Novartis AG (NVS) 2014 Q4 法說會逐字稿

Good morning, and good afternoon.

And welcome to the Novartis Q4 full-year 2014 results conference call and live audio webcast.

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

After the presentation, there will be an opportunity to ask questions by pressing star and one at any time during the conference.

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

(Operator Instructions)

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

Please go ahead, sir.

Thank you.

I'd like to welcome everybody today.

Joining me on the Novartis end are Harry Kirsch, our CFO; David Epstein, the Head of Pharma; Jeff George, the Head of Alcon; Richard Francis, Head of Sandoz; Andrin Oswald, Head of Vaccines; and Brian McNamara, Head of OTC.

So before we start, I'd like Samir 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 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.

Okay.

So starting on slide number 4, you can see that 2014 was a good year for the Company.

We delivered sales growth across all our divisions, and we more than offset the patent expirations that we saw in the year.

We also delivered a core operating income margin improvement of about 120 basis points in constant currency, and we're proposing a 6% dividend increase versus last year in Swiss francs.

Now, I think one of the best parts of the year was innovation, and I'll talk more about that in a minute.

The portfolio transformation continues to be on-track.

And most of you saw the animal health transaction closed on January 4, and the GSK deal is on-track for the first half of the year.

So on slide a 5, you can see an overview of the financials.

Dropping down to -- net income was up nicely, both in US dollars and constant currency, and core EPS was up double-digit in constant currencies.

Importantly, we had a good cash flow year, $10.8 billion for the year, in US dollars.

So let's look at slide number 8 [6].

The way that I think about 2014 is really two different ways.

The first is, how did we execute?

And I call this operational excellence.

And the second is, how did we perform around the bigger transformations that are going to set this Company up for the future?

So starting on slide 7, we had a very strong year for innovation across the Company.

For example, in pharma, not just the launch of Zykadia in non-small cell lung cancer, but the important two new drugs that will be launched in 2015 -- LCZ696 and Cosentyx.

These are moving two very important new drugs close to the market for Novartis in the future.

We also received approval to Bexsero.

We had an accelerated approval by the FDA, and that was just in January.

So that did not fall in the fourth quarter, but it's just another element of the momentum that we have in our innovation.

Also, it was important that Sandoz biosimilar Filgrastim was also recommended for approval in all requested indications by the FDA ODAC.

Alcon also strengthened its pipeline with two external transactions on slide number 8. So the acquisition of WaveTec, which allows cataract surgeons to measure the eye during surgery but prior to insertion of the IOLs.

This is going to be added to our surgical suite.

And then second, the agreement with Google to commercialize the accommodating lens.

Those are two important external deals.

Now, taking a look at the financials on slide number 9, you can see that we delivered sales and core operating income growth across all divisions in constant currency.

Pharma sales grew 1%, with Alcon up 6% and Sandoz up 7%.

I think two factors drove this growth, on slide number 10.

The first was our growth products, which are defined as any products launched in the last five years or have exclusivity through 2018.

These now represent 32% of our sales.

So a third of this Company is from the growth products.

It's a very important fact, as we create a platform for future growth.

The second is emerging markets.

We had a very good year in emerging markets, up 11%.

Those markets now account for over a quarter of our total sales.

So looking at each division briefly, you can see on slide 11 that pharma grew 1% in constant currency.

Now, you can tell by the bars it's down in US dollars by about 1%, but we absorbed the generic impact of 7 percentage points to be up 1% in constant currencies.

That's an accomplishment that I think not many pharma businesses can talk about.

Alcon grew 6%, on slide 12, in constant currency, with two very strong consecutive quarters in the second half of the year.

Surgical was up nicely, 7% for the year, behind the launch of Centurion.

Pharmaceuticals in Alcon were up mid-single-digit, about 5%, and vision care was up 4%.

And then finally, Sandoz grew 7% versus prior-year, driven by the US, Western Europe, and some pretty good growth in emerging markets.

And importantly, our biosimilars business grew over 20% and crossed the $500 million mark in 2014.

In terms of productivity on slide 14, we delivered $1.6 billion US dollars in procurement savings.

This is the best year ever that we've had in procurement.

We also continued to manage our M&S spend down, and this is at a time of some pretty intensive launches.

So M&S spend, as a percent of sales, dropped about 80 basis points versus the prior year.

We also have now restructured, exited, or divested 24 manufacturing sites since our footprint program started in 2010.

On slide 15, you can see that from a quality standpoint, our continued focus on system upgrades across our network continue to show nice results.

So we had 247 health authority inspections.

Just two were not satisfactory, and we have two still pending.

We also, importantly, closed the FDA warning letter for the three Sandoz sites in North America, so great progress on the quality front.

We're also on-track, in terms of the portfolio transformation on slide number 16.

The GSK transaction is on-track, and for modeling purposes, we have assumed, in the outlook that Harry will give, that the GSK transaction closes at the end of the first quarter.

This year, we also created Novartis Business Services, on slide 17.

This is going to become increasingly important in a currency -- the kind of environment that we have, from a currency standpoint.

NBS has made very good progress, so we have a new cross-divisional structure in place.

This group held their costs flat versus year-ago in 2014 versus the prior year, and we got some additional top-line synergies through the Customer First initiative, where we go to market as one Company, and we do things like combine generics with some of our innovative drug offerings.

Now, I'd like to turn it over to Harry to talk about the financials in more detail.

Thank you, Joe.

Good morning, and good afternoon, everyone.

Before we dig into the numbers, I would like to show you how we delivered on our guidance.

On slide 19, you can see that 2014 was a good year from an operational perspective, as we met every criterion of our guidance, which we refined during the year, including group sales and core operating income as well as sales growth from pharma, Alcon, and Sandoz.

If you turn to slide 20, you can see a summary of our performance in the fourth quarter and full year.

As a reminder, when comparing our performance with the prior year, we are comparing to 2013 figures, excluding our divested blood transfusion diagnostic unit.

This is consistent with how we report our Q2 and Q3 results.

Novartis delivered solid sales growth, with strong core leverage in the fourth quarter and the full year.

In constant currencies, net sales were up 4% in quarter 4 and core operating income was up 9%, driven by the sales performance and the continued impact of productivity programs.

In the full year, net sales and core operating income increased by 3% and 8%, respectively.

Net income also improved substantially by 19% in constant currencies in the full year, benefiting from the exceptional gain from the sale of our 22% Idenix stake to Merck, which I mentioned last quarter, as well as divestment of our LTS Lohmann shares in the fourth quarter.

Free cash flow was much stronger in the full year, reaching $10.8 billion, an increase of 12% or $1.2 billion US dollars, compared to the prior year.

I'll give you more detail on free cash flow later.

On slide 21, we show our usual breakdown of top-line performance, which demonstrates the strength of the underlying business and the portfolio rejuvenation.

If you go step by step, we achieved 7% of underlying growth, driven entirely by volume, as pricing was flat.

This more than offset the generics impact of negative 4% at group level, or about $2.4 billion, mainly from the loss of exclusivity of Diovan and [Zometa Aclasta] and the currency impact of a negative 2%, resulting in the US dollar growth of 1% on sales.

