Novartis AG (NVS) 2007 Q4 法說會逐字稿

Ladies and gentlemen, good afternoon.

It is my pleasure to open this afternoon's session.

We will have a series of presentations, first following me Joe Jimenez, Joerg Reinhardt, Thomas Eberling, Andreas Rummelt, and then Raymond Breu.

Then we will come to conclusion and to the Q&A.

If we look at the group performance, you have seen that mean time obviously and as reported, growth in local currency 3%, dollars 8.

Operating income up 58%, net income $12 billion, EPS a little bit more because of the share buyback program, which concentrates the earnings to some degree.

And of course, this gives you one piece of the picture, but not the entire picture.

We had several important one-timers last year.

The biggest one was a positive one of $5.2 billion post or after-tax benefit through the sale of Medical Nutrition in Gerber, an increased environmental provision of $590 million and the restructuring program, roughly $450 million.

If one takes out these one-timers, then you see that turnover increased by 6% in local currencies, operating income up 2%, net 7% up and EPS 9% up.

And obviously you can take out just the income and leave the negative one-timers and then you will come to negative growth and I think we have that in the press release, too, so I will not go into this detail.

If we look at the geographic growth patterns, you can see that exceptionally for once the U.S.

did underperform and had a contraction.

This is due exclusively to the performance of pharmaceuticals.

By the way, the pharmaceutical business in the other regions did grow dynamically, and most double-digit, and that explains why all other regions are also doing well.

By division, dynamic growth of Sandoz plus 13% in local currencies, plus 20 in U.S.

dollars.

And remarkable improvement of the margin with operating income 41% up and with over $1 billion now, they have tripled the year operating income in three years.

Consumer health up 6% in local currencies, 11% in dollars, and also here in margin improvement, operating income up 19% in Vaccines and Diagnostics with the strongest growth rates close to 50% in local currencies.

Then the operating income really in percentage increase does not make sense to put it down.

We had several events in 2007 and by all means, I would say more which I experienced as negative than positive ones.

That is even true for the approvals.

We had 15 approvals in the U.S.

and the EU, but the two non-approvals and especially the delay of Galvus in the U.S.

was a setback.

The Zelnorm suspension started the whole series of 2007 in April, then Galvus, then we had the unexpected launch of a generic for Lotrel and Famvir at risk meaning we still have a patent but Teva launched anyway.

Then we had the expected generic competition for Trileptal and Lamisil.

That was in our plans.

Then the Prexige non-approvable letter was less of a surprise.

Then also planned was the divestment of the Medical Nutrition business in Gerber and the rotation at the divisional level.

If we look at this strategy, then obviously the question is what are the fundamental trends?

I will not go into these details.

You know them as well as I have.

I know and they have not changed really from the past.

So we have substantial pull growth drivers, which at the same time really creates a problem because with that the healthcare bill is increasing and with that, the countermeasures with the pressures on prices are also increasing.

Then we see that some states in mid-income countries or low-income countries have weak IP or weaker IP.

And in the U.S., we for example, did not get an injunction when Teva launched Lotrel and Famvir, which also is indicative that the environment is not as friendly as it used to be to the innovator.

But all of that will of course find its end in front of the judge, and we will see who eventually prevails.

Strategically we therefore have decided to have a focused diversification strategy, not only investing in branded innovative pharmaceuticals, which remain very important and attractive, but also in quality, inexpensive alternatives to the generics, prevention, vaccines and diagnostics, and self-medication consumer health.

And I think the results show this strategy does deliver and will also continue to deliver, we believe.

Now what strategic implications are we drawing from that?

First of all, on the business portfolio level, we believe that we should continue to strengthen the nonbranded businesses, addressing specific customer needs.

On the innovation level, we need to focus on truly innovative products which are differentiated and bring a real health benefit to the consumer or the patient, and we have to work on organizational efficiency.

Why do we think that the non-Rx or branded Rx portfolio has strength?

First of all, it allows us to tap new growth sources.

Secondly, diversifies our exposure, for example reimbursement; but also patents versus brands.

Then convergence of technology and customer needs in technologies like biologics, biologics we have it in vaccines.

We have it in Pharma.

We have it in generics with the biosimilars, and we can leverage assets and have an economy of scale.

Growth rates have changed in different industries.

Pharma has come down.

The margins obviously in the pharma business are still the most attractive of these four businesses.

If you look at the evolution between 2004 and 2007, you see that the faster growth rate in the non-pharma business has increased its percentage.

At the same time, I have to stress it is not because pharma was weak.

Pharma did gain market share and did well except in 2007.

So it is just that the other businesses have been more dynamic.

If we look at the innovation, and this is one set of measures one could take is NIBRs, so Mark Fishman's organization, if we look at target discovery programs and drug design programs and the new molecules.

And all of these have been increasing over the past years at a really attractive rate.

We at the same time have a quality staff change, more highly differentiated product, more biologics, which are now 25% of our early pipeline.

And the track record even in 2007 at FDA has been at the top of the industry in 2007 together with GlaxoSmithKline.

And in 2007, we had the lowest approval number of new drugs, new molecular entities, at FDA since 1983.

So it is very clear that we had a significant slowdown by the regulators.

Innovation in generics, various fields, difficult to make [analysis] and of course the biosimilars, where we had some success, certainly we are here leading the industry.

In consumer health, on the OTC area, we have had very interesting new brands, new delivery forms where we see very good consumer acceptance.

In CIBA Vision, we were the first to introduce a lens where you can keep it for 30 days in your eye.

In Animal Health, we have an interesting pipeline.

We do not talk much about it, but for example we have for aqua culture, for fish, we have a very nice portfolio in aqua culture and it will become more and more important as the sea is become more and more empty because of over fishing.

So that is an interesting field and Joerg Reinhardt will talk about his innovation and the most important one in the short term certainly Menveo for meningitis.

Pharma, last year several approvals, as I mentioned.

Now we have also the rollouts and more specialty products which are being approved and will be launched.

Also we see that the specialties as a percentage overall of the current product portfolio is increasing and will go beyond 50%, but you can see here two very important franchises where we have oncology and hypertension and how they have grown very dynamically over the past year.

Initiatives in 2008, we will continue really on what we have announced.

Research sites, we will have a concentration.

We closed Vienna and Tsukuba and we will transfer some of the scientists to Cambridge and some of them to Basel.

So from Japan to Cambridge and from Vienna to Basel.

And put immunology together and cardiovascular together.

In the Biologics unit, which we have announced and we are building up, and then Step-up, which is a project to accelerate and prioritize better in development and Joe will talk about this also afterwards.

And Forward, which is across the entire organization, a desire to simplify the organization to fasten the decision processes by also delegating more, and then at the same time to reduce costs by simplifying the organization.

With that, I would like to pass to Joe Jimenez.

Thank you.

Good afternoon.

I would like to leave you with three messages today.

The first is that we had strong underlying performance in 2007 despite the issues that we saw in the U.S.

The second is that we are positioning Novartis Pharma to win in a rapidly changing environment.

So I'm going to take you through some of the key changes that we are generating in pharma to gain competitive advantage.

And then the third message is that 2008 is going to be a year of focusing on the fundamentals and driving our new product launches.

So you will see accelerating growth in the back half of the year, low single digit sales growth in total, but operating income growing ahead of sales.

Starting with 2007, our sales crossed the $24 billion mark, up 6%, 2% in local currency.

Operating income was down 9%, impacted by the Forward restructuring charge.

As well, the Zelnorm withdraw and the generic issues in the U.S.

impacted products that had a higher margin than line average.

Importantly, though, you have to look at the underlying growth.

So this chart shows in the Middle 2% local currency growth.

If you back out the onetime effects to the left of Zelnorm and the generic hits, there was $20 billion of business that was growing at about 10%.

And that is important particularly as we think about 2008.

You see it in our geographies.

So outside of the U.S., we had double-digit growth in some key geographies; importantly Europe also up a solid 9% in a pretty tough environment.

The franchises did well.

Oncology approached $7 billion, up 13%.

This is the sixth consecutive year of double-digit growth for oncology.

Neuroscience also approaching $3 billion, very important third platform for us behind oncology and cardiovascular.

We have the number one hypertension portfolio in the category with Diovan and now Exforge and Tekturna.

You can see that we grew the franchise by $300 million, overcoming a $700 million hit with Lotrel.

Diovan crossed 40% share of the ARB market in the U.S.

Oncology continues to grow.

Gleevec crossed $3 billion in total sales, up 14%; Femara, up double-digit; and importantly Tasigna, just launched, will drive continued oncology growth into the future.

We have the strongest regulatory performance in the industry and this is important because this is our future.

When you think about the launches in 2007 and how we're going to drive those in 2008, the launches are off to a good start.

Lucentis, Exforge, and Tekturna generating about $500 million in sales in 2007.

In fact, Lucentis, which is the only approved treatment for macular degeneration that actually improves vision, increases the independence of the patient and reduces the overall burden on the healthcare system.

Exforge, which is our combination of Diovan with amlodipine is off to a tremendous start.

It is exceeding benchmark analogs in most markets and we continue to believe that this will be a blockbuster for us.

To

Tekturna is gaining momentum after what was a relatively slow start.

We have gotten some new formulary wins in the U.S.

As well, we have Tekturna HCT to be launched in the first half of 2008, which combines Tekturna and a diuretic for even more potent blood pressure reduction.

Aclasta, which is our once yearly annual infusion for osteoporosis, this solves a major unmet medical need.

50% of patience that are on an oral bisphosphonate do not comply after six months of therapy, and that is the same is no protection.

So Aclasta is very important.

Exelon Patch, better tolerability for Alzheimer's dementia than other drugs in its class.

