Novartis AG (NVS) 2013 Q4 法說會逐字稿

Welcome to the Novartis Q4 and full-year 2013 results conference call and live video webcast.

Please note that during the presentation, all participants will be in a listen-only mode.

The conference is being recorded.

(Operator Instructions)

A recording of the conference call, including the Q&A session, are available on our website shortly after the call ends.

(Operator Instructions)

With that, I would now like to hand the conference over to Mr Joe Jimenez, CEO of Novartis.

Please, go ahead.

Thank you.

I'd like to welcome everybody here today to our full-year 2013 results presentation.

Now, joining me from Novartis are first: Harry Kirsch, the CFO; David Epstein is here, Head of Pharmaceuticals; Kevin Buehler is here, Head of the Alcon division; Jeff George, Head of Sandoz; Andrin Oswald, Head of Vaccines; George Gunn, Head of Animal Health; and Brian McNamara, Head of our OTC business.

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

Samir?

Thank you, Joe.

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 the some of these factors.

Thanks, Samir.

Before we get started, I want to give some observations that I've made about the industry over the past year.

I believe that this industry is entering a new phase of innovation.

Part of it is led by the explosion of data that we have seen, that are allowing us to target diseases in new ways, but also new technologies that are emerging.

So I believe that the next five years are going to be significant in terms of innovation from the industry.

The second point is that cost containment is here to stay.

This is something that started during the financial crisis.

It's not going away.

So what that means in terms of how we run our business is that those companies that are going to be able to innovate are the ones that are going to succeed in this industry.

If you're not innovating, I think, you're going to come under more and more cost pressure.

So I believe you're going to see a bifurcation in the industry.

Then the final point actually came out of the WEF in Davos last week.

As I talked to Health Ministers and Finance Ministers around the world, more and more people are talking about health as a driver of economic growth.

So the last five years, we've talked about all the financial crisis and whether we're going over a cliff.

But the new thinking, the new description of how are we going to drive economic growth?

A lot of people are saying, look, a healthy population is key.

What do we need to do to improve the efficiency of our healthcare systems?

So I think based on all of this, if you look at Novartis and the way that we're positioned, I think, we're positioned well for the future.

Looking at our results, specifically, our sales were up 4% in constant currencies for the full year, just under $58 billion.

Core EPS also up 4% in constant currencies.

We've proposed a dividend of CHF2.45.

This is a 7% increase in Swiss francs, but it's also a 13% increase in US dollars.

But I think the best part of the year was the innovation.

I'll go through that in a minute.

This is a look at our specific P&L.

You can see net income was $9.3 billion.

That was up 7% in constant currency.

As you can see, the huge impact that currency had.

So on a reported basis, net income was down just 1%.

Now, we delivered on our three strategic priorities.

We had 18 approvals in 2013.

In the last quarter, we filed AIN457.

This is secukinumab, filed for psoriasis.

We also had a submission of LDK378 in the fourth quarter.

Now in terms of our growth, all of the divisions grew.

Our growth products contributed 31% of total group sales.

This is a significant number.

Productivity, also a very strong year, $2.8 billion of which half came from procurement.

Now, taking a look at innovation a little bit deeper.

You can see in Pharma, we had 13 approvals.

I think, the one that I'm most excited about is Ultibro Breezhaler in Pharma for chronic obstructive pulmonary disease, approved in Europe and Japan.

It's very, very early, but David will show that this launch is off to a very strong start.

I've talked before about the FDA breakthrough therapy designations, the fact that we have three.

But I think the key thing here is that we were able to submit LDK378 just nine months after receiving FDA breakthrough therapy designation.

This is actually just 1.5 years after proof of concept for this molecule.

So that's another demonstration of the speed with which we can move.

Alcon had a good year in terms of innovation with the launch of the refractive surgical suite.

This is an ability now to have an upfront diagnostics unit that -- where imaging of the eye, data is fed into the LenSx machine to actually create the incision for the cataract surgery and then fed into the Centurion new phacoemulsification machine.

This is going to help surgeons deliver better patient outcomes for cataract patients.

Sandoz also had a good year in terms of innovation.

So given -- if you just look at the biosimilars activity.

Now running eight Phase III clinical trials across six molecules.

We were able to add Humira to the list of molecules for the Sandoz group.

Also Sandoz received approval to AirFluSal which is generic Seretide in an innovative new package.

So I think Sandoz had a very strong innovation year.

Bexsero, the first meningitis B vaccine approved in 2013 by our Vaccines group.

Bexsero has been launched across several European countries.

In the UK, we are waiting for the JCBI's final decision on reimbursements, which we expect to come at the end of the first quarter.

So that's innovation.

I feel good about the innovation that we've delivered.

The second priority is to accelerate growth.

You can see that as the group grew 4%, all of the divisions grew.

So Pharmaceuticals was up 3%, ranging all the way to Consumer Health growing 10% versus a year ago.

Now, our emerging markets actually are increasing momentum.

So in the fourth quarter we grew emerging markets 12%.

They now account for 25% of our total business.

For the full year, they were up 10% which is led by double-digit increases in China and in Russia.

The Pharmaceutical division growth products really drove a lot of growth.

If you look at Afinitor and Gilenya, two new launches, where the growth rate was over 60% versus a year ago.

Alcon was up 5%.

This was driven by the surgical business which grew 7 points.

In fact, if you look at the third quarter and the fourth quarter, the surgical business was up 9% in both of those quarters.

So it feels like Alcon is gaining some nice momentum as we move into the year.

Sandoz has gradually shifted its portfolio from standard generics to differentiated generics.

You can see here, now, differentiated generics account for 45% of the total.

We're Number 1 in terms of biosimilars, generic injectables, dermatology.

We're also growing now in respiratory which is going to be a significant franchise for Sandoz.

Consumer Health grew 10%.

That was driven by great execution outside the US and inside the US.

You can see Voltaren.

Voltaren actually is now one of the top 10 over-the-counter drug brands globally.

It's also growing double-digits.

So this is a testament to the fact that we can grow brands in that over-the-counter drug business.

Milbemax in Animal Health is the world's largest dewormer of cats and dogs as a brand and growing very strong.

Now, Vaccines was up 6% versus a year ago.

This is driven a lot by the pre-pandemic sales of H7N9 in the US, but also, just a general good season on flu and Menveo growth.

One of the things that we have said -- that we announced earlier is that we did complete the divestiture of our blood transfusion diagnostics business to Grifols.

So that deal is now closed.

That was a transaction with just under $1.7 billion.

Our third priority was to drive productivity.

We had a good year with about $2.8 billion of gross savings, half of that coming from procurement.

That's a record in terms of procurement savings coming out of Novartis.

You can see, we reduced our marketing and sales spend as a percent of sales slightly, 20 basis points.

But that's despite the significant amount of launch activity that we have.

Then from a manufacturing footprint standpoint, since we have announced that project, we have closed or -- we have either announced closure or exited 20 manufacturing sites.

The latest being one actually in January, our Suffern, New York site, which was the site that produced Diovan for the US.

We also made good progress on our quality agenda.

As we've talked about before, we put a significant amount of attention up against this.

It paid off in 2013.

We had a good FDA inspection at Lincoln.

This is our OTT site that was in trouble.

We got a good audit by the FDA.

We're now shipping product out of that site.

Two of the three Sandoz sites that were under a warning letter -- the original warning letter are now compliant based on the FDA inspections.

We're waiting for feedback on the third site in Wilson.

So with that, I'd like to turn it over to Harry, who's going to give you more detail around the financials.

Harry?

Thank you, Joe.

Good morning.

Good afternoon, everyone.

So, before we dig into the numbers, I would like to show you how we delivered towards our guidance.

On Slide 23, our numbers you can see they are really all in line with the guidance, which we have given throughout the year.

As you know, we have risen the guidance two times.

Basically, due to a delay of the Diovan monotherapy launch of generics in the US, as well as our overall good growth momentum.

Now if you turn to Slide 24, it provides a summary of our performance in the fourth quarter and the full year.

