new to brand share of over 20% in the United States. In 2023, we will look to extend that trend and replicate it in other major markets. Breztri is also enjoying good growth, doubling revenues in 2022. In 2023, we intend to capitalize on the growth of the fixed-dose combination triple class and raise awareness among patients and pulmonologists of the benefits that this medicine brings.

Airsupra is the first and only rescue therapy to treat underlying inflammation in asthma. This year, we will educate practitioners and patients about this new class of medicine and building up market access ahead of commercial launch. Saphnelo is the first new treatment for lupus SLE in over a decade and has quickly become the new to brand share leader in the intravenous segment in the United States. We have successfully launched in eight markets at the end of 2022. By expanding across Europe and other markets, we can bring this medicine to even more patients in 2023. Of course, Farxiga is continuing its impressive growth, helped by its expansion into heart failure with preserved ejection fraction following the DELIVER results. With such a strong portfolio of innovative products, we remain very excited about the long-term prospects for our Biopharmaceuticals business.

I will now turn the call over to Mene to cover our pipeline.

Mene Pangalos (EVP of BioPharmaceuticals R&D)

Thank you, Ruud, and please turn to slide 24. I want to start by providing some highlights from our mid to late-stage pipeline in CVRM, demonstrating the depth and breadth across our portfolio. I won't go through all these assets in detail, but I wanted to draw your attention to the areas we're focusing on, namely cardiorenal, metabolic, and liver diseases. Supporting our commitment to cardiorenal diseases, you will see in the quarter we announced our plans to acquire CinCor, adding baxdrostat, a novel aldosterone synthase inhibitor, which further strengthens our pipeline. I'll go into more detail on this in the next slide. The other thing to point out is our progress with mitiperstat in phase II for NASH. Mitiperstat's also being investigated in heart failure with preserved ejection fraction, which is currently in phase II-B, and also in COPD, which is in phase II-A.

This is a mechanism, first-in-class mechanism targeting myeloperoxidase, which is known to cause the formation of hypochlorous acid, which interferes with microvascular function. In our preclinical models, we've seen robust efficacy, which reduces inflammation, fibrosis, and also improves microvascular function. We see it as a very exciting first-in-class mechanism with broad application across our portfolio. I'm also very excited about some of the progress we've seen with our earlier-stage assets, such as our long-acting relaxin in heart failure with pulmonary hypertension, our PNPLA3 antisense oligonucleotide for genetically driven NASH, and our small molecule oral PCSK9 inhibitor for dyslipidemia. I look forward to sharing updates on these molecules with clinical data in the coming quarters. Please turn to the next slide. I want to showcase in more detail our Farxiga combinations and how they're differentiated from each other.

Balcinrenone is a selective mineralocorticoid receptor modulator, which we believe could have reduced risk of hyperkalemia versus conventional MR antagonists. We have an ongoing phase II study looking at CKD patients with heart failure, a population which has limited treatment options. Second is zibotentan, our endothelin A receptor antagonist, which has been shown to improve renal blood flow and reduce albuminuria and vascular stiffness. The selective profile of zibotentan in combination with Farxiga is expected to reduce significant side effects of fluid retention, a hallmark of traditional endothelin receptor antagonists. We have an ongoing phase II trial in CKD patients with macroalbuminuria, and this combination is also being investigated in liver cirrhosis and recently dosed in phase II. Finally, baxdrostat, currently being investigated as a monotherapy for treatment-resistant hypertension. We believe when combined with Farxiga would significantly benefit patients with hypertension and several other cardiorenal diseases.

Baxdrostat has shown to be effective at reducing systolic blood pressure without off-target inhibition of cortisol synthesis. This treatment paradigm would offer a much-needed option for patients with CKD and hypertension, and we're planning to initiate phase III trials for this molecule through the course of this year. Please turn to the next slide. Here I'm highlighting some key late-stage assets that have progressed or plan to progress during the year. Our IL-33 monoclonal antibody, tozorakimab, entered phase III trials for adults hospitalized with viral lung infections with acute respiratory failure. Emerging IL-33 science in viral lung infections provided confidence to advance to phase III. During the quarter, we also dosed our phase I/III SUPERNOVA trial, which investigates the safety and efficacy of our next-generation long-acting antibody, AZD3152, in COVID-19 pre-exposure prophylaxis settings in immunocompromised patients.

AZD3152 neutralizes all known variants from Alpha all the way to XBB.1.5. The immunobridging trial design has been agreed in principle with both FDA and EMA, shortening the time between discovery and approval. We will aim to make the new lab available in the second half of 2023, subject to trial readouts and regulatory reviews. Finally, we're expanding Saphnelo into new autoimmune diseases, planning two new phase III starts this year in scleroderma and polymyositis. Please move to the next slide. I'll now hand over to Marc to cover rare diseases.

Marc Dunoyer (CEO of Alexion)

Thank you, Mene. Please move to slide 28. In 2022, rare disease total revenues grew 10% on a pro forma basis, contributing $7.1 billion. Throughout the year, we saw continued durable growth of our C5 franchise, which grew 7%. Ultomiris grew 42% in the year and 62% in the quarter, reflecting an accelerating and successful conversion from Soliris across PNH, atypical HUS, and MG. Consequently, Soliris declined 5% in the year, which was partially offset by the growth in NMO, where Soliris remained the market leader. Beyond the C5 franchise, Strensiq delivered 18% in the year and 27% in the quarter due to increased awareness and diagnosis as well as geographical expansion. Koselugo contributed significant growth in the quarter and is now available in 20 markets. 28 markets, sorry.

Our geographic expansion continues, leveraging AstraZeneca footprint, and we launched in 11 more countries in 2022. This figure includes China, where Soliris has launched in PNH and atypical HUS late in 2022. Our rare disease medicines are now available in 57 countries, and we are well on track to achieve our 100 countries by 2030. Please move to the next slide. I wanted to spend some time discussing our approach to PNH, where conversion from Soliris to Ultomiris is now well over 80% for both patients and payers who switch for both convenience and cost reasons. PNH is an ultra-rare, life-threatening blood disorder characterized by intravascular hemolysis, IVH, which is caused by an uncontrolled activation of the complement system.

