Earnings Call Transcript - AZN Q4 2023

Andy Barnett, Head of Investor Relations

Well, a warm welcome everybody to AstraZeneca's Fourth Quarter and Full Year '23 Results Presentation Conference Call and Webcast for Investors and Analysts. I'm Andy Barnett, Head of Investor Relations. Before I hand over to Pascal and the Members of the Executive Team, I'd like to cover some important housekeeping points. Firstly, as you probably realize, all the materials are already on our website for your review. Here's our forward-looking statement, which I'd encourage you to take the time to read. We'll be making comments on our performance using constant exchange rates, core financial numbers, and other non-GAAP measures. A reconciliation from non-GAAP to GAAP is contained within the results announcement that you all have seen. All numbers quoted are in millions of U.S. dollars unless otherwise stated. This slide shows the agenda for today's call. Following our prepared remarks, we’ll open the line for questions. If you want to ask a question in the room, please raise your hand, and there will be roving mics for those online. Please use the zoom function to raise your hand. As usual, we'll try to get to as many questions as we can during the call. Limiting the number of questions you ask at once will give others a fair chance to participate. With that, Pascal, I'm going to hand over to you.

Pascal Soriot, CEO

Thank you, Andy. Good morning, everybody. And welcome to this London Stock Exchange, where we are celebrating our 25th anniversary as a company, merging Astra from Sweden and Zeneca from the UK, quite a number of years ago. But I want to start my talk with this slide. And this slide is important because I want to recognize or celebrate the fact that not only it's our 25th anniversary, but importantly, we actually did achieve the goal we set ourselves 10 years ago to reach $45 billion in sales in 2023. And in fact, I could argue we overachieved it, because at the current exchange rates, our $45 billion is probably closer to $40 billion. And I don't want to say that just to kind of pat ourselves on the back, even though I'd like to do this and celebrate our team's effort. But I want to mention it because we always did this with our eyes on the long term and growth and we are embarking on another 10-year cycle. We have announced an R&D Day because we want to refresh our strategy and show you what we are planning to do over the next 10 years. But we got this $45 billion through ups and downs, and I have to say often a lot of skepticism, but always with our eye on the long-term growth rate. And that's what we're going to do. We believe we can grow, and we believe over the next 10 years we will deliver superior growth. And that's, of course going to drive our profitability as a result of it. But our growth and sustainable strong growth is really what we are after. And we've done this whole following the science and, again, we're embarking on a new cycle and we're investing in new science that will shape the future of medicine and shape the future of this company. And we can talk more about this. We have achieved this with disciplined investment, even though we often have extensive debates inside the company and are now challenging everybody to be even more disciplined in terms of our investment. But we've constantly focused our investment on where we can deliver the most growth and also continuously focusing on oncology, cardiovascular disease, respiratory disease, more recently increasing our investment and keeping our eye on immune diseases and finally a rare disease. The company we have today, and the team we have today, is very different from what it was 10 years ago. And it's really rewarding to see the progress we've made and the strengths we have developed in our portfolio, but also in the strength of the talent in the company. The way we operate in oncology today and in the same in the other is very, very different. And it gives me confidence that we can actually deliver another cycle of very strong growth over the next 10 years. So importantly, we delivered our upgraded guidance for the year 15% growth, excluding COVID, we had guided to increasing to low teens. So 15% is slightly better. On the EPS front, we grow by 15%, which is also slightly better than upgraded guidance for the year. And in the fourth quarter, we saw an opportunity because we had a tax benefit; we saw an opportunity to invest to drive further growth and stronger growth next year and the years after, as we are launching new products and expanding our footprint. You saw that the emerging markets outside China grew by 35%. China itself is rebounding and growing again. So, China is back again on the growth trajectory, and this year should be another good year. We've been improving our operating margin, you see a drop in '21. But that was a bit of an artifact because it's driven by the very large COVID sales we experienced and of course those have no profits, so it dilutes operating margin. But essentially, you can see our continuous progress. And I wanted to say today that we are committed to our goals of mid-30s by the midterm, and of course, long term will depend on our growth opportunities and our pipeline in particular. So we are doing three things. As I’ve said before, we're driving growth, top line growth and operating margin, so we deliver our financial goals and that now is 2024 really. We are building the pipeline, continuously by building the pipeline, so that we drive growth to more which is '25 to 2030. And we are investing in new technologies and new products to shape the future of medicine and drive long-term growth, and what I call long-term growth is what I often refer to as being the day after tomorrow. And it's '28, '29 and beyond. Ultimately, our goal is to remain a high-growth company for the next period of time, 10 years and beyond.

