Ladies and gentlemen, good morning or good afternoon. Welcome to the Roche's Half Year Results 2018 conference call. I'm Iruna, the call's operator. I would like to remind you that all participants have been placed on only mode, and the conference is being recorded. After the presentation, there will be a Q&A session. You can register for questions at any time by pressing Star and One on your telephone. Should you need assistance, please press Star and Zero to call an operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Severin Schwan, Chief Executive Officer of Roche Group. Please go ahead, sir.
Good afternoon, everybody. Welcome to our briefing on the Roche Half Year Results. You have seen that we presented a strong set of numbers this morning. Sales up 7% overall, 7% in Pharma, very much driven by the newly launched medicines. Also solid results in Diagnostics with 6% up, again, very much driven by our immunodiagnostics business. We continue to grow in the mid-single digits this year. You see very different dynamics from a regional perspective. We see a very strong growth in the U.S., again, driven by our new product introductions. On the other hand, in Europe, a decline as expected due to the entry of biosimilars, where MabThera in particular is affected. Again, to put it into context, the share of more recently launched medicines is increasing rapidly.
We see for the first six months of this year that the new medicines contributed for a growth of CHF 1.5 billion, and this was offset by the more mature products, primarily MabThera, also starting with Herceptin of CHF 400 million. Of course, overall, that leads to the strong growth we could present this morning. It's not only about the new launches, it's also about the portfolio which is ramping up very nicely. We have now 16 new molecular entities in late stage. It's not only about the numbers, it's also about the quality of this portfolio. You see we stand now at 22 Breakthrough Therapy designations, four alone in the first half of this year. Margins remain strong. In fact, for the first half of this year, we could even slightly increase margins. Earnings per share at 19%.
That, of course, is also very much driven by the benefits from the U.S. tax reform. If we exclude those, we would still grow at 8%. That is slightly ahead of sales. Again, that's really what it is about. It is about rejuvenating our portfolio whilst we have biosimilars entering to, on the one hand, replace our existing businesses, not only in oncology, very much so actually in ophthalmology, where we have interesting opportunities coming through. Also in flu, with the new medicine we have partnered with Shionogi. Then, of course, in addition to that, we are entering new franchises. Just one number here. There is no doubt that this was the highlight of the first half. Ocrevus strongly growing, and we have hit now CHF 1 billion for the first six months. This is actually the most successful launch in the history of Roche.
Let me conclude with the outlook for the full year, again, point out the strength of this late-stage portfolio. We have now 16 new molecular entities in our late-stage pipeline. This is a new record for Roche. This is really in combination with the successfully launched new medicines. This is what gives us the confidence to grow our business not only for this year, but beyond the current year. This year, we expect the dynamics to continue for the full year, that is mid-single digit for sales, core EPS broadly in line with sales. If we exclude the U.S. tax reform, we would expect to grow EPS in the mid-teens, and on that basis, also be able to further increase our dividend in Swiss francs. Thank you very much. With this, I hand over to Dan.
Good afternoon, good morning from my side as well. It has been a very strong first half year for the Pharma business at Roche really three different areas that I'd like to emphasize. One is we're really actively managing the entirety of the business as we go through this transition from the standpoint of the top line by performing extremely well on the new launch products. The portfolio is also performing very well. On the bottom line, we're really managing the transformation of the organization from the standpoint of doing everything throughout our organization to look for ways to get our medicines to the market faster, at the same time, getting productivity and efficiencies out of our business.
Finally, the third highlight for the quarter, well, actually for the half year, is really shaping the future of how R&D and patient care will evolve with our digitization strategy within Pharma, which really involves some strategic transactions relative to Flatiron, FMI, and medicines like entrectinib that will fill out our portfolio. How does that all play out in the numbers? I mean, a very strong 7% growth for the half year. You can see how strong the new products are performing in the U.S. with a 15% growth. This is really driven by Ocrevus, Perjeta, Alecensa, Hemlibra, all frankly exceeding our expectations in terms of their launches, we expect that to continue. In Europe, you can see, as expected, the impacts of the biosimilars. It really is according to our plans.
