Novartis AG (NVS) 2004 Q1 法說會逐字稿

Good afternoon.

This is the conference operator.

Welcome and thank you for joining the Novartis first quarter 2003 sales and results conference call.

As a reminder, all participants are in listen-only mode and the conference is being recorded.

After the presentation, there will be an opportunity to ask questions.

Should anyone need assistance during the conference call, they make signal an operator by pressing star and zero on the telephone.

At this time, I would like to turn the conference over to Mr. Raymond Breu.

Please go ahead, sir.

Good afternoon or good morning.

Welcome to the Novartis first quarter conference call.

I have with me here on the team Thomas Ebeling, the Head of the Pharmaceutical Division, Kurt Graves, the Head of Pharma Marketing, Jorg Reinhardt, the Head of Pharma Development, David Epstein, the Head of the Pharma Oncology Business, Paola Costa, the Head of the Pharma U.S.

Business and Christian Siewald the Head of our Sandoz Generics Business.

Before we start with the presentations, I would like to ask Karen Huebscher to read a statement.

I'll read to you the Safe Harbor statement.

The information presented in this conference call contains forward-looking statements that involve known and unknown risks, uncertainties, and other factors that may cause actual results to be materially different from any future results, performance or achievements, expressed or implied by such statements.

Please refer to the company's Forms 20-S on file with the SEC for a description of some of these factors.

Thank you.

Thank you, Karen.

Before I start with a brief summary introduction, let me just say one word regarding the announcement that we included in the press release on the matter of Aventis. [inaudible] is called concerns our first quarter results.

We will focus on the first quarter results.

We will not be able and we cannot go beyond any comments that are already included in the press release.

So as far as Aventis is concerned, we would ask you to respect that so we can only talk about Aventis to the context that is already covered in the press release.

Let me then go to a few brief summaries overall and then I will hand over afterwards to Thomas Ebeling for a few comments on the Pharmaceutical division.

I am on slide number five which gives now the overview of the numbers.

You are seeing that we have had a very strong performance in the first quarter.

Sales growth of 16%, operating income growth of 11%, net income growth of 22%, and earnings per share growth of 22%.

On the next slide, we show that the sales performance is driven by volume growth of 5%, price and acquisition effect of 2 and 1% each, so that the local currency growth for the group in total was 8%, and obviously we have expressed in U.S. dollar a positive currency impact of 8 percentage points.

On slide number seven, we show that 86% of sales and 92% of operating income are generated by the business that belongs to our medicines group.

On the next slide, it is very visible that growth in this quarter was driven by Europe, and the Americas in particular.

The rest of the Americas where we have growth of 10 and 16% in local currencies each.

If you turn over to slide number nine, then you can see that Pharmaceuticals had a growth rate of 11% in local currencies, 19% in dollars.

Consumer Health 2% in local currencies, and 10% in U.S. dollars.

Operating income growth on slide number 10 was 11% in U.S. dollars.

If you correct for all the currency impact, then the growth in constant currencies are excluding the currency impact, I should say, was 4%.

I should add here and we will come back to this later on, that operating income growth, quarter on first quarter last year was having the impact by a one-time investment gain that we had achieved in the first quarter of 2003.

If we exclude that one-time gain, then the U.S. dollar growth will be 27% and the currency corrected growth in operating income approximately 20%, so a very strong number.

On the next slide, there you can see that both divisions, Pharmaceuticals and Consumer Health, have increased their operating incomes strongly.

Consumer Health [inaudible] by 21%, and Pharmaceuticals by 13%, but these again have the impact of the one-time divestiture in the base core.

On slide 12, we show the margin development.

Consumer Health was able to increase the margin from 13.1 to 14.4%.

In Pharmaceuticals, the margin came down from 30.5% to 28.9%.

But this was obviously impacted by the one-time divestment gain the pain line in the comparative quarter.

On slide 13, you see that we have managed our expense items to [inaudible] items to [inaudible] on [inaudible] cost of goods sold, marketing and sales, research and development all have increased or grown slower than sales.

And our sales increase in U.S. dollars of 16%, and all these items are below that.

The only item which is different here is general and administration.

But this line includes other income and expense.

And the biggest deviation rate again is explained by the one-time divestment gain of $178 million in Q1, 2003.

Let me then also go to slide 14.

There, we show that two main exceptional items on our first quarter is out.

I have mentioned several times the divestment gain for the pain line in Pharmaceuticals in the first quarter.

The other major one-time item was the so-called catch-up that we had to book in the first quarter of 2002 for the large pretax loss that was Roche incurred in the previous year, 2002.

If you correct income before taxes and minority interest, as reported, for this catch-up that occurred in the comparative period, then the income would have grown 13%.