Once again, we've grew net sales and core operating income in constant currencies despite the $2.2 billion impact of generic erosion in competition.

In constant currencies, we went up 4% in sales for the quarter and the full year.

In core operating income 3% for the full year.

Also, when you go to a core earnings per share, up 4% in constant currencies.

Of cores, our reported sides were impacted by currencies.

I will come back to that later.

Slide 25 gives you the divisional story on margins and constant currencies.

Overall for the group, you'll see it on the right lower corner, core operating income margin declined by 0.3%.

This is entirely due, as you can see, to the Pharmaceuticals division where we had a decrease of just over 1 margin point.

It's driven by increased investment into our promising pipeline as well as generic erosion.

Alcon and Sandoz are basically -- the margins are unchanged for the year.

In Alcon, mainly due to higher cost of goods sold, as we launched a new surgical equipment suite.

In Sandoz, they have really a high base last year due to the higher-margin prior year sales of Valsartan combination authorized generic in US and of Atorvastatin pricing in 2013.

It was reassuring -- you see the Consumer Health margin going up.

They benefited from increasing scale as we relaunched the key brands in the US.

Now let's go to our usual slide of the topline breakdown.

This slide is again very important as it shows the strength of our underlying business.

In 2013, we achieved underlying sales growth of 8% driven by very strong volume growth of 9% and a slight negative pricing of 1%.

This more than offset the 4% points impact of generics impact and in constant currency the 4% growth I talked about earlier.

Now, in sales, the FX effect was a negative 2% resulting in a dollar growth of 2%.

You see a similar but more pronounced story on core operating income where our underlying growth was 15%.

It was more than offsetting, the 12% impact from generics.

Now, currencies took us from a 3% in constant currency to a minus 2% decline in US dollars.

So it's important to talk about currency given the discrepancy between constant currency growth and US dollar growth.

On Slide 27, we show you a more detail on the currency impact quarter by quarter.

In the fourth quarter, we just discussed 2% on sales, but core operating income depressed by 8%.

Now, this is mainly due to the further deterioration of the yen as well as the emerging market currencies relatively to a strong dollar.

This trend of increasing negative currency impact is higher on the core operating income than on sales because the yen and the emerging markets currencies represent a larger portion of our operating income than they do in sales.

In quarter four, also stronger Swiss franc played a role.

It's also due to our Swiss cost base.

Historically, we have a higher portion of Swiss costs in quarter four.

Of course, we don't know how the currencies develop in 2014.

We have done a simulation using early January spot rates.

If these early January spot rates would prevail for the full year 2014, the currency impact would be about a 1% negative on sales and minus 3% of core operating income in 2014 versus 2013.

The currency impact is expected to be more pronounced in quarter one because last year, quarter one, recall the yen was still pretty strong.

Now onto Slide 28.

We see the strong performance of our growth products.

We talked beforehand about the underlying growth.

Here you see that not only a percent of our total sales is the growth products are now 31% and $18 billion.

But they are also growing quarter by quarter and overall 15% versus prior year.

Let's now turn to free cash flow.

Earlier in the year, I have told you that 2013 cash flow would be lower than 2012 and also that we have a pattern that half two is higher than the first half.

So this happened again.

We have with almost $7 billion a strong half to cash flow, but still was down 13% versus prior year as expected.

To a large extent to currency, but also, increased receivables and higher capital investments for our manufacturing and research facilities.

We expect a similar pattern to happen and occur next year with free cash flow in the second half stronger than the first half as in the last three years.

This year, it was also a little bit more pronounced due to cash collection timing.

Now onto net debt.

On Slide 30, you see how net debt decreased from $12 billion to $8.8 billion at the end of 2013.

Our free cash flow of $9.9 billion was used for the dividend payment of $6.1 billion last March and net share repurchases of $1.2 billion and reduction of net debt.

As we said last year, we plan to mitigate the impact of employee participation programs.

This is what we also did in 2012.

In addition, as I mentioned in November at our London investor day, we executed our $5 billion share buyback over two years.

We just have started and basically bought 2.2 million of shares in 2013, roughly $200 million.

This is also reflective of our capital allocation framework and priorities, I outlined back then, which brings me to our dividend proposal.

Now within our capital allocation framework, our priorities for the use of the capital are very clear.

First, reinvestment to our business.

Second, strong and growing dividend.

Third, value creating bolt-on acquisitions.

Then the remaining capital will be returned to shareholders via share buybacks.

As you can see on Slide 31, Novartis has a very strong growth track record of growing dividend.

The proposed dividend of CHF2.45 per share for 2013 is an increase of 7% in Swiss francs and 13% in US dollars.

This represents our 17th consecutive dividend growth since the creation of Novartis in 1996.

The payout ratio of 74% is also very strong in percent of net income.

Now, before I end, on the usual outlook slide, we should first look back to the longer-term guidance we gave you in January of last year.

I'm now on Slide 32.

It's important to remember that we originally assumed the Diovan monotherapy generic launch in US in early 2013.

Using this assumption, in January 2013, we gave you an outlook of mid single-digit sales growth.

Due to the higher base in 2013, for the delay of Diovan mono generic entry in the US, our growth rate for 2014 is negatively impacted, as you can see on the second line of the chart.

While the impact on sales is relatively small, the impact of core operating income growth is larger.

Given the higher margins at the end of the lifecycle, we have identified the additional productivity measures.

You see that on here, line 3, which keep our core operating income growing slightly ahead of sales.

In short, our guidance 2014 remains unchanged compared to last January when adjusting for the Diovan mono generic delay in the US.

Now, this is all based on the assumption that generic Diovan monotherapy will enter the US market in April 2014.

Of course we do not know this.

This is simply a forecast assumption.

But if history repeats itself and Diovan monotherapy generic launches later than we now assume, our reported 2014 growth rate for net sales and core operating income should be higher than this guidance.

We will update you in April about this.

Now to my last slide, Slide 33 reiterates what I just said.

Please note that the outlook excludes the divested blood transfusion diagnostic units both in 2013 and 2014.

We expect group net sales to grow low to mid-single digit in constant currencies in 2014, after absorbing the impact of generic competition which could be up to $3 billion, assuming a Diovan mono generic launch in the US in April 2014.

From a divisional standpoint, we expect Pharmaceuticals net sales to be in line with 2013 and Alcon and Sandoz to grow mid to high single-digits.

All of this in constant currencies.

Group core operating income is expected to grow ahead of sales in constant currency.

With this, I hand it over to David.

Thank you, Harry.

So, as Harry shared with you, the Pharmaceuticals business had a very good year in 2013, reporting 3% sales growth in constant currencies despite absorbing roughly $2.2 billion in new generic inroads.

If you look at other companies that have gone through their patent cliffs, you'll see that our performance has been, on a relative basis, actually quite good.

Core operating income went down just over 1%.

That was a conscious decision to invest in a series of programs that have reported good results during the year: LDK378, serelaxin, secukinumab, and the launch of Ultibro.

I'm going to show you in a moment why those are good investments for our business.

When you start to dissect the 3% sales growth, you see basically two factors that have driven that strong topline.

First, we made a decision a number of years ago to increase our investments in key emerging markets.

You can see that paid off with 9% growth during the course of the year.

Our emerging markets -- emerging growth markets sales are now at roughly 23% of our total sales.

Even more importantly, you look at how the new product launches are doing, you see that growth products now represent 38% of the business, up 25% over the previous year, which is a very, very good performance built on a really unparalleled growth platform.

Eight product families that had a very good 2013 effect.

All of them, with the exception of Lucentis, grew strong double-digits during the course of the year.

Five of those product families are already blockbusters.

The others are on their way.

Some of the products that we don't talk about too often in this chart but are worth mentioning here are: Xolair, for severe allergic asthma -- it grew 24% during the year; and our respiratory product family, which we're really -- just now fully launching, grew 90% during the course of the year.

So what I want to do now is just spend a moment and take you through a few of our key product and then hit upon some success -- some new success with the pipeline, starting with Gilenya.

