Good morning and good afternoon, welcome to the Novartis Q3 2018 Results Release Conference Call and live audio webcast. Please note that during the presentation, all participants will be in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions by pressing star one at any time during the conference. A recording of the conference call, including the Q&A session, will be available on our website shortly after the call ends. Should anyone need assistance during the conference call, they might signal the operator by pressing star zero. With that, I would like to hand over to Mr. Samir Shah, Global Head of Investor Relations. Please go ahead, sir.
Thank you very much, good morning and good afternoon, everybody. Before we start, I just wanted to read to you the safe harbor statement. The information presented today contains forward-looking statements and involve known and unknown risks, uncertainties, and other factors that 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. In addition, just wanted to point out that the information presented in respect of the proposed Endocyte transaction may be deemed to be solicitation material. In connection with the proposed Endocyte transaction, Novartis and Endocyte intend to file relevant materials with the U.S. SEC.
We urge you to read these materials, including a proxy statement of Endocyte and all other relevant documents filed with the SEC when such documents become available and which will be available for free. The proposed Endocyte transaction has not been completed and there can be no guarantee that the proposed Endocyte transaction will be completed or that it will be completed as currently proposed or at any particular time. With that, I'll now hand across to Vas.
Thank you, Samir, thanks everyone for joining today's conference call. We're very pleased with our performance in quarter three, where we continued our journey to be a leading focused medicines company powered by breakthrough innovation in data and digital technologies. When you go to slide four, you can see that our group performance was strong with sales growing 6% in constant currency and core operating income up 9% in constant currency. Harry will go through the numbers in a bit more detail. I'll go through these in the upfront section.
With AVXS-101 filing in U.S., Europe, and Japan, BAF312 filed in U.S. and Europe, the approval of KYMRIAH in multiple geographies, and the proposed acquisition of Endocyte, I think we're also demonstrating we have the innovation power and the innovation momentum to continue to drive growth well into the future. If you go to slide five, when you look at the underlying drivers for that strong performance, you can see that Cosentyx and Entresto continue to perform well. I'll go into each of those in a bit more detail. I also wanted to point out our oncology growth drivers are tracking extremely well. Promacta, Talzenna, and Mekinist, as well as Jakavi. I'll say a bit more about Lutathera. It's become a real bright point for us as we now see this as a potential blockbuster medicine.
I'll show you a little bit more data about where we see Lutathera trending right now. When you move to the next slide and you look at Cosentyx, I think as we've hopefully now shown, it's really established as the leading differentiated IL-17A inhibitor and had outstanding performance in the quarter. You can see the 37% growth, really strong momentum by Paul and the team across all indications and geographies. Importantly, we surpassed HUMIRA and TRx in psoriatic arthritis in the U.S. We have recent 5-year data, which similar to what we've shown in psoriasis, showed that in PsA and in AS we showed sustained benefit complementing our long-term data, as I said, in psoriasis.
I think that really builds out the profile of Cosentyx as the leading IL-17A inhibitor on the one hand in psoriasis, and then in rheumatology really being unique in the mechanistic approach it has to treating the underlying joint disease that are really prominent in these 2 conditions. Going a little bit deeper on psoriasis on slide seven, you can see that we continue to gain market share in psoriasis in a very competitive market. I think Paul could say more about this. There's a few reasons for this. One, we continue to believe that within the physician mindset and the payer mindset, there are 2 classes here they're thinking about in terms of the new drugs, IL-17As and IL-12/23s.
We are the leading IL-17A with some really important unique data sets, including that we can treat multiple manifestations of psoriatic disease, including scalp, nail, palmoplantar, and joint involvement. Two-thirds of patients have those additional sources of the disease. On top of that, when you look at our real-world evidence data sets we've been putting out into the community, they consistently confirm the safety and efficacy benefits of Cosentyx. We're quite pleased and really looking for Cosentyx to continue its strong trajectory into the coming years. Moving to slide eight. Entresto as well had a very strong performance in the quarter, doubling versus Q3 2017. You can see both U.S. and ex-U.S. sales were nicely up. I think importantly here, we're starting to roll out data sets from trials that we began in 2015 to really build out the profile of Entresto.
Both TRANSITION and PIONEER taken together will hopefully enable us to really show that Entresto can be used in the hospital setting. The TRANSITION study has already read out. The PIONEER study will be something we'll be presenting as a late breaker at AHA in November. That will enable us to ensure that patients are getting Entresto at the right time in the hospital. In addition, the PARAGON study continues as planned following the interim analysis that we talked about earlier this year, with results expected in mid-2019. I would also note the PARADISE study, which is in pre-heart failure post-MI patients, is also enrolling according to plan. Overall, the Entresto picture is looking strong, and we continue to see solid momentum around the world with this medicine.
I mentioned Lutathera, and I wanted to show on slide nine the kind of really explosive performance we're seeing now in Lutathera. It's off to a strong start in the U.S. You can see here the number of doses per quarter. This trend is really, I think, very encouraging. We're now starting to roll out the medicine in Europe. In the U.S., we have 85 centers that are actively prescribing. We have 70% coverage of the relevant lives. In the U.K. now we have 18 centers actively prescribing. I think seeing the strength of the performance in Lutathera, feeling now that it's a potential blockbuster medicine, seeing this outperform our deal case is part of the rationale when we come to the Endocyte deal for the confidence we had in taking the step to acquire Endocyte. I'll talk more about that in a few slides.
Now moving to Sandoz on slide 10. I think Sandoz continues to perform well in a difficult environment, both in the U.S. but also around the world. When you look at Q3 2018 performance, the U.S. impact continued the industry-wide pricing pressure, but we were able to grow sales ex-U.S. at 2%. Importantly, our biosimilars portfolio is growing at 21%. When you think about how we're going to drive Sandoz moving forward, a lot of it is about executing a strategy of transformation and shifting the focus to complex generics and biosimilars. We're well on our way to do that. In the United States, we announced our planned sale of the core GX business to Aurobindo. Then we're also expanding rapidly in biosimilars in Europe, and Richard can speak more about that. Both Rixathon and Erelzi are performing well.
We have the approval for our adalimumab biosimilar and our infliximab biosimilar. I would note that we are now in the market with our adalimumab biosimilars in four countries, and we have a positive CHMP opinion for pegfilgrastim, which should enable a launch, we hope, in Q4, assuming approval. Overall, I think Sandoz is on the right track. Challenging environment, but I think we're taking the steps necessary to put the division in a place where it can succeed. Now moving to slide 11. Alcon continues its strong sales growth, and I think that's really the key point of the Alcon story. We need to keep generating that strong sales growth across segments, and we did that in the quarter. You can see 7% sales growth in surgical, 3% sales growth in vision care. Core operating income grew 1%.
We had always known that the margin story for Alcon in this year was going to be a little bit choppy coming out of the trough 2017 margins. David Endicott is here, and he can provide more perspective. But when you look at the year-to-date performance in Alcon, we have core operating income growing at 14%, the core ROA at 18.6%. The business is on the right direction and is continuing its trajectory as we've stated, and we remain confident, as Harry can discuss further, in the overall trajectory of the margins. When you go to slide 12, just to say a word in the quarter, we have a number of key data readouts and regulatory milestones, and I don't want to go through all of these, but a few I wanted to highlight on this slide.
