Novartis AG (NVS) 2015 Q1 法說會逐字稿

Good morning and good afternoon, and welcome to the Novartis Q1 2015 results conference call and live audio webcast.

(Operator Instructions)

The conference is being recorded.

(Operator Instructions)

A recording of the conference call, including the question-and-answer session are available on our website shortly after the call ends.

(Operator Instructions)

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

Please go ahead, sir.

Thank you.

I would like to welcome everybody to our first-quarter earnings call.

Joining me on the Novartis end are Harry Kirsch, CFO; David Epstein, Head of Pharma; Jeff George, Head of Alcon; and Richard Francis, Head of Sandoz.

Before we start, I would like to ask Samir Shah to read the safe harbor statement.

Samir?

Thank you.

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.

Thank you, Samir.

Okay, starting on slide number 4, we've had a strong start to the year, as you can see.

For our continuing operations, our net sales were up 3% and operating income was up 9%, both in constant currency.

I think the best part was that all divisions grew sales and they grew margin, but we did have a significant currency impact on the reported results, as you've seen.

We closed the GSK and the Eli Lilly transactions in the quarter, and we have had smooth integration and separation of the business, and that work is going to continue.

And also, we had a good quarter for innovation.

So if you flip to slide 5, you can see the results in a little bit more detail.

You can see sales, core operating and income.

Free cash flow was $1.5 billion, which is up about 27% versus prior year.

And Harry's going to give you some more details in a couple of minutes.

On slide 6, I previously said that this year is all about execution and we have five key priorities for 2015.

We made progress on all of them, so let me just touch on them.

Starting with the financial results on slide 7, you can see that in the first quarter sales and core operating income increased across all divisions.

Importantly, Alcon and Sandoz registered double-digit growth in core operating income on a constant currency basis.

So it's good to see that significant leverage.

If you look on slide number 8, in pharmaceuticals our portfolio rejuvenation continues.

Sales from our growth products increased 25% in constant currency and they now contribute over 40% of pharma net sales.

We also had very strong emerging markets growth, 13% in the pharma business, and that allowed us to absorb the generic impact of Diovan and Exforge.

Alcon saw growth across all three of its segments, 6% in surgical and ophtha pharma.

Vision Care was up about 3%, as you see there.

On slide 10, in Sandoz, we delivered strong financial results this quarter.

You can see sales are up 9% and core operating income up 17%.

This is driven by growth in emerging markets.

For example, Latin America was up 16% and biosimilars also contributed to this growth, up 19%.

But most importantly, for Sandoz on slide 11, I think you can see that the developed markets saw some very strong growth.

So we returned to growth in Germany, which was up 10% behind some new product launches.

And the US was up 13%.

This is driven by Oncology and also our Fougera dermatology business.

Our second priority is to strengthen innovation, because this is the core of the Company.

This chart shows, on slide 12, that we continue to lead in innovation with more self-originated molecules than any other company approved in the last five years.

This track record of innovation continues in 2015.

You can see on slide number 13, Cosentyx was launched in the US, Japan and some EU countries.

While LCZ696, our new heart failure therapy, was granted an accelerated review in the US, Europe, Canada and Switzerland.

So there's quite a level of excitement among regulators for this new drug.

Beyond Cosentyx and LCZ, though, we also made strong progress in innovation.

For example, in Oncology, Jakavi received European approval to treat adults with polycythemia vera.

This is the first targeted therapy approved for this rare blood cancer.

Farydak was approved by the FDA as the first HDAC inhibitor for patients with Multiple Myeloma.

And Jadenu received FDA approval to simplify daily treatment for patients with chronic iron overload.

On slide 15, our surgical business in Alcon was driven by strong sales of our phacoemulsification platform, Centurion.

We sold over 2,800 units.

This represents 15% penetration of our global installed base.

And importantly in the US, that number is 25%.

So that launch is off to a very strong start.

Sandoz had two key approvals, shown on slide 16.

Zarxio became the first approved biosimilar in the US, using the new BPCIA pathway.

You saw last week that Glatopa has received FDA approval.

This is going to be the first substitutable generic of Copaxone in multiple sclerosis.

These approvals pave the way for future biosimilars.

You can see on slide number 17, we have a strong portfolio with seven molecules either in Phase 3 or already approved.

We also strengthened our presence, as you can see on slide number 18, in immuno-oncology by in-licensing a novel STING agonist from the biotech company Aduro.

We now have four immuno-oncology molecules which may enter the clinic this year, which would include the checkpoint inhibitors PD-1, TIM-3 and LAG-3.

And in addition, CTL019, our new CAR-T therapy is progressing.

I think we also announced this quarter that Dr. Glenn Dranoff has come to Novartis to lead our effort in immuno-oncology.

He's a world renowned immuno-oncologist from the Dana-Farber Institute.

Our third priority is shown on slide 19 for 2015.

This is to complete the portfolio transformation.

So in Oncology, we had a great Day 1 on-boarding of a number of GSK associates in 60 countries.

And I think it's important that on that Day 1, sales forces in our top 20 markets were fully operational.

This really strengthens our position in hematology and renal cell carcinoma and it opens up a new platform for us in melanoma.

Also, the separation with OCT and vaccines is on track and is managed by a dedicated team here at Novartis.

Our fourth priority, shown on slide 20, and this is to capture cross-divisional synergies with Novartis Business Services.

In the first quarter we transferred an additional 1,200 associates from the divisions to NBS.

Now that total is about 8,700 associates.

We delivered procurement savings of about $350 million year to date.

That's up about 30% from the first quarter a year ago.

And we also selected five locations for the Global Service Centers, which are now going to be scaled up.

So we made some good progress.

Our fifth and final priority is to build a high-performing organization.

And one of the most important elements of this is our progress on quality assurance.

In the quarter, we have 33 health authority inspections in the three divisions, and all of them were rated good or acceptables.

So now I would like to turn it over to Harry to give you a little bit more color on the financials.

Thank you, Joe.

Good morning and good afternoon, everyone.

As Joe said, we had a strong quarter from an execution standpoint, with the completion of the transactions with GSK and Lilly.

Unless otherwise noted, my comments refer to all our continuing operations, which is of course, pharma, Alcon and Sandoz.

Starting from March, the contribution from the new Oncology assets acquired from GSK and a 36.5% stake in the GSK consumer healthcare joint venture.

Slide 23 illustrates strong core leverage in the first quarter.

In constant currencies, sales were up 3%, core operating income was up 9% and core EPS was up 11%.

Free cash flow was strong in the first quarter of this year, reaching $1.5 billion for continuing operations.

As Joe mentioned, increase of 27% compared to the prior year, and I'll give you more detail on that later.

And of course the total group benefited from the significant divestment gains resulting in reported operating income of $15.4 billion and net income of $13 billion.

On slide 24, we have our usual breakdown of the top-line performance, which shows the strength of our continuing operations.

If you go step by step, we achieved 9% of underlying volume growth, driven by the strong performance of our growth products, including the new Oncology assets we acquired from GSK in March.

Price was negative 1%, resulting in underlying sales growth of 8%, more than offsetting the negative 5% impact from generic competition.

Currency was a 10% hit, taking us from a plus 3% in constant currencies to negative 7% in US dollars on sales.

