Novartis AG (NVS) 2011 Q4 法說會逐字稿

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

I'm Stephanie, the Chorus Call operator for this conference.

Welcome to the Novartis Q4 full-year results 2011 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 webcast.

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

Joe Jimenez.

Please go ahead, sir.

Thank you.

I'd like to welcome you all to our fourth-quarter and full-year results webcast.

Joining me today from Novartis are Jon Symonds, the CFO, and then we have a number of the Division Heads here.

David Epstein, Head of Pharma, Kevin Buehler, Head of the Alcon Division, Jeff George, Head of Sandoz, Andrin Oswald, Head of Vaccines & Diagnostics, George Gunn, Head of Animal Health, and Naomi Kelman, Head of OTC.

So before we start, I'd like Susanne Schaffert to read the Safe Harbor statement.

Susanne?

The information presented in this webcast 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.

Starting on slide number 4.

We had a strong full year in 2011, with our sales on a constant currency up12% versus a year ago.

We were able to continue strong core operating income leverage of 16%, and we had record free cash flow of $12.5 billion.

I think we made good progress on our innovation pipeline with 19 approvals across the divisions, and 11 first-to-files.

On slide number 5 you can see that in the fourth quarter our sales were up 5% versus a year ago.

We delivered very good operating income leverage on the core results, but you can also see the impact in the fourth quarter of the charges that we have pre-announced, and Jon Symonds will come up and give you more detail in a minute on those charges.

Slide 6 shows what I would call the benefit of Novartis' diversified portfolio.

We had the strongest growth this year from the Alcon group, up 7% on a pro forma basis, and also Sandoz, which was up 7%.

Pharma had what I consider a very strong year with sales up 4%, while absorbing 4 points of generic erosion on Femara in the US and on Diovan in parts of Europe.

In Vaccines & Diagnostics, the business was up 22%, excluding H1N1, behind the launch of Menveo.

We're continuing to execute well against our three strategic priorities of extending our lead in innovation, accelerating growth and driving productivity, and I want to just touch on some of the progress that we have made.

In 2011, we proved once again that we're leading the industry in terms of approvals.

15 major approvals in the Pharma Division, including Gilenya approval in Europe and in Japan, so we expect to repeat our successful launch from the US in those regions.

Also, Afinitor approval in both US and Europe for pancreatic neuroendocrine tumors.

And Lucentis received approval for two new indications, DME and retinal vein occlusion, which is very important, as we start to face some competition in wet AMD.

Alcon and Sandoz also contributed to this innovation with four approvals in Alcon.

An example of this is strengthening of our glaucoma franchise with the BAK-free formulation of Travatan and DuoTrav.

Also, we received approval to Dailies Total1 which is our first silicone hydrogel daily disposable lens.

And importantly, Sandoz had 11 first-to-files in the US.

We also accelerated our growth in emerging markets by leveraging some of our cross-divisional capabilities in these important markets, so I'd like to highlight a couple of numbers.

China, the business grew 24% Novartis, which was a significant pickup versus the previous year, and also Russia up 17%.

Brazil was a little bit weaker because of generic entry of Diovan and a couple of other brands, but we have very strong plans in place for Brazil in 2012.

Now, the second priority is turning that innovation into sales and profit growth that hits the P&L.

On slide 11 you can see that we are successfully transforming this portfolio.

On the right-hand side, sales from newly launched products reached $14 billion, which was about 25% of our total group sales, and it's up 38% versus 2010.

On the left-hand side, you can see the launch trajectory of Gilenya, just one of many launches.

I think because we have a large number of launches, we continue to learn and get better and better with each consecutive specialty launch that we have.

Alcon delivered very solid performance, on top of the integration work that was a significant drain in 2011, so the growth on Alcon was led by the Pharmaceuticals and the Surgical sector.

They also had very strong growth across many regions.

Asia up 17% versus a year ago.

Kevin's going to come up and talk a little bit later about -- more about Alcon.

Sandoz continued to strengthen its position as a global leader in generics, number one in biosimilars, and this business was up 37% versus a year ago.

Number one in injectables as Enoxaparin crossed $1 billion in the US, and number one in Ophthalmics.

We took the Alcon generics business, turned it over to Sandoz, and that business is up 24% versus a year ago.

Jeff will come up and talk more about how broad-based the growth in Sandoz is.

Vaccines & Diagnostics grew at the top of the industry, up about 22% excluding H1N1.

Our Menveo vaccine crossed $140 million of global sales, and we filed the new indication for infants in 2011.

Also, the next generation vaccine, Bexsero, for meningitis B was filed in Europe and we expect regulatory approval in 2012.

Our Consumer Health business grew 3%, as both Animal Health and Over-the-Counter drugs drove their key brands.

In fact, you can see that the OTC business grew in emerging markets about twice what the market was growing, so over 20%.

And also on the Animal Health business, our animal health group defended their business in the face of a launch by Ely Lilly against parasiticides in the US, and they defended their territory very significantly.

In 2011 we also made great progress in productivity.

We achieved savings of $2.6 billion, and this was about 30% more than we did a year ago.

So in addition to the group-wide savings, each division drives productivity at the country level.

We're also making good progress on our global manufacturing network, and we're taking the necessary steps to reduce some of our excess capacity.

In 2011, we announced the exit or the partial exit of 10 sites, so in total, since we began the program, 14 sites.

Now, as you all know, not everything went well in 2011.

So a step-up of inspections by the FDA led to a warning letter that included three Sandoz sites.

We also temporarily suspended production at our Lincoln, Nebraska, OTC site, and remediation is now under way.

For our guidance, we have conservatively assumed that OTC shipments out of that plant resume mid-year.

Additionally, as we previously announced, we stopped the ALTITUDE trial on Aliskiren, so this was a trial among high-risk diabetic patients with renal impairment.

We have, for our guidance, conservatively forecast shipments in 2012 at a level that is less than half the level in 2011.

We've been planning for a very long time for the patent expiration on Diovan, and because we have so many moving parts, we wanted to provide more transparency around what we expect in terms of reduction, not just for Diovan, but total generics, and you can see that we expect to lose about $1.5 billion in sales for Diovan in 2012, and about $2.6 billion in total, because we still have Femara, parts of Femara in Europe that will reduce in 2012.

So on top of these generics, the genericization, we have the news that I just spoke about on Aliskiren and also the OTC resumption of shipments mid-year out of Lincoln, but this all is fully covered within our guidance of sales in 2012 that are in line with 2011.

If you look at how we're able to accomplish that, it's because of our launch brands.

We have been able to build the capability of these launch brands, and they contributed $4 billion of incremental sales in 2011.

And we expect them to continue to grow, because we had the 15 new approvals or indications or geographies that will continue this launch trajectory.

So, I think the underlying performance in 2011 was very strong, and despite the headwinds, we're optimistic about 2012 and beyond 2012.

So now, what I'd like to do is turn it over to Jon Symonds to give you a little bit more detail on the financials.

Jon?

Thank you, Joe.

Good afternoon, or good morning, everyone.

I have two topics I want to cover today.

Firstly, a brief review of the full-year and quarter-four highlights, and then a few slides on our guidance and expectations for 2012.

I'm sure you're mostly interested in the second part of this presentation, given that we came in almost exactly in line with expectations today.

But before I turn to 2012, I want to make sure that we fully build up the lessons that we have learned from 2011 into 2012.

So let's go back a year to the expectations we set then.