You'll see a similar but, again, more pronounced story on core operating income, where the higher sales and our productivity initiatives across all divisions drove an underlying growth of 22%, more than offsetting the low price effect of minus 1% and the effect from generics of minus 13% in core operating income.

The minus 5% on currency impact takes us from a constant currency growth of plus 8% to US dollar growth of plus 3%.

Turning to slide 22.

I'm especially pleased to report that our productivity programs and consequent resource allocation are delivering a margin improvement of 1.2 percent points in 2014 in constant currency.

With core operating leverage in quarter 4, we have delivered core margin expansion each quarter this year.

It is also worth noting that all divisions are improving margins, showing the broad base of this improvement.

Pharma and Alcon were the key contributors.

Pharma grew sales by 1% versus prior year, but was able to grow core operating income by plus 4% with the announced restructuring programs, together with other productivity initiatives, generating a 1.1 percentage points improvement in core margin.

Alcon grew sales by 6% and core operating income by 8%, resulting in 0.6 percentage point margin improvement in constant currency.

Sandoz contribution to the improvement in group core margin was small, as Sandoz was impacted by high price erosion.

The smaller divisions, including consumer health, grew core margins strongly from higher sales and good attention to cost but made a smaller contribution to the group core margin overall.

Now on slide 23, the improvement in group core margin was driven by lower functional costs, mainly in R&D and M&S.

As a percentage of net sales, core R&D expense decreased by 0.6 percentage points in constant currency, and core marketing and sales expenses decreased by 0.8 percentage points in constant currency.

The decline is based on strict resource allocation to ensure cost discipline, despite continued high investment in promising pipeline projects and key product launches.

These improvements reflect our intense focus and emphasis on operational excellence.

Group core G&A also decreased by 0.2 percentage points.

With the setting up of Novartis Business Services, we aim to further decrease G&A as a percentage of sales.

But more on NBS later in my presentation.

On slide 24, you can see what core operating margin is for continuing operations versus the total group, based on 2014 performance.

Despite the fact that continued operations do not yet include sales from the GSK oncology portfolio, our core margin from continuing operations is 250 basis points higher than the current portfolio.

Please note that the margin for current portfolio includes a 0.2 percentage point benefit from the [cessation] of depreciation.

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

below the operating income line.

On slide 25, we turn to currency.

Let me first deal with 2014.

As we guided in our quarter 3 presentation, the impact on the top line for the full year would be negative minus 2% and on the bottom line would be between minus 4% and minus 5%.

Not surprisingly, with the actual exchange rates in quarter 4, we are at the upper end of that guidance for core operating income.

This is due to a significant strengthening of US dollar in quarter 4 against all key currencies.

Nonetheless, the full-year 2014 impact remains minus 2% on the top line and minus 5% on the bottom line.

Now turning to 2015.

If mid-January exchange rates prevail for the remainder of 2015, the currency impact for the full year versus 2014 would be 7 percent points on net sales and minus 12 percentage points on core operating income from continuing operations.

This currency impact results, again from the significant strengthening of US dollar against most currencies, especially during the fourth quarter of 2014.

Early January, the currency impact was minus 7 percentage points in sales and minus 8 percentage points on the core operating income.

The mid-January appreciation of the Swiss franc has worsened our currency impact in the core operating income by minus 4 percentage points, which is included in the negative 12 point impact, since Switzerland represents about 13% of our operating expenses.

However, the Swiss franc impact on net sales is minor, as Novartis only generated about 2% of its net sales in Swiss francs.

We expect the negative currency impact to be more pronounced in the first nine months, as the strengthening of the dollar was most notable in quarter 4, 2014.

Now, let's move to slide 26.

Given the currency may have a significant impact on 2015 reported US dollar numbers, I would like to give you some more background and explanations on how Novartis is impacted by currency movements.

The table on the left side shows the currency structure on our continuing operations sales and operating expenses for selected major currencies as they are also published in our annual report and SEC Form 20-F.

This can be used as a basis to estimate the currency impact.

Let me walk you through the Europe line step by step as an example, assuming January 16, 2014 exchange rate was applied for the entirety of last year's currency structure.

As of January 16, the euro depreciated by minus 12 percentage points to US dollar, versus the average rate in 2014.

The 26 percentage points represent a share of sales we generate in Euros.

And combining those two values leads to an impact on continuing operation sales of minus 3 percentage points from the Euro.

Applying the same logic on our share of operating expenses adjusted for the net sales in the Euro zone, the impact on operating income would also be around minus 3 percentage points.

You can also see the respective impact from depreciation of the Japanese yen and the Russian ruble against the dollar.

Interesting is the effect of the Swiss franc.

As you can see, in the line which says January 8, which is before the Swiss National Bank announcement to unpack the Swiss franc from the Euro, our high Swiss franc cost base was providing a natural hedge for our euro exposure and operating income.

The recent unpacking has removed this effect and, as described earlier, increased the currency impact.

This slide is illustrative only and details the impact of the selective currencies.

Of course, there are other currencies, and they may also have an impact on our results, but I hope this helps you better understand the currency structure as we also display it in our filings.

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

As expected, our recovery of free cash flow continued in the fourth quarter, and we ended the year with $10.8 billion US dollars of free cash flow, $1.2 billion above the previous year.

The increase was driven by strong operating performance, including exceptional gains from Novartis Venture Fund, despite negative currency effects.

The strengthening of the US dollar in quarter 4 generated, also, significant hedging gains, while investments in intangibles were somewhat higher in 2014.

Moving to net debt on slide 28.

You can see how net debt decreased from $8.8 billion at the end of 2013 to $6.5 billion at the end of this year of 2014.

This was mainly due to our strong free cash flow of $10.8 billion as well as proceeds from divestments, including divestment of the blood transfusion diagnostic business in January of 2014, and from options exercised related to our employee participation programs, partly offset by our dividend payment of $6.8 billion and our share purchases of $6.9 billion.

Now turning to 2015, beginning with the dividend on slide 29.

As Joe already mentioned, we are proposing a dividend of CHF2.60 per share, up 6% in Swiss francs and up 7% in US dollars.

This marks our 18th consecutive dividend increase.

The compound annual growth rate for the dividend is 10% in Swiss franc and 13% in US dollar.

This reaffirms our commitment to a strong and growing Swiss franc dividend.

The payout ratio was 71% of net income, assuming mid-January exchange rates.

Starting on slide 30, I want to present some insights on our outlook for the full year 2015.

Let me remind you that this outlook is for continuing operations in 2015 versus continuing operations in 2014 and is in constant currencies.

As you know, we divested our animal health business to Eli Lilly in January 1. We expect to close our transactions with GSK in the first half of 2015.

However, for modeling purposes only, we assume that our transaction with GSK will close on March 31, 2015.

With this, we expect our net sales to grow mid-single-digits in constant currency.

As in 2014, we're expecting further core margin improvement in 2015 in constant currencies, with core operating income expected to grow ahead of sales at high-single-digit rates.