So you can see that there obviously we benefited from this nonrecurrence of this catch-up, but still operating, sorry, income before taxes and minority interests, excluding the Roche catch-up and the pain line divestiture would have increased 13% so this we consider comparable number.

Let me then mention a few remarks regarding Consumer Health because later on, Thomas Ebeling will be on call with the Pharmaceutical division.

I'm on slide 15.

Consumer Health continues on this growth path.

We have double digit sales growth in over-the-counter medicines, medical and operation and infant and baby.

The Sandoz performance was heavily impacted by the development of the AmoxC business in the U.S. which was extremely strong in the comparative quarter.

Obviously, in the first quarter of 2004, there was more competition and prices have come down.

And this development explains to a large extent the decline of sales in the Sandoz business.

If you go to the next slide, number 16, then you can see that the Sandoz business had a local currency decline of 14%.

If you correct for the AmoxC development then the increase will be 4% in local currencies.

We had a very strong quarter in over-the-counter medicines, plus 14% and in medical, operation and infant and baby.

Let me then say a few words about nonoperating items before I hand over to Thomas.

I'm now on slide number 18.

Obviously, the nonoperating items were to a large extent characterized by the large swing in results from associated companies.

Where we recall that the income of $31 million compared to a loss of $246 million in the comparative period.

If you go to the next slide, then you can see how this is composed of, and obviously, the variance in the catch-up line, where the $269 million loss, in 2003, did not occur and we had a much better performance of our associated company, Roche and in our share in their profits.

On the next slide, we explain the, that's slide number 20, we explain the performance of our net financial income.

We had a net financial income of 28%, considerably less than in the first quarter 2003.

It's all explained by the reduced liquidity that we had, approximately $1.5 billion less average liquidity and by the reduced return on the liquidity.

The return on liquidity was 2.6%, compared to 7.8% in the comparative period.

Obviously, we are experiencing the generally low yield environment and very conservative risk profile of our investments.

Turning to cash flow, here, I have to explain that the free cash flow in the first quarter 2004 was a negative $1 billion.

This is approximately $1 billion worse than in the first quarter a year ago but this is practically all explained by two factors.

One is that the very large withholding tax payment on the dividend of approximately $705 million, this year fell into the first quarter whereas last year in 2003, it fell into the second quarter.

Our accelerated reporting has here a one-time effect.

Obviously this will be all be caught-up in the second quarter.

In addition, we had obviously less income from divestiture because in the first quarter of 2003, we had the income from the pain line divestiture.

So this explains the movement in the cash flow.

With these comments, I would like to hand over to Thomas Ebeling for some remarks on Pharmaceuticals.

Thanks Raymond.

On page 23, you see the strong safe and operating income growth, 19% expected to be 13% in U.S. dollar.

On page 24, you will see that we had productivity improvements in cost of goods, which is a function of product mix and true productivity.

In R&D where we had less [inaudible] expenses in the first quarter 2004 versus 2003.

And the marketing and sales where we used some external [inaudible] cost less. [inaudible]

If you would exclude the baseline effect of the [S line] divestment, our margin would have grown by 3.4 percentage points.

Regarding our overall in-market performance, we grew with 11%, 6% percent points ahead of market, it grew only at 5%, consequently our market share went up, by .2 percent points almost, about 1% and we were clearly driven by a strong cardiovascular performance as we grew ahead of market and by a strong oncology performance.

On page 26, you can follow that quarter-by-quarter, Novartis has significantly outgrown the market in the top 16 countries.

And specifically, in the U.S., we continue to outgrow the market which grew in quarter one by 7%, whereas Novartis grew by 16%.

On a global base, on page 28, North America was again a growth driver.

Europe, 11% growth, was strong.

Compared to a market growth which is at best mid single digit.

We were able to outgrow the market.

In Japan, we grew more or less in line with the market.

On page 29, you can see that all our business units and franchises were growing double digitly with the exception of transplantation, and matured products.

And the performance of the franchises were driven by strong dynamic performance of our key brands.

On page 30, you can see that seven out of our top brands are growing very dynamically: Diovan, Gleevec, Zometa, Lotrel, Lamisil, and Trileptal.

Page 31, Diovan is now the leader globally in the ARB segment, and the fastest growing top anti-hypertensive.

Lotrel continues to strengthen its position as the leading fixed combination treatment for hypertension.

Lamisil, Elidel and Zelnorm all benefited from strong DTC activities.

On page 32, you will see that Diovan grew.

Now the second largest anti-hypertension drug and this 27%, the growth among the top five anti-hypertension brands.

Consequently, Diovan is not only gaining market share in the ARB segment but has now reached an 8% share of hypertension.

In the fastest growing segment of the U.S. hypertension market, the combination segment, you can see on page 34, that the combination segment is growing by 25%, whereas monotherapy is only growing 4%.

