AstraZeneca PLC (AZN) Q2 2022 Earnings Call Transcript

AstraZeneca PLC  (NYSE: AZN) Q2 2022 earnings call dated Jul. 29, 2022

Corporate Participants:

Andy Barnett — Head of Investor Relations

Pascal Soriot — Executive Director and Chief Executive Officer

Aradhana Sarin — Executive Director and Chief Financial Officer

David Fredrickson — Executive Vice-President, Oncology Business Unit

Susan Galbraith — Executive Vice President, Oncology R&D

Ruud Dobber — Executive Vice President, BioPharmaceuticals Business Unit

Menelas Pangalos — Executive Vice President, BioPharmaceuticals R&D

Marc Dunoyer — Chief Strategy Officer

Iskra Reic — Executive Vice President, Vaccines and Immune Therapies

Leon Wang — Executive Vice President, International and China President

Analysts:

Richard Parkes — Exane BNP Paribas — Analyst

Sachin Jain — Bank of America — Analyst

Mark Purcell — Morgan Stanley — Analyst

Andrew Baum — Citi — Analyst

Dan Carlson — — Analyst

Tim Anderson — Wolfe Research — Analyst

James Gordon — JP Morgan — Analyst

Simon Baker — Exane — Analyst

Michael Leuchten — UBS — Analyst

Luisa Hector — Berenberg — Analyst

Emily Field — Barclays — Analyst

Matthew Weston — Credit Suisse — Analyst

Emmanuel Papadakis — Deutsche Bank — Analyst

Viktor Sundberg — Nordea Markets — Analyst

Peter Welford — Jefferies — Analyst

Seamus Fernandez — Guggenheim — Analyst

Presentation:

Operator

Good morning to those from the U.K. and the U.S. Good afternoon to those in Central Europe, and good evening to those listening in Asia. Welcome, ladies and gentlemen to AstraZeneca’s Half-Year 2022 results Conference Call and Webcast for investors and analysts.

Before I hand over to AstraZeneca, I’d like to read the safe harbor statement. The company intends to utilize the safe harbor 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 conference call and webcast.

[Operator Instructions] And with that, I will now hand you over to AstraZeneca.

Andy Barnett — Head of Investor Relations

Thank you, operator, and welcome, everyone. I’m Andy Barnett, Head of Investor Relations at AstraZeneca and I’m pleased to welcome you to AstraZeneca’s first half 2022 conference call. All materials presented today are available on our website. Slide 2 has our usual safe harbor statement. We will be making comments on our performance using constant exchange rates or CER, core financial numbers and other non-GAAP measures and non-GAAP to GAAP reconciliation is contained within the results announcement, numbers used are in millions of U.S. dollars and for the first half unless otherwise stated.

Please advance to Slide 3. This slide shows our agenda for today’s call and in a moment I’ll hand over to our CEO, Pascal Soriot to begin. Following our prepared remarks, we will open the line for questions. We ask that you limit yourself — limit the number of questions that you have to give everyone a fair opportunity to participate in the Q&A during the allotted time. [Operator Instructions]

With that, please advance to Slide 4, and I’ll hand over to Pascal.

Pascal Soriot — Executive Director and Chief Executive Officer

Thank you, Andy. Hello, everyone, and welcome to this half-year call. So if we move to Slide 5 please, we continue to deliver through the first half of 2022 both in terms of commercial performance as well as moving our pipeline forward. Total revenue increased 48% versus prior year to $22.2 billion and core EPS increased by 44% to $3.61. Given the strength of our underlying business as well as increased demand for our COVID-19 medicines, which delivered $2.5 billion of revenue in the first half, we have updated our revenue guidance for the year. We now expect revenue growth for the full year to increase at a low-20s percentage, guidance on EPS remained unchanged and we continue to expect a mid to high-20 percentage increase as we continue to invest in our pipeline.

We have also confirmed an interim dividend of $0.93, reflecting the Board’s intention to increase the dividend to $2.90 for the full year of 2022. Looking across our business, we delivered revenue growth from all disease areas, reflecting not only the breadth of our portfolio, but also the depth in each of our respective disease areas. In the first half of the year, we reported several important late-stage data readouts including Forxiga in heart failure, Ultomiris in NMO and Imfinzi in non-small cell lung cancer and we have received significant approvals enabling commercial launches.

Please move to Slide 6. In order to maintain our ambition for long-term industry-leading growth we will need to maximize our launches and continue to invest in our growth pipeline and our research technologies. First, our pipeline successes have been driven — have driven an increased need to resource commercial launches which competition increasing in many markets, investing smartly to optimize our launches has never been more important. Spend on market development for medicines like Evusheld is also important if we have to unlock the full potential of this medicine.

Based on emerging data, we need to act fast and invest to win with high potential pipeline opportunities and we have several medicines as we see — as you see here on the second column in this chart. We have several medicines where our recent data has pointed to the potential for major clinical advances and sizable commercial opportunities. So we have listed here as you can see on this chart the successes we’ve experienced from the last few months but also in the middle, the priority assets that we are full-year resources for maximum potential.

Thirdly, there is a continued need to invest in early discovery research and new technologies to accelerate the rate of pipeline growth and you can see here in a number of those technologies, in particular in ADCs we’ve made tremendous progress in the last two years and Susan will highlight a little bit more examples of this. In addition to our goal of reducing SG&A spend as a percentage of sales over time in R&D we have set bold internal targets to drive efficiencies for the use of digital solutions. For example, we have invested in remote data collection for many of our global trials as well as the use of real world dividends and data science to optimize trial design to improve the success rate. This improvement will make our trials more efficient, more accessible for patients and reduce our indirect impact on the climate.

We’ve also worked to internalize clinic operations to drive further efficiencies. A rigorous approach to portfolio prioritization is also being applied which is enabling the direction of investment being the most promising medicines and the discontinuation of development for others, such as the three that I mentioned here. These decisions are difficult, but given the breadth of our portfolio are increasingly important. So, as you can see here, we are not on investing, but we also driving productivity improvement very aggressively.

Together, these investments will help us deliver ambition for low-double digit CAGR through 2025 and industry-leading growth thereafter. We want to remain a fast growing company beyond 2025 and we are confident we have in our hands what it takes to be a growing company until 2030 and hopefully even beyond 2030. At the same time, we remain committed to increasing operating leverage. And so despite the need to invest in new launches, our pipeline and technologies will remain focused on improving operating margin. We’re confident that this combination of industry-leading growth in operating leverage will drive shareholder value.

So, please move to Slide 7. We look forward to a productive back half of the year and we have several Phase III readouts, including the EMERALD-1 trial of Imfinzi in locoregional liver cancer. The first Phase III readout for capivasertib in HR+/HER2-negative breast cance and the MESSINA trial of Fasenra in eoe. And in 2023, we expect more than 20 Phase III readouts. The next couple of years are going to be extremely rich in clinical readouts. We are well positioned to deliver our industry-leading growth for 2025 and beyond beyond, as I said, and I look forward to sharing more exciting news as we — as our pipeline progresses.

Please advance to the next slide, and I will now hand over to Aradhana to walk you through our financials in the first half of the year.

Aradhana Sarin — Executive Director and Chief Financial Officer

Thank you, Pascal, and good afternoon, everyone. As usual, I will start with our reported P&L. Please turn to Slide 9. As Pascal has already highlighted, total revenue grew by 48% in the first half, benefiting from a full quarter of Alexion sales and higher revenues from COVID-19 medicines. Our collaboration revenue increased to $551 million in the half, partially driven by increase in HER2 sales. As a reminder, Daiichi Sankyo books an HER2 product sales in most western markets, while we record our share of gross profits in those regions as collaboration revenue. We record our share of the R&D and sales and marketing cost in our P&L. We will however book product sales in China upon launch. Our reported gross margin continues to be adversely impacted by the Alexion fair value uplift, which we anticipate to continue for another six months or so until the inventory is sold.

Please turn to Slide 10. Turning to the core P&L, our core gross margin increased by 6 percentage points in the first half to 81.1% with the second quarter benefiting from the phasing of cost recognition associated with the fulfillment of Vaxzevria contracts as well as favorable currency movements. While quarterly fluctuations of the gross margin may continue, we still expect the ex-COVID-19 group core gross margins this year to be relatively stable compared to pre-COVID levels. Our core operating expenses increased by 33% in the first half driven by the addition of Alexion which given timing of the consolidation had no contribution in the first half of 2021.

To echo Pascal’s comments, the increase in cost also reflects continued investments in R&D with several positive readouts in the last several months have un-gated additional trials. We also recognized a one-off charge of $89 million in the second quarter relating to a discontinued project. The pace of approvals following our pipeline success necessitated investment in new launches, resulting in a 20% increase in SG&A cost in the first half, but again compared to 2021 number, which did not include Alexion. SG&A cost during the period also reflects increased investment behind the launch of Evusheld, where we’re focused on driving end market demand. We continue to work to expand capacity following the recent dosing update.

Our core operating margin was 33.1% in the first half and 31.2% in the second quarter, benefiting from higher gross margins. On the net income line, we benefited from a lower tax rate in the second quarter, which was driven by favorable adjustments when we filed our 2021 tax return in major jurisdictions. Variations in tax rate between the quarters are expected to continue, but we still anticipate a core tax rate of 18% to 22% for the full year. Second quarter core EPS of $1.72 in the second quarter represents a 89% growth. We saw some FX headwinds following the strengthening of the U.S. dollar in the period, which impacted our revenue by more than $500 million in Q2 alone versus on a CER basis. If rate remains at the level seen at the end of June, we anticipate a mid-single-digit adverse FX impact on both total revenue and core EPS for the full year.

Please turn to Slide 11. Today we are updating our full year guidance. We now anticipate total revenue at constant exchange rates to grow by low to mid-20s percentage, which reflect the strength of the underlying business and an updated outlook for our COVID-19 medicines. We expect COVID-19 revenues broadly flat to 2021 with of course a different mix of Vaxzevria and Evusheld. We’re also updating our guidance for core operating expenses, which are now anticipated to grow by mid to high-teens percentage. This as Pascal touched upon in his introduction is mainly driven by additional investment in R&D as we continue to invest in long-term growth including promising medicines, such as data DFD, new launches across the globe as well as broader investment in digital and AI capabilities to name a few.