We've done pretty well on all the measures, especially on margin, where we've done much better than the expectation we had a year ago.

If you remember, at that time we said that the achievement of a flat margin would be good, given that the loss of H1N1 would not be made up by the new margins from Alcon.

And as a result, we would have started the year around 50 basis points behind.

To have delivered the 110 basis points on top of this really stands out as a statement of our determination to drive profitability and productivity, and as you'll see in a moment, all of the Divisions fully contributed to this result.

As you see here, we finished the year strongly on a core basis, but of course the actual results were heavily impacted by provisions, with $1.5 billion of net provisions charged in quarter four, and obviously this had a heavy toll on the reported earnings.

On a core basis, however, you can see, as Joe has already said, good operating leverage for both quarter four and for the full year.

Free cash flow of $3.9 billion in the quarter was also a good finish, making $12.5 billion of free cash flow for the year as a whole.

Before turning to the underlying business performance, this slide shows the full story on exceptional items for both the fourth quarter and for the full year.

You can see from the first column that the net exceptional items, excluding acquisition accounting, was $1.5 billion.

That's $200 million of income, and $1.7 billion of charges.

Most of the large charges were fully signaled ahead of the year-end results, but let me just make a few comments on some of the larger ones.

Firstly, Tekturna, the charge of $903 million.

You should note that this is an accounting impairment charge that's based on lower expectations of sales.

We're still in discussion with the regulatory agencies to determine what the full impact is on the label going forward, and also the consequences on the ongoing outcome studies.

We also reported at the same time that we had acted to rebalance our US sales force and accelerated the reduction of headcount with 1,960 positions affected, and an aggregate restructuring charge of around $160 million.

That restructuring charge will be taken in the first quarter of 2012.

Secondly, we took a charge of $115 million in relation to the product [ridural] and temporary closure of Lincoln.

The accounting for this was made a little more complicated by the fact that part of it was charged to revenue, and that we deducted the whole effect from core earnings.

I want to make sure that as we present this, that you understand the full cost of the exceptional event, which is why we incorporated the whole $115 million into core earnings.

Although Lincoln is an evolving situation, we have had to make an assumption for 2012, as Joe's already said.

The plant generates around $1 billion of sales value, and for now, we're assuming that it will take six months for the plant to resume full shipments.

We'll obviously provide updates on that as we move through the year.

The third item was $163 million on the termination of two development compounds, Integrilin and oral Calcitonin, and finally, a $288 million charge on the restructuring measures that we announced in October, including $207 million in Switzerland.

This charge is a little lower than that we predicted in October as a result of the agreement to keep Neon open.

So a lot happened at the end of the year, and I'll leave it at this for now, and we can deal with questions in a moment.

On this slide you can see how each of the Divisions' performance has been delivered on an operating leverage basis.

There's only one exception on this slide and that's V&D, which is a result of the H1N1 revenues in 2010.

As Joe's already mentioned, without those, V&D had a very good year and an exceptionally strong finish in quarter four.

Cash flow was up 1% to $12.5 billion, which I think is also a reasonable performance.

On this slide you can see the performance of the recently launched products for quarter four and for the full year.

I make no apologies for repeating this slide because it lies at the heart of our patent defense strategy for the next two years.

25% of group sales come from these products, and that's up from 19% a year ago.

With the new indications -- the new advances for many of these products, they represent a very substantial base from which we can continue to grow strongly.

As I mentioned at the beginning, we had a very good year with the development of the core operating margin.

You can see here the development for each Division, the product of both excellent execution on the top line, as well as a very disciplined management of costs.

I would point out here the Pharma performance, which delivered an increased margin of 140 basis points to 30.9% in a year when Femara went generic in the US and Diovan began to face generic competition in Europe.

Of course, next year will become more difficult, but the division has demonstrated its commitment and its determination to deliver.

The margin improvement in quarter four is higher than the annual trend, as we've achieved a better balance of spending between the third quarter and the fourth quarter this year, as compared to 2010.

For Sandoz, as Jeff will mention shortly, quarter-four performance is mostly down because of a very strong comparator in 2010, as well as slightly softer pricing on Enoxaparin.

This should not diminish, however, from what was an overall excellent year.

It's also worth remembering that in 2010 we delivered 190 basis points of improved core operating margin.

That makes three whole percentage points of margin improvement in two years.

A major factor in this performance has been the focus on productivity.

You can see here for the year as a whole we generated 4.4 percentage points of margin from productivity, representing $2.6 billion in value.

As you will see shortly, together with the performance of new products, productivity is the second critical piece of our performance over the next two years.

We're confident that we can continue to deliver productivity measures to improve margins and offset the impact of patent expiries, as well as allowing the business to continue to make the investments that are necessary to sustain growth in the future.

For 2012, we'll be targeting productivity savings of around 3.5 to 4 percentage points of sales.

For the sake of completeness, I record here the reconciliation of operating income to earnings per share.

The story is very much that, that you've seen through the year so far, and many of these elements will be present during [2002], although, once we pass the anniversary of the Alcon merger in April 2012, the reconciliation should become a lot simpler.

Turning now to cash flow.

On the left hand of the slide here you can see how we generated $12.5 billion of free cash flow in the year, up from $12.3 billion in 2010.

This was broadly flat as a result of the movements you can also see between Alcon and H1N1.

Each division is given stretch and cash flow targets and all of them achieved this, although the overall effect was diluted a little by the increasing working capital in Sandoz, which is predominantly a result of having a very low exit level of working capital at the end of 2010.

You can also begin to see the impact that Alcon is having on our cash flow, with incremental cash flow generated in the year of $2 billion, making a total of $3.5 billion of free cash flow in the year as a whole.

I should point out, however, that CapEx included in this figure was $2.2 billion, or about 3.7% of sales.

It's likely to increase in 2012, partly as a result of increased quality expenditure on our manufacturing plant, so you should assume CapEx next year in the 4 to 5 percentage range.

On the right-hand side of the slide, you see the movements in net debt.

Broadly speaking, net debt has remained unchanged for the year at around $15 billion.

This means that over 90% of our free cash flow has been distributed to shareholders via dividends and share buybacks.

Obviously, $2.4 billion of this represented the buyback that was undertaken specifically in relation of Alcon, but even without this, over 70% of our free cash flow was returned to shareholders, demonstrating that we are committed to increasing short-term shareholder returns, as well as investing in the business for the future.

Based on the dividend that we announced today of CHF2.25, that represents about $5.8 billion of cash flow and represents 63% of 2011 attributable net income, which is an 8 percentage point increase over 2010.

So with that, let me now use the lessons from 2011 to turn to our expectations for 2012.

This slide sets out the key assumptions and the moving parts behind our plan for the year.

What I've tried to do here is outline what the key influences are on the top line, and how they flow through to profitability, and let me go through each in turn.

Obviously 2012 represents the beginning of the Diovan patent expiry cycle, with a full year of generics in Europe, as well as from September 2012 generics in the US.

There are other patent expiry effects as well, for example, the full-year impact of Femara, and overall, as Joe has said, this could add up to about $2.6 billion in the Pharma Division.

As we've been progressively pulling resources away from this product group over the last few years, we will be losing relatively high-margin revenue streams.

While we're doing everything that we can to price-protect our portfolio, whatever we are faced with by way of price pressures will drop through to the bottom line.

Our expectations for pricing for the group as a whole in 2012 is around a negative 2% on sales.

This leaves the growth of recently launched products as a primary driver of the top line that we can really influence.