Elevated LDH is a biomarker for IVH. Our C5 inhibitors have over 83,000 patient years of experience and long-term safety and efficacy data demonstrating C5 continued and sustained LDH reduction for patients. The large majority of the patients on Ultomiris are very well controlled. There is a subpopulation, about 10%-20% of patients, that do experience clinically meaningful extravascular hemolysis while they are on C5 inhibitors based on patient data from the two largest studies conducted in PNH patients. We have developed danicopan, an oral factor D as an add-on therapy for these patients. We plan to submit our data to regulators in the first half of this year. Please move to next slide. Here, I wanted to showcase two of our planned phase III trials for the year.

The first is Ultomiris in cardiac surgery-associated acute kidney injury, part of our label expansion plans for Ultomiris. Acute kidney injury is a high unmet medical need, causing patients to endure loss of kidney function, renal replacement therapy, and risk of mortality. For patients with CKD, the risk of AKI following cardiac surgery is increased by 60% to 80%. We will focus on a subset of those patients with kidney ischemia where complement plays a role. This program is unique as we plan to use Ultomiris in a preventative way, a single dose given prior to surgery in these at-risk patients, an exciting opportunity with blockbuster potential. Another phase III plan for this year is 1850, which is our next generation aspartate alpha in hypophosphatasia. 1850 has been optimized by our researchers for a longer half-life to allow for less frequent dosing.

We have also built it to have a better enzymatic activity so that we can dose at lower volumes and to have a superior manufacturing process. We believe that this improved therapy will allow us to deliver more than two times the addressable population relative to Strensiq. This gives us great opportunity for geographic expansion, bringing this medicine to more HPP patients where there are no other treatment options. With that, please turn to slide 30, and I will hand the call back to Pascal.

Pascal Soriot (CEO)

Thank you, Marc. Can you move please to the next slide? As we said before, we delivered a great performance in 2022, very importantly, we made significant progress with our pipeline. We are very confident that 2023 will be another great year for our company with the growth of our underlying business more than offsetting the decline in demand for our COVID medicines. We're expecting to announce the results of at least 18 phase III trials in 2023, I've called out a handful of significant ones to look out for on this slide, as you can see on the left-hand side. Our pipeline progress, together with the strength of our strategic product portfolio, makes us confident to deliver our industry-leading growth for many years to come.

We expect to launch at least 15 new medicines by 2030. Lastly, we have set bold targets for our company to reduce emissions. I very much hope that leading by example to address climate change will inspire others to do so as much as they can. With that, I will hand the call back to Andy.

Andy Barnett (Head of Investor Relations)

Thank you, Pascal. Our speakers now will be joined by other members of our executive team to go to the Q&A. As a reminder, you can raise your hand in Zoom or type your questions in via the Q&A button. We will try to answer as many questions as we can during the call, although please limit the number of questions that you ask to allow all on the call a fair chance to participate. With that, Pascal, I will hand over to you to start the Q&A.

Pascal Soriot (CEO)

Thank you, Andy. We'll start with an online question by Andrew Baum. Andrew, go ahead.

Andrew Baum (Head of Global Healthcare and Managing Director of Equity Research)

Thank you so much. Apologies for the background noise. First question in relation to risk, and this is an observation rather than a criticism. You're expediting a number of particular oncology programs into phase III from phase I. Obviously you've been emboldened by some of your prior experiences with Dato-DXd in HER2-low, for example. How do you think about managing that risk in the balance of return within the overall portfolio? Second question in relation to your prophylactic COVID-19 antibodies. Do you hope to get approval under EUA or this full approval, and does that impact how you're able to use your field force to promote the drug? I note the significant uptick in the fourth quarter prior to the removal of the EUA. I care about this from an ongoing revenue perspective. Thank you.

Pascal Soriot (CEO)

Thanks, Andrew. Maybe, Susan, you can cover the first question, and Iskra, you'll cover the second one, which is approval EUA and use of field force.

Susan Galbraith (EVP of Oncology R&D)

Okay, thanks for the question. I think in terms of the acceleration of products from early phase into late phase, we do have efficacy expansions on all of the trials where we've moved products into late-phase decision-making. We have robust dose selection datasets, and we have robust both efficacy and safety datasets to support those investments. You know, and you know, in the case of the ADCs, we've got a clinically validated linker-warhead combination based on the data we've already seen with HER2, which together with the data that we have with datopotamab deruxtecan across multiple trials, gives us confidence in the profile. Similarly with the bispecifics, I would just comment that I think CTLA-4 is a very well validated target.

The challenge has been the tolerability, and the design of volrustomig is designed to address specifically that challenge, and we're encouraged by the data that we've seen, particularly with longer follow-up to support that. I, you know, I feel that We're not just accelerating them, we're accelerating on the base of, you know, good data that convinces us that this is a, you know, a good, balanced risk.

Pascal Soriot (CEO)

Thanks for that.

Iskra Reic (EVP of Vaccines & Immune Therapies Unit)

Yes, thanks, Andrew, for the question. As you fairly noticed, we are definitely advancing the development of our new antibody, and we do aim to make it available to the patient in the second half of this year. Obviously, by developing the clinical development program, we also consulted with the regulators, including FDA, there is a agreement to basically look at the immunobridging data from the study and grant emergency approval based on those data. The key reason for that is the significant unmet need and this long-acting monoclonal antibody, the same as Evusheld, will remain the only option at a given time for the protection for a immunocompromised patient.

On your second part of the question on the promotion, that is absolutely correct that any emergency approval dictates the how much you can do and the promotion with the field force in U.S. It's also important to note that during the COVID and because of the high unmet need, there were different exceptions because all stakeholders do understand the importance of education in raising awareness, both in a patient population that needs protection as well as with the healthcare professionals. We do believe that will continue, again, given the high unmet need and given the fact that COVID is here to stay, and those patients will need protection going forward.

Pascal Soriot (CEO)

Thank you, Iskra. Mattias Häggblom at Handelsbanken. Mattias, over to you.

Mattias Häggblom (Equity Research Analyst)

Thank you so much. Two questions, please. Firstly, on manufacturing capabilities. The company is known as one of the strongest in small molecule manufacturing within the industry. As the company moves into more complex modalities within R&D like cell therapies, I'm curious to hear if in the medium term there is a need as well to step up your in-house capabilities within manufacturing for those areas as well. Secondly, when I look at consensus projections for both 2024 and 2025, top-line is below double-digit, and for 2026 and 2027, around 45% growth, which I doubt would be enough to qualify as industry-leading growth. Which areas are perhaps beyond 2025, areas where the company think remains underestimated by the Street? Thanks so much.

