Novartis AG (NVS) Earnings Report: Q1 2016 Conference Call ... · and live audio webcast. (Operator...

CompanyName:Novart isAGCompanyTicker:NVSSector:HealthCareIndustry:Drugs

EventDescription:Q12016EarningsCallMarketCapasofEventDate:179.59BPriceasofEventDate:76.28

©2014TheStreet,Inc.Al l R ightsReserved Page1of24

NovartisAG(NVS)EarningsReport:Q12016ConferenceCallTranscriptThefollowingNovartisAGconferencecalltookplaceonApril21,2016,08:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

JoeJimenez;NovartisAG;CEOSamirShah;NovartisAG;InvestorRelationsMikeBall;NovartisAG;AlconHarryKirsch;NovartisAG;CFODavidEpstein;NovartisAG;DivisionHeadandCEO,PharmaceuticalsVasNarasimhan;NovartisAG;GlobalDrugDevelopmentRichardFrancis;NovartisAG;DivisionHead,Sandoz

OtherPart icipants

JeffHolford;Jefferies;AnalystRichardVosser;JPMorgan;AnalystTimAnderson;Bernstein;AnalystMatthewWeston;CreditSuisse;AnalystAndewBaum;Citigroup;AnalystTimRace;DeutscheBank;AnalystKerryHolford;ExaneBNPParibas;AnalystGrahamParry;BoAMerrillLynch;AnalystFlorentCespedes;SocieteGenerale;AnalystSteveScala;Cowen;AnalystVincentMeunier;MorganStanley;AnalystMikeLeuchten;BarclaysCapital;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Goodmorning,andgoodafternoon,andwelcometotheNovartisQ12016resultsreleaseconferencecallandliveaudiowebcast.

(OperatorInstructions)

Arecordingoftheconferencecall,includingtheQ&Asession,willbeavailableonourwebsiteshortlyafterthecallends.

(OperatorInstructions)

Withthat,IwouldliketohandovertoMr.JoeJimenez,CEOofNovartis.Pleasegoahead,sir.

JoeJimenez (CEO):

Thankyou.I'dliketowelcomeeverybodyheretoday.JoiningmeontheNovartisendareHarryKirsch,ourCFO;wehaveDavidEpstein,HeadofPharma;MikeBall,HeadofAlcon;RichardFrancis,Headof




Sandoz;andVasNarasimhan,whoisournewGlobalHeadofDrugDevelopment.Nowbeforewestart,I'dlikeSamirtoreadtheSafeHarborstatement.Samir?

SamirShah (InvestorRelations):

Goodmorning,everybody.Theinformationpresentedinthisconferencecallcontainsforward-lookingstatementsthatinvolveknownandunknownrisks,uncertaintiesandotherfactors.

Thesemaycauseactualresultstobemateriallydifferentfromanyfutureresults,performanceorachievementsexpressedorimpliedbysuchstatements.

Pleaserefertothecompany'sForm20-FonfilewiththeU.S.SecuritiesandExchangeCommissionforadescriptionofsomeofthesefactors.

JoeJimenez (CEO):

Thanks,Samir.Okay,startingonSlidenumber4,wehadasolidquarter.WeabsorbedtheGleevecpatentexpiration,aswellasinvestinginnewlaunches,andournetsaleswereupabout1pointinconstantcurrency.Coreoperatingincomewasdown5%,andthisreflectstheGleevecpatentexpiration,aswellasthelaunchinvestments.Andwe'remakingsomegoodprogressonthelaunches,whichwe'lltalkaboutinaminute.

OnSlide5,youcanseethe5prioritiesthatIlaidoutatthebeginningoftheyear,andIwanttotouchoneachofthese,startingwithfinancialresultsonSlide6.Asyouknow,2016,wedohavesomeprettystrongheadwinds,withtheGleevecpatentexpiration,withthelaunchofEntrestoandCosentyxintermsofadditionalspending,aswellasspendingonAlcon.

Butwehadagoodquarter.Pharmawasup1%.ExGleevec,itwasup4%.Sandozhadagoodquarter,salesup4%inconstantcurrencies,andthiswasreallydrivenbygrowthoftheBiopharmaceuticalsbusiness.AndthenAlconwasdownasexpected,aswebegintoexecutethegrowthaccelerationplan.

Thesecondpriorityisonthenextslide,andit'stostrengtheninnovationacrossallofourdivisions.OnEntrestoandCosentyx,thelaunchesareprogressing.SoCosentyxisdoingextremelywell.Asyoucouldsee,we'regrowingsharebothintheU.S.andEuropeaswelaunchinpsoriasisaswellasthe2newindications.David'sgoingtotalkmoreaboutthat.AndtheninEntresto,wesaidthefirstquarterwasgoingtobeallaboutbreakingdownsomeoftheaccessbarriers,whichwe'veaccomplished.Therestillispriorauthorizationthat'sslowingsomeuptake,aswellasphysicianreluctancetoswitchstablepatients,butwe'reworkingveryhardonthis,andwe'restillveryconfidentinthelong-termpeaksalesofEntresto,justgiventhedataonthatdrug.

Nowonthenextslide,Ijustwantedtolayoutsomeoftheotherpotentialcatalysts,right?AllthefocushasbeenonEntrestoandCosentyx,butIwanttoremindeverybodythatwehaveabroadandadeeppipeline.JusttouchingonafewonOncology:LEEinadvancedbreastcancer,FovistainwetAMD.Inneuroscience,thisAmgencollaborationinmigraineisgoingtobeverypromising.Andincardiovascular,serelaxinforacuteheartfailure.Soallthesearepotentialblockbustersingrowingareasofhealthcare.

AndatSandozonSlide7,we'reworkinghardtoexpandpatientaccesstobiologicswithourbiosimilarspipeline.Wehave5majorfilingsplannedforthisyearandnext,andweexpecttohaveabigimpactonhealthsystemsaroundtheworldthatarestrugglingwithcost.ThisisaneededandgoingtobeawelcomelinefromNovartis.

Andthenfinally,oninnovationonSlidenumber10,I'mveryexcitedthatnowwehaveour2innovationleadersinplace:JayBradnerinresearchandVasNarasimhanindevelopment.They'reofftoaverygoodstart,strongrelationship.Andthisisgoingtobenefitourcompanyformanyyears.




NowthethirdpriorityistoimproveAlconperformance.AndunderMikeBall'sleadership,theAlcongrowthplanisunderway.Sowe'reacceleratinginnovationwiththelaunchofUltraSertandPanOptix.We'restrengtheningourcustomerrelationshipsaroundtheworld.Andwe'reimprovingbasicoperations,suchascustomerservice,ensuringthatwe'vegottherightproductattherightplaceattherighttime.

Nowthefourthpriorityistocapturecross-divisionalsynergies.AndasIsaidinJanuary,we'regoingtofocusourdivisions,integratedrugdevelopmentandcentralizemanufacturing.Sointermsoffocusingthedivisions,we'vealreadytransferredOpthaPharmafromAlcontoPharma.SothattookplaceApril1.Wehavealsotransferredjustunder$1billionofmatureproductsfromPharmatoSandoz.ThatalsotookplaceApril1.We'reintegratingsomeelementsofdrugdevelopment.Vashasgothisteaminplace,andwearelookingforaJuly1cutover.Aswellasoncentralizingmanufacturing,we'veappointedanewglobalhead,thatisJuanAndres.He'sheadofpharmaceuticalmanufacturingtoday,andhe'sbuildingouthisteamandtheplansforcentralizationofmanufacturing.That'llgoliveonJuly1.

Wethinkthesechangeswillgeneratesignificantsavings.We'veputanumberof$1billionoutby2020,andthat'sgoingtohelpuswithcontinuedmarginexpansionforthecompany,aswellasensuringthatthelauncheshavewhattheyneedtomaximizethemselves.

SoonSlidenumber14,IjustwanttogivealittlebitofanupdateonNBS.We'vemadegoodprogress.Justpickingoutacoupleofthingsthatwedidinthequarter.Weconsolidatedfacilityservices.Sowehad100suppliersacross,aroundtheworldservicingNovartissites,we'vereducedthatto3.Andwhenyouthinkaboutthat,theleveragethatwehaveintermsofofferingthesecompaniessignificantlygreaterbusiness,we'reabletotakecostsdownconsiderably.We'vestartedbuildingoutour5globalservicecenters,whichis--willhelpuslowercostsinthelongterm,andwe'reexpandingNBStoincludein-countrycommercialefficiencyacrossdivisionscountrybycountry.

Andthenfinally,thefifthpriorityistocontinuetobuildahigh-performingorganizationwiththatfocusonqualityassurance.Andinthefirstquarter,wehadalargenumberofinspections,andallofthemweredeemedgoodoracceptable.

Nowbeforewemoveontofinancesforthequarter,IwanttoinviteMikeBall,who'sournewHeadofAlcon,tosharehisinitialperspectivesonAlconandtheturnaroundplan.Mike?

MikeBall(Alcon):

Thanks,Joe,andgoodmorning,everyone.Well,justtostartwith,I'mveryimpressedwithAlcon.Despitetheroughpatchwehitin2015,Iseeastrongfoundationandnumerouscompetitiveadvantageshere.Andcandidlyforme,it'sjustfuntobebackineyecare.

IthinkIcandistillAlcon'sissuesdowntoafewkeythemes.Alconneedsmoreinnovation,drivenbyabetterunderstandingofcustomerneeds.Ithinkweneedmoreinvestmentsbehindkeydriversofgrowth,arealmindsethereofcustomerdelightratherthansimplycustomersatisfactionandanimbledeviceculturethatmovesfastandisfocused,andIthinkthesplitwithPharmawillreallyhelptheminthatregard.

Wehaveinitiatedafocusedsetofactionstogetourbusinessturnedaround.Intermsofinnovation,weareputtingmoreinvestmentsbehindourmostpromisingR&DprogramsinbothSurgicalandVisionCare,andweareactivelyconsultingtogettopphysicianinputtoensurebestuserexperience.