This thing is also adding to our Exelon total share.

So overall, performance in 2007 heavily impacted by what happened in the U.S., but good underlying performance and launches that are off to a good start.

Now I would like to talk about how we're changing Novartis Pharma.

I have been in pharma for about three months.

I have got to tell you the people in pharma are -- this is a high performing team.

It is a group that likes to win.

They are used to winning, but there are some things that we have to change.

If you look at the events that hit us in 2007 in the U.S., these are fundamental consequences of an industry that is changing relatively quickly.

So we have to turn this to an external culture where we can better anticipate some of the changes that are occurring in the industry, and then change our business model in a way that generates competitive advantage.

Now the issues in the industry are well known.

They are listed on the left.

But to be able to win in this environment, we're changing Novartis Pharma in four ways.

I want to touch on all four of them.

The first is development.

We have a very strong development organization that has a very good track record of success.

But in a tougher regulatory environment, we have to move from what is today functional decision-making, where we make decisions along clinical development, safety, regulatory, on up the line to cross functional teams that manage the projects from early development all the way through to commercialization.

This will push accountability deeper down in the organization and allow for decisions to be made at the right level.

So the way these teams are going to look, they will have a product leader at the center for every project in development with functional experts reporting to that project leader and they will manage the process.

This will force integration at lower level and accelerate and improve decision-making.

The second big change that we are making beyond development is in innovative commercial models.

Historically the pharmaceutical industry has had a one-size-fits-all approach to sales, where we bombard the physician multiple times per week or per month and that model does not work in all markets anymore.

If you look at the chart, the left-hand side shows the old share of voice market, where the doctor had a high degree of autonomy but as markets evolve, the payers and the reimbursement agencies have much more say in what is actually dispensed.

So we are geotailoring our sales force, pulling resources away from the physician in those markets and surrounding those payers and reimbursement agencies with cross-functional teams.

So we are physically moving from a one-size-fits-all approach directed at the physician to a cross-functional team approach in those markets where it is appropriate, where we include marketing, sales, logistics, and it's a different sell, it's a different approach.

But this is going to help us adapt to a changing customer base.

Another example of innovation is in pricing.

In a very tough pricing environment, we believe we have to become more collaborative with the payers and the reimbursement agencies.

So one example is what we're doing in the UK where we are guaranteeing the patients on Diovan-based therapy will deliver a blood pressure reduction at target or we will refund the cost of Diovan.

What this is helping us do is gain primary access in the UK, but it is also a win for the NHS, which knows that they are going to get a drug that will effectively reduce the blood pressure for those patients who need it.

The third area of change for pharma is in productivity.

We announced in December that we are undergoing a broad ranging productivity program that will involve all of our functions.

It will streamline the organization.

We will offshore and outsource some of our back office functions.

It will save over $600 million in 2008 and growing to $1.2 billion by 2010.

Then the fourth and final change is around growth areas and focusing on emerging markets.

As I have come into this business, I am pleased by the strength that we have in some emerging markets.

For example in Brazil, the number one pharma brand of any therapy area is Diovan.

In Turkey, we have the largest pharma business in the country, on down the list.

We can leverage our strength in some key emerging markets to grow faster, and you will see additional investment in emerging markets.

So these are the four areas that we believe we can change Novartis Pharma to be able to gain even greater competitive advantage in a pretty tough industry environment.

I would like to finish by providing an outlook for 2008.

We are going to really focus on driving these launches.

The launches are out there and now we have to execute them with excellence.

The first half of the year is going to be highly impacted by Zelnorm and the other generic issues until we lap that.

However, we will show low single-digit growth in total and operating income growing ahead of sales.

We don't usually do this, but I wanted to show the quarterly flow because of how different it is going to be.

You can see in the first half of the year, we will have about $1.4 billion of lost sales that we're going to have to get out from under.

And then as we move into the third and the fourth quarter, the underlying growth rate of the business will reemerge and we will generate high single-digit growth by the end of 2008.

That will result in low single-digit growth for the full year.

We are expecting strong continued news flow.

These are just some of the examples, more news on Tekturna around the blood pressure efficacy of the drug as well as the organ protecting properties.

Two filings in oncology with Gleevec and with RAD001.

So I am optimistic about 2008.

This is -- we are physically changing Novartis Pharma to be able to create competitive advantage in what is a pretty rapidly changing environment.

But at the same time, we've got great launches that we can drive in our developed markets and leverage our strength in the emerging markets for continued growth.

So thank you, and now I would like introduce Joerg Reinhardt.

So good afternoon.

2007 was a good year for Vaccines and Diagnostics.

We had a second-year of strong sales growth after 2006.

We achieved profitability ahead of schedule.

We had a number of growth drivers so not just influenza.

And last but not least, we also did move our pipeline forward especially for the meningitis projects.

The vaccine sector is a very attractive part of the healthcare business.

From a more long-term perspective, the healthcare market is clearly shifting more towards prevention.

Innovation in the vaccine sector is accelerating.

There are now opportunities to discover new vaccines that were not able to be produced ten years ago.

All new vaccines are adopted on vaccination schedules in the individual countries show strong performance.

Then last but not least, there is a significant barrier to entry and also the threat of generic competition is very limited.

Number wise, we grew by 25% in U.S.

dollars but 20% in local currencies.

Operating income, $72 million, return on net sales was 5% on a reported basis.

When we look at the adjusted basis, meaning excluding all exceptional events, the underlying return on net sales is 21.3%.

The vaccine business is the driver of this growth.

We have 72% of the division sales come from vaccines, 28% come from diagnostics.

When you look at the geographical distribution, it is almost even between the U.S.

and Europe, 44% and 43%.

The rest is coming from international, mainly Asian markets.

In Latin, we are still relatively weak, but we would like to grow there.

When you look at the growth drivers of 2007 sales, it was mainly our tick-borne encephalitis vaccine, which we sell in Europe, in Germany, Austria, and Switzerland, where we could actually sell almost double as many doses that we did sell in 2006.

But also the pediatric vaccines and among them, Quinvaxem, which is a fully liquid pentavalent vaccine that we developed together with Crucell and that we also sell together with Crucell mainly to NGOs like UNICEF and PAHO did develop very, very nicely.

I can see here that sales more than tripled.

Influenza was a little bit of a disappointment.

Growth was only 10% as compared to 2006, mainly based on a weak influenza season especially in the U.S., but also in Europe.

I believe we did comment already in the third quarter that most of our influenza sales will be in the third quarter.

There was not much of sales anymore in the fourth quarter, which had to do with the fact that the season was mild and still is mild.

Nevertheless sales grew by roughly 10% also in this segment of the business.

In the influenza business, we believe that it will be necessary and very important to come up with more differentiated products and there we do have two offerings that are unique in the field.

We have the only adjuvanted flu vaccine, which is Fluad, which is currently indicated in elderly of 65 years and above.

We do develop that vaccine now also for children because there is still a significant need for children.

And the second one is Optaflu, which is the first cell-based flu vaccine that was approved in middle of 2007 and we will launch this product now on an order basis for the coming flu season of 2008 in Europe.

From a pipeline perspective, we made good progress especially with the meningitis vaccines and here meningococcal disease is very, very severe in its impact.

We can see on this chart a number of reasons why the medical need for that indication is so high.

There is still a very high mortality rate of 10% to 30% despite treatment.

Those who survive have long-term consequences that they have to deal with.

So overall, meningococcal disease is a very severe disease.

Now it is complicated by the fact that there are five different strains of the Bacterium which all are important and all can lead to disease, A, B, D, W, and Y.

The market for any of those vaccines is expected to be substantial.

It is an infant vaccine which will be given to infants at the age between one month and 12 months.

The birth cohort for U.S.

and Europe together is more than 11 million babies.

When you look at the adolescents, where there is a catch-up opportunity, it is more than 12 million people.

We need full doses for infants; we need one dose for adolescents.

And when you look at benchmark prices, modern, new vaccines are at a range of $100 per dose so $400 for [a course], just to give you an indication.

Menveo, which is the first vaccine that we will submit for registration, is an ACWY vaccine which is coming close to completion of Phase III trials.

We have run Phase III trials in all three populations, in infants, in toddlers, and in adolescents.

Results will be available in the second quarter.

I hope that we can present some of this data in May.

Now in Phase II, this vaccine has shown remarkable effectiveness or remarkable level of immunogenicity not only in adolescents after one dose, as you can see here, but also in toddlers after two doses and also -- and that is really new -- in infants after three doses.

The current gold standard in that indication is Menactra, which is a Sanofi-Aventis vaccine, which is not indicated at the moment in subjects of below two years.

There is a program ongoing that may get this product to kids of above nine months, but there is certainly no current progress toward lower ages.

We believe that Menveo will actually cover the range from two months upwards.

As I showed before, we have data that show that in infants of two months and older, Menveo shows in Phase II remarkable results, and I hope that we can confirm this in Phase III.

When you compare the profile of the two products, Menactra and Menveo, as I said, it is the efficacy in infants that Menactra doesn't show.

We have in our Phase III programs coadministration with standard vaccines, data that Menactra does not have.

And also from a persistence perspective, we had shown that Menveo has shown more persistent immunogenicity as compared to older polysaccharide vaccines and Menactra could never show that.

So altogether we believe that we are on a good track for submissions by the middle of this year in adolescents first.

However, the main challenge in meningitis vaccines is still a B vaccine.

All attempts so far have failed to come up with a B vaccine since years and years people are trying, more or less in the standard way to come up with a B vaccine and so far nothing has worked.

Now a number of years ago around the year 2000, our head of research in Italy, in Siena, did start a project together with Craig Venter at TIGR at that time to sequence the genome of meningitis B.