Aradhana Sarin, CFO

Thank you. Thank you, Pascal. As usual, I will start with our reported P&L. As Pascal mentioned in his opening comments, total revenue increased 6% in 2023, which was at the top end of our updated guidance range. Product sales increased by 4%, despite a decline of $3.8 billion in COVID-19 product sales in the year. Alliance revenue increased by 89%, driven by higher HER2 sales in regions where Daiichi Sankyo books product sales. Turning to the core P&L, our core product sales gross margins increased by 2 percentage points to 81.7%. This step-up in gross margin was driven by lower COVID-19 revenues in 2023. In 2024, we anticipate a slightly lower product sales gross margin percentage driven by higher sales in emerging markets, increased Beyfortus product supply, higher production costs in certain facilities as well as higher product sales for partnered products and regions where we book sales and then payout a profit share to our partners through costs of sales. Core operating costs increased by 9% in 2023. R&D costs increased by 9% driven by 27 new Phase 3 starts in the last year, including multiple trials of our PD-1 CTLA-4 bispecific volrustomig and our oral SERD camizestrant. R&D costs as a percentage of total revenue was 22%, in line with our ambition. As expected, core SG&A stepped up in the fourth quarter, relative to the third quarter in 2023. We increased our investment in new launches behind Wainua, Truqap, Airsupra and continue to invest behind indications expansions such as Farxiga and CKD in heart failure and Imfinzi across tumor types. Our full-year core tax rate of 17% came in slightly below our guidance. The fourth quarter tax rate benefited from an adjustment to deferred taxes following an intra-group purchase of certain intellectual property offset by unfavorable tax ruling in certain jurisdictions. Overall, our P&L allowed us to increase investments in both R&D and SG&A in the fourth quarter. Core EPS for the full year 2023 was $7.26, a growth of 15% versus the prior year. As Pascal stated earlier, we've made good progress on both top and bottom line delivery in recent years, and we remain on track to deliver both industry-leading growth and improve operating margin to the mid-30s in the midterm, balanced by the need for continued investment to drive top line growth in both the near term and midterm and long term. Today, we're pleased to announce our 2024 full-year guidance. We anticipate our total revenue will have a low double-digit to low teens percentage increase, and our core EPS of low double digits to low teen percentage increase as well. Collaboration revenue is expected to increase substantially, driven by success-based milestones and certain anticipated transactions. Other operating income, on the other hand, is anticipated to decrease substantially. Recall that in 2023, it included a one-off gain of around $700 million related to the renegotiated Beyfortus agreement and another $240 million related to the sale of a product in the U.S. If FX rates for February to December were to remain at average rates seen in January 2024, we anticipate a low single-digit adverse FX impact on both revenue and core EPS in 2024. Cash flow from operating activities increased by $537 million in 2023. We continue to focus on improving our cash conversion and have already made significant progress in this area. Deal payments amounted to approximately $4 billion, of which nearly half related to past business development payments including milestone payments to Daiichi Sankyo. For this year, we again anticipate about $2 billion in deal payments relating to historical transactions. CapEx in 2023 was around $1.4 billion; in 2024, we anticipate a significant step up in CapEx, potentially in the 50% range driven by investments in new manufacturing capabilities such as API, inhaled products, and cell therapy. Our net debt at the end of 2023 was $22.5 billion, and given very recent business development transactions totaling about $2 billion, we anticipate this to remain at about the same level in 2024. With this in mind, our finance expense is expected to increase given the current interest rate environment. Our net debt to adjusted EBITDA ratio is 1.6 times on the last 12-month basis. Our capital allocation priorities remain unchanged with our number one priority to reinvest in the business, both in the pipeline and behind new launches. We remain committed to keeping a strong investment-grade rating and we'll continue to pursue value-enhancing business development transactions. Towards the end of last year, we announced a license agreement with EcoGen and the proposed acquisitions of Icosavax and Gracell. Finally, we maintain our progressive dividend policy defined as either a stable or increasing dividend. With that, I will hand over to Dave.

