Novartis AG (NVS) 2008 Q4 法說會逐字稿

Good morning and good afternoon.

I am Moira, the Chorus Call operator for this conference.

Welcome to the Novartis full-year results 2008 conference call.

Please note that for the duration of the presentation all participants will be in listen-only mode and the conference is being recorded.

After the presentation there will be an opportunity to ask questions (Operator instructions).

This call must not be recorded for publication or broadcast.

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

Daniel Vasella.

Please go ahead, sir.

Good morning and good afternoon, ladies and gentlemen.

It is my pleasure to open our yearly conference on the results, and if I may first just briefly mention who is going to talk and who is in the room.

After me, Joerg Reinhardt, COO of the Group, will be presenting, and followed by Raymund Breu, CFO.

We also have in the room then for the Q&A Joe Jimenez, CEO of Pharma; Andrin Oswald, CEO of Vaccines and Diagnostics; Jeff George, CEO of Sandoz; George Gunn, CEO of Consumer Health; Ludwig Hantson, who is the CEO of the North American Pharmaceutical business; then David Epstein, the CEO of Novartis Oncology and newly Head of the Molecular Diagnostics Unit; and Jon Peacock, CFO of Pharma; Trevor Mundel, Global Head of Development Pharma; Emmanuel Puginier, Global Head of Marketing and Sales of General Medicines and Pharma; Malcolm Cheetham, Head Group, Finance Reporting and Accounting.

And we have the IR group and the communication group from here and the US available, too.

So we are a large group, ready to take all questions which you may have.

With that, I would like to start, to ask John Gilardi from IR to read us the Safe Harbor statement.

The information presented in this conference call contains forward-looking statements that involve known and unknown risks, uncertainties and other factors.

These may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements.

Please refer to our Form 20-F on file with the Securities and Exchange Commission for a description of some of these factors.

Thank you very much, John.

With that I turn to my first slide.

Giving a brief summary of our performance in 2008, we have seen that the health care portfolio which we have has delivered solid results in 2008.

We have continued on our strategy for M&A which are more bolt-on acquisitions like Speedel, Protez and Nektar.

And, also took a first stake in Alcon, as you are well aware.

Fundamentally, we continued to meet the innovation and have had 14 major regulatory submissions, among others, Afinitor for renal cancer, QAB for chronic obstructive lung disease, ACZ and Menveo -- Menveo, obviously, for the vaccine against meningitis.

In the end of 2007 we have started with our project Forward, which has delivered more than we anticipated, so that delivered good contributions to so we could invest additionally in innovation and in emerging markets while improving the margin.

And then, if we look in 2009, it looks, I would say, fairly positive with a mid-single-digit growth rate at the top line and hopefully an operating profit and net profit above this year.

Next slide shows you in a nutshell the results.

I will not go into details; Raymond will go in many more details and Joerg will comment on the operational performance.

Slide number six shows you the Q4.

And the only thing I would like to point out is that the top line growth we've accelerated in Q4, which was mainly driven by an excellent Pharma performance with 10% growth in local currencies or constant currencies.

Slide seven shows you the growth in local currencies and in dollars, and also the operating income growth in dollars.

As we will go into more details, I would say only that Pharma and Vaccines had a good year, Sandoz had a rather flat year and Consumer Health was within our projections of 4% growth.

Geographically, good performance overall but the US.

Having said that, the good news is that towards the second half of the year we saw a turnaround in the US with growth again and, obviously, we will see this year how it evolves.

There are, of course, uncertainties in the health care market; opportunities but, as well, threats.

Slide number 10 is basically the same slide we have shown in the past, but the fundamental growth drivers for demand are -- the most important certainly is the aging population.

But then we also see the challenges linked to this increased demand -- drug prices, generics, regulators weakening IP rights in certain countries, and also the recession.

Nevertheless, on the next slide, we are pursuing our strategy, which has proven to be successful in having a focused but diversified health care portfolio, to really invest in a sustained way into innovation so that we can then launch differentiated products in the market, continue to invest in markets which promise to grow and continuously improve the organizational productivity and effectiveness.

The next slide, number 12, just shows you how the portfolio did evolve in what we added in 2008.

And, slide number 13 has a picture of six compounds which are now in their early clinical trials but have shown some promising results, and some are really potential breakthroughs.

But we have to still go through the full development, of course; but they address very serious diseases and new pathways and new, really, targets, which makes them particularly interesting.

Looking back at our performance on slide 14, we have done better than other companies in a number of approvals for new molecular entities in the last eight years, and we hope and intend to continue on this track.

Slide 16 is depicting how our portfolio not only has synergies from a point of view of capabilities and know-how, but we also did pursue a new approach in certain markets hearing from our customers that they are interested not only in differentiated, innovative products in pharmaceuticals, but also in generics.

And by the way, if we have good preventive medicines, vaccines and diagnostics, they would be interested too.

So slide 17 -- we started a pilot in a number of countries, most in Asia but also in Latin America, rather smaller markets, where we have a rather more uniform buyer group and did consolidate back offices and rearranged our offerings according to the needs of key customers rather than internal organization of the business.

And the effect was surprisingly positive.

We thought it would be positive, but not as much as it turned out to be.

We grew between 25% and 30%, basically doubling the growth rate we had in the previous years, and this shows that this model may be a model which we can expand into other markets and we will discuss that as we move forward in the future.

Slide number 19 goes into one aspect of project Forward.

I'm saying one aspect because it's not just cost management and efficiency and productivity, but it's also speed of decision-making and simplicity, which is in our focus.

So we have delayered the organization, basically taking out about one layer in every division.

We have resized more adequately the regional offices.

We have asked ourselves what reports are needed and which ones are really more cumbersome than anything else.

And the emphasis really is to make the local organization more effective in the marketplace and to support it fully from the center and not to be inward focused, but outside focused.

On the savings front, the purchase economies of scale but also the better coordination among the divisions has contributed to a major part of this $1.1 billion in savings, and that allowed us, as we said, to continue to invest.

Next slide I thought we should also mention that, although it was always in our annual report, it has gained in importance, namely to leave the smallest possible environmental footprint we can, and with that, of course, minimizing energy consumption, water consumption, waste production.

And we deliberately are adhering to the Kyoto protocol, which is quite demanding.

But we have opportunities by rearranging the composition of our fleet, for example, where we have 23,000 vehicles.

We have planted over 2.2 million trees on a farm which we bought in Argentina, and in many ways we feel more comfortable to know really what happens rather than to deal with these certificates where we don't exactly understand how this works.

Overall, so a concerted effort.

And for you interesting is the fact that of the competitions we did internally, many did not only result in energy savings, but in an economy, basically a positive economic benefit and not just an environmental benefit.

From a corporate social responsibility point of view, page 21, we have increased our commitment to now $1.2 billion.

The biggest part is really the Coartem program, where we sold almost 74 million treatments and helped to save some of lives since 2001 of 550,000 lives.

So a big, big impact.

And we continued the other programs -- leprosy, TB, Glivec and the Singapore research organization.

And newly we also have opened a research endeavor in Siena, where we look for innovative vaccines not for profit, the four diarrheal diseases which are still the biggest killer in children in Africa.

