Novartis AG (NVS) 2014 Q1 法說會逐字稿

Good morning, and good afternoon and welcome to Novartis Q1 2014 results conference call and live audio webcast.

(Operator Instructions)

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

Please go ahead.

Thank you, I'd like to welcome everyone here today.

Joining me from Novartis are Harry Kirsch, our CFO, David Epstein, Head of the Pharmaceutical Division, Kevin Buehler, Head of Alcon, Jeff George, Head of Sandoz, Andrin Oswald, Head of Vaccines, George Gunn, Head of Animal Health, and Brian McNamara, Head of OTC.

So before we start, Samir, can you read the Safe Harbor Statement?

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 some of these factors.

Thanks, Samir.

Okay starting on slide number 4 I'd say we had a solid first quarter.

We had sales growth across all divisions and total our sales were up 3% in constant currencies.

We had very strong innovation again in the quarter which sets us up for future growth.

On Tuesday as you know, we announced significant changes to the portfolio where we will be focusing the company on our three big engines and then today, we announced greater cross divisional synergies and simplification through the formation of Novartis Business Services.

Now looking at our results in a little bit more detail, as we have said it's important for us to deliver leverage and in the first quarter we were able to show sales up 6% and core operating income up 6% in constant currency which resulted in a 0.9 point increase in core operating income margin.

Harry is going to go into this in more detail in a minute.

In terms of our three strategic priorities I think we made progress on all three and let me start by talking about innovation on the next slide.

We had several important approvals in the quarter, I think the most significant was Xolair which we got approved in the US and Europe for chronic spontaneous urticaria.

This is a debilitating skin disease and we're off and running in terms of getting that launched in the new indication.

For Bexsero, we had some very positive news as you heard with the recommendation in the UK for routine use in infants and in the US, we received breakthrough therapy designation from Bexsero.

We're going to be filing as early as this quarter.

The news flow from the pipeline beyond the approvals was also very impressive.

I think we were disappointed by the news on serelaxin, but we had an upside surprise on LCZ696 in chronic heart failure and you're going to hear more from this by David in a minute.

Also in the quarter, we acquired CoStim with several early stage immunotherapy assets.

I think this portfolio is going to help us build strong combinations with our own kinase inhibitor portfolio in oncology.

Now moving on to accelerating growth on the next slide, slide number 10.

All the divisions grew the top line as you can see ranging from 1% in pharmaceuticals to 12 points in vaccines and all divisions grew their bottom line with the exception of Sandoz.

I think the growth was driven if you look on the next slide by our growth products which now account for 31% of our sales and they were up 17%.

And also I was pretty pleased with the emerging markets growth up 9% across the entire group and that was led by China at up about 17%.

In pharma, the growth products continued to grow nicely shown on slide number 12.

In Q1, Gilenya was up 31% to over $550 million and Galvus was up 20% to over $300 million.

In emerging markets, we did see that solid growth, you can see here 2011, 2012 and 2013 and now 2014 so I feel like we're building that emerging markets presence for Novartis across the entire group.

In terms of productivity on slide 14, you can see that we also had a solid quarter so we continued to manage our marketing and sales spend well.

We were down 20 basis points as a percent of sales despite all the launch activity and G&A was also down another 20 basis points.

On the next slide we announced importantly the creation of what we're calling Novartis Business Services and this is a key step for us to better leverage the fact that we are a diversified portfolio.

We have businesses that are quite different if you think about innovative pharma and generics, so the division structure is right but there are a lot of back office functions like IT, like procurement, financial reporting and accounting that can be consistent across all divisions, all of the three big divisions across 60 countries, so we're very interested getting after this.

On the next slide you can see why we're doing this.

First, I expect this to help the divisions in market, so this will help the divisions focus on their customer, on their patients and spend less time in the countries thinking about IT and infrastructure and Financial Reporting because that's going to be done through Novartis Business Services in country in a very similar way across all divisions.

So one process.

So the whole mission here of this business, Novartis Business Services is to provide quality services to the divisions at a lower cost.

Now looking at our quality, I think we also had a very good quarter.

We had 65 health authority inspections across our manufacturing sites and 12 of them were from the FDA.

All of them were rated good or acceptable and this gives me additional confidence that the intense work that this team has executed over the last 24 months is really paying off.

Now as you know on Tuesday we announced the transformation of our portfolio with a series of transactions I would say between GSK and Novartis and also Eli Lilly.

So this was really the completion of that portfolio review that we started a year ago.

Just to briefly summarize, we acquired GSK's oncology products.

In turn, we form a joint venture with them contributing our OTC business to their consumer business and we create a $10 billion powerhouse.

We then divest Novartis Vaccines excluding flu to GSK and these three transactions are interdependent so they will close at the same time.

Separately, we will divest animal health to Eli Lilly.

When you look at what this does for the company it really does three things.

It focuses on our three big divisions which have global scale and innovation power.

It also improves the financial profile of the company so we do expect this to improve our sales growth rate, our profit growth rate and our operating income margin.

And importantly, I think it positions Novartis well for the future of the healthcare industry because these are going to be number one, number two, number three segment in their segment with the innovation scale to be able to really compete very effectively.

Earlier this month we also announced some leadership changes at the executive committee level.

Kevin announced that he's going to retire after 30 years with Alcon.

I'll talk about that in a minute.

I appointed Jeff George to take his place as Head of the Alcon Division and I think everyone out there knows Jeff.

He's got -- when I was thinking about the criteria for selection of the next Alcon leader, this person had to be very customer oriented because Alcon has built its reputation with the surgeons and the physicians and that's going to be critically important.

Secondly, it had to be somebody who was focused on top line growth, because with 35% core operating income margins the only thing that matters at Alcon is driving the top line.

And Kevin's put some great innovation in place and now Jeff will be continuing that and driving the innovation that we currently have to get that top line up.

Then, I replaced Jeff in Sandoz with Richard Francis who joins as the Sandoz Division Head and he's coming from Biogen Idec.

He's got great results orientation.

Somebody from, if you think about generics and how fast it moves, somebody from the biotech industry is a great profile for that business and as well Richard has biologics experience which is going to be important as we develop our biosimilars portfolio in Sandoz.

And then finally I've elevated Andy Wyss, who some of you know, to the executive committee.

He was appointed Head of Novartis Business Services.

In a company where there's a strong division culture setting up Novartis Business Services is not going to be easy so I wanted somebody who had very strong operating experience.