Looking ahead, we expect our R&D expenses in the second half of the year to be broadly consistent with the first half as trials progress. We have had very limited divestment so far this year and we now anticipate other operating income in the second half to be at similar levels as in the first half of around $200 million. Our 2022 outlook for China and emerging markets remains unchanged. Our core EPS guidance for the full year also remains unchanged with an anticipated growth of mid to high-20s percentage.

Beyond the specific guidance like all other companies, we’re also being impacted by the current macro environment and we have seen a number of countries reporting high inflation numbers recently which may ultimately also impact our cost base. You saw that our distribution costs increased by about 32% in the half versus 2021, reflecting not only higher freight rates and inflation, but also higher volumes, including the Alexion. Unlike some other industries we are limited in our ability to pass on cost increases to our customers.

Please turn to Slide 12. We continue to see improvements in cash flow generation and in the first half our net cash inflow from operating activities increased by $1.7 billion to $4.5 billion. In the second quarter, we paid $775 million to Chugai following a legal settlement on Ultomiris and in the first quarter we paid the first of three payments $920 million to the former shareholders of Acerta. The two remaining payments of similar amount will be paid in 2023 and 2024. As we’ve previously highlighted that we also anticipate cash flows relating to prior business development transactions, including Daiichi of just above $1 billion this year.

Our current net debt to EBITDA ratio is 3.5 times. If adjusting for Alexion fair value inventory adjustment would does not affect our cash flow the ratio is 2.1 times. Our capital allocation priorities remain unchanged and we continue to invest in our business in order to deliver long-term sustainable growth. Consistent with our announcement in February with an increase in dividend to an annualized $2.90 per share, the Board has approved an interim dividend for 2022 of $0.93 to be paid in September.

With that, I will hand over to Dave to take you through our oncology performance.

David Fredrickson — Executive Vice-President, Oncology Business Unit

Thank you, Aradhana. Slide 14 please. We’re pleased to report that our oncology total revenue grew 22% year-over-year during the first half underpinned by 18% growth in product sales. We saw double-digit product sales growth for Tagrisso, Imfinzi and Lynparza versus the prior year and also sequentially in the quarter as well as very strong continuing momentum for both Calquence and Enhertu. Across regions, performance was nicely balanced with the U.S., Europe, emerging markets and established rest of world each also driving double-digit year-on-year growth. Importantly, we’re seeing positive signs of recovery in cancer diagnosis, testing and treatment rates as COVID-19 case and hospitalization rates improved over the last six months in many countries.

For example, in the U.S. advanced breast cancer and ovarian cancer diagnosis rates have returned to pre-COVID baseline levels and lung cancer has improved to 90% of baseline. Trends were optimistic will continue. In China lockdowns in key cities have had an adverse impact on our medicines in the second quarter.

Now, I’m going to turn to greater detail on each of our key oncology medicines. Tagrisso global revenues grew by 14% in the first half. In the U.S. growth was 11% with Q2 growing at 17%, reflecting increased underlying demand and the normalization of inventory and gross to net impact seen in Q1. In the adjuvant setting, our efforts continue to build momentum. EGFR testing is now standard of care with rates greater than 80% and importantly adjuvant drug treatment rates of, excuse me, 60% for the first time. With that said, there is still much work to do in terms of market education in driving stage shift to early disease.

In emerging markets revenues grew 17% in the half, driven by continued launch momentum especially in LatAm and significant volume growth in the first-line demand in China. As highlighted last quarter, volume growth in China has fully compensated for the lower NRDL price. On a sequential basis, EM revenues were broadly flat due to the impact of COVID-19 lockdowns in major cities in China.

Turning now to Imfinzi, global revenues grew 16% in the half and 20% in the second quarter benefiting from recovery in diagnosis and chemo radiation rates in many regions. U.S. performance was robust with sales growing 15% in the half and 22% in Q2, as we saw an encouraging rebound in the Pacific setting an early spontaneous non-promoted use in biliary tract cancer where the TOPAZ-1 data has been added as category 1 treatment in the NCCN guidelines this month. In Europe, Imfinzi growth was up an impressive 29% for the half on strong uptake in small cell lung cancer based on CASPIAN and increasing use in stage III lung following COVID-19 recovery. Across the globe, our teams are busily preparing for anticipated launches of TOPAZ-1 and HIMALAYA in liver cancer.

For Lynparza, we continue to solidify the brand as the leader in the global PARP inhibitor class. Product sales grew 18% led by growth in adjuvant breast cancer following the U.S. approval based on the OlympiA Phase III trial and also supported by continued growth in HRD positive first line ovarian cancer and second line castration-resistant prostate cancer. Performance was seen across regions with U.S. sales up 11%, Europe up 20% and established rest of world up 27% in the half. Finally, emerging markets grew 32% on expanded patient access in ovarian cancer in China and other EM launches.

Turning to haematology, Calquence continues to show excellent momentum with worldwide revenues up 87% versus the first half of 2021. In the U.S. Calquence has crossed 55% share of new BTKi class starts in first line CLL consolidating its position as the clear standard of care. In Europe, expansion continues resulting in 26% sequential growth from Q1 as new patient share continues to rise as we rapidly established leadership in several major markets.

And finally, for Enhertu, total revenue was up 129% to $204 million. In the U.S. Enhertu has already achieved a leading new patient share of 35% in second line HER2+ metastatic breast cancer, rapidly displacing the prior standard of care. This is just two months after approval and launch based on the DESTINY-Breast03 Phase III trial. Europe and emerging markets have contributed nicely to growth as well based on launches in the third line HER2+ metastatic breast cancer. Following presentation in Q2 at ASCO and inclusion in the NCCN guidelines, we are preparing for anticipated launches in HER2-low metastatic breast cancer based on DESTINY-Breast04. Given the timing of those events, we don’t believe growth for the half reflects much utilization yet in this setting.

Across the globe, we are once again in an intense period of launch activity. We’re just getting started with OlympiA and DESTINY-Breast03 and we hope soon that that will be followed by DESTINY-Breast04 for PROpel, HIMALAYA, TOPAZ-1, POSEIDON and DESTINY-Lung01 in the months ahead. As we look to the second half, we’re also looking forward to seeing data readouts from EMERALD-1 Phase III trial of Imfinzi in locoregional liver cancer and CAPItello291. The first Phase III readout for our AKT inhibitor capivasertib in HR+, HR- or HER2-negative breast cancer. Collectively, this list, many of which represent blockbuster opportunities, will be key drivers of oncology growth next year and beyond.

I’ll now hand over to Susan who will cover the pipeline in greater detail.

Susan Galbraith — Executive Vice President, Oncology R&D

Thank you, Dave. Please turn to Slide 15. I was very happy to be back in Chicago in June, where we once again demonstrated our scientific leadership in cancer research at this year’s ASCO. During a plenary presentation, we presented Enhertu data, outlining unprecedented benefit in HER2-low metastatic breast cancer patients. This success unlocks further opportunity to utilize HER2 targeted therapies in HER2-low patients in breast cancer and beyond. The strength of the data was collaborated by the U.S. submission of DESTINY-Breast04 receiving a priority review.

Also at ASCO, we presented results from the FAKTION trial with capivasertib in metastatic positive breast cancer. Using next generation sequencing PI3K, AKT, PTEN pathway altered patients who identified an expanded biomarker subgroup analyzes were performed. Patients in this subgroup saw an impressive 38.9 months of overall survival benefit versus 20 months in the fulvestrant monotherapy arm. PI3K, AKT, PTEN is the most frequently mutated pathway in breast cancer and is very important as mutations can drive resistance to current endocrine therapies.

Moving on to haematology with the acquisition of TNB-486, a CD19xCD3 T-cell engager, we advancing our ambition to deliver innovative new treatments across blood cancers. By generating new immune responses, T-cell engagers could potentially deliver benefit to cancer patients, not currently responsive to immunotherapy. TNB-486 is currently in Phase I clinical trials as a monotherapy in relapsed or refractory B-cell non-Hodgkin lymphoma with plans to expand into other lymphomas. Moving forward, we plan to develop TNB-486 as a monotherapy or in combination with other targeted standard of care therapies in B-cell malignancies including diffuse large B-cell lymphoma as well as follicular lymphoma.

Please turn to Slide 16. We look forward to the World Lung Cancer Conference in August presenting data adjusting advanced and resistant disease with targeted medicines and novel combinations. We present results from the SAVANNAH trial combining Tagrisso and Orpathys. Results showed a trend toward improved response rates with increasing levels of resistance with an overall response rate of 32% in all comers and 49% in high met aberration patients. We look forward to data from trials such as FLAURA2 and SAFFRON broadening and elongating the level of clinical benefit Tagrisso provide to patients.

We will present data from the TROPION-Lung02 trial Dato-DXd plus checkpoint inhibitor pembrolizumab with or without platinum chemotherapy, demonstrating promising efficacy and tolerable safety in advanced non-small cell lung cancer patients without actionable genomic alterations. The response rate seen in the Dato-DXd and checkpoint inhibitor arm is much more impressive than what we’re seeing without the monotherapy. The results were in line with BEGONIA trial for Dato-DXd plus Imfinzi with the 74% response rate gives us confidence both from tolerability and efficacy standpoint over and above what we’ve seen with IO plus chemo.

Looking forward to next year, we have an exceptionally high level of news flow upcoming for oncology. Key chance to look out for in 2023 at the TROPION-Lung01 results with Dato-DXd in the first half as well the AEGEAN EFS and BL-31 readouts to bring Imfinzi earlier in the treatment paradigm for non-small cell lung cancer, increasing the chance of cure.

I’m now going to hand over to Ruud to cover BioPharmaceuticals. Please advance to Slide 17.

Ruud Dobber — Executive Vice President, BioPharmaceuticals Business Unit

Thank you, Susan. Now turning to Slide 18. Looking at our BioPharmaceuticals business, CVRM total revenues were up 19% on a pro forma basis to $4.6 billion. I was up 3% to $3 billion and V&I delivered total revenues of $2.8 billion. Farxiga achieved an impressive 62% growth driven by strong demand in type 2 diabetes, heart failure and chronic kidney disease. Farxiga is the fastest growing SGLT2 brand globally and strong performance across all regions provides confidence in continued growth. We reported headline results in the DELIVER trial for Farxiga in heart failure with preserved ejection fraction, which Mene will cover in more detail, but needless to say, we are excited about the potential opportunity to expand use in this under-served population.