As usual, you see a similar but more pronounced story on the core operating income, where we grew 9% in constant currencies.

But currency impacted us by minus 13%, resulting in minus 4% in US dollars.

Turning now to slide 25.

You can see that each of our divisions generated strong core leverage, contributing to the overall core margin increase for continuing operations of 1.7 percentage points in constant currency.

Pharma grew sales by 1% over the previous year, impacted by $0.6 billion of generic impact, mainly from Diovan and Exforge.

But it was able to grow core operating income by 8%, mainly through continued reduction of functional costs, leveraging ongoing productivity initiatives.

This generated a 2.4 percentage points improvement in core margin and constant currencies.

Alcon improved sales by 5% and core operating income by 10% through R&D prioritization, as well as productivity savings and M&S and G&A, resulting in a 1.5 percentage points margin improvement in constant currency.

Sandoz grew sales and core operating income by 9% and 17%, respectively, generating a 1.2 percentage points margin improvement, mainly from product mix.

While Sandoz was helped by a strong flu season in Q1, bear in mind that in the later part of the year, Sandoz was faced with a strong comparator from the Diovan authorized generic launch in 2014.

Slide 26 illustrates a significant improvement of 450 basis points in core margin compared to our reported numbers in 2014.

This results from the benefit of our portfolio transformation, as well as the productivity improvements across divisions, product mix, and the contribution of the new Oncology assets.

On slide 27, you see as a reminder, that quarter-one margin is usually a bit higher than the remaining quarters because we have higher cost phasing in the second half of the year.

We expect all of this year to follow roughly our historical spending patterns, especially as we anticipate higher launch spending for LCZ and Consentyx.

On slide 28, we turn to currency.

FX had a strong impact on both top and bottom line in the first quarter, negative 10% on sales and negative 13% on core operating income, primarily due to the strengthening of the US dollar against most currencies.

If early April exchange rates prevail for the remainder of the year, the currency impact for the full-year 2015 would be the same, negative 10% on sales and negative 13% on core operating income.

As I indicated to you in January, half-one will be more pronounced than half-two, if the US dollar started strengthening during the second half of 2014.

Slide 29 shows the currency impact on sales and core operating income in US dollar billions in an illustrative way.

It explains why the currency impact on net sales and core operating income has increased for our January guidance of negative 7% on sales and negative 12% on core operating income, to negative 10% and negative 13% today.

The key drivers to continued strengthening of the US dollar also versus the Swiss franc.

The negative impact is lower on core operating income as the weakening Swiss franc versus the US dollar helps us with our bottom line, as it lowers our Swiss cost base in US dollars, but has almost no impact on sales.

Let's turn now to free cash flow on slide 30.

Free cash flow for continuing operations was up $0.3 billion to $1.5 billion in the first quarter.

This was primarily due to hedging gains and lower net working capital, partly offset by a negative currency impact on operations.

Now on to net debt on slide 31.

You can see how net debt increased from $6.5 billion at the end of 2014 to $17.8 billion at the end of the first quarter.

The increase of $11.3 billion was mainly driven by outflows from the acquisition of Oncology assets from GSK for $16 billion, the dividend payment of $6.6 billion, and share repurchases of $1.4 billion.

This was partly compensated by our total accrued free cash flow of $1.2 billion, net divestment proceeds of $9.9 billion related to the portfolio transformation transactions, and proceeds from options exercised of $1.5 billion.

Just to remind you, Novartis aims to offset the dilutive impact resulting from option exercises related to employee participation programs over time, on top of our ongoing $5 billion share buyback program we announced in 2013.

Slide 32 shows the divestment gains associated with the portfolio transformation in Q1.

As a result of the transactions with GSK, we booked a pretax one-time accounting gain of about $8.2 billion.

This amount was in addition to the $4.6 billion exceptional pretax gain from the animal health divestments in January.

These were included in our operating income for discontinued operations in Q1 and are part of the total accrued results.

Finally, on slide 33, I want to confirm our outlook for the full-year 2015.

Our guidance for continuing operations net sales growth is mid single-digit in constant currency, with Pharma and Sandoz growing at mid single-digits and Alcon growing at mid to high single-digits.

Core operating income for continuing operations is expected to grow ahead of sales at high single-digit rate.

Of course, these assumptions are based on constant currencies.

And with that, I hand over to David.

Great, thanks, Harry.

Let me start on Slide 35 and show you the high-level P&L.

We're very pleased with a solid first quarter.

Good start to the year.

Net sales in constant currency were up 1%.

As you can see, our productivity efforts continue to deliver, with nice leverage, with core operating income up 8% in constant currency versus prior year for the quarter.

On page 36, I want to show you from a high level how the sales are likely to evolve during the year.

Because there are two fairly negative impacts, as you know, which are the generics for Diovan mono in the US and Japan, as well as the loss of patent protection last year on Exforge in the US markets.

Those are negatives and they slowed down growth.

On the other hand, we are seeing the first benefits from the GSK Oncology portfolio.

We had one month during Q1.

We will see increasing sales of Consentyx throughout the year and the launch of LCZ696 we expect in the third quarter.

So the dynamics will essentially improve throughout the year, with the second half better than the first half.

On page 37, you see the growth products are doing well, with 25% growth quarter over quarter, now representing 41% of our total division sales.

And this is the new definition.

As you know, we rolled forward the date by one year and this fairly reflects that roll forward.

The good news is that the portfolio continues to be rejuvenated, as we have the replacement power to grow through the generic inroads.

On the following page 38, you see the emerging markets did quite well, actually a bit better than we had expected, with sales growth of 13% in the quarter now representing 27% of Pharma divisional sales.

We have one of the largest, now, emerging growth businesses in the pharmaceutical industry.

Turning to page 39, you see a familiar slide.

You see that with the exception of Lucentis, all our growth products grew very, very strongly.

Of note, you'll recall that last year we took Galvus off the German market because of pricing.

If you correct for that, this product would have grown almost 20% in the quarter, so it's quite dynamic.

And the other thing I would like to point out is the very strong growth of Gilenya during the quarter, up 26%.

And our respiratory portfolio is now becoming quite meaningful in size, at $132 million, up 63% over the prior year.

And there's still quite a few countries yet to get reimbursement and to launch.

Now to give you some insights, on page 40, into the GSK Oncology transaction and integration, I'm extremely pleased by the planning that was done, how well we are moving through the integration period.

No major bumps in the road.

The GSK associates that have joined us are integrating well, they are quite excited.

And if anything, we find that the data generated on some of these products is better than we anticipated.

As you know, in this transaction, there were multiple products acquired.

The most important ones are Mekinist, the MEK inhibitor; Tafinlar, the BRAF inhibitor; Promacta and Votrient.

There's quite a pipeline of new indications for these products.

And we're finding actually subsequent indications, for example, with the BRAF inhibitor in lung and colorectal cancer, which we did not initially build into our acquisition model, which may even provide update over what we had originally planned.

Net sales for these products were approximately $2 billion in 2014.

And we see, best guess would be, three potential blockbusters among this group of brands.

On page 41, I want to show you the Mekinist and Tafinlar combination data in metastatic melanoma.