In the ARB segment, monotherapy is growing by 21% and combination was 37.

So in the fixed treatments segment, we have with Lotrel and Co-Diovan, the two leading positions.

Nevertheless, hypertension still represents a significant growth potential.

Seventy percent of hypertension patients are not at blood pressure goal.

You can see the tree on page 35.

And therefore, we believe the key how to manage patients successfully, patients that went in as low, patients cope with diet and exercise, and patients are not compliant in control, and even more importantly, they don't realize the damage which is caused by high blood pressure.

And patients seek convenience.

Based on that, we have launched in April an integrated marketing campaign in the U.S. for healthy blood pressure.

We will invest $25 million U.S. dollar in DTC DTP spending in quarter two. 3,400 reps will detail more than 400,000 calls in Q2 alone.

And even launch a very comprehensive integrated program where we offer monitoring equipment, compliance cards, DTC campaign and a money back guarantee to those patients after being treated for four weeks at the highest dose with our brands are not at goal.

So we believe this is an exciting program.

The first two weeks, it's a bit too early.

But the prescription development in the U.S. in the first two weeks is encouraging.

And clearly Novartis is uniquely positioned to run such a program.

As we have three brands among the top 10.

The best top line agent is Diovan.

Two leading fixed combination brands getting the majority of patients to goal.

We cover all major segments.

And our patent protected plans have strong life cycle management programs so that such an investment hopefully before the midterm strengthens our leadership in this fast-growing segment.

On page 39, you might say welcome to an old friend. [Digga] is back on AR.

We have revised our DTC campaign after we had received constructive input from [inaudible].

It contained very effective, and the new prescriptions have grown by 12% since we restarted [Digga] which in 2004, it is month early on AR, compared to 2003.

On page 40, you see another new character.

This is the Elidel [dye].

We have launched a new campaign for Elidel to strengthen the message.

And since the campaign was launched, we gained here 2.4% point market share.

On page 41, you can see that we reinitiated the DTC campaign for Zelnorm at the beginning of the year.

And again we saw a strong tier [inaudible] and even more importantly a strong [inaudible] growth with 46%.

On page 42, you can see that as well our specialty brands are performing very well.

We are now fully penetrating [inaudible] in just at the right dose for Gleevec.

Zometa it's on the way to become a blockbuster in quarter one.

We had to manage the impact of Medicare in the U.S. but outside the U.S., Zometa is growing very dynamically.

[TIMAHA] continues to grow very strongly, driven by the MA17 study. [Inaudible] continues to demonstrate [ordinary] erosion rates and for [Visidine] we had good news that we had received two new indications which will increase the number of patients available to [Visidine] in the U.S. by roughly 40%.

On page 43, you can see an illustration of how we have managed to increase dosing for Gleevec.

More or less 10% increase at least in each of the treatment or disease stages.

And on page 44, you can see that this is very justified by data, that patients who have been treated at a higher dose achieve a significantly higher complete cyber genetic response and based on these data, we believe that the trend for updosing of Gleevec will intensify.

On page 45, you see that some other growth continues to be very dynamic.

Also, there is not yet a dramatic wear-out after the publishing of the MA17 data.

Apart from these strong performance of all brands, I'm really pleased to report that a lot of independent surveys in the U.S. concern that our [inaudible] source now regarded to be the field force with the highest quality, the number one [inaudible] force in the U.S. and that is certainly very deserved based on the strong performance of our team in the U.S. and [inaudible] leadership.

On page 47, you can see the highlight from the pipeline in quarter one.

Maybe one comment regarding [CLOSIVIR].

The submission is pretty late but letter late than never.

So let's see if we can make an inroad in that segment in Japan.

On page 48, you see the key anticipated events.

Obviously the next big news will be the report of the [inaudible] study, and the availability of the target data.

And on page 49, just to remind you of our strong, rich and well-fit pipeline.

With this, I would like to hand back to Raymond Breu.

Thank you, Thomas.

Let me then conclude with two slides on 2004.

First, if you few remarks about some financial licenses.

I think we have to expect that the growth in net income will be driven by a continued strong performance of the operating units.

The net financial income is expected to continue at the first quarter performance level.

So what you are seeing in terms of performance in the first quarter is in our view indicative of the remainder of the year.

But we expect that the continued favorable tax outlook will be unchanged.

On slide 52, finally a summary for the group.

We expect the sales to continue to grow at the high single digit sales level.

This is in constant currencies.

Ahead of the market, so that we would achieve market share gains.

We are in 2004 still in the year where we have a commitment to both R&D investments to ensure our innovation lead, so R&D expenditure is expected to continue to grow faster than sales for this year so that we can sustain in the medium to long-term an industry-leading pipeline.

We expect launches of certain [inaudible] in major markets in particular, for some of these products in the U.S.