With that, obviously we have to review how we earn our money.

And I'll pass along to Joerg Reinhardt.

Thank you, Daniel.

So I am on page 23.

The key messages for the operational performance for 2008 are that we sustained our momentum of superior growth.

Pharmaceuticals had an excellent year, Vaccines and Diagnostics grew strongly, double-digit again.

Sandoz has a challenging year, mainly due to the poor performance in the US; and I'll come back to that.

Consumer Health showed solid performance and was accretive with the CIBA Vision turnaround.

For 2009 our focus will be on execution.

We will continue to target superior growth, we will continue to rejuvenate our portfolio and we will further improve our productivity.

Let me start with Pharmaceuticals on page 25.

It was a good year with 5% growth in local currencies and 25% growth in operating income.

On slide 26, you see that Pharmaceuticals did grow in all geographic areas with the exception of the US, in Europe even double digits with 10%.

In the US, when we have a little bit closer look on slide 27, we see that obviously the first and the second quarter were very weak, but then in the third and the fourth quarter there was an acceleration of growth, achieving 11% of growth in the fourth quarter.

That had mainly to do, or was mainly based on this great performance of a number of products you see on the right hand.

Diovan did grow with 10%, Gleevec did grow at 26%.

And also, the new launches like Exjade and Exforge or the Exelon Patch, contributed significantly to this growth.

Now, when you look at slide 28, I said Europe showed double-digit growth.

And one reason for that is the very positive performance that we saw in the UK, where we came from an 8% decline of the business in 2005 to a 25% growth in 2008.

Now, a number of reasons, the background for this significant change.

For example, we did focus in the last few years much more on key accounts like primary-care trusts and hospitals and did, at the same time, reduced field force by up to 39%.

We did also make some very innovative agreements with the government in terms of reimbursement of products like Lucentis and Xolair, and you see the examples here.

Listed, for example, for Lucentis, we came to an agreement that we would pay for all those patients that require more than 14 doses.

However, the result of all of our launches in the UK over the last two years, including Lucentis -- Aclasta, Exelon or Galvus -- are very successful and drive this 25% growth in 2008.

On page 29 you see that also from a worldwide perspective, the new product introductions -- and here are 11 products listed that we introduced over the last two years -- did result in a significant growth amid significant contribution to growth in the Pharmaceutical division with adding $3 billion, almost $3 billion of fresh sales in 2008.

We do expect that this significant growth will also continue in [2009].

Now, one product on this list is, of course, Rasilez and Tekturna, where growth has been significant, but we expect this to accelerate in the future.

And why do we think so?

When you look at page 30 and at page 31, it lists or it shows the evolution of Diovan sales on page 30, which was also, after a slow start -- it took us five years after launch to reach the first $1 billion of sales, and it took us another two years to reach -- three years to reach another $2 billion of sales.

And we believe that the reason for that is that all these outcome studies that you see coming in after year five, six, seven and eight are really essential in the cardiovascular field to build a blockbuster drug.

When you look at page 31, where we have listed the programs that we do for Rasilez/Tekturna, you see that these outcome data are going to come even a little bit earlier than was the case with Diovan.

And we really believe that these data will continue to boost and to drive sales also of Tekturna and Rasilez.

If we look at Oncology on page 32, it was a very successful year, again, for oncology, with significant growth for Gleevec of 18%; Femara, the most potent aromatase inhibitor, 17%; Exjade, a real big success with 45%; and also Zometa showed growth with 3%, which really indicates a turnaround of the brand.

Altogether, 14% growth for Oncology.

On page 33 you'll see the progress that we have made in the pipeline of in Pharma in 2008 with a number of key submissions and also very important approvals, five of them very recently in Japan, which is still our second-largest market and very important.

We did also grow our early-stage pipeline, where we are now becoming more and more a biotech powerhouse with 25% of our portfolio being biologicals with growing tendency.

On page 34, 35 and 36 I have listed three examples of potential blockbuster products in our late-stage portfolio.

The first one is Afinitor.

As you know, Afinitor showed great data in advanced kidney cancer and very recently also in gastric cancer.

We did submit Afinitor in June 2008.

We have -- we do intend to start a significant number of new programs in 2009 like lymphoma, breast, gastric, hepatocellular carcinoma.

And we do expect the next filing for Afinitor to be in carcinoma tumors in 2009.

Another product with blockbuster potential is a QAB149, which was also submitted before the end of the year in Europe and in the US.

We saw very good Phase III data with a sustained 24-hour bronchodilation after a single dose.

We saw superior efficacy versus bid LABA's, and also versus tiotropium.

And, we saw a good safety profile even at higher doses.

And as I said, we submitted before the end of the year, and we do intend to give you the full data set at [Conquest] in May in the US.

On page 36, just as a recap, the FTY720 data, which we were very pleased with earlier this last year as well, the product is developing according to schedule.

We do intend to complete FREEDOMS and FREEDOMS II before the end of the year and will submit, if everything goes well, before the end of the year in Europe and in the US.

This gets me to Vaccines and Diagnostics division, which grew by 20% in local currencies in 2008.

On page 38 you see the reason for that, mainly driven by strong sales in pandemic influenza vaccines, deals with government, especially the US, but also driven by growth in pediatric vaccines and in Diagnostics.

However, there was a challenging year in terms of seasonal influence of vaccines, especially since prices were under heavy pressure, especially in the US.

Now, our introduction of the cell culture technology progresses well.

You have seen the most recent announcement of a deal between the US Department of Health and Human Services and us in terms of support for our new manufacturing facility in North Carolina.

We got other $486 million support to complete this facility.

And then very recently you saw that we concluded -- we did extend and expand the agreement we have with Gen-Probe in the blood testing business.

The new contract, under federal terms, is now going to extend this collaboration until 2025.

On page 39 you'll see the focus we have made in our late-stage pipeline.

We have submitted Menveo in the middle of the year, according to plan, in the adolescent indication.

You have also seen that we got an additional request from the FDA for the infant indication, where they now want us to do another study with 500 and [1500] subjects for safety reasons.

There is no specific thing now that would have led the FDA to request that, but they do consider this to be normal business.

However, the request came late.

We do intend to do the study, which will now lead to a submission target of early 2011 in the US.

In Europe we would still intend to submit in 2010.

The MenB product progresses according to schedule with submissions planned for 2010.

Ixiaro is progressing as well according to plan, together with our partner Intercell.

We do expect to launch after positive approvals in the US and in Europe, in the first half of 2009.

2008 was a challenging year for Sandoz.

On page 40, Sandoz showed a local currency growth of 1% and an operating income growth of 4%.

On page 41 you see the reasons for the sluggish growth.

Generics grew nicely in all parts of the world except the US, where we saw a 10% decline of sales, mainly driven by quality issues that we had in one of our plants in the US, which we are obviously vigorously addressing.

We also had a change in management in the US, with a new CEO who joined us from BioLab's very recently; he just started a few days ago, and we have high hopes that (inaudible - microphone inaccessible).

In Germany, the country, we did continue to gain market share.

We are now overall at a market share of close to 28% by the end of this year.

For comparison, our biggest competitor, [Ratiopharm], is at a level of around 18% (inaudible - microphone inaccessible).

