Novartis AG (NVS) 2010 Q4 法說會逐字稿

Good morning or good afternoon, depending where you're attending from.

I'm Stephanie, the [Commscall] operator for this conference.

Welcome to the Novartis Q4 and full-year 2010 results conference call and live webcast.

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.

Joseph Jimenez.

Please go ahead, sir.

(Inaudible) and I'd like to welcome you all to our 2010 results conference call.

Joining me today on the Novartis center are Jon Symonds, our CFO; David Epstein, head of Pharma; Jeff George, head of Sandoz; George Gunn, head of Consumer Health; and Andrin Oswald, head of Vaccines and Diagnostics.

Now before we get started I'd like ask Suzanne Schaffert 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 the Company's Form 20-F on file with the Securities and Exchange Commission for a description of some of these factors.

Thanks, Suzanne.

Okay, starting on slide number four, you can see that 2010 was really an outstanding year for Novartis.

Our sales were up 14% in constant currencies and this was driven by above-market growth in all of our divisions.

We delivered great leverage with core operating income growing 22% and this led to net income up 18% and EPS growth was 16% for the year.

I think, though, that the most important achievements for the year were around innovation.

We had multiple key approvals, including Gilenya in the US.

Last week we received the positive opinion from the CHMP on Gilenya in the EU, and also approval in Switzerland and Australia.

In the EU, also in the fourth quarter we filed our meningitis B vaccine, Bexsero, which will build our meningitis portfolio into a blockbuster franchise.

And then, finally, the board proposed a dividend of CHF2.2 for 2010.

So slide five you can see a summary of the financial results.

We crossed $50 billion for the first time in our history and Jon's going to go into more detail regarding both the full year and the financials for the fourth quarter.

But on slide six you see that our divisions grew at above market rates and it was all divisions.

This is what we feel the best about for 2010.

Looking just at Sandoz, up 15% and vaccines and diagnostics growing at 25% behind the strong flu sales but also the meningitis launch.

Our above-market performance on the next slide was driven, I believe, by the focus that we have on our three strategic priorities, and that's extending our lead in innovation, accelerating growth and driving productivity.

So just starting with innovation on slide eight, we had a very strong year in innovation and you'll hear from David around the Gilenya launch in a minute.

But oncology also had a tremendous year with Tasigna first-line approval and Afinitor approval to treat benign brain tumors associated with tuberous sclerosis.

Sandoz, also with the launch of genetic Lovenox further generated leadership in differentiated generics and vaccine and diagnostics submitted the important minfin indication for Menveo in the US and our meningitis vaccine, Bexsero, in Europe.

So with the 2010 numbers in, on slide nine you can see that we, once again, outpaced the industry with new molecules in both the Europe -- US and Europe in terms of total approval since 2007.

Our second priority is on slide ten, and that's accelerating growth.

We've shown this slide before but it keeps increasing.

Our new products have contributed 21% of our sales, which is up 16% -- up from 16% last year.

This is going to be critical as we face the beginning of the Diovan patent expiration.

On slide 11, we were also able to leverage our synergies across our four growth platforms to deliver incremental sales last year.

One example was that we built a cross divisional field force in Venezuela to capture synergies on our pediatric line, so that's across Pharma, Sandoz and OTC.

We were able to build one field force going up against physicians selling all products.

We also rolled out key account management with some of our key customers around the world.

In 2010, on slide number 12, you can see that we also expanded significantly in emerging markets.

So in December we announced a $500 million commitment in Russia to build a greenfield manufacturing site in St.

Petersburg, and also to collaborate with some of the local regions in Russia around health awareness.

We also built a strategic partnership in Brazil to improve public health, so now all children under the age of two in Brazil are vaccinated by our meningitis C vaccine.

Also in the area of growth, each of our businesses is focusing on driving their emerging markets growth and we grew 12% as a total Company.

This is -- in our top six markets we delivered close to $5 billion in sales, so this is not a small piece of business.

We continue to drive and I expect that that growth rate in those emerging markets will increase in 2011.

Around productivity, on slide 14, we were able to grow our core operating co-margin 190-basis points.

All parts of the businesses have extensive productivity programs that are driving this result.

For example, we are creating manufacturing centers of excellence, we drove significant procurement savings this year.

We're now up to pushing about 40% of our addressable spend through eSourcing and this drove $1 billion of savings in 2010.

We also realigned our field force and Sandoz Germany a an organization and took a charge in the fourth quarter to improve the cost structure of these businesses going forward.

On slide 15 our above-market performance reflects the focus that we have on these five platforms.

David will talk Pharma and then I'll come back and just give a brief summary about the other four, but before we do that I'd like Jon to review in detail for the fourth-quarter and the full-year financial performance.

Jon?

Thank you, Joe, and good morning or good afternoon, everyone.

As usual there's quite a lot to get through.

I'll spend time on the full year first before turning to the quarter.

I think the full year gives a much clearer picture of what we're trying to achieve, although there are some important elements in the fourth quarter that are important in their own right but also relevant for 2011.

Slide 17 provides the overview for the year.

It's characterized by strong double-digit growth across all performance metrics.

I'm particularly pleased with the operating leverage between the top line and operating income.

There obviously a lot of moving parts within this, perhaps more than you and I would wish for, but these results give a clear statement of where our aspiration lies.

One figure that is free from any distortion is cash and I believe here that we've really outperformed, with a 31% growth over 2009 to $12.3 billion, including a very strong finish to the year.

Finally, the one figure that is in single digits is the dividend, which increases by 5% to CHF2.2.We've increased the payout ratio slightly to 55%, but you can see her how the strength of the Swiss franc really bites, as this represents a dividend increase for our -- for US dollar shareholders of 20%.

So slide 18 shows how I would scorecard the results for 2010 using the performance model Joe and I used in November.

I think this shows the consistency of performance we're seeking from all of our divisions, to outgrow our respective markets, grow profits faster and leverage cash flow.

It's a simple and effective model that overtime must be highly correlated to the creation of shareholder value.

I have to say for Jeff's benefit and for Sandoz, the Sandoz cash flow is actually pretty good, even if he did have a red cross, and he's paying the price for a very strong delivery in 2009.

But if you look his cash flow performance metrics they're in a different league from all of his competitors.

But, never the less, his scorecard is his scorecard.

As I mentioned at the beginning there have been many moving parts in 2010 and slide 19 shows you the impact of the one-offs for the full year and in the quarter.

I know these make life very difficult for you as by definition they're very difficult to model.

I won't go through them in any detail as I think the press release gives you all the details you need.

I can't 2011 will be any simpler, although outcome will be.

I'll quickly go over the next two slides on 2010 top-line performance.

Firstly on slide 20, you can see how we get to the top-line growth of 14%, underpinned by 10% volume growth.

