Novartis AG (SWX:NOVN)

Earnings Call: Q4 2016

← View all transcripts

Jan 25, 2017

Our webcast audience. We are webcasting this for the first time, and we will be happy to take questions as we get into Q&A, both from the audience here and also from the webcast. Feel free to send in your questions. Now, before we get started, I would like Samir to read the safe harbor statement. Sure. Good afternoon, everybody. 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 U.S. Securities and Exchange Commission for a description of some of these factors. Thanks, Samir. Okay, we have got a pretty interesting agenda today. Harry and I are going to talk through 2016 results and the plans for 2017. Then we have got Paul Hudson coming up to talk about the pharmaceuticals business. Mike Ball will give an update on Alcon, and then you are in for a real treat as Vas and Jay take us deep into the pipeline of Novartis. Okay, let us start by talking about 2016. At the beginning of the year, we set five objectives for the company, and we have tracked through these five objectives every quarter. At the end of the year, I am happy to say that we have broadly delivered on many of these, but there are some areas where we fell short, and so we will talk about that in a minute. Let us start with the financial results. Saw from our press release today that we did deliver sales that were equal to last year in constant currency, so flat versus year ago. I think this is important to note that we were able to offset $2.4 billion of patent expiration, primarily Gleevec, but some others also. This is a real testament to the growth products and their potential to fully offset $2.4 billion and deliver flat sales. Our core operating income was down 2% based on that patent expiration and also some of the investments that we made in the growth products. Importantly, though, free cash flow was quite strong, $9.5 billion, up 2% in U.S. dollar terms. The second objective was to strengthen innovation, and the launch of Cosentyx continues to go very well. You saw the fourth quarter sales. The brand has crossed $1.1 billion, and it has become a blockbuster in its first full year since introduction. Entresto, while we fell short of the objective, it was off to a bit of a slow start. There are indications that are giving us great encouragement on Entresto. Access is better. The field force that we put in place mid-year is now up and running, and we are getting a depth of prescribing that is very encouraging. Paul is going to come up and talk about our plans for 2017 and beyond for Entresto. Also in terms of innovation, it was a good year for the pipeline. Our anti-CDK4/6, LEE011, we have filed in both the U.S. and Europe. We expect to be selling that new medicine in 2017. Also call out Erenumab, the AMG-334, in collaboration with Amgen in chronic and episodic migraine. Something we are very excited about. Fits right into our neuroscience franchise, and we will file this year also. The third priority was to improve Alcon's performance. We fell short here, even though we have seen improvement on Alcon. In the fourth quarter, you can see that we were flat versus year ago, so we have stopped the decline. When you look deeper in that, the vision care business is getting some good momentum. Vision care is about 40% of the business. It was up 5% in the fourth quarter, and it has had three consecutive quarters of growth. The surgical business is taking longer to turn, but there are also some signs that surgical could improve, and Mike is going to take us through the plan for 2017. The fourth priority was to capture cross-divisional synergies, and Novartis Business Services reduced costs under its control in 2016. They did it by reducing costs in IT and some selective offshoring into our five global service centers in low-cost locations. That is going to continue. The fifth objective was to build a high-performing organization. We did a lot of work inside this company to position us for future growth and streamlining. We consolidated manufacturing and integrated it across divisions. We consolidated drug development, and this is already starting to pay off with improved transparency and better resource allocation. Most importantly, it is going to be the basis of about $1 billion of cost savings between now and 2020. I want to step back for just a minute and talk about the industry and our strategy to win. You have seen this slide before. We are in a growth industry. All you have to do is look at demographics, look at chronic disease, the aging population. There is going to be more demand for products, healthcare products, specifically Novartis products in the future. This is also creating some opportunities in disease areas where Novartis is strong. Cardiovascular disease and oncology, for example, are expected to be about 50% of total deaths by the year 2025. Also neuroscience and ophthalmology will be growth areas as the population ages. At the same time, the same pressures that are putting demand or increasing demand are putting pretty good pressure on the healthcare system. We do expect pricing to continue to be constrained over the next few years, and there is going to have to be a greater reliance on real-world evidence and what is working and what is not working to get waste out of the system. To win in this environment at Novartis, we have said, look, we have to rethink everything that we do. We have to rethink the way that we innovate, the way that we sell, and the way that we operate. We call this Reimagining Medicine, and I want to just hit a couple of highlights. You're going to see this afternoon from Jay and from Vas how we are focused on some new emerging technologies, where we think we can win, and we think we can be a leader. CRISPR, so gene editing, cell therapy. We're reimagining how we sell. One of the ways that we're diffusing the pricing debate in certain countries is that we are shifting away from this transactional approach towards an outcomes-based approach. This is getting paid, or how much we get paid depends a bit on the delivery of what we claim our drugs can do. It's not just Entresto. We're also getting some progress on Gilenya and also on Tasigna. It's in its infancy, so this is not something that is exploding, but we're moving down this path, partly because you can take a tremendous amount of waste out of the system, and that can fund a lot of innovation. We're also, though, digitally approaching our customers. Physicians today get 90% of their health data digitally, so we're bringing new tools to them. Instead of bringing physicians to congresses the old way, we're now bringing the congress to the physician, and we're doing that through a device, a vehicle that we call Vivinda TV. We're finding that we can exponentially increase the number of physicians that we can bring this medical information to at a fraction of the cost. Then finally, we're reimagining how we operate. What we mean by this is you've seen a lot of activity in the company internally in the last 18 months. We put R&D at the center of the company with a new generation of leadership. We have focused our divisions, meaning with the movement of pharmaceuticals out of Alcon into Innovative Medicines, mature products into Sandoz, and then splitting oncology and pharma. We now have focused divisions that are really focused on their customer, and that's giving us greater commercial leverage. But importantly, the functions that are now centralized and support all of that will generate better service at a lower cost. We expect $1 billion in savings between now and 2020. Let me finish by talking about the next growth phase, because 2017 is going to look a lot like 2016. But if you look at beyond 2017, once we get to the end and we've got the Gleevec patent behind us, we have done things in the last 18 months to position this company for future growth. The pipeline is strong and broad, as you'll see today. I think we have a lower risk profile than some of our peers. I'll talk about what that means in a minute, and then strong capital allocation discipline. Many people have asked, how will you grow if you have Afinitor and Gilenya losing patent protection between now and 2020? This is an illustrative chart, but if you look at the growth drivers, primarily Cosentyx and Entresto in the blue bar, and then on top of that, you add oncology growth drivers. In 2016, our oncology business grew 12%, if you just take the Gleevec business out. Once we get out from under Gleevec, oncology will be a growth driver for the company. Even when you take out the generic impact of what we expect over the next 3 years, you see Innovative Medicines division growth. Put on top of that Sandoz and Alcon growth, and we're saying that we believe we can grow each year in the 2018, 2019, and 2020 period. That's not including anything that is not filed. I said, look, let's take everything out that is not yet filed for marketing authorization. It does not include Erenumab, it doesn't include Serelaxin, it doesn't include Ofatumumab, on down the list. This gives us confidence that we can grow the company as we get out from under the 2017 Gleevec patent expiration. Biosimilars is going to be an important part of that. We will launch 5 big biosimilars between now and 2020. The first 2 will be Etanercept and Rituximab in Europe. They have been filed, they're under review, and we're looking forward to getting started with the big monoclonals. I believe we have less risk, less IP and pricing risk than some of our peers. The reason for this is that we are underweight U.S. We've got about a third of our sales in the U.S. Many of our peers have over 50% of their sales in the U.S., where there's a pretty extensive pricing debate going on right now. Also, the portfolio gives us a bit of an advantage. The fact that we are so big in biosimilars, we're able to go to health systems around the world and talk to health ministers about how we can lower their costs based on the big new monoclonals that are coming in biosimilars while we make some headroom for the innovation like Cosentyx and everything else that is coming down the pike. Finally, we're going to continue to aggressively manage our capital structure. These are the priorities. These are not new. You've heard us talk about these before, but this morning we did announce 2 actions based on those capital allocation priorities. We're going to conduct a review to look at the Alcon business between now and the end of 2017. That review will include everything from retaining the business to a capital markets exit, so an IPO or a spin. Importantly, the pharmaceutical business in Alcon will not be part of this review. If you remember, when we acquired Alcon, it was a pharma business and a surgical business. The pharmaceutical business was taken out of Alcon, and it is now resting with Innovative Medicines. You've seen that that's going to be a place for investment, because we believe that ophthalmology and pharmaceuticals is right down our alley, and there's growth there to be had. You saw our acquisition of Encore Vision that we recently announced, and you're going to see more bolt-ons to try to improve that pipeline. It's really about the medical devices business. It's going to take us some time. There's some activity that still has to take place, and that will occur by the end of 2017. We'll give you an update. In the meantime, Mike and his team are going to continue to drive Alcon and continue to return that business to growth. We also announced up to $5 billion share buyback this year. That is because of our confidence, our conviction in the fact that we will start the next growth phase of the company, and we think that we are a good deal right now. The buyback starts immediately. If you look at our priorities for 2017, from a financial standpoint, it is going to look a bit like 2016. We have said sales broadly in line with a year ago. Core operating income would also be broadly in line or down low single digit. We are going to strengthen, though, the pipeline, all of the pipelines. We have got some important readouts coming. Serelaxin, Ilaris, and atherosclerosis, and also RTH258, our wet AMD candidate. Commercial execution is going to be key because you have seen in the previous chart around the growth, Cosentyx and Entresto are key to the future growth prospects of the company. So we must execute those well. We are going to continue to focus on returning Alcon to growth, and then finally, embed this new operating model and get after the $1 billion of savings between now and 2020. Okay, with that, I would like to turn it over to Harry to go through the financial results. Thank you, Joe. Good morning. Just want to start with a quick comparison between the guidance we gave and the results. Clearly, we came in on our guidance of broadly in line with the 0% in constant currency sales and the minus 2% core operating income in the range of broadly in line to a low single-digit decline. When you look at the numbers on the left side, the quarter four numbers, we delivered in quarter four flat sales and core operating income was even up as the productivity efforts offset the significant increase in investments we made, not only but also into Cosentyx and Entresto. On the full year on the right side, you saw the numbers zero and minus two. Net income is up one point as the OTC joint venture continues to contribute and versus prior year, a significant increase. Free cash flow was very strong at $9.5 billion. I will give you a few more details later on. Overall, I would say given $2.4 billion of generic impacts on the top line, solid financial results. The quarter four margin by division and total company, you see on the lower right side that the margin improves by 0.2%. It is a very strong performance from the Innovative Medicine division is offsetting the Alcon core operating income margin decline. Innovative Medicines, certainly Glivec increased as an effect in quarter four, minus 1% on sales, but very good productivity resource allocation efforts, increasing core operating income by 4%, resulting in 29% core margin. Alcon, stabilizing sales, flat sales, but 36% decline of core operating to 11% margin given the investments into the growth plan. Mike will later on give you some more details on that. Sandoz delivering a solid quarter with 3% and 4%. On free cash flow, we have some lower operating income, but it is more than offset by very good working capital performance, lower capital expenditure, and the first dividend, that dividends we got from the OTC JV in 2016. On the CapEx, in the meet the management, they laid out that our target CapEx spend is in the range of 3%-4% midterm. We brought the CapEx spends down from more than 5% a few years back to 3.8% this year, and we see midterm 3%-4%. Joe mentioned our capital allocation priorities. These are not new. We have worked along those over the last years. I want to give you a few more details on how we have executed these last year. On the first one, investing into organic business. You see on the left side several of our more than 200 programs in the pipeline. We invested $8.4 billion of core R&D in 2016. On M&S, we have increased, besides behind the launches by 4%, our core M&S. Of course, a lot of productivity going on because these launch, of course, need more than just 4% of M&S increase. But excellent work there. Still an increase, of course, as we have such a rich launch and in-market portfolio. The second priority we are recommending to our AGM, the 20th increase of our dividend to 2.75 francs. That is a 2% increase, 4% attractive dividend yield, and in terms of free cash flow, a 70% payout. On the third priority, bolt-on acquisitions, we have been very busy. Over the last 18 months, we have done 14 deals. You see all of them. Vas and Paul will talk about a few of them, and they are nicely strengthening our pipelines. On the share buyback we are initiating, we will start next week, a $5 billion share buyback, and we are aiming to execute this in 2017. There were some questions this morning, is this on top of employee participation? Yes, it is. This is a net share buyback. As you know, we have an ongoing commitment to mitigate any employee participation programs, which we do in addition to this. We are leveraging our strong balance sheet, and we will finance this via new debt. Clearly a sign also in our confidence of future growth. As I go into 2017 guidance, just want to give you the pulls and pushes. Basically, a bit similar to 2016. If we start on the negative side, generics will be, again, expected to be $2.5 billion, majority of that being Glivec. The launch investments will continue, and we have some full year effects like, for example, the ramp-up of the U.S. field force in the U.S. Also, the Alcon growth plan, as you have seen, ramped up over 2016, the investment part of it, and we expect 2017 to be the trough year for Alcon growth margin. We have also many positives. We expect continued significant growth from our pharmaceutical growth products, of course, Cosentyx and Entresto being a major part of that. Also, in oncology, where the new assets we bought from GSK almost a couple of years ago, perform extremely well, and we expect they continue. In addition to Jakavi, as well as the expected approval of LEE011. Biopharmaceuticals in Sandoz, of course, also from a launch standpoint, we expect to be a positive. On the bottom line, the creation of Novartis Business Services almost 3 years ago, as well as a centralized manufacturing and centralized development, besides better portfolio management, also in terms of efficiency, of course, we expect significant savings. You maybe remember, a year ago, we announced that the centralization of manufacturing and development will create a structural cost saving of about $1 billion as of 2020. The full year guidance, Joe already mentioned it, don't have to go into the details too much here, but broadly in line on sales. Innovative Medicines Division, broadly in line as the launch products offset the generics. Sandoz, low single-digit growth. Expect some volatility, depends a bit on the Glatopa 40 milligram approval. Alcon, broadly in line to low single-digit growth. From a core operating income standpoint, given the generics, of course, are also quite profitable, we expect, including our productivity efforts, to be broadly in line with prior year or having a low single-digit decline. Again, like last year, in a broadly flat year, I have to comment briefly on the dynamics half one, half two, and we do again expect that half two is better in terms of core operating income trajectory than half one. You see some of the reasons, I think they are obvious to you. Clearly, the full year launch investments that ramped up for Cosentyx and Entresto. The sales acceleration, of course, we expect to be even faster in the second half. Gleevec, if you recall, the first half last year, the first exclusive generic entry was in February, Sun Pharma until July, August. So a higher base of Gleevec in terms of generic impact in the first half. The momentum of the biopharmaceutical launches, we expect to accelerate a bit into the end of the year. Alcon, the investments ramped up over the last year from quarter to quarter and full year impact of those investments as we go forward. A few details for the modeling. In your models, basically, we expect the core tax rate, which has been 15% in 2016, to stay in that range. Currency impacts, if the currency stay for the rest of the year where they were mid-January, a -2% on the sales and a -3% on core operating income. For quarter one, 2% negative on both top and bottom line. On core associated companies, we expect, of course, a higher contribution, especially from the joint venture, as it continues to develop well. On core net financial income, a slight increase given that we will issue bonds to finance the share buyback. I think in summary, solid 2016 financials, 2017 being our final Gleevec year, and we initiate a $5 billion share buyback as we move towards our next growth phase. With this, I hand over to Paul. Thanks, Harry. Thank you, Harry. Good afternoon, everybody. I am leading the pharma business, and I thought I would give you a sense of perspective where we are six months into the role and try and give you some type of indication of how we hope to perform as we go into 2017. Firstly, maybe it is good to touch base on the priorities. Firstly, we went from a single-digit negative decline in pharma in the first quarter to a single-digit growth in overall performance across the business in quarter four. We are pleased with that. We are pleased with how we finished the year. More importantly, we really focused the division on the key priorities. What were they? Initially, to make sure we are resourced appropriately, and appropriately means to win with Entresto and Cosentyx, to get back to some of the heritage, some of our strong DNA on commercial execution. Of course, we have got 10 data readouts over the next couple of years. I think four this year. Some of the hard lessons learned in making sure that we were ready for those launches to deliver well and exceed expectation. From a culture perspective, of course, we work on all the normal things, diversity and inclusion. The key takeaway is the external focus, the in-market performance, and setting the culture up for a winning outcome to 2017 and to beyond that. Cosentyx first full year is a blockbuster. In fact, I think it is the best launch I think we have ever had at Novartis. It has been an incredible full year for Cosentyx. The team have done an outstanding job. The final quarter was close to $400 million. Exceptional. I will guide a little bit that because of thoughtful decisions on rebates for 2017, Q1 will be modest in terms of growth expectations. As TRx grows in the U.S. and the rest of Europe gets into its stride, we are expecting a strong 2017. I think it is also important to remind you of the profile of Cosentyx. It sort of gets lost in the melee in the discussion of the class. The medicines are all very unique. For us, particularly, let us not forget we are fully human with low to no immunogenicity. We have phase III data beyond four years, and I think the competition is phase III one year only. So we have sustainable response. We have low to no immunogenicity, which means we can regain control for patients who take a drug holiday, which is important in psoriasis. I think it is also important to know, and I will go on to talk a little bit about it, psoriatic arthritis and ankylosing spondylitis are major opportunities, not least for the patients and the outcomes we can help them achieve, but for the business overall. They are much bigger than you would expect, and in fact, PsA and AS are bigger than psoriasis alone. We have an opportunity, of course, to go into non-radiographic axial spondyloarthritis, and we will achieve that at some point over the coming cycle, and Vas will talk about it. There has been some reports recently that we have been in a head-to-head, and that perhaps we have not performed as we would like. I want to just correct any misconceptions. Time aligned since launch, Cosentyx versus Taltz on TRx. Of course, TRx are patients routinely prescribed a drug. We are outperforming our nearest competitor, and indeed, on the latest week, we are threefold the performance on TRx. On a weekly perspective in the U.S. on the NBRX, things are closer. Please also bear in mind, this is an important point, that the NBRX data includes a free drug provided by the competition. Whilst it is tight in terms of new patient prescriptions, I look forward to seeing what that materializes into dollars for the competition as we get through into 2017. I think importantly, again, when we have launched in psoriasis, and not just least in the U.S. where the performance has been outstanding, but in Germany, on a value share basis, we went past the standards of care in less than a year. I include in there Humira and Enbrel. Again, an outstanding performance by the team. In fact, we have gone on in most of the major European markets to be number one in the class. We are well set up in psoriasis, and we have high expectations about how we will perform for the remainder of the year. Let me turn back to psoriatic arthritis and ankylosing spondylitis. Again, what you may not know is the fact that we are now market leader on new prescriptions in the U.S. and in many of the major European markets. To go past Humira and Enbrel in psoriatic arthritis and ankylosing spondylitis that have been in those indications for more than 10 years, and to do that in your first full year, shows what we are capable of doing from an execution perspective. It also sets us up well because we believe that there is a significant opportunity going forward, and we believe that if you look at the actual dynamics of what is available in terms of patient populations, AS and PsA represent significantly more patients than psoriasis alone. Why is this critical? Let us look at it. Taltz will not have a PsA indication till the end of 2017 or the earliest beginning of 2018. In fact, they will not have an ankylosing spondylitis indication until the second half of 