Andy's run countries, most recently he's Head of our US operation so he knows what the divisions need.

He's customer oriented for the divisions but he's also executionally very strong and I think he's going to be a good addition.

I elevated this to the executive committee level to demonstrate to the entire organization that I'm serious about this and we're going to execute it and with everybody's help this will be a big success.

So finally, I want to thank Kevin Buehler for his great leadership of Alcon over the last 30 years.

We were talking and he joined Alcon when the sales were $330 million which is unbelievable in terms of the growth that that business has seen over the years.

We could not have done this integration without him.

I'll personally miss working with him and I want to wish him best of luck and happiness in his next phase of life.

Okay, now I'd like to hand it over to Harry to go through the financials in a little bit more detail.

Thank you, Joe.

So quarter one has been a solid quarter with a solid P&L, which you can see on slide 23.

In constant currencies we grew sales by 3%, core operating income by 6%, and achieved some core operating leverage.

Core earnings per share were also up 6%, but to say it up front I'm not happy with the cash flow result.

As a reminder, all comparisons on a pro forma basis, which excludes the blood transfusion diagnostics unit in 2013.

We completed that divestment in early January this year and the divestment gain of $0.9 billion is included in the reported operating income.

If you look to slide 24, you can see that a foundation of our good quarter is underlying volume growth.

Let me walk you through the slide.

In terms of net sales, underlying volume growth contributed 8%.

Price and slight negative impact of 1% which led to the underlying sales growth of 7%.

This is more than offsetting the impact of generic competition of 4% or about $0.5 billion and resulted in net sales growth of 3% in constant currencies.

FX took another 2% off the top leading to a US dollar growth of 1% for net sales.

You'll see again a similar but more pronounced picture for core operating income where underlying growth, core operating income growth of 16% more than offset 10% of generic competition.

FX took us from 6% growth in constant currency to flat earnings in US dollars.

I will provide more detail on FX later but the main drivers continue to be the yen and the emerging market currencies.

Now turning to slide 25.

You can see that our core margin in constant currencies improve by 90 basis points.

This improvement was mainly due to pharmaceuticals and corporate items.

In pharma, it's a mixture of improvement in M&S, G&A and cost of goods partly offset by investments in key oncology pipeline assets.

In corporate, the positive contribution is mainly due to gains from a venture fund investment.

Even when excluding the positive one-time effect in corporate, our core margin would be flat versus prior year as pharma improvements offset Sandoz and Alcon margin declines.

Alcon core margin is at 35% but was down almost 1 percentage point due to sales mix with a higher share of equipment sales.

Sandoz core margin decreased due to unfavorable sales mix, in particular lower European cough and cold sales which are more profitable.

Consumer health's core margin was slightly down due to a small non-core brand divestment in the prior year.

Including the significant currency effect of just over 1 percentage point, our core margin was 26.1% which now brings me to currency on slide 26.

Currency impacted the top line by minus 2% and a bottom line by minus 6% in the first quarter.

This was mainly due to the weakened yen and weakening emerging market currencies against US dollar.

Recall that the yen was still quite strong in quarter one 2013 and also the emerging market currencies started to weaken in quarter three 2013.

Hence as mentioned in our full year earnings call in January I expected a higher currency impact in quarter one and quarter two than in 2014 overall.

In terms of net sales in quarter one, the currency impact was partly offset by a stronger Euro.

For Q1 operating income, the strengthening of the Swiss franc had a negative impact due to our Swiss cost base.

If March average exchange rates would prevail for the remainder of the year, the full year impact would be about minus 1% in sales and minus 4% in core operating income in 2014 versus 2013.

Let's turn to free cash flow on slide 27.

Our free cash flow this quarter was $0.8 billion versus $1.2 billion in quarter one 2013.

The decrease was mainly due to the timing of tax and revenue reduction payments as well as currency effects.

Please note we don't report a cash from the blood transfusion diagnostics divestments under our free cash flow definition.

Also for 2014, we expect our free cash flow to follow historical pattern of the last few years where it is stronger in the second half of the year than the first.

Now on to net debt.

On slide 28 you can see how net debt increased by $4.7 billion to $13.5 billion at the end of the first quarter.

This was mainly due to our dividend payment of $6.8 billion in March which was partly offset by our free cash flow of $0.8 billion and divestment proceeds of $1.7 billion.

Finally, our outlook on slide 29.

In short our outlook for the full year 2014 remains unchanged.

For modeling purposes we now assume that a Diovan monotherapy generic will enter the US market in July 2014.

Of course we don't know this, it is simply a forecast assumption.

Originally, under the assumption that a Diovan monogeneric would enter the US in April 2014, we estimated a generic impact of up to $3 billion for 2014, with our new assumption that estimate goes down a bit to approximately $2.7 billion.

For the extra quarter of exclusivity, we expect to add about 0.5% to the top line and 2% to the bottom line and therefore expect no change to our outlook which has group net sales growing low to mixed single digit in constant currency and core operating income growing ahead of sales in constant currency.

Overall a solid start to the year.

And with this, I'll hand over to David.

Thank you, Harry.

For the quarter, we reported in constant currency 1% top line growth and nice leverage growing 4% in core op inc, and this is despite the negative impact of generics, particularly for Zometa.

Currency, as Harry described however, was negative on a US dollar basis.

Turning to the next page you see underlying volume growth was plus 6% and more importantly growth products grew 17% reaching now 41% of sales.

In essence our portfolio is getting younger and healthier all the time.

As you can see on the following page the emerging markets continue to provide strong growth despite the occasional problem markets in this case, Venezuela.

We're up 7% overall for the emerging growth markets.

And on the following slide you see that our unparalleled growth platform with exclusivity until 2018 and beyond continues to deliver.

All products on this list showed very nice growth, and in particular, some of the products at the bottom of the list, our respiratory portfolio and Jakavi are now getting to a size where they start to really contribute to our forward growth.

I'd like to mention just a few of the larger brands now as we flip through the next few pages, starting with Gilenya.

Gilenya has now exceeded the $2 billion sales mark for the rolling 12 months, over 91,000 patients have been treated worldwide and you see that the ex-US market share growth continues and revenue growth continues with really strong momentum.

In the US, the growth was much smaller and it was negatively affected by a temporary effect of a larger and longer than expected yearly benefit re-verification process.

If you look at the data in more detail you see that January and February were weak but March was very good so we feel confident about the growth outlook for Gilenya for the rest of the year.