We are also leading -- continue to lead the SHI contract segment with a 37% share for Sandoz.

And we had a top share in the recent AOK tender.

We continue to turn the biosimilar portfolio into commercial success, where we see great market share growth for our EPOs, which has overtaken Erypo in November of this year.

And we're also quite happy with the progress that we make with clopidogrel (technical difficulty).

When you look at page 43, you see that one of the important long-term targets of Sandoz is to promote its business in all emerging markets.

And when you look at Russia with 38%, Brazil 26%, Turkey 22% and China with 21%, these are great numbers.

And we expect that this growth is also going to continue in the future.

And we see this as a very important long-term investment for future growth of the generics business.

On page 44 you'll see that Sandoz has a strong and competitive pipeline with more than 100 approvals in 2008, more than 1500 submissions in 2008 and still 880 projects or more than that in development.

There are, unfortunately, quite a number -- fortunately or unfortunately, a number of ANDA's still pending with 123, of which 20 are first to file.

As I said before, we do continue to build on our leadership in biosimilars, not only with EPO and Omintrope, but also with the launch of filgrastim GCSF where we do expect a final approval very soon.

Consumer Health showed a solid performance with 4% growth in local currencies and a significant improvement over operating income of 29%.

On page 46 you'll see that, again, Consumer Health, like Sandoz, did grow very nicely outside of the US, with 10%, for example, in Asia and other emerging markets.

We saw also here a small decline of 3% in the US, mainly driven by the OTC business, which actually showed a double-digit decline in 2008, especially in the US.

And it's something which we would also address vigorously in 2009.

On page 47 we see that our Consumer Health business did develop significant market shares in all of the businesses that we are active in.

We did grow above market in OTC, in CIBA Vision and also in Animal Health.

And the reason for that, on page 48, is that we are very much focused on a limited number of programs.

For example, in Consumer Health it's going to be Voltaren, Theraflu and Otrivin.

In the CIBA Vision business, going to be Dailies and Optics.

And also in the Animal Health business, we will focus on a number of growth brands to secure significant future growth also in the next two years.

That future growth will also be fueled by continued investment in innovation, as you can see on 49.

In the OTC business we will have an increasing focus on switches and also new dosage forms.

In Animal Health we will leverage our capabilities across the Novartis businesses, and we do have first examples where we see products coming from Pharma that actually are very great products also for the Animal Health business.

Atopica is one of them.

And in the CIBA Vision business we will continue to explore innovation in very attractive, game-changing areas, like presbyopia.

This leads me to 2009.

On page 51 our priorities for 2009 will be, on the one hand, to continue to target our superior growth, continue with that, to continue to rejuvenate our portfolio and to drive productivity, build on the Forward project that Daniel has mentioned and also create a number of new projects in the area of customer focus, where we want to put more attention to.

Growth drivers for 2009 will be, obviously, Pharma with a continuous dynamic expansion of new products, but also with a number of successful launches, hopefully successful launches like Extavia and Afinitor.

And we will also launch the Menveo vaccine in Vaccines and Diagnostics.

We do hope that we can return Sandoz in Consumer Health to growth in the US, and we continue to strongly expand in emerging markets.

We will also continue to introduce innovative commercial models, and you'll see a range of them listed on page 53.

As you know, we have changed our structure in the US.

We have introduced this 1 A Pharma approach in Germany.

We have outcomes-based reimbursement schemes in the UK, et cetera, and Daniel talked about the GEM approach in a range of smaller countries.

On page 54 you see our strong focus that we expect to happen in innovation in 2009 with a number of significant submissions; above all, of course, FTY720, and also significant improvements like, for example, Afinitor in renal cell carcinoma.

We also expect some significant news flow in terms of new clinical data that will come out throughout the year.

In terms of productivity increase, our most important operational initiatives will be to continue Forward and hopefully overachieve our objectives also for 2009.

We will focus on improving cash flow and, as I said before, we will implement this project Customers First, which is a project that will refocus our efforts away from more internal processes into a real customer-oriented mentality.

So, in conclusion, we will focus next year on excellent execution.

We will -- or this year.

We will aim to achieve accelerated growth in the US, target our expansion in emerging markets, continue to rejuvenate our portfolio.

We will further build our biotech powerhouse position across our different businesses -- Pharma, Vaccines and Sandoz.

And, we will have a clear focus on further improvement of productivity.

And with that, I hand over to Raymund Breu.

Thank you, Joerg.

I'm starting with slide number 58.

The key takeaways from a financial point of view for 2008 are record sales and earnings; high growth driven by an accelerating Pharma and helped by currency; strong cash flow before dividends, which obviously enhances our financial flexibility.

We have strengthened the portfolio with acquisitions to the tune of $11.5 billion.

And, we had a very limited direct impact of the financial crisis.

With the next slide, results are characterized by the high double-digit growth in operating and net income from continuing operations and a corresponding operating margin improvement of 3.8 percentage points.

Apart from the strong business growth with the forward-related productivity gains, that drove this performance, I have to mention also the impact of a benign currency environment for three quarters of the year, which contributed some 4 percentage points to sales and 3 percentage points to operating income growth.

Free cash flow and earnings per share for continuing operations are also up 20% and 28%.

The next slide, 60, I give you an analysis of the margin improvement, and this improvement of 3.8 percentage points in operating margin is due to three major factors.

One, the base effect of 2.7 percentage points as compared to year 2007 was impacted by the large increase in provisions for environmental project Forward.

Secondly, strong business expansion -- I mentioned it, especially in Pharma, which increased our gross margin by approximately 0.9 percentage points.

Thirdly, the US dollar $1.1 billion of project Forward savings, and this generated a productivity improvement of 2.5 percentage points, which then allowed us to invest a significant 1.4 -- 1.3 percentage points of sales in building up the marketing and selling organizations in the emerging growth markets in Oncology and for product launches and in stepping up late-stage clinical trials in Pharma, Vaccines and Sandoz.

Finally, we were able also to cover a strengthening of legal provisions in other income and expense.

We generated approximately 1 percentage points to expenses.

Net-net, we still had an operating income margin increase of 1.1%, corrected for the one-time [base] effect to, now, an operating margin of 21.6%.

I should mention here that on this slide, footnote two in an earlier version on the Internet was not entirely correct.

We have corrected that in the meantime, to read, extraordinary Forward savings instead of excluding exceptional items.

I apologize for the oversight.

On slide 61 you can see that the exceptional onetime items had a material impact on individual line items such as COGS, Famvir impairment in 2007, on the results in development with the Aurograb impairment in 2008, and on other income and expense with the provisions for litigation settlement and for restructuring.

But net-net, these exceptional items had no impact on numbers because they virtually canceled out.

Slide 62 -- the very large, 32% increase in operating income obviously benefited from the base effect that I have mentioned.

If we correct for that, the comparable increase is still an impressive 15%.

Another major extraordinary item in 2008 compared to 2007 is the net income from discontinued operations, which in 2007 included the profit contribution from the medical [operational cover] businesses, (inaudible), upon divestitures.

Net income on a continuing basis, as mentioned, up 25%.

Now I would like to add a few comments on the fourth quarter.

I'm on slide 63.

Performance indicates to show a very high double-digit growth, but this performance is marked by a number of positive and negative factors.