Gilenya, our once per day, a highly effective product for multiple sclerosis had a very, very good year.

Fueled by constant steady new patient flow, as well as seeing switches now coming from some of the other products into Gilenya.

41% growth in the US market and a really impressive 94% growth ex-US.

There's a number of countries now where we're the Number One MS competitor with this product.

Over 84 patients have -- 84,000 patients have now been treated with the medicine.

So we have a very good handle on the efficacy as well as the safety profile of the drug.

We remain optimistic about Gilenya's growth prospects going forward.

If you look, in particular, at the US, where we've now faced the launch of a competing product, called Tecfidera, you see that the changes that we have made to our commercial platform have resulted in share gains in the last few months of the year.

We believe that in Europe we're well-poised to face that competitor due to the different dynamics in the market and also the fact that we launched well before they did there.

Lucentis did -- I would describe as, okay for the year, relatively flat growth, up 1%.

The key dynamic here was the fact that we had to give price in a number of key markets in order to open up market access for DME, RVO and other indications.

You see, those new indications now represent 24% of the sales.

So that was, in fact, a good decision.

The other impact was the fact that Eylea had launched in key markets.

We did not do particularly well in Australia and Japan when they launched.

By the end of the year, you see that those markets have not stabilized.

We're growing with the markets.

Thus, in the fourth quarter, that was better than expectations on the part of some folks.

What's also important here is the next step forward for us.

We gained approval for a very state-of-the-art pre-filled syringe for this product, which we will be able to start to launch in the first quarter of 2014.

We think there's some markets that will help us also defend the business and even win back some of the business.

Now, I mentioned earlier that part of the reason we saw some small margin decline during 2013 is we made a decision to invest both in development projects as well as the launch of our respiratory portfolio.

In this chart, you see the initial sales uptake.

I want to caution you, it is very early.

It's only two months of data for Ultibro, which is our combined LABA/LAMA product where we launched in Europe ahead of the competition.

If you compare the Ultibro uptake to our other respiratory products, but also our other large primary care brands, you see that this is actually the best launch in the recent past of any primary care product at Novartis.

So we are increasingly bullish on what this product can mean for patients and for our Company.

You see that we expect to launch in roughly 25 countries during 2014.

The US filing is on track for the second half of 2014.

Galvus also continues to do very, very well, up 40% in 2013 driven in part by new indications, but also a really excellent commercial organization ex-US where we market this product.

In fact, despite launching second or sometimes even third, we are the Number One, DPP4 now in 11 -- greater than 11 countries.

I'd like to now switch over to our oncology portfolio.

You see some new data that was presented at the American Society of Hematology meeting.

You see that as time goes on, now at five years, the profile of Tasigna gets better and better.

It increasingly differentiates itself from the Gleevec or imatinib profile.

So, the rates of event free survival, progression free survival and overall survival are clearly better with Tasigna than imatinib.

In addition, you recall that our strategy for this product was to show that treatment free remission periods were possible, essentially the ability to go off medication either for a period of time or even permanently.

Those pivotal trials have now fully accrued.

That data, which will be available in about two years time, will further show the advantages of using Tasigna over Gleevec and support our strategy.

In fact, if you look at the numbers, you see that Tasigna is an increasingly growing portion of our bcr/abl sales as doctors get more and more comfortable with the product.

It grew 31% this year versus 2012.

It reached over $350 million in sales in Q4.

So this product is on track.

The ambition is sound.

The organization is delivering upon it.

The next oncology drug to mention is Afinitor.

Very, very good growth for the year, up 66% in 2013 versus the prior year.

We've now launched the breast cancer indication in a number of markets.

We've actually been a little bit delayed in getting reimbursement in some markets like France.

In fact, that held back the fourth quarter a little bit.

But we believe that will happen during the course of 2014.

We reaffirm our forecast of over $2 billion in sales possible in breast cancer over time, just from that indication, not to mention the other indications, such as renal cancer, pancreatic neuroendocrine tumors, TSC or the indications that are still in the clinic.

Just a few days ago, I gave an update to the investment -- investor community on a negative opinion we received from the CHMP on serelaxin.

Just to remind everybody to put that back in perspective, the CHMP essentially concluded that they did not see enough of a difference in the primary endpoint, the ability to breathe, to grant approval on one clinical trial.

They recognize that the 30% reduction in mortality was good and reaffirmed the safety of the product.

But they did not feel comfortable with a standard approval.

They recommended to us, strongly, that we ask for a re-examination which we are in the process of doing.

During that re-examination period, we'll get two new rapid tours, one of which is positive.

We'll likely have the opportunity for a second scientific advisory group and that sets us up for a decision by the CHMP in the second quarter of this year.

Coincidentally, the FDA process is more or less on the same timeframe.

We would expect -- we do expect an advisory panel discussion on February 13 and also a FDA decision during the fourth quarter.

So we remain hopeful.

But there's certainly no guarantee whether or not the one trial will be sufficient for approval.

You'll recall, we have indeed started a second trial where mortality is the primary endpoint.

So we will either end up with an approval this year in the timeframe discussed.

Or it could be that we have to wait for that second trial to report which is 2016 and an approval in that timeframe.

Fingers are crossed.

We'll have to wait and see.

The teams are working very hard on the opportunity.

Something that went more positively for us was a very early positive opinion from the CHMP for the use of Xolair in chronic spontaneous urticaria.

In fact, that product came through in six months, which is a very, very good time.

To remind you, as much as 1% of the population has chronic spontaneous urticaria.

This is itching, hives and angioedema, which can result in swelling, closed eyelids, the cracking of lips, a very disturbing condition.

As many as 50% of their patients do not respond to even a fourfold doses of antihistamines.

The data we have shown has shown really dramatic improvements in these patients.

It's a very interesting field that we don't expect any competitive entries to appear during this decade.

We believe that this indication alone could add another $500 million or so ex-US sales.

In addition, we share in profits in the US market where we jointly promote this product with Genentech.

So we're geared up for the launch and very excited about this opportunity, not just because of Xolair but also because of secukinumab, the product that we have also filed late last year for the treatment of psoriasis.

Which will give us two entries into the specialty dermatology category.

We think that will create a nice business for our Company.

Now, I just want to show you one slide on the oncology pipeline.

It's, in my opinion, as robust as ever.

In fact, I could say it a different way, our oncology pipeline has never been better than it is today.

Just very quickly, we filed -- actually we submitted LDK378 in December of last year with the US FDA.

We would anticipate filing in Europe in the beginning of the second quarter this year.

This is a nice addition to our product portfolio.

We believe it's better than the competition, in particular, because this product crosses the blood brain barrier, which is a problem for patients with ALK+ tumors.

LBH589, at the very end of last year, we reported data showing a significant improvement in disease free survival and disease progression.

We are getting ready for a filing of that indication as well early this year.

We fully accrued the Phase III trials in Polycythemia Vera, for Jakavi, the product that we are marketing jointly with Incyte.

The other area of interest for us that's very high and we spoke about it at our investor conference is the whole area of cellular therapy, in particular, a modified T-cell therapy in the form of CTL019.

A personalized therapy, we're taking an individual's T-cells, modifying those T-cells with the use of a virus and then putting patients who have CLL and ALL into complete remission.

This could be become an entirely new field of medicine, one that's probably not yet fully appreciated.

Last, but not least, as [Ervay] told us -- or [reopinal] told us late last year, LEE011, our highly selective CD[K]4/6 inhibitor has entered late stage Phase III development for breast cancer.

This is a competition between us and Pfizer.

Pfizer has reported very exciting Phase II data.

In the Phase III arena, we're more or less neck and neck for the running of these clinical trials.

I personally believe that LEE could become one of the bigger products in our product portfolio in the years to come.

Many more products in the oncology portfolio, but we'll save those for the next investor day.

As you can imagine, based upon this very full pipeline, our regulatory people, our development people are extraordinarily busy.

There's not much time to rest if you choose to work in those professions.

At Novartis, you can see that the news flow for the year is heavy with some really significant decisions coming, particularly around LDK, serelaxin.