2018. As for the IL-23, p19s, if you were there at EADV, you will have seen some disappointed faces in terms of efficacy. There is no doubt, no entry into this class before 2020. Market leader, strong in the U.S., strong in Europe, and with some sustainability to the indication, a big indication. Let me turn to Entresto. It has been really interesting for me getting to know Entresto in the six months that I have been here in Novartis. Whilst you are a little bit preoccupied with the left-hand side of the slide, I am a little bit more obsessed with the right-hand side. It has been very important for me to get the foundations in place for a breakout performance in 2017. Absolutely important. Whilst perhaps we would have liked to seen a little stronger performance on the dollars in 2016, really, it would have not counted for much if we did not get the underlying basics right to show just how big this medicine could be. Like I reminded you for Cosentyx, I will do the same with Entresto, that our expectation is a little modest growth in Q1 because we have made a decision to go into Medicare. When you do that into Part D, you have to recognize that there is some rebating, thoughtful rebating that goes with that. Now, whilst that is an important consideration, you also have to remember that is two-thirds of the patient population for heart failure. So we have been considered about how we access. We will be modest in Q1. Our TRx will catch up, and we expect to finish the year very strongly. Why do we expect such an upturn in performance? Well, there are three fundamental questions, and I alluded to them on the first Entresto slide. The first one is this prior authorization, which I heard a lot talked about in 2016. We have spent most of the second half addressing it for 2017. So we have gone from zero opportunities in Medicare without a PA to 23% of the patient pool can have a prescription written for Entresto without a prior authorization. Again, fantastic work by our U.S. team. On the commercial side, we have gone from 26% to 48% of the patients being covered will not need a prior authorization. Now, with the ambition that we have stated, you may have seen in the slides, and I will come onto in a moment, this is more than enough access and more than enough simplicity in term prescribing to deliver on that as we accelerate through the remainder of the year. The second major part is, well, what does it cost a patient? What is the affordability piece that sets the challenge up for the climate of which Entresto is prescribed in the United States? We have gone to preferred in 88% of the plans. What does that mean on Medicare? It means that the low-income subsidy patients are paying roughly $7.50. There are about a third of those, in terms of out-of-pocket. In general, as preferred, we are the lowest out-of-pocket that you possibly can be. For the majority, more than half of that 88%, it is less than a $10 copay. So we think for affordability, we are in the right place. In fact, on the commercial side, access has improved again, significantly to 66%, and I think 98% of the patients that are covered can use a $10 copay card. So we think we have put ourselves in the right spot for affordability for patients, too. The final piece of the jigsaw was really something that the team have been working on since the very beginning of the year, and it has been about getting the resources right. Now, whilst we have done that in Europe, in the U.S., we had to get an acceleration going on. We did our first big recruitment in April. By September, we had our cardiology coverage just where it needs to be, and we have rolled on primary care physicians. So now that we feel, by the end of the month, the first two weeks in February, we are at a steady state for covering the heart failure potential. We will cover roughly 70% of all the heart failure potential patients at this point, and that is more than double what it was at the beginning of the year. So as we get to sit back and say, why are we excited about 2017? Well, we have put the basics in place, and the team globally, frankly, have worked incredibly hard. Remember, we are just coming online in Italy shortly. We are just coming out of Article 48 in France, we hope. We are now in Germany, and we are about to launch in Italy. So in the major European markets, we are well-placed. In the U.S., we have a very high expectation of traveling our TRx between Q4 2016 to Q4 2017. That is ambitious, but when you think in the U.S., we grew 33% Q4 over Q3, you know we are well-placed. Of course, it will take an acceleration, but as I pointed out, we have the three fundamentals in place. Low to no prior auth, depending on where you are in the payer world. Resources, exactly where they need to be and bringing on more than 500 new writers per week. Indeed, an affordability that makes things very attractive. So for me, at least, as we look at Cosentyx and Entresto, as we set ourselves up for 2017, we have good access in the United States. We are outperforming other molecules in their class in Europe. We are outperforming standards of care in the U.S. We are well-positioned in PsA as psoriatic arthritis and ankylosing spondylitis. We have set ourselves up with Entresto with all of the major criteria dealt with, so we can find out just how big this medicine is going to be. By way of summary, whilst excited about Entresto and Cosentyx and resourcing them to win, we have also had some other great performances across the portfolio. Of course, Ultibro grew 38% in 2016. Gilenya grew 14%. Of course, Xolair continues to grow. So across the business, we have upped our execution. We feel good about the way we execute, and we are nicely positioned for 2017. I think I now hand over to Mike. So Mike, on over to you. Thanks, Paul. Good afternoon, everyone. I am here to speak briefly but passionately about Alcon. So I want to tell you what we have done, where we are, and where we are going. So I have been here almost one year now, and when I came in the door last February, we quickly assessed what the major issues were with the company. Then we set to put out a game plan as what we are going to do about it. So that game plan had three key elements associated with it. Number one was to invest behind the vision care business because what we really saw was that vision care being a consumer business would be more responsive than surgical. Number two, we wanted to fix the supply and service issues because in my mind, without those being fixed, we could not turn around the surgical business. Number three, referring to our innovation front, we really wanted to restock our pipeline through aggressive outreach in business development. So what are the results so far? Well, in my mind, I think we have made progress on both franchises. When you look at Vision Care, in fact, the investment seemed to have carried the brand franchise forward. So we got to +5% in Q4, 2% overall for the year. So I am very pleased that we got one of the businesses turned around. With respect to the surgical business, fixing the supply and service issues turned out to be more challenging than we had originally imagined, and those issues persisted throughout Q3, and I think really pushed back the turnaround of the IOL business and also allowed our competitors to continue with their penetration of our market share. I want to talk about that in a moment. Consumables, as you can see, grew nicely, mid-single digit. Equipment was down, mainly because of a high prior year comp, some market maturity, and some emerging market economic issues, such as in the oil-producing countries. Let's talk then a little more deeply about what actually happened. First, on Vision Care. We invested in direct-to-consumer advertising, it being, of course, a consumer brand. We did that starting in Q1 and then going into Q2 in certain countries in Europe where we were prepared to do it. We saw a nice pickup in market share in those particular countries. We then moved into the U.S. late in Q3 and heavily in Q4. What we saw was, after 14 consecutive months of market share loss, we actually went to four consecutive months of market share gain. Now, to be honest with you, it was modest gain, but it was headed in the right direction, which suggested to me some stabilization in the business. When I look at this graph, which talks to the contact lens growth, as was pointed out earlier, we've had three consecutive quarters then of contact lens growth, and you can see in the fourth quarter there was a pickup. Now, that pickup, 7%, is skewed upwards because of a very low prior year comp, so I would call it more like 4%. Nonetheless, the underlying growth is definitely there. Now, I really like the Vision Care business. It's got 3%-4% growth. It's got high barriers to entry. In my mind, there's still lots of untapped market potential here that we can go after. As I look forward to 2017, this momentum is helped out somewhat with the launch of our new DAILIES TOTAL1 multifocal for presbyopia, as well as our monthly lens, AIR OPTIX plus HydraGlyde, in the United States. I'm feeling good that the Vision Care business is moving in the right direction. Let's talk about surgical. I talked about we needed to fix the service and supply issues. I wanted to get into some more granular detail, maybe more detail than you really wanted to see, but I think it's important to understand what really lies behind fixing this thing. In the top left, you'll see our service levels have now got to a two-year high. In December 2016, two-year high. As I look forward to 2017, I see a far better situation than we had in 2016. In the middle, there's a really confusing chart saying Custom Pack Disassociation Rate. We sell hundreds of thousands of custom packs for cataract procedures. In each one of these are 20 to 30 items. If just one of these items are missing, our sales representatives have to go to the account, figure out what the substitute would be, and put the substitute into this particular pack. When I first started here and went riding with sales representatives, I was astonished at the amount of time that they spent doing this. In fact, my observation at the time was, this has turned our sales reps into service reps, and there is a significant difference. We've beaten that down now to 80% down from where it is, so I would call it at a very acceptable level. And the trick here now is that our sales reps are actually now back to selling, and I believe that will be a positive in 2017 as well. Now, moving forward on this chart, we got some feedback that the surgeons would like to have more training on their equipment and faster service on the equipment, so we added more people to handle that. We also wanted to make the company easier to do business with. In 2016, we started an ambitious project of installing SAP in the U.S., and this was a big project. The net result of that, though, is with SAP on the ground, we are able to do things like turn around contracts much faster. We are able to offer our customers easier ways to order, such as with e-commerce, which we are rolling out in the U.S. In terms of fixing the service and fixing supply, I feel like we have made great strides. We are not all the way there yet, but I would say we are very much acceptable right now. Now, obviously, we needed to have the service and supply fixed. We also need some new products to sell from an IOL standpoint. As I look at our portfolio going into 2017, I am pleased to say that our sales representatives have the UltraSert to sell, and it just rolled out in Japan, so virtually worldwide, something new to talk about for our sales representatives. The PanOptix then has also been expanded worldwide outside the U.S. This is our trifocal lens. Also, the Toric lens in the U.S. is being approved. That is the ReSTOR Toric, and this is going to breathe new life into our ReSTOR franchise, which has been taking a hit from the competition. So I feel good about these products coming into the marketplace, and that we can get on the front foot and start selling again. I am also very pleased that we will be putting the Clareon into the EU regulatory authorities to get approval, and this is our new IOL material. So we look forward to that coming out in the midterm sometime. As I look further into the future, we are working on two exciting accommodating IOLs for presbyopia. One of them is PowerVision, the other one is Google. I will not go into a lot of details given the time, but these work by brand-new mechanisms and allow us entry, I believe, into a huge untapped market opportunity. As I summarize this, we have basically then taken great action, I think, against service and supply. We have stabilized the organization. So the organization believes in management, and they believe in the new plan. We have seen turnover go down to a two-year low, and we have seen morale go up and the sales force get back to selling, which is what sales forces actually like to do. We have also become more customer-centric as an organization. We were too inwardly focused before, and so now we are looking out at the customers and moving resources to the front lines. In addition, on the innovation front, we have taken an aggressive stance looking at BD to enhance our pipeline. So I would say to you, in 2016, we picked up the three best assets out there in ophthalmology, which was Ingenuity, XIPAS, both of which we are just launching now, and also PowerVision. So as a channel leader, we should have access, and we should demand of ourselves to get the best out of the entire industry and be agnostic, whether it's internally developed or externally developed. I think we're taking the right actions, and we will get the right results to drive long-term sustainable growth. This takes time. As you heard, in FY 2017, we're looking for sales broadly in line with last year to slightly positive. First half of the year, we're looking for broadly in line. But I submit to you, as you look long term on this business, this eye care market is a great place to be. I look at the mega trends, and they're all at our back. You look at lifestyle. Who wants to wear reading glasses? Anybody want to wear reading glasses? Of course not. People want spectacle independence. As you look at the aging population, the front edge of the baby boomers right now are moving into their early 70s. That is prime cataract time. Of course, sad to say, then, of course, there's emerging markets, right? So great opportunities there. So what we have here is a $20 billion market growing at 3%-4% with tailwinds behind it. If you look at the medical industry, average ROS from the low 20s to the mid-20s. As I said, a lot of untapped opportunity. So our view of Alcon, I think, is very exciting. Short term, we need to turn it around to top-line growth. But long term, we expect to drive it to sustainable growth and get the ROS back to industry-type averages. It's a very exciting journey, and I'm very pleased to be here to do it. Thank you. Okay, before we get into the R&D session, I wanted to break and do a Q&A session. So why don't we raise the lights, and we'll start here? Yes. Thank you. It's Mike Leuchten from UBS. Question on your comments around potential alternative plans for Alcon. You talk about capital market solutions as a potential alternative. That seems to suggest you firmly believe the division gets back to a better place, and then you might think about what you do. But from our perspective, that probably means you're thinking about trading earnings versus balance sheet strength as well. So what does that mean for Novartis going forward over the next few years? If Alcon does turn around, you still think about a capital market solution and then trade earnings for balance sheet. Look- Okay, go ahead. In the second question, just on Entresto. Thank you for the details. Would you be able to tell us what percentage of your patients are currently coming from Medicare versus non-Medicare? On the Alcon question, what we announced today is that we will be conducting a review, and that review will include everything from retaining the business to, we said a capital markets exit, so IPO or spin, but it could be anything in between. It is too early to speculate on on what we will actually do. The reason why I personally believe a capital markets exit could be attractive for our shareholders is that there is a scarcity of assets in that $25 billion-$35 billion market cap business today in healthcare. If our shareholders could participate in that could be something that is very good for our shareholders. It is premature to talk about what that would mean for the company because we really have not made a decision. This is really just the review process. On Entresto? The number currently has been actually quite small, in the teens. What we have done is to, as I mentioned earlier, to try and access that two-thirds of the total population by entering into Part D. You will have seen we have gone to almost 90% preferred access. We expect to see a significant acceleration in the Part D population into Medicare. Other questions? Yes, in the back. I have two big picture questions, please. The first one, Mike, thank you for that very passionate talk about how you see the Alcon future. It kind of fits somewhat at odds with the comments you made, Joe, about whether you want to be a part of this future or not. So what are we missing? Is Novartis not the right owner of this asset? If so, why not? That is question number one. Okay. Go ahead with question two. And question to you were kind of talking about a new operational model for Novartis. It has been about 2 and a half years since you have kind of had the big strategy refocus. You kind of identified three areas that you want to be long-term future of Novartis, now maybe two. Why has it taken you 2 and a half years to come up with a new operating model? Okay, on the first one, Alcon owner, the answer is that both of those are right. If you think about what we acquired with Alcon, we acquired an ophthalmology business and a medical devices business. We have taken the pharmaceutical side of that business, and it is now integrated. The medical devices business is a very good business. It has got leading market shares in growing categories, exactly what Mike said. We take full responsibility for the fact that that innovation did not come through as expected on the medical devices side. That has taught us something. It is a very different kind of a business than the rest of our business. It does not mean that we cannot participate in medical devices, but what it does confirm is that the pharmaceutical innovation cycle, everything that takes place in pharmaceuticals in terms of rejuvenating the pipeline and success in that, are different key success factors than in that medical device business, where you are in the surgeon's office, you are iterating very quickly, very short cycle times, incremental innovation. This is the time to step back and say we should do a review and say whether that medical devices piece, which is highly attractive in the market, are we the best owners for it? I do not think that they are inconsistent. In terms of the second question on the new operating model, it is not as if we just said we woke up one day and said we are going to go to a new operating model. This has been an evolution. When we focused the company with the GSK transaction and the Eli Lilly transaction, there were a series of events that made our portfolio very focused. We did not want to move into immediately centralization of manufacturing and global drug development at the same time as integrating those businesses and separating the vaccines business, the OTC business, and the animal health business. It was just too much for the organization to absorb. We staged it in an approach that would get us to where we are today, two and a half years later from that decision, to now be fully ready to implement that new operating model. Yes, and then we will go here. Richard? Hi, thanks. Richard Vosser from JPMorgan. Just on the drivers of 2017 performance, I think you highlighted the savings from the development organization. Perhaps you could give us some idea of the level of contribution from the savings from that, and potentially through the period 2018 to 2020 as well. Just on the 2018 to 2020 sales bridge, could I venture for you to give an idea of the path there? You have obviously said growth each year, but potentially how you see the magnitude of that growth through 2018 to 2020 each year. Okay. Thanks. On the first, some of the way that we're going to offset the Gleevec patent expiration is not just from savings in global drug development, but also we get the beginning of the manufacturing cost savings that start to kick in. We have not disclosed what our expectations are, but I think you can expect to begin to see the savings that we have said will come from this new operating model beginning in 2017, and that's primarily through our Novartis Business Services organization, the manufacturing centralization, and to a lesser extent, the global drug development. In terms of 2018 to 2020 sales growth, there are too many uncertainties. I don't want to get into making a projection. I wanted to show a graph that was illustrative of the kind of growth that we will expect. We've become as granular as saying we expect growth every year, but that's about as far as we'll go. Yes. Good afternoon, Florent Cespedes from Societe Generale. Three questions. First for Paul. Could you come back on Cosentyx? Just as a follow-up question, because you gave some color and you said that for 2017, you expect at the beginning of the year, some pressure from Medicare. The growth rate, we understand, should be a little bit softer versus what you delivered in Q4. Could you elaborate a bit on that point? Because I suspect that the proportion of the population coming from Medicare is much lower versus what we have, for example, with Entresto. Then for Mike, I have two questions for you. Could you elaborate a bit on the product approvals on surgical side of ReSTOR and PanOptix? Are they the big growth driver for this division this year and beyond? I remember last year, you said that you expect in 2017, by mid-year, to have a good idea if the recovery of Alcon is well on track or not. Could you tell us if it's still the case, that by mid-year, you will know if the recovery is on track? The last question is for Bruno, a quick one on Afinitor. It seems that the Q4 was a bit better than expected. Is there a recovery? Could you elaborate on where this is coming from? Thank you very much. Paul? Florence, I hope I heard you correctly. You mentioned Medicare, and you mentioned Cosentyx. Is that right? Maybe just to be doubly clear, I said I was very pleased with the Q4 performance, which was in the main, the growth was out of demand. It is principally from commercial patients. The comment I made about modest growth in Q1 is that we have been thoughtful about our access position for 2017. Of course, there are more than one medicine in the class now, and so we have to be very deliberate. We are the market leader by some way, but we had to be thoughtful. So we have improved our access into Q1, paid some rebate to get there thoughtfully, which is why we will see modest growth and an acceleration thereafter as volume catches up in 2017. Commercial or- It is principally commercial, yeah. Mike? Okay, with respect to the new product pipeline, if I understood the question correctly around PanOptix rolled out in Europe in 2016, and we are having it roll out over the rest of the world, essentially, other than the U.S., in 2017. The Toric lens version of PanOptix is being approved in the European marketplace. This will give us then a broader line in order to meet the competition in what I would call a more fair way, or for them, unfair way, as we get into the marketplace. So I am feeling good about it. The feedback on the trifocal lens is extremely strong, extremely good. Where we have launched it, we have seen very good pickup. So very pleased with how that product is moving forward. With respect to then halfway through 2017, you took notes from when I talked before, obviously. So one of the things I said was we'd be broadly in line with last year for the first half of this year. Obviously, we go through this year, we'll see how things are picking up. One of the most difficult things in turning around a surgical business is you do the right things for long-term growth, such as putting in training centers. We've opened up wet labs to start training physicians again like we used to. When does that actually translate into sales? If you think about getting your service and supply levels back, you still have to recapture the customers that may have gone elsewhere. Again, this basically takes time. But it is the right thing to do, and with the right execution, it will, in my opinion, lead to growth. We're just challenged to figure out exactly where then. Again, update mid-year as promised. Bruno, on Afinitor? Florent, regarding Afinitor, our two main indications, breast and RCC, were affected by competition, palbociclib and immuno-oncology. We launched some new indications, NET of