Novartis AG (NVS) 2015 Q4 法說會逐字稿

Good morning and good afternoon, and welcome to the Novartis Q4 full-year 2015 results conference call and live audio webcast.

(Operator Instructions)

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

(Operator Instructions)

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

Please go ahead, sir.

Thank you.

I'd like to welcome everybody to our full-year results.

In the room with me today, I have Harry Kirsch, our CFO; David Epstein, the Head of Pharma; and Richard Francis, the Head of the Sandoz division.

Now before we get started, 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.

Thank you, Samir.

Okay, starting on slide number 5, I'm going to give an overview of our results, and also talk about some of the changes that we announced in the Company for 2016.

So overall, you look at our underlying results on a constant currency basis, and sales were up 5%.

We had a double digit increase in core operating income margin, and sorry, core operating income.

We were able to grow our core margin 130 basis points, and even with the impact of currency, we were able to grow margin in this environment.

Now the best part of the year really was the innovation, which we'll go through in a minute, but on slide6, you can see an overview of our financials.

Core EPS up 10% to $5.01.

Interesting to note on this slide, net income is down versus a year ago, but it's highly impacted by the exceptional gains that we had in 2014, specifically the sale of shares in Idenix, based on the Merck acquisition, as well as LTS Lohmann, and some exceptional charges we had this year related to Venezuela.

So that's not really a factor in our underlying performance, but that's why that number looks negative.

Now at the beginning of the year, I laid out five priorities for the Company, and I want to hit each of them, starting on slide number 8 with the financial results.

You can see both the Pharmaceuticals and the Sandoz divisions had very strong years, with mid to high single digit sales growth, and double digit core operating income growth, and this offset a weak performance on the Alcon division, which we'll get into also.

Innovation though, was very strong on the next slide.

You can see, we had 20 major approvals in 2015, Entresto and Cosentyx, David is going to go into, in pretty good detail.

But just looking at the US with 45 FDA approvals of new molecules, Novartis had by far the most, with four new molecules approved, and I think that it's a statement of the innovation power of this Company.

The third priority was to complete our portfolio transformation, and we did this ahead of time.

The integration has gone extremely well, with the GSK oncology business, as well as the separation of animal health, flu vaccines, non-flu vaccines, and the OTC business into the joint venture.

So I feel like we executed that well.

We're now off and running, and we're a stronger and more focused Company.

Now MBS has executed well on its priorities in 2015, to help us capture these cross-divisional synergies.

Sales were -- sorry, costs under their management were held flat and this was enabling the Company to show margin improvement.

This was one component of the margin improvement that we saw for the Company.

And then finally, our fifth priority was to build a high performing organization, and really good performance on quality assurance, 98% of our inspections were good or acceptable, and the other 2% are pending, outstanding.

So let me talk a little bit more about 2016 and the changes that we announced this morning, and I want to talk about two topics: The first is the Alcon growth plan, and then I want to talk about how we're taking our strategy forward with some group-wide changes.

So let's start with Alcon.

Stepping back, and just looking where we compete, ophthalmology is a very attractive sector within healthcare, so it's large, it's profitable and it's growing.

It's going to continue to grow, based on the aging population and a high level of unmet medical need.

Alcon is, by far, the leader in the sector, and when you ask a physician what Company they admire and recommend and prefer to work with in this space, the vast majority is Alcon.

But Alcon growth slowed, as we all know, in 2015.

We were down 1 point.

The fourth quarter was more severe than that.

So we stepped back and we conducted a very extensive analysis on Alcon, to understand the underlying issues.

We talked to customers, we did analysis, and we really came to the root causes of the underperformance.

The first is insufficient innovation, right?

We are not replacing the products where we are losing patent protection, and so the question is why, and I'm going to get into that in a minute.

But we also went probably too far from a cost standpoint, and we have reduced some of the customer focus that this Company was famous for, the evangelical focus on the physician surrounding that surgeon.

There are also some capabilities in Alcon that need to be upgraded and strengthened, so let me hit on each of those.

The first is, I really asked, why do we not have the kind of innovation that the other divisions have?

And if you pick it apart, we're operating two models in the Alcon division.

A medical devices model, that is very different than a pharmaceutical model in terms of how you generate innovation.

So medical devices, high frequency, very iterative development, sitting in the OR with the surgeon, understanding what they need, how can we make their life better, incremental innovation.

On the pharmaceutical side, it's higher spend, scientific discovery, longer term, and we were sub-optimizing both by having, we were -- by having them both in Alcon, we were under-spending on pharmaceuticals and didn't have quite the scientific depth.

We were treating medical devices a little bit like pharmaceuticals, so that's the first.

The second is that we pulled back a little bit too much on surgeon education and training.

You talk to our physicians, they are still of the belief that Alcon's really the only game in town when it comes to cataract surgery and ophthalmology, but they also notice that we've had issues in the last 12 months, so that's the second area that needs to be fixed.

And the third area that needs to be fixed is that we don't yet have the kind of capabilities in the pharmaceutical side of Alcon that we need.

I mean, in terms of targeting, in terms of messaging, it's still a relatively small unit.

So the growth plan for Alcon has three core elements.

The first is we're going to focus the business, we're going to strengthen that foundation that I talked about, and we're going to put some more money behind those assets that we have right in front of us, so we don't have to wait two or three years to see a turn.

In terms of focusing the business, we're going to focus Alcon on the surgical and the vision care business, so that gives management 100% focus on this medical devices side of the business.

We're going to move up the pharma into our pharmaceutical division, where the full force of a great development organization, a great commercial organization, can drive that off the pharma business, in a way that will benefit the whole Company.

Now importantly, we're going to maintain the Alcon brand name, both from a sales rep standpoint, and from a product standpoint.

And the reason for that is that the Alcon name is a tremendous asset, and we also want to make this seamless to our customers.

We want the full benefit of the capabilities of Novartis, but we don't want them to feel like they're dealing with two different companies or two different divisions.

So in fact, the franchise that will be off the pharma, reporting into the pharma division, will be still based in Fort Worth, sitting next to the surgeon, surgical folks on Alcon, coordinating customer calls, coordinating messaging.

So this is a way that we can take the full force of Novartis, optimize for an even better experience for that physician.

The second thing we're doing is we're going to strengthen the foundation.

We need a world-class surgical innovation model, and we're going to build that from a people standpoint and from a spending standpoint, but we also need to reinstate some of the training and education for the surgeons.

For example, when we go out with Centurion, instead of minimal training or training and education on the machine that just gets them up and running, we're going to surround them with the kind of service that they were accustomed to at Alcon, and return to delighting that surgeon in a way that Alcon is the only Company that they want to call.

And then the third area is that we're going to invest for growth.

Now, we don't want to wait two to three years for the pipeline in surgical or in optha-pharma, so we're going to put some money, incremental money behind those launches that are right in front of us, like UltraSert.

This is the new pre-loaded IOL that is launched in the US and Europe and also PanOptix, which is our multi-focal lens.

We're going to increase sales and marketing support up against these two.

We're going to increase direct-to-consumer advertising on the contact lens business, particularly Dailies Total 1, which we have seen is incredibly responsive to advertising, and we're also going to accelerate some in-licensing so that we can fill that pipeline gap.

So, Alcon will become a $6 billion eye care division, focused on essentially medical devices, surgical and the vision care business with three big businesses, IOLs, consumables behind the equipment, and contact lenses.

Now what can you expect?

We put the plan together.

We'll have full operational transfer by mid year, let's say.

The way to think about this is that the investments will kick in now.

We're investing approximately $200 million incremental to what we would have under the previous plan that was put together for Alcon.

That will be split between optha-pharma and the surgical device business.

But what we expect to see in Alcon is probably execution of this will take the first half of 2016.

So we don't expect to see a turn before then, and in fact the first quarter is a very, very high base versus year ago.

If you go back and look at what the shipments were, or sales were in Alcon in the first quarter.

But after the first half, we believe that we will be able to turn the business.

And in fact, we will exit the fourth quarter with low to mid single digit growth in a sustainable way.

We'll build the 2017 plan in the autumn of this year, as we start to see that turn, so that we can try to continue to grow momentum and return the business to mid single digit growth.

When you think about the business, these are the milestones that we're going to be measuring ourselves against.

We need to start to see the business turn at mid year, and then we need to be exiting the year at low to mid single digit sales growth.

Now we are also, there will be a change of leadership at Alcon.

I have a lot of respect for Jeff.

Many of you know him, and have spent a lot of time with him.

He's been responsible for a lot of successes at Novartis over his ten years, running the Sandoz business for five.

He's had a very difficult year, and has made the decision that now that we're making these changes at Alcon, it would be a good time for him to step down and think about what he wants to do next.

So I have hired a new division head.

His name is Michael Ball.

He was previously CEO of Hospira over the last four years.

He has deep ophthalmic experience, so he was President of Allergan from 2006 to 2011, and he will be the guy that drives this growth plan forward.

Now the shift to the pharmaceuticals division of the ophtha business is going to create a nice, unified ophthalmic medicines business, including the combination of Lucentis with the pipeline of the Alcon ophtha business, and this is going to be a big powerhouse, especially when the pharma division applies its capabilities to this business, with a pretty strong combined pipeline.

Again, a bit of a gap in the next two to three years, but a lot of promise in terms of big areas of unmet medical need.

So that's the plan for Alcon.

Now, I want to spend a minute talking about how we're going to take our strategy forward.

On slide 32, you can see, last year, we announced that we were focusing the Company on three sectors that have global scale and innovation power.