Increasingly over the next few years, as we face generic competition and a challenging pricing environment, the underlying volume is going to be a key indicator of where our business strength lies.Eventually patent [expirees] will work through and pricing will stabilize and volume growth will become visible to the top line.

Slide 21, addresses the same point but in a different way.

Our volume is being driven by the recently-launched products that having an increasing impact of our total business performance.

Excluding Alcon they account for the majority of our sales growth.

Slide 22 shows the full-year core margin improvement at a divisional level.

The 190-basis points is an excellent achievement given the size of the business, of which we all know the story is much more complicated than is seen here.

Slide 23 gives a better picture of our progress on improving underlying margin.

With the margin improvement of 190-basis points, 90-basis points came from and increase in H1N1 revenues over 2009, and from the impact of consolidating Alcon, which has a higher core margin than the other divisions.

[Don't forget, in 2011 we lose all of the margin benefits of H1N1, 1.7 percentage points, not 50-basis points you see here.

Alcon will also contribute, but if you take the two together we'll start 2011 at least 50-basis points behind, which we aim to make up for.] (technical difficulty)

Turning to 2010, the underlying progression of 100-basis points is the result of continuing productivity efforts and resource allocation, typified by the falling sales and marketing costs.

This is driven by Pharma, where sales and marketing fell by 80-basis points to 28.5% of sales despite continuing to launch new products.

We estimate that all of the productivity initiatives in 2010 were equivalent to approximately 400-basis points, enabling us to absorb the impact of price decreases on gross margins, continued to invest with future growth and improved profitability.

So if that's the picture for the full year, slide 24 gives you the profile of quarter four, which shows quite a different shape, although don't miss the cash flow at the bottom of the page, which was very strong in the quarter.

We'll come to sales and core operating margin in a moment but before doing so I want to explain the bottom half of the P&L, especially for the core results where 2% growth in core operating income became zero at net income and a 6% decline in core EPS.

Let me go through the main pieces.

The 2% decline to net income stems from lower associated Company income.

Alcor no longer contributes here.

In addition, there were higher interest costs from the Alcon acquisition, as well as a finance adjustment relating to the Venezuelan devaluation.

This was offset by a lower tax charge.

The fourth-quarter tax charge was exceptionally low at 6%, benefiting equally from a revision from the underlying Novartis rate for the year to 16.3%, and the consequence of incorporating Alcon, which carries a lower tax charge, and some of these effects flowed through into the core tax charge.

On a more steady state we would expect the reported tax charge to be the range 15% to 16% going forward.

The six percentage point between -- net decline between net income and EPS is mostly attributed to the removal of the 23% minority interest in Alcon.

Slide 25 shows the top-line movements in quarter four, demonstrating the impact of last-year's H1N1 sales and the consolidation of Alcon.

If you strip away these two items you see the high single-digit volume growth is steady at 8%, although the impact of price has crept up to three percentage points.

The Pharma price impact stands at three percentage points, taking into account the impact of the price reforms in Europe and a (inaudible) accounting adjustment.

Before looking at divisional operating performance, I want to make sure that you understand the movements at group level first.

Slide 26 gives you the margin reconciliation to quarter four, 2009, and at the bottom you can see the two main distorting elements; the contribution of Alcon and the benefit of H1N1 sales in quarter four, 2009.

Excluding these two items quarter four margin improved by ten-basis points.

But for currency, the underlying improvement in margin would have been more.

As you know, in December, particularly, there was a very strong movement, especially in the Swiss franc.

In December alone it strengthened against the dollar by 7% and the euro by 4%, the worst combination for us given dollar moved very little against the euro.

Given that the -- given that over one-third of our R&D is denominated in Swiss francs more than half of the 110-basis points deterioration in R&D you see here is attributed to currency.

For the quarter as a whole we estimate currency reduced margin by about 50-basis points.

There is also -- taking the underlying constant currency gross in margin to 60-basis points.

There is also the some seasonality in our spending, hence why the quarter four margin was lower than quarter three.

There are three fac -- things to factor in here.

Firstly, while there is no seasonality to R&D per se every pharma company has a higher quarter four spend than the other quarters.

In our case, quarter four spend represented about 28% of the total.

The second factor is that M&S tends to be high in the fourth quarter.

This is particularly true for consumer health, where nearly 30% of the spending is in quarter four, directed towards the cough and cold season, which is a very important part of our OTC business.

Pharma (inaudible) sales spend was at nearly 28% of the total this year, partly due to the investment in the launch of Gilenya.

So taking all these factors together the constant currency increase in the underlying margin of 60 point -- 60-basis points in the quarter I think is pretty good.

So with that as a background the divisional margin on slide 27 should be easier to interpret.

As you see from Pharma and Consumer Health at the top both had a operating income growth ahead of sales, but both reported a negative margin movement.

In the case of both Pharma and Consumer Health, currency reduced the margin by about 100-basis points.

That is, on a constant currency basis both increased their underlying core margin.

Sandoz had a great year and in the fourth quarter revenue growth was very strong at 14%; however, there were three factors affecting profits.

Firstly, mix.

As the press release says, higher low-margin sales in the US and lower high-margin sales in Germany.

Germany is a big contribute key to Sandoz and we saw in the fourth quarter the impact of health reforms.

And while we out-performed the market it was still overall negative and the impact will work itself through in the next few quarters.

Thirdly, while our biosimilar business has been doing superbly well, delivering sales for the year of $185 million, we're entering a period of investment, as our development portfolio advances to later and more-expensive stages of development.

The same is true of our respiratory portfolio and this will hold back margin improvement in 2011, but for good reason.

Finally, Vaccines and Diagnostics.

I recognize that it's very difficult to forecast given the volatility of the flu business.

We continue to make excellent progress with meningitis and our early portfolio, and both of these will absorb incremental investments in 2011.

Finally cash flow, I'll let the next two slides do the talking.

Firstly, on slide 28 you see the full year and quarter four numbers.

Growth of 31% for the full year to $12.3 billion, including Alcon, of course.

Fourth-quarter working capital management, particularly, was excellent from all divisions.

This cash flow, as you see on slide 29, has enabled us to reduce our debt from $27.4 billion in August to $23 billion at the end of the year.

You should be aware that cash figure includes over $3 billion of Alcon cash that will not be available to us until we complete the merger.

Finally on slide 30, currency.

I've mentioned this a few times already so the picture ought to be clear, especially why the impact on profits was greater than the impact on sales in the fourth quarter.

At the time of our third quarter results I thought that if rates remained where they were then the effect would be broadly neutral to operating profits; however, the sharpness of the movements right at the end of the year turned the overall impact on operating profits negative.

As you see at the bottom, if current rate persists throughout 2011, which, of course, they won't, then currency would be slightly positive on sales and slightly negative on profits compared to 2010.

And with that, I'll hand you over to David.

Good, thanks, Jon.