lung and GI origin, that has partly compensated for that. But I think that the main point that happened in Q4, where we had in the U.S. Afinitor grow 1%, is that we're getting in breast into the zone now where patients that were put on palbociclib are starting to move to a later line of treatment, so that is having a positive impact on our sales. So I would talk of stabilization or slowing of the decline rather than full recovery yet. We'll see what happens next quarter. Okay, let's take a question from the web, and then we'll come back. Okay, we have here a question from Graham Parry about the buyback. Is this in addition to the up to $5 billion bolt-on M&A target that we have previously indicated would allow us to retain the AA rating? Should we assume that the buyback precludes that level of bolt-on deals if you want to remain AA? The last point is, could you do a $5 billion buyback, a $5 billion bolt-on, and still reduce debt? Second question, more for Alcon. What factors go into decision to keep or sell Alcon? Doesn't it make sense to execute a turnaround before selling, or is sell the option you choose if you can't turn it around? Okay, let's start with Harry on the buyback. The share buyback is, as I mentioned earlier, In addition to the employee participation program, so it's a net share buyback that will reduce the share count. It's also we will continue to execute our bolt-on acquisition strategy. Credit ratings, we leave to the credit rating agencies, but we have, even with this additional leverage, a very strong balance sheet. Of course, let's say a $5 billion additional bolt-on, $5 billion share buyback. We will issue new debt for the share buyback. Our cash flow has been in the range of $9.5 billion. We expect it roughly to stay stable. Of course, cash flow is a bit more volatile than the P&L, and we pay out roughly $6.5 billion of dividend. We will be able to continue to do the bolt-on, and we have a strong balance sheet if we would need a bit more of that in order to do up to $5 billion of a bolt-on addition to the share buyback. The only thing I would add to that is that we did, in the fourth quarter of 2016, acquire two small bolt-ons as well as two option deals that could become acquisitions. These were upstream quite a way, so they are supplementing the pipeline. They are not as big as $2 billion-$5 billion. You are going to continue to see us do those even with the buyback. If something bigger comes along, we will take a hard look at it. We are looking at everything. Prices are at a level where we are not sure we can generate a lot of value for Novartis shareholders if they are bigger deals, and that is why we have chosen to do the buyback as well as to show confidence in the future. In terms of Alcon, what factors would be required? The reason why I wanted to get this announcement out is that a lot of work has to take place. I do not want to do it in a secretive way. We have got people at Alcon who want to make sure that we are out in the open about this. For example, we have to determine what it will take to separate that business. We have to go function by function to understand what it would look like if we did a capital markets exit. We have to do carve-out financials. We have to look at other things that would need to be done to make that a separate company. It is going to take us some time, which is why I said we would give you an update towards the end of 2017. Meanwhile, with Mike executing that plan, we fully expect there to be a nice story on Alcon as we get to that point when all of this work takes place. It is premature to say what we will do, but I will tell you that we will give you an update by the end of 2017. Sorry. Then we will go back here. Thank you. Vincent Meunier from Morgan Stanley. A follow-up question on Alcon and more broadly, your corporate strategy in terms of M&A. Based on your comments, you confirm that you prefer bolt-ons rather than larger acquisitions. If you can get some proceeds from Alcon, what would you do with that? Would you consider then buying something to replace Alcon, something big or something different? Maybe giving back the cash to the shareholders, or just split that in multiple acquisitions. The second question is the R&D spend. In your slides, you say that you want to spend 20% of Innovative Medicines sales. Does it mean that you consider now that Innovative Medicines are at the right perimeter and you will not reduce the number of therapeutic areas? Just a confirmation of that. In terms of the first question around Alcon and what we would potentially do with the proceeds, I think it's way too early to speculate. Part of it would depend on what we actually do and how we execute that. The guiding principle is going to be what's in the best interest of our shareholders. That will be the first criteria in terms of what we do with the Alcon business and also with the proceeds, if there are proceeds beyond that. I would-- Go ahead. Yeah. Regarding the shareholders, do you think that another leg? Yeah, sorry. Yeah, regarding the shareholders and their interests, do you think that it's better for them to have another leg in the company, to some extent, some differentiation, or be more focused and adopt a different model? Yeah. One of the things that I've learned since the GSK acquisition is that focus is good, right? When we had the OTC business, the animal health business, the vaccines business, when we were able to execute that transaction and double down in oncology and really focus where we were strong, that was a benefit to the company. I don't think necessarily that the company needs to replace-- Were we to exit that medical devices business, I don't think the company needs necessarily another leg. What it could use is more depth and breadth within what we call our core, which is-- I wouldn't call it our core, I would say where we have had the most success as a company, which is in that pharmaceutical and generic/biosimilar framework. Again, nothing's decided, but that's a bit of what we're thinking. Okay. Your second question was on R&D spend as a percent of sales. Maybe Paul also in terms of the therapeutic areas, does that mean that we've got about the right mix of disease areas? If you look at historically where we've been from R&D and Innovative Medicines as a percent of sales, it is around 23%. With many of the changes we've made over the last 18 months, we are already 100 basis points down from that. Our goal is to continue that trend to get to the 20% in the medium term. Particularly when you look at the sales growth along with better cost management, we think we can get there. I would say overall, our goal is to build therapeutic area depth in the areas that we are in. We are always evaluating, are we in the right disease areas? I will talk a little more about it later on. In our core disease areas, our core six disease areas, inclusive of oncology, we believe these are places where we can be leaders. Paul? So Joe, in terms of TAs, I think what we have done with discipline, and you have just seen it with the recent BD towards the end of last year, we have tried to double down in the areas we have critical mass, where we can add new assets over short, medium, and long term. There can be some synergies to their promotion, and we can become even more expert. We have done that with the Ionis deal in cardiovascular. We have done it in atopic dermatitis in immunology and dermatology. We have gone out, we have got our own assets, QAW039 of course, in respiratory, and the same with RTH258. We have tried to make sure that we are not breaking new ground as an unknown, but we are concentrating on where we have real effectiveness or market leadership. Vasil will talk later, but we have then tried to explore areas we think were going to be fundamental to the future in healthcare. NASH is a great example. We have started to make our first plays in NASH. So good where we are, and open-minded and opportunistic about future areas of growth. Yes. Marietta Miemietz, this is Prime Avenue. My first question is for Joe. I just want to make sure on Alcon, I am reading the wording of your announcement correctly. So are you effectively ruling out selling to a strategic buyer or to private equity? If so, is that on the basis of discussions you have had, or your analysis of structural issues with the business, or your analysis of the antitrust situation? Second question is for Mike. Just again, the famous Alcon margin question. It sounds like the margin is not going to be picking up anytime soon. I am just wondering if you can confirm that the 2016 full year margin is the trough for 2017 and beyond, and we are not going to see a margin below that. Quickly for Paul, you said that Entresto, you are only just finding out how big this medicine can be. Should I read that as you not reconfirming the previous management's guidance of $5 billion in peak sales in the HFrEF indication? Just finally, a question on the Innovative Medicines margins and the oncology margins within that. When Novartis took over the Glaxo oncology business, that business had a very low margin of about 25%. I think Novartis was very confident of getting it up to the sort of margin levels that we know this type of business is capable of. I am just trying to get a feel very roughly, I know you do not split out the margins for oncology, but very roughly how much of that structural margin improvement has taken place, how much scope is there still left to go, just so we can get a rough feel also for what has been happening to the margins of the rest of the Innovative Medicines business. Thank you very much. On the first question regarding Alcon, we have not ruled out a sale to a strategic buyer. We have not announced a sale today. The only thing that we have announced really is that we are doing a review. When we bracketed that by saying either retain the business all the way up to a capital markets exit, it really would include all options. So there was nothing beyond that in terms of how we disclosed. Mike, on the margin for Alcon? Yeah. With respect to the Alcon margins, look, the bottom line here is we've got to turn the top line. We're continuing to make investments to make that happen, because I think once the top line turns, then all kinds of good things flow through the P&L. But without that top line turning, that's not possible. As I think Harry referenced, we're going to have a wraparound effect from 2016 on expenses, so we're going to continue to spend against this business. I'd be looking at 2017 more as the trough year. Paul, on Entresto? So of course, as you'll imagine, I did plenty of diligence before accepting the role and subsequently, on Entresto and what the opportunity could be, as recently as talking to some top KOLs this last week or two. Clinically, there's no doubt that $5 billion in the previous ambition as stated is incredibly relevant. I think what we've talked about externally before, and I've said this with Joe and the team, is that we should push on and exceed $500 million this year globally based on strong foundations in terms of setting ourselves up in Medicare and beyond, and then Europe too. If we do that, I can see a line. When? I couldn't tell you, but I feel confident that we're resourcing it appropriately to get there, and I feel good about it. Harry, on Innovative Medicines margins? Yes, you mentioned earlier ex-GSK oncology assets had a 25% margin before we acquired them, and they have moved up significantly in their margin contribution. They are clearly around the average oncology, which is very high margin, and depending, there will be some ongoing combination trials. After that, they will be even above average. However, when you look at the profile of 2017, I mentioned initially we have this effect of Glivec being pretty high prior, and LEE011 prelaunch and other investments. The first half will be a bit depressed margins, core operating income decline. Second half, core operating income increase for the total company, driven by these dynamics in the oncology unit. And quarter 1 will be even a bit more pronounced. We could have core operating income declining high single digit to low double digit in quarter 1 versus prior year. But ex-GSK oncology is contributing very well to the overall onco margin and the company margin. It is actually ahead of our expectations. Next question. Yes, then I will go back. Thank you. It is Mike Leuchten from MainFirst. You have mentioned a lot about these value contracts, Joe, and I know you have been very public about that. When will we see some hard data to give us an idea of how effective they are? If they are effective, how fast and how far can you roll them out across your business? And how will that impact the shape of your marketing costs, given on the one hand, you have got the value-based contracts for Entresto, and on the other hand, significant sales force investment? That's a good question. Right now, as I said, the value-based contracts are with a number of payers in the U.S. and also in Europe. They're confidential and so we're probably not going to be public with whether they're working or not working. What you will see is if they're working, you're going to see more of them. If they're not working, you're going to see a retooling of what it would take. It's very interesting. Right now everybody wants to do them, and they're difficult to do because of data. The ability to get the data to actually see if hospitalization was reduced in that cohort or not. The integrated payers in the U.S. can do it. In Europe, there are many single-payer systems that have the data to be able to do it. But we're doing this more as a way to stay in front of this because we know it's coming. There's too much waste in the system that will be eliminated once true outcomes-based contracting takes place. Not just in pharmaceuticals, but I'm talking about. One of the reasons why we're doing this is that it's not just about the pharmaceutical. We're looking at everything else, all other inputs that either result in that outcome or not, and we're getting rid of the stuff that doesn't. That is a lot of waste that we're getting out of the system. So I can tell you that it's going to be a journey. It's in its beginning phases. So it's really too early to say how that would change the shape of the M&S spend right now. Yes, back. In the back. Thanks. The question is Naresh Chouhan from New Street. Firstly, on Entresto, you've still got around 77% of Medicare plans with PAs and vast majority of them are complex. Given that the guidelines couldn't have been much better, what is the holdup here and how much do you expect that to fall in the near future? Secondly is in your TRx guidance for 2017, have you assumed a material change in those PAs, either on the commercial or the Medicare side? Lastly on Cosentyx. Obviously, we've seen a new entrant in Taltz and then a price cut. We may be seeing another one shortly in February for brodalumab. Given the changing dynamics in the U.S., is there a risk that there is a further rebate given through the year on Cosentyx? Okay. The 2017 number of exceeding $500 million globally includes the level of access as defined. Access will continue to improve in the complex to simplify to absence in both populations over the year, but it will come gradually. The guidelines, as we have all learned to think in many therapeutic areas, not just in heart failure, they give wind at your back and a lot of confidence, but it takes time for people to change prescribing behavior, particularly in conditions that have only been treated one or two ways for a very long period of time. We make progress every day, but it is not like a dam bursting. The takeaway from the Entresto piece is the three variables that we have been fixing the back end of 2016 for 2017 was to deliver more than $500 million. We will see and take stock then whether that is the right access. As for Cosentyx, I am not sure I heard you right. Did you say a price cut? Is that what you said or? Rebates. As rebate. We are the market leader by some significant way in this class. Of course, ex-U.S., it is okay, but in the U.S., you have single and double step edits depending on the condition. Depending on the indication. We, by definition, have to rebate a bit less because we are the market leader. I think we have been very thoughtful, and I think between us and the payers, we have really looked hard at the patient populations, and we recognize that rebate is just part of it. Then pull through and turn into share performance and real patients is really on us to make sure that that happens. Whilst it will be modest growth at the beginning of 2017 in quarter one, I am very much expecting an acceleration because of that access opportunity over the remainder of the year and a strong performance irrespective of number of competitors in 2017. Question here, and then we will go to the right. Yeah. Thank you. Stefan Schneider from Vontobel. Just a short question again on Entresto, just to have a bit more regional information about the U.S. and ex U.S., how it has been doing, and whether you can also say something going forward, what your expectation is sliced by U.S., ex-U.S. I think, sorry, Joe. I think we have touched on it before. We are roughly two-thirds a third U.S. versus Europe at the moment. We do not That will resettle, we think. Because do not forget that although ex-U.S. looks a little underpowered in terms of performance, we are about to launch in Italy. We are restricted for cardiology only, and that will come off at some point this year in France. We had very favorable health technology support in the U.K., but it is still early days. And in Spain, we only launched in October. In terms of the major European markets that have a strong attitude to treating in heart failure, you are expecting them to start to accelerate in the second half of the year and beyond. Then I think we will see a rebalance, and then perhaps the U.S. shift again based on how quickly we penetrate the Medicare population. I think the ex-U.S. looks a little bit lighter right now, but will start to gather momentum, and then we will see how they balance out throughout the remainder of 2017. Next question on the right. Yes. Hi. Thank you. Manoj Garg from HealthCor. Since we have Richard sitting patiently, I will ask a few. Richard, the guidance provided for Sandoz, what does it contemplate for Glatopa 40, one? Two, what does it contemplate for U.S. pricing? Then three, we have recently, so far this year, seen some updated guidance out of the FDA on interchangeability for biosimilars. Just wanted to see from a practical sense, what impact you see to your business from that. Thank you for the questions, and I appreciate the engagement. On 40 milligrams. It is a good question. Maybe if I sort of explain the variables involved in that, which I think make that quite difficult, I think for people to model, including ourselves, there are a number of factors. First, we have to have the approval from the FDA. When that happens, as you know, with an ANDA, there is no specific time period that that has to happen in. So that is one variable. Then there was obviously the litigation around the patent, which also has a certain variability around that, so when that happens. Then finally, as is very often the case in my sector, is the number of competition or competitors coming in. How many competitors will come in at the same time or later in the year, and how will that play out for the revenue expectations around Glatopa 40 milligrams. Obviously we are planning on launching that. Those are the variables which make it very hard to predict how that is going to impact the revenue for Sandoz. With regard to pricing- Is it in this number or is it in the number risk adjusted? No. It is in the number. It is okay. It is in the number. If you go to the pricing in general in the U.S., which is your question. We ended last year with a 6% net price decrease, which was slightly better than the year before. I would not read too much into that. I think it is a market where we have always said it is around 6%-8%. I would stand by that for 2017. No major change from a pricing and the reduction in some of the prices in the U.S. A lot of that obviously depends on competition, when competition comes in, and how they come in. That is that question. On the interchangeability that we have just seen from the FDA come out. Obviously, that has just come out. We are just still absorbing that, but we think, firstly, the FDA set a very high bar with regards to having these products approved in the first place in biosimilarity and from an efficacy and safety. I think they followed that through to a certain degree on interchangeability. I think for us, we see that as something which a company like Novartis can manage very well. What it actually means in the market, I think is a question a lot of people are asking now. I think that often will depend on whether it is in the hospital setting, the product, or whether it is in the retail setting. Then it will also depend on how some of the states start to view substitution in individual states, because we know 26 states have made some decisions around that already. That is how we sort of view it, but it is only a few days old, so we are still sort of really absorbing what that means. There was a question in the back. Yes. Maurizio Bernasconi from Bank am Bellevue. One question on the outlook for 2017. Can you guide us through your assumption on the pharma side? When do you expect the fourth and fifth generic of Gleevec coming to the market? Then maybe one question for Richard regarding the Humira biosimilars. I was expecting or you, I think as well, was in your presentation, the submission in 2016 of the Humira biosimilars in the U.S. now looks like it is postponed from one year. One question finally for Paul. On Cosentyx, what will change once Humira biosimilars will enter the market? Do you expect the price to drop and therefore some patients to start first on Humira and then eventually only after that on Cosentyx? Thank you. Darren, assumptions on the outlook for 2017 for Gleevec. Really, Gleevec has already had generic entry in Europe, so they are already here. Absolutely. Not much beyond that. I mean, Harry, do you have anything else to add? I think Bruno can maybe add more details, but several generics are already in Europe on the market, and also in the U.S., we expect continued entries. Richard? Oh, go ahead, Bruno. In Europe, really the dynamics are very different from what they were in the U.S., and varies from country to country. On average, we have 8 to 10 generics that are registered per country. It is still early days. You know that we lost the patent on the 21st of December. There are 20 generics in Germany, and in France, we haven't seen a generic yet. So it's still very early days. We'll see what happens over the next few weeks. Richard? In the U.S., we anticipate that there will be more generics coming this year, clearly, and some further decline in the U.S. Richard? I see Vas, maybe you could give some- Yeah. With the Humira biosimilar filing, we originally had intended to file in Q4. Based on discussions with the FDA and ongoing capacity upgrades we're making at our production site, and the timing of regulatory inspections that would be required, we've pushed that into the first half of this year, but we expect to file it in the first half. Paul? In the U.S., particularly in AS and PsA, and even somewhat in psoriasis, there is a single or double step edit through a different mechanism, irrespective of whether there is a biosimilar or not. We live in a world where other standards of care expected to have failed. The difference between the Humira net price and the biosimilar price, I have no idea about, but I think that will settle down, and I think because of the efficacy differential that we have in the major indications that we are in, that they will reach Cosentyx in the right period of time. Okay, we have time for one more question, and then remember, there is going to be a Q&A session after the development session and after the research session. Go ahead. Klaus Jensen at Danske Bank. A question regarding your capital allocation policy. Just like you have done a Alcon, and you expect to do an Alcon review this year, I am just thinking, what has been your thoughts on capital allocation? If you go back the last five years, if you look into your share buybacks, how much value they have created to your shareholders, and compare that to paying out a dividend cumulative over the last five years, and also looking into the actual rate of return that you have made on bolt-ons, over the last five years, and how you see that actually, let us say, spill over into the next five years or three years. Heri? Yeah. I think, I have demonstrated we have these four priorities. They are also in that priority. First, the organic investments, and we have made significant ones despite the Glivec generics, for example. Overall, we have tried to find always a very optimized balance. We have done a share buyback in 2014 and 2015. We announce now, given that the share price, we believe, is at a very low level that allows