Novartis AG (NVS) 2009 Q1 法說會逐字稿

Welcome to the first-quarter 2009 sales and results 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.

Yes; good morning, good afternoon, everybody.

He is actually not Daniel Vasella; my name is Joerg Reinhardt; I'm the Chief Operating Officer of Novartis, and I would like to welcome you to our first quarter results call.

I have here with me Raymund Breu, our Chief Financial Officer; Joe Jimenez, the CEO of our Pharma business; Jeff George, the CEO of Sandoz; George Gunn, the CEO of Consumer Health; and Andrin Oswald, the CEO of Vaccines and Diagnostics, as well as David Epstein, the CEO of our Oncology business and Trevor Mundel, the head of the development organization in Pharma.

Now, before we start with the presentations, I would like to ask John Gilardi to read 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, John.

So then I start with page 4, and I'm actually quite pleased to present to you the strong underlying growth and the strong quarter one results of Novartis, mainly driven by the portfolio of rejuvenation that is ongoing in Pharma.

The strong underlying group performance was, however, offset by a negative currency impact with net sales of $9.7 billion, which is plus 8% in local currencies; however, minus 2% in US dollars, and an operating income of $2.3 billion, which is minus 6% in dollars, plus -- but 7% excluding currency and one-time effects.

The main driver was the significant growth that Pharma showed with 12% sales growth in local currencies.

We also had good progress in research and development, led by the first approvals for Afinitor and Ixiaro.

Now, going forward, Novartis expects a strong operational performance in 2009, but the continuation of the recent currency rates could more than offset underlying profit improvements.

On page five you see the numbers with the net sales of $9.7 billion, operating income of $2.3 billion, which is 24.2% of sales, and basic earnings of $0.87 per share.

On slide six you see the performance per division with these very strong results of Pharma, 12% growth in local currencies of sales, 3% in US dollars; OpInc in constant currency did also grow by 8%.

V&D showed a small decline in sales and also a decline in profit, which was driven by the lack of one-time income in the first quarter of 2009 (inaudible) 2008.

Sandoz showed a strong performance with growth of 4% in local currencies and then operating income of $291 million, and also Consumer Health did good in a difficult environment, or did well in a difficult environment, with 1% growth in sales and a strong improvement in operating income of 9% in local currencies.

Now, on page seven, the strong operational performance in the first quarter was driven by the portfolio rejuvenation in Pharma.

Pharma recently launched products which contribute most of the growth of the 12% in local currencies.

Vaccines and Diagnostics had modest sales decline, mainly driven by lower sales of Encepur, our tick-borne encephalitis vaccine in Europe.

Sandoz, as I said, very solid growth outside the US with significant steps taken to address the US performance.

And also Consumer Health, very performance of CIBA Vision, where the turnaround makes very good progress, while OTC and Animal Health showed slower sales, actually a decline, due to economic situations.

Now, when we look at page eight, we can see that across all regions there was a significant growth in Europe, in the US, in Asia, Africa, Australasia, but also in LatAm and Canada.

But this most significant growth actually came from our top six emerging markets with 23% in local currencies.

Now, with this, I hand over to Raymund Breu.

Thank you, Joerg.

We are now on slide 10.

The underlying growth of 8% of our business in local currencies is also reflected in (inaudible - microphone inaccessible) 11% increase in free cash flow before dividends.

On slide 11 we highlight further and detail further the currency impact, the relative strength of the US dollar and the weakness the emerging markets currencies had a marked impact on sales of 10 percentage points in terms of growth rates with an operating income of 11 percentage points.

The operating income margin was decreased [half a] -- 0.9 percentage points, so a slight margin contraction.

And it's related to the following factors.

You know, we had less other revenue, as the royalties on the Betaseron discontinued in October 2008.

Marketing and sales, we actually had a slight improvement as productivity gains in Pharma and efficiency gains in Sandoz allowed to reduce this expenditure a bit as a percentage of sales.

R&D, on the other hand, increased by 0.5 percentage point, mainly driven by increases in Consumer Health and Vaccines and Diagnostics.

On slide 13 we then explain the impact of exceptional items.

They almost offset each other.

In Pharmaceuticals we had lower divestment gains, approximately $100 million, and a non-recurrence of these release of provisions, which happened in the first quarter of 2008 in Vaccines and Diagnostics, a similar event that legal settlement income of the first quarter of 2008 of $49 million was not repeated in the first quarter this year.

Against this, we had less restructuring expenses, $54 million, and less impairment as compared to the level in the first quarter of 2008.

Net-net, the exceptional items actually reduced the operating income growth by 2 percentage points.

If you correct for this, then the adjusted operating income growth is actually 7% up in constant currencies.

On slide 14, I am now commenting on the non-operating items.

Income from associated companies was down $54 million, mostly related to less income from our investment in [Roche].

Taxes were down from 15% to 14%, and then the financial results are a big swing from a gain of $91 million in 2008 to now an expense of $134 million.

The factors are explained on slide 15.

We have three major elements in there.

One was a lower liquidity, as we had brought our 25% stake in Alcon.