Pharmaceuticals, eye care and generics, and that was all about focusing the Company to make us a stronger and faster-moving Company.

Now in 2016, we're going to take the natural extension of that strategy and improve the effectiveness of the Company internally.

So we're going to further focus our divisions.

We're going to create even greater innovation, by integrating some of our drug development across divisions, and we're going to centralize our manufacturing to lower our cost base.

So starting with further focusing our division on slide 34, we talked about the first two, but additionally, we're going to take $1 billion of off-patent products from pharma and we're going to give them to Sandoz.

These are products that are not being promoted by the pharmaceutical division today.

There are many therapy areas where Sandoz has sales reps and commercial activity that fit those drugs, that are not being promoted.

So putting them into Sandoz will allow us to create more value than just watching them decline as mature products.

We took a very diligent view in terms of where we felt like we could really add value, and we're shifting 19 products that account for about $900 million to $1 billion of sales.

Now on the innovation side, we are integrating some of the functions across divisions that will help us standardize, simplify, and reduce duplication.

It's not just within the divisions.

Even inside the divisions, sometimes we have multiple groups that are doing the same work.

Safety, pharmacovigilance, regulatory, and so this way, we're going to improve resource allocation.

Instead of allocating development budgets at the beginning of the year and then working within those budgets, we're going to make this more of a real-time experience, and manage on an innovation management board basis all of the development projects across the Company, regardless of whether it's biosimilars, or whether it's oncology, or whether it's general medicine.

And this is the way that we're going to improve resource allocation on a real-time basis.

Now importantly, clinical strategy and execution of the trials will remain in the divisions.

So I've been able to name Vas Narasimhan, who is currently the Head of Global Development in the Pharmaceuticals division as the new Global Head of Drug Development and Chief Medical Officer of the Company.

Vas will become a member of the Executive Committee, and he will report to me on his group activities.

He will maintain his development responsibilities within the Pharmaceutical division, and report to David in that capacity.

The third area is to leverage cross-divisional synergies to lower our total cost base.

So if you look today, we've got separate manufacturing organizations across our divisions, and it leads sometimes to sub-optimal capacity planning.

So we do have a Tech Ops Council that is supposed to overcome this, but moving to centralization of a manufacturing network will enable us to really improve capacity planning.

We're going to organize by technology, so solids, aseptics, biologics, et cetera, and this is going to help us lower our total cost and improve our quality.

But even more importantly, it will allow us to more quickly adopt new technologies as they emerge, and spread them across the entire Company.

The second thing we're doing from a cost standpoint is we're expanding MBS to create an in-country service platform for sales and marketing across all divisions.

Sales and marketing, meaning back office like market research, market analytics, so certainly not customer facing, that stays in the divisions, but there's a lot of support.

This was always in the eventual plan of MBS, but we are accelerating it now, because we think there's big opportunity.

And I've named Andre Wyss, who is currently Head of MBS and Country President of Switzerland, to take on the newly-created role of President of Novartis Operations, so he will continue in his current role, but also pick up global technical operations and public and external affairs.

So these changes should result in savings over $1 billion by 2020, and the savings start now.

But more importantly, it's going to allow us to continue to invest in what has driven this innovation machine.

Because if there's pricing pressure, if there's cost pressure around the world, we are focused on streamlining, simplifying, ensuring that we have the money both to invest in R&D, but also to deliver on our commitment of making sure that we improve our profit margins over the next five years.

So MBS was a start, and this is going to add additional savings to that original view.

Now I'd like to turn it over to Harry to talk about the financials in a little greater detail.

Thank you, Joe.

Good morning, and good afternoon, everyone.

Unless otherwise noted, my comments refer to our continuing operations, and growth rates, and constant currencies.

This time last year we guided net sales would grow mid single digit, and core operating income would grow ahead of sales at a high single digit rate.

On slide 41, you can see that we delivered on that guidance.

On core operating income, we achieved even double-digit growth in constant currency, slightly exceeding our guidance.

Our division-level pharma and Sandoz achieved the guidance, clearly Alcon missed.

Slide 42 has the usual summary of our performance, focusing on the full-year first with (inaudible) sales growth of 5% and core operating income growth of 10%, generating strong core leverage.

Core EPS grew 10%, in line with core operating income growth.

Operating income for the full year was down 2%, mainly due to the amortization of the new oncology assets we acquired from GSK last year.

Net income was down 18%, impacted by exceptional prior-year gains from the sale of our shares in Idenix and LTS Lohmann, as well as exceptional charges in 2015, mostly related to our Venezuela subsidiaries.

Free cash flow was $9.3 billion, down versus year ago in US dollars, mainly due to the strong currency impact on operations, and high prior-year Novartis venture fund divestments and commercial settlements.

In the fourth quarter, sales were up 4%, core operating income was up 9%, and core EPS was up 8%.

Now to slide 43.

This is to emphasize our solid operational performance, which was driven by volume growth of 11% in sales and 27% in core operating income, which more than offset the negative impact of generics and pricing.

This allowed us to deliver growth of 5% and 10% on sales and core operating income respectively.

The negative impact of currency of minus 10% and minus 15% on sales and core operating brought us down to minus 5% for both sales and core operating income in reported US dollar.

Slide 44 shows the currency impact on sales and core operating income growth, by quarter, for 2015.

This is very much in line with what we expected in the Q3 call in October, with 1% point worse on core operating income, as the US dollar strengthened further in November and December.

Now let me focus on 2016.

If mid-January exchange rates prevail for the full year, we will anticipate a currency impact of minus 3% on sales growth, and minus 5% points on core operating income growth for 2016.

For quarter one, we would anticipate minus 5% and minus 7% respectively.

The higher currency impact in the first quarter is due to the US dollar getting stronger through our 2015, and hence, being relatively less strong in the first quarter of 2015 than the rest of the year.

Slide 45 shows the full-year core margin, which improved by 130 basis points, driven by strong performance in pharma and Sandoz.

Pharma grew 6% in top line, and 40% on the bottom line, resulting in a core margin expansion of 2.4% points, by investing in critical launches like Lucentis and Entresto.

This was due to improvements in core gross margin, driven by new oncology assets, as well as productivity initiatives.

Sandoz grew 7% and 17% on top and bottom line, resulting in a core margin expansion of 1.5% points.

This reflects the strong performance of our differentiated generics, including biopharmaceuticals, with the recently launched Glatopa, the branded US dermatology business, as well as a strong flu season earlier in 2015.

Alcon's core margin was down 2.1% points in 2015, impacted by lower sales and higher spending, primarily in R&D and M&S, behind investments to drive growth, and an increase in provisions for bad debt in Asia.

Now let's turn to quarter 4 core margin on slide 46.

Overall, core margin improved by 1.1% points for the group, driven by strong performance in pharma, which grew core margin by 3.3 percentage points.

Sandoz core margin improved by 0.6 percentage points, despite the flat sales performance in the fourth quarter.

This performance was mainly due to a strong comparator in the fourth quarter last year, which included more launches, and still benefiting from Diovan mono authorized generic.

Increased price erosion compared to prior years, and a weak start to the flu season in 2015, also contributed to flat sales.

Alcon core margin decreased 2.6 percentage points, primarily due to the declining sales, and higher spending in R&D.

As you'll recall from this time last year, we said that we were expecting a significant improvement between 2014 total group core margin, and 2015 continuing operations core margin.

This would be both the reset of our margin level due to the portfolio transformation, as well as continued productivity gains.

As you'll see from slide 47, our gains from the portfolio transformation have been 250 basis points and our sales and productivity initiative helped us achieve organic constant currency margin growth, even offsetting the strong currency headwind, getting to a core margin of 27.9% for continuing operations in 2015.

Slide 48 shows the change in our net debt from $6.5 billion at the end of 2014 to $16.5 billion at the end of 2015.

This was mainly due to the acquisition of the new oncology assets, and share repurchases.

To note, the share repurchases include buybacks from the two-year $5 billion share buyback program, as well as our share buybacks to mitigate dilution from our employee participation programs.

Slide 49 shows that we are proposing a dividend of CHF2.70, up 4% in Swiss francs and representing a 3% dividend yield.

If approved at the AGM, this will be our 19th consecutive dividend increase.

The compound annual growth rate for our dividend is 9% in Swiss francs and 12% in US dollars.

This reaffirms our commitment to a strong and growing dividend, and the payout ratio is 93% in continuing operations net income, and 37% in total group net income, assuming exchange rates as of December 31, 2015.

As net income is driven partly by accounting impacts, we also look at the dividend pay out as a percent of free cash flow, which is 73% of total group free cash flow.

I now want to turn our attention to 2016.

Slide 50 shows some of the key pushes and pulls for the year.

Performance was driven by growth products, including Cosentyx and Entresto, the new oncology assets, MBS, and cross-divisional synergies.

Headwinds include obviously the generics, as well as launch investments, and continued expected currency impact.

On slide 51, I want to present some insights for the outlook for the full-year 2016.

With the announcements we made today, I want to start by showing the restated divisional sales for 2015.

If we apply the new structure to 2015 actuals, sales for pharma would have been $33.3 billion, for Alcon $6 billion, and for Sandoz $10 billion.

From this base, we expect pharma sales to be in 2016, in line with 2015, or slightly below.

Alcon to deliver low single digit growth for the full year, and Sandoz to deliver low to mid single digit growth.

Overall for continuing operations, we expect total sales to be properly in line with 2015 in constant currencies and if you exclude the generic impact of Gleevec, this would be right in the mid single digit rate.