Intense, strong continued growth of all of core brands.

Overall, operating income and net income are expected to exceed the record levels of the year 2003.

Obviously all these statements exclude any unforseen events.

With this I would like to open up the floor for questions.

Excuse me.

This is the conference call operator.

We will now begin the question and answer session.

Anyone who wants to ask a question may press star and one on the touch-tone phone.

If you change your mind and wish to remove yourself from the question queue, then you may press star and two.

Anyone who has a question may press and star and one at this time.

The first question is from Mr. John Murphy, Goldman Sachs.

Please go ahead, sir.

Yes, good afternoon, gentlemen.

A couple of questions.

Firstly, Thomas, on the Pharma gross margin, very, very strong performance in the first quarter, over 86%.

I remember asking you about this, this time last year, and you were saying at the time that maybe one point increase over the next few years well, you've achieved this almost in one year so the question really is how much further can you possibly go in terms of Pharma gross margin?

Second, Raymond kindly gave us the mix of the group level for volume price, and acquisition impact, I wondered if we could get a similar thing for Pharmaceuticals for the quarter?

And thirdly, 11% local currency growth in Europe, a very strong performance.

I wondered if you could maybe summarize some of the pressures or maybe some of the lack of pressure in some of those key European markets that you've experienced during the first quarter of the year?

Thank you, John.

This is Raymond.

I maybe can give you the numbers on the breakdown of the growth for Pharmaceuticals.

In Pharmaceuticals, we have a volume growth of 9%, price growth of 2%, and no impact from acquisition or divestitures.

And then I hand over to Thomas for the other two questions.

The one question was regarding the gross margin improvement, and I think the outline is pretty clear given, I think given by [inaudible].

We expected stable margin next year, and this is certainly guide our activities, and the overproportion investment rates in R&D is expected to calm down.

There is some improvement in cost of goods but the major area of improvement will be marketing productivity.

But you should not forget that at the end of the five-year planning cycle, we are currently in, we have a lot of new products to be launched, and these launches might then offset some of the productivity gains we might create until then, so that I will not further upgrade my outlook so that you can dramatically improve beyond 1% point our margin.

And in terms of pricing pressures in Europe, the most significant one is Germany.

As you are well aware, because of the increase of the rebates from 6% to 16.

In addition, we have a lot of, I mean every country is somewhat creative in terms of reference pricing or regionalization.

We have seen intensified aggressiveness in the accession countries like Hungary and in Turkey, and overall, I think the cost containment impact of a region like Europe is in excess of $100 million every year and to some extent we got used to it to absorb this effect but in 2004, because of Germany, it is certainly a little bit more excessive than usually, and the smaller countries are heating up as well.

Are there any markets in Europe that you're actually finding things have eased slightly first of last year, for example?

Not really.

They are still a little bit in Italy, France and Spain, but I have not seen it in terms of indication in the southern European market.

U.K. is pretty much unchanged.

I mean significantly easier, sorry, I don't, I cannot identify a country.

Thanks very much.

Next question, please?

The next question is from Mr. James Kowserwa, Merrill Lynch.

Please go ahead, sir.

Good afternoon, everybody.

A couple of questions.

First on Zelnorm, it is doing very well, but I was just interested, the new prescription trend seems to have leveled out and I was wondering whether you have kind of hit the low hanging fruit or whether this is just a phasing of DTC here, something like that.

And the secondly, just returning to the margin question, I think we are expecting margins to be under pressure this year from R&D expenditure mainly.

Yet there was actually a lower percentage of sales spent on R&D and I was just wondering what the outlook for the rest of the year was on that.

And actually, within SG&A as well.

You held back on DTC and things.

It would seem again the phasing of that.

Thomas?

I think with R&D, you're right.

We had last year BB&L investments in quarter one, significantly which we didn't have this year.

Overall, the guidance for the year is that R&D expenses might slightly go a little bit overproportionate.

In terms of marketing and sales, it's actually a little bit of both.

It's a bit phasing but there are some clear productivity savings like the [inaudible] PDI [inaudible] in the U.S. and we have to pay less service fees for less call in [inaudible].

There are some real productivity gains and a little bit of phasing, and the key investment, as I said, will be now in quarter two.

The investment into our hypertension program and we will see at the end of quarter two how it works and what intensity level it will continue.

In terms of Zelnorm, Paolo, would you take this question, please?

Sure.

The growth in [inaudible] has slowed down some.

But when you look at TRX, the last three months versus the prior three months, was 9.3%, so we still have a pretty robust growth.

And this is pretty much in line with our forecast.

Is that, so my question, is there a sort of a certain type of person who's in touch with the doctor who you are getting to, and getting new prescriptions, beyond that is a tougher challenge?

Is there some kind of threshold you're reaching in terms of new prescriptions?