It is my pleasure today to share a 2010 Pharma performance we believe is among the best of the multinational companies; net sales growth of 6% in constant currency.

Perhaps even more important than the absolute level growth is the fact that our product portfolio rejuvenation is ahead of plan, with now 23 3% of our sales in Q4 from products that have launched since 2007.

We took out over $1 billion in costs in Pharma, as we focused on driving productivity and cash flow.

And Trevor Mundel, the head of our global development function, has done a really terrific job in advancing the new product portfolio, the very portfolio that will help us to grow through the upcoming patent expirations of Femara and Diovan.

If we turn to the next page I just focus you on three numbers; 6% net sales growth, 10% core operating income and cash flow growth at 16%, as we have continued to lever the P&L and take cash out of the business, which can then be reinvested.

If you look across our different franchises you see strong growth across all franchises, in particular double-digit growth in oncology, neuroscience opthalmics and integrated hospital care.

Of note, in the respiratory franchise we're starting to see the Ombre sales coming through and this is a franchise to watch for their future, as we will have multiple new launches and we believe this will be another strong growth driver with the Novartis business.

If you turn to slide 35 you'll see that our new product portfolio actually grew 41% of full-year 2009 to 2010 and that's what drove the -- our confidence in the future and the quality of our sales.

what I want to do now is talk to you about a few of our products and then pipeline starting with Gileyna, which we very recently launched in the US.

As a reminder, Gilenya is a multiple sclerosis product, which shows a 52% reduction in relapse versus standard of care, the interferon, and this is the products that is available in a once-a-day oral formulation.

We've gotten very good feedback from patients, physicians and payers.

Turning now to page 35 you see the IMS data, which shows encouraging prescription trends.

I want to remind you of a few things.

In particular, the IMS is understating the actual numbers of patients on drug, because we have a fairly liberal program to get patients on therapy, with basically free medicine while their working their way through the reimbursement process, and we estimate now that there are over 2,000 patients on drug.

We've done well with managed care payers.

Over 1,000 physicians have prescribed this product in the US, with global sales of $15 million, $13 million of which come from the US market.

And as you know, we have just received the EU CHMP opinion, which has resulted in EU Commission approval in the coming months and a launched in Europe this year.

Page 38, we want to share with you where the business is coming fromNow mind you, this is a relatively small data set so there could be some fluctuations in the numbers in the coming months, but it would appear that about half the patients have not been on therapy for the past 12 months, so these are patients that are either newly diagnosed or patients that had discontinued previous therapy because they couldn't tolerate, for example, the side effects associated with interferon.

Of the 50% of patients who had been recently treated what you see is about half of the new business is coming from interferon.

We are strongly taking business also from Copartner and then to a much lesser extent Tysabri, which is largely in line with what we would have anticipated.

So what we see here is a market that's expanding and market share that's coming in the places that we thought.

Turning now to Tasigna.

Tasigna is an important new medicine where we recently gained and launched in the US for the [nova] CML.

During the course of the year we also received approval in Europe and in Japan, which I believe is one of the first times in our industry where a product has received approval in each of three major markets all within the same year, which speaks to our strategy to design our clinical programs to achieve rapid access all around the world.

You can see from this chart that since we have launched the nova CML setting our market share for Tasigna has grown mightily.

The overall franchise is now standing at $5 billion.

It grew roughly 10% and we seem to be growing certainly faster than the other second-generation product.

In the most weekly data we have now passed Sprycel among the second-generation products in terms of market share, so our plan is delivering in line or slightly ahead of expectations.

Now I'd like to spend a moment on Ilaris, a product which I feel is still somewhat misunderstood.

This is a product that was originally launched for CAPS, a relatively rare disease.

We achieved about $20 million in business and sales potential is going to be in the range of $100 million.

What's really exciting are the new indications.

We have positive data in gouty arthritis.

That file has gone in the European Union.

We would expect to file during the first quarter in the US and we would hope for an expedited review.

Just as importantly, based upon our understanding of biology in gout we started a program to prevent secondary MI in patients who have high inflammatory burden.

This is a market which is quite large, measured in the millions of patients.

That phase II program will start mid-year and we believe this is a sizable opportunity that, if the product work will work, could be worth billions of dollars.

Lucentis is another example of this approach where we build indication upon indication based upon where the science takes us.

First approval in age-related macular degeneration now have the European approval for diabetic macular edema, which we're very excited about, and we would anticipate a CHMP decision in the second quarter for retinal vein occlusion.

That's earlier than originally plan.

These new patient populations should allow us to continue the strong growth of Lucentis.

Now taking a look at productivity, I mentioned earlier that we took about $1 billion in costs out that resulted in 0.6 points in improvement in core return on sales.

Stripping out FX effects that actually would have been roughly a full point improvement.

I'm optimistic that going forward there is still much more productivity that in our Pharma business, which we can realize to offset the pricing pressures and to continue to invest in the launches, as well as dropping some of it to the bottom line.

Free cash flow reached historic high, now at 35% as a percent of sales.

And I just want to close with one slide, which I really think sums up our business and differentiates us from any of our competitors.

We have very strong news flow based upon very well thought out, well-designed clinical trial program, which is it exactly in line in the strategy we spoke about, which is growth, innovation, as well as productivity.

The only change on this slide is we have now have the EU regulatory CHMP approval so we're well -- CHMP decision, so we're well on our way to delivering on the first item on the chart.

With that I'd like to turn back to Joe.

Thanks, David.

I'm just going to touch on the other businesses.

Starting with Alcon on slide 48 we remain on track to close this transaction in the first half of the year.

Once we close the deal Alcon will become the second-largest growth platform for Novartis at about 17% of our sales when you include CIBA Vision.

We're planning two integrations.

One is CIBA Vision and Pharma into Ophtha, and the other is -- sorry, Pharma, Ophtha into Alcon and the other is Alcon into Novartis.

So since the announcement we have been able to form teams on both the Alcon side and on the Novartis side.

Those teams have met, we've got a governance process in place, and the integration planning is well underway.

Our intention is to have the planning completed by the time that we close the transactions so we'll be able to execute on day one and get the new division up and running within three months of post-close.

The third platform, on the next slide, Sandoz achieved, as you saw, 15% sales growth.

This is driven by significant volume expansion by the new product launches, so I think the focus on differentiated and difficult-to-make generics is paying off and really generating significant growth for Sandoz .

It's also important to note, I think, that biosimilars was up 63% versus a year ago and further strengthened our number one global position.

Sandoz also had great performances, as shown at 51, in emerging markets.

Double-digit growth in Central and Eastern Europe, Asia-Pacific, Middle East, Turkey and Africa.

Now growth platform number four, the Consumer Health unit, grew 6% in 2010 and I am quite pleased that all of the business units -- OTC, CIBA Vision and Animal Health -- delivered growth that was ahead of their respective markets.

