Novartis AG (NVS) 2014 Q2 法說會逐字稿

Good morning and good afternoon and welcome to the Novartis Q2 half year 2014 results conference call and live audio webcast.

Please note that during the presentation all participants will be in listen-only mode and the conference is being recorded.

(Operator Instructions)

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

Please go ahead, sir.

Thank you, I'd like to welcome everybody to our second quarter earnings presentation.

Joining me at this end are Harry Kirsch, CFO, David Epstein, Head of the Pharma Division, Jeff George from Alcon, Richard Francis from Sandoz, Andrin Oswald, Head of Vaccines, George Gunn, Head of Animal Health and Brian McNamara, Head of OTC.

Before we start, I'd like Samir 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 some of these factors.

Thanks, Samir.

Okay, starting on slide number 4. We had what I would call a solid second quarter and for me the two main highlights were, first, continuing our strong innovation momentum and that included the approval of Zykadia in the US which is our ALK inhibitor for non-small cell lung cancer as well as the fact that we got fast track designation for our chronic heart failure drug, LCZ.

The second highlight for me was the margin improvement.

This is something that we said that we were going to start working on and you're starting to see the impact of it.

Slide 5 shows the P&L, sales were up 2% in constant currency.

Core operating income up 6% and core EPS up 7%.

Harry's going to take you through the details in just a minute.

But on the next slide, we continue to make our progress on the three strategic priorities that we've been consistent with historically, extending our lead in innovation, accelerating growth, and driving productivity.

So on slide 7, starting with innovation, beyond the Zykadia US approval, our Men B vaccine, Bexsero, continued to have positive news.

We were able to file this new vaccine with the FDA.

That started in June and it was significantly ahead of what we had expected earlier on.

The news flow from the pipeline was also quite strong this quarter.

So you're going to hear more about this from David in just a minute.

But let me touch on a couple.

The first is Ultibro where we showed superior efficacy versus Seretide in our Phase III study for COPD patients.

This was the LANTERN study.

Also for LBH589 we presented data from a pivotal Phase III showing significantly improved progression-free survival in patients with multiple myeloma.

So we filed in the US in March and were granted a priority review in May and we plan to submit in the EU later this year.

On the next slide, CLT019 received FDA breakthrough therapy designation for ALL this quarter.

And Novartis now has five therapies with this designation, more than any other company in the industry.

We also announced this week our agreement with Google.

We're collaborating to bring their smart lens technology to the eye care market.

This really will be a unique partnership in the industry, leveraging Google's expertise in miniaturization of electronics.

This includes microprocessors and sensors.

When you complement that skill with our deep knowledge of ophthalmology and vision correction, it's going to be very powerful.

Now, the second priority was accelerating growth and all of the divisions showed top line and bottom line growth except for vaccines.

Vaccines was impacted by the phasing of bulk pediatric shipments that were in the year-ago base and were not repeated this quarter but that's a timing issue.

And importantly, look at pharma's core operating income, up 8%.

That led to a 2 point margin improvement behind some very good cost control.

Now, the performance also was driven by our growth products.

On the next slide you can see that they now account for 32% of our sales and they're up 18% versus year-ago.

This is anything launched in the last five years or with exclusivity through 2018.

Emerging markets was strong, up 8%, led by Russia and China.

China was up about 13% at the group level.

Now, in pharma the growth products continued their strong growth.

Just to pick out a couple, Lucentis, up 7% and Gilenya up 28%.

I also want to point out the COPD portfolio.

Over $100 million this quarter and that's really before Ultibro has a significant impact.

So it had just about 20% of that total is Ultibro.

So we're feeling quite good about the respiratory franchise.

Now, Alcon showed 4% growth this quarter.

It was driven by the surgical business and in particular, a strong Centurion launch.

Alcon is not yet where we want it to be from a top line.

But Jeff and his team are putting good groundwork in place to drive ILL share up and to also execute against these new product launches in a way that will improve that trajectory.

In Sandoz, the major highlight, one of the highlights in the quarter was the continued roll-out of AirFluSal now across 10 countries including some major European markets.

And then in terms of productivity, we had a good quarter and it dropped through the bottom line.

We saw about 1.1 margin points at the group level improved and this was driven by R&D and M&S spend control as well as in the first half of the year we were up a full margin point.

And then finally, we continued to have positive news in terms of quality in the second quarter.

So we received good or acceptable ratings in all of our health authority manufacturing inspections this quarter.

And in fact, yesterday we were informed by the FDA that we had addressed all of the issues in the 2011 warning letter that were related to Sandoz manufacturing sites of Boucherville, Broomfield and Wilson, so that warning letter is now officially lifted.

Now I'll turn it over to Harry to talk more about the financial results.

Thank you, Joe.

So before I start, I want to remind you that all our presentations today focus on full group results.

However, following the announcement of our portfolio transformation on April 22nd, we are required by IFRS to separate the group's data for 2014 and the prior year into discontinuing and continuing operations.

Further, as you will recall from the deal announcement, certain IP rights and related other revenues which are retained by Novartis are now reflected in corporate rather than the vaccines division.

In addition, for comparability purposes and in line with our reporting in quarter one results, we are comparing to 2013 excluding our divested blood transfusion diagnostic unit.

Now to slide 19.

So Novartis delivered a solid performance in the second quarter, with core operating leverage across the quarter and the first half.

In constant currencies, net sales were up 2%, core operating income was up 6%, and core EPS was up 7%.

The respective numbers for the first half are exactly the same.

As I would have expected free cash flow recovered in quarter two and was up 6% in the first half.

As I said before, IFRS requires us to split the continuing from the discontinuing operations.

Another consequence of IFRS rules is that 2014 results exclude depreciation and amortization related to the discontinuing operations from the announcement date.

This results in a small benefit in profit which we have laid out for core operating income on slide 20.

For quarter 2, the impact of stopping depreciation which impacts core operating income is just under 1 percentage points of growth out of the total 6 percentage points of growth over the previous year.

For core EPS, it's just a $0.01 impact.

As the benefit only occurred during quarter two, the impact is even smaller for the first half.

Turning to slide 21.

Our solid top line performance continues to be driven by underlying volume growth which contributed 6% in quarter two.

Pricing was flat which led to an underlying sales growth of 6%.

This more than offset the generic impact of minus 4% or about $0.5 billion and resulted in net sales growth of 2%.

You see a similar but more pronounced picture for core operating income where underlying core operating income growth of 16% more than offset the 10% impact from generic competition.