What you will see there is a very impressive overall survival benefit.

This data will be on full display at ASCO.

It's called the COMBI-d data, and we plan to be submitting in Europe and Japan during the first half of this year.

So all is positive on the GSK transaction.

Now turning to page 42, I want to speak about a brand I don't typically speak about.

This is Exjade, our oral iron chelator.

As you can see, it's provided nice mid single-digit steady growth over the last couple of years.

The challenge with this product has always been the dosage form.

It's a tablet that needs to be dissolved in water.

It makes a slurry; it doesn't taste particularly good; it's hard to be compliant.

We've been working hard on a new formulation, which has now been approved by the US FDA, called Jadenu, which is a tablet formulation that doesn't need to be dissolved.

We believe this will improve adherence, and as a result, we should see some growth acceleration from this franchise going forward.

Turning now to Page 43, Jakavi continues to perform.

Growth was 86% versus the prior year in Q1.

As you know, we generated, with our partner Insight, very nice data in polycythemia vera.

The EU approval was granted in March and we think the market opportunity in polycythemia vera is about the same size as myelofibrosis.

So this product is well on track to become a blockbuster therapy for us.

On page 44, a quick update on Gilenya.

It continues to grow, up 27% in the US, 25% ex US.

In a number of countries, we are the number one multiple sclerosis therapy.

Over 119,000 patients have been treated to date, and we are pleased with the progress here, and we think growth should continue nicely.

On page 45, I had mentioned earlier the respiratory franchise to you.

This is a very good market, a large market and one where one spends a bit more in terms of M&S because of the need to have a competitive share voice, but one that provides value over a very, very long time.

We're pleased that in the markets where we have launched in COPD, we seem to be nicely outperforming the major competitors in the LABA/LAMA combination segment.

We think this is a good sign for the future for this brand and for the franchises.

As you can see, we just recently launched in a few markets like France and Australia, so just stay tuned, there's more growth ahead.

On page 46, I want to share the Consentyx data that was presented at the American Academy of Dermatology.

I think impressive may actually understate this data, it's landmark data.

You can see that in a head-to-head trial versus Stelara, we did very well, more than 20 points better in terms of PASI 90 response.

Recognize PASI 90 is a new higher standard of clear to almost clear skin.

In addition, we were able to show that over a two-year period that efficacy is maintained.

And it is the case with actually many other therapies, efficacy tends to wane over time with other biologics.

So this is a good sign.

While we didn't share details on sales because it's way too early, we launched in the back half of February, I can tell you qualitatively we're getting very, very good feedback from our physicians.

They tell us that even the sickest patients are responding quite well, and they are responding quite quickly.

Just to give you one number to hang onto, there's over 1,000 unique prescribers in the US, different physicians that have prescribed.

Many of these physicians have prescribed multiple times.

So really the key going forward is going to be gaining access, which we're working through.

As you know, in the US market, the first six months tends to be tough in this current environment.

And then also the coming launches, or potential coming launches, of competitive products in this category.

But I believe the IL-17 category in total will be a very, very exciting category, largely based on the efficacy of these agents.

And in the case of Consentyx, certainly a very, very good safety profile.

Turning now to my last slide, on page 47, the first half was very good in terms of newsflow, you see all the green check marks.

In the second half of the year, I'll just point you to two events.

One is the BKM120 data.

This is the first PI3 kinase inhibitor in metastatic breast cancer.

We should have data roughly mid-year this year and that would form the basis for an NDA filing.

And then importantly, LCZ696.

Let me just say the regulatory meetings have been very good.

It is very clear the regulatory agencies are very, very engaged with this product.

They see the value of the product.

And during our mid-cycle review at the FDA, they advised us that at this time they don't see the need for an FDA advisory committee, which we also take as a good sign.

So overall, a good start to the year and I would like to turn it back to Joe.

Thank you.

Thanks, David.

So just to conclude, I feel good about where we are in 2015.

We're executing well.

We've got good momentum, sales and core operating income, so we're focused on margin.

But at the same time, we're focused on our launches and innovation.

And we're doing this at a time of great transition within the Company.

So that concludes the call.

I would like to now open up the call to questions and answers.

(Operator Instructions)

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

Thanks very much for taking my questions.

A few mounting ones to start with, please.

Just looking at the GSK Oncology business, now you have it in-house.

Are you seeing the potential for -- how are you seeing the potential for greater margin contribution?

Should we think of that now being higher than the 60% or 50% to 60% that may have been created previously?

Secondly, looking at the significant expansion that we've seen this quarter in terms of 80 basis points for the continuing business, I understand, of course, the absolute level of margin will go down going forward.

But how should we think of that incremental contribution over the subsequent quarters?

Should we be thinking of this similar sort of level?

If you could talk through the pushes and pulls there, that would be very useful.

And then a couple of questions on Sandoz as well, please.

Firstly, on Copaxone, now you have that approved, but obviously are waiting for the launch.

If that does launch this year, would that be upside to the Sandoz guidance?

Then looking at Sandoz in Germany, the growth rate as you highlighted was very substantial.

Is there anything that we should know about in terms of one-offs there?

Or how are you delivering such stellar growth?

Thanks very much.

Okay.

Let's start with David on GSK Onco margin.

As we said before, the GSK products will overall run at a margin that's higher than our overall Pharma business.

We believe that over time those margins will come in line with the rest of our Oncology business, which is much higher than Pharma overall.

My quick assessment from looking at these products and the P&L is that they have actually -- Glaxo had actually under-invested in the launches of these products.

There's going to be an opportunity to actually accelerate growth in a pretty significant way going forward.

Which means while the margin will come, it will not be necessarily in the next couple of quarters bigger than it was in the previous quarters.

But over time, our expectations, it will be in line with the rest of Oncology hold true.

Okay, Harry, the shape of margin?

Thank you for your question, Richard.

So overall, we are satisfied with the strong start also from a margin standpoint into quarter one.

This gives us confidence that on the full year where we have also guided to margin expansion, that this is, of course, fully substantiated.

Please recall that in constant currencies, we are giving margin expansion guidance, by sales, mid single-digit; and core operating income, high single-digit.

Then of course, you have to model in after the currency impact that I have given you, if the current currencies prevail.

But overall, also for the full year, margin expansion.

And I would just ask you to stick to those modeling assumptions.

And Richard, Copaxone?

Thank you, Richard, for the question.

Copaxone, short answer, yes, the Copaxone launch is in the figures this year for Sandoz.

Moving on to Germany, yes, we have strong performance in Germany.

That's based on a number of factors.

We've had some good product launches within Germany early in the year.

We've also benefited from a good cough and cold seasonal product performance versus last year, as well as we have increased performance across the business as a whole.

And this is due to the focus we've placed on some of our core big market.

Thank you.

Okay, next question, please.

Thank you.

Our next question will come from Andrew Damm [sic], Citi.

Hello, it's Andrew Baum, actually.

Four questions, very quick ones.

Firstly, in relation to biosimilars, when you get your PL decision, non-permanent injunction on Zarxio, should we assume that you will launch at that date?

Then more broadly, could you categorize for us your understanding of whether triple damages exist or not under the 351(k) pathway as opposed to small molecules?