I will talk about AVXS-101 and Endocyte specifically, but I did want to note that BAF312 was filed in SPMS in both the U.S. and Europe. We will be presenting the BYL719 study results at the president's presentation in ESMO over the weekend, and we'll be holding an investor call around that so everybody can understand better that data. We're importantly driving our in-line brands really across the various brands, whether it's Gilenya, KISQALI, Aimovig, Tafinlar/Mekinist. We continue to generate data to support these important growth drivers at the company. Before moving off the slide, I wanted to give an update on ACZ885. Yesterday, we received a complete response letter from the FDA regarding the filing in cardiovascular disease.
We had said last year, we were focused all along on trying to get the hs-CRP responder group as the primary driver in the label so that we could make sure the relevant patient population would get treated and there would be appropriate access to the medicine. We presented our case to the FDA. The FDA has asked additional questions and has requested additional data with respect to the responder population, and we're evaluating now what would be the appropriate next steps. I would want to highlight that we continue on track with our ACZ885 studies in lung cancer, where we're enrolling studies in adjuvant lung, first-line metastatic lung, and second-line metastatic lung. We're on track for readouts of those studies between 2020 and 2022. Moving to slide 13, diving a bit more on AveXis.
There's been a lot of discussion given the competitive dynamics in SMA around the AVXS-101 program. I wanted to, again, level set everyone on the extraordinary result that you see with this medicine in SMA type 1. I think whether you look at the videos that are posted by the NIH director or if you look at other testimonials for patients, this is a simply extraordinary medicine where you have patients who would otherwise be expected to die, many of them out now beyond four years of age, developing normally. I think a few key points to highlight here. First, whenever you're looking at results in SMA, it's important to look at the baseline study population because there's a lot of variability in the baseline characteristics of these patients.
When you look at the efficacy, we had 100% of patients alive and without need for permanent ventilatory support. If you can imagine a parent wanting to treat their infant, they're certainly not going to want to take the risk that there's some percentage of patients that die with respect to a given therapy. We believe this is quite material and quite important when you look at treating infants for a devastating disease. We had nine out of 10 achieve a CHOP INTEND score of greater than 40 at eight months, 11 out of 12 greater than 50 during the 24-month study, and 11 out of 12 achieving a sitting unassisted during the 24-month study.
When you look actually at the CHOP INTEND scores, we're getting patients in the relevant period of time where you can measure CHOP INTEND into the high 50s or low 60s for their CHOP INTEND scores. CHOP INTEND is less relevant after the first year of life, I think that shows you not only the efficacy benefit from a mortality standpoint, but also the functional benefit you get with these patients. Strong durability. We continue to achieve major milestones with this therapy out beyond four years for the patients. We've been able to track two years in the reported data. I think, again, I'd want to highlight that those patients who we've disclosed in previous congresses that are tracked for even longer than two years, only a portion of them have received other therapies.
There's also a portion that have received no other therapies and continue to do extremely well. When you think about that mechanistically, we know that motor neurons don't divide. You have your maximal motor neurons as an infant. When you receive an IV gene therapy, you would expect most of the motor neurons, we hope perhaps all the motor neurons, to have the appropriate gene inserted. The mechanistic rationale for waning of effect is not there in our view. There could be other things that happen as we do longer-term follow-up, I think it's important that we stick to the science and stick to the data when you're looking at these kinds of medicines. Lastly, I would point out on the right-hand side, when you look at the speed of response, the speed of response is quite striking with respect to AVXS-101 and other relevant therapies.
I think that will be important for SMA type 2, 3, I'll talk a little bit more about where we are on those studies in a moment. Moving to the next slide. When you look at SMA Type 1, we have successfully filed now in U.S., Europe, and Japan, all ahead of schedule, for SMA Type 1 with AVXS-101. We have a potential approval, we believe, in the U.S. in the first half of 2019. We do have a breakthrough therapy designation there. In the EU, we believe the approval in mid-2019. We do have PRIME designation in the EU, we initiated submission in Japan in mid-September. We anticipate the completion by year-end of the full file. Again, we expect approval in the first half given that we have Sakigake designation, one of the first medicines to receive this designation in Japan.
We're quite pleased with the progress in SMA Type 1, a truly transformational foundational therapy for these patients. On slide 15, give you a little bit of an update on where we are on the trials, because I know there have been some questions and some misinformation regarding this. When you look at where we are, the START study, which is the long-term follow-up for the SMA Type 1 patients, we have 12 patients enrolled. When you look at the STR1VE study, which is a single IV dose confirmation study, patient enrollment is complete. When you look at the STR1VE EU study, we have six patients enrolled, and it's enrolling very well. We'd expect to complete enrollment shortly. When you look at the SMA Type 2/3 study with intrathecal dosing, patient enrollment is complete.
When you look at the presymptomatic SMA studies, which are being conducted under the rubric of newborn screening, we have six patients enrolled, and we're seeing very heavy demand for that study as well. Altogether, clinical program is on track to continue to expand beyond SMA 1 into 2/3, and then eventually into newborn screening. Going to slide 16, I want to say a word now about, two slides about Endocyte, the acquisition we announced earlier today, which really builds on the earlier acquisition we've made with Advanced Accelerator Applications. As I've tried to articulate to all of you, we're on a journey to focus our company as a medicines company, and within being a medicines company, along with our appropriate diversification in therapeutic areas, to build leadership in three platforms, which we believe are advanced therapy platforms that will drive differential growth.
Cell therapy, we have KYMRIAH, and then building beyond that. Gene therapy, we acquired AveXis and are building out our portfolio there. Finally, in radiopharmaceuticals or radioligand therapy in this case. Now, when you look at the specific asset that we have here in Endocyte, which we would plan to bring into our Advanced Accelerator operations, prostate cancer is expected to be an $11 billion market globally in 2024. This medicine is expected to provide an additional treatment option for prostate cancer. I'll talk more about that because I think there's some misunderstanding in some of the notes I've seen over the course of today as to what exactly we're treating here versus other therapies that are on the market. This is a first-to-market potential product in PSMA radioligand therapy. The enrollment of phase III has been initiated and is on track.
FDA feedback, which we reviewed, is very clear that radiographic PFS can be used as the endpoint, which should enable a relatively rapid, we believe, timeline for the phase III study. It's a significantly de-risked profile when you look at The Lancet paper that's been published on the strong phase II data. There's extensive preclinical data as well as various other investigator-initiated study data that we've reviewed, which gives us confidence in the overall profile of the medicine. Now importantly, this expands our nuclear medicines platform following the launch of Lutathera. It gives us a second radioligand therapy. It allows us to eventually move this PSMA-617 therapy into earlier lines of therapy, and then we have opportunities to expand the platform in the future.
One thing not noted in this slide, this also would enable us to have new manufacturing capabilities that we could then apply to our radioligand portfolio in the future. When you go to slide 17, what exactly do we talk about here? This is, I think, a very important point, and I hope investors will take a moment. This is a therapy, as is the case with Lutathera, where we link a radioactive particle to a ligand, and this ligand has high specificity for a given tumor cell type. In that way, we can target the radiation directly to the relevant cancer. It's a very targeted approach. We do that with neuroendocrine tumors, and here we do it with PSMA in prostate cancer. This high-affinity targeting allows us to really, I think, improve the efficacy and also manage the safety profile.
Other therapies available in the market are simply infusions of radium that are actually just used for bone metastases, not for metastatic prostate cancer. As you look at your benchmarks for what are the appropriate sales potential, please ensure you're using relevant benchmarks when you do this. Once this is bound, the particles are bound together, they get internalized, and you would expect that the cancers then ultimately respond, and that's the response that we've seen. When you look at the data on slide 18, you can see here in the phase II study, we had a strong PSA response, which we think is a relative measure. You can see on the left-hand side. We had a solid trend in these patients who had failed multiple lines of therapy in PFS, as well as in overall survival.
We've seen similar data from other smaller study sets in IITs as well. When you go to the next slide, you can see the phase III VISION trial, which is currently enrolling, takes a 2-to-1 randomization, takes patients with metastatic prostate cancer. They have to have a positive PSMA scan and then have had a prior taxane or a prior novel androgen axis drug . After that, then they're randomized into either the PSMA drug or to best supportive care, and then we'll see. We have 750 patients enrollment initiated, and as I said, FDA has agreed to the endpoints on both primary and secondary. When you go to slide 20, you can see some of the deal characteristics. I'm certainly happy to answer any questions, but I think it's relatively straightforward. We funded through cash. We don't expect dilution with respect to this deal.
We expect it to start contributing to group sales in 2021. Our overall financial expectations is the medicine has a blockbuster potential, and if we are able to get it into earlier lines of therapy, we can have even higher sales potential with this medicine, which would generate an attractive IRR to the company. Of course, all of this is subject to the appropriate approvals from Endocyte shareholders and the relevant regulatory agencies. If you go to slide 21, the expected next steps for the deal, of course, we'll continue to generate the data and provide additional information as it becomes available. We will file the proxy statement with the SEC, and we are hopeful to have closing in the first half of 2019, subject to the various considerations. Moving to slide 22, last slide before I'll turn it over to Harry.
We are going to hold an R&D and investor update on November 5th. We'll have a deep dive on AVXS-101. We'll have some of the key scientists there so investors can speak to the team directly on where we are in that program. Then we'll have a number of other detailed updates on a range of programs. A few that I would want to call out that are beyond what we traditionally talk about, QAW039, our CRTH2 antagonist for severe asthma, where we may now start to move towards Study V, that we really want to make sure everyone understands that what we believe substantial potential is for this medicine. We'll go through our multiple sclerosis portfolio, BAF, ofatumumab, as well as the status with respect to Gilenya.
We'll provide you all the RTH258 two-year data and continue to demonstrate the profile of that medicine, as well as provide an update on the oncology late-stage portfolio, building off of the BYL presentation we will make this weekend and provide an update to you early next week. Overall, I think a really strong performance, and I'll hand it over to Harry to give you some more perspective from a financial standpoint.
Thank you, Vas. Good morning. Good afternoon, everyone. As usual, my comments refer to growth rates and constant currencies, unless otherwise noted. On slide 24, you see the summary of our quarter three and year-to-date performance. We continued to deliver good growth, with quarter three sales up +6% and year-to-date sales up +5%. This performance drove accretive bottom-line growth as well. Core operating income was up 9% in the quarter and 7% year-to-date. As you can see, free cash flow grew +10% the first nine months to $8.8 billion, driven by this very strong operating performance. Year-to-date operating income grew 3%, driven by the quarter three operating income declining 13% as we recognized charges for ongoing restructuring programs and the impairment of Alcon CyPass.
Turning to slide 25, we see here the quarter three and year-to-date core margins of the group and each division. Strong sales uptake in Innovative Medicines drove margin expansion for the division and the group. Innovative Medicines margin was up +2.1% points in the quarter, bringing year-to-date margin up 1.1% to 32.4% of sales. Group margins improved by 0.8% points in the quarter at +0.5% points year-to-date, driving the margin to 27% of sales. Slide 26. Wanted to have a quick view on the Alcon sales and margin progression over the past few years based on September year-to-date numbers for each of the years. As you can see, investments in 2016 and 2017 were necessary to stabilize and then grow again the top line. In 2018, the strong sales growth is driving margin expansion.
Year-to-date core margin improved by over one point to 18.6% of sales as compared to a trough margin year in 2017. We have always said we expect some quarterly fluctuations in the margin for Alcon and David Endicott clearly can give you some further flavor on that. In quarter one 2018, the spending was lower, and in quarter three 2018, Alcon increased investments behind some key brands. In quarter four, typically, margins are lower each year compared to the full-year margin due to increases in equipment sales as hospitals finalize their purchases before year-end. Hence, it's always important to look at year-to-date and full-year numbers. Clearly, we expect 2018 full-year core margin to be up with 2017 full-year, and then full-year margin growth in each of the following years.
Importantly, mid to long term, Alcon remains committed and on track to achieve margins in line with the medical devices industry, i.e., in the range of low to mid-20s. The margin expansion is expected to be driven by continued strong top-line growth, improved gross margin, and cost leverage. On slide 27, just back to the guidance. We are increasing our group sales guidance to grow mid-single digits, so at the higher end of what we said before, given our year-to-date 5% sales growth, and we expect that to continue at a nice level in quarter four. This is driven by the strong performance of the Innovative Medicines division, where we also can revise up the full-year guidance to grow in the mid to high single-digit range.
This guidance includes, also when you look at the core operating income, we reconfirm our core operating income guidance as issued in January, expected to grow in the range of mid to high single-digit. As I mentioned earlier, also on the year, the guidance includes AveXis' R&D and pre-launch investments. As you see, this guidance is also very consistent with our year-to-date performance, where we grew sales plus 5% and core operating income plus 7%. On slide 28, just a quick update on the expected currency impact, assuming mid-October rates would hold for the future. On full-year 2018, the currency impact is expected to be flat on both sales and core operating income. As you can see here, the strengthening U.S. dollar has a negative impact on half two, offsetting the positive impacts we have seen in half one.
Should currency stay at the current level throughout 2019, we see a negative effect of -2% on sales and -3% to -4% of core operating income for full-year 2019 results. Please, as always, pay close attention to this as you build your models. As most of you know, we are always updating the expected currency impact each month on our website. With that, I turn back to Vas.
Thank you, Harry. When you go to slide 30, I think just reiterating what we've already told you, we delivered strong and accretive growth in the quarter and pleased with our momentum there. We continue on track to our stated goals with respect to margin expansion and top-line growth. The innovation momentum is continuing for the company. We progress our advanced therapy platform strategy with the agreement to acquire Endocyte, and we're on track to deliver our full-year guidance. With that, we can open up the line for questions.
If you would like to ask a question, please press star 1 on your telephone keypad. If you change your mind and you wish to withdraw your question, please press star 2. You will be advised when to ask your question. We have the first question in the line. It's from the line of Graham Parry from Bank of America Merrill Lynch. Please go ahead. You're now unmuted.
Great. Thanks for taking my question. Firstly, on Cosentyx, could you just give us an update on your contracting into 2019? Have you seen less rebating needed to retain first-line positions, or is ILUMYA and the prospect of risankizumab launch next year skewing that contracting at all? Secondly, on your SMA franchise, could you just give us the best guess on timing of filing in Type 2/3 ? Can you file 2020 on the back of the strong data? Also at WMS, there was some data on branaplam, which seemed to show worse CHOP INTEND scores than we see with the Roche oral agent or AVXS-101. There was dose reduction and discontinuation of the trial temporarily.
Perhaps if you could help us understand how you think that data compares to the other agents in development and in the market and where it fits in your overall strategy going forward. Third is biosimilar RITUXAN. Could you explain when you expect to refile and why you haven't refiled that yet? Last one, just an update on Afinitor. Looking at court dockets, it looks like you've settled most of the litigation and IPRs there. Could we see some protection there beyond your prior March 2020 guidance? Thank you.
Thank you, Graham. First on Cosentyx contracting, Paul?
Graham, thank you for the question. Yeah, it's too early to announce where we stand for 2019, but the conversation's progressed as we would have hoped through the summer. There is definitely a more interesting dynamic for us, a positive dynamic, because we're a significantly larger asset than we were this time last year when we went into this, so we have more leverage. We're also very pleased with how we got pickup in volume in first line. We'll be open-minded and thoughtful, as you'd expect, as we go into 2019. I'm very comfortable with the outlook for us as we transition into next year.