We will provide full restated financials by division in the first half of April, so before we announce quarter one earnings.

With that, our full year guidance, given on slide 52.

We basically expect both sales and core operating income to be broadly in line with prior year and constant currencies.

In 2016, we expect genericization of Gleevec to start in February in the US, and December in Europe, contributing to the overall expected generic impact of $3.2 billion.

Excluding the Gleevec generic impact, sales growth is expected to be in the mid single digit, and core operating income is expected to be in the mid-teens.

We expect 2016 to be a transition year, with very different dynamics during the different quarters and half one and half two, within the broadly in line guidance for the full year.

On slide 53, I would like to highlight the key factors that impact core operating income in 2016.

We expect core operating income growth in half two, but a core operating income decline in half one, more pronounced in Q1 than Q2.

The expected decline in the first quarter which could be a double digit core operating income decline in constant currency, is mainly driven by the following factors: In pharma, we expect US Gleevec genericization, as well as significantly higher launch investment for Cosentyx and Entresto.

In Alcon, we have higher prior-year base in quarter one, as well as investments for the growth plans starting, but expect positive sales impact, mainly in the second half of the year.

For Sandoz, we have a high prior year base in the first quarter with a strong flu season, but after a difficult Q1, we expect improvement in the back half of the year.

I would like to add some perspective on other key elements of our expected bottom line performance in 2016, beyond core operating income, on slide 54.

Our key assumption for the full year core tax rate is expected to be in the mid-teens, so consistent with last and prior years.

Currency, as already mentioned, minus 3% on sales, and 5% impact on core operating income on the full year, if currencies stay where they are right now.

Core income from associated companies is expected to be higher as we expect the OTC joint venture to realize further synergies in 2016.

And also in 2015, there is an included negative true-up on the rush income for 2014 results.

For core net financial income, we expect total expense of about $0.8 billion to $0.9 billion.

That is slightly worse compared to the 0.7 billion expense in 2015.

The increase was mainly driven by expected higher hedging costs due to increased exposure and volatility in emerging market currencies.

Finally, with respect to today's announcements, we expect to deliver over $1 billion in cost savings per year as of 2020.

Associated with these changes, we expect one-time costs of approximately $1.4 billion, in total, spread over five years.

The distribution of these savings and cost is shown in an illustrative format on slide 55.

Of the $1.4 billion one-time cost we expect about $0.8 billion to be cash flow relevant.

The remaining $0.6 billion is mainly expected to be accelerated depreciation of assets and technical operations.

As you can see, we forecast already a small core op income contribution in 2016, increasing over four years to $1 billion plus in 2020.

The free cash flow impact from this program would be less than $100 million negative in 2016 and already free cash flow positive in 2017.

The operating income impact is expected to be positive as of 2018.

Clearly, these savings are substantial over time and I expect them to create significant value and support our core margin development as we go forward.

With this, I'll hand it over to David.

Thank you, Harry.

The pharma division had a strong year, both in terms of its financial metrics and innovation metrics.

For the full year, net sales grew 6% in constant currency, and 14% in core operating income, allowing a core operating income margin gain.

Looking more specifically at Q4, you see 9% sales growth and 23% on the bottom line, resulting in, as Harry had shared with you, a 330 basis point improvement in core operating margin, which speaks to the strong underlying power of the business in periods of time, when there is not much generic exposure.

Turning now to the next page, you see that our growth product net sales have grown 33%, now representing 44% of the total business for full-year 2015.

In Q4, that number was actually 47%.

The reason we track this metric is a good guide for the sustainability of our sales over time.

On the following slide, we see our attractive growth platform, with exclusivity until 2019 and beyond.

These products are either blockbuster status today, or are on their way to becoming blockbusters in time.

Across-the-board, are very good numbers for the year with the exception of Lucentis, where we continue to have price pressure, as well as competition from both branded competition, as well as off-label use of Avastin.

There are multiple examples of healthy sales development throughout this portfolio, but what I want to do is just focus now for a few of them, starting with our oncology business, which is on the following page.

We achieved very strong growth momentum in 2015, and you could see that's the case, whether looking at our underlying oncology business, pre the acquisition of the GSK assets where we grew that business 8%, or now the total oncology business, which benefited from the acquisition of those GSK products growing 24% for the year, and also roughly the same figure for Q4.

The new assets contributed $1.8 billion.

They are delivering largely in line with what we expected when we made the deal case.

The interesting part for me is that we're starting to now see Novartis' commercial power come through.

In the back half of the year those assets did better than in the front half of the year.

In addition, [Alexander Reva] and his team delivered on all of the submissions and approvals that we had anticipated for those acquired products.

On the following page, I just want to call out one of our Novartis oncology brands, and that's Jakavi, which is approved for myelofibrosis now for a few years, and more recently for polycythemia vera.

You see this product continues to grow strongly, up 71% for the year, 59% for Q4.

Putting that into real dollars, that means $410 million for the full year and $119 million for the quarter.

So you can see we are well on our way to fulfill our projection for this to become a blockbuster brand.

In particular, the polycythemia sales have really only so far come from Germany and Japan, so there is more upside from here.

Now changing to Gilenya, we see strong momentum in multiple sclerosis, with Gilenya, both in terms of net sales growth overall with 26% in the US, and 17% ex-US, but also in terms of growth in value share, where we gained market share of 1.1 points in the US, and 2.1 points ex-US, where we've actually now at a 20% share.

This brand did just over $2.7 billion for the year and $742 million in Q4, which means we're now almost at a $3 billion run rate for this very successful launch.

Based upon our success in the MS category, we also made the decision to license in the remaining rights of Ofatumamab from GSK, which will allow us to start a relapse remitting MS pivotal program in the middle of this year, with a planned filing in 2019, with what appears to be a very effective asset.

Now I want to switch gears and spend a little bit of time on Entresto and Cosentyx, our two very important brands, which we believe over time could in fact become some of the biggest assets in the Company.

It's very clear that Entresto started slowly in the US, and in fact, we cautioned that uptick would be slow.

But even with that caution, I would say that the brand performed more modestly than even we had anticipated.

If you take a look at the chart on the left-hand side, you'll see that while the uptick of Entresto is outpacing Corlanor, which is Amgen's heart failure drug, as well as the two PCSK9s that have been recently launched.

It is well below the uptake for the factor Xas.

This is in large part driven, we believe, by the lack of formulary access that we experienced during the six-month of the launch of this product.

As you know, 65% of these patients are on Medicare, and these plans have up to six months to make a formulary decision, and in most cases, they took the six months to make that decision.

Our teams worked very hard during November and December, and as a result, we have signed a large number of contracts with formularies that are intended to open access.

And in fact, if you'll turn to the next slide, I'll walk you through where we now stand, which is in a much better place than we were as we exited 2015.

Starting with that Medicare patient population, you see that when you go back to October, we had virtually no access for the brand.

What that means is, if a doctor wrote a prescription, the patient was highly unlikely to have their insurance company pay for it.

Looking now it's January 2016 or by end of January 2016 you'll see a very different story.

You'll see that roughly, in Medicare, roughly 70% of the patients will have access, often requiring prior authorization, but access.

And of that 70%, 44% of the total, or about two-thirds have reimbursement on the lowest tier.

And the reason this is important is because in the Medicare segment, patients in a third tier or higher often have co-pays around $100 or higher.

Second tier patients or low co-pay patients typically have co-pays around $50.

There's also a large number of patients here that are low income subsidized patients, which will often pay out of pocket more around $5 to $10, making access quite affordable for them.

The commercial side of the business is a bit better, and you'll see that as of January, we had 78% of the plans were reimbursing for the product, or will be reimbursing for the product by the end of the month.

It's even better with roughly 73% of those patients being on the lowest tier.

On the commercial side of the business, low tier typically equates to about a $30 co-pay, and a high co-pay plan is typically $60 in a higher tier.

Thus, we would expect sales to start to improve now.

Our field force was retrained during the month of January.

They were provided with new promotional materials and great clarity on which of their physicians have patients that have access, and which do not.

Having said that, one way to look at this is really, this is really the beginning of the launch, which means the front half of the year, sales in the US will remain modest, and then we would expect a significant pick up in the second half of the year.

Turning to the next page, I want to contrast to you something that's very different, and that's our experience with Entresto in Europe.

Now to caution you here, we have very little data in Europe, but what we are seeing is a very different dynamic.

We launched in November in Switzerland for the product, and we see an uptake that's more than five times as strong as the US market.

Of course, that's adjusted on a per capita basis which owns a much smaller country, but we're seeing is that doctors understand the story, you'll see the value of the product, and if they're writing the prescriptions, and the prescriptions are being filled.

Why is that?

The Swiss system is much more straightforward, once the price is negotiated, the market opens to these patients.

We have even less experience in Germany, where we launched just over a week ago.

Having said that, with just one week of data, so I want to be very cautious, we're seeing a phenomenon that is more like Switzerland than the US, and in fact the first week, we had over 1,000 patients already on therapy in Germany, versus roughly 11,000 patients we have on therapy in the US after more than six months.

So I'm actually quite a bit more optimistic about the sales dynamic that will evolve during the course of the year.

Putting that all together, I think we should still, as we're outlooking for the year, expect relatively modest sales for the brand in Q1 and Q2.

Having said that, by the middle of the year, we will have a good read on both the US and the European sales dynamic, and be able to better fine-tune forecasts.

At this point in time, we believe that the peak sales guidance that we gave for the product remains intact, due to the value of the medicine, and the initial signs around uptake we're seeing outside the US market.

What does that really mean?