Operationally, in fact, on slide 64 Pharma accelerated in the fourth quarter and grew at 10% in constant currencies.

A lot of (inaudible - microphone inaccessible) our investments in (inaudible - microphone inaccessible) Oncology and product launches in the quarter significantly.

Vaccines and Diagnostics had a strong finish, too -- 33% growth in constant currencies.

But this was partly to due to a $50 million onetime income from an accounting change.

On the other hand, we experienced increase in the challenging market conditions in Sandoz OTC and Animal Health in the US markets.

But overall, the Group expanded sales in local currencies at 8%.

And despite the currency impact, which was a negative element, as you can see on the next slide, that's slide 65, operating income was up 25%, even excluding the one-time environmental charge and project Forward charge in 2007.

So on a comparable basis it was up 25% despite a negative currency impact of $91 million despite Sandoz restructuring and US recall cost of $50 million, legal provisions for litigation and settlement of $79 million and an increase in product liability provisions of $59 million.

Now I am returning to the 12-month figures for the non-operating items, slide 66.

You can see that net income from continuing operations expanded at a slower rate of, quote-unquote, only 25% versus 32% for operating income.

It is due to the $153 million financing cost for the first [of our] (inaudible) investment, which explains the drop in net financial income, and also due to the increasing tax rate from the exceptionally low 12.6% in 2007 to the higher but still low (inaudible) 14.1% in 2008.

On the next slide, I explain the accounting impact of Alcon on our numbers.

The impact on our 2008 profit and loss was minor as our $255 million share in Alcon's net income was more than compensated by the amortization charge of $266 million.

The carrying value of our stake in Alcon at the end of the year was $10.4 billion, or approximately $140 per share.

This exceeded the market value of $66 billion, or $89 per share at the year, but there was no need for an impairment charge, as estimated value in use exceeded this carrying value.

Slide 68 -- free cash flow before dividends for the total Group increased strongly, 23%.

It not only allowed us to cover the 29% boost in dividend for the 2007 dividend, but also to propose a further increase of 25%, to $4.3 billion, and maintain a competitive payout ratio at, currently, 53%.

It also allowed us to partly finance the $11.4 billion of acquisitions and investments in Alcon.

This self-generated funds, at least in -- are proportional.

But the result, net liquidity dropped from $7.4 billion at the end of 2007 to a margin on net debt of $1.2 billion at the end of 2008.

Slide 69, you will see that the increase in free cash flow before dividends to $7.4 billion was driven by a combination of better cash flow from operating activities, a lower investment in the intangible assets, thanks to tight management of our asset base.

Capital expenditures is now at 51%, and we have been able to break the trend of ever increasing spending for capital expenditures.

Slide 70 -- the impact of the (inaudible) the financial crisis on Novartis was, fortunately, very limited.

Thanks to a conservative investment policy we had no exposure to [credit] financial institutions and only a limited exposure to hedge funds.

We experienced no counterparty losses in the derivative markets.

Our credit [spending was] unquestionable.

We were able to borrow throughout the year in the US commercial paper market at very fine rates.

Finally, our funded defined benefit plan showed at the year end an overall good 95% coverage ratio in Switzerland [each season as] 100%.

With this, I hand over to Daniel Vasella again.

Thank you, Raymund.

I am coming to the outlook, at slide 72.

Given the outlook, I think it's also worth taking a look back.

The last five years we have grown sales, operating income and EPS at a double-digit rate.

So overall, a very solid and continuous performance.

In the dividend payout you also can see that the aggregated growth rate is 12% since the launch of Novartis in 1996, respectively, 1997.

And with a 25% increase in -- for the year 2008, I think we have a very attractive dividend for this year to propose to the shareholders.

2008, for the share price, slide 74, was obviously not good.

We had a decline of 15%, which seems quite significant.

But in the environment in which we are, it is rather moderate.

And looking over the entire period of Novartis' existence, in '96, on the next slide, one can see the total shareholder return taking into account the spinoffs also gives a return of 8%, 8.1%, versus world Pharma, 6.5%; peers 6.4%; and the world market, 3.3%.

For 2009, barring unforeseen events, we anticipate that operations will grow sales in the mid single-digit rate in constant currencies and that the operating net income should reach new record levels.

Having said that, we are saying it with a note of caution because we are experiencing an environment which is highly unreliable and volatile, ranging from financial markets to the recession to the currencies.

But taking this into account to the degree we can do today, we are fairly optimistic and confident looking ahead in the year.

With that, we have finished our presentation, and I would like to open it now for Q&A.

(Operator instructions) Tim Anderson, Sanford Bernstein.

I have a couple of questions.

The first is what sort of impact you expect the current economic conditions to have on your branded Pharma business.

Pfizer recently cited this as one of the reasons for their low 2009 guidance.

I'm wondering if you would agree that this could materially impact your branded Pharma business in '09, and what geographies would be most affected, if that's the case.

Second question is on vaccines.

Menveo -- my understanding is that it may have been poor trial design on the part of Novartis that is now causing you to have to run another trial, and FDA not changing the goalposts or anything like that.

My understanding is also that you had some key departures of some key personnel in that division.

I'm wondering if that might be construed as a sign that things aren't going terribly well in that division.

So any comments on either of these topics would be helpful.

In terms of the impact on the branded Pharma business, we have provided guidance that I feel very comfortable with in the mid to high single-digit rate for sales growth for next year.

One of the reasons why that is fairly broad in terms of a range is that we don't yet know what the full impact will be.

We have seen some impact in the fourth quarter, yet we were able to drive, on a local currency basis, some pretty significant sales growth.

So I would say that if we see it, where we are going to see it is in some of the self-pay markets in Latin America, potentially some Asian markets, but that we should be somewhat insulated in the US, and also in Europe.

Do you anticipate any cuts in government programs or pricing because the governments have less tax income?

We are anticipating that it will be a tougher reimbursement environment in 2009, which is another reason why we are redoubling our efforts from a productivity standpoint to ensure that we are taking non-value-added costs out of the system, particularly in the area of procurement, and have a pretty aggressive productivity program so that if there are reimbursement issues that either emerge in Europe or if the US environment from a pricing standpoint becomes tougher, we will be able to deal with it.

Thank you.

Andrin?

The first question on Menveo, I can elaborate on what Joerg Reinhardt just said, that we do have delay and expect it now on the launch of the adolescent filing in 2011 in the US.

The delay comes from this 15,500 patients that the FDA has asked us to add to our clinical database.

It is not because we have found any signal in our current clinical trials for Menveo, but simply because this reflects a safety standard that the FDA has now made us aware of, and it had not been discussed in previous discussions before we started the Phase III.

As far as departure of personnel, the development team from Menveo is intact.

There are no high-level departures there.

We have had the head of our Americas operations, Rajiv De Silva, leaving us at the end of the year.

He has been replaced by [Wagner Racineham], a very talented individual who has before been leading our meningitis marketing efforts.

And we're very confident that we are well-positioned to be successful based on that, with Menveo and beyond in 2009.

Andrin, specifically, do you think that we made a mistake in the design of the trial?

The Menveo trial, or (inaudible - microphone inaccessible)?