Second, on immuno-oncology, you're obviously building a portfolio of interesting assets on top of your carts.

You have hired a major KOL with Glenn Dranoff, but there's a gap between where you are now versus where you would like to be.

Could you talk about the additional BD that you need to build around that space to help us form a clearer idea?

On LCZ, is there any reason why the uptake of LCZ should not be significantly faster than market believes with the pricing higher, given the frequency of penetration, given the fact you're going to be on Medicare Part D formularies?

Again, I would be interested to hear your views.

Then finally AVI just put a $15 billion peak sales forecast for a franchise that currently doesn't exist.

Given your historic legacy in the area and breadth of your presence, I would be interested if you care to put a peak sales forecast on Novartis Oncology business.

Thank you.

Okay, starting with Richard, biosimilars?

Thank you for the question, Andrew.

We're obviously very excited about Zarxio, particularly as we will be adding that to our biosimilar business, which is growing at 19% for quarter one.

So we have good momentum there.

As with regard to the exact timings of the launch, we cannot comment on that for competitive reasons.

We note your question about damages.

Once again, that's something which we won't comment on, due to interpretation of the legal situation.

But in summary, very excited about this year with Zarxio and looking forward to adding that to the portfolio.

David, immuno-oncology?

Andrew, thanks for pointing out the progress we're making in immuno-oncology.

I think as Joe pointed out in his presentation, we're likely to have three compounds in the clinic this year.

For some of them, or at least one of them, we are behind leaders who are in either on the market or in pivotal trials.

For another compound, we are going to be likely in the top one, two or three.

And for one of these compounds, we believe there is a possibility we will actually enter the clinic first.

So we think our immuno-oncology position is improving nicely, and we have the opportunity to combine these in ways that perhaps others can't, either with each other or with exciting compounds like MEK and BRAF.

In fact, at ASCO, we should see the initial data of the MEK and BRAF doublets and triplets coming through in melanoma, in combination with another company's immuno-oncology products.

We're committed to immuno-oncology.

We think it nicely matches with our targeted therapy business and it will help grow the Oncology business.

To answer your question about a peak sales forecast for Oncology, I wouldn't even know how to do that, because it will be growing for quite some time.

And perhaps unlike the other company, we don't have the pressure to do so because we have multiple important franchises.

In terms of LCZ, the dynamics as we expect them, and we're going to continue to learn as we go along, is that the population is heavily Medicare, roughly 70%, and then about 30% commercial.

What that means is this product will likely be NDC-blocked for the first six months.

And as a result, as I've cautioned, I think uptake will be relatively modest at first until we work through the access issues.

And then we think the product could be quite meaningful and sizable in the efficacy benefit it brings, as you know, both in terms of including quality of life, survival, and then reduction of costs because of lower hospitalizations.

And as I said before, this could become one of our biggest products, but it's really too early to put a specific number on it.

I would almost forget about those estimates we had in the past.

Let us get to the launch and we'll be able to fine tune a better number for you.

Thank you.

Next question, please.

Thank you.

Our next question comes from Alexandra Hauber, UBS.

Yes, good afternoon, I've got three questions.

First, the obvious one, you had a very strong quarter with core operating profit up 9%, which is actually what you're guiding for the full year.

I always assumed conceptually that the first quarter was going to be the weakest, given guidelines of OSHA, given Oncology coming later and based on the conception slides that they even presented.

So I'm just wondering why you haven't raised the guidance yet after that strong quarter.

I know, however, you put some comments on slide 27, that the first quarter is traditionally a strong quarter, and you are also hinting to marketing and sales going up.

But is that essentially the issue, that marketing and sales are going to run far from this level?

And therefore the growth will be staying at that level over the next several 18?

Secondly, a question on Alcon.

We're still seeing no pull-through on the intraocular lenses, despite very strong instrument placements.

So I'm just wondering whether it's not happening yet or whether we're just not seeing it due to the weakness in Japan?

So question is are you losing -- is that the issue?

And if so, are you losing -- if you're losing market share in Japan, does the acquisition of Eli Lilly Lab potentially compensate for that?

Third, a very little question on the MEK, BRAF breakthrough designation in non-small cell lung cancer, those BRAF mutations.

Could you actually point out which, based on which study you intend to do the following in 2016?

Which you are hinting on, both in the release this morning and on the filing charts, given that there's only one study in clinical trials, which seems to support 2015 activity.

Thank you.

Okay, starting -- let's go to the guidance.

Harry, why don't you address that.

Thank you, Alexandra.

As you point out, our performance in the first quarter is nicely in line, 9%, with our guidance for the full year, in constant currency growing high single-digits.

Now, I alluded to a better not, so David, that of course in terms of the launches for LCZ and Cosentyx, we have to make sure that the appropriate resources are in place, that's clear.

And furthermore, it's early in the year, so as we see how things develop, but of course we have to make also sure that the launches are fully supported.

Alexandra, I'll add to that.

You know, we are pleased with the first quarter.

If you look historically, we would rarely raise guidance in the first quarter.

We just want to see how things play out.

But we are quite enthusiastic about the momentum, not just on the top line, but also these margin efforts that we have had are really starting to play out.

So we'll see how the next few months progress.

Alcon?

Yes, so Alexandra, on your question on surgical and their relation to the IOL pull-through and consumables pull-through, as Harry mentioned, we saw 6% growth in constant currency in surgical in Q1.

We actually saw very good pull-through on our non-IOL consumables portion of the business, which is also something that we leverage equipment financing agreements for, both that and IOLs.

Non-IOL consumables are actually a little bigger at $1.4, $1.5 billion, versus $1.3, $1.4 billion for IOLs.

Those sales were up 7%.

IOLs were flat, but we had 3% growth in units.

It's a bit of a mixed story on this.

We've seen four quarters in a row in the US where we've actually regained share on IOLs in unit terms.

We are seeing challenges in Japan, as you mentioned, particularly on our ReSTOR lenses, which are priced at over $1000 a lens.

And that has a big impact on value, as that category has not seen strong uptake from a market perspective due to the fact that you've got to split light and there's some visual side effects that some patients experience with the multi-focal category across competitors.

Then in Europe, this year has been not as good as we would like.

So what we're really doing on IOLs is focusing on accelerating innovation.

And this is really key for the future.

Since last June, we've nearly tripled our IOL pipeline from about nine active projects to 25 projects, as we really focused investment spending behind IOLs.

We're excited that we'll be launching -- we expect to launch later this year both a tri-focal lens in Europe where we've lost a bit of ground to ZEISS in Europe, as well as a pre-loaded IOL toward the end of the year, also in Europe.

So I think more to come on that.

I'm also looking at a bit better comps in the back half of this year, so overall roughly in line with expectations on IOLs despite the flat performance.

Okay.

David, MEK, BRAF?

Okay, so the questions about non-small cell lung cancer, as you heard me say earlier, we were pretty excited by some of the additional data that GSK had been developing.

In this case, in the V600E BRAF mutated non-small cell lung cancer, if things go well, and you'll see some initial data at ASCO, there could be the possibility of filing based on Phase 2 data during 2016.

So that's what we would be looking at.

Just to caution you, it's a relatively small portion of the lung cancer market, but it would provide us nice upside for the brand.