When we took a quick look at consensus, I think that expectations for 2016 are probably somewhat too high, especially in the first half of the year.

Having said that, Cosentyx is a very different story, if you'll turn to the next page.

We've seen very dynamic uptake of this product.

This product, as you know, was initially approved for moderate to severe psoriasis.

The patient experience has been very good.

In addition, in the US market, the vast majority of these patients are commercial pay patients, so they don't face the hurdles that Medicare patients face with Entresto.

As you can see, in terms of patients that are currently paying for their medicine, we have 6% value share in the US.

In addition, there's also several additional percent which is still getting free drug as they work through their insurance barriers.

Just like with Entresto, however, we see a very interesting phenomenon in the European market.

With Germany, where we launched after the US, in I believe it was late May last year, you'll see that we're already at 12% market share in this biologics segment.

Even more importantly, roughly 40% of these patients are biologic-naive patients, which means they're getting therapy much earlier in the course of the disease.

The doctors are uninhibited to go to the best therapy, unlike the US where patients often have to fail two, three or even four previous biologic therapies, before they get access to a medicine like Cosentyx.

We also received an expanded label in Japan, and our development team did a really excellent job gaining approval both in Europe at the end of last year, and in the US at the beginning of this year for the new indications of ankylosing spondylitis and psoriatic arthritis.

You get a sense on the next page what the market opportunity can be.

We just have the US market on this chart.

You'll see that those markets have been growing rapidly, particularly over the last two years.

And in fact, if you look at IMS data, which is far from perfect, for the full year 2015, it looks like the three indications combined are running about $13 billion, growing in excess of 20%.

And remember still, less than 20% of the patients who would eligible for a biologic are actually taking such a product, so the opportunity for market expansion as more and more players come into the field, is really quite good.

Just as I had cautioned on Cosentyx, I'm sorry, Entresto consensus, I would provide the opposite caution here, which is Cosentyx seems to be on a track to do better than what most people are expecting for 2016, and we're very bullish on this product.

In order to fully drive uptake in the US, it's clear that one of the keys to success in psoriasis is direct-to-consumer advertising.

Those TV commercials started just last week in the US, and we're optimistic that commercial will play well with this patient base and further grow the brand.

Now what I'd like to do is just spend a little bit of time on our pipeline, starting with PKC412, which is now on track to become the first targeted therapy to show an overall survival benefit in 3 mutated AML patients.

We will be filing the product, both in the US and Europe, in the first half of 2016.

As you can see, overall survival was improved by a remarkable 23%, and we have a tail of products that seems to do extraordinarily well for a very long period of time, so this will be a nice boost to our oncology business.

On the next page, I show four other late-stage pipeline assets, impacting different disease areas.

Our internal team had a bit of a debate which product to sell, and which products to show, excuse me, because they all had their own favorites.

But I picked four here because they all tell slightly different stories, but there are indeed other very interesting assets in our pipeline.

Starting with QAW039, this is a once daily CRTh2 that's being developed for patients with severe asthma, particularly those that have elevated eosinophils.

Vas Narasimhan and his team have started two pivotal trials for this product.

We expect to file in 2019.

In terms of positioning, it's the kind of product that would be used prior to the expense of a biologics, and we believe there's a big opportunity for such a product.

The second product I want to talk about we haven't spent much time on it before, is AMG 334.

This is a product that's being developed for both episodic, as well as chronic migraine.

It's a new class of medicines, it's an anti-CGRP monoclonal antibody.

There are several competitors.

We licensed this product as part of our Alzheimer's deal from Amgen, we have rights for the product ex-US and ex-Japan.

The Phase II data in this class has been very compelling, and we're very excited as these Phase III programs are enrolling well.

The next product is one that you've heard about before, Serelaxin or RLX030, our product for acute heart failure.

That program is enrolling well, and its planned to now be 6,800 patients, and we hope to finish up that recruitment during the course of 2016.

You'll note that the filing is now planned for 2017 rather than 2016, and that's because we went to the FDA and we went to EMA, and we asked to add a second primary endpoint called worsening heart failure.

The trial is now designed, there's a chance for this product to win, if it has a positive outcome in mortality, or if it has a positive outcome and worsening heart failure, a measure that's becoming increasingly important to cardiologists and hospital systems in general.

We believe the small delay is worth the increased sense of certainty, or the increased shot on goal.

The last product I want to talk about is in a category that's close to my heart, sort of timely in a way, given that this is the year Gleevec goes off patent, this is ABL001.

This is a novel and potent allosteric BCR-ABL inhibitor.

It works by a different mechanism than Gleevec, Tasigna, or Sprycel.

We showed some very early Phase I data at ASH this year.

There will be more data at ASH in 2016.

We believe what we've seen so far is a very, very interesting and very positive efficacy profile for the product.

The chart here says that there will be a filing in 2020 or later.

That is assuming a normal timeline with the standard Phase I, Phase II, and Phase III.

Should this product work well in patients that have failed other therapies, which one would hope would be the case, there would be an opportunity to file earlier, even potentially on randomized Phase II data.

So also a product to watch and stay tuned to.

If we can turn to Page 70, I'll wrap up there.

These are our expected selected highlights, in terms of news flow for the year.

Two green checks are ready for Cosentyx, where we are ahead of our internal plan.

We expect regulatory filings for Ilaris in hereditary periodic fevers.

Actually, a bigger condition than most people expect, particularly in Southern Europe and the Middle East.

Afinitor, an FDA action date is expected for advanced non-functional net tumors.

This will be important for the product to keep it growing, to offset the negative market pressures we have in breast cancer and renal cancer, from few competition.

I already spoke about PKC, and previously, we had guided that we expect to file and get an answer in this case from PMDA for metastatic melanoma, for the combination of Taf and Mek.

Second half of the year, novel products, BYM, regulatory filings for sporadic inclusion body myositis, new indications in lung cancer for Taf Mek.

Votrient, we will have the data and the regulatory filings for adjuvant renal cell.

And then last but not least, and you'll see from a slightly different shade, LEE011, this the CDK4/6 for hormone-positive metastatic breast cancer.

The reason it's shaded is we have an interim analysis during Q2.

We believe there's a pretty good chance, no guarantee, but a pretty good chance the interim would be positive, in which case we would definitely file in 2016.

However if we have to go to the full analysis, this is an event-driven trial, and it's possible that the filing would be early 2017 or late 2016, so we just want to use the different shade, to caution you we're not exactly sure when that filing would occur.

And with that, I'd like to hand it back to Joe.

Thanks, David.

So just to close, I want to lay out the priorities for the year.

The first obviously is to deliver our financial targets while we absorb Gleevec and also invest in the launches.

We're going to improve the pipeline across all divisions.

At the same time, we need to turn the Alcon business in the back half of 2016.

We've got a lot to do on cross-divisional synergies now, with the centralization of manufacturing on top of our plans for Novartis business services.

And finally, strengthening the Company through high quality and talent throughout the organization.

So I think we have a plan for Alcon, in which we can execute immediately, and this is going to make us a stronger and a better Company as we move to make some of the changes in both drug development, as well as our manufacturing footprint around the world.

So with that, I'd like to open it up to questions.

(Operator Instructions)

The first question comes from the line of Richard Vosser from JPMorgan.

A few on Entresto, and a couple on Alcon, please.

So on Entresto, you mentioned that there's some prior authorization still there in the Medicare coverage in the US, so just what proportion of lives still have prior authorization please, and what removes the prior authorization?

What hurdles do you need to go through to get rid of it, and over what time frame do you think that could happen?

Second question, just on the treatment guidelines, I think we've seen the first batch from Canada, and they've positioned Entresto as a second-line agent.

So if you could just comment on how you feel that leaves you relative to your marketing plan and what you think it might mean if you got the same thing in the US?

And thirdly, just, you mentioned changes to the sales force, retraining them in January.

Just if you could give us an idea of what's changed with that training?

And then maybe just a quick one on Alcon which is the business plan that you outlined in term of investing in the current products is similar to we've seen for the last six months.

So just what happens if the business doesn't turn around by mid year?

You've given us a very clear target that it should turn around, so just your thoughts on maybe a Plan B there.

Thanks very much.

David?

Starting with Entresto, so most of the plans require prior authorization.

That is not strange for this period of time.

What generally takes prior authorizations off is doctor and patient demand, so as people start to complain about it, as more and more come on, then eventually the plans will engage in a conversation with us.

There might be a little bit incremental rebate, but then those will come up.

I can't give you an exact time, but it won't be in 2016.

It will be later out than that.

In terms of Canada, I thought the guidelines actually were quite positive.

In terms of the guidelines for Europe we're told, and remember, we don't have complete transparency, we're told that there's likely to be guidelines issued around the time of the European Society of Cardiology Meeting in Europe, which I believe if I recall correctly is May.

And for the US, I'm told it's more likely to be in the back end of the year.

We do not yet know how the products will be positioned, whether it will be a choice, whether it would be Entresto first or there will be some other caveats.

But remember, there is only one pivotal trial, so doctors will tend to be more cautious when they write those initial guidelines.

And changes to the sales force?

Oh, I'm sorry so the biggest thing for the sales force is first of all, as you can imagine, they were struggling with the lack of access, and they needed additional training to know where the access was open and how to deal with it in practices through the prior authorization practice.

Just as importantly, it wasn't really until now that we have full detail materials for them, because it was a fairly long process with FDA to get those materials.

So they were trained on the entire selling story, and that's why I tried to indicate, it's almost as if the launch is starting now in the US market.