Pharmaceuticals and Sandoz sales both growing at mid-, and Alcon growing at mid- to high-single-digits.

As mentioned, this outlook is based on the forecast assumption for modeling purposes of closing the GSK transaction by March 31, but would still hold if the transaction were to close at the end of June.

With respect to core margins, I thought I would take this opportunity to explain some of the positive and negative margin drivers for our continuing operations, none of which should come as a surprise.

We are now on page 31.

The clear positive margin drivers in 2015 are the portfolio transformation, mainly impacting [half two], the pharmaceuticals growth products, the full-year impact of the 2014 restructuring initiative, ongoing productivity programs, and NBS.

I expect it to be positive for our core margin.

I will come back to NBS in a minute.

Against this, the impact of generic competition, more in half one; the launch and pipeline investments, for example, in Cosentyx and LCZ; and of course, currency are expected to be negative drivers.

But overall, it's really a positive margin story in 2015.

A few comments on NBS on slide 32.

Novartis Business Services is fully operational in 2015.

Through streamlining and consolidating functions, optimizing the geographical footprint, leveraging our scale across divisional coordination, we expect to maintain the [addressed] cost base flat.

With the scope of about $5 billion in spend in 2015 and holding costs flat, we expect Novartis business service to contribute to margin improvement in 2015, which is included in our core operating income guidance.

On slide 33, I want to summarize the core margin movements, as it is somewhat complex, given the portfolio transformation and the currency movements.

This chart is illustrative, to walk you through the building blocks, and not to scale.

Overall, we expect an improvement in core margin between reported total group 2014 core margin and 2015 continuing operations core margin, despite the currency impact.

This is driven first by the portfolio transformation transaction, which will focus Novartis on our three leading divisions; and second, by the expected operational core margin expansion on a continuing business and constant currency, due to core operating income growing faster than sales.

Assuming mid-January 2015 exchange rates prevail for all of 2015, currency would reduce the overall reported improvement in margins somewhat.

In a nutshell, we expect the overall core margin to improve.

With that, I will hand over to David.

Thank you, Harry.

Our pharmaceuticals business delivered constant currency sales growth.

And as you see, core operating income grew well above the top line, in large part from restructuring, a continued focus on procurement, as well as reallocating resources and getting our manufacturing base in a better place.

Now, I think it's worth taking a deeper look at sales to see exactly the components of our underlying revenue.

In particular, on page 36, you see now that our growth products represent 43% of division sales.

This gives us one of the youngest and healthiest on-market portfolios among the big pharma companies.

On page 37, we put the dynamics of our product launches, offset by generic erosion, into perspective over a four-year period.

And what you see is that, during the course of 2014, we absorbed the biggest generic impact in our history.

Importantly, we were able to launch enough new products and do so well that we're able to continue to report constant currency sales growth.

Part of the growth story is also on page 38, where you see we made a decision a few years ago to further invest in emerging growth markets.

Those emerging growth markets now represent 26% of our business and have grown from a 6% growth rate in 2012 to an 11% growth rate in 2014.

Looking forward to the 2015, we would say that growth is likely to be a bit lower, particularly given geopolitical risk and the impact of oil on some of these economies.

Turning now to the next page, we see a familiar slide, which is our unparalleled growth platform with exclusivity until 2018 and beyond.

Gilenya is now the biggest product in this growth category, with 30% full year growth.

I'd also like the to move you down to the bottom of the chart, where you see our respiratory franchise, initially anchored by Xolair, which also grew 30% for 2014.

But just as importantly, the launch of our three inhaled products: Onbrez, Seebri, and Ultibro, while being very recent launches, now reaching almost $0.5 billion in revenue for our Company, up 93% versus the previous year.

Now let's spend a few minutes on a few of these brands, as well as a few of the near-term pipeline assets, starting with Gilenya, on page 40.

What you see is the 30% growth for the year as well as a 32% growth during Q4, now with over 114,000 patients treated to date with Gilenya worldwide.

In a number of the markets ex-US, we have number one value share in this market segment.

On page 41, we take a look at Lucentis, where we now see that the new indications have become a blockbuster in their own right.

Growth for full-year was up 5%, while only 1% in Q4, as we saw one of the competitors enter the DME market.

And we saw continued pressure from the use of off-label Avastin.

On page 42, we see that Tasinga is now accounting for one-third of our CML franchise.

It was up 24% for the year, and 30% in Q4.

In the US, growth is mostly driven by increased usage of Tasinga in first-line CNL patients, which is very good news.

We also continue to report data which shows that patients do not progress as quickly on Tasinga as they do with Gleevec.

On page 43, you get some insights as to why our respiratory franchise is growing so well.

In particular, Ultibro, which is the combination LAMA LABA product which is launched in ex-US markets, is off to a very strong start, with market shares between 4% and as much as 7% in some of these markets.

Franchise growth for the full year, as well as for the quarter, was roughly 94%.

We also, during late December, completed our submissions to the US FDA for both Seebri and Ultibro, and would expect an approval in the very end of 2015.

For Jakavi, on page 44, you see really excellent growth of 72% for the full year and 94% for the fourth quarter.

Importantly, we received now a positive CHMP decision in polycythemia vera, which should result in a launch in the new indication in the second quarter in the EU, which should drive additional growth.

We believe the target patient population in myelofibrosis, as well as PV are roughly the same size.

On page 45, I share with you also a new approval for a medicine called Signifor, the long-acting release form for the treatment of acromegaly.

We currently sell our product called Sandostatin LAR, which had $1.6 billion in full year 2014 sales.

A large number of these patients do not get full control with use of Sandostatin or one of the competing therapies.

Signifor will give these patients a new opportunity to get their disease under control and should add a few hundred millions of dollars to our overall somatostatin analogue franchise.

Now for some of the really exciting products, starting on page 46 with Cosentyx.

Things are going very well with Cosentyx.

As you can see, we were able to receive a Japanese approval, a European approval, and a US approval, roughly all back-to-back.

Which means, we get to launch in all those three key markets at the same time, unlike most drug launches, both in our Company as well as for the competition.

In psoriasis, Cosentyx is highly differentiated in the marketplace with superior efficacy, now shown versus Enbrel as well as Stelara; sustained response; a favorable safety profile; and a monthly maintenance regiment.

What's not anticipated, or I should better say, appreciated by most, is the size of the market opportunity.

Psoriasis is a disease that is still not well-treated.

Dermatologists historically have settled for 75% improvement in the quality of skin for these patients.

Now, with the anti-IL17s and Cosentyx in particular, the vast majority of patients can get clear to almost clear skin, which means they can go back to work and not have to deal with some of the pain and disfiguration associated with their disease.

The market segment, just for the use of biologicals in psoriasis, is almost $6 billion, based on an October moving annual total estimate.

And that market is growing at 22% per year.

So you can imagine why we're so excited about the opportunity.

And if that was the entire opportunity, one might be satisfied.

But the reality is, this is just the beginning of where the anti-IL17s may take us.

We're currently striving to be the first Company aiming to have three indications in our label.