Currency took us from 6% growth in constant currency to 3% growth in US dollars.

As all of you know, a generic version of Diovan Mono was launched in the US on July the 7th.

On the same day, Sandoz launched an authorized generic.

As a result we expect pharmaceuticals will see an impact of generic competition of around $2.6 billion for the full year 2014, in line with our previously stated expectations.

Slide 22.

Top line performance was driven by the continued momentum of our growth products which now represent almost a third of total group net sales and 42% of pharma net sales.

Particularly pleasing our growth product performance is broad-based, with key growth drivers including Gilenya, Afinitor and Tasigna in pharma, our surgical equipment, Alcon, and a number of authorized generics in Sandoz.

Now turning to slide 23.

The improvement in group core margin in Q2 was mainly driven by pharma, which was up 2.1 percentage points in constant currency to 31.6% of net sales.

And the continuing recovery of the consumer health divisions, up 5 margin points in constant currency.

While Alcon core margin declined 0.5 percentage points in constant currency due to product mix, it still remained high, just under 37% of net sales.

Sandoz declined marginally due to slight increased investments and strongly growing businesses in emerging markets.

The vaccines business is impacted by seasonality which you see again in the first half of this year.

Joe mentioned the vaccines net sales decline in quarter two.

Here we see also related core operating income decline, which is also due to the phasing of the pediatric shipments.

Excluding this phasing effect, demand in vaccines continue to be solid across the portfolio, especially for meningitis and travel franchises.

The change in margin for pharma is encouraging and I'm satisfied to see the effects of our multiple initiatives to improve margins bearing fruit.

Looking at some of the drivers of margin improvement so far, let's turn to slide number 24.

Improvement in group core margin was mainly driven by a decrease in R&D and M&S spend in percent of sales.

The R&D decrease in quarter two reflects a 1.6 percentage points in constant currency improvement at pharma mainly due to prior year increased investments in late stage clinical trials and continued productivity efforts.

In Q2, core R&D spend as a percentage of net sales was 15.9% for the group and 20.6% for pharma.

The decrease in M&S spend also reflects our productivity efforts and consequent resource allocation activities.

Slide 25 looks at our currency impact.

The lower currency impact in the second quarter compared to the first quarter mainly reflects the timing of when the yen started to weaken last year.

There was no currency impact in the current quarter for the top line, with the strengthening Euro offsetting the effect of the emerging market currencies and the yen.

The bottom line was impacted by minus 3% as we also saw a stronger Swiss franc.

If June average exchange rates prevail for the remainder of the year, we would expect a minus 1% currency impact on sales and between minus 3% and minus 4% on core operating income for the full year.

Let's now turn to free cash flow on slide 26.

As we had expected, we saw nice recovery of free cash flow generation in the second quarter.

Quarter two was up 38% versus prior year to $2.4 billion, mainly due to higher operating income and lower net working capital, despite the $0.2 billion outlay for the ex-US rights of Fovista.

This resulted in free cash flow being up 6% for the first half versus the prior year.

And recall again that historically 60% to 70% of free cash flow for the year is generated in the second half and we expect this year to be no different from this pattern.

Let's look at net debt on slide 27.

You can see how net debt increased from $8.8 billion at the end of 2013 to $13 billion at the end of the second quarter.

This was mainly due to our dividend payment of $6.8 billion and share repurchases of $4.3 billion, partly offset by our free cash flow of $3.2 billion in the first half as well as proceeds from the divestments and from options exercises related to the employee participation programs.

Before I finish, I think it's worthwhile looking at our continuing operations as an early indication of the more focused portfolio in Novartis.

Despite the fact that continue operations do not include sales from the GSK oncology portfolio, our core operating income margin would improve significantly.

You see that on page 28.

While there will be always some quarter to quarter volatility especially around the seasonality in the vaccines business, these numbers here are broadly consistent with the pro forma 2013 core loss numbers I shared with you at the time of the deal announcement.

As a reminder, Novartis wills also benefit from the 36.5% interest in the GSK Novartis consumer joint venture which will be recognized as income from associate companies, i.e.

below the operating income line.

Finally, on slide 29, I want to reconfirm our group outlook for full year 2014.

We expect our group net sales to grow low to mid single digits and are now refining our expectation for group core operating income growth to growing ahead of sales and growing mid to high single digit in constant currencies.

While this guidance includes the cessation of depreciation for discontinuing operations, we do not expect this accounting change to have a material impact on the results.

And with that, I hand over to David.

Thank you, Harry.

So in pharma, despite the continuing generic pressures in this quarter from Zometa and from Diovan, we reported sales growth again in the quarter.

In addition, as Harry explained, very good core op leverage in the quarter.

I want to note that margin will continue to fluctuate each quarter as it's done in previous years and while we strive for margin improvement over time, it will be a bit lumpy.

Turning now to the next page you see that even more importantly portfolio rejuvenation is progressing very well.

Growth products now represent 42% of division sales and that's up 15% from the same period last year.

On the following slide you see the main contributor to our growth were the emerging markets in Q2 driven in particular by strong growth in Turkey, Russia and China.

On the next slide we see that our growth platform continues to deliver well with all products growing strongly, and as Joe mentioned, you can note the very large growth rates for some of the smaller products on the list, the COPD portfolio and Jakavi.

These products are now getting to a size that their growth is making a difference in terms of our overall growth rates.

Now I'd like to just mention a few of the products to you, starting with Gilenya on page 35.

It was a very good quarter for Gilenya and just a few things to point out to you.

First of all, we achieved double-digit growth in the US market.

Ex-US, as we've been predicting all along is growing even stronger than the US, even though Tecfidera launched and is continuing to launch during this period.

In fact, if you look at Gilenya ex-US, our market share has now reached number one in the MS market which is quite impressive, now with over 100,000 patients treated year-to-date.

Later this year, we'll see the top line primary progressive MS results probably in the fourth quarter of this year.

For Lucentis on the next page, another strong quarter, up 7%.

The new products, I'm sorry, the new indications representing now 39% of the total, so the focus there has continued to pay off.

We've seen very good acceptance of the pre-filled syringe which has now been launched in Japan and France.

In some countries it now represents more than 50% of our volume.

This product has been in the news, particularly in Italy and France, where there is continuing pressure to use Avastin instead of Lucentis, even though Avastin is not approved for the condition nor is it formulated for the eye.