David Fredrickson, Oncology Chief

Thanks, Aradhana. I really appreciate that. So oncology total revenues of $18.4 billion in the full year period grew 21% versus the prior year, and that was driven by strong global demand for our key medicines. Tagrisso global revenues grew 6% in the fourth quarter, reflecting strong double-digit growth for the U.S. and Europe. Performance in the quarter was partially offset by continued impact from the June 2023 mandatory price reduction in Japan, as well as expected impact from hospital ordering dynamics in China and a rebate reclassification in Australia. In the fourth quarter, Lynparza delivered 8% product sales growth and remains the leading PARP inhibitor globally despite ongoing class challenges. In the period, we recognized $245 million in regulatory milestones from Merck, following the U.S. PROPEL approval and BRCA-mutated prostate cancer. Imfinzi, inclusive of IMJUDO, grew 52% in the fourth quarter, fueled by further global demand growth in gastrointestinal tumors. In 2024, we expect continued progress with TOPAZ-1 and HIMALAYA, although TOPAZ-1 demand in the U.S. will moderate as the regimen is now established as the clear standard of care. In Japan, a 25% price reduction based on sales took effect in February of this year. An additional mandatory price reduction is anticipated later this year based on recent fixed dosing approvals. Calquence total revenues increased 14% in the fourth quarter, driven by continued new patient share gains across both frontline and relapsed/refractory CLL. In HER2, total revenues of $364 million in the fourth quarter increased 68% year-on-year. In the U.S. and Germany, we're very encouraged by new patient share gains in the HER2-positive setting firmly establishing HER2 as the undisputed standard of care across HER2-positive and HER2 low metastatic breast cancer. In November of last year, we received approval for Truqap, our novel AKT inhibitor in the U.S. and for Imfinzi Topaz-1 in China. Importantly, we received priority review designation for HER2 and HER2-expressing tumors, and the adjuvant use of Tagrisso was added for the first time to the NRDL in China at no discount. With the exciting approval of Truqap, we have the opportunity to further extend our leadership in breast cancer, including in the hormone receptor positive landscape. And HER2 is the established standard of care in late-line HER2 low, and we look forward to the results of the Destiny Breast 06 trial in the first half of this year and the opportunity to bring HER2 frontline earlier and expand into HER2 ultra-low tumors. Data from the Tropion-BREST-01 trial of DATADx in hormone receptor positive HER2 low breast cancer was presented at ESMO last year during the presidential symposium. Discussions with health authorities and pre-launch planning activities are already well underway. Finally, align with our ambition to establish a new endocrine therapy backbone, we now have several pivotal trials ongoing in the frontline for our next-generation oral SERD, camizestrant, including in combination with CDK4/6 inhibitors and Truqap. Truqap is being very well received by the clinical community in the United States, and we are already seeing rapid adoption with the majority of new starts in patients with biomarker altered tumors, who have previously received a CDK4/6 inhibitor, which is consistent with our views of the addressable population. We see potential for Truqap to become the new standard of care in the second line for endocrine treated patients with PIK3CA, AKT1, or P10 altered tumors. And with that, we'll advance to the next slide, and I'll hand over to Susan to cover R&D highlights in the quarter.

Susan Galbraith, R&D Chief

Thank you, Dave. In December, we entered into a definitive agreement to acquire Gracell technologies, which furthers our cell therapy ambition across oncology and autoimmune diseases. Gracell has a proprietary cell therapy manufacturing platform called FasTCAR. The FasTCAR platform has several key benefits. First, it significantly reduces the manufacturing time from between 1 and 3 weeks to 22 to 36 hours, with the opportunity to improve medium turnaround time and also enable increased manufacturing capacity as well as predictability of CAR-T delivery. Second, a lower dose of cells need to be manufactured for each patient, which reduces the risk of cytokine release syndrome, which can improve the safety profile. And third, the shorter manufacturing time delivers fitter T-cells, and this potentially improves the efficacy of this CAR-T. This proposed acquisition also enriches our growing pipeline of cell therapies with GC012F, a novel clinical-stage dual BCMA and CD19 targeting autologous CAR-T. Phase 1 data were presented at the ASH meeting in December. In 22 patients with newly diagnosed high-risk multiple myeloma, the objective response rate was 100%, and we saw a minimal residual disease negativity rate between 95% and 100% 6 to 12 months after infusion. This demonstrates the promise of this potential therapy when you move it into an earlier line setting. Safety was also favorable with only 27% of patients experiencing either grade 1 or 2 cytokine release syndrome and no grade 3 or above events. Additionally, we did not see any neurological toxicity, which can be associated with this type of therapy. With a median follow-up time of 18.8 months median PFS and median duration of response that had not been reached also highlighting the durability of the response. We believe that GC012F has potential applications across hematologic malignancies, including multiple myeloma and will further bolster our hematology pipeline, adding to Calquence AZD-0486, our CD19 CD3 next-generation bispecific T-cell engager and AZD0305, our GPRC5D targeting antibody drug conjugate. We also have two further homegrown hematology molecules, which have just entered the clinic: a CD123 antibody drug conjugate, ASD-9829, and a PRMT5 inhibitor, AZD3470. We look forward to updating you on our exciting hematology pipeline over the course of this year. And with that, can you please advance to the next slide, and I'll pass over to Ruud to cover biopharmaceuticals performance.