And as you can see from the data on page 47, looking at the upper left-hand corner of the chart, you see the very, very nice responses in psoriatic arthritis, which will form the basis of a filing early this year, as well as the truly excellent responses in ankylosing spondylitis, where there are not many options for these patients.

When one adds the three categories together, these three diseases together, the market today is already well over $10 billion and also growing at roughly 22%.

As a result, Cosentyx has the opportunity to become a multi-blockbuster therapy.

Now, on page 48, I'd like to take a moment and just update you on LCZ696, our product that will be initially labeled for reduced ejection heart failure.

What I can say here is that discussions with the regulators are going very well.

The European Union as well as Swissmedic has granted an accelerated review.

In the case of the EMA, this is the first time an accelerated review has been granted for cardiovascular therapy.

We submitted in mid-December in the US, and within 60 days of the submission we should hear from the US FDA whether or not an accelerated review is possible.

Should they grant an accelerated review, one would expect a labeling decision or an approval in August of this year.

Importantly, we continue to generate additional data and publications.

And the more we look at the data, the more excited we get about the opportunity to reverse the negative impact of chronic heart failure.

Take a look at the left hand side of the chart there, and what you'll see is there was a 20% reduction in sudden death.

Even more importantly, is to look at the number of patients who actually succumbed from their heart stopping.

It's marked.

The challenge we will face and, I think, the opportunity for changing the treatment paradigm with this disease, is to help physicians understand that when a patient comes back to their office, just because they may look well and may not have any complaints, they're all silently progressing.

And the first symptom they may have may be that their heart stops to work.

And LCZ substantially reduces the likelihood of that occurring.

I'd like to now wrap up on page 49 with our expected news flow for the year.

Once again, it's a very exciting outlook, as our R&D engine continues to develop.

In particular, we already had good news in three areas this year with Cosentyx's approval in Europe and in the US, as well as the positive opinion on Jakavi in polycythemia vera.

In addition, we're looking forward, in the first half, to hearing about the new formulation of Exjade in the US, which will replace a very difficult to take dosage form.

In addition, we will be filing Cosentyx for the new indications, and we expect to hear from the CHMP for Zykadia in ALK positive non-small cell lung cancer.

In the second half, we will be in a position to both share data as well as to submit our first PI3-kinase inhibitor for the treatment of breast cancer, a new product for the treatment of basal cell carcinoma, as well as to hear from the FDA and from the European Union on LCZ.

Last but not least, by the very end of the year, we would anticipate hearing back from the FDA on QVA and NVA.

So a busy but exciting year as we continue to innovate.

And now, back over to Joe.

Thanks, David.

Just to summarize, I think 2014 can be characterized as a good year for Novartis; good financial results, one of the best innovation years that we've had in a while.

But even more importantly, focusing on that portfolio transformation.

2015 is going to be all about execution.

So first and foremost, it's delivering the numbers and not letting some of the other things get in our way; strengthening the innovation pipeline, so you will see us add to that pipeline; as well as completing the portfolio transactions, including the integration and separation of those businesses.

We're going after more cross-divisional synergies, particularly with some of the foreign exchange headwinds and also building a high-performing organization in the area of quality and in compliance.

So that sums up the year, and I'd be happy to take questions.

Thank you.

(Operator Instructions)

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

Please go ahead.

Hi.

Thanks very much for taking my questions.

First question on marketing and selling margin improvement: You've obviously shown 80 bps, as you've highlighted, in 2014.

Just wondering how much more you can do on this, going forward?

And I'm thinking beyond 2015 there.

And really, at what point do you think you're going to start affecting your competitiveness?

It would also be useful if you can discuss whether you see the improvement -- potential improvement -- going forward, coming from pharma, or whether Sandoz and Alcon can contribute over the next couple of years?

Second question -- just on BKM120 -- as you look out to the data in the second quarter, where do you think this is going to fit in the treatment paradigm of breast cancer, given the potential also by the CDK4/6s -- so, [pablo] and LEE011 from your pipeline?

And finally, a question on generic Rituxan: Looking at clinical trials, it appears the end points -- the ORR end points is at 24 weeks.

So, could we potentially see data on this at ASH in 2015?

Or should we think of waiting until 2016 ASH just before a potential launch?

Thanks very much.

Okay, Richard.

Starting with M&S, I do believe that the progress that we showed this year was very important because, as you know, we had critical launches in pharma.

But also, we were launching in Alcon, the Centurion, as well as a number of other important launches.

I do believe that beyond 2015, it's probably going to be lumpy; it's not going to be a straight line.

But there is more room here for margin enhancement, particularly as David and his group shift more towards specialty medicine; specialty is down closer to the low 20%s.

And also, as Alcon continues to grow the top line, Jeff and his group are looking at maintaining or slightly growing M&S, but growing it at a slower rate than sales.

So, I think, trend line, you could see that M&S is going to be a source of margin, but it's not going to be every year.

We've got some big launches coming up in 2015.

Regarding BKM -- David?

Yes.

So, BKM (inaudible) is a pan PI3-kinase inhibitor.

And we're investigating it in breast cancer, primarily.

In the first trial, (inaudible) with Fulvestrant -- in a Phase III trial, ER-positive, HER2 negative advanced breast cancer.

We also have a second trial where the drug's being studied in -- [they were all missed] failures.

So, it fit into our failures.

Last but not least, there's the opportunity -- and we have the Phase I going now, in combination with the CDK4/6 inhibitors.

So, a lot depends upon the overall efficacy level, exactly where it's going to play.

And we'll un-blind in the second quarter.

And as I said, certainly by early second half you'll hear about it.

Richard, on generic Rituxan, you can imagine that the whole biosimilar space is amazingly competitive right now, in terms of legal strategy.

So, we're not going to comment other than to say that we are in a Phase III.

Sure.

Thank you.

We will now take our next question from Matt Weston from Credit Suisse.

Please go ahead.

Thank you very much.

Three questions, if I can.

The first, on Novartis Business Services: I note from the slides you highlighted a cost base for NBS in 2015 of $5 billion.

Joe, I think I recall you referred to $6 billion as the combined cost base when you launched NBS in mid-2014.

Can you confirm that's the case, and is that an indication that, effectively, you're looking to save $1 billion in the first year?

And then, a subsequent question: How much in total of that cost base do you think can be saved over time?

Secondly, around cash returns to investors: Harry reiterated the commitment to a strong and growing Swiss franc dividend.

How should we think about the share buyback in the light of currency moves and the share price increase?

And then, finally, a pipeline question: RTH258 -- the ESBA Tech compound -- I see it moved to Phase III.

The text in the release mentions positive Phase II data versus both Lucentis and Eylea.

Can you just give us some more information there?

Did it show superiority to Eylea in the Phase II study?

And when are we expected to see that data?

Thank you.

Thanks, Matt.

Regarding NBS -- yes, the slide shows that the cost base is $5 billion, and I had said $6 billion.

The cost base on NBS is going to continue to increase over the next few years, as we fold more and more responsibility into that unit.