Pascal Soriot (CEO)

Thank you, Mattias. Let me just try to cover the first one. We think we have strong manufacturing capabilities in small molecules, but also in large molecules. We have been developing this over the last number of years, and as you've seen from our presentation, we have now several biologics. Now in terms of new technologies, it is true that moving forward, we will need new capabilities, and we're working on this in cell therapy, of course, but in other fields as well. We definitely are looking at this and we will build the capabilities we need as the pipeline progresses, and we get data from products that give us confidence that we need to scale up. Definitely we are looking at it from a CMC viewpoint already on with many technologies.

The second question, we don't actually guide by products. Not exactly sure how to answer your question really in terms of your judgment, based on the consensus. Consensus is looking at a variety of products. I would only say that, you know, we think we can derive growth across the totality of our portfolio. First of all, managing dependent expiries, as we've explained here. Secondly, launching new products. Thirdly, growing the existing products we have in the pipeline. Now, I don't know if any of my colleagues want to add anything here. It's a little bit difficult to give you guidance by products really.

Speaker 24

Just 15 new launches, Pascal.

Pascal Soriot (CEO)

Yeah, we have 15 new launches, and definitely lots of growth in our so-called commercial portfolio, our existing products. The 15 new launches of these are NMEs. Beyond this, we have a large range of line of lifecycle management programs. We launched 30 new phase III this year. A lot of those are lifecycle management programs that will add sales to existing products, and will become part of the consensus as people realize what those studies are. Yeah, we can't say much more than this. The next question comes from Tim Anderson at Wolfe. Tim, over to you.

Tim Anderson (Managing Director and Equity Research Analyst of Pharmaceuticals & Biotechnology)

Thank you. two questions. On Dato-DXd, the decision to move into a new phase III trial in front-line lung could be interpreted as you having even higher confidence than the pending TROP-Lung01 readout in second line. Is that a fair read-through that we can make? Or is the decision to move into a new front-line trial totally independent of what TROP-Lung01 shows? Second question is on earnings guidance. You're kind enough to give us revenue guidance for 2023, excluding COVID revenues. The earnings guidance still contains COVID contribution, and that distorts results year-on-year. Could you give us an idea of what that earning guidance would be if you excluded COVID from the base in 2022 as well as 2023?

Pascal Soriot (CEO)

Two great questions, Tim.

The first one, Susan, you can cover. The second one, even though we don't split our EPS or our profit by product or franchise, I think, Adna, you could give some color to this. Susan, you wanna cover the first one?

Susan Galbraith (EVP of Oncology R&D)

Yeah. Thanks for the question. The confidence in Dato-DXd as monotherapy in the second line is built from the monotherapy experience that we've got previously. The confidence to move into the AVANZAR study is built from some of the data that you've seen with the TROPION-Lung02 dataset with the combination with different IL immune checkpoint inhibitors. I think, you know, what that shows is there's also activity in PD-L1 low patient population with that combination as well. Then, of course, we've been working in developing TROP2 biomarker based on the initial data. I think there's different elements that are involved in the AVANZAR study. I would just say that we have confidence built across multiple datasets for the Dato-DXd program.

Aradhana Sarin (CFO)

As it relates to COVID related contribution for 2023, again, we don't break down profitability by product. I can just say that the COVID contribution is not material to profitability in 2023. We did mention that we are advancing the next generation antibody. Obviously we have some expectations before year-end, but we're also obviously spending money on clinical trials and actively recruiting that. The net contribution is not expected to be material.

Pascal Soriot (CEO)

Thanks, Aradhana. Team, I'm sure you will triangulate those numbers, but if you do that and you combine what Aradhana told you, which is very minimal profitability for COVID in 2023, and you look at what you could estimate for 2022, I'm sure you will realize the underlying profit growth for the rest of the business is very substantial. Definitely we are on track with growing sales and profitability from the underlying business. Luisa Hector at Berenberg. Luisa, over to you.

Luisa Hector (Head of Global Pharmaceutical Equity Research)

Hi there. Thanks for taking my questions. On Alexion really, one for Marc, just in terms of confidence in the complement area, given some of the recent competitors launching and having data. Perhaps you could also highlight the advantages of your own subcutaneous C5 1720, which I think is just starting phase III myasthenia gravis. When might we see some data for that, and what are the advantages that you could offer? On the cost side here, there's a lot of commentary around some of your savings after the deal. It looks like synergies are higher.

This seems to be on a gross level, so before any reinvestment, should we expect any of that increase in cost savings to fall to the bottom line, or do you plan to reinvest? Thank you.

Marc Dunoyer (CEO of Alexion)

Thank you for the three question. I will take them in order. The first one is our confidence in C5. It is absolutely true that there are growing competition in C5, and we had always modeled that. We always said the our franchise, our C5 franchise would be durable, sustainable, but it would not be static. In other words, we are going to lose to some competition in our earlier indications, but we are going to grow into newer indication. We are continuing to pioneer development on Ultomiris, but as you mentioned, 1720 and other products in the complement cascade to gain pioneering a new indication.

Today, I described one of them, the cardiac surgery-associated AKI, but there are several others, several other new indication that we would pioneer for the C5 inhibitors. Talking about 1720, it is absolutely right that we have initiated a phase III trial in myasthenia gravis. The trial has initiated late last year. We expect to read out in a number of months. It's obviously a field that we know well. It's a subcut formulation, as you have as you have emphasized, and we have a big hope with this product. We will also study potentially other indication for this bispecific 1720 in the coming months.

Talking about the synergies, it is a fact that we have been able to find quite a lot of synergies in manufacturing, in enabling functions, but also synergies in the scientific world where Alexion can now tap into many of the existing capabilities in research and development and, you know, a lot of exchange of animal models or chemical library, high-throughput screening. I mean, the variety of synergies is wide. We do reinvest part of the synergies into beefing up own research and development capabilities for us to develop more molecules. We expect to have, by the end of 2023, about 10 products in phase III trials. you know, this is a great increase in comparison to what we had in the past.

Of course, we will provide when these products become ready for phase III, we will provide visibility and explain what they are.

What they're going to produce. With this.

