Richard Vosser: Thanks. Welcome to the 38th Healthcare Conference at J.P. Morgan. I'm Richard Vosser, European former analyst at J.P. Morgan, and it's my pleasure to introduce Vasant Narasimhan, CEO of Novartis, and welcome him to the conference.
Before I hand over to Vasant, just point out that the breakout session is in the [inaudible] Room after this presentation, Vas, welcome.
Thank you, Richard. It's great to be here, great to open the year as always at J.P. Morgan.
I'd like to give some perspectives on the journey Novartis has been on over the last couple of years. I'm now entering my third year as CEO, and I think we're making progress on the strategy we set out to become the leading medicines company, powered by advanced therapy platforms and data science.
When you think about what we set out, we set out to focus the company, and focus the company around our core of innovative medicines while looking to accelerate certain geographies where we thought we could have a differential advantage.
We had five key priorities, to unleash the power of our people, to deliver transformative innovation, to embrace operational excellence, go big on data science and digital technologies, and importantly, to build trust with society. I'll say more about that today than I'd have in the past.
I think over the last couple of years, we've demonstrated that the strategy is working. These are numbers through Q3 of 2019, and you can see, whether it's on sales or operating income performance, we're generating strong leverage on the P&L, solid top-line growth, but importantly, 2.2 percent up through nine months on our core margin and innovative medicines.
You can see also, strong free cash flow, showing that we're getting efficiency out of the business, and as well as a top tier TSR ranking. That holds for one year-, two year-, and three year-TSR, so we're very happy with the performance we're generating with the strategy.
What I'd like to walk you through is why we believe that strategy is unique, because in the end, a strategy only matters is we're unique from our competition.
One of the most important elements of our strategy is the focus, and what you've seen over the last two years is we've done over USD 70 billion of transactions to focus Novartis.
Of course, major spends and exits, like Alcon and Consumer Health, but also important additions, building in areas like cell and gene therapies with AveXis, radioligand therapies with Endocyte and AAA, and most recently, into the world of cardiovascular population health with inclisiran and The Medicines Company, a deal we closed last week.
We believe that puts us in a unique position. This is a chart that looks at size of company based on market cap, concentration based on innovative medicines, and overall concentration in Rx. You can see, in terms of a scaled focused medicines company, we believe we have now carved out for ourselves a unique position. Why does that matter?
That enables us to have scale in R&D, scale in the relevant and operational areas like manufacturing and commercialization, and we believe in ability to focus our capital to ensure that we can generate sustained growth and sustained profits.
We also think in enables us to maintain an appropriate and important diversification. When you look at Novartis, we play in 10 therapeutic areas, always trying to balance which ones we're in and which ones we exit.
Our top drug, Cosentyx®, only accounts for eight percent of our sales, so we don't present significant binary risk. We have 15 blockbusters, which puts us at the top of our peer set. Uniquely, we're positioned well in cell therapies, gene therapies, radioligand therapies, as well as in RNA therapeutics.
The last point I want to make on focusing the company is our refocusing on China. Clearly, China is incredibly important for many companies, now, in our sector.
When you look at Novartis today, we have the opportunity to double the number of NDA approvals that we have, up to 50 NDA approvals. We've had five NDA approvals per year in the past. That will go up to 10, with a total of 50 over the next five years.
We're focusing our resourcing in China. If you think about a drug, like with Entresto®, we see significant potential for medicines like Entresto® and Cosentyx® in China, and we've now focused as well our resourcing and management attention on the geography.
Turning to culture, one of the most important elements of the Novartis transformation is our belief that investing in our culture in the long run, for long-run investors, will generate outsized returns. We do this in a very rigorous way.
This is owned at the top, owned by me. We have a team that looks at how we're generating the culture change across the entire company, what we call an inspired, curious, and unbossed organization.
We've looked at the research. The research clearly shows culture drives performance, culture drives innovation. We've commissioned a meta-analysis, and you can see areas like group goals, perceived supportive innovation, psychological safety. These things really matter.
What we try to do at our company is measure the progress that we're making. We look at upward feedback for all 15,000 people managers at the company, and continue to provide that feedback back to the managers. We pulse our associates every quarter, looking at how are they perceiving the company. Do they believe that engagement is increasing?