On page 36 you see that our decision to invest in new indications for Lucentis as well as to take a price adjustment to improve market access is really making a difference.

The brand is now back to growth with 6% top line growth and roughly 40% of that business is coming from those new indications.

In addition we launched in Germany a really state-of-the-art pre-filled syringe, the qualitative feedback from the physicians is really quite encouraging.

On the next page you get a snapshot look at how Ultibro is performing.

In our view the launch is positive.

You see a comparison here to a few select external analogs.

We've only launched in 7 countries so far and we expect to launch in more than 25 during the course of 2014.

Filing is expected in the US before the end of this year so this is a brand that we have very big hopes for.

Now turning to the next slide, we take a look at Afinitor.

Here is one where the story has not been as good.

We recently saw the BOLERO 2 overall survival data, and while there's a trend in favor of Afinitor, it was not statistically significant.

As a result our hope that the overall survival data would be used in order to expand duration of therapy, is not -- is likely not to happen now and due to that, we are adjusting our breast cancer sales outlook down from $2 billion to somewhere between $1.5 billion and $1.7 billion.

Keep in mind there are still multiple new indications ahead for this product, in carcinoid, in lymphoma and other indications.

Some people have written that they fear that the downgrade in Afinitor will have a negative impact on the outlook for the oncology business, and while this is a little bit negative, you also have to remember and I will show you some data in awhile that we have other oncology products coming that are not yet in most people's forecast models.

Turning now to the next slide we see that the early approval of Xolair in chronic spontaneous urticaria is now out the door.

Launches are under way and once again qualitative feedback is very good.

We hope to finish regulatory reviews in a number of other countries during the course of this year including Canada, Australia and Switzerland.

For secukinumab we decided to launch a head to head trial versus what is now considered the best therapy in the category, Stelara, and we've done this because in our pivotal trial versus Enbrel, we saw such a better profile for secukinumab than Enbrel, that we thought we had a very good chance to beat Stelara as well.

Of note the primary end point is something called PASI 90 which is a nearly full clearing of the skin, a score that we believe will become the new benchmark for measuring success in the field of psoriasis.

Secukinumab is filed in the US, Europe and Switzerland.

There's some additional filings occurring this year.

We now have confirmation on the FDA action date which will be January 2015 and we expect a CHMP opinion before the end of 2014, so secukinumab is a brand to definitely watch as it will be a key contributor to our growth in the not too distant future.

Now on the next slide I'd like to spend a moment or two on our heart failure franchise.

You'll recall at Investor Day in October, we described our intent to build a new leg for our business around heart failure.

We talked about primarily serelaxin, and to a lesser extent LCZ.

For serelaxin, as an update just want to remind you that we did in fact submit a request for re-examination asking for conditional approval in Europe.

We expect that to go to a scientific advisory review during the month of May and we would expect the CHMP opinion before the end of May.

In the US, the FDA advisory committee voted against approval and that formal action date is mid May.

Importantly the second Phase III pivotal trial is now enrolling with interim results expected in 2015 and final results in 2016 and just to help you recall the primary end point is focused on mortality.

Now as Joe said, LCZ is a good news story, in fact, a very good news story.

The Data Monitoring Committee unanimously recommended early closure of the reduced ejection fraction heart failure trial called PARADIGM, based on the strength of the interim results.

The study close out commenced on March 31 and is targeted for presentation in September at the ESC this year.

We anticipate filing in Q4 2014.

We believe the unmet medical need here is very high and the efficacy results portend a need for this product to be placed very prominently in guidelines.

As a result we believe a mega blockbuster is in the making and a product that we should pay a lot of attention to.

On page 42 I show you the study designed for the PARADIGM trial.

Of note, this is a very large trial of over 8,400 patients.

We compared LCZ 200 milligrams twice a day to enalapril at full dose to make sure that the comparison to LCZ was as tough as possible.

We were able, the trial was then stopped because the primary combined end point of delayed time to cardiovascular death and reduced heart failure hospitalization in these patients was exceeded.

I also want to be clear that there was a reduction in the risk of cardiovascular death.

I want to repeat that again.

There was a reduction in the risk of cardiovascular death which will be a key driver of the uptake of this product.

Lastly on the next slide just to try to dimensionallize the opportunity for you in chronic heart failure, you may have seen this slide once before in one of our analyst presentations.

There are roughly 3.6 million patients in the US and just the top five EU countries that are currently treated with prescription medicines and are heart failure Class II to IV.

If you begin to extrapolate potential pricing and the fact this product will be used ultimately worldwide you can very quickly get to rather large sales forecast numbers for this brand.

Now just a few more products.

LDK378 for ALK+ non-small cell lung cancer, we had a very nice publication in the New England Journal of Medicine during the month of March.

We are imminently awaiting for FDA approval for this product.

Also on the next page you see one of the products that was not included in our model when we last gave you the five year outlook on our business and that's LBH589 which met the primary end point of progression free survival in multiple myeloma.

This is a study of Velcade plus or minus LBH589.

We submitted the dossier in the US in March of 2014 and we expect to file in Europe in the second quarter of this year.

Now let's just take a pause and reflect back a little bit more on the transformational deals that Joe announced earlier this week by looking at the GSK oncology products that will join our company and I believe will strengthen and complement our innovative oncology portfolio.

As you can see from the left there are a number of very interesting products, with a particular focus on three of them, Votrient, Tafinlar, and Mekinist.

Votrient will be a blockbuster.

Tafinlar and Mekinist, assuming the COMBi-D trial is positive for overall survival, something that we should know either at the end of this year or early next year, also will then become blockbuster products.

When you take these products and add them to our considerable development and commercialization capabilities we believe these products can be bigger in our hands than they ever could have been in GSK's hands.

In order to get a real sense of where these products can go, one must look beyond the initial indications.

And if you turn to the next page, we outlined here for the three key assets the ongoing Phase III and Phase II clinical trials and what you see is that these brands have a lot of potential.

There are trials where the brands are being used in earlier stage of disease such as adjuvant therapy and there's also a number of trials both for Votrient and combination of Tafinlar and Mekinist where immuno-oncology drugs, either PD1 or PDL1 are being added to therapy.

We expect the addition of these molecules will allow us to position the right combination for the right patient and potentially extend the duration of therapy for these patients as survival has increased thus further increasing the top line sales potential of these brands.

With that I'd like to bring you to the last page of my presentation.

We've so far had a very heavy year in terms of news flow.

You can see the green check marks on the slide.