Pascal Soriot (CEO)

Thank you, Marc. If I may maybe add, just some further color with on Alexion. You know, it is a very good company, very strong company. It is a very strong team, good science, good products. Essentially. Also very high profitability, as you know very well from past numbers that Alexion was publishing. Our goal is really not to try and optimize the cost base. We are generating a lot of cost synergies and we're investing quite a bit of this in the pipeline because our goal is to drive the top line. If we drive the top line, mechanically we will improve the operating margin of the overall AstraZeneca. We are really investing in the pipeline. We are investing in expanding the coverage globally in China, emerging markets, et cetera, et cetera.

That's really the goal we have. Operating margin improvements as a percentage, they really have to come from other parts of the company. For Alexion it's really a top-line driven focus. The next one is James Gordon at JPM. James, over to you.

James Gordon (Executive Director of European Pharma Equity Research)

Hello. James Gordon, JPMorgan. Thanks for taking the questions, and I'll try and restrain myself on the number of questions and just ask two about upcoming pipeline data points. The first one was on Dato-DXd and upcoming TLO1 data. This data's in refractory lung, and assuming you do show a significant benefit versus chemo, how should we extrapolate that to the TLO7, TLO8, and the AVANZAR trials that are in front line? Would we extrapolate just the absolute benefit on PFS or OS, or would it be the proportional benefit, the hazard ratio that we would extrapolate? That would be the first question, please. The second question, also upcoming, you've got FLAURA2 data, Tagrisso and chemo.

How confident are you that's gonna show a clinically meaningful benefit to justify extra talks and extra inconvenience from chemo? How do you think now that might stack up versus what J&J might show for MARIPOSA with their combo approach, where we're also gonna get phase III data at the end of this year?

Pascal Soriot (CEO)

Susan, I think those are, those for you.

Susan Galbraith (EVP of Oncology R&D)

Okay. Thank you. Thanks for the questions. The Dato-DXd, again, as I, as I said, I think the data in the second line show the potential for improving on the current standard of care, but of course, you know, you're gonna get in the second line responses in a, in a subset of the total patient population. It's really the durability of those responses that drives the confidence in that efficacy component. The first line trial isn't just about Dato-DXd, it's about combinations of Dato-DXd with the immunotherapy agents. What we have seen is something where you're seeing enhanced response rates, you know, beyond what you would just look at from what you would expect from the individual components.

I think that's really what gives us confidence about the first-line, and I don't think it's a straightforward extrapolation from the data that you've just seen in TLO1. It's taking into account the other data that we've got across the portfolio. The FLAURA2, the confidence for that is based on the. We've got a phase II data set that's already been published, the OPAL data set, which showed a really high response rate of around 90% and a high durable progression-free survival.

Which, you know, if recapitulated in the FLAURA2 would represent a significant improvement over the standard of care and something that's, you know, in line with what the much smaller data set that we've seen from the AVANZAR combination has seen. I think that's what gives us confidence. Yes, it does come at a tolerability profile, but there are some patients who are symptomatic in the first line because of their disease that might want a higher response rate and the opportunity to have that longer time off therapy. Again, the chemotherapy is only given for a fixed duration in FLAURA2. I still think that it represents a reasonably convenient overall regimen for patients in that setting.

Pascal Soriot (CEO)

Thank you, Susan. Christopher Uhde at SEB. Chris, go ahead.

Christopher Uhde (Senior Pharma and Biotech Equity Analyst)

Thank you very much for taking my questions. One is just a follow-up on Evusheld, which is, can you tell us what proportion of it roughly has actually made it from shelves into arms? I'm thinking about this stat article mid-last year. But, you know, tracking sales for this one doesn't work like other drugs. Then, so yeah, if there are any ways that you can use to that you could share with us, that'd be great to hear.

And then, the second question, so Calquence, going forward, I noted your remark about durability, but obviously the competition is sort of now better positioned than Calquence. So, strategically, obviously Calquence is supposed to be a backbone of, I think, a budding hematology franchise built on combo. How do these recent competitive advances affect that strategy, and your outlook for Calquence going forward? Thanks.

Pascal Soriot (CEO)

Thanks, Christopher. Maybe, Iskra, you can cover the second one. The second one is for you, Dave. It's a provocative question. We don't agree with the fact the competition is stronger, but I'm sure you can elaborate on this. Over to you, Iskra.

Iskra Reic (EVP of Vaccines & Immune Therapies Unit)

Yeah, let's start with the simpler one. Thanks for the question. I mean, there are such huge differences across geography that it's really difficult to give you one number.

It's also true that, you know, if you look at the countries where Evusheld was available earlier, basically from December 2020, 2021, you will see the numbers that go up to 80% or 90% of the delivered doses that are utilized in the hospitals and obviously, in the arms of the patients. There is also a note to mention that, you know, in some geographies, like for example, Japan, where, you know, few months ago we actually got the approval, obviously those numbers will be very, very low.

All in all, I think what is really important is that as this is a new market and there is a huge need to increase education and awareness around the need and the availability of those options within the hospitals, it is important to continue helping patients and HCPs to understand that. I do believe that that will definitely then impact the utilization across the globe.

Dave Fredrickson (EVP of Oncology Business)

I think on Christopher, the first piece, and Pascal alluded to this, I mean, we really do believe that Calquence is well-positioned within the next generation BTKI class. I think that it's worth spending a minute on a couple of the things that underscore that conviction and are also part of the readiness and training that we've got across the globe as we do come into a more competitive space. I think first and foremost, it's important to note that we've done our own important work to be taking a look at a matched indirect comparison, which is important to do. As you do that, ASCEND and ALPINE really do show very similar results. We're in the midst of doing a similar piece of work to look at ELEVATE-TN and SEQUOIA.

I think that the reason for this is pretty straightforward, which is that the indirect or the cross-trial comparisons that were being made between the two head-to-head studies were really not very appropriate comparisons to be made because they're looking at very different treatment populations. On the efficacy dimension, we see very well-positioned. I think also of note, in terms of hypertension and also neutropenia, Calquence absolutely could have some opportunities for differentiation there. That's resonating with our advisors as well. When we take a look at the exit share that we had in 2022 in the frontline CLL setting, we eclipsed 60%, getting close to 65%.

We see even in the early January movement, certainly that there's been uptake of zanubrutinib, but the uptake we believe based on our charts is predominantly in later lines, which doesn't come out of some of the IQVIA claims data that you see. We're well prepared to take on competition in the year ahead, but we think we are well-positioned to be able to do it.

Pascal Soriot (CEO)

Thank you, Dave. Eric Le Berrigaud. Over to you, Eric. Eric, you might be on mute. We can't hear you.