Meningitis B has 2200 genes.

Out of those they identified 350 proteins that are potentially amenable for the creation of a vaccine.

They tested those in a range of in vitro and in vivo tests and came up at the end with four antigens, four proteins-based antigens that could potentially lead to a vaccine.

Now it looks like that vaccine based on these four proteins works.

These are Phase II data in adults which show that against three of the most prevalent strains of MenB, there is a very high immunogenicity and a very high immune response that is absolutely adequate for adults.

And this is very new data.

We could also show that against infants or in infants, there is a very good immune response against these three different strains.

So given those data that no one could show before, we will now start Phase III in beginning of 2008 with the MenB vaccine.

In addition to the meningitis portfolio, our research and development alliance with Intercell did lead to a broadening and strengthening of the pipeline, as you can see here.

The first vaccine that comes out of this development or collaboration is Ixiaro, which is our Japanese encephalitis vaccine that was submitted for registration before end of the year of last year by Intercell in the U.S.

and in Europe.

In addition, we have started Phase I with the GB, Group B streptococcus vaccine and we hope that we can start Phase I with an H.

pylori vaccine as well this year.

So in conclusion, base business, no new products so far, base business coming from the acquisition is continuing well, growing strongly.

We have a pipeline that is emerging very positively not just in influenza and in meningitis, but also beyond that.

And last but not least for 2008, we believe that we will have another year with double-digit growth and despite the lack of separate onetime income, we believe that we can keep the margin at the levels of 2007.

Thank you very much and with this I hand over to my colleague Thomas Eberling.

Good afternoon.

So consumer healthcare markets are really attractive.

They demonstrate very solid high mid single-digit growth rates and healthy growth levels and we expect the growth rates of these markets to accelerate, driven by innovation and by payer and the regulatory trends which will further drive healthcare and by an increase in purchasing power in emerging growth markets, specifically markets like Russia, China, and Korea.

The megatrends in consumer healthcare are significant.

First, we believe that there is a shift of costs driven by payers and authorities towards the consumer.

So the consumer has to carry more costs.

Secondly, the consumers are becoming more self-aware, more educated about self-care, and are willing to invest more to prevent diseases and to treat diseases.

We believe as well that in terms of sales channels, you will see a customer consolidation which will lead to stronger customers, but those are more skilled in driving revenues through bettered in-store promotions.

And we believe that new channels like Internet will open more distribution points and more distribution points will lead to higher revenues.

The three common characteristics of all three businesses are, they are all consumer driven; they are covering processional and retail channels; and they have at least all a touch of science.

The Novartis consumer health division has demonstrated high single-digit growth rates in terms of sales and operating income growth and was able to improve the return on sales over the last five years.

The business is split that OTC represents 50%; CIBA Vision, 30%; Animal Health, 20%, and if you take a look at the geographies, this business is less U.S.

dominated than other business of Novartis.

Both OTC and Animal Health were able to outgrow the market significantly.

CIBA Vision is growing a little bit behind the market and however, able to defend a strong number two position with more than 20% market share.

In terms of operating income, the business grew by 11% in U.S.

dollars, 7% in terms of sales.

In terms of operating income, 7%, and if you exclude the effect of Project Forward, it would have been 19%.

So very healthy growth rate for consumer health in 2007.

The priorities are that we have to continue to outgrow the market.

We want to grow operating income faster than revenues.

All of our businesses have still not yet achieved a 20% return on sales, so there is room for improvement.

In terms of innovation, all businesses have rich pipelines but what we need is more impactful innovations.

Marketing and sales capabilities are good but not yet best in class.

And in terms of efficiency, you want to have a special emphasis next year on supply chain improvement and on reduction in overhead costs.

Our position in the emerging markets is relatively strong.

Our self-medication business in Russia has already exceeded $100 million revenue, but there is still more to gain.

We will continue to explore external growth opportunities for the businesses.

A quick look at each of the units.

In OTC, we ranked fourth.

Europe is the key region for that business.

You can see here our brands in major categories.

We have a strong position in cough and cold, in pain, in derm, and in GI.

In 2007 specifically, Otrivin was growing nicely and our cough and cold brands outside the United States showed very good growth rates.

You can see here that we have 170 projects in our pipeline.

Admittedly these are more smaller projects incremental innovation; however, we believe that we have one of the largest pipelines, that our speed to market is good, and that we have some very impactful innovations like Voltaren Gel, which we got approval in the U.S., and the Rx-to-OTC switch for Prevacid.

In terms of three priorities, 2008 for OTC is the launch of Voltaren Gel in the U.S.

Secondly, to remain on track regarding the switch of Prevacid, to explore acquisitions and external growth, continue to strengthen our position in emerging markets, and to really drive the productivity improvements in the supply chain.

Animal Health is an interesting business.

The spending for pet drugs has doubled over the last ten years.

You can see that 50%, more than 60% of U.S.

households actually have a pet and more than 50% of dog owners are actually giving their pet a birthday or a Christmas present, so this shows that there is tremendous potential in this business.

And not quite surprisingly, for us the key geography is the U.S., with 44%.

It is the strongest country we have and we rank fifth in the market.

We have 41 projects in development, 25 in registration.

The Animal Health unit is very effective in leveraging opportunities coming out of our pharma pipeline and out of other businesses from Novartis.

You can see here our brands in our four key segments.

In 2007, the performance of companion animal therapeutics and of our water business was very strong.

Parasiticides in the U.S.

was the performance which was most concerning, but overall, we are very pleased with performance of our key brands.

Priorities for next year is salesforce optimization, launches, continuing to drive innovation, and improving as well productivity in supply chain.

CIBA Vision is ranked number two in it's markets, more than 20% market share.

Here again for us Europe is the key region.

In the past, CIBA Vision was really very, very innovative and we had several groundbreaking innovations like Night & Day, FreshLook, and Dailies.

Those brands have captured leading market share in their segments.

For the future, we intend a launch every year between three and four projects.

For 2008, we will launch Dailies AquaComfort Plus, and two optimization projects of O2 optics.

And for 2009 and 2010, we are hopeful to launch four new projects.

Aqua Dailies Comfort has a unique triple action for moisturing, has been launched in the first European countries in the second half of 2007.

So far the initial uptake is good and we will roll out this product in more countries in 2008.

So for 2008, the key priorities are launches, innovation, continue to strive for quality.

As you know, we had in the last two years every year some product quality issues.

We have made great progress in controlling this, so we are very hopeful that 2008 will be a year of uninterrupted supply chain based on good quality management.

And even here has continued to improve the efficiency in supply chain.

So overall, strong performance in the past, good market growth outlook.

Consumer health is well-positioned based on strong brands, strong innovation, and being part of Novartis.

We expect in 2008 a very dynamic operating income growth and significantly ahead of topline growth.

With this, I would like to pass onto my colleague Andreas Rummelt.

Good afternoon.

2007 was a great year for Sandoz.

We grew very fast top line and bottom line, outperforming the global generics market in a highly dynamic industry.

We also took important steps to get even better prepared to expand our leadership position.

Already now more than 90% of the world population has access to our drugs.

In about half of the markets, we are either the number one, two, or three, which is very important in this still very local and fragmented industry.

There is very different business models from fewer key accounts, management in countries like the U.S., in the UK to a branded generics business, which is very pharma like.

We are following with the business model the local market needs.

Looking a little bit deeper into the numbers, we added more than $1 billion in sales and $300 million in operating income, so basically a very profitable growth.

We had another year of very strong performance of our anti-infectives business, which accounts for about 10% of our global sales and this is driven by an underlying high demand.

We are the only remaining anti-infectives company in the Western Hemisphere and this contributed a lot to the good results in 2007.

Overall the growth was driven by a high demand and we produced about a quarter more in 2007 as compared to 2006.

Growth developed favorably in 2007.

We promised to achieve 15% three years after the acquisition, so we are nearly there and we are ahead of our plans.

If you adjust the growth for exceptional items, especially as the acquisition related accounting, we are at 20%, which is even a little bit better than industry average.

Looking into the different countries, we were not only able to outgrow our two most important markets, the U.S.

and Germany, where we grew significantly faster than the market.

We also [control] very good results in some of our key countries and here especially we started a growth program in Russia, which already developed nicely in 2007.

So here we ramped up a field for us.

We focused on specific products, which really paid off.

Another important market is Japan, which is expected to grow fastest in the next few years and here also through significant number of new products and more fuel for us we could outgrow this important market.

Overall the growth of course was fueled by new launches.

We had nearly 300 new products introduced in different countries.

Just looking at the example of the U.S., here we were able to achieve already 30% of the total sales just generated by the newly launched products end of 2006 and of 2007.

And we had a particularly strong contribution of difficult to make products.

Here are just two examples, the generic version of Toprol-XL from Astra and Omnicef from Abbot, which contributed significantly.

The cefdinir launch, Omnicef in the U.S., was a very successful one.

We could develop this product in only one year from beginning to end and this was a development not only of the dosage form but also of the active ingredient.

We were in court with the originator and only four days after the court decision in favor of us, we were able to launch this product from Austria, where it was manufactured, into the U.S., which was a great achievement.

Another good example of difficult to make generics is an implant, which we produced also from scratch development and produced from scratch in-house.

We now have a one- and a three-month implant of leuprolide in Germany.

We will introduce this into other markets and here so far we do not have generic competition.

Looking at the overall market, the global market, we expect to have a 9% growth over the next five years, so year-by-year 9%.

A little bit slower in the more mature generic markets like Western Europe and the U.S.

Very dynamic in Latin America, in some Asian countries.