Hence, why we've made so much of this measure over the last three years, and I'll remind you once again that in 2011 this portfolio generated incremental sales of $3.9 billion for the group and $2.6 billion in Pharma alone.

On the profit side, we're still investing in this portfolio as we add new markets and new indications, such that the relative profitability is somewhat less than that which we are losing on the patent expiry portfolio.

Don't think of this as a mix issue, but rather a deliberate decision to invest for the future.

Finally, on profitability, you can see that the equation is balanced by productivity.

Hence, why there is such an important component of our operating profit going forward.

To be clear, the challenge of bringing the Lincoln plant back onto line leaves the equation somewhat unbalanced, with the likely outcome being a slight reduction in core operating margin, something less than a full percentage point, although we will of course aim to improve on this.

This slide shows pictorially what I've just described.

Clearly, there are still a few boxes for you to work out, but I think the picture should be very clear.

Finally, slide 33 summarizes the guidance that we've given, and I think I have pretty well covered all of the major items on this page with one exception, and that's currency.

As many of you have already recognized in your pre-results notes, the dollar has strengthened somewhat since our quarter-three update.

The result is that if you were to use December average rates, sales and operating income growth would be about 2 percentage points lower than it would have been compared to 2011, and we'll have many more opportunities during the year to update you on these assumptions as the year progresses.

So with that, and in the interest of time, I will now hand you over to David Epstein for the review of the Pharma Division.

Thanks, Jon.

It's my pleasure to give you a review of Pharma results for 2011, as we ended the year quite strongly.

We had made great progress in improving commercial execution, better resource allocation across the portfolio, and as you can see from the figures, a heavy focus on productivity, resulting in good leverage with core operating income growing at roughly double the rate of the top line.

In addition, as Jon mentioned, if you strip out FX effects, the core operating income margin actually would have been 33% for the year.

More importantly, when you look under the surface of that 4% sales growth, you see that the majority of it, in fact 8 points of growth, has come from those recently launched products that we're going to be reporting on into the future.

These will drive the growth of the Pharma Division, and the growth of those products has more than offset the loss in sales to price cuts, as well as generic intrusion and some small divestments that we made during the year for a net increase of 4 points.

Looking particularly at those growth brands, you see that they now represent 28% of our sales and they recorded growth of 35% during the year.

When comparing our results to other companies, looking specifically at IMS data, you see that Novartis outgrew the Pharma market overall, and the Pharma market here is probably overstated, as IMS is not doing a terrific job picking up rebates and discounts, but you could see we're at the very top of the industry in terms of growth during 2011.

Once again, speaking to our ability to execute in the marketplace.

We believe we have an unparalleled platform for growth with our current as well as future blockbusters.

This is a chart that I've shown you before.

In the past we had Tekturna, Rasilez on this chart; we've now removed it.

I'll talk more about that before the end of my presentation.

Looking at the seven products on the chart, we see that Lucentis is already a blockbuster.

Xolair, when we include sales booked by our partner in the US market, is also a blockbuster as we speak, and Tasigna, Galvus, Gilenya and Afinitor we believe will be blockbusters in the not-too-distant future.

Behind that we have a very exciting respiratory portfolio, which we believe also has a chance to deliver blockbuster opportunities across the three different respiratory brands that we have on the market and in development.

All this was done, the growth was achieved with the launch portfolio, while at the same time through better resource allocation as well as working with our partners to reduce costs and better sourcing.

We were able to reduce marketing and sales spend of the total of sales by about 3.3 points since 2008, as we continue to look to spend the money in the wisest way.

Now, I'd like to take a moment and switch to just a couple of the brands.

Gilenya in particular is setting a new benchmark for global launch uptick in multiple sclerosis.

As you can see here, we are doing better than Tysabri, Avonex, Rebif, and Copaxone, when comparing for the similar points in time.

During the year we recorded sales of $494 million, and importantly, during the fourth quarter we saw the beginning of stronger uptake ex-US, as those markets have come on later than the US, with sales more than doubling in Q4 at about $62 million versus Q3 of $32 million in the Rest of World markets, and I believe it's these markets that will allow us to continue fuel strong growth for the brand.

What I want to do now before I move on is try to put the Gilenya story, to give you a little bit more perspective given what we've seen in the press of late.

You've all heard about the recent death of a patient that died less than 24 hours after she took her first dose of Gilenya.

She went through the normal six-hour observation period; there was no ECG taken, and it was really uneventful.

Unfortunately, she passed away during the evening, and we do not yet have a detailed autopsy report.

That event triggered the health authorities around the world to begin discussions with us about the product and the label and to look at overall benefit risks for the product.

What I want to do now is be fully transparent with you and give you a complete review of MS patients that have ever died after having taken Gilenya.

The overview covers more than 30,000 patients who have been treated since 2003 in both clinical trials and in the post-marketing setting, and I want to emphasize that it's very unusual, perhaps unprecedented, for a Company to disclose all cause mortality in this therapeutic area.

So as a result, I'll show you the numbers now and we'll talk our way through those.

When we compare our data overall, with the background rate of overall death as well as cardiovascular death in comparable population, we see no imbalances whatsoever.

Also, when we look at our controlled clinical trials, which are covering thousands of patients over several years, we see the rate of death is not elevated when compared to placebo.

Since 2003, there have been a total of 31 MS deaths.

11, which is what you see in the press, are mentioned in the EMA's press release of January 19th.

These are patients that were on Gilenya from between two weeks to three years, with the exception of that one US case which I already mentioned to you.

In addition, for full transparency, there were 20 cases not mentioned in the EMA's press release, bringing the total number to 31, and as you can see here, a number of these patients have been off Gilenya for quite some time, some as long as three years.

There were also people that passed away because of traffic accidents, suicide and the like.

We are confident that Gilenya has a strong benefit/risk profile and we believe this brand will continue to provide significant growth to our Company.

But as I said, as a result, the regulatory authorities have started reviews, both in Europe and in the US.

In the interim, the EMA has asked that the patients who go through that six-hour screening also have continuous ECG monitoring.

The French have taken a more aggressive approach.

The FDA's ongoing safety review, you can read off the chart, has told us that are no interim recommendations beyond the current label at this point in time, and I think over the next couple weeks to months, we'll get more clarity if there are any changes that are required.

Switching now to another brand, Lucentis.

Lucentis did very well during the course of the year, reporting growth of 26% 2011 over 2010, driven by growth both in the existing indication of wet AMD as well as the first sales now in DME and RVO.

During the end of the year, we saw that a future potential competitor presented some of their data where they did a comparison of their drug with Lucentis, and what we see there, interestingly enough, is that the required number of injections between the two products in year two is not different at all, probably taking away a key promotional point that they were counting on.

Switching now to our BCR-ABL franchise we see that Tasigna continues to do well, representing over 19% of our CML sales.

In fact, during Q4 at the American Society of Hematology meeting we presented more data that shows patients on Glivec who still have active disease at two years, those patients who have switched Tasigna have a much greater rate of achieving complete molecular response, which is the best measure of no evidence of disease.

We think this data will continue to support this brand's growth and more new patient starts on Tasigna going forward.

The Galvus franchise continues to continue to be under-appreciated by the market.

It grew 66% during 2011, reaching $677 million in sales.

We rolled out two label enhancements focusing on elderly patients with diabetes, as well as patients that are renally impaired.

These patients were now eligible to take Galvus; they could not before.

