2019 Q1 Results Presentation & Transcript

2019 Q1 results presentation

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Q1 2019 Ir Presentation

Good morning and good afternoon, and welcome to the Novartis Q1 2019 Results Release Conference Call and Live Audio Webcast. The conference is being recorded. A recording of the conference call, including the Q&A session, will be available on our website shortly after the call ends. With that, I would now like to hand over to Mr. Samir Shah, Global Head of Investor Relations. Please go ahead, sir.

Q1 2019 Ir Presentation

Good afternoon, and good morning, everybody, and thank you for participating in the webcast today. Before we start, I just wanted to read you the safe harbor statement. The information presented today 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 US Securities and Exchange Commission for a description of some of these factors.

And just one other additional point for you for today. If I could please request that you limit yourself to two questions at any one time, and if we have additional time at the end of the call, we could provide time for an additional question or two at the end. And with that, I'll hand across to Vas.

Q1 2019 Ir Presentation

Thank you, Samir, and thanks, everyone, for joining today's conference call. Here in Basel, I have with me Shannon Klinger, our Legal Counsel; Susanne Schaffert, the CEO of Novartis Oncology; Paul Hudson, the CEO of Novartis Pharmaceuticals; John Tsai, our Head of Global Drug Development; and Harry Kirsch, our Chief Financial Officer.

And as you saw with today's announcement, Novartis is off to a strong start in 2019.

Q1 2019 Ir Presentation

We had strong operational performance with sales growing at 7%, core operating income growing at 18% and our core margin expanding by 2.6%, allowing us to raise our core OpInc guidance, and Harry will go through that in more detail in his presentation. We also achieved major innovation milestones in the quarter, including the approval of Mayzent® in secondary progressive MS as well as the Zolgensma® STR1VE interim analysis, both of which I'll go through in a bit more detail. And lastly and importantly, we continued our transformation to a focused medicines company powered by data science and advanced therapy platform. We completed [the spin-off of Alcon]. We've also announced we'll complete our USD 5 billion share buyback over the course of 2019. And lastly, we confirm that we'll continue a strong and growing dividend we paid in 2019 of CHF 2.85, and that dividend trend will remain unchanged post the Alcon spin.

Q1 2019 Ir Presentation

We're starting to deliver operating [leverage] in Innovative Medicines, in line with what we've told you. We committed to generating margins in the mid-30% range by 2022. And this quarter, we showed that we're on track to get there with a core margin of 33.3%. This margin expansion was driven primarily by [sales momentum on key growth drivers. We’ll discuss later] in a bit more detail. But also it's worth noting that our launch investments are largely within our existing therapeutic areas, which allows us to leverage our existing infrastructure and scale. Also I'm quite pleased with the progress we're making on Novartis technical operations and Novartis business services in terms of the productivity initiatives, which are now really starting to kick in, in the P&L. And lastly, we were able to hold our core R&D cost at the level of 20%. As we stated in the past, our goal is to [inaudible] Innovative Medicines. That may fluctuate based on pipeline opportunities, but it's I think positive trend to show that we are in that range now, and we expect to be there moving ahead.

Q1 2019 Ir Presentation

We saw a continued sales momentum in Innovative Medicines. Cosentyx® and Entresto® both delivered strong growth in the quarter, and we'll talk a little bit more about that. Our Oncology growth drivers all performed well also in the quarter with Lutathera®, in particular, showing a very strong performance, consistent with our expectation for this medicine to become a blockbuster.

Q1 2019 Ir Presentation

Now diving in a bit deeper on Cosentyx®. We demonstrated strong growth in the quarter of 41%. And you can look at this from the US perspective and the ex US perspective. In the US perspective, we had 37% TRx growth versus prior year and 49% sales growth, which really demonstrates we continue our outstanding momentum with Cosentyx® in the United States. We also saw strong growth across indications outside the United States. Importantly, we received approval in psoriasis in March in China, and we expect to launch in the second half in 2019, allowing us to continue that momentum outside the United States.

Q1 2019 Ir Presentation

Now going a bit deeper into the United States for Cosentyx®. We saw a continued share momentum, both in psoriasis and in spondyloarthritis. If you look at the left-hand side of the chart, in dermatology, in our key competitive set, we have a market share now in NBRx of 19%. And in terms of NBRx growth, we're outperforming the US market. We continue to lead in TRx among new entrants in the US. And we're also on track to read out the ARROW study at the end of this year, providing additional data to support the rapid onset of Cosentyx®. In terms of rheumatology, we surpassed Humira® in TRx in ankylosing spondylitis and psoriatic arthritis, demonstrating an NBRx share of 43% versus Humira®'s 20%. And our non-radiographic axial SpA readout is on track for the back half of 2019. So strong performance, strong momentum in Cosentyx®, and we're really pleased with where we are with this medicine.

Q1 2019 Ir Presentation

When you look at Entresto®, we had strong Q1 sales growth with an all-time high of 3,900 scripts from an NBRx endpoint in Q1. This underlying demand was really driven by the additional data that we've generated on quality of life as well as the impact of Entresto® initiation in the hospital, which we showed through the PIONEER-HF study. That data is now being disseminated across geographies and helps continue to support the broader use of Entresto®. We have the readout of the PARAGON-HF study in preserved ejection fraction heart failure on track for the second half. And I wanted to highlight as well our performance in China. Entresto®, based on the estimates that we have in-house, is arguably the best launch of a primary care drug in China since 1999 when we actually have data available. This is in a context, we do not have a national reimbursement yet in China. We expect, in China alone, Entresto® to be a significant medicine, and we'll continue to watch that and provide you updates as our performance in China continues to progress.

Q1 2019 Ir Presentation

Oncology also had a very strong quarter growing 9% in constant currency, and this was driven by our full range of growth drivers. Promacta®/Revolade®, Jakavi® and Tafinlar® + Mekinist® all performed well in the quarter, continuing their previous trajectory given their strong data sets to support their broad use. I wanted to highlight in particular the performance of Lutathera®. Our total sales in Lutathera® in the quarter were USD 106 million. Our AAA sales were USD 163 million. We've reached over 2,000 new patients since launch in the US. And we have positive momentum as well in the European Union with reimbursement and access in the UK, Italy as well as other markets. Taken together, I think this demonstrates our investment in the radioligand therapy platform is truly a platform investment that we can build on. And we look forward to now advancing a broader pipeline, including life cycle management of Lutathera® in additional indication as well as moving forward in other solid tumors using radioligand technology.

Q1 2019 Ir Presentation

We have 10+ potential blockbusters, which we've been discussing with you planned until 2021 and over 25 in late-stage development; so really fully stocked pipeline. Now some of the important milestones we achieved in the quarter, I'll go through now in a bit more detail.

Q1 2019 Ir Presentation

Mayzent® launched in the US with what we really believe is a unique efficacy data set. And I think it's important to keep reminding the group on the phone as well as the broader community that we are the only medicine ever to have successfully been studied in secondary progressive MS. This is a patient population that is older, that has higher EDSS scores and to date has not had an improved therapy. We believe the fact that we specifically studied this patient population gives us a unique value proposition and a unique differentiating feature. So in our labeling, it was made clear, as you can see in the diagram on the right, that across all the relevant data subcuts, there was a trend towards favoring Mayzent® in the study. And also importantly, no first dose observation is expected for around 70% of the patient population. It's early days, and I think Paul can comment further on how we're progressing on the Mayzent® launch. But we're pleased with where we are, and we look forward to giving you further updates over the course of the year.

Q1 2019 Ir Presentation

Now I'd like to turn to Zolgensma® and go through a couple of slides to really clarify some of the points on Zolgensma®'s recent data. The STR1VE interim data we recently reported, we believe, fully supports Zolgensma® as the foundational therapy for SMA Type 1. The efficacy data was consistent with the START trial. Here you see the STR1VE patients overlaid on the START patients. Of course, there are variabilities in terms of starting point, in terms of the CHOP-INTEND scores at baseline, so you will see some variability in CHOP-INTEND scores. But overall, in our discussions with investigators, we believe this demonstrates the strong performance of the medicine. And we'd expect, as we continue to follow these patients, we'll see continued improvements, we would expect, in their CHOP-INTEND scores, demonstrating the early and rapid increase of the medicine and continued motor milestones being reached over the course of the life of these patients. The safety was comparable to the START study as well. I'll go through the safety data in a bit more detail in an upcoming slide. But there was a single death in the STR1VE study, but this was a respiratory failure, completely unrelated to treatment. And we had a significant CHOP-INTEND increase in this patient of 27, demonstrating the impact of the medicine in the patient, despite the very unfortunate circumstances of the patient's death.