In respiratory and immunology strong growth from Fasenra and new launched medicines rest two Saphnelo and Tezspire was partly offset by Pulmicort’s continued decline in China following VBP inclusion last October. Fasenra continue its market leadership position in severe asthma across major markets, delivering 18% growth in the half. We’re excited about the launch of Tezspire in severe asthma. In its first full quarter since launch Tezspire achievec 13% new to brand market share and we are pleased to see over 60% of new to brand share coming from the non-IL-5 class with minimal impact on Fasenra. We continue to see demand growth for Saphnelo in systemic lupus erythematosus. And in the U.S. new to brand prescriptions reached 24% of the biological class in the second quarter.

Within C&I, Vaxzevria total revenues reached $1.6 billion in the half, fulfilling the majority of initial contracts. As Pascal mentioned, Vaxzevria, our COVID-19 vaccine is estimated to have safe over 6 million lives. This analysis is based on data from Imperial College and published in the lenses. Evusheld, our long-acting antibody delivered $940 million, reflecting additional contracts signed globally.

Please turn to Slide 19. In emerging markets total revenue was $6.2 billion in the half. Emerging markets growth rate, including the impact of Vaxzevria of 16% and this was split between ex-China emerging market sales which grew 46% and China where sales declined 5%. Excluding the impact of Vaxzevria, ex-China emerging markets grew 48%. As mentioned previously, the delayed VBP tender process completely completed in July and we expect implementation in quarter four of this year which full impact on silicon in 2023. We reiterate our guidance and still expect total revenue for emerging markets to grow by mid single-digits in 2022 with mid single-digit decline in China.

I will now hand over to Mene to cover the R&D advancements in the period.

Menelas Pangalos — Executive Vice President, BioPharmaceuticals R&D

Thanks, Ruud. Please turn to Slide 20. In May, we reported DELIVER trial showed that Farxiga achieved a clinically meaningful reduction in cardiovascular death or worsening heart failure in patients with preserved ejection fraction. Together with the successful DAPA-HF trial DELIVER demonstrates Farxiga’s efficacy across the full spectrum of heart failure regardless of ejection fraction, and we look forward to presenting DELIVER’s full results at the ESC in Barcelona in August. Also in the quarter together with our partner Ionis we disclosed positive high level results from the NEURO-TTRansform trial in hereditary transthyretin mediated amyloid polyneuropathy, a debilitating disease that can lead to impaired motor function. Eplontersen delivered a clinically meaningful improvement in the patients’ modified neuropathy impairment score plus 7.

In our V&I portfolio new data published in the New England Journal of Medicine showed that Evusheld retains neutralising activity against the Omicron variant BA.5, BA.4 and BA.2, all of which are highly prevalent globally today. And while Evusheld remains highly effective at preventing COVID-19, we are cognizant the virus will continue to evolve and in the quarter we licensed an early stage portfolio of COVID-19 antibodies from RQ Biotechnologies. Looking ahead to the next 18 months, we have more data to come from Farxiga with the DAPA-MI Phase III trial for non-diabetic patients with myocardial infarction, and we’re excited about forthcoming Phase III readouts with Fasenra in three eosinophilic driven diseases and EOE, HES and EGPA.

Later this year we also anticipate seeing further Phase II data from our SOLANO study confirming that AZD8233 has the potential to be a best-in-class molecule in terms of its LDL reducing activity in patients with dyslipidemia and that’s targeting PCSK9. We have over 10 mid-stage clinical trial readouts in the next 12 to 18 months that will fuel the next wave of significant investment decisions, including Farxiga combinations, our NPL inhibitor and tozorakimab anti-IL-33 monoclonal antibody.

Please move to Slide 21. We were also delighted with the New England Journal of Medicine publication and proud to develop such a highly efficacious medicine with nirsevimab. RSV is, as you know, is a leading cause of lower respiratory tract infections such as bronchiolitis or pneumonia as well as hospitalization in infants. And these data show for the first time the potential to significantly protect all infants through their first RSV season with a single dose immunization and we look forward to working with health authorities to bring nirsevimab to infants as quickly as possible.

Please now turn to Slide 22 and I will now hand over to Mark to cover rare diseases.

Marc Dunoyer — Chief Strategy Officer

Thank you, Mene. Please turn to Slide 23. In the first half rare disease contributed $3.5 billion in total revenues, representing year-on-year pro forma increase of 10%. In the second quarter, we recognized certain one-off pricing adjustments in the international region. Excluding these one-offs, pro forma growth in the first half was 8%. Emerging market sales were $206 million in the first half impacted by order timing in certain tender markets. In the second quarter, the C5 franchise delivered durable pro forma growth of 9%. The slowing growth of Soliris reflects successful conversion to Ultomiris.

New market expansion and strong launch uptake in generalised myasthenia gravis in the U.S. drove Ultomiris to 31% in the second quarter. While it is still early in the myasthenia gravis launch, at quarter end approximately one-third of Ultomiris initiation with complement naive patients, which gives us confidence in the ability to expand our addressable population to approximately 30,000 patients in the United States. Beyond this, Ultomiris initiation with complement naive patients, which gives us confidence in the ability to expand addressable population to approximately 30,000 patients in the United States. Beyond the C5 franchise, Strensiq grew 18% in the quarter, driven by strong underlying demand and initiation trends in the U.S. Lastly, Koselugo demonstrated substantial growth in the quarter benefiting from rare disease, organizational realignments resulting in increased demand and market expansion.

Please turn to Slide 24. During the period, we reported remarkable Phase III data from the Ultomiris CHAMPION trial in neuromyelitis optica. As shown on the Kaplan-Meier curve there was zero adjudicated relapses on the slide that you can see this is horizontal blue line they will educated relapses observed in patients receiving Ultomiris, and importantly, this effect continued out to 73.5 weeks. This exceptional data not only represent the opportunity to bring an innovative new medicine to NMO patients, but also offers another example of the consistently strong data generated by our C5 franchise Soliris and Ultomiris in neurological indications.

Looking ahead, we’re excited to continue to deliver on our pipeline was anticipated without for Soliris in Gillian-Barre Syndrome, which is now expected in the second half of this year and the headline results of our first-generation novel oral Factor D inhibitor danicopan in PNH with EVH expected in the first half of 2023. Lastly, before I turn the call back to Pascal for closing commentary, I would like to highlight two important milestones for Alexion. This year Alexion marks its 30th anniversary in rare disease and also the first anniversary of the deal closure. With immense gratitude, I would like to thank Alexion colleagues for their continued commitment to pushing the boundaries of science and accelerating innovation to develop life changing therapies for those living with rare disease around the world.

With that, please turn to Slide 25 and I will hand over the call to Pascal.

Pascal Soriot — Executive Director and Chief Executive Officer

Thank you very much, Marc. Please move to the next slide. Together with the Board I’m pleased to announce Michel Demare will take over from Leif Johansson as Chair following the 2023 AGM. I have worked closely with Michel since he joined our Board in 2019. And I look forward to our continued partnership in this new world. I’d like to thank Leif for his commitment to AstraZeneca over the years and through the transition period. I’ve had an amazing 10 year period walking with Leif and we’ve gone through a lot together and I would really like to thank him and the Board for their continued support over the last 10 years that have taken us from where we are, where we were in 2013 to where we are today in a very, very different place and that’s been really a fantastic experience working with Leif. We’ve been a tremendous team. And I know Leif — Michel and I will be working together and forming a excellent team for the many years to come.

Now, I would like to close with the Slide 27. We continue to execute on our strategic priorities, which will position AstraZeneca to deliver long-term growth. Our robust life-cycle management continues to support our top line growth. And in the half we delivered on key Phase III life-cycle management trials including Ultomiris in NMOSD and Farxiga in heart failure with preserved ejection fraction. We continue to invest in our pipeline in order to achieve our strategy growth ambition and we remain open to strategic business development, such as the acquisition of the TeneoTwo CD19xCD3 T-cell engager in haematology.

Importantly, we have a long run way for most of our medicines in term of loss of exclusivity, which should provide confidence in our sustainable growth. Our company has shown — has grown stronger in 2022 both in terms of revenue and pipeline development. And you — as you have seen and heard today, we are investing thoughtfully to continue to grow our business at an industry-leading rate through 2025 and beyond. We want and we believe we can be a growth story for the many years to come.

As you can see on this slide, we have everything we need to grow and we continue building on what we have. At the same time, we want to continue driving our focus on improving operating margin. And as you probably remember we said, our goal is to get to mid to high-30s in the mid to long term. We’re very committed to this. We’re making progress in that direction. And the success we’re experiencing with our top line revenue allows us to so stay focused on this goal of improving margin, but at the same time continue to invest strongly in our pipeline so that we can indeed deliver top line growth, strong growth post 2025.

Thank you all for joining. We’ll now take your question and I will hand the call back to Andy.

Questions and Answers:

Andy Barnett — Head of Investor Relations

If you turn to Slide 28. We will now go to the Q&A. [Operator Instructions] Now, let’s take the first question from the conference call.

Pascal Soriot — Executive Director and Chief Executive Officer

Thanks, Sandy. So, the first call is — the first question is from Richard Parkes at BNP Paribas. Richard, over to you.

Richard Parkes — Exane BNP Paribas — Analyst

Yeah. Under the chance later on this afternoon. And in some U.S. strip pricing reform is looking increasingly likely that we see enactment to that in the — over the summer period. So I wondered if you could just help us maybe some implications for your portfolio and two aspects to that Medicare Part-D restructuring could have some positive and some negative implications for your portfolio. So can you help us understand how that might balance out. And then in terms of direct negotiation we’ve got a few drugs Tagrisso, Lynparza, Calquence at some point could come into that basket. So could you just help us understand maybe the probabilities any of those drugs at least gets included in the first couple of rounds of that negotiation process. Thank you.

Pascal Soriot — Executive Director and Chief Executive Officer

Thanks, Richard. So, maybe I could ask Dave to cover part of your question and Ruud you also been of course following this is very closely you could add to this. Over to you Dave.