So that reduced the income by $45 million.

Then we had additional interest of $50 million on our new bonds.

Then we had a swing of $130 million in foreign exchange differences, where in 2009 we had losses of $59 million versus gains of $71 million in the comparable quarter in 2008.

Slide 16 shows the development of our free cash flow, which is up 11%, as explained.

The majority of the increase comes from cash flow from operations.

And in there I should mention that the reduced growth in net working capital explains the majority of this increase.

Capital expenditure well under control and actually a bit lower than in the comparable quarter last year.

On slide 17 we summarize for your benefit the bond issues that we have done in the recent past.

In Q1 2009 we issued $5 billion of bonds with a coupon of 5.125% and 4.125% over five and 10 years.

Why are we doing that?

That's summarized on slide 18, for three reasons -- [you can see] the rates that we (inaudible) at historical lows; secondly, that we will use it for potential financial requirements, including the Alcon put; and finally, [shoot] at the late stage inflation should (inaudible) borrowing would present a good hedge.

With this, I hand over to Joe Jimenez.

Thanks, Raymund.

So starting on slide 20, Pharma delivered strong underlying performance in Q1, and I think the best part about it is that all regions and all key therapeutic areas showed very strong growth, leading to the 12% constant currency growth.

Now, our operating income was down 2% in US dollars.

But if you back out the effect of foreign exchange and the one-timers, it was in line with our sales growth.

So that resulted in a return on sales of 32%, which is a good number, and excellent pipeline progress also with the approval of Afinitor or in the US.

Slide 21 just shows the numbers.

If you flip to slide 22, you can see that all regions performed well.

I would note, though, that the US number of 13% growth does have four points in it that I backed out, and so the underlying growth truly is 9%, which is still a very good number.

But the four points is everolimus sales to Abbott for their drug-eluting stent.

If you flip to slide 23, I want to highlight our Japan organization's great start in 2009.

We received four approvals in one day, and this is the first time that that's happened in Japan.

We already are starting to see the impact of that, even in March, and the total Japan business grew 14% versus year-ago in Q1, in local currency.

So flipping to 24, last year I said that we were investing significantly in field force as well as medical resources in emerging markets, and we're already starting to see an acceleration of our business there, particularly China, up over 40% versus year-ago.

I think I've said in prior conversations that these businesses on this page represent over $2 billion in total sales for Pharma, so it's a significant amount of our business.

Slide 25 shows that all therapeutic areas grew in the double-digit rate.

So I look at this and I compare to our peers, other large pharma, and I think that this is further evidence that this is a very strong portfolio that is getting even stronger with the new product launches.

You can see on 26 that Lucentis continues to be a significant growth driver for us.

Execution has been good.

I am particularly pleased with some of the innovative reimbursement arrangements that we have created around the world.

This is obviously an expensive therapy.

It's a very effective therapy, and I think our new commercial approach, which looks at ways to create win-wins for us and for the reimbursement for the patient, is really starting to pay off.

Next slide -- also becoming more encouraged with results on Tekturna as we continue to build some momentum here.

Access is improving, so in the US we're up to 78% commercial access and 86% access in Medicare.

We expect first line indication for Tekturna HCT by this summer, probably August, and we also expect the approval of Tekturna/Diovan combination in the fourth quarter of this year.

Slide 28 shows the new product launches.

You can see here that 2009 is still very much a launch here.

And I'm not sure that the market recognizes the true transformation that this portfolio is undergoing with the number of new launches and what that's going to mean for us as we approach the patent expiration of Diovan.

You can see it on the next slide also.

In the first quarter these new launches generated 14% of our total sales, so we're going to continue to execute well, and there's still a lot of growth left as we ramp up these new products.

Slide 30 shows the pipeline.

The pipeline delivered good news in Q1, so besides Afinitor, which I already mentioned, and the priority review that we received for ACC, which is now brand named Ilaris, we also announced in the quarter that we in-licensed PRT128, which is elinogrel.

And that's shown on slide 31.

This is a very exciting new compound for us.

If the profile proves out in Phase III, which we really expect, this thing will have some significant advantages over Plavix -- faster onset, reversibility, effectiveness among Plavix non-responders, which we know is a significant issue.

So 32 -- we anticipate other good progress on the pipeline in 2009.

Some key submissions -- FTY720 on track for a filing by the end of this year, Albuferon for HepC, and also potentially a second indication for Afinitor as early as the fourth quarter in carcinoid tumors.

Our cost-reduction efforts, shown on slide 33, continued to build momentum, and this is also contributing to our strong results.

So, to summarize, we are confidently maintaining the outlook for Pharma in mid to high single digit growth rate in local currency for 2009.

There's still a lot of unknowns related to the financial crisis, but if we continue to execute the way that we are, we can overcome whatever comes at us.

So with that I'll turn over to Joerg.

Thank you, Joe; I'm on slide 36.

When we met last time in January, we shared with you our priorities for 2009.

And I believe that (inaudible) I can say that so far we have been making good progress delivering on those priorities.