OTC was supported by double-digit performance on some of the key brands, as you see on slide 53.

Prevacid 24HR became one of the fastest-growing brands in our OTC business and also in the category.

CIBA Vision also continued to deliver strong growth.

Their Air Optix brand was up 32% versus year ago, driven by new product launches.

And the multi-focal silicon hydrogel lens became the number one multi-focal lens within 12 months of launch.

Animal Health, we also strengthen our leadership position in specialty areas of companion animal and farm animal categories.

On slide 54 you can see Vaccines and Diagnostics, continuing impressive growth of up 23%.

But even when you take out H1N1 the base business grew 16% versus a year ago.

This is due to a strong flu season and also the Menveo launch in 38 countries in 2010.

Slide 55, with the submission of the infant and toddler indications for Menveo we became the only meningococcal vaccine with data that supports all age groups.

We successfully launched Menveo in 2010 and we expect to build this meningitis franchise with the Men B vaccine.

And then finally on slide 56.

Because of the breadth of the portfolio I wanted to point out the fact that we were able to protect or treat a billion -- almost a billion patients in 2010, so over 900 million patients around the world, whether it was an innovative pharma -- pharmaceutical or a vaccine or some kind of self medication.

This speaks to the breadth of this portfolio and the importance of all of the touch points that a business of this scale has with patients and with customers around the world.

So now let me close with outlook.

On slide 58 you can see that Novartis has delivered strong double-digit top and bottom-line growth over the past six years, and this has resulted from our strategy of focusing on our high-growth segments of healthcare, as well as delivering on the innovation premium that we've been able to prove we can deliver.

And based on this, the board has proposed our 14th consecutive dividend increase and this will be voted upon at our annual general meeting in February 2011 -- it's on February 22.

So for 2011, on slide 60, we expect to continue this growth story.

Everyone knows that we're facing some expected headwinds, like the beginning of the Diovan patent expiration, but we have many positives in 2011.

Specifically, the growth of recently-launched products will continue to ramp up.

That includes now Gilenya, which start to get some good traction.

I believe that our emerging market growth will accelerate and we will also have the integration of Alcon.

So we're going to stay focused on the same three strategic priorities that we have kept this year, which is extending our lead in innovation, accelerating growth and driving productivity.

And for 2011, on slide 62, we expect constant currency sales growth around the double-digit mark.

That includes Pharma sales in the low to mid single-digit range, including offsetting the patent expirations, as well as cost containment.

For Sandoz we expect to growth mid single digits.

And with our continued focus on productivity we aim to grow core operating income margin while absorbing price cuts, generic competition and the anticipated loss of the H1N1pandemic sales.

So we're bullish on 2011 and with that I would like to close and open the call

(Operator Instructions)First question from Mr.

[Dean Reyes], Deutsche Bank, please go ahead.

(Inaudible), gentlemen.

Thank you.

I'd just like to ask on Gilenya.

2,000 patients treated this far.

How many of those have actually rolled over from clinical trials and how much actually is a true number of new patients since the approval of the drug.

And then just secondly, perhaps on QMF.

I see that in the US you're not developing any further for COPD, just how much of that is due to the [larva] issues, or is this reflecting greater confidence in the QVA combination?

Perhaps you could just shed a little bit of light on that, please.

David?

Yes.

Regarding Gilenya, most of these are patients who were not involved in clinical trials.

Of 2,000 patients about 35% of these patients are on commercial drug, the rest are on free starter packs.

[Sharber], do you want to address the QVA/QMF question?

Yes, indeed.

So just to remind people that the QVA, which is the combination of the antimuscarinic and the beta-agonist is really the center point of our Q strategy, so that's what we're really focused on and we're going to submit that at the end of next year, both in the US and in Europe.

So, indeed you're right about the larva issue in the US, which means that for a drug like QMF, even if we developed that for COPD we would need a very large safety study, which would really be prohibitive.

Thanks.

Okay, thanks.

Next question from Mr.

Graham Parry, Banc of America-Merrill Lynch.

Please go ahead, sir.

Thanks for taking my questions.

Just on guidance for margins for 2011, targeting an increase in group margins.

(Inaudible) receives a boost from having a full year of Alcon, so I was just wondering if you could give an indication directionally of where you see other divisional core operating margins trending; flat, up or down?

Second, just wondering if you could get -- quantify the impact of US and EU healthcare reforms incrementally in 2011 versus 2010 on your sales and EBIT margin for Pharma?

And then thirdly, on Sandoz, I was just wondering if you could give us your view on pricing and margin outlook for Enoxaparin generic if Teva's product is approved this year, and clarify whether your guidance actually does assume the Teva approval and also whether it assumes any approval of your generic Advair product in Europe this year?

And then final question for Jon.

On dividends, just wondering if you could update us what payout ratio you're now intending to maintain and whether this is calculated out of core or GAAP EPS when you're thinking about this now?

Thanks.

Okay, let me start on margin and I'll probably disappoint you a little bit by not going to the same divisional tool that you would like.

But one of the -- just to reemphasize one of the points I made as I went through, as you translate 2010 into 2011 you are quite right in saying that we get an incremental boost to our margin from Alcon.

It's a bit over 1% because it was already 0.4% in the 2010 and margin.

We also lose the full effect of H1N1, which is a 1.7% in aggregate.

So that means that actually to aim to improve underlying core -- or improve cord margin we've half a point or more to make up before we get there, and that's why we continue to believe that we're still on track terms of turning productivity into margin improvement.

And so that's -- I think that's why we are still confident that this business is capable of generating more.

But you've got to take those two big moving pieces into account before thinking about what's really happening at the macro level.

And the payout ratio?

The payout ratio, I think we've always said that the ceiling for the payout ratio was 60% and right now we are at a 55% payout ratio.

We don't really need to adjust the base metric for the dividend because we've still got a little bit of headroom in there.

Right now we're at 55% and I think that's a pretty decent payout.

Probably the best way to speak about the reforms is really just take you through pricing at a high level and then you can model from there.

In the Pharma division the full-year pricing impact was a rounded -2%.

It was slightly higher in Q4.

For next year we will see the full impact of US healthcare reform, as well as the full impact of the European measures that we're taking this year, so pricing will be slightly worse than in 2010 and we would say it's probably in the -2% to -3% worldwide.

AndI think that probably gives you enough to make an estimate.

Jeff?

Graham, with respect to Enox, obviously I can't really comment on when Teva could enter the market.

I think what is significant, before I come to your question on price and margin, is that Sandoz was first to market and that we've been the sole generic for over six months now.

Our market share estimate, the range is quite significant, even based on IMS data.

We believe we're around or slightly over 40% market share and we're continuing to work to increase our supply beyond that.

From a pricing and margin perspective, for competitive reasons wouldn't really be appropriate for me to share guidance on that.