David Fredrickson — Executive Vice-President, Oncology Business Unit

All right. Thanks, Pascal. Richard, you have the two elements Part-D and negotiation. I guess there is a third element as well which is inflation penalties, which just to address right at the back. We don’t see that is having much impact, if any. We’ve been pretty responsible and below inflation rates on price increases historically. I think that between now and when negotiation starts in 2026 based on the current rating that the impact overall of Part-D reform is quite manageable. As you point out, there are going to be some impacts in oncology that are negative over the period. That said, that’s offset by some opportunities that come through patient affordability for greater adherence and compliance across the portfolio and I think in particular in our BioPharmaceuticals unit.

In terms of negotiation, we do see negotiation as a bad precedent for innovation and we think that it’s going to have an impact on the speed with which innovation, particularly in areas of small populations and high unmet needs, how companies and sponsors are thinking through that. In terms of AstraZeneca specific impacts, I do think that starting in 2027 and beyond as you point out that Tagrisso certainly becomes a possibility for being one of the medicines that could fall into this. The rule is specifically for how that’s being contemplated not yet clear. There w’d be the top 50 drugs and there will be some selection that’s made by that period of time. But I think that we are looking at a 2027 and beyond time period. So it’s certainly kind of post-medium term, where I think we start to see the impact coming from the negotiation portion. Ruud, do you want to talk about some of the biopharma specific elements.

Ruud Dobber — Executive Vice President, BioPharmaceuticals Business Unit

Yeah. So very quickly and you were mentioning Dave greater adherence is a potential upsides for few products in the biopharma business. We know that persistency rates in the U.S. are always somewhat lower than for example in Europe due to affordability. Out of pocket costs are relatively high in the United States. So despite the redesign we’ll deliver an opportunity for patients to stay long haul therapy and of course that will benefit some of our products in the biopharma business units.

Richard Parkes — Exane BNP Paribas — Analyst

Perfect. Thank you.

Pascal Soriot — Executive Director and Chief Executive Officer

Thank you, Ruud. Thank you, Dave. Sachin Jain Bank of America, over to you, Sachin.

Sachin Jain — Bank of America — Analyst

Just give some color on how you’re thinking about cost lines. Can you hear me?

Pascal Soriot — Executive Director and Chief Executive Officer

Yes, yes, go ahead. Sorry.

Sachin Jain — Bank of America — Analyst

Sorry. How you’re thinking about cost lines within that? And so R&D spend clearly flexing up any color on where you think that goes versus the existing 21% to 22% of sales. Many additional color you can give on SG&A offset for that. And just what flex do you think exists and you’re getting to the top versus bottom end of that margin range. Second question is for Susan on amivantamab updated PFS data in the world lung abstracts, it looks like PFS trending towards 30 months obviously impressive versus the 18 to 19 with Tagrisso accepting. It’s a very small. And I just wonder if you could update us on your competitive thoughts on Tagrisso there. I think on the ASCO call you’d noted IV discontinuation 10%, 15% being low and therefore caution on that potentially hitting just wondering whether your thought process is shifting. Thank you.

Pascal Soriot — Executive Director and Chief Executive Officer

Thanks, Sachin. So, Aradhana, you want to take the first one and Susan…

Aradhana Sarin — Executive Director and Chief Financial Officer

Sure. Thanks, Sachin for your question. On R&D, as we noted and given the number of positive readouts we’ve had, clearly that’s ungated a number of additional studies and so we continue to invest in R&D. I think we’ve been fairly consistent around how much we want to invest in R&D on an ongoing basis in the sort of low-20 range and we’re sort of consistent with that. As I also mentioned, we do expect the second half to be somewhat consistent with the first half of this year and going forward, obviously we’ll give guidance when we do for 2023. On SG&A, we continue to drive improving operating margins. You’ve seen that our margin trajectory continues to improve and also specifically note that that margin achievement is with a much lower contribution of other income that we expect this year. So we’re continuing to drive SG&A, and we continue to drive efficiency and we remain committed to our operating margin ambition that we’ve communicated previously. Susan?

Susan Galbraith — Executive Vice President, Oncology R&D

Sure. Thanks for the question. So we have a multi-pronged approach to combinations with Tagrisso. Firstly, we have the FLAURA2 study, which is our combination with Tagrisso plus doublet platinum-based chemotherapy. I would point you to encouraging Phase II data from the Opal study, which was presented at ASCO. Looking at this combination with platinum-based chemotherapy plus pemetrexed which showed in 67 patients and 91% response rate. The two-year landmark progression-free survival for 70%, which compares very favorably with the data in an n of 20 that was presented from the data. FLAURA2 is fully recruited and reads out in the first half of 2023. In addition, of course, you’ve got the combination as you mentioned with savolitinib which is ongoing in Phase III in the SAFFRON study and again we have data from the SAVANNAH study, which reported at Phase III start with encouraging response rates, particularly in the high-MET amplified subgroup. We’ve also got combinations that are ongoing with ADCs, including patritumab, a HER3 directed antibody-drug conjugate as well as with Dato-DXd and I would note that Dato-DXd in patients with actionable genomic alterations post-treatment with those targeted therapies. So the 35% response rates. So, we’re encouraged about the general potential for combined ability for Tagrisso.

Sachin Jain — Bank of America — Analyst

Thank you.

David Fredrickson — Executive Vice-President, Oncology Business Unit

I think an addition Sachin to what Susan laid out, maybe just two other components I’d like to share. I mean, I think the first piece, when we take a look at Tagrisso and I mentioned this in some of the opening remarks, we are seeing from FLAURA that duration of therapy is increasing and frankly longer than what we saw in the study. And I think in part this owes to a pretty favorable side effect profile of monotherapy Tagrisso. I think we see pretty low mid-teens level of grade 3 treatment-related adverse events. And I think that we’re already seeing quite a bit longer than that from both of the sets a combinations. I think with that being said, I would expect to see some utilization in certain patients of the combination of both FLAURA2 and the J&J combo are are positive and I still think that the majority of the utilization that you’re going to see in the metastatic setting comes from the monotherapy at this stage. And I’d also add, we continue to grow with key catalysts of [Indecipherable] Laura is on the horizon. Susan and I both talked about FLAURA2 when we’ve initiated the ADORA2 study, which I think continues to build on life-cycle plan in Tagrisso that I think remains vibrant.

Pascal Soriot — Executive Director and Chief Executive Officer

Thanks, Dave.

Sachin Jain — Bank of America — Analyst

Thank you.

Pascal Soriot — Executive Director and Chief Executive Officer

Mark Purcell at Morgan Stanley. Mark, over to you.

Mark Purcell — Morgan Stanley — Analyst

A question on Evusheld and marketing. Could you help us understand the level of investment you’re putting behind this asset and the durability you expect going forward. Mene you’ve mentioned the AK Biotechnology deal with at least a chance, but you say just the level of ambition there would be great. Just a follow-up to what Sachin just asked, do you expect to see combination use of Tagrisso with capivasertib as well be useful to get your perspective there. And then the last one, just on Dato-DXd you clearly a priority asset where you’re looking to invest more. Could you help us understand the ambitions outside lung cancer at this point. Thank you.

Pascal Soriot — Executive Director and Chief Executive Officer

Thanks, Mark. So maybe we can start with Evusheld. Iskra, there are two questions here. One is the investment in the ambition for this product and two is durability.

Iskra Reic — Executive Vice President, Vaccines and Immune Therapies

Thanks for the question. And first of all, we are pleased to see strong demand, increased demand for Evusheld, because it is clear that is really important to protect the immunocompromised patient in the COVID-19 due to the fact that they are not able to develop their immune response after vaccination. We do believe that that demand will continue, and therefore, it is really important to make sure that we do our best to educate and increase the awareness for both patients and HCPs to be able to use Evusheld to protect patients’ need. Therefore, our investments are increasing and we want to resource that in the proper way to make sure that we drive demand and fulfill and satisfy the needs that exists to protect the immunocompromised patient.

Pascal Soriot — Executive Director and Chief Executive Officer

Durability.

Iskra Reic — Executive Vice President, Vaccines and Immune Therapies

And then given — on the durability, I think it’s in our — increase our updated guidance. It’s clear that we do see increased demand this year. It’s always difficult to predict and forecast COVID-19 medicine given the evolving and dynamic environment. But I cay say that we feel strong about durable need for Evusheld specifically given the fact that Evusheld is the only monoclonal antibody approved for prophylaxis and equally the only one that has retained neutralizing activity in that space versus all different Omicron variant. And the reason for that is that Evusheld was designed as a combination of the two monoclonal antibodies with a different but complementary activity against the Omicron variant. And therefore, it was designed to evade the resistance in the future variant. So we stay positive and optimistic that it will retain in its activity versus new variants.

Pascal Soriot — Executive Director and Chief Executive Officer

Thanks, Iskra. Maybe just to add, if you look at the COVID today, you could reasonably make the argument that, the most important thing to do today is not necessarily to boost people who are healthy. It’s actually to protect those who are immunocompromised and vulnerable. So those are the people who have cancer, people who have been transplanted, people may have HIV or some other immune conditions, because these people need to be protected, vaccines don’t work at all or not very well. Two is they represents 32% of patients were hospitalized who has COVID. And three is because they’re immunocompromised they tend to keep the virus in the body longer and they’re source of mutations and variants. So for all those reasons, it’s important to protect these people and it should be number one priority.

The issue is we need to make sure physicians and patients are well aware of the product if we want to make it sustainable. And as a result, the investments we are doing now is really important. So we can make sure patients and physicians are educated and then they continue using it. And beyond that the only question is as Iskra said, will the variant emerge that become resistant so far hasn’t been the case, because the product is very, very cleverly develop which two antibodies. But beyond this we still, and I think Mene mentioned it, we’re working on the next-generation just in case a variant would become resistant to Evusheld. So we’ve got good hope. It’s sustainable, durable. But of course, we don’t know. It’s hard to predict the future with COVID as we all know.

The other question was combination again and that was the exist, Susan do you want to cover that.