The economic arguments in the European Union continue to be discussed.

Turning now to page 37, you get a first glance of how Ultibro is doing.

While still a small product, we believe this product has significant growth ahead of us and as you can see in the German market which is among our first launches, it is one of the best primary care launches in Germany in the last several years.

Turning now to Afinitor on page 38, I'll remind you that last quarter we reset expectations for peak sales for Afinitor to sales in breast cancer between $1.5 billion and $1.7 billion, and for the total brand to be significantly higher than that.

The good news is that performance this quarter was on track with that expectation.

Providing some reassurance to us as Afinitor reached more women with breast cancer and as doctors gained more experience with the management of the major side effect which is stomatitis.

Turning now to Zykadia, while we don't have really much sales data yet, I can tell you that we got good initial physician feedback.

One thing I want to note from this product which speaks to our innovation power and the quality of our development organization, it took only 37 months from first in man to FDA approval for this product.

At the same time, when a product moves that fast, you don't have the time you need to fully optimize dose and regimen.

That work is under way to better control GI tolerability and I would expect there will be a somewhat downward trend in the dosing for this product.

Now I'd like to change track here, spend a little bit of time on some of the pipeline products.

We're particularly comforted by the very good progress that LCZ696 has made during the quarter.

Just to list off four particular facts for you.

First, the PARADIGM or reduced fraction heart failure -- ejection fraction heart failure results were accepted at a late breaker presentation at the European Society of Cardiology in Barcelona.

That data will be made available on August the 31st which is good news.

In addition our discussions with the FDA have gone well where they've granted fast track designation for the product as well as also granting us the ability to start a rolling submission for the product.

We expect that rolling submission will wrap up by December of this year and that we would follow with a EU submission in the first quarter of 2015.

We're also preparing for the launch of the preserved ejection fraction trial called PARAGON and that will commence during the third quarter of this year.

Now I've read a lot of reports with the speculation about how good this product will be and how big it can be over time.

And I think it's pretty clear that all the facts are not yet in, in particular, because the database is not even closed and I hope that happens in the next few weeks.

But I want to try to put the data in perspective based upon the trial design in the previous heart failure trials that are in the literature.

You'll note that most of the previous heart failure trials have been against placebo.

For example, Enalapril which is a product that we compare it to in our trial, showed a 16% improvement in mortality versus placebo.

In addition, the patients on our trial are even better treated because the vast majority, over 90%, are on beta blockers and over 60% are on spironolactone and its derivatives.

Thus, to try to put numbers in perspective, if we were to achieve the same 16% improvement on top of the 16% already seen with full dose Enalapril, that would be a very good result.

If we were to see a reduction in mortality that exceeded that 16%, it would be a truly excellent result.

We won't know until the database is unblinded and we'll share it with you at that meeting.

Turning to the next page, I want to talk about another product which is important to our future, and that's AIN457 or secukinumab, our anti-IL-17 monoclonal antibody with an initial indication of psoriasis.

We are expecting a CHMP opinion for this product in the fourth quarter of this year and the FDA action date is January 2015.

We're very pleased that the head to head trial versus Stelara occurred extremely rapidly.

That tells us about physician excitement about the product as well as the unmet need in the field.

Importantly, this acceleration of this product -- I'm sorry, this trial, means that we'll have the data available towards the end of this year and then public for the European pricing discussions that will almost certainly take place next year.

Next I want to mention two important submissions that we had during the quarter for our oncology business, starting with Jakavi in polycythemia vera.

The data is very strong.

We submitted in the EU in June and the submission in Japan is planned for the second half of the year.

I believe there's an opportunity to more than double the opportunity for this product with the new indications.

Turning now to LBH on page 43.

We see that regulatory submissions in the US occurred in March as we had previously reported.

The filing occurred in Europe in May and in Japan in June.

This is for patients with relapsed and refractory multiple myeloma, what most people would call second, third or even fourth line disease.

This product will provide a nice additional benefit for these patients.

On page 44 we bring you up to date on our CTLO19 program.

Rather than go through the detail here.

But it is this data that allowed the University of Penn working with us to achieve its breakthrough therapy designation.

That program is on track and continues to progress as we would expect.

Page 45, you see our news flow achieved for the first half where with the exception of serelaxin has been very good and you see what we expect for the second half of the year.

We remain very busy as our investment in innovation continues to pay off at Novartis.

Finally on the last page I just want to mention to you some key pharmaceutical division leadership changes.

These are two executives I have known for quite a while and they will help me drive our company to the next level as we work to become what we describe as the best pharma company.

The first is Vasant Narasimhan who has been appointed Global Head of Development.

Vasant has been at Novartis for a number of years.

He has a medical degree as well as a public policy degree from Harvard University.

He has run our North American commercial business for vaccines and he was also a he very successful global head of development for our vaccines and diagnostics business.

His research background is in the area of immunology.

Vasant is a great guy.

Turning now to Rainer Boehm, Vasant will be partnered with Rainer, who is appointed our Chief Commercial Officer of General Medicines.

Rainer has worked in just about every region in the world, most recently he was running AMAC or Asia, Middle East and Africa, very successfully for our Company, achieving double-digit growth in each of his years in that business.

I think the two of them together will be a great team.

With that, I'd like to hand it back to Joe Jimenez.

Thanks, David.

Okay, so just to sum up, we had a solid quarter.

We delivered very strong innovation that sets us up well for future growth.

We grew the business and we had core operating income leverage.

So now I'd like to open the call to questions.

Thank you.

(Operator Instructions)

Graham Parry of Bank of America-Merrill Lynch.

Firstly on LCZ696, can you just provide us the detail on exactly what you have been able to share with the FDA on the basis of their fast track and rolling submission data?

So is this just simply on a discussion based on the stopping criteria and the news that the trial was stopped?

And also provide us with any additional data you think might be needed to be supplied in that rolling submission on top of the PARADIGM trial.

Then secondly on serelaxin, can you clarify the comment in the release indicating the need for more studies.

Just wanted to check that doesn't refer to need for additional dismiss and that is just the HF2 cardiovascular outcomes trial that you're referring to.

And then thirdly, on the pharma margin run rate, you're up a point in the first half.

Can you give us a feel for what you're thinking in the second half?

Are we looking at still margins up, flat or down given Diovan and potential R&D pressures?

Thanks.

David.

I'll actually start with serelaxin.

No change, basically we need to finish the enrollment and get the results of the second Phase III pivotal trial where we have mortality as the primary end point.

In terms of LCZ, they've seen basically the summary report of recommendation to stop the trial early which you've also seen the top line for.

When you asked about additional data that would be required, we will submit all the data we have on LCZ.

So for example, as part of the safety database, all the hypertension data will be included.

Last but not least you asked me about pharma margin.

I know you know that we don't project margin on a quarterly basis.

But just to put some things in perspective for you, we will lose Diovan Mono in the US.

We will also see a significant deceleration of Diovan in Japan.

Diovan is a high margin product so that puts pressure on us.

On the other hand, we have our productivity initiatives which continue to pay off and our growth products are getting bigger and bigger.

So we will continue to work towards margin improvement.

Some quarters will be easier than others for us to achieve.

If I can just follow-up on the LCZ.

The hypertension data would be a rate limiting step in the fall and you've got that package effectively already prepared anyway.

There's no rate limiting steps for us.

To give you even more clarity, by October the rolling submission should start and by December it should be completed.

Great, thank you.

Okay, next question.

Richard Vosser of JPMorgan.

Hi.

It's Richard Vosser from JPMorgan.

Thanks.

Three questions, please.

Firstly, on Alcon, could you give us some more details on the measures you can put in place to reaccelerate IOL growth in particular?

And also the surgical growth in more general and when you would expect those measures to have an impact.

Secondly, on some pharma questions.

I noticed of course that you're removing Galvus from the German market.

Just wondering how much stock is in that market that could perpetuate sales there into the second half and do you think you can grow the brand in the second half with the negative impact from that?

And then thirdly, just on Lucentis, how much more room in terms of penetration do you have for -- in the diabetic macular edema market and just to confirm that that is basically all the growth from the product at the moment.

Thanks very much.

Jeff?

So Richard, first on IOLs and surgical: more broadly, I think the IOL performance over the last few quarters hasn't been as good as we would like, and we put in place a number of measures since I've taken over in the last couple months.

I think a number of launches I think will work in our favor.

Let me walk through that a little bit.

The first is really our cataract refractive suite, which is really best-in-class in the industry.

So our Centurion launch, it's our new phacoemulsification platform, is going really well and exceeding our expectations and we're seeing a strong pull-through effect on IOLs, in particular, as well as disposables.

Secondly, we continue to see robust sales of LenSx, which is our femtosecond laser system for cataract surgery, which also has a pull-through effect from the equipment financing related to that.

Then, we just launched at the very end of June our VERION platform, which is our pre-operative image-base surgical planning suite in the US and Europe.

And as a result, what we're seeing is, whereas we had lost a bit of share in Europe and Japan and need to turn that around, we've seen in Q2 an improvement in our IOL share across all three classes: monofocals, torics for astigmatism, as well as our multifocal lenses.

I think that's really the key driver for us.

I think there's some work that we can do to improve our marketing and our sales execution, in general, as well.

And, the team and I are hard at work at that, but I believe we've got a really important strategic weapon in our cataract refractive suite.

Okay, David, on Galvus?

In terms of Galvus, as of July 1 we stopped distributing Galvus in Germany.

Actually, an interesting story.

They offered us basically a price equivalent to generic therapies and they were unwilling to budge.

Interestingly enough, this means that these patients will ultimately be switched to even higher priced DPP4s which means it's going to cost the German government money.

Having said all that, to try to help you with your forecasting without being too specific, we think there's about three months of inventory in Germany.

That will be run out and then you can use that to try to estimate what the Galvus outlook would look like for the rest of the year.

And just to put things in overall perspective for the brand, we believe this brand will continue to be a growth driver for the company across the globe.

In terms of wet AMD, wet AMD is still a growth market for the company.

It will be for a number of years.

You have offsetting price effects, volume effects, and eventually we think we will see reasonable growth in that market.

But you're right, it's the new indications that are the primary driver of the expansion.

Okay.

Next question, please.

Jo Walton of Credit Suisse.

This time last year we had a number of surprises in terms of drugs which had core positioning in the formularies and we're just about to enter the formulary season in the US.

I wonder if there's any observations that you could make in terms of where we might see surprises for you.

Last time, some very big, established respiratory drugs were moved around in the formulary.

You have a nascent COPD portfolio.

Could we see you as with enough of a position in the market to be a primary position with one of these new formularies?

Okay, so always hard to predict exactly what's going to happen with the formularies.

It turns out really for us that probably the products we were most exposed to formularies in the US are really Diovan and Exforge.

With Diovan going generic, I don't expect any kind of material surprises for us.

It's just hard to see it.

In terms of COPD while we're doing very good with the product ex-US where we've launched, we really won't even be submitting for approval until the very end of this year.

I think that is a factor for the future.

Could you also give us a little bit more color on the launch in Europe in terms of some formulary positionings, which countries you're doing well in, and also talk about the generic Advair, how that launch is progressing.

So for Ultibro it's a limited number of countries so far.

I showed you Germany which was among the first launches in the deck.

In the other countries, we've just recently gotten pricing, for example in Spain, and those launches are just starting.

We have found in general that the price discussion has gone well, even slightly better than we expected.

The reimbursements are coming pretty quickly.

And of course, we've also launched in Japan which is a smaller COPD market.

I don't know, do we have anything to say about any --

Richard, do you want to mention anything else on AirFluSal besides the fact that we're now in 10 countries and launching?

No, not really, John.

I think we're obviously pleased that we're available and we have marketing authorization in a number of countries.

We're pleased about the reentry into Germany following the preliminary injunction with GSK and the feedback we're getting from patients and physicians remains very positive.

So we're still very excited.

Good.

Thank you.

Next question, please.

Alexandra Hauber of UBS.

I have a couple of questions on Alcon, please.

Firstly, coming back to the IOL business, just going through the sort of qualitative wording in the press release, there really seemed to be three trends which have been driving that minus 3% growth in the second quarter.

Firstly, you mentioned --

Alexandra, it's hard to hear you.

Could you just maybe go you away from your microphone a little bit.

I didn't catch the IOL question.

Could you just repeat it?

It's hard to hear you.

Okay, I'll try again.

Is that better?

Can you hear me like that.

We can hear you.

Good.

So there seemed to really be three dynamics in the intraocular lens market which are contributing to the minus 3% which we saw in the second quarter.

Firstly, there seems to be a soft market in the US so I was wondering whether you can give us some year-to-date procedure growth and then you mentioned the competitive pressure in the toric segment.

In the commodity lenses, business seems to be even worse because in the advanced you're only down 2% but overall minus 3%.

So with regard to the share in the toric lenses, at the meet the management, you seemed to send a signal that you haven't actually lost that much.

And you have still over 80% market share which I then thought was slightly encouraging but now I wonder what 80% actually means, you still have a lot of lose.

So can you just quickly talk through these three dynamics a bit, market growth and then price pressure and the commodities and really the market share and what is turning that around?

I do understand the pull-through from your -- from the cataract suite.

Secondly, on the Japan effect that probably has mostly affected your consumer division.

Just looking at the figures, can you roughly give us an idea how large Japan is on your contact lens business that it can have such a massive effect on your consumer business?

And the third question is can you give us any idea about time lines for the smart lens project?

Okay.

Jeff, I think those are all yours.

Yes, Alexandra, first on the IOL dynamics: I think you summarized most of it pretty well.

In terms of cataract market growth, it has been slower than expected year-to-date.

So about 1% to 2%.

It sounds funny, when I came in; I thought, really can that be a driver?

Weather in the northeast did have an impact.

I think we'll see a rebound in cataract market procedure growth as people go, a lot of these people are elderly patients and as they get back to doing their cataract procedures, which were rescheduled.

Secondly, we have lost share in Europe and Japan.

You alluded to the mid-tier or what you called, "the commodity segment in Europe," and I think there's a big opportunity for us to improve our sales force execution and our marketing in Europe, and I'm pleased with Riad Sherif's initial start.

He started a few weeks before me as head of Europe, but there is some significant management and leadership changes that we'll need to make to improve performance there.

Third factor, on toric and ATIOLs: Actually, I'm seeing an improvement in our toric performance.

We've had a couple quarters where, despite the competitive entry of toric lenses from B&L and AMO in the US, we've now seen a couple quarters where the share has stabilized in the market, around 80% - a little above 80% - which is in line with expectations.

And, we actually saw an improvement in the US in Q2 in toric, as well as in multifocal and monofocal, due to the drivers that I talked about in the cataract refractive suite, particularly Centurion and LenSx.

On your second question, with respect to Japan, this did cost us about, it was about a $20 million - $25 million effect in terms of the shift between -- from Q2 into Q1, because of the pull-forward into largely March, associated with the April tax legislation change in Japan.

Our business is not that big in vision care in Japan, so this was really a 1 point shift from -- that came at the expense of Q2 and benefited Q1.

I think the bigger effect that I would say in vision care is really the contact lens care performance growth.

There, we have the number one position globally.

It's about a $700 million business and that business declined.

I'm not happy with the performance and we've got work to do.

Clearly, some of the flow is moving against you us in terms of the shift to modalities to dailies in terms of contact lens care, but of course that benefits us significantly in Dailies Total1 and other daily disposables.

Finally, in terms of timing on the Google smart lens project, Alexandra, we're not giving much guidance on timing.

What I can say is we're not talking a decade out.

I think this will be a few years, though, as there's work that we need to do around the proof of concept and the prototyping; both in terms of the more near end glucose sensing smart lens that Joe alluded to for diabetics, as well as the accommodative technology, which is a little bit further out, but really represents an opportunity to go after the holy grail in this space for really truly auto focus technology.

We're really excited about it.

And if anybody can do it, I'm putting a good bet; I think Joe and I are putting a good bet on the Google capabilities combined with ours.

Thank you.

One last question on intraocular lenses.

Volume growth in the US is still 1 to 2 and you're fairly stable in the market share.

Minus 3% in the second quarter, or the minus 1% in the first half, was that all the -- is it price or share losses in Europe in sort of the medium care business, then, is that the key driver for the decline?

Yes, a lot of it is really Europe and Japan.

We don't give obviously regional breakouts at an IOL detailed share level.

But you're on the money in terms of your intuition.

Okay.

Thank you.

Next question.

Andrew Baum of Citi.

Three questions, please.

Number one, to David.

We've touched before on where Lucentis best belongs inside Novartis.

What is the tipping point in order for moving Lucentis across to the Alcon business.

Obviously it would be a blow for the general managers of the European countries given its contribution but it does seem increasingly clear it would fit better within the world's largest ophthalmology unit.

Second question for Vasant.

Your predecessor was a fairly hard core research scientist.

Given the comparative number of publications your background is very much more managerial, less translational science based.

You didn't come from neither.

Should we interpret this as an attempt to create tighter hurdles, greater focus in transitioning products from research into development?

And then finally, David, perhaps if you'd clarify whether cell therapy and the development organization there is going to report into Vasant or whether it goes directly into yourself.

Many thanks.

Okay, actually, Andrew I'll take the Lucentis question since it crosses both divisions.

Obviously, when you think about the success that we've had on Lucentis in the pharma division, we have quite an infrastructure built up there around medical and commercial and somewhat linked with the overall specialty medicine business across Europe and the rest of the world.

So as we look at this, the momentum that they have is resulting in wanting to maintain and continue to grow that momentum.

There are ways that these two divisions are working together very carefully, so there are joint committees on where they collaborate and they specifically there are agreements that they have internally that really optimize for the entire company the growth trajectory of Lucentis.

David?

I would just even add to that, de facto, the development teams and commercial teams are very closely linked now, so wherever reported probably doesn't make much of a big difference at the end of the day.

Andrew, you asked a question about Vasant, Vasant is actually not here yet.

He starts on August 1.

To put it in perspective for you, Vasant has quite a broad range of skills.

It's true that Tim's core strength was truly in early development and scientific insights.

He was particularly good at that.

We have in NIBR Evan Beckman who is a clinician who does our translational medicine who has much the same skill set I believe that Tim had.

Evan and Vas will be working extremely closely together.

So we get, between the two of them, we get I think the best of both worlds.

In terms of cell therapy, I announced internally a few weeks ago the creation of a cell and gene therapy unit.

I felt that developing such a product is really more than a product.

It's a process, it's production, it's service to the customer and we needed to bring together all the people that touched this technology.

So I formed a new group under someone named Usman Azam.

He will report directly to me.

He will have the development resources in his unit but those people will obviously be connected to the other units in the company.

Got it.

Thank you.

Next question, please.

Seamus Fernandez of Leerink.

So just a couple of quick questions.

So first off for Joe, when should we expect an update on your plans for the flu vaccines business and perhaps the timing of the sale of that business.

Second, with valuations very robust on the consumer side, can you just help us better understand what the vision care business really does add to the Alcon business overall?

And would you ever consider a potential sale of the vision care business, particularly given the commentary around the shift to dailies.

And then lastly, as we think about LCZ, David, it sounds like you're establishing sort of a threshold of about a 16% risk reduction in cardiovascular death as a possible outcome and if that were the outcome, can you just help us understand what the number needed to treat would be in that scenario?

So really what I'm saying there is, what's the absolute kind of expected event rate in terms of the percentage of patients who might have a cardiovascular death over either an annual period or a two year period?

We're estimating that number might be around 5% over a year and perhaps as much as 10% over two.

So I just want to get a better sense of what the absolute benefit might be with a 16% reduction.

Thanks so much.

Okay.

Starting with your first question around when to expect an update on the flu sale, I can give you an update now.

That is that the process is underway.

It is going along the normal course and as we had said, we'll be able to give an update as soon as we come to some kind of an agreement.

So I think that's probably as far as I would go other than just saying that it's been a process that started virtually after we made the announcement.

We took a couple of weeks to get organized and then moved into it at that point.

In terms of your question about the vision care business, I'm assuming you're talking about both contact lenses and lens care.

It wasn't exactly clear if you were just meaning lens care or contact lenses.

As you know, if you just look at the contact lens business, it's a tremendous business.

It is one where there is quite low penetration globally, huge upside opportunity and right now our whole job is to figure out how to increase penetration around the world on contact lenses.

Now, you make a good point about lens care in terms of the actual lens solution.

Less strategic obviously for us but right now there is great synergy between the two and from a selling and from a marketing standpoint.

Jeff, you want to add anything about that?

I would agree with what you said, Joe.

I think vision care, holistically as you alluded to, provides a lot of growth potential through the shift to the dailies modality.

I'm pretty bullish on DT1 and some of the line extensions we're doing, even in the weekly, monthlies, AIR OPTIX COLORS.

I do think there's synergy with contact lens care.

And frankly, vision care does provide local country level scale when you look at what we're able to do, that our competitors, our pure-play competitors in either vision care, surgical or pharma are not because we have it all under one roof at a local level.

I'm optimistic on this.

I also think there's more that we can do with the contact lens care business in emerging markets, in particular.

David, on LCZ.

Your LCZ question is very well formulated.

We've decided we're going to hold off giving any more numbers or different scenarios until we get to the ESC meeting.

Our current plan is to have an investor call at that meeting.

Some of these questions should be answered at that meeting.

All right, thanks so much.

Next question, please.

Odile Rundquist from Helvea.

You announced on Monday a deal with the Banner Institute for two investigational treatment for Alzheimer's disease.

Now we are with very low success rate and the reason why you didn't want to move into this field.

What has changed your view on that market to really push this through investigation.

Coming back to the core operating margin guidance that you gave for growth, mid to high single digit, as you said there will be two moving factors, the Diovan, obviously, generic competition, but also productivity.

So what should we expect?

Is productivity savings around the same as we have seen in the first half of the year or should we expect higher productivity savings?

Then last question of Alcon, maybe you can just give us a feel of what has been the centralizing contribution in terms of sales to the surgical segment.

Thank you.

David?

Regarding Alzheimer's, after looking at all the trials that have been done, those that have failed, those that have subsets of patients that may have responded, we decided the only way we would go forward is if there was a way to select for a population that would give us a high quality answer in a reasonable period of time and also at a reasonable cost.

Banner provides just that because they have the population of patients that have the double APOE mutation which are the people that are most likely to develop Alzheimer's and progress.

And we believe that in collaboration with them, we have a very good way of doing this trial and we test two different approaches in the same trial, which is a cost effective way to get some answers.

So we decided to go ahead.

And Harry, on core operating income?

Yes.

As we said, we are reconfirming our guidance for the full year at the group level which was sales low to mid single digits in constant currency, core operating income ahead of that refined now to mid to high single digit in constant currency.

That's at group level.

We had good progress especially in pharma.

David mentioned some lumpiness behind Diovan Mono coming in.

On the other hand, Sandoz has launched an authorized generic.

Overall for the group I'm confident that we will deliver that guidance and our productivity program has been already very good.

Now we have some further effects from redeployment exercise, for example in pharma, which will have a bigger effect but not significantly bigger.

I think overall our productivity programs, our growth products getting bigger, especially in pharma, the authorized generic in Sandoz will certainly support our full year guidance.

Jeff, on Alcon.

Odile, I'm sorry, I couldn't quite hear you.

I heard your question was something to do with surgical contribution.

I didn't catch your question.

Could you repeat it.

Sure.

It's just to have a bit more color on the femto laser sales in this surgical segment, could you give us more color on the uptake?

Yes, so you said femto as in femtosecond lasers, correct?

Sure, of course.

Okay.

So LenSx is a really great product for us.

I've been out now with about 100 KOLs across a dozen markets, including a lot of our top cataract surgeons in the US and Europe who really are having good experiences with LenSx.

We've seen particularly good performance of LenSx and the related PIs, or the procedural revenue that comes with that as well, as due to the equipment financing that we do, also pulls through, in particular ATIOLs.

So while we've -- I think the ATIOL performance hasn't been as good as we would have liked the last year or two, we're starting to see toric growth move more as a result of our femtosecond platform.

And, the neat thing about the VERION launch that we've just done, is its pre-operative image-based surgical planning, which really not only guides the surgeon on cataract toric placement, but also links directly with the femtosecond laser, which of course links directly with our Centurion platform.

It's a pretty unique cataract refractive platform that I believe will be a growth driver for us in the back half of this year, as well as 2015.

Yes, and I think the best thing about it is that these equipment pieces work synergistically together so you actually see femtosecond increase as we sell more VERION and as we sell more Centurion.

Next question, please.

Tim Anderson from Sanford Bernstein.

I have a few questions.

On Sandoz there seem to be continual margin erosion in that division.

In your long range planning assumptions that go out perhaps five years or longer, is Sandoz something that you think will be a significant driver of overall improved margin expansion?

In our model at least we have that occurring driven by biosimilars.

I'm wondering if that's realistic.

The question here is really at some point over the next few years can we expect to see Sandoz margins undergoing significant margin expansion?

And then on secukinumab, the data on psoriasis looks best-in-class, essentially relative to existing therapies.

My question is your confidence in seeing something similarly impressive in the RA indication based on what you know about disease biology and what you may have seen in earlier stage studies.

And then on panobinostat, is there an opportunity to try to move that into first line multiple myeloma?

Okay.

Tim, I'll start on the margin and then throw it over to Richard.

When you think about the long-term plan on Sandoz, yes, this year there has been bounce around volatility around the margin and that's not going to end.

I mean, I think this by nature is a quarter by quarter kind of a business.

Last year as you know we delivered about 17% core operating income margin.

But if you look out at the increase and the speed with which there will be a shift towards differentiated generics, I'm still confident that we will see steady progression of margin improvement.

And Richard, why don't you -- is there anything that you want to add around also maybe the cost saving side of it?

Yes, Joe.

Thanks for the question, Tim.

I think obviously strategically we've planned for this and to build on what Joe said, the pursuit of moving more into the differentiated portion of the market is something which we've started and we progressed very well on.

The same can be said with biosimilars.

At the same time we're driving very hard and aggressive productivity gains.

We constantly do that.

If you put all those things together, we are confident that we can continue to look at improving margins over the --

David, AIN457.

You're right, secukinumab has really impressive efficacy.

We think one of the keys is to get the data in the psoriatic arthritis.

I think you know about 30% of psoriasis patients have that as well and being able to treat both will give the product a competitive advantage.

I'm also relatively bullish that we'll see good data on ankylosing spondylitis.

In terms of RA the hurdles are a lot higher for a variety of different reasons, including much heavier competitive set.

So that one, if I had to give you a guess, I would say the odds of success in RA are quite a bit lower than in psoriasis, psoriatic arthritis.

We won't know until we see the next dataset.

Next question, please.

Florent Cespedes from Exane.

Three quick product related questions for David.

First, on respiratory, could we have an update on the situation in the US, when we will have application of the new data and more importantly, as now you see Glaxo launching its products there, could you tell us what could be the strategy for this big market in respiratory?

Second question, multiple sclerosis and Gilenya.

Could you give us some color on why the product's so successful in Europe, despite the launch of Tecfidera.

And is it sustainable?

And the last one, on AIN is still a product which is underestimated by the market in our view and if yes, could you explain what could be the, the size of the contribution of the product going forward?

Thank you.

Okay, so starting with respiratory, nothing new.

We plan on filing for Seebri and Ultibro at the very end of 2014 in the US.

And my best guess would be a standard review process.

In terms of the strategy, we haven't finalized the strategy.

It's going to be looking at two things.

One is what is the efficacy data, what's likely to be a twice a day dosing regimen.

Does it look better than the other agents, similar or not?

Second's going to be an order of entry question.

As you know, there's multiple companies that are trying to get approvals.

Once we know all that, we'll make a decision on how the product gets launched and it can be all the way from we do it all ourselves to someone else does it and everything in between.

That's something we can sort out over the next probably 12 months or so.

In terms of Gilenya in Europe, I think the success of the product is sustainable despite Tecfidera.

Why is our product doing better there?

Well, first of all, we got a head start in launching it over Biogen which helps a lot.

Physicians have had the time to become accustomed to the use of Gilenya.

Second, as we had explained in the past, in Europe it's much more center driven, hospital driven, than it is in the US.

So the monitoring that needs to occur before the initial dose is less of a burden for many European physicians.

And we've had the opportunity to position in Europe as the best efficacy first switch.

So as soon as a patient relapse, has an episode for example on an interferon, it's now firmly implanted in everybody's mind that this is the go to product.

Don't get me wrong, Tecfidera will also do well in Europe.

There are a large number of warehouse patients that are going on the product.

I am sure it will be a good product for Biogen but on a relative basis we will do much better in Europe than we did in the US.

And then your next question was about AIN.

I think you're asking about -- you're trying to get a sense of how big the product can be?

Is that really your question?

Yes, and if it's still underestimated by the market because I think you said that a couple of months ago.

I actually don't have the current consensus in front of me.

At the time, the numbers then were relatively modest.

You see products like Stelara that are already selling well over $1 billion.

The market for these biologics is growing very rapidly, over 20% a year.

And we have a very good drug.

So at that time it was underestimated.

The product we believe will be a blockbuster product.

Thank you very much.

Okay, next question, please.

(Operator Instructions)

Michael Leuchten from Barclays.

Two questions in pharmaceuticals please and one going back to Sandoz.

For pharmaceuticals, the margin was to a large extent driven by the R&D decline in constant currencies, so I was wondering if you could elaborate on how much of that is just a phasing of Phase III trials that will obviously come back to some extent with large trials starting and whether or not there is a step-down in the underlying expenses in R&D.

The second question briefly on secukinumab, is there any chance you will have the head to head trial results versus Stelara ready for the advisory committee or will that not feature?

And then on the Sandoz margin, just wondered whether you'd be able to elaborate a little bit on the investment that is going into the emerging markets in that division.

Thank you.

Okay.

I'll start with margin.

Yes, R&D as a percentage of sales came down.

On the other hand if you look at the comparable period last year, we had an acceleration of spend because we had multiple opportunities and we have spoken about some of those.

The big picture is unchanged.

Our peak in R&D as a percent of sales was most likely last year and we expect it to trail down over time but it will be lumpy quarter to quarter.

In terms of the secukinumab head to head, I would not expect it to feature at the Ad Com.

I don't think it's going to be actually relevant to the decision in any regard.

And Richard, Sandoz margin?

I think the question was referring to the M&S spend in emerging markets.

Michael, unfortunately we don't give such specific data as that.

What I can say is emerging markets is a strong foothold for us, 28% of our revenue, and we're growing strongly there and that's hence the reason why we are investing in that part of the geography.

Thank you.

Next question, please.

Eric Le Berrigaud of Bryan, Garnier.

Two drug related questions.

One in R&D for drugs very quickly.

On Xolair is there any first feedback or qualitative view we can have in first launches for Xolair in urticaria in ex-US markets.

Second, could you remind us how much Diovan Japan represents and what kind of a declining rate you're expecting for the drug in Japan.

In R&D, terms of triple combo is respiratory, adding ICS to LABA/LAMA, is there any project currently run at Novartis and what stage that is, if any?

Thank you.

Okay.

So starting with Xolair, we've gotten both in the US and in the other markets where we've launched, a very good reception to the urticaria indication.

Physicians are comfortable using it.

You can see from the revenue growth of the product it is making a difference.

We're still in very early days in terms of penetration of the market.

In terms of Diovan in Japan, just flipping over here to some numbers to give you an idea, so I give you a rough idea of sales for Q2 in Japan.

They were about $140 million, to give you an idea of the product.

And there will be multiple generic launches.

We expect -- from what we understand the Japanese market is more ready to accept generic competition in the past.

You would expect a fairly fast erosion of the product in Japan.

Can you repeat the respiratory question for me?

On the triple combination, is there any plan for triple combo LABA/LAMA ICS.

Yes, we're working on the formulation work for the product.

Once we have a good formulation then we would make a decision on taking it into the clinic.

Okay.

Thank you.

Okay.

Next question, please.

Tim Race of Deutsche Bank.

Just one question left on Gilenya.

Looking at the outgoing data on primary progressive multiple sclerosis, could you just help us share your thinking about the market opportunity here?

I appreciate that perhaps primary progressive MS is around about 10% of the patients.

How should we think about that in terms of the demographics of the patient population, perhaps the pace of progression of the disease itself in these group of patients and whether there's any sort of particular subgroups we should be looking at?

I'll just leave it there.

If you could just help us with a bit of color there, that would be helpful.

Let me try.

It represents, as you point out, a high unmet need.

It is roughly 10% of the population as none of the disease modifying therapies have shown a positive result in this pretty hard to treat patient population.

I think the real opportunity is a halo impact.

If it works here, it will further solidify the positioning of Gilenya as a very high efficacy product and that's really what we're hoping for.

Okay.

Okay, next question, please.

Keyur Parekh of Goldman Sachs.

I have two, one for Joe and one for David.

Joe, historically you've mentioned that unlike some of your peers, Novartis is pretty happy with its established products portfolio and not looking to monetize on it, but given some of the recent deals and valuations we've seen around those assets, has your thinking around that changed at all?

Secondly, for David, as you kind of think about bringing in the Glaxo portfolio, can you help us think about some of your own kind of oncology assets specifically?

You've got the MEK inhibitor and how you see those assets surviving within the new world.

Thank you.

Okay.

The first question, I think when you look at our established medicines business across all of the divisions, those products that have lost patent protection, first of all, they are quite important in the fast growing markets and if you look at our emerging markets business, it now represents about 26% of our company's total and it's growing at about 8%.

So while in the developed world, there are potentially faster declines and you wouldn't see the same strategic benefit as obviously having it in emerging markets where not only can you grow it but it also adds scale.

So obviously we're never saying never but at this point across the different divisions we believe that they provide a level of critical mass and scale that is important to the business.

David, on GSK?

Yes, I think at this point it wouldn't be a wise thing to speculate about ongoing regulatory reviews and what the outcome might be.

Joe, just to follow up --

We have time for -- sorry, go ahead.

Sorry, if I could just follow up on Joe's comments.

Sure.

Does that mean you might be more open to potential structures around those products in the western markets than in the emerging markets or the faster growing markets as you call them?

Not at this point.

I think that when you look at even the role of those products in the developed markets, some of our peers have significant double-digit declines and they significantly benefit by exiting those, by accelerating their growth rate.

We're not at that point, even in the developed markets.

So that's why I would say not at this time but we would never say never.

So I would -- just as strategy is essentially a road map that you use to look at the direction that you want to head your business, but there's also opportunities that arise that may change some of the action that you take.

So I would just say, look, nothing's really changed for us.

We believe that the mature products provide critical mass and scale in emerging markets and scale in developed markets and just leave it at that.

Thank you.

I think we have time for one more question.

Steve Scala of Cowen.

I have a few questions for David.

First, David, in the past you have said the oncology business would not shrink if Glivec generics came in 2015.

Two things have changed since then.

Glivec generics are coming in 2016 but also GSK gets layered in sometime in 2015.

I assume growth will be even easier to achieve but please clarify your expectations.

Second, given the arrival of the Diovan plain are you still comfortable with your expectations of amlodipine being a $2 billion molecule in 2020.

Thirdly, on the Q1 call you noted that some Gilenya was given away free as reverification process was underway.

Was there any impact of that in the second quarter?

And then last question is why did you feel the need to comment on LCZ696 in the first place?

I assume you felt the need to rein in enthusiasm but please elaborate.

Thank you.

Four questions, if I got it.

The first is about the overall growth profile of the oncology business.

And when we had made our projections about growing year-over-year through the Glivec patent cliff the expectation was that the Glivec patent would go mid-2015.

As you know, that's now February 2016.

So what that means is 2015 will be better than we anticipated and 2016 will be quite a bit worse than we expected.

So 2016 will be a down year for the oncology business without Glaxo.

At this point in time, I've decided to stay away from making any forecasts, detailed forecasts about what the Glaxo business does to our business until we get further down the road.

So I'm not going to go there at the minute.

Next, I think you said that I or somebody at the company had promised that valsartan would be over $2 billion in 2020 or some such number.

I certainly didn't make that forecast.

I do recall years ago saying that by 2014 it would be over $2 billion.

And of course, that is being delivered.

It should continue to be a good product for us but obviously a declining asset.

Next question was for --

Gilenya reverification.

You asked us to recomment on -- you recall, we had weak Gilenya sales in the first quarter, in particular during the months of January and a little bit into February and we had mentioned we had given away some free drug during that reverification process so patients wouldn't go off.

I think that turned out be the right decision because you see the brand is growing nicely because we didn't lose those patients.

And your last question was why did I choose to comment on LCZ.

It's exactly what you said.

I saw numbers that were all over the place and it indicated to me that people might not have understood what the current dataset was in terms of most of the previous trials being versus placebo, the fact take that we had gone up against a good competitor which already had a 16% benefit and the fact that our patients were already really on full doses of beta blockers and spironolactone derivatives.

I wanted to make sure when we got to that meeting and we had a very good result that people wouldn't say that's not good.

I wanted to try to frame it for everybody.

Yes, so I think just to add some more color to that, it was not to temper expectations on LCZ.

It was more to clarify the fact that we tested against standard of care as opposed to placebo and that there were a number of analyst reports that were written about that that were less clear than that.

So I think David's comments clarified that and showed that if you -- we don't know what the numbers look like but if you did have a 15% to 16% reduction in relative risk, you would -- that would be a number that translates to a pretty darn big drug.

I think that was really the purpose.

Okay.

Thank you very much for joining the call and we look forward to updating you at the third quarter.

Thanks a lot.

Thank you.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen, you may now disconnect.