Alsoweare,I'llcallitopenforbusiness,ifyouwill,onthebusinessdevelopmentfront.Andwecompleted3dealsinthepast60days,Ibelieveyou'vereadabout.ToimprovetheAlconcustomerexperience,weestablishedateamthatdidadeepdiveintoourSurgicalbusinesstocomeupwithrecommendationstomoveusintothecustomerdelightarea.Wehavehadareportoutonthat,andwearenowreadyto




implement.

Andtodrivenear-termgrowth,weareincreasinginvestmentsinbusinessareasthatareimmediatelyresponsivetopromotioninbothSurgicalandVisionCare.Inthemidterm,I'malsoexcitedaboutanumberofmarketexpansionopportunitiesthatexistbecausevirtuallynooneinthisspacehasinvestedsignificantdollarsagainstobviousdirect-to-consumeropportunities.Mybackgroundinmarketcreationandmarketexpansiontellsmethereisgreatpotentialoutthere.

SoIamenjoyingit.Ifeelconfidentintheturnaround.

Obviously,thenextquestioniswhenistheturnaround.Soit'searlydays,butIfeelthatourgrowthaccelerationplanwillputusontrackforsustainablegrowthbytheendofthisyear.Joe?

JoeJimenez (CEO):

Thanks,Mike.AndMike'sgoingtobearoundforQ&Asohecangetintoitmoredeeply.

NowI'dlikeHarrytotalkthroughthefinancialsforthequarter.Harry?

HarryKirsch (CFO):

Yes,thankyou,Joe.Goodmorning,goodafternoon,everyone.AsJoementioned,wecompletedthetransferofoperationalcontrolforOpthaPharmafromAlcontoPharma,andforthematureproducts,fromPharmatoSandoz.Weupdatedour2015segmentfinancialstoreflectthesechanges,soallcomparisonsareonalike-for-likebasis.Also,unlessotherwisenoted,mycommentsrefertocontinuingoperationsandgrowthratesinconstantcurrencies.

Slide17showstheusualsummaryofourperformance.Overall,forquarter1,saleswereup1%,andcoreoperatingincomewasdown5%,aswascoreEPS.Imentionedatthestartoftheyearthatcertainfactorswouldweighonfirsthalfperformance,withgenericGleevecenteringintheU.S.marketfromFeb.1,highinvestmentsforEntrestoandCosentyx,aswellastheAlcongrowthplan.

Operatingincomeforthefirstquarterwasdown5%,inlinewithcoreoperatingincome.Freecashflowwas$1.4billion,broadlyinlinewiththeprioryearat$1.5billion.

OnSlide18,youseethatoursalesgrowthwasdrivenbystrongunderlyingvolumegrowthof7%.ThisreflectsthestrengthofourGrowthProducts,whichwereup24%to$3.9billionor34%ofgroupnetsales.Ofcourse,thisincludestheGSKacquisitioneffect.AsthetransactionclosedonMarch2lastyear,wehad1monthofsalesfromthoseproductsinquarter1'15comparedto3monthsinquarter1'16.Thishelpedusoffset4pointsfromgenericerosiononthequarter,aswellas2pointsfromprice.Currencytookusfromapositiveconstantcurrencygrowthofplus1%toanegativedollargrowthofminus3%.

Oncoreoperatingincome,strongunderlyinggrowthof15%wasmorethanoffsetbynegative8pointsfrompriceandnegative12pointsfromgenericerosion.Currencytookusfromminus5tominus11%indollars.Iprovideabitmoredetailinthecurrencyevolutiononthenextslide.

Thecurrencyimpactinquarter1ofminus4%onthetoplineandminus6%onthebottomlinewasslightlybetterthanweanticipatedinJanuary,mainlyduetotheweakeningoftheU.S.dollarinMarch.IfMarchaverageratesprevailfortheremainderoftheyear,weexpecttheimpactonQ2wouldbeminus3%ontoplineandminus4%onbottomline.Forthefullyear,itwouldbeminus2%onthetoplineandminus3%onthebottomline,slightlyfavorabletoourJanuaryguidance.

Nowlet'sturntomarginsonSlide20.Overall,thegroupcoremargindeclined1.8pointsinconstantcurrency,mainlyduetogenericerosionandgrowthinvestments.Letmetalkyouthroughthedivisions.




Pharmagrewsalesby1%inquarter1,asGrowthProductscompensatedforgenericerosion.However,coreoperatingincomewasdown3%inthequarter,mainlyduetogenericerosionandlaunchinvestmentsbehindEntrestoandCosentyx,partlyoffsetbythe2additionalmonthsofGSKassetsandproductivitygains.Thisresultedinthecoremargindeclineof1.5percentpointsto33.7%ofsales.

Sandozgrewsalesby4%andcoreoperatingincomeby6%inthequarter,resultinginthecoremarginexpansionof0.5pointsto19.8%ofnetsales.Thisexpansionwasdrivenbyfavorablemix,mainlyfromU.S.biosimilarlaunchesofGlatopainJunelastyearandZarxioinSeptemberlastyear.

Alconsalesweredown3%,andcoreoperatingincomewasdown26%,resultinginacoremargindeclineof5.9percentpointsto17%ofnetsales.ThisdeclinewasmainlyduetoinvestmentsbehindthegrowthplanannouncedinJanuarycombinedwithlowersales.AsImentionedinJanuary,weexpectsalesgrowthatAlcontofollowinthesecondhalfoftheyear.Weexpectmarginstoimproveovertimetobeinlinewithindustrypeers.

OnSlide21,youcanseethedividendpaymentof$6.5billioninquarter1droveanincreaseofournetdebtto$23billionattheendofMarch.Ourfreecashflow,whichwasbroadlyinlinewithprioryearat$1.4billion,wasusedprimarilyforpaymentsrelatedtotheacquisitionofsmallbolt-onbusinessesandsharerepurchases.

Nowlet'sturntothebalanceof2016shownonSlide22.Inhalf1,weexpectcoreoperatingincometobeimpactedbythehigherinvestmentswearemakinginPharmalaunchesandtheAlcongrowthplan.Quarter2isexpectedtobethelowestforsalesgrowth,aswelaptheGSKoncologyproductacquisitionandhavethefullquarterimpactofGleevecgenericerosion,whichcontinuesinhalf2.Withthesefactors,quarter2coreoperatingincomecouldbeahighsingle-digitdeclineinconstantcurrenciesversusprioryear.

Inhalf2,weexpectthesalesuptickfromGrowthProducts,includingCosentyxandEntresto,togetherwithcostbenefitsfromproductivityprogramsandresourceallocationtodelivercoreoperatingincomegrowthofmidtohighsingledigits.

Lastly,onSlide23,Iwanttoconfirmourfullyearguidance.Weexpectnetsalesandcoreoperatingincometobebroadlyinlinewiththeprioryearinconstantcurrency.Onadivisionallevel,weareexpectingPharmatobebroadlyinlinetoaslightdecline,Sandoztogrowlowtomid-singledigitsandAlcontogrowlowsingledigits.

Andwiththat,IhandovertoDavid.

DavidEpstein (DivisionHeadandCEO,Pharmaceuticals):

Good.Thankyou,Harry.HappytoreportthatforQ1,despitethenegativeheadwindsfromGleevecgenericentry,andlet'snotforgettheremaininggenericpressuresonExelonpatch,DiovanandExforge,thedivisionwasabletodeliver1%growth.BeforeandafterthetransferstoAlconandtoSandoz,itwouldhave--wewouldhavebeen2pointsbetter.Andasmentionedearlier,oursalesgrowth,exGleevec,wasasolid4%.Coreoperatingincomedeclined3pointsfromtheinvestmentswe'remakinginthosenewlaunches.

Thenextpagehasnowbeenupdatedtoshowyouthekeygrowthdriverswithexclusivitythrough2020andbeyond.Andonthischart,youseethatGilenya,Xolair,UltibroandJakavigrewdoubledigits.Inaddition,productslikeCosentyx,Tafinlar+MekinistandRevoladealsogrewstrongly,althoughwedon'thaveaneasycomparisontoshowyouintopercentagecolumn.Sooverall,theportfoliocontinuestodonicely,andwehaveasubstantialportionofourrevenuecomingfromthesegrowthdrivers.




IwanttospendjustafewslidesonourOncologyportfolio.OurOncology-basedbusiness,exGleevec,grew7%versusprioryear.TotalOncologysalesgrew9%versusprioryear.Theassetsthatwerecentlyacquiredaredeliveringrightinlinewithourexpectations.

OfnoteintheU.S.,Gleevecvolumeshareremainsgreaterthan50%,whichputsuswellabovethevolumeretentionofveryhigh-endbenchmarks.Andperhapsjustasimportantlyifyoulookatthelastcoupleofweeks,thereseemstobesomestabilizationinthatsharedecline,whichshouldsetusupwellforthenextcoupleofquarters.Ofcourse,themaingrowthdriversforOncologyremainsTasigna,Jakavi,aswellasJadenu,theimprovedformulationofExjade.

Duringthequarter,wealsotookaction,onPage28,tofurtherstrengthenourOncologyportfoliobyexpandingourrelationshipwithIncyteandworkingandpartneringwiththemonthedevelopmentofanewindication,targetinggraft-versus-hostdisease.Thisisareallyhorrificcondition.Rightnow,thereisnotmanydrugsthatworkwell:Steroidsareused,cyclosporineandothers.Buthere,wesawaverypromisingefficacyresultswithhighoverallresponseratesinbothacuteandchronicseriousgraft-versus-hostdisease.

Asaresultofthisnewdeal,apivotaltrialisplannedtostartinthefirstquarterof2017,andthisshouldfurtherhelpthisproductexpanditsalreadyverycompellingpotential.

QuicklyonGilenya.Thisproductinmultiplesclerosiscontinuedtodoverywell.Salesgrew12%versusprioryearinthequarter.We'regrowingstronglyallaroundtheworld.Inanumberofcountries,we'reactuallythemarketshareleader.Over148,000patientshavebeentreatedtodate,andtheproductiswellpositionedandincreasinglyrecognizedforearlyefficacyswitchforrelapsedremittingmultiplesclerosis.