It's just a question of the acquisition of new patients has slowed down.

What we will continue to drive growth, is the we see an extension between ERX and NTRX that will continue to drive growth throughout '04.

And then beyond '04, we will have new indications that are going to give us access to new patient pools.

So the growth is not going to be as dynamic.

But it clearly is still growing very strongly.

When you see 9.3% growth from one quarter to another, it is still pretty dynamic growth.

Just to build on this, as Paola said, we will have [chronic constipation] indication, and in addition, we see an increase in treatment days, that's another opportunity for growth, and we have by far not yet caught all the potential patients.

And what is important as Paola said is that our DTC contains still effective in activating patients to see the doctor.

So we're still very positive on Zelnorm.

Thank you very much.

Next question, please.

The next question is from Mr. Stuart Harris, UBS.

Please go ahead, sir.

Yeah, good afternoon.

Thank you very much.

Just a couple of financial questions and then one question just on a product.

What is a normal level Dr. Breu for G&A that we should expect?

Just trying to normalize what we saw over the course this last year, you know, for example adding back the 178 in Q1, and really looking at some of the other additional items.

Other thought, you know, I was expecting like 450, 500 maybe for the first quarter, you know, 6% of sales or so, you've come in at 600.

I just wondered, you know, moving forward if that is the sort of level that we should expect, the sort of 9%, 7% of sales in the quarter, or $600 million per quarter, whether it will drop back a little bit.

And then just to clarify on your comment on net financial income.

Did you say that the first quarter number, even though we had a dividend-related tax payment, would, you know, is likely to, you know, four times 28?

Is that what you are suggesting?

And then just touching on the Pharma margin, really you've talked about the fact that we are likely to get pressure in 2004 over 2003 because of R&D.

Because, principally because of the R&D spend.

You've obviously in the first quarter posted a very high Pharma EBIT margin.

Are you still standing by the expectation that full-year 2004 Pharma EBIT margin is likely to be down versus 2003?

And just finally, on PTK 787, when you talk about, you've talked about it filing in 2005 for a while.

I just want to practically, with a two-year likely trial time, if the last patients are just being recruited, how are we going to get filing in 2005 rather than 2006?

Thank you.

Okay.

Thank you, Stuart.

Let me then take the financial questions first.

Before I hand over to Jorge Reinhardt for the question on PTK.

What, you asked what the normal level of G&A means, you obviously understand that in our line, general administration, we include other income and expense.

And obviously, those items are not so easy to predict sometimes.

If in the first quarter, you know, you correct for the one-time divestment gain, of the pain line in Pharmaceuticals, we charted $178 million into Q1 in 2003.

And if in addition, you correct for the hedging gains, which were $47 million in Q1 2003, plus $47 million, and the loss of $9 million in Q1 2004, if you're correct on those two items, then our G&A line for the group increased at the rate of 7%.

And that's a very normal good development, the way we like it to happen, so this level of approximately, if I take these items out, $600 million, really reflect, you know, the level of G&A and then we won't expect that G&A for the group would grow at the rate of slightly less than sales, because that reflect productivity improvements.

By the way, to make, if I make the same two corrections for the Pharma line, then the Pharma G&A has an increase of 8% which again is very, how should I say, acceptable.

Net financial income, you know, what we wanted to indicate is that if return on invested liquidity, which was 2.6% in the first quarter, that this return number, plus or minus, is our best guesstimate for the entire year performance.

So obviously, you will have each quarter will be different, you know.

In one quarter we may have more capital gains, in another quarter, we may have more gains on dividend sense, but overall, we feel that in this very low yield environment, and in an environment where we follow a very conservative investment policy, we have to expect that financial income will continue this year to grow at approximately this rate.

Pharma margin, yes, we still expect the Pharma margin for the full year to be likely down.

And that's explained by the overproportionate increase in research and development.

Research, because we are in the second year of the build-up of our research center in Cambridge, in Massachusetts, that should be finished by the end of this year, and development because we have a very heavy late stage development pipeline that requires the necessary funds there.

As we have said, that going into 2005, we expect that the margin for Pharmaceuticals will stabilize and that would include that the R&D expenditure would start to grow in line with sales again.

For the question on PTK, we will ask David Epstein who is on the line here to answer it.

David?

Sure, we have previously communicated a filing of PTK 787 in the second half of 2005.

The program is on track, actually accrual has not been negativity impacted by the approval of Avastin.

The expectation would be that the results would be good enough to file with progression free survival and that allows that timing.

Thank you very much indeed.

Thank you.

Next question, please?

The next question is from Ms. Jo Walton, Lehman Brothers.

Please go ahead, madam.

I wonder if you could tell us a little bit more about this hypertension program that you have, particularly the money-back guarantee.

Just wondering how this works.