For our purposes, if you wanted to comment?

No; I can comment on that.

We have been in discussions with the FDA on the Menveo outcome for quite a while.

And we had, in 2008, a number of negotiations and discussions where the additional request for an additional safety trial became clear towards the end of that year.

If we would have known earlier that that would have been a request, we would have done that additional study earlier.

But it was, from an FDA perspective, seen as kind of a misunderstanding between the Company and FDA as to what the expected (inaudible - microphone inaccessible) was.

From our perspective, it was unfortunate that that request came up so late.

Alexandra Hauber, JP Morgan.

I have a bunch of questions, starting with Vaccines and Diagnostics probability.

Joerg, you said last year this time round that your goal for '08 would be to beat 5% operating margin.

Now, even with the benefit, the one-time benefit you had in the first quarter, you didn't quite get there.

Is that just related to that we still have flu overcapacity?

And of course, based on that, what is your outlook for '09?

Can the business breakeven in '09, given that we have the [Ex] (inaudible) launch costs?

And more longer-term, do we have to wait for the meningitis vaccines to come, to hit the market before we see that division to become profitable?

The second question is a bit more general.

On the adoption of the new sales models, I'm just wondering.

Do you see the benefits, once we see them -- will they be sustainable if the current petition assumes similar models, or are they going to be competed away?

Is that more like a share or a kind of volume game?

Also, how should we think about watching those, for instance, in the US, where I understand you have started to implement these, finished implementing as early as January?

Have you seen the benefits immediately, or is that like a watch-and-wait period for three to six months before we can see whether this is really going to work also on the larger scale?

Then just a final question on the guidance.

You say you're targeting superior growth, and I just wondered whether you could be a bit more specific to what you want to be superior to.

Let me start with the vaccine discussion.

Alexandra, as you know very well, we always said that we will need the kick-in of the meningitis portfolio to really turn this division into a significantly profitable business.

I have guided last year that, don't expect the profitability or the margin of vaccines to grow in 2008 as compared to 2007.

And that's pretty much were we are.

We did have, as I said, a challenge with the flu business, the seasonal flu business, in 2008, where we saw a softer market in the US.

We saw price decreases in the US at a level of 5% to 10%.

We also saw in Europe in a number of countries, for example in Italy, significant challenges on price.

So the flu business -- it was not a good year for the flu business, and that's why overall our seasonal business did suffer as compared to 2007.

That, of course, has immediate impact on profitability.

So, going forward, I would still expect that also 2009 is going to be a challenging year for the profitability of Vaccines and Diagnostics.

And we would hope that that situation changes with the significant introduction of Menveo in 2010 and beyond.

In terms of the new commercial models, as you know, we announced the reorganization in the US in October.

And we moved people around and got everybody in place by January 1.

So that model is now up and running.

I do believe it is sustainable.

I think it's a testament to Ludwig and his team to deliver the great growth that they did in the fourth quarter, even with a complete reorganization of the sales force.

So I think that was very good performance.

And time will tell as to the benefits that we get.

But I think you could look to some of the European countries where we have made the change to the model earlier.

So specifically, Joerg showed the slide of the UK, where we had the significant reduction of field reps moved to a key account management approach, and we had an incredible year this year in the UK with sales up 25%.

So I am looking forward to seeing sustainable and good performance coming out of the US with that model.

Does that just mean you basically expect to see the benefit as of January, pretty much?

Well, I will say they are in place as of January.

I do think that, when you think about the -- it is quite a change in commercial activity.

So when you are talking about moving to a key account management approach and really integrating both the key account management with the field sales force, it's going to take some time.

So I would hope that towards the second half of the year we would see a ramp up.

But again, in the US fourth quarter, up 10%, it's a good performance.

And maybe that leads me to come to this question about superior growth, superior to what.

And I think it's a justified question.

There are two, really, aspects which I would take into account.

One is past performance.

So it's really an evolution of business, and second is competition.

And then, obviously, you would have to weigh the different businesses and say, well, which importance.

And the I would say, simplifying it, it's Pharma mostly.

And some of the other businesses are more difficult to measure, like Vaccines and Diagnoses.

Either we are in a duopoly, or we are in a very specific segment, like the flu vaccine, so that it's tougher.

And obviously, Sandoz is in a situation where they are putting their act together, mainly in the US but also some of these European countries, and where everything hinges also on the new approvals.

So in summary, I would say what it should express is that we are confident that the business will continue to run well, and that Pharma, in particular, will have a good year.

And assuming that the growth of the market is low-single digit, we should be able to beat it.

I guess that's probably one of the more bearish views as far as outlook for the market.

But thank you very much.

Excuse me, Alexandra, I didn't understand.

Sorry; I was just -- you said low-single digits for the market, and I assumed that means Pharma market?

Yes.

I was thinking the Pharma market will not grow more than probably 3%, 4%.

4%, okay, thank you.

4%, yes, you know.

We'll see what future will show us.

Dani Saurymper, Goldman Sachs.

Firstly, just on pricing, I noticed that for the full year '08 there was a negative 1 point of pricing across the Group.

Can you just maybe talk through each of the business models and what you anticipate in terms of pricing for '09?

Secondly, is it possible so you could just give us a bit of a more sense for margin outlook as it relates, in particular, to Consumer Health care, Sandoz, given the performances we saw in the fourth quarter?

I appreciate; there were some exceptional items for Sandoz.

Lastly, I wanted to pick up on my comment Joerg made with regards to improving cash flow.

Just maybe if you could provide a little bit more color on that?

Pricing overall -- we have the biggest pricing pressure in generics.

In general, we have about 8% to 9% price decline every year and we make it up by volume gains and productivity.

If you see, therefore, a growth of plus 1% or 2% for last year in generics, then it's composed by a volume growth of almost 10% and a price decline of about 8%.

In the previous year it was about 9% decline.

And if you look at Vaccines, then the price is about minus 1%, Pharma an average tightly positive, plus 2%; Consumer, slightly positive, plus 1%.

So in summary, what it gives you is that some of the businesses can barely keep track of inflation and others are clearly behind inflation with their pricing.

And that, in some of the business, is more regulated pricing; and in others it's really free competition and substitution.

So I don't think we should anticipate a fundamentally different picture for '09.

I don't think, first of all, that we will already see a high inflation, nor do I believe that we will see suddenly increasing prices in generics.

So unfortunately, that's the situation.

And on cash flow, Raymond, why don't you give us some color?

In terms of improving cash flow, I should mention three action (inaudible) to plans.

One is obviously improving cash flow from operating activities coming from our operation, [where] you see increases in operating income that usually translates into improved cash flow from operating [experiences].

The second (technical difficulty) plan covers our working capital management.

We have targeted plans for working capital improvements across the divisions, and we are trying to review today the DSOs and the inventories aggressively.

I'm not going to quote numbers here because this all depends on how the year is shaping up.

But we obviously have set ourselves ambitious targets here.

The third set of action covers capital expenditure.

We will continue to monitor our capital expenditure plans for our divisions very closely, and our intention is that we do not increase capital expenditure as a percentage of sales in this year.

I think those are the key elements of this cash flow improvement plan.

Paul Mann, Morgan Stanley.