NowwhatI'dliketodo,startingonPage30,isgoalittlebitdeeperonEntresto,giventhehighinterestandtheveryhighpotentialforthisproductforourcompany.Thoseofyouwhowereonthecallover--priortothelaunchremember,Ispokeprimarilyabout2things.Onewasthefactthatthepatientpopulationislargelydividedinhalf:Patientsthataresymptomaticandaregettingworse,andpatientsthatareviewedasastablealthoughtheirunderlyingdiseaseisalsogettingworse.Andatthatpoint,Isaidthedifferencebetweenabigdrugandaverysuccessfuldrugwouldbeourabilitytomovethepatientsthatareviewedasstableovertothisproduct,andI'mgoingtocomebacktothatpointinamoment.

Wealsocautionedthatuptake,particularlyintheU.S.,wouldbeveryslowatthebeginningbecauseaccesswouldbeblocked.Takealookatthischart.Andinfact,upuntilaboutJanuaryofthisyear,therewasvirtuallynoaccessforthisbrand.Whatthatmeantwastheearlyadopters,thephysicianswhowouldwriteaprescription,thatprescriptionlargelywouldnotgetfilledbecausethemanagedcareplansputinplacesomanyhurdlestofillingthatprescription,andinallhonestyandinallcandor,somephysicianssaid,"I'mgoingtowaitawhilenow,andI'mgoingtowaituntilaccessopensbeforeIreengageinwhatIseeisalaboriousprocess."

ThegoodnewsisthatourmanagedcareteamintheU.S.hasdoneatrulyexcellentjob.AndifyoulookatthedataforAprilyouseethatwehave,atthispoint,100%accessundercommercialinsurance,withabout56%ofthosepatientsonthe--whatwecallthelowerco-paytier,whichisusuallyaround$30.AndinMedicare,wehaveover90%access,withthevastmajorityofthosepatientsonthelowerco-pay.

NowI'dliketosayatthispoint,there'snomoreaccessissues,butI'drathersaytheaccessissuesaregreatlyaddressedbutnotcompletely,andthatinsurancecompaniesandotherpayershavegottenmuchsmarteraboutputtingadditionalhurdlesinplace.Inparticular,they'reverygoodatusingpriorauthorizations.Eachinsurancecompanyhasadifferentpriorauthorizationformfortheirproduct.Andin




fact,theyhavedifferentpriorauthorizationformsforEntrestobutalsothePCSK9andCorlanor,andphysicianofficesneedtoadjusttobuildingthesePAsintotheirnormalpracticeinordertomakesurethatpatientsdogetaccesstotheseproducts.

Turningnowtonextpage,youshouldbeasking--Isuspectyouareasking:Sowhatdoesthisreallymeanintermsofresultstodate?Whatarethelessonslearned?Andwheredowegofromherewiththisproduct?

Ontheleft-handsideofthechart,youseeweeklynewRXandTRxtrendsforEntresto.Thegoodnewsisthoseprescriptiontrendsare,indeed,trendingupsinceaccesshasopened,sinceourfieldforcewasretrainedinJanuaryandwasgivenmaterialtouseforthefirsttimewithourphysicians.Clearly,there'snoinflectionthereyet.Andyou'llrecall,wepromisedaninflectioninthesecondhalfoftheyear,butyoucouldlookcloselyandleadyourselftobelieveit'scertainlygettingbetterandnotgettingworse.

Ontheotherhand,ontheright-handsideofthechart,weshowsomethingthat,inmymind,very,veryencouraging.AndthischartcomparesrelativeuptakeonapercapitaadjustedbasisforthesalesofEntrestoinEurope,basicallySwitzerland,GermanyandFrance,relativetotheU.S.AndwhatyouseeisamarkeddifferencebetweenEuropeandtheU.S.,much,muchbetter,severalfoldbetterinEuropethantheU.S.,andparticularlywellinSwitzerland.

Soyoumightaskthequestion,whyisitsodifferent?Well,firstofall,theaccessissueinEuropeisverydifferentfromtheU.S.issue.Onceaproductentersthemarket,generally,therearelittletonoco-pays,therearenotstepeditsandpatientsreallyhavebroadaccesstotheproduct.

Second,wemadeadecisionbaseduponourlearningsintheU.S.tolaunchinEurope,focusingabitmoreonthosesymptomaticpatientsbecauseitbecamecleartousthatphysiciansweremuchmorewillingtochangeasymptomaticpatientwhentheyperceiveasstable.Andthird,wedecidedtogo--becauseweknewtherewerenotgoingtobeaccessissues,wedecidedtogomorebroadlywithourfieldorganization.Andwhatwe'relearningfromourEuropeanlaunchisthatfrequencydoesdriveprescribingforthisproduct.SoverygoodnewsinEuropeandlotsofworktobedoneintheU.S.,andIwillcomebacktothataswell.

ButbeforeIdo,onPage32,Iwanttotrytogiveusall--orgetusallgrounded,again,bothinthelong-termpotentialandwhatweseeintheneartermfortheproduct.Firstofall,asyouknow,thisisaproductthat'sgoingtobebuiltonmultipleheartfailureindications.ThePARADIGMtrial,whichwasthefirstapprovalandwherealmostallofthesalesarecomingnow,it'sthesubjectofthefirstlabel.ThePARAGONtrialinpreservedejectionheartfailure,whichisenrollingwell,andwehopetofilein2019,willexpandthemarketconsiderablyfortheproduct.Andrecently,aftertalkingwithleadersinthefield,wedecidedtostartanotherpivotaltrialinpost-acutemyocardialinfarction,thesearepatientsthatareatriskofheartfailure.Andweplantofilein2020orperhapsalittlebitlater.AndthiswillbeathirdopportunitytoexpandthepotentialforEntresto.

Soasaresultoftheseprogramsandbecauseoftheremarkabledataintermsofreductionsinmortalityandhospitalizationandalsowhatwe'restartingtoseenow,whichissomeofthesymptomaticbenefits,weremainconfidentthatthesalesofthisproductwouldbeintherangeof$5billioninreducedejectionheartfailure,andwecanbuildfromthere.

For2016,aswecautionedlasttime,wewouldlikepeopletobemoremodestintheirexpectations.Andwe'reestimatingsalesintheballparkof$200million.Isuspectsomepeoplewillsaytome,"Isthatconservative?Isthatoptimistic?"Alotdependsuponexactlywhenthattrendlinebreaksinthesecondhalf.Wecertainlyhopetobeatthenumber,butnonetheless,wethinkusing$200millionasatargetisnotunreasonableforthisyear.




Onthenextpage,Iwanttotakeyouthroughalittlebitmoredetailofwhatwe'redoingprimarilyintheU.S.market,butalsosomeofthetacticsthatarebeingusedexU.S.aswell.Andbasically,we'refocusingon3areastomakesuretheappropriatepatientsgetthisdrug.We'reexpandingpromotiontoshareofvoice.Weareaddingsalesrepresentatives.Thosesalesrepsareinthefieldtoday.TheystartedinApril,it'sroughlya50%increaseincapacityagainstourcardiologists.Andweareevaluatingtheprimarycarefieldforceexpansionaswell,likelytohappeneitherverylatethisyearorearlynextyear.

AnotherinterestinglearningisthatinGermany,wherewearecallingonPCPs,asignificantnumberofthemarewritingtheprescription,whichissomethingwehadnotfullyanticipatedwhenwelaunchedtheproduct.

Inaddition,wejustlaunchedourTomorrowdirect-to-consumercampaignthat'smeanttoeducateandactivatepatientssotheyunderstandthatthere'ssomethingbetteroutthereforthemthatcangivethemabetterlife.

Moreworktobedownaroundinformingpatientsandalsosupportingpractices--ordoctors'practicesaroundreimbursement.

Andlastbutnotleast,wearenowwellintoandexpandingandexecutingaclinicaltrialprogram,whichwe'venowbrandedunderanumbrellaofsomethingcalledFortiHFy.AndIwon'treadallthedetailsforyou,butyoucanseethere'safairlyactiveclinicalprogrammeanttosupportthisproduct.Sothatthat'swherewetieuponEntrestotoday.

SoI'llleaveyouagainwithafeelingofconfidence.Thisisaverygooddrug.It'sworkinginphysicians'hands,andphysiciansjustneedtouseit,getcomfortablewithitandalsogetcomfortablethatthereimbursementprocessissomethingthatcanbemanaged.

TurningnowtoanevenbetternewstoryisCosentyxonPage34.Thisproductisaboveexpectations,bothyourexpectationsandourexpectations.We'reoutpacingcompetitionwithstrongsharegainsinthispsoriasismarket.

Youcanseeontheleft-handsideofthechart,thestrongsharegrowthversusStelara.TheweeklyTRx'saretrackingnicely.Youcouldevenarguethatthelineisbeginningtoaccelerateratherthandecelerate.

Perhapsevenmoreimportantly,ifyoulookatachartontheright-handside,andthisisGermany,andyou'llrememberthatwelaunchedinGermanyquitesomemonthsaftertheU.S.InGermany,wehavealreadybypassedStelaraintermsofmarketshare,andweareontrackthatbeforetheendofthisyear,itisquitelikelythatwecouldbypassthemarketshareforHumira,whichwouldmakeCosentyxthenumber1biologicbrandintheGermanmarket.

Ifweturntothenextpage,letmeshareagainwhywebelieveEuropehasevenmorepotentialforbiologics,andparticularlyCosentyx,thanistypicallyunderstood.IntheU.S.,reimbursementrequirements,throughstepedits,usuallyrequirethatpatientsfailotherbiologics.One,2oroccasionallyeven3.InEurope,thosestepeditsdonotexist,whichmeansapatientcanmoveimmediatelyfromoraltherapytoCosentyxasthefirstbiologictherapy.