And as you model it, it's probably a good way to think about the uptake of the product.

Richard, in terms of the Alcon turnaround, obviously, we're executing now.

We don't expect to see the turn until mid-year.

We then expect to see improvement, and as I said, exit the year with low to mid single digit growth.

Now, your question was, what happens if that doesn't happen?

And we are right now totally focused on executing that, because the plan that I've seen is credible.

If we execute it, we should turn it, and then if we don't, if we aren't able to turn it, then we obviously have to step back and ask why.

What is it about either this business or about med tech or about any other element of Novartis and our ability to turn a business like that, and that's a question that I hope we don't have to ask, because I do believe in the plan, and I think with Mike's full attention on it also, and a team that's focused on executing it, that we'll be able to turn it.

But we've got a year to look, and we're going to execute, and then in the Fall and as we build the plan for 2017 we're going to evaluate where we are.

Thank you very much.

The next question comes from the line of Andrew Baum from Citigroup.

Thank you, questions for Harry, David and Joe.

So Harry, so firstly, of the announced $1 billion-plus in cost reductions by 2020, how much of that gets reinvested?

And then second, the anticipated timing for utilizing the $10 billion authorized buyback?

For David, given you have 200,000 patients sitting in integrated delivery networks namely in the VA eligible for Entresto, why not accelerate the adoption by increased rebating, given the uncertain US pass-by for the product?

I understand there's a dynamic between volume and value, but what would it take to get particularly the VA on board?

Then finally for Joe, in your explanation of Alcon's challenges and looking at page 25, the one area that you didn't focus on, or maybe I missed it, was the line talking about supply chain.

Obviously innovation or lack of is a chronic issue in Alcon, but my understanding is some of the overfilled channels or debts that were written off in Asia on the surgical business reflected mismanagement or issues in relation to the supply chain.

Have those been corrected in terms of both the bonus structure for your employees within Asia or within the surgical business, and do you feel now you have absolute oversight of the supply chain for the device business?

Okay, David?

Or no Harry, sorry go with the costs.

Yes, first, thank you, Andrew.

So the $1 billion, as Joe laid out, is there in order to partly reinvest into our pipeline, and organic growth, but also partly of course, to support our margin expansion.

Now to forecast that for the next four or five years, it's probably not the right thing to do at this moment, also given that things always change, but I clearly see this as significantly supporting our margin progression beyond 2016.

In terms of the share buyback timeline, just to clarify, in our AGM proposal, there will be the request of the Board through the AGM to authorize our seventh share buyback program, but it is basically an authorization request for [a framer of] share buyback.

It doesn't have any time limit, and you may recall that our sixth share buyback program was going from 2008 to 2015, and we just finished it with our -- the last element of the $5 billion buyback over the two years.

So we are not announcing a specific additional share buyback at this moment.

On the other hand also, we are always committed as we also did this year, in addition to announced share buybacks, to mitigate any potential dilution from employee participation programs.

David?

So Andrew, I agree with you.

The VA patients would very much benefit from this drug, reduce mortality, reduce hospitalization costs.

So this is the drug that makes a lot of sense for a VA population.

Through a couple months of discussion the VA have now at the end of last year partially opened the doors to us for roughly 30% to 40% of their population, and it's discounted with a standard VA rate.

There's no incremental discount.

We are continuing to talk to them.

We are willing to provide them some additional discounts to open the rest of the population, but I can't yet put a time on that.

It really will be driven by the VA.

And Andrew, on the supply chain for Alcon, one of the issues that we ran into in the last 12 months is when we launched Centurion, a lot of other things changed in the supply chain system, in terms of equipment that those surgeons use to use that piece of equipment.

And what that means is that it throws a lot of the consumables into, let's say, a level of complexity that results sometimes in customer service issues with that customer.

So because it is a high-touch business we did have some service issues.

We're largely through those now.

In terms of the bad debt in Asia Pacific that you mentioned regarding some equipment sales, that is now behind us, and we have, there is training, there's education, there's changing incentives that put that behind us also.

So really it is ensuring that we have best-in-class customer service and for the most part, we're through the woods after the fourth quarter.

Great, thank you.

The next question comes from the line of Matthew Weston from Credit Suisse.

Three questions, if I can.

The first, simply on Entresto, for the US, for the enhanced access that we've seen this year, David, is that simply a function of the six months rolling off in Medicare Part D and the rules?

Or is it that you've been forced to rebate more aggressively to open access on the product?

And then with respect to Gleevec and your assumptions, I'm sorry to dig into this one, but you've given us divisional guidance, so it's pretty important to understand where you're putting things.

We know some will enter on February 1. We know they effectively have a license on your patent.

Dr. Reddy has recently announced that you had settled with them.

Can you confirm that, and can you also confirm if you've settled with anybody else on the 2019 beta crystal patent?

And then finally, during the 180 day period, I presume that you will still make sales, it will be a two-player market.

Are they in pharma within your guidance, or are they in Sandoz within your guidance?

Entresto rebate?

Yes, so the answer is yes, it's both.

So one is, it's a negotiation, and many of the plans, not all of them, will use time on the fact that they have this six-month decision window to basically ask for very large relates at the beginning, and then over time you reach a place where both sides are happy.

I actually feel that we did a good job.

I won't give you exact numbers, but actually, the rebate requests came down over time, rather than going up over time.

We also have two plans, and I don't want to name the specific plans that have agreed to do an outcomes plan with us, and the way that works, pretty straightforward.

We agree to a base rebate for the product, actually fairly modest, and then depending upon whether or not we achieve specific goals around reduced hospitalization and savings to the plan, the rebate would either go up or go down.

And we think that's going to become something that becomes more and more popular in the US, and around the world.

For Gleevec, we assumed, as you've pointed out, a February entry of the first generic.

We believe they will be exclusive for that first six months, and our working assumption is there will be multiple entrants after that six months.

And then from the guidance standpoint, you should assume that at this point, we are not planning on an authorized generic in Sandoz.

So it remains, the Gleevec volume and sales remain in the pharma group.

And obviously, we don't want to go beyond that, just in terms of how we look and model, and think about maximizing sales on Gleevec for the group, but that's the current assumption.

Joe, thank you can I cheat with one other actually?

Because Harry's answer to the prior question about share buybacks, in a year where you're challenged, but you have substantial cash flow and a very strong balance sheet, it would make sense to use share buybacks to support earnings growth for investors.

And I guess my question is, is it semantics that you can't talk about a share buyback, because you have no authorization until it comes through the AGM because you've spent up?

Or is it that you don't see buybacks as an important element of supporting earnings growth this year?

Of course we see share buybacks a continued important element of our capital allocation.

On the other hand, we're sitting on $16 billion of net debt due to the acquisition of the GSK oncology assets, and we are working our way through that.

Now, I would expect continuously that, as part of our capital allocation we may announce one, but at this moment, there's nothing specific.

Our capital allocation priorities remain organic growth, then growing dividend, and certainly bolt-on M&A between $1 billion and $5 billion.

And fourth, last but not least, share buybacks, in addition to mitigating employee participation programs.

Harry, thanks.

The next question comes from the line of Alexandra Hauber from UBS.

Good afternoon, thanks for taking my questions.

Starting on Alcon, again.

What gives you confidence that you really will see acceleration in IOLs in the second half, apart from the fact that you have a lower base?

As far as I can assess the situation, it still looks like you're losing significant share, specifically in Europe and Asia because your competitors have so much more innovative portfolio, and I'm not sure whether the trifocals and the other launch will really be good enough to recapture share.

Also, can you give us some directional idea of about what Alcon margins are doing for the new parameter, of course?

So is 2016 going to be flat over 2015, and then stay flat until the premium IOLs comes through, the new generation in 2017?

And then thirdly, was Mike Ball involved in this whole strategic plan?

And just a final back up follow-up question on Entresto, and the prior authorization topic.

David, you said last year, I think in the third-quarter call, that cardiologists are not used to fight for access and in December, when we talked, you also said there's no need to establish any infrastructure to help them going through this, because it's temporary.

So is this now not coming off this year?

I don't understand the sales dynamics you're guiding to, as in not much uptick in the first half, but potentially better uptick in the second half, if the prior authorization isn't coming off?

Okay, let's start with Alcon and why we believe that we will see accelerating IOL growth in the back half.

It's not just IOLs, Alexandra, that will turn the business.

It's really a full plan that includes additional spending on the contact lens business, as well as the IOL business, and continued pressure on equipment and Centurion.

Now, you asked specifically about IOLs, and we are not losing share, remember, particularly in the US.

We are seeing a mix effect as multi-focal reduces and monofocal increases, so that is having an impact.

In Europe, there was some share decline due to the introduction of more price competition on IOLs, but when you look at the two new products that we have, the UltraSert, which is in both geographies, and PanOptix, PanOptix isn't a panacea in Europe, but it already is helping us to regain some lost share because of the optics of that IOL.

It is perceived as quite an interesting IOL, a la the toric multi-focal which also has become a very important element of multi-focal.

So there's premium IOLs, and there's premium IOLs, and we missed it, I think, on the first round, but with PanOptix and with toric, we're able to command premium prices.

We're going to increase spending, so this is Marketing and promotional spending up against those, and it remains to be seen.

I believe in the plan, and we'll see if it turns.

If it doesn't turn we have to ask a harder question.

In terms of Alcon margin, we ended the year at about a 31% margin.

This is old Alcon, assume more spending, a couple margin points back on this plan, split across.