In Eastern Europe, which is one of our most important geographies and in Japan as I have already mentioned.

In half of the countries, we are amongst the top three generic companies.

In other markets we have plans in place in order to expand leadership to grow our position with very different strategies.

Just the example of Central Eastern Europe, here we started a growth program.

This is a branded generics market and is expected to stay as a branded generics market in the next few years.

We focused our promotion on fewer products, ramped up field force.

And as OTC, generic OTC, and prescription generics go very well along with the pharmacies, we increased our spend here and already in 2007, we could show some remarkable growth rates in many of the countries in Eastern Europe.

Germany is different picture.

Here the business model is moving toward key account business.

We built this key account business in our negotiations with the health insurers, which become a more dominant player in the German healthcare system, so the decision power is moving slowly from the physicians and pharmacists to the health insurance companies and a good part of the portfolio will be driven by these new contracts.

Nevertheless it will still be important to bring new products, differentiated products, difficult to make products into the generic market in Germany, where it is still necessary to promote these products to doctors and physicians.

So it will be a differentiated model and we are very well prepared to place this model as the healthcare reform implementation in Germany is further developing.

In the U.S.

again, another different picture.

Here we see for the last year the blockbusters, easy to make blockbusters more or less disappearing in terms of value after patent expiry so some of the products go from originator value of 100 to less than 1% in only a few days.

So this means a $1 billion product develops into a $10 million product which is then shared by many generic players.

So not a very attractive business and Zolpidem is just an example for this.

What is even more important than in the past is to have a higher proportion of difficult to make generics in the U.S.

market, where there is less competition, where you can expect higher and sustainably higher markets margins.

Here it is the generic version of the Toprol-XL.

It is a very good example.

So we are still now for a period of longer than one year on the market with just the originator and the authorized generic of the originator.

Nobody else has approval because nobody else was successful to develop these products to the satisfaction of the FDA.

And these are the products of the future which will also dominate the growth in the U.S.

Difficult to make generics in very difficult technologies, it is not just the special hard to make oral dosage form.

It is also injectables.

It is respiratory.

It is patches, and of course biosimilars.

Here we have a nice record card over the last three years to bring successfully products to the market in Europe, in the U.S., and in Asia.

And more importantly, we have in all these technologies a significant number of projects in development which we will bring after patent expiry to the respective market.

Focus of our activities still on the biosimilars after the success of achieving Omnitrope approval in the U.S.

and in Europe last year, we achieved Omnitrope liquid form, which is a much more competitive product, in the Europe and last night also in the U.S.

So this will fuel the Omnitrope sales around the world.

Another big success in 2007 was the European approval of erithropoetin, which we launched in Germany and some European countries in 2007.

We will continue to launch in other European countries as soon as pricing and reimbursement negotiations are completed.

An example of Omnitrope development, so here we compare our Omnitrope introduction in France with the last somatotropin launch in France, so the uptake was much faster and we were able in the fourth quarter to get about 10% of the new patients.

And I expect now with the new form of Omnitrope to even accelerate this growth.

Key priorities for 2008, three -- two major areas.

It is growth and it is operational excellence.

Growth through further expanding our market presence of course organically and if there are good opportunities, also through acquisition.

And what is important is our continued success with difficult to make product.

On operational excellence, we have programs ongoing especially in our technical operations and production organization in order to further increase cost competitiveness.

With this we should be able to achieve high single-digit sales growth in 2008.

In conclusion, record year 2007 in a very competitive environment, in a very dynamic industry.

Sandoz is the leading high-quality generics company and we are off for a good start to further expand this leadership in 2008.

With this, I hand over to my colleague Raymond Breu.

Good afternoon.

I will cover only three topics, the drivers of group sales and operating income, the nonoperating performance, and cash flow and liquidity.

And I start off with his slide that Daniel Vasella has already shown.

I have added a few numbers here and want now to comment on the sales growth, 11%, and then the operating margin development from 22% to 20.5%.

Sales increases of 11% in dollars were driven by strong volume 5 percentage points, but we also had the benefit of a weak U.S.

dollar, so currency gains added another 5 percentage points.

Growth was particularly strong in the emerging growth markets, Russia, Turkey, Brazil, Mexico, India, China, and South Korea.

In this example, these markets account already for 9% of Novartis sales and are growing at 17% in constant currency, which is almost three times the group average.

For margin, you have seen that operating income grew only at 2% compared to a topline growth of 11%.

So margin was down for the group 1.7 percentage points.

The main reasons are twofold.

In COGS you see a deterioration of 1.6 percentage points.

This is due to portfolio mix changes, higher rate of vaccines from Sandoz, and a $320 million impairment charge for Famvir that is booked in COGS.

Second driver, R&D expenses as a percent of sales grew 1.4 percentage points, so drove this expense item up to 16.9% of sales as we did not reduce development investments back in the [rich] late stage pharma pipeline despite the sales slowdown in pharma.

Nonoperating items, 2007 net income benefited also from a better financial income and from a lower tax rate.

The net financial income improvement was partly due to higher average net liquidity because of the divestitures.

The excellent performance was also then due to good currency management because you can see that currency gains were boosted from $38 million to $158 million in the reporting year.

Overall net financial income reached a good return of 9% of net liquidity.

I mentioned that the tax rate in 2007 as a percentage of profit before tax of continuing operations dropped to a very low 12.6%.

This is an exceptionally low level that benefited from unusual onetime items, a positive tax effect of the onetime charges for environmental and restructuring, the impact of a reduction in the overall German tax rate from 37.5% to 28.5%, and the onetime tax benefit from integrating Chiron into the Novartis organization.

So if you exclude these factors, then the underlying rate of 16.2% is a number which is more predictive for future underlying tax burden.

Free cash flow from continuing operations reached $3.8 billion.

This is 7% less than the year ago.

Cash flow from operating activities still was up 11%, in line with sales and working capital management was okay.

But this was more than offset by significantly higher capital expenditure and significantly higher dividend payments for the year-ago period.

Capital expenditure for mostly capacity expansion in production and in research and development and the (inaudible) increased 43% to now $2.5 billion or 6.7% of sales.

And the dividend payout for 2006 and 2007 increased 27%.

Given the strong free cash flow and the absence of major acquisitions in 2007, we used part of the divestiture proceeds to buy back additionally $4.7 billion in owned shares by a so-called second line, completing the fourth and fifth programs.

As the market prices for our shares are currently depressed, which I will read an attractive, the share buybacks were clearly net income and value accretive.

To create flexibility for the future, we have proposed to the AGM, the upcoming AGM, a new sixth program for up to CHF 10 billion.

Finally net or liquidity at the end of 2007 stood at $13.2 billion or net of financial debt, it reached a net level of $7.4 billion.

This increase in net liquidity was due to the strong free cash flow of the group and the proceeds after-tax of $7.8 billion from the nutrition divestiture.

Obviously against this we had the share buybacks.

Overall the group continues to enjoy an excellent balance sheet and a solid financial basis, and we continue to have a top three player rating for debt and the top short-term rating from all three rating agencies.

Thank you and I pass back to Daniel Vasella.

Thank you, Raymond.

So let me come to the conclusion.

We had a good track record for 2007 growth wise.

And if you look at the various divisions, they each and every one has strong positions in franchises, in pipelines, and in performance.

From a point of view of return to the shareholders, we have changed two policies.

One is the payout ratio, which we have increased from 35 -- from maximum 40% to 60%.

We have also said that we will return up to 100% of the free cash flow to investors after dividends and acquisitions via share buybacks.

This was 50% before.

So we have changed here the policy.

And for 2007, we propose to increase the dividend by 19% in Swiss francs.

In dollars, obviously it is more to CHF 1.60, which brings the annual growth rate of the dividends to 11% over all these years.

And of course we hear and see a lot about the share price and how it does not move, and so we thought we should look once at the generation of income, of profits over a number of years, how the P.

evolves and how we compare to competition.

That's really what comes out.

What you see in the past five years, we have increased the income by over 80%; indexed the P/E went down, but as compared to competition, we were better in both measures.

If you take a ten-year look at total shareholder return, then we can see a few changes.

In the recent years the world stock market has grown faster than the pharmaceutical market.

Of course because of the high growth of cyclical industries, and that you see reflected here, we did however do better than world pharma and peers.

If you take a five-year picture of total shareholder returns, it is even more marked that the world stock market did outperform the pharmaceutical market, but we did again beat the world pharma market index and the peers.

So with over 10% of total shareholder return.

If we look at the year 2008, then we anticipate of the entire year a mid single-digit net sales growth in local currencies and what you will see is the Q1 especially is negative, negatives impacted by pharma.

The other businesses should be doing fine.

The second quarter will about be neutral in pharma.

Then come to growth, and then to dynamic growth in the third and fourth quarter.

Now some may have a question well how come that you are so confident?

Well, one is that we have a washout period of the base line.

We grew 18% in the first quarter of 2007, so that gives a terrible comparison quarter one to quarter one.

And we lost the sales over the half year, especially second half year of 2007, so the base line then improves.

So that is just pure washout.

Then secondly, we have the new launches, which are delivering which Joe Jimenez did present.

They add up to that and that is how we project the growth to be delivered.

There are no approvals which are calculated in this growth, so there's certainly one risk factor which is a delay in approval or so forth is not in these projections.

Towards the end of the year, I think we will gain market share again in pharma and come back to dynamic growth.

Over the entire year, record operating and net income.

Now why do we believe that despite the dip we have in the fourth quarter and first quarter 2008, why is it a good investment?

First of all, we have a good business.

We are one of the global leaders.

I believe that the focused diversification strategy on a business portfolio is delivering, and we saw the results this year.