Andifyoulookatthischart,youseethat,indeed,40%ormoreofpatientsarenaïvetobiologicsintheEuropeanmarketthataretakingCosentyx.Thismeansthismarketwillexpand,andwewillcapturemuchofthatexpansion,whichmeanstheEuropeanopportunityisquitebigin--forthebrandoverallinpsoriasis.

Nowifpsoriasiswasallwehadforthisproduct,itwouldbeagoodnewsstory,butactually,psoriasisis




justthebeginning.AndifyouturntoSlide36,youseethatwe'rebuildingamega-blockbusteracross3indicationsforthisbrand.Wearenowtheonlyanti-IL-17withindicationsformoderatetoseverepsoriasis,psoriaticarthritisandankylosingspondylitisinourlabel.

SalesduringQ1were$176million,andwearejustgettingstartedintherheumatologyindications.Thereareover25,000patientsonthisbrandworldwide,andthemarketisbig.$15billionattheendof2015,growingatover20%peryear.Youcanimaginethismarketgrowingatthatrateforthenextcoupleofyears.Evenifwewereonlytocapture20%to25%ofthatmarket,weshouldbeabletoeasilyhitourpeaksalesforecastforthisbrand.

Wehavemoretodointheareaofrheumatology.Fieldforcesarebeingexpanded.We'reworkingthroughreimbursementinanumberofcountriesfortheseadditionalindications.Weplantostartahead-to-headsuperioritystudyinpsoriaticarthritisandankylosingspondylitiswithCosentyxversusHumirabecausewebelievetheprofileofthisproductisverystrong.

Withthat,I'dliketoendontheexpectedhighlightsforthePharmaceuticalsandourregulatorynewsflowfortheyear.Asyoucansee,theyearisprogressingnicely.Ibelievewewill,indeed,seetheregulatoryfilingsalsoforPKC412inthefirsthalf.Sowe'llseeanothergreencheckmark.TheBYMresultsinthisrareorphanindicationaredisappointing.Wejustsawtheearlydatasets,andwe'renowdoingtheevaluationtoseewhattheimplicationsmightbeontheotherpotentialindications.

Andwiththat,I'dliketoturnthepresentationbacktoJoe.

JoeJimenez (CEO):

Thanks,David.Okay,sotojustconclude,wehadasolidQ1,andweareontracktodeliverourfullyearguidancefortheyear.

NowwhatI'dliketodoisopenitupforQ&A.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)JeffHolfordfromJefferies.

Jef f Holf ord (Analyst-Jefferies):

Hi,thanksverymuchfortakingmyquestions.Sointhefirstquarter,youdidoperatingprofit,coreoperatingprofitofa5%declineatconstantexchangerates.Youhadsaidwhenyouupdatedforthefullyear,itcouldhavebeenasbadasadouble-digitdecline.Sothefirstquestionisdoesthismeanyou'vegotsomepotentialgasinthetankforabeatthisyear?Wastheresomethingthatchangedthephasingofoperatingprofitlossinthefirsthalftomakeitcomeoutbetterthanyouexpected?

Secondly,justbecausewe'reallstillgettingtogripswiththemarginsinanewAlconandanewPharmabusiness,couldyoujustgiveusabitmorehelpontheshapeofAlconmarginsthroughthisyear?Soforexample,whichquarterdoyouthinkshouldbethelowestmarginfortheAlconbusiness?IsthatsomethingwecouldexpectinQ2?Orarewealreadypassedthat?

Andthenjustlast,justonLEE011,canyoujustremindusofwhenthedifferentinterimreadoutsonthisproductareexpected?Justtohelpusunderstandtherisktimepointsthatareoutthereandhoweventsareoccurringinthosestudies.Thankyou.

JoeJimenez (CEO):




Okay,Harry,firstonthecore.

HarryKirsch (CFO):

Yes,thankyou,Jeff.Soconcerningthe5%,IsaidinJanuary,quarter1couldbedoubledigit.Wehadsomebetterproductivity.Wehadsomecostphasing,andCosentyxperformedbetterthanexpected.Overall,asI'veshownonChart22,IexpectthefirsthalftohaveacoreOpIncdeclineofmidtohighsingledigits.Soquarter2,givenphasing,couldbehighsingledigits.Butoverall,wesimplysticktoourfullyearguidesofbroadlyinlineasfurtherproductivityanduptakefromtheGrowthProducts,Iexpect,tothendrivesomefurtherupsidesinthesecondhalf.

JoeJimenez (CEO):

Mike,onAlconmargin?

MikeBall(Alcon):

Andsostillearlydaysforme,andI'mstilllearning.Joboneis,obviously,toturnthetoplinearound,andtodothat,weneedtoinvestinmarketingandsalesandR&D.Andaswedothoseinvestments,wecouldtakeshort-termmarginhits.ButasIseethisbusinessturningaround,wearegoingtoreturntoindustrynorm.Sostillabitofamysterytousrightnow.

JoeJimenez (CEO):

DavidonLEE?


Vas,doyouwantto?

VasNarasimhan (GlobalDrugDevelopment):

Absolutely.SoforLEE,ourMONALEESA-2study,theenrollmentiscomplete.WeexpecttohavetheinterimanalysiscompleteinQ2.Andwe'reontrackforfullstudyreadoutbytheendofthisyear.

Jef f Holf ord (Analyst-Jefferies):

Thanksverymuch.

JoeJimenez (CEO):

Nextquestion,please?

Operator :

RichardVosserfromJPMorgan.

RichardVosser (Analyst-JPMorgan):

Justafollow-upquestiononLEE.Perhapsyoumightbeabletotouch,givenyou'refullyenrolled,ontheblindedsafetytolerabilityprofilethatyou'reseeinginthetrial.Areyouseeinganythingthatstandsoutintermsofsignalsrelativetootherbrands[ph]?

SecondquestiononEntrestoandyourcommentsontheexperienceinGermanywiththePCPs,perhapsyoucouldexplainwhyyou'rewaitinguntiltheendoftheyeartoexpandthesalesforcetoPCPsintheU.S.Icertainlywouldhavethoughtthesooner,thebetter,maybethere.




Secondly,aftertheexpansionoftheU.S.cardiologysalesforce,perhapsyoumightgiveusanideaoftherelativesizeofthesalesforcerelativetotheirnumberoftargetdocsineachgeography.

AndjustonefinaloneonanEntresto.JustthinkingaheadintermsofpricinginEuropeandpricediscussionsinGermany,ofcourse,wehavetheG-BAthinkingaboutprice1yearafterlaunch.Justdoyouanticipateanyissuestherethatweshouldthinkabout?

AndmaybeI'lljustpushonemoreonCosentyx.Justathought,Lilly'sTaltzhasjustbeenapproved.Sojustwhatareyouseeingthereintermsoftheirlaunchbehavior?Istheresampling?WhatareyouthinkingintermsofthefutureandtheimpactonCosentyx?Thanksverymuch.

JoeJimenez (CEO):

Okay,Vas,LEE?


SoonLEE,weare,ofcourse,lookingattheblindedsafetyreview.We'reseeingsafetythat'sinlinewithwhatwe'veseeninprevioustrials,butIthinkit'stoosoontoreallymakeanydefinitivedeclarationsabouttheprofile.

JoeJimenez (CEO):

David,Entresto?


Yes.RegardingEntresto,sothelearningsaboutGermanyinprimarycareadoptionoftheproductisactuallyveryrecent.It'sjustreallystartedtohappennow,anditwassurprising.Andthathasactuallygivenusadditionalfueltolookatacceleratingthatprimarycarelaunch,andthat'swhyIwassayingitcouldbeasearlyastheendofthisyearversuswaitingfornextyear.ButIwanttobeclear,wehavenotmadeanexactdecisionyet.Weneedacouple--Ithinkweneedanothermonthor2ofdata,andthenwe'llreallyknowwhattherightdecisionis.Thenextquestionwasaround--

JoeJimenez (CEO):

ExpansionofU.S.cardiology.


Yes.We'reataround600peopleinthefield.Atypicalrephasbetween30and50whatyoucallmoreorlessSuperTargetsthattheyfocuson,andthey--buttheydoalsocallonabitmorephysicians.Whatwe'restartingtolearniswe'regetting--Imean,thegoodnewsiswe'reseeingafairlygoodbreadthofprescribing.We'regettingabout200morephysiciansprescribingperweek,butwehaven'tgenerallygottentodepth,whichmeansrepeateduseexceptintheplaceswherewereallyheavieduponthefrequency.

Sowe'reactuallyintheprocessofnarrowingdownthenumberofdoctorsthattherepsarecallingonbutseeingthemmorefrequently,andwethinkthat'sgoingtobepartofthereasonyou'regoingtoseetheinflectionduringthesecondhalfoftheyear.

RegardingEntrestoinEurope,you'reright.EntrestoispricedmoremodestlyinEurope.Itdependsuponthecountry,butthepriceisaroundEUR5.50intheEuropeanmarket.Interestingly,inGermany,wejustwentthroughthefirstevaluationprocessfortheproduct,andtheproductwasdeemedtoprovidesignificantincrementalevent,whichsetsusupprettywellfromapricingperspective.Pricewillcome




downbutprobablynotcomedownalotbecausetheGermangovernmenthasdeemedtheproducttobeasignificantadvance.

RegardingLilly'sapprovalandlaunch,wewelcomethemintothemarket.Ourexperiencehasbeenthatwheneveranewclassofdrugsenters,havingmorethanoneplayeralmostcertainlyexpandstheclass,inthiscase,theanti-IL-17ssoweexpectthattohappenhere.

Theprofilesofthedrugarealittlebitdifferent.Ithinkactuallyintermsofclinicalefficacy,they'respoton.Theirlabel,however,fromanefficacyperspective,isbetterthanoursbecausetheywereabletogetsomethingcalledPASI100intheirlabel.Dermatologistsdon'tprescribethePASI100,buttheLillyrepsmostcertainlywillusethatdataasanybodywould,andthatwillgiveanefficacyhalo.