Q1 2019 Ir Presentation

One of the things we’ve learned through further assessment of the patient who unfortunately died in the STR1VE study is that there was widespread SMN expression comparable to unaffected individuals after Zolgensma® therapy. I think it's really important to fully understand this data as it demonstrates mechanistically from a pharmacodynamic standpoint that Zolgensma® reaches all of the target tissue, both in the central nervous system as well as the other organs examined. And it achieves a situation where the expression of the SMN protein is comparable to unaffected individuals. You can see on the chart here on the left-hand side of the diagram a non-SMA subject, a normal subject. You can see what's normal SMN expression looks like. You can see a non-treated SMA subject with really no expression of SMN. And you can see how Zolgensma®, a single infusion IV of Zolgensma® achieved strong SMN expression across all target tissues shown here as well as other organs in the body. So that we believe really definitely shows that Zolgensma® can restore SMN expression to motor neurons that lack a functional SMN1 gene.

Q1 2019 Ir Presentation

There's been a lot of, I think, questions raised regarding the safety profile, so I wanted to go through this in a bit more detail. The overall safety data we see fully supports a strong benefit-risk profile of Zolgensma® in what is a very fragile patient population. It's worth remembering that from a natural history standpoint, SMA Type 1 has only a 50% survival at 10 months of age and about an 8% survival at 20 months of age. These are very ill children. Deaths are commonly reported. If you look at the labeling of the competitor therapy as well as the clinical trials of the other investigational therapies, you will see deaths reported in their clinical trials. So this is something that comes with trying to treat patients who are in a very fragile, desperate state. Today, we have 151 Zolgensma® patients dosed in our studies, and you can see the breakdown here across the various subtypes and the various settings. Overall, Zolgensma® is generally safe and well tolerated. And the real key is that appropriate care is provided. I discussed already the first death that had a 27-point improvement in CHOP-INTEND. It was ultimately determined to be unrelated to therapy.

In our European STR1VE study, we did have a case of a death that occurred in January 2019, and we're really working through the final assessment to determine was there any potential contribution of AVXS-101 to this death. It's important to note, as always, when investigators can't completely exclude the contribution of any study medication, they are required to code the medicine as being potentially contributing to the death. This is normal in all clinical trials. It's just in this instance we have an open-label study. And hence, this is more transparent. We provided regulatory authorities and our data safety monitoring board full information in January as well as in early February, and all were aligned that no action was required. The study continued per protocol. We have continued to advise physicians that they need to carefully consider the state of the patient before providing Zolgensma®. But we, of course, always want to enable this medicine to be available when there is a hope for a child to potentially achieve a transformational result.

So this particular patient was dosed at five months of age, had swallowing difficulties at baseline, had a potential aspiration pneumonia already at baseline, so already a complicated course. I think, heroically, the physician and the parents decided to try to do anything they could for the child and enrolled them in the STR1VE study. Within 14 days, there were secretions that were positive for five respiratory infectious agents, including RSV, which, many of you will know, is a very important cause of respiratory distress in children and respiratory death in children. The patient subsequently died of disseminated sepsis, and autopsy results are pending. And of course, when we have those autopsy results, we can definitively determine was there any contribution of AVXS-101 on top of the already complicated situation, including all the infectious agents and the sepsis in the patient.

Q1 2019 Ir Presentation

There are over 150 patients treated now with Zolgensma®, as we noted. And importantly, only 5% have been excluded today due to AAV9 antibody titers. And we believe this is an important element for your models to understand that, actually, the exclusion criteria for the use of AVXS-101 is actually lower than we have previously guided. We've only had 9 of 177 patients screened to date with exclusionary titers, and you could see the MDA 2019 data presentation elevated AAV9 antibody titers at screening should not affect the ability of the vast majority of infants with SMA to receive treatment. So we feel like this is an important element now of the story that the vast majority of children should be able to receive AVXS-101.

Q1 2019 Ir Presentation

We have established readiness ahead of our US approval, expected now in May for our PDUFA date. As you can see, from an institutional standpoint, we have delivery infrastructure set up. We're set up for rapid product delivery. We've already reached the 60 top centers. And we're ready to cover 80% of infants with SMA. We're continuing to build supply with the acquisition of a manufacturing site in Colorado. We have over 1 million square feet now manufacturing space and preparing that space to continue to ramp up production. We've engaged over 70 payers in discussions, covering 80% of the SMA infant population and expect to have contracts in place at launch to cover 30% of commercial lives. So all, I think in line with world-class launch preparation by Paul Hudson and his team.

Q1 2019 Ir Presentation

BYL is another important milestone for the company in Oncology. And I think it's important to note, after HER2-positive status and hormone-receptor positive status, we expect PI3 kinase mutation status to become another linchpin of care for patients with metastatic breast cancer. In this study, we demonstrated, for the first time, a genetically driven treatment could be used in the breast cancer setting. We anticipate to be launching later this year, though we're in discussions with the continuous assessment process with FDA in an ongoing basis. We also anticipate to launch with an FDA-approved companion diagnostic for the PI3 kinase test as well as we've engaged payers to cover over 80% of the target population. So again, we're ready for a strong launch. This launch will be initially a bit slower as we try to achieve strong testing coverage, but then we expect a strong uptake in the future.

Q1 2019 Ir Presentation

I wanted to also just briefly highlight some new data with respect to fevipiprant, our DP2 antagonist, which showed asthma disease-modifying potential in a recent study. So if you look at the left side of this graph, you can see a readout from Science Translational Medicine that demonstrated fevipiprant was the first studied medication to impact airway smooth muscles in patients with asthma. This is a disease-modifying effect in patients. The first time it's been, to our understanding, demonstrated by biologics or small molecules. It indicates again why we think this could be a very important medicine pending the Phase III readouts. You can see on the right-hand side, we have a full range of trials covering exacerbation, lung function and safety. And we're looking forward to providing additional data readouts later this year on what we believe will be a very exciting medicine for the company.

Q1 2019 Ir Presentation

Now lastly, before handing it over to Harry, I wanted to welcome Richard Saynor, our new Sandoz CEO and member of the executive committee. Richard joins us from GSK, where he is the Senior Vice President of Classic and Established Products, overseeing an approximately USD 10 billion off-patent medicines business at GSK. Previous to that, he was at Sandoz, where he oversaw region international in the Latin American region, so understands well Sandoz, Sandoz headquarters and understands Sandoz legacy and Sandoz footprint. He brings an experience of 20-year-plus years in the space, along with a real track record of building successful teams. So we're looking forward to having him join in Q3 to enable us to drive the Sandoz transformation. And with that, I will hand it over to Harry.

Q1 2019 Ir Presentation

All right. Thank you, Vas. Good morning, and good afternoon, everyone. Please note that my comments refer to the results of continuing operations and growth rates in constant currencies, unless I note otherwise. To assist with your modeling, the 2018 and 2017 results from continuing operations are now available on our website.

Q1 2019 Ir Presentation

 

Slide 22 shows the summary of our strong quarter 1 continuing operations performance, which excludes the Alcon business. Sales grew +7%, mainly driven by the continued excellent momentum from all of our key growth drivers, including Cosentyx®, Entresto® and Lutathera®, as well as growth from Promacta®, Kisqali®, Kymriah® and Taf/Mek. Also Lucentis®, Xolair® and Ilaris® grew double digits, even established medicines, like Galvus®, Diovan®, Exforge® contributed to growth. Overall, in quarter 1, we saw excellent execution by our pharma and oncology teams, driving significant sales growth of our launch products and a vast majority of our 15 in-market blockbusters.