Susan Galbraith — Executive Vice President, Oncology R&D

As I mentioned at the ASCO IR events we’re planning new Phase III trials which will start over the next 12 to 18 months so by the end of 2023. So, obviously investing in lung cancer and in breast cancer we’ve recently have to start of the TROPION-Breast02 study in locally recurrent inoperable metastatic triple-negative breast cancer. And we have ongoing the pan-tumor study which is looking at the potential for this medicine across the range of other tumor types. And I remind you the TROP2 expression is actually highly expressed to cost of range of different tumor types. So we do think there is potential for this molecule and beyond breast and lung cancer.

Pascal Soriot — Executive Director and Chief Executive Officer

Dave, anything you want to add.

David Fredrickson — Executive Vice-President, Oncology Business Unit

On data, I think the data has the opportunity to be one of the most significant medicines within the portfolio. And I think that the TROPION-Lung01 data is obviously going to be the first proof case of that. But I think that if we’ve got the ability to be able to just replace systemic chemotherapy in late-line lung cancer alone that the opportunity is quite significant. And then as we think about how biomarker might open it up to other places, I think the future is bright. I think also, Mark, you asked a question about expectations around Tagrisso utilization, I mean obviously that utilization would be spontaneous off-label and I think probably could only occur in the U.S. And so just based on that while that may be something that I could envision taking place. I don’t think that it would affect demand in a material way in terms of what I’d be expecting for Tagrisso.

Mark Purcell — Morgan Stanley — Analyst

Thank you very much.

Pascal Soriot — Executive Director and Chief Executive Officer

Maybe just to add to what was said and link it back to our investment in R&D. I mean you had — Dave said that has the potential to be a very, very large product and we have all seen the HER2 results and HER2 can also be a very, very large product. Now the thing is we — to achieve full potential we have to develop those agents across a whole range of indications. And beyond those two projects, we have a whole range of products in oncology. We have a eplontersen in cardiovascular medicines. We have tozorakimab. We have a whole number of other products including in rare disease. And so when you come to the whole of this, you really have to think unless something really very unexpected happens, we should be a growth company, but we need to resource this product and make them big, big product like they deserve to be and get to their full potential.

Andrew Baum at Citi. Over to you.

Andrew Baum — Citi — Analyst

Firstly on Evusheld, could you update us on the anticipated timing for the FDA approval and also some indication, I’m sure you’ve been busy trying to build capacity, where you think capacity could land by the end of next year? I’m just trying to work out how quickly you can leverage the enormous unmet medical needs as well as your haematology, oncology and autoimmune field forces which will feed into the at-risk patient population and use the proceeds to some bridge the opex demands of the rest of your portfolio. So if you could talk to the limitations and how quickly you can overcome them and how much demand you can grow assuming the efficacy remains intact. So that’s first question.

The second question is on China. President Xi warns President Biden that the U.S. is playing with fire with closest visit. There’s obviously a lot of geopolitical risk globally. I know that you have the largest Chinese business among the majors and you’ve worked hard to build that securing relationships with local manufacturing, but I’m just wondering, has the Board considered other measures such as a partial IPO of the Chinese business with the Chinese listing to try and minimize the risk in case there is some escalation here. And then finally, perhaps you could update us how interactions between new lawyers and must lawyers has gone in relation to the POP1 asset that you have and must beliefs they have some ownership or rights to that product. Thank you.

Pascal Soriot — Executive Director and Chief Executive Officer

Let me just take a couple of things quickly. First of all, I’m very happy that Andy was not more successful than I was before. Let me turn you guys to one question that’s at that. And those are three great questions Andrew. And the second comment I would make is we don’t communicate with our friends at Merck lawyers. We talk to them and of course the lawyers get involved at some point, but I just want to say we’ve had a tremendously positive collaboration with the team at Merck and maybe let me cover this part one question quickly is we suddenly you have had such a great collaboration. We very much inclined to to collaborate with Merck on the POP1, the question is under what conditions and what timing and how do we do it, but it’s — I can’t say we will do it, but it’s only a very strong consideration for us to do it and continue the fantastic collaboration. And Dave if you have anything you want to add you can add it a bit later if you want. So maybe let’s start with initial, Iskra, two questions for you capacity.

Iskra Reic — Executive Vice President, Vaccines and Immune Therapies

So, we are progressing with the many regulatory bodies around the world, FDA included. As you probably know we received approval for prophylaxis already in many countries including Europe, U.K., Canada, Australia, and many others. And we have the emergency approval in U.S. and we are working closely with FDA for the final approval of the of the prophylaxis. Equally, you probably know that that we recently announced the Phase III trial of the treatment of the out hospital patients and we do progress with the submissions of the regulatory approvals for the treatment indication. We do expect approval in Europe in the second half of this year as well as progressing in the U.S., Japan and China with our submissions as previously commented.

As you as you fairly notice, there is a strong and important unmet need in this space, and therefore, we are doing our best to increase the capacity and make sure we are able to supply as many patients as we can across the globe. From the previous discussions and the announcements we made, we continuing to increase the supply and we are confident that we will be able to supply all the contracts that we currently have. And going forward, we are continuing to see an increasing the supply and the capacity as we can.

Pascal Soriot — Executive Director and Chief Executive Officer

On the fees for deployment Andrew you raised an important question and we have field forces across haematology, immunology etc. So we can deploy the stress force. But I think your question about approval which I could just highlight an important one. We need to get approval, full approval not in the U.S. to be able to fully promote and is fundamental so we established a product in the U.S. With China, let me just say quickly and hand over to Leon to comment more on the situation on the ground in China. Essentially, we don’t comment on what consideration we would do, but we are always looking at various scenarios for the different parts of the business. In Southern in China, we are looking at what is the best way to continue operating in China. The — at the airports we’ve always taken in China has been — we are in China, for China and then more, not as few years, our approach has been we’ve been — we are in China for the work. But that means is we are in China to bring our medicines to Chinese patients. But we’re also in China to help the world. We export from China and we are now connecting to Chinese innovation and looking to partner. We’ve set up an investment fund that is investing in both the companies in China and we are looking at how can we tap into Chinese innovation to benefit patients were on the world. So our approach is really always been to be in China, for China and for the world and the way we operate keep — is always within that framework. But beyond this, it’s hard to comment on what consideration or what options we are actually looking at. Leon, do you want to comment a little bit on the situation on the ground in China.

Leon Wang — Executive Vice President, International and China President

Yeah, I think the China government is after COVID situation, zero COVID the policies to continue. So maintaining — avoiding disruption, our logistics and supply chain and also protecting foreign company investment are the two most important priority for the Chinese government. So our strategy in China is very clear is the speed up our global pipeline into China because our global pipeline still in China we lag a little bit behind. So we are getting Enhertu DB03 and DB04 approval next year and the BTK is very important products, so we will also launch it next year to indication and [Indecipherable] and are also submitting this year and also hopefully we can get approval late this year. So, launching next year and the launching two most important rare disease products and the many new indications.

So 2023 and 2024 and 2025 the next three years will be critical for our new innovative pipeline to succeed in China. But of course at the same time you can clearly get a hit and our large product silicon getting to VBP one by one. But we are still able to maintain all multiple-channel promotion to keep a loyal user as much as possible. So I think at the same time we are slowing down decline on the VBP portfolio and at the same time pushing new indication life-cycle indication of a large products like Tagrisso in Farxiga and also launching new pipeline on top of all these growth. So I think our strategy remains clear like across that we on top of our global innovation, we also established a fund with CICC and tap into local innovation. Hopefully we can walk closely. I think with FibroGen to Roxa in China, work with Hutchison to do see matching in China. So that’s just the beginning. I think we will have in the future more new product in China, for China and in China for growth.

Pascal Soriot — Executive Director and Chief Executive Officer

Thanks, Leon. So the next question is Dan Carlson at ABG. Dan, over to you.

Dan Carlson — — Analyst

First off the back of the zibotentan in Farxiga Phase IIb study CKD being pushed into H1 next year, just your current level of confidence or thinking on the prospect of getting Farxiga combinations approved obviously you’re coming off of patent. And then secondly on inflationary impact and I guess particular personnel cost. How much, if any of that impact have you seen already and how should we be thinking about the timing of that impact in either the second half or next year? Thank you.

Pascal Soriot — Executive Director and Chief Executive Officer

Thanks. Mene, do you want to take the first one and Aradhana the second one about inflation.

Menelas Pangalos — Executive Vice President, BioPharmaceuticals R&D

Okay. So the, so first of all, just to remind you the loss of exclusivity driven a point in time it’s a range across multiple markets and our revenues is split pretty well across all the regions. So we have quite a broad timeframe in which to to get the combinations launched, but irrespective of that, the two combinations that we have moving forward the MR modulator and the antagonist both self sufficient business case in their own right. And as we’ve said, we’re expecting to get dates for both of those by the first half of next year. Now, in terms of the mechanisms, these are both well precedented mechanisms. So as long as the molecules behave themselves we’re optimistic, but until we have data in hand, I wouldn’t be too optimistic. But I think once we get hopefully positive data, then I think we are full throttle to pivotal studies and trying to launch as soon as we can and hopefully within that timeframe.

Pascal Soriot — Executive Director and Chief Executive Officer

I think maybe what I could add also that our separate from the combinations is that as Mene said they part of the patent expiry as part of the time. But on top of it, if you look at the sales that we showed you a bit earlier, the U.S. in the global sales is not the usual 50%, 60% of global sales and you see here the potential of a drug that is addressing being unmet need. And so a lot of sales are outside the U.S. What that means is even when we lose patent protection in the U.S., the products or elsewhere the policy is not going to collapse. We’re going to have a more slow — a slower decline and some more time to launch those combinations and keep maintain this product. Aradhana?

Aradhana Sarin — Executive Director and Chief Financial Officer

Sure. I think on inflation, as I mentioned, we are obviously seeing some impact of inflation, particularly in distribution costs. But we continue to monitor this. Our business is very resilient. We continue to innovate. So, I think pricing of drugs and so forth has to be correlated with value, but this is something that we’ll continue to monitor in terms of impact it has on our business.

Pascal Soriot — Executive Director and Chief Executive Officer

Thanks, Aradhana. Tim Anderson, Wolfe Research. Tim, over to you.