I would say from a timing perspective I will say that if we stay at the sole generic beyond the first half of the year that we could see our top line move upward from mid single digits to high single digits but, of course, that's speculative at this point.

With respect to generic Advair, again apologies, but for competitive reasons there's nothing more that I really want to say on that.

Just clarify whether you assumed any launch in your guidance for the year?

So, Graham, as I said, I can't really comment further on the respiratory space in terms of what's in our pipeline, or the assumptions on what we launch when.

Okay, thanks.

Next question Mr.

Andrew Baum, Morgan Stanley, please go ahead, sir.

Hi, I have three questions, please.

First one is, one of your major competitors had decided to delink sales rep bonuses in the US from target position scrip trend, I wondered on your current practice and whether, unless you're forced to, you have any intention of following suit?

Secondly, question for David on QVA.

Could you just outline for us the implications, if the FDA again declines to recommend and then approved QAB for COPD, what are the implications in terms of QVA, does it mean you'd have to initiate a new set of clinical trials, how much of delay would that mean in terms of potential US registration?

And then the final question is, Jon, you alluded to the Lucentis provision that's described as a one-time item in the press release, could you give us a little bit more detail to help us understand the potential implication?

Andrew, I'll start on the US field force.

We -- the way that we compensate our field force today is, obviously, different than the way that one of our competitors moved, but we have a system where we not only compensate them based on the results that they get in market but also the behaviors that they exhibited to deliver those results.

Because of that we believe that we have a good compensation system that gets out at of the issues that our competitor wanted to get at, so already designed within our current competition system for the sales force, so we don't anticipate any changes to this.

You don't feel the need to go to the extreme of actually (inaudible) in absolute?

Yes.

No, we don't, we absolutely don't.

We also executed (inaudible) back in every salespersons incentive that if there -- it were discovered that there was any non-compliance from a marketing or sales standpoint we would go after any compensation that was earned based on that.

Thanks.

David, QVA?

I think let's put -- have Trevor put it into perspective and then I'll take the loose ends of the question.

So, Andrew, as you know we have filed at the moment in the US for doses of 75 and 150 micrograms of the QAB and we have the advisory coming up in early Marcy.

I think we are very confident about that data package.

We generated 2,000 additional patient data as requested by the FDA.

There is the issue -- open issue of the doses for the global program versus the US program and we'll have to see what happens at the advisory.

We think there's a good chance that we have doses which are compatible, but we have planned for the eventuality that there would be a mismatch in doses and we have the additional trials in our pocket.

Regarding Lucentis, I think you're question was why was Q4 growth below trend.

Basically what happened is we have a risk share agreement in one country where we needed to make an accounting adjustment and that artificially brought down the underlying growth rate.

If you subtract that out actually Lucentis grew at roughly 19% in the fourth quarter, which I think is reflective of what you would anticipate for this kind of run.

Thank you.

Next question from Mr.

Matthew Weston, Credit Suisse, please to ahead, sir.

Good afternoon and thank you for taking my questions.

I have a number, if I can.

Firstly, Jon, regarding Pharma guidance, you've said that you're going to change the consolidation and move ophthalmic pharma out and put it in Alcon.

Can you clarify whether the low to mid single digits includes that adjustment, or whether that's on like-for-like basis?And then secondly I think just a more general question.

You were perceived to be really upbeat around margins when you presented to us in November, you now seem to be somewhat more cautious, or certainly that's the Market's perception today.

I just ask what's changed in that time.

Is it anything, or long term do you still see the margin potential at the Company, albeit do you see it in 2011, as well?

Then just a couple of quick financial questions.

Jeff, on Enoxaparin you reported $292 million in the third quarter, I calculate that means it's $170 million in 4Q.

Obviously there was going to be some pipeline filling, but what's actually representative of a quarter of Enox sales given your market share.

Is it somewhere between the two?

And then finally on Vaccines.

Taking your comments that pandemic contributed 1.7 percentage points of margins that basically suggests it's $800 million, $900 million of operating income for the V&D division.

That basically suggests the underlying performance of the division is abysmal and significantly below what it was before pandemic flu kicked in.

What should we expect for 2011?

Should we be aiming for single digits underlying, or can it do better than that?

Okay, Jon?

Okay, let me start.

On Pharma the guidance has been like for like so it doesn't take account of any transfers out into Alcon and at the point that we complete and the new division is formed we will provided with new pro formas on that.

I think -- your question on margin I didn't think anything has changed in my view.

I think what you are seeing in 2011 is the fact that we are facing generic competition and we will over the next year or two, but the fundamental investment thesis that lies behind the productivity drive remains absolutely intact.

That's why, to the earlier question, I pointed out that actually take away H1N1 and Alcon we are still driving the underlying margin forward and investing at the same time.

One of the things that I should have made to the earlier question is actually we are investing in vaccines and we are investing in biologics and we are still moving it forward.

And so, David talked about more productivity to go for.

The purchasing benefits that Joe referred to were over a billion dollars.

In aggregate it was four percentage.

So I think we're absolutely in line with what we said in November, but the difference now is that you're seeing the impact of generic competition, but the underlying is moving.

I also think if you look -- what we said in November and you think about the next five years the underlying margin potential in the Company is significant.

All you have to do is look at our marketing and sales ratios relative to other companies and look at where we're going to get procurement savings and manufacturing footprint projects we've taken.

We said, though, said it wasn't going to be linear, right, so if people were expecting a nice smooth curve it's just not going to look like that.

But I think we are -- we said that we aim to improve core operating income margin, some of the charges that we took in the fourth quarter will improve our cost structure, like the US field force structuring, the manufacturing restructuring that we took in Vaccines in the fourth quarter and the German Sandoz restructuring that we took in the fourth quarter.

All of this is going to help improve the cost structure and we're going to keep plugging away at it.

Jeff, Enox?

Yes, Matthew, on your question on Enox, the monthly run rate that you saw the fourth quarter of $56 million, $57 million a month is roughly in line with what we'd expect for 40 share.

I'd say maybe slightly more than that.

If we continue to stay alone then obviously higher than if Teva enters or Teva and an [AVX] enter.On margins I'll just mention that Sandoz core (inaudible) was at an all-time high of 19.8% in 2010, and we're working hard to continue to delivering very strong underlying profitability going forward.

On the productivity side one last comment I'd make.

We drove well over $450 million of productivity savings, [end-year] savings in 2010.

That's on top of close to $400 million in 2009.

It's about $850 million cost savings in that two-year period to drive that kind of margin improvement.

Andrin?

I would just like to first comment on your calculation.

I think -- first of all I do not believe that one can assume without the H1N1 pandemic we would have had the numbers that you described just taking pandemic sales out.

It is a volatile business and opportunities come from different sides.