Ruud Dobber, Biopharmaceuticals Chief

Thank you so much, Susan. Biopharmaceuticals delivered total revenue of $18.4 billion in 2023, driven by growth of 18% in CRM and 10% in RNI. Key highlights for the year included Farxiga nearing $6 billion in total revenue and R&I returning to double-digit growth. Turning now to the fourth quarter, within R&I, nearly half of the total revenue came from Fasenra, Daxas, Sanalla, and Breztri. These medicines grew by a combined 40%, more than offsetting the impact of Symbicort's generic entry. And in V&I, Beyfortus continued to see strong demand in its first RSV season, generating $95 million of product sales and alliance revenue for AstraZeneca in the quarter. Lastly, we received our first sales-related milestone payments from Sanofi totaling $27 million. We have recently launched three innovative new medicines within biopharmaceuticals. Launches in new areas of science and medicine require us to raise awareness among patients and practitioners and often to build additional sales forces; maximizing early momentum for these launch brands is critical to delivering on their full potential. Eplontersen is an amyloidosis treatment that we are developing in partnership with Ionis. In January, it launched with the brand Wainua for patients with ATTR polyneuropathy, a debilitating ultra-rare disease, which is generally fatal within a decade if left untreated. AirSupra is the first rescue medicine to reduce exacerbation and treat the underlying inflammation. And we have shown with the Mandela trial, a 28% reduction in the risk of severe asthma exacerbation in adult patients compared to albuterol. We formally launched AirSupra last month for adult patients. And over time, we hope to see primary care physicians in the United States change 50 years of prescribing habits. As mentioned, we are off to a strong start and are only halfway through the first RSV season that Beyfortus has been available for infants. Following continued strong demand and the recent approval in China, we are planning for a substantial increase in capacity in 2024. We continue to invest behind the Farxiga brands with growth being driven across the globe by recent launches in heart failure and chronic kidney disease. In the coming years, we aim to continue to build on this franchise with new combination medicines in development that address unmet needs in hypertension, heart failure, and CKD, and with additional enemies in our late-stage and early-stage pipeline. Our CVRM portfolio is set to expand and evolve over the mid- to long term. We recently commenced Phase III trials for baxdrostat in uncontrolled and resistant hypertension as well as for zibotentan, combined with dapagliflozin, addressing patients with CKD and high proteinuria. Eplontersen is also being evaluated for the treatment of ATTR cardiomyopathy, which is estimated to affect up to 0.5 million patients worldwide. Our Phase III cardio transform trial is the largest of its kind and is powered to show a cardiovascular mortality benefit, and we are very pleased to share today that we have obtained Fast Track designation from the FDA for our cardiomyopathy regulatory file. I will now hand over to Sharon to present the latest development from the biopharma pipeline.