At the same time, just really starting in the second quarter, so just before the half year, we're seeing now very good uptake in a few markets that are fast launchers in Europe, like Germany, Switzerland, others, with our new medicines, Ocrevus, Hemlibra, and others, starting to offset a bit of that biosimilar decline. Japan, despite some of the price declines there, strong growth as to strategic products, very good launch of some of the new medicines like Tecentriq, Hemlibra. Also in the international region, we see good growth. Certainly many countries around the world are contributing here, but in particular, I want to point out China, where we achieved reimbursement for Avastin, MabThera, and Herceptin at the end of last year, we're seeing that now pull through.
That is also indicative of, I think, the ability for China to be able to launch and seek reimbursement for newer oncology medicines in a much faster period of time than we have in the past. When I talk about active management, I think the P&L is a great place to point that out with the figures here. On top of that 7% sales line, we have a significant gain in the royalties and other operating income for the first half of the year. I do want to point out that we had some divestments of around CHF 144 million on the Chugai side in the first half of the year. We don't expect those divestments to repeat themselves in the second half of the year, so we expect certainly a moderation on that line as we go into the second half of the year.
On the cost of sales line, I really want to point to, of course, in the cost of sales line, we also have some outgoing royalties on some of our newly launched products like Ocrevus. I point your attention to the COGS and period cost line, because as you know, we've been for years now, and we're going to continue our lean management production program. I'm very pleased to see that based upon the new product margins, based upon the lean management of that line, based upon management of inventory, we have a COGS and period cost of 3%. I would point out that that is really to be compared to an overall volume growth for the division of 11%.
Some very strong output there and bodes well for the future in terms of our ability to manage the transition with biosimilars with active management of the cost of sales line overall. M&D efficiencies that we're seeking throughout our network allows us to launch these new medicines, put the appropriate power behind them to get the types of launches we're getting, and yet do it much more efficiently. R&D, the strength of the portfolio coming through into phase III has never been stronger. We want to invest in that area, but invest in a productive way. G&A growing very much in line leads to a very strong core operating profit growth for the first half of the year of 11% on that 7% sales growth.
Here's the core of our business, which is the success of the new product launches really more than outweighing the decline that we see in biosimilars. Very strong growth, as you see, predominantly first in the U.S., with some emerging growth in Europe on some of the newly launched products. I'm going to speak about most of these. There's just two products I want to comment on this chart that I won't speak about later. That is Lucentis at 16% growth. Very strong performance. As you remember, we launched our pre-filled syringe in the beginning of this year. It's a competitive advantage. We're seeing market share gains in every line of therapy for Lucentis, and that's really a good news story that we expect to continue that type of momentum as we go into the second half of the year.
The other product that I don't have a special slide on right now is Hemlibra, a really strong launch in the United States. Only after two quarters in the U.S. and where we've launched in Europe, we're at above a 20% share. Remember, this is the smaller portion of the market, around 5% of the total hemophilia market. It's important to see that uptake, to see that experience with hemophilia physicians and patients having a very good experience with it bodes well as we go into the second half of the year preparing for the non-inhibitor launch with Hemlibra. The oncology franchise overall growing well. You can see the Herceptin franchise growing at 7%. I'll get into that later. Avastin, just to comment, it's a bit of a tale of two stories.
We've had some price pressure in France, for instance, which has affected our first half year sales. We do see some effect of some of the cancer immunotherapies in the lung setting in the United States. On the other side, we have very strong growth in some of the emerging markets, particularly China, as I mentioned before. We added, yet the 10th indication for Avastin in ovarian cancer in the first half of the year. Tecentriq, 37% growth we see growing now with the launches outside the United States in the later line lung cancer settings and in bladder cancer. As we've seen in previous quarters, the evolution of the EGFR market, with Tarceva declining and also the melanoma market having more options for Cotellic and Zelboraf.