With respect to SMA, I'll just quickly confirm it. On AVXS type 101, type 23, our current stated filing objective is in 2020. With respect to branaplam LMI, I'll turn it over to John.
Yeah. Can you repeat the question regarding LMI070?
John, it was regarding our overall plans with respect to LMI in our portfolio.
We continue to advance LMI according to our original plans. We look at exploring opportunities in terms of combinations with our AVXS-101. Our current plans are to continue to explore our opportunities moving forward in this space.
I'd say, Graham, on LMI, we had some early studies, that I think were disclosed at WMS. We feel good about the overall profile. I would say that our hope is that gene therapy will be foundational, I think the question of whether or not supplementation will be required at all is something that clinical trials will ultimately have to determine. Orals will certainly have a role for patients who have antibodies at baseline or patients who have maternal antibodies prior to being able to get a foundational gene therapy, is how we sort of overall see this space evolving. With respect to biosimilar RITUXAN, Richard?
Thanks for the question. Obviously, we've been working closely with the FDA and had discussions on a path forward for rituximab. We are currently awaiting their written feedback just to clarify the next steps. Once we have that, we'll come back to you and let you know.
Finally, with respect to Afinitor, Liz?
Yeah, sure. Hi, it's Liz Barrett with oncology. Afinitor, we do expect generic competition in Europe beginning of 2019, then limited generic competition the end of 2019 in the U.S. Beyond that, we really just can't give any other information.
Thank you, Liz. Thanks, Graham. Next question?
The next question comes from the line of Andrew Baum from Citigroup. Please go ahead.
Thank you. A couple of questions. Given the appointment of a new Chief Legal Counsel and given your focus on upgrading the standards which Novartis holds its compliance, I would imagine you'd be seeking to close out the numerous ongoing investigations, particularly in the U.S. with the Diovan Attorney General. Could you give us some indications of what kind of timing we might expect in order to reaching closure here? If there's anything you feel you can add at all on financial settlement, I'd be interested, I understand that may be challenging. Second, in relation to Tecfidera, which was obviously lighter than I think the Street was looking for the quarter, could you break down exactly why that was? Was it discontinuation as a function of the data? Was it increased rebating or prior authorization or other factors? That'd be helpful. Thank you.
Thank you, Andrew Baum. With respect to the first question, we're pleased that we have Klaus Moosmayer joining us as Chief Ethics and Risk Officer from Siemens. He has a deep expertise in managing global organizations and really elevating their capabilities on ethics, risk and compliance. Of course, we are thrilled with Shannon Klinger, our Chief Legal Counsel as well now being elevated up on the team. I think overall we have the right team in place. In terms of the various litigations around the world, I can't provide, I think, specific details.
What I would say is we are looking to try to accelerate closing these matters so that we can move forward given the new culture at the company, which is one that on the one hand wants to be much more empowered and curious for our people, and on the other hand wants to have an uncompromising approach with respect to integrity ethics. I think once we have better clarity on any of those matters, we'll give you information. Certainly my aspiration is to try to close off these matters so the company can move ahead in its new strategy and new direction. With respect to Tecfidera, Liz?
Yes. Hi. Actually, there were several factors that contributed to the Tecfidera decline. I think it's really important first to note that we actually had growth in markets except for the U.S. and the emerging growth markets. The emerging growth market's really a phasing, the majority of the decline is in the U.S. There were three factors that contributed to that. One is actually there was a reduction in inventory, that was about half of the decline in the U.S. To your point, it was around the TFR. I think the great news for patients that we delivered at ASCO and presented was around the patient's ability to come off drug, and I think that's something that both physicians and patients are excited about. As patients come off, we didn't replenish the funnel at the same rate, we've seen some of that.
The third factor is really around competitive pressure in the market and what we've done. I think the most important thing is in reaction to that, we're really refining our messages to focus on efficacy both in first line and in second line, because you've also seen an increase in imatinib generic. We want to focus our message and those failures beyond imatinib. I do think that we feel like the decline will stabilize, and we will return to growth in 2019. It's not something we expect to continue.
Great. Thanks, Andrew. Next question, please.
The next question comes from the line of Matthew Weston from Credit Suisse. Please go ahead.
Thank you very much. Three questions if I can, please. The first on AveXis launch dynamics, Vas. Clearly, you've set out the timeline that points to the middle of next year. Can you give us some comfort around the manufacturing supply that should be available at launch if you were to see three global approvals? Also, given expectations for launch timings of drugs sometimes go awry, can you give us your view as to how you see the rollout? Is there a strong bolus that you expect will very rapidly get rolled out, or this is something where reimbursement dynamics and really the first gene therapy out there means that uptake will be slower? Secondly, on VOTRIENT, another drug in oncology where we saw a slowdown in 3Q. Liz, we'd be interested in whether there was anything specific behind that dynamic. Finally, Vas, on Endocyte.
The one thing that slightly surprised us, the deal structured as a merger rather than as a tender, which often suggests there are competition concerns. It's whether or not you're prepared to comment as to whether or not you expect competition commission scrutiny and whether that's around their CAR T platform or whether that's around the lutetium platform and how you see that playing out.
Great. Thanks, Matthew. First on AVXS-101 supply and then the global rollout. I'll hand it to Paul. Paul?
Yeah. There's been a great pleasure to get to know the AveXis team in more detail, and one of the real impressive things beyond the science has been their commitment to world-class manufacturing and on a significant scale. As we got deeper into being credible partners with them, it's quite clear that we can match with the IV and SMA Type 1, whatever the demand may be. We're comfortable there. In terms of rollout, really, we've gone for the breakthroughs in all three jurisdictions, as Vas said, and as they go online, we'll be there to match the demand. As for boluses, I think you mentioned, whilst there is a little bit of a bolus, I'm sure, we again are ready to treat whatever presents and supported by positioning buyer.
I would note as well, as we get further along with AVX, it's important to note that the intrathecal dose is significantly lower than the IV dose, and then supply considerations become much less central. With respect to VOTRIENT, Liz?
With the respect of VOTRIENT, we're actually on where we expect it to be at this time. I think it's important to note that the dynamics of what's happening in RCC, particularly in the first-line treatment with the approval of the IOIO in May, and as well as the impending data that's coming at ESMO around the IO TKI data. I think it's fair to say that in the U.S. and Europe, we expect to continue to see some declines, which is exactly what we projected. I think it's also important to note that we are seeing very strong growth in Latin America, Japan, and emerging growth markets, and recently received reimbursement in China. We actually have some growth markets. They're not offsetting the decline that we are seeing in U.S. and Europe, but it is showing strong growth in other markets.
Lastly, with respect to Endocyte and the structure of the deal, Harry?
Yeah. Thank you, Matthew. There are no specific concerns here, just a structure that both parties agreed upon to do a one-step merger versus a tender offer. Nothing specifically to read into that.
Next question. Thank you, Matthew.
The next question comes from the line of Tim Anderson from Wolfe Research. Please go ahead.
Thank you. On Cosentyx, second biggest drug now, competitive area. We've got the J&J ECLIPSE trial poster report out fairly soon, head-to-head versus your drug. Can you talk about how J&J as the sponsor of that trial may have optimized that trial to increase the odds that it hits? Also your expectations on the odds that it will be a positive trial? If it does happen, what's going to be Novartis' talking points in defense of Cosentyx. Are you going to say it won't have any real commercial impact on the product? The second question, just to clarify on formulary positioning for Cosentyx. You guys kind of got beat up earlier in the year when you rebated, you changed the rebate structure on Cosentyx to try to get out of the rebate trap on first-line psoriasis.