Lastly, we're using machine learning and people analytics on metadata through a collaboration with Microsoft to really understand how our collaboration interaction point's working.
There's a broad set of initiatives we've undertaken to transform the culture of Novartis. Some of the things like parental leave, where we've had 14-week parental leave for all associates anywhere in the world. That's a unique policy that we've put in place.
We've made LinkedIn-learning Coursera a broad range of learning programs free for all associates at the company. We see 10s of thousands of associates taking this up.
Lastly, our unbossed approach, getting that through our leadership, we invested a tremendous amount in upgrading the leadership capabilities in the company, so we believe culture drives performance, and we believe in the long run, unleashing the power of our people is what's going to make the difference.
We've also pivoted harder to break through innovation. That's something I believe all companies will come up on this stage and tell you. We're trying to be rigorous in asking ourselves, "Are we really first in class? Can we replace the standard of care? Do we have significant absolute efficacy gains in the medicines that we launch?"
When you look at the pipeline review that we recently had in London, on multiple measures, we believe we're achieving what we set out to do. When you look at scale, you can see 116 phase one and phase two programs, 37 phase three.
When you look at replacement power, we lead the sector in replacement power when you look at Evaluate Pharma's data from 2019-2024. As I said, that pivot to breakthrough innovation, really ensuring that we have most of our medicines as first-in-class or medicines that can significantly replace the standard of care.
One of the things I would say is 2019 was a breakthrough year. We set a record -- at least we believe -- with six NME approvals in the United States, five for novel compounds. You see them here, ranging from Zolgensma® and Mayzent® to Piqray®, Beovu®, and Adakveo®, one of the first advances in sickle cell.
One of the things I always want to highlight is the importance that these medicines ultimately have on patients. As a physician myself, I think that's really why we come to work, and there's extraordinary stories behind each of these medicines.
Of course, Zolgensma® is an extraordinary medicine, and there's one extraordinary story I wanted to briefly share with the audience today.
This is a big point.
We now have 15 children who have cleared four and a half years from their initial dose of Zolgensma®, and extraordinary stories like Mateo.
Now, with hundreds of children treated around the world, I think we're starting to see the gene therapy revolution happen, and the potential that this has, I think, to really change the course of medicine. We want to be part of that as a company. That's why we invest in these early-stages in areas like cell and gene therapies.
When you look at our 2020 catalysts, we continue to have a steady flow of catalysts through the year, major approvals, importantly, ofatumumab, which we filed in December in the United States. Inclisiran, as well, which we've also, The Medicines Company successfully filed in December of last year.
Major submissions you can see around the world, major readouts. One of the things I wanted to highlight is now we're entering the next wave of innovation at the company. Phase three starts, including TQJ as well as LNP and PNH, and a number of other medicines we believe will be the next wave of innovation at Novartis.
Four I wanted to highlight. We highlighted a whole range at our R&D day last month. I would encourage you...This was the most transparent we've ever been in an R&D day. We provide full transparency now into the phase one and phase two pipeline, which you can also find at the back of this presentation.
LNP, an oral Factor B inhibitor, which we believe can transform the care of paroxysmal nocturnal hemoglobinuria as well as multiple renal indications, as well. It's a unique molecule, beautiful profile, we think can be a significant medicine, entering now pivotal studies.
TQJ, which follows on from the same concepts like inclisiran, takes on Lp(a), one of the remaining genetic determinants of cardiovascular risk, with very potent reductions in Lp(a). We start a major outcomes study with that medicine this year.
Iscalimab, which is our CD40 ligand inhibitor, which looks at transplantation, and can we get to a calcineurin-free transplantation regimen as well as moving to other immunological areas.
Lastly, MBG, our anti-TIM3 antibody, which is now entering pivotal studies in myelodysplastic syndromes as well as AML, so a really exciting group of medicines here.
There was an even broader group that we highlighted at R&D day ranging from cartilage regeneration to other important cancer modalities. I encourage you to take a look.
The third area which I think has become a very important part of our story is our focus on operational execution and delivering on margin expansion.
When you look at the operational performance we've had this year, of our recently launched medicines, I think it's quite impressive. You see Cosentyx® through nine months already at 2.6 billion Entresto® at 1.2 billion. Both of these medicines combined, on their way already to generating five billion dollars in sales.