us this to be a very good investment and a good deal for our shareholders. As we go along our business situation, we optimize basically each of the elements. In terms of the bolt-on, let us say if you go a few years back, we started in 2012 with Fougera, $1.5 billion. Then we did a bit bigger than bolt-on with the GSK buying oncology for $16 billion. Now we have done 18 smaller bolt-on deals to strengthen the pipeline. It was roughly $2.5 billion if you add all of those together. We really optimize the capital allocation according to the business situation and the market external environment. Okay. What I'd like to do is have Vas do his section on development. We'll then take a break, and then we'll come back and do Q&A on R&D. Vas? Great. Thank you, Joe. Thank you all for giving us an opportunity to give you a bit of an update on what we're up to in R&D at Novartis. Over the next two sessions, Jay and I will give you a perspective on our late-stage development portfolio, as well as our mid-stage portfolio, as well as many of the exciting things going on at NIBR, as well as with our immuno-oncology portfolio. What I can say is what we're about to show you is what really animates the over 120,000 employees we have at Novartis. It's what makes us come to work every day to find breakthrough medicines that can change the lives of patients and change the trajectory of healthcare systems. Today in development, we have three key priorities: creating an efficient and agile development organization that is future-proofed for the next decade, delivering our late-stage pipeline of 13 potential blockbusters, and advancing our high-value mid-stage opportunities, internal and external. I'm looking forward to giving you much more transparency as to some of the assets we're excited about in our mid-stage pipeline. Let's start with the development organization and some of the work we're doing. When you look at Novartis' track record in R&D, we have a deep pipeline, and that's always been the case. Today, we have over 200 projects in the clinic and 90 NMEs, and we're very proud about the depth and breadth of our pipeline. We also have been recognized for our innovation power. We have 13 breakthrough therapy designations, seven FDA Fast Tracks last year in a range of different indications. We have also been successful with 29 approvals over the last five years, which puts us in the top three in the industry when you think about approvals in major markets. We also see an opportunity to change how well we perform and really drive our R&D returns. We see opportunities to do better at portfolio prioritization, better at lowering our cost base and driving efficiency, better at leveraging new technologies, and better at leveraging talent that we have internally, as well as bringing in more external talent to strengthen our organization. What I would like to do is talk to you a little about the five priorities we have in creating an efficient and agile organization and walk you through them one by one. Our overall goal is to drive a higher return on investment on our R&D investments that we make as a company, our efforts to lead in cost efficiency, and how we will actually get to that 20% stable R&D spend as a percent of sales in Innovative Medicines. Let us start with rigorous portfolio prioritization. What we have instituted at the company is first, a rigorous approach to how we think about the disease areas we play in. Every year, we get our key scientists, development leaders, and commercial leaders together to really think about where do we have strength in Novartis? Where is there unmet need? And evaluate, are we playing in the right areas? Some recent examples of shifts we have made is to prioritize liver diseases, where NASH, but also beyond NASH, there is a tremendous unmet need for better medicines to treat the epidemic of liver disease. But also to deprioritize areas like transplantation, where we have been leaders historically, but we do not view at the moment a significant opportunity for our assets to make a difference for patients. We have also institutionalized now across all the divisions in Novartis, a common approach to project prioritization, where we evaluate projects based on their science, their risk, and their financials. That really drives how we prioritize projects into four categories: race projects, which are the top priority for the company; go projects, which go at a normal pace; and pace projects, where we actually gate projects to very specific deliverables or specific data. That then drives resource allocation. That is one of the important shifts we have made. We have linked our portfolio prioritization to how we resource. Do we resource at risk? Do we only resource up to a certain milestone, or do we really hold back resources for further decision-making? The second element is to really consistently measure our R&D performance. We are focusing on five key measures: output, cycle times, costs, quality, and returns. We are looking at that systematically from the best data we can really find from external benchmarking groups and really asking ourselves over a five and 10-year period, how can we lead in each of these areas? When you look at output and cycle times across most of the validated benchmarks, we are leading the industry. But where we see opportunities to improve is in our costs, and particularly in our returns, where we want to generate better three, five, and 10-year returns moving forward. Now, when you think about one important measure, replacement power, which I believe is one of the most important measures for a company of our size, based on the latest data from Evaluate Pharma, we ranked third in the industry, really showing the depth and power of our pipeline to continue to drive the growth of the company. Third is driving operational efficiencies. As both Joe and Harry highlighted, we've now brought together drug development across the group. What that allows us to do is a couple of things. One, we can harmonize our processes and integrate our operations to really ensure we're spending every dollar in the best possible way. It's also allowing us to look for synergies across duplicated functions and make sure we get the costs down so that we're spending appropriately for the portfolio. We're also able to better leverage our global scale, which allows us to work with CROs and other partners on the procurement side, but also leverage low-cost centers of excellence. In Hyderabad, India, we have a world-class center, one of the largest in the industry, with over 2,000 people dedicated to really driving our development portfolio. Fourth, we're leveraging technology. We're upgrading our core systems. We have one of the most ambitious programs in the industry to take all of our core systems in development and make them cutting-edge, as well as scaling digital technologies and digital development, where we have numerous partnerships with tech companies from Silicon Valley and are rolling out studies with digital sensors as well as other partnerships to bring forward digital technology into our portfolio. Finally, we're bringing in external talent to complement our internal talent. These are just a few examples, but Eric Hughes joined us from BMS, where he was a leader in translational medicine and a real expert in liver diseases. Badhri Srinivasan was previously the head of delivery for Quintiles, where he ran Quintiles' massive operations, and now he runs our operations here at Novartis. Christine Dingivan, a general surgeon who had significant roles at MedImmune, and more recently was chief medical officer at PPD, and Subodh Deshmukh, who now is running our Indian operations, who is the head of R&D at Sun Pharmaceuticals. So really top-notch people we're attracting to the development organization to help us get to that next level of performance. So now what I'd like to do is walk you through systematically our late-stage pipeline of 13 potential blockbusters. These next two sections are quite detailed, so I hope you'll stay with me. I'll try to do it in as clear way as possible, and then of course, we can answer any questions in the Q&A. Now when you look across our portfolio, we have a broad and deep late-stage pipeline. In every one of these therapeutic areas, we're looking either through our internal portfolio or through external deals to ensure we have the breadth and depth needed to actually sustain the portfolio and sustain our growth. In addition, as Jay will highlight to you, we have over 100 projects in 70 NMEs in exploratory clinical studies that also allow us to keep fueling this pipeline for the future. Now, when you look at it, we have 13 potential blockbusters at Novartis. Since the Q3 earnings, there have been some movement. Of course, Evista fell out because of the phase III failures that we saw in early December. But we have added in CTL019 in DLBCL and ALL, where we are moving forward with filings that really could revolutionize the care of late-stage cancer therapy, as well as SEG101, our therapy for sickle cell pain crises. What I would like to do now is walk you through each one of these sections and give you some perspectives on every one of these products. Starting with oncology. Oncology, we have one of the broadest portfolios in market in the industry, in development, as well as in research. There are important milestones that we will have in oncology which are not listed here, including PKC412, where we did receive priority review. We also have Mekinist and Tafinlar in non-small cell lung cancer, as well as Zykadia now moving. We filed last year for first-line indication, also in non-small cell lung cancer. Those are all also advancing, but we wanted to focus our discussion on these three molecules. First with LEE011. Our overall strategy in LEE011 is to differentiate along three axes. One is to generate the most first-line data in the advanced metastatic setting. Second is to ensure that we look at pre-specified subpopulations where we can show differentiation. Third is to continue to build a pipeline behind LEE011 that can support it into the future, which we are doing on the research side with selective estrogen receptor degraders, among other technologies. With our portfolio on the MONALEESA studies, we continue to progress well. You all know well the MONALEESA-2 result, which was the basis of our filing, and we expect a U.S. regulatory decision in Q2 and an E.U. regulatory decision in the second half, and those discussions are going extremely well. We have fully enrolled our MONALEESA-3 study, which is in first and second line in combination with fulvestrant. Based on the data that we see later this year in the second half, we expect the possibility of a filing in early 2018. MONALEESA-7, which takes us into premenopausal women in the first line with a readout in the first half of 2018. Most importantly, we are pleased to announce we will be moving forward with adjuvant trials in high risk and medium risk adjuvant. Those trials will initiate in the first half of this year. Of course, these are long studies, but we believe it is important for us to round out the portfolio of indications for LEE011 to move into the adjuvant setting. Now, in terms of differentiating based on data and what we see in pre-specified populations, we presented some important data in San Antonio, which highlighted that LEE011 and cross-study comparisons might have better efficacy in certain patient subpopulations. This includes populations such as patients with de novo advanced breast cancer, as well as patients with visceral metastases. These are tougher to treat patient populations, and I think it is really good to see that LEE011 has the kind of efficacy that you see here. At least looking at cross-study comparisons, we believe this is very attractive versus the competitor that is already on the market. I know what is on a lot of people's minds is the safety profile of LEE011. When we have looked at this very carefully, we believe this is a safety profile that has quickly identifiable, manageable, and reversible side effects. When you think about the neutropenia you see with LEE, it is exposure related. There is about 60% grade 3, 4, which is consistent with what you see with the licensed competitor, and the time to onset is relatively early. When you look at the QT prolongation, we had about 11 patients that were over 480 milliseconds, but the time to onset again was within 15 days and was readily detectable and resolved either with dose reductions or spontaneously. Then finally, in terms of hepatobiliary toxicity, we had four Hy's Law cases, but all were reversible, and all were identified within the first 6 months. Overall, you only had 7.5% of patients discontinued. Now, when we have discussed this, and as we now work with the agencies to get to our final labeling, our proposal and our approach, though we will, of course, need to finalize with both FDA and EMA, is design an approach that minimizes the burden for patients. On the first line here, you see the neutropenia monitoring that is already in place for the currently approved agent, with visits on cycle day 1, 15, and on cycle 2, day 1 and day 15, and then day 1 for every subsequent cycle. When we look at the EKG monitoring required, and it is important to note that we estimate upwards of 75% of U.S. oncologists have regular access to an EKG machine in their offices. There is no additional visit required. The EKG monitoring would happen on visits that are already occurring. Then similarly with liver enzyme monitoring, which is really just part of standard blood testing that can be easily done. It is again aligned with visits that are already happening. So we would not be in a position where we expect physicians or patients to have to deal with additional visits with LEE. So taken together, you have a very big market. You have Novartis' long legacy in oncology. You have an impressive efficacy profile and a manageable safety profile, and we are looking forward to launching this product in 2017. Now moving to CTL019. Many of you saw at the end of last year, we had very impressive data with ELIANA, our ELIANA trial, where we showed that 82% of children were able to achieve a complete response within 3 months. Now, when you think about pediatric ALL, the current prevalence is around 7,000 patients, and we would expect in the third line setting around 700 patients, in the second line around 1,100. When you look at this trial, we have a primary endpoint that was hit and a very acceptable safety profile. No deaths due to CRS, no neurological toxicities, or no cases of cerebral edema that were reported. So we are on track for a filing in Q1 of this year, as well as a filing in Europe targeted for later in 2017, where we hope to combine the filing with ped ALL and DLBCL into a single filing. So very exciting and shows our commitment and that we executed on our plans within cell therapies. Now when you look at our DLBCL data, so far from the University of Pennsylvania, very compelling data in the DLBCL line of therapy. We have a pivotal readout that will come later this year, and assuming that data is positive, we expect to be able to file also within 2017. We have completed treatment of 80 patients, and the interim analysis of 50 patients should be available in Q1 as well as 80 patients in Q2, which will then inform our filing decisions. DLBCL is a much larger indication than pediatric ALL. You have about 56,000 patients with DLBCL and about 19,000 patients in the third line. This is the indication we believe that could propel CTL019 to become a blockbuster over time. Submissions, as I said, are planned in the U.S. and E.U. for Q4 of this year. Our CAR T-cell enterprise continues apace. Our colleagues at NIBR are continuing their collaboration with Penn, and we feel very confident we have got this now set up in the right way to succeed. Finally, with SEG101, which is the molecule we recently acquired through the acquisition of Selexys, this could be potentially the first new therapy for sickle cell disease in 15 years. Sickle cell disease is a debilitating condition, primarily affecting children of African descent who later move on to adulthood and have very truncated life expectancy. The life expectancy can come down to as low as 38 to 42 years, and much lower in Africa. Diminished quality of life due to these pain crises which bring these children back and forth to the hospital, and that continues on into adulthood. Hydroxyurea is the only approved therapy for this. This was approved in 1999 with a pretty severe toxicity profile. Only about 25% of patients remain on therapy. So a big unmet need. With SEG101 in the phase II SUSTAIN trial, we had really, I think, striking results. We reduced the number of annual pain crises by 45%. If you look at the median time to the second pain crisis, it more than doubled, and we doubled the number of patients who had no pain crises in the study. This is an antibody to the P-selectin, which is in the vessels and is involved with adhesion of red blood cells and platelets. When you look at it was also effective regardless of whether hydroxyurea, the currently approved therapy, was on board or not, and was generally well-tolerated. We plan to take this data to FDA and EMA to discuss what would be required beyond what is very impressive efficacy data, both from a manufacturing standpoint and a clinical standpoint, and I will be updating you on Q1 as to the next steps on this. But we expect to be able to file this within the 2019 time period at the latest. Now moving to cardiometabolic, where we have three assets with relatively near-term readouts, serelaxin, Entresto in preserved ejection fraction heart failure, and Ilaris in CV risk reduction. Let me walk you through where we are and some of our thinking about these three assets. So starting with serelaxin in acute heart failure, just to remind all of you, this is a significant unmet need where there is no approved therapy that has actually shown a mortality benefit. You have about 3.4 million acute heart failure events a year in the U.S. and the EU5. Now, if you look at the inclusion criteria we have in the study, patients had to have above 125 millimeters of mercury in systolic blood pressure in order to be able to take serelaxin. We estimate that brings down the population down to 2.5 million. Then also in the study, though we don't know how regulators will ultimately view this, glomerular filtration rate, so the functioning of the kidney, needed to be above a certain level, and that brings the population to around 1.2 million. So when you take that together, a very large indication and the potential to be the first drug with mortality benefits. The RELAX-AHF-2 trial is fully enrolled 6,600 patients, and we have reached the required number of events in the study. We are now in the process of closing out the study, working with the investigators to lock the database, and on track for a study readout in Q2. Now, why do we feel confident about the RELAX program within the, of course, uncertainties of any cardiovascular outcome study? When you look at the first study that we conducted, you had an early and significant reduction in all-cause and CV mortality. You can see the curve split right away from almost day 2. There was a favorable safety and tolerability profile because serelaxin is actually a derivative of a naturally occurring hormone that occurs during pregnancy. But what I think we probably haven't discussed enough is the totality of data we've seen between the phase II and the phase III, and I've tried to summarize that here in this chart. When you look at every efficacy parameter across a range of measures, serelaxin had highly statistically significant improvements over placebo. Those include in the relief of dyspnea, the decreased length of stay in the hospital, the prevention of worsening heart failure. Importantly, when you look at the results of ularitide, reduction of organ damage, where we had important reductions within 48 hours in most of the markers of heart wall stress, which really indicates that serelaxin might be having that protective effect you need in those first 48 hours to have a mortality benefit at six months later. Also when you look at, of course, the reduction in mortality, we have two studies, Pre-RELAX-AHF and RELAX-AHF-1, that had a mortality benefit. So taken together, we're very excited about the program. We'll, of course, keep all of you posted as soon as we have the results, and we'll look forward to discussing that with you in the first half of the year. Now moving to Entresto. Entresto, of course, we have the approval in reduced ejection heart failure. We're now expanding into preserved ejection, which will double the number of patients that are eligible for the therapy. Then into the post-AMI setting, which is really pre-heart failure. So really intervening after a patient has a heart attack, but before they've progressed to heart failure. So all four of these studies are on track. The PARAGON-HF study has fully enrolled. In December, we completed enrollment four to five months ahead of plan. We are on track for an interim analysis in 2018, as well as a filing in 2019. The post-AMI study is enrolling well, again, with a completion in 2019. And both the TRANSITION and PIONEER studies, which are really studies to support Entresto's use and initiation in hospital, which will be very important in Europe, where we want to continue to expand the guidelines. These will also read out in 2018. Now, when you look at the Entresto PARAMOUNT data, why would we expect Entresto to work in preserved ejection heart failure when no other drug has shown to be effective in preserved ejection heart failure? I wanted to bring us back to The Lancet study that was published in The Lancet in 2012, the PARAMOUNT study, which showed that both in terms of hemodynamic parameters and structural parameters, Entresto is the only drug to ever actually hit the primary endpoint in a preserved ejection heart failure trial. We showed a highly statistically significant reduction in NT-proBNP, but more interesting to me is the structural benefit that we showed. You can see we had an increasing structural benefit out to 36 weeks. This is actually looking at the pressures in the atrium that were actually improving the biology of the heart. This gives us, I think, a reasonable amount of confidence as we take this forward. I know the investigators are very excited as well about the preserved ejection fraction program. Now finally, in the cardiovascular space, we have Ilaris for cardiovascular risk reduction. This is a situation where we have 10 million patients who are post-MI in the G7. But really what we're looking at here are patients with an elevated, highly sensitive CRP, so have active inflammation post their heart attack. That takes it down to about 4 million patients. This is a new approach, of course, to reducing excess mortality. It would be the first drug approved for addressing inflammation's role in the plaque. We think this could build on the portfolio I'll tell you about a little bit later with Lp(a) and ApoC3, two compounds we brought in from Ionis, or have an option deal with Ionis to potentially develop. I think the key point I wanted to highlight here in looking at the discussions that have been happening externally is how we powered the study. There was some discussion about was the study now underpowered. This study has been powered based on an event rate. The events we agreed with the regulators that we needed to achieve was 1,400 events, and we've achieved 1,400 events as designed in the protocol. The sample size adjustment only affected the length of time the study would be ongoing. If we had recruited more patients, we might have been able to finish the study quicker. But when you look at the overall power, we've not lost any power. We have powered the study appropriately and as agreed with the regulators. I would say that in terms of the safety profile, this is a drug that has passed three futility analyses and 20 DMC safety reviews and has been taken all the way to completion. I think we can feel reasonably confident that there is no significant safety signal either from infections or other risks that might have occurred in this study. Now moving to neuroscience, where we have three potential blockbusters: ofatumumab, BAF312, and our migraine drug, AMG 334, which is a partnership with Amgen. Starting with multiple sclerosis. We are trying to build a sustainable long-term portfolio in multiple sclerosis that covers both relapsing remitting as well as progressive forms of the disease. In terms of the size of the populations in the relevant markets, we estimate there is about 530,000 patients in RRMS, and then within the 250,000 patients who are in SPMS, they split about half and half relapsing and non-relapsing. Our goal is to cover this entire patient population with BAF and with ofatumumab. When you start with looking at ofatumumab, why did we bring this drug in? We all saw the very impressive results with ocrelizumab as a B-cell therapy. In phase II data, ofatumumab had an almost identical result when you look at the reduction of MRI lesions. Almost 