Core operating income grew +18%. This was clearly driven by good sales momentum. In addition, we see our productivity programs kicking in, driving up gross margin and driving down total function cost as a percent of sales. As a result, sales growth and productivity programs more than offset increased investments, including pre-launch investments for Zolgensma®. Operating income and net income grew 4% impacted by a net impairment charge and lower divestment gains this year versus prior year. Free cash flow was USD 1.9 billion, broadly in line with prior year. Please recall that quarter 1 2018 had a onetime sales milestone receipt of USD 0.4 billion.

Q1 2019 Ir Presentation

 

On slide 23, you see the resulting core margin expansion in quarter 1 of 260 basis points for both Innovative Medicines and continuing operations. Let me briefly comment on two of our major productivity programs. Novartis Technical Operations transformation and resulting manufacturing efficiencies as well as favorable mix drove gross margin improvements. Novartis Business Services also contributed to core margin expansion with continued efforts on standardization and footprint optimization, as we leverage even more our global shared service centers.

Innovative Medicines core margin expanded to 33.3%. This puts us real nicely on track for the mid-30s margin goal by 2022. Sandoz margin also grew as gross margin improvements more than offset the US pricing pressures. Before we come to our updated full year guidance, please keep in mind that we expect to see higher generic headwinds in the upcoming quarters. This is mainly expected in our Oncology business on Exjade® and Afinitor®. In addition, we continue to monitor Sandostatin® LAR. Also some of the quarter 1 growth in Diovan® and Exforge® was mainly due to competitive supply issues and may not continue.

Q1 2019 Ir Presentation

On slide 24, you see our updated 2019 full year guidance for the new focused medicines company. This excludes Alcon and Sandoz US dermatology and oral solids portfolio for the full year in both 2018 and 2019. In short, we are confirming our sales guidance at mid single digit. As Vas mentioned earlier, we are raising our core operating income guidance to grow high single digits following the strong quarter 1 performance.

Some of you asked this morning what to base the guidance for the new focused medicines company off in 2018, so let me give you some hopefully helpful details. So Alcon is excluded from continuing operations, so that's straightforward. The to-be divested US generic business generated, we said prior, USD 1.2 billion, some of you asked for very details on that. It's USD 1.174 billion of sales in 2018. And the core operating income, where we said USD 0.3 billion, is USD 294 million of core operating income in 2018. So I hope that's helpful as you model the new focused medicines company.

Now with continued good momentum, we could finish 2019 at the upper end of our sales and core operating income ranges. As we also need to consider the upcoming results for our catalyst-rich pipeline in 2019. This will allow us a bit later in the year to continue to fine-tune our full year guidance.

 

Q1 2019 Ir Presentation

On slide 25, you see how currencies would impact our results if mid-April rates prevail for the remainder of 2019. The full year impact on sales would be negative, -3%. And on core operating income, we would have a -3% to -4% negative impact. As you can see on the slide, the negative currency impact is more pronounced in the first half of the year as the US dollar strengthened mainly during quarter 3 of last year. And as a reminder, the expected currency impact is updated on our website monthly. And with that, I hand it back to Vas.

Q1 2019 Ir Presentation

 

Thank you, Harry. So appreciate the great interest in the company. We've had an outstanding, I think, start to the year. And we look forward to answering your questions. So operator, we can open the line for questions.

  • Graham Glyn Charles Parry - BofA Merrill Lynch, Research Division 

Q. So I've got one question on Gilenya® and then one on Zolgensma®. So firstly on Gilenya®, could you just remind us where you are in your arbitration negotiations with Mitsubishi in terms of Gilenya® royalties? I see they stopped booking their royalties overnight pending the outcome of arbitration. So can you confirm, are you continuing to book royalties in your numbers? And what assumption on royalty post the August composition of matter patent expiry is baked into your guidance currently? And then secondly on Zolgensma®, could you give us an update on the label expectations beyond the START and STR1VE populations that you were alluding to on the fourth quarter call? And on the second death, your slide doesn't mention the neurological complications that were referred to in the media statements. So could you elaborate on these, why you think the investigator determined that respiratory infection could possibly be treatment related and the expected timing of autopsy results and DSMB final determination on whether this was a drug-related death or not?

  • Vasant Narasimhan – CEO of Novartis

A. Great. So I'll actually start on the Zolgensma® topic on the safety, and then I'll hand it to the colleagues to take Gilenya® and then also the Zolgensma® labeling. So this is a situation where we had a disseminated sepsis. And in sepsis, you typically have neurological complications. And so the neurological complications, to our estimation, related to the sepsis. I think the only question here is does the administration of an AAV therapy in the context of an infection lead to an exacerbation of the infection. In this case, I think we have advised all physicians going forward to ensure that there's appropriate steroid administration and ensure that all the supportive care is given. But I think that, one, the read across to the platform technology is not, in our view, appropriate. I mean this is really about when you provide a therapy in the context of a very complex sepsis situation, you can exacerbate the overall care. And so that's why the regulators were unconcerned. That's why the DSMB was unconcerned. We'll complete the autopsy results shortly and, of course, finalize the assessment. But I think the key thing to note is regulators, DSMB, clinical trials all on track, no change and no change for our expectations on timing of approval.

Now with respect to Gilenya®, Mitsubishi, I'll give it to Paul. Paul?

  • Paul Hudson - CEO of Novartis Pharmaceuticals

A. Yes. Thank you, Graham, for the question. So just remind everybody that our full year core operating income guidance reflects the current contractual terms with Mitsubishi, so no additional change there.

  • Vasant Narasimhan – CEO of Novartis

A. And then John or John or Paul in terms of the Zolgensma® labeling.

  • John Tsai - Head of Global Drug Development and Chief Medical Officer for Novartis

A. Yes. In terms of Zolgensma® labeling, Graham, as you know, we are studying this in a variety of SMA types, including Type 1, 2 and 3. And we have four studies ongoing. What I would say is that the discussions with the FDA and other regulatory agencies are going well. And we're continuing to advance as we have these conversations.

  • Vasant Narasimhan – CEO of Novartis

A. And we can provide, of course, further updates once we see the final labeling from the FDA.

  • Andrew Simon Baum - Citigroup Inc, Research Division

Q. Couple of questions. First for Vas, if I remember correctly, you gave upper end of a value-based reimbursement for Zolgensma® at USD 5 million per patient. Does the data from the further follow-up of STR1VE still support that analysis? And then the second question again to Vas. Perhaps, you could talk us through how you see Novartis' role as a cell therapy player. Arguably, the outlook is getting better from a US perspective given the national coverage determination, greater tech-related add-on payment, but your pipeline seems to still focus only and very much on CD19. Should we expect additional business development for novel antibody constructs expanding into PCR as some of your competitors have done? Or are you following a different strategy for cell therapy here?

  • Vasant Narasimhan – CEO of Novartis

A. Thank you, Andrew. So first one on Zolgensma®, I think it's been well published through the various reports from ICER, out of USD 500,000 per QUALY cutoff, the medicine is cost-effective in the range of USD 4 million to USD 5 million. And at USD 150,000 QUALY cutoff, it's cost effective at a range of USD 1.5 million. And so that's the range that we're looking at. We don't believe any of the clinical data that we saw in the STR1VE study changes our assessment. It's completely consistent with the overall performance we've seen. And I think, as ICER noted in their report, they recommend we should price lower than USD 4-5 million based on their final report. We take that as useful information. And of course, we'll announce our final price in due course, but that hopefully gives you some of the boundaries.

Now in terms of cell therapies, we believe, fundamentally, along with AAV9 gene therapy and radioligand therapy, having the capability to do ex vivo cell therapy is going to be critical for our long-term ability to generate new medicines and continue to be a leader as a focused medicines company. That's why we started with CD19 CAR-T. Our initial focus in cancer will continue to be on B-cell therapies. You saw we did an investment in a company called Poseida Therapeutics for an additional BCMA option. We're continuing to build out our own portfolio internally of next generation as well as bispecific programs within the space of targeting B-cell cancers. So that's one thrust. Alongside that, we continue to look at using ex vivo cell therapies in a range of other condition, whether it's in next-generation technologies for hematology, looking at other therapeutic areas. And that's part of the reason we built out the global manufacturing base that we have, with a manufacturing center now in the United States, three manufacturing centers in Europe, a manufacturing center in China and a manufacturing center in Japan as well as lentiviral production capability, both in-house and external, that we're building. We believe then we would be the logical company to be able to scale ex vivo cell therapies across a range of indications. So we'll continue to look externally, but we also, through both our internal pipeline, our alliance with Xencor, our alliance with CRISPR companies, we are also working on our internal portfolio as well.