Has that had success in moving you up into first-line access. What do you expect on that particular front in terms of access restrictions in 2019?
Yes, I think for both of those ECLIPSE and the formulary situation, to Paul. Paul.
Thank you for the question. When you sit down with dermatologists in the clinic, clear is clear, and this debate about my PASI is bigger than your PASI is a little bit less relevant. Now, it matters the patient outcome, and of course, the study may read out, you would expect a well-organized competitor to pick its moments to be able to make sure that they had some differentiation. Our confidence in not worrying too much about the outcome is because we think it'll be mainly a campaign or marketing message. Maybe it'll add to the dataset, maybe it'll tell us more about their medicine. More importantly, I think is worth evaluating the ARROW study, the more mechanistic study that we have in play, because the real unanswered questions in dermatology are about the extra manifestations.
I think in one of our backup slides, you can see on the Venn that we care greatly about advancing the understanding. Slide 33.
Accelerating the understanding, advancing the understanding for the dermatology community. Two-thirds of these patients have other complications where predominantly IL-17A is the driver. You have to recognize that the real news will be ARROW. Yes, there'll be some marketing impact, I'm sure, of ECLIPSE, depending on how it reads out, but we're comfortable with that. As for the rebating and for looking, let's look back first. It's the last two years that we've said that we will be thoughtful about our rebating on Cosentyx, and that we trade access enough to grow volume faster than the additional rebate and run a successful business. I think we've proven clearly that we've done that, and very pleased, by the way, with our Q3 performance.
We don't dig deeper and share data on the first-line setting, it performed exactly as we hoped it would do, and it sets us up very nicely for 2019. I said in answer to a question earlier, I think from Graham, that we have got ourselves set up very nicely for 2019. Whilst we haven't advertised what we've achieved, we're confident with the position and the strategies deployed in the last couple of years.
Okay. Thank you, Paul. Thanks for the questions. Next question, operator.
Next question comes from the line of Richard Vosser from JP Morgan. Please go ahead.
Hi. Richard Vosser, JP Morgan. Thanks for taking my questions. Just a question on the Endocyte deal, first of all. First of all, could you give us some help in terms of the proportion of prostate cancer patients that express the PSMA protein on them? Also thinking about the initial indication that you're doing the phase III trial, and it looks like it might be post a taxane, so does that mean you have to fail Taxotere first? Just some thoughts on the positioning there. Perhaps you could give us an idea of whether the royalty payments still stand to ABX post the transaction, whether those stand. Also on the manufacturing, you talked about that being important. Perhaps you could update us and think about the capacity that it brings along with that.
Second area, just thinking about the CRL on generic ADVAIR, perhaps you could update us there. Final question on Alcon. You've helpfully given us a 2023 timeframe for margins in Alcon to hit the low to mid-20s, but perhaps you could give us an idea of the pace of that improvement in margins. Thanks very much.
Great. Thank you, Richard. The first question on just the overall landscape for prostate cancer, PSMA, et cetera, Liz?
Yes, sure. About 70%-80% of patients express PSMA. To answer your question directly, yes, in the trial that we have shown you do have to fail at least one taxane. It doesn't have to be Taxotere, but it has to be one taxane. I think our goal is, in the future, to move it earlier into the treatment paradigm. We will begin to think about that post-close. I don't think we're commenting as far as the royalty is concerned at this point. Lastly, around the manufacturing, there's different types of manufacturing. There's direct and indirect, and the method that they have just gives us the capability of being able to generate less waste and have a more purified therapy. We're looking at how we leverage that technology and that expertise over to AAA.
I think from that perspective, that sort of answers the question on what we think is the benefit of the manufacturing. They are currently using a CRO, so I think that our ability, post-close, to look at the total manufacturing and see the best way forward, we'll look at that post-close.
It's certainly our aspiration to drive that synergy, given the capability we have within AAA to reach patients eventually all around the world through our supply chain. Next, the CRL on generic Advair. Richard.
Thanks for the question. Really to reiterate what we said on the previous earnings call, we've had good discussions and communications with the FDA. We believe we understand what is necessary to get the generic ADVAIR to the market, and we stick with the timelines we communicated earlier, where we see this coming to the market at the back end of next year.
Great. With respect to the pace of Alcon margin improvement, David?
Yeah, just starting with 2017, obviously the trough year. 2018 will be up, 2019 will be up on that. We haven't really commented on the pace, but we intend to have our capital markets day in November, and December, we'll have an opportunity to take you through the margin progression, how we see that. It obviously moves a great deal on our products like our AT-IOLs , our manufacturing productivity, and then leveraging our cost structure. We feel good about where we're going long term.
Great. Thank you. Thanks, Richard, for the questions. Next question, operator.
Next question comes from the line of David Evans from Kepler Cheuvreux. Please go ahead.
Thanks very much for taking my question. It's David Evans from Kepler Cheuvreux. Just on Lutathera, the initial launch, as you point out, has been excellent. Certainly faster than I think probably most people would have modeled. Could you possibly just give us a little bit more of a view on the shape of the launch, how you expect that to look? Are there any kind of sticking points in terms of getting access to the centers and training centers up, or should we expect a typical fast linear pharma oncology launch in the U.S.? Equally, Europe, I would imagine, should be a lot slower. Is that fair? Thank you.
Lutathera launch, Liz?
Yeah, sure. I think you said it appropriately. I think we are seeing what you would normally see in a traditional formal launch, and I think that we were very pleasantly pleased with that. We have over 85 centers in the United States, as Vas showed earlier. We expect that to continue, so I would say you could look at it like you would a traditional model. I think in Europe, you're correct that we do expect a slower uptake of the centers. It is really important to note that it could take up to a year for a center to really understand and be prepared for this therapy. I think the team is doing a phenomenal job. We're also just starting to see reimbursement in Europe. While we do expect it to be slower than the U.S.
I think the majority of the revenue going forward over the next period will mainly be coming from the U.S., but we're really pleased with the uptake so far.
Sure.
Also Liz's team's plan is to get this global over time as well.
Next question, operator. Sorry.
Your next question comes from the line of Florent Cespedes from Societe Generale. Please go ahead.
Good afternoon, gentlemen. Thank you very much for taking my questions. Three quick ones. First, on Afinitor, could you give us more color on why the product decline in Q3 versus the slight growth in H1? Is it due to the fact that we are approaching the end of its patent life? Second question on canakinumab. Could you share with us a little bit more regarding the requirements from the FDA? Is there a new large outcome trial needed in cardio for the future of this product in cardio, or could you provide the data or more information to the FDA based on the trials available so far? Last question for Richard on Sandoz Europe. Europe looks a bit soft this quarter after a 7% growth in H1. There is only 1% growth in Q3. Is there any reasons behind that? Thank you.
Thanks, Florent. Liz, on Afinitor.
Afinitor is really driven by the CDK market and our breast cancer market. That's what's driving the performance there. As you see in the United States, since the CDK market has actually penetrated more, we saw a leveling off of Afinitor. Now that you're seeing the increase of penetration of CDK in Europe and other markets, then you're seeing the subsequent decline in Afinitor. We expect the same dynamic to likely happen as the CDK market begins to penetrate in the earlier lines and in those markets as well.
John, with respect to the canakinumab CRL.
Regarding the canakinumab CRL, as we saw from the CANTOS trial, we knew that the patients who achieved hs-CRP less than two received the most benefit. As we continue, we had discussions and we received the CRL yesterday, we're continuing to explore additional information based on the information that we received from the FDA, we'll have further understanding as we move forward.
