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.
[off-mic question]
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.
[laughter]
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.