Ontheotherhand,there'salsodataintheirlabelthatsayspatientsshouldneverdiscontinuetheirproduct.Becausewhentheydiscontinue,iftheyarerechallengedduetotheimmunogenicityoftheproduct,there'safairlyhighchancethepatientswillnotrespondagain.AndIthinkthere'sanumberof33%,34%intheirlabel,whichmayproveproblematic.Andlast,butnotleast,about17%oftheirpatientshaveinjectionsitepain,andforCosentyx,thereisvirtuallynoinjectionsitepain.Sowelookforwardtothecompetitionandthemarketexpandingandthisbecoming--IL-17isbecomingtheleadingcategoryinthepsoriasismarket.

JoeJimenez (CEO):

Nextquestion,please?Thanks.

Operator :

TimAndersonfromBernstein.

T imAnderson (Analyst-Bernstein):

Thankyou,Ihaveafewquestions.OnEntresto,priorauthorizationsarestillamajoraccessissue.I'mwonderingwhat'sgoingtogetthosetoliftintheU.S.?Iwouldimaginetheanswerwouldbetreatmentguidelines?Andthat'skindoftheonethingyoudidn'tseemtotouchonverymuchinyourconferenceofupdateonEntresto.Sowhat'stheexpectationforhowthoseguidelineswillread?Andhowdoyouneedthosetoreadtogetridofpriorauthorizations?Andisthatreallythegatingfactoronpriorauthorizations?

SecondquestionisonAlcon.Youtalkaboutreturningthegrowthin2016.Isthatonanorganicbasis?YoutalkedaboutbeingopenforbusinessintermsofM&Awithinthatdivision.SoI'mwonderingifM&Aiswhatyouenvisioncarryingthatdivisionbacktogrowth?

AndthenSandoz,youmentionedthepressreleaseforacquiringrightstobiosimilarRemicadeinEurope.I'mwonderingwhySandozwouldhavetoacquirerightstoreallyanythinginbiosimilars?IalwaysthinkofNovartisaskindofbeingaleaderinthisarea.ButwhenIlookatdevelopmenttimelines,thereareothercompaniesthathavebeenaheadofSandoz,andI'mwonderingwhythat'shappening?

JoeJimenez (CEO):

Okay,startingwithEntresto.David?


Okay.So--itseemstous,talkingtopayers,thatpriorauthorizationsareanewtoolthat'snotgoingawayanytimesoonformanyproductsatall.Theyoriginallystarted,asyouknow,atveryhigh-pricedspecialtyproducts,andnowpriorauthorizationsarecommonwithmostlaunchesexceptforvery,very,




veryinexpensivebrands.AndIthinkpayershavefiguredouthowtomakethepriorauthorizationprocessfairlyinexpensiveforthem,andagoodwayforthemtosavemoney.

SoIthinktheonlywaypriorauthorizationscomeoffiswhenproductsbecomesocommonthattheburdenofprocessingthepriorauthorizationsfortheinsureroutweighstheirabilitytoactuallyinhibitprescribing,whichmeansitwillnotbeguidelinesbutratheritwilljustbetimeinmarketandcontinuedsalesgrowthoftheproduct,andwhentheproductbecomesstandardofcare,thosePAswillgoaway.When'sthatgoingtobe?It'snotgoingtobethisyear.It'snotgoingtobenextyear.

JoeJimenez (CEO):

Mike,ontheAlconorganicgrowth?

MikeBall(Alcon):

Yes.Somycommentswerereallyrelativetoorganicgrowth,andwewerelookingtogetgrowthinthefourthquarterorganically.TheVDdealsareveryimportanttousin2017andmovingforward.Andreallythereturntogrowthismyview,wehavealotofpromotionresponsivebrandshere.Asweputmoreinvestmentbehindthesebrands,ourpredictionisthatwewillgetaliftthisyear.

JoeJimenez (CEO):

Allright,andRichardonSandozRemicade?


Yes.Thanks,Tim.Thanksforthequestion.Andthankyoufortherecognitionthatwehaveaworld-leadingpipelineinbiosimilars,whichwedo.Butwiththatsignificantpipeline,weobviouslyhavetoprioritizeandmakesurewe'reactuallyfocusingontherightmoleculesattherighttimeintherightmarket,andthat'swhat'shappenedwithinfliximab.AndwesawanopportunitytoleveragewhatwashappeningwithPfizer.We[seized]thatopportunitytomakesurewewerewellplacedbranchingintothemarketinatimelyfashion.

JoeJimenez (CEO):

Right,soitisabouttiming,asopposedtocapability.


Absolutely.

JoeJimenez (CEO):

Thanks,Tim.Nextquestion,please?

Operator :

MatthewWestonfromCreditSuisse.

MatthewWeston (Analyst-CreditSuisse):

Thankyouverymuch.ThreequestionsifIcan.Thefirst,youcalledouttheopportunityexU.S.forEntresto.CanyougiveusthesplitoftheQ1revenueU.S.versusexU.S.?AndDavid,canyougiveustheEUrollouttimetablecountrybycountryoverthecourseofthenext12months,soweunderstandhowthatopportunityisgoingtobuild?




Thensecondly,justlookingbeyondtheheadlinebrands,itlookslikesomeofyoursecondlineassetssawweakness,particularlyexU.S.inQ1.SoGalvus,Diovan,Exforgewereallbelowexpectations.Isthereariskthatyou'resacrificingin-marketsalesbyfocusingthecardiometaboliceffortonEntrestoexU.S.?

Andthenthirdly,Mike,youcalledouttheopportunitytogrowmarketswithincreasedpromotionsandparticularlyDTCinAlcon.Imean,thatmakesalotofsense,butoneoftheissueswithAlcon,asIrecall,seemstobethedifficultiesinactuallymanufacturingsufficientproduct--orgettingtheproductintherightplacetoactuallysellitandgetthedoctorssupport.Sohowconfidentarewethat,forexample,DailiesTotal1isgoingtohaveenoughcapacityforyoutogrowthemarketbypushingonnewchannels?Thankyou.

JoeJimenez (CEO):

Thanks,Matthew.We'llstartwiththeex-USEntrestoquestion.David?


Yes.Sothesaleswerequitemodestforthequarter,andIthinkbreakingthemoutparticularlygivingstocking--insomeplacesstocksdrawdown,andinotherplaces,it'snotparticularlymeaningfulwherethatrevenuecamefrom.GoingforwardbyQ2orQ3,Ithinkyou'llactuallyhavesomemeatymaterial,butI'dsayoverthelongterm,withoutgivingaspecificnumber,asubstantialpartofthat$5billionestimatedpeaksaleswillcomefromEuropeandotherpartsofexU.S.Soyoucanrestassuredofthat.

TheEUrollout,salesthisyearareprimarilyinthe3marketsthatweshowedonthechart,soSwitzerland,GermanyandFrance.AnumberofcountrieswillprovidereimbursementstartinginQ3andinQ4.Soitwon'tbethatmaterialforthisyear,butactuallyshouldbeanicegrowthdriverforEntrestoaswestart2017.

JoeJimenez (CEO):

Thequestionaboutthesecond-lineassetssuchasGalvus?


Soyou'rerightthatinordertobalanceprovidingareasonablemargininayearofgenericpressure,findingthemoneytoinvestinEntrestoandCosentyx,wedidresourcereallocationaroundtheworld,anditwouldbeeasytojumptotheconclusionthatmaybethat'shadsomeimpactonsalesforotherproducts.Buttherealityiswhenyoudiveintoit,it'sdrivenmuchmorebypricereductionsthatwe'reseeingacrossthebusinessinEuropeandtheemergingworld.

There'sanumberofcountrieswherewe'reseeingtheimpactoflowcommoditypricesandlowerordering.Sotheemergingmarketgrowthisquiteabitslowerthanitusedtobe.AndinJapan,there'squitealotofpressure,particularlyoverallbecausewholesalersweredrawingdowninventorypriortotheirpricecutsandcontinuederosionofDiovanandExforgeintheJapanesemarket.

JoeJimenez (CEO):

Mike,onAlcon?

MikeBall(Alcon):

Right.Soonthegrowthmarketsandsousingdirecttoconsumertoactuallyexpandthemarkets,we'reobviouslygoingtomarryupourmanufacturingabilitieswiththoseeffortstoexpandthemarket.Iwilltellyou,though,thatinanexpansionintothelensesareawithsomethinglikeDT1,wedohavethemanufacturingwherewithaltoaddressthoseopportunities.




IshouldalsopointoutanotherthingsinourSurgicalarea,youlookathowfarLASIKprocedureshavefalleninthelast10yearsfromsome1.6millionintheU.S.downtoabout600,000.There'slotsofopportunitiesIthinktogrowthatmarketbackupperhapsbacktowhereitwas,andsothere'sopportunitiesforusthere,andobviously,wehavetheequipmenttohandlethat.

Andthen,onthingslikeToric,IOLs,I'malwayssurprisedthatToricisstillsuchalowpercentageofthemarket,whenreallymuchofthepublicwantsspectacle-freeexistence.SoIthinkasIlookatourportfolio,weareverywellpositionedtohandlemarketexpansion,bothfromacommercialstandpointbutalsomanufacturingstandpoint.

JoeJimenez (CEO):

Yes,andasI'veseenMikecomeinandkindofreallocateresources,obviously,wherewedohaveanykindofmanufacturingcapacityissuejustbecauseofgrowthoncertainitems,doingagoodjobofreallocatingtowherewedon'twhere--andthat'swherewecangetthemarketexpansion.

Nextquestion,please?

Operator :

AndrewBaumfromCiti.

AndewBaum(Analyst-Citigroup):

Hi,threequestions,please.FirstonEntresto.ICERpraisedtheU.S.pricedstrategyforthedrug,butpresumeitresultedinmuchlowerPBMrebatesthenyoucouldhavegot,howmuchoftheissueisverysimplythattherebateavailabletoPBMisjusttoolowcomparedtootherprimarycaredrugsorstrokespecialistcaredrugs?Andhowmucharetheotherfactorsalongthelinesthatyoumentioned?

Secondquestionregardingmarketing.Couldyou,David,couldyoujustreminduswhyyoumadethedecisiontodelaymarketing?Iwascuriousatthetime,andthenwhenyoutalkaboutthe50%expansion,youobviouslyhaveasmallrelativebaserightnow.Soperhapsyoucouldputitincontext,andwhetherthereasonforthatisOpEx-dependentgiventhepressuresonthebusinessthisyear?Orarethereotherreasons?

Finally,ontheAttorneyGeneralinvestigations,couldyoureminduswhatyoubelievethetimelinescouldbehere.AndtowhatextentthepotentialGSKlikeCIAcouldnegativelyimpactyourpriorEntrestoestimates?

Andthenfinally,aquickone.I'mnotanophthalmologyanalyst,Mike,youreferredtoindustrynormophthalmologymargins.Perhapsyoucouldeducatemeandtellmewhatkindofnumberyou'rethinkingof?.

JoeJimenez (CEO):

David?


Andrew,thanksforpointingoutICER,whichisessentiallyhealthtechnologyassessmentsaidthatwepricedthisdrugalmostspoton,giventhevalueofthedrugtobringouthospitalizationcostaswellastoimprovesurvival.Asyoucansee,wewereabletofindtherightlevelofrebateswiththePBMsandotherpayersbecausewehavebasicallyopenformulariesnow.SoIactuallyfeelwedidavery,verygoodjobhere.




ThereisaninterestingwhatIwouldcallconundrumintheU.S.market.Wecouldhavegoneoutmaybepricedthisdrugatsay$25,000ayear.Andyou'reright,inthatcase,therebateswouldbeevenhigher,andmaybetherewould'vebeenmoreexcitementamongthePBMs,butprobablyevenlesspatientswouldhavegottenthedrug.Andoverthelongterm,Ithinkitwouldhaveseriouslyhurtthedruguptakesuccess,andreallywouldhavedamagedourreputationifwehaddonesomethinglikethat.

Intermsofmarketing,welookcloselyatwhathashappenedinthecardiovascularfieldoverthelastcoupleofyears.So,forexample,ifyoulookattheFactorXa,anumberofthosecompanieswentoutvery,veryheavyupontheirlaunch.Andthatwasbeforereimbursementwasasrestrictiveastoday.Theyactuallyfiredtheirsalesforcesafteryearone,andtheypulledback,anditwasalargelywastedresource.

Sowesaidgiventhatweknowreimbursementwillbeevenworse,thatwouldbethewrongwaytogo,andwedecidedtogowithamoretargetedapproach.Andthenwesaidasweopenedupreimbursement,wewouldbereadytothenexpandthecommercialpresence.Andinfact,wehavetimeforsalesforceexpansion,theDTC,theofficesupportprogramsthatactuallyrolloutjustasreimbursementopen.Soit'sonplan,andIthinktheonlystillreallyopenquestion--well,therearetwo,oneiswhen,andthequestioncameearlier,whenshouldweputtheprimarycarefieldforceup,andwe'reevaluatingthat;andthensecondishowtooptimallyexecuteinthefield,particularlyaroundhelpingphysiciansfocusinitiallyonpatientsthataresymptomaticallygettingworsetohavingtherightfrequency.Soratherthantryingtocovereverybodyextensively,butreallycoverthosephysicianswithourfrequencythatwecrackthecodeandtheybegintoprescribesortofroutinely.

YournextquestionwasaboutthesoutherndistrictofNewYorkcase,Andrew.Timingisalwaysveryhardtopredictinthesecases.Fromtimetotime,itwill,let'ssay,flareupinthenewspapersbecausewemightbeinthecourtroomarguing,forexample,overhowbroadorhownarrowthecaseshouldbe,whatdocumentsneedtobeprovided.Reallynothingofsubstancethathaschangedinthiscase,butit'sinthenewspaperfromtimetotime.Andoverallpredictinghowlongthistakesisreallybeyondmyabilitytodothat.

JoeJimenez (CEO):

Mikeonindustrynormmargins?

MikeBall(Alcon):

Yes.SoIthinkifyoulookatabaskethere,let'scallit,Cooper,AMO,Medtronic,BostonScientificandStryker,whatyou'dfindisthatthereturnonsalesfromanopincomestandpointislowtomid-20.

JoeJimenez (CEO):

ThanksAndrew.Nextquestion,please?

Operator :

TimRacefromDeutscheBank.

T imRace (Analyst-DeutscheBank):

Hi,thanksfortakingmyquestions.SolookingatthesesalesandmarketingcostinthePharmaceuticalsDivision,itseemsprettymuchinlinewithwhatwesawinprioryear.Obviously,Gleevecwasn'taheavilypromotedproductandthesalesforce,Ipresume,isbehindTasigna.SogiventhetimingoflaunchesofCosentyxandEntresto,onewouldexpectyourcosttohaveincreasedsignificantlyyear-on-year.Sohowmuchofthesortofperformanceonthecostofsalesandmarketingisduetophasingeitherpreloadingin




thefourthquarter?Orarewegoingtoseethatinthesecondquarter?

Andthen,justcouldyoujustclarifywhenyoutalkabout600repsearlier,the50%increasethatyou'remaking,doesthatincludethe600?Orwouldthatmakeitupto900?

Andthenfinally,justtalkingaboutrefocusingresources,youmentionedinthestatementrefocusingonOnbrez.Wouldyoubeabletotalkabout--whichofyourproductsthatyou'verefocusedresourcesawayfromsothatwecouldperhapsforecastthetoplinebettergoingforward?Thankyou.


Yes.Sothere'sanumberoffactorsthatimpacttheoverallM&Sspendlines,andthey'rehappeningatthesametime.Oneiswe'vebeendrivingnowforseveralyears,andweintensifieditlastyear,aseriesofactivitiestomakeourselvesmoreproductive.Weareconstantlydrivingtotakeoutnonproductivecoststhroughouttheyear.Sometimesthosecostscomethrough--savingscomethroughinalumpykindofway.Butwhereverwearenotgettingagoodreturn,wearesqueezingoutmoney.

Secondiswehaveredirectedspendfromsome,forexample,someoftheemergingmarketsintothecountrieswhereCosentyxandEntrestoarelaunching,andtherewerechangesduringthecourseoftheyear.Lastyear,yourecallintermsofhowcostofgoodscameoutbecauseofreevaluation.

IfyoulookatourM&S,ourM&Sisupslightlyfromlastyearnotalot,it'sabout1%,butitactuallyisup.AndonewouldexpectthatasmorecountriesreimburseCosentyxandEntresto,ourM&Sspendwillcontinuetogrowup.Notinadramaticway,butyouwouldthinkinanincrementalwayduringthecourseoftheyearbecausethat'sgoingtobeawholenewopportunitytogrowthisbrand.SoIhopethathelpsalittlebit.

JoeJimenez (CEO):

ThenOnbrez,thefocusing?


Yes.Sothere'svirtuallynopromotionofOnbrez.WedopromoteUltibrowithaparticularfocusonUltibrointheEuropeanmarket.AndI'mgladyoumentionedthisproductbecauseitwasn'tinmypresentation,butyourecallthatwedidahead-to-headstudycalledFLAMEversusSereventorAdvair.AndtheideaofthatstudyistoprovethataLABA/LAMAcombination,particularlyUltibro,willreduceexacerbationversusasteroid-containingproduct.Infact,thatiswhathashappenedwiththisproduct.YouwillseethatfulldatasetattheATF.Ithinkyou'llalsoseethatpivotaltrialorthatkeytrial,excuseme,publishedinamajormedicaljournalprobablyduringthemonthofMay,andthatshouldgaveUltibroanotherboostinthemarketplace.

JoeJimenez (CEO):

Thanks,Tim.Nextquestion,please?

Operator :

KerryHolfordfromExaneBNPParibas.

KerryHolf ord (Analyst-ExaneBNPParibas):

Thankyouverymuch.KerryHolfordfromExaneBNPParibas.Threequestions,please.Sofirstly,onAlcon,you'vegivenoutsomemoredetailonthecomponentsofthatdivisionnow.Wecanseethattheequipmentsalesdeclinedabout30%inQ1,andI'mwonderingifthat'safairreflectionoftheoutlookfor




theremainderoftheyear.Ifyoucouldgiveussomeguidanceontheoutlook,thatwouldbeveryuseful?

Secondly,ononcology,youpreviouslystatedthatyouintendtogrowthatportfoliothroughtheGleevecpatentexpiry,andI'djustliketohearwhetheryoucontinuetostatebythattarget.

Andthenthirdly,amoresortofconceptualquestiononEntresto.I'mwonderingwhethertheproblemsarenowfacingregardingtheslowrampintheU.S.andthisinherentlackofphysicianeducationareinpartduetothefactthatyouinvolverelativelyfewpatientsfromtheU.S.intothePARADIGMstudy?Ithinkitwasonlyabout7%oftotaltrialpopulation.Sofirstly,canyoureminduswhyyouelectedtoenrollsofewintoPARADIGM?Andsecondly,whetheryouthinkthatU.S.rampcouldhavebeenfasterhadmorephysicians/patientshadaccessthroughtheclinicaltrialsearlier?Andisthataconsiderationgoingforward,certainly,whenwethinkaboutthePARADIGMstudy?Thankyou.

JoeJimenez (CEO):

Okay,Mikeonequipmentsales?

MikeBall(Alcon):

Soonequipmentsales,thegoodnewshereiswehadanexcellentlastcoupleofyearsinequipmentsales.Sowereallygotalotofequipmentplaced.Andasyougetequipmentplacedthenyougetalineofconsumablescomingoutofit.Soyousawourconsumablesgrow.We'vealsofoundthatwhenpeoplebuytheequipment,ofcourse,theykeepitfor5,7,10years.Sothenthatrealestatereallythendoesbelongtous.Sothat'sthegoodnewsoutofthis,andweseeincreasesinsharesandthingslikeIOLs,wherewehaveequipmentinplace.