The pipeline is strong.

We have a good performance record.

The balance sheet is solid by all means, which we see is important.

And last but not least, we are not terribly expensive.

With that, I would like to conclude the presentations and invite my colleagues to the floor.

Okay, we have two questions here, then the third one, one, two, three.

Thanks, Graham Parry, Merrill Lynch.

Just starting from a question on your guidance beyond 2008.

In the past you've talked about continuing to grow revenues, returning to the topline growth for the pharma division beyond 2008.

I noticed that slide was absent from the presentation today.

So could you inform us whether you no longer believe in that or that you're just reserving judgment for the time being?

Secondly on FTY720, I also noticed that the TRANSFORMS one-year data was not included in the upcoming events for this year.

Is that delayed or is that just something which you did not see as particularly important?

Then thirdly on Tekturna, is there an argument here for you to lay back on your detailing of Tekturna until you've got outcomes data to support the product, given some of the less than favorable editorial from the product you've seen in peer review publications?

Also you talked about 63% [tier 2] coverage in commercial plans.

I was just wondering if you could update us on where you are with Medicare?

Thanks.

Okay, in terms of your first question around pharma growth, I think as I look at the business and I look at the launches and I see very confident high single-digit growth returning by the end of '08.

And I think that's as far as I would go.

I think this is -- that will be the base.

I know historically we have said double-digit, but as I look at double-digit and I think about changes in assumptions around Galvus or Prexige, I feel like by the end of this year we will be confidently in the high single-digit rate.

Regarding the second question on FTY.

That Phase III study is underway currently and we expect to announce results in the first quarter of '09, so there is no issue.

I do not believe that that is change in timing.

(Inaudible question - microphone inaccessible) remember that study had completed enrollment.

That is a twelve-month positive control study.

So the last patient will complete that at the end of the third quarter of 2008.

But the two-year placebo-controlled data, the trials are still ongoing, so we want to maintain those patients so we need to control the release of that information to maintain patients in the trial.

So that is why we do not list it in 2008.

And then the third question about Tekturna, I don't believe now is the time to back off detailing.

Tekturna is going to be a slower burn I think than some of the other drugs that we have only because it is a new class and if you go back and you look at the original Diovan and monotherapy, it was similar in profile to Diovan.

So we got good -- we have gotten good increases in formulary access on the commercial side.

Medicare is -- where is Medicare today, Alex?

52% Medicare.

So I think we are going to continue to -- we have a strong and steady news flow over the next year and we're going to continue to pound away at Tekturna because we continue to believe in the business, as well as Tekturna HCT coming out will add additional life to the brand.

Marcel Brand, from Credit AG Ricole.

I remember the December conference call where you talked about margins, Dr.

Vasella, being a bit more upbeat than Dr.

Breu, seeing that EBIT should growth double-digit.

Now obviously we have a pretty weak quarter so we are looking at pharma margins on a pretty weak baseline.

Could you maybe give a little bit more color on your expectation there?

My second question is regarding restructuring, is there anything really new about product teams that you want to install in the company?

My understanding is that this is a pretty generic thing in the industry nowadays when I look the chart, so I guess there is something more to it.

Then my last question is on vaccines.

When I calculated EBITDA margins adjusted for inventory step-up, restructuring, and other onetime items, I see margins hovering -- since you own the business between -3% and 60% EBITDA adjusted, and I understand that there is a seasonality to it.

But could you maybe give a little bit more color on that and maybe also talk about your margin expectations for 2008?

Last question on the FTY720, if you could maybe give us an update where we are, possibility maybe of an interim analysis there in the [pivotal] studies?

Thanks.

Thank you.

Margins, I think you are talking about the pharma margins, obviously.

Okay, in terms expectations for 2008 specifically, we expect to grow operating income at a faster rate than sales, so higher than low single digit and we expect to grow in absolute above the 26.7% margin that we delivered in 2007, excluding restructuring.

So reported was below that.

Reported was 25.3%, but 26.7%, we will grow off of that.

And then, I think the aspiration long-term is to return to historical operating income rates at or above 30%.

Now that obviously depends on a lot of things in terms of what happens in the pharmaceutical industry, but that is the ambition.

The second question was about development and whether the changes that we are making are really different.

I can tell you that being new into the pharmaceutical industry and also into pharma, the changes that we are making in development are fundamentally different for this organization.

We are literally moving from what has been very functional decision-making to decision-making at the right level.

I think that is one of the things.

We've got great scientific talent throughout the organization, but my take is that decisions were not always made at the right level in terms of being closest to the molecule, closest to the data as it was coming out.

So this is a fundamental change.

It is requiring significant behavioral change in the development organization, and it is going to take time to execute it.

But I think of the payoff will be there.

The next question was on vaccines?

Product teams, I don't know you have anything specific to say about that.

That was my interpretation of the question.

Was that answered around the product teams that we create?

Okay.

Margins, I think that is an interesting topic.

Obviously it is a seasonal business.

On the other hand depends of course on the structure of the business.

Now for us where we have almost 50% of our sales in influenza business.

Obviously these three or four months where we have strong sales in influenza does affect the quarterly performance strongly.

So for example when I look at just sales month by month, my strongest and my weakest months are a factor of 10 different.

So that compared to the underlying significant infrastructure costs that we have every month plus the seasonality between the third and the fourth quarter depending on how the influenza season comes out is extremely contributing to this flexibility in the margins.

And I am afraid you will also have to live in 2008 with significant differences.

Now from an overall perspective, as I said at the end of the presentation, I believe that the margins on a reported basis for 2008 will stay around the margins you have seen for this year despite the fact that we do not have this onetime income of $83 million that we did have this year.

And FTY, we mentioned that the Phase III results will be in the first quarter of 2009.

But, James, is there any interim report out?

Just to give you a feedback on the overall FTY program, you know we have two placebo-controlled trials running which are two years in duration and the one-year positive control study from Aframax, which I mentioned will have less patients, less visits.

End of third quarter this, we will report it most likely first quarter 2009.

The European placebo-controlled trial, we have been asked by the health authorities not to do an interim analysis in that trial.

That trial also was fully enrolled, as I mentioned, in September of 2007.

So the last patient of that trial will complete in September or so 2009.

The U.S.

study, the second placebo-controlled trial, we have been asked by FDA to provide approximately 300 patients from the safety perspective from the U.S.

Those patients were in that trial in September of 2007.

So in September 2007, all of the patients were in that we need for an end of 2009 filing.

We will see data from the one year controlled study in early 2009/late 2008.

We had in the middle somebody I think before I come to the right.

I don't recall who it was.

Then here in the front and then here on the right again.

Amit Roy, Citigroup in London.

Firstly just again on the margins, obviously you have suffered from product mix and your gross margin essentially would've gone down for 2008.

Our estimate is a margin of by 83%.

So my question is to also meet the improvement in the operating margin for pharma, where do you see the product mix improving in 2008?

How can the product launches or the sale of existing products improve that product mix to help your growth margin get a little bit better?

Secondly on Tekturna, are we going to be seeing any data on the triple therapy, so Tekturna plus Diovan plus diuretic versus Diovan and diuretic alone, exploiting this -- I know you have shown before that Tekturna with Diovan together is better, gives you better blood pressure lowering on the (inaudible) angiotensin system.

And lastly, a question again on the FTY720.

Just a little bit on this hypertension signal that we've seen before.

My question is is this hypertension reversible or not or does it seem to linger around?

Thank you.

Okay, starting with gross margin and -- or not even just gross margin but total margins, how do we expect to grow?

There will be a negative impact on margins next year with the overlap of the Zelnorm and the generic issue still hitting us in the first half of the year.

But that is more than offset by the productivity initiative that we have with Project Forward, so the $600 million in savings that we will deliver in 2008, and that is across a variety of P&L line items.

So you'll see it across procurement in direct and indirect.

You'll see it in marketing.

You'll see it in sales.

So that will be throughout the P&L and we do expect to see mix improvement with our launches.

If you just track through the heavy spending from a launch standpoint that we had in 2007, and then as you look and play out, that plays some part of it too.

But all of the components work together to generate margin improvement year-on-year and in a sustainable way so that as we go forward into '09 and '10, we are continuing that trend.

In terms of the second question, on Tekturna Diovan, we should receive approval for Tekturna HCT any day now.

We filed HCT in Europe in December of 2007.

We will launch in Europe in probably the fourth quarter of 2007.

Regarding a Tekturna Diovan combination, we do expect to be in a position to file by the end of 2008 for Tekturna Diovan combination.

And am I missing anything, James?

The date on the Diovan Tekturna (inaudible) you should see mid 2008.

Just to correct Joe's comment, is the European is likely to be fourth quarter 2008, not 2007.

Sorry.

Even though we would hope.

The question on FTY hypertension, the hypertension seems to be a reaction to the known cardiac effect of FTY.

As you know, we have a slowing of heart rate on the first dose or first doses effect which ameliorates over the first seven to 10 days.

The hypertension seems to go paradoxical to that, so as we slow the heart rate, we raise pressure.

And there's the heart rate effect where it (inaudible) blood pressure effect.

Sebastian Berthon, Exane BNP Parabas.

Three product questions, please.

First, could you update us on your pricing strategy for Lucentis in Europe and your discussions with the healthcare authorities especially with regards to competition from Avastin?

Secondly, when will we have data on QAB149?

The Phase III results which I thought we could see this year, but doesn't appear on your news flow chart.

And lastly the question is on the Menveo, when do you intend to submit for the infant indication please?

First question around Lucentis.

In terms of Lucentis versus Avastin, obviously Lucentis is the only approved treatment for macular degeneration.

Avastin and Lucentis are different molecules.