Tim Anderson — Wolfe Research — Analyst

Thank you. On data put them out on TROPION-Lung01, what do you think, good results would need to be for Astra and investors to say, wow, this looks like a very promising new drug. So what’s realistic to expect in terms of things like hazard ratio and tolerability and safety. And then on Tagrisso and amivantamab again, can Astra clarify its views on how often things that c-MET amplification of the driver of Tagrisso resistance, because that’s really what J&J’s amivantamab success is most dependent on in that [Indecipherable] trial and the literature suggests it’s not that high, maybe it’s 20% or something, but I know that different estimates are out there.

Pascal Soriot — Executive Director and Chief Executive Officer

So maybe the second question is for Susan. The first one do you want to cover that or.

David Fredrickson — Executive Vice-President, Oncology Business Unit

Sure. I think that in terms of what we see in TROPION-Lung01 you’ve got to compare that to the background what we see from second-line plus docetaxel, which is the comparator arm utilization and the results that we see from that docetaxel in second, third line lung cancer has pretty poor response rates again in that 5% to 20% range depending on what you look at and progression-free survival, but again is I think relatively short kind of in the six months and below range. So certainly, when we kind of think about the opportunities to see what investors should be enthusiastic about, I think that some of the early data that we’re already beginning to see within the abstract I think compares quite favorably to that.

I don’t know Susan if you want to speak to any of those elements, but I think that the other piece that I would say Tim that’s really important here is that for all of the advancements that have been made in advanced lung cancer through checkpoints and checkpoint plus chemotherapy, the overwhelming majority of patients progress on those regimens and they find themselves on systemic chemotherapies, and so it is pretty enormous unmet need that this study seeks to address. Susan, do you want to comment at all on what we’re seeing so far.

Susan Galbraith — Executive Vice President, Oncology R&D

Yes. So as you are aware the data we’ve already published shows a 28% response rate in the dose and the median response duration of 10.5 months. So again, if you put that into the context of what Dave just said about the expectation for current some of the care chemotherapy. I think you’re seeing improvement. And then in terms of tolerability a couple of things to note. First of all the of interstitial lung disease is low with that post docetaxel we’ve seen with Enhertu. What we do see is stomatitis is does missing toxicity and we are investing in patient and investigator education about the management at the side effect, and also in the digital health tools to help manage how patients get through get through that. So I think there are ways in which we can manage those side effects to really represent an overall benefit risk profile that is quite attractive in this setting.

I think the second thing is that there was alluded to is that across the program, we continue to look for opportunities to further refine the patient population that’s the best to treat as we move beyond TROPION-Lung01 into other settings. And then I think your question about the level of MET over-expression and amplification as a resistance mechanism to Tagrisso, what we’ve seen is in the range of 15% to 30% range. So 15% when you’re looking at circulating tumor DNA, but you can’t underestimate the of metal certification using ctDNA alone, if you look in tissue. It can be at the higher end of that range. So, something in that range is what we’re expecting.

David Fredrickson — Executive Vice-President, Oncology Business Unit

I think Tim just maybe to add on to the back to the question on data the docetaxel I’d said it’s less than 6, which is true, it’s probably if we gave kind of accurately it’s 3 to 4 months is what we’re seeing. So that’s what we need to be meeting within this.

Pascal Soriot — Executive Director and Chief Executive Officer

Thanks. James Gordon. Go ahead, James.

James Gordon — JP Morgan — Analyst

Thanks for taking two questions. First question on lung cancer. So if FLAURA2 is positive that presumably does read to the Tagrisso plus DS168 the Orchard data could that we’ve pivotal data or when might you be able to have pivotal data for Tagrisso plus an ADC for EGFR patients. And then given what we saw at World Lung 160 plus KEYTRUDA fair to assume then that you’re going to do that in all comers who don’t have EGFR mutation. So would it be plausible that within the next 12 months that effectively DS162 would be going off to everyone in front-line lung cancer either with the Tagrisso if they got the mutations with KEYTRUDA. If they don’t have EGFR mutations, is that the big picture plan for lung cancer.

And the second question was Ultomiris. So you’ve now got the the launch in MG and you’ve also NMO coming. But so can you remind us what your data thinking is about how much you can convert over the combined. So there is Ultomiris franchise over to Ultomiris by the time. So there is is loss of exclusivity in 2025. I think the conversion is about 30% now. But is this thinking that you can more than double this conversion in the next three years.

Pascal Soriot — Executive Director and Chief Executive Officer

Thanks, Jim. So the first question would be Susan. The second question Marc is about the write-offs not substitution but switch from Soliris to Ultomiris by 2025. Susan, do you want to.

Susan Galbraith — Executive Vice President, Oncology R&D

Yeah. So, just the design of the Ultomiris is a platform-based Phase II study is not designed to be a pivotal study. And of course in order to drive pivotal trial does design. We want to look at safety and efficacy data. I’ll just reiterate what I said, we are planning to initiate a number of Phase III trials. Over the next 18 months and we’ll continue to evolve as data emerges from the proof-of-concept driving studies.

Marc Dunoyer — Chief Strategy Officer

So, James, I think your question was on the rate of conversion myasthenia gravis side, I assume. Let me provide just on reference on the rate of conversion in PNH is above 80%. The rate of conversion on ITP U.S. is above 50%. So by 2025 this means three years after launch in myasthenia gravis we can expect somewhere closer to a typical issue I believe in three years time. And NMO it’s bit hard to guess, but due to the excellent result that we have seen, we believe the conversion will also be relatively rapid.

Pascal Soriot — Executive Director and Chief Executive Officer

Simon Baker. Go ahead, Simon.

Simon Baker — Exane — Analyst

Two part if I may. Firstly on deficit, which you’ve terminated on, I’m assuming that that was on tolerability trends. But any color on that would be useful. And is that at the end of we want as a target because I noticed that Merck disclosed another V1 inhibition that patient have a choice slightly less aggressive structure than adavosertib. And then secondly on Fasenra, I see on clinicaltrials.gov last week that both RESOLUTE and Kate when moved back a year as primary completion. Is that just housekeeping a genuine delay there. Thanks so much.

Pascal Soriot — Executive Director and Chief Executive Officer

Thanks, Simon. Mene, do you want to take the first another question.

Menelas Pangalos — Executive Vice President, BioPharmaceuticals R&D

I mean again that’s really due to delays through COVID and the Ukraine-Russia war, nothing from a data perspective.

Pascal Soriot — Executive Director and Chief Executive Officer

And Susan there was a question.

Susan Galbraith — Executive Vice President, Oncology R&D

So I think we. One is remains an important target, the challenge with the adavosertib is the combination of GI diarrhea inducing and side effects, as well as the combination of that with bone marrow toxicity and the combination of those two together is challenging. So this clear activity seen with adavosertib including in some difficult to treat cancers like carcinoma. When we look at the overall profile versus everything else that we’ve got in our portfolio and what we’ve made is a prioritization decision to make sure that we apply our resources on the products that we think have a greater transformative ability for the treatment of patients with comes.

Simon Baker — Exane — Analyst

Thanks so much.

Pascal Soriot — Executive Director and Chief Executive Officer

Okay. Michael Leuchten at UBS. Michael, over to you.

Michael Leuchten — UBS — Analyst

Just going back to the increase in OpEx for this year. Just trying to understand the timing. A lot of the pivotal data that would have suggested you should invest more in ADCs and other compounds you had earlier in the year. So what’s changed in July to decide to spend $1 billion more this year in OpEx? And then just going back, of the incremental revenues we now expect in the second half, how much of that is based on contracts that you have and how much of it depends on your successfully pushing the product more into I guess a commercial and non-government setting? Thank you.

Pascal Soriot — Executive Director and Chief Executive Officer

So the second question is about Evusheld. Iskra, do you want to take this.

Iskra Reic — Executive Vice President, Vaccines and Immune Therapies

Yeah, let me start with that. So the revenues predicted now for the second half of the year are combination of what you’re saying. Many of that is coming from the contracts that are already agreed with many countries around the globe. But equally as I mentioned we are increasing the capacity as much as we can to be able to also supply and increase the supply for the patients that are not still cover with existing contracts.

Pascal Soriot — Executive Director and Chief Executive Officer

Thanks, Ishra. And maybe Aradhana, you could take the other question and also there is a question online about the clarifying total revenue guidance, so you could take the whole thing together.

Aradhana Sarin — Executive Director and Chief Financial Officer

Yeah. So, Michael, just to answer your question around OpEx, so there are a number of elements actually in OpEx. There is obviously increase in R&D, and that’s not just the ADC portfolio, which obviously is a big component of it, but it’s really across the board. And that includes further investments in rare diseases further investments in biopharma, as you know, we’ve done some licensing arrangements there as well as well as continuing to invest behind Enhertu and DATO as well as our internal pipeline on ADC. So it’s actually a quite a large portfolio that we’re investing behind in R&D. In addition, there is also SG&A which we talked a little bit about the un-gating of some of the spend on Evusheld relating to demand creation that we’re doing. But at the same time, we also have several other launches. As you know Saphnelo still early the fire Fasenra as well as Breztri and on the oncology side a multiple new indications that we’ll need to continue to build the market on behind HIMALAYA and TOPAZ. So hopefully that addresses your question. I think the second question that Pascal referred to was, I think there is a clarification on total revenue guidance. And that is a low-20s increase in revenues. So just so that’s clear.

Pascal Soriot — Executive Director and Chief Executive Officer

Thanks, Aradhana. So, Luisa Hector, Berenberg. Luisa, over to you.

Luisa Hector — Berenberg — Analyst

Thank you very much. A couple of questions on Farxiga just wonder if you can give any more color on what we should be looking out for EFC. Should we expect to benefit across all components of the composite endpoint and how soon could this contribute to sales? And I wonder if you’ve actually stated when you expect generics in China ahead or your comments about the phasing of LOE, but I just wondered specifically on China. And then the second question for you Pascal, because it’s clear your confidence in the growth profile beyond 2025. Are there any areas in particular you would highlights where your internal projections are different from consensus and perhaps just a comment on what you do you factor in for pricing in that longer term view? Thank you.

Pascal Soriot — Executive Director and Chief Executive Officer

So maybe I can start with this one and also clarify that $1 billion that Michael was mentioning before I’m not sure whether it comes from, but I mean our guidance with expenses has been low to mid and it’s mid to high. So you could potentially derive this, but you can also drive less than $1 billion. Remember also in the guidance we have reduced the other income. So it’s not only an expense issue, it’s also reducing other income in our guidance. And in terms of the increase of expenses, it’s really linked to the products, the portfolio we’ve discussed. Versus consensus vis-a-vis we typically do not comment. What I can say is, what are the products that we see has been big potential products and the first two we not surprise you Enhertu and Dato-DXd we believe those two have very, very large potential for the many reasons we’ve described.