Ofcourse,withsuchagreatrampuptheninnewproductsthentheamountofnewequipmentthat'splacedhappensatareducedrategoingforward.Butbearinmindthatequipmentisonlyabout1/10oftherevenueofthisparticulararea.Soinmymind,thisisagreattrade-off.Weneedthentobuildoffoftheinstalledbasethatwehaveinandgettherestofthebusinessgrowingasaconsequence.

JoeJimenez (CEO):

Davidononcologygrowth?


Kerry,soyou'reright.Thankyouforremindingus.About3yearsago,wesaidwepredictedtheOncologybusinesswouldgrowthroughtheGleevecpatentexpiration,andthenaboutayearago,wechangedthat.AndthereasonwechangeditwastheGleevecpatentexpirationcamelaterthanthebasecase.Sotheproductwasbigger,itcameatadifferentpointintime.Theinterestingthing,though,isthatdespiteGleevecbeingsolarge,ifyoulookjustatourOncologybusinessforthisyear,theywillhaveaverymodestsalesdecline.SoactuallyI'mquiteproudofthegrowththeyareabletoachievegiventhattheirbiggestproductisgoingaway.

JoeJimenez (CEO):

AndontheEntrestotrial,Vas?


WhenyoulookatthebenchmarkdataoncardiovasculartrialsintheUnitedStates,Imean,mostcompaniesareranginginthe10%to12%ofpatientsintheirtotalstudies.That'sreallydrivenbyspeedandcost.SocertainlythePARADIGMstudywaslower,butitwasnotwayoffthemark.Butnonetheless,inourupcomingtrialprograms,bothwithPARAGON,PARADIGMaswellasourongoingPhaseIVprograms,




wewanttohavemore,muchmoreU.S.physicianparticipationinclinicalresearchonEntresto,andyou'llbeseeingthatmovingforward.

JoeJimenez (CEO):

ThanksKerry,nextquestionplease.

Operator :

GrahamParryfromBankofAmericaMerrillLynch.

GrahamParry(Analyst-BoAMerrillLynch):

SoI'mafraidtosaymoreonEntresto.Firstly,couldyourunthroughexactlywhatthekeypushbackfromcardiologistshasbeenthatyoudidn'texpectinitially?AndthenhowyourPhaseIVprogramisintendedtospecificallyaddressthosephysicianhurdles,particularlythestudiesthatyou'redoingoutsideofthebigoutcomestrials?What'sthesizeofthatprogram,timingofdataandthecostofthatplanaswell?

Andthensecondlyfromaguidelinesperspective,doyouthinkyoucangetabroaderrecommendationforuseinlinewithyourlabelorjustthespecificPARADIGM-HFpatientpopulation?Andwhatpercentageofthemarketdoyouthinkthatrepresents?

Andthenthirdly,onAlcon,Mike,youreferredtonewbusinessexpansionareas.Iwasjustwonderingifyoucouldexpandonthat,whatparticularlyareasareyoulookingatthatweperhapsaren'tthinkingabout?Thankyou.

JoeJimenez (CEO):

Letmestart,andthenVaswilladdto.Essentiallywhatyouseeifyoutalktoenoughcardiologistsisthefollowing.I'lltrytomakethisqualitative.Theydonothaveahugesenseofurgencytomovetothisproduct,particularlyforpatientsthathavemultiplecomorbiditiesandtheyviewasstable,becausetheydon'twanttocreateanypotential--whattheyviewasanypotentialharmforthatpatient.Sotheywillthen,dependinguponthephysicianyoutalkedto,comeupwithdifferentexcusesforwhythey'renotacting.Theywillsay,"reimbursementistoodifficult."Thatproblemisnow,asyouknow,goingaway.Theywillsay,"Mypatientsdofineandsurvivalisnotenough."Theywillsay,"Hey,youknow,youdidn'tusemaximallytoleratedenalapril."Althoughnobodydoes,andasyouknow,wejustcompletedtheATMOSPHEREstudy,whichshowsthatmaximumRAFinhibitionhasnoincrementalvalueinheartfailure,andit'sreallythe[NEPi]componentthatismakingthisproductdothegreatthingsthatitreallydoes.They'llsay,"Iwanttofollowthelabelexactly",orthey'llsay,"Iwanttowaitforguidelines."Buttheseareallexcusesbecausethere'sstillunderlyingdiscomfortatmovingpatientsbecausewehaven'treally,inmyopinion,heldtheirhandenoughandsupportedthem,andbecausethereimbursersmadeitso,sodifficultforthemtoinitiallytrythedrug.Ithinkthatwillstarttochange.

Wedohavesomephysiciansthathaveputondozensofpatients,evensomephysiciansthathaveputon100patients.Oncetheystartseeingpatientscomebacktotheiroffice,whotheyoriginallysawinawheelchairorwhocouldbarelycatchtheirbreathcomingbackandthankingthedoctorbecausetheyfeelsomuchbetter,Icantellyou,thatdoctor,alltheexcusesgoaway.Andwejusthavetocreatemoreofthosesituations.Vas?


Sojustacoupleofthingsonthetrialprogram,yousawitatACCwereleaseddatathatprettyclearlyshowedthatformanyofthesepatientsthefirsteventisdeath,andsoyouneedtoactnowifyoureallywanttoimpacttheirlives.AndalsothattheimpactofEntrestoisthesameregardlessofwhetheryou're




talkingaboutastablepatientorasickpatient.Sothat'salreadyinourdatasets,andIthinkwehaveverystrongevidencetobeginwiththatyoushouldbestartingpatientsandswitchingpatientstoEntresto.

Nonetheless,thereare3categoriesoftrials,Iwouldsay,wehave.OneisbridgingthePARADIGMdatasettoourlabelandensuringthatpatientswhohavedifferentenalaprildoses.Wehavestrongevidencebasetoshowthattheycanbesafelyswitched.ThesecondisnaïvestartsandstartingpatientswhohavenotbeenexposedtoenalaprilontoEntresto.AndthethirdishospitalinitiationandswitchingpatientsinthehospitalatdifferentlevelsofseverityontoEntresto.It'salittleover30trials.Weobviouslydon'tdisclosethecostofthat,butwhatIcansayisit'sanincrediblyrobustprogramthat'sbeingreviewedbythetopcardiologistsintheworldofthetopcardiologistsintheUnitedStates.

JoeJimenez (CEO):

David,aboutguidelines,thequestion?


Soguidelines,there'snothingmoretoaddthanwhatwesaidbefore.WeexpectEuropeanguidelinesduringthesecondquarter,U.S.guidelinesaremostlikelythefourthquarter.Intermsoftheircontent,wewillhavetowaitandsee.

JoeJimenez (CEO):

Mike,businessexpansion?

MikeBall(Alcon):

Yes.Soifyouthinkaboutnewbusiness,Ithinkaboutitin2ways.Oneisactuallynewbusiness,andtheotheroneisthinkingaboutoldbusinessinnewways.Solet'sgowiththenewbusinesstostartwith.SowedidthisdealwithTranscend.Andsoessentially,whatitis,isanopportunityandwhat'scalledminimallyinvasiveglaucomasurgerytoinsertastentintheeyeduringacataractproceduretoalleviatethesymptomsofglaucoma.Andsoattheendoftheday,whatyouhavethereisagreatsituationforus,wherewearealreadynumber1incataracts,andwesimplyhaveanadd-ontothesalesforcethatallowsustogetintotheglaucomamarket,andabout15%to20%ofcataractpatientsactuallyhaveglaucoma.SothatiswhatIwouldcallanewbusinessusingourexistingresources.

ThenwhenIthinkofsay--thinkingaboutoldbusinessinnewways.So,forexample,presbyopia.Sopresbyopiahasbeenaroundalongtime.Therearesomesolutionsforit,butitreallyhasbeenpushed.Thepenetrationintothepresbyopicmarket,thatispeoplewhoneedreadingglasses,hasbeenverypoor.Andinmymind,therearemanyopportunitiesheretolookattechnologythatwehaveto,infact,penetratethatmarketinamoreaggressivewaythanwehaveinthepast,andIrefertothatasnewbusinessaswell.I'dalsopointoutnewbusinessintheLASIKmarket.Solotsofopportunitiesoutthereinmymind.

JoeJimenez (CEO):

Thanks,Graham.Nextquestionplease?

Operator :

ThenextquestioncomesfromFlorentCespedesfromSocieteGenerale.

FlorentCespedes (Analyst-SocieteGenerale):




Goodafternoon.Thankyouverymuchfortakingmyquestions.Threequickones.FirstforRichardonSandoz.CouldyoumaybeclarifyandexplainabitwhysomerecentlyacquiredproductsfromGlaxoareorallytransferredfromPharmaintoSandozDivision?Isitbecausethattheyarenolongerpromoted?Andisthepotentialofthesedrugsreallymuchlowerthaninitiallyanticipated?

SecondquestionwouldbeforVasontherecentportfolioonLEE011,breastcancer.Couldyouelaborateabitonyourstrategyonthisfield?Imean,thatyouhaveaportfolioofproductswithBYLorAfinitor,isacombinationstrategypotentiallythenextsteponthisfield?

Andthelastone,aneasyoneforDavid,onrespiratory.Usualquestion,couldwehaveanupdateonyourplansinrespiratoryintheU.S.andthatwillbeaboutpartnership?AndisthefactthatanyannouncementisdelayedduetosomeresourcesconstraintsgiventheGleevecgenericsandtheAlcon?Thankyou.

JoeJimenez (CEO):

Thankyou,Florent.Richard?