There will be multiple opportunities for business expansion based upon these outcomes and there will be certainly more news flow during the rest of the year.

And with that, I'll hand the presentation back to Joe.

Thanks, David.

So to sum up we had a solid Q1.

Beyond the portfolio transformation we delivered strong innovation in the quarter and that sets us up for future growth.

We grew each of the divisions and we announced greater anticipated cross-divisional synergies through Novartis Business Services.

So at this point I'd like to open the call to questions.

Operator?

(Operator Instructions)

Ram Narayanan from Citigroup.

It's actually Andrew Baum here, thank you for taking my question.

Two parts, both on LCZ.

Firstly, could you just remind us how many of the -- what percentage of patients in PARADIGM came from the US, and the reason I'm asking, which you probably might guess is, should we feel comfortable, assuming it's a relatively low contribution that there's no divergent treatment trends compared to the overall patient population, obviously thinking of recent experience with Brilinta.

And then second, David perhaps you could comment on the intellectual property and exclusivity basis for LCZ in the US market.

You've put out some punchy comments about you anticipated exclusivity time.

Perhaps you could outline what underpins that confidence.

Okay, so your first question was about the makeup of this multi-country study for LCZ.

I don't actually have the number of US patients in front of me but it was substantial and we do not expect to see results that are different in the US versus other countries, but you also have to remember we haven't actually analyzed all the data ourselves, it has to be collected so we'll get back to you on that.

I don't think there's any issue there.

In terms of the LCZ IP situation, exclusivity is based on a combination of regulatory data protection as well as several different patent families.

We expect loss of exclusivity in 2026 in the US and Europe and 2030 in Japan.

I know some people have questioned whether or not that is sufficient protection given that AHU, which is the nepi component of the drug is an old drug as well as Diovan.

Please keep in mind that AHU was never launched.

We have a number of combination patents and we also have a series of other patents that we are not ready to discuss yet so we feel pretty good about the outlook for this product's protection.

Thank you.

Next question please.

Alexandra Hauber from UBS.

I've got three questions.

Firstly, just as a quick follow-up on LCZ.

I just noticed that the slide which you put out today on the eligible patient population is slightly different from the one you put out previously as in there was no longer a restriction for patients without renal insufficiency so whether you could just comment on why that restriction was in there originally and is no longer there.

Second question, on Afinitor, you mentioned you are downgrading the expectations based on the outcome of BOLERO.

We're also hearing from the US due to co-pay issues, there's actually a considerable portion of patients considering to go straight from the endocrine therapy to capecitabine which is now available generically.

I'm wondering what your market intelligence tells you on that point, whether that has contributed to your downgrade of the expectations.

And also if we've seen that happening for Afinitor, whether that is sort of any, makes it somewhat more concerning about the Glivec patent expiration with regards to the Tasigna switch.

And then just a final question on, just looking again on the deals that were announced on the consumer JV.

If you are thinking about the restructuring, which is going to happen in that business, is this going to come out of the consumers' pockets or out of GSK's pockets and how are you actually accessing cash that comes from this business?

Okay, let's start with David on LCZ?

I have to go back and find the last slide, I don't have it in front of me.

I don't expect any significant restrictions around renal function for the product, so we'll go back and check and find out what happens for you, Alexandra.

I don't know at this particular point in time.

Just to give people a little bit more color on Afinitor.

So Afinitor does have stomatitis as a side effect.

It can be quite painful for a percentage of patients and patients can be coached through that pain and if they stay on for a period of about two months it tends to go away and then they can benefit from the full therapy.

The problem we had is we expected to have an overall survival benefit which would provide enough encouragement for the physician to work with the patient and get them through so we thought we would be able to extend the duration of treatment.

Without the overall survival benefit it's tougher to do that and as a result you're seeing the drug used third and fourth line.

Now you mentioned something about I think Glivec and Tasigna and I didn't quite catch that.

Sorry, the point was what we're hearing that there's no, that is just of course talking to a few doctors is that because of co-payment issues that patients have actually, now that capecitabine or Xeloda, which the patient would use before there was Afinitor available, that is now generically available and there's no co-pay or very low co-pay compared to Afinitor, that is basically co-pay considerations which is now on the margin driving more patients away from Afinitor towards going straight to the chemotherapy.

Whether that is also featured in your downgrade and therefore, just thinking ahead of Tasigna because there may be similar co-pay considerations at some point in time.

So it is true that some doctors do skip Afinitor and go to chemo.

This is the third fourth line use that I was describing to you.

It's not our sense that co-pays are a key driver of that.

It's more the side effects.

Okay.

And on the consumer JV question, Alexandra, was your question around the structure of the JV or was it, I didn't catch the last part whether you were asking who's going to pay, whether it was a consumer pay business?

Yes, there will be some restructuring in this business and there will be restructuring charges associated to that so I was just wondering who pays for that.

And a more general question, how do you access the cash coming from that business?

Harry?

Yes, so as you know, Alexandra, we barely have 36.5% of this JV.

It will be -- our income will be reported as income from associates companies.

Now the restructuring charges as well as the benefits will be managed by the JV.

We get our cash out in the form of dividends and the minimum of the dividends is 65% of net income.

Next question please.

Richard Vosser from JPMorgan.

Just going back to LCZ, I wondered if you could talk about the statistical stopping rules of the trial and whether those as interim have ensured that you've met the FDA requirements for approval on a single arm trial.

And just on your comments on CV risk reduction whether you could confirm that that is a statistically significant benefit.

Then secondly, just on the portfolio transaction or transformation, clearly improved the margin of the group quite dramatically but could you talk about the margin improvement that you've been highlighting previously, whether this is limited that effect on the portfolio transformation or whether we can expect pharma margins on an underlying basis outside of the oncology assets I suppose added, whether those should be improving as well.

And how we should think of that through Diovan and Glivec as well.

And then finally just a question on LBH, which you highlighted today.

Just some feedback we've been getting is that with the drug being on top of Velcade that some doctors are preferring just to go to single agents in a refractory setting in myeloma, just your thoughts on the context of that around that product.

Okay I'll start with the portfolio question because I think you're going to have to repeat the first two for David, but the margin improvement that we modeled in 2013 if you would have taken those results demonstrated that because we are acquiring higher margin businesses.

And we are divesting the lower margin businesses, at least in those years, vaccines and animal health there was a ratcheting of the core EPS, sorry core ROS of about 250 basis points versus where we would have been.