Beyond that in oncology, maybe I should ask Dave to comment in terms of what is potential and in biopharma would you also would want to say a few words about the products you see having big potential not necessarily versus consensus, but where we see the biggest potential.

David Fredrickson — Executive Vice-President, Oncology Business Unit

I mean, I think, Luisa, your question is 2025 and beyond, I think that Pascals point and I had mentioned this before the ADCs, certainly I think secondly, we’re beginning to get momentum and enthusiasm around the next wave of IO which includes biospecifics. And I think that we’ll see more on that to come. Additionally, I believe that the PARP1 selective is something that again here has early profile that gives me a lot of enthusiasm as Lynparza moves into exclusivity and it’s the first and only in this decade within the portfolio of oncology that goes there. Those for me are the big highlights and it’s the combinations between IO and ADCs where I really think that we’ve got the opportunity to do some important and differentiated clinical approaches.

Pascal Soriot — Executive Director and Chief Executive Officer

[Indecipherable] regarding the biopharma. I think in the short term. Clearly the trajectory of Farxiga is is very promising. And I also answer your question regarding the expectation in China. The loss of exclusivity is in 2023. We don’t expect a lot of impact in some of the year we are expecting VBP in the course of 2024 if it happens, but it still has substantial potential, of course, the new portfolio of products like Tezspire, Saphnelo and Breztri has a substantial potential. And then in the mid-term probably like eplontersen where we already show good results in PN and really those PN and then hopefully in the future also cardiomyopathy our clear strong growth drivers for for the business. And then let me start with a question on ESC. I can’t comment on the results will present, but I don’t think folks will be disappointed in what I can maybe add is, there’ll be too high impact publications coming out at the same time, which hopefully will emphasize the quality of the data we’re presenting.

Menelas Pangalos — Executive Vice President, BioPharmaceuticals R&D

Thanks, guys. I mean there are comment that we make, we size that you know one of the characteristics of our company is that we don’t depend on two or three products and where you can say this one has enormous potential we have many blockbuster potential already we have more than 10 today, and we expect to have many her over the next few years. So there are a number of products that can be very big. And then there are others that are going to be smaller, but still blockbuster potential with more than $1 billion. So it’s really adding up all these products that is going to drive the growth of AstraZeneca over the next 7, 8, 10 years.

Pascal Soriot — Executive Director and Chief Executive Officer

Next question is Emily Field at Barclays. Emily?

Emily Field — Barclays — Analyst

Thanks for taking my question. One on TROPION-Lung01 timing. I know you targeted first half ’23 I believe Daiichi of this morning noted a potential for second half ’22 with the caveat that it’s event driven, just your thoughts on the potential to see that top line data this year. A question on the myasthenia gravis launch for Ultomiris. Thanks for the color that one-third of the sales are in complement naive. Just curious on if you think you’re winning patient share in that population versus Vanguard which is off to a strong launch. And then Dave in the prepared remarks, I believe you mentioned that you weren’t seeing much contribution from DB04 in the first half, do you expect that there will be some sales contribution ahead of the PDUFA date given the NCCN guidelines update. Thank you.

Pascal Soriot — Executive Director and Chief Executive Officer

Thanks, Emily. Dave, do you want to take the TROPION question and Marc the other questoin and we try to be short.

David Fredrickson — Executive Vice-President, Oncology Business Unit

Yeah. And maybe I can do the DB04 and the TROPION both. So when Daiichi guides to second half ’22 there on their fiscal year. And so that goes into first quarter of next year. And when we guide to first half of ’23, it’s on a calendar year. So you can triangulate the quarter that were both consistently speaking about. I think that within DB04, so Emily I think that with the NCCN guidelines changing because of an overall survival benefit with the speed with which it did and we already heard the discussion at ASCO the discussion, not the presenter, talking about how HER2-low was something that she was considering for a patient that was in front of her. And then we know that there are many HER2-low patients that are already easy to identify. I do think that some level of non-promoted spontaneous use is likely to happen in advance of PDUFA. The exact amount of that I think is something that we’ll just watch and see.

Marc Dunoyer — Chief Strategy Officer

So, we expected the introduction of the [Indecipherable] been communicated by Argenx seem to be taking many patients from IVIg and earlier line of therapies. We have launched Ultomiris at the end of April, and although it is early days. I think we are seeing that we are already gaining nice patient for about one-third of the of the initiations. We expect this to continue in the future. So in remember that until the introduction of these recent and production Ultomiris and we regard Soliris was the only branded medicine in myasthenia gravis and was fitting more severe forms of myasthenia gravis. So Ultomiris mission will be to go down in severity and cover a larger group of patients. So early days, but good start.

Pascal Soriot — Executive Director and Chief Executive Officer

Thanks, Marc. Matt Weston, Credit Suisse. Matt, over to you.

Matthew Weston — Credit Suisse — Analyst

Two questions if I can, please. The first coming back to operating costs. The new guidance on R&D is essentially trending towards $10 billion. Aradhana reiterated the low-20s percent of R&D as your target, but I am mindful that consensus has $9 billion of spend and a 2.5 percentage point margin increase year-over-year for 2023. Now I don’t want to draw you into 23 guidance, but can I just be clear that the message is pipeline success justifies increased investment and that’s what investors should be prepared for and any color you can give us around that would be great. And then secondly, a question about mid-term margins, you commented about mid to high-30s, but obviously you’ve also highlighted how much the potential of Daiichi Sankyo collaboration product could have to the future growth of Astra and I just wonder how you see that impacting that margin number given that you book only a very modest amount of sales the 50% of earnings. So I would imagine it could easily push you over that high-30s, if they were to achieve the peak sales that you seem to be hoping for.

Pascal Soriot — Executive Director and Chief Executive Officer

Thanks, Matt. The Two questions. So maybe Aradhana you can cover the margin. On — the first point on the R&D spend Matt, Aradhana said to you that the second half we expect to have R&D expenses being consistent with the first half. So if you do that you don’t get to $10 billion, I mean you’re not that far off course but but you’re substantially below $10 billion if you do this math. And in term of the question as to whether this is justified by the pipeline the answer is an absolutely yes we will not spend it. We have really are growing, rapidly growing pipeline and we need to support it. If you actually think about the product like Enhertu and a product like Dato-DXd taking them to their full potential requires a pretty large program and a lot of investment and this is something that we have become more and more convinced we need to do and then beyond those two we have quite a number of products suddenly camizestrant also requires investment and we really want to play to win. We want to make sure that every one of our product with potential is still very supported so we expand them and maximize them. As far as the margin maybe Aradhana you want to cover this, but we need to keep in mind that we also have Tezspire, we have an Lynparza, we have products that are not necessarily always helping with the margin yet.

Aradhana Sarin — Executive Director and Chief Financial Officer

Yeah, I think again our ambition remains the same in terms of margin. But as you can imagine, is always a balance between shorter term margin and longer term growth and as Pascal said we’re playing to win here and we continue to invest behind the products. The specific question you had was around the Daiichi products and the partnership with the on Enhertu and Dato. And yes, we have high hopes and high ambitions for those. But also note that we do pay our fair share of R&D and SG&A expenses. So while on the revenue line we may not counted as product revenues counted as collaboration revenue our profit share. We are contributing our fair share of expenses. So we really need to look at sort of an operating profit line there rather than the sort of the margins that are implied. And again, we’re focused on cash flow and improving our operating profit from a dollar standpoint and a margin standpoint.

Pascal Soriot — Executive Director and Chief Executive Officer

I mean all this two products that can be very largest to A, this is they will drive tremendous goals plus ’25 and until ’25 they will drive growth, but it will also drive a substantial investment. This study is in oncology. They are — they tend to take time, they are expensive and and there quite large. So, so that’s really what you have to keep in mind when you look at the margin. But having said that, I’d just like to repeat what I said before, we haven’t actually changed our ambition to improve our margin to mid to high single 30s, mid to high-30s in the mid to long-term horizon. So nothing has changed there. As far as our profitability ambition is just that we want to make sure that we do this. And at the same time, we don’t improve margin at the expense of long-term sustainable growth. Emmanuel Papadakis.

Emmanuel Papadakis — Deutsche Bank — Analyst

Hello.

Pascal Soriot — Executive Director and Chief Executive Officer

Yeah, go ahead, Emmanuel.

Emmanuel Papadakis — Deutsche Bank — Analyst

Sorry, okay. Perhaps I’ll take the question on capivasertib ahead of 291 data due second half of the year. So just your degree of optimism is, excuse me, season on probability success in light of sanction and given a pretty mixed history for the class and then a couple of follow-ups. Enhertu perhaps you could just give us a bit of color on why you think you are in terms of second-line metastatic share conversion from the current standard of care T-DM1. And then Evusheld you’ve mentioned several times this retained efficacy. But I think it’s pretty clear from recent publications that takes capivasertib at least has almost completely lost efficacy against the variance. So is there any contingency built into the contracts you’re signing around returns, cancellations for potential complete loss of efficacy, which seems like a pretty high risk. Thank you.

Pascal Soriot — Executive Director and Chief Executive Officer

So maybe what we could do is, Susan you will cover the other question in a minute. But Mene do you want to cover the initial from sort of an efficacy viewpoint and what we are working on and then Iskra you could cover the other question about contract.

Menelas Pangalos — Executive Vice President, BioPharmaceuticals R&D

Yes, it’s a great question around the antibodies. I think we were very specific in terms of always having two antibodies in Evusheld specifically for the reason that you’re asking. So we have seen obviously some reduction in activity one or other antibodies when you put them together the efficacy remains intact and robust. And I think you also need to be careful not to be confusing, a decrease in neutralize in vitro utilization suit of our staff is with a decrease in efficacy because that doesn’t necessarily translate, because you don’t know what level of neutralizing activity in vitro is to guess it as we said in the real world studies that we’re seeing with current variants the efficacy is remaining very robust across all variants. And so because we have two antibodies I think we’re in reasonably good shape and in a say we’ll never going to get resistance. But I think we’re reasonably well protected. But of course, now, the next-generation that we acquired going to enable us to find additional binders is that will further protect us from those resistant variance if they occur.