In a number of countries, in fact, in six countries, despite launching second, we are now the market leader in the DPP-4 space and we were able to achieve an approval in China towards the end of the year which should result in future growth once reimbursement is achieved there.

This brand should be a blockbuster, we believe, quite soon.

I promised you I'd come back to Rasilez and Tekturna.

As you know, after the seventh review, the data monitoring committee recommended stopping this trial because we're unlikely to show benefit when Tekturna was added on top of ACEs or ARBs in diabetic patients.

In addition, there was a higher rate of averse events.

The regulatory review is ongoing.

There's no additional information that I can share with you.

We have already sent out that Dear Doctor letter.

It's our expectation that sales will be significantly lower in 2012 than 2011, probably less than half of what we recorded last year.

The news that I share with you sometimes makes us focus or takes the focus away from our great pipeline, and the very good positive data that we've been reporting on several development projects -- on Gilenya, on INC424, Afinitor in breast cancer, which that review is going quite well.

We now know from the FDA that we will have an Advisory Panel discussion during late June of this year to discuss the breast cancer indication for Afinitor.

New data on Exjade as well as good progress on ACZ in juvenile arthritis and on AIN in psoriasis.

So the news flow will continue to be robust in the Pharmaceutical Division.

In fact, between the time we started to write this slide and the presentation today, we already had good news from CHMP with a positive recommendation on expanding the Glivec label in the adjuvant GIST setting to encompass now three years instead of one and a recommendation for approval of a new drug, SOM230, for the treatment of Cushing's Disease.

I'll let you read the rest of the chart for yourself.

At this point I'd like to hand the presentation over to Kevin, the Head of the Alcon Division.

Thank you, David.

Good afternoon, good morning respectively.

I want to start with simply reminding everyone on the integration that took place in 2011, as an entry to the conversation around our results.

Clearly the chart has a tendency to overstate the simplicity of an integration like this, but clearly we had a number of moving parts with CIBA Vision being integrated into Alcon in order to create an Integrated Eye Care Division, obviously adding in a few smaller products from Novartis Ophthalmics into that same integrated business unit.

As Joe mentioned, Falcon, which was the generic Alcon business moving into Sandoz, and all of this as Alcon entered into a broader Novartis Division.

As you see from this chart, obviously we had a positive year with 7% constant currency sales growth and core operating income increasing at a faster rate of 9%.

If you also take a look at our ability to improve what I think is already a relatively high core operating margin, increasing from 34% to 35% in 2011, and impressively the free cash flow on a growth level of $3.5 billion, overall financially a very positive year.

Taking a look at the contribution of the revenue, you see a couple of trends.

First of all, very balanced growth on the left-hand side of the chart where you see the mature markets growing roughly 5% or 6%.

And you see very accelerated growth in emerging markets, where growth was over 20%, and you can see in Asia, up 17% with very positive growth developments coming from India and China.

Positive year in Japan with the pharmaceutical business, and Latin America also had a very strong year.

When you look at the right-hand side of the chart you also see the balance coming from Surgical and Pharma, 8% and 10% respectively.

The Vision Care business up 1% requires a little definition.

First of all, it's the combination of contact lenses, which were up about 3.5%, but more impressively, the core flagship brand Air Optix up 18%, clearly taking share.

We also saw very positive performance in contact lens growth in the US, as well as in Japan.

The weakening part of the Vision Care business really was the MPS product growth on OptiFree where we were somewhat depressed in the US and Japan markets, but we also saw a very positive growth in hydrogen peroxide where we again were taking share.

In total, you need to remember that the care side of the business is obviously a function of what's going on with contact lenses, and as Dailies continue to grow, you're going to put pressure on the care side of the business.

Also, a key part of the integration was identification and realization of cost synergies, and as you think about margin evolution, obviously you've got two factors.

One is the revenue growth; the second is the ability to integrate and realize cost synergies.

In 2011, we identified a little over $75 million that we were able to realize.

You see 2012's goal at over $200 million, and the three-year goal at over $350 million, and you can read the rest of the chart, including the capital structure change for over $550 million in total.

If you look at the key accomplishments in 2011, they were broad-based across all three of our businesses.

First on the Surgical side, advanced technology IOLs continue to be a driver for growth and specifically the Toric lens was up 22% in 2011, demonstrating clinical performance of this product.

Also, if you look at cataract procedures and specifically volume outside of the US, units were up 6%, which also reflects the ability for us to grow share inside of the basic cataract procedure.

And then very important, and I've got a slide coming up, as it relates to the introduction of LenSx, the femtosecond laser for cataract application, where we were first to market and our ability to grow installed base is critical to our future success.

Specifically on Pharmaceutical, two areas of real growth.

Organic growth in glaucoma, up 10%, clearly our ability to continue to grow share, and our dry eye franchise, up 24%.

Vision Care, I mentioned Air Optix growth and share-taking position up 18%, and also hydrogen peroxide.

Most important is our launch of Dailies Total1, the first silicone hydrogel daily lens in the category that we're defining as water gradient.

Let's take a few minutes and look at these two launches.

We purchased LenSx primarily to secure our first-to-market position.

The concept here is the ability to allow the laser to deliver much more predictability, as well as the ability to link this predictability of the surgical steps into clinical outcomes.

And we believe that when using a femtosecond with an advanced technology IOL, you have the ability to improve the outcome.

By being first, we were able to train over 500 surgeons in 2011, and do over 7,000 procedures.

So clearly, LenSx is an important launch for us.

Secondly, I mentioned Dailies Total1.

It is a first product entry in this water gradient silicone hydrogel daily segment.

The real advantage here is on the eye comfort and we've launched in the Nordic and Benelux areas late in 2011 to very positive initial results.

So if we think about 2012, it's going to look very similar to 2011.

Advanced technology IOLs will continue to be important, as well as the continued roll-out of the LenSx laser and continuing to focus on moving cataract procedures into small incision phaco procedures in the emerging markets like China, Russia and India.

On the Ophthalmic side, we will continue to focus on growing share with our existing portfolio and some of the preservative benefits that we've gotten with the BAK-free approvals.

Vision Care really becomes a performance year with our new organization, where we should have increased share of voice and capability across both contact lenses and solutions, and we will continue to roll out Dailies Total1 as capacity allows us to build throughout the year.

So in total, the outlook for 2012 is constant currency sales growth in the mid to high single digits.

And with that, I would like to end and invite Jeff to come up and review the Sandoz business.

Thanks, Kevin.

Starting on slide 62, you can see the simplified Sandoz P&L, which shows that sales for Sandoz were up 7% in constant currencies and 10% in US dollars to just under $9.5 billion.

Core operating income was up 11% to over $1.9 billion, with a 20.3% core return on sales, which was in line with our all-time high in 2010, and near the top of the top quartile among generic companies.

Operating income at a total level was up 10%, and as Jon mentioned, free cash flow was down as a result of our adjustment to our net working capital levels, which were too low in 2010, and resulted in stock-outs in early 2011.

But at over 16% of sales, this is still at the high end of our generics industry.

The next slide shows the broad base of Sandoz's regional performance versus competitors, with Sandoz outperforming the net market.

You can see in the US and Canada, as well as across Europe and slightly ahead of the market in both Asia, as well as Latin America.

I think notable is that Sandoz outperformed the market significantly in both Europe and Canada, despite not having Enoxaparin, which was a key driver of the US sales, and did so on the back of strong volumes in Europe and Canada.