First of all, on Sandoz, it's clear that the operating conditions are deteriorating.

So perhaps you could maybe discuss when you expect the quality issues to be resolved.

Is there any guidance on timing?

And then, if one does not resolve the quality issues, is the fourth quarter of '09 excluding the one-time items representative of how the full year '09 should look, or should we look at it being slightly different?

And if you do resolve the quality issues, what sort of financial performance can we expect in 2009, and at what point do we return to growth?

And where many margins and revenue growth returned?

And then secondly, just thinking of a couple of P&L items, what sort of tax rate should we expect for 2009?

And then also the pricing of Extavia versus betaseron -- how are you intending to market this versus what appears to be a very similar product on the market already?

Finally, just on Consumer Health care, is there any sign of a cyclical slowdown in, say, CIBA Vision or the Animal Health divisions?

Thank you.

George, why don't you start?

There is evidence of a slowdown in the Consumer Health area.

We had significant pressure on the farm animal business, and that has returned a little bit to normal.

On the CIBA Vision side, there's a slight slowdown, less people coming in to see eye care professionals.

And on the OTC side, a similar slight slowdown, mostly a move to private-label in the US market.

On the first part of your question, on the Wilson issues in North Carolina, obviously we received the warning letter in August of last year.

Our full response was delivered on September 5th, and then we met in person with the FDA in October.

We're working as quickly as we can to meet all of the FDA's requirements.

Their concern is largely related to documentation and validation issues.

We are not speculating as to when we can resume shipping from Wilson.

But I will say that it's a relatively modest amount of our portfolio that comes out of the Wilson plant, given a global network of over 40 manufacturing sites.

On your second question, with respect to the margin erosion that we saw in Q4 of 2008 -- I believe you said 2009, but (technical difficulty) 2008.

Obviously, that was driven in large part by two factors, the $50 million charge that we took both related to restructuring amount of $16 million and then the $34 million charge related to the product recalls out of Wilson, due, again, to documentation and validation, which were voluntary recalls not related to product safety or efficacy.

We received no new (technical difficulty) that was obviously 28 million product recalls and about $6 million of impairment.

The second factor driving the margin erosion in Q4 was just the US sales miss.

The forecast for the 2008 launches were overly aggressive, and just delays were affected by what Daniel talked about earlier, the significant backlog of around 1600 to 1700 ANDA's that are sitting with the FDA through the Office of Generic Drugs.

We, for 2009, I think are cautiously optimistic that the climate with the new Obama administration will improve around funding for the OGD and generics as there are literally hundreds of millions, if not billions of savings, depending on how you look at it, through a shift to generics.

Clearly a key part of our turnaround program in the US is the recruitment of Christine Mundkur.

Christine was formerly global CEO of Barr Laboratories running their $2 billion global generics business, and we are very pleased to have her onboard to drive the turnaround, particularly given that, prior to being CEO of Barr, she had been Executive Vice President of Quality, Regulatory Affairs and Legal.

So quite a strong background in some of the areas where we have to (technical difficulty) in 2008.

Obviously, we remain quite bullish on emerging markets, where we see 20% to 40% plus growth, depending on the market, and continued leadership that we look to drive in difficult to make, notably in biosimilars where we are the only player globally with two approved marketed biosimilars, both of which were first to market, obviously positive CHMP opinion on filgrastim, which we hope to launch after approval in 2009, but also in the areas of injectables and asthma.

So I think we are cautiously optimistic that we can turn the ship for stronger performance in 2009, but it won't happen in a month or two.

So just could turn the in terms of thinking about financial outlook for '09 in that division, and I (inaudible) with Q4 '08.

Is Q4 '08, excluding the one-time items you mentioned -- is that reasonable as an assumption for how full-year '09 will look, assuming the quality issues are not resolved?

Or should things improve slightly, and are there some cost savings you can put through the division to improve performance?

Only if you allow -- I would like to pass on this question and the following sense.

It's, at the moment, very difficult to forecast the outlook for this division for 2009, in terms of operating income.

I think we have to see how the quarters develop now, how the currency impact will be and how the impact of the actions will be that Jeff is going to take in terms of turning around the division.

Once that becomes clear, obviously you will receive better guidance as we go through the quarters.

Then, I can maybe pass on to the next question, which was the question regarding the tax rate for 2009.

Remember, we expect the tax rate to be in the range of 15% to 17%.

For 2009, the ambition will be that we will be in the lower half of that range.

Regarding the Extavia question and how we market Extavia, we see this launch as critically important to establish commercial teams in multiple sclerosis ahead of FTY.

So really, I will tell you that we are not competing on the basis of price.

We want to get our teams in place in the market, operating in a multiple sclerosis environment, medical affairs also.

And that's the purpose of this launch.

Extavia will do well on its own, but it more importantly builds that framework and foundation for a very successful FTY launch.

When you say Extavia will do well, do you have any internal targets, any targets you can share as to how successful in terms of any market share or financial aspiration?

No.

We are really defining success in a different way on this launch, and that is ensuring that the service offerings that we have around multiple sclerosis are developed and fully in place, so around the patient, around the physician and around the entire disease state.

Kevin Wilson, Citi.

You've talked about improving cash flow.

I wonder if you could explain a bit more about how you think you might end up using that improved cash flow, in particular with respect to the dividend, the payout ratio has risen significantly.

Has that now plateaued, or do you see room for that to continue to improve?

We have a payout ratio which is targeted to be between 30% and 60%, and we will move within these boundaries unless we would change the policy, which we do not intend to do.

From a point of view of payout ratio, it's rather on the higher end and the lower end this year.

So that is not the primary objective of improving the free cash flow.

We think, A, it's good business sense to do it; and secondly, we do have a debt which we want to repay, and that will take priority over investments which may not be absolutely necessary.

But having said that, the priority is to run the business properly.

If I may come back, I was thinking more of the fact that the industry as a whole is clearly delivering lower returns from the operating business and from earnings than it has been in the past, and the dividend component is increasingly important.

I just wondered whether that -- you might talk a bit more about how you see that balance of shareholder returns changing in terms of total shareholder return.

Raymund, do you want to comment on that?

I think if we talk about total shareholder return, [a number] of you -- we would always strive to and manage the business for the long-term.

That means, obviously, we want divisions that are performing in the market where the gain market share and where the operating margin is competitive.

But at the same time, we would invest in, if and when we would see significant opportunities for investment.

So we would, I think, never feel hostage to a certain dividend payout range, just for the sake of achieving this range.

I think the more important item for us is always operating performance and growth of the business long-term.

We understand full well that a high cash flow generation is a sign of a very healthy business.

And in that sense, if you then achieve it, gives you additional financial flexibility in various ways.

One is that you can maintain or increase the dividend and, secondly, that you have more funds that are available for a strategic external growth if you consider it appropriate.

I think that's pretty clear.

Thank you, Raymund.

Next question, please.

[Brad Kaplan].

Cowen & Co.

Just pushing further -- and sorry to do this on the Sandoz business -- maybe some specifics around products such as Skelaxin or [Metaxala], and then a generic respiratory franchise for asthma and COPD.

What is the status of those generics, and when can we hear some news on them?

Secondly, the delay on Menveo -- what has that given you, if any, insight to your MenB program for infants?