  • Timothy Minton Anderson - Wolfe Research, LLC 

Q. Kind of a question across the pipeline, which is slide 11, you described major launches planned through 2021. And you showed 13 different medicines. If we ignore the three already approved products, Cosentyx®, Entresto® and Mayzent®, can you kind of pick out the top three that you think have the biggest sales potential, assuming that data comes out favorably? You've got products like Zolgensma®, RTH, fevipiprant, SAG101 and others. You have a very full pipeline, but it would help narrow down the focus for investors of what could matter most. And then RTH258, a quick question. Relative to last quarter's update, looks like the time line for filing DME and RVO each got pushed out by one year, and I'm wondering what drove that.

  • Vasant Narasimhan – CEO of Novartis

A. So thanks, Tim, for the questions. In terms of the three top, we're very excited, of course, Tim, by the whole range of products that we have. But I'd say, of course, Zolgensma® is absolutely critical and one, we believe, has significant potential across the range of SMA indications as a truly foundational therapy for SMA. Clearly, RTH258 is something where we believe we can build our next-generation technology beyond Lucentis®, also with the US possibility to really drive significant potential in this space. And then I think the big upside wild card we have is QAW039, where we could be the first oral medicine in a large patient population, positioned before biologics in patients with severe asthma, who, if you look at the number of patients, who have already on triple inhaled therapy but still not adequately controlled, who are still not on a biologic. I mean this is a very large patient population that we believe could be a major medicine if ultimately successful. So those are three. But again, I think all of them are quite exciting. And then I would note, as well, we'll continue to provide more transparency at “Meet the Management” and other settings on the next wave of innovation we have with over 25 potential blockbusters in late-stage development.

Now in terms of RTH258 delays, John?

  • John Tsai - Head of Global Drug Development and Chief Medical Officer for Novartis

A. Yes. So for brolucizumab, Tim, the way that we capture these on time lines often is year by year. So what you see perhaps is a shift from 2019 to 2020 per se, but it's actually not a whole year in terms of delay. Often, these are quarters. And in terms of the DME study, there is just some discussions with the regulatory agency for us to be able to begin recruitment of that trial. So that was a slight delay of about one quarter. And also for the RVO study, it was a similar situation for us. So really, these are not slippage in terms of one year, but just a quarter in terms of logistics.

  • Matthew Weston - Crédit Suisse AG, Research Division 

Q. Two SMA questions, if I can, please. We've already had a question about price, and I fully understand that you're not going to comment. But one other thing that's very important for our models is when the income is actually going to come in for each patient. And I note with interest the comment that you've had a high interest in innovative contracting methods on your slide 17. So Vas, I'd be very interested if you could just set out, in broad brush strokes, what those innovative contracts could look like in terms of revenue recognition as a proportion of the total cost per patient in year 1 versus later subsequent payments. And then secondly, I also note in clinical timelines in the press release your oral splice inhibitor, LMI, moved forward a couple of years in terms of filing to 2022. Could you let us know what in terms of data has led you to bring that forward and such that you're now seeing it in a much more reasonable time frame?

  • Vasant Narasimhan – CEO of Novartis

A. Great. Thanks, Matthew. So Paul, why don't you start?

  • Paul Hudson - CEO of Novartis Pharmaceuticals

A. Yes. So look, we've done a lot of research about pricing and we've really been listening very actively. The vast majority, just to be clear, would prefer to pay upfront. It's very much a budget allocation process and a phasing process and we'll be prepared for that. But there are a group of payers that prefer to pay over time and spread the cost. And we'll allow that, I think, up to five years in terms of return. As for revenue recognition, Harry?

  • Harry Kirsch – CFO of Novartis

A. Yes. So Matthew, what we basically talk here about is what is the pattern of the cash coming in. In case we would be collecting would be over a payment after 3, 4, 5 years. So the cash may be delayed. We could still choose about is there a financing company in between. We will see whatever is the NPV optimal way of doing that. But in terms of sales recognition, I would expect as IFRS askes for sales revenue recognition, I'm virtually certain, and we would probably book the majority of the sales once the respective conditions are fulfilled. And then in case of the performance condition where that’s based on the clinical trials and the real world evidence, we may have a small rebate that we book as we recognize the sales. So sales, I would expect to come quite quickly with the patients. And then on the cash side depends upon what revenue model we implement here.

  • Vasant Narasimhan – CEO of Novartis

A. And then John, in terms of LMI.

  • John Tsai - Head of Global Drug Development and Chief Medical Officer for Novartis

A. In terms of LMI, as you know, Matthew, we believe that Zolgensma® is the foundational therapy for patients with SMA. At the same time, given the severity of the disease, we also want to explore all opportunities for these babies to continue and improve. We currently have a dose-ranging study that's ongoing for LMI, and that's continuing to move forward. Based on those results, I think we'll advance in terms of how we would register this product moving forward, and we'll have further understanding as we get these results.

  • Richard J. Parkes - Deutsche Bank AG, Research Division

Q. I've got a couple of product questions as well. Firstly, again, just on SMA, we're obviously looking forward to the data at AAN on SMA Type 2 patients. Obviously, there's a large prevalent patient pool there. I'm just wondering how you think about penetrating that. I realize the AAV9 antibody exclusion is minimal for the infant population, but could you help us understand what proportion of Type 2, Type 3 patients might be eligible based on this and any other eligibility criteria and how much manufacturing capacity might be limiting to your ability to address that need? So that's the first question.
Second question is on siponimod. Given the subsequent approval of Mavenclad® with a label encompassing active SPMS, I'm wondering how you feel this impacts the drug's differentiation. And is there any risk that other highly active MS drugs could get labeled up if they specifically call out activity in that patient population?

  • Vasant Narasimhan – CEO of Novartis

A. Turning to Paul, both for you.

  • Paul Hudson - CEO of Novartis Pharmaceuticals

A. Yes. Thanks, Richard, for the questions. We're looking forward to AAN. Just to remind everybody, there's a lot of data that will be shared at AAN. There's more than the additional 12-months follow-up on START. But with the additional three months' data on STR1VE, we'll have first presentation. Some of the data on SPR1NT. And then of course, an early look at the strong data presentation of that. And I think that's where you're heading with the intrathecal formulation and the potential to go after, if you like, older patients. There's just a couple of important things to realize. I think Vas made it upfront in this presentation about the neutralizing antibodies and the effect, whether a patient could be treated at all. We see the large majority of patients suitable for treatment. Some of it will be weight based and some of it will be approached either IV or IT. But we feel very confident that there is a large patient population that we will be eligible for. A lot will depend on the label and where we net out but feeling very good about that. And we'll have an investor call on May 8. I think that was mentioned. As for siponimod, again, Vas mentioned upfront, we're the only successfully studied medicine in secondary progressive MS, so that's quite a big deal. And whilst others may claim an overall ability to be indicated for active SPMS, it really is about being studied for it. Having the opportunity to meet a couple of opinion leaders last week very fresh after launch, who threw that point back at me. They're most interested in the drug with evidence in this patient population, not just getting the additional indication, but being proven in that patient population. I'd rather not comment on Mavenclad®, but I think the label sort of will help you understand why we think siponimod is really the right option for the broader patient population.

  • Vasant Narasimhan – CEO of Novartis

A. Thanks, Paul. I think the other element to keep in mind is even with the presence of AAV antibodies, there has to be neutralizing against the AAV9 subtype to really preclude our ability to use the therapy. That's the other thing to keep in mind as you watch this space.

  • Keyur Parekh - Goldman Sachs Group Inc., Research Division

Q. Two questions, please, one on SME and the second on margins. Just on SMA. I know there have been a couple of questions asked about the kind of the breadth of the label. But can you share with us what ongoing data set the agency has had a preview to look at beyond Type 1? And how comfortable do you still feel about a broad label beyond Type 1? And secondly, on margins, very impressive kind of Pharma margins this quarter. Can you tell us what you're doing differently? And why this may not be sustainable as we think kind of beyond 2019?