When we show the pro formas in mid April, you'll see how that breaks out between pharma and surgical, but there is still quite a bit of decision that has to be made around where we are going to move costs, if they are going to move them to the ophtha pharma business or if they are going to have to stay in the surgical business.

So we still have work to do before we can talk about both the pro forma margins, and then also the margin evolution.

Assume though, that we've now got a base in 2016 from a margin standpoint, upon which we will be able to, if we're successful with our innovation, where we could margin up, where we could start to grow back to that level that was sustainable at Alcon.

And the issue is, we have to remember that we've got to ensure that we are still servicing this business with what it takes on these customers, because it is a competitive environment.

We want them only to call Alcon and that's going to mean training, education, making sure that we have the technical folks that we need to service those machines, and delight those customers, in a way that the competitors will not be able to.

In terms of Mike, he has reviewed the strategic plan.

He's in general agreement with them, but obviously as he comes in, I'm going to give him full flexibility to move things around in terms of where he sees opportunity.

We've hired him to really take the business and turn it, and so, he's going to have a free hand in that.

David, on Entresto?

So there are differences in restrictive processes, so when a product is not on formulary at all, you saw that even then we had a few prescriptions, because if a doctor wants to jump through all of the hoops and fight really hard, they can generally get a product on, but it's extraordinary burdensome, and they will do it for very few patients.

Once a formulary is opened up, whether it be the second tier third tier, even with the prior authorization, it becomes much more routine.

There's much less information needed.

It's a quicker decision process to plan, and it's repeated over and over, over time, so it becomes a standard practice for the office staff.

We have actually built, and I'm sorry if I didn't say it clearly before, but we actually have built those support services for doctors, just as we have for Gilenya and other products, and that will be available to them.

In addition, because you're right, cardiologists have less experience with prior authorization.

In addition, now that there's multiple other cardiology products launching, other companies are also educating cardiologists and their office staffs on how to do it, so over time, this will become much more routine.

Thank you.

The next question comes from the line of Seamus Fernandez from Leerink.

So just a couple here.

First off, for Joe, this may sound a little bit unfair, but over the list few years, we've moved from crisis to crisis in terms of the consumer business falling below expectations.

Now Alcon falling below expectations.

Can you help us better understand where and when investors should have conviction that the business is really going to be on the right path, on a sustainable basis?

Is it kicking off in the second half of this year, or is it more of a 2017 type event?

The second question, as we think about Entresto, I guess given a 16% total mortality benefit and a striking label, what I struggle with is what is the prior authorization dynamic that's being put in place, and what is the justification on the basis of the plans to allow that to be the standard?

Thanks a lot.

Okay, Seamus, starting with when to have conviction.

When you look at the business, the whole portfolio transformation was around focusing our business on leading businesses in their sectors, that have global scale and innovation power, and losing some of the smaller businesses that were good businesses in their own right, but they were distractions, or they had issues.

So if you look at the Company today, it's a simpler and a stronger Company than it was just two years ago.

2016 is going to be a transition year for us, as we're going through what is the biggest patent expiration that we've seen since Diovan with Gleevec.

This is a $4.5 billion drug.

So we're going through it at a time when we're launching two drugs that we believe will become mega blockbusters for the Company, on Entresto and Cosentyx.

So I think, as we move through 2016 and exit 2016, I believe we will put Alcon on a more, let's say, stable base where we've got predictability, where we've got maybe not scintillating double digit growth, but growth that we can rely on and count on, sustainable growth.

And the pharma business also has that predictability and sustainability.

I think by definition, the generics business is going to continue to be volatile.

We saw that in the fourth quarter, we had a base that was quite high, but we also did not see some of the pricing issues coming in Sandoz in the fourth quarter which did come and we expect those now to continue through 2016, and that's why we're saying Sandoz will still grow, we'll have low to mid single digit sales growth.

Not 7% like last year, but still a good business.

So you're going to have volatility in that kind of a business because that's almost by definition the kind of business that it is.

So I would say that as we're exiting like mid year of 2016 and as we exit 2016, I believe that we will be on a more stable base, particularly as we turn Alcon.

David, on Entresto?

Yes, if I can also be blunt.

Prior authorization processes are meant to slow product adoption, and keep costs down for payers.

That's what their basis is.

Sometimes they're simple, and they want to make sure the product is being prescribed in label for example, in New York heart failure class 2 to 4 the appropriate ejection fraction, blood pressures in certain range, et cetera, and other times they are arbitrary and add things like full dose beta blockers or something else, simply to add the additional hurdle.

And like I said earlier, once enough patients are on and doctors see this -- begin to see it as a standard of care, and complain a lot to the insurers, the prior authorizations will go away.

But that won't happen this year.

The next question comes from the line of Kerry Holford from Exane BNP Paribas.

Some product-related questions please.

So Afinitor, we saw sales decline in the US in Q4, and clearly you're seeing pressure from new competitors in renal and breast cancer.

But I wonder if there's something you can address now ahead of patent expiry in 2019, any new clinical data, or should we essentially assume that brand is now in terminal decline, in that market?

Also a slowdown in growth for Tasigna in Q4 in the US, is this really reflecting anticipation of Gleevec generic arriving?

What are your expectations for that growth rate going forward?

And then a point of clarification, sorry for me, on Entresto.

When you talk about lower co-pay, those patients who are accessing at lower co-pays, are you referring specifically to tier two there?

And with regard to the Marketing strategy here, are you focusing initially on those specialist prescribers, or are you now affecting a broader marketing effort from the outset?

Thank you.

Okay let's take them one at a time starting with Afinitor.

So Afinitor has additional competition in the area of breast cancer, which if I recall correctly, roughly half of the business.

We saw the launch of palbo from Pfizer in CDK4/6.

You'll recall we also have one in late stage development.

These are good drugs, and what they're doing is they're essentially pushing Afinitor to a later line of therapy.

Likewise in renal cancer, we have the launch of the immuno-oncology agent, which will often be tried earlier on, as well as several other targeted and anti-VEGF agent into renal cell cancer, which pushes Afinitor a bit further, a bit later.

Your question about sales projections a little bit difficult, because some of these patients will eventually fail, they are a new first or second line therapy, and then roll on to Afinitor, but later.

And in addition, we will have growth coming in tuberous sclerosis complex as well as neuroendocrine tumors, where we are expanding our label.

Having said all of that, I think growth, if there is growth, will be pretty modest for the product, so I think that's what we're seeing is a good indication that the product is getting closer and closer to its peak sales.

In terms of Tasigna in the US, it was, if I recall correctly, it was roughly in the quarter 9% growth, versus the prior year.

It was impacted by a stock in trade drawdown during the period, and a very strong prior-year quarter in Q4 2014.

So we think actually the growth of the product is intact, and it continues to perform well overall.

Having said that, we have cautioned before that when Gleevec does go generic, it is likely that some doctors and some plans will start their new patients on generic imatinib, and then wait to use Tasigna for the patient that has not achieved a certain cytogenetic response.

The next question was about Entresto co-pays and also about Entresto marketing.

Let me take the marketing audience part first and then I'll need you to re-ask me the co-pay question, because I'm not sure I quite got it.

So we're focusing on cardiologists primarily, and about 10% of the internists that write the majority of the heart failure prescriptions.

Of the cardiologists, in total that represents about 35% of the heart failure market potential, and we went light at the beginning in the US, consciously knowing that access was going to be low.

We didn't want to waste resources.

We will expand that field force a bit during the second quarter of this year.

That will provide more aggressive coverage, covering about 51% of the prescriptions, as well as more frequency against the key targets.

If I had to contrast that for you in Germany, where we have a very different set up, and where primary care is much more important, we've gone out with full coverage of cardiologists, and we're also covering the majority of primary care physicians from the get-go in Germany.

So it's a very different marketing and sales mix in different countries, depending upon their vocal situation.

Can you ask me the co-pay question one more time?

Sure it was referring to slide 64, where you talk about patients on formulary that have lower co-pay versus a higher co-pay.

Those yellow shaded area you talk about lower co-pay, is that specifically tier two access and higher co-pays tier three, four?

Or is lower mix of tier two and three?

So different plans have different systems, but in general, the lower one, the light yellow is a combination of tier two, or patients that are low income assistance patients in Medicare, who get a special out of pocket, which is typically between $5 and $10.

Thank you very much.

The next question comes from the line of Graham Parry from Bank of America Merrill Lynch.

So firstly, on Entresto, just want to try and understand why there is almost no uptake of Entresto in the fourth quarter despite 65% coverage in commercial.

Is that due to free sampling, is it destocking, or is prior authorization still just the key there?

So perhaps you can quantify those elements to give us a better feel for just what the underlying was in the fourth quarter.

And secondly on Alcon, perhaps give us some feel for the size or scale of M&A that you consider to build pipeline at Alcon?

And then thirdly on Serelaxin, when in 2017 should we expect the Phase III pivotal data now?

What was the rationale for including worsening heart failure as an end point in the trial, when the product was essentially rejected on that end point by the FDA on the first time around?

And does that reflect a lower certainty from Novartis on meeting the end point on mortality alone?

Thank you.

Okay so the first question is around why didn't we see more business on the commercial side, given better access.

In fact, the majority of the business did come from the commercial side during the course of 2015.

I don't have the exact figures in front of me, but it was north of 65% of the business, despite commercial being less than 35% of the patients.

And what you have got to remember here is I'll show you a chart at the end of October, what it really means is we didn't really have any access in the month of October.

You're only talking about November and December.

December is a holiday month, and it's just not enough time to accumulate prescriptions.

Having said that, we see each, I just want to remind everybody, each week, the number of prescriptions is going up, and the number of prescribers is going up.