Sharon Barr, Biopharmaceuticals Pipeline Lead

Thank you so much, Ruud. I wanted to take this opportunity to highlight our current portfolio in immunology and provide more color on our recent business development deals focused on immune-mediated disease. In Safnello's pivotal Phase III trials in systemic lupus erythematosus, we saw positive changes in cutaneous lupus. We are building on this and expanding into new indications. We have started enrolling patients in our Phase III DAISY trial of Safnelo in patients with systemic sclerosis, a chronic disease characterized by diffuse fibrosis and vascular abnormalities in the skin, joints, and internal organs, which can be fatal. We also have plans to initiate two other Safnelo Phase III trials this year in cutaneous lupus and myositis. Our recent business development deals have accelerated our ambitions in immune-mediated diseases. Emerging data from the research group has shown the potential for long-term remission with CAR-Ts in systemic lupus erythematosus. Part of our definitive agreement to acquire Gracell includes autologous CAR-Ts with an ongoing Phase I investigator-initiated trial with GC012S, the CD19 and BCMA CAR-T in 15 Chinese patients with SLE. We look forward to sharing the Phase I data at an upcoming conference. Our collaboration with Quell is designed to develop multiple engineered T-regulatory cell therapies, which have the potential to be transformative in type 1 diabetes and inflammatory bowel diseases. T-reg cell therapies have a unique approach of modulating the immune system to reduce inflammation and prevent immune-mediated damage to tissues. Quell's innovative platform of armored T-regs could enable sustained clinical benefit. And finally, our collaboration with Cellectis allows us to explore the potential of an allogeneic CAR-T platform. Off-the-shelf availability from allogeneic CAR-T cells is expected to reduce the time and cost associated with manufacturing. With these innovative transformational cell therapies as well as our internal capabilities, we are building a platform for a pipeline in immune-mediated diseases with transformative potential. I will now hand over to Marc, who will cover our rare disease portfolio.

Marc Dunoyer, Chief of Rare Diseases

Thank you, Sharon. For rare diseases, total revenue reached $7.8 billion in 2023, a 12% increase year-over-year due to growth in neurology indications, rising patient demand, and new market launches. In the quarter, Ultomiris grew by 38% and 52% for the full year, primarily driven by the indication for generalized myasthenia gravis in patients new to branded treatments. As mentioned before, Ultomiris revenues were generally comparable to Soliris for the year, but in the fourth quarter, Ultomiris revenues surpassed those of Soliris. Our conversion strategy is progressing effectively, with most patients already converted across PNH, atypical hemolytic uremic syndrome, and gMG in our key markets. We are continuing to launch both medicines globally and anticipate that the CFI franchise, including Soliris and Ultomiris, will maintain sustainable and durable revenues. Additionally, Strensiq and Koselugo saw growth of 13% and 48%, respectively, driven by ongoing patient demand. I am excited to share that we have commenced patient enrollment in our Phase III trials for treating amyloid cardiomyopathy and hypophosphatasia. Alexion 2220, a monoclonal antibody designed to deplete toxic amyloid fibrils in the heart, has potential for treating TTR cardiomyopathy alongside standard stabilizers or silencers. Our Phase III trial is recruiting a diverse patient population with moderate to severe disease, featuring critical cardiovascular endpoints related to all-cause mortality and cardiovascular events, which are vital for patients, clinicians, regulators, and payers. We have started enrollment in our Phase III program for Fortis ALPHA in hypophosphatasia, including two pediatric trials and a larger trial for naive adults and adolescents. These trials encompass a wide range of hypophosphatasia patients, focusing on both skeletal and functional enhancements. We believe this product, which features bi-weekly dosing and lower injection volumes, enhances our ability to reach a larger patient population, potentially tripling the addressable market compared to Strensiq. Our late-stage pipeline is progressing well, with nine Phase III programs currently underway and our tenth program, Ultomiris for IgAN, set to begin soon. Now, I will pass it over to Pascal.

Pascal Soriot, CEO

Thank you, Marc. I will move to the last slide. This slide highlights that in the upcoming months, we have several catalysts that will drive our progress in oncology, biopharma, and rare diseases. A few are listed here, although many are absent. We expect FLORA to provide updated overall survival data in 2024. The key drivers for our important products include LoRa Tagrisso, DESTINY focusing on HER2, TROPION Breast02 along with the exit study, the Waypoint study assessing Tezepelumab for chronic rhinosinusitis with nasal polyps, and Imfinzi. There's much more beyond this. Additionally, the midterm pipeline is developing rapidly. We have promising data emerging from our bispecifics portfolio, with more information to be shared this year. Our ADCs will also have additional data released demonstrating how this pipeline is evolving. We are excited about our metabolism portfolio, which is progressing well, including a promising PCSK9 product and Baxostat for hypertension, currently in Phase III. We also have an oral GLP-1 agent that we licensed, which has the advantage of being combinable with ADCs and among themselves, leading to a well-structured metabolism portfolio. Beyond the products mentioned, we are also advancing in obesity, cardiovascular disease, and renal disease. This year, we will provide updates on our mid-stage studies in cell therapy and our new DDA pipeline, particularly with the PARP 1 selective. As you can see, we have a substantial amount of new data forthcoming from both the Phase III and mid-stage pipelines, which will provide insight into our prospects and reasons for our confidence in driving top-line growth over the next decade and improving profitability. I also invite you to our R&D Day on May 21st at our new R&D center in Cambridge, where you will see a fantastic site, and our teams are eager to be there, which should enhance our R&D productivity. The purpose of this R&D Day is to reflect on the completion of our 10-year journey that began in 2014 and to engage in outlining our strategy for the next decade. It's timely for us to share why we are optimistic about AstraZeneca's future. I will stop here and open the floor for questions.