Is this indicative of even more competition in this market?

And should we see this as effectively an additional discount?

It seems to me like this is disease management by another name.

Is this being marketed to individuals, or is there something that you're doing to the managed care market?

And is it something that others are already doing in that managed care market?

First of all, thanks for the question.

And before Paola will give you more details, it's certainly not another discount, and it is really an integrated program which in addition to typical disease management programs, include a strong BTC component which is clearly awareness building and driving trials of the patients and it's clearly a customer and patient oriented program and not a managing care ended program but Paola, could you please give a bit more detail?

Sure.

What really motivated us to exploit this opportunity, were a couple of things.

One was the fact that there are 60 million patients with hypertension in the U.S., and 70% of them are fully controlled, so there is a huge pool of patients that either are not treated or fully controlled.

The second was a lot of work and a lot of research that we have done, has kind of shed some light as to why those patients were not accessing this market, and why those rates were so low.

And in this program is based, drawing on those insights, our program hopes to motivate patients, and physicians, to treat hypertension earlier and more aggressively and be more compliant with their treatment.

So as Thomas indicated, it is an integrated program.

We're going to be disclosing more details of it this next Tuesday.

So I won't go into too much detail, because we will be having a press conference that will highlight all of the details around the program this next Tuesday.

Could I also ask, please, when we're going to see an impact on the margins of the [EnableX] launch, when we will start to see premarketing whether we'll notice that?

And could you also give us some more help on what the margin in the generics business should be?

It's obviously been extremely low.

Now, we've had AmoxC coming out.

Is the first quarter representative in your view of the rest of the year?

Before we give that question to Christian Siewald, I think Thomas Ebeling, why don't you talk about the impact of the [EnableX]?

I think the, with [EnableX] we are finalizing our launch plans.

We have premarketing investments which I would say are not too significant.

And it is creating some more data.

Once we have finalized the data, we will finalize our strategies, so you will see not before Q4, probably an impact on the margin, but it will not be of course two light blockbuster launch, it's something I reassure you, so it will probably be a little bit of noise in the global margin and not more, because it's only the U.S. so far where we intend to launch.

Okay.

Christian, are you on the line?

Yes.

Of course.

As far as the margins are concerned, for the remaining year, I think this is driven by two facts.

One is of course Amoxycillin C. How will the price pressure remain, and the competitive stipulations.

And second, how much are we able to get new products on the market.

And here, I think we have good news.

You may have recognized that we have launched Ribavirin in the meantime, the first week of April and our [PIROXATHEHE] which is also ready.

Publicly known that we a tentative approval in the U.S. and we expect this launch also soon.

And these two factors will basically drive AmoxC and new launches.

The development of the margin for the remaining year.

Okay.

And if I can just, I apologize, one final question.

Are you intending to launch [PREXIGE] outside of the U.S.?

We now know that you are not going to be filing that for a while.

When might, are you still going to have a global roll-out or will you take advantage of European approvals earlier?

Well, I think we have indicated earlier that we would go for an MLP process in Europe later this year, after the availability of the target data.

And that's what we still intend to do.

Which would then hopefully, if that leads to an approval of course, with the major European countries, which would give us an opportunity to have a pan-European launch early next year and that is still what we are planning.

Thank you.

Next question, please?

The next question is from Ms. Beatrice [inaudible] of Oppenheim.

Please go ahead, madam.

Good evening.

I have two questions.

First of all, this trend of some major sales, can you shed some light how this is going to develop?

Will we see the slow trends for the whole of 2004 and into 2005, where the new reimbursement in place [inaudible]?

And secondly, also on the hypertension segment, I've noticed that Diovan prescription trends in the U.S. suffered quite a lot during Q1 and you only had 11% growth.

Is the hypertension program a reaction to Diovan softening?

David, would you want to take the first question regarding Someta?

Sure.

The change in Medicare reimbursement this year to AWP minus 15 has basically, from what we can tell, slowed the overall growth of the injectable chemotherapy market.

As a result, this Fosamate growth, that market has also slowed.

On top of it we have seen some shift in the U.S. market from Zometa to generic Permidgenate.

I would expect we will see no relief there until perhaps very late in this year as doctors begin to anticipate a different reimbursement program of ASP plus 6 during 2005.

Outside the U.S., the product is doing just fine.

Regarding the hypertension program, first of all, to clarify, the prescription growth of Diovan this quarter was 20% in volume and almost 29% in dollars.

But that is not too bad in the U.S.

And we like to be fast, but we are not hip-shooting and so such a program which took a development of eight months conceptually with thorough market research can certainly not be done within six weeks so this program is not a reaction to the performance, which we think it is a good performance.