100% reduction in MRI lesions versus placebo, with a highly statistically significant result. Based on this and additional data we saw from the study, we have now initiated two parallel phase III studies versus Aubagio. They both started last year and we are on track for a filing in 2019. How will we position ofatumumab versus ocrelizumab in that 2019 or 2020 time period? We see ofatumumab as having five key differentiating factors. One, the binding is selective, and we think that could have impact down the line in terms of sustained efficacy. We have low immunogenicity. It is a fully human antibody, so you do not see immunogenicity in studies so far with ofa. A very good safety profile, and I will tell you a little bit more about B-cell recovery in a moment. Subcutaneous dosing that is monthly versus IV infusions every six months, so patients and providers have control of their therapy, and a relatively low dose. Some of the most interesting data with ofatumumab, which I am not sure has been fully appreciated, is the B-cell recovery. This is not a drug where you give a patient a very potent drug in MS, where they are going to be on these drugs for long periods of time. You wipe out the B-cells, and then you are going to have no B-cells for an extended period of time. Here you see, regardless of the dose we gave, solid B-cell depletion. But when you look at the dotted line on the graph, that is where we stopped therapy. You can see that within five months, you have 80% recovery of the B-cells. So you have relatively fast recovery of B-cells. In chronic therapies like MS, we believe that over time, physicians are going to want the reassurance that there is that B-cell recovery should there be safety issues. This is an important differentiating point versus IV, more potent B-cell depleters. Finally, a brief update on BAF. I do not have any new data to share on BAF. This is the data we already shared at Q3. There was a consistent effect demonstrated across all subgroups with BAF. We continue to await regulatory feedback. We have had initial discussions with four regulators from EMA, as well as interactions with FDA. The formal meetings that will actually give us written guidance will happen in the February and March timeframe. I would expect in Q1 to be able to give you guidance on what we expect next for BAF. I think the most important elements we are having to work through with regulators is data in the non-relapsing population versus the relapsing population, as well as in patients who have active gadolinium-enhancing MRI lesions and those who do not, as well as the intersection between those patient populations. We are doing those analyses, and then we will have the discussions with the regulators and of course, keep you up to date. Now moving to migraine, and why are we excited about migraine? Well, not migraine, but are excited about treating migraine. Migraine is the sixth leading cause of disability in the world. These patients, and a large number of patients with high prevalence in the range of 1%-2%, have a debilitating condition that prevents them from working, interacting with their families. When you look at patients who are with chronic migraine, they live their lives with more than 15 days a month of these migraine attacks. Most of the currently licensed prophylactic treatments have significant side effect issues. These include antidepressants, antiepileptics, and beta blockers. Most patients do not stay on therapy because of the side effect profile. They are looking for something safe and effective they can use over the long term. Now with AMG 334, we have a very unique molecule. It is the only molecule of the four molecules in the late-stage development that targets the receptor. It does not target the ligand. It is only targeting the receptor, and it is very specific to the receptor associated with migraine, which is actually found in the peripheral nervous system. It inhibits CGRP function regardless of CGRP circulating levels, which also could be important in sustaining efficacy. There are important profile differences between this molecule and the others that will soon come forward. When you look at our clinical data, it is very consistent, and that is what I want to highlight between episodic and chronic migraine. When you look at the monthly migraine days, particularly at the 140-milligram dose, you are at 1.9 and 2.4 for episodic and chronic. If you compare that to the phase II data for our competitors, and if you also adjust for the baseline levels that the patients enrolled were at, I think you have a very compelling profile here. But most compelling is what is in the gray box where neurologists we talk to say this is what matters. When you have over 40% of patients having a 50% reduction in their monthly migraine days. So somebody goes from 15 days a month to seven. That is a big change in somebody's life, especially when you have safety that is placebo-like. So very compelling profile. We are on track to file this in Q2 2017, and our goal will be to be the first-in-class CGRP receptor antagonist or receptor modulator on the market outside the U.S. Now moving to immunology and dermatology. Paul mentioned our work in non-radiographic axial SpA and how for Cosentyx, psoriatic arthritis and ankylosing spondylitis is going to be really the key growth driver well into the post-2020 timeframe. Cosentyx has shown unprecedented strong and sustained efficacy. Regardless of the time point you look at, whether it is one year, two year, three year, or four year, we sustain the efficacy, and patients can recover when they have gone off drug. And that is because this is a drug that has almost zero immunogenicity or very low and has very low injection side reactions, which is also an indicator perhaps of increased immune response. Very favorable safety profile. What I am most excited about is the consistency of results we are seeing in psoriatic arthritis and ankylosing spondylitis, where, as Paul mentioned, the markets are even larger than what we see in psoriasis. When you think about spondyloarthritis, this is really now becoming a much better understood disease, and the epidemiology is a little bit moving around, but we estimate now there is about 5.4 million patients with either PsA/AS with radiographic features, meaning you can diagnose it on X-ray or non-radiographic features, meaning that the patients show up with some indicators on MRI as well as in their serology, but do not show up on X-ray. You can see here that we estimate there is about half the patients are in this non-radiographic group, which the FDA has now recognized as a distinct disease entity. Our goal is to differentiate Cosentyx versus the existing standards of care and to move into that non-radiographic population. Cosentyx data we released last summer showed that over 80% of patients did not progress while they were on Cosentyx on X-ray. Based on this data now, we are moving forward with head-to-head studies in psoriatic arthritis and ankylosing spondylitis versus adalimumab. Our goal there to the question earlier is to show definitively that Cosentyx should be the first-line therapy for these patients, regardless of the availability of biosimilars, and really ensure and entrench Cosentyx for patient care. The other critical phase III trial we have ongoing now is in this non-radiographic group. Think of it as an early SpA before patients have progressed to X-ray. We estimate in the U.S. and EU5 around 1.1 million patients with this. We have a single phase III trial we have agreed with FDA for registration, and there is currently no approved drug with this indication in the U.S. Our primary objective, as you can see, is at week 16. Trial is enrolling well, and our filing is expected in 2018. Taken together, the head-to-head with AS and PsA, as well as moving into earlier parts of this disease, we could have a really significant medicine that changes the course of axial SpA for patients around the world. Moving to respiratory, where we have two critical phase III programs ongoing in asthma, QVM and QAW. Our goal in respiratory disease is to build off the foundation of Xolair. As you saw with Paul's presentation, Xolair continues to do extremely well. It is the first choice biologic for allergic asthma. Even with the anti-IL-5s coming, Xolair has continued to perform extremely well. Our goal now is to build out a portfolio of oral and inhaled agents to support Xolair. QVM is our inhaled combination therapy. There, the phase III trials are ongoing. We have a planned filing in 2019. What QVM will give us in severe asthma is both a LABA/ICS as well as a LABA/LAMA/ICS, the way the trials are designed and as agreed with regulators. We get two products as part of that. Then we have QAW, which is our oral CRTH2 antagonist, where we are enrolling two pivotal phase III studies in eosinophilic asthma. I will say more about that medicine in a moment. We continue to build out our portfolio of data with Xolair. We moved into pediatrics with Xolair and are looking for other indications to expand its label. QAW, you have seen this data before, but a couple of nuances I wanted to add. Here you see what QAW was able to achieve in sputum eosinophilia reduction for severe allergic asthma. This is in line with what you see with mepolizumab as well as the other anti-IL-5s, so very compelling. Our preclinical data now demonstrates versus other CRTH2s, and by the way, multiple other CRTH2s have confirmed this result now in eosinophilic asthma, that there is this effect on sputum eosinophilia, that we have much higher potency. We have the ability now to move up on the dose, which we are also looking at in the trial, and we expect the readout in 2019. Speaking to investigators, they are very excited about this medicine because obviously if you had a safe oral before having to go to a biologic, especially in a disease that impacts children, the potential could be very large. We are very excited about this, and we are looking forward to finishing the study and moving to a readout. Finally, in Innovative Medicines, before I move to biosimilars, is the RTH program in neovascular AMD. As all of you well know, with the long legacy we have in Lucentis, we have been pioneers in this space, and there are 44 million people who suffer from age-related macular degeneration, leading cause of vision loss in people over the age of 50. There is a need still for reducing the burden of intravitreal injections. Patients and physicians would love to have even a lower burden than what they see with the currently available medicines. RTH had a very compelling phase II result. This is versus aflibercept or Eylea. We were non-inferior with quarterly dosing versus bimonthly dosing. In addition, we saw with this antibody, which actually has about an eightfold higher concentration because it is a Fab fragment versus a monoclonal, which allows us to increase the binding capacity by getting that higher dose. You see a greater resolution of retinal fluid. I think also importantly, as I have received many questions, the safety profile in this phase II study was comparable between RTH and aflibercept. Here you can see a number of AEs, serious significant adverse events greater than 4 in any of the treatment arms. Any event versus the others were all comparable. We have had no safety issues in the 2 studies, and those 2 studies now are fully enrolled, and we are on track for a readout in Q2 of this year for RTH. Now turning to biosimilars, a few updates I wanted to provide before turning to the mid-stage pipeline. With biosimilars, as I noted earlier, we had a few things move around with adalimumab, our Humira filing with FDA. We have moved that into 2017 in order to time inspections appropriately for when our facility will be ready for those inspections, but no issues with our clinical data. As I have already told you previously, with pegfilgrastim, we are going to need to refile both in the U.S. and Europe based on additional studies, the PK study that we need to complete, but we will be completing that, and we are on track to submit that in 2017 and 2018. 2017 for Europe and 2018 for the U.S. But overall, when you look at our biosimilars portfolio, etanercept was approved in the U.S., and as Joe mentioned, the review in Europe is ongoing, where we are working well with the regulators to get that review done on time and approval. Pegfilgrastim, I mentioned. For infliximab, our confirmatory study for Europe demonstrated equivalent efficacy to Remicade. And importantly, with rituximab, our application for biosimilar was accepted by EMA. We are working through now the process to make sure that we also get that product approved in the 2017 timeframe for launch. Overall, our monoclonal antibody enterprise to really build off of our legacy in recombinant proteins and biosimilars is going well. Now what I'd like to do is actually turn to our, in the last 20 minutes, but hopefully take a little less than that, is to give you a little more perspective on our mid-stage opportunities. Historically, we haven't provided a lot of transparency, but our goal going forward is to give investors much more visibility into what's happening in that phase II pipeline and keeping you up to date as we actually progress these molecules through the clinic. When you think about how we build that mid-stage pipeline, what's really critical is on the internal research and development side is that we have a seamless integration between research and development. Jay and I have been working to do that by integrating our governance, integrating our teams, aligning our priorities, and focusing on speed to eliminate white space so that we move much more quickly out of proof-of-concept studies or phase I studies in the case of oncology, and much more quickly into pivotal studies. We're also working on continuing to execute our bolt-on strategy, where we bring in external compounds through acquisitions and licensing to strengthen that internal portfolio we bring in from Novartis. Harry mentioned we've done a large number of deals which are really, I think, exciting assets that will help us build the portfolio, and I'll give you some insights on a few of those assets in a moment. Now, when you think about our pipeline watch list, what I wanted to accomplish here was to give you a visibility into what our organization is working on in the phase II-B portfolio. And you can see here it's an impressive list. You have, of course, we didn't want to list them, but Jay will walk through them, 15 IO assets that we're preparing for. And you can see in oncology a number of other interesting therapies, a broad portfolio in cardio metabolic, immunology and dermatology, neuroscience. In every area, we have a number of assets now that are coming through that will read out in the coming 2-3 years, and they're not even factored in our filing chart. Some of these, if they have significant results, obviously we could be moving to filing much more quickly. Now, a few of them I wanted to highlight. Most importantly, I know on many, including our minds, but on many of your minds, is where are we on our immuno-oncology pipeline. We continue to progress 15 different agents. Jay will go through it in detail. But on the development side, we are ensuring readiness to move quickly. I wanted to give two examples, because you will see now on clinicaltrials.gov, we have initiated a pivotal study with our own PD-1 inhibitor, along with Mekinist and Tafinlar in melanoma. That study will start in February. We are also rapidly advancing our PD-1 in four other indications, all of which have now been posted on clinicaltrials.gov to move quickly now to not only have our own foundation with a PD-1, but also now to move into attractive combinations with our targeted therapy. We thought Mekinist and Tafinlar was one to highlight because this really could be a very exciting combination to build for our melanoma portfolio. We are fully ready, and we are going to move quickly as we get the readouts in the middle of this year. Second is ABL001 on the oncology side. This is really a triumph of chemistry, where we have created a potent allosteric inhibitor for the BCR-ABL protein. We have now taken this forward into late-stage studies in the third line, where we have very compelling data. In patients who are heavily pretreated, we were able, as you could see here, to get a very impressive molecular response, and we think that this could really be a much more well-tolerated as well as more effective therapy in the third line. Now we are going to move also into the first line, where the question would be, given regulators and clinicians are much more interested in a deep molecular response, and given that the traditional TKIs are not the best tolerability profile, could we add ABL001 to TKIs in the first line and get patients to a remission-like state much quicker and get them off drug. This is a study now we are in the planning phases on, but to move into the first line on ABL001. LIK is our SGLT1/2 inhibitor. This was a drug we had on the shelf because we were late versus the SGLT2 inhibitors in diabetes. Based on a few clinicians' great insight, we took it into obesity, where, of course, the SGLT1 has an impact on the intestine and the SGLT2 in the kidney. Our proof of concept data projected that we would have 10%+ placebo-adjusted weight loss at 52 weeks. We are now optimizing the dose in a phase II-B trial and trying to move forward with this drug in weight loss, especially also in combinations to think about in the future. We are very excited about this because it is a pretty remarkable result versus the currently approved drugs. Next, in cardiovascular disease, we have also brought in, through an option deal with Ionis or Akcea, two very novel agents, which are the first to target, I would say, the next wave of targets for cardiovascular risk reduction. After you have optimized patients on statins or PCSK9s, you have optimized their LDL, and they continue to have residual risk factors. There has not been any drug approved for two of the most genetically validated risk factors, Lp and triglycerides. This is, of course, an RNA interference-based technology. We are excited to see now how the phase IIb results come out from Ionis, which would then enable us to take this on in 2018 in the case of Lp(a), in 2019 in the case of ApoC3. What I think excites Paul and the commercial team is this also is an opportunity to segment risk, to use biomarkers to identify very specific patient populations, which we then take forward to give payers a much more compelling value proposition. On neuroscience, we have now initiated our pivotal phase III studies in pre-Alzheimer's. We are, I think, the only company in late-stage studies targeting what I will call pre-clinical Alzheimer's disease. While most of the industry is focused on mild to moderate severe AD or prodromal AD with or without plaques showing up on MRI, we are the only company to move into this pre-clinical space where we are on a large scale looking for patients who are homozygous for the APOE4 mutation, which dramatically increases your risk for Alzheimer's disease, and asking, can you treat with a BACE inhibitor to prevent progression to Alzheimer's disease? We have gone through an SPA with FDA and also detailed scientific advice with EMA. We have aligned on a protocol, and we have taken this forward now in homozygotes with a plan to start a study in heterozygotes, an even larger population, in Q3 of this year. Obviously, these studies are long, so the completion will depend on the enrollment time. We did achieve FDA Fast Track designation for this, and this is, I think, a very exciting program that is a collaboration between the Banner Institute, NIH, Novartis, and Amgen. We are also building a portfolio in NASH. As I am sure you all saw, we in-licensed, or we created an option deal for a drug called emricasan. It is a pan-caspase inhibitor. We also have a total now of five projects which are in phase IIb development, both with the FXR, which I will tell you a little bit more about mechanism, as well as other mechanisms. Interestingly, serelaxin has given us a result that we presented in AASLD in cirrhotics that showed pretty compelling results to really improve blood flow into the liver and kidney. So we are taking this portfolio forward. We believe this will be a market that will be determined by combinations and whoever can build a portfolio to really impact what is becoming, I think, an epidemic in terms of patients in the U.S. and EU and the need for more livers for liver transplants because of this condition. LJN452. Why are we excited about this? This is the first synthetic FXR agonist. It is not bile acid-derived. Our potency in preclinical models suggest that we are 250 to 300 times more potent than the current drug that is in phase III studies. We do not see elevation of LDLs, or we do not see pruritus in our studies to date, which I think are important if you are going to chronically treat people for NASH. We also just received FDA Fast Track designation for this, as the FDA was also impressed by our data. We have a 12-week phase IIb ongoing. We'll expect to read out towards the end of this year. We would like to move very quickly into phase III trials. The other project, of course, was the one we in-licensed in emricasan, or we have an option to end license. Here you can see in patients who are at end-stage liver disease, we could get them off the transplant list, or our partner company was able to show data. You could pull them off the transplant list. You can think about it that if you have a MELD score of 15, you probably need a liver transplant. They were able to reduce the MELD score in a range of 3-4, and this was with relatively short dosing. We think this is an exciting opportunity to also treat the end stages of liver disease. Another deal we did for immunology and dermatology was ZPL-389 from Ziarco. This is an exciting once-daily oral for atopic dermatitis. This is, in our minds, a way to fit between the topicals, which have recently been licensed, as well as the dupilumabs and the other monoclonal antibodies with a safe oral medication that has efficacy that's not quite where the monoclonals are, but we'll see once we max out the dose in phase II-B studies. It's a first-in-class histamine 4 receptor antagonist. You can see the green line here. The blue line on a cross-study comparison is dupilumab. The green line is the Ziarco drug. We have the opportunity to go up on the dose, and our goal will be to try to get the most compelling efficacy we can with a safe oral medication that could treat a broad population. Finally, another molecule I wanted to highlight was in presbyopia. There are 1.8 billion people in the world with presbyopia. I think most of the market models would suggest there's a high potential here, even if you take a very small percentage of them who ultimately want to get treated. When you look at it, recent research has really given us insights into why presbyopia occurs, and we think there's a potential here for a self-pay drug that could really help patients who choose not to wear reading glasses and would prefer to use twice-a-day drops, at least in the phase II study, and we're going to look at dosing. When you look at the results that we saw with UNR844, which we acquired in our acquisition from Encore Vision, you can see here that we had 82% of patients with 48 in the placebo group getting to 20/40 or better in distance-corrected near visual acuity. 