We already have the positive decision in Europe on Xolair and then decisions on AIN and in the back half of the year.

So just to wrap up, 2013 was a very good year for the Pharmaceuticals division.

The pipeline delivered several major approvals in Europe, US and Japan, really rejuvenating that portfolio.

We had 9% underlying volume growth which gives you a sense of what this business can generate as we get through generic competition.

We have a very strong highly protected growth platform until 2017 and beyond.

The outlook, as Harry already shared with you, barring unforeseen events is net sales in constant currency basically in line with 2013.

So with that, I'd like to turn it back over to Joe.

Thanks, David.

For 2014, our strategic priorities remain the same.

But you can see that in terms of innovation, we hope to file QVA149 in the US.

This is Ultibro Breezhaler, as well as Seebri and hope to obtain approval for LDK378 in the US, the new lung cancer drug.

Now, I want to also, though, talk about the fact that we will be putting more focus on the how in 2014.

We call this high performance with integrity.

As you know, the world is changing quickly.

What's legal is not always socially acceptable.

So we're going to need to raise our game in all areas around the world from a compliance standpoint, as well as continue the great work that we have currently started on quality assurance.

Now, there are three key elements though around the strategic priorities that I just want to touch on.

I did this at the November analyst meeting.

The first is around actively managing our portfolio.

This is the review that we have, primarily the three smaller businesses at Novartis.

I anticipate that this will be concluded hopefully by summer, definitely by the -- 2014.

We're also though going to spend additional time on delivering greater synergies across divisions.

So we are a diversified business.

I don't think we're getting as much out of this from a revenue synergy standpoint or a cost synergy standpoint.

You're going to see us put more focus there.

Then finally, just continued focus on delivering superior shareholder returns.

So as we announced our share buyback of $5 billion over the next two years back in November, if you put that together with the dividend that we just announced -- the proposed dividend, as well as a growing dividend in 2015, we could return over $18 billion in cash to shareholders over that two year period.

So I'm not going to repeat the outlook for 2014 that Harry communicated, but we're bullish on the year and would now like to open up the call for questions.

(Operator Instructions)

Graham Parry, BAML.

So if you just kick off with one on the guidance.

The operating profit growth guidance is roughly mid single-digits, if we assumed generic Diovan and then 3% negative FX impact.

Consensus is currently looking for around mid single-digit reported growth.

So when you look at consensus, do you think that there's something in there in particular the Street's too optimistic about?

Or is it a mix of different Diovan assumptions?

Secondly, if you could help us to understand Alcon margin pressure from the launches on the capital equipment launch that you've been undergoing?

Whether that's likely to continue for how many quarters into 2014 that you expect that margin pressure to continue?

Then thirdly, on the wires, you're talking about unique structures from your non-core divisions.

Can you clarify whether that would include asset swaps and JVs?

Or can we rule either of those out at this point?

Then finally, on the Ultibro launch, could you just help us to understand where you think you're gaining share from there?

Is it coming from Spiriva, new patients or Advair?

Thanks.

Okay.

Harry, on guidance?

Yes.

We don't comment versus consensus.

In the end that is, of course, the forecast.

We give you pull by the input.

You have seen what we have said.

The FX impact is basically simulated based on early January spot rates.

So I think it is hard to model the FX, that's why we give this outlook based on these spot rates without knowing how the FX will develop.

We will give you quarterly updates as we go through the year.

That's all we can do.

Graham, I think the way to think about the guidance that we've said today is, we had a hard debate about, what do we assume for Diovan mono in the US?

I think we put a stake in the ground and said April.

Because we don't know.

But April should be worst-case for us.

So we said, look, low- to mid single-digit, if it comes April because that would be literally overcoming $3 billion of patent expiration's in 2014 and still delivering low to mid.

Then even with that $3 billion, showing some kind of margin improvement.

So that is operating income, growing; core operating income, growing ahead of sales.

So obviously if mono doesn't come in the US, it could be better than that.

But I think we needed to put something in the ground and that's where we went.

Okay.

Kevin, on Alcon margin pressure?

Sure, Graham.

First of all, I think, Harry highlighted that our profit performance for the year was actually quite good, that we showed leverage at a faster rate than our sales growth.

Obviously, we've been able to start to look at two things.

One is selling our new capital equipment with Centurion.

Obviously, that has a slightly lower gross margin than our base product.

At the same time, you have to go back and look at the year on a quarter basis.

During the first half of the year, we were under spending against sales and marketing.

We deliberately chose to increase the level of spending in the second half of the year against sales and marketing and specifically our launches.

So I think to look forward, we're going to continue to launch our capital equipment.

That's the foundation for how we create the relationship with the surgeon.

At the same time, though, you have to look at the margins in the comp periods, so that you realize the periods of time where we were either under spending or spending at a higher rate against our product launches.

At the end of the day, we're looking to maximize the performance against our key launches and our key brands.

To the portfolio review question, you should not rule out swaps or JVs.

If you go back to the objective, I said, we want to build leading businesses at Novartis.

If that means that we're going to have to assume different or unconventional structures or ways of thinking about the businesses differently, we're going to do that.

So I wouldn't take anything off the table today.

David?

So, you asked me, if we had any hints as to where the Ultibro patients are coming from?

The reality is, Ultibro, we don't know yet.

But for Seebri, which is the LAMA product that we launched a few months earlier, we have actually some good ideas.

I think it's indicative of what's probably happening with Ultibro.

In particular, we were surprised by how many patients who were previously on a steroid-containing product like Advair had moved over to Seebri.

I suspect, the same thing's happening with Ultibro.

Thank you.

Alexandra Hauber, UBS.

I have three questions.

Broadly -- sorry, I have this echo, it's irritating me.

Broadly around the topic of gross margins.

Firstly looking at the second half margins, that trend suggests that the gross margin will still decline in 2014 as the second half 2013 was substantially below the first half.

All the key divisions -- for Pharma, Alcon and Sandoz.

You still have to [go through divestionary] Diovan.

Firstly, is that conclusion correct?

That for 2014 gross margin for growth will be lower than in 2013?

If so, can you give a little bit more color how you can make up for that in terms of your fixed costs?

I think Harry mentioned incremental productivity measures that have been identified.

Secondly on Alcon, just to follow-up Graham's question, how long will it take for intraocular lens growth to follow the equipment placement?

So therefore, when can the gross margin return to something like a mid-70s level rather than the low 70s level that they've seen in the fourth quarter?

Given that positive momentum was mentioned for the surgical division, do you think that the surgical sales this year can already accelerate from the 7% we've seen in the last two years?

Also, on gross margins in Sandoz, what is causing this deterioration we've seen in the second half?

What will reverse it essentially?

Also one question on the dividend.

Is that 6% to 7% Swiss franc growth we've seen this year?

Is that going to be a special 2014 effect or is that the growth rates we should expect in Swiss francs going forward?

Thank you.

Alexandra, you were breaking up.

So let me try to summarize the first question.

The first question around margins I think will go to Harry.

Thank you, Alexandra.

It was hard to fully understand the question but let's see if I got it.

I think that the question was mainly around the pressure on gross margin in our large divisions.

You are right.

In Pharma, whereas you had to work through the generalization.

These were higher margin, low cost of goods products that were eroding.

Gilenya has a royalty with it, which you'll see in the cost of goods.

So depressing slightly, the gross margin.

Alcon, we discussed already and I think there's a follow-up question for Kevin around the equipment sales which then negatively impacts from a cost of goods standpoint, the gross margin.

Sandoz, a bit different situation I would say, because they are working on versus -- Jeff and the team versus a very high base last year where as, you may know, in September last year they had the first authorized generic of the Diovan combo at a very high margin and also quarter four, besides the HCT mono, HCT Diovan launch, they had also four months of Fougera sales.

So there's more, I would say, high prior year basis at Sandoz.

But now we don't give guidance -- let me make one or two more comments.

We don't give guidance on the P&L line, but overall, we have initiated additional productivity measures.