So the trend is in the right direction.

We believe by reducing the access hurdle, which is now largely accomplished, and the launch of the product with the field force with the appropriate marketing materials, we will see an acceleration that occurs starting now, but it will take really until the second quarter until you start to see something really material in the back half of the year, to see that, a nice inflection.

And Graham, regarding Alcon size and scale of M&A or in-licensing, these are all relatively small deals, because now that we focus the division on surgical and medical devices, they are mainly small companies with interesting new technologies that we could click in.

But you're looking at relatively small up fronts, significantly below $1 billion, but those are the kinds of things that we think we'll be able to bring in and click right in, and move into a period where we could launch in 2017 and start to impact 2017, 2018 and 2019.

And then Graham, I have Vas Narasimhan sitting next to me, our Head of Development, and given that he's much more intimately familiar with the program than I am, I'll ask him to answer the good Serelaxin questions.

Graham, thanks for the Serelaxin question.

We currently forecast for complete study enrollment in Q4 of this year, and then there's a six-month follow-up for those patients to reach the primary end point.

So we would expect to read out in the first half of 2017.

In terms of the worsening heart failure, we did complete an interim analysis you'll remember last year, which had the study continue, and we remained blinded to the study results.

So there's nothing new that has led us to add worsening heart failure.

Worsening heart failure was added more to be in line with what we think would be our competition is doing, and also to give us two shots on goal moving forward.

That led to a sample size expansion to allow us to fully power to the mortality end point, so that's what's driving this.

The next question comes from the line of Jeff Holford from Jefferies.

Thanks for spending so much time on Entresto and Alcon, which investors are very focused on right now.

But just one more follow-up on Entresto for me.

Just one thing that investors and we can all get a bit concerned about is a bit of physician fatigue.

By the time access opens up, perhaps they've tried to prescribe a few times and perhaps it's not ended well.

So can you just give us the feedback that you had or just experience in terms about those cardiologists that have been accessing, that there hasn't been a build up of frustration there and potentially a lack of willingness to prescribe now that access has opened up?

Then if you can just talk a little bit about LEE011.

Just what you think your target profile is versus palbociclib, the end market product, if you think that there are any specific points of differentiation that you'll be looking for when that reads out?

And then I wonder if I can just Dan into just a bit more help on the pharmaceutical side in 2016.

It's clear that consensus needs to revise down sales for a number of products in pharmaceuticals and you've spoken to Entresto on consensus.

I think it's clear that Afinitor has some challenges this year.

Are there any other specific products that you might like to point out for the investment community to focus on in 2016 within the pharma business, where perhaps we need to rethink some of our assumptions?

Thank you very much.

Regarding Entresto, so what we found is, and the cardiologists are interesting to talk to, essentially if they would try one patient and the plan said it's not on formulary, the vast majority of them would not try again.

So I don't think there was any fatigue issue that has to be really worried about.

In addition what we started to do during the fourth quarter is we increased our program to give a month of the product away for free, particularly so the patients could get started, when we were anticipating that access would open up, which should start to help.

Regarding LEE011, we think this is going to be a very big class of drugs.

We believe that while we are clearly behind in the US, we'll be second.

We believe in Europe, the time gap between our approval and the Pfizer approval is not as great, which given our commercial strength, should be a big help.

And in terms of the differences in the drug in terms of monotherapy, they seem actually ballpark similar, in terms of efficacy, although there aren't any cross-study comparisons.

It looks like palbo and LEE have more neutropenia, while the Lilly drug appears to have much more diarrhea, and we'll have to see how that ultimately plays out.

And then our strategy with the drug is one of combinations, combining with exemestane, combining with AstraZeneca's fulvestrant, combining with our PI3 kinase inhibitor, with an idea that we can come up with a combination that's even better than the single edge agent, and then catch up and maybe even ultimately leapfrog if those combinations work.

I was a little bit nervous about talking about consensus for Entresto and Cosentyx, but since they were new products and we felt the deviations were pretty meaningful, we decided to do that, which is not usually what we do.

But I really don't plan on giving a consensus estimate for every other product.

You also have to look at the overall guidance that Harry provided.

The next question comes from the line of Tim Anderson from Bernstein.

A few questions please.

On slide 7, the upcoming catalyst in pharma, there's two Phase III read outs not listed which is BAF312 and Fovista.

I'm wondering why those are not on that slide.

Second question on emerging markets.

4% in the quarter, what should we be expecting in 2016?

Third question, just going back to Alcon.

Can I, did I understand it right, you expect operating margins are likely to trough out in 2016 in that division, with growth thereafter?

And then on Entresto you talked about prior authorization.

Does any of that entail a fail first policy, where patients have to fail either an ACE or an ARB before they get clearance to go on Entresto?

David, maybe the catalyst of BAF and Fovista?

Yes so BAF will in fact have a Phase III read out roughly mid year 2016, and Fovista, the two pivotal trials that are run by our partner Ophthotech, they will be, our understanding is they be analyzing the data at the same time in late 2016, so those are as expected

And then Tim, in terms of emerging markets, as you look at the trends there, we started the first quarter I think at about 11% growth, we went to then 7% growth as those economies started to slow, and fourth quarter was 4%, so we continue to expect the emerging markets to slow through 2016.

I don't know where to call it in terms of what will happen.

I don't think that growth is going to go negative.

Emerging markets have been bouncing around anywhere from mid to high single digit and double digit at some point, so I would assume that 4% is a low number.

We didn't think they we were going to see it, but we have seen it.

And it's partly driven by what's happening in China and Russia, and so, I think you should expect to assume that's going to continue.

In terms of Alcon, yes, you did hear me right in terms of trough margin in 2016, not necessarily 2015.

And then David on Entresto?

Yes, so I don't have every prior authorization plan in front of me but we'll go back to the team, so I can't rule out that there isn't some plan somewhere that has language you use.

If, however, it's certainly possible that some plans will require that a patient had been on an ACE or an ARB, because you remember we had the two-week run in period in our clinical trial, so some plans will use that as part of their prior authorization process.

The next question comes from the line of Vincent Meunier from Morgan Stanley.

Thank you for taking my questions.

The first one is on the US pricing.

Based on your comments earlier today, do you think there is a sort of inflection point, particularly in the US?

The second question is M&A, and particularly for Alcon, I understand that it will be essentially made of bolt-on acquisitions for new technologies, but is there a trade-off between the pharma M&A and the M&A for Alcon?

And the last question is on Entresto.

Can you please give us what is your target when the drug will be more stable, in terms of sales splits by channel and also profitability by channel?

Thank you.

US pricing, David, do you want to talk about that on the pharma side?

Yes, so it's an interesting story that's evolving.

If you look overall at the US market, clearly, the various payers who have merged sometimes bought chain pharmacies, bought PBMs, have the ability to slow adoption more than they did in the past, and to command greater price discounts.

Having said that, they are much better at it when there are alternatives available.

So to the extent there are multiple products in a therapeutic category, they're doing a very good job at extracting discounts from providers.

When there is not an alternative, they get much lower price discounts, if any discount at all.

I think the new thing that we really learn with both Entresto and Cosentyx is that they have really now developed their tools extensively around the introduction of new drugs, which creates a period of time where access is difficult, and then it gets resolved.

And that period of time actually is now longer than it is in Europe, which is probably the biggest striking change in terms of the market.

The market's crying for high quality pharmaceutical products at a lower price.

They want drugs that are cost effective.

That's why we're trying to move to more outcomes contracts, get value for additional life and for offsetting health expenses, and the problem's not going to go away any time soon.

And I believe in the US market, eventually there will be a political solution to address the very high out of pockets for patients, because it doesn't do the world any good to spend all of this money on innovation, if the patients ultimately can't get the medicine at the drug store because of the co-pay.

And then on the M & A question on Alcon, yes, obviously we look very, very hard at how we're going to spend our capital spend across the different businesses, and we have the same hurdles for each of the businesses around what it's going to take, to get capital allocated from the group.

Now again, what we're talking about in Alcon are relatively small transactions, where you might have $100 million or $200 million, maybe $300 million up front with milestones after that.

And we've all seen the impact of being able to show steady and consistent sales growth and earnings growth.

So there is something to be said in terms of how investors would reward small bolt-on acquisitions in Alcon, and in that surgical business and that's why that's still on the list.

And then David, in terms of the Entresto?

For Entresto I'm not going to say much more.

We've given peak sales guidance.

We've now outlined the path for 2016.

Clearly in terms of channels, Medicare is bigger than commercial in terms of patient numbers, but beyond that, I'm not prepared to say more.

The next question comes from the line of Tim Race from Deutsche Bank.

Three questions please.

First, just on Sandoz.

You talk about the US pricing pressures.

Can you just discuss what they actually are?

Is that specialty pharma related, dermatology, anything in particular, potentially, could you discuss that?

And then just on pricing of Entresto in Switzerland and Germany in the example you shared, what's the relative pricing of Entresto versus US and Germany and Switzerland?

And then finally maybe just on Alcon, if you don't mind.

Can you just remind me, what is the strategic fit of Alcon within the group of Novartis?

Is it there as a diversification element because it doesn't really fit with the rest of the business, especially now you're moving drugs to pharma.

So have you gone through the whole process of whether you would actually spin this division and that keeping it was a better alternative?

Thank you.

Okay, let's start with Richard on Sandoz.

Thank you for the question, Tim.

So if you look at US pricing, it really falls under two categories.