James Gordon, Analyst at JPMorgan

Thank you. James Gordon from JPMorgan. Two questions, please. The first one was on revenues for this year. So the guidance, low double-digit or low teens as a revenue target, but I think bears are worried that lots of that is collaboration revenues growing and product sales slowing. So can you just say, is that fair? Do you also think that you can sustain the same sort of pace of product sales growth? Or is it really about collaboration revenues taking over from product sales? That's the first question, please. And then I think the second question, the other thing that somebody said today is that the top line guidance is about the same pace as the bottom line guidance. So that would imply then that margins might be about flat. And then I've seen, I think on Slide 6, you said that in the medium term margins will get to the mid-30s. But does that mean margins will be flat this year and then have to have a big inflection in '25 and '26 to get there? So thoughts on that and whether there is going to be a lot more OpEx and how that's going to work, please?

Pascal Soriot, CEO

Thank you, James. Great questions. And on you will open the floor, I'm sure. But let me just be very categorical here. Our product sales are going to grow very strongly. So the collaboration revenue, of course, is adding to that growth. But certainly, product sales are very much on track to deliver the kind of growth that is included in the guidance range that we are communicating.

Aradhana Sarin, CFO

Yes. If you look at the growth in 2023 across the franchises, oncology is growing by 21%, rare disease by 12%, and CVRM by 18%. All of this is driven by current products, and we expect that momentum to continue into the coming year. Different products have varying dynamics, which means growth will stem from both existing products and some new launches, although those are still in the early stages. Regarding your second question, we've provided a range for both top-line and bottom-line expectations. Some factors I mentioned earlier include a slight increase in finance expenses due to transactions from the end of last year and refinancing some of our debt. Additionally, we benefited from a lower tax rate last year, which we will not see again. Considering the entirety of the profit and loss statement, these factors will influence our EPS range. We expect strong revenue growth, but the increase in operating expenses will lag behind the revenue growth, which reflects operating leverage.

Emily Field, Analyst at Barclays

Emily Field from Barclays. I have a couple of questions on oncology. The first on DAX or DXC, the AVANZAR study must have enrolled pretty quickly to be having a readout in 2025. Is that what you were to be positive, would you file based on that study? I know it's designed somewhat differently from TL '07 and '08? And then on HER2 for DESTINY Brest06, how much does the inclusion of the ultra-low population expand the addressable patient set? I think you've said before that HER2 low is about 50% of breast cancers. How much bigger does that get with HER2 ultra-low?

Pascal Soriot, CEO

Susan?

Susan Galbraith, R&D Chief

Yes. So for AVANZAR. Yes, accrual has gone very well, which just I think demonstrates the interest and the potential, not just of data, but the combination in particular data DXD plus immune checkpoint inhibition. As you know, we've seen exciting data in a couple of different settings from the TROPION Lung02 and 04 data sets as well as the BEGONIA study in triple-negative breast cancer. I think investigators are very interested in that the potential that this has to further improve the outcomes for patients with first-line non-small cell lung cancer.

Pascal Soriot, CEO

The study is progressing very quickly in recruitment, as you pointed out. The second one is DBO6 and the low maybe for you, Dave?