I also would like in that context to highlight that if you compare the figures before the pandemic, also in 2007 we had significant sales from, at that point in time, avian pandemic stockpiled supplied to certain governments so I think that has to be taken into account, as well, and we will see next year what are the opportunities that will come along.

Second point I wanted to make is that you look at the core operating income for (inaudible) it was above $1 billion.

I think that, for me, is a pretty good performance given that we are significantly investing in growing this business and we have some catch-up to do versus the leading competitors.

I think, as Jon has said, we definitely will keep on investing.

We have, I think, one of the leading pipelines, if not the leading pipeline, in the vaccines industry.

That will absorb money, as well as the launch of our (inaudible) franchise and I think that definitely will have an impact that you will see on our P&L in the quarters to come.

(Inaudible), many thanks.

Next question from Mr.

Kevin Wilson, Citigroup, please go ahead, sir.

Thanks, two questions.

First, for Trevor, just a follow on really on the -- your comment on the (inaudible) safety study.

Can you explain why in COPD you'd need a different size safety study for QMF than you would for QVA?

Secondly, for Jeff, just on Enoxaparin, could you broadly run through the scenario where a second entrant comes in and confirm that if that is the case the economics in terms of operating contribution could improve to deteriorate.

Thirdly, on the QB did it currently actually improve rather than deteriorate?

Trevor?

Yes.

So on the QVA -- this is QMF.

So the antimuscarinic are not currently widely used is asthma, so I think there's not the same expectation that there would be potential crossover usage from COPD as asthma, as there is with the inhaled corticosteriods of QMF product.

So, Kevin, with respect to scenarios for how things will evolve if there's any Enoxaparin entrants, I read your note on the (inaudible) generics economics.

Where we would shift from a 45% profit share to a high single-digit to low double-digit royalty to Momenta.The conclusion you reached in your report on the economics is largely right.

Some of the assumptions were (inaudible) in terms of how you got to the actual ross.

I think you may want to look at your pricing assumption, in term specifically what percent of brand WAC you're assuming, which will give better guidance on the contribution margin.

But I think you actually ended up coming out to a largely correct number.

Thanks.

Next question from Mr.

Tim Anderson, Sanford Bernstein, please go ahead.

Thank you, a couple of questions.

On Gilenya, of the 50% that have not been on therapy for the last 12 months, what's the split between first line versus treatment failures?

And then second question is on Alcon.

There seems to be deceleration in growth in the surgical and consumer product lines.

In fourth quarter it was 3% for surgical, 1% for consumer and I think surgical was also weak in the third quarter and sales growth across all three divisions was 5%.

I'm wondering why we're seeing certain divisions slow recently, and I'm wondering if that 2011 guidance for Alcon sales of high single-digits percent might end up being a stretch?

Gilenya?

So regarding Gilenya, the database is still fairly thin and volatile.

We do not have the breakdown at any level of confidence how many patients are de novo versus treatment failures.

I think in time we will have better data sets to share with you.

Regarding the Alcon question, as you look at some of the surgical procedures and what's happening with the economy there is a high level of discretion around delaying surgery that seems to be impacting that business.

They've seen this phenomenon hap -- occur before and it comes back eventually, and so we are still quite bullish on the original guidance that was given by Alcon when you look at it across the board.

All right, thank you.

Next question from Mr.

(inaudible), (inaudible), please go ahead, sir.

Good afternoon, everyone, thanks for taking my questions.

I have one on Gilenya.

What is the -- how many patients do you expect to convert to be reimbursed out of the 2,000 in the first quarter?

And could you give us a sense of how many patients you add per week, or per month, whichever metrics you're looking at?

Then, on Ilaris, do you expect any significant off-label use with the drug given that you've achieved the important pain score in the studies you're going to present at EULAR?

And last but not least, the Lucentis I'm trying to understand the dynamic behind the sales in Europe because my understanding is that you have forged package deals with certain governments around different countries to determine ceilings.

Now how does this work as you get new indications and does the -- ever --can you actually get -- do you get to a higher threshold in terms of sales level per country, or is it -- is the only thing that happens that the average price per patient goes down?

Thanks very much.

Okay, lots of questions.

I'll start with the last one first.

We sent this in the EU the new indications.

In most cases a new indication drive a rediscussion of the price and any type of reimbursement or rebate program, so everything would largely be reset.

You should anticipate some modest price erosion when you go back and expand the indications for our product.

Regarding Ilaris and whether or not it will be used in gouty arthritis, we don't promote off label.

I would not anticipate much in the short run.

Regarding the patient's who are on free drugs for Gilenya, it seems like the typical period to get reimbursed is anywhere from one to three months, so that -- we would then anticipate the vast majority of the patients who are currently getting free drug would be on reimbursed drug in the next quarter.

But, of course, new patients will be coming on free drug and it will be a dynamic process.

The only thing I would add on the Lucentis answer was that with the new indications in diabetic macular edema there's many patients as there are and what AMD outside the US, and so even if there were, let's say, when you're going back for an additional indication and a renegotiation on the price the potential incremental volume is significant, and this incremental volume will not fall under the same caps that we originally negotiated unless we were unsuccessful in opening those discussions.

And on the new number of patients per week or per month that you're adding to Gilenya, can you see anything in that regard?

I'm not ready to yet, and part of the reason is we just ran through two holiday periods of Thanksgiving and Christmas so it's really not meaningful right now.

Thanks very much.

Next question from Fabian Wenner, UBS, please go ahead, Sir.

Hey, good afternoon, a couple of questions.

First of all, coming back to the margin guidance, you highlighted productivity improvements in Q4, about 400-basis points, now I suppose the COGS increase was driven also by higher raw materials.

Do you expect a further rise in COGS for the year, or have you fixed -- largely fixed the annual contract?

And secondly, can you -- or to what extent are you incentivizing your reps to a switch from Diovan to Tekturna?

We have accelerated study recently, what initiatives do you have underway here?

And then a couple of smaller ones.

When will you roughly start your buyback and have -- when you expect the F-4 approval, roughly?

Jon, margin guidance and F-4?

Yes, okay.

On productivity, you're right, the total value of productivity was 4% in the quarter across all programs.

In relation to rising raw material prices, for the majority of inputs we have contracts that take us through 2011 so where we're seeing increases on packaging, for example, they're being debated in relation to 2012 contracts.

On the buyback, we're following this call to commence buybacks, if we wish, but you won't expect me to tell you when we are and when we're not going to be buying back, but as for now it's open.

There's really nothing to say on the detailed mechanics for the F-4.

We've always said that the principal governing -- the governing factor to timing is the F-4, and as Joe said earlier, we're on track for first half completion so you can read into that there's no change in the guidance from December.

David?

Yes.

So the question was regarding moving patients from Diovan to Tekturna.

I wouldn't think of it that way.