Of course, we're looking forward to some of the triple combinations with our Cotellic, Zelboraf, and Tecentriq, which we expect to see a bit later this year. HER2 franchise, really a strong success story with the uptake of Perjeta in the United States, in the adjuvant, and expanding out that neo-adjuvant setting, 36% growth. A very good label in Europe was approved in the second quarter, and we're now beginning to launch that. Good signals in the countries that are launching. You can see the number of guidelines that are pointing to the standard of care shifting in the early breast cancer center area to be able to provide more women with a chance for a cure. That includes the NCCN guidelines, the ASCO, and Europe, in particular, the St. Gallen and the AGO guidelines are important as well.
We've seen just the very beginning of Herceptin biosimilar impact in Europe. That will come now in the second half of the year as expected and as in our plans. Kadcyla, 11% driving outside the U.S. growth. Continued uptake of Perjeta in the United States. We're just really beginning that introduction in the adjuvant setting, and obviously the beginning now of that approach in Europe. We're looking forward to seeing that develop over the coming quarters. On the hematology franchise, clearly, we're entering this rejuvenation phase. Of course, we see, as expected, the erosion in biosimilar volume. We're seeing Gazyva growing with 38% in the inland setting.
Really some strong data on Venclexta, of course, in the 17p deletion. Now we have the approval in the general relapse refractory CLL setting, which we're looking forward to working with our colleagues in AbbVie to bring throughout the many markets around the world. Very good news on the accelerated filing for a large unmet medical need in AML. We continue to see uptake of Gazyva as we go into the second half of the year, and we'll see the phase III results from the CLL14 in more detail. We expect to see the EU approval of the Venclexta plus Rituxan. Very importantly, we'll be working with FDA on the accelerated filing for polatuzumab in the relapse refractory MCL setting, which is where we've also seen some efficacy with the CAR T-cells.
We think we have a very competitive offering in that segment and in that area. Alecensa, you may have seen the data at ASCO. I hope you did, with the close to 3-year data suggesting that patients do not progress on their disease for 3 years with Alecensa as compared to 10 months with crizotinib. Really astonishing data. Some of the strongest data we've seen in the metastatic setting in cancer, and that's been reflected now after just a couple of quarters. We have U.S. new patient share at around 60%. In fact, our market share in the U.S. in the first-line setting around 60%, a really strong launch in Europe. We will continue to see this momentum as we change the standard of care for first-line lung cancer patients without positive mutations. The immunology franchise, more than CHF 8 billion annualized now.
Back to double-digit growth with our major drivers, of course, with the exception of MabThera, Rituxan. You can see Esbriet growing now at 15%. We continue to be the market share leader growing into the mild and moderate segment. After a rather weak first quarter, we see Xolair rebounding to 14% after some supply issues with the diluent. Now that's been resolved, and we're back to good growth there. Actemra, continued double-digit growth with the auto-injector being approved now in Europe. We do expect this franchise to continue to have very strong growth into the future. Without a doubt, the highlight I would say of the first half of the year is the Ocrevus launch, now more than CHF 1 billion at half year.
After just four quarters of launch in the U.S. and really just beginning in Europe, we're at a CHF 2 billion annualized rate already in a market that's more than CHF 20 billion, at a 10% share after four quarters. Very importantly, 1 out of every 3 patients that are new or that switch therapies in the MS space are going on Ocrevus. We have around a 30% new and switching share, which bodes well for the future with good return rates commensurate with other medicines in the field. Really strong. We're now up to 50,000 patients treated. That's important for the size of the database and the confidence. Very good launches, as I mentioned before, looking like the same trajectory that we've seen in the U.S. and Germany and in Europe.
All of this leads to, I think, a picture that gives us confidence in our ability to be able to grow through the upcoming biosimilar erosions, which we have no illusions for. We know it will be a strong erosion. This is why we have that confidence, is because if you look at the new products launched in the past several years, we're now at a CHF 9 billion annualized rate. This accounts for 96% of our sales growth. Of course, these medicines are not fully launched in their markets. We have line extensions, significant line extensions that we'll continue to grow these markets with. We have new medicines that will come to the market, hopefully baloxavir at the end of this year, next year could see polatuzumab and entrectinib as well. Good solid half year results on the top and bottom line.