You have the pricing that's forced through the channel and the consolidation that we spoke a bit about last year and the year before, and then you had just the competitive environment you have in the US, where the more competitors come in, the price actually gets forced out.

And the timing of those and when those happen is very unpredictable, and so it's those two factors which have led to the pricing situation we saw in quarter four in the US.

David, on Entresto?

So as the US, as a reminder, the list price per day is $12.50 but of course in the US discounts are prevalent, sometimes mandated by government, sometimes negotiated with individual plans.

The pricing in Europe is clustered around EUR5 to EUR5.5, give you a ballpark idea.

Just to caution is we still are early in negotiations in many countries, so it's going to be awhile before we know some of the other markets.

And just regarding the strategic fit of Alcon, if you think about our strategy of focusing on high growth areas of health care, where there's a high level of unmet need, with global businesses that are number one or number two in their sectors, this fits.

At the same time, we got to prove that we can grow it sustainably, and that's really what we're focused on this year.

And we've got a clear growth plan, we've got milestones that we have to see.

If we are not able to deliver that, then that's a different question, but right now we'll take the next 12 months, and we're going to execute this and see if it's going to play out the way that we think.

Thank you.

The next question comes from the line of Naresh Chouhan from Liberum.

Just one question left for me.

Can you just give us some color on the 12% decline in Afinitor in Q4, and whether or not we should be expecting that to continue or potentially accelerate through 2016?

Thanks.

David, Afinitor in Q4?

You asking me specifically about sales?

Sales in the US, yes.

So for full year, we were up 10%.

In Q4, we were minus 4%.

These are worldwide growth numbers, and as I said, it's driven by the launch of Ibrance which won't change.

There are also some reimbursement changes in the UK.

You know that they took some products off the drug cancer fund.

And then just in general, there are price decreases in Europe, not just for Afinitor, but the vast majority of plans across multiple European markets.

So I would expect this product to decline in breast and renal, and it would grow in some of the newer indications of tuberous sclerosis complex and neuroendocrine tumors.

And I think the open question is eventually, as this product is pushed to a later line of therapy, will patients roll off that first-line and eventually come back to Afinitor, and that's harder to judge at this point in time.

Thank you.

The next question comes from the line of Florent Cespedes from Societe Generale.

Three quick ones.

First, on ophthalmology pharmaceuticals, how could you reenergize this business, knowing that it is quite difficult to innovate, and you are suffering from generics and Lucentis not growing?

Could you envisage any unique growth?

And then two questions on the respiratory.

First on the US market, for the US market with the [nail] products are you still looking for a partner to boost the sales there, and last question on respiratory (inaudible)now, do we have to understand that now the focus will be following the negative results on the product [Zolair], the focus will be on triple combo and the QAW039?

Could you give a little bit more color on these products and your strategy into asthma, thank you.

David?

Good, so starting in ophtha, we actually see a number of opportunities to develop products faster than were possible before, given the depth of the pharma development organization.

In particular, there are two opportunities, actually three.

One is to do additional life cycle management in some of the existing brands.

Ophthalmologists sometimes want versions of the product that are single use, preservative free, et cetera, et cetera.

Second, in the area of retina, we now have an opportunity to put together in a more seamless way, a program that develops both Fovista, [RTH], Lucentis, in a way that will be more powerful and more impactful, so essentially we hope to bring innovation forward.

And last but not least, there's a very good connection, a better connection than existed in the past with Alcon and [ever], but the pharma Alcon connection is actually quite good now, which means there's a number of novel programs coming out of Jay Bradner's shop focused on AMD, dry eye, anti-inflammatories.

Some of these will have proof of concepts in the near future, and with this set up, we think we can bring those forward more quickly.

In terms of the US respiratory, Seebri and Ultibro, yes those discussions with partners continue.

I'm hopeful that in the next couple months we will be able to tell you exactly how that played out.

And then in severe asthma, we think it's a very interesting field.

We have Zolair, in allergic asthma, which is selling well and continues to grow.

We have, we're developing the double and triple combination with the steroid, so Ultibro is a steroid in severe asthma, ex-US, and then you saw the, on my chart the QAW development program.

And when you look earlier in the portfolio, without going into specifics, there's actually other programs that look like they could be interesting in that field.

So it's a category, respiratory is a category we're committed to.

Thank you.

The next question comes from the line of Michael Leuchten from Barclays.

The next question comes from the line of Steve Scala from Cowen.

Thank you, I have three questions.

Two for David.

First, you mentioned that you think LEE011's interim look could be positive.

Is this just based on what you've seen from Ibrance studies or are there signals from the LEE clinical trials that are increasing your confidence?

Secondly, what are your latest on Lilly's ixekizumab relative to Cosentyx, given that ixekizumab will likely be approved very soon?

And then lastly, in the past Novartis has expressed uncertainty about the uptake of a generic version of Gleevec, and whether or not it will have all of Gleevec's indications.

Do you have any more clarity now, and is Novartis certain that Sun will launch the beta crystal form and of adequate purity on February 1?

Thank you.

David?

Okay, so starting with LEE.

I know nothing in addition, other than modeling the Ibrance response rates and trying to port those over to our program, to look at the interim analysis.

In terms of Cosentyx and the competing program from Lilly, there's a couple of places to think about, in terms of differentiation.

First of all, breadth of indication.

So we have now three indications in our label, my understanding is they will have one or perhaps two when they launch, which is important for physicians, and also formulary placement.

Second, we have long term data.

We actually have data that goes out now three years, and you'll see really nice sustainability of effect.

And we believe that's because of the very low immunogenicity with Cosentyx.

And my understanding is with the Lilly product, there any be higher rates of immunogenicity and we don't know whether or not the product will work as well in year two and year three.

And last but not least, at least from the data that's been shared so far, maybe there will be other data, is that the Lilly drug had more injection site reactions than Cosentyx.

Having said all of that, the Lilly drug is a good drug.

It seems to work well.

I think having more than one IL-17 on the market will grow the share for IL-17, and we welcome the competition.

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

The next question comes from the line of Marietta Miemietz from Primavenue.

I have a couple quick questions for David.

The first is on China.

In Spring 2015, I believe, they really cracked down on hospital drug budgets.

Should we think about that as one [of reset] that will lapse soon and China growth can potentially recover, or is it a more continuous process in terms of controlling drugs spend there?

And secondly on the ABL inhibitor.

So Tasigna is clearly more potent than Gleevec, but it's just very difficult to come up with a robust data set that can really compete with the massive Gleevec data set.

So I'm just wondering what data do you actually think you will need, not to file, but to really prevail in a commercial market of Gleevec's generics, and how fast do you think you can potentially get that data?

And then I just wanted to check for the 2015 procurement savings.

Do you think that we can get anything like that again in 2016, 2017, or is that coming to an end?

And finally, Joe, I was just wondering whether I could make sure I understand the method for calculating the potential Alcon target margin correctly.

So if I understand correctly, 2013 to 2015 margins were up potentially structurally a little bit high, and now you're investing $200 million relative to an earlier plan that probably also had some incremental investment.

So when all of the dust settles, then would you say we should take out a lot more or a lot less than $200 million out of the 2013, 2014 profit, to get to an appropriate benchmark for the target margins for Alcon?

Thank you very much.

David?

Starting with China so China is putting in place a number of reforms across sectors, but in particular in healthcare, in order to both control spending, and to expand access to medicines across their populations.

So there are positives and negatives.

You're right, they changed the drug prescribing incentive, which slows growth.

You asked whether that would be cyclical.

I mean, obviously the impact at the beginning is greater than later on, because of an inventory draw that happens within hospitals.

Having said that, there are multiple other changes to reimbursement policies in China, including more bidding on a local basis, which depending upon the product and the Company, can either be an upside growth or a downside growth.

Having said all of that, the Chinese market overall has clearly slowed.

From about a year and a half ago, it's growing about 14% a year, and the overall market according to IMF is growing 4% a year.

We're doing much better than that, but nonetheless, the mark to market has slowed and given the Chinese issues with their economic growth in general, I would not expect it to bounce back in the near term.

But eventually, we all hope that the Chinese market economy does ultimately rebound.

And in terms of ABL001, it's a completely different mechanism.

It doesn't bind in the same target as Gleevec or Tasigna, so it's not just a potency issue.

We see that patients who have failed multiple lines of therapy respond.

We also see synergies when both drugs are studied together.

So we actually see several opportunities to create a nice market opportunity for the product.

And what I want to do is I want to wait until the next set of studies is done, we will be able to indicate a little bit more on what the dose is, and what the development strategy for the product is.

Thank you.

Procurement?

On procurement savings, Marietta, as you mentioned, our procurement team together with the businesses has done a very good job creating $480 million in the quarter, a very high number.

On the other hand, we have continued opportunities, the project pipelines are full, and therefore, I continue to expect very good levels of procurement saving.

Certainly also the announcement of integrating development functions as well as centralizing manufacturing will give additional opportunities on the procurement side.

On the Alcon margin the thing that I was referring to was, we ended the year with a full-year Alcon margin of about 31%.

I've said that $200 million is what we're going to spend back, so that would take you into the high 20s.

And beyond that, what I'd like to do is let's get through 2016, and then we'll provide more guidance in terms of longer term on Alcon, and what the expectations are.

So we've got a lot of moving parts, we're focused on turning the business in the back half of the year, and I think we'll be in a better position as we see that turn, to really provide an outlook for the business, both from a top line and bottom line, that will be sustainable.

Okay, I want to thank everybody for joining us.

We look forward to providing updates as we move through the year.

And with that, I'll close the call.

Thank you for joining today's conference.

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