We'll provide updates on that as we go. Richard, on the EU generics.
Thanks for the question, Florent. There was a softening of the performance in the European business, let me sort of outline what drove that. Firstly, it's worth noting that we did lap our bio launches that we had in quarter three last year. The prior year was a pretty big year for us with the launches of Erelzi and Rixathon. On the retail side, you're aware that we withdrew valsartan. That had an impact on us as well as some seasonal buying patterns which are constantly varying across quarters in some years, we felt the impact of that. I remain confident about the European business as it has performed well and going forward. We have a number of launches coming up in the near term.
This week we launched adalimumab into Europe in a number of markets, as Vas mentioned. We're optimistic about pegfilgrastim coming to the European business pretty soon, as well as infliximab. I hope that answers your question, Florent.
Yes, thank you very much.
Thanks, Florent. Next question, operator.
Your next question comes from the line of Steve Scala from Cowen. Please go ahead.
Thank you. Several questions. KYMRIAH in follicular lymphoma, the filing has been delayed. The company previously has said manufacturing issues would not delay filings. Is there a change in that? Secondly, Paul, you previously have said thousands of type 1 patients would want AVXS-101 upon launch, which implies multi-billion dollars in revenue in 2019, fueled by, as you have said previously, time is neurons. The answer to Matthew's question was a bit more muted than that very positive portrayal in the past, and I'm wondering if you could amplify. And then lastly, for Richard, biosimilar HUMIRA in the EU, what do you think the slope of adoption will be? For instance, can biosimilars get 25% molecule share in the first year or more? Thank you.
I think first on KYMRIAH. Liz?
No, in KYMRIAH currently our manufacturing, we've just announced a slowdown on trials, but we have not noticed any ending of a trial or expecting that we would delay any trial because of the manufacturing. I think that's the only thing we want to add at this point.
I mean, our aspiration is to keep FL as well as the other B-cell lineage cancers on track with respect to KYMRIAH. Paul, on type 1 SMA.
Steve, I'm sorry if I was somewhat muted. It wasn't my intention. I was trying to respond to the manufacturing question, which I'm comfortable with.
The SMA community is desperate for gene therapy. We do believe it's going to be foundational across all SMA types. Our first indication will be in newborns, and we expect to have a significant demand for that patient population, and we will be ready to match that demand. I should have perhaps mentioned earlier about our North Carolina manufacturing site that we made a big investment into triple our capacity. We're preparing very well for whatever's there, and we do hope that there is a significant number of patients, as much for the patients as for the business.
Thank you, Paul. Biosimilar HUMIRA, Richard?
Yes. Thanks for the question. To answer your question about what market share and what penetration there will be, I think it's an interesting question, and what I would say is if you look at it historically, every biosimilar that comes to the market in Europe, I think, changes the adoption and moves it upwards. We saw that obviously last year with rituximab coming to the market, and you see the penetration levels there. We've also got, obviously, a few competitors coming to the market with us. I think that drives me to be optimistic about the biosimilar penetration over the first year. I'll sort of stand with that. I won't get too specific about numbers, but I do feel the European market's ready for this, and most definitely, the health authorities need to be looking at opportunities to save money, very positive.
Thank you, Richard. Thank you. Next question.
Your next question comes from the line of Eric Le Berrigaud from Bryan, Garnier. Please go ahead.
Yes, good afternoon. Three questions, please. The first one relates to margins in pharma and Sandoz and the way sales to other segments and other revenues are contributing to the margin increase in the quarter. Could you maybe, at least for Innovative Medicines, where it contributed more than 100 basis points out of the 190, explain what is behind, especially the sharp increase in other revenues, and also if sales to other segments, if there's been any shift from corporate into the various divisions? Because it looks like there is a double-digit increase where there is a significant decrease in corporate. Second point on Lutathera, perhaps again, three questions. First, to understand how is it used and whether it's very late in lines like second, third line, mainly. Second, why there's no impact on Sandostatin, as I guess it's additive to Sandostatin.
Maybe to remind us what your plans are to move it in earlier lines in the future. Third, on Sandoz Europe, again, just to understand how the trajectory of the biosimilars could be in year two. Because we can understand that now rituximab, for instance, in Europe, is getting into the second year. How does it look like? Are you able to increase volume? Are you facing significant price decrease? Are you keeping your market share? Because we see the brand name still going down. If it looks more flat for the biosimilar, then probably there is some explanation behind it. Thank you.
First on other revenues, Eric.
Yes. On the other revenues, as you mentioned, mainly driven by Innovative Medicines. This is basically profit split and royalties behind Aimovig and Xolair. From that standpoint, kind of marketing and sales true-up from the profit split where we have marketing and sales efforts in the SG&A line, and then some true-up and limited royalties on other revenues, as well as Xolair royalties from U.S. profit split. That's the main part driving the other revenues up. There's no change in the structure of how we basically work between corporate and respective divisions. We have seen, you may have seen this in the corporate line, that vaccines IP-related royalties have come down significantly, and therefore an increase in the corporate cost line and core corporate expenses.
Thank you, Eric. Lutathera, Liz?
Yeah, sure. Lutathera is indicated for second-line in neuroendocrine tumors, That's where our growth is. As traditionally seen and typically seen in this market, obviously some of the patients initially have been through even more than 2 lines, who've seen the later line, but we do expect to become standard of care in second-line. They haven't seen an impact on Sandostatin because a couple things happen with the dynamics of Lutathera. One, you do have to come off of Sandostatin temporarily, but the trials were done, followed by Sandostatin. Once the Lutathera treatment is complete, the patients go back onto Sandostatin. I think that we believe that Sandostatin will continue to be first-line standard of care, but we are considering looking in and investigating Lutathera in earlier lines of therapy.
Lastly, Sandoz Biosimilars Europe, Richard.
Yeah. Thank you for the question. To answer your question as sort of how we should think about the growth rate. Firstly, I'd like to sort of point out, obviously, for the quarter, we had a 21% growth rate in biosimilars. Of that, the base business, which we sort of call the non-launch business in Europe, also performed very well. We continue to see good uptake on both rituximab as well as etanercept. As we move forward, I still think there is good opportunity to continue to keep growing these products. Obviously, the biosimilar penetration hasn't maxed out. At the same time, we do see some fighting back of the originator, and that generally is in the form of prices. That gives some variability, but we still see these as growth brands as we move into next year. Hopefully that answers your question.
Thank you, Richard. Thanks, sir. Next question, please.
Your next question comes from the line of Michael Leuchten from UBS. Please go ahead.
Thank you. Two questions, please. One on Aimovig. For patients that are coming off the free drug program, I wondered if you had any data to show what happens to those. Are they all converted onto commercial? Is there some leakage? Any color would be helpful, even though it's early days. Then a question on Alcon. Given the CyPass withdrawal, I was wondering how you measure the potential impact on Alcon surgical, given that the business has spent a lot of time rebuilding trust with the physicians community, the surgeon community. Is there any way you can quantify touch points, any collateral damage for the business of any? Thank you.
Great. Thank you, Michael. Paul, on Aimovig.
Firstly, we're delighted with the uptake of Aimovig in the U.S., and indeed, it reads across very nicely to what we think will happen in Europe. That is rolling reimbursement in Europe, the unprecedented demand bodes well for choices made. We're not sharing data yet for the conversion. I think you'll appreciate clearly that our objective early on in the launch was to give physician and patient the earliest opportunity to use the medicine unencumbered, find out if they're a responder, and just how great a responder. That's proven out to be exactly as we thought with the significant uptake. It's also worth mentioning as well, because as we get through the end of the year and into next year and our partner will start talking about the U.S. dollar sales, that we are running both a hub for high touch for neurologists and a retail approach.