You have seen some of them -- last November, we announced consolidation of research, earlier in January we announced Pharmaceuticals -- the restructuring of the primary care business unit in US as well as resource redeployment in the Pharmaceutical headquarter in Switzerland.

On top of that, we have announced the closure of the Suffern plant in the US.

So we are taking an additional productivity in order to make sure that we grow bottom line ahead of topline.

Kevin, why don't you also though talk about Alcon and the time that it takes from an equipment standpoint to pull through the IOL's?

Right.

So, if we just start with -- the basic concept is that the install base in terms of the equipment being used in the OR, when you launch a new piece of equipment you've got a choice in terms of converting your own install base and gaining competitive install base.

So one of the choices that we've made with the success that we've had against Centurion is that we are launching at a very aggressive rate, much faster than what we launched Infiniti.

The benefit is that you're able to get two streams of disposables.

One stream is related to the packs and the disposables that go with that equipment.

As that install base starts to cross over against the procedure base, you're actually getting packs at a higher selling price and a higher gross margin than where we were with Infiniti.

The second stream of revenue is the IOL.

So you have the opportunity to maintain the base that we have with over a 50 share globally, but you also have the opportunity to pull through additional disposables that would be all incremental and all gross margin.

But you also have to keep in mind that there's a large install base globally that takes time to make the conversion even with this accelerated rate.

So we're going to continue to sell our capital equipment.

Then what you're going to see is this happening over multiple quarters where the disposable streams pull through.

The other factor that is playing out on gross margin, which is also very positive, is the launch of Dailies Total 1. As we build capacity against the unit volume, initially you see gross margin impact but over time that's going to be a strong driver for both growth as well as profit.

Alexandra, we missed your third question.

It was again on the gross margins.

For Sandoz, I understand the comparison year-over-year, but it seemed like the gross margin has been plus -- gross about 50% for two, three years and now in the second half it's moving closer towards 35%.

You were breaking up again but I think it was around the second half margin.

Yes.

Alexandra, what I would say is that, as Harry noted, there was a significant impact of Diovan HCT and the four months of Fougera in Q4 of 2012.

If you look at the full year, excluding foreign exchange, our margins were almost flat as Harry showed earlier.

That's despite two important factors.

One is that there's been a significant ramp in our R&D spending on biosimilars where, as Joe noted, we now have eight Phase III clinical trials including several mAbs where we're leading.

Secondly, we had over $300 million of higher profits in 2012 than in 2013 due to enoxaparin pricing and the co-Diovan.

I think the other element that I would say is that we are in an environment where we had 9% price erosion last year, 7% if you take out the enoxaparin.

That requires us to have a high focus on productivity.

Each in the last three years, we've given over $500 million in cost savings in year.

As our product launches kick in and we start to get products out of the clinic as we've seen with the recent approval on AirFluSal and moving into later Phase III, we should see a positive mix effect over time due to the shift to differentiated products, as Joe highlighted earlier in his presentation.

I would just conclude by saying that, look, as an executive committee we said we are going to build a plan that allows us to build margin in 2014.

That means more productivity, making harder choices around prioritization.

That's what we're executing, while not jeopardizing any of the future launches because if you look at our launches, they are fully funded.

Thanks.

Okay.

The dividend question?

Pardon me?

The dividend question about the 7%, is that indicative for the kind of growth you're thinking going forward?

In terms of the dividend?

The question was the growth rate?

Yes.

Is that indicative where we should be thinking it's going to be going forward?

Or is that specific to 2014?

No.

I think, look, the only thing that we've said really is around 2014 dividend, after two years of increases but lighter increases, we wanted to come out and really demonstrate the confidence that we have in the Company and the Company's future.

Then as a policy, we have said, yes, we -- our policy is to have a strong and growing dividend into the future.

Right now, we're at over 70% payout ratio.

So we'll see, as we deliver 2014 and the outlook for 2015, what that should be in 2015.

Thank you.

Matthew Weston, Credit Suisse.

I have four questions if I can.

Just from a logistics perspective, it sounds like someone's got a speakerphone, so there's huge reverb in the background.

Anyway, the questions.

The first for Harry.

Tax rates, 14.3% on a core basis, that seems somewhat lower than you previously guided to a 15% to 16%.

What should we expect for 2014 and going forward?

One for David.

Lucentis, you highlighted double-digit volume growth last year, but flat sales.

The price reduction should normalize out this year.

So should we be forecasting double-digit revenue growth in 2014?

Then one for Jeff.

AirFluSal, the Danish approved the medium and the high dose equivalent of Advair.

But it seems that the subsequent approvals have only really endorsed the higher dose.

Can you explain to us why?

Okay.

Starting with Harry on the tax rate.

But in the booth, can we see if you can fix the echo?

It sounds like there's quite a bit of feedback.

So if you could work on that?

Harry, tax rate.

Thank you, Matthew.

So, certainly, our tax rate -- our reported tax rate of 13.4% is at the lower end of the range I would expect going forward.

So the 15% -- you mentioned core 15% to 16% there.

14% to 15% in our reported, is more where I see as going forward.

Okay.

Lucentis?

Yes.

So the dynamics for Lucentis will be as you point out, different this year.

We will start eventually in the second half of the year to lap the pricing.

On the other hand, we're going to see Eylea entering France, UK and Canada.

So I would certainly dampen those expectations probably more towards low single-digit growth if I had to give you some idea of where the product will be.

Then after 2014, we would expect growth to become more dynamic.

Then AirFluSal?

Jeff?

Yes.

Matthew, the mid and high strengths which are the bulk of the market were approved, not only in Denmark, but also in Sweden and Norway.

Then, as you noted, the high strength COPD indications for Germany, Belgium and several Eastern European countries.

We just got approval from Romania today.

If you look at the DCP that we filed, each country has its own regulatory process.

So it would probably not be appropriate for me to comment on the questions that we have around the mid strength in other countries.

But what I can say is that while we won't comment more broadly on our filing strategy, there was strong logic and thought put into the sequencing of where we went, when.

We will notify the market as we receive further approvals and look forward to bringing both the mid and high strengths across Europe.

Thanks.

Andrew Baum, Citi.

Three questions please.

First, regarding the speculated asset swap, just on logistics, could you comment on the level of overlap in the back office between the Animal Health and the OTC divisions?

Just thinking about realizations of potential synergies if that structure was indeed one that came into effect?

Second, I note that there's been three departures from the Board.

Should I assume there's no intention to replace the two academic researchers that you lost?

Then finally, on LEE011, should we expect the Phase II data at ASCO?

When should we anticipate interim analysis from the ongoing Phase III?

Many thanks.

Andrew, in terms of the asset swaps, there's very little overlap between the back offices of Animal Health and OTC.

So these are quite standalone businesses.

While there was some sharing of services, they are quite separate.

So I don't think logistically that is going to be an issue.

In terms of the departures from the Board, really that's a question for the nominating committee in terms of who will eventually join the Board.

So I can't really comment on the departures of the two academicians.

You saw that there is the formation of a research and development committee at the Board level.

So I think there is a lot of interest at the Board level in terms of the technologies that we are exploring and bringing into the Company through research.

So there's going to be, I think, additional debate, additional conversation around that.

Then David, on LEE?

For LEE, as you know, Andrew, we chose to do an expanded basically Phase I program and then go right into a pivotal trial based upon our own data as well as the data from Pfizer.

The other thing we're doing with this program that some other companies can't do is we're starting combination trials with PI3 kinase inhibitors and other TKI's, with an idea of trying to create what might become an ideal breast cancer regimen.

So you'll start seeing some of that data coming out but not as early as ASCO.

Tim Anderson, Sanford Bernstein.

A few questions.

Is it still in the realm of possibilities that Gleevec generics in the US get delayed because of additional patent protection?

Confirming that that's not part of the 2015 guidance?

On that same topic of Gleevec generics, because you're starting to see generics on some markets, do you think you'll see Tasigna have a noticeable impact or slowdown?

Or do you think the impact from generic Gleevec on Tasigna will be minimal over time?