So, we started with a manageable amount of functions -- financial reporting and accounting, procurement, a number of other groups.

And as NBS has their organization structure laid out, we're going to continue to add.

So, don't misread the $6 billion versus the $5 billion as $1 billion in savings.

Think about it as $5 billion is going to go to $6 billion is going to go to $7 billion under the purview of NBS.

The way to think about NBS savings -- in terms of the long-term potential -- as we grow the Company over the next five years, if NBS could just hold our cost base flat by taking cost out in some areas as we reinvest in other areas, that's going to be highly margin-accretive to Novartis.

And so, we're thinking about NBS as a facilitator for margin growth in the Company.

But we're also not talking about slashing and burning, because we've got some very important launches.

The long-term success of this Company is still going to depend on innovation and growth.

And so, we're going to fully fund those growth areas, and we're going to do it by taking cost out of NBS.

So, if you think about flat costs and the margin accretion that that could create as the Company grows, I think that's probably the best way to think about it.

Harry, on the share buyback?

Yes.

Overall, in terms of return of cash to investors, you have seen two elements of that in my slides on page 28.

We bought shares back for $6.9 billion, which is about $2.4 billion from our overall two-year, $5-billion share buyback program.

But it was also a big option exercise, and we have bought back all these shares, and now a commitment to always mitigate impact from employee participation programs.

So, from the total $5 billion, we continue.

So, my expectation is that, also in 2015, we will buy about -- $2.4 billion is the remaining of the $5-billion program.

And we also have an intention -- but we don't give exact timing -- on mitigating employee participation programs as well.

So, you have seen, also, on page 28 that we announced -- and it's our proposal through the AGM -- another strong Swiss franc and US dividend increase.

Our dividend policy continues to be a strong and growing dividend in Swiss francs, and that will continue to be our focus.

So, Jeff, RTH?

Yes.

So, on RTH258, which is the compound formerly known as ESBA 1008, is the novel single-chain antibody fragment that we're really excited about in the treatment of wet AMD, as a follow-on, next-generation product in this space.

In December, we did initiate Phase III clinical trials to evaluate the safety and efficacy of RTH versus Eylea.

There are two studies in our Phase III clinical program.

We had our first patient, first dose in mid-December, and we aim to enroll about 1,700 patients.

We're going to be presenting the second Phase II.

We had two pivotal Phase II studies -- one versus Lucentis; one versus Eylea.

The data that we haven't released yet will be presented at the 38th annual Macula Society meeting next month, where we'll be able to share a bit more regarding the profile of the product, and its dosing frequency advantage, and the longer duration of action that we're seeing with that product, and why we're excited about it.

Great.

Next question, please.

We will now take our next question from Michael Leuchten from Barclays.

Please go ahead.

Thank you.

It's Michael Leuchten from Barclays.

Three questions, please.

One -- again, going back to the foreign exchange.

From your perspective, given the moves in currencies we've seen, is there any need for structural changes in your cost base, outside the scope that you were looking at previously?

And in particular, looking at the implementation of NBS, does the currency move require some change in the set-up structure there?

Secondly, a clarification question for Harry: In terms of your slide 30 -- the guidance from a growth rate perspective -- when you say pro forma, is that adjusted, so like-for-like including the Glaxo oncology revenues in 2014, from which pro forma base you then guide for growth?

Or is it excluding those revenues, and then including those for 2015?

And then, the third question for David: On LCZ, last time you spoke on that asset, you were talking about potential trials focusing on the weaning of patients off the [ace] inhibitor Enalapril onto LCZ to make the physician's life easier, and make them help understand how to take patients off and on to LCZ.

Can you provide any update on those studies, please?

Okay, Michael, regarding the FX and the moves -- yes, since FX has worsened, we're looking at ways that we can structurally accelerate some of the plans for Novartis Business Services.

And part of that is that, obviously, we took a big whack when the Swiss National Bank un-pegged the Swiss franc from the euro.

And so, we're taking a hard look at our Swiss cost base.

But obviously, we have to look globally.

It was -- thank goodness we had set up Novartis Business Services last year in 2014.

Now we have a good organization in place.

So, what we're doing is we're going to work, now, looking at ways to accelerate structurally that organization towards the outcome that we had thought we would do, maybe on a longer-term basis, and maybe incurring a bit more risk in terms of moving to hubs quicker than we thought we were going to.

So, there are many things that we're considering right now.

But to answer your question directly -- yes, we are taking hard and decisive action around mitigating the FX, because it is an issue for us.

What I don't want to do is I don't want to sub-optimize the launches.

So, we have got to launch LCZ and Cosentyx and all the other launches with full spending, so that we get peak sales in future years for the Company.

And then NBS's role is going to be help us offset the FX issue.

Harry?

Yes.

So, just to clarify, on continuing operations, we assume the GSK oncology business to barely start to be part of continuing operations as of April 1, 2015.

And there's a modeling assumption -- some people speculated: Oh, now they say they will close there.

We continue to expect to close in the first half.

But like [we did] with Diovan mono, we just put in a modeling stake in the ground, so that there is better alignment, also, on the analyst models.

And also to take this opportunity to clarify a bit -- if you go to page 13 of our press release, that shows you exactly what continuing operations is.

I know you know, but some others had questions -- what does it really include?

It is pharmaceuticals, Alcon, Sandoz, and then the [continuing] part of corporate.

So, that is exactly what will be the 2014 base from which we have guided.

We have called it pro forma because of 2014 -- we have a different reported base.

And of course, also in 2015, from this modeling assumption, there will be a quarter of OTC, a quarter of vaccines, and 12 months of flu, which adds to -- in the reported way -- to the continuing operations.

One thing to add, also, is: As you look into core EPS modeling -- as I said earlier, we continue the share buyback.

That's roughly 1% of our share base -- the $2.4 billion.

As well, what is not in our core operating income guidance is, of course, our 36.5% share of the OTC joint venture, which come into our P&L below operating income as income from associated companies.

And David?

Good.

In terms of LCZ -- there's really three components of our program.

The first is what you mentioned, which is: We're looking to see if there is any other regimen that would make it easy for patients to start on LCZ.

Remember: During the Phase III trial, actually, most patients experienced no problem.

But we can now look at whether or not dose escalating, for example, a little bit more slowly makes a difference.

You'll see the data before we launch.

In addition, we have a Phase III program under way in preserved ejection fraction, which we're very excited about.

And then we're starting discussions with a number of investigators who are very interested in the positive renal and liver effects that this drug is generating.

And we're beginning to think about where else we could take this medicine in the future.

Thank you.

Next question, please.

We will now take our next question from Jeff Holford from Jefferies.

Please go ahead.

Hi.

Thanks for taking my questions.

Just first off, on Alcon, we're seeing a great recovery in the growth there.

Just wondering if you can talk to how sustainable you think that is, and what a long-run rate of growth you would envisage that business into the mid-term might look like?

Is it similar to what you see in 2015?

Then, secondly, just help us a little bit on the core EPS side.

Are there any factors you want to flag between core operating income and EPS, such as other income or the tax rate that we might need to consider in our modeling?