But we had said in previously that our belief is that we can improve our margins over time so this would be essentially resetting the margins at a higher level than growing our margin off of that.

Now obviously it will take some time even with the acquisition of GSK oncology to take it from what is today 25% up to where we think we can go which is substantially above that, so that will also contribute over time.

But you should think about this transaction as incremental to what we had said before in terms of our desire to take the margins up on this company.

This was not the way to do it.

This was on top of what we had previously said, so David?

So the only part we heard was you were asking about the LCZ stopping rules, is that correct?

Yes, so just stopping rules of whether the -- what the stopping rules were and whether the statistical power of those stopping rules I suppose ensure that you meet the FDA statistical requirements for approval on a single arm trial.

And then the second part of it was whether statistically, you mentioned the CV risk reduction, whether that was statistically significant or not.

Tim Wright is in the room, our Head of Development, I'm going to ask him to answer the questions to the extent he can.

So Richard, the answer to your question is that the stopping criteria were set such that the level of significance would enable us to file with a single study and that's very important because otherwise, it would not have stopped.

And in fact, it would not have stopped early that is, and as far as the CV mortality, that was one of the key criteria.

There were two that allowed the study that were required to study to be able to be stopped.

One was meeting the primary end point with a high degree of significance enabling a single file and the second was a significance in the CV mortality.

And LBH, David, the question of single agent on top of Velcade?

So can you repeat that question again, because I didn't quite understand it.

It was just some doctors we've been speaking to effectively said that they want to use single agent therapy when they are treating refractory myeloma and the efficacy of the single agents is such that they don't want to use Velcade in refractory, and obviously LBH is on top of Velcade, so just how you're thinking about that within the competitive environment.

Yes, so clearly, this is not -- LBH is not a first line drug for these patients so there's about 75,000 multiple myeloma patients around the world that have relapsed or refractory multiple myeloma so they would have an opportunity to go through this combination at some point during their treatment.

In order of just to give you rough idea, the brand should probably do something north of $500 million in sales.

Thanks very much.

Next question please.

Matthew Weston from Credit Suisse.

Three product related and one pipeline please.

Gilenya, the benefit re-verification process, can you just please explain what that actually involves?

Are we basically thinking that you gave Gilenya away free while people had to get reauthorization and I guess my only question is why have we never seen that before for any specialty drug that I can think of, what's different with Gilenya?

Secondly, Sandostatin, the revenue progression looked weak in Q1.

Why are you seeing competitive pressure following their positive data in neuroendocrine tumors at the end of last year or is it just a seasonal stocking issue.

And then finally on Afinitor, clearly a disappointing cut to peak where we've already had a lot of discussion.

I'm just mindful that on the GSK transformation call, David specifically said that you were able to deliver on the promise of flat oncology revenue through the Glivec patent expiry, so I guess my question is you've cut Afinitor by $0.5 billion, where is that additional $0.5 billion coming from to meet that expectation?

And finally on pipeline.

We never seem to have any discussion on PKC412 in FLZT-3 mutant AML.

I think we're expecting Phase III data later this year.

Am I right in that expectation and when are we likely to see the data.

David?

Okay, so let me explain a little bit about re-verification.

Re-verification actually is not unusual for a high priced chronic brand.

It's an internal process through which patients are required to confirm their benefits prior to being provided the drug.

What has happened here is that it has taken longer than it normally does and you are correct.

What that meant was we had to provide some free drug to patients during that period.

You'll recall that if you discontinue your Gilenya then you have to go through the first dose observation period again, something that was not good for us or good for patients, so you are right about that, but I want you to feel reassured that the brand is doing well in March, and in fact even the early April data we're seeing very good sales data.

The next question was about Sandostatin in Q1.

It was up 6% worldwide versus Q1 prior year.

Sandostatin is an interesting product and I wish I could give you an exact answer but it often bounces around and we've never been able to fully understand why you see some of those deviations so I would not read anything special into that.

In terms of oncology growth through the Glivec patent expiration what we said is assuming Glivec does go generic in mid 2015 which is when the US patent is planned to expire, which is our base case, then we would expect for the oncology business essentially not to shrink during that period.

Of course if for some reason generics don't come in that period, for example, if generics were to come in 2016, you'd have a very different story, because 2015 would then be bigger, we get the full impact in 2016 and then it would be a different scenario.

And then I also mentioned earlier today that the LBH was not included in that model you saw when we were talking about the oncology outlook, so you start adding that back in.

We feel more or less comfortable with what we told you before.

Now regarding PKC, I believe it was difficult to accrue patients in a timely manner.

I think that's now been resolved so we're waiting for the results and it has not been a big enough brand that I'm actually on top of exactly when the data is available, so we will double check and let you know.

All I can tell you, it is still actively in the portfolio for both FLT-3 mutant AML and also systemic mastocytosis.

Thank you.

If I could just have one quick follow on, David it's the second time in a week that you've made a clear allusion to the statement that we should anticipate a delay to generic entry of US Glivec.

Clearly it's a statement that you've made before, you've never been prepared to make any commentary as to why you have some confidence in that outcome.

Can you at least explain to us or at least state that you now have increased confidence in the outcome and that's why both on the transformation call and this call you've clearly stressed that that is a possibility?

So our confidence is the same.

As you know, there are multiple other patents that go beyond the base case patent.

The reason for addressing it is because I've been getting the questions of can you reassure us that you can grow.

And I just don't want people to make the mistake that if it turns out to be a different date that we can hold on to that, so if the date gets pushed out and then it starts becoming more complicated, actually it becomes much more difficult, excuse me, to show the growth.

So I want people to understand that a lot is hinging on this date.

Next question please.

Tim Anderson from Sanford Bernstein.

A couple of questions.

Now that you've signed a multi-part deal with Glaxo, in essence you'll be a business partner with them going forward in a couple of areas, yet in another area of your company, specifically with your generic Advair program, you're trying to take out their lead product at least in markets where you might argue for substituteability like the US.

And I could imagine that this battle between the companies could be ugly.

So my question is, should we assume that your generic Advair program now somehow gets deprioritized given this new relationship with Glaxo?

And then second question is, on your Glaxo oncology products there's been a fair amount of criticism about what you paid and what's in that portfolio and there's no leading anchor products.

When you look at analyst models for the different products that you're pulling across to Novartis, what products do you think analysts are underestimating the most?

Okay, Tim, starting with the deal that we did with GSK.

While we do have the joint venture that is in OTC combination with GSK, we are looking forward to growing that business but that is going to be a separate legal entity they control.