On slide 64, you can see the performance over the last three years of Sandoz, and we've seen a 17% growth in our core operating income on a compound annual basis, really driven by strong sales growth but also as a result of significant productivity improvements.

Sandoz has been able to save slightly over $1.4 billion of actual cost savings in the last three years, with over $3 billion of savings in 2011.

As Joe mentioned, on slide 65, Sandoz continues to strengthen our leadership in differentiated products and biosimilars.

I'll mention Biosimilars on the next slide, where we have a number one position of the total segment share in the highly regulated markets in Europe, North America, Japan, and Canada, and which grew 48% in the fourth quarter and 37% for the full year.

I'll show in a couple slides how Sandoz has overtaken Teva, Fresenius, and Hospira to move from number four in generic injectables in 2008 to number one in 2011, and thanks to the nice growth that we've seen of our Ophthalmics business, as a result of the transfer of that business from Alcon, we've seen Sandoz move into a global leadership position in generic ophthalmics as well.

Looking at our biosimilars performance, I think notable is not only that this is a significant growth driver for us now with $261 million in sales in 2011, but also the way in which we're expanding and building out the pipeline to continue to drive leadership in this space.

We announced the Phase III start in follicular lymphoma for our Rituxan biosimilar earlier this year following our Phase II rheumatoid arthritis start in January of 2011.

And then last week, we announced the start of Phase III clinical trials for our US programs in both Filgrastim and Pegfilgrastim, which are the biosimilars for Amgen's Neupogen and Neulasta.

On the next slide, you can see what I mentioned earlier in terms of the Sandoz performance.

This is IMS data in value terms, not including biosimilars, so it's just looking at generic injectables.

You can see Sandoz moving from under $1 billion in gross IMS sales in 2008 for the full year, behind our competition, to the number-one position in 2011 on the back of double-digit growth that we've seen both in retail anti-infectives and oncology injectables in the last couple years.

As well as Enoxaparin, which we believe became the first-ever generic blockbuster in 2011 with over $1 billion of sales.

With respect to Enoxaparin, Sandoz is again the only generic on the market in the US as an alternative to Sanofi's Lovenox.

Following the successful preliminary injunction that we received against Amphastar and Watson, with our partner Momenta, and following Sanofi's more recent withdrawal of its authorized generic.

Other potential competitors' launch plans at this point remain uncertain, and pricing remains, as Jon said, slightly below launch levels when we launched in July of 2011.

From a pipeline perspective, as you can see on slide 68, we continue to make significant progress on our US pipeline.

You can see here for the last two years we've had 11 first-to-files.

We now have a total of 165 pending ANDAs with the US FDA, 104 of which are Paragraph IV.

Notable also in 2011 is that we had 18 launches in the US market driven by launches of complex injectables of, such as Docetaxel, of oral contraceptives, of which we had five, led by our generics for Yaz and Yasmin, as well as generics in the areas of dermatology and respiratory in the US.

Moving to quality.

Joe and Jon touched on this earlier.

With respect to -- and I'm on slide 70 -- with respect to the recent warning letter that we received at our three North American sites, which comprised 12% of our US sales, we submitted our warning letter response within 15 days as requested on December 12, and we met in person with the FDA on January 17, and we are fully committed to fulfilling all of our commitments to FDA.

I should mention that each site had a new management team since prior to the warning letter, both at a site head and site quality head level and we committed over $170 million of capital expenditure and site expenditure at these three sites, the majority of which had been planned and initiated several months prior to the November warning letter, and in fact in many cases prior to the inspections that we had from FDA last summer.

Production is continuing at each of the sites.

We have remediation that is on track with FDA and Health Canada commitments, and we are working with FDA in the cases in a couple cases where we're discontinuing products, particularly out of our Boucherville site.

Turning to my final slide, the 2012 outlook is a bit more challenging than we've seen in the last three years.

On the positive side, I think we benefit from the continued momentum that Sandoz has by being the leader in differentiated generics and biosimilars, continuing to outperform the market both in Europe as well as emerging markets, and the very strong focus that we have on both speed and productivity within Sandoz, with the savings that I mentioned earlier.

In terms of challenges, as Jon mentioned earlier, there is a real possibility of competition on Enoxaparin in 2012, as well as the increased investments that we're making into quality expenditure and site-level investments.

And finally, biosimilars and respiratory R&D are increasing as we move into Phase III on a number of our clinical programs in biosimilars, which is a good thing as this is key to strengthening our leadership position in this very important field for generics in the future.

We are guiding a slight decline in constant currency in sales for 2012.

At this point I'll turn it back over to Joe.

Thanks, Jeff.

We made solid progress on our strategic priorities in 2011, and as we do every quarter, we will provide you with updates on progress against those three priorities at every quarter.

We have strong plans in place for 2012, and I think some of the key success factors for 2012 include delivering on the product approvals such as Afinitor in breast cancer, Bexsero in Meningitis B, and INC424 in myelofibrosis.

Continuing our launch trajectories, because they're going to key to help us offset some of the patent expirations that we're going to see, and efficient remediation of all quality issues.

It's important to note that we are just six quarters away from having the majority of the Diovan patent expiration behind us and we are all focused on executing against these priorities.

So just to conclude, our outlook for 2012 is that we expect sales to be in line with 2011, and we expect group core operating income margin to be slightly below 2011 in constant currency basis while absorbing price cuts, the generic erosion that we talked about, and mid-year shipments for OTC out of the Lincoln site.

I'd like to thank you for your attention, and I'd now like to open the webcast for questions and answers.

First question from Gbola Amusa from UBS.

Please go ahead.

Good afternoon.

A couple questions for Jon on the buyback.

Your releases today say the buyback and dividend should make up the majority of free cash flows.

On our numbers, that suggests it might be as low as $1 billion for the buyback but could also be as high as $5 billion to $7 billion, if all 2012 free cash flows are tapped.

First of all, could you update us how much of the $10 billion of buybacks authorized in 2008 and reauthorized in 2011 is left?

Is it $7 billion?

And second, on the comment that buybacks will be done opportunistically, could you update us on exactly what opportunistically means?

I know we stated a menu, before, but does it mean no M&A opportunities exist?

Does it mean you have access to free cash flow left, or does it mean your shares are simply undervalued?

Potentially it could be all of those things.

Let me come back to the first part.

We have about $7 billion left on the authorization that was granted to us a while ago.

If you remember, when we talked about this extensively during the back of last year, the buyback was put in the context of triangulating between our credit rating, the needs of the business and the returns in shareholders.

And I think what we showed in the end of last year was that we actually delivered most of our free cash flow to shareholders, and our debt at the end of the year, at about $15 billion, was where we really started at the beginning of the year.

So our credit rating still remains in the low end of AA.

Our ratings were reaffirmed at the end of last year.

One of them at AA minus, and the other one at AA with a negative outlook, so there's no change in the credit rating.

And so, as we look at 2012, we want to make a continuing commitment to return to shareholders.

We obviously have a higher dividend, but the opportunistic part is that we will continue -- we will buy as and when we see the opportunities.

Frankly, for all of the reasons that you laid out there, whether it was price, to keep tension in the balance sheet, and so on.

So we are definitely not saying there were no buybacks, we're just not announcing a structured program that has a defined limit to it.

Next question?

Next question is from Mr.

Michael Leuchten, Barclays Capital.

Please go ahead, sir.

It's Michael from Barclays.

Two questions.

One, Joe.

I'm struggling to look at 2012 in isolation, simply because Diovan obviously spills into 2013 as well.