Eric Le Berrigaud (Managing Director of Healthcare Europe)

Do you hear me now?

Pascal Soriot (CEO)

Yep.

Eric Le Berrigaud (Managing Director of Healthcare Europe)

Okay. Sorry. A couple of questions. First, a couple on the financials. First on CapEx, the fast-growing companies those days are suggesting a significant increase in CapEx. Novo Nordisk say doubling CapEx this year versus last. Could you quantify maybe the level of increase in CapEx in 2023 versus 2022, please? A pretty similar question about OOI. You're expecting an increase in other operating income this year versus last. We're coming from very high level of one and a half billion not so long ago. How should we think about any figure between the $450 million last year and the $1.5 billion two years ago? That's for the financial part. Then maybe a question for Alexion and Marc.

Thanks, Marc, for clarifying about the C5 franchise. Can I try be even more specific about the incoming competition from iptacopan in PNH since you show a slide on PNH? How do you see this new drug competing with Ultomiris and ultimately the kind of market share split between this drug and the existing C5 franchise of AstraZeneca, please? Thank you.

Pascal Soriot (CEO)

Thanks, Eric. Aradhana, the first two are for you, I guess.

Aradhana Sarin (CFO)

Sure. We do expect an increase in CapEx and, you know, we won't give specific CapEx guidance obviously, but I can give you some color on where that increase is coming from. Firstly, as you can imagine, we have the addition of the full year of Alexion CapEx. As Pascal mentioned, we are investing more in Alexion. The second example is, we did announce a new API facility that we're gonna put in Ireland, and that CapEx is going to add to the CapEx. Thirdly, we do have obviously investments in several sustainability initiatives and including our next gen propellant. That's another investment that we're making both in propellants as well as other sustainability initiatives.

We are as part of our sort of continuous improvement, making several systems and infrastructure investments in our operating systems that will also add to CapEx. Again, we're not giving a specific guidance. Those are some of the elements that go into potentially increasing CapEx.

As it relates to your question on Other Operating Income, you know, we've, we're giving some color on that as part of our overall guidance based on what our current view is today. I did mention that we expect an increase in collaboration revenue, as our, you know, partnered products are very successful. We expect some increase in milestones, we do expect some increase in other income. I would say we're sort of past most of the, you know, bigger divestitures and, you know, the history. I'd say we're sort of through most of the portfolio reorganization, there may be certain other transactions that happen this year, potentially.

Pascal Soriot (CEO)

Thank you, Aradhana. Marc, before you cover the Alexion question, let me just add a little bit on the propellant, next-generation propellant, is a sustainability initiative, but it's also a business continuity and a business expansion initiative because it's very clear that over the next few years, we don't know exactly when, but it's clear that over the next few years, propellant, as they are known today, will no longer be approved and allowed for market. There's already quite a number of initiatives in many countries to ban those products. You can imagine that we definitely need to transition our propellant-based products to the next-generation propellant that have no impact on greenhouse gas emissions. Marc, over to you.

Marc Dunoyer (CEO of Alexion)

Yes. Thank you for the question on iptacopan, Eric. Basically, we have, and Alexion has many years of data. I mentioned 89,000 years of data on this. We know that the complete inhibition of the terminal complement is absolutely necessary to maintain efficacy, sustain efficacy in PNH. Now, it is also true that a small proportion, and we in our data, we see that it's about 10%-20% of this population has some extravascular hemolysis. The studies that several companies have produced, we have produced our own with danicopan, and we are also doing other studies with other factor D. The same for Novartis, have done studies in these extravascular hemolysis patients.

When you do provide a proximal complement inhibitor such as a factor D or factor B, you can improve on hemoglobin, and you can improve on anemia and so on. I think these are very interesting data. The strategy that we are following is to provide danicopan as an add-on on the backbone of Soliris or Ultomiris, and we have seen very good results there. The question for the treatment of proximal complement inhibitors in monotherapy, they do have short-term efficacy. The question is whether this long-term efficacy will be maintained and whether the patients who, of course, with an oral treatment, we need to ensure the complete compliance of the patient for in a therapy where the inhibition of the activation has to be complete and sustained.

That's going to be for long-term data to be proven. I think the oral therapies can open probably in a greater field in PNH for some patients. Of course, we will be expecting longer-term data to be absolutely sure of that.

Pascal Soriot (CEO)

Thank you, Marc. Mark Purcell, Morgan Stanley. Mark, over to you.

Mark Purcell (Managing Director)

Thank you very much, Pascal. Two questions. One on Dato-DXd, the second one on Farxiga, LCM. On Dato-DXd, TROPION-Lung01, there appears to be a bit of a debate at the moment, given delays to the top-line data disclosure, which could be positive, it could be negative. If we look back at PanTumor01 and the non-small cell lung cancer cohort, the PFS was 6.9 months, and I don't believe we've seen an update since the ASCO 2021 data. You know, clearly, the duration of exposure was quite low, five months, because these were very frail patients. Only over 60% of them were third-line plus.

As you sort of go forward and these patients are better, you know, likely to better tolerate mucositis and stomatitis, things like that, how should we think about PFS benefit in the second-line setting? I think we all well understand that docetaxel should show a four-five month benefit in this setting. How should we think about the PFS benefit as you come forward in line? Should we expect these data to be presented at ASCO or ESMO this year? Secondly, in terms of Farxiga, it'd be really useful to help us understand how Farxiga revenues are split between diabetes, CKD, and heart failure. You know, obviously, we recognize there's overlap between those, but it's more in terms of thinking about the future.

When we look at the sort of range of combination opportunities you have on slide 24, it would be great to understand sort of where the bigger opportunities lie, and based on phase II data, where you believe you'll drive most differentiation versus SGLT2 monotherapy. Thanks very much.

Pascal Soriot (CEO)

Thanks, Marc. Susan, back to you again. Aude, do you want to cover the second one in terms of the potential?

Susan Galbraith (EVP of Oncology R&D)

Thanks, Marc, for the question. Well, you clearly are very familiar with the lung cohort from the TROPION-PanTumor study. As you say, it's close to a seven-month median PFS in a more heavily pre-treated patient population. You know.

You know, again, one would expect that in an earlier line you might do a little better than that, but that's. You know, we'll have to wait and see for the trial data to read out. Then in terms of the timing, it's an event-driven trial. We've guided to the first half of. You know, that's what we're still expecting to see. Of course, depending on the timing, you know, we'll then make the data available at, you know, at an upcoming congress dependent on those timing.