I just picked out a couple of things on the innovation side that I thought you might be interested in. I think the HAVEN 3 study was really indicative of the type of benefit we bring to patients in the non-inhibitor area, the largest segment of the hemophilia markets. I really point your attention to the data that was presented at Glasgow around the switching of patients from well-controlled prophylaxis factor VIII to Hemlibra once a week subcutaneous. That's a 68% reduction in bleeds. Also point your attention to as a part of the study, patients were asked about their preference of Hemlibra over factor VIII, and you know the importance of patient preference in this area of hemophilia. 98% of patients in this trial preferred Hemlibra over factor VIII prophylaxis.
This combined with the HAVEN 4 study that shows that we can get to doses as infrequent as once a month with subcutaneous has the true profile to transform the care of hemophilia patients in a non-inhibitor setting. We look forward to working with the FDA first to get this approval in the second half of the year and to bring this to patients in the U.S. and then next year in Europe and beyond. Certainly been a busy quarter, a busy half year for our cancer immunotherapy portfolio in general. My first slide focuses on lung cancer. I'll be talking about other cancers on other slides. A wave of positive readouts.
I think it's important when you look at this slide to also put into context that we play in every aspect of first-line lung cancer, whether that's with our targeted medicines like Alecensa, Tarceva, whether it's with Avastin, which has been a standard of care and proves to be a standard of care in combination with Tecentriq in the future, or whether it's with Tecentriq. Of course, we still have studies to read out. You remember from the first quarter the IMpower150 trial data and in particular the PFS and OS at the interim overall, but importantly also in a subset of patients more difficult to treat frontline lung cancer patients with genetic mutations and alterations or where the cancer has spread to the liver.
In addition, I would like to highlight the data that we have yet to completely expose you to, but what we articulated, the IMpower130 data that's with the ABRAXANE backbone, smaller percentage of patients, but we reported out both PFS and OS with that data. We also informed you that we had PFS and OS with small cell lung cancer as well. Of course rounding that out, we'd be presenting more data on the 132 and 131 as we go into the second half of this year as well. All of this data will be put into context as we come up to World Lung and to ESMO. Outside of lung cancer, we really had some very strong results in our phase I-B for hepatocellular carcinoma in the frontline setting in combination with chemotherapy and Avastin.
What you see here is a very good early signal of response rate. In discussions with the FDA, they also saw the interest in this data and granted Breakthrough Therapy designation. It's our intention to work as quickly as possible to continue to extend this phase I-B trial, support it with other studies, also look to bring this treatment regimen to patients in what is a very devastating disease as quickly as possible. We hope we can do that already in discussions with the agency in the coming months to look at an accelerated possible filing of this medicine. The last slide I have on Tecentriq is something where we haven't seen an effect in the frontline setting yet with cancer immunotherapies, and that is the IMpassion130 trial, so that's Tecentriq plus chemotherapy in the frontline setting.
We reported out PFS with MET, a very encouraging OS benefit at the interim. This study will continue, but we look forward to presenting this data to you coming up most likely at ESMO. You see the entirety of our program. We have many more trials to read out, including 2 more in 2019 with Tecentriq backbones. We have a targeted therapy with ipatasertib in triple-negative breast cancer in first-line diagnostic positive patients that we will continue to pursue. For an area that has not had a lot of innovation over the past many years, we're excited to be making some advancements in this area. Shifting from cancer immunotherapy to our CNS pipeline. Very encouraging data on our SMN2 splicing modifier for SMA. This is early data from phase II, III studies. We believe that what we're seeing here is potentially best-in-class data.
I point your attention in particular to the fact that 94% of patients treated for a minimum of 4 months had at least a 4-point improvement on the CHOP INTEND score. This, for other medicines in this field, has been superior to what we've seen at this stage with other medicines and looks very similar to what we saw with gene therapy. I remind you, this is a small molecule, so it's an oral medicine, and we look forward to continuing to progress this study to see how it ends up and how it works out. Likewise, we presented some data just today at the AAIC in Chicago on our 2 Alzheimer's disease programs. We've been encouraged over the past days, both by our own data, but also data outside of the company relative to ongoing evidence on the strength of the anti-amyloid hypothesis.