Because obviously, there's going to be a massive pricing difference between the two.

In reality, both drugs are quite good.

Second question is on biosimilars.

In your press release, you give first filing timelines for most pipeline products for biosimilars.

You don't really lay out any timelines.

Can you tell us on some of the bigger products like Enbrel or Humira or Rituxan, whether there's a reasonably good chance that you'd be able to launch those once patent protection goes off?

So really at the time of loss of patent protection on those products?

The last question on AirFluSal, are there any European countries where you think your product will be deemed to be substitutable to Seretide, either officially or in practical terms?

Okay.

David?

We'll start with Gleevec.

We've encouraged people to model the worst-case scenario which is Gleevec competition in the US mid-2015.

Your question, is it possible that we could have some type of protection beyond that?

The answer is, we have multiple patents.

We will work to defend those patents.

If anything changes, we will certainly let you know.

You also asked, what we have included in the 2015 guidance -- you can correct me if I'm wrong, Harry -- but we assumed that worst-case scenario in our 2015 guidance.

Yes.

That's correct.

Now, the question about Tasigna.

I think everybody wants to know what happens when there's g-Gleevec in the market, what's the impact on Tasigna?

I actually believe what will happen is that you will see many patients started on a generic Gleevec.

Then they will be switched to a Tasigna.

I wouldn't expect any wholesale switching from Tasigna to Gleevec.

The data we have, unfortunately, to prove that is relatively thin.

So for example, some of the markets where there are generics including Russia, Canada, Brazil, Tasigna is a relatively modest sized product, in part, because in some of those markets, there's no reimbursement for Tasigna.

But even on those small basis, we're seeing very robust growth rates for Tasigna.

30%, 70% and the like, so we see no obvious slowdown when a generic Gleevec gets introduced.

Jeff, on biosimilars?

Yes.

For competitive reasons, we don't give guidance on timing of when we're looking to bring our products to market.

You mentioned Enbrel, Humira and Rituxan which, as you know, are all in Phase III.

I think for some products, looking across the biosimilars landscape, we'll see launches of biosimilars at patent expiry and for others we won't.

It's really dependent on a molecule by molecule basis.

Keep in mind that a lot of the analytical and technical development and even clinical development work was out in front of regulatory guidance in some cases.

So we have to ensure that it dovetails in all cases with regulator expectations.

In terms of AirFluSal, substitutability in Europe, in most markets it is non-substitutable.

So it is detailed.

I can't -- it's hard for me to say what all markets will do across Europe.

I think you may see substitutability in a couple but for the most part, it will be a non-substitutable product.

Yes.

It's safest to assume non-substitutable detailed product.

Thank you.

Eric Le Berrigaud, Bryan Garnier.

Three questions please.

First again on guidance, perhaps referring to the Slide 32, it looks on the right side on the cooperating income level that -- should we assume there is no Diovan generic this year?

The red bar should be additive to the gray one.

Then probably you would cross the double-digits under these circumstances.

Could you perhaps confirm that should be right?

Or perhaps give some kind of sensitivity for each month or each quarter gain on Diovan generics on the cooperating income side?

Second question on free cash flow, obviously, 2013 was fairly disappointing from that perspective on free cash flow.

The only guidance you're giving us for 2014 is that second half is expected to be higher than first half.

But could you be a little bit more specific, whether it's fair to assume that free cash flow in 2014 should be at least in line with 2013?

Or if there is again a risk of free cash flow being below 2013?

Third and last question is a very small one on LDK.

Could you perhaps remind us whether there is any companion diagnostics developed on the product?

Perhaps not filed the same time as the drug as a second line indication?

It's not necessarily needed, but at a later time and whether it's a Genoptix product or an external collaboration?

Thank you.

Okay.

Harry?

Thank you, Eric.

Certainly, this Slide 32 you referred to is based on the assumption that a Diovan generic would enter in the US in roughly April of this year.

If that doesn't happen, every month it's roughly $100 million in sales, a little bit less of that on profit.

This would improve this chart bearing unforeseen events.

So, you're correct.

Cash flow?

Expected?

Cash flow -- we don't usually guide on it.

I believe we will have some increase, certainly, on the other hand, FX, we have to model in.

So I would see the low to mid single-digit growth.

Regarding a companion diagnostic for LDK?

Actually, those diagnostics exist in the marketplace today.

So there's no need for a new one per se.

Certainly -- so, it's not required for the approval.

Having said that, the current diagnostic is less than optimal.

We're working with other companies to help introduce a better quality diagnostic so that more patients can be identified.

Okay.

Thank you.

Richard Vosser, JPMorgan.

A few questions please.

Just on Consumer, with the return to the market of more product should we be thinking of an acceleration in the sales growth there in 2014?

I note there is no guidance.

On vaccines, could you define the pre-pandemic contribution in 2013?

Then give us some idea how we should be thinking about 2014?

Obviously, Bexsero coming through to a certain extent.

But the flu season in 2013 was pretty strong as well.

So some idea of what we should think there would be useful.

Then a couple of product-related questions.

Just on Seebri, I noticed, of course, you're doing a once daily asthma trial.

Just thinking whether -- could you explain whether this is for the US as well as Europe?

What has given you extra confidence to start this program at this stage?

Then just on Jetrea, just how -- I know it's early in the launch.

The reimbursement or the nice recommendations have been there for a while.

So just the early feedback you are getting from ophthalmologists across Europe?

How that may have differed with what we're seeing across the pond in the US would be very useful as well.

Thanks very much.

Okay.

Starting with Brian.

Could you maybe dimensionalize some of the things that are happening in OTC in 2014?

We haven't given specific outlook, but maybe you could just talk about what's happening.

So, as you know, in the US business, we've launched Lamisil and Triaminic and Excedrin in 2012 -- end of 2012 and 2013.

About halfway through the year, we launched Benefiber.

For next year, we expect to launch TheraFlu for that cough-cold season.

So we do expect it to be a continued recovery year which means better than average growth.

In terms of pandemic, Andrin, for 2013?

So I think the pandemic upside we had in 2013 due to H7N9 sales was not materially different from pandemic opportunities we had in previous years.

How this will play out in this year, too early to tell.

We have very good data in our H7N9 vaccine.

There may be other opportunities coming around to sell more of it.

But as with any new virus emerging, it's difficult to predict exactly how it would go.

We expect, of course, sales to increase from Bexsero this year.

We said this year will be the first year where we expect significant contribution from Bexsero.

What significant means will depend a bit on how quickly countries adopt the product into their national campaign.

But if I combine the two things that I mentioned, for sure, we plan this year to grow and to accelerate growth in vaccines versus previous years.

David on Seebri?

So, as you point out, Seebri is a once a day drug in Europe.

We don't know what it is in the US.

But it's highly likely to be a twice a day drug in the US.

So the asthma program, which is once a day, is focused on ex-US at this time.

Kevin, on Jetrea?

I would categorize 2013 as a learning year.

So on the very positive side, we are very pleased with the recognition of the reimbursement agencies in terms of clinical benefit to the patient and willingness to reimburse.

Secondly, we're learning about targeting the patient profile.

So the importance of having clear OCT pictures that target against the same patient profile that was used in the registration studies.

We are seeing some initial signs now that when we really focus on the patient profile, the drug does work as it was demonstrated in the Phase III studies.

Then lastly, I would say, we're ramping up in terms of David and my organizations to be able to jointly sell Lucentis and Jetrea, which gives us the firepower in the marketplace to launch something that today is unmet.

It's new treatment.

It's a paradigm change.

But we're uniquely positioned to be able to make that happen in the market.

Jeff Holford, Jefferies.

I just wonder, if you can help us a little bit in terms of the 2014 operating profit guidance by just splitting out the profitability mix of vaccines and diagnostics in 2013 for us?

Also, I note that the FDA, in its biosimilar [draft] guidance, does have some concerns about immunogenicity of chronically administered subcutaneous products such as a Humira.

How are you addressing that in your Phase III program?

I note that they had talked about potentially requiring switching studies there.