And then, just lastly, I wonder if you could just comment strategically on what the business development priorities are within pharma?

Thank you very much.

Jeff?

Yes.

So, Jeff, we're taking it quarter by quarter at this point.

We're pleased with the last couple quarters of performance -- getting double-digit bottom-line growth and mid- to high-single-digit growth coming in at 7.5% in Q4.

I think, in terms of the drivers on that, I'm pleased with the continued acceleration of our surgical business, which grew 7%, as Joe mentioned, in 2014 --really on the back of a very strong Centurion launch, as part of our cataract refractive suite.

And that's having a nice pull-through effect, not only on IOLs where we've been struggling, I think, the few quarters before -- and we're seeing good volume growth bounce back with that -- but also really on consumables, equipment paks, the whole suite of products that we surround our surgeons with.

We also, on the pharma front, are seeing improving performance, which helps with margins from a mix perspective.

Pharma was up 10% in Q4, and we're seeing accelerating performance in our glaucoma business.

Keep in mind, we're number one in that business globally, with about $1.5 billion in sales.

I've been pleased with that, coupled with the opportunity in dry eye, where we continue to see Systane growing at about 25%.

So, while we do face headwinds in 2015 in the form of about 1.5 points of loss of exclusivity due to generics that hits our growth, I feel good about the momentum that we're seeing in surgical.

Pharma is improving.

Work to do on vision care, frankly, to improve our contact lens care business, because our contact lens business is doing very well.

But the solutions business has dragged that business down to 4% growth.

I think, all in all, good momentum, but early days.

Okay.

Harry, core EPS -- any factors to flag?

Yes.

Thank you, Jeff.

As I mentioned before, JV income -- our share of that.

So, as I mentioned, Jeff, beforehand, the OTC JV income -- 36.5% -- continued share buyback, reducing the share count, on the one hand.

And then our -- as you have seen, our core tax rate has been slightly above 13%; not much, at 14.0%.

I see that as sustainable.

Couple of basis points up or down, fine; but overall, sustainable.

And from that standpoint, we had some hedging gains on the operating income side -- in the range $50 million, $60 million.

That may not be repeatable.

But in the overall context, not many moving pieces.

And, David, business development?

So, three components to the approach: One is to build more depth in the key franchises, just as we did with the GSK deal.

Second is to go after other game-changing therapies, as you saw when we signed the University of Pennsylvania deal around cell and gene therapy.

Last but not least, we are starting some efforts in the area of digital medicine.

And you saw that we signed and created a new joint venture company with Qualcomm last week, which will bring to us the digital technologies we believe we need to surround our medicines with, in order to improve patient outcomes.

Thanks very much.

Next question.

We will now take our next question from Tim Anderson from Bernstein.

Please go ahead.

Thank you.

So, as you headed into 2015, I'm wondering if you saw -- in the US -- any price compression across any categories?

And on that same line of questioning, in multiple sclerosis, some people think that's a category where you will eventually see price compression kind of like we've seen in respiratory and diabetes.

I'm wondering if I could get your perspective on those two questions?

And then, on biosimilars and the recent good news at FDA on Filgrastim, I'm hoping you can provide an update for how things evolve from here, in terms of what's really next?

Payer discussions -- have you initiated those?

What would be the marketing plans?

What divisions within the Company are going to market the biosimilar, and any other details that you can share?

Okay.

Starting with US price compression -- David, why don't you start?

Yes, I think the general environment around the world -- including the US -- is a continued march towards getting more value out of the healthcare spend, and medicines in particular.

And that puts continued pressure on prices, particularly when there's a therapeutic equivalent.

And now you're seeing that in the hepatitis C market, in particular.

We have not noticed, in our portfolio, any kind of step change across any of the categories in which we participate in, but just that slow, steady increase in pricing pressure.

Okay.

On biosimilars, I'll start, and Richard can jump in.

But across the divisions, obviously, we have a lot of capabilities that will be used to launch, not just the first biosimilar in the US, but what comes next.

So, think about this as close collaboration between the divisions, but with the primary responsibility resting in Sandoz.

And Richard can talk more about -- if you want to talk more about Filgrastim and what the plans are?

Thank you for the question, Tim.

Obviously, we're very excited with the potential of Filgrastim, and we're very pleased that the FDA Advisory Board unanimously voted 14 to 0 in favor.

We've been preparing a long time for this launch -- over a number of months, if not years.

Obviously, we're looking at all the key components of any launch, as a biosimilar is a new area that we're moving into in the US on this side.

We're very confident about where we are right now.

To go into detail about how we're going to do that, with regard to payers and our marketing and our sales force, I think, would open us up to competition.

So, unfortunately, I won't go into detail on that.

And you're aware of the litigation that's going on.

The BPCIA, really, is a pathway that is being blazed, I think, right now in terms of clarification.

And Filgrastim will do that, and I think that will benefit us down the road, as we launch additional new biosimilars into the US.

Thank you.

Next question, please.

We will now take our next question from Graham Parry from Bank of America.

Please go ahead.

Thanks for taking my questions.

Firstly, for Harry, what productivity improvements are being assumed in 2015 guidance?

I think you referred to 5% of sales being delivered in 2014.

And any dollar savings number you can give us from cost avoidance at NBS being assumed in the guidance?

Secondly, given reported guidance, including January FX rates, assume sales roughly down 2% to 3%, and operating income 3% to 4% down.

On a reported basis, is it fair to assume reported continuing core operating margins would be flat to down; so, essentially, currency wipes out your margin benefit?

And then thirdly, a question of the basis of reporting once deals are closed: The main core measure that you focused on prior to deal closes included consumer and vaccines.

The guidance is now on a core continuing basis, so should we expect that to be the focus for core reporting post deal close?

And then one just final general question, for Joe: Express Scripts has been vocal about going after oncology pricing.

Any general thoughts of that, in a world of generic Gleevec from 2016, and do you see any risk to [Tasigna] pricing or the product being pushed into second-line step therapy?

Thanks.

Okay.

Harry?

Yes.

So, on productivity, overall, you have seen the different pieces.

We have delivered record high procurement savings this year; Joe alluded to that.

We have set up NBS, which is now productive.

So, I expect that, also, with our strong will to offset FX effects as much as we can without compromising on our Business and launches, that actually productivity will go up from here.

And then, on the currency margin -- overall, of course, currencies are fluctuating every day, as we know.

The guidance that we are setting this up is from continuing operations, as I mentioned earlier.

And if you think about it, also from the contribution of the discontinued operations, which you can see on page 14 of our press release, on core operating income has been roughly $140 million in 2014, which is basically the cessation of depreciation effect.

So, even if you now put in a quarter of OTC and vaccines -- kind of offsetting it -- a small loss on vaccines in quarter one, some gain of OTC in quarter one -- then we own flu for the full year.

That's roughly $100 million, $150 million of loss in that range.

You can model out the full reported on the core operating income relatively easily, assuming this March 31 modeling assumption for the GSK deals.

So, I think, overall, by focusing on continuing operations, it's easier for everybody to model.