20/32, you can see we almost tripled the number of patients, and you can see 20/20 or better. Important to note that this was with twice-daily drops for 3 months. The efficacy was sustained at 6 months. We saw minimal AEs associated with this, and we have opportunities to go up on the dose and also work on the dose finding. The acquisition is now closed or closing, and we'll be moving very quickly now to dose finding and try to take this forward. This is an example of the kind of medicine we might be able to bring into the filing chart if we see compelling data in phase II. Taken together, that was a whirlwind tour, but we have over 60 projects planned for filing between 2017 and 2021. A diverse pipeline that covers over 13 potential blockbusters, and you can see a very broad midstage pipeline. We are very excited about the possibility as we are continuing to advance and reimagine medicine. Importantly, we have a few expected key 2017 milestones. This is the chart I will keep you up to speed on in Q over the quarters for this year. Obviously, LEE and PKC in half 1, as well as Taf/Mek in non-small cell lung cancer, the GP2015 etanercept approval in the E.U., as well as Zykadia for ALK-positive non-small cell lung cancer in the U.S. Also in half 2, you can see the same also for Europe for most of these products. Important submissions, migraine in the first half of the year, as well as CTL019, as well as submitting the adalimumab filing in the E.U. as well as infliximab. We will, of course, keep you updated on BAF. The major trial readouts will be RELAX and CANTOS with RTH currently shown as Q2. I said earlier in June, we will keep you updated on exactly the timeline for this readout. In conclusion, we are 10,000 people at Novartis dedicated to changing patient care. We have a focus on operational excellence and productivity. Our goal is to be sustainably at 20% of medicine sales in terms of our costs. We have a broad high-value late-stage pipeline, strong and diverse emerging assets from internal research, which we will also give you much more visibility on now moving forward. You will hear from Jay some of the incredible things we have ongoing in the early clinic and in the preclinical space. Why don't we take a break for 20 minutes, and then we will be meeting back in here for the Q&A and then Jay's research session. Thank you. We are back here in exactly 20 minutes. Thank you. Hi, Jeff. Hello. Individually and collectively, we can raise the consciousness of the people of this planet so that each of us will be viewed as members of the same family who are here to claim their birthright of unconditional love and oneness. If we do not do it, who will? Relax, for it is now time to cleanse your body of the negative emotions of anger, fear, jealousy, and hate. To accomplish this cleansing, the next breath that you take will increase the size of your body, actually expand it from 3 to 6 inches larger than it is right now. Expand your body out even further, maybe from 6 to 12 inches. Just let it expand in your mind, in your imagination. Now to cleanse the body of negativity. Experience that rising from the floor and moving up through this expanded consciousness of the body is a violet transmuting flame. You can experience this flame beginning to radiate, radiate out through the body. Wherever the flame moves, the negative emotions of anger and fear and jealousy and hate are being consumed and transmuted into the higher vibrations of love and unconditional acceptance. Higher in vibration, higher in vibration, higher, radiating, radiating. Allow the flame to die down. Place your awareness in your heart, and visualize it as a great cathedral with vast, high ceilings, high vaults, and long passageways. Stroll along these halls and see them permeated with the color pink, and I will return to you in one moment's time. Next, move your consciousness to your thyroid gland and visualize it as a powerful generating station. Stroll through this station, taking note of many of the humming motors, and see everything surrounded with the vitality of the pink light until next you hear my voice. Now place your consciousness in your pineal gland and experience there a throne, and yourself upon the throne, sustained by the loving color pink, and project this onto the planet until you next hear my voice. Now go back into the heart center again. When you arrive in the heart center, the color now is gold, and the cathedral there is with the high vaulted ceilings and long passageways. As you stroll along the halls, you will see them permeated with the color gold until you next hear my voice. Move your consciousness again to your thyroid gland and visualize it as a powerful generating station. Stroll through the station, taking note of the many humming motors you see, and everything will be vitalized by the color gold until you next hear my voice. Again, place your consciousness in your heart. Visualize it as a great cathedral. Strolling along the hallways, you see them permeated with the color royal blue until you next hear my voice. Now place your consciousness in your pituitary gland and see there the Earth and its many people upon whom you project this beautiful royal blue color. I'll return in one moon's time. Now you move in your consciousness up to your pineal gland, and there's the throne. You seat yourself upon the throne, sustained by the color royal blue, and you project this color to the peoples of the Earth, and you raise your consciousness, and you also raise theirs. You will stay in this higher level of consciousness, functioning normally and naturally for an indefinite period of time. Now, when they realize that there are even more- It's very welcoming. It's very welcoming, very friendly in terms of possibilities. Great, so welcome back. We'll now open up the Q&A for the development section of the presentation. If we could just have the lights up, and we will move to questions. So questions. This one. Back on the left. The back left, I think was the first hand up. Right. Thank you. Marietta Miemietz, this is Prime Avenue. A couple of questions, please. The first one on PARAGON-HF. We are hearing from some of your competitors who are just literally starting out with their heart failure development now, that now the regulators want a study combining reduced and preserved ejection fraction. So, if you were to do it now, you would have to combine PARADIGM and PARAGON-HF. The question really is, do you know what the reasons are the regulator is asking for that? Have you had any conversations, both with the regulators and the clinicians, how in the unlikely event that PARAGON-HF is negative, and I think you laid out the reason why it should be positive, but if it is negative, what the ramifications would be actually for the current label and the marketability and the current indication? My second question is on siponimod, and how efficacy correlates with disease severity. I am a little bit confused there because at ECTRIMS, there was a question towards the end of the presentation whether patients with longstanding SPMS had a different response compared to patients who had just literally started progressing. I think Kappos's response was he thought not, but the data were being analyzed. I wanted to follow up with you on that today anyway. I wonder whether on page 38 with your forest plot, you have given a partial answer where you are showing us the SPMS sort of relapsing positive versus negative patient population. I just wonder, what is really SPMS with overlapping relapses? Is that actually sort of like patients who are just starting to progress and quite close to the RRMS? Is there a risk here that really, you mainly have efficacy driven by the patients who are not that far into the progressive phase yet? Ultimately, the distinction between RRMS and sort of early progression is a bit fluid. Thank you. Yes. First on PARAGON-HF, it is actually the first I am hearing of any real discussions of combining preserved ejection fraction and reduced ejection fraction. Our clear guidance from FDA has been on Entresto, that patients with an ejection fraction less than 40 qualify for the reduced ejection fraction indication and greater than 40 for the preserved ejection fraction indication. I do not believe there will be any read-through from the results of PARAGON-HF on the Entresto label for reduced ejection fraction. Our overall endpoints for PARAGON-HF remain cardiovascular mortality as well as rehospitalization. We also have an endpoint there on serial rehospitalization. I think we are the first company to work out how to actually measure that in a way that it is not just first hospitalization but rehospitalization. We will be collecting both of those endpoints. I cannot provide any further insight beyond that, but both of these pivotal protocols have gone through all the necessary regulatory reviews. Regarding siponimod, a couple of points I would want to make. When you look at that forest plot, first, the patients that were enrolled in the study had a mean EDSS score of 5.5, which means that they are pretty severe. That gives you a sense that we did not enroll patients that were kind of in the early SPMS phase, but really in the later stage of the disease. One of the questions that came up at ECTRIMS was that there was a greater effect size when you look at the forest plot in patients who have had symptoms for 10 years as opposed to 30 years. It is important to note that the number of patients that we had at 30 years was relatively small. The study was not powered, but really on a forest plot, you want to look at the trend of all of the pre-specified subgroups, and all the trends are to the left of the chart. When we think about what the regulators are really asking us is, particularly in the U.S., where some MS drugs have a relapsing MS indication, right? Which depending on how you define relapsing MS, that could include relapsing SPMS or not. I think that is why FDA is particularly interested, I would say, in three groups. One is the group of non-relapsing patients, which you can see in the forest plot there. We had a point estimate of around 13% in reduction in confirmed disability progression when patients who have not had relapses in the last two years and in patients who don't have MRI gadolinium-enhancing lesions. If you go to the forest plot, I have it up here. You have it as the second line. You can see with patients with zero gadolinium-enhancing lesions, I think we were around 16% or 17% in confirmed disability progression. One of the interesting points is to actually intersect those two groups, and that's really the analyses we're now conducting, is to actually say the real patient population you want is patients who have not had for one year or two years relapses or gadolinium-enhancing lesions. All I can say at this point is the data look very good, and so we'll continue to present those to the regulator. The challenge always, of course, is we weren't powered to look at all these subgroups per se, so that's going to be the discussion we'll need to have. Next. Florent? Good afternoon, Florent Cespedes from Société Générale. Three questions. One on serelaxin, one on ribociclib, and one on Alzheimer's. First on serelaxin, could you come back a bit on the current situation? I understand that you have achieved a number of events you were targeting. But the database is not yet closed. A follow-up on this one, could you share with us the potential for this product, knowing that you compare with, let's say, the existing drugs that are used in acute heart failure are pretty cheap, and given the current pricing environment? That's for serelaxin. Second, on ribociclib, as we are approaching the date for the decision from the FDA, could you come back on how you will position this product on the CDK4/6 landscape, given the fact that there is a product already pretty well established on the market? Last question on Alzheimer's. On your BACE inhibitor, could you share with us what's the size of the eligible population of the patient with the mutation? I understand that the homozygous population is quite a tiny population. I know it's quite early days. Just some thoughts and some ideas on the size of the potential for this product. Thank you. First on Serelaxin, and I will hand it to Paul on the commercial considerations. On Serelaxin, right now we have seen the necessary events in the study, and it is an event-driven study based on the number of deaths, adjudicated cardiovascular deaths that occurred at 6 months in the study. Right now we are in the process of the normal process we go through of course, cleaning the database, finishing all of the necessary paperwork on the adjudication, and then we would move to a database lock and analysis. Right now we are forecasting that we would have a result in Q2, but if we did have anything sooner, we would of course let you know. In terms of the commercial potential of Serelaxin, maybe Paul will want to comment. I think you will remember from excuse me, from Vas's slide that there was about 1.2 million acute heart failure episodes a year, roughly 50/50 Europe and the U.S. And just in case you missed it, you may not have done, this medicine is infused over 2 days. It is a one-off opportunity with what we hope is groundbreaking efficacy data and outcomes in the same year, and indeed 180 days. There is clearly a significant unmet need given the severity of this population. We are working through the pricing analytics right now to decide where it should sit. And there is 2 very different environments we operate in. There is the U.S. environment, which of course has bundled payments to hospitals for heart failure patients. And there is the ex-U.S. environment and in Europe and what that means in terms of protocols, listings, P&T committees. I think it is safe to say that if we were to reach the goals, as we have seen in the earlier data, and to be well-received by payers, the number of patients means we would be in the several billion dollars category with this medicine. Also important to point out is that what we really have to work on in the intervening time, but predominantly in the U.S., is how we access that protocol in the emergency room and into the cardiac care units. Because it is a new muscle for us, getting listed, getting used, getting protocoled in the hospital itself, and overcoming what is known as a DRG, which is the bundled payments that I talked about. We are upskilling in capability. We are doing the pricing research, but if the efficacy data reveals what we think it should, then we are sat on a several billion-dollar blockbuster, I think. And then on ribociclib, as I mentioned, we had the clinical data to differentiate in particular subgroups as well as the additional data in the first-line indications. But maybe, Bruno, you want to comment on the differentiation? Sure. Well, first of all, it's a very large market. As you know, in advanced metastatic breast cancer, we're talking about 180,000 patients, new patients per year between the U.S. and Europe. You add the adjuvant setting and you more than double that number, so it's a very large number. By all accounts, the prediction for that market is that it could be $10 billion plus. We've seen the efficacy data. We've seen the side effect profile, where the side effects are quickly identifiable, manageable, and reversible. So we believe that we have a very competitive product, and we're very excited about getting ready to launch that product. The one point I'd like to add is the history that we have in that field. This is a field that we know extremely well. We've been present in that field for many, many years with Femara first and then Afinitor. We have one of the broadest programs, not only with MONALEESA-2, but MONALEESA-3, MONALEESA-7, and also the adjuvant trials that we're going to start later on this year. So we believe we are very well equipped to be extremely competitive in that market. Great. Thank you. Last on Alzheimer's. I don't have the data on hand right now, so we'll get back to you, but what I can say is the homozygous population is a much higher risk population, but obviously much smaller. There's a multifold greater risk of developing Alzheimer's for the homozygotes. Of course, then moving into heterozygotes, which we'll move later this year, the population expands quite substantially. The key element that will determine how fast we really come up with a result is actually getting genetic screening done and getting patients to ultimately enroll. So we've launched a number of programs to actually expand the genetic testing so that then we can start the funnel of getting patients to actually want to enroll. That's a big part of the collaborations we have with Banner and the National Institutes of Health. So maybe Richard, then I'll go to the right side of the room. Thanks. Richard Vosser from JPMorgan. Just one extra question on Serelaxin. Just wondering how you are treating the co-primary endpoint inclusion of the worsening heart failure around the statistical hierarchy. Perhaps you could explain the latest thinking for the hospitalizations going, I think in the previous phase III, the wrong way. What is the thinking there? On Cosentyx, the FDA AdCom, I think in 2015, still had some reservations around the FDA's belief in non-radiographic axSpA. Just thoughts, what is different? Your trial looks to be similarly designed to the Humira and Cimzia trials of the past. What is changed there? Just finally on QAW039, I think atopic dermatitis results were a little bit. It does not seem to be going forward there. Is there any read across from that into the asthma setting as well? Thanks. Yeah, absolutely. On Serelaxin, when we decided to add worsening heart failure on top of the cardiovascular mortality endpoint, we actually made a sample size adjustment to not reduce the power on the mortality endpoint. That is part of the reason why the readout of the study got pushed out a quarter, but there is no loss of power on the mortality endpoint. There is no hierarchical testing. These are actually both tested independently and powered appropriately. In terms of the Cosentyx non-radiographic axial SpA, I think the FDA has evolved in their thinking as more and more physicians, and we had expert opinion as well as part of these discussions to understand better that this is a condition that warrants an approved therapy and labeling. I think one of the important elements, I am not sure exactly what Humira had in their original studies in the U.S., but is of course, having evidence on MRI that you actually see some of the early evidence of the disease, and that is one of the most important inclusion criteria as part of the study design. For QAW039, in atopic dermatitis, we are on hold. We are focusing our resources on the Ziarco compound. I think what we saw there in atopic dermatitis was a mixed result. We had a very compelling result at the interim analysis. The analysis at the final analysis did not show a significant result. We are not sure if that is because patients were allowed to be rescued on the placebo group or not. Taken together right now, we think that the Ziarco product presents a better option for us in atopic dermatitis. We do not believe there is any read-across. I think you probably have saw two other studies have now read out on the CRTH2 in eosinophilic asthma, one in Japan and one in Europe, and both had similar results. I think that the mechanism and its relationship to reducing sputum eosinophilia is real. Vass, can I add on this? Of course. Yeah. You mentioned it earlier, but I think it is important to clarify again. Some of the notes I saw after the Ziarco acquisition made a direct comparison to dupilumab, and there were some questions about why we are going that space. Just to reinforce what Vass said earlier, it would be great if our efficacy gets close. That would be fantastic. But remember, first oral pre-biologic in that space is a very, very important space for the patient. We have seen it with Otezla in psoriasis, and we may take up a position like that with QAW ourself in eosinophilic-driven severe asthma. So we are well-placed on the back of Cosentyx to come through on atopic with Ziarco. Next question. Maybe in the back. Yeah. Maurizio Bernasconi from Bank of America. Two questions. The first one on CAR-T in Europe. You now plan the filing in late 2017. I was wondering how well is the construction of your manufacturing going in Germany, and if you will be ready for commercialization later in 2018? On ofatumumab in PPMS, I was wondering why have you not started, to the best of my knowledge, study in PPMS? On CAR-T, we are working with a partner in Germany, and we are prepared to actually have that facility ready for the European filing. I think we'll have a mixed approach between Morris Plains and the facility in Germany, but that will be part of our launch plan in Germany, and things are progressing on track. With respect to ofatumumab and PPMS, I think our plan at the moment is, given the timelines that we're in, to see the final labeling for ocrelizumab to inform how we would actually take forward ofatumumab in PPMS. Obviously, a PPMS study is large and a substantial investment for a relatively long study. Once we understand ocrelizumab's label, I think that'll inform our study design and how we then move forward. Next, please, in the back, and we'll move to the front. Two questions, please. First, on the biosimilar rituximab program. You said you'll file or you filed in Europe. You're expecting approval by the end of this year. Can you just update us where you are with that program from a U.S. perspective and why it's differential timelines on that? Second one, you're obviously taking a lot of your IO programs ahead. We haven't seen a lot of data either on your PD-1 or your PD-L1, but just taking all of the data you have in-house in totality, is there anything about those assets that stands out compared to the four that we all know about, or are they broadly similar? Just help us compare and contrast why those assets might actually be interesting. Absolutely. For biosimilar rituximab, the EU filing is currently under review, and as you said, our plan is to have an approval this year. In the U.S., the U.S. asked for additional progression-free survival data from the phase III study. We had to wait for that data to mature in order to provide it for the filing. There's no other issues that's behind the difference in timelines. It's just different data requests from the two regulatory authorities. We're on track to file that in 2017 as well. With respect to our PD-1, I think we haven't shown data yet because it's still to be published, and I think Jay could comment in more detail. Broadly, we would say our PD-1 is performing in line with what we see from the other competitors, and that's the basis for our moving forward. Our PD-L1 is in an earlier stage of development, and I think Jay could comment on that on the next session. I think we have one here in the front. Thank you. It's Mike Leuchten from UBS. Just going back to LEE-011, you made a comment about how many oncologists have access to an EKG in your remarks earlier. I understand from a patient perspective, which is how you framed the slide, that wouldn't be a problem, but from a physician's perspective, how do you think about the patient having to move from one department to another and then coming back? Yeah. Maybe Bruno can comment, but I think given the variety of drugs that are currently available that require some level of EKG testing, this is normal course of business, and important to note as well that there's ultimately a tech who comes in and is running the actual EKG reading and then deciding whether or not to bring in a cardiologist, and then, of course, the cardiologist does a formal review. Bruno, anything else you'd want to add? No, that's exactly what you're saying. In fact, we have had a similar experience with Tasigna, where we had exactly the same situation, and where we had hematologists who had to perform EKGs as well. That was through the tech, exactly as you described, and it didn't prevent us from making a success out of that product. We don't see that as being really an issue going forward. I think the important point in what Vas presented was that it will be performed at the same time as the other visits, and there won't be any extra visit. Okay, next, I think in the back, and then I'll come back to the front. Thanks. It's Naresh Chouhan from New Street. A couple of questions on BAF, please. We've had discussions with neurologists who suggested that the upper limb function would be a very useful secondary endpoint, given we didn't see any major improvement in the 25-foot walk test. So did you collect the nine-hole peg test data? If so, how did that look? Secondly, early approval of BAF would be quite material for growth in 2018 and 2019. Could you give us a bit of color on what the FDA is asking for to be comfortable with just the one study and your level of confidence on whether or not you may be able to file this year? Thanks. Yeah. On BAF, we did collect a range of other data, and we are providing that to the agency, but none of that was a formal secondary endpoint. The only formal secondary endpoint we had on mobility was the six-minute walk test. I think that's an important consideration. We, of course, will provide the additional data, but typically, particularly with FDA having exploratory analyses as part of a basis for registration, has typically not been the case in at least the neuroscience division. I think in general, the discussions, as I've said with BAF, I think everyone agrees that it's a positive study, right? With a statistically significant P value in the 0.01 range. I think there's probably two levels to the discussion. One, does this meet the standard of a single study submission? That P value is on the edge of that, depending on which guidance and which kind of precedent you look at. I think that's one thing the regulators are rightfully understandably grappling with. Then the second, as I've mentioned previously, is this subpopulation of non-relapsing patients and the kind of continuously progressing. I think that's more of a concern for FDA because of the certain labels that exist in the market of a relapsing MS. So they would like to be able to see something clear in the progressing patients. In Europe, it's a little more open, and so I think there, of course, we'll have to wait for formal EMA guidance to really guide us as to what else they would be looking for and would they find a single study acceptable. But I think in our interactions with EMA regulators at the country level, it has been a mixed feedback. Some are very positive, and some are a little more cautious and want to see additional analysis. Please. Thank you. Vincent Meunier from Morgan Stanley. The