We wanted to focus on the dynamic expansion of the new Pharma products, where we now have 14% of sales coming from these products as compared to 8% in the first quarter of 2008.

We want to focus on the successful new launches of Extavia, Afinitor and Menveo.

Extavia was approved in Europe and also launched.

Afinitor was approved in US, and Menveo is on track.

We want to return Sandoz and Consumer Health to growth in the US, and what I can say right now is that the group returned to growth in the US.

Sandoz is improving with the US returning to growth in the month of March.

And also, Consumer Health showed a 1% growth in the US in the first quarter.

In addition we also want to focus, to continue to strongly expand in the emerging markets.

And there we saw a 23% growth in local currency, in the top six emerging markets.

On slide 37 one can see that Pharma did do very, very well across the board, from whatever angle you look at the performance.

From a geographic perspective, on the left-hand, but also from a majority of market perspective on the right hand, Pharma did achieve double-digit growth with the strongest growth coming from the top six emerging markets.

Now, on page 38, this growth was mainly driven by new product introductions and the performance of new launches of products that were introduced over the last two years, which did rejuvenate the Pharma portfolio significantly and more so than it would appear for any other Pharma company, as you can see on this page.

On slide 39 you see the pipeline updated.

Of course we will continue to focus on innovation also in the future, and the current plans indicate that we would submit more than 130 new products, formulations and indications in many countries across the world between 2009 and 2011.

On slide 40 you see that we made not only in Pharma but also in Vaccines and also in Animal Health, good progress with regard to our pipeline already.

But we do have significant further milestones to achieve in the remainder of 2009, and we are confident that we will do so.

On slide 41, Sandoz delivered solid growth in all regions but the US, and it's certainly very vigorously focusing on improving the US situation.

As you can see here, the decline in the first quarter was only 3% as compared to 10% for the full year of 2008.

On slide 42, you see that the ongoing performance improvement at Sandoz is reflected in growth in net sales, but also in a very respectable margin.

As you can see on the top of the slide, 4.2% growth in net sales was not achieved in any of the former quarters, and also the margin with 16.9% is very good as compared to most of 2008.

On page 43, we did address, Sandoz did address the issues in the US with a number of measures.

So, for example, the management team has been significantly strengthened with quite a number of new appointments.

There is progress with regard to the pipeline in the US, with five submissions and nine approvals in the first quarter.

As I said before, strong March.

And then, from an overall perspective for the full year, Sandoz is still aiming to return to growth for the full year of 2009.

On page 44, a quick update on the Wilson situation.

The remediation of the plant in Wilson is ongoing, according to plan.

Also here, quite a number of management changes.

A new management team is in place.

The interactions with the FDA are positive with frequent communications ongoing, and one should never forget that the Wilson plant in total is actually producing more than 30 products, whereas only five are affected by the recent inspection findings.

On page 45, Consumer Health performance, driven mainly by CIBA Vision, where the strong turnaround is continuing -- with OTC and Animal Health both being impacted by the economic situation.

OTC sees a consumption slowdown and a wholesaler destocking, an effect that we also see in Pharma.

Nevertheless, Voltaren and Fenistil did perform very strongly, driven by new launches of new formulations and also good performance in emerging markets.

In Animal Health, whereas we see that the farm animal business is improving, we do also see that the companion animal business is still suffering from fewer visits to their clinics and price sensitivity among pet owners.

CIBA Vision -- good performance, strong performance, good growth in local currencies, driven by new product launches, and also good growth in the US with an 11% increase.

On page 46 you see the first result of the intensified focus of Animal Health on innovation.

Animal Health did succeed in launching the first new anthelmintic class in more than 25 years.

Very recently in New Zealand was the product Zolvix, which has an unparalleled efficacy, a very, very good safety profile and, in addition, is also convenient to use and will now be rolled out to all the world in the coming months and years.

On page 47, Consumer Health, CIBA Vision performing very, very nicely, mainly driven by, again, innovation.

Here we had a number of launches of the AirOptix family, which is based on the new silicone hydrogel lenses, which drove the performance of CIBA Vision across the world.

And also for 2009, there is the intention to launch quite a number of new products not only in the AirOptix range, but also in the dailies range.

Also on page 48, also Vaccines and Diagnostics did make good pipeline progress with the approval of Ixiaro, which is now the only vaccine available in many countries for Japanese encephalitis.

The clinical data have been very strong for efficacy and also safety.

Initially, the product is targeted for travelers to endemic regions, which are more than 20 million individuals in Europe and in the US.

The launch is now planned for May in the US and in a number of European countries.

On page 49, last but not least, continued innovation is fine but also (inaudible - microphone inaccessible), and that is why we continue to work on our productivity.

Forward is continuing to deliver above plan.

We have already achieved $329 million in the first quarter of this year, and procurement is still the strongest contributor to that performance.

We have also started a number of additional productivity initiatives.

Some of them are running since a number of months already, like our GEM approach, where we have unified divisional operations in a number of very small or smaller countries, and that did actually result in significant growth, in the double-digit range, in these countries.