RichardFrancis (DivisionHead,Sandoz):

Thanks,Florent,forthequestion.IthinkifIunderstandyourquestioncorrectly,there'saboutwhydowemovesomeoftheGSKassetsinthematuretransactionthatwe'vejustdonewithDavid,that$900millionthatJoereferredto.Itgoesbacktothecriteriathatweplaceacrossthematurebrandswhichis,wheredowethinkSandozcanstrategicallyaddsomesalesandmarketingweightbehindthosewheretheypreviouslyhadn'thadthatinPharma.AndwheretheyhelpedalsocreateaplatformforSandozproductstoactuallyextendtheirsalesandmarketingcapabilitygoingforward.Soitreallyfitsinthatcriteria,andwelookedacrossallthebrandswithDavid,andobviously,thatincludedsomeoftheGSKbrands.


IthinkI'lljustaddtothat.ThemainreasonforusdoingtheOncologypartoftheGSKtransactionwasVotrient,Mekinist,Tafinlar,Promacta.Imeanthoseweretherealdrivers.Theotherbrandswerepartofthevaluation,butwewerenotexpectingmuchfromthemanyway.AndifbychanceRichardcangetabitmoreoutofthem,sothebetter.

JoeJimenez (CEO):

Vas?


Clearly,theCDK4/6isgoingtobesignificantinthemarket.AndwebelievethatwithLEE,wecancaptureasignificantportionina3-playermarket.Nowinadditiontothetrialwehaveongoinginletrozole,wealsohavetheMONALEESA-3studythatwillreadoutwithFulvestrantin2018,andwearecurrentlyevaluatinghowbesttotakeforwardtheprogramaswellwithourPI3kinasedelta,asyoumentionedBYL.Andweshouldhave,Ithink,moreconcreteplanbytheendofyearonhowwe'lllookatcombinationstudieswithourLEEprogram.

JoeJimenez (CEO):

AndDavid,onresp?


AndIthinkyourlastquestioniswhenarewegoingtolaunchSeebriandUltibrointheU.S.Wearenegotiationstobeclear.Ithinkwhat'shappenedthatslowedthingsdownalittlebitiswhenwe'vegot




thisreallyexceptionalFLAMEdata.Itmadetheassetlookevenmoreinteresting.AndI'mhopefulthatwewillbeabletoclosethedealinthecomingmonthorso.

FlorentCespedes (Analyst-SocieteGenerale):

Thankyouverymuch.

Operator :

SteveScalafromCowen.

SteveScala(Analyst-Cowen):

Thankyou,Ihavethreequestions.First,wouldyouconfirmthatthesecondquarterinterimforMONALEESA-2isforbothsafetyandefficacy?AndDavid,whenyouspokeaboutthislastJune,youwerenotbackingawayfromthenotionthatthisisastudywhichcouldstopearlyforefficacy.Areyoustillconfident?

Secondly,I'dliketofollowupontheLEE011safetyquestionfromearlierinthecall.Vas,youransweredthequestionrelativetoearlierLEEdata,butthere'ssomeviewthatthesafetyprofileofthisagentislessoptimalthancompetitors.Sohowdoesitcomparetothecompetition?

Andthenlastly,andIapologizeforbeingpicky,andIappreciatethattheguidancerangeforAlconhasn'tchanged,butthewordsthatdescribeitappearedtohavechanged.SoinJanuary,thewordingwas,"accelerategrowthin2016andbeyond."Intoday'srelease,thewordingis,"improvesalesperformancelaterintheyear."Michaelsaid,"sustainablegrowthlaterintheyear"andhealsosaid,"growthinQ4."Justwonderingwhythewordingchanged,andwhyitseemsmoremutedandissustainablegrowth,marketgrowthorbetter?Thankyou.

JoeJimenez (CEO):

Okay,David?


Yes.SoletmetaketheMONALEESAquestion.Soyes,theinterim,thatplanforQ2looksatbothsafetyandefficacy.Typically,wesaydon'tanticipatestudystopsorinterims.However,inthiscasetobefullytransparent,ifthisproductworkslike[Pablo]works,like[iBrands]works,itprobablywouldstop.Andthat'swhywegaveyoutheguidancethatwegaveyou.Intermsofsafety,thesafetyprofileseemsmorelike[iBrands]thantheLillydrug.However,allthesafetydata,atleastforourproduct,isfromverysmallstudiesandmuchofitpreclinicalstudies.Weareclosetohavingthefullclinicalreadout.Oncewehavethat,Ithink,we'llreallyunderstandiftherearesafetydifferencesornot,andbeforethat,itwouldjustbespeculation.

JoeJimenez (CEO):

Okay.Andthenonthe--letmestartonthereasonwhyitmightlookliketheAlconwordshavechanged.Obviously,noguidancehaschangedonAlcon.ButifyourememberwebuildtheAlconturnaroundplanbeforeMikecamein.Sowhatwe'redoingnowisgivingMikefreereignontakingalookatthatplan,lookingathowhewantstoreallocateresourceswithintheplanandalsotheexpectations.AndifyourememberthevolatilityoftheAlconbusinessayearago,itwasquitesubstantial.AndsowebelievethatoncewegetthroughthesecondquarterandreallyhaveagoodlookatthehalfyearstohowAlconisperforming,we'llhaveaverytightviewastowhetherwesolidifywhatwesaidatthebeginningoftheyearorsaythatit'sgoingtobebetterorsaythatit'sgoingtobeworse.Soit'salittlebitduetoMike's




entryintothebusinessandmywantingtoensurethatheownstheplanandcanchangetheplanaswellaswantingtogetthroughthefirsthalfoftheyearbeforewecommittoanewnumber.

Mike,doyouhaveanythingtoadd?

MikeBall(Alcon):

Yes,IthinkoneofthereasonstoreallyeventakethisjobasIlookedattheprospectsforAlconandwhatIsawwastheprospectswerebright.You'vegotagreatcompany,you'vegotgreatmarketshares,you'vegotprobablythebestproductsintheindustry,andwhattheyneedisaboost,andIdescribedtheboost.NowtotryandgetintotheexacttimingwhenI'vebeenhere75days,I'mjustnotgoingtodothat.I'mgivingyoukindofmybestshot,butwhatIcantellyouistheprospectslookverygoodforthiscompany,andIlovetheopportunities,asIlookdowntheroad,atexpandingthemarketthatit'soperatingin.

JoeJimenez (CEO):

Thanks,Mike.Okay,nextquestion,please?Ithinkwehavetimefortwoquestions.

Operator :

VincentMeunierfromMorganStanley.

VincentMeunier (Analyst-MorganStanley):

Thankyoufortakingmyquestions.ThefirstoneisonGleevec.HaveyouanideaoratargetforthevolumeretentionafterthemultiplegenericslaunchintheU.S.?

AndthesecondquestionisonyourpeaksalesforEntresto,canyougiveusabitofcoloronthehorizonforthatdetails?Doyouthinkit'sbeginningofnextdecadeormiddleofnextdecadeordifferent?

Andlastly,what'sthenetpricecurrentlyinEuropeandintheU.S.forEntresto?


Okay.SoGleevec.Sotherewillbemultiplegenericsenteringin,ifIrecallcorrectly,Q3ofthisyear.It'shardtoknowexactlyhowmanybutwouldnotbesurprisingiftherewere4,5or6ofthem.Ifhistoryhasanyguide,priceswillmoreorlesscollapseatthatpointintime,andyouwouldexpectthenourvolumetobecomefairlysmall.

InthecaseofEntresto,Ithinkthisproductwillbegrowinguptotheyearthatitgoesgeneric.Youhavetorecognizethereisvirtuallynocompetitionforthisproduct.It'sgoingtobevirtuallyimpossibleforsomeoneeveniftheyhadasimilarmoleculetodoahead-to-headcomparisonstudyandimproveequivalenceorsuperiority.Sothatpeakforthereducedejectionfractionwillprobablycomearoundtimewithpatentexpiration.

NetsalesintheU.S.,wedon'tgiveaspecificnumberbutthediscountsvary,andtheycameinrightaroundwhereweprojectedwhenwegaveyouourpeaksalesforecast.SoIwouldsaythediscountsarenottoosmall,andthey'renottoobig,andwefoundagoodplacewiththepayers.

JoeJimenez (CEO):

Thanks.Finalquestionplease?

Operator :

NextquestioncomesfromthelineofMikeLeuchtenfromBarclays.




MikeLeuchten (Analyst-BarclaysCapital):

Thankyou,it'sMichaelLeuchtenfromBarclays.TwoquestionsforHarry,please.JustbrieflyontheotherincomeontheP&L,thatseemtobefairlylowinQ1relativetopriorquarter.Wasjustwonderingifthat'snewrunratetotakeforwardaftertherestatementoftheP&Lintoneworganizationalstructure.

Andthenasecondquestion,withthatorganizationalstructureeffectivefrom1stofApril,Harry,whereisyourfocus,firstandforemost,nowthatyouhaveadifferentorganizationtousetheP&Lfor?

HarryKirsch (CFO):

Okay.Thankyouverymuch,Mike.SotheOIElineis,ofcourse,alwaysevenincorealittlebitvolatile.AndsoasyouhaveseenOIEincorewasprettymuchinlinewaslastyearquarter1.Sowedon'tgivespecificsontheOIElinesbyquarterorforthefullyear,butoverall,it's,ofcourse,thatvolatilityisincludedinourtotalyearguidance,thecoreoperatingincomeisbroadlyinlinewithprioryearinconstantcurrency.

Intermsoftheorganizationalchanges,basicallytheopthaproductsmovingtoPharma--andofcourse,Pharmacontinuestobeasignificantpartofthecompany.IthinktherealignmentnowmadeiteasierfortheAlconcolleaguestofocusonthedevicesbusinessandtherefore,focuscontinuestobemainlyonPharmabutofcourse,alsoontheturnaroundofAlconaswellas,ofcourse,tomakesurethattheresourceallocationintothebiosimilarsatSandozalsoareappropriategiventheverygoodopportunity.

JoeJimenez (CEO):

Thanks,Harry.Iwanttothankeverybodyforattendingthecall.Welookforwardtogivingyouanupdateatthehalfyear.Thisconcludesthecall.

Operator :

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Novartis AG (NVS) Earnings Report: Q1 2016 Conference Call ... · and live audio webcast. (Operator...

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