We're very much in a leadership position here with two medicines, crenezumab and gantenerumab, as you can see, covering different parts of the evolution of plaque development. Very pleased to say that we just announced this week that we have full recruitment on both trials on crenezumab, we are now recruiting our two studies for gantenerumab. I just point your attention to data that was presented that is extension data from the phase II that shows for both medicines that we are reducing significantly plaque as we look at these patients in the phase II extension over time. I would also just point out, for instance, that the dose levels that you're looking at with this data on anti-amyloid reduction are at doses that are far less than what we're taking into phase III.
Finally, just the other day, we announced some very exciting news on the Port Delivery System in ophthalmology. This is a new product, a new entity. It has patent protection for both the device and the formulation of Lucentis that goes into the device. Very exciting data to see that this device that is about the size of a piece of rice and implanted in the eye with a reservoir that you can fill with a new concentration of Lucentis achieved a 15-month median time to first refill. More than 80% of patients had a greater than six-month time to visit refill. We're seeing that the side effect profile of this, it's very well tolerated and seems to be a real game changer in this field. We can see that the letter gain is basically equivalent than what we saw to well-controlled Lucentis patients.
As we know, patients, because of the intervening nature of this procedure, are certainly not compliant in this area. This provides very encouraging news for us. We've already started the activities associated with the phase III program, we expect to have first patients in in the second half of this year. On the outlook, I would just point your attention to some important events coming up for the Roche pipeline in the second half of this year. As I mentioned, both World Lung in Toronto in September and ESMO in Munich will be important data readouts for the breadth of data around both our cancer immunotherapy program and our targeted medicines. I would also point your attention, if you are interested in more information on our Lucentis Port Delivery System, to our virtual pipeline event.
We've also made a decision, as you know, in trying to be agile and get information to you when you need it. We're going to have a virtual pipeline event that we obviously don't have time to get into at these quarterly results on September 13th. I'll be joined with colleagues from the pharma division that will help us get deeper into the portfolio, give you insights into how this portfolio is developing. Finally, it's been a very strong quarter overall for the pipeline readouts. Too many for me to remember it. Let me just remind you that the approvals, we had the APHINITY trial in Europe. We had Venclexta plus Rituxan in the U.S. in relapsed/refractory CLL. We had Avastin in ovarian cancer.
For filings, we had IMpower150, we had HAVEN 3 and 4, we had baloxavir, we had Venclexta in the unfit AML. For phase III readouts, we had IMpower130 and IMpower132, IMblaze370, IMpower133, and IMpassion130. Not on this slide even, but just to raise your attention, the first half of the year, of course, we had the bispecific antibody for ophthalmology. We had polatuzumab and trastuzumab and patisiran. In our CNS portfolio, our SMA, our autism, and our Huntington's and neuroscience had interesting data to pursue and to follow. Busy time at Roche. Thanks for your attention. With that, I would turn it over to Roland Diggelmann for the Diagnostics.
Good afternoon, good morning also from my side. I'm happy to present Diagnostics results. It's been a very good second quarter. It's been a good first half year for the Diagnostics division. 6% growth on the top line across the division driven by centralized and point-of-care solutions. The largest segment, which is leading off here with 6%. Overall, the lab diagnostics business growing very well at 7%. In total, that is centralized molecular and tissue diagnostics. Diabetes care was a 1% growth. Good growth in the U.S., but also on the heels of a weaker first half in 2017. But generally and overall, we see very good continued momentum in the lab business. We expect to carry that forward in the second half. A similar picture also on the geographic distribution. All regions growing, with the exclusion of Japan off of a small base.
We expected that. That is largely HCV testing with the advent of the direct-acting antivirals. For the rest of the regions, very good growth, led again by Asia-Pacific with 14%. China with 16% and a very good second quarter. Also other emerging markets that I'd like to point out, Mexico, Turkey, Russia, all growing above 20%. Then nowhere also, U.S., North America growing 7%, both with good molecular growth and the central lab doing very well as well. Some of the growth drivers in a bit more detail. As mentioned, the centralized and point-of-care serum work area business doing very well. Immunodiagnostics continues to do well, 9% growth. Clinical chemistry, 5% growth. The integrated core lab at the core of our strategy continues to do very well. In diabetes care, on the traