Novartis AG (NVS) 2014 Q3 法說會逐字稿

Good morning and good afternoon.

Welcome to the Novartis Q3 2014 results conference call and live audio webcast.

The conference is being recorded.

(Operator Instructions)

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

(Operator Instructions)

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

Please go ahead, sir.

Thank you.

I'd like to welcome everyone to our third-quarter conference call.

Joining me on the Novartis end are Harry Kirsch, CFO; David Epstein from Pharma, Jeff George from Alcon, Richard Francis from Sandoz, Andrew Oswald from vaccines, and Brian McNamara from OTC.

Before we start, I'd like Samir Shah to 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 achievement 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.

Alright, starting on slide number 4. We had what I would call a very strong third quarter.

For me the highlights really were the innovation that we were able to deliver in the quarter, particularly the news around LCZ696, but also the fact that we delivered solid sales growth across all of our divisions and at the same time increasing operating income margin, again, across all of the divisions.

So on slide 5 you can see the P&L.

Sales were up 5% in constant currencies with core operating income up 11%.

Core EPS grew double digit, whether it's constant currency or in US dollars.

Harry's going to talk more about the financials in just a minute.

What I want to do is spend just a few minutes talking about our three strategic priorities of extending our lead in innovation, accelerating growth, and driving productivity.

Starting on slide number 7, we had several regulatory advances this quarter.

A couple of highlights include secukinumab, which is our IL-17 inhibitor, where we gained positive FDA advisory committee recommendation in psoriasis.

Simbrinza is our new combo treatment for glaucoma.

We gained EU approval.

The FDA accepted Sandoz's application for our biosimilar, filgrastim.

We're the first Company to announce that we had filed for approval of a biologic under the biosimilars regulatory pathway that was created in 2009.

In clinical news, on the next slide, it was also a strong quarter.

You're going to hear more about this from David.

Beyond LCZ, we also released some data on secukinumab, which had positive results in psoriatic arthritis and ankylosing spondylitis in several phase III studies.

This is going to be an important drug for the Company going forward.

We also filed regulatory application to the FDA for LDE225 in advanced basal cell carcinoma.

This thing was filed in the EU in the second quarter.

In Alcon, we also had some good news.

We completed the acquisition of WaveTec.

This is the first intra-operative guidance system to improve cataract outcomes.

The system basically delivers key measurements during refractive cataract surgery and it helps the surgeon with the precision of the placement of the IOL.

It increases the surgeon's confidence to use an advanced technology IOL, which is also important for our IOL business.

This is going to be, I believe, an important new piece to the surgical suite of equipment that Alcon has launched and has proven to be pretty successful.

Moving on to the second priority on the next slide, 10, and that is to accelerate growth.

All of our divisions showed top- and bottom-line growth and all showed margin improvement, as you can see on the slide.

The performance was driven by our growth products, which now account for 33% of sales.

They're up over 20% versus a year ago.

You can see that on slide number 11.

Importantly also, we're not seeing a slowdown in emerging markets, despite the fact that the economies are slowing down.

We were up 13%, and China and Brazil we're both up over 20% and Russia was up 18%, so we're still seeing very good growth in emerging markets.

On the next slide, 12, pharma growth products doing extremely well.

Three that I just want to point out, Gilenya, Tasigna and Afinitor, were all up over 20% versus a year ago in the quarter.

It's an important fact because it's helping pharma more than offset the patent expiration of Diovan.

And even Lucentis, Lucentis up 7%.

Alcon on the next slide, you can see that sales were up 6% versus the quarter and that was driven by the surgical business, which was up double digit.

This is making me optimistic about early signs of top-line growth acceleration on the Alcon business behind the surgical suite.

We all know what happens as we get that surgical suite out there.

There's a pull-through of other disposables that could result in some nice growth going forward.

In Sandoz, our sales were up 7%, on slide number 14.

Core operating income margin also grew 17% for the quarter.

Another highlight, I think, was biosimilars, where we were up 30% versus a year ago.

Now, in terms of productivity, we had a solid quarter.

We improved group core operating income margin by 150 basis points, and this was driven by procurement savings and R&D and M&S spend control.

For the first nine months you can see we were up 120 basis points.

As you heard on Sunday night, we have signed an agreement with CSL to divest our flu business for $275 million in cash.

We expect this transaction to close in the second half of 2015.

Until it's completed, we're going to continue to operate the flu business.

As you can imagine, we're right now in the process of carving this business out from the rest of the vaccines business that goes to GSK, and we'll run it as a standalone business until the CSL transaction closes.

The transformation is shown, a little time line on slide 17.

It continues to be on track, so we expect to close both deals in the first half of 2015.

In fact, the animal health deal will most likely close no later than the first quarter of 2015.

Then, finally, I want to just talk about the Novartis business services.

As you know, in April we announced the creation of Novartis business services, and we transferred 7,000 of our associates across 60 countries into this unit.

They're, right now, building plans to improve quality of services and deliver them at a lower cost.

At the same time, they're executing everything that they're responsible for today, which is pretty substantial in the area of IT and procurement.

I'm feeling good about the progress, but again, Novartis business services is going to be something that helps us in 2015, 2016 and 2017.

Now I'd like to turn it over to Harry.

Thank you, Joe.

Before I get into the numbers, as a reminder, we are required by IFRS, following the portfolio transformation announced on April 22, to report total group numbers for 2014 and the prior year as discontinuing and continuing operations.

In addition, when comparing our performance to prior year, we are comparing to 2013 figures, excluding our divested blood transfusion diagnostics unit.

This is consistent with how we reported our Q2 results.

Now to slide 20.

Novartis delivered solid sales growth with strong margin expansion in the third quarter and first nine months of 2014.

In constant currencies, net sales were up 5% in quarter three.

Core operating income was up 11% in constant currencies, driven by the sales uptick and by the impact of productivity programs.

Net income increased substantially by 49% in constant currencies in quarter three, due to a one-time exceptional gain from the sale of our 22% Idenix stake to Merck.

Core net income and core EPS do not include this one-time gain, of course.

Free cash flow was much stronger in quarter three than the first two quarters, reaching $3.2 billion.

I'll give you more detail on that later.

Slide 21 clearly demonstrates our strong underlying growth.

If you go step by step, underlying volume growth contributed 10% of net sales.

Pricing was flat.

The generic impact was minus 5% and currency had a negative impact of minus 1% on sales, resulting in sales growth of 4% in US dollars and 5% in constant currencies.

You see similar but much more pronounced picture for core operating income, where underlying core operating income growth of 25% more than offset the 14% impact of generic competition.

Currency took us from 11% growth in constant currency to 8% growth in US dollars.

Please note, the core operating income growth includes 1% point due to the cessation of depreciation for discontinued businesses.

As you know, a generic version of Diovan mono was launched in the US on July 7. On the same day, Sandoz launched an authorized generic.

The generic impact for the group in Q3 was $600 million, and year to date $1.7 billion.

We expect total year to be around $2.5 billion, on a full-year basis, in line with our previous expectations.

This takes into account the recent launch of generic competition for Exforge in the US.

If you turn to slide 22, you can see that the top-line performance was driven by continued momentum in our growth products, which now represent 1/3 of total group net sales and 44% of pharma net sales in quarter three.

Each of our leading divisions contributed to this momentum.

Key drivers were Gilenya, Afinitor and Tasigna in pharma and surgical equipment at Alcon.

We also benefited from the Diovan mono authorized generic launch in US for Sandoz and good performance of growth products in our discontinued operations, mainly from the Voltaren 12-hour launch.

Looking at our financial performance by division on slide 23, you can see that all divisions contributed to the group core operating income margin improvement of 150 basis points in constant currency in quarter three.

Pharma grew sales only by 1% and fueled the Diovan mono generic entering US early July.

Nevertheless, pharma has been able to grow core operating income by 5% points and improve margin by 1% point.

This is due to the impact of productivity programs on function cost and higher R&D spend in 2013.

Alcon achieved a 6% sales growth in constant currency and also benefited from productivity programs resulting in a 2% point margin improvement.

Sandoz margin also improved by 1% point, mainly due to the launch of Diovan mono authorized generic in the US, which has been partly offset by stock and trade reductions in US due to customer consolidation.

Authorized Diovan mono sales were slightly above $100 million in the quarter, and we expect these to be substantially lower in quarter 4.

Margin improvements at consumer health and vaccines were somewhat higher as both benefited from higher sales growth but also the cessation of depreciation related to discontinued operations accounting.

This is particularly true for vaccines, where this accounting effect represents 6 points of the 8 points of core margin improvements in quarter three.

However, overall for the group, the contribution from the cessation of depreciation was only 0.3% margin points.

Please note that part of the significant quarter three sales growth from vaccines is due to the earlier US flu campaign this year versus 2013.

Excluding this flu shipment phasing, vaccines grew sales 12% in constant currency.

Now to slide 24.

As I mentioned, the improvement in group core margin was due to lower functional costs.

This was mainly in R&D and M&S.

Group core R&D and M&S both decreased by just over 1% point of sales in constant currency.

The R&D decrease at pharma of 0.9% points in constant currency of sales was driven by ongoing productivity gains as well as increased investments in late-stage clinical trials in Q3 2013.

The even larger improvement at Alcon of 2% points in constant currency was driven by continued project prioritization as well as some phasing of expenses.

Core R&D spend as a percent of net sales was 15.7% for the group and 21.4% for pharma in Q3.

The decrease in M&S spent also reflects our ongoing productivity program started earlier in the year, for example, US primary care field force reductions around the quarter one, as well as higher sales.

Slide 25 looks at the currency impact.

Currency had a negative impact of minus 1% point on the top line, mainly from the strengthening of US dollar against the Russian ruble and Japanese yen.

The bottom line was impacted by negative 3% points as we also saw a stronger Swiss franc this quarter versus the prior-year quarter.

The dollar has been strengthening further over the past few weeks against most currencies, and if the early October average exchange rates prevail for the remainder of the year, we would expect for the full year a minus 2% currency impact on sales and between minus 4% and minus 5% on core operating income.

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

As expected, we continue to see a nice recovery of free cash flow in quarter three and ended the first nine months with free cash flow of $6.3 billion.

This is only slightly down compared to last year, as higher operating income was offset by negative currency impact, higher net working capital and investments in intangibles assets, including the Fovista deal and Google smart lens technology.

As you know, we do not include the additional cash we received from the divestment of the blood transfusion diagnostic unit and Idenix share sale into our free cash flow definition.

Now onto our net debt on slide 27.

You can see how net debt increased from $8.8 billion at the end of 2013 to $9.2 billion at the end of this quarter.

This was mainly due to our dividend payment of $6.8 billion and share repurchases of $5 billion, partially offset by our free cash flow of $6.3 billion as well as proceeds from divestments and from options exercised related to the employee participation programs.

Slide 28, we have just announced the binding agreement to divest our flu business to CSL for a price of $275 million.

The flu transaction is expected to close in the second half of 2015, subject to regulatory approvals.

Upon signing of the agreement, IFRS requires us a separate valuation of the flu vaccine assets.

This immediately triggers the recognition of an exceptional impairment charge of approximately $1.1 billion pretax, as the book value of the flu vaccine net assets is above the selling price.

This charge is a non-cash accounting impact and will be excluded from the group core results.

However, the future sale of the remaining non-flu vaccines business to GSK will produce an even higher gain and more than offset this early recognized impairment.

We also expect to record significant additional gains upon closing of the other inter-conditional transactions with GSK and the transaction with Lilly announced on April 22.

These gains will be recorded at deal closing and will also be excluded from the group core results.

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

We expect group net sales to grow at low to mid single digits in constant currency and group core operating income to grow ahead of sales at mid to high single digits in constant currency.

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

And with that, I will hand over to David.

Great.

Thanks, Harry.

Pharmaceutical sales were up 1% in constant currency in the third quarter with solid core operating leverage despite absorbing declining Diovan sales in the US and Japan due to initial generic entries.

On the next page, 32, you see that our portfolio rejuvenation is progressing well with gross products now representing 44% of total division sales.

I think this speaks well to our ability to innovate as well as our global launch capabilities.

On page 33, we see that the focus on emerging markets continues to provide a nice return, as growth in Q3 was robust, driven by Brazil, China and Turkey.

We are now, according to IMS, the number two pharma company in the emerging markets.

On page 34, you see our growth platform is delivering well with the one negative number on the chart being Galvus due to the cessation of distribution in the German market.

Corrected for the German action, you see that Galvus also was up 8%.

I'll now spend a few minutes talking about several of these products, starting with Gilenya on the following page.

Gilenya is growing strongly, despite its increasing competition in both the US and Europe.

In fact, ex US, Gilenya is now the number one product in the MS market, based upon first-half sales.

We presented new data at ECTRIMS, which confirmed the high efficacy of Gilenya in achieving no evidence of disease activity based upon four key measures of MS. Last but not least, we're looking forward to seeing the first top-line results from the primary progressive MS study, which is expected before the end of this year.

On the following page, you see Lucentis continues to grow nicely, based upon market expansion with the new indications, as well as the continued rollout of the pre-filled syringe, which physicians are telling us that they prefer to use over the old form.

On page 37, you see that Afinitor is growing nicely.

In fact, there are multiple sources of growth even beyond breast cancer.

For example, if the you look at the chart on the right-hand side of the page, you now see that even a small indication, or orphan indication, like pancreatic neuroendocrine tumor now represents 10% of the sales.

We recently showed overall survival benefit in this indication of more than three and-a-half years, which means over time this indication will become more important for the brand.

On page 38, you see another very important product and that's Tasigna.

It's delivering double-digit growth, now seven years post launch.

It continues on the success of Gleevec and, hopefully, our ever-expanding Bcr-Abl franchise, as our Abl inhibitor, ABL001, continues to make good progress in its first phase I trials.

You can see that the ex-US growth of Tasigna is also very strong, in particular, we're seeing very nice continued uptake in the emerging markets.

Turning now to page 39.

We see Jakavi is performing very well, based upon the Myelofibrosis indication.

That indication also received a recent approval in reimbursement in Japan for that indication.

We were able to update the European label in July to include a long-term survival follow up.

Last but not least, the submissions are ongoing for the new indication of Polycythemia Vera, which was submitted in the US in Q2 and in Japan and in Europe in Q3.

We would expect that this new indication has a possibility of more than doubling the potential market size for this product.

On page 40, we see that Ultibro adoption is quite good, already at $31 million in the third quarter.

In addition, we presented new data, which showed expanding evidence that there's an exacerbation benefit verse Seretide, which is the market leader in COPD.

We remain very bullish on our COPD line and expect, in time, to become one of the market leaders ex-US in this market segment.

Then on page 41, Zykadia presented during the quarter new data, actually data on durable responses that was even better than we had anticipated when we started development with this product, with median progression-free survival exceeding 18 months.

Now, I want to spend a moment and turn to a little bit on the pipeline, starting on page 42 with LCZ where we're building very, very good momentum.

The preliminary regulatory discussions have gone very well.

As you know, we are in the midst of a rolling submission in the US with an expectation that we'll complete that submission at the end of this year.

Once the submission's complete, we'll get a read as to whether or not an accelerated review is likely.

I would say based upon the tone of this preliminary discussions and the quality of the data, that a accelerated review certainly in the realm of possibility.

Then last but not least, we are on track for our early 2015 filing in Europe and the rest of the world for this very important brand for our Company.

The last product I want to mention in our development portfolio is Cosentix.

I think most of you heard about the positive outcome of the FDA advisory panel on psoriasis where there was a vote 7-0 in favor of the approval of Cosentix for psoriasis.

Just as importantly, we presented top-line results during the quarter for two additional indications, psoriatic arthritis and ankylosing spondylitis, which speaks to the broader efficacy profile of this compound compared to some other biologics in the category.

We're currently aiming to being the first company with an anti-IL-17 monoclonal antibody, which is labeled against all three of those important indications, which should, in time, drive this product to a multi-billion dollar blockbuster status at peak.

Last but not least, I present to you on page 44 our expected news flow for the remainder of the year.

As you can see, it is a very strong year and we're looking forward to a few more green checks, hopefully before the year is out.

With that, I want to turn the meeting back over to Joe.

Thanks, David.

Just to close, we had a strong quarter.

We delivered strong innovation and sales growth with operating income leverage.

But the thing that makes me most pleased about the quarter is that the team did it at a time of unprecedented change in the Company, with the portfolio transformations and setting up of NBS.

With that, I'd like to open the call to questions.

Thank you.

(Operator Instructions)

We will take our first question from Richard Vosser of JPMorgan.

Please go ahead, your line is open.

Thanks very much.

A couple of questions, please.

It's Richard Vosser from JPMorgan.

Just on the flu business disposal, I wondered if the you could give us some details on how you came about the pricing?

It does seem a relatively low sales multiple, and you have put substantial amounts of investment into that business in terms of the R&D behind quad flu and upgrading the manufacturing facilities, so just if you could give us some idea or some details around that?

That would be good.

Secondly, on Alcon, just give us an idea of where you are in the rollout of the Centurion machines?

Where that is in terms of your installed base?

Are you actually gaining market share on your installed base?

Through here, obviously good sales numbers.

Secondly, on the IOL return to growth, how sustainable do you see that?

Do you see strong growth for the second half driven by patients using up their allocations with payers and therefore a return to weaker growth in the first half of 2015?

Just some context there would be good?

Then just finally, on FX, if I could ask on what sort of FX you're expecting an impact on 2015?

What sort of negative impact that you would see there?

Thanks very much.

Okay, Richard, thanks for the questions.

Look, regarding the flu business, we announced in April that we were going to divest this to somebody else to maximize value.

Obviously, we took the best price.

It was $275 million.

Remember, this is a money-losing business today, so I feel good about the price that we've taken.

Even though we are recording a loss on the sale of flu, when you look at the vaccines business in total, we do expect to register a fairly significant gain across the entire vaccines business.

When we close GSK, that will more than compensate for this hit.

I had to make the decision as to whether or not we were going to double-down in flu and invest more or divest.

The decision was to divest, and $275 million was the best price.

Jeff, Alcon?

Richard, with respect to the Centurion rollout, this is exceeding our expectations, and we're really pleased with the rollout so far.

We're approaching 10% of our installed base globally and approaching 15% of our installed base in the US.

So still a good amount of further room for growth.

Remember, that most phacoemulsification platform rollouts are multi-year rollouts, so we're really pleased with the uptake that we're seeing.

We are picking up quite a bit of competitive share from older phacoemulsification platforms from our competitors.

I think notably, the increase that we're seeing in IOLs is significant in Centurion accounts, where we're seeing 10% volume growth in IOLs in units in accounts that have Centurion versus about 2% unit growth in IOLs in accounts that don't have it.

So I see our momentum and the improvement that we're seeing, albeit modest in Q3 in IOLs, as something that will be continued going forward.

I expect to see that business continue to improve looking forward.

And, Harry, on FX?

On FX, as I mentioned, the last weeks have given us more headwinds, which led to our guidance for this year of minus 2% on top line, minus 4% to minus 5% on bottom line.

For 2015, I would like to give that guide in January when we give you also top- and bottom-line guidance.

I expect some headwinds, but I'll give more specifics later.

Next question, please.

We will take our next question from Andrew Baum of Citigroup.

Please go ahead.

Your line is open.

Good afternoon.

Three quick questions, please.

First, regarding secukinumab and the psoriasis market.

How should we think about the market dynamics there?

Do you anticipate eroding, first, the anti-TNF usage in that segment or do you see, from the get go, increased penetration of biologics?

Second, if Richard's there, I'd be interested in any guidance he can give on, realistically, when do you anticipate your biosimilar adalimumab to get approved within the US?

Then finally, David, I heard your reinforcement of the continued commitment to respiratory.

Given the wealth of assets that you appear to have at your disposal, particularly with LCZ but many others that were highlighted in your presentation, are you the best owner for the respiratory assets?

I note in the UK you have given up rights.

Should we expect that respiratory is going to be a permanent feature in the Novartis portfolio going forward?

Okay.

Why don't you go, David, first, secukinumab and resp.

I think the best way to think about secukinumab, dermatologists are fairly conservative by nature, that's one factor.

Second is that many psoriasis patients, even those on biologics, are very dissatisfied with the quality of the products they're on today.

They're not getting clearer skin, which is much more likely with secukinumab.

What I think will happen, you'll see secukinumab used initially second line, but then you will see the market expand because patients will be happier, stick with it and perhaps some patients who don't do well on the orals will also switch over to an ever-expanding biologics market.

That market's about, I think it's about $5 billion now for psoriasis biologics.

The second question about the respiratory market.

I think we're a Company of almost two geographic worlds.

In Europe, and ex-US more generally, we have a dynamite portfolio.

We have Onbrez, Seebri, Ultibro.

We Xolair for allergic asthma.

We also have a product that's in the pipeline that will hopefully go into phase III next year, called QAW.

We really have a chance to become one of the market leaders in respiratory medicine, and I would see us, in most markets, doing that ourselves.

The UK being an exception where we've just been unable to mount a really strong GP business, and recognizing that it takes more than five years to get a return in the UK market.

The US is a bit of a different story.

We're working on our strategy.

As I said earlier, we may choose to work with another company in the US market.

We may choose to do it all ourselves.

The good news is I have plenty of time to figure that out.

As we do during the course of next year, we'll let you know what our US strategy is for our respiratory product line.

Andrew, on the Humira biosimilar, we announced that we're in phase III.

We don't comment on the timing, but we would, obviously, want to be ready by the time that that patent expired, so that's about as far as we'll go.

Thank you.

Next question, please.

We will take the next question from Matthew Westin of Credit Suisse.

Please go ahead.

Your line is open.

Thank you very much.

A handful of questions, if I can.

Can you just tell us, in Sandoz, how much generic Diovan actually contributed to both 3Q sales and EBIT?

David, if you can let us know on LCZ696 what have the early discussions with regulators indicated in terms of the possibility of a priority review, or is the sheer size of the data package going to limit the opportunity there?

You highlighted a number of product successes and real growth drivers.

Can you just walk us through where you now see Afinitor going in light of the plateauing of revenue?

I note in your pipeline picture delays in B-cell lymphoma and TSC seizures because of difficulty recruiting patients.

Then finally, Gilenya.

I think we're expecting the primary progressive MS data before year end.

Can you let us know how you're going to communicate that to us?

Thank you.

Okay, Matthew, starting with Sandoz.

Richard, generic Diovan?

Thank you, Joe.

Thank you, Matthew.

Generic Diovan, so give you some guidance.

The sales that we saw with Diovan were above $100 million, so good performance there.

If you look at the competition with Ranbaxy for the generic marketplace, we're slightly over 50%, so we're very pleased with the results we had there.

Then, David, the three questions on LCZ.

Let's start with LCZ.

Obviously, I can't tell you the exact details in the regulatory discussion.

I just want to say I'm pleased with them and they're consistent across US and Europe.

Honestly, it's hard for me to imagine that we don't get a speedy look at the data.

The size of the package is not a problem, but we won't know officially whether there is a priority review until we complete the submission and the FDA tells us.

I think we're in good shape there, and I think that's what you should take away.

Afinitor is more of a mixed story.

As we showed, the brand is growing really nicely.

It's up consistently more than 20%.

It should continue to grow.

Breast cancer on the other hand will turn out to be, as we indicated earlier, smaller than we had hoped.

As the drug is used in later lines of disease, and we a at least as of yet have not seen any survival advantage that we could use to offset the stomatitis that the patients experience.

As I pointed out, some of the other indications are actually fairly significant and they're also fairly early in their life cycle.

It is a multi-billion dollar drug.

It is growing nicely.

We have a very nice development strategy meant to replace Afinitor before the patent expires with the PI3 kinase inhibitors.

I think overall it's a good, solid franchise even though it may turn out to be a little less than we had once hoped.

Regarding Gilenya and PPMS, as I said, we should get the results before year end.

Assuming the results are positive -- I guess either way, we would probably give some type of top-line release.

I have to go and think about that a little bit more before I confirm how I'm going to communicate to you.

Next question, please.

Looks like our next question from Alexandra Hauber of UBS.

Please go ahead.

Your line is open.

Good afternoon.

Thank you.

I've got four questions, please.

Coming quickly back to Seebri, Ultibro and the US, the summary still says four-quarter US submission.

I'm just wondering whether there is a final decision actually made?

Also, given whether you have the data in house and you're by now, which you probably need to, if you want to submit it this quarter?

And whether you're confident you have a competitive profile for the US?

Secondly, I assume the strong performance in the emerging markets this quarter in pharma has had some contribution from tender.

Could you just spell out some of the products which were specifically affected by that?

Then, David, you were just briefly mentioning your Abl inhibitor OO1.

Can you confirm whether we will see some data here at ASH for that?

Finally, for Harry, just any latest thoughts you can share on savings from Novartis business services, the timing but also potential cash costs, whether there will be any from any initiatives there?

Okay.

Starting with resp.

David?

Seebri and Ultibro, we do not have all the data in house as of yet for the US market.

We have seen some of the data and there are no surprises.

As we had communicated earlier, most likely there will be a twice-a-day profile.

It's all going to be a question of what's the overall efficacy safety along with that twice-a-day profile to understand how competitive it will be.

I do believe that the market will eventually move strongly to combination LABA/LAMAs.

Our competitor has not done a good job doing that.

I think as other products from our Company and other companies come into the market, the LABA/LAMA market will expand.

Regarding emerging markets, you're right, the back half of the year is usually tender driven.

We have not had extreme ups or downs in tenders this year.

In fact, some of the best performing markets are not really true tender markets, so China, for example, is one of the highly performing markets.

There's nothing really unusual there.

Then, ABL001 is an allosteric Abl inhibitor, which could be used either as monotherapy or potentially combined with a drug like Tasigna or a drug like Gleevec.

We're in the midst of dose escalation, so I don't think you'll start seeing any data, probably, until 2015.

But it's a very exciting concept and an opportunity for us to expand that important Bcr-Abl franchise.

Harry, on NBS?

Thank you, Alexandra.

On NBS, the team is forming the organization, more than 7,000 associates joining, as we speak.

That organization announced on July 1 the leadership team.

The expense being managed in the final stage being around $6 billion.

Mid term, we expect nice margin improvement from that, and we will update you on more specifics for 2015 in January when we give our full-year 2015 guidance.

We would expect some level of restructuring to go with some changes, not --

Absolutely.

Not significant or huge, but something from a cash standpoint.

Thank you.

Next question, please.

Our next question from Seamus Fernandez of Leerink.

Please go ahead.

Your line is open.

Great.

Thanks for the questions.

Just a couple of quick questions.

First, just strategically, David, in terms of your plans for a future, post Gilenya, should the patent actually make for an expiration in 2019 or 2020, as you've guided, what would your plans be for building out an MS franchise long term?

Is Gilenya really your only focused target?

Then separately, can you also update us on the pricing assumptions, as we think about potential pricing of LCZ in the US and perhaps also in global markets?

Lastly, we have seen some consternation over the pricing dynamics that are occurring in the insulin market.

Historically, Sandoz's leadership has stated that they view that market already as being largely generic.

Just wondering if Sandoz has changed its position there, perhaps because of differences in breakeven pricing for additional competition, or if that remains an unappealing market?

Thank you.

David?

The first question is around our commitment to MS, which is very strong.

We see ourselves building a leadership position in MS. Just to clarify some facts.

The law six yosemite for Gilenya is 2019 in the US only.

So outside the US, in particular in Europe, it's 2021, which gives us more time.

We have other compounds in the pipeline, like our anti-IL-17 inhibitor, and we are looking at other options as well to continue to build upon our success in the MS market.

Your second question was around pricing assumptions for LCZ.

I'll start by saying we haven't decided upon the price.

Obviously, there's a number of things to think about, the strong benefit of the product overall, in terms of reduction in mortality, improvement in quality of life, also the cost offsets because this product will reduce hospitalizations, for example, as well as other health costs.

Then, we also have to think about the total size of the patient population, so whatever we do has to be reasonable from a pricing standpoint.

You probably won't hear about the price from us until a few days before we actually launch the product in the US, so we have a little bit of time to nail it down further.

And, Richard, on insulin?

Thanks, Joe.

We're constantly looking at opportunities to expand the business and the portfolio, so we constantly look at every market, and insulin's no different.

We do not still consider it an attractive opportunity because of various things from pricing, low pricing to high capital expenditure required and a high level of competition, so that's not one of our focuses right now.

Next question, please.

We'll take our next question from Graham Parry from Bank of America.

Please go ahead.

Your line is open.

Thanks for taking my questions.

Firstly, on LCZ696, have you got a better view yet on what sales force you think would be needed to launch the product and the extent to which you might need to access GPs longer term to switch the stable patients once you've established yourselves with the cardiologists?

Secondly, are you still on track to enter the clinic in 2015 for the immuno-oncology portfolio from CoStim?

Any thoughts on which mechanisms of action are going in first?

Thirdly, on Novartis business services, in terms of benefits in 2015, obviously, the set up is happening now.

How much of a benefit could we really see 2015, or should we really be thinking about 2016, 2017 for the timing of benefits from that business?

Thank you.

Okay.

For the LCZ launch in the US, the question is one of what type of sales force will we put out there.

Clearly, we will fully cover cardiologists, who will be the main decision makers and prescribers for this brand.

We will also cover a part of the GP market.

These are physicians, internists who act much like cardiologists, so they initiate prescribing.

Then, we will use a series of different methods in order to encourage GPs to refer patients back to the cardiologists, so that their prescription can be changed and the drug can with titrated up to the effective dose with the cardiologist's guidance.

There's multiple channels we'll be using, including digital.

The current plan is not to have broad coverage of GPs in the US.

We will, in time, refine those plans, but at least in terms of the launch in 2015, you should not expect any kind of significant field force expansion.

CoStim was the second question.

Second question is around CoStim.

As you know, CoStim has a series of first- and second-generation immuno-oncology drugs.

I'm very excited, we've accelerated those second-generation products in particular.

They will enter the clinic in 2015.

I think we're going to wait until 2015 to tell you exactly which ones those are.

Okay.

Harry, on NBS?

Graham, thanks for the question.

I expect the major impact as of 2016 and 2017, but also some impact in 2015.

We plan to update you on more specifics in January when we give the 2015 guidance.

Please recall, also, this is about standardizing and automating processes.

Systems implementations are also part of it, so one has to be a bit careful to expect significant benefits too early.

To sum it up, some benefits in 2015, majority in 2016 and 2017.

Okay.

Next question, please.

We will take our next question from Tim Race of Deutsche Bank.

Please go ahead.

Your line is open.

Thanks for taking my question.

Tim Race here from Deutsche Bank.

Just a few questions on pricing.

I see Gleevec this year is about $0.20 list price increases.

Could you just comment on how much is sticking and perhaps just also call out some of your other products in the specialty space where you've been able to actually increase price so dramatically, whether that's just a Gleevec specific?

Just a comment, generally, on your portfolio in the US?

Which we've seen, obviously, quite pertinent today, is the insulin market and prices have taken investors by surprise.

Where over all, I think it was thought to be relatively secure.

Your portfolio is generally what I'd call a specialist, but are you seeing any extra pressure in some of these areas which otherwise, traditionally, would have been protected?

Another question just perhaps on Lucentis.

We saw the NIH headline data of Lucentis, Advair and Avastin.

I know it's a US study, but there was obviously a not great efficacy follow sense in that study and the CB safety signal was a bit worrying.