Ruud Dobber (EVP of BioPharmaceuticals Business)

Okay. Regarding your question about the split markets, a bit of a difficult question because there are substantial differences across different geographies, primarily in the emerging markets. The international markets is still heavily driven by diabetes. If you look at the United States and Europe, it's roughly two-thirds of the patients are coming from heart failure and CKD. Rightly, you're mentioning there is a substantial overlap. Moving forward, we truly believe that there is a substantial opportunity for our combinations in the heart failure segment and the chronic kidney disease segment.

Both segments are very well underserved, and we believe with the excellent profile of Farxiga and potentially also, of course, then the antihypertensive effects of baxdrostat as well as 9977, we have a unique opportunity to further expand that patient population in both CKD and heart failure.

Pascal Soriot (CEO)

Thanks, Ruud. Michael Leuchten at... unless, Mene, you wanted to add something or?

Mene Pangalos (EVP of BioPharmaceuticals R&D)

Just about cirrhosis of the liver, I think also is a very high unmet medical need and the efficacy, the data around that I think is pretty interesting. I think we'll get a readout there. Just to point out, and I know you know this, but the price points, you know, of diabetes versus heart failure, CKD, and some of these different types of CKD, because there are obviously various flavors of it, there are different price points relative to the diabetes price that Farxiga has been based on.

Pascal Soriot (CEO)

Good.

Mark Purcell (Managing Director)

Thank you.

Pascal Soriot (CEO)

Michael Leuchten at UBS, over to you, Michael.

Michael Leuchten (Managing Director of Equity Research)

Thank you, Pascal. Two questions please. One back to Susan. The AVANZAR trial is only asking a additional efficacy question of that on top of carboplatin plus Dato-DXd, not a replacement question of chemotherapy, which is the question that Lung07 is asking. Given that the biomarker is being looked at here, just wondering why you wouldn't also ask the replacement question in that phase III. Then a question for maybe Pascal or Leon. Just wondering what the latest update would be for China, given the NRDL process is now a yearly process. Are you happy with the pricing levels qualitatively that you've seen? Do you think it's a stable system that allows you to operate more predictably going forward after what we saw last year? Thank you.

Pascal Soriot (CEO)

Thanks, Michael. Susan, if you wanna cover this one and we have Leon online, the China question Leon can take.

Susan Galbraith (EVP of Oncology R&D)

When adding carboplatin onto Dato-DXd, we don't see a substantial, you know, increased problem with the tolerability of that. And it... You know, again, you're only giving the platinum for a set number of cycles. This is a reasonably well-tolerated regimen, and as you said, the replacement question is being asked elsewhere across the program. I think the questions really that we're focusing on for AVANZAR is we're going across histologies to include squamous as well as non-squamous non-small cell lung cancer and across PD-L1 subgroups. Then asking the question about the benefit in the biomarker patient population that are TROP2 positive.

Pascal Soriot (CEO)

Thank you, Susan. Leon, over to you.

Leon Wang (China Regional Head)

Yeah. I think this year we have several major drug getting to NRDL renewal. Also, we are applying for our cMET drug from HUTCHMED. It's a new entry. Also we have some application of new indication for Farxiga and also for Lynparza. Right now we don't think we received the final result of price reduction level and also indication. I based on the latest information, I think the trend of NRDL is quite predictable and transparent, especially on the renewal. Based on the 2021 result, I think Farxiga, our anti-diabetes drug last year, I think get a quite a good result for renewal.

I think this year we expect no big surprise on renew and also, quite many encouraging news on government encouragement on innovative drugs and also additional indication and also on reimbursement renewal. So I think the trend on the China NRDL side is quite promising.

Pascal Soriot (CEO)

Thank you, Leon. Michael, the other good thing about the system is that it's becoming more formulaic, more driven by, you know, approaches or formulas that we can understand, therefore, as Leon said, it's a lot more predictable. Richard Parkes, Exane.

Richard Parkes (Pharmaceuticals and Biotechnology Equity Analyst)

Hi. Thanks very much for taking my questions. First one, just going back to Andrew's comment about risk profile in the phase III starts and specifically thinking about the bispecifics. Obviously, the CTLA-4/PD-1, you've got very strong phase II data. The TIGIT/PD-1 seems a bit more speculative based on what we're seeing with other TIGIT antibodies. Could you talk about what you've got in-house and what advantages you think the bispecific might have over free TIGIT/PD-1 combinations? That would be really helpful. If you're planning to start Dato-DXd combinations as well, would be helpful there. The second question, one of your ambitions is to extend the life cycle of your Lynparza franchise with your PARP-1 selective. However, that currently falls outside of the Lynparza relationship with Merck.

I'm just wondering if you could discuss any plans to bring the asset within that deal and when a decision might be made on that. Thank you.

Pascal Soriot (CEO)

Thanks, Richard. There's one for Susan and one for Dave, I guess.

Susan Galbraith (EVP of Oncology R&D)

Okay. Thanks for the question, Richard. Again, the PD-1 element of the bispecific programs that we've got is the same across the assets that we've got. You know, so that's one element of it. The PD-1/TIGIT doesn't add a challenge from a safety perspective on the background of PD-1. So obviously with the PD-1/CTLA-4, dose selection has been important to get that right therapeutic window for the tolerability profile whilst driving the efficacy. The PD-1/TIGIT, you know, this is a safe combination, and the, you know, the preclinical data that we have does show some potential for differentiation, although the, as you're well aware, the extrapolation of that into the clinic is challenging with these models.

What I would just say is that by having both elements of the combination on one molecule, it does help us with a combination philosophy for other things that we want to put into that. We'll be happy to share more of the, you know, the plans for that, you know, when we start dosing the first patients in the phase III. Thanks.

Dave Fredrickson (EVP of Oncology Business)

Richard, in terms of our plans moving forward around development and commercialization of AZD5305, it's really consistent with what we had said in the past. We're developing it independently. It's in early development, now just, you know, moving into phase III. Any commercial arrangements, we've really yet to decide, and we'll wait for more data. With that said, we're minded to extend the collaboration and build on the joint success that we've had together, with Merck on Lynparza, but of course, that depends on agreeing on any terms. We really have benefited greatly from our collaboration together and the collective work that the two teams are doing.