You can look at, throughout the oncology, a group of medicines, medicines like Lutathera® or Promacta®. Kisqali®, as well, now starts to take off. We feel like we're in a good place with these, a pretty broad set of medicines we've recently launched.
When you look at the innovative medicines' sales, we're now rapidly climbing up in terms of the percent of sales that are coming from these recently launched growth drivers.
The real story for us in the coming years is going to be launching medicines. We have to be a launch machine in launching the broad array of medicines we're bringing forward. We have 15 ongoing and upcoming major launches, as you can see here in the chart.
Many of them, you know well. Beovu® is off to a very strong start. Mayzent® is coming back up as we had hoped. Piqray® has outperformed all of our expectations, Adakveo® now starting to have patients in the United States on the medicine.
Important launches this year like ofatumumab in MS, but also Cosentyx® in a new indication. Later today, we'll be announcing an important collaboration with the UK government with respect to inclisiran.
That will be announced later this morning, which demonstrates, I think, how this medicine, in particular, could transform population health in cardiovascular disease like few others could in the past.
In terms of margin expansion, consistent margin expansion that we've delivered, we originally had guided to mid-30s within five years. Now we have brought forward that guidance. We'll be at mid-30s in the near term, and mid- to high-30s in the medium term.
We can achieve this independent of all of the ins and outs of potential patent expires. We believe we will hit this, and I believe we feel very confident at the levers that we're putting in place to make this happen.
Just to put a little more meat behind that, both in manufacturing and in business services, we have very broad-based programs to take out what will cumulatively be two billion dollars in costs by 2020.
You can see in our manufacturing area, as we've had multiple exits, we're rapidly streamlining the footprint and putting in new technologies in preparing to be a cell and gene therapy for the long term.
Similarly, in business services, a significant offshoring operation as well as a lot of work to automate the system, alongside this, we're working very hard to improve our cash conversion cycle so we can throw off more cash out of the P&L that we can invest in renewed technologies.
I also want to say a word about data science and digital technologies. I know for many of you, there's a question as to how will these technologies ultimately impact a company like Novartis. There's a few things I'd want to highlight.
First, we believe that the biggest opportunity is in our core operations. We have what we call 12 digital lighthouse projects which we're scaling across Novartis. We believe these can significantly increase either the efficiency of our R&D or manufacturing operations, or enable our sales reps to get to our patients with better information at the right time.
We're scaling across the company in terms of capabilities. We have 1,500 data scientists now at Novartis. We have programs now to enable any associate at the company to be trained in artificial intelligence or data science.
We've launched biomes across the world, from San Francisco to Paris -- there'll be more coming -- where we have startups sitting with us and learning from us, and hopefully coming up with the next wave of digital technologies.
We've launched three major partnerships last year, each of which, I think, could have significant impact on the long run success of Novartis.
A partnership with Microsoft on artificial intelligence, a partnership with Amazon to scale operational excellence within the company, and lastly, a partnership with Tencent to leverage WeChat to enable better detection and better management of heart failure and hopefully other therapeutic areas in the future.
I wanted to show you that this is happening at Novartis, so another brief video, which I hope will demonstrate that this isn't just talk.
In each one of those areas -- those are real -- those are scaling across our enterprise, we think about 10,000 associates operating in about 150 countries. We only achieve impact when we hit scale. In every one of these technologies, our goal in 2020 is to take them truly to scale.
That single platform that we have is a room -- and we have multiple rooms across Novartis -- we're almost like an air traffic control center. We can monitor and predict, using artificial intelligence, how all of our trials are enrolling.
We're rolling out the same in manufacturing as well as other operational areas. We have almost 10,000 sales reps with AI-powered intelligence helping them guide how they do their work every single day.
The last topic I wanted to tackle before closing is on building trust with society. Clearly, in the current environment, especially given the push for environmental concerns in general, ESG, we believe we have to be -- I believe -- we have to be a leader in how we work across the various elements that we can impact from a building-trust standpoint.
In Novartis, we have now identified four areas we plan to focus on. We transparently do this. For those of you who are interested, we have a very detailed report we put out, and making even more detail that will come out later this month outlining what we're doing in each of these areas with clear targets.