We feel that we'll be unique in offering both channels to get drug to patients. We feel good about how we're going to convert and when we're going to convert, I'm not going to share that data right now.
Great. Thank you, Paul. CyPass situation, Dave.
On CyPass, probably the best way to think about the impact is long-term relationship with the surgeons. I think we feel really good about what we did around how we handled this. It was done with a lot of scientific advice from folks we know well, but also in conjunction with the agencies. We've exposed all the data at ESCRS. We'll show it again at AAO. We've made it available to people on our website. Obviously, we continue to work with the agencies around the world to do the next thing we can to see what we can do around the product long term. The important part on this is that the surgical business grew 7% in the quarter. It also continues to benefit from a lot of ATIL push, which I think is your best metric on how we're doing with the surgeons.
I think surgeons appreciated our proactive and assertive response to the signals we saw.
Great. Thank you, David. Thank you, Michael. Next question, please.
Your next question comes from the line of Kerry Holford from BNP Paribas. Please go ahead.
Thank you. Yes, just two questions left for me. Kymriah, just interested to get your view on the sales ramp so far. How has that delivered versus your internal expectations? Are you comfortable with the current consensus forecast for over $200 million next year? Just to understand why you've taken on board the third-party manufacturing for this asset in China with Cellular Biomedicine Group. Is that to supply the local market only? On Gilenya, just following the positive IPR ruling last July, just can you remind us of the next steps here in terms of timeline? Thank you.
Great. Thanks, Kerry. On Kymriah, Liz.
I mean, sure. Thanks for the questions. On Kymriah, where we are today, to be honest with you, we're actually above our expectations given the manufacturing challenges that we've had. I think that's actually a response to physicians really being excited about the opportunity to bring Kymriah to their patients. It's hard to tell where we would be if we didn't have the challenges, but I think that what we've seen is that centers have continued to order Kymriah despite this and because they really think it's important for their patients to get Kymriah. The good news is we've actually been able to deliver the therapy to most of the patients, so we're really pleased to be able to bring this therapy to patients.
On China, as you say, it's because we do need to have manufacturing in China based on China law, we also expect that they'll be able to assist us in gaining access to patient population in China. I think what you've seen over the last few months is we've expanded our footprint for cell therapy manufacturing around the world. I think that shows that we're committed to providing access to this important medicine around the world.
Maybe I'll just add on KYMRIAH. When you look longer term, we really see this as a long-term play, and we're quite confident in the profile of the medicine, which is why we invest in resolving the manufacturing issue in the U.S. We announced a deal with CELLforCURE in France. We announced we will be building a facility here in Switzerland. We announced the China facility to really give us the global supply chain that we need. The reason we do that, as Liz points out, is KYMRIAH has a pretty unique profile we're learning. It's a profile that hits the sweet spot between strong efficacy and solid safety, can be used in the outpatient setting.
When you think longer term about this evolution of the space, it's really going to be about moving to earlier lines of therapy where the T cells are less exhausted and you can generate stronger responses, and you want a very safe profile medicine in order to be able to do that. Our aspiration with this is to get across B-cell lineage cancers, get into earlier lines, have global manufacturing scale, and be able then to really make this into a significant medicine for Novartis. Now with respect to the Gilenya IPR, there's no new updates from what we've told, I think you in the last quarter. We have filed the lawsuits against the relevant parties. We're waiting now the next steps with respect to the various court cases and what these various parties might do.
As soon as we have any further updates, of course, we'll keep you all aware. Thank you, Kerry. Next question, please.
The next question comes from the line of Seamus Fernandez from Guggenheim Securities. Please go ahead.
Paul, thanks very much for the question. Just a couple here. I don't know if anybody asked any questions on Aimovig yet, but just interested to know a little bit of how we should be thinking about the evolution of gross to net and pricing in this area. Obviously, we're seeing some spectacular uptake of the products. There's speculation and awareness that a lot of free drug is obviously entering the market because payers have not really supported yet. Just wondering how Aimovig is going to evolve in terms of gross to net pricing in the U.S. and how you feel once that occurs, how the market is likely to shift in terms of the uptake. The second question is actually on QAW. I noticed that the first two trials that Novartis has reading out for QAW are on FEV1.
The benefits that we've seen on FEV1 so far have been somewhat limited with the antibodies. Just trying to understand how your team has actually managed to or is managing those trials for success, given what we've seen on the FEV1 endpoint in the high eosinophil type area. Thanks so much for the questions.
Thank you, Seamus. On Aimovig, Paul?
I think clearly I'm not going to comment on the gross to net. In fact, just to be clear, Amgen take the lead on that decision ultimately in the U.S. I don't think we should get confused about free drug and trialing with what that means ultimately for gross to net. We were launching several months ahead of competition that were coming thick and fast. We wanted to make sure patients got to try it. It wasn't about coverage or commercial insurance, it was about trial. You'll have also seen as recently as yesterday an update from Express Scripts about the fact that we are already part of their plan. It wasn't just recently, it was from the beginning.
We know over time that the volume has to be converted to commercial patients, and we feel again, very confident in how to do that, and we have the plans in place to do it. I probably wouldn't have much to add. I think that's a Paul Smith.
John on the QAW pivotals.
Thanks for the question, Seamus. Regarding what we saw in phase II, as you know, fevipiprant or QAW039 is the only DP2 antagonist to show improvement in FEV1 asthma control and reduction in sputum eosinophils. We have our ongoing phase IIIs, which are LUSTER-1 and LUSTER-2. We expect to see results in the second quarter of next year. We have that currently powered at greater than 90% for 40% relative risk reduction in the rate of moderate to severe asthma exacerbation. We're looking forward to seeing the results and the exacerbations for next year.
Just to be clear, where we try to position QAW039 is really ahead of the monoclonal antibodies, and we know we need to show exacerbation reductions that will enable that to happen. Our absolute aspiration is that this drug will demonstrate it can be used before biologics and also then used in children where we also have a program to ensure that there's pediatric dosing available over time so that we can really cover the space of severe eosinophilic asthma. Thank you, Seamus. Next question, please.
The next question comes from the line of Marietta Taminiaux from Primavenue. Please go ahead.
Yes, thank you very much for taking my question. It's Marietta from Primavenue. Just a few points of clarification left, really. One is following up on Kerry's question on KYMRIAH. How should we think long term about pay aways to third parties? In terms of China, should we think of your partner as more of a glorified CMO or as someone who gets meaningful royalties or something potentially even approaching a profit split? As we look into the really long term and think about KYMRIAH potentially being a mega blockbuster, what sort of royalty rate pay away should we assume for the various regions? Also, a couple questions on the Endocyte deal, please. The first is in terms of the positioning. I understand that it's going to be much broader than the radiopharmaceuticals currently going into prostate cancer.
Ultimately in the bone met space, is my understanding correct that you would still be competing because you wouldn't be giving two radiopharmaceuticals, one treating just the bone mets and one treating effectively the bone mets plus something else? The second question on that is also, given the somewhat checkered history of radiopharmaceuticals in prostate cancer, would you say that you don't expect any similar problems for your product because it's much more of Endocyte's product, because it's much more targeted? Or are there any particular learnings for your own clinical program, in particular, any tumor settings or patient segments that you won't go after? Then just a small point of clarification on AVXS-101.