We talked before about the customer-centric initiative in the US, where we eliminated overlapping primary care.

Field forces, we have started the Customer First project, where we want to make sure that our country personnel and our country colleagues are concentrating on customers rather than on internal management processes.

And also, Sandoz has started a project that's called Compete that will drive operating efficiencies on a global basis.

Now I come to slide 50, and I can confirm, barring unforeseen events, that we continue to see group net sales growing at a mid single-digit rate and Pharmaceutical's net sales growing at a mid-to high single digit rate, both in local currencies.

And we continue to aim in 2009 to again deliver record net sales, earnings excluding currency effects.

And with this I think, we can open the call for questions.

(Operator instructions) Paul Mann, Morgan Stanley.

Thinking about the outlook for your margins in the year, you mentioned earlier you expected to have a higher proportion of Pharma spending in the earlier part of the year.

Is that still the case?

It looks like cost containment during the quarter was pretty impressive.

Was your cost not any more evenly distributed, or was this first quarter indicative of future quarters to come?

Finally, just thinking about everolimus sales to stent manufacturers -- how many months of revenues were included in this quarter?

And should that be viewed as being an ongoing in terms of this number, or was there stocking as well, perhaps?

This is Joe Jimenez.

I'll start with the first question, around the outlook for the margin, at least in the Pharma group.

We did expect higher spending in the first quarter.

And I'll tell you what happened was, when we saw currencies continuing to get worse around the world, we tightened spending a little bit.

But the other thing that happened was that we drove more sales for the same spending that we expected.

So I'll tell you that I think this is the first indication that some of the new commercial approaches that we are taking in Europe and in the US, I think, are starting to pay off as we geo-tailor some of our spending to the most appropriate opportunity.

So that was a positive sign.

In terms of margin outlook for the year, we have said in the past that our aspiration to increase margin for the full year versus year-ago; but also, given the current financial crisis and some of the uncertainty, it is an aspiration.

On the everolimus sales, I think you should assume that there were more than one quarter's worth of volume there, but not a whole lot more.

So there was some inventory build due to just the ramp-up in the beginning of it.

But we do expect some consistent level of sales quarter by quarter for the rest of the year.

[Matthew Weston], Credit Suisse.

Firstly on Diovan and the slowdown in script growth in the US, I would be very interested in your view as to why we are seeing the A2 class slow down, what implications that may have for longer-term growth trends, and particularly the arrival of generic Cozaar in 2010.

Regarding Alcon, I wondered whether the recent strategic developments in the ophthalmic area with Abbott now moving in are leading you to review the timing of the Alcon deal.

And is there anything that you can do to accelerate that from a (inaudible) perspective?

And then finally in the pipeline, on the MenB vaccine, you highlight in your press release that you still aim to be first in the market with MenB.

Could you update us on the progress and timing of the Phase III studies in both the US and Europe?

I'll start with the Diovan, the first question, the Diovan slowdown in the US.

There is a slight decline, a single-digit decline in our segment.

Now, Diovan scripts were not down as much as market, so we grew share just within our market.

But what's happening is a couple of things.

First, there's an increase in generic competition around [ASIS] and around amlodipine, so you are seeing a shift driven by that.

Also there's an increase in ARB plus ARB combo usage.

So, for example, Exforge grew nicely in the first quarter.

And we are really looking at our hypertension franchise in the US as an entire franchise.

So remember, as Diovan starts to reach patent expiration, Tekturna starts to ramp up.

We've got Tekturna combinations, the Tekturna/Diovan combination, coming by the fourth quarter of this year.

So we're really managing it holistically.

We do think that, when Cozaar comes in the US in 2010, that it will slow Diovan's growth.

So even though Diovan's script growth was not up versus year ago, total value was up, and we expect that to continue.

When Cozaar comes, there will be a slowing of that value growth, but it really won't be until many months after that, that we start to see a Diovan decline.

So the short answer is, hypertension as a total franchise is growing nicely.

Maybe I can take the Alcon question.

What I can say is that there are no changes planned to our contractual agreement with [Nestle], neither in timing nor substance.

And that leads us to the MenB discussion.

So for MenB, Andrin Oswald here, in Europe the MenB program is progressing well.

The Phase III trials are close to completion in terms of enrollment, and we do expect to be on plan for a potential filing in Europe in 2010.

In the US, the situation is different.

There, at the end of Phase II, simply due to more stringent safety requirements, the FDA has asked us to provide first an additional 700 [infants] of longer-term data before we could go into the Phase III.

Now, this data is currently collected and will be ready in the second half of 2009, based on which we will have our Phase III discussions with the FDA, and we will see how this program will look like once we had these discussions.

Kevin Wilson, Citi.

Three questions, please, two on project Forward and one on Sandoz.

What proportion of your expected project Forward savings are represented by the first quarter number?

Secondly, you have mentioned that procurement is the majority of the number.

But could you give us a sense of the marketing and sales proportion?

Just trying to understand the contribution of project Forward to the lower level of spending in marketing and sales that we saw in the quarter.