Then just lastly, do you have any intelligence on the outer patents that have been filed on Humira, which extend beyond, we believe the end of 2016?

What intelligence do you have around those?

Thank you.

Okay.

Harry, on operating profit?

Yes.

Thank you, Jeff.

So on diagnostics, as I said, the outlook for 2014 basically excludes the blood transfusion diagnostic business in 2013 and 2014.

The diagnostics sales in 2013 has been around $0.6 billion.

It has been a profitable part of vaccines and diagnostics.

So the operating income in 2013 was roughly around $0.2 billion.

Now, the negative impact on the core EPS in 2014 due to the diagnostic divestment, I expect approximately $0.06 to $0.07.

One has to note that the earnings impact includes royalty related income, and that has a declining profile over time.

Jeff, the two questions on Humira?

Yes.

So, on the FDA immunogenicity subcutaneous comments and the potential potentially for switching studies, I'd rather not give guidance as to the dialogue that we've had with FDA on our Phase III programs.

What I can say is, if you look back historically even on non-biologic products like enoxaparin, immunogenicity was raised as an issue.

We were able to address their concerns to their satisfaction through analytical characterizations.

So I have high confidence in my development team and in our development teams at Novartis that are working on these products.

In terms of Humira outer patents, probably best to ask AbbVie about their patent landscape beyond 2016.

So I think I'll take the fifth on that one.

Thanks very much.

Seamus Fernandez, Leerink.

So, just wanted to get a little bit of a better sense of your evolving commitment to dermatology.

We see the chronic idiopathic urticaria.

You've also got the Fougera generics line, which I believe is one of the fastest-growing areas in dermatology.

So as we bridge the difference -- or think about the bridge between your biologics, which I believe are also the fastest-growing, do you believe additional scale would be a benefit to your decisions around the dermatology business and division there?

How might you go about building out that potential scale?

Would you consider acquisitions in that regard?

Then as a separate question for combinations of LEE011, the CDK4/6, can you talk a little bit about other areas where you see opportunities?

You guys have done some of the most detailed work around The Cancer Genome Atlas.

Just wonder where you see additional opportunities outside of breast cancer?

Thanks very much.

Okay.

I'll share my opinion on dermatology and others can jump in.

But I personally think the portfolio that we have now before us gives us all the scale that we need.

I think this will make us one of the biggest players in the dermatology market in the not-too-distant future.

So I would leave it at that.

With LEE011, there are a number of other indications that are in Phase I that we have spoken about.

Then I would have to get you, I think, Bill Sellers, our Head of Oncology Discovery, to go into all the other possibilities.

I'm just the wrong guy to answer the question at this time.

Jeff, you want to comment on Fougera and building scale in dermatology generics?

Because this is a very exciting space.

Yes.

So I think, overall, what I would say is that we've been quite pleased with the acquisition of Fougera.

It is a business that has performed very well for us with strong double-digit growth and very good margins, given the limited competition nature of a lot of these markets.

It's by and large a retail generics business in the US, which we are looking to take global on a number of markets to complement the emerging strength that we have in Derma in some of the big generic markets globally like Germany, Russia, Italy and elsewhere.

So I feel very good about our position there.

In terms of scale, as Joe mentioned earlier, we have the Number One position globally in generic dermatologics.

So I believe we do have scale.

We can always look to complement, tuck-in and build on to our derm business.

But we feel very good about the platform that we have for growth in that area.

Thank you.

Naresh Chouhan, Liberum.

On emerging markets, your sales have held up much better than some of your peers.

In the last few quarters, your growth has actually started to accelerate.

Can you give us some insight as to why you're doing better than some of the competition?

On Gleevec, I know you've mentioned that despite some generics in some countries still growing quite strongly, I can't believe that would be the case in places like Canada.

Could give us some -- an outlook for 2014 and beyond as to how we should see those generics playing out and whether or not multiple generics have actually launched yet?

Then on Sandoz, could you go through the drivers of the sales guidance of mid- to high single-digit?

How sustainable that is?

That would be helpful please.

Thanks.

Okay.

Starting with emerging markets, I think, when you think about the Novartis portfolio, not only do we have innovative pharmaceuticals in eye care but also generics and OTC play a critical role in driving growth in emerging markets.

So I think just by definition, our portfolio is going to put us at a competitive advantage in terms of growth in those emerging markets.

It is building.

It's good -- anybody who wants to jump in, in terms of their success in emerging markets, go ahead.

But I really think it comes down to the fact that we've got the right portfolio for emerging markets.

Yes.

I think that's what I'd like to follow-up on.

The idea that you can sell just old products in emerging markets is a fallacy.

Those products face competition and price.

So the innovative approach that we're using for the established world is the same thing that's going to drive growth in the emerging markets, as long as you have the infrastructure in those emerging markets.

We've been pretty good at picking the right countries and making those investments.

Gleevec?

Yes.

I wasn't 100% sure what the Gleevec question was, so --

I think was around guidance for 2014, which we don't -- I think really it was around genericization.

Go ahead.

Yes.

Sorry, it was around the generics in places like Brazil and Canada and the countries that you've already talked about in your release.

What we should expect in 2014?

Because I would have thought that we would see a decline in those markets.

Yes.

So, there will be increasing generic penetration against Gleevec in the markets with the generics we've already launched.

We also, in 2014, the Japanese patent expires, so you would expect Gleevec to start to come under pressure this year.

Okay.

Jeff, on sales guidance?

Yes.

Looking at 2014, Naresh, we expect to see strong contributions -- continued contributions from Western Europe which has grown at double-digits, three years in a row, two or three times the market that's excluding Germany.

From emerging markets, as well, where we saw a nice acceleration of growth in the last two years, I will say that, if you look at our top three generic competitors, their sales coming from emerging markets in the last full year were 2%, 6% and 14% of their sales.

Ours were about 27%, 28%.

So, while it's still not as high -- as we'd like to get it to 40%, 50% of our sales is significantly higher than our competitors.

Then, really, the differentiated product momentum that we have, 23% growth in biosimilars last year to $420 million.

We expect to see good continued growth there.

Also seeing good growth in oncology injectables.

We then layer on respiratory, dermatology, as you talked about, and some of these other important launches that we've had, coupled with US launches.

That gives the growth profile that Harry talked about at mid- to high single-digits.

Michael Leuchten, Barclays.

One question for Harry.

Then a couple of product questions please.

The wording, Harry, that you used when you talked about the difference between sales growth and core EBIT growth for 2014.

You used the word, slightly, just wondering why you picked that wording to talk about how much faster core EBIT can grow on top of sales?

Then on the product questions, in Gilenya, can you please talk about the US pricing environment?

The product came in below consensus expectations.

Afinitor in the US, sequentially flat over Q3, after a good Q3 over Q2 even though the prescriptions haven't -- the trends haven't changed.

So I was just wondering where the lumpiness is coming from?

Then Jakavi sequentially was down.

Wondering what the trend there is?

I thought we were looking for an improvement.

Then lastly, on Sandoz, AirFluSal, the two biggest markets in Europe seem to be UK and France.

Anything on timing as to when you think you will be able to launch in those markets?

Thank you.

Harry, on the question about operating income?

Yes.

So, thank you, Michael.

You have to step back and look at -- with the assumption that Diovan mono in the US would become generic in April, we are facing up to $3 billion of generic impact.

That is significant.

It's more than we faced this year in 2013 with $2.2 billion.

The initiating additional productivity, that's clear -- but I, just by saying slightly, wanted to manage expectations that the expansion with this Diovan mono assumption will not be massive.

But we will build margin with our current plans.

I think that is key that it is this assumption, about when it comes.

I believe it is around the worst-case.

So then the question is the longer it stays, the more --

-- accretive it will be.

The more you change the word slight.

So David, on Gilenya.

On Gilenya, so, if you look at Q4 in the US there was some inventory drawdown.

There was also increased rebate pressure in the MS market in the US, which has an impact.

Having said all that, if you look at the actions by our competitors, they are still aggressively taking price.