Vas, earlier comment that gene therapy is likely to be foundational. Were you saying that you expect orals to show lesser efficacy in the vast majority of patients, and therefore, the gene therapy should remain or should become standard of care for the foreseeable future? Or was that comment really just related to the pent-up demand and the cohort of patients and you're effectively saying that you think if you look at the cumulative commercial opportunity longer term, most of that will have gone to the gene therapies before the orals actually hit the market? Thank you very much.
First on Kymriah global, Liz?
Yeah, sure. I think the way that you should look at it is that we're committed, as Vas explained, to bringing this important therapy around the world. I don't think that there's any additional royalty or other things that we have to think about beyond what we already know. On the CBMG partnership in China, I think we look at it very much as a partnership. They will be manufacturing for us, and they will also work with us to gain access there. We're not expecting any type of profit share there. I think that pretty much answers that question.
It's really important, again, as Vas said before, to understand that we're in the long game and with cell therapy and particularly with Kymriah, and we've seen and we feel like our key stakeholders, the physicians and patients, are excited about Kymriah, and we actually continuously get requests from around the world to have access to this medicine. It's important that we do it, we also do it in the right way, and we're planning to do that. Moving to the prostate and to Endocyte, I do think there's, again, a little bit of a misunderstanding. This therapy is for all patients to treat prostate cancer. I think that's the clearest way that I can explain it. It's not to treat a side effect or any other part of prostate cancer. It's to treat prostate cancer.
What's happening in prostate cancer, I think it's really important to think about the evolution of what's happened in prostate cancer. With anti-androgen therapies, particularly the novel anti-androgen therapies, are moving into the non-metastatic setting. You're seeing the need for more therapies in the metastatic setting. We see that this will be an important medicine for all prostate patients with PSMA, which as I noted before, is about 70%-80% of the patient population. I think we've demonstrated through the launch of Lutathera and that we can bring this important therapy to patients and that physicians and centers and nuclear medicine physicians are interested in and excited about bringing these types of therapies to patients. I think we feel very good about the prospects for the prostate cancer area. It's a large market, and these patients are in need of additional therapy.
Maybe if I could just-
Can I just clarify? Sorry. Can I just clarify on that point? I thought that the vast majority of metastatic patients, the first metastases that develop or the main metastases are the bone mets. Are you basically expecting to be as good on bone mets as other therapies but have the broader application? Would this be treated separately?
Let me try one more time, Samir. When you think about radiopharmaceuticals as traditionally conceived, you're infusing a radioactive compound systemically, IV, and those radioactive compounds have certain affinities. Radium has affinity in places where there's calcium, radium builds up in the bones, but you have systemic side effects, and you don't have a very targeted approach to all of where you find the relevant cancer because this is really infusing a radioactive agent. Radioligand therapy, which is what we do with Advanced Accelerator Applications and what we do here with Endocyte, links a scientifically well-understood ligand that's specific to a specific cancer that's linked to a radioactive particle through conjugation chemistry. In the case of prostate cancer, there is a well-understood antigen called prostate-specific membrane antigen, PSMA, which is used as a diagnostic and ultimately used for treating the cancer.
What our aspiration is, based on all the science that we understand, is that these PSMAs are overexpressed on prostate cancer cells. Wherever you find prostate cancer in the body, you will be able to treat with radioligand therapy as that conceived by Endocyte. Our expectation is we will be able to work well in bone mets, but more importantly, we will work well for anywhere in the body that you find prostate cancer. We hope to create overall survival benefits and progression-free survival benefits in the indication of prostate cancer.
All right. That's clear. Thank you.
Thank you. On AVXS-101 as a foundational therapy, really what we believe, we have to ultimately generate the data to show this in SMA 2/3, on SMA 1, we've clearly shown this is the foundational therapy, potentially lifelong, clear and compelling efficacy, remarkable efficacy, and so far what we've seen over now patients beyond 4 years consistent effect. In SMA 2/3, we have the studies running. Mechanistically, we believe correcting the SMN1 gene fundamentally is what you want to do here, that's what we're trying to do with this, that should enable the speed of action and the hopeful clinical benefit that you want to see in SMA type 2/3. We need to show that, we believe gene therapy would become foundational in those patients as well.
I think we always have to remind ourselves here that this is an absolutely terrible disease. You meet patients who have this disease, if you meet their parents, this is an absolutely devastating condition. Having benefits that are quick, saving what motor neurons are available still in the body, enabling function, has a huge impact. When we look at this from a distance, it starts to say, "Well, these things look all very similar." Actually, these differences matter massively to the patients involved. I think that's what we believe will ultimately carry the day with respect to one-time gene therapy for these patients. Next, last question.
The question comes from the line of Tejas Parekh from Goldman Sachs. Please go ahead.
Thank you. I have two questions, please. The first one, Paul, was how would you categorize the recent pricing comments from Johnson & Johnson on kind of the inflammatory inflammation market? Secondly, just more broadly on the pricing theme, can you talk a bit about what you're seeing as it relates to the IL-17 part of the market, and then on the migraine side? Obviously, we saw headlines from Express Scripts yesterday choosing to leave off certain products of that category. Just kindly could you describe for us what you're seeing in that market. Secondly, as I look at your early-stage clinical trials, it feels like you got a bunch of assets now for looking at NASH. How would you categorize your interest in that space? Conversely, what's quite unique is not a lot of IO assets on your early-stage clinical trial.
Is that now a deprioritized area from your perspective, or are they just kind of further along? Thank you.
With respect to pricing and IL-17 and CGRP, Paul, any comments you'd want to make?
I'm not aware of any comments that have been made externally. I think just a couple of observations. We work very hard at affordability and to make sure that those that need the medicine get the medicine. I think that's where our priority is, and I think we have been shown to be skillful in our work with payers and PBMs alike. Perhaps nothing more to add than that.
Yeah, on NASH, we have a lead compound called LJN452 tropifexor, which is a FXR agonist synthetic, which we believe has a best-in-class profile. We've completed two steps of the phase II-B study for now and a final dose escalation. We believe because of the profile of the product, we can avoid pruritus, we can avoid LDL elevations and get the effective dose much higher than other established therapies. Given that we have that product, we've announced collaborations with a few external parties on combinations as well as our own deal for emricasan from Conatus Pharmaceuticals, where we have a combination trial ongoing as well as rights to some of their compounds. We also have an alliance with Allergan to do a combination trial there. Our belief is in having that linchpin molecule for and having the FXR will enable us to hopefully combine with multiple other agents.
We play a long game here. We know there's many other companies in phase III. We think understanding the underlying biology and having the real best-in-class agent is the way forward in NASH. Stay tuned as we get more results. With respect to IO, I wouldn't say there's a change in strategy. What I'd say is we, in observing the external environment, have held our IO assets to a very high standard, and we want to ensure that we see either single-agent activity or a situation where we're confident that the activity we see can be attributed to our IO compound. I would note with canakinumab, we have a pretty large phase III IO program that is validated based on studies, an analysis of a 10,000-patient study published in the New England Journal of Medicine where we're in adjuvant lung cancer, first-line and second-line lung cancer.
We, of course, are also in CAR T-cell therapies. We continue our work across the full range of IO assets that we brought in. I think by last count, we have either tied or leading number of IO assets that are in the early stage clinic. From my perspective, we want to hold them to a high bar. We want to really ensure we see single-agent activity and then in combination, really be sure that the additional agent is giving a benefit so that we're really creating value for patients and for the healthcare system. I think that's the last question. I appreciate everyone joining the call, and of course, appreciate your interest in investing. All of you who invest in our company, we appreciate your support. Thank you again, and have a great day.
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