So we -- the way that we approach pricing is we look at -- we would look on a mark-to-market basis in terms of the outcome of Lucentis and the fact that you look at the benefit that this drug has on improving patient independence and reducing the cost on the healthcare burden or the healthcare burden and the cost of not improving vision of somebody with macular degeneration.

So I think we're having very good success.

We got a positive reaction from the UK in terms of reimbursement recently, and so we continue to drive that business.

In terms of QAB, we will -- the 12-month study is complete from a recruitment standpoint, so we should be in a position to file by the end of 2008.

So by the end of this quarter.

Then Menveo?

Menveo, adolescence middle of this year, infants middle of next year.

Ben Yeoh, Dresdner Kleinwort.

Three questions, if I may.

Firstly just on CapEx, there was a big ramp up obviously in CapEx and 2007 you said for capacity and things like that.

Will we likely to see that sort of level for seeable future or at least into 2008?

Is there more spend required there?

Secondly just on personnel costs, and I guess this goes into some of the restructuring costs.

I notice in your annual report personnel costs actually came in around $9.9 billion, which is up from $8.7 billion in the year before.

So personnel costs seem to be ramping up quite a lot even though the number of employees seemed to be down, slightly down 2500 year-on-year.

So I was just wondering what is happening across there and what is the scope there?

I mean back in the end of 2005 you only had 90,000 employees.

So people are either getting more expensive or something is happening there.

Then thirdly, just sort of more broadly just in terms of U.S.

politics, healthcare reform, obviously going into an election year, I mean how do you see that playing out sort of short- to medium-term?

The outlook for capital expenditures I would expect that 2008 will be another high level of CapEx, so similar levels to what you have seen in 2007, so somewhere in the 6.5% to 7.5% range.

Thereafter it should tail off a bit because according to the current planning we would not expect that we would stay at this high levels of expenditure.

It depends a bit on the growth trajectory later on.

Personnel costs, I think the increase that you have noticed had two factors in it.

One was a very rapid increase in infrastructure in the emerging growth markets in Sandoz, in pharma.

And the second element was the big increase in manufacturing, in particular in CIBA Vision and in Pharmaceuticals.

I think that personnel costs or at least headcount costs will slow down now at least as a result of Project Forward, too.

One of the reasons for Project Forward was that we saw that this personnel cost was not only in the areas where we wanted it, in sales or in manufacturing, but also in the overhead areas.

And obviously in the overhead areas, we now try to make break that growth or use it and the savings that we have announced are to a large extent personnel-related.

U.S.

politics for healthcare reform?

I will take that.

Obviously the U.S.

is a tough environment right now and we are working to operate in that tough environment.

We don't expect significant change -- sorry, we do expect change, whether it is a Republican or whether it is a Democrat in the White House and the changes that that will affect.

You know, there's still 40 million uninsured Americans, so if it is a Democratic administration, there may be additional coverage for the 40 million, yet there may be more downward pricing pressure.

On the Republican side, there may not be as much pricing pressure.

So we're going to be able to work with whatever administration comes into the U.S., but we anticipate the U.S.

will continue to be a tough environment and we're going to operate our business accordingly.

What may be somewhat beneficial is if the White House and Congress are of the same party, the majority of the White House -- of the Congress.

So there is not -- healthcare does not become a permanent dispute between Congress and the White House.

But we will see how it turns out.

Chris Schott, Banc of America.

Just first question is on Menveo.

Could you just a little bit about capacity?

Obviously infants will be requiring multiple shots here.

Could you just give us some timing and magnitude of capacity you're planning associated with that program?

Second with regards to Medicare part D., just to get some more clarity, heading into 2008, what are your expectations for that business particularly from a pricing operating standpoint?

Then finally on the generic side of the business, did you see further margin opportunities heading into 2008 on that [front]?

Thank you.

We are in the process of establishing adequate capacities for Menveo.

Obviously back (inaudible) is shortages that some of our competitors have.

We are aware of the situation.

As I said, the infant indication will come a year later than the adolescence indication.

We do currently plan for sufficient capacity for both indications.

It will be more than 10 million doses, but I will not give you an exact number.

For the Medicare Part D.

question, we've got Alex Gorsky, who runs the U.S.

operation, and I would like him to talk about expectations around that business.

Thank you.

I think overall Medicare has been a success, at least in the implementation of Part D.

If you take a look at the program itself, the long-term projections from the forecast have been reduced by billions of dollars.

The monthly premium for patients has gone down from an initial cost of approximately $35 to $25.

Thirdly, if you look at the patient satisfaction, where the consumers -- asking the consumers themselves, they are in excess of 80%.

So I think it's a real example of the government working with private payers and bringing forward a very good solution.

So far we have not seen what I would call extraordinary pricing pressure on Medicare.

We've got very good access particularly for brands like Diovan where it is well over 90%.

You heard the figures earlier with Joe of over 52% even with our newly launched brands.

I think that is indicative of a number one ranked key account management team.

Going forward, however, we would expect there to be continued pricing pressure in the long run.

Okay.

In terms of generic margins, we have achieved 14.5% this year, up from 7% three years ago.

We wanted 15 after three years, so here we are a little bit ahead of plan.

Adjusted now it is about 20, which is above industry median.

And of course, we are constantly aiming for further improving profitability and also aiming to be above-average industry margins.

Karl-Heinz Koch, Bank Vontobel.

I've got three questions, if I may.

First of all, could you talk a little bit about the lumpiness of the big ticket items in pharmaceuticals, especially in R&D where you mentioned an impairment charge and also in the admin and other expenses?

There seemed to be some cost items which you haven't specifically mentioned.

One also that may lead us to agomelatine.

I was wondering whether you could give us an update.

(inaudible) was missing in the press release and also the slide.

I was wondering whether the impairment charge might be related to agomelatine?

Thirdly, Dr.

Vasella, you mentioned the very attractive valuation of your shares and I couldn't agree more.

In fact if I back out everything that is non-pharma and benchmark that to peer groups or the market, the pharmaceuticals, implied pharmaceuticals valuation is actually one of the lowest in the industry.

And I was wondering whether -- where you believe the market is missing something?

Is it really pharmaceuticals or is it any of the other businesses?

Starting with the lumpiness of the big ticket items in the pharma division, if you think about the impairment line, obviously Famvir is the majority of that, but there are a series of other smaller impairments that are included in that which we do not disclose.

In terms of the agomelatine, it is currently in Phase III designed with the FDA.

We are -- there is really nothing new to report.

Phase II data was positive.

And so we are continuing to track the Phase III results and we will be announcing Phase III results, when, James?

So the Phase III results are on track.

The two pivotal studies are on track for completion roundabout midyear and the longer-term for the third quarter, then we have a proposal to file at the end of 2008.

Did you see any side effects which were unexpected?

I think the last time we spoke in September, the question came up.

We do have liver function test abnormalities roundabout -- 0.8% of the doses we study, which is similar to other drugs in this class.

But just talking about the overall environment at FDA, there are a number of areas where FDA are scrutinizing very carefully.

The COX-2 market clearly was one of those.

The area of drugs in depression is another which they look at very carefully.

Maybe I can add just one.

I did not interrupt James.

Just on the lumpiness, you know, on just the items there, if you really look, you have the big one, which is the Famvir impairment.

All the other items in the pharma industry more or less net out (inaudible).

So you have obviously in there the reversal of the Tekturna launch provision of $107 million.

You have in there proceeds from divestiture of 10 brands and it is [one of] $171 million and sale of the (inaudible) shares, so that is $171 million.

So you know, if you take Famvir in these items, it is more or less zero.

That's why we have not made a big noise about it.

Could I come back on that because I was specifically referring to Q4, because other operating -- other expenses in fact have been quite a bit higher than what I was observing and the market was expecting and I was wondering whether --?

In there you have the impairments of a series of early stage in-process R&D intangibles that were mentioned by Joe.

And in there you obviously have the big increase in research and development expenditure for late stage projects.

Those two items explain the big variation in Q4.

Did you have any remarks about the admin?

Because I think you asked also about that.

(multiple speakers)

But in admin, we have apart from the reversal of this Tekturna inventory provision, we have nothing unusual.

Obviously we have the Forward restructuring provision (multiple speakers)

But it is a provision.

Raymond, I thought that you are much better suited to answer the question which Karl-Heinz asked and addressed to me.

So basically not only in the pharma business do you get the pipeline almost for free or the research for free, but, you know, you are saying if you take a market valuation of the other businesses then you see how low the pharma valuation really is and what we have to say about it.

So hence this is a market question.

I think Raymond could take it.

I think first of all, we all know that the market tends to overshoot in positive direction and negative direction.

When it overshot very positively in 2000, we probably did not believe it.

I think now we're in the situation that according to my belief that the market is too negative on the industry, because all the negatives, you know, are noticed and all the positives are ignored.

I showed in London in November in a presentational chart where I took valuations by Lehman Brothers.

I think it's a time to take an outside view and not an inside view.

And then we simply looked at our markets capitalization.

They took out from the market capitalization the values for the non-pharma businesses according to market ratios.

We took out -- then you should take out further the NPV of the in-market product and the NPV of the visible pipeline.

Then you arrive at an NPV for the un-visible pipeline of zero.

That means if you invest in shares you get the un-visible pipeline for free.

Now, obviously these numbers are big, big numbers and they have to be taken with a grain of salt.

But I think for good pharma companies, this is now the situation.

Now you can argue there will be delays and not everything will come to the market and there is an uncertainty in this invisible pipeline, but as long as you get it for free, I would argue you shouldn't care because for free it certainly has a positive value.

Did you want to say something about structure in the portfolio?