Lastly, could you comment, please, on the lower level of marketing and sales spend at Sandoz and your expectations for how this might change through 2009, once new management has reviewed all aspects of the business?

So, Jeff, should we start with the Sandoz question?

Sure.

So, with respect to [MNS] spend, one of the things we saw in 2008 was that our total functional cost growth significantly outstripped our sales growth.

That was obviously something that we needed to change as part of the turnaround for 2009.

So what we've done is we've been a lot more efficient about our spending.

In fact, we reduced -- unlike in 2008, we've reduced spending to below the level of local currency sales growth.

And in terms of the outlook for the year on MNS spend, I can't really comment on that.

What I can say is that from a productivity perspective we did a launch a broad cross-functional initiative called project Compete in January, with the objective of really strengthening Sandoz's competitiveness by driving productivity and operating efficiency across tech ops, development sales and marketing as well as G&A, as an effort really to more strongly ingrain continuous improvement in the way that we manage our day-to-day business.

But I don't want to give an outlook at this point for MNS spending, but I can say that Q1 was a step in the right correction with MNS spending below the rate of our sales growth.

Thank you, Jeff.

Raymund, do you want to comment on Forward?

Yes.

Kevin, the majority of the savings from Forward now are in the purchasing area.

And it's in this area where we have implemented and achieved the savings faster than anticipated and where we have exceeded our targets.

The spread between the various quarters in 2009 is difficult to put in numbers there.

Of course, that depends a bit on when individual initiatives materialize.

But as you have seen, we have exceeded the target for this year in the first quarter.

I don't expect that the success (inaudible - microphone inaccessible).

Thank you, Raymund.

Could you repeat that answer?

I'm sorry, we lost it completely at the end of that.

Could you please repeat that last comment, Raymund?

Yes.

You are seeing that the cumulative savings until the end of the first quarter are $1.38 billion, and that is in excess of the savings that we had foreseen to achieve by the end of 2009 of $1.3 billion.

All I was saying is, don't now expect that this excess that we achieved in the first quarter will simply be multiplied by 4 for the entire year, because this depends on when individual purchasing initiatives are implemented.

Tim Anderson, Sanford Bernstein.

My questions are pipeline related.

On Menveo, my understanding is that you may be supply constrained to launch.

And when I think about how difficult it is to ramp up vaccine manufacturing, I'm wondering if this is something to worry about.

On FTY, given how the clinical profile of the product has evolved over time and given what you see with competitor products in the pipeline, I'm hoping you can talk about how your level of excitement with that drug may have changed over time.

And last question, on generic Lovenox, at least to us it increasingly seems that FDA will require that clinical trials be run prior to approving generics.

I'm hoping you can comment on your latest thinking here.

Thank you.

Andrin, do you want to start with Menveo?

Andrin Oswald On Menveo, there is no supply constraint for the forecast that (inaudible - microphone inaccessible) we are in position to deliver not only to the US but also to the other markets outside of the US.

Trevor, FTY?

I don't want to steal the thunder from the American Academy of Neurology meeting next week, where we have quite a comprehensive presentation on FTY and the TRANSFORMS study.

But the impressive efficacy that we discussed in December, the 52% reduction in relapse rate versus Avonex, has continued to build in terms of some of the secondary and subgroup analyses that we had done and people had actually requested.

One of them, for instance, was around -- was there any suggestion that the Avonex arm may have underperformed because many patients might have already failed Avonex?

And when we looked at the analysis of naive versus non-naive patients, in fact, it came out more strongly in favor of FTY.

So I think the efficacy of FTY continues to be extremely impressive.

On the safety front, the Data Safety Monitoring Board last met in February, reviewed all of the cases.

And they've indicated to us that we should continue the program unchanged.

Okay, Jeff?

On Lovenox and Enoxaparin, we continue to have dialogue with the FDA around our ANDA, as we would with any application.

And as you know, we submitted our amendment to our Enoxaparin ANDA in September 2008, related to the potential for immunogenicity.

As to clinical trial, requirements from the FDA, I can't really comment on what the FDA may or may not do.

I can say that we are still awaiting FDA response on two outstanding citizens' position; and, lastly, that all four of the Chinese heparin suppliers have been inspected and we have no reason to believe that there are any issues with any of them.

I believe, Trevor, it's fair to say that the FDA so far did not indicate to any extent that --

Yes, there's no indication of any additional clinical trial requirements.

Alexandra Hauber, JP Morgan.

On the guidance, since you reported the full year results, the exchanges have actually hardly moved.

And based on the currency sensitivity provided at the time, at the full-year results, we could calculate that the earnings impact at recent rates would be about 8%.

So back at the full-year results time, I thought your underlying growth would be greater than 8%, based on that guidance, given that there was no qualification for FX.

So I'm wondering what adverse effects other than FX have made you qualify your earnings guidance with the currency effect.

So, is the underlying growth no longer strong enough to offset the FX headwinds?

That's question number one.

The next question is just coming back to the Pharmaceutical margins.

The other operating income and expense line was positive this quarter.