So with that, and the way you outline the momentum of the business, you're losing $2.6 billion in generics in 2012, and the new products just added $2.7 billion in Pharma.

Which part of the business are you looking at for increasing momentum to make up for the incremental shortfall in 2013?

And then secondly, a broader question on the manufacturing issue that you had tried to address.

The warning letter on Sandoz was addressed to yourself and it suggested that maybe there's a broader problem across Novartis.

Could you please comment on that?

Okay.

Just in terms of the momentum that we expect in 2013, I don't want to get too far out ahead of ourselves, but if you think about the Alcon growth rate that we expect, that's going to help us offset additional reduction in Diovan, because when you look at the surgical business and the pharmaceutical business, there is significant growth there, we believe.

And we're already starting to see that.

The other is Vaccines & Diagnostics, we expect to have the Bexsero vaccine approved in 2012, and that should also help us with some incremental sales.

But you can't overlook the Pharmaceutical launch brands.

If you look at the Pharmaceutical launch brands, and incrementally what they have delivered in 2011, what they will deliver in 2012, given where we have guided total pharmaceutical sales, you can see that as soon as the Diovan patent starts to get underneath and into the base, which begins mid-year in 2013, -- or actually, probably second half of the year 2013, you can see a change in the growth profile of pharmaceuticals that is significant.

So even if Alcon and V&D were not accelerating that growth rate, you're going to see that momentum pick up in the pharmaceutical division.

Regarding the Sandoz warning letter, it was addressed to me.

I think it was a message by the FDA that there's an expectation that what I have said previously is true, and that is that there is a single quality standard at Novartis and every division is going to be held accountable to that quality standard, whether you work in pharmaceuticals, or whether that site is in Sandoz, or whether that site is in over-the-counter drugs.

If you look at our own internal audit data of all of our sites, we have 100 manufacturing sites throughout the system.

We have had, in 2011, over 300 inspections by health authorities around the world, including the FDA, and by measures, we are substantially in compliance with CGMPs.

So we are focused on those sites that require remediation, and we are working very hard to remediate as quickly as possible.

Joe, if I could just add on to that comment.

While we clearly have work to do at Sandoz at the manufacturing sites that were cited in the warning letter and to strengthen our quality operations, I think it's important to note that nearly all major generic manufacturers have received at least one warning letter in the last couple of years and we've seen an increased level of enforcement with warning letters going from 17 in 2008, quadrupling to 67 in 2010.

So I think it's important to note the broader context as well.

Next question?

Next question from Mr.

Matthew Weston, from Credit Suisse.

Please go ahead, sir.

Good afternoon, thank you for taking my question.

Two, if I can.

The first for Joe.

2012, do you think that will be the trough year of earnings, or with the continued impact of US Diovan into 2013, do we expect that will be the trough year for earnings for the business?

And then more specifically on Sandoz, I noticed the contingent payment reduction on the Oriel acquisition.

It looks effectively like the price of that deal is almost halved.

Can you tell us what has changed in the outlook for Oriel that means you are paying them substantially less, and does that have implications on generic Advair and your time line in the US?

Okay, starting with the question about the trough year, I don't want to get into guidance beyond 2012.

I think all you have to do is model what we have said about Diovan, and what we have shown you in terms of the reduction in sales that we're going to see after the reduction that we saw in 2011, 2012, and as you know, 2013.

And then you can model the current growth trajectory of the launches that we have laid out, and so I would just leave it at that.

I would say that, look, we're going to deliver sales that are in line with 2011 in 2012, and to me, to be able to offset the impact of the profitable Diovan sales with all of our other launches, and the productivity that we're doing, and then hold our core operating income margin to, let's say within a point of where we were in 2011, I think that's pretty substantial performance.

So we'll take each quarter as it goes, as we get through this situation.

And remember, though, that we are six quarters away, so four of them are in 2012 and two of them are in 2013.

Jeff?

Yes, so with respect to the Oriel acquisition, which was completed in June of 2010, it's important to keep in mind this was a milestone-based deal and if certain milestones aren't hit, the milestones obviously aren't paid.

For competitive reasons I'd prefer not to comment further on where we are in our pipeline either in the US or in Europe, but I can say that we're making good progress.

Next question?

Next question from Ms.

Alexandra Hauber, JPMorgan.

Please go ahead.

Good afternoon, three questions, please.

Just to get some better idea about how large the uncertainty from Lincoln is, your assumption of restarting mid-2012, should we assume that you're going to miss $500 million in sales, or is the -- for the product where you have secondary manufacturing sources, are they going to be sourced elsewhere?

Also, have you already met with the FDA to discuss the controlled restart?

Secondly, the higher level of CapEx, is that going to go from several years to a higher level?

I mean in Sandoz it seems to be certainly a three-year higher level of investment or is that just going to be a spike this year?

And just also on Tekturna, what's going to happen to A&P spend?

You discontinued advertising and promotion in the areas that were specifically affected by ALTITUDE.

I'm just wondering, beyond the $450 million, which you're saving from reducing the headcount of that primary care sales, are there other savings which you can make?

Okay.

Starting with the Lincoln restart, Alexandra, we did announce when we released the press release that the site has less than 2% of total group sales, which translates to about $1 billion in sales.

We said we wanted to -- what we wanted to do for our guidance in 2012 is provide a number, or at least an assumption, that we knew that we could work against and that we wouldn't have to continue to revise.

So I will tell you that obviously we've made the assumption that it is mid-year start of shipment out of that site, and if you just take the total sales out of that site and divide by two, that's close to being what the issue would be.

But again, that is what is embedded in our guidance of saying that the profit would be, or the core operating income margin would be within about a point of where it was this year, and that sales would essentially be in line.

So obviously, we have people at the site today.

They're working on remediation.

We have divided the site into technology trains between liquids, powders, capsules, et cetera.

We have dedicated teams working on remediating those issues, and getting the site back up.

So I would leave it at that.

In terms of CapEx, I do think that 2012 will be a higher year for CapEx, as Jon said, as we spend to remediate, but I would expect to see a decline after that as we migrate back towards our historical average in 2013 and in 2014.

On Tekturna, David?

Let me give you a little bit more perspective.

You remember, Alexandra, the ALTITUDE trial was meant to be a trial that was going to then accelerate demand for Tekturna.

So as a result, we were spending on this brand to get it to a reasonable size then we expected and to have that expected uptick thereafter and we were basically making a loss in Tekturna, up until this point in time.

So we've taken down the field force, the announcements have gone out in the US.

In Europe, we have reallocated that field force to other growth brands, because we have a very good primary care portfolio; Galvus, Exforge, Onbrez, Exelon Patch, and the like.

And in terms of A&P spend, which is your specific question, that's advertising and promotion, that will approach zero.

It will be very low.

Next question?

Next question from Mr.

Graham Parry, Bank of America-Merrill Lynch.

Please go ahead.

Thanks for taking the questions.

Just going back to the 2012 margin guidance, just wondering if you could give us some more specific directionality on the margins within the divisions.

If you look at the decline in 2012, is that nearly all Pharma or are you seeing a big contribution there from consumer and Sandoz too?

Second, on capital structure, just wondering should we be expecting Novartis to retire debt from Alcon as it comes due, or would you be looking to refinance that debt?

And are you still looking to reduce net debt overall to get more comfortably within your AA rating?

And then thirdly, on Sandoz, anything assumed in the guidance there for generic Advair in 2012, or are you seeing that as definitely beyond that time frame now, and if so, what is the exact issue there that's holding you up?