first one is on RTH258. Do you think that the drug will really replace Lucentis, or you could co-position it along with Lucentis? What are your options in case of failure? Because that therapeutic area is smaller compared to the other ones. Would you prune Lucentis, or would you reinvest in other mechanisms of action? Another question on NASH. You already have, I think, four or five mechanisms of action. Do you think that in order to address NASH, you need a portfolio of mechanisms of action? What is your view regarding the diagnostics and the stratification of the population of patients? Because competitors have been challenged specifically on this. What is your view on that? Yeah. So first on RTH258, and I will hand it to Paul as well in a moment. I mean, the way the study is designed is the primary endpoint looks at tiered testing. First we look at are we non-inferior to aflibercept with quarterly dosing versus bimonthly dosing? If we fail on that parameter, then we can test for non-inferiority at bimonthly dosing versus bimonthly dosing. So we have kind of a fallback design within the study. I think the attraction of this, of course, is we also will get access to the U.S. market where we currently do not have access commercially. So RTH258 opens that up for us. I would say overall for our ophtho, our portfolio, we are continuing to look at bolt-on opportunities. We have brought in the presbyopia drug, as I mentioned. We also have an option for a dry eye drug from a company called Lubris, which we are quite excited about, and we are continuing to look as well from the internal pipeline what we could bring forward. In terms of the positioning versus Lucentis. Paul? Well, maybe I will start with Lucentis. Although we have been under a little bit of price pressure, ex-U.S., the volume is stabilizing, and we are in reasonable shape. In fact, we picked back up a little bit in Japan, which is where we had struggled a little bit, and we have increased resources. I think if we do hit a quarterly dosing with RTH258, I think that could be well received by the community, and that is what we hope for. Could you then stratify and find different patient populations? It is possible, but it also gives us ex-U.S. some pricing flexibility also, if you have both in the market, and we would get to decide. As for the mechanisms, that has been complicated. We tried with Fovista, adding the PDGF. There are not that many mechanisms to additionally follow up on. So I think we are well-placed right now. We have a little ways to go before we would be in the market with RTH258. If we get there, I think that we have significant infrastructure already in play. So it would be nice to have both of them, but the real flexibility would probably be around pricing. Just on NASH, I think I would say a couple things. One, on mechanisms, we are quite pleased to have the different mechanisms in-house. You want a mechanism here that is anti-inflammatory. You want a mechanism here that has metabolic properties, like we do with LIK066, and there is a competitor in phase III. I think you also want a kind of linchpin asset like the FXR agonist that you can add these different compounds on top of. So I think we are pretty happy with the combination of assets that we have, though we are continuing to look at bolt-on opportunities because we do not exactly know which combination is going to be the one that ultimately leads to significant improvements. I think the overall NASH space will evolve very rapidly now as multiple companies come forward with different proposals, and I think there is a few dimensions for that. One is the length of time of the studies, because I think initially there was a view you needed to have two-year studies, and now with more and more data, will FDA evolve their expectations on how long you need to follow to really convince them of a fibrotic, anti-fibrotic effect, or other improvements in NASH scores. I think the other is going to be in how we diagnose. Right now, there is still an element of biopsy which is involved, and in our programs right now that we are running, we do have biopsy. There is a lot of work we are doing and others are doing to look at biomarkers to say, can you find other ways to convince FDA that this is NASH? Importantly, can you stage it? Because that is the challenge. We have a portfolio that is both in the F1, F2 or F2, F3 kind of early NASH, as well as with emricasan and some of our other compounds, F3, F4s and cirrhotics. The hard part is to make sure you can stage them with biomarkers and hence the need for biopsies. I expect in the next 3 years to be a lot of evolution in the whole trials design space around NASH. All right. Anything online, Pierre Michel? There is a few already. You answered some of them. First one from Kerry Holford at Exane BNP. Can you comment on your IP position with your PD-1 agent in light of the recent patent settlement between Merck and BMS? What is the risk that your PD-1 infringes BMS, and what would you have to do? I think with the way we look at the situation, it is too early for us to say, and we would need to be further along before we really engage in those discussions. I think the important point is there is a path forward that is now been charted by the Merck-BMS agreement. When the right moment comes we will assert our position and work our way through this situation. We do not see this any longer as a hindrance to advancing our portfolio. Another one from Graham Parry, Bank of America, Merrill Lynch, related to ABL001. In a world where payers are mandating Glivec failure in first line before using the signal, despite superior data, what is the likelihood you can get ABL001 reimbursed in first line? I will comment and maybe Bruno can also add. I think in the world where we finally have first line data for ABL001, which is some years out, you would have multiple generic TKIs, obviously available from the first line, and that will open up fiscal space. If we can show that ABL001 on top of a TKI leads to that deep molecular response that patients and physicians want, that then allows them to stop therapy and only have to come back on if they relapse earlier than they would have otherwise. I think there is a compelling opportunity there just given the overall timing. Bruno? I think that will be the continuation of what we are seeing today. In fact, we see that Tasigna is still growing nicely, and we see that there is a space for Tasigna even in first line. Some medical doctors believe that acting fast and acting on deep molecular response is important even in first line. So I think that there would be room for a product like ABL001, and particularly because it lends itself to combination with the other TKI as well. So clearly, we would have to demonstrate superiority to the existing assets, but we believe that there is certainly a space for such a product. Maybe I will just add, thus far with ABL001 on top of a TKI has had a very nice safety profile. Right. That is the combination we would be looking to bring forward in the first line. Anything else? Yes, maybe one more from Tim Anderson at Bernstein on BAF312. It is a long question, but essentially notice that we do not have a second phase III started. Is possible interpretation is that this means we have a positive signal coming from the agencies? He is asking if we can comment on what would be the argument in favor of being able to file in this single trial. All right. First on why we did a single phase III. At the time, we started both Gilenya, PPMS, and BAF312 and SPMS because we knew progressive MS was a very challenging indication. That is part of our thinking was to see which of these molecules would likely work. We did go for an SPA to ensure that the agency fully was on board. I think the case for approving BAF would be that we do have a phase II study in RRMS which read out positive. We have RRMS data and therefore in principle, we have a two-study package, a phase II in RRMS and a completed study in SPMS, which could support, depending on the labeling you look at, an SPMS with plus/minus relapses. That would be the positive case. I think the negative case would be if you did not want to include that phase II and you wanted to take a more conservative view on our single study, then of course you would have a different approach. That is exactly the discussion we plan to have with both FDA and EMA in the coming weeks. Anything else from the room? Yes, please. We have time for two more. Holger Blum, BC Bank. Maybe an overarching question on the whole pipeline, because you have 90 new NMEs, big numbers overall. Maybe you can help us to give us your thing about the commercial value that you have, maybe by, let us say, how many of these compounds on a standalone basis, if it was a biotech company, would exceed $1 billion in terms of in-licensing potential or market value? On the emerging assets, if you can just keep two of them, which would be the ones you would pick? Thanks. Yes. As I said, we really are focusing on these 13 plus late-stage blockbusters that we believe we have. I think on the mid-stage pipeline, it would be too soon to forecast which of these we think would be blockbusters or not. Because I think that's where your question is going, more in the mid-stage and early stage, correct? Commercial value. If you were to in-license a compound, where would you be willing to pay $1 billion? And how many of your 90 compounds you would be willing to pay $1 billion plus for in terms of dollar terms, not revenues on the market? My lawyer is shaking his head and telling me not to. Look, let me frame it differently. What we do when we prioritize the pipeline is we're looking for molecules that have a significant commercial potential. So one thing we want to do as we shape the pipeline is to look for assets that we think have the potential to be at least $750 million throughout a number of peak sales, but all the way up from there. Then, of course, we have the life cycle management of the existing assets. But we know we need to shape the pipeline for existing assets. What that means is that that phase II interface, we're becoming much more aggressive about deciding what we will out-license and what we will keep. In general, if you see something on that mid-stage pipeline list, that watch list that I showed you, we believe that there's a potential for these to be significant assets. That's why you see things like ABL001, atopic dermatitis, presbyopia, stroke prevention, resistant hypertension, neuropathic pain. If we have a hit on one of these in a phase II-B study, we would expect this to be a drug that, yes, we would pay $1 billion to bring in. So that's what I want to highlight in that list. I don't give you the full list of every possible thing, but I really want to focus the attention. So I think with that, is that Okay, I'll take one last one, and then we stop. Richard Wagner with Bernstein for Tim Anderson. This question is about LEE011, and specifically, it was about the historic analog of Tasigna and the EKG monitoring. If you are referring to the Gleevec intolerant or resistant indication, wasn't the competitive context a choice between Tasigna and a different drug, Sprycel, that had a more serious toxicity being pleural effusion, such that the oncologist's choice to undergo the EKG monitoring requirement was in fact a choice not to take the risk of pleural effusion? If I were to take that lesson instead and apply it here to LEE011, wouldn't the expected reaction be not to bother with the additional monitoring, instead stay with the Ibrance established product? Thank you. If you want. Okay. What I was referring to was that we were in a competitive situation where you had two assets, Sprycel and Tasigna. We came with Tasigna behind Sprycel, and in addition, we had actually a black box, and we had to conduct and perform EKGs. It didn't prevent us from developing the product and making it a success. So I was looking at the practical aspect of running EKGs, if you will, for a hematologist, and making that parallel with what's going to happen in a breast cancer context with the oncologist. All right, good. So thank you all very much, and I'll hand it over to Jay Bradner, our Head of Research, our president of NIBR. Thank you. I am Jay Bradner. I am a hematologist, and I read my own EKGs. Thank you for joining, and good afternoon. It is a pleasure to share with you insights from research and early development. It turns out we live at a very unique time, and we practice research and medicine here at Novartis in a very unique environment. At this time, we witness a convergence of the biological and physical sciences, a convergence also of guiding insights into the hardwiring mechanisms of disease, as well as an expansion in the enabling technologies that facilitate the next generation of therapeutics. Together, those like us at Novartis, appropriately resourced to leverage disease biology insights for definitive therapeutics addressing profound unmet medical need, are well-positioned to make tremendous contributions to medicine and to make medicines that really matter for a company, even as large as ours here at Novartis. This is therefore a very unique moment. Drug discovery and early clinical development are integrated within the Novartis Institutes for BioMedical Research. I came to lead NIBR to make NIBR the most impactful, and importantly, most productive biomedical research institute in the world, to make definitive medicines for life-threatening diseases. We are not here to make band-aids, and this will become important as we talk about cancer moving forward. For sure, historically, NIBR has been a leading site and a productive site for research and early development, even over the last 13 years. You can see here on this slide a good number of the licensed products used worldwide, that have significant impact for patients as well as for the bottom line of this company. In that regard, NIBR is highly productive. We are fortunate, though, to work at a company that does not need to choose between internally innovated products and also to leverage internal insight into biology and therapeutics to acquire at often an earlier stage than would be obvious to most others, potentially impactful drug molecules. While I am highly respectful of the contributions of NIBR in the past, I am very excited about having the opportunity to reshape NIBR for the future. I believe that building on this legacy, we can organize this engine around an even more impactful consequence for patients as well as for Novartis. I hope to exemplify this here today with all of you. NIBR is an extraordinary place to work. We have 6,000 scientists working on 400 projects at seven sites worldwide, organized by a deep dive into eight disease areas. This organizational structure allows our research scientists over the horizon of research, era appropriate in their resourcing, to become true experts and leading thought leaders in their biology. This is a reversal of the historical trend in pharmaceutical science, where innovation comes from academia and government, and then drug companies opportunistically develop discrete technologies. Now deeply embedded in these disease areas over the last decade, I have already been witness to unique insights that fuel the pipeline, some of which Vas shared with you moments ago. Limited only by time, I will talk to you today in depth about how we have positioned NIBR 2.0 strategically for the future, and then a deeper dive into immuno-oncology, at which point I will be joined by three beloved colleagues from our oncology unit. NIBR 2.0. I had a chance in coming here to reimagine what NIBR might be. This last year was a period of focused study, listening to the organization, understanding the pipeline, and addressing some of the historical challenges to drug development in the old Novartis that preexisted the integration that Joe spoke of earlier today. We then enumerated 5 strategic objectives, which I am delighted to share with you very much for the first time outside of our walls. First, we intend to innovate a new science of therapeutics. I will explain what that is in a moment, but if one were to play chess, you would first set up the chessboard and then be executing your strategy. Often in biopharmaceutical drug discovery, people collect the lowest hanging fruit, and this company has shown historically that it is best positioned, its greatest contributions are when we reach the highest hanging fruit. This requires innovating a new science of therapeutics from which breakthrough drug molecules can be developed. Second, we need to be better aligned with development. Third, we perform research now in a different era than 10 years ago, where innovation is hyper fragmented and democratized around the world. We need to connect to innovation where it sits, and that requires us to open our framework. Fourth, we will invest in our people. This is a wonderful place to practice science, a unique place to practice science. My email inbox is full with requests from top academics to join our ranks. We want to preserve and enhance that experience. Then we will conclude with one measure to rebuild and prioritize discrete discovery areas. We are organizing a major thread of our research science around the emerging concept of chemical biology. Chemical biology has not been a focused discipline within the pharmaceutical industry, but it turns out that NIBR is a leader in this way of thinking. To study biological pathways through manipulations of genes finds targets, and targets then lead to drugs. But if one studies disease biology through the lens of bioactive molecules, you initiate your research with a prototype drug, and science can move very, very fast. We therefore will leverage a chemical biology way of thinking to create new types of medicines that never existed before. But first, we need starting points. We need prototypes. I am fundamentally a molecular locksmith that starts with a prototype molecule and optimizes it to a drug-like compound. When I arrived at Novartis, I was blown away by this Virchow building just up the street. You should visit it. It is awe-inspiring. Where the more than 2 million molecules that define the chemical equity of Novartis sit with a robot shown in the lower left of this slide that can, in a facile way, nimbly grab these medicines like needles in the haystack. But would you believe that some of the most high-value targets are just out of reach, even to firms like ours and other companies that have 3 million molecules? Curated over the maybe 100 years of science here in Switzerland, this is a very special collection, but we have proposed to Joe that in the next 3 years, we will increase the chemical equity of Novartis to 300 million compounds with the hope that this expanded scope of chemistry will give us more starting points. Indeed, we initiated this research last year. We are building these libraries of molecules not in big fortresses of robotic repositories, but rather on DNA, so that they can be collectively admixed with a barcode of DNA, such that when a target, shown here in red, say a protein of interest, is dipped into this soup, we pull it out and then sequence the DNA coming with it. That gives us an indication of what molecule is bound, the first key in the keyhole. This science innovated in academia was thought of as a science fiction. We have now reduced it to practice and have more than 100 million molecules already made, Joe, well on track to what we have promised. We have seen this technology reveal compounds that hit targets that previously have escaped coordinated efforts in ligand discovery. Being here for just one year has recalibrated my sense of what it means to be undruggable. With these molecules that bind, there are tricks that we can do to turn molecules into supercharged drugs. One such example is the new chemistry of targeted protein degradation. Most drug molecules work as a one-to-one interaction, a key into a keyhole. But what happens if the business end of a protein target is not druggable? If there is no keyhole, how do you get through a door that has no lock? You would affix a plastic explosive and blow open that door. So we have performed, we have accomplished the chemical version of just that. We have made molecules that have two hands. One hand, as shown here with this simulation of a drug, binds to a protein target of interest, and the other hand binds to the cell's garbage disposal system. We trick the cell to destroy one and only one of its proteins. This allows historically undruggable proteins to be degraded, destroyed. When I started here, having taken 5 years in my academic laboratory at Harvard to degrade one molecule, I boldly said to Joe, in 5 years, we would degrade five proteins of interest. Indeed, in one year, we degraded more than 12. Science at NIBR is truly supercharged. I look forward to telling you more about these molecules as we now make drug-like derivatives of them and march them, hopefully soon, into human clinical investigation. Nothing is undruggable. Another way to handle the undruggability of certain biology is not through chemistry, but through new advances in cell therapy. Novartis has been a leader in cell therapy and regenerative biology for many, many years. This was well known to me before I arrived. Let's take sickle cell disease. First described by Herrick in 1910, the molecular pathogenesis was disclosed in 1949, and we understand sickle cell disease to be a mutation of adult hemoglobin that impairs not only its oxygen-carrying capacity, such that at low oxygen tensions, the red blood cell sickles and precipitates in the bloodstream, as Vas earlier described. As a hematologist, it is unacceptable that 60 years later, we would still not have a targeted therapeutic for sickle cell disease. A tremendous contribution to society and an important medicine for Novartis. The challenge is that this sickle hemoglobin does not have an overt site for a drug, and you shouldn't destroy it, or you would have even worse problems. Enter CRISPR. First identified in bacterial systems, a cellular machinery exists that allows us to, in a site-specific way, edit the human genome. This is a therapeutic that interacts with the human genome and can correct inborn errors of heredity. For sickle cell disease, you might know that when you are in utero, you have a different form of hemoglobin, fetal hemoglobin. But upon being born, you switch to adult. If you could turn back on fetal hemoglobin, you would ameliorate the symptoms of sickle cell disease. Scientists at NIBR, collaborating with Intellia Therapeutics, empowered by the freedom to operate of IP, now jointly expanded with Caribou Biosciences, has allowed us to take CRISPR-Cas9 and destroy the off switch for fetal hemoglobin. As shown here, this data is turning fetal hemoglobin back on in cultivated blood stem cells. This was science fiction just 5 years ago. Now science fact. We are marching this technology in a highly competitive space towards human clinical investigation. When I arrived and I talked to scientists at NIBR and development colleagues in Vas' organization, people were frustrated that technologies weren't moving swiftly enough through the organization and that the priorities were not shared between 2 organizations. Vas and I assured our leadership that by halfway through last year, we would solve this problem. We worked very hard to rework the governance structures like a zipper, such that each pin is now fully aligned between each of the disease areas where drugs are discovered and the therapeutic areas where drugs are commercialized. This wasn't easy to take an organization through such a stepwise change in culture, but through setting expectations and recruiting new leadership, we have now seamless integration of research and development. You should check back in with us to see how the timelines look this time next year. As I mentioned, innovation now is highly democratized. We need to connect to innovation exactly where it happens. I believe firmly there is no science that wouldn't benefit by having access to the resource that exists within NIBR. We will have a chance to describe in full the tactics that define the open-source strategy to drug discovery that we intend for Novartis. I'll just share with you a sneak peek at 3 early approaches. First, we're going to build a faculty here, a faculty of scholars. These are scholars that are leading disruptive innovators in their academic institutions, but they don't have to leave their day job. They visit with us perhaps one day a week, shoulder to shoulder with our innovators, leading drug discovery programs, accessing technologies that would not be feasible in their academic setting. Stuart Schreiber expanding our capacities of SP3 high chirality DNA-encoded libraries. Ramnik Xavier working to understand the microbiome, and Stuart Orkin, the leading figure in gene switching to help us with sickle cell disease. Second, we're going to take empowering chemical probes and distribute them worldwide to guide the definitive development of our drugs and continue on with partnerships such as the fabled experience we've had with the University