Because there were in the market obviously suggestions to a spin-off piece, a piece for example of the generics business and so forth.

For us, we are convinced that our portfolio has strategic benefits, obviously, and we have shown data too in the past, it obviously has a financial diversification benefit.

It can be shown that our beta for example, the volatility of the share is significantly lower then pure plays and so on.

So you have that financial benefit, but in addition to it, you also have the benefit of strategic synergies between those businesses, in manufacturing, in early research where you can transfer products from -- or a candidate from pharma to animal health or in (inaudible) opportunities and so on.

And these strategic opportunity synergies can only be realized in a portfolio that you own and to me if you start breaking up the portfolio or placing parts of your businesses in the market, you lose a lot of flexibility to realize these synergies.

We did of course ask the question ourselves focused verses diversified.

What is the evolution?

If you take J&J as for example, Pfizer, Roche, and you compare focused two businesses, more than two businesses, you mentioned already the volatility, which is lower in the diversified businesses.

If you take J&J and us over the long-term, if you look at PSR, we do marginally better even than the very focused ones in the analysis we did.

So total shareholder return.

So if you look beyond what is just fashionable and if you just look beyond what is short term, then it does not seem to be really a disadvantage in performance.

Also not on, by the way, the income generation, for whatever it is worth.

Yes, in the front and then middle left is second.

Richard Vosser, Bear Stearns.

A couple of question is if I may, returning to the costs in the fourth quarter.

Just looking at the COGS ratio in pharma, first of all, the COGS has gone down or gone up to about 17% in the fourth quarter despite the products, the loss products actually having a lower impact cumulatively over the third quarter, so the effect on the third quarter may be about 300.

The effect on the fourth quarter only 100.

So basically I'd just like a bit more color on how the COGS is developing?

You say mix effect, but are there any other things in there?

And the same sort of question on vaccines and diagnostics.

The COGS again in the fourth quarter is absolutely higher despite lower flu vaccine sales in the fourth quarter.

Might have expected that to come down.

And then my final question on Prexige and following the withdrawal from a couple of European markets and the approvable letter, I just wondered if you could update us on next steps for Prexige?

Thanks very much.

The COGS on pharma in the fourth quarter were disproportionately high.

There is a write-off also for Prexige inventory and for Famvir inventory in the fourth quarter, which is one time in nature.

So you won't see that repeating.

(Inaudible question - microphone inaccessible)

No, we don't disclose how much of that it is, but just all of our margin assumptions have -- there was no surprise in the fourth quarter in terms of COGS.

So for example, when you look at our forecast going forward, we will -- once we get out from under that write-off, COGS will be at an expected level.

The Prexige update, Prexige as you know is now off the European market.

We still market Prexige in Latin America.

We still believe that the 100 mg dose is a safe and effective dose and that 200 and 400 mg are safe and effective for short-term use.

So it is unfortunate.

We are continuing to market the drug where it currently is available.

That is really all I can say.

And where it is, it has a huge success.

But (multiple speakers)

So as I mentioned before, we have a relatively stable base of standard fixed costs.

That is one factor.

Second, we are making significant infrastructure investments right now.

For example in products like Menveo where we need to build infrastructure that we currently don't have.

Third, we have currency effect as well.

And the fourth one, we also had a write-off, and that is related to influenza vaccines.

As I said several times now, the season was weak.

We had more vaccines produced that we could finally sell and part of this is related to the write-off.

To say in a very pointed way, what you do basically you produce as much as you can during the production season but you have no clue what the flu season will be.

So either you have the right amount or you have too little or you have too much.

And if you have too much, then basically you have to write off at the end of the season because you can't sell the stuff after the season is over.

And in the new year, it is different strains and so that is the game in this one.

And therefore, I think Menveo and other vaccines which are in the pipeline are so important, because it gives a different kind of yearly usage and a much more continuous utilization and better forecasting.

First there and then on there on the right.

Gbola Amusa from UBS.

A few product questions.

On your meningitis B vaccine, to clarify from your slide, to what extent is that agent gnomically derived vaccine with some IP around either a chain or the antigens which may throw out some barriers for competition?

Secondly for Aclasta with the recurrent fracture claim, are there any claims against mortality that are being sought there?

Then lastly with your most recent data sets on Tekturna in terms of prescriptions, is there any information on hypertension market segmentation?

Are any patients taking a different (inaudible) than say Diovan or other drugs?

Are we seeing use in some segmented population?

Thanks.

Thank you.

I can start with the MenB vaccine.

That vaccine is covered by a range of IP applications for different aspects on the vaccine.

Since the application has not been or the patents haven't issued yet, I would not like to go any further, but it is several aspects.

It is not just proteins or the [process], etc.

For Aclasta, regarding the recurrent fractures claims, there is evidence that there is a reduction in mortality driven by the reduction in fractures.

So we will be pursuing that claim in terms of a specific claim for Aclasta.

Regarding Tekturna, there is today no evidence that it is being used differently, but I will tell you that the overall cannibalization of Tekturna from Diovan is very low.

So it is obviously very early in the lifecycle stage of that drug.

So as we get more and more data, we will learn more about specifically source of volume and specific segments, but as of today, I would say no.

Eric Le Berrigaud, Raymond James.

Five questions, please.

First three for pharma.

Could you update us on Galvus?

Probably I misunderstood, but I thought you were ready perhaps to give up in the U.S.

and Galvus is still on schedule even for 2010.

So perhaps a new update on that.

Second about Exelon, I guess there is a generic that has been approved recently.

Do you think you are at risk of having Exelon in the oral formulation launched in the U.S.

this year?

Thirdly, perhaps a quick sort of -- about the size of this sampling you may have had in 2007 for the big launches you had in the U.S.

and when we could expect that to disappear in the course of '08?

One question about CIBA Vision.

In the press release, you mentioned two lawsuits.

For the first one, you say you are at risk of substantial damages and on the other you may lose some royalties.

Could you elaborate a bit more to give perhaps some size about what that can represent especially for the second one if those royalties were to disappear, is it something significant?

Finally lastly, you provided some numbers about the recurring amortization in the vaccine business representing $80 million per quarter, coming down to $60 million by the end of the decade.

Could you provide the same kind of information for the Sandoz division please?

Okay, starting with Galvus question and a Galvus update, we do intend to launch Galvus in 50 milligram form in Europe in 2008 and continue to market it around the world where it currently exists.

We have been asked by the FDA to execute a very, very large study and we at this point are looking at the certainty with which we would get FDA approval and balancing that against the cost of a very, very large trial.

And so what we have decided to do is to step back from the U.S.

right now and to focus Galvus, ensure that it is a success in Europe, get additional data, and at some point we may go back to the U.S.

But we don't want to invest in a very large study unless we had reasonable certainty that we would gain approval for Galvus in the U.S.

Regarding Exelon, Sun and Watson did file paragraph 4 challenges to our patent in the U.S.

There was an announcement by those companies that we had reached agreement.

Therefore, they will launch prior to the expiration of the Exelon patent in the U.S., but it won't be any time soon.

Oh sorry, sampling.

Alex, in terms of sampling in the U.S., I'm not close enough to that.

Based upon the data that is available to us, we have not seen any excessive sampling with any of the launch brands in the United States.

In fact, on about 25% of the occasions, which is well within the normal limits that you see in the antihypertensive category, you see a patient get a sample-only prescription.

But we don't believe there is any excess at this time and we continue to monitor that very closely.

There are two patent cases related around the [sci hi] technology.

The first one involves one of the patents we have, the Nicholson patent where we have won the two first cases against two of our competitors and now it is the third, the last remaining, we have to take up.

And obviously we have won the first two, so we are optimistic that we can win this as well.

But as stated in the press release, if we would lose then it would have an impact on the royalties we receive from the other two cases.

The other one, it's a patent where -- a case where we got accused that we have infringed a patent.

This is next major point will be end of the months, end of January, and obviously if we would lose, that would have an impact, but because of the legal reasons, I do not want to comment and specify the financial impact now.

Yes, we have no clue.

We have no clue.

And we do not believe we infringe.

That is the situation.

We do not believe we infringe.

The others believe that we infringe, so it goes in front of the judge.

We have amortization.

Raymond, why don't you take this one.

I can maybe give you a partial answer here.

If you would want to have more details, you would have to check the files, but Sandoz in 2007 has a recurring amortization of $293 million.

And my view is that that number should continue for the foreseeable future because it relates really to intangibles for product rights for technology, great marks, and so on.

The life of these intangibles vary in between 10 and 20 years, on average 15 years.

So you can (inaudible) impact to the Exelon deal in acquisitions mostly.

So you can assume that this amortization will continue at the same level for approximately 15 years since acquisition.

Obviously it will change.

If we would make new acquisitions, then the number will be changed, would have to be changed.

Dominique Kuenzler, BZ Bank.

Firstly, could you give us a schedule for the share buyback of CHF 10 billion?

Secondly, the figures of consumer health look a little bit strange to me.

Could you give us a little bit more color to that?

Thirdly, we have very strong increase in intangible assets charges from $936 million to nearly $1.6 billion.

Could you give us a little bit more color to that?

Thank you.

The schedule for share buyback, all I can say is that the timeframe is open.

We have not disclosed and don't think we should disclose any share schedule there.

The policy is unchanged that we will buy back up to 100% of free cash flow after dividends and after acquisitions or we will use that for share buybacks.

So obviously the level of share buybacks depends on the dividend going forward, but it also depends on whether we have larger or medium or smaller sized acquisitions.

Because we would use first the free cash flow for acquisitions and for that reason and for the reason that we don't want to hint to the market when we will be in the market in advance of that, we are not prepared and don't think we should give you a schedule.