And I think it's the appropriate way to guide you on.

And, David, on oncology pricing in the US?

Yes.

I think there will be increased pressure on oncology prices, particularly as you see new immuno-oncologies coming into the market at a fairly high price, and the fact that we're going to increasingly see combinations -- two or even three products being used together in oncology patients.

And there needs to, thus, be a limit to pricing.

So, I fully expect, whenever a payer has good, therapeutic equivalents, they will put pressure on.

In the case of your question, specifically, about Gleevec, I've actually said before, I would not at all be surprised if payers around the world asked new patients to initially go on Gleevec because once it's generic, it's going to be extremely cheap.

But those who do not get a good response or have side effects will then rapidly be switched to a second-generation agent, and we're trying to make sure that that second-generation agent is Tasigna.

And in addition, as you know, in our pipeline, we have another drug called ABL001, which is meant to further add benefit for CML patients, and further extend that franchise.

Thank you.

Next question, please.

We will now take our next question from Florent Cespedes from Societe Generale.

Please go ahead.

Good afternoon, gentlemen.

Thank you for taking my question [from France, as this from Societe Generale].

Three quick questions.

First, on the respiratory: Could we have an update on your plans for the US market, given the pricing environment and the mix ramp-up of the products from your competitors?

Second question, on the new products -- the products that you will be launching this year -- the [Cosentyx] and LCZ.

How should we think about their ramp-up profile, given the fact that they address two very different populations?

And the last question, on multiple sclerosis: Following the [general] results in primary progressive MS, what is the probability to see BAF312 succeeding in secondary progressive?

And marginal question on MS -- what is your strategy beyond Gilenya?

Thank you.

Okay.

David?

Okay.

So, first, in terms of a respiratory update -- so, just to be clear -- it's sort of two worlds.

Ex-US, we're striving with Xolair, Seebri, and Ultibro to be one of the market leaders in respiratory medicine.

That's working, as you saw from our 2014 sales levels; and it speaks to the quality of these medicines and the differentiation.

In the US, the first chance for approval will be the back half of 2015; and as we've said before, we are talking to other companies about, potentially, whether it would make sense to do a launch of Seebri and Ultibro together.

But we haven't yet made a final decision about how we go to market.

But clearly, in the US, we do not have the same strength and market presence as we have in Europe, so we want to be cautious about not over-spending in a category that is promotionally intense.

In terms of Cosentyx and LCZ uptake, the launches in the US are such that they are impacted, ultimately, by how payers put products on formulary.

In the case of LCZ, this is a heavy Medicare population, so their patients are elderly.

And what that means is, we will not see a lot of formulary decisions during the first six months because Medicare won't be making a decision during the first six months.

So, we would expect a relatively modest uptake with LCZ.

And then going into the following year, once we get the Medicare reimbursement, then the other payers will start coming on.

You should then see acceleration.

Cosentyx is less -- because the patient population is younger -- is less impacted by the Medicare decision making.

And as a result, I would hope that uptake will be a little bit quicker.

On the other hand, with Cosentyx, there is a lot of competition.

And our strategy there -- because I've been asked a lot about how we're going to price -- is despite the best-in-class properties of the product, we're going to price largely on par with Stelara.

And that is meant to accelerate that market access of that brand.

And then lastly, in MS, you asked me whether or not -- what our thoughts were on the second generation, or the next product following up after Gilenya, and how that would do in secondary progressive MS, given that Gilenya did not show a statistical difference in primary progressive.

And what I heard in your question is, you're basically making the hypothesis that the lack of response in primary progressive means less likelihood of having a response in secondary progressive.

And that is indeed what key investigators tell us in the category.

So, I'm not making a big bet on the follow-up to Gilenya.

On the other hand, we have good data -- increasingly good data -- that the anti-IL17s are active in multiple sclerosis.

And in particular, we have a highly potent, next-generation agent, called CJM, which we are taking into multiple sclerosis and other indications.

Thank you very much.

Next question, please.

We will now take our next question from Kerry Holford from Exane.

Please go ahead.

Hi.

Thank you.

Couple of questions, please.

Firstly, if I can go back to NBS, just so I can understand the moving parts there.

You talk about the cost base being about $5 billion today, but growing over time as that team manages more spend.

So, is it reasonable for us to expect that cost base to show any decline from 2016 onwards?

You may increase the budget that they manage or work to reduce the underlying NBS spend back to something in the order of $5 billion over time?

Secondly, on Cosentyx, David, you mentioned the three different markets for Cosentyx.

Do you think these are all distinct from one another, or is there some overlap to be aware of?

And then lastly, I noted that the RA Phase III study gave you some mixed data.

Have you decided not to progress further with this just because it's less competitive in a very crowded market, or anything else in that Phase III study we need to be aware of?

Thank you.

Okay.

Starting with the NBS question, the $5 billion -- the way you should think about the $5 billion cost base and the increasing amount that they're accountable for -- it's coming out of the divisions.

So, if there's an additional $1 billion that they pick up, let's say, in 2016, it would be already in the cost base, just managed by the three different divisions.

So, it really is a cost shifting, and it will occur as the NBS unit gets up, and capabilities running.

I wanted them to focus most on where the big money is right now, which is in the big spends of the procurement organization, the financial reporting and accounting, and human resource transactions, IT.

There's a few very big chunks that they're going to go after in 2015.

And again, the way to think about it is, they're going to be reducing costs in some areas as we invest in others around the launches and capability building the launch.

So, you will see -- if they can hold our cost flat, obviously that would enable us, with the growth on the top line, to contribute quite substantially to margin growth.

Cosentyx?

A couple Cosentyx pieces: First of all, yes, there are three markets, and there is overlap between the psoriatic arthritis market and psoriasis.

About 30% of psoriasis patients end up eventually going on to develop systemic disease or psoriatic arthritis.

However, the financial figures I share with you are not overlapping.

So, we try to disaggregate them, so you can essentially add them together to understand the market opportunity.

In terms of RA, we did do a clinical trial in rheumatoid arthritis.

Cosentyx is active.

But there is -- as you point out, there's a lot of competition in rheumatoid arthritis.

And the profile was not compelling enough for us to invest further.

Having said that, there are other potential indications for Cosentyx or, more importantly, for CJM, which is a new, even more higher-potency anti-IL17.

And multiple sclerosis will be one of those indications.

But I suspect we'll have yet additional indications to talk about in the near future.

Next question, please.

We will now take our next question from Alexandra Hauber from UBS.

Please go ahead.

Thank you for taking my questions.

A couple on the guidance -- housekeeping questions -- and then some on Cosentyx and one on RTH.

So, the $2.5-billion generics exposure you gave for 2015 was quite a bit bigger than I thought.

Could you just quantify, please, for me what the contribution from erosion of international Diovan and Gleevec sales are in this number?

And also whether that includes the Alcon exposure on Patanase, Patanol?

Secondly, on Sandoz -- the 2014 base has a 2% to 3% base effect from the generic Diovan contribution.