Pascal Soriot (CEO)

Thanks, Dave.

Richard Parkes (Pharmaceuticals and Biotechnology Equity Analyst)

Thanks.

Pascal Soriot (CEO)

Seamus Fernandez at UBS.

Seamus Fernandez (Senior Managing Director)

Thank you.

Pascal Soriot (CEO)

Seamus, over to you.

Seamus Fernandez (Senior Managing Director)

Yes-

Pascal Soriot (CEO)

Seamus, we can't hear you.

Seamus Fernandez (Senior Managing Director)

Yeah. Can you hear me now?

Pascal Soriot (CEO)

Yep. Go ahead.

Seamus Fernandez (Senior Managing Director)

Okay, great. Thanks so much. You know, first question is just on the sort of impact on some of the older products as it relates to the NRDL and the magnitude of the decline that we could see in Seloken in China year-over-year. Also the time when we might see Nexium generics actually introduced in Japan. I know those were two fairly large tail products for the company, where we'll see impacts year-over-year. Just wanted to get a sense of at least the relative profitability of those products, 'cause I think it's important to gauging just how robust the overall performance of the company is outside of that.

The second question, just wanted to better understand the choice of stratifying by TROP2 expression, and if that is something that you're gaining learnings from, in the, you know, from the second-line study, or if you think that would apply in the second-line setting, versus some of the disclosures that you made for the new phase III, in the first line setting, today. Thanks so much.

Pascal Soriot (CEO)

Thanks, Seamus. Susan, can you cover maybe first this one? Then we'll ask Leon to cover the Seloken question. Ruud, you take the Nexium Japan.

Susan Galbraith (EVP of Oncology R&D)

Thanks for the question, Seamus. The data to support the TROP2 biomarker comes from multiple different settings, including the early combination data. Yes, absolutely, we'll be looking at the TROPION-Lung01 data as well when that's reads out. I do think that that's important. We do know that TROP2 is highly expressed in many different cancers. But I think optimizing for the, you know, the expression and heterogeneity of expression is something that can potentially identify the patient populations that are, you know, more likely to respond and more likely to get a durable benefit. I think that's an important consideration, not just in lung cancer, but across other potential indications.

Pascal Soriot (CEO)

Leon, do you wanna cover the Seloken question? Thanks, Susan.

Leon Wang (China Regional Head)

Yeah. Yeah. Seloken is quite a big product getting to VBP tender loss. I think the last one is the Pulmicort. Actually, we are launching new products speeding up a portfolio and launch to offset these losses. I think Seloken is a chronic disease product. It has 20, 30 million patients. Actually, the largest number of patients in China of AstraZeneca products is Seloken. Actually, the price is low and has three indications, the chronic heart disease, hypertension and heart failure. Actually, it is quite a good product and classical and branded.

We will do a lot of consumerization and making sure loyal user of Seloken will still be sticking to it. The length of treatment for Seloken is quite good. Patients stick to it because of the heart rate. We also will do a lot of digital channel education. Also, we have a quite successful business in China on retail pharmacy. I think it will first drop quite significantly, but gradually it will pick up because more and more patients will take the drug for long term, and the loyal customer will stay with the product. We will still be promoting a lot of other cardiovascular products within the hospital. AstraZeneca is the number one company-

Totally, also number one company in cardiovascular renal space. We have roxadustat, Forxiga, and so many other products still quite active. Also we have a new product in hypertension which is coming. I think, all in all, I'm not too pessimistic about the Seloken future.

Pascal Soriot (CEO)

Thank you, Leon. Just to illustrate what Leon is saying, look at Crestor in China, which we have consumerized, and the price is low, as Leon said. Those are chronic conditions, and patients take these products over a long period of time. We have very extensive capabilities online, and pharmacy-based activities, so we think we can consumerize Seloken a little bit like we've done with Crestor.

Ruud Dobber (EVP of BioPharmaceuticals Business)

Regarding the Nexium Japan question, we have lost our the exclusivity in Japan late last year, and instantly we have seen generics coming into the marketplace. The expectation for 2023 is a sharp decline in our Nexium business in Japan.

Pascal Soriot (CEO)

Thank you. Jo Walton, Credit Suisse. Jo, over to you.

Jo Walton (Pharma Analyst)

Thank you. A couple, please. On Tagrisso, I believe, Pascal, you've said that you're confident that you can keep going with that despite IRA, perhaps because of orphan drug elements. I wonder if you could tell us a little bit about that because Tagrisso, I guess, could be mentioned as one of the drugs when they give the list later this year. Aradhana, I wonder if I could ask an earlier question a different way, just in terms of COVID. If you could give us some sense of how much COVID contributed to your earnings in 2022, we can all then, you know, make our decision about what we think will be in 2023. It's just that sort of level that there has been today.

My final question is just on your confidence in being able to control your operating costs. They were obviously growing much faster in 2022 than you're expecting them to in 2023, I'm mindful of the incredible expansion of R&D that you're doing, all of which costs money, You do have new products that need a lot of marketing support. Are you fully confident that you can provide all the support that you need in 2023 with only mid-single-digit growth of your operating expenses?

Pascal Soriot (CEO)

The last two questions are questions you love. I have another for you. The first one, maybe, Dave, you can start with this one, Tagrisso IRA.

Dave Fredrickson (EVP of Oncology Business)

Jo, on this, as you know, CMS is still in the midst of rulemaking to determine exactly how both the list of the first 10, which come out later this year, will be determined, also how the exclusions are going to be managed. In terms of the list of the first 10, we'll see exactly how rulemaking goes through. My sense is that on a gross sales basis, Tagrisso would not likely make the first 10 in the first go-through. Obviously, we'll have to see that. I do think that it would be likely to come in as you move through over the course of the years, which gets to the next question. I think that there is absolutely an orphan drug designation exemption that's clear within the law.

I think that, we certainly are minded that that is one that, could very well be applied to Tagrisso, and that's work that we'll be continuing to advance.

Aradhana Sarin (CFO)

Thanks, Jo, for your questions. In terms of COVID contribution in 2022, again, I won't give specific numbers, but I can give you some colors that may help you. If you look at our total COVID medicines in 2022, that was about $4 billion, split almost, you know, half and half between Vaxzevria and Evusheld. Vaxzevria, you know, was majority of that, as you know, was initial contract. Was not really a major contributor. For Evusheld, we had guided, as you know, in 2022 that the gross margins for that is lower than our corporate gross margins.

You also saw from today's results that we did take a charge for the Evusheld inventory and contract. You know, I think you can piece all of that together to see what that contributed in 2022. As it relates to your question on operating cost management, that is always, you know, an ongoing, you know, give-and-take and push-and-pull within the company. We are committed to our investment in R&D. While you can see obviously the 30 clinical, you know, phase III that we expect to start this year, we also had 34 approvals last year. There are some trials that are sort of coming, you know, off their main phase of investment and other trials that are starting this year.

That being said, you know, we're constantly doing portfolio prioritization to make sure we are able to fund the most promising and the most value-generating assets in our portfolio. Also with those, for example, the 34 regulatory approvals, many of them were already in areas that we're in. Again, we try to get operating leverage in those areas. Some of them are in new areas. For example, with HIMALAYA and TOPAZ, you know, we're building more in spaces that we were not in. But in the case of breast cancer, for example, we are leveraging, you know, infrastructure and sales force where we already are present. Again, we have operating leverage, and in areas that we're new and entering, we build as needed.

Pascal Soriot (CEO)

Thank you, Aradhana. Maybe just one addition on the Evusheld. 2022, the cost base is not that great really relative to typical pharmaceutical products that you have to launch and promote. The profitability in 2022 was actually pretty good. In 2023, as Aradhana said, it will be very minimal. You'd have to piece those elements together. But again, as I said earlier, if you do it, you will see that the underlying profitability, sorry, the profitability of the underlying business is improving very nicely from 2022 to 2023. We'll take maybe the last question from Emmanuel Papadakis at Deutsche Bank. Over to you, Emmanuel.

Emmanuel Papadakis (Pan-Euro Pharmaceuticals Equity Analyst)

Thank you for taking the question. Perhaps a follow-up question on margins. Given you finished 2022 at 30%, you've guided for CR growth of low to mid-single digits for both revenues and OpEx, that implies pretty limited expansion in 2023. Can you just reconfirm your commitment to the mid-high 30s margin in the mid-term and give us some sense of what the pathway looks like beyond 2023? When do we get to that mid-30s number, for example? Maybe a second question on Lynparza ahead of the PROpel, the delayed PDUFA date decision. Could you give us a sense of your current label expectations in light of both the EMA decision and that slightly mixed overall survival data you presented us last year where there was an inversion of the early part of the curves?

To what extent is that likely to be a problem when considering prospects for an all-comer label? Maybe since I'm the last person, I'll try and squeeze in a third. Dave, I think you mentioned it, I may have missed it, in Enhertu market shares in second line, HER2-positive and HER2-low, where are they now? Where could they go? Thank you.

Pascal Soriot (CEO)

Thanks, Emmanuel. Aradhana, do you want to take the first one?

Aradhana Sarin (CFO)

Yeah. You know, we are remaining committed to our ambition. As just as a reminder, that is an ambition and not guidance. You can see we are constantly operating, improving our operating margins. You can see that 2022 operating margins were better than 2021. We are continuously working on productivity improvements, but again, there are various elements, everything from sort of mix, shift and mix improvement, gross margin improvement, and, you know, again, operating leverage on the SG&A line while not compromising on the investment in R&D. Again, it's a balance that we try to strike between, you know, steadily improving our operating margin, while still investing for that, you know, strong growth post 2025.

Pascal Soriot (CEO)

Susan? Thanks, Aradhana.

Susan Galbraith (EVP of Oncology R&D)

In terms of the PROpel data, we're confident in the benefit risk, you know, across the patient population, so in the ITT, so including the HRR and BRCA wild type. We also have confidence in the biological plausibility of the benefit of interaction between pump inhibition and androgen receptor inhibition, because actually androgen receptor signaling is involved in DNA repair in AR-driven cancer cells. We'll present some clinical data looking at this interaction at the AACR Prostate Cancer meeting, which is in March, I believe.

I think, you know, I think you have to understand what the rationale is for why the interaction is relevant in the wild type population as well as in the HRR mutated population. You have to look at the overall clinical benefit, which, you know, with a five-month improvement in rPFS and a trend to improvement in OS with curves, yes, they separate late, but they, you know, they look good. I, you know, I think that we're confident in that overall population, and we're happy to see that we actually got that reflected in the EU label. We'll continue dialogue with the regulators around the world on this.

Dave Fredrickson (EVP of Oncology Business)

With respect, Emmanuel, to and Enhertu, in the U.S., we have gotten to approximately 50% new patient share in second line HER2-positive, so in the DB03 population, and over 40% in hormone receptor positive HER2-low post-chemo new share. That's the DESTINY-Breast 04 population. Just two things. On your second question for how high could it go, there's still some Kadcyla use that exists in the marketplace today. There's a decent amount of fragmentation with various utilization of various HER2-directed agents and some chemotherapies. I expect us to continue to grow in DB03. If you look at in Europe, Kadcyla had at its peak as much as 70% share.

I think that it's important to note that as you get into marketplaces where Kadcyla actually had a greater percentage of the standard of care, I think that that certainly represents the next goal that we have for those teams in terms of penetration, and then we'd like to go beyond that. In the DB04 population, I again think that we've got with the overall survival results and the fact that systemic chemotherapy is just frankly not delivering adequate efficacy and safety for patients as a second chemo option with advanced breast cancer that we've got an opportunity to continue to grow. I do think you saw that the Q3 growth was aided by some bolus, but I think we continue to grow from where we are here, and looking forward to launches across the globe, not just the U.S., throughout 2023.

Pascal Soriot (CEO)

Thank you, David.

Emmanuel Papadakis (Pan-Euro Pharmaceuticals Equity Analyst)

Thank you.

Pascal Soriot (CEO)

We probably will close for today here. Thank you so much for, again, your interest and your great questions. Let me just close by saying again that we're very much on track with our ambition to deliver a top line revenue that is an industry-leading growth rate with a double, low double-digit growth rate to 2025 and continued growth post 2025 to 2030. Importantly also, we are working very hard on reprioritizing constantly and improving our productivity, so we deliver also on our ambition to improve our operating margin over the next few years. Certainly, we are very much on track with that too.

In the long run, also we'll stay true to it, but of course, we'll have to consider the evolution of the pipeline and the need for reinvestment as we see fit. For now, we are focused on 2025 as a base camp 1 and very much on track with that. Thank you again for all your interest and have a good day.