It's more a reflection of the unique opportunity that only Novartis has basically three strong brands in the hypertension segment which is Diovan, Diovan HC and Lotrel and that the combination of our drugs, our Lotrel or Diovan HC alone can treat up to 80% of patients to target.

And we said only Novartis has been positioned to offer an integrated category management approach and that's why we tried it.

But the hope obviously that we gain market share and that we take market share away from competition.

Thank you.

Next question, please?

The next question is from Mr. Ben Yule, ABN Amro.

Please go ahead, sir.

Yes, a few product questions if I may.

Just on Myfortic.

What are the exact launch plans at the moment?

When exactly will we see it launching?

In which countries?

And just a follow-up on Zometa.

I guess you are seeing this passionate prescribed generic [IRIDIA] over Zometa.

What needs to change in the pricing environment to actually to reverse that trend?

And then just on Gleevec, I was just wondering what the current off label use do you think is.

And when you say penetration rates in CMLG, they are pretty much penetrated and we are looking at pretty much 100% now and do you think dosing rates still have the opportunity to increase even further from where they are they are now?

First, the Myfortic launch plan, Thomas?

Before we go to Myfortic, just a quick one on Gleevec.

I think the off label use is roughly 10 to 15% and the penetration and CML is roughly 75%.

In terms of Myfortic launch, most critical launch is the earth launch, which should take place actually right now, and in the U, we will launch in Germany, Austria and Netherlands in the first half of this year.

Okay.

David, don't you want to answer the Zometa [IRIDIA] question?

Yeah, I think that the biggest change will occur when reimbursement changes next year, and then the pricing incentive to use generics and the physician's office will go away.

So there will be really not a lot we can do in the short run.

But you say you see the trend reversing maybe in the early part of 2005 without a pricing change.

Yeah and perhaps even the very end of 2004 if doctors begin to anticipate next year's change.

Right.

And just on Gleevec on the dosing, you're saying you're being able to get it dosed at the proper amount.

I mean is that going to perhaps increase a little bit more?

You will see increasing data showing that higher doses of Gleevec, both in the CML, and GIST setting are better for patients so I think the dosing will continue to increase for the foreseeable future.

I also do believe that we have not fully penetrated the GIST market.

There's still opportunity there as we find that there are still a large number of patients that historically were not appropriately diagnosed.

So the brand has still considerable growth potential ahead.

So the GIST indications maybe what 50% penetrated or perhaps even less?

It is actually nearly impossible to get a number.

But it appears we still have significant GIST growth ahead.

Thank you very much.

Next question, please?

The next question is from Mr. Rupresh Paten, J.P. Morgan.

Please go ahead, sir.

Thank you.

Quick question for Raymond on G&A.

I understand your explanation about why year-over-year growth trends were impacted, because of the one off issues that impacted G&A last year.

But if I look at G&A spend this quarter, either on an absolute level or as a percent of sales where it came in at 9.1%, can you help us understand if there were any nonrecurring items that impacted this quarter's number?

Or is this the new run rate, either on an absolutely basis or as a percent of sales that we should be looking at moving forward?

As I explained, Rupresh, the G&A line includes other income and expense, so you've always to keep in mind that those two lines are aggregated.

You know, in the first quarter for the group, we had G&A as a percentage of sales of 9, G&A and other income and expense as a percentage of sales of 9.1%.

I'm not aware of any major one-time or exceptional [inaudible] the first quarter, so this is pretty indicative.

I see.

And if I could just follow-up with a question for Jorge.

It seems that SBP 100 and [PREXIGE] U.S. filings are pushed out by a year into 2006.

And I was wondering if you could just elaborate on that?

Yeah, I think both filings were always intended to happen around the very end of 2005.

And we have just taken little bit more cautious approach and moved them from end of 2005 into early 2006.

So we are talking about potential shift of two to three months, not more than that.

Thank you.

Next question, please?

The next question is from Mr. Timothy Anderson, Prudential.

Please go ahead, sir.

Hi, thank you.

I have a question that is broader in nature, and relates to the general discussion of mergers and acquisitions.

You know, it seems like the market's kind of telling that you they like Novartis the way it is, and from my perspective, Novartis has a pretty robust outlook as a stand-alone company.

And you certainly seem to have critical mass in all relevant areas.

So I'm just wondering why the consideration of entering into any sort of big merger?

Are there benefits of scale that you think are necessary for survival in the future or something like that?

And what is it exactly that you think investors are missing in your opinion?

Let me try the first answer, and then Thomas Ebeling may comment after me to speak more specifically about Pharma.

We have always said that obviously our performance at the moment is impressive, that we have one of the best pipelines in the industry.

So we see that in the short-term, we have no need to look into acquisitions or large acquisitions.

But obviously, we have a duty to our shareholders that we have to look beyond just the next few years, that we have to make sure that our pharmaceutical business is competitive in the pharmaceutical market of ABC developing over the medium to long-term.