David Fredrickson, Oncology Chief

Thank you, Emily, for your question regarding DBO06. I want to highlight two important aspects of it. Firstly, it enhances our opportunity in the ultra-low category, like you mentioned. Specifically, in hormone receptor-positive metastatic breast cancer, about 60% falls into the IHC 1+ and 2+ categories, which is the HER2 low covered by DB04. We estimate that around 25% is in the 0 to 1 category, contributing significantly to our potential. Additionally, we have approximately 15% that are true zeros. The first point is the expansion beyond the 1+ into the ultra-lows, and the second is the potential to move the treatment line earlier. This earlier intervention could lead to growth in two ways: ideally, we'd see a longer duration of therapy as we initiate treatment earlier. Furthermore, if the data is compelling, it may exert pressure on the current trend of endocrine recycling among patients. Ultimately, these factors will depend on the data we gather, but there are three key opportunities for DBO06 to drive growth in the future.

Matthew Weston, Analyst at UBS

It's Matthew Weston from UBS. I have two questions. The first one is about HER2. I think fourth quarter sales in the U.S. were a bit lower than what people expected when Daiichi reported them. Overall end-user sales suggest that penetration is hitting a plateau in some U.S. markets. However, with the upcoming data expansion, there should be more opportunities. Many investors believe that the HER2 low market is actually much larger than indicated by the plateauing. I would like to understand what's happening there. Additionally, Dave, could you discuss HER2 pan tumor? It seems to be overlooked but might be a significant indication. Regarding my second question, you've included in your guidance a mention of a one-time asset sale that may be significant for 2024. I don't recall you mentioning that in quite some time. Can you provide some context around it?

David Fredrickson, Oncology Chief

You want me to start? Matthew, on HER2, and I made this comment in my prepared remarks, and I think that it's an important piece, which is I had been commenting in quarters past that we had found that we had hit a 50% really kind of threshold that we were running into in both HER2-positive and HER2 low. But that we knew that there was opportunity to drive continued growth beyond that. And I was really pleased to see and we've been really pleased to see that we've been putting more effort against our promotional efforts within the U.S. and large markets within Europe. We've done that in conjunction with the Truqap launch to really make sure that we've got the promotional muscle that we need out there, and we're seeing movement in the HER2-positive new patient starts. And so that's moving in the right direction and going the right level. Now if you think about where we were, basically, Matthew, what I think happened was we had replaced a lot, if not almost all of the Kadcyla use. And now we're moving into some harder yards, but we're getting traction against it. We turn to HER2 low, HER2-low is again an opportunity for continued growth beyond where we've gotten to. It is, in many respects, a more complicated discussion to be able to have because we're talking about multiple therapeutic alternatives that exist within the hormone receptor positive space. We're obviously working on testing efforts. All of this, though, I think that again, I've got optimism that we've got an opportunity to continue to grow. I think that HER2 has a lot of growth in front of it with 03 and 04 still in the U.S., still in Europe, and I think that 06, which Emily just asked about, would be further tailwinds to add to that.

Pascal Soriot, CEO

So before Aradhana, do you want to take up...?

Aradhana Sarin, CFO

So we talked about the other income, which we expect to decline substantially. And again, last year, remember, there were two particular transactions that contributed a large amount. So we've not signaled any asset sales. We do expect collaboration revenue to increase substantially. And we've talked about milestones and potential transactions we're contemplating, but we're not in a position to give more details today, and we'll see how the year unfolds.

David Fredrickson, Oncology Chief

Pascal, super briefly, 1 thing that I forgot to mention on this. NCCN guidelines have included now endometrial, cervical, and ovarian for HER2 within the population that we got the priority review for. So I do think that that's an acknowledgment that the clinical community is seeing the benefit of that study.

Andrew Baum, Analyst at Citi

Thank you, it's Andrew Baum with Citi. I want to discuss HER2 and the PAM tumor trial. You have HER2 low included in that trial, and there have been clear indications in various cancers that HER2 is effective. Additionally, the manufacturing process has been streamlined. My question is whether you might be missing an opportunity by not speeding up the development of specific HER2 low indications, especially since it seems unlikely you'll receive approval for pan-tumor in HER2 low. You will need to conduct trials, and there are competitors with HER2 products who have already started trials in those HER2-low areas. Have you potentially allowed space for a competitor to enter the market when you have a product that could be profitable there? My second question pertains to Truqap. I'm interested in your thoughts on the enabolosib data and its potential effect on the use of Truqap, considering you are targeting the same PI3K-AKT pathway.