Do you expect any read across to the EU from this and any impact to your business?

Thank you.

You asked a general question in pricing and I think stickiness.

I'd say a couple things on pricing.

One, in Japan, this was a negative price year for Japan.

It's an every-other-year system.

We were down about 6% in Japanese pricing.

In Europe, pricing declines are pretty much in line with what we've had over the last couple years, minus 2% to minus 3%, depending upon the quarter.

In the US, we have had a small amount of price increase.

I think you're correct, it's been easier to pass through price increases on the specialty brands where there's less competition than on the primary-care portfolio.

That pricing does seem to stick.

Having said that, payers are increasingly focusing on categories like MS. They're starting to look at oncology, and we will anticipate continued price pressure in those categories as well.

Regarding the Lucentis, and I should say, this was a comparison of Lucentis, Eylea and Avastin in DME.

If you know, that was an open-label trial, relatively modest sized trial.

The key issue there, in terms of trying to extrapolate the data, is the dose.

It used the US dose for DME, which is very low compared to EU dose, so there's really no efficacy conclusion that could be made since our doses are higher.

They had this very, what I would call odd, unvalidated definition of side effects, which is not traditionally used in eye trials, so I think we have to get deeper into the data to see if there's anything really there or not.

Okay.

I think we have one additional question in the queue.

We will take our next question from Kerry Holdford of Exane.

Please go ahead.

Your line is open.

Hi, thank you.

I have three questions on products from me, please.

Firstly on Gleevec, I saw that you reported particularly strong growth in the US in the quarter.

Just wondered whether you could give us a bit more detail on the drivers here?

What level of growth you expect for the remainder of the year and into 2015?

Secondly on Xolair, strong growth still remaining for that product in the quarter.

Can you detail how much of this is being driven by the asthma indication versus the newer more recently launched dermatology indications?

If you're able to comment on how big an opportunity those dermatology indications might represent for Xolair in terms of peak sales?

Then lastly on secukinumab, I saw that you are now planning to file for psoriatic arthritis next year, previously this year.

Is that just to really make a simultaneous filing with AS in 2015 or are you waiting for any additional data to read out in psoriatic arthritis?

Thank you.

Thank you for the questions.

In terms of Gleevec, we were up 7% Q3 2014 verse Q3 2013.

The growth was primarily driven by the US, which was up 24%, which compensated for the declines in the other regions.

The US was a combination of price and inventory, which had been low, coming back to a normal rate.

You would expect, over time, Gleevec sales will decline for a number of reasons, generic competition, patients switching from Gleevec to Tasigna and the like.

Regarding Xolair, the chronic spontaneous urticaria launch is actually doing very well, even a bit better than we had hoped.

The peak potential is probably over $0.5 billion in the ex-US markets, because remember, we don't book sales in the US.

Genentech books those sales.

I don't have a good split for you right now between allergic asthma and CSU, in part because of overlap of prescribers.

We're trying to do some better market research to understand it.

When you look at the acceleration of the brand, it's pretty clear that the chronic spontaneous urticaria indication is what's driving the acceleration of the growth.

Last but no least, you are correct.

We decided to push one of the secukinumab indications into early next year so we could file in contemporaneously with psoriatic arthritis.

We think that gives the file the best chance if a smooth regulatory review.

We have time for one last question.

We will take our next question from Steve Scala of Cowen.

Please go ahead.

Your line's open.

Thank you very much.

Two questions for David.

When all exclusions from the PARADIGM trial are considered, how much does that reduce the potential Class 2 heart failure population for LCZ696?

That's the first question.

Secondly, I apologize if this has already been asked, but what are the next data readouts for LEE011 potentially in 2015?

Thank you.

I'll start with LEE.

This is the CDK4/6 for breast cancer, a product that's going to be going into -- along with Pfizer's drug, into, I believe, it will become a very big category.

Most likely scenario for us is we'll see data at the beginning of 2016.

Now, of course, these are all event driven.

Things can shift a couple of months one way or another.

Regarding LCZ, I can't give you an exact answer.

I'm not even sure people really know exactly how many chronic heart failure patients there are.

As you know, also, a number of them are under diagnosed.

The exclusion criteria was such that most patients with Class 2 to Class 4 chronic heart failure should be eligible for this drug, regardless of whether or not they were on Enalapril R and R prior to.

We'll see when it comes to the labeling discussions if there are any constraints in the US or Europe.

We're not anticipating them at this point.

Thank you.

Okay.

I'd like to thank everybody for tuning in and we look forward to giving you an update on our fourth-quarter results at year end.

Thank you very much.

Thank you.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen.

You may now disconnect.