Rather I would think about the Tekturna strategy, which is to focus on patients with hypertension, which have renal complications, where we think the drug is particularly well suited and we are about to introduce now into the US market the combination of Tekturna and (inaudible), where there's roughly a 50 point drop in blood pressure, which is efficacy positioning for the brand.

And just for additional authority, in Europe we have virtually no promotion on Diovan at this time.

Thank you.

The next question from Ms.

Alexandra Hauber, JPMorgan, please go ahead, madam.

Yes, good afternoon, several questions, please.

Firstly, you -- in vaccines you mentioned some rationalization of the manufacturing facilities, can you just elaborate a bit here because I was never under the impression that you had many plants and vaccines, that was rather an area of future CapEx spend.

And if there is rationalization will that affect in any way your flu capacity going forward?

Secondly, on the DM -- the DME approval came in January as in 2011, so since you have to go through new reimbursement discussion I was wondering whether in Germany, this is now covered by the new (inaudible) procedure that you have to submit data to justify your price and then by beginning 2012 we will all know whether you get the price or whether you have to take a significant haircut, so just some color on that procedure in Germany, how this is changing I would appreciate?

The third question on QMF, the -- inside that you would need prohibitively large safety database for approval.

Is that in -- does that does that insight come from and end of phase two meeting on QMF, or is a read across you're making from your QAB program?

And the final question is just on a comment from Jon on Sandoz R&D becoming more expensive because of investments for biosimilars and the respiratory pipeline.

I recall that about a year ago you said that biosimilar is breaking even, so with the -- (inaudible) for biosimilar is it no longer breaking even, or was your breakeven comment meant on the pre-R&D basis?

Okay, Andrin, why (inaudible) stuff?

Well, the restructuring had two major elements.

The first one is on (inaudible) manufacturing.

We had a very small old facility in German that produced (inaudible), a local product --

Excuse me, I don't hear you very well.

Can you --

I'm sorry, is it better now?

Yes.

Okay.

So that we had a very small (inaudible) facility, an (inaudible)-based facility in Germany that produced a product called [Petrivac], it was very low volumes and not cost effective.

Second one is, in Liverpool we were, as you may know, building a new site, it started to operate last year.

But due to the pandemic we also kept the old site open until the end of the pandemic and we now closed down the old site that were and planning to replace with the new one that is now operating.

The second major driver for the facility is streamlining of secondary manufacturing, which filling and packaging.

We still had due to the his -- for historic reasons.

three almost independent operations in Liverpool, in (inaudible), Germany and in (inaudible), Italy and we just optimized the processes to have a better capacity utilization.

So going forward only one big (inaudible), that's Liverpool, and the same quantity as before?

As far as (inaudible) is concerned we will have one large modern facility in Liverpool and we will remain also a smaller facility that we have in (inaudible) that produced a (inaudible).

The overall quantity is expected to increase compared to the past.

Okay.

Alexandra, I'm going to give you a mixed answer.

I don't know with 100% certainty whether Lucentis and DME falls under these pricing rules or not, I'll double check.

But the reality is most of the incentive pricing are negotiated with the individual health insurers in Germany, anyway.

They're already getting their product at a discount, so I doubt that the timing of the approval DME will have any major consequential impact on German pricing.

But I'll double check your specific question and we'll get back to you.

Thank you.

(Inaudible)?

Alexandra, on the QMF question, so you are correct that this is a inference from our discussions around QAB, but also around [Oradil] and the (inaudible) safety issue.

Alexandra, with respect to your question on the ramp-up in investments for biosimilars and respiratory, Jon was eluding to the significant increase in R&D spending in Q4 for Sandoz and we'll see that in Q1 and Q2 as we move forward.

As key MAB programs and biosimilars move into clinical trials, same thing for respiratory.

And while this is a short-term impact on the P&L this is a good mid-term item for us as we look to retain and strengthen our number one position in biosimilars globally with just around half of the worlds market in the regulated markets in Europe and America.

I'd mention broadly speaking on biosimilars that the business grew 63% to just under $200 million, with over 200% growth in Eastern Europe, over 100% growth in Western Europe.

Our (inaudible), our new biosimilar grew 245%.

With respect to profitability, I would say the steady state profitability of biosimilars is very attractive.

What takes out of profitability in the short term is the significant investments we're making into our future to continue to position ourselves to be a very significant business looking out five years when we have a number of patents in what will be probably over $50 billion, $60 billion of biologic products that are coming off patent in the next five or six years.

So it's a great opportunity for us and we're investing behind that.

And I think that -- the only thing I would add is that because biosimilars rest within Sandoz has go -- Jeff's got a margin target that he needs to beat and he can move around spending within his group, also, that looks at those greatest new product opportunities, new innovation opportunities and choose to invest in there without having to say, okay, I want the profitability of biosimilars to be X this as long as he's taking cost out of other areas of the enterprise.

The other thing I'd point out, Alexandra, is just more broadly on the injectables business.

Sandoz has over $1.5 billion business now.

We've moved to number two globally ahead of both Teva and [Fercenious].

We were number four two-years ago and this is the business with ontology injectables that's highly profitable.

So can you just say how large your injectable business is?

Well upwards of $1.5 billion.

I'd say probably a good bit bigger than that.

I don't want to give too much guidance on that.

Figure then one point half -- $1.5 billion?

Yes, if you look at the IMS data you'll see even a bigger number than that if you take ENOX runrates.

But keep in mind, products come and go.

[Oxsaly Platin] was $40 in op inc in Q1 last year and we don't have that in Q1 this year.

Okay, thank you.

Next question from Ms.

Marietta Miemietz from Societe Generale, please go ahead, ma'am.

Thanks very much, just a few financial questions, please.

The first on the European Diovan patents, where are you at in terms of getting a six months extension into various countries, i.e., should we expect the bulk of the European Diovan generics in the first or the second half?

The second question, can you give the 2010 Diovan sales, specifically for Spain and for the rest of Europe, just for our own modeling?

And a technical question on the guidance.

Am I right in assuming that any core operating margin improvement this year would automatically translate into constant currency core EPS growth for versus last year despite the non-recurrence off Alcon associate income?

And I know you don't want to go into a lot of detail on the divisions, but are there actually any divisions where we will definitely not see a margin improvement this year?

Thank you very much.

I think I was relatively clear.

Spain and Portugal has actu -- and Brazil, as well, will go early in the year, February.

The rest of Europe we expect to go in November.

I do not have those figures that by region in front of us.

No, but I think it's safe to say that the majority will be second half, Sep --

No, it's November.

November.

Yes, Marietta, I really don't want to go back through the comments I made before, but I think if you do go through the transcript that you will see that there's quite a lot of indications on a division-by-division basis.

And the reason for holding to a constant currency target at this point is because we've seen quite a big shift in the last month and we don't really know what the currency situation is going to be going forward, so we felt that it was wise not to add a currency exposure to the target.