Thanks.

Starting with the margin guidance, Graham, we don't want to start getting into individual division guidance.

I think we've given it at the group level, and obviously there's -- when you're talking about the Diovan patent expiration, if you think about the Pharma margin, it's not too hard to assume that maybe part of the source of the margin would come from a division that's having that kind of an impact in terms of reduction of very profitable sales.

But again, at the same time, the Pharma Division has allocated resources in a very smart way across the new product launches and will continue to drive productivity.

And obviously, as you think about Alcon and Vaccines & Diagnostics, I think as you layer in Bexsero and what that's going to do to the Vaccines & Diagnostics division, moving from, what is today, a loss position to a profitable division, you would count on some level of margin accretion over the next few years from the Vaccines & Diagnostics business.

Capital structure, Jon, you want to comment?

We have a relatively short duration on our debt, which means that, with a high proportion of it being in commercial paper, we not only take advantage of very cheap rates, but we also have complete fluidity between cash flow and debt management and, therefore, cash flow automatically goes to reduce CP.

In terms of refinancing, we have a relatively small amount of structured debt that falls due for repayment in 2012.

It's probably about $750 million.

So it's a relatively small piece, and we'll probably push that piece out for a longer duration, but we've not taken any formal decision on that yet.

And generic res?

Graham, as you've seen, the generic respiratory space is becoming increasingly competitive so, for confidentiality reasons, I'd prefer to stick with what I've said in the past, which is not to comment on the expected timing of any of our future generic respiratory launches.

But we see significant opportunity in this space and we're very focused on driving that.

Next question?

Next question from Simon Mather from Morgan Stanley.

Please go ahead, sir.

Yes, hi.

It's Peter Verdult here, Morgan Stanley.

Three questions.

Joe and Jon, sorry to go on about this, with regard to manufacturing issues, history tells us that it usually takes longer and costs more to solve.

I'm trying to understand the confidence you have the Lincoln plant issues will be resolved by mid-year, and any comment with relation to timing at Sandoz.

Jeff, just secondly, expectations for timing and content of the US guidelines for biosimilar monoclonals.

And then lastly, maybe for Jon, what's your best sense for the impacts of global healthcare reform in 2012?

I know it was around 2% to 3% last year.

Any insight for this year?

Thanks.

Okay.

Starting with the manufacturing issues, it is true that if you look at history, site remediation takes longer and costs more, which is why we wanted to get out in front of this.

And I think I said earlier, that we have people in the site right now working on remediation, they're working very hard.

We wanted to put an assumption into our guidance that we felt that we could deliver upon, so I'm fairly confident that we can do this.

I also think that there are a lot of unknowns.

So we could just as much -- just as well beat that assumption and then you would have to subtract from what we have laid out regarding the profit implication of that.

But we believe it's a good assumption.

We wouldn't have put it in the guidance if we didn't, and we're working to meet or exceed that as an objective.

Sandoz, in terms of the biosimilar question?

So Sandoz, as I mentioned, Peter, continues to -- I'm just looking at which camera it is -- continues to produce in each of our three sites in North America that were under the warning letter.

We had imposed a number of areas of slowdown at those sites prior, and we made significant progress over the year.

I think it's important to put this in the context of the broader program that we launched over 18 months ago, called the Quality Transformation Program at Sandoz, where we are really looking to raise our level of quality operations across the network.

As I mentioned, Peter, these three sites make up 12% of our Sandoz US sales, and 16% of our Sandoz North America sales.

And we're investing heavily to ensure that we fulfill all of the FDA obligations and they continue to ship.

The question of biosimilars.

On biosimilar regulatory guidance around monoclonal antibodies, the FDA was expected to issue draft guidelines as to how to implement the biosimilar pathway, I think by the end of 2011, and I know there's a lot of work going on right now, especially around user fees.

I would just highlight last year's New England Journal of Medicine article by FDA in which Janet Woodcock and others provided a thoughtful perspective on some of the key issues, and really highlighted the overall approach would be looking at a totality of evidence, which supports our belief that you will need to demonstrate highly similar attributes in the finger printing of the products to allow for an abbreviated clinical trial program.

And this is a similar approach they sited to the approach that Sandoz and Momenta used with Enoxaparin on Lovenox.

But in terms of the MABs, I don't have a whole lot more guidance on that.

And Jon, on healthcare reform costs?

The pricing assumption I gave you a bit earlier was around 2% and that includes also the Sandoz pricing, which as you saw from Jeff's presentation, is about 9 -- is about 9 points.

So that leaves 1 to 2 for Pharma, which assumes the carryover from that, which we saw in 2011.

Those which we know about, including Japan.

So I think it's a pretty realistic estimate.

Next question, please?

Next question from Mr.

Tim Anderson, Bernstein.

Please go ahead.

Thank you.

You talked about the productivity measures on 2012, and I'm hoping you can disclose a bit more, given what's a challenging year for the Company.

For example, what would be the trend on group gross margins and R&D spend?

Your policy seems to be to disclose less and not more but, when things aren't going well, I think it would go a long way if you could give more details.

On the Gilenya sudden death, just for this handful of patients, can you tell us their age, and whether they had any CV risk factors?

Even without autopsy results you would have this information very early on.

And if it's a young Gilenya patient with no CV disease who died a sudden death, that paints a very different picture from an older person who has a CV history.

Tim, regarding productivity, I think we've talked before about the fact that we are engraining productivity as a way of life in Novartis, and a big chunk of the savings that came from 2011 came from procurement, so the way that we've organized our procurement effort around the world continues.

There is still a high percentage of our indirect spend that has not yet been pushed through reverse auctioning, so I would expect to deliver a significant amount of cost savings from a procurement standpoint in 2012.

We've put a pretty broad range around it.

We've said somewhere between $1.5 billion and $2.5 billion in terms of total savings around productivity, but also you will see improvement or at least our intention is to deliver improvement in marketing and sales as a percent of sales, as we become more and more specialty-based, but also as we reallocate some of our resources in smart ways around the world.

And then you'll also see the impact of the announcements that we made this year in terms of G&A.

So the very large reduction in force that we had to announce in the US ahead of the Diovan patent expiration, as well as some of the changes that we had announced in October in Switzerland.

Gilenya, in terms of the patients?

So the patient in question I think that kicked off the regulatory reviews was a 59-year-old female in the US.

As far as we know, she didn't have pre-existing cardiovascular disease, but she has had other issues including surgeries in the CNS.

And the other cases, some have well-known pre-existing cardiovascular disease and other cases it's not clear.

Next question?

Next question from Mr.

Andrew Baum from Citi.

Please go ahead, sir.

Hello.

A question for Joe and then one other one.

Joe, some investors might argue that the emergence of manufacturing issues across two divisions may not just be related to increasing regulatory environment, but potentially due to the challenges of excess diversification and simultaneous cost rationalization.

With that in mind, do you see there's any room for portfolio consolidation in Novartis?

In particular, for the Vaccines & Diagnostics division, if Bexsero does not get reimbursement, what are the most appealing strategic alternatives?

And then question for Andrin.

Could you update us on how much of Menveo that you booked for 2011 will occur in 2012 and the ongoing dispute with Sanofi, I believe, in the US.

David, just to confirm that you will not be able to file on the [MSTMR] indications for Tasigna, given the missed primary end points.

Thank you.