Whether it's ethical standards, where we are doing a lot now to improve how we manage third parties, which is, I think, one of the big things our sector needs to do much better.
We're bringing our prices down in low- and middle-income countries. In Sub-Saharan Africa, we have now prioritized access over profits in order to achieve maximum access in the region.
We launched a major global health partnership in sickle cell disease with the government of Ghana, which is now scaling across Africa. We've committed to important standards with respect to diversity, UN-equal pay for equal work. We've now reached 44 percent of management with gender diversity, and our goal is 50 percent within the next few years.
We're doing this in a very structured way. We have a scorecard with one year targets. Those targets will be published. Those targets are in my CEO scorecard. They're systematically reviewed.
We have a committee that I chair, where we actually look at this in a consistent way. It's liked to compensation, and will be transparently disclosed.
There's a few big areas which I am particularly proud that we're trying to make an impact on. One, we're trying to reduce the time lag novel medicines come to the poorest part of the world to three months from when they're launched in US and Europe.
Second, we're implementing access strategies now to figure out how to close the gap in cell and gene therapies to broaden access to these very advanced technologies.
We've committed USD 100 million to treat malaria, and we've also committed to eliminate leprosy, as well as take on another infectious disease, Chagas disease, in Latin America, the most common infectious disease in the region.
We've committed to achieve carbon neutrality in our own operations by 2025, and reduce our total carbon footprint even in our third-party operations by 2030. We've committed to deliver on our UN EPIC and LGBTI pledges, and holistically address sickle cell disease in Ghana.
I take this very seriously. Our leadership team takes this very seriously. This is not an "and." This is not something we do on the side. This is something that is core to our strategy. I believe it motivates our associates. It gives us the license to operate in countries around the world.
I did want to share one incredible story. That is, of course, the launch of an effort to tackle sickle cell disease in Ghana. As many of you know, we've brought forward sickle cell therapies now to treat sickle cell disease across the United States and in Europe, but the vast majority, many millions of children and patients suffer from this disease in West Africa.
We took on the challenge with the president and vice president of Ghana. I was there with the vice president. We launched a major effort to tackle it in Ghana with newborn screening, bringing the cost of generic medicines down dramatically in the region.
Now, our hope is to spread that across Africa to show you can take on a disease like sickle cell and maybe one day bring some of the more advanced therapies to the region.
We're also using drones, and I've learned that drones are really cool. One of the things I did want to show you was a video of the drones that we're using to deliver sickle cell medicines across Ghana.
Vasant: That is actually a clinic that's inaccessible by roads. You can see the power now to use these technologies to bring advanced therapeutics to people who desperately are in need.
The company, Zipline, can move one ton of medicines across a region in Ghana spanning over 100 kilometers, and can now do it with a closed supply chain.
I hope that gives you a sense of what's going on at our company. We believe we're on the right track. It's been a great journey for the last two years. A big transformation, as I said. USD 70 billion of transactions, a new strategy, but most importantly in my mind, the cultural transformation is taking hold.
We're bringing medicines that matter to patients. We're driving outstanding financial performance, and we look forward to continuing to do that to deliver value to all of you, our investors, but most importantly, to patients, families, and people all around the world.
Thank you all very much.
Moderator: Welcome, everyone, to the Novartis breakout at the J.P. Morgan conference. We have Vas here with us. This is Q&A, so we can go right in if there are questions.
Then, maybe I'll kick off with one. You talked straight away out front about the focus that you've brought to the business. Maybe you could talk about bringing future focus and the ideas around Sandoz and the transformation that you're bringing to Sandoz?
Vasant Narasimhan: With Sandoz, what we've done now is put in a great leadership team that's really focused the agenda at Sandoz to be a great generics company. You've seen us exit areas that were more tangential, really focusing back on core oral solids, injectables, and biosimilars. Some of the actions we've taken made an acquisition in Japan of an injectables business.
We're continuing to look at additional opportunities, a number of biosimilars deals as well. When you look at Sandoz's underlying performance in 2019, it's actually been quite good. You start to see revenues in the low single digits. You see core operating income growth in the high single digits. You see reasonable margin expansion.
We actually feel pretty good with where Sandoz is at the moment. That doesn't change our goal for the end of this year, early next year, to make Sandoz a stand-alone generics company within the Novartis infrastructure.