We have always said very openly that our conclusion is that certainly in the mass market segment of pharmaceuticals, we expect further consolidation.

And that there are benefits of size in marketing in particular that we think will be decisive over the long-term.

So if opportunities arise we said we have to look at them, we have to follow them up, because we want to make sure that we can grow the value long-term.

Thomas?

So this is really our assessment of the situation.

Okay?

Thank you.

Next question, please?

The next question is from Mr. Marshall Branch of [inaudible].

Please go ahead, sir.

Good afternoon, gentlemen.

First a brief question on generics.

The pricing and volumes seem to be very erratic from quarter-to-quarter.

Could you maybe comment on this?

Then, on the corporate income expense line, there clearly was a negative swing and you cite less income from pension funds.

Is that also a reason why in the G&A line, we see a higher number than expected?

And then my favorite question, could you give us some feedback from the launch of Myfortic in Switzerland or maybe in any other country where it has been launched, to what extent you get de novo and already treated patients?

And what is your view on Roche's statement that they believe that Myfortic is going to be held back by food effects?

Thank you.

Okay.

Christian, do you want to --

Yes.

Absolutely correct observation.

But you have to take into consideration that AmoxC, which is an antibiotic, which has of course the high season in the first quarter in the year and in the fourth quarter.

In these two quarters, you make approximately 75% of the full-year business.

And this is why for example the second and the third quarter usually volume wise is not so strong.

And particularly with this product, as it has been outlined already, we got severely hit in the U.S. in the first quarter by additional competition.

Okay.

And then your question, Marshall, regarding the corporate other income and expense, the variation in the first quarter is to a large extent explained by the non, by the discontinuation, I should say, of the pension income.

In the past we had an overfunded pension system in particular in Switzerland where we have recorded income from this overfunding.

This has now largely disappeared and this explains the variancy.

I have to say that the other income and expense line at the corporate level includes a very large list of items.

But this one is the one which explains the variant in the first quarter.

And Myfortic comments?

The best country to give you an insight is Switzerland where we have launched Myfortic in April, 2003 sand we currently have 10.5% share of the combined MMS and Myfortic markets.

Regarding the food effects, I'm a bit irritated because we believe that Myfortic offers a differentiating product feature based on its entera coating because we know that some MMS patients suffer from GI side effects, and what we know from, which is only anecdotal report, that they confirm that MMS in [inaudible] GI [inaudible] improves in patients that are converted to Myfortic.

So I am still very confident that we can take some share away from MMF.

Uh-huh.

But you say 10.5% that is the overall mycophenolic market?

Yup, total market.

Total market.

Okay, thanks.

I just noticed that we are approaching the end of the allotted time.

So could we have the last question, please?

The last question is from Mr. Sebastian Bertrand, [inaudible].

Please go ahead sir.

Yes, hello gentlemen.

One question on Japan where your growth is much lower than what you used to have in 2003 and 2002.

Could you give us some, shed some light on what is happening there?

And what are the drivers for the performance?

And also, a follow-up question on the corporate income line.

The fact that you've discontinued your pension income, does that mean that we should model kind of negative figure going forward all the time in the foreign quarters for that line?

Where as it was more around zero previously?

Or I mean what would be your best estimate for that line going forward?

Thomas?

On Japan?

Yeah, in Japan, we are gaining market share and our in-market growth is 6%.

Two reasons for the first quarter performance in Japan.

For the whole industry, is basically that wholesalers [inaudible] price decrease, which would be effective in April.

It started already to run down the stocks, and stopped buying.

This explains 90% of the effect.

And then last year, last year in April, there was an increase by 10 percent points for co-pay for elderly patients, which was, certainly we have now in quarter one, for the year effect, but it is really predominantly the behavior of the wholesaler and another minor effect of the low [inaudible] but the key reason are the wholesalers, we are growing 6% on this and we gain .2 percent market share year-to-date in Japan.

And then Sebastian, regarding the corporate income line, yes, it is continuation of the pension income, I think is at least for the time being permanent.

And that means that we will have a tendency to show a negative number for this other corporate income and expense.

Now, I should add that this line being the residual of a number of income and expense line is very volatile.

But from quarter-to-quarter you may see fairly large variations but overall for the year I would expect it is safe to assume that it won't change from the previous year, and so at least in its tended to the slightly negative region.

So when I say slightly negative, it is some varying from zero to $100 million negative.

Thank you very much.

Okay.

So with this I would like to conclude today's conference call.

Thank you very much for your attending the call and for your interest in Novartis.

I look forward to seeing you on the next conference call or whenever we have a chance to meet.

Thanks.

Ladies and gentlemen, the conference call is now over.

You may disconnect your telephones.

Thank you for calling.

Goodbye.