And that in the past was usually a negative item unless it was boosted by a positive one-time.

And so could you just let us know what this small positive other operating income was and how that affected negatives which are usually in that line?

And then just a final question on the Wilson plant.

Is there any time at all you can give us for the resolution on the other five products?

Raymund?

On the guidance, that was a very pointed question, trying to find out whether there is further guidance on to the guidance that is included in the press release.

The answer is no.

I can tell you the following.

Obviously, we are confident about the underlying operating and net income achieving record values, but the currencies are notoriously difficult to forecast.

So it's very difficult to say where the rates will be through the remaining three quarters of the year.

During the first quarter the impact actually was 10% on sales and 11% on operating income.

And if you would assume that rates now would stay at these recent levels, then the impact will be of a similar order of magnitude for the full year, in the 10% to 11% range.

Now, you can do with the numbers yourself.

All we are saying is that we are very confident about the underlying growth of our business and that currencies are very volatile.

Other margins, Joe?

Just in terms of the other operating income, it literally is a series of a number of very small things.

There's a couple of launch provisions reversals in there.

There's a very small divestiture in there, and it just -- they essentially net out.

I was always assuming that underlying out of operating income, from which, obviously, we have very little transparency, is around a minus 70, minus 80.

Is that roughly right, or is that just a totally unpredictable number?

That's a very unpredictable number because it depends on individual items that can add up to a positive or a negative number.

With respect to your question on Wilson, we had a positive and constructive meeting with the FDA in March, and we continue to be on track with our remediation efforts around the specific validation and documentation issues that we have.

As Joerg mentioned earlier, we have replaced most of the top management team at Wilson, which was received positively.

I really can't speculate at this point as to when we'll be able to bring Wilson back online.

But what I can say is that Wilson supplies less than 20% of Sandoz US sales.

So there are a number of other factories around the world that are quite important for our US supply.

And what is actually required?

Is just the FDA making a tick in the box on the actions you have put forward?

Is it just that -- you have made all the changes, and now you are just waiting for the FDA to say (inaudible)?

Is that the missing bit?

Well, the FDA will come back in, at a time of their choosing, too reinspect our factory at Wilson.

And we have a whole series of things that we are doing on the validation and documentation issues, many of which are really too specific to get into here.

But there's no one silver bullet or one outstanding item that we are waiting to fix.

It's up to them when they come back and reinspect, and hopefully then we will be able to get Wilson back online.

Marcel Brand, CA Cheuvreux.

I also have a question on a one-time quarter swing.

It struck me that the rest of the portfolio, so below the top 20 -- that was up 13% at constant exchange rates after falling 9% in 2009.

Now I've heard that there seems to be a one-time item in the US, 3% of sales added.

But even if I subtract that, you still have a tail of products that did extremely well, up 5% to 6%.

Can you please tell us what the reasons are?

I reckon emerging markets cannot be the reason because they grew as mature markets.

And then, sorry for insisting on the other operating income and expense, a normalized number around $80 million or $100 million.

But I reckon maybe you can give us an indication what the full-year number might be, after the typical $300 million to $600 million range that we are used to.

Thanks.

Joe?

Starting with the quarter swing on some of the tail products, everolimus is a part of it.

But also, when you look at the tail products, many of them are in the emerging growth markets.

And you have to be a little bit careful about the emerging growth market classification that you see.

There are six markets in Pharma that account for a very large percent of our EGM markets and some of our mature products.

And as those markets accelerate, they're going to create growth in also that segment, which historically has declined.

So that's really what you are seeing.

Regarding the other income --

So there's no rebate reversals or so in any markets to explain that surprisingly strong number, or stocking effects?

No.

Then on this other income and expense line, Marcel, I think the easiest way to look at it would be to simply concentrate on the group numbers, because then you have a large enough sample that you have a bit of predictability.

And if you look at 2008, then other expense, it's a net expense, was 2.1% of sales.

And I think that's the best you can do if you want to start to model it.

Obviously, quarter by quarter you may have variations around that.

So, for example, in the first quarter it was 0.8% of sales, very much in line with the first quarter of 2009.

So quarter by quarter, you may have changes.

But those are impossible to predict.

Florent Cespedes, Exane BNP Paribas.

First, on Sandoz, if we exclude (inaudible) in the US, what could be the main growth driver in this area for this rest of the year?

Will it be products from the Wilson plant or other projects?

Another question on the pipeline -- (inaudible) do you have an idea of the safety profile of this drug?

I know it's early days, but could you give us some color on that?

And the last one on Exjade, could you comment on Q1 performance, especially in the US, which was (inaudible) weak, and if you see the blockbuster potential with the current indications?

David, do you want to start on Exjade?

I'll start on Exjade.

The US is increasingly small percentage of the Exjade market because, as you know, one of the main reasons for the drug [is apparent overload] is [Exjade] (inaudible) [ischemia], which is prominently in the southern Europe and the Mediterranean.

Having said that, we had some inventory build towards the end of last year and some inventory drop at the beginning of this year, which makes the result look even worse.

So the US will continue to grow, albeit at a much slower rate than the rest of the world.