In fact, the gap between, for example, some of the products in Gilenya which was at the high end has shrunken fairly significantly.

So there still is apparently, room to take price.

The next question was around why was Afinitor flat in the fourth quarter in US?

Just to remind you, worldwide, it was up 33% for the year.

In the US, Afinitor Q4 growth versus prior year, was up 21%.

What you have to understand is for oncology drugs, because of their price level, they're impacted by donut hole and other revenue deduction adjustments.

So I think it will not be unusual to see softer back halfs for some of the cancer drugs than from the earlier part of the year.

Actually, all the indicators we have are on track -- for example, we see Afinitor being used in earlier stages of disease and for longer periods of time.

So I feel pretty comfortable that everything is okay there.

Then for Jakavi, you asked us why the lumpiness in sales?

First of all, we don't sell in the US, which means we have a greater percentage of our business in tender markets and depending upon when those tenders occur, the product will show growth or not show growth.

Then in addition, it would appear, although this is somewhat conjecture, it looks like one of our competitors bought a large quantity of product in Q3, probably to do a clinical trial.

Jeff, on AirFluSal?

Yes.

So, Michael, we don't comment on our filing or regulatory strategy, as I noted earlier.

But there has been -- there was a lot of thought that was put in.

It's quite a bit of logic into why we sequenced the markets in the way that we did.

As you know, we've had, now five with Romania, today markets approved in addition to Germany and the three Nordic countries and Hungary -- actually six then.

Those are our wave one countries.

So we are looking forward to bringing this product to, not only a number of countries in Europe or most countries in Europe, but around the world.

So we're excited about this launch.

It's just getting underway.

Tim Race, Deutsche Bank.

A question for Joe.

I suppose first of all, just a big picture question on one of the surprise factors for the last year has been the fact that there's no price elasticity of demand in the US.

We've been seeing perhaps four, five, six times inflation rate price increases.

Could I just have your thoughts on where the endgame with this is?

Which products, which classes, can you continue to do this for?

Because we're seeing it currently on products which are perhaps on the tail end of their lifecycle as well as the new products.

Where that fits in with your innovation theory?

Just really, what you think the endgame is?

That would be useful.

Then maybe just a question more, in the Pharma space on the LEE011 and the CBK development, where do you actually see this?

Is the glass half-full?

Or is the glass half-empty?

What do you expect from these products maybe being the second player in this space versus being the only player in this space, with Afinitor?

Do you expect these to push Afinitor back further and further back with less usage when they eventually launch?

Any views there would be great.

Thanks.

Okay.

Let me start on the pricing.

I think when you talk about price pressure around the world there, it's different by market.

I think we have to assume that in the US, there's going to be increasing price pressure.

So when we're building our long-term forecast, we're not assuming that there is going to continue to be able to take price in the US.

There's just more and more pressure there.

I wouldn't want to go into what our strategy is in the US today in terms of tail end products versus not.

But just the approach that we're taking as a Company is, the endgame is no more pricing in the US.

That you better be able to innovate and continue to build your portfolio in ways that can give you a mix pickup and can give you additional volume at the same price or to deal with even declining prices.

David, on LDK?

LEE, I think.

So there was multiple LEE questions, which means I probably need a chart on LEE in one of my next presentations.

But just to try to put in perspective, the goal in breast cancer is to delay chemotherapy as long as possible.

There's now multiple lines of therapy, right?

There's hormonal therapy.

There's mTOR inhibitors and the like.

There will be PI3 kinase inhibitors.

There will be CDK4/6 inhibitors.

It looks like the CDK4/6 inhibitors are used in earlier stages of disease, so first-line.

It looks like based upon the Pfizer data and our data as well that the duration of use will actually be fairly lengthy, which is a good thing.

I've already told you that I expect Afinitor to be a $2 billion product or more.

So given that these products will be used earlier and for a longer duration, it starts to set up what the opportunity is in this space.

Now in terms of competition, it's basically us and Pfizer.

Pfizer finished their Phase II early with very good data.

Ultimately, in terms of the competitive space, there's two scenarios, I believe.

One is Pfizer manages to get approval on their Phase II data, in which case, they launch before we do and we're Number 2 in.

Or they have to wait for their Phase III data.

I think the launches will be basically on top of each other.

It will be a competitive fight.

We believe we have a pretty good oncology organization.

Florent Cespedes, Exane BNP.

A few quick product questions.

First of all for David, on Seebri, why the submission will be in the US now in Q4 versus H1 previously?

Could you remind us when we should see new clinical trials results on Seebri?

Second question on Tasigna with the fast-to-cure approach, now you are saying that you should submit in 2016, the dossier for this new approach.

Previously, it was beyond 2017.

Is it due to the fact that you have fully enrolled the clinical program?

Or is there anything behind on the regulatory side, for example?

Then a quick question for Andrin, on vaccines on Bexsero.

Could you be more specific on how you see the situation for Bexsero in Europe?

For the US, what could be the next step, is a pentavalent approach still a scenario for Bexsero?

Thank you.

Okay.

Seebri?

Seebri is pretty straightforward.

The FDA asked us for a little bit longer duration of therapy.

So basically, longer follow-up which then delays the filing.

Just to be clear, Ultibro submission is on track.

That's the one that really matters.

In terms of when you see the data, some of it will start to come out this year and probably the rest of it will be next year.

In terms of Tasigna, it's simply the fact that we accrued a little bit faster.

But nothing else has really changed.

Andrin?

Bexsero?

So, I think in Europe, we have launched, as Joe has mentioned now, in several private markets.

We plan, during the year, to launch in most markets in Europe, the product for private use.

The same is true for Canada and Australia where the product has been approved as well.

With regards to a national campaign, which of course, gives a much stronger leverage to generate growth, we are awaiting the opinion in the UK from the JBCI.

We are still confident and optimistic that we'll find a way forward in the UK.

But we're also working with other countries.

We have, for example, in Germany the first positive recommendations already for inclusion and reimbursement in -- not on a national level but on a state level.

There are already a wide number of insurance companies in Germany who are reimbursing the product.

So a very good momentum.

We are also working in Ireland, for example, to get that product on a national schedule fairly quickly, just to give a few highlights.

In the US, the situation right now is in flux.

As you may remember, we have said our primary objective for the US is an ABCWY vaccine that would give a complete protection against all circulating serogroups.

Now, last year, we had this unexpected outbreak in Princeton, which has created a lot of attention.

We have under an extended investigational use application vaccinated now 5,000 students in Princeton.

The vaccination rate was very high, 95% of all students got the vaccine.

Everything went very well.

It created a lot of positive momentum.

There is another outbreak in Santa Barbara.

The state officials there in California have also informed parents that vaccinations should happen in Santa Barbara at the University as well in Q1.

That would be up to 20,000 students.

So you wonder how long it will take until, finally, maybe there is a way forward by which we could get Bexsero licensed in the US.

For sure, we cannot keep on shipping, it's just under investigational use.

So we're in discussions with authorities there.

It's too early to tell which way it would go.

But for sure, we are doing whatever we can to get the product to the US as quickly as possible.

Steve Scala, Cowen.

I have two questions, both for David.

First, does Novartis have in-house the BOLERO-2 overall survival data?

Whether or not you have the data, when will it be presented?

Second, also for David, your comments around generic Gleevec in the US may be consistent with what you've said in the past, but less confident than I would expect given the timeframe involved and the fact that it looks like a very formidable beta crystal patent expiring in 2019.

So has there been any recent developments which stop you from being more confident?

What is the next data point that we could look forward to in figuring out when generic Gleevec may arrive in the US?

Thank you.

Okay.

So, if I'm not mistaken for BOLERO-2, there have been several cuts of the data.

So at least some of the data is in-house.

Regarding Gleevec, my enthusiasm or outlook hasn't changed at all.

It just sounds like I must be in a different mood today.

(laughter)

So it's essentially unchanged.

Okay.

I'd like to thank everybody for their attention and calling in today.

We look forward to giving you an update at our first quarter.

Thank you very much.