Okay, next question, please.

Thank you.

Our next question comes from Tim Anderson with Bernstein.

Thank you.

On biosimilar filgrastim in the US, I'm hoping you can share some degree of details about commercial strategy, such as the sales force support behind the product.

Will it be similar to how you launch a normal brand?

What side of the organization will that come from?

Is the stake holder to convince your prescribers?

And what's the enthusiasm from payers as you have had, presumably have had initial discussions with them?

I won't bother to ask about price because you probably won't say anything, but hoping that you can share some of these other details.

And then on M&A, I'm wondering where Novartis's head is on this topic.

I would imagine that with the restructuring and with the refocus, and with the recent closure of the various transactions, perhaps you don't have much of a desire to seek out any larger transactions.

But what could we expect to see from the Company over, let's say, the next year?

Is it likely to only be smaller deals or could everything be on the table?

Okay.

Let's start with Richard on biosimilars.

Hello, Tim, thank you for your question.

To give you some flavor of how we're approaching Zarxio, the commercialization, you're correct in understanding that we will be putting a sales force behind that, as well as a market access team, as well as an MSL team.

So approaching a very similar model to the originated type business.

We have been working obviously with the medical community already, in educating on the biosimilar potential and what that means for them as prescribers.

We've also started to reach out to the market access in the payer side of the business.

I think everybody's looking forward to the opportunity to have affordable access to this very important therapy, make sure more patients can benefit from it.

With regard to thinking how we are leveraging expertise in David's group, obviously we are making sure we maximize the whole capabilities of Novartis as an enterprise, as we see that as a real asset and competitive advantage moving forward.

But the details of that is something that I can't go into for competitive reasons.

Thank you, Tim, thanks for the question.

Tim, in terms of M&A, after the year that we've been through in terms of completing the transactions that we have, we still have the CSL transaction to close by the end of this year.

But I think the objective of that was to focus the Company in a way that we would not be needing to do another big M&A.

That doesn't mean we won't, but it just means we're in a good place, that we will continue to generate a lot of growth and momentum by investing in the three platforms that we have.

So I think you can expect us to do what we've said, which was smaller bolt-on acquisitions that would strengthen either the pipelines or the commercial structures of each of the three divisions.

And by bolt-on, I'm talking about anywhere from $2 billion to $5 billion.

You'll also see us step up, I think, our activity in business development and licensing.

So you saw the Aduro deal we just did.

We're looking for assets that will help us strengthen the pipelines of each of the three businesses.

So that's really what we're focused on at least over the next 12 to 18 months.

Thank you.

Next question, please.

Thank you.

Our next question comes from Matthew Weston from Credit Suisse.

Good afternoon, thank you for taking my questions.

There are a number, the first, on SG&A.

You've previously talked about the fact that you felt you could reallocate a lot of the resource that you had within the existing organization to support the launches coming up in 2015-2016.

Seeing now 1Q as a base, how should we think of that reallocation?

Do we need incremental investment, if I were to think about SG&A as a percent of sales going forward into the end of the year?

Or with the arrival of the GSK revenue, do you think it's achievable to launch with a similar level of relative spend?

Secondly, on your comments that you've just made, Joe, around R&D in-licensing, one thing that you've also highlighted in the past is around streamlining your early and mid-stage pipeline, focusing on priorities and potentially passing on some of the products that you have which are no longer within your core focus, to others.

That's not something we've really seen happen yet.

When are we likely to see your decisions made?

And then David, Exjade and the transition to the new Jadenu formulation, as I recall Exjade's patents expires in the US towards the end of 2017.

Does Jadenu give you any incremental protection?

And if so, how?

Okay, let's start with SG&A.

David, why don't you take this one -- (multiple speakers).

Let me tell you about the pharma SG&A.

So, you're right.

The launches, the majority of the support for these brands will be a reallocation, which we have largely worked through as we have taken resources off Diovan, Exforge, even Galvus and others.

Particularly when it comes to field force, incremental field force is really, really tiny.

Having said that, whenever one launches brands with the potential that Consentyx and LCZ have, there is some additional spending, additional marketing spend.

There's some additional Phase 4 clinical trials that are needed to support the brand, to drive health economic data, et cetera.

So there will be some increase in spend.

That's why what we've said is essentially, at least from the pharma margin perspective, first quarter was high.

First quarter is always high, historically it is.

Then it tends to trend down through the year.

This year we get the benefit, as you point out, from GSK, which helps.

On the other hand, there is more money being spent against these launches.

So you'll probably see a pattern that is not dissimilar overall to previous years.

And Matthew, I think from a total group standpoint, obviously we've guided to margin improvement on the year.

If you look across the Company and you look at the number of launches that we intend to have with filgrastim and Glatopa, and in Alcon, Centurion and a number of the pharma products, as well as in the Pharma division, we will obviously drive to deliver that, despite the investment in all of these launches across the division.

So there is a considerable amount of reallocation that is going on here.

And if you look at our M&S as a percentage of sales as a group year on year, and you saw it go down this quarter despite the increase in the number of launches that we have.

So I think that's evidence that will happen.

On your second question regarding R&D in-licensing, yes, obviously as we in-license we have to look at our total portfolio in development and think about prioritizing constantly.

You have not seen us yet out-license much, and that's not because we're not trying.

There obviously is a lot of activity under way, and I think it's just a matter of time before you see that.

But I think the key metric to watch will be R&D as a percent of sales, relatively flat with the year-ago.

So despite the fact that we've got additional incoming programs and projects, our commitment is to have R&D not be a hurt and not be a help to margin.

But to maintain a level of spend that is at the high end of the industry, but do it by prioritizing pretty ruthlessly the projects that they come.

David, on Exjade.

Yes, just to put your mind at ease, actually the patent is quite a bit longer than you guessed.

Outside the US, so Europe and Japan, the patent expires in 2021.

And then in the US, with the pediatric extension, should put us in the fourth quarter of 2019.

We'll have to wait and see whether or not Jadenu any additional protection.

It's not 100% clear at this point.

Thanks.

Next question, please?

Thank you.

Our next question comes from Graham Parry from Bank of America Merrill Lynch.

Thanks for taking my questions.

On LCZ696, any updated thoughts on how quickly you can target the mix of prescribers here?

And perhaps run this through your latest thoughts on what proportion of the target physician population is primary care versus internists versus cardiologists, and your ability to reach them over what timeframe?

Secondly, we're seeing now detailed Phase 3 data for [berdalium] out of the AAD meeting.

Any thoughts on the competitive profile there versus Consentyx, especially the serious legality?

Is there any risk of a class effect label there?

Thirdly, on Sandoz margins, currency was actually a positive to margins in the quarter because of the strong euro cost base.

Does that hold for the full year?

And when should we expect to see SG&A ramp in the second?

Is this going to be second half or even second quarter, because of Zarxio and other launches?

Thank you.

David?

So starting with LCZ, your question has a different answer depending on the country we're speaking about.

So in the US, LCZ will be started almost exclusively by cardiologists and we think about 10% of internists will be writing initial scripts.

And our plan is to launch initially to exactly that target audience.

Whether we would expand to more GPs later who will be writing refills is something that we can decide together really at a future date.