But, of course, as we go through each quarter we'll update you on the currency assumptions as they develop during the course of the year.

I wasn't actually wondering about the currency, I was just wondering how the correlate operating improvement with EPS improvement, so I just wanted to make sure that what is currently implied in your guidance is a constant currency EPS growth?

Well, no, look.

I think you've got to take each of the lines below constant currency operating profit and factor in the assumptions for the way interest is going, the fact that there's no Alcon in associated companies.

I've given you the tax rate and that's, I think, a more easier piece of the puzzle to solve than for the group operating income.

Thank you.

Next question from (inaudible), (inaudible), please go ahead, sir.

Good afternoon, gentlemen, thank you for taking my questions.

First a question for Jeff.

Is there any (inaudible) for (inaudible) in the US following the decision on QMF and have you changed your plan regarding the development a generic version of(inaudible) in the US?

My second question (inaudible).

You're gaining market share against all of the products in the US, do you believe that it will be the same in Europe as you have a slightly different (inaudible)?

And the last one on the M&A, maybe could you give us the rationale of the [Genoptics] acquisition for the oncology division?

Thank you.

Yes, [Laurence], as I said earlier, I'm hesitant to give any guidance on specific products within our respiratory pipeline.

But as I said in London at investor day when asked a similar question I would reiterate that we at Novartis and at Sandoz believe the potential for full substitutability of combination asthma and COPD products.

So the potential to leverage the 505J pathway as opposed to necessarily having to go through a 505B2 route.

One correction to a comment I made earlier to Alexandra, the injectables number globally percentage it was closer to $1.8 billion.

I just reference checked, so not $1.5 billion.

Regarding expectations for Gilenya in Europe.

First of all, we're very excited about the launch.

I think there is quite a good demand for the drug based upon the phone calls and e-mails we're getting.

There's no reason to believe that there'd be substantially different source of business, at in terms of in terms of the product patients would be migrating from Europe.

Regarding Genoptics, I think you know that our strategy is to increasingly, on the development side and the commercial side, match the right drug to the right patient.

In order to do that we need to develop molecular diagnostic tests and we thought Genoptics was a company that has a very good reputation in the marketplace among hematologists and oncologists in terms of serving their need and thought that it would be a good vehicle to make sure that our tests were readily available as we launch our new pharmaceuticals.

Okay, (inaudible), thank you.

Next question from Mr.

Alistair Campbell, Berenberg Bank, please go ahead.

Oh, great, thanks for taking my question.

It's just a quick ones on Gilenya again and I apologize for this, David, it's probably pushing your market intelligence data too for, but if we look at the patients you're picking up from Tysabri in the US, my guess now half the patients on Tysabri are involved in the [Stratify] studies, therefore they know the JC virus status.

Now is there risk that, in fact, the patients your picking up your patients who are at risk, if you like, for JVC positivity and therefore, perhaps, is there a risk profile attached to those patients to those patients you're picking up and how do you think about managing that?

Thanks.

Regarding Gilenya the main focus is in the areas where we have head-to-head data.

For example, versus interferon that's where our commercial efforts are targeted, but it is clear that Tysabri patients want to come off drug and are looking for alternatives.

We really can't control what those patients have been exposed to, how long have they been on the drug, because that's not where we're going.

Okay, cool, thanks.

Next question from Mr.

[Mark Baird] from Goldman Sachs, please go ahead, sir.

Thank you, a few questions.

Firstly, emerging markets.

It seems that the growth rate in the six markets is reducing from 19% last year to 9% this year, just a comment on whether you think that that will continue?

And secondly on whether the margin -- the change in margins is being driven by a geographic mix changes?

Thirdly, on your dividend policy are you looking for year-on-year growth in dividends, or stay at control of the cash flow, specifically?

If you could help on those, that'd be great.

Okay, starting with emerging markets.

Our total emerging markets business this year on the top six were $4.6 billion and it grew 12%.

While I think that is a good performance it's not a great performance and so we would expect to see that increase back probably closer to the 19%, 20% range or hopefully more than that.

We had a couple of slowdowns, particularly in China, when we moved from a very centralized structure to a regional structure.

It was the right thing to do but we did.

It caused some level of disruption, that is now back on track and believe that 2011 will be a better number.

Also, Turkey took significant reductions due to that price hit that we took in 2011 --2010, which did not repeat itself in 2011.

So in total we expect improved performance in emerging markets.

Around the margin?

Yes, on -- I don't think there are any major geographical shifts in oncology and I think we're such a big pool that it's not really detectable in the trends that we see.

And then finally on dividends.

I think the way Joe probably presented 14 years of consecutive increases in dividend I think is a record that we would aim to continue.

Okay, the last question, perhaps.

The last question for today is from Mr.

David Evans from (inaudible), please go ahead, sir.

Thank you very much.

Just a couple of questions on Sandoz on the back of very strong sales and Q4.

(Inaudible) the benefits from your other US (inaudible) seems to be passing or fading throughout 2011.

So should we expect to see any other major first to file (inaudible) in 2011 to make up for these losses?

If not, is there a reason to believe why that wouldn't on its own believe lead to negative margin impacts in 2011 versus 2010?

And then on the ex-US businesses maybe some more general comments on whether you see the (inaudible) market stabilizing with multi-source [tenders] and other impacts?

And then maybe some other color on the scale of the other major price impacts you see across Europe and whether any cost savings can fully offset these?

Thanks very much.

Great.

So, David, to answer your question around the world on that quickly, in the US business we've great momentum.

We grew 46% last year, overtook Mylan as the number two player in the market.

We are seeing los -- new competitors on some of our key products like (inaudible), some of the others, but we have a strong position, over half of the market of [Gemsydabene].

We're launching a number of oral contraceptives.

We have a couple of small first-to-file that are key.

I think, also.

Germany we've talked about.

Specifically there the market, while it's declining, it declined 12% to 15% last year, we only declined 6% so we continue to strengthen our number one position in the market.

And it's critical to look at net sales and not gross sales.

The gross market may show low single digit.

Net sales will show in 2011 double-digit decline.

However, in Western Europe we grew 10% in 2010.

And I'd mentioned key markets that are Southern Europe that have low penetration of generics.

We grew 44% in Italy.

There are other untapped market like Japan that have significant potentially.

We grew 30% there.

And finally, I'd wrap it up by commenting on emerging markets that three of our four regions grew at two to four times market growth rate and we continue to see tremendous potential in Asia-Pacific, the Middle East, Central and Eastern Europe, and even Latin America where our business was softer in 2010.

Okay, with that I'd like to close the call.

Thank you for your attention and we look forward to updating you quarter by quarter.

Ladies and gentlemen, the conference is now over.

Thank you for choosing the activity and thank you for participating in the conference.

You may now disconnect your lines.

Goodbye.