With that, we will separate out manufacturing, certain elements elsewhere in the business services arena, as well, to really enable Sandoz to operate like a generics company with a generics cost base. Why do we do that?
One, we think we can improve responsiveness to the market. Two, we think we can, hopefully, drive the margins of Sandoz up to its peer set, which is in the mid to high 20s. Three, we think that will also enable Sandoz to have the freedom in decision making to, hopefully, build-out its portfolio.
Audience Member: How much of that portfolio do you expect to disclose?
Vasant Narasimhan: For Sandoz right now, we have the ongoing transaction with Aurobindo, which we hope will close in the first quarter of 2020. Beyond that, right now, we feel like we have the right footprint.
If you look at Sandoz in Europe, where, depending on the segment, number one or number two, in many of the relevant emerging markets, a similar position. If anything, I think, right now, what we're looking to do is strategically add on, particularly areas in hard-to-make generics and injectables to build-out the portfolio and give it some more strength.
I think another element of the story will be watching how US pricing in generics evolves. I think we're starting to see across the sector, some flattening, or slowing down of the price erosion that we saw that really peaked a couple of years ago. That's another element, I think, of the story.
Moderator: Maybe just to build on that one further in terms of biosimilars and bringing those to the US and how the rollout's going in Europe and maybe future biosimilars you can bring? Just thoughts there.
Vasant Narasimhan: I think on biosimilars, we've had a very strong performance in Europe. We have about seven or eight, I think, biosimilars launched in Europe. We, generally, see in the first couple of years, a very good sales performance and, as additional entrants come in, you do, as expected, start to see declines in price but, even after that, given how we're able to drive down cost of goods, we still feel very good on overall in the European context.
As you all know, in the US, it's been tougher, I think, in the biosimilars environment. I still believe, given the size of resources that we could take out of the system through successful biosimilars, this will eventually happen.
In our hands, of course, we have filgrastim and pegfilgrastim already launched. We also have, from older days, a human growth hormone. We'll see how the Enbrel patent case ultimately evolves. Then, over time, of course, we hope to get adalimumab biosimilars as well.
We also signed a number of deals. We have an ongoing deal for bringing a biosimilar, Tysabri®, as well as a deal with Gan & Lee in China to look at bringing insulin around the world as well. We continue to invest through a mix of partnerships and internal development.
Our commitment to biosimilars stays strong, commitment to the US stays strong. I do think smart reforms would help accelerate biosimilar uptake in the US.
Moderator: One of the new launches you highlighted with the very nice video was Zolgensma®. Perhaps you could talk about the rollout in the US of Zolgensma®, how we're going there, and where you are in terms of the European filing, etc.?
Vasant Narasimhan: The US rollout still goes very well. I think right now, we continue to see very solid uptake, consistent uptake, as we saw already in Q3. The trends continue in the direction we had hoped. In terms of the patient profile, we see still a pretty even distribution of patients of all SMA types between the ages of one and two, 6 to 12 months, and under six months.
We do do very well in states that have newborn screening. Right now, about 30 to 35 percent of newborn lives are covered now through newborn screening. The aspiration is that we can get that number up in 2020 and then, up even further.
I think, clinically, there's such a strong case to give Zolgensma® to a newborn identified with any of the SMA types, regardless of SMN2 copy number, that, as you saw with the video of Mateo, if you treat early enough, you have truly revolutionary outcomes.
That's, basically, where we are in the US, goes according to plan. Manufacturing continues to be expanding well. We announced the Longmont facility is now operational last week, which gives us a third facility in the US to build-out our AV capacity.
In Europe, we have, I think, come to a good place with EMA. We still continue to expect CHMP's positive opinion in Q1. Similarly, in Japan, we're in a similar situation. We're in the midst, now, of filing all around the world on the basis of the US file. The US is the reference file for Zolgensma® in other markets.
The reason that matters is that you have a reasonable burden of disease of SMA in the Middle East, in Latin America, a high degree of interest in these markets to come up with approaches that allow accelerated access.
I think, in this particular medicine's case, you don't want to just focus on the US, EU, and Japan. You also want to look at some of the other emerging markets as well. That's a big focus for 2020 for us is to get, under two years of age, Zolgensma® well on track in those markets around the world.