Pascal Soriot — Executive Director and Chief Executive Officer

Mene before you could cover the contract question maybe something worth reminding everybody is when we talk about the efficacy of Evusheld the numbers you’ve heard, efficacy against one symptom. We’re not talking about efficacy against severe disease or whatever. We’re talking about efficacy against one symptom. So it’s a tremendous level of efficacy that we have today and then real world evidence is demonstrating. It’s still there. So what that means is we protect people not against severe disease we will protect them against being symptomatic. So it’s a fantastic efficacy.

Emmanuel Papadakis — Deutsche Bank — Analyst

That’s like a runny nose or cough, fever. I mean, it’s mild symptoms as well.

Pascal Soriot — Executive Director and Chief Executive Officer

Yeah, one symptom being a runny nose or a cough. So, I mean it’s really very, very impressive efficacy level. Iskra?

Iskra Reic — Executive Vice President, Vaccines and Immune Therapies

And I think it’s delivered highlighting again that we really believe that the activity will not be loss and the new variants. And I think that just to build on the of point and we do see a different level of efficacy of different, but is in the different variance. But it is true that one or the other really keep in the stronger — strong efficacy. Therefore, I mean and we are working with the governments and and the relevant healthcare stakeholders being transparent in that, and I do believe that we will find delay even in case that the resistance will happened to make sure that the delivery, but we needed to protect the patients and equally to find a way how to make sure that governments will be protected in a way given the unpredictability of the COVID-19 environment. I think it’s also fair to say that from the vaccine onwards, I think we are all working in the dynamic — in the environment is extremely volatile and dynamic and that we all taking a different level of risks moving forward, we’re making sure that we deliver medicines both vaccines and antibodies that can continue to protect the patients and prevent — protect them from the COVID-19.

Pascal Soriot — Executive Director and Chief Executive Officer

Susan. Thanks, Iskra.

Susan Galbraith — Executive Vice President, Oncology R&D

So in terms of the development of capivasertib, we were very careful to make sure that we develop the right dose and schedule. So the intimate of dosing schedule 4 days on 3 days off is something that optimizes the tolerability, minimizes the discontinuation rate, which I think is an important feature of the design and then the second thing that builds confidence is course the data from which I highlighted in the presentation 55% of patients have the accelerated pathway AKT or P10 loss and in that group we saw really impressive improvement in not just PFS, but in overall survival with a hazard ratio of 0.46 to overall survival. So we do Phase III trials in order to confirm the activity we’ve seen in Phase II but we have a good level of confidence in the importance of this pathway and in the ability of this molecule to inhibit the pathway well and to have that done in a tolerable way. And I’m just going to hand over to Dave, that’s took about the Enhertu question.

David Fredrickson — Executive Vice-President, Oncology Business Unit

Yeah. So, Emmanuel on Enhertu, we’ve seen really brisk conversion in second line just two months after approval. We now have 5% share of second line in HER2+ just to put into perspective, we saw Kadcyla T-DM1 a year ago probably in 45% to 50% use. And so the majority of that 35% use that we’re seeing right now in second line is coming at the expense of T-DM1. We do see some reduction in some other areas. I’d also note that we also continue to see use some third line plus for patients who don’t see obviously or who haven’t had an opportunity to be able to yet get Enhertu in the second line so proud of the work that the AZ and DS teams are doing just in two months after the launch.

Pascal Soriot — Executive Director and Chief Executive Officer

Thanks, Dave. So we are over time, but we appreciate that you are very interested and love your questions and great questions. We also want to respect your time. So we’ll take two or three more questions and then close the call. Viktor Sundberg at Nordea. Victor, over to you.

Viktor Sundberg — Nordea Markets — Analyst

One question on MEDI5752, your PD1-CTL4 biospecific that you presented at ASCO. I think it was clear that 1,500 milligram cohort was too toxic, but also on just 750 milligram you discuss and commented that the toxicity fairly similar to if any will alone. So my question is if you agree with that assessment and if the 500 milligram dose is the way to go forward with that program and if you think efficacy will be enough at that lower dose. And perhaps a quick second question as well on HER2-low just quickly. So we know that HER2-low expression is less common in HR-negative patients, but any data you have seen, if it’s also lower in earlier lines of treatment irrespective of HR status compared to later lines of treatment, just for modeling purposes. Thank you.

Pascal Soriot — Executive Director and Chief Executive Officer

Susan, you want to cover this.

Susan Galbraith — Executive Vice President, Oncology R&D

MEDI5752, first of all at dose is about 500 and 750 milligrams. If you look at the effect on T-cell proliferation rate you are in the range of increased you to expect to get from around to make the quick dose of ipilimumab or tremelimumab and we presented that with some of the data at ACR. In terms of the tolerability we’re obviously looking at the discontinuation rate will continue to evaluate that both 750 and 500 milligrams. We will be presenting some more data in combination with chemotherapy in non-small cell lung cancer setting at the World Congress on Lung Cancer. So look for that as well. But we look at the totality of the data and overall we are encouraged with the profile that we see that we can get a good tolerability profile with improved efficacy compared with what you’d expect with a PD-1 agent alone. And in terms of HER2-low, I don’t see a real shift in the HER2-low prevalence between early and late-line.

Pascal Soriot — Executive Director and Chief Executive Officer

Thanks, Susan. Peter Welford at Jefferies.

Peter Welford — Jefferies — Analyst

Just two quick ones. First stages of the comment on other operating income. The maybe regards to second half. I’m curious, does this mark at the end now of the of the sort of serious portfolio optimization that we’ve seen from AstraZeneca and should be now envisage therefore and then to these profits or is it more just this particular year given macroeconomic challenges. The management’s current focus that there hasn’t been the same degree. We should not this is how do you see it, and that’s going to be the case in future years. And then second is coming back to the SG&A, just curious, you’ve talked in the past about the fact the years of investing more and more in China now over, just curious if you could update us on your thoughts there. Are you actually now taking cost out of China, or how should we think about investment in China when we think about the SG&A trend. Thank you.

Pascal Soriot — Executive Director and Chief Executive Officer

Maybe I can cover quickly I see because I always describe what we’ve done a sort of pointing the three. I mean and basically the divesting products that would be better managed by someone that has done by us and some else could create value. So we’ve done a lot of this is less today of course. And basically, now we are trying to grow all new branches to these trade to make it a beautiful tree with launching of new products, but it doesn’t mean that it’s finished. I mean, we’ll basically manage that as we go. But there is definitely tell — there’s definitely less all the products to divest and less although income moving forward. So our intent is really to focus on our products. Our new products grow them and and develop the pipeline. Aradhana?

Aradhana Sarin — Executive Director and Chief Financial Officer

Yeah. And I think the second question was around China and whether we’re investing more in SG&A in China. Clearly it’s been a tremendous growth journey in China over the last several years. As you know, the government and pricing policies have have put the growth there under pressure. That being said, we continue to invest in new products and hopefully the new product launches will drive that growth. We are managing our cost base in China in proportion to the revenue decline that we see and again we’ll continue to manage that, while investing in innovation.

Pascal Soriot — Executive Director and Chief Executive Officer

Thanks, Aradhana. So, we take the last question. Seamus Fernandez at Guggenheim. Seamus, over to you.

Seamus Fernandez — Guggenheim — Analyst

Thanks, Pascal, and maybe you can be noted for horticultural comparisons as well, but the dynamics I guess around Dato, one quick question there, maybe you guys can just to help us understand when you look at the data, Dave, you said you would hope that it would potentially replace late-line chemotherapy. But it’s also being studied in combination with platinum-based chemotherapy. So is it your expectation that we will continue to see platinum-based chemotherapy as part of these regimens or is it possible that that could be eliminated from the regimens going forward? And then secondly, just very quickly on the COVID Antebellum approaches, just hoping you guys could give us a little color on whether or not the regulatory environment is changing, such that COVID antibodies can actually come to market almost in the way that flu vaccines are re-approved over time. Just hoping to understand that context a little bit better. Thanks so much.

Pascal Soriot — Executive Director and Chief Executive Officer

Thanks very much. So that’s the first one Susan, yeah and Mene the second one.

Susan Galbraith — Executive Vice President, Oncology R&D

Okay. So the data that will present with the TROPION-Lung02 at the World Congress on Lung Cancer it looks at the combination both with the doublet of Dato-DXd plus pembro as well as the combination with platinum-based chemotherapy. So I do think that it’s probably going to depend a little bit on the — how patients present what physicians wanting to achieve some of those patients with bulky disease that want to achieve rapid and durable responses. There is a choice that. But you’ll see the data that World Congress on Lung Cancer if it comes through.

David Fredrickson — Executive Vice-President, Oncology Business Unit

Yeah, I mean I think the only thing that I’d add and Jim as you’re pointing out that I sort of talk about the first sequence, I think that the first step is replacing some of this late line systemic chemotherapy. In terms of what’s possible as we move into earlier lines, I think that obviously both platinum and PAM are utilized here. And so one of the important clinical questions is the one that you’re asking, which is would we be able to replace both or just one of those and they’ve got very different tolerability and number of cycles consideration. So those are the kinds of things will be answering in the program is the Phase III in the frontline get underway.

Pascal Soriot — Executive Director and Chief Executive Officer

It is relatively easy chemo to use so it’s tempting to continue using it. Mene, do you want to cover that or Iskra do you want to cover.

Iskra Reic — Executive Vice President, Vaccines and Immune Therapies

I think it’s a good question and I can say this is hopeful to see the regulators taking the approach in the COVID-19 medicines both in vaccine and antibodies in the same way as they are doing for the floor that definitely accelerate and any is the way of the new updated vaccines and monoclonal for the new variants coming coming to the patients. It’s still not the case, but I’m sure you’re aware that there are many discussions between the regulators and then equally discussions between the regulators and the manufacturers and the industry how to accelerate and optimize that process to be able to be — to continue to be agile and flexible when it comes to bringing the medicines against COVID patient.

Pascal Soriot — Executive Director and Chief Executive Officer

Thanks, Iskra. So, we’ll close here. Thank you so much for your great interest and I wish you all a good day and a good weekend. Thank you.