Andrew, starting with the manufacturing questions, you know, if you -- when I became CEO two years ago, I elevated quality assurance to be a direct report of mine.

I mandated that there will be a single quality standard at Novartis, whether it's Pharma or generics or OTC, and we built a Novartis Quality Plan that included changes in governance, the way that we elevate issues as they arise and push them across divisions so that we get additional learning.

We changed the way that we hire people and culture, so made sure that we have the right people and the right quality culture in each of the sites, and then third, that we have the right investments to ensure that we are upgrading our equipment.

Now, the two divisions that you mentioned are over-the-counter drugs and Sandoz, and those obviously compete in areas that are, let's say, tougher from a cost management standpoint because margins are lower and it's more of an opportunistic business, but that's going to be no excuse for different quality standard.

So there will be one.

We're working hard to spend against that and ensure that those -- that the sites in those two divisions live up to the very tough Novartis standards.

So in terms of portfolio consolidation, I don't think that -- there could be portfolio consolidation for a different reason, as opposed to the quality issue.

So for example, we fully expect Bexsero to come and to build our Vaccines & Diagnostics business into a profitable and very successful division.

Now, if that doesn't happen, then obviously we have to rethink that because we're not going to continue to accept losses in the division.

But everything that we see so far says that's going to be a very successful new vaccine in an area where there is huge unmet medical need.

So we continue to be optimistic against that.

With regards to your question about Menveo, in 2011, sales for the full year were about $150 million.

And that was the first full year of the launch in 2010.

Also, in 2012, of course we expect the product to significantly keep growing.

We're also working, as you know, to further expand the age indication of the label.

With regards to dispute you mentioned with Sanofi, I'm not sure -- you're probably referring to the class action that has been taken against Sanofi on their bundling practices, but that is not something we have done, and not something we can comment on.

Maybe two more questions?

Tasigna, David?

Let me answer.

I'll give you some perspective on Tasigna clinical trials.

First of all, the results, when you look at all the data were extremely positive.

The number of patients that were able to get essentially elimination of their disease was almost twice as great with Tasigna than Glivec.

Now you're right about the primary endpoint.

This was a much more sensitive and more stringent end point that's ever been used before.

You needed to have greater than 4.5 log reduction and that means a sensitivity that goes out basically four decimal places.

When you look at all the secondaries out, they're very strong.

I think this data will help clinicians decide to switch additional patients from Glivec to Tasigna.

Just to provide perspective, there never was a plan to use this for filing.

These patients are already included in our label.

It's simply to provide additional support for taking that step of switching the patients.

Two more questions.

Next question from Amit Roy, Nomura, please go ahead.

Just a couple of questions.

(poor audio quality) Firstly, on the growth plans, firstly around Gilenya.

If the assumption that the EKG monitoring requirement sticks for both US and Europe, what kind of delay do you expect that will cause in the launch of Gilenya going forward?

In particular, the electro cardiac monitoring, can you help on that?

And secondly, around the adjuvant Afinitor franchise.

It seems like you have the best essentials in the adjuvant patent point.

If you have several candidates in early phase development around end point phase, which one of those do you think is most likely for the adjuvant setting?

(poor audio)

David, the growth in Gilenya and the impact of the EKG monitoring.

The EKG monitoring that's only in place in Europe, just to be clear, is an interim measure, CHMP wanted to put this in place until they could finish their Article 20 review, which typically takes about two months or so.

What will happen, I don't want to predict.

Suffice to say that, it's not clear to us that monitoring is necessary, so let's just see what -- let's see what happens there.

In the European environment, additional monitoring is not as challenging as it would be in another market like the US, because a lot of these patients are being initiated in a hospital environment anyway.

The second question was regarding Afinitor, its patent and the strategy.

As you know, we have several PI3 kinase inhibitors that are in the clinic.

They're rapidly now moving through their Phase II clinical trials across a broad range of indications.

Some of these PI3k inhibitors also inhibit MTOR directly.

We think there's a very good chance that these new medicines called BEZ, BKM and others may even be better drugs than Afinitor, and our development program will either prove that or not prove that.

And these results will come out long before the Afinitor patent expires, and as a result, then we should be able to continue to grow this franchise well past that patent expiration.

Okay.

Last question?

The last question for today is from Naresh Chouhan from Liberum Capital.

Please go ahead.

Hi.

Thanks for taking my call.

Just a question on -- two questions, first one on cost savings.

In 2011 you reinvested roughly 75% of the savings that you had.

This year, you expect $1.5 billion to $2.5 billion of savings.

How much should we expect to be reinvested this year given that Pharma SG&A should continue to fall, obviously you announced reductions in sales force already in the US and you should have some alleviation in the pressures on Pharma R&D as the ALTITUDE study spend is reduced?

Some clarity there would be helpful.

And then question for Kevin.

You've given guidance for Alcon sales to grow high single digit to low double digit.

This year we had 7% growth.

When should we see an acceleration in that sales growth?

I appreciate it's going to be driven by innovation.

Is that something we'll have to wait for a number of years, or should we expect that sometime soon?

Thank you.

Maybe Jon.

On the first point, you obviously could see from the slide that I presented that there was a sort of a notional reimbursement rate on synergies and cost savings.

But I wouldn't necessarily think about that, in that way, because the way I tried to present the moving pieces around sales and profits is it sort of created a package of components that deliver an outcome and synergies and cost savings are part of that outcome.

So, I think we are aiming to deliver the margin targets that we set, and that includes synergy creation of around 3.5 to 4 percentage points.

And we will manage the mix as we go through the year to deliver the outcome rather than thinking about what percentage of savings will be specifically reinvested.

And obviously quite a large part of it is absorbing the price effect.

That has a significant impact on our gross margin.

So think of it as we're delivering an outcome.

Kevin, on Alcon growth?

I think the way to think about accelerated growth is to really break the three parts of Alcon down, and clearly as you mentioned, innovation is a component.

Innovation in the Pharmaceutical area obviously takes a longer period of time, but we fully expect to be able to leverage the NIBR capabilities being part of Novartis, but that is going to take time.

I think if you look at the surgical side of our business, one of the things that we've highlighted as a growth driver is advanced technology IOLs.

By leveraging the opportunities that we have with public affairs, it would be my expectation that, over the near term, and we're not talking about one year, but the near term, we would be able to significantly accelerate the market access that we have for advanced technology IOLs in Europe, and we're seeing a little bit of that trend right now with Germany and the Netherlands providing that initial momentum.

And then third, Vision Care is something that we have both near term and longer term, one we should get a benefit from having a built-out organization with increased share of voice that we can take advantage of the momentum we've got with Air Optix.

At the same time, we're launching Dailies Total1.

So I would hope that we would see Vision Care become an accelerated driver maybe before we would see, for example, innovation come in the Pharmaceutical.

So we'll keep you up-to-date as we go through each of those three businesses over time.

So I'd just like to close by saying that I feel very good about what we were able to deliver in 2011.

We did take some unexpected hits towards the end of the year that impact 2012, but the guidance that we have provided of sales in 2012 in line with 2011 and to be able to say that we expect core operating income margin only slightly below 2011, including the impact of those, I think is really a testament to the strategy of Novartis and a portfolio that allows us to absorb issues as they arise.

So we're looking forward to executing well against the plans that you have seen in 2012, and we'll keep you updated each quarter.

Thank you very much.

Ladies and gentlemen, the conference is now over.

Thank you for participating in the conference.

You may now disconnect your lines.

Good-bye.