Is that going to be similar in 2015, or is that the headwind against which you need to work on to get to your mid-single-digit growth?

Moving on to Cosentyx -- you indicated pricing in line with Stelara.

Now, there's different -- for Stelara, the high dose is the exception.

For Cosentyx, the high dose is going to be the rule.

So, when you talk about in line, is this high dose versus high dose, and low dose versus low dose, or average prices?

Because [that's] quite a big difference.

And also, in the past, you have given us some market data on the psoriasis market, indicating about 10% uptake of biologics among the target population in moderate to severe psoriasis.

Do you happen to have any market intelligence which describes, not how much the chronic [usage is] -- the 10% -- but what is actually the initial trial number?

And then, finally, on RTH: The Phase III -- can you please tell us what the dosing interval will be after the initial two loading doses?

And conceptually, whether you intend to differentiate yourself from Eylea mostly on a larger, longer dose -- a less frequent administration, or actually better efficacy?

Okay.

So, Alexandra, on your first question around the guidance, the $2.5 billion is a total group number.

So, that would include the Alcon genericizations.

And the way to think about the big chunks -- I'll give you three of the big chunks.

Diovan, obviously, because it had a holdover into 2014 -- that's about $1 billion off of the pharma business.

We've got Exforge that is gone in the US -- that's about another $300 million.

And Gleevec is about $300 million in other parts of the world.

So, that's a big chunk of that $2.6 billion.

And then you've got a laundry list of smaller numbers.

Richard -- on Sandoz?

So, yes.

If I understood the question correctly -- it was how much Diovan would be in 2015, driving that mid-single-digit growth?

The answer is very little really -- insignificant.

So, we'll be driving the business with the assumption that we won't have any Diovan in there.

We'll be driving that based on the growth that we've been seeing through our major markets -- in some of our major growth markets -- as well as the particularly strong performance we've seen in our biosimilars this year that we hope to continue and build on next year.

David, pricing notes?

So, on Cosentyx -- so, Alexandra, you're right.

There is a low dose of Stelara, and a high dose.

So, we did a blended average.

And just so you can model, we assumed that 55% of Stelara's use was the 45-milligram dose, and 45% was the 90-milligram dose.

Your questions for more detail on the market -- I don't have that data in front of me.

If you want to send me the questions, what we can try to do is see if there's any market research that might answer those questions for you.

And Jeff -- on RTH?

Yes.

Alexandra, just to -- maybe briefly on the Phase II, and then I'll go to the Phase III.

So, the Phase II study met its primary endpoint versus Lucentis, which was data we shared in Q3.

So, it showed non-inferiority, with respect to macular thickness, and then advantages with respect to dosage and duration of effect.

And we'll be presenting the second Phase II pivotal data at the Macula Society, as I mentioned, next month.

In terms of the Phase III design, we are looking for dosage superiority and better duration of effect.

We'll be testing that, basically, in a Q12 with a Q8 step-down regimen.

Okay.

I think we have time for two more questions.

We will now take our next question from Andrew Baum from Citi.

Please go ahead.

Hi.

Two questions, please.

Firstly, realizing revenue synergies, cross division, from the conversations I've had with industry executives -- including at Novartis -- it's not always as easy as it may appear, given competing incentives for the two divisions.

Obviously, you've got a couple of initiatives ongoing that you've spoken about, but there's going to be much more in the future.

What's your internal level of confidence that you can manage those commercial incentives to have everyone pulling in the same direction, rather than aligned to their individual product responsibilities?

And then second, with regard to Gilenya, you've had a couple of additional patents listed.

Could you just remind us, or has that changed your outlook, in terms of timing of generic entry for Gilenya inside the US market?

Thank you.

Okay.

Andrew, on your first question about cross-divisional synergies -- they are difficult to generate.

But we've got a number of years of experience doing it.

And now with the start-up of NBS -- one of the reasons why I asked Andy Wyss to run Novartis Business Services, which includes the cost side, but also the revenue-generating side, cross-divisional, is because he was an operating guy who knew what happened on the ground between these divisions and with the divisions because he ran the US for us for a long time.

We are changing the incentives for some of our key people to benefit from combining efforts to go after cross-divisional synergies on the revenue side.

And it's becoming increasingly important with some of our biggest customers -- not just in the US, but also in Europe.

And so, by changing the incentives, by creating monetary incentives for what you deliver cross-divisionally, and also with Andy's experience in doing this, and Andy driving it across the Company, I'm very confident that we'll be able to significantly increase that number.

And we'll provide some visibility to it as we get it up and running.

Gilenya?

Okay.

So, you asked about Gilenya, of loss of exclusivity.

Just to ground this in the dates, it's 2019 in the US.

However, in Europe and Japan, it is 2021.

There are opportunities to extend the dating for pediatric exclusivity, as well as additional -- in the US -- as well as additional regulatory data protection in Europe.

And I would urge you to focus on those, as opposed to additional patents.

Got it.

Many thanks.

Okay.

Last question, please.

We will now take our last question from Odile Rundquist from Helvea.

Please go ahead.

Yes.

Good morning.

Just a few quick questions.

Just on Alcon, I think, Jeff, you alluded to the long-term driver of Alcon.

I was just wondering, with [Jetrea] in there, would it be any big or even medium contributor that you can even break down the project within Alcon?

And then, just looking at your news flow table, two news flow for me that looks quite important -- just want to have some color on -- is the FDA action date for LBH in multiple myeloma.

I know that there was this extension.

Anything there -- color on that?

Also, the overall survival data from (inaudible) from Glaxo.

Also, any timeline there would be helpful.

Thank you.

Jeff, the Alcon question.

Yes.

With respect to Jetrea, Odile, look, it's been -- I think it's fair to say it's been below expectations of what we would have liked to have seen out of the gates for this product in VMA and VMT.

I think part of that's driven by the Phase III clinicals.

The patient selection didn't screen out patients with epiretinal membranes and large macular holes.

So, the efficacy was on the order of 25%, 30%.

I think, we are seeing good uptake of this product when it's used screening out those patients.

So we're seeing efficacy rates that are more in the range of 50%, all the way up to 90%, with vitreoretinal surgeons who have a lot of experience using this.

But I think time's going to tell, as to how much we'll be able to really continue to drive this.

We have been getting more approvals and more reimbursements.

So, I'm optimistic that this will be a good product for us.

But I don't think it's a product on the order of, maybe, what was expected a couple years ago.

David, on LBH?

Okay.

So, you're correct; the FDA late last year had extended the review clock by three months, which would bring the new action date to February 24 for LBH in multiple myeloma.

They are considering an approval based upon a subpart H request that we have made, and we should hear something definitely in that time frame.

Your second question was about GSK's combination program in melanoma, where they're studying Tafinlar and Mekinist together, and looking at overall survival.

My understanding is those are event-driven trials.

The most likely scenario is there will be something in Q1 of this year.

Okay.

I'd like to thank everybody for attending, and we look forward to giving you an update at our first quarter in 2015.

That will conclude today's conference call.

Thank you for your participation.

Ladies and gentlemen, you may now disconnect.