I'll already presuppose the next question. On the IT clinical hold, we've had good conversations with the FDA. I think there's important context, of course, in terms of as we've gotten deeper into this, we feel quite comfortable, that with the appropriate package of information, we can move off of clinical hold, move, hopefully, towards a filing of IT in the US, as we said, during this year.
Audience Member: Any reimbursement issues that you've had in the US or is that done? Then, in terms of your global pricing, is pricing the same in developed markets less than emerging markets? How are you pricing the product?
Vasant Narasimhan: In the US, to date, we've only had one percent of patients, but in fact, it was one patient who was on label who didn't get reimbursed. I think it's important to note that, in many cases, there are multiple rounds of appeals with the payers, to ultimately get the patients on the medicines, but, in general, it happens. In the US, I think it's been, largely, according to plan.
We've not announced a pricing strategy around the world, mostly because, once we get approval, we need to have those discussions. This is, of course, a very unique context.
What I would say is when you look at Kymriah® around the world -- our CAR T therapy for pediatric ALL and DLBCL -- is currently reimbursed in 18 countries around the world and, in general, reimbursed in a pricing corridor very close to the US. I think that gives us a reasonable model of how we're going to approach Zolgensma®, as well.
Vasant Narasimhan: When I look at China and the impressive reforms that have been made, I think there's a couple of things that's important to note.
One, from a regulatory standpoint, the outstanding work that the China FDA, which has been renamed, has done in terms of raising the bar in terms of what's expected for regulatory filings but also, clearing the backlog. It's become a much more efficient system, much more predictable system. That was point one.
Point two, the ability to do pivotal clinical studies, including China in the pivotal study, without having to do a separate approach or separate IND in China, changes the game. It enables us to bring medicines much more quickly into the Chinese market.
Then, three, I think, the overall modernization of how China approaches, whether biologics, new technologies, has been impressive. We see a lot more predictability from a regulatory standpoint.
I think, second, with the tendering reforms that the Chinese government has done to really look at older medicines, take resources out of those older medicines, put them into newer medicines. Including, which was visionary in some ways, to look at a whole set of medicines where they wanted to just grandfather them into the Chinese system, a number of oncology drugs as well.
We benefited from that where we didn't have to do anything except provide our global filings. This enables us, of course, to, then, bring novel medicines to market. Now, I think the key thing for us, is to move from a world where we were protecting our older medicines, our valsartan-based medicines, or Gleevec® in some of our older cancer medicines, to focusing completely on launches and new medicines.
That's what we do. We've pivoted our commercial organization towards that. We are comfortable with the fact those older medicines will be tendered eventually and go down very quickly but we believe we can double our business overcoming that and still double our Chinese business in the next five years.
Audience Member: Just following up on that, I think you had five NDRL approvals in the recent charge and nothing on the tendered. Just thinking about the growth profile of China within your business, strong double-digit growth. Is that how you're thinking about that?
Vasant Narasimhan: We've seen double-digit growth, I think, with the latest round, particularly with Entresto® now getting onto the NRDL where we have an aspiration -- it may or may not happen -- but an aspiration to make Entresto® a blockbuster in China alone. That, I think, shows the kind of power you have.
Of course, given the quality concerns, there's been with nitrosamines, to date, the valsartan-based medicines haven't ended up on the tenders. Right now, at least, we have a window where we're not seeing the declines of the older medicine and we're seeing a ramp on the newer medicines.
A high priority for us right now is the oncology launches. I think, in India, Mary Francis here, in China in pharmaceuticals, we're doing an outstanding job. Now, it's on oncology, building out a deeper sales force to enable a success there.
Audience Member: One of the other launches you highlighted in the US was the Beovu® launch. I think people would like to get your initial feedback from that launch.
Vasant Narasimhan: I'd start with the actual clinical experience we're seeing with Beovu®, which is really quite positive. The feedback we get from physicians, at least in the early patients that they trialed Beovu® on, they're seeing remarkable results even from the early doses in the OTC scans to drying of the retina, which is one of the things they're really looking for.
They're seeing in the patients who are uncontrolled, in the currently licensed medicines, getting those patients back to control. If you follow the physician online sharing or social media sharing, you also have stories of significant best corrective visual acuity gains with Beovu®. At least, anecdotally, we see a very strong clinical response, which has to be a foundation, of course, for the success of the product.