In terms of the long-term forecast, we still hold that same forecast, which is that this drug will be a blockbuster in time.

So it's going to be a slow build to get there, but we believe it will get there.

Trevor, elinogrel?

On the safety profile of elinogrel, so the potential for an improved safety profile was exactly one of the reasons why we licensed this drug.

And that's based on the mechanism, the reversibility being important in terms of any circumstance in which would get bleeding.

So we would believe from that that you would have an improved safety profile.

It has to be said, though, that in this area of thrombosis you need large numbers and large studies to really pin down the safety profile.

From the early studies, the proof of concept studies, the indication was that the safety profile would be at least as good as Plavix.

We have an 800-patient study which is now underway, our Phase II study, and we'll see data coming out from that towards the end of this year.

That will give us a better idea of the safety.

Ultimately, of course, we are going to have a large Phase III program, and we'll see what happens then.

With respect to the US growth drivers other than Enoxaparin; first, we don't speculate, for competitive reasons, on future launches, but there are several that we anticipate.

I can tell you that in Q1 of this year we launched seven products, albeit smaller launches.

But that compares favorably to 15 in all of last year.

And I think also let's not forget that we have what I would characterize as a very strong base business that is over $1.5 billion.

So there's really opportunity to strengthen our key account management with our top accounts.

So Christine, our new CEO, and I have been doing a lot of that.

I was in Florida last weekend at [NACDS], to that end.

And I think, frankly, the last factor is really having a new CEO like Christine, who brings a wealth of 15 years of experience and generics from Barr, is really a big positive in terms of the people that she's able to attract and the kind of culture that she is creating around a sense of urgency and accountability.

But maybe in other words, do you believe that the Q1 growth is sustainable for the rest of the year?

Yes, I think it's too early to speculate on that.

It's pretty premature.

We are just getting going here, Florent, on our turnaround.

And I really can't speculate on the kind of local currency growth rate that we'll see in any market, really, much less the US.

Marietta Miemietz, SG Securities.

First question is a financial one.

Just coming back to currency, I fully understand the impact on the operating profit.

But I was just wondering if you could guide us a little bit about how we should be modeling the currency losses below the line.

First of all, is it fair to assume that that's mostly hedging losses and that the non-major currencies, and especially the currencies that have been hitting trouble lately, that you wouldn't hedge them, so they wouldn't have an impact on this line?

And if currencies hold up the current rates, then would we be looking at a run rate of a $60 million loss per quarter?

Or, because of the way your hedging contracts work, we would actually see a phasing out of that effect, and that $60 million should sort of be decreasing on a sequential basis?

A second question relates to the low molecular, low weight heparin guidelines that just came out from the EMEA.

I was just wondering if you could help us understand what exactly they mean by equivalence design, how that really differs from a noninferiority design, and whether you have any idea at all as to what sorts of equivalence margins they are looking at and how big a trial you could potentially need to show equivalence to Lovenox.

I'm always getting the sense, reading the document, that you are looking at a multiple-thousand patient trial here.

Would that be right?

And what are your sort of timelines for filing generic Lovenox in Europe?

And then I've got a couple of small product questions.

One is on Aclasta.

You were saying that basically this year's success would depend a lot on the retreatment rates you would be seeing, and I was just wondering if you could give us some qualitative feedback on that.

And also, you were saying actually, I think it was about a year ago, that you were looking into ways to create extra intellectual property protection around Aclasta versus Zometa.

And I was just wondering if there is any way that you can extend the patent life of Aclasta.

My final question, just very briefly.

On [VL] 315, I saw that you made a small milestone payment of $2.5 million to Vectura, and I was just wondering if you could give us an idea of what that was relating to.

I can start on the currency question.

Your interpretation is correct; it's related to hedging gains and losses and all these currency gains and losses that show up in that financial result.

We normally hedge the transaction exposure that's known transactions that have been booked that we didn't hedge.

Obviously, we can only hedge in markets where the hedging is available and the cost is reasonable, so most of the time we are not in a position to hedge emerging markets because either the market is not available or the costs can be prohibitive.

So the losses that you see in the first quarter are related to such hedges.

It's the nature of it that they can swing very quickly from positive to negative.

So the assumption usually for the full year is, and the aim is, that the treatment be more or less zero.

It can be positive, it can be negative.

We would have hoped that it is not always of this order of magnitude negative as it was in the first quarter.

Is there any sort of a timing effect related to it, though, where you would -- if the currencies were actually to hold at the same rates as in the first quarter, would you then basically see a reversal or at least a mitigation of that effect in the coming quarters because of the way you adjusted your hedges last year, or would you then expect that $60 million to be seen every quarter again?

No, no, no, no; it will not repeat because these type of hedges are marked to market in the quarter.

Joe, do you want to take the Aclasta?

Yes.

Regarding the question on Aclasta, Aclasta continues to perform well for us.

Regarding the retreatment rate, it is pretty much in line with what we see in terms of oral bisphosphonates.

So retention of patients after about 12 months, so that's something below 40%.