On the other hand, you have a country like Germany where really the primary care physicians hold the budget, for the most part.

You have really no choice but to call on both cardiologists and GPs at the time of launch, or the product won't take off.

And that's our plan in Germany as well.

I don't plan to go through much more for the LCZ launch plans at this point, other than to say we're pretty excited about the campaign we're putting together.

The use of social media, the use of other approaches to get the word out about this important drug, which is going to help patients live longer with chronic heart failure.

In the case of the IL 17, actually the biggest surprise for me as I was reading today, that it looks like Lilly will be filing before Amgen.

I hadn't anticipated that.

Doesn't have any impact on our decisions, but nonetheless, that was interesting news.

The efficacy of these compounds, at least in psoriasis, doesn't look too different.

But interestingly enough, it looks like we're the only company, at least in the near term, that will have meaningful data as well as a filing in ankylosing spondylitis, which is a big part of the opportunity.

And will also help from us a formulary perspective because of the breadth of the label.

And I don't want to comment on other companies' side effects.

Suffice to say, we do not see those issues with our product and we've done a very thorough review.

And Harry, why don't you take the margin question.

I think, Graham, the question was around currency impact on the margin.

We don't give guidance by division on margin, as well as currency impact.

But when you look at our quarter one results as a Company, on sales minus 10%, Sandoz has a bit more than that, minus 12%.

And you can imagine that Q2 already for a large business in Central Eastern Europe and Russia, where the ruble devalued more than the average of the other currencies.

But then on the core operating income, the Company had a 13% and Sandoz had 12%, a little bit less than the Company.

That is, in fact, due to a higher cost base in the Euro zone, given the manufacturing side and the headquarter.

On timing of SG&A ramp?

(multiple speakers)

I'm sorry, go ahead, Graham?

The second part of the question was then thoughts on phasing of SG&A through the remainder of the year in Sandoz and timing of SG&A ramp for launches.

Thank you.

Okay.

Richard?

Thank you, Graham.

So on the SG&A, obviously we will be investing in the launches of Zarxio, so that will be coming.

That said, we are very committed to drive margin improvement, as we've mentioned in the past.

Thank you.

Next question, please.

Our next question comes from Florent Cespedes from Societe Generale.

Good afternoon, gentlemen, thank you very much for taking my questions.

Two quick ones for David and one for Jeff.

First of all, David, on Respiratory, could we have a quick update on the Respiratory portfolio, your plans in the US?

Is the partnership the most likely scenario?

And why Onbrez shows a decline.

And the last point, could we have feedback from the prescribers in Europe on [incubo]?

Second question for David, on emerging markets, you said during your presentation that you did better than expected on emerging markets.

Could you elaborate on that?

And third question, the one for Jeff, on Alcon, from Centurion.

Jeff, what is the reasonable penetration rate for the Centurion products that could trigger meaningful impact on the top line?

So we know the worth?

What could trigger an acceleration of the growth of the division and for Alcon in general as well?

Thank you.

Starting with respiratory, as you can see overall for their franchise, ex US we're doing quite well.

One of your questions was why did Onbrez slow down.

In fact, what we're noticing is that as we focus more and more on Ultibro, which has the biggest efficacy benefit and over time the biggest economic benefit for us, the two other respiratory brands have not maintained their momentum.

So we're looking at ways to address that.

In the US, what I've said before, and I don't have an update, is that we're looking at different options for a launch, which ranges from a limited specialty launch to a full-blown launch by us or a launch with a partner.

And we're still working through what's the best option.

We're talking to some people about the best way forward.

We should have approval in the fourth quarter.

So obviously we need to sort it out before that time.

In terms of emerging markets, as last year wrapped up, we assumed that some of the geopolitical issues, the declining price of oil, would play through in terms of the slowdown in the emerging markets.

So far, that hasn't happened.

I still think at some point it will, but so far, it hasn't.

We had a good Q1.

Thanks.

And Jeff, Centurion?

Florent, as Joe mentioned, Centurion has been a very successful launch for us, I think probably the most successful launch that we have ever seen in phacoemulsification technology in cataract surgery.

As Joe mentioned, about 25% of our US installed base, so well ahead of expectations.

It is already impacting revenue growth, in that it is offsetting or helping offset the flat IOL sales you saw in the first quarter.

And we're seeing very strong consumables pull-through, as I mentioned in reference to Alexandra's question.

And that's not only Centurion, but we're also driving a lot of success with our Cataract Refractive Suite.

So both the pre-operative diagnostic surgical planning tool, VERION, as well as our femtosecond lasers, LenSx.

As well as during the phacoemulsification, the technology we acquired from WaveTec, which is called ORA, or intra-operative aberrometry, which has been really helpful in driving consumables as a package.

And we're looking to further integrate the surgical suite going forward.

I think what you'll see as we continue to improve our share position in IOLs in the US and elsewhere, is that this business will improve as a result of the continued uptick in Centurion.

One salient fact to that end is that accounts that have Centurion versus accounts that don't have Centurion, there's about a four times better performance in IOLs alone of the accounts that have Centurion.

And Jeff, do you want to comment on his question about expectations regarding penetration rates?

We don't give guidance on penetration rates.

Typically what you see in equipment is a five- to seven-year selling cycle.

And you typically, in year two, which is what we're in, would see 15%, 20% penetration on the high end.

And we're at 25% in the US and 15% to 20% on a global basis.

So ahead of expectations.

And we'll continue to ramp this and we're starting to get into the middle of the adoption curve.

Thanks.

Thanks very much.

Next question, please.

Thank you.

Our next question comes from Naresh Chouhan from Liberum.

Hi, thanks for taking my questions.

Just two for me.

Firstly, on Alcon, the contact lens solution business has been a drag on Vision Care sales for a while now.

When do you expect that impact to stabilize?

And if you were to remove the impact of that decline, how much would Vision Care sales have grown by?

And then secondly, can you tell us the level of net price rise or decline in Pharma and the impact that's had on the margin in Q1?

Thank you.

Okay, Jeff?

Naresh, on contact lens solution, what I would say, starting at a macro level on Vision Care, we continue to see good performance on contact lenses, which were up 8% in constant currency last year and up 6% this year.

And part of that has been driven by the continued shift to daily disposables.

We're continuing to see over 55% growth in DAILIES TOTAL1.

But as you see more and more consumers shifting to daily disposables, they don't have the same need for contact lens solution.

So the category overall has been flattish, and flattish to slightly declining.

We have lost share over the last couple years in contact lens care solutions, but we've been regaining share back, particularly in the US, as we've invested more behind retail merchandising and category management in contact lens solution.

So I do expect to see an improvement looking forward.

It's not going to be a big growth driver for us.

We have introduced a couple new products and we also are seeing good growth in emerging markets.

But overall, there's headwinds against the category.

Nevertheless, it gives us a bit of a brand halo for Alcon overall, that does play positively on the lenses side.

And David, pricing?

Yes, so overall, give you a few numbers.

Volume is 9%.

Then we lost 8% to generics.

And pricing was zero.

Thank you.

Next question, please?

Thank you.

Our next question comes from Seamus Fernandez from Leerink.

Thanks very much, I have a few questions here.