We don't hear a lot, as well, about any of the concerns on inflammation. Just to remind you, the two competitor products have inflammation in their label of three percent and five percent. We have four percent, so we're in the range anyway of our peer set. To date, uptake has been very strong, equally distributed from the two licensed medicines.
In general, it switches. It's not a lot of new initiations yet, but, importantly, we have a J code now. I think, in the next six months, we'll have a better understanding of the trajectory of Beovu®. Our team did an incredible job to get a J code early. That should enable us to, hopefully, to drive very rapid uptake in the first part of this year.
Audience Member: Maybe one of the other things you touched on is the generics that are coming in the future. One of them that has been put off so far is Gilenya®. Perhaps you could give us an update on how you're doing with settling, how we should think about Gilenya® going forward and how that's factored into your midterm guidance target?
Vasant Narasimhan: I think, on guidance, this year, we will give guidance, assuming Gilenya® doesn't come in 2020. If it did come, of course, we'll adjust accordingly. That's one. Two, our midterm margin guidance of mid to high 30s is independent. So, if Gilenya® comes, it comes. Whenever it comes, we will still plan on hitting that mid to high 30s.
I think, for anyone who's assuming that has a swing factor, that's not at all the case. Gilenya® has been a very positive surprise and we continue to try to drive the medicine in the relevant markets.
Now, in terms of the resolution of the case, it is complicated. Everything I'm about to say is probably going to sound very complicated. We have an appeal of the IPR decision that's ongoing. That case, we expect to read out sometime probably in early Q2. That is the appeal of the underlying decision that validated the 405 patent.
Separate from that, there's a district court case to try to invalidate the patent separate from the IPR decision. That court case would start, potentially, in Q2. All of which to say, if any of these court cases were to not go our way, the earliest we would expect a potential entrant is sometime in the second half.
That, of course, is many ifs away, given all of the cases, the appeals, and our own strategy to build an even stronger patent case for Gilenya®. We plan to, very aggressively, protect the product. That's basically where we stand.
In terms of settling, we've settled with the vast majority of filers. There are still a few filers that have not settled, which is why we still have these court cases. Certainly, our aspiration would be to settle but we're not willing to settle beyond what we think is a fair and reasonable term for Gilenya® protection. That's where we are. Of course, we'll keep everyone updated.
Audience Member: Moving to M&A strategy, you highlighted the USD 70 billion worth of deals, not all acquisitions. In terms of the acquisition strategy, we obviously saw inclisiran come into the group in the second half last year, what is the priority now in terms of adding to the portfolio and the pipeline?
Vasant Narasimhan: The strategy, of course, fits with our capital allocation strategy, which remains unchanged -- invest deeply in our internal capabilities and business, grow the dividend in Swiss francs, and then, look strategically at M&A and share buybacks.
When you look at our M&A strategy, we generally are looking to either build depth in one of these new technology areas, which you saw us do, gene therapy [inaudible] therapy or to build depth in one of our core therapeutic areas.
The inclisiran deal is a case study in the sense that we have a global cardiovascular footprint. We've been in cardiovascular disease for 50 years. I, personally, believe our industry has a responsibility to take on significant diseases of high incidence which cause the greatest burden of disease, mortality, and morbidity around the world, cardiovascular disease and pulmonary diseases being the highest among them. It was a very logical fit.
It's hard to pre-predict. If you had asked me middle of last year, would I have thought we would have acquired Medicines Company, I would have said probably no. Then, our thinking changed. I think it really depends on the assets and the situation. We continue to have, though, in our minds, the approach of programmatic M&A. We don't believe in big M&A.
We believe that programmatic M&A, up to five percent of our market cap, done consistently over time, will continue to build the valuation of this company over the long term. Long run investors, then, will ultimately benefit.
Quiet group today.
Moderator: Having to work.
Vasant Narasimhan: I know.
Moderator: Just sticking with the M&A that you've done and thinking about another one is Xiidra in terms of that. Obviously, it was bridging between some of the old ophthalmology products and some of the new ones. That is a tricky product to sell in the US, so maybe an update on how that's going?