of Pennsylvania to innovate CAR T-cells. As I mentioned, this is an amazing place to be a scientist and a doctor. We're going to work hard to engender the type of collaborative culture that allows us to create careers for our young scientists. We're going to enrich our pipeline with new recruits, leading thought leaders. There are certain areas like oncology that did require some rebuilding. We had historically a very narrow strategy in targeted therapeutics and perhaps missed the first breaking wave of immuno-oncology. But as I will show you in the next few slides, we are very much riding the second breaking wave. Now to oncology. I will focus first on immuno-oncology. As a stem cell transplant clinician by training, I have been prescribing immune therapy for a long time, cell-based immune therapy. It was no surprise when scientists demonstrated that one could release the power of the T cell normally that would eradicate a virus from your body to eradicate cancer from your body. The first breaking wave of checkpoint inhibitors are very important medicines, but they importantly will be used in combination with other drug molecules. It turns out that wonderful as CTLA-4 and PD-1 and PD-L1 manipulation are, and I am thankful that those medicines exist, the vast majority of patients with cancer will not respond to these drugs. The vast majority of patients, if not all, that respond to these drugs will not be cured by these drugs. To make definitive medicines for cancer, we must have access to these enabling reagents and use our biological insights to position these molecules for success in the only relevant model of cancer, our patients. This was jump-started by a very aggressive business development campaign. As I mentioned, we do not have to choose here between internal innovation and leveraging our unique internal insights to access external innovation. Glenn Dranoff was brought here from the Dana-Farber Cancer Institute to curate a suite of immuno-oncology technologies and then to innovate himself the third breaking wave of immunotherapy. A critical piece of this is cell-based immunotherapy with UPenn, as well as I will show you in a moment, having access to a PD-1 immunoglobulin. We obtained our PD-1-directed immunoglobulin through an acquisition of a technology from CoStim, and at the time it came in in 2014, we were forecasting it would take 2 years to prepare this early technology for human investigation. I have been blown away by how fast this organization can move. We have reorganized discovery and development for seamless end-to-end development of this compound, filed an IND in just over a year. Between May and December of last year, Lili Petruzzelli and colleagues in TCO Phase I unit enrolled more than 50 patients, establishing proof of concept, seamless handoff to Vas as you heard in development. As we are now able to share with you, we have announced registration Phase III double-blind placebo-controlled trials on clinicaltrials.gov. The question was fairly asked, how does this molecule stack up? It is early days, but all data we have suggests that it is every bit as active as one would expect a PD-1 to be. Shown in the lower left is a remarkable response in a 56-year-old with squamous cell carcinoma of the lung, and in the lower right is an equally impressive response in a patient with BRAF wild type melanoma. We envision PD-1 now, 2017, as a staple platform for immunotherapy with both immuno-immuno combinations as well as immuno-targeted combinations. But what Glenn has done here is very unique. From a pipeline that had not one immuno-oncology therapy 3 years ago, we now have as competitive a pipeline as exists in the industry. I would defer to all of you to tell me if I am right. What Glenn did is he worked mechanism by mechanism through the biology of immune escape, populating a leading set of technologies through an admixture of in-licensing and internal innovation. We may be asked which is our favorite. We could not choose. There are some remarkable compounds on this list. STING, TIM-3, LAG-3, hetIL-15. These are important medicines, and it is now our charge to bring them forward in combination for patients. Indeed, a great many of these second wave of immunotherapies we have here at NIBR stand to be potential first-in-class drugs. That list is provided for you here, and you will notice all the checks on this slide, how many of these are already clinical stage assets. This is an organization moving with great haste. Vas shared with you this slide earlier. I will just underscore the fact that as it is not lost on us that these drugs must be developed in combination, our clinical trials are being written to leverage the technologies immediately accessible around us. I come from the biotech sector, where one would have a biotech company with a discrete or single asset, and you would work very hard to find companies willing to partner with you, and that takes time. But it does not take time here at NIBR. All of those medicines are available for immediate combination study, and you can see on this list exactly how we mean when we say PD-1 being used as a platform with novel IO agents as well as with targeted agents. Beyond the likely 18 immuno-oncology medicines within our pipeline at NIBR, we have a suite of targeted therapies. This is the legacy of the last 12 years of dedicated drug discovery, and some of these compounds are very important substances. You would not be fooled that immuno-oncology will be enough. To eradicate cancer in combination with targeted therapies is how these agents might best be deployed. Cell-based immunotherapy with CAR T-cells is an important medicine. To underscore this, if less than 20% of patients will respond to PD-1 therapy, 82% of patients with relapsed and refractory ALL will achieve a CR to CTL019. Some patients will be disease-free for more than 5 years. When we start to talk about cure, having witnessed the efficacy of CAR T-cell therapy in CD19 positive malignancies such as ALL and diffuse large B-cell lymphoma, scientists at NIBR are now redirecting this gene cell therapy towards new epitopes, towards new cell types, such as myeloma through the BCMA target, as well as solid tumors. We have indeed doubled our investment at NIBR into CAR T-cell therapies, focusing on the discrete steps in manufacturing that will allow ultimately this medicine to reach the broadest population of patients, and a glimpse into that pipeline is shown here. We have found UPenn to be a wonderful collaborator and look forward to working with them in the future, as well as other leading sites. How do you develop combination therapy, immuno-targeted, immuno? One way is to take the 31 clinical stage molecules and in a binary fashion do 900 clinical trials, but Harry has not resourced us in that manner, and we wouldn't want to do that. Rather, we need to leverage the deep biological insight at NIBR and the unique tools that we have to perform these studies efficiently and directed by mechanisms of immune escape. It turns out that the divide between bench and bedside in immuno-oncology, even with the insights revealed by checkpoint therapy, is very broad. So we recruited Jeff Engelman from the Massachusetts General Hospital to build a state-of-the-art oncology translational research laboratory. A serious investment of our associates and our resources to ensure that we are sampling on treatment biopsies of patients treated with these agents to understand the pharmacology, as you see at the top of T cells rushing into a tumor and when they don't, as well as when patients progress on therapy. Integrating on the bottom of the slide, a suite of sophisticated, new, and integrated measurements with historical measurements of immunohistochemistry. We see a great opportunity to learn as much from the patients on our studies as we typically do in preclinical research. So in sum, by bringing the best minds and the best medicines together in an environment that is an era-appropriate investment in research and development, we intend to make great contributions to the care of cancer patients worldwide. I will stop here except to say that if anybody at NIBR was distracted by the changes in leadership, by the purposeful and strategy-focused global restructuring, by the forced integration of research and development, by the ruthless prioritization that Vas and I took the organization through to ensure that we are deploying our resources in the most effective way for patients and for this company, it doesn't show. In 2016, we indeed exceeded all goals put upon us by my beloved predecessor and having 13 positive proof of concept studies, there are 10 more molecules transitioning into global development this year. Thank you very much. Look forward to getting to know all of you, and at this time would ask my colleagues from oncology to join as well as Vas for Q&A. A way of introduction, we have Glenn Dranoff, who leads immuno-oncology, Jeff Engelman, who leads NIBR Oncology, and Lili Petruzzelli, who leads early development of cancer medicines. Please. Thank you. Florent Cespedes from Societe Generale. Two quick questions. First, an easy one. Could you share with us when we should see the first immuno-oncology products, clinical results? I remember from a discussion last year with you, Vas, that should be during the second half of this year. Do we have to understand that there should not be any results at ASCO, but more at ESMO? Second question, on specific on BYL719, a PI3 kinase alpha product. My understanding that it could make sense to combine this product with your CDK, so ribociclib project. I do not see, maybe I am wrong, any clinical trials combining the two products. Is it something that you have in mind as well? Thank you. Well, I will start then hand over to Lili around the timing. I want to be clear that I consider CAR T-cell therapy immune therapy. It is cell-based immunotherapy. There can be nothing more immune than administering or prescribing T cells to a patient. In that regard, there will be very meaningful progress in the early part of this year. But I do understand your question to mean results surrounding this next generation of agents. Lili, can you share the expected timeline? We built a really robust pipeline last year. These studies are enrolling quite well. So this year we should begin to see the emergent data from these studies. I cannot give you an exact timing, but they are really progressing very nicely. I think I am going to take BYL. On the BYL LEE, so we are continuing to actually, we do have a study ongoing to look at BYL, plus LEE, plus Letrozole/Fulvestrant. I think the key thing now is for us to look at the toxicity profile overall with a triple combination to make sure it is positive to take forward. As soon as we make that decision, we will let you know. In the front, please. Michael Leuchten from MainFirst. It is a very simple question that will probably get a yes or a no answer. In all your chart where you have all the IO combinations with the PD-1, is it your PD-1? Is it the same PD-1? If yes to those two, how do you know that is the best PD-1? That is not a yes/no question. The answer is C, all of the above. We have studies planned and open with our own medicines as well as with established medicines. We think that this is an important part of leverage as well as our developing an internal experience with each of these types of drugs. Thank you. Please. Marietta Miemietz, Prime Avenue. A couple questions, please. The first one on CRISPR. It seems everybody is working with CRISPR in some shape or form. I am just trying to understand, is there a particular IP around this? Do you have the unique rights to use this to modify proteins to become druggable targets? How should we think about that? The second question, just very briefly on CAR-T in solid tumors. Can you just give us a rough feel for the timelines for that and what some of the key obstacles to overcome would be? Thank you. Thank you. I will start on CRISPR and then ask Glenn to weigh in on solid tumors with CAR T. CRISPR is so easy, even a chemist can do it. You are right. Everybody is using CRISPR. But everybody is using it for target identification, such as CRISPR screens, target validation, walking along the open reading frame of a gene to figure out what to drug. Model creation, it is the new facile way to make mouse knockout models and mouse knock-in models. But as it turns out, few groups are organized in a way to make a definitive therapeutic out of CRISPR. And we believe we are collaborating with two of the best at Intellia and Caribou. Our strategy with CRISPR does lean on the creation of novel intellectual property and accessing new intellectual property as it is described. This is a field that is moving very, very fast, and we believe we have a very competitive position regarding IP, both through FTO interactions with Caribou and Intellia, as well as our internal intellectual property elaborated over the last several years. Glenn, would you care to comment on solid tumor CAR T? Yes. Thank you for that important question about CAR T-cells. I think it is critical to underscore that CAR T-cells really are a form of definitive therapy, that the data achieved in children with refractory acute lymphoblastic leukemia is remarkable, transformative, and raises the possibility that single treatments can actually give rise to very, very durable clinical benefits. So we are quite excited about continuing to explore the power of CAR T-cells in the solid tumor space. With our colleagues at University of Pennsylvania, we are currently interrogating two targets, the variant 3 isoform of the epidermal growth factor receptor that is expressed at about 20% or so of glioblastoma multiforme, a lethal brain cancer, as well as mesothelin, a cell surface protein that is expressed on many important adenocarcinomas, such as pancreas, colon, ovarian, and lung. Now, it does appear that the challenges to CAR T-cells in solid tumors will involve many of the same problems that we are addressing through the portfolio of immunotherapy assets that Jay illustrated because solid tumors create an immunosuppressive microenvironment. But we are quite optimistic that with this toolkit that we have, that we will be able to identify what are the limiting parameters for holding CAR T-cells back from better therapeutic efficacy in the solid tumor space. And we will rely a lot on the translational research laboratory that Jeff Engelman has set up to help us understand at a very detailed level how we are impacting the tumor microenvironment. Please. Thanks. Richard Vosser from JPMorgan. There is some emerging commentary or science that potentially suggests PD-L1's lack of interaction with B7-1 could provide greater long-term survival benefits. Just really your thinking on that and the emerging science. Obviously, your first development was PD-1, but just how are you thinking about the emerging science there? Thanks. Yeah, it is a great question. The PD-1 pathway is not monolithic. It does not simply involve the interaction of the PD-1 receptor with a single ligand PD-L1, but rather there is at least a second ligand, PD-L2, and that PD-L2 is able to engage yet another receptor, and PD-L1 is able to engage another receptor, a B7-1 that you talked about. There is very active study in both preclinical and clinical systems to try to understand which of all of those interactions really are critical. I think it is still a bit premature to identify PD-L1 versus PD-1 as being fundamentally different. This is an extremely important issue as the complexity of immuno-oncology regimens gets increased. For example, when regulatory T cells may be impacted by a specific therapy, they express very high levels of CTLA4, as you know, that interacts with high affinity with the B7.1 molecule that you described. But if CTLA4 is not in the picture because Tregs have been impaired, then this B7.1-PD-L1 interaction comes into a much higher importance. We are very excited about exploring that biology in the context of the arsenal that we have. Over here, please, on the right. Two questions, please. The first one, just give us a sense for kind of between NIBR plus kind of late-stage development, how much annual R&D spend goes into immuno-oncology kind of from a Novartis perspective? Are we talking $1 billion? Are we talking $3 billion? Just kind of give us some flavor. We don't discuss the subdivision of the R&D spend quite in that way, though we could think on that number for you. I can say that it is significant, and Vas can say it is increasing. I think that's right. I think, nothing to add. Yeah. The second question, perhaps this is a stupid question to ask, but as somebody who's kind of heard you describe the NIBR environment, somebody who's kind of heard Vas describe the development organization, I would be very interested in understanding how the decision-making actually happens through the organization. Right? I suspect you've got, whatever, 18 programs. You've got probably at least 70 combination potentials. You're thinking about 10 tumor types. You're thinking about two or three lines of treatment. Somebody comes to you and says, "I want to study this agent with this agent in this line of treatment." How do you as a manager running that business unit decide what is the right study to run, what is not the right study to run, when, at least from the outward perspective, you do not have access to a lot of the diagnostic stuff, it is not a field you have been in for the last 10 years? Just help us understand what is driving your confidence in making the right decision-making there. Yes. It starts with having the best people in science and medicine around you. We are very blessed with that circumstance at NIBR, there is no question. It also needs quite a bit of structure. These creative minds need quite a bit of structure. What Vas and I have are a series of checkpoints, governance bodies. One for the formal entry into the Novartis pipeline. It is called TNT, Targets and New Technology. We have a portfolio not just of targets that we are prosecuting for therapeutic innovation, but also, as you saw, paradigmatic therapeutic technologies, and we cannot work on everything. These decisions are taken quite seriously. Formal entrance to the pipeline. As technology matures, as drugs bubble up from that research environment, they are presented for the second checkpoint at a meeting called TED, the Translation Into Early Development. That is where medicines are identified, nominated, and receive the extra funding necessary to prepare a technology for human clinical innovation. That is also the step where we adjudicate the response to phase I and IIa studies. Vas attends these meetings, and so it is a seamless handoff. When the medicines then graduate into development, they will ultimately meet with the INB board that Vas chairs, and that is where a decision is taken whether or not to commit the major spend necessary to perform registration studies. Perhaps Jeff could talk, leading oncology, about how discrete scientific projects emerge from our largest disease area, oncology. Yeah. One of the things we try to do in oncology is we are really trying to identify the next wave of transformative therapies. Glenn spoke about the IO therapies that he in-licensed, and Jay spoke about that as well. Some of the technologies that Jay outlined open up possibilities that we never knew existed before in terms of what we could target with molecules and what we could actually develop as drugs. We now, as Jay mentioned, it used to be that in a pharmaceutical company, you would rely on the academic centers to help you identify what you would want to drug and how you would want to drug it, what types of combinations you would want to develop. Novartis made the investment to develop an outstanding research institute, and that type of work now is done at the highest level internally. We understand the genetic dependence of almost every cancer model we have according to every gene that exists in the genome. This type of data is extraordinarily powerful, and we use this information now to develop the next wave of therapies that, as Jay and Vas and everyone says, we are not really here just to budge the needle forward a little bit. We are going to try to make therapies that really have an outstanding impact on patients. With the new immunotherapies, with our targeted therapy profile, we are really thinking about what are the next wave of therapies that will change patients' lives. When we find those, we bring them to T&T, and we hope Jay says we can go forward, and if he does, we go forward quickly. Please. Hi, it is Mike Leuchten again. Just on your pie chart of the disease areas, I just wonder, Jay, how you are going to manage this what looks more like the institute of oncology and immuno-oncology. How do you avoid the infectious diseases people feeling sort of pushed out, left out, and eventually probably leaving? How do you give them the- Proportionate shout in the scheme of resource allocation. Yeah. Thank you for this question. It is the first time I have ever thought about it, because that is not their experience. I think they feel very supported and loved. But the way that we have done this, is to strategically position groups that might be, in some sense, fringe groups, to create real centers around them. Last year, I took the difficult decision to move the Novartis Institute for Tropical Diseases from Singapore, where it was very productive, to Emeryville, California, to bring our tropical disease infectious drug hunters into the same laboratory space as Don Ganem and our antiviral and antibacterial drug hunters. They are supported also by one of the top protein science fragment-based NMR screening and crystallography groups within Novartis, if not the world. They now have a community at that site, that to them, they wish others were around them. They feel very well supported. Another way that we do this is, we have schedules throughout the year, TED meetings, and T&T meetings that will focus on specific disease areas where they can bring forward their full portfolio. The last, for the leadership team, we initiated last year something we called salons, based on the European salons in Paris, where artists of the day would bring their artwork to dazzle the other artists in their cohort. We did the same with our science. It is a first step of our annual strategic planning process. We shine a big, bright light on these other disease areas. You then wouldn't be surprised by having these leaders all admixed together through these coordinated events, that we see technologies transition, innovated in oncology, and then applied in immunology and vice versa. It is a highly collaborative and surprisingly not siloed research environment despite the geographies and territories that we span. We have time for one more question. Thank you very much, Florent. This is Société Générale again. I would like to ask a question outside cancer because, yes, I'd say outside cancer is more than 50% of the total molecules in your portfolio. I would like to understand how you decide which areas, because I see some areas which are quite challenging. If I take cardiovascular, stroke prevention or weight loss is quite a graveyard and some other areas, if I look at neurology, sleep disorders or neuropathic pain, the bar is quite high or developing new antibiotics is quite challenging. Can you share with us why you believe at NIBR, you have all the, let's say, the resources and know-how to find new drugs on this area? You can imagine that we put a lot of thought in this. At the leadership level within NIBR, in collaboration with our colleagues in Innovative Medicines and development, and at the board level, we think hard about the places where we make investment. We invest in research in places that we think have extraordinary potential. Neuroscience has been a challenging area to make drugs, yet we think that there is great potential by reconsidering the models of these diseases. Multiple sclerosis was a very difficult area to develop drugs, yet we made Gilenya. Cancer was a very difficult area to consider targeted therapies, yet we made Gleevec. I think this is exactly the environment where nuanced insight into disease biology can open up new markets. Joe. Okay. I want to thank everybody for coming today. I want to just close the session by saying that our intent today was to give you an in-depth look at the depth and the breadth of our pipeline, and I hope we were able to accomplish that. I think another byproduct of that was that we were able to give you a look at the depth and the breadth of our management talent, which is very important because we are undergoing a generational change at the company, and it is part of the rejuvenation of Novartis. Thank you very much again for coming, and we look forward to keeping you up to speed every quarter with our results through the fiscal year.

Data Source: Quartr Last updated: Jan 25, 2017

Earnings call transcripts are provided by Quartr and are published within hours after each earnings call.

Update frequency:

Quarterly

Data Sources Report a data error

• Slides
• Annual report
• Annual report