  • Vasant Narasimhan – CEO of Novartis

A. Great. Thanks, Keyur. I think on SMA, as we noted earlier, we're in discussions with the agency regarding the final labeling and prefer not to comment on the breadth of the label as we're in the midst of those discussions. But I think, as you know, in the START study, we had remarkable results. And I think in the STR1VE study as well, again very strong results. And I think all of that is forming the basis of how the FDA is ultimately looking at the therapy. In terms of the margins, I'm very pleased with our performance. And I think there's, again, two key drivers for this. One is the strong sales performance of our growth drivers, Cosentyx®, Entresto®, now are fully invested in, and so sales growth is falling to the bottom line. There's strong cost discipline in Innovative Medicines that the gross margin is falling through to the bottom. We see that also in Oncology, where we see the upside performance in some of our key growth drivers. Again, gross margin falling through. But I think also what you're seeing now is our renewed commitment and very clear commitment to productivity. We've stated multiple times we are serious now as a company about productivity both in Novartis Technical Operations and Novartis Business Services. We had very strong COGS performance in Novartis Technical Operations, and we've really taken on an ambitious productivity program in that organization. And similarly, in Novartis Business Services, again, we brought on, I think an outstanding leadership team with executives from outside the pharmaceuticals industry, who really now try to build a world-class business service organization that would be competitive with business service organizations in any industry. That's the benchmark. And we're starting to see that productivity now start to also flow through the P&L. Now of course, we aspire to continue the momentum. But as Harry said, we need to, of course, be judicious when we think about some of the potential patent expiries and the competition we face, particularly in Oncology with respect to Afinitor® and Exjade®. And I think we'll see how it goes. And of course, we want to, of course, outperform if we can, but we'll continue the momentum from here. Any other comments? No.

  • Richard Vosser - JP Morgan Chase & Co, Research Division

Q. First question. Just you mentioned on the established medicines business, Diovan® and Exforge® potentially having extra competitors. Perhaps, you could talk more broadly about the sustainability and price pressure potential that you might see in China. Obviously, volume potential going really well, but just thoughts on that sustainability. A little bit more detail there would be great. And then second question, just on the oral solids business within Sandoz, just to pin down, give us a little bit of help with the continued business. When exactly we should think about closing and when we should have that coming out as sales and profit for this year?

  • Vasant Narasimhan – CEO of Novartis

A. Great. So on China, Paul, or on established medicines, Diovan®, and then China.

  • Paul Hudson - CEO of Novartis Pharmaceuticals

A. Yes. So on the established medicines, we're really pleased with how it's come together, to be honest. And we've been much more efficient about how we supported the medicines, digital, other things, been a little bit leaner to reinvest in growth drivers, and that's been very sensible. And price pressures have been not unexpected and again well managed and predicted, so reasonable. The real excitement actually is coming out of China and what we're doing and how we're putting the business together. Vas mentioned the potential for Entresto® to be a significant medicine, already the best primary care launch of an oral medicine in the last two decades. We've got Lucentis® growing at a significant rate. We've got Cosentyx® approval. We'll get reimbursed next year, Entresto® reimbursed later this year. The investments over the last two or three years are really starting to pay back. And we shared at “Meet the Management” I think last year, the real one to watch for us in terms of the growing geography is going to be China, and we're really very well set. Even if there is some price pressure, our focus has been around volume and growing it even in Innovative Medicines, and we think we're set up very well to do that.

  • Vasant Narasimhan – CEO of Novartis

A. And maybe just to build on Paul's comments. In China, broadly, we see three key trends. The first key trend is there is the effort to tender the established medicines, which in the case of Diovan® and Gleevec®, of course, will lead to additional pressures. But that's going to free up USD 30 billion, we estimate, money that can be reinvested in innovation. Combine that in a moment in time when the China FDA is becoming really world-leading in terms of its policies of allowing international studies to be done in China directly, more rapidly approving medicines. And then a more regular reimbursement environment, predictable reimbursement environment. Our strategy in China is to pivot to new launches. And Paul and Susanne's organizations are very much focused on driving new launches to enable us to double our China business, we hope, over the coming five years. And that's something we want to keep you updated on over the coming years. Great. Thanks, Richard, or on oral solids, sorry. Harry?

  • Harry Kirsch – CFO of Novartis

A. On oral solids, the to be divested product portfolio to Aurobindo. Richard, we continue to expect that divestment will be completed during 2019. Now it's, of course, pending closing conditions, including some regulatory approvals. We are not in control of that because Aurobindo is leading this. And from a forecast assumption, that will continue to take quarter 3. But of course, we cannot be certain about that, but I think that's a good forecast assumption. And what we also will do once the divestment is completed, we would provide then pro forma financials for the continuing operations, which would exclude that to be divested business from '18 and '19. So it's easier for everybody to model.

  • Florent Cespedes - Société Générale Cross Asset Research

Q. Two non-SMA related questions. First for Susanne on the Kisqali®. The performance this quarter seems to be a bit better. So could you please elaborate on that, if you see a kind of trend or any reason to explain this? And my second question is for Paul on Tasigna®. The sales performance on this product this quarter is a bit softer. It's a mature product, but could you elaborate a bit or give any reason for that? Do you see a trend behind that?

  • Vasant Narasimhan – CEO of Novartis

A. Thanks, Florent. So both Kisqali® and Tasigna®, Susanne?

  • Susanne Schaffert - CEO of Novartis Oncology

A. Thank you. Thank you, Florent, for the question. So Kisqali®, we had a very good quarter, very pleased with that. We could reach USD 91 million and we really see gaining momentum. And that is driven mostly by the expansion of indications into premenopausal settings and into the combination with fulvestrant. And that makes us the CDK 4/6 with the broadest data set in first line. So outside US, we see very strong growth driven by further penetration. But also in the US, we see very good momentum the last weeks. So as we always said, Kisqali® remains a very important growth driver for Novartis Oncology, and we are confident that this product has the potential to reach blockbuster status. Regarding Tasigna®, so Tasigna® had a few soft months. And I think as we also said last quarter, we have a very focused action plan to differentiate Tasigna® in terms of efficacy and broader and deeper response, and we are confident that we can return to modest growth by the second half of the year.

  • Peter James Welford - Jefferies LLC, Research Division

Q. Two questions, please. Firstly on the Sandoz business. I noticed that the Biopharmaceuticals sales has been perhaps a little weak this quarter. Any sort of insight on the growth trajectory for those and whether or not we should anticipate an uptick during the course of the year? And perhaps a comment there on what you're seeing in the underlying markets there. And then secondly, on Lutathera®. Possible to give us the US sales perhaps this quarter, or the ex US split? And also any commentary on the types of patients you're typically treating, if you get NET patients? Or are you seeing uptake in a broad range of NET patients?

  • Vasant Narasimhan – CEO of Novartis

A. Thanks for the question. On Sandoz Biopharmaceuticals, globally, we saw very strong growth really driven by Europe. And Europe is performing well with the recent launches of Rixathon®, our rituximab biosimilar; and Erelzi®, our etanercept biosimilar. And we're also now preparing for what we hope is an approval of our pegfilgrastim biosimilar relatively soon to build on what I think is arguably the broadest portfolio of biosimilars in the market. Any softness we've seen in the US, where we've had seen additional competition both on Glatopa®, our Copaxone® generic, as well as on filgrastim, where we have additional entrants coming into that product line. Key for us in the United States will be continued launches. So we are on track now with pegfilgrastim, and I think that will enable us hopefully to have a potential approval depending on how FDA finds the resubmitted data. That's a 6-month clock from our resubmission as it was a CRL. As well as, of course, we have the outstanding situation with Erelzi® in the United States as well as then upcoming future filings and launches. I think now the key for us in the US will be to replenish the biosimilars portfolio. And with respect to, Lutathera®, Susanne?

  • Susanne Schaffert - CEO of Novartis Oncology

A. Vas, as you highlighted, we were very pleased with the performance, Lutathera® reaching more than USD 100 million. And to your question on where the sales come from, it's the vast majority coming from the US, where we really see great momentum. We have now more than 125 centers using the treatment, treating more than 2,000 patients. And what we also see now, first sales coming from Europe. So vast majority coming from the US and some sales coming from Europe. Then you asked about patients. So it's neuroendocrine tumors, and it's mostly second-line patients that see some progress. So as you remember, the results from NETTER study really showed tremendous, tremendous impact on progression-free survival and overall survival in this setting. And this is where the majority of the patients come from.