First off, with the decision from the agency with regard to LCZ, that no panel is necessary, can you just confirm that there has been no evidence of a concern around Alzheimer's?

I think this was a Mekinist concern that was raised related to NEP, but I've never seen anything in the data.

Just wanted to confirm that.

Second question, can you update us on the timing of the interim analysis for serelaxin?

Previously, I think you had said that was expected in the second quarter of 2015.

The next question, can you give us a quick update on your thoughts around the launch of palbociclib and how the competitive landscape is developing here?

And how Novartis is going to address the ability to move LEE001 forward in that context?

And the last question is on the Allosteric ABL inhibitor.

First off, when might you move this into Phase 3 clinical studies?

And how might this enhance the Tasigna franchise?

Thanks a lot.

So for LCZ, there have been virtually no questions about the highly theoretical Alzheimer's risk.

As you spoke about, it's a Mekinistic issue.

There are multiple enzymes that are involved here and there was absolutely nothing seen in the pivotal trial on cognition, just to put that to bed.

So I don't believe that will be an issue at all in the review process.

In terms of serelaxin, we are on track for what we said earlier, which is a back-half, most likely in the fourth quarter, interim analysis of safety, interim analysis of serelaxin.

Just to set expectations, interims usually result in no change because they are focused on safety.

For a trial like this to stop early, as did LCZ, the efficacy really needs to be outstanding.

The most likely scenario is we go through that interim, and then we get the final results during 2016.

In terms of the CDK4/6 inhibitors, I think they are a very, very exciting class.

They will over time be used routinely in breast cancer patients.

We should be the second to market behind Pfizer.

Our strategy is very clear.

We will have data mid next year, also for the PI3 kinase inhibitors, BKM.

We also have a alpha-specific PI3 kinase inhibitor called BYL that's in Phase 2. We would hope to start Phase 3 this year.

And we believe there is the possibility of making four different combinations of these products, and offering a full portfolio of breast cancer therapies that will make us very, very competitive in the class.

And of course we have Afinitor now, which gives us a lot of experience.

And last, but not least, thank you for pointing out PBL001.

We are actually very, very excited by this compound.

As you know, it binds a different part of the BCR-ABL protein as a result.

And it's active on its own, and it's also active in combination.

We would hope to be able to put this product in pivotal trials as soon as we figure out exactly what the right dose is for patients.

That could be as early as next year, that trial starting.

So I think this will be really important for our franchise in continuing the CML franchise growth over time.

Thanks.

Next question, please.

Thank you.

Our next question comes from Kerry Holford from Exane BNP Paribas.

Hi, it's Kerry Holford, Exane.

I have three questions, please.

Firstly, on Gilenya, very strong in the US in particular.

You mentioned in the slides earlier that there was strong demand.

Was there any impact there from price and/or stocking?

Secondly, on biosimilars, when I look at the Enbrel and HUMIRA Sandoz studies that are running in clinicaltrials.gov, they look as though they are due to complete this quarter.

I'm wondering whether you would look to publish that data and whether you're able to say when you may file that.

And then more generally, whether you could talk about why you've chosen to start Phase 3 studies in psoriasis for both.

And ultimately how you'll position those biosimilars in the market versus Consentyx.

And then finally, what should we expect from Novartis at ASCO this year?

I know you mentioned COMBI-d and the BRAF-MEK data in lung cancer, but anything else?

And will you host an investor event?

Thank you.

Okay, maybe David, Gilenya and ASCO?

So Gilenya, really, as you pointed out, nice growth.

It's almost all volume, the vast majority is volume.

And then the ASCO question, I didn't catch, Joe.

Is expectations for ASCO beyond what you said earlier?

So in addition, so as you know, we have the various trials with BRAF and Mekinist in melanoma, colorectal cancer, lung cancer, combination with PDL1.

There's some data around Farydak and then there are a fairly large series of Phase 1 abstracts that are going to be important for the future.

So it should be good solid ASCO for us.

Okay, Richard, on biosimilars?

On the biosimilars, as you noted, we progressed well with Enbrel and HUMIRA with the studies there.

With regard to file timing, we don't comment on that going forward, but we're making the progress we anticipated.

And with regard to your question around Phase 3 in psoriasis, I think it was about why did we choose psoriasis.

We chose psoriasis as opposed to cross multiple indications because we believe we will get the multiple indications when we actually get approved.

Hopefully that answers all of your questions, Kerry.

Yes, I just don't understand how you will then position those biosimilars versus the brand Consentyx.

Position those biosimilars versus Consentyx?

Yes.

I think David can also comment here.

I think Consentyx has proved that's a step change in treatment with regard to treating psoriasis, as he has shown on the slides today.

We think this is actually very complimentary in making sure payers can balance budgets, where they can use the core efficacy that we've seen through Enbrel and HUMIRA, as well as free up budgets to actually start to use the innovative and highly efficacious product like Consentyx.

Right.

So when you start to see the combination between biosimilars and the innovative side of the business, we'll be taking a category approach from a Novartis standpoint.

But each division will be driving their own interests and overall Novartis will win.

Okay, next question, please.

Thank you.

Our next question comes from Michael Leuchten from Barclays.

Thank you, two questions for Harry, please.

Firstly, we see a very strong Pharma gross margin in the first quarter.

That was last year boosted by some inventory adjustment and we've seen a step-up from that higher level.

So is that a yearly recurrence now?

And if so, can you quantify that?

Then secondly, on NBS, does NBS still support the joint venture on OCT?

And if so, for how long?

Or is that going to run for a while or free up resources eventually?

Thank you.

Thank you, Michael.

So to your first question of the Pharma gross margin, there is always a bit of quarterly volatility.

You mentioned last year quarter one's inventory [rewell].

This year we had also a little bit of that effect.

But I would focus more on year over year, which I expect roughly to remain flat because we have barely two elements.

One is the ongoing productivity efforts, also manufacturing footprint.

You have seen we have closely invested in another two manufacturing sites.

On the other hand, I would expect a slight increase from royalties mainly from Gilenya, so that overall from a gross margin standpoint, I see it at a level of last year for the full year, with some quarterly volatility.

And then in terms of NBS, you have seen a very good start operationally gen one and almost 9,000 people there.

Part of the execution is to give transition service agreements both to Lilly and to GSK.

And depending on the service, I would expect this to be between 12 and 18 months.

But of course these services are being charged and plans are in place to eliminate any fixed costs after these services are finalized.

Thank you.

Next question, please.

Thank you.

Our next question comes from Jeff Holford from Jefferies.

Hi, thanks very much for taking my questions.

Just a couple more around Afinitor.

Can you help us understand how much of the sales for Afinitor are actually in breast cancer?

And also your thoughts around how the impact of palbociclid might impact it.

Potentially it's in two ways, as patients who didn't get the chance to take it first line could take it second line, instead of Afinitor.

And also possibly patients going on first line, how their treatment duration might hopefully be extended and therefore delay going on to Afintor, how you think that might impact that brand over the next 12 to 18 months or so.

And then secondly, I would just like to ask, from where you can see it right now, because unless you looked at it in great deal, how do you view the IP protection around HUMIRA?

Is it the Company's planning?

Do you anticipate that you'll have to go to court over a period of years to be able to launch against the second group hands that are out there beyond the December 2016 molecule patent?