That is not a -- I mean, we do believe that that number will continue to build because I don't think -- I think there's a lag effect.

I think there's -- a patient wouldn't be retreated exactly one year from the first infusion, so maybe a month or a two-month lag.

So we expect that to continue to improve.

And regarding extra patent life, I think it would be safe to just assume that when Zometa patent goes, Aclasta goes.

But I will tell you that this is about creating a clear relationship between the patient, the physician, the infusion center that I believe will provide some level of insulation.

We've seen it in other countries, in other therapy areas when we do put service and extra activity around a particular compound, we have some level of insulation once patent expires.

So Jeff, before you talk on Vectura and, let me take the Enoxaparin question, which is, of course, an interesting question.

Obviously, Enoxaparin or generic Enoxaparin is an interesting product not only for the US but also for Europe.

These guidelines -- we're probably at the same situation than you are.

We are analyzing now what exactly that means in terms of what kind of clinical trial will be necessary.

We are very actively looking at that.

It's a little bit early to give you concrete details as to what our assessment will come up with.

But I can assure you that we will be actively looking into this, and I hope that in the not too distant future we will know exactly what we will do here.

And with that --

The other thing I would add to that is, it's my understanding of the EMEA requirements is that at least they require one Phase III study demonstrating safety and efficacy in the most sensitive indication.

So specifically what we understand from it is that it would require a short four-week toxicity study in rats for PKPD and local tolerance and, potentially, PKPD studies in healthy volunteers.

But Joerg is a development expert, so I'll defer to him on that.

On Vectura, this is a pretty small deal.

It's a respiratory milestone that you were referring to.

So I don't have to much more to comment on it than that.

So we have time for one more question.

[Michael Rushton], Deutsche Bank.

On the further profitability initiatives, given that you've exceeded Forward, is that something you could quantify or at least put a time horizon on?

Just quickly going back to Sandoz on the profitability, given that the profitability in Q1 was quite strong, how much of the profitability improvement is just delaying of phasing of costs until you're actually back up on stream, or are we really already seeing proper profitability improvements through cost savings and restructuring?

Lastly, quickly in terms of strategy, if I look at the emerging market split that you mentioned, the top six markets are growing 23%, rest of world is growing 6%, which is less than the US.

What is the strategy for investments there?

Are you holding back rest of world to see what happens with the economic uncertainties that you've mentioned, or are you really focusing on the top six, and that is where your money has gone and will continue to go for this year and also after?

So let me take the question on further productivity initiatives first.

No, I cannot quantify that, and I don't really want to quantify that.

From a time horizon perspective, what I can say is that some of these initiatives will be ongoing for quite a while.

It's not intended to be some one-time gains that we would realize through 2009 and then we would fall back to normal.

But it's more a focus, a long-term focus on really making sure that the overall organization in all divisions, actually, is focused on the real prime value drivers, and these are customer contacts and not necessarily internal processes and geographies.

So we would expect to see bottom line and top line consequences of these initiatives, but I'm not in a position to really quantify this yet.

With regard to strategy, we will not change and have no intention to change our regional strategy in terms of what we do and what we invest in emerging markets.

We believe that from a long-term perspective this is an area of the world that we will see continued growth in.

And we believe it would be a mistake to actually follow an on-off strategy and now hold back and then in, let's say, 12 months if the economic situation improves, accelerate again.

We will continue in a very steady way our investment and our focus on these markets.

As you know, Pharma is a long-term business and is long-term oriented.

And that's why we will continue with our strategy, as planned.

And with this, Jeff, regarding Sandoz?

So, on Sandoz's profitability and the sustainability there, Michael, as you probably know, Q1 is typically strong due to higher anti-infective sales, which are seasonal and come at a higher margin.

I think also, though, 17% [RAS] that we did versus the 11% in Q4 or 14% in 2008 does also have to do with better leverage from higher sales.

We drove 4% in local currency, as Joerg mentioned, versus 0% to 2% by quarter last year.

The third aspect, with respect to whether this is delaying cost and spending or true savings, a lot of it really is true savings.

We have initiated, as I mentioned, project Compete.

And so there we really are seeing good savings across procurement, development.

If you look at our development spend, for example, we have an opportunity to be more efficient while still pursuing high-value, important projects.

Teva spends less than we do, despite their larger size.

So I think we can get more bang for our buck.

In terms of marketing and sales and G&A, there are a number of specific initiatives that we have where we'll continue to look to drive cost savings in the business.

I think the last thing I would say is that a lot of this has to do with new talent that we've brought in that can be focused on both growth and operating excellence at the same time, execute on both.

Thank you, Jeff.

So with this, I'd like to conclude our call.

In short, I hope that you feel that we are very confident in our business going forward.

So far it was a successful year for Novartis.

Pharma is performing very strongly, the other businesses are well on track, and we're looking forward to the continuing challenges of 2009.

Thank you very much.

Ladies and gentlemen, the conference is now over.

Thank you for choosing the Corus Call facility, and thank you for participating in the conference.

You may now disconnect your lines.

Goodbye.