  • Seamus Christopher Fernandez - Guggenheim Securities, LLC, Research Division

Q. So I was hoping that we could talk a little bit about incremental margins and a couple of opportunities. First off, the incremental margins that we can sort of think about reading into the underlying core P&L for Zolgensma® despite obviously cash flows dynamics from some of the payer agreements notwithstanding. But just hoping to better understand the kind of incremental margins and the contribution that this can make to the margins going forward. As well with Zolgensma®, can you just help us understand the challenges that the company might face for patients who are already on drugs like Spinraza® and how you will deal with that within the context of the payer environment? And then the second question is on RTH. Again, incremental margins there. I think I recall, Vas, you talked about some challenges with manufacturing with RTH and getting that to kind of consistent pharmaceutical margins for an antibody product. Can you just update us on that? And it seems like there's also a heavy royalty burden that we should be thinking about with Lucentis® relative to that, that certainly RTH could be a positive contributor there.

  • Vasant Narasimhan – CEO of Novartis

A. So first on margins with respect to Zolgensma®, thanks, Seamus, for the questions. Harry?

  • Harry Kirsch – CFO of Novartis

A. Yes. I would say actually, we can almost take them a bit together because these are in the end different price levels, yes, different populations. But in terms of costs of goods and royalty burden and so on, a quite higher-margin product. There's some royalties on Zolgensma®, but very focused, as you can imagine, marketing and sales effort. So very high margins expected on Zolgensma®. Same goes true for RTH with a slightly different mix. Of course, there's a bit more marketing and sales. But even when you look at Lucentis® like footprint, it's quite focused and specialty and focused center market. So both of these products, I would expect to significantly contribute after launch period to our margin, not only to sales, but margin, profits and cash flows.

  • Vasant Narasimhan – CEO of Novartis

A. Paul, on Zolgensma® switching?

  • Paul Hudson - CEO of Novartis Pharmaceuticals

A. So we are aware that it's going to be one of those things that is being discussed. And it will be very much for the payers to decide how they handle that. But from our perspective, and we've worked through the [MAT] program to try and make sure that it is an option for patients. So it will be very much case by case, but I think we're very open to allowing it to happen.

  • Vasant Narasimhan – CEO of Novartis

A. So then lastly, on RTH manufacturing. One of the things I want to clarify is our filing now involves the updated manufacturing process. You'll recall we had a delay in RTH because we needed to update the manufacturing process. We completed that. We completed the bridging studies. So the margins or the cost of goods with respect to RTH now are competitive with what we'd expect from any of our biologic products.

  • Mark Douglas Purcell - Morgan Stanley, Research Division

Q. A couple of follow-ups on Zolgensma®. And then just firstly on Sandostatin® LAR. You said you're keeping an eye on the generics situation there. So can you help us understand the developments you're watching and what we should expect in terms of competitive dynamics going forward? And then going back to Zolgensma®. Some really encouraging prelaunch prep that you've described very clearly on slide 17. In relation to previous studies, in terms of combination, so are you going to do any combination trials yourselves in patients who are also going to be treated with Spinraza®? And in terms of patients who already received Zolgensma® and then have followed up with a Spinraza® therapy on top, can you help us understand the reasons why these children are using both drugs together as opposed to just Zolgensma® as a single therapy?

And then there was an earlier question on manufacturing. Can you help us understand the current manufacturing footprint, the capacity you have in terms of treatment patient numbers in terms of the IV? And as you move to intrathecal, how that sort of addressable patient population is going to change? And if we should expect any potential changes in terms of safety and efficacy given you're moving from a systemic IV product to something that may have less systemic exposure?

  • Vasant Narasimhan – CEO of Novartis

A. Thank you, Mark, for the questions. So first on the Sandostatin® LAR, Susanne?

  • Susanne Schaffert - CEO of Novartis Oncology

A. So on Sandostatin® LAR, the situation has not changed, but as Harry mentioned, we are monitoring closely. The situation is that we're aware of one company that has initiated regulatory procedures in Europe, and we assume the same to be the case in the US, but no change at the moment, but we are monitoring closely.

  • Vasant Narasimhan – CEO of Novartis

A. So in respect to Zolgensma® combination trials, manufacturing capacity, et cetera, Paul?

  • Paul Hudson – CEO of Novartis Pharmaceuticals

A. So on the combination trials, I think we've mentioned this before, but it's probably worth repeating. Where there was evidence of patients getting both, it's where patients have gone into the study, desperately ill children into a study with Zolgensma®. And of course, the parents wanted to give whatever they could on top. And I think that's understandable because it was still an investigational compound at that point. I think now the question, the whole conversation has moved very separately to how do we move patients from Spinraza® to Zolgensma®? And we're collecting the data to do that and showing it where we can. So we feel confident that we'll be able to help physicians and payers understand that as we go. There is also, by the way, an appetite from payers to make that switch. So we'll see where we get to. In terms of manufacturing, a general manufacturing update, Vas mentioned the 1 million square feet. We were already set up before we took on the Colorado facility to match what we think will be the demand over the next year or so. We took the opportunity to take on a high-tech facility, a biologics GMP-approved facility to make sure that as we go further into the prevalent population, if there's an unprecedented level in the 2s and 3s, we can cover that, too. So we have more than enough capacity to deal with what we think could be an unprecedented demand.

  • Vasant Narasimhan – CEO of Novartis

A. Thank you, Paul. And thanks, Mark, for the question. I'd maybe also want to highlight again that we'll present additional long-term follow-up data from the START study, but we are seeing continued sustained efficacy in the patients that we've described to you the past. And any patient who chooses to add on a therapy, as Paul said, it's purely out of the parents' decision, not because of anything with respect to Zolgensma® in our view.

  • Stephen Michael Scala - Cowen and Company, LLC, Research Division 

Q. First, on the psoriasis market, is there anything you would like to highlight in the risankizumab label or price that represents a competitive advantage for Cosentyx®? And Vas, when you were speaking about the ARROW trial, you mentioned rapid onset. Is that likely to be the sole point of differentiation versus the IL-23s in psoriasis? And then secondly, on the Gilenya® royalty question, to clarify, what is now assumed in the revised operating income guidance? Is a lower royalty to Mitsubishi assumed, so operating income guidance might have to come down if the lower royalty doesn't happen? Or is the current royalty assumed so operating income guidance might have to move higher if the lower royalty is realized?

  • Vasant Narasimhan – CEO of Novartis

A. So first off, thanks, Steve for the questions on psoriasis, risankizumab and the ARROW study. Paul?

  • Paul Hudson - CEO of Novartis Pharmaceuticals

A. So another IL-23 entered the market. We feel that the market is well served with the medicines it has already. We think that a skin-only approach is part of it. You've seen from the data Vas showed on NBRx. Although NBRx is volatile, it does show you what position we've taken as one of the leading, if not of the leading, new medicine in the psoriasis space. Our growth in psoriasis is above-market continuously. So we don't think there's anything clinically to be gained from risankizumab entering the market at all, but we do expect AbbVie and their heritage and their presence in the market and what that could mean. We think that more than skin is needed to be treated. And we've seen from Tremfya® that we know how to handle an IL-23 in general terms. 

In terms of the ARROW study, we said when we took the study on, we wanted to advance the understanding, the mechanistic understanding for the community. We think there is a lot more to psoriasis, and we think that's why the IL-17 mechanism is going to be absolutely critical. And I think we'll get the readout towards the end of the year from recollection, and we're looking forward to adding that and helping with the debate. You've seen from our performance and our growth in quarter 1 versus quarter 1 last year, we're in a very good place and we've taken some very sensible decisions on where we feel that our NBRx growth is showing, that we've made some good choices.