For the intangible asset charges, you have in there two elements, recurring amortization and impairments.

The recurring amortization increased from $800 million, $810 million to $[1.9] billion (inaudible).

So the increase is not so large and that is just the full year effect of the acquisitions that we have made.

Impairment of intangible assets jumped from $126 million to $482 million.

We mentioned the biggest item, the impairment of Famvir $320 million.

These impairments will always be a bit lumpy because they depend on the reassessment of these intangibles depending on how the projects are developing through the development projects.

Or if they are on the market, on how the products fare on the market, whether we reach the targets or whether we have today competition earlier or not.

So it is very difficult to forecast these items.

Thank you, Raymond.

In terms of the numbers, you have to help me out here.

What dimensions look strange?

Could you give the mic back to the gentlemen, please?

Well, it seemed to be a rather stable business there now.

You have an increase in Q4, sales increase of [13.6]%, and the margin operating income margin was 6%.

Of course there were some forward points in it, but what is sustainable there?

I think the quarter was very much impacted by the end of 2006.

There was a provision made because in relation to the O2 optics recall and in quarter for this year, we have basically had the construction provision for Project Forward.

And this is a sustainable margin for such a business it's circulating between, you know, 15 and 20 and I would say to exclude the items this year, it would be around 17% (inaudible) gross return on sales.

Thomas, maybe Animal Health, which picked up in the year.

In terms of sales of course Animal Health had a strong finish this year.

That kind of was expected.

OTC did not have such a strong finish because the cough and cold season this year was not as strong, so it was -- those effects average out.

And I think if you would take -- these markets are always growing with mid single digits and we intend to grow a bit better and the margin level is between 15% and 20%.

So that is kind of the industry picture.

Okay, here and here, these will be the last questions which we are taking -- two ladies.

.

Marrietta (inaudible) Societe Generale.

A few questions please.

The first one relating to write-off flowing through the COGS line.

I was just wondering, are we actually at the end now or could there be more write-offs flowing through in the first quarter of '08?

Because you were saying once we come out from under the COGS, we will return to normal levels.

Then the second question relating to Galvus, I'm just a little bit surprised because I thought the worst-case scenario had always been that you might actually need the outcome trials you were going to be doing anyway.

So I'm just trying to understand what is it that the FDA could be asking on top of that that would require a huge investment on your part?

And I completely understand if you don't want to comment in a lot of detail on Galvus, but I'm just trying to get an overall feel for where the FDA is going right now, how they are thinking.

And the final question relates to M&A in the non-Rx business.

I was just wondering if you could maybe walk us through the individual components of the non-Rx businesses and walk us through the order of magnitude of M&A we could expect there and whether any specific negotiations are already ongoing?

With whom?

So I will take the easy question, the last one, which is obviously I will not answer.

Because I will not answer as I don't want to give any hints or beliefs, and don't make an interpretation that this means we are in negotiations or we are not negotiations.

So it just means nothing.

Having said that, I would say that we think of course strategically about it, but also opportunistically.

So we look what is available at what price level.

Does it fit?

Is it strategically right?

And we have a series of criteria which we use and looking at the track record, we didn't so bad.

On Galvus, if I may, I will comment we were at the FDA, James Shannon and I, and have discussed the situation.

We came out of the meeting thinking that, yes, they want a very large study, looking at safety, and if we do this study, they might ask another study.

We were reminded a little bit of Prexige, where they wanted to see if we had a side effect on the heart and we did not have a side effect on the heart.

Then in the end they said, well, but the liver side effects are too pronounced to give you approval.

And despite the fact that we have much less liver side effects than, for example, with diclofenac, which is in the market and very broadly used.

And so the question then came up, well, if the new therapy is much better than the old one because Prexige had 79% decrease in GI bleeds, isn't this a better therapy which you would approve?

And they said no history is not really the standard we are using.

So that made us not terribly confident about going into something where we seemed to be on moving [grounds].

And if we would get more clarity and as Joe said, more confidence that with a study then afterwards we would sense openness and interest, then that would be a different story.

We still believe it is a good drug.

In the meantime, we can also collect a lot of safety data from the other countries where we are launching and maybe that this whole situation evolves and changes again as we move forward.

What you heard is really reflective of the current situations.

And on the COGS?

On the write-offs, each quarter we will have some level of inventory write-off, but the fourth quarter was disproportionately high.

So when I said when we get out from under, I [did] mean the fourth quarter.

We don't not anticipate that level going forward.

I've got three questions.

It is Anne Marieke Ezendam from Credit Suisse Asset Management.

The first question is does the guidelines, do you think the majority of the flu season sales, will they come in in Q3 or Q4 this year?

Because they were quite different this year than normally.

The second is what does your global projections actually mean?

Does it mean that people are all over the globe working on one product or do you really have central themes, say, in America or in Basel that really look at the marketing of products?

Can you elaborate a little bit on that?

One other one.

The current contact lens sales, do they benefits from the problems in the competitor space at all?

In terms of the global product teams, are you speaking development or marketing?

(multiple speakers)

The marketing, the global development team that you spoke about earlier, global product team, sorry.

Yes, yes, the global teams within development, is that correct?

Yes.

Yes, there will be centralized global product teams.

When we use the word global product team, that is primarily in Basel.

So there will be a -- and the word global signifies that we're talking about a globally marketed molecule.

So central in Basel primarily with the functional experts also in Basel and some in the U.S.

So primarily Basel, but some in the U.S.

I'm not sure we don't have a semantic misunderstanding here.

So may I try to --?

We have project teams.

Project teams meaning a team of people from various functional expertise ranging from marketing to research, tox and what have you, [DRA].

They work together in bringing a drug forward from early development to registration.

As you approach registration and you prepare for launches, you have a product team which is the product manager centrally and then in the countries.

It is a hand over process which is happening.

But then, Emmanuel Puginier, who is here, who is heading global marketing, could explain to us what is strategic marketing, where does he see a role of global, and where is the local team really responsible?

And so while we are in development, it is really global.

Once you go in the countries, it's being given to the countries and we check a few things.

Do you want to comment, Emmanuel, just for understanding?

If you want me to elaborate on strategic marketing, which is the interface between marketing and development, strategic marketing is based both in Basel and in the U.S.

This is a team which is collecting customer insights which is looking at the potential, the commercial potential of products which are in early development and interfacing with the development functions to help profile the new compound.

These people are partly in Basel and partly in the U.S.

Regarding the flu sales, well, I would feel much better if I would know whether it was the third quarter and the fourth quarter and how much it would be.

I think in a normal year you would expect most of the flu sales to happen in the third quarter.

Normal year would mean that the strains that are going to be used are known relatively early, that there is not too much change in the strains that are in the 2008 vaccine as compared to the 2007 vaccine, because then you know your yields.

and you know how the whole thing will work.

But what we can already tell now is that for 2008, there is probably going to be significant change in the strains that are going to be used.

We will have two new strains if not more which means everyone starts from scratch again, which means there is a certain risk that the overall production (inaudible) will take longer, that the deliverance will be later, So then the peak of the sales would shift in the fourth quarter.

So it really depends on the period between February and May because then is where the production takes place and depending on how this works out, we will have either early sales or late sales.

I really don't know.

Thomas?

The contact lens is a market when a product is not available or has to be (inaudible) the competition will benefiting from it.

Unfortunately in 2007, it was the other way around.

Competition was basically benefiting from the absence of '02 optics, which was not basically present significantly in the first half of 2007.

And we are now basically regaining the marketshare we had before the restore.

So that is one driver of our overall loss in contact lenses.

And the other driver is the new innovation, new product launches like Dailies, which we have -- the new Dailies which we have launched at the end of the year in Europe.

So breaking my principle, and there is one last question.

Then please, we will be around and please just come up and ask if you have something.

Last question.

Thank you very much.

It is Richard Vosser again from Bear Stearns.

Just a quick two follow-up questions, one on the share buyback.

I noticed and this may be the language, but in the press release, there was no mention of up to 10 billion share buyback.

It was a just 10 billion share buyback.

So could we just clarify maybe about on timing or something like that in the share buyback?

And then the second follow-up are just on vaccines and the flu vaccines.

Given that 2008 looks like we may be moving into certainly in the U.S.

a situation of overcapacity for the vaccine, for the flu vaccine manufacturers, what are you -- what are the key steps to ensuring that a potential write-off of flu vaccine is minimized, that you will undertake?

Thanks very much.

Let's start with flu.

Obviously the most efficient measure is to sell as much as you have.

Then the write-off is little.

So I'd like to come back to what I said before.

No one knows how this season is unfolding and the exciting stuff about flu is that every year is different.

So if for example we have a difficult year where production yields would not be at the level that we had last year, we may not have an oversupply in the U.S.

market despite the fact that we have new competition coming in.

So I would not -- I can only assume that a significant oversupply.

It really depends on how the supply situation will evolve.

Now what we will change as compared to last year, we will open new channels for our vaccine to be distributed.

We had last year still the old Chiron approach, which was very focused on the number of [different] units.

We will change this.

We will go broader.

And we hope that we will have a better reach out to more customers than we did have in 2007.

So we will intensify our efforts there and then we will have to see how it evolves.

On the share buyback, it is the 10 billion share buyback program, open-ended, but if you look at the history, we have completed all programs we had announced even if we did not give a timeline for obvious reasons.

With that, I would like to thank you for the questions and interest and apologize to the people I could not take the questions from.

But we will be available for a few more minutes if you want and we can probably have a drink outside.

Thank you so much.

Ladies and gentlemen, the conference call is now concluded and you may disconnect your telephones.

Thank you very much for calling.

Goodbye.