Thank you.

I think the best way to think about the ER-positive breast cancer market is with each new therapy, each new line of therapy that's introduced is, essentially what's happening is patients are living longer and longer.

Sometimes therapies slide in that will push another therapy later.

And that's what's going to happen, I believe, in the case of Afintor, the CDK4/6s will be used first.

But the patients will still progress through their therapy and will eventually need Afintor.

Now, our strategy is actually to replace Afintor with the PI3 kinase inhibitors, which we believe, or we're hopeful, will be even better products based upon the early data.

And then to eventually combine our PI3 kinase inhibitor with LEE and make for an ideal combination regimen.

But overall, the market just keeps getting bigger because people live longer, but also because these newer agents are priced at a different, higher level.

So overall, we're not worried.

There will be a bit of pressure on Afintor for a while, as some starts come a bit later.

And Jeff, regarding HUMIRA IP, we wouldn't comment on what our view of their patent is.

Thanks very much

Next question, please.

Thank you.

Our next question comes from Marietta Miemietz from Primavenue.

Good afternoon, it's Marietta, thanks for taking my questions.

The first one on Sandoz, I was wondering Zarxio's substitutability in the US.

So the FDA panel said it was up to the state pharmacy boards.

So could you actually share with us some initial insights into that process?

Which way the boards are leaning, what drives the decision?

And is this a clear-cut yes-no decision or does it actually involve a lot of ambiguity still for the pharmacist?

Second question on Alcon and Jetrea.

What is your plan for filing and marketing the OASIS data?

And are there any meaningful reimbursement gaps that you expect to close on the back of this?

And very high level, your commercial expectations.

The OASIS data are clearly much better than the pivotal data because they are much more geared towards the real world.

But you still have a significant non-responder population.

So how confident are you now based on the headline data that Jetrea can get to at least a couple hundred million in peak sales over the coming years, which I believe was the original expectation?

And finally, a Pharma margin question.

So marketing and selling as a function of Pharma sales, David, I think you've tended to look a 24% as a floor based on Novartis's mix of specialty and primary care products in the past.

So now that you're basically there, how much room do you see structurally to bring that down further?

Or do you actually see a risk that it could rise over time?

Because my sense is looking at Oncology, a lot of these immuno-oncology combinations come through and are relatively undifferentiated versus one another.

This could become a really, really detail-sensitive area.

Any really high-level thoughts there would be much appreciated.

Thank you very much.

Okay, Richard, on Zarxio's substitutability?

Thank you for your question.

Firstly, from an interchangeability, which is where we are still awaiting FDA to give clear guidance on that, that is something which, as I said, we'll address that as and when the FDA gives clear guidance, which they are forecasting they will do.

With regard to substitutability at the local level, or the hospital level that, will be down to the pharmacist and the physician.

Obviously, we have got no guidance into how that is going to play out.

And we would not give any guidance on that based on some market research that we may have got prior to launch.

Okay, Jeff, on Jetrea.

Marietta, you know, on Jetrea, I think on the OASIS data, it is better than the pivotal data because with the real world data, we see much better efficacy rates around vitreomacular adhesion and vitreomacular traction due to the third-party OCT screening out of epiretinal membranes and large macular holes.

And so I think the data is helpful for us.

And we have been seeing, by the way, on the reimbursement side and on the approval side, some good progress with Jetrea approval in Brazil, a number of approvals now across Europe, and ex US.

As for the product side, look, the data gives me more cause for optimism.

But I'm still cautious on this product, given that it is a challenging market to break into.

It's effectively a chemical knife when a lot of the surgical community is used to doing vitreoretinal surgery the traditional way.

I don't want to give too much guidance as to product size and peak sales in the future.

As I've said in the past, I do believe that it's an important niche product, but nevertheless it's not a huge product for us.

But again, to your point on the OASIS data, cause for optimism.

And David, on Pharma margin?

Thanks for pointing out the productivity, and more specifically better resource allocation is resulting in better Pharma margins and also lower M&S as a percentage of the total, as well as absolute M&S spend.

Just to caution again, as has been explained, during the course of the year, we tend to have the lowest spend in the first quarter and it tends to creep up over time.

It's going to bounce around now because of the different launches that we are going to be executing, particularly Consentyx and LCZ.

But our intent over time is to continue to improve overall margin.

And as you get out a couple of years, what you start to see is we start to put the generics behind us.

And if we do a good job with the new launches, they will become more meaningful.

Actually the margin will increasingly then be driven by the sales growth even more than the productivity efforts.

That should flow through to the bottom line.

Thanks, Marietta.

I think we have time for two more questions.

Thank you.

Our next question comes from Steve Scala from Cowen.

Thank you.

First, a follow-up on LEE011.

Novartis has encouraged investors to not assume early stoppage of the Phase 3 trial in breast cancer.

But post the recent stoppage of the palbociclid study, are you still urging us to not consider early stoppage of the study?

And please remind us when that interim look is.

And secondly, various signs suggest that Sandoz will launch an Advair generic in the US in a discus-like device some time next year.

Would you take this opportunity to tell us that those signs are not correct?

Thank you.

Okay, David?

Okay, for LEE, we have an interim in the first half of 2016 and we have a final result in the second half of 2016.

I have learned through life not to count on early stops of trials.

It happens rarely.

If it does stop early, then of course we will celebrate at that time.

So I don't want to speculate any further.

And Richard?

Thank you for your question, Steve.

Following up on what David said, with regard to up and coming launches and potential launches of the Advair generic in the US, we don't comment on the timing of that.

All right.

I think we have time for one last question.

Our final question comes from Odile Rundquist from Helvea-Baader.

Yes, good morning, good afternoon, thank you for taking my question.

Coming back to your guidance on the margin and the high single-digit growth you expect on cooperating profits, could you give us a bit more color on what solid contribution from Novartis Business Services versus Glaxo Oncology business?

Then if you can also confirm if you fully enrolled the reduction or accepting biosimilar studies, what actually Russia highlighted today with the potential biosimilar entry in 2017?

That's it, thank you.

Okay.

Harry, on margin?

Thank you, Odile.

As you point out, our full-year guidance is for the Company margin expansion, with the high single-digit cooperating income growth ahead of sales growth.

And NBS already played a quarter-one role in this and we expect also NBS to contribute to that on a full-year basis.

In terms for your modeling, what you can assume is that basically NBS is holding their costs on their management flat, which happened already in quarter one.

And as we said a couple of quarters ago and on the last call, this year we expect NBS to have roughly $5 billion of costs under management.

I think those two facts should help you to model the impacts on the margin from NBS, given that our sales grow mid single-digit and that $5 billion of costs would stay flat.

And Richard, on biosimilars?

I didn't actually hear the question.

The question was about rituximab and herceptin, are they fully enrolled?

And when do you expect to launch or file?

On both those, both those studies are progressing well.

The pause I have is we don't comment on progression of our studies and where we are.

And we particularly don't comment on the filing dates with regards to those, and any of our portfolio.

Sorry.

Okay.

What I would like to do is thank everybody for listening and we're looking forward to giving you an update at the half year.

This concludes the call.

Thank you.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen.

You may now disconnect.