  • Vasant Narasimhan – CEO of Novartis

A. And before I move to Gilenya®, maybe just a few other quick points on Cosentyx®. I mean, I think the key we need to keep reminding colleagues on the phone is that IL-17A, we've demonstrated through the data we have on all of the additional manifestations of psoriasis, whether it's palmoplantar, whether it's nail, whether it's scalp, that IL-17A seems to be really a preferred therapy from the data we've generated to date in treating these hard-to-treat psoriasis patients. In addition, we know that the IL-12/23 has not been successful to date in ankylosing spondylitis, particularly with respect to some of the elements in the joint. So again, IL-17A proves itself to be really a differentiating medicine in ankylosing spondylitis, and then we also believe in psoriatic arthritis, particularly with respect to enthesitis, which is the inflammation of some of the insertion points in the joints. So there are multiple points of differentiation that go beyond speed of onset, which we also think we've demonstrated as well. Now with respect to the Gilenya® royalty, Harry?

  • Harry Kirsch – CFO of Novartis

A. We cannot really add much to what Paul has said here. So we reflect the current contractual terms. And I would not expect the guidance to change one or the other direction anyway. So that's what we can say and unfortunately not more.

  • Simon P. Baker - Redburn (Europe) Limited, Research Division 

Q. Two, please. Firstly, I wonder if you could give us an update on the expected timing and potential remedies in your litigation with Amgen with respect to the Aimovig® co-promotion. And secondly, now that you've completed the dividend in kind distribution of Alcon to Novartis shareholders, I was wondering if in principle, the same can be done with the Roche shareholding that you have.

  • Vasant Narasimhan – CEO of Novartis

A. Yes. So first on the Amgen case, I'll hand it over to Paul.

  • Paul Hudson - CEO of Novartis Pharmaceuticals

A. So just one sentence or two before I get to the case itself. We're delighted with the progress we're making with Aimovig®, and we're thrilled with what we're doing for patients. It's a huge unmet need, and we don't blink. That is business as usual for us. And we go on to get reimbursement and approvals across Europe and the rest of the world. As for the legal dispute, well, we're very confident in the strength of our legal position. One thing you may be interested to hear is that in fact, the US agreement does not even contain the clause on which Amgen relies as a basis for its termination, so we feel very good about where we're positioned. But above all, and this happens between big companies occasionally, but above all, it's business as usual with migraine and migraine patients and Aimovig®.

  • Vasant Narasimhan – CEO of Novartis

A. And with respect to the Roche stake, there's no change in our position. It continues to be a financial stake with a strategic component.

  • Laura Sutcliffe - UBS Investment Bank, Research Division 

Q. Two questions, please. One on Zolgensma® and then a follow-up on margin. On Zolgensma®, if I read the slides from your conference presentation last week correctly, there were noticeably more adverse events in STR1VE than there were in your earlier study. As far as I understand, the product that was used in STR1VE was commercially produced, whereas the one for the earlier study was not. Is that a potential source of the difference? And if not, where do you think it could come from? And secondly, on margins. Could you just outline some of the pushes and pulls you expect on your gross margin in Innovative Medicines specifically throughout the rest of 2019?

  • Vasant Narasimhan – CEO of Novartis

A. Yes. On the first question, on Zolgensma®, I'll hand it to Paul. Paul?

  • Paul Hudson - CEO of Novartis Pharmaceuticals

A. So yes, an interesting question. I mean we don't see any difference, in fact, and we performed extensive analytical and clinical comparability studies. So we think any difference at all is in the baseline characteristics of the patients. So let's also be clear. The improvement made by the children is significant on CHOP-INTEND, et cetera. So we feel very good about the results and look forward to sharing more and across more studies at AAN.

  • Vasant Narasimhan – CEO of Novartis

A. Yes. So I think we don't see the safety difference that I assume our competitors are feeling. So on the margins?

  • Harry Kirsch – CFO of Novartis

A. Yes. The gross margins pushes and pulls. I mean, of course, we have on the one hand always mix. It's very important. As you know, some of our products are  most of our products are quite high-margin products, so high gross margins. A few are lower. On the other hand, we see that the key growth drivers have quite high margin. So Afinitor®, Exjade® and the tail end of Gleevec®, of course, are also very high margin. So I would say from that standpoint, the mix probably neutralizes as we expect a bit more generic impact in the future quarters. And then we have the whole Technical Operations transformation plan. That already has contributed, but we expect that to continue. So a bit hard to completely predict, but I would say that we have made good gross margin improvements, and if you take everything together, we probably expect roughly the same gross margin year-over-year.

  • Kerry Ann Holford - Exane BNP Paribas, Research Division 

Q. Two questions, please, for me. Firstly, on Entresto®. I wonder if you could just comment on the US growth in the quarter, with [rates]. How sustainable is that going forward when you talk about the underlying volume demand versus price contribution in the quarter with this stocking in Q1? And also, I wonder whether this drug also has been a beneficiary of the generic Valsartan supply shortage in the US. Secondly, on MS. Can you quantify probably if there was some destocking for Gilenya® in Q1? Can you quantify that? And also talk about the underlying demand for that product and talk about the relative positioning of Mayzent® versus Gilenya®. Are you yet at a position where you're talking about negotiation for access, needing of high rebates on Gilenya® perhaps in exchange for access in Mayzent®?

  • Vasant Narasimhan – CEO of Novartis

A. So Paul, both for you, Entresto® and then Gilenya® and Mayzent®.

  • Paul Hudson - CEO of Novartis Pharmaceuticals

A. It sounded a bit more like more than two questions, but I'm going to give some fast answers. Entresto® performance has been fantastic. We're now starting to see the fruits of all the effort we put in. We saw the PIONEER data kick on. And so we've seen the hospital initiation data set complete, so feeling good about that. Will it continue? We believe it does continue, and we believe that PARAGON readout is going to be the next sort of accelerator if the results are good. But we know confidence is high and we know that Entresto® becoming standard of care in many settings is really an important position for us. For Gilenya®, the comments around  there is definitely some destocking, and there was, of course, as I mentioned, in Q1 last year, there was some stocking. So the like-for-like comparison would have been very close to consensus, I think, without the inventory moves, underlying demand is solid, frankly, so no issue there. As for Mayzent®, 50% to 80% of patients progress. And I refer to some opinion leaders I spoke to last week. They know that, and they've now had an opportunity to have a specifically proven medicine in that group. They look at Mayzent®'s position as taking all-comers who are progressing, not specifically Gilenya®. So we'll continue as we do  as we go on to identify this patient population, but we feel confident as we begin to educate and communicate that we'll be in a very good place with Mayzent® right across all medicines for the switch potential.

  • Emmanuel Douglas Papadakis - Barclays Bank PLC, Research Division 

Q. Maybe one for Harry on buybacks. You reiterated several times you're going to complete USD 5 billion by the end of this calendar year. You are very light in Q1. Is there any particular reason why you've left that phasing heavily skewed through the remainder of the year? And is there particular things we should think about for modeling perspective in terms of the phases of distribution over the remainder of this year? Second, a couple of quick follow-ups. Kymriah®, you've referenced in the report discussions with the FDA aiming to change the specifications in the US. If you could just elaborate on that. I think it's fair to say you're continuing to lag your key competitor in that space. So any color in terms of how that may change and when, would be helpful. And then just a quick follow-up BYL. You alluded to 80% payer coverage. I assumed that was for the drug itself. Just a bit more color in terms of the diagnostic payment, test cost coverage, et cetera, would also be very helpful.

  • Vasant Narasimhan – CEO of Novartis

A. So first, Harry on buybacks.

  • Harry Kirsch – CFO of Novartis

A. Yes, thank you. So on the share buyback, I mean as you can imagine, level of share price is one key input into that activity. And we also were quite optimistic that the Alcon spin would happen in April. So I think the timing of the majority of the share buyback after the Alcon spin is probably a good one. And that's why as of tomorrow we will already start again, and restart that share buyback program, and we are quite optimistic that we will finish it by the end of the year.

  • Vasant Narasimhan – CEO of Novartis

A. Yes. We want to maximize the number of shares we can of course take that out of circulation for the benefit of Novartis shareholders. Susanne, both on Kymriah® and BYL.

  • Susanne Schaffert - CEO of Novartis Oncology

A. Yes. Thank you for the questions. On Kymriah®, I think when you look over the last six months, we made quite good progress in terms of building our manufacturing footprint. We recently got FDA approval to increase manufacturing capacity. We got in addition approval from health authorities outside the US, namely EU, Switzerland, Australia, Japan and Canada, to widen the commercial specification in line with the clinical product. FDA has not yet approved our prior approval supplement application, citing insufficient information to widen Kymriah®'s commercial specification. So we are obviously disappointed by this decision, and we are working closely with FDA to find a way forward. We also plan to collect additional data, and we'll update you as soon as we have more clarity.