Vasant Narasimhan: Xiidra®, we brought in, basically, around July, August of last year. We brought together the two sales forces and optimized the situation. One thing important to note, we always knew that with Xiidra®, we're going to get the inflection change when we got part D reimbursement. We still think that is a 2021 timeline to get part D.
In the meantime, our focus has been, given that dry-eye products behave a bit more like consumer products, is to focus on DTC. We have a DTC campaign that rolled out in Q4, a significant investment, relatively speaking, given the size of the market, which we think should be able to drive, hopefully, share gains, which we haven't seen to date.
I think, Richard, you know well, it's been relatively flattish in the back half of last year but I think it's early days. DTC has gone out, so we'll see the responsiveness to that DTC, hopefully, in Q2, mid of this year. We're hopeful that we can get a trajectory change. We've brought on a great team of real experts in the front of the eye, so I remain very optimistic.
Just to remind you on that deal, it's a very back-loaded deal. Most of the milestone payments we make are really dependent upon us achieving very high sales levels. If we achieve those sales levels, we'll be happy to make those milestone payments.
Audience Member: [inaudible] you said that if you had asked me a year ago that [inaudible] Medicines Company, I probably wouldn't have done it, so what really changed? What did you see in the asset that really gave you the [inaudible] to buy it and how can you expand it? How are you thinking you can expand that globally?
Vasant Narasimhan: I believe inclisiran to be one of the largest if not the largest medicines at Novartis in our history. Now, we have a lot of work to do to get there but I think, obviously, the clinical data shifted our view.
When we saw, scientifically, what the scientists had already done at Alnylam, it was, of course, come up with a sequence that they believed could manage off-target toxicities, as well as, get very efficient taking out of the PCSK9 gene in the cytoplasm.
It looked like they did it. Basically, you looked at a completely clean safety profile and you saw LDL reductions on top of statins, 55 to 60 percent, so at the same par or better than the PCSK9 monoclonal antibody six-monthly dosing. When we saw that clinical data, Mary France, and her team, went and got their pens up and really started thinking about what could we do?
In the US, this story is going to be all about building out a part B model, buy and bill a model within the cardiovascular physician's office. We believe we can achieve higher compliance. We believe it's going to be attractive to bring in these patients, every six months, which they have to do anyway, and give them a quick IV infusion that's very safe to get their cholesterol levels down.
Outside the US, we believe the upside potential here is to go into population health. We'll hear a press conference in two hours where we'll talk more about the idea of population health with this medicine as a model in at least one country.
Then, beyond that, of course, the upside potential is to get into primary prevention. You'll also hear more about that in two hours as well. We believe that if we could thread the needle on primary prevention, you have a vaccine-like approach to LDL lowering.
You should all look at Eugene Braunwald, who's really the God of cardiology, his comments on this medicine. He said this is likely the most important advance of the next 20 years in cardiovascular disease. He believes the potential of this to transform cardiovascular health around the world is unparalleled.
That's his view, not our view. His view on the potential of inclisiran. That's why we did the deal. Of course, a lot of work to do but we definitely see the potential.
Audience Member: How do you see the Kymriah® launch [inaudible] ?
Vasant Narasimhan: Kymriah® continues to do steady and well. I think the key for us is continuing to work on our supply constraints. It's not a demand-constrained product. It's a supply-constrained product, particularly in the US. We're making a number of manufacturing changes, which we think will increase the efficiency of manufacturing.
We continue to work with the FDA to try to expand the specifications to our European specifications. One of the reasons we continue to see strong growth is in Europe, we're able to release and treat within the broader spec. In the US, we still have a significant number of patients who are treated but treated under treatment INDs but then, ultimately, not charged.
When we can turn those patients into paying patients that are reimbursed, then you'll see a rapid inflection point with Kymriah®. We're hopeful but I said that last year as well, so I'm a little more humble about that now. I think we have work to do to really demonstrate the next wave on that process. We remain optimistic. We continue to believe it'll be a blockbuster medicine.
I will take that moment as well to say we also are seeing a trend shift on Kisqali® with the two OS readouts. We are seeing uptakes in share. I believe, humbly, Richard, I think there's opportunity there in the consensus models, in terms of underappreciating, that in the size of the CDK 4/6 market, what Kisqali® can do.
Moderator: I think we're out of time.
Vasant Narasimhan: Thank you all very much. Thank you all for coming.