Is there resolution on the end points and trial design for the Phase III program there?

And, lastly, on FTY720, any new skin cancers or herpes infections that we should be aware of from the ongoing FREEDOM studies?

On the Sandoz question, for competitive reasons, we don't talk about our planned launches.

There's a few exceptions.

We have commented in the past on Lovenox, or enaxoparin, Sanofi's low-weight heparin.

And we do still aspire to launch in 2009.

We look forward to a number of other significant launches in 2009.

On Lovenox, we submitted our data amendment to -- on our ANDA to the FDA around immunogenicity in September.

We are now waiting for an FDA response, and that is the main prerequisite prior to our ability to launch on April 1, which is the day 181 after Amphistar's 180-day exclusivity expires.

Every day that passes, frankly, is good news for Sandoz in that Amphistar has not launched, since they don't have US approval.

The two other factors associated with that launch are the citizens' petitions, one (technical difficulty) Sanofi, and we're still waiting from the FDA for a response on that, as well as the heparin supply from China.

Two of the four heparin suppliers that we use have been cleared.

We are still waiting for the remaining compliance audits from (technical difficulty) by the fourth day in March.

So we'll have a little bit more visibility then.

Skelaxin -- again, I can't comment, for competitive reasons, on that product.

On MenB infants, our Phase III trials are progressing.

We have two major trials.

One has completed enrollment, the other one will complete in a few months.

As you know, we have previously communicated that there in the US, the FDA has come back with some additional questions regarding a way to file in the US.

We are currently in the process of collecting this information and getting back to [the US space] in which we will have full clarity in Europe, and there is everything on track for the filing in 2010.

And we're confident that this is going to happen.

Thank you, Joe?

(multiple speakers) Oh, Trevor, yes of course, Trevor, sorry.

Since I updated you in early December on the outcome of the TRANSFORM study, that's where we have had the very good efficacy of our low-dose as well as around the overall safety that came out of that program.

We have had no new cases of skin lesions or of any severe herpes infections in the program.

So we are on track to accumulate the data from the TRANSFORM's program, from the FREEDOM study, the 2201 study, and the additional patients in the US for that submission towards the end of this year.

Before I go to the next question, I just wanted to inform you that I will leave the conference and hand over to Raymund to continue.

I apologize, but I have to run.

So Raymund, if you would, please continue.

Thank you, Daniel.

So we have still approximately 15 minutes for other questions.

So next question, please.

[Jo Walton], Credit Suisse.

Firstly, on the flu vaccine business, I wonder if you could tell us what you think the longer term outlook is there.

It seems as if the market was saturated in 2008 with supply, and yet there are still more people putting on capacity.

So what is the longer-term output in Vaccines?

With generics product, if you could just update outside the uptake of generic Plavix in Germany.

And then a longer-term question about where we should really be looking for the growth to come from in the Pharmaceutical business.

Do you think that the biggest contribution to profit growth in that business is going to come from margin expansion or from sales growth?

Okay, on the flu vaccine, Andrin?

I think your observations are right, that in 2008 we had the saturation of the market and there is overcapacity.

We expect that to continue in 2009, and prices will most likely further come under pressure.

Having said that, I think in the long prospect, there is, of course, room for [hold space].

And two reasons -- the first one is product differentiation.

We have differentiated flu products like, for example, flu (inaudible) based on a promising adjuvant that you may know and the scientific interest around such a product, and to what extent it would better protect healthy individuals that are vaccinated versus what would become the more commoditized flu product is continuing.

And we do expect there to defend ourselves against oversupply in what would be, then, the mass market, more genericized flu market.

Secondly, one also has to mention the pandemic make threat.

It is something that has not disappeared.

Even so, it may have disappeared from some of the media.

Just recently, it is back.

And whenever you hear some concerns or some new worries about pandemic flu, then two things happen.

First of all, vaccination rates do go up.

People are worried, so we will see more demand in such cases.

And secondly, of course, in the mid to long-term, the need for pre-pandemic vaccinations and pandemic stockpiling is probably going to increase as well.

And that will, of course, increase overall demand.

And in that regard, overcapacity should be taken with a he word of caution that can quickly change while the years evolve.

Okay, and then Plavix?

On generic Plavix, or clopidogrel, in Germany we, as you know, are working, have been working with a partner [Assimo] (technical difficulty) through HEXAL which is marketing the product for the approved, the granted indications.

We are pleased with our performance.

We're up from 3.6% market share in August to around a 10% share as of November, compared to Ratiopharm which has less than a 7% share.

So we continue to be pleased with our performance.

It's ahead of expectations.

We are looking under the decentralized procedure to launch in other markets in 2009, subject to approval time lines.

Regarding the long-term profit growth in the pharmaceutical industry, it's going to be a combination of both.

If you look at where we stand from a margin standpoint relative to some of our competitors, there's room there.

And I've talked in the past from a cost standpoint on -- particularly in the area of sourcing, there's still quite a bit of opportunity on the e-sourcing side to push a large percentage of our cost base through reverse auctions and a way to get our costs down.

So I do think that we will see some level of margin expansion over the long-term.

However, our sales growth also will be very positive in terms of the key driver for long-term profitability.

If you just take our late-stage pipeline, you take the launches that we generated in 2008 and you project that out and the changes and the transformation in the portfolio with oncology becoming a bigger part, with emerging markets becoming a bigger part of the business and with those new launches from the late stage, we will also see profit, the profit lever on the top line generated.

So -- and I wish there was an easy answer, but we are attacking both elements and believe that that will ensure long-term profit growth for Pharma.

Florent Cespedes, Exane BNP Paribas.

Thank you very much for taking my question; the first one, on Agomelatin.

Could we have some update on the discussions you have with your partner, Servier?

And also another question.

To come back on anoxaparin in the US, do you believe that, given the profile of the product, also given the changes at the FDA, that the answer from the FDA is more likely towards the end of the year instead of very soon?

And the last question, on Tekturna, do you believe that the new data of the (inaudible) on the trial may help the ramp-up of Tekturna this year?

(inaudible)?

Agomelatin, we have been coordinating our regulatory strategy with Servier.

And now that they have a positive CHMP opinion coming at the end of last year, we have the data in hand from the US program.

And we will be going to the FDA in the next few months with a proposal around the potential for filing that in the US, as we have indicated on our filing chart.

On anoxaparin, we have submitted what we believe is a necessary response around immunogenicity, as I mentioned, through the data amendment to our ANDA (technical difficulty) back in September.

And as of now, we are waiting for the FDA's response and for FDA action, both on that, as well as on the Sanofi citizen petition.

I really can't speculate as to timing of when the FDA will (technical difficulty) our products.

Regarding Tekturna, we are starting to see an update in the US.

So if you look at just prescriptions, when we started out the year we were at about 70,000; 75,000 scripts a month.

And, actually, we got the December data, and we are at 130,000 scripts now.

So we've almost doubled the scripts per month on Tekturna, and it has steadily increased.

It has been driven by a number of factors.

We changed from a sales force standpoint some additional sales focus on Tekturna.

We will be getting a pretty steady news flow starting now, not, obviously, the M&M data that we think will really make the drug take off.