Susan Galbraith, R&D Chief

Yes. So for the white space question, when you got a brand like HER2, which has really exceptional activity across. I think the philosophy is to make sure that we develop it to the maximum of its potential. So again, not everything that we're planning to do is currently visible, but you'd expect to see other trials. So I do think that we can build on what we've actually seen with pan-tumor, and I think it creates a lot of opportunity there. So we intend to leave this little white space as possible.

David Fredrickson, Oncology Chief

And in terms of the... you want to address the market size for this.

Aradhana Sarin, CFO

Yes, sure. I mean look, I think that what I would comment on most, Andrew, is that we're seeing very positive receptivity to Truqap. We've seen strong uptake in terms of the number of new patients that are being started on therapy. We're actually hearing an awful lot of desire among the community to have seen a broader label based upon the data sets that were presented and what we've seen and obviously, within the context of the competitive landscape, the Truqap data will ultimately be looked at within that context, but I think it really is showing favorably within that context. And we anticipate that we'll continue to have a strong launch for the medicine through the year and look forward to the additional life cycle readouts that we're going to have on the heels of, obviously, the 291.

Susan Galbraith, R&D Chief

So again, there are other opportunities, I would just say, with capivasertib for combination, but also remember that treats a broader group of patients than just look at an alpha mutant group. You've got PAN, you've got the AKT activation as well. There's multiple ways in which it is different. But I think the first-line space is also something that is of interest.

David Fredrickson, Oncology Chief

Andrew, I mean, I think that the pace on this and maybe I skipped over because I thought it was kind of without saying, but Truqap is post CDK4/6 and the Invotas is not. So we are looking at different populations and different spots.

Simon Baker, Analyst at Redfin Atlantic

So two questions sticking to the norm. So the first question is on Safnello and the second one is on Gracell and FasTcar. If you could just give us an idea of how easily scalable that manufacturing technology is? And also, a bit more color on the comment that Gracell have made in the past that there was a substantial manufacturing cost advantage here, which sounds like it could be quite significant as you move into autoimmune areas. Any color on that would be much appreciated. Thank you.

Ruud Dobber, Biopharmaceuticals Chief

Yes. Let me first start with your question about Safnello. The product is doing very well, not only in the United States but also equally in the markets we have just launched. We have leading NBRx, new-to-brand market shares in countries like Spain and Germany. The patient population is a very interesting one. It's primarily the patients who have, let's say, moderate or normal eosinophil counts but are allergic. So the low T2 patient population is highly dominant in what we see so far. But equally, we also know from our clinical studies that Safnello is also very well established in the high eas in the fills in the United States. So the broad utility of the product and no need for a biomarker, no need for phenotyping, makes it a highly attractive choice for especially Allergists and more and more pulmonologists as well. So we have high expectations and together with our partner, I think it's fair to say that the product is on its way to become a blockbuster anytime soon. So that's one. Safnello is another very nice story. It's the only interferon receptor antagonist as we all know, lupus is a disease with multiple manifestations and multiple organ manifestations. It's particularly very impactful on skin disease, and we have seen very, very strong feedback from rheumatologists that patients primarily with skin manifestations are reacting very well on Safnello. Equally, only operating in the intra-market as we speak. So we are doing for the last 1.5 to 2 years, relatively large study for subcutaneous formulation. And I truly believe, hopefully next year, that study will read out, and we have a positive readout as we'll provide another clear opportunity.

Susan Galbraith, R&D Chief

As mentioned in her remarks, we are very keen to move Safnello also into multiple other indications in order to further grow the brand to also be a blockbuster brand in the next few years.

Pascal Soriot, CEO

Thanks, Ruud. Do you want to comment on Gracell?

Susan Galbraith, R&D Chief

As I mentioned in my prepared remarks. The actual time that you need to manufacture FasTCAR is substantially shorter than for some other currently commercially available CAR-T therapies. That's one component of the turnaround time, obviously. So it's one component also of the manufacturing cost; I think it does help with scalability because the amount of time that you need to process each individual patient's batch is also shorter within the manufacturing facility. So what that means is that you do get increased capacity for a given manufacturing building that you've created. So that's important. But also, it means that you can be more predictable about the delivery. And because you are actually generating a smaller total number of the cells that have to be delivered to the patient, the likelihood of success of each of those is higher. So all of these things, I think, contribute to the overall benefit that we see from the FasTCAR process.