We are minority partners.

The rest of this combination is really kind of a surgical strike where we take their oncology business, we do have right of first negotiation on their pipeline but that's not really a collaboration.

We'll get an early look at their earlier pipeline and then they take vaccines and own it 100%.

So you shouldn't assume that we would deprioritize anything that we've confirmed that we're working on, so any respiratory drug would fall into that.

We never really have confirmed that we're working on a generic Advair for the US, but I don't think you should assume that because we have done this surgical deal with GSK that that would deprioritize anything in our pipeline that would generate value for Novartis shareholders.

In terms of the onco products, David do you want to discuss that?

You asked me a bit about analyst estimates and to use your words, lack of an anchor brand.

When I looked at the analyst estimates they went out marginally to about 2018, and as I showed you on the slide in my deck, there are multiple ongoing clinical trials for the top three assets, Votrient, Tafinlar, and Mekinist.

Now a lot of them don't report out until towards the end of that period so what happens is that there's quite a lot of growth after 2018 and you start getting to peak sales numbers that are very exciting in my opinion.

Three of these drugs, if COMBi-D is positive, three of them become blockbuster assets, plus of course revenue contributions from the others as well.

You might ask why the products are the size they are today.

A, some of them have just launched.

B, a company like GSK frankly just does not have access to physicians in a way that a company like we do and to get their products prescribed so you're getting the immediate synergy once we have the products in our hands that we can grow them much faster than the others.

So you have to be willing to look out to 2020, do a sales forecast and then look at a multiple of what we paid to that sales number.

And also remember that as the products get bigger and as we leverage our infrastructure the margins will go up substantially as well and all of a sudden rather than looking expensive the deal actually from an oncology perspective looks reasonable, if not quite cheap.

So I think the only thing I'll add to that is yes, if you take the current consensus numbers and you continue to project, particularly on Mekinist and Tafinlar, assuming positive overall survival, and on top of that you take their margin of 25% more to a reasonable ongoing oncology operating income margin, and then on top of that you put the tax benefit on it, you quickly get to a very nice deal for Novartis.

Next question.

Graham Parry from Banc of America.

Great, thanks for taking my questions.

Just firstly on a couple of the one offs in the quarter.

On the venture fund gain in core corporate expenses can you confirm that that is a one off and quantify exactly how much that was?

The $64 million accounting gain in associates, again can you just quantify how much of that is down to revaluation of assets held in the venture fund that wouldn't be recurring versus a removal of a share of a loss in a biotech company which would be recurring.

And then secondly, on deals or the deals.

Could you try to quantify for us what level of synergy you see from the oncology acquisition, so you talk about taking the business up to a reasonable oncology business margin, perhaps give us a feel for where you see that is and specifically if you've identified any actual amount of synergies there.

And then a couple of product questions, Exelon patch generics, I think expired, if you could just give us an update on your expectations for if and when if ever we would see a generic.

And secondly, on Gilenya with the longer re-verification process, why was that longer?

I think that you qualified that.

And can you actually recoup any of the payments for the free drug that you were giving away once patient's re-verification process has occurred.

Thanks.

Starting with Harry, on the one offs?

Thanks, Graham.

As I said in my speech earlier and also as we have laid out on page 3 of the additional financial data, we have made a change in the Novartis venture fund accounting.

We had prior two different accounting principles for participations below and above 20%.

We have harmonized this.

We have put it to an accounting standard that is used in the industry for Novartis, for venture funds and we have changed from an equity accounting basically to a fair value accounting.

Now that has two effects and one is that there is a one-time re-evaluation, as you mentioned.

It is said in our Press Release at $64 million is a re-evaluation.

Now in the prior quarters the equity accounting related to pick up of losses was also reported in core so we did this catch up also in core and we transparently laid it out, so that was one effect and as you say, it's a one-time effect.

Now there was then an IPO of one of the venture fund participations.

For background, we have basically the biggest corporate venture fund about $800 million under management.

This pick up was roughly $40 million in quarter one and then shown in corporate cost.

Now the corporate cost line as you can imagine and you know is quite volatile.

It is average let's say $170 million of costs per quarter.

At this quarter it was around $100 million in core, so in other quarters the last year was sometimes $200 million, sometimes $140 million, $150 million, so it wobbles a bit around but there was a one-time effect of that IPO, venture fund IPO related of $40 million.

And we have basically accounting policies for several years, we say that ups and downs in the venture funds because of their core business, we also record on the core.

There may also be then some limited downs and we will always transparently disclose that as part of our reporting.

And Graham on top of the or on the oncology synergies I'll jump in and then David can go on to the other questions also.

The way to think about the way we modeled this is this is a revenue play for us on the three important molecules that are in that basket, but I think what you could do is there will be a combination of cost synergies and revenue synergies described as under our ownership versus let's say a standalone GSK model but I think the safest thing to do is to just model out from 25% operating income margin to an average oncology operating income margin by peak sales.

Some combination of cost and revenue.

David?

I think that's a good way to look at it.

And then the other questions, one was around Exelon patch, when will there be generics.

There are actually generics in Europe now.

We are in the litigation in the US, so I'm not going to comment exactly on how that's likely to play out in the US market and as soon as we know something we will let you know.

And then you asked me for a little bit more color on did we have to give away free drug for Gilenya re-verification and how much was that?

I don't have an exact number but it's probably in the order of magnitude of high single digit millions.

And just to be clear you can't recoup that once the re-verification process has happened?

It doesn't come back in Q2 basically?

No, that's a loss to us.

Yes, okay.

But the patients are not which is the most important thing because they will stay on long term chronic therapy.

Next question.

Thank you.

Florent Cespedes from Exane BNP Paribas.

Good afternoon gentlemen.

Thank you for taking my questions.

First a question on Alcon.

Could you give us more color on the trends, on the different subdivisions, notably the cataract and the ophthalmic pharma products generic environment?

And also when should we start to see some favorable product mix impact from the new product launches.

Second question on the emerging pharma performance.

Could you elaborate on the trends on the different regions, please?

And the last question is a product related question on LCZ.

Could you tell us a bit more on the order trial ongoing with LCZ, the PARAGON trial on the pre-served ejection fraction population and are you planning to accelerate the recruitment of this trial, given the high unmet medical need and when should we see the first result of this trial, thank you.

Kevin?

So in terms of Alcon and the segment growth, I think we were pleased with what we saw in the surgical growth being 9%.

We saw a very traditional pharmaceutical growth rate and we saw a little bit stronger growth in vision care, notably the contact lens segment was up but it was also positively impacted from a one-time event in terms of the purchasing alt earn on a VAT situation in Japan.

But as you know, we've been talking about our launch cycles of products and for the most part, we're very pleased with the CENTURION launch.

We continue to grow install base.

Now you have to keep in mind that our first priority is against replacing Infinity and obviously we start with our loyal accounts but we also then start to expand and with the expansion we're able to look at pulling through additional products.

Also the LenSx launch continues to go quite well both in terms of installed base growth where we are getting a disproportionate amount of the units in second units purchased but better still is the disposable pull through which is the confirmation of usage.

But we are in a ramp mode where the sales are not as significant in the quarter but really the opportunity as you look out longer term, even beyond 2014 is looking at the two pharmaceutical opportunities with Jetrea, and then our combination product with Simbrinza and the a complete line of product launches across Dailies Total One, DACP specialty product for Toric and Multifocal and then Air Optix colors but those products are more in a launch mode and will take time to develop.

David on the regions?

Geography, so the US was down 4%, Europe was up 1%, Japan was up 2%, Asia was excluding Japan is up 6% and Latin America and Canada together were up double digit 10%, and you get the net 1% overall from that break down.

In terms of LCZ, the PARAGON trial or the preserved ejection fractions trial, we're very excited about starting that trial and it will start in the second half of this year and maybe we'll talk more about it at the next Investor Day.

Next question please.

Thank you very much.

Jeff Holford from Jefferies.

So just as you continue to review your overall pharma businesses, are there any smaller franchises within that that you see as non-core.

Secondly, now you've completed or begun the journey of completing a big portion of restructuring on the company.

Can you continue to think about Alcon as a very long term part of this business or do you think there is further room for shareholder value in looking at restructuring options for that business down the line?

Thirdly, around Glivec, if we do lose exclusivity next year and see generics come into the market, do you hear some noise about potential step therapy on to Tasigna, that's the expectation for lots of physicians in the US.

Have you had many thoughts about that?

And then just lastly if you can just comment broadly about thoughts on the Sandoz Division about Copaxone, and whether there's opportunities for potentially launching at risk.

Or is that something the business doesn't really normally consider.

Thank you.

Okay, Jeff I'll take first two.

In terms of overall pharma business and David can jump in, but when we did our portfolio review we looked at the businesses not division by division but really business unit by business unit, and that led to the action that we announced.

So we don't really see other elements of our business as being ripe for divestiture with the exception of some tail brands, some mature products you might see us divest, but not that would be material.

In terms of Alcon, we absolutely see it as a long term play for the Company.

If you think about the way that we've shaped this portfolio with innovative pharma, eye care and then generics and you think about industry dynamics going forward, this is a place where eye care with the aging population, I've said this before, that there's going to be a million more people on the planet and half of them are going to be over the age of 50.

So Alcon is going to have significant ability to grow in the next 10 years and then you put an innovative pharma business next to that and a generics business that allows us to help these health systems around the world lower their total cost.

This is going to be a company that is focused and that is unstoppable and that's really what the whole portfolio review was all about.

David on Glivec?

So your question is once there's a generic for Glivec will there be step therapy, and it's quite possible there will be, there were patients who would be put on Glivec first and moved over to Tasigna either due to non-sufficient efficacy, a complete molecular response, or due to side effects from Glivec.

But you have to remember that the majority of CML patients are on long term chronic therapy and the number of new patients coming into market is probably around 5% of the total.

So the real question is what happens to the installed base of long term Glivec users, not whether it's step therapy at the beginning or not.

And with that in mind, we're running two treatment free remission trials and the idea is to show that patients when they are on Tasigna can actually at some point discontinue their treatment overall which makes Tasigna a much better option for patients and maybe even healthcare systems because you won't have to treat them for life.

So reasonable question but probably not that relevant for how our revenue will play out over the next couple years.

Jeff on Copaxone?

Jeff, while we really don't comment on our long strategies in advance what I can say is that we are definitely pleased that the Chief Justice of the US Supreme Court last week denied the application for a stay to prevent the launch of generic Copaxone, and we continue to believe that the US Federal Circuit Court of Appeals correctly invalidated the patents asserted by Teva, including the 808 patent which is the one expiring in September 2015.

And together with Momenta, we are continuing to work closely with the FDA toward the approval of our generic version of Copaxone when the remaining Teva patents expire on May 24.

And what I can say to your last comment is we do take at risk launch decisions on our first to files when they are value creating for shareholders.

Okay, next question please.

Thank you.

Seamus Fernandez from Leerink.

Just wondering on LCZ if you can give us a little bit of color on the background use of MRAs, I didn't see much in the way of baseline evidence in that study.

What we've heard is that there's an expectation that you would have at least 30% of the patients also on background MRA therapy both in the control arm and in the active arm.

So just hoping that you could provide us a little bit of color in that regard.

And then separately, as we think about the launches of respiratory generics in Europe, Jeff, could you give us a little bit of color on your expectations for how we should anticipate that rollout with regard to the health of pricing in Europe?

And just sort of the pace of uptake.

Thanks so much.

So Seamus, it's David.

I thought I knew most of the acronyms in our industry but you've just stumped me on MRA, can you tell me what it is?

Yes, the mineralocorticoids, so like spironolactone and eplerenone, which are part of the guidelines and part of the recommended HFrEF background therapy.

Tim, you want to comment/

Yes, we can't give you the percentage right now but we can tell you that this is probably one of the most intensively treated population ever studied in heart failure, and that includes both beta blockers and MRAs.

Fantastic, thank you.

Okay Jeff on respiratory?

Yes, so Seamus, given that generics in respiratory in Europe are not interchangeable like we see on many drugs or all drugs under the 505J pathway, the endo pathway in the US, we see more measured uptakes and we've always had more measured expectations.

Having said that we've been pleased with the uptake that we've seen out of the gates, clearly the District Court of Cologne which upheld a PI on the lilac or the purple color of our AirFluSal Forspiro device has impeded our marketing in Germany.

Having said that we received, after the approval in Denmark in Q4, we received seven additional approvals in Europe.

Or six in Europe in Q1 and one, our first in Asia in Korea, and we continue to market these products in Denmark and other European countries.

And so we'll continue to contest vigorously the actions that GSK has taken to restrict patients and payer access to this product and we have good confidence in our prospects for litigation going forward.

Okay, next question please.

Eric Le Berrigaud from Bryan, Garnier.

Three questions please.

First you presented in detail the NBS initiative.

For us obviously the idea would be to try to quantify the financial benefit that we can expect from it.

Could you help us try to make some numbers on that and perhaps some timing as well?

Second question in terms of R&D as a percentage of sales, is there any timing here also to expect R&D to level off and stabilize globally or especially in pharma?

And lastly, surgical again at Alcon.

When can we expect kind of a different mix and balance that could favor machines versus disposable treatment impact again favorably the margin, is it a matter of quarters during this year or longer term effect?

Thank you.

Okay I'll start.

The way to think about NBS is as we make this effective on July 1 there will be a lot of people who change reporting lines.

There won't be a lot of immediate change but as Andy Wyss gets in and starts planning how we can improve the efficiency of the operation country by country, then I think you'll see an effect and the way to think about this is we've committed to 3% to 4% productivity savings going forward.

This obviously is part of that and this should allow us to either meet or exceed that I think going forward.

The way that I think about the company right now is we've got about $60 billion worth of sales, yet I believe as we grow over the next five years, we should not be adding a heck of a lot of overhead on top of that.

So the efficiency that we're going to get is going to allow us also margin improvement and we've committed to margin improvement as we go forward and it's going to come from a lot of different places.

Productivity is one.

NBS will help us to grow and leverage off an existing cost base plus or minus.

And when you go back and think about the GSK action that we took and what that does for our margin and then on top of that the efficiency that David is getting in the pharmaceutical division, you put all of this together and I think we've got a very good plan to overall improve margin in the company.

Regarding R&D as a percent of sales, David do you want to comment?

Yes, it was roughly 22.3% in Q1 which was up 0.1% in constant currency.

You'll recall that we have taken a pretty detailed look at our development portfolio and we've identified a number of compounds that we believe are good assets that can be partnered, we're in discussions to make that happen now.

What happened early this year, it's pretty interesting good results that we're seeing on a number of our compounds it's actually driving slightly increased costs.

So we haven't seen the savings come through yet but we do anticipate over the medium term that R&D costs will start to tick down as a percentage of the sales line.

And Kevin, on Alcon surgical?

I think for clarification, you have to be thinking about a longer term window than individual quarters when you're replacing an install base.

There's somewhere in excess of 12,000 installed base units, so when we're selling a new phaco unit obviously it takes multiple years to rollout the pipeline.

Now as you start to put the new equipment in and the equipment is being used, there's a disposable price benefit that you realize as you start to use that machine across the procedures.

I think it's also interesting to note that you're not selling just one phaco unit.

It's at the same time we're putting LenSx in which is a standard of care change in terms of how to do the procedure.

Again, that takes a longer time period but ultimately the strategy is that the installed base drives benefit through disposables and intraocular lenses with time, so you should see that benefit over time, but it's not on a quarterly basis.

Okay, next question.

Tim Race from Deutsche Bank.

First of all on LCZ.

You mentioned on the call David a potentially could be a mega blockbuster.

In November you gave a range for the heart failure franchise of $2 billion to $5 billion or plus $5 billion.

Now that you've got the data in hand you know pretty much what's going to happen with serelaxin over the next year or so.

Could you just tighten up that range for us and tell us whether it's at the lower end or higher end?

Given your comments I'm expecting higher end, or even beyond $5 billion.

Then just on LCZ further, you talk about the power of the study, and obviously it's overpowered to get a strong result for a filing on one clinical study.

Could you just confirm that the clinical benefit we're seeing is going to be sort of above that 15% to 20% range that most companies aim for, given that its been difficult for some of the companies even with relatively good data to gain traction in that sort of range, so should we be seeing a clinically meaningful result above that?

And then just lastly on Glivec, I'm not sure if you will comment but assuming yourself have an indefinite delay to cooperating, last time I looked, is there any update to that, and does that actually mean that you're in negotiations to potentially delay?

Thank you.

LCZ, David?

Okay yes we showed a range of $2 billion to $5 billion plus I believe for the heart failure franchise, and of course when we show you things like that we probabalize because we didn't know the outcome of either the serelaxin discussions or the LCZ discussions.

Now, of course we are much more bullish in LCZ and we know with serelaxin at least in the US, there are delays.

It would be hard for me to imagine given what we know now with LCZ that we could not fairly easily achieve somewhere between that $2 billion to $5 billion plus, and more likely the upper end than the lower end.

Regarding the powering and how the trial design, I can't comment until we see all the data exactly under all the percentages that you like to see, you're going to unfortunately have to wait to ESC.

All I can tell you is, yes it's clinically meaningful, otherwise the stopping rules would not have been designed in the way they were.

Regarding Glivec and patents and the like, I don't really want to say anything else.

Thank you.

Next question please.

Keyur Parekh from Goldman Sachs.

I have two if I may.

First on a product related stuff.

As you look at the assets you acquired from Glaxo, you clearly have a CD20 in there with Arzerra, and as you think about the plans for your biosimilar, rituximab, can you help us think about how you will potentially be promoting, and second to market CD20 and yet be competing in the biosimilar space for the first CD20?

Secondly, Joe if you can just give us a sense on what kind of the actual kind of bidding process was for the various parts of the asset, were you kind of looking at kind of running a separate sale process for each kind of individual asset?

Or were you much more interested doing kind of a bigger deal like the one you just executed on Glaxo?

Thank you.

David why don't you start on the CD20.

So I wouldn't confuse the two, Rituxan and Arzerra are slightly different drugs so they aren't going to be competing directly with each other both in terms of epitopes they bind as well as indications and the like.

So I would think about them completely separately.

Okay, and in terms of the deal obviously when we started this portfolio review we cast a very wide net so we essentially talked to everybody and we looked at what we wanted, what we needed to get done surgically, and ended with GSK.

But even with GSK, each of these three deals, while they are interdependent it was very important for me and for our Board of Directors that each deal independently of those three within GSK be good deals for the company.

That is really the criteria that we use relative to what else we could do.

So literally the four deals we announced Tuesday, we did not sacrifice on any of them relative to what we could have done with some other partner and I feel very confident to be able to say that because we basically talked to everybody.

Okay, I think we have time for one last question.

Tim Anderson from Sanford Bernstein.

Please go ahead.

He's just removed himself from the queue.

There's no further questions in the queue.

Okay, I'd like to thank everybody for joining us today.

We look forward to keeping you updated.

Thanks a lot.