But we do believe -- I would be disappointed if we don't show some significant growth on Tekturna in 2009, despite the fact that we still don't have a lot of the outcome data to promote.

Sam Collin, First Manhattan.

Number one, could you update us on your thinking with respect to project Forward?

It seems that across the Company FTE's are down just 2%.

Maybe, Joe, you could comment on what that looks like inside of Pharmaceuticals and where that may ultimately end up.

Can you talk about the overall cost structure in Pharmaceuticals?

Second, can you talk about the macro impact in the emerging growth markets, where they particularly are sensitive to what's going on?

And, finally, can you give us an update with respect to Aclasta and whether you are on target or not on target with your plans to make that a blockbuster product and what some of the hurdles have been?

Let me start with project Forward, at least from a Pharma perspective.

We've had very good success in project Forward.

As you saw from the chart, we delivered $650 million in savings.

So we are on track from a headcount standpoint.

A lot of the headcount reduction in Pharma has already taken place, and Forward now is about taking sourcing and really driving good productivity.

So -- and, as an example, I think I said a year ago that we have essentially 7% or, at that point, 7% of our total cost structure that was up and literally pushed through e- sourced events, which generates a decent amount of cost savings.

We are right now at about 14%, 15%, but we've seen companies upwards of 60%, 70%.

So we still have quite a ways to go and believe that that will be a good focus for 2009 and beyond.

In terms of the macro impact on EGM markets, we have stated a pretty aggressive expansion plan for some key emerging markets like Russia, like China, like Turkey and South Korea.

And while we are seeing an impact of the current financial crisis, we are not slowing down our investment in infrastructure in those countries because we believe that obviously, no matter how long the financial crisis lasts or the recession lasts, when we come out from under this, those are going to be good growth economies.

And that's right approaching the time when we are going to need to see a ramp up in those markets, during the time of the Diovan patent expiration.

So we are going to push through it, live through it, and continue to expand.

And then in terms of Aclasta, we have had a very good year on Aclasta globally.

It's a complicated sell once we get into the market, obviously, because it is an infused product.

So we have to have very good coordination between the physician, between the infusion center and the patient, all executed through the physician.

So we are looking for a very good year in 2009, and part of it will depend on re-infusion rates.

So Aclasta has been out there for about a year, and we are right now tracking re-infusion rates, and a lot of our focus is on ensuring that the patients the were infused last year continue to get infused on Aclasta.

Maybe I can add a short comment on Forward.

Forward is not just about FTE savings.

A significant part of the Forward project is focused on better sourcing, and there Pharma has made the first step.

But we do intend to also roll out the learnings that we have from Pharma to other parts of the business.

So we will continue to see significant benefit from Forward, but that must not necessarily be a reduction in FTEs.

Fabian Wenner, UBS.

Looking at page 65, I was just wondering whether you could guide us to one-time items you expect for '09.

There were quite a couple for the fourth quarter of '08.

So, thanks for that.

Secondly, do you foresee any exceptional launch costs for new products in '09 or markedly higher R&D from new products?

And, lastly, could you come back to the FX question, why that was so much stronger than expected; i.e., was it mainly lumpy, or bad timing, and how you think about that going forward?

You know, Fabian, the one-time question is an almost impossible one to answer because it's in the nature of being one-time that it is very difficult to forecast.

I think the elements that you would have to expect, you know, will be restructurings, if they will be announced.

But at the moment, that's very difficult to forecast.

The other element would be any significant further strengthening of provisions that we would have to do for litigation or settlement.

But again, this is not possible at the moment to give you guidance there.

So we should think about these one-times as really reoccurring?

One-time, the way we define it, means it's not reoccurring.

There will always be new one-time items.

And the second question was on -- George?

Regarding the launches, any exceptional spending on the launches.

We plan in 2009 to hold our marketing and sales spend as a percent of sales either at or below '08 levels.

And that's despite the launches.

The way that we are accomplishing that is the same way that we accomplished it in '08, which was continue to improve productivity on the marketing and sales side for established businesses and then take that savings and invest them in the new launches so that we don't have incremental spend as a percent of sales on the new launches.

Regarding R&D spend, we have committed to maintain a very high level of R&D spend or a good level of R&D spend, above 20% of sales.

So as the pipeline ebbs and flows, you might see some fluctuation around that.

But you can expect to see R&D spend up there in 2009, as it was in 2008.

Then the third question was regarding the currency impact and why this is so difficult to forecast.

First, you have to understand that approximately 16% of our costs are in Swiss francs, and that the sales is below 2%.

So we have here an imbalance situation, so the relationship between the Swiss franc and the euro and the dollar is very important.

And if there are significant changes in, for example, the dollar/Swiss or the euro/Swiss, then you immediately have an impact on (inaudible) and operating income.

By the way, on slides 99 and 104, we give you the parameters how you can model this impact.

So there, we give you the extent of sales and the expenses by currencies, and we give you the impact on sales and operating income for a 10% change.

Second element, approximately 24% of our sales are now in emerging markets where we have a very limited cost base and where we have usually not a lot of flexibility to hedge the currencies because these markets are not fully functioning markets.

We are seeing very volatile movements in these emerging markets.

Currencies in the quarter were -- some of them were down 25% to 30% versus the US dollar.

So this is another element that we have to monitor and you have to monitor carefully.

The third element, we now generate only about 31% of our Group sales in the US, which is significantly lower than for most of our competitors.

And obviously, if, then, the dollar moves significant they against the major currencies, obviously you have a currency impact.

But this can be modeled.

Could I then ask for the last question?

(inaudible)

The profitability question in Pharma has been answered.

Nevertheless, I would like to add another question on the currency impact that you mentioned on slide 65, the $91 million.

Could I just ask for clarification -- is that the amount that you list under other corporate expenses?

And did you have other negative currency impact on the profitability level in the other divisions?

Could you break them out for us?

And also a small product question -- could you remind us of the end of the exclusivity for high-dose Lotrel?

On the currency, the $91 million is really the total amount of translation impact and transaction impact, and most of that effect is in the operating unit where it's only passed into corporate financial income line.

Then the hedging agreement between the division and treasury via the market.

But there are limited hedging agreements in place currently, so most of the impact from translation and from transaction was in the divisions, and, obviously, the lion's share in Pharmaceuticals.

Which share was, then, in the other expense line, or corporate expense line?

It shows up across the various items, you know, translation you have on all the cost items you have on sales.

And transaction usually will show up in COGS.

And then we had a question regarding the high-dose Lotrel, Joe?

Regarding Lotrel, as you know, we continue to believe that that patent is valid, strong and we'll defend it.

And the end of that patent is 2017, so that's when he we would assume the end of the Lotrel high-dose would be.

Assuming you do not win the case, when would that exclusivity end on the high dose?

Assuming -- I don't know the answer to that.

(inaudible) have answer ready; otherwise, we will have to get back to you, Karl-Heinz.

No; I can jump in.

I mean, it's 2017, is the exclusivity.

You probably mean the low-dose Lotrel case, which is ongoing.

I think we have to get back to you, Karl-Heinz to be precise.

Then with this, I have to close the teleconference because we have reached the end of the allotted time here.

I thank you very much for your interest and participation in this conference.

Thank you.

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