  • Vasant Narasimhan – CEO of Novartis

A. On the BYL diagnostic?

  • Susanne Schaffert - CEO of Novartis Oncology

A. Yes. in terms of BYL, as Vas mentioned, we're quite excited about the launch, and we plan to launch together with a companion diagnostic provided by Qiagen. And we work very closely with Qiagen to allow broad coverage and also reimbursement for the tests.

  • Marietta Eva Miemietz - Primavenue Advisory Services Limited 

Q. A couple of financial questions, please, for Harry first. You hinted at a guidance upgrade if the pipeline delivers according to plan. So could you just share with us some of the major news flow items that have been excluded from the current guidance? And also, could you please quantify any dis-synergies from the Alcon spin-off that could weigh on margins from Q2 onwards and for how long they are expected to persist? And then a couple of product questions, please. Coming back to Kymriah® in the US, just trying to get a little bit more detail there. Is the situation that the FDA has simply not yet made up its mind, whether the specs can be changed at all? Or have they sort of indicated that they're willing to meet you halfway, but you're still working to show that you can get the number of viable cells up to the proposed new threshold? And can you maybe just also elaborate a little bit on the current impact on your US business in terms of sales, in terms of taking on new commercial patients, what your capacity is and if clinical trials are continuing as planned? And then finally, sorry to come back to the Zolgensma® safety issue. But I mean, I was quite surprised actually by the panic that was sparked by that second death. Because I would assume that also the respiratory issues can actually arise as a complication of the disease itself. So it would just be really, really helpful if you could help us understand in very general terms any potential mechanism by which Zolgensma® could theoretically even contribute to respiratory infections and how that can be ruled out in an autopsy? Is this really all about sort of that tiny risk of the vector recombining with other viruses? And do you actually have any data in patients or in vitro, whatever, to see whether and how that actually happens? So any color there would be very helpful.

  • Vasant Narasimhan – CEO of Novartis

A. Thanks, Marietta. So I'll take the third question first. With respect to Zolgensma®, no, there's no mechanistic reason, and this is primarily a situation where when you give an AAV therapy, you do trigger and enhance stimulation of the immune system. If you do that in the context of sepsis, you can, of course, exacerbate potentially the sepsis. There is no preclusion criteria for an infection because we want to maximize the number of children treated. So this is a situation where we administer the therapy. I think the key is you need to give steroids at an appropriate time with respect to when AAV is administered. That's the absolute key in terms of managing a situation like this, where a patient has multiple potential infectious agents already affecting them, and we want to minimize the impact that AAV might have on the clinical course of the patient. Again, I would say this is not a platform question. This is more about when you give a therapy like this in the context of a very potent immune response to an existing infection, you can, of course, have consequences to that, which would be the case for any medicine that you give in this setting. 

  • Marietta Eva Miemietz - Primavenue Advisory Services Limited 

Q. Just to follow up on that, how can you actually then rule out on the autopsy that the medicine contributed anything? Because you can never know whether it was a too strong immune response that killed the patient and whether the drug contributed at all. So I'm just a little bit confused...

  • Vasant Narasimhan – CEO of Novartis

A. The good news is we have regulators who make these decisions. Fortunately, we have independent DSMBs and regulators who have all already said there's no necessary changes to the trial protocol, no changes to the clinical program and no changes to the overall approval timeline. So I think I leave it in the hands of the very capable independent organizations that make these assessments. I will, of course, provide the data with respect to the autopsy to the relevant agency. And we look forward to completing the regulatory timelines towards an approval. Now with respect to the guidance upgrade, Harry?

  • Harry Kirsch – CFO of Novartis

A. Yes. So as you have seen, we had a very strong quarter 1. 7% sales growth, Innovative Medicines 10% sales growth. Core operating income growth would come to 18%. And with that, of course, you have to see okay, how is rest of the year going? Such a strong start. Some people even mentioned maybe there should be more upgrades. Anyway, I think strong start. On the other hand, we should never get ahead of ourselves. Clearly, on the bottom line, we see the potential for the upgrade that we have given. In terms of some of the pushes and pulls, clearly, we have to see what are the labels we get. Some are very important medicines, where we expect approvals over the next quarters. That's on the one hand. On the other hand, we have to see also how fast is there a generic erosion on Afinitor® and Exjade®, for example, or Exforge® in Europe, a smaller product, and is there anything on Sandostatin® LAR? So those are some of the pushes and pulls. We just cast them already. So I think we have given a good, prudent guidance. On the other hand, this is also a quarter where we expect to have the least generic exposure. So I think we are well set with this. And then we'll see how quarter 2 evolves and quarter 3, and then I think we are in a very good situation to give an updated guidance if necessary.

  • Vasant Narasimhan – CEO of Novartis

A. On the interest of time, I think we're going to have to go to the last two questions on the line. We'll get back to you, Marietta, on your other questions.

  • Vincent Chen - Sanford C. Bernstein & Co., LLC., Research Division 

Q. I was wondering if you could just help us quickly dimensionalize what types of data we should expect to see at AAN, for the Zolgensma® intrathecal STRONG study specifically. Should we expect to see data on achievement of motor milestones? Or is it more reasonable to expect that the focus will be on initial data on patient trajectory on motor function scale than safety given the relatively early stage of the study.

  • Vasant Narasimhan – CEO of Novartis

A. So Paul, on the AAN data readouts?

  • Paul Hudson - CEO of Novartis Pharmaceuticals

A. So you said upfront what you expect to see. I told you a little bit earlier, I think START [will read] another year, STR1VE an additional three months of data, SPRINT plus presentation of the data in the presymptomatic population. For STRONG, which you mentioned, again, you will see some reflection on dosing. It will have some feedback on dosing in the low to mid dose. And I think we'll see some feedback on standing in support for greater than two seconds [one of the endpoints], so you'll start to see the benefit and see some of the evidence of that in Type 2.

  • Andrew Simon Baum - Citigroup Inc, Research Division 

Q. Just a follow-up in relation to RTH, please. The conversations we have with ophthalmologists is a concern about taking up fridge storage space given the limitation of only having an initial approval for AMD. Conversely, continuing with Lucentis® or Eylea®, that has obviously multiple approvals. To what extent do you think that's going to limit the adoption until you actually have that [DME] in hand? And then very quickly if I could, on rebate reform, do you anticipate it will be enforced for January the 1st of next year? And do you want to comment on the impact you think it will have on realized pricing for those products affected within your portfolio?

  • Vasant Narasimhan – CEO of Novartis

A. Great. Thanks, Andrew. So on RTH, Paul?

  • Paul Hudson - CEO of Novartis Pharmaceuticals

A. Of course, yes, fridge storage space is something to consider. You may be interested to know it's part of world-class preparation. We spent a lot of time looking at specifically at this and observing workflow to try and make sure we know. We think having a q12 without any sacrifice in visual acuity, that's what we hope for in our label, and that is we think worthy of fridge space and so much more. Yes, the other indications require the medicine. Most retina specialists have 1 plus, so we believe that we will have earned our right for the right amount of shelf space, if you like. And for everybody that we've spoken to, they feel strongly that our interval and our fluid resolution is compelling enough to demand capacity in their own office environment.

  • Vasant Narasimhan – CEO of Novartis

A. I'll go back to rebate reform. It's difficult to judge the exact timing of the administration's proposal to be implemented. We support, along with many of our industry peers, the removal of rebates in Medicare Part D. We believe this will achieve the goal of reducing patient out-of-pocket at the pharmacy counter. It's difficult for us to judge the exact impact until we know the details of how this will all transpire, but we certainly would expect given our overall portfolio, as relatively low exposure to the US government payer environment, not significant effects on our overall portfolio.

I think we have one more question from Tim Anderson. Tim, please go ahead.

  • Vasant Narasimhan – CEO of Novartis

A. No? Okay, so we may have lost him. Thank you very much. So with that, thanks again for your interest in the company. A strong Q1. We're looking forward to continue to deliver momentum over the course of the year, and we'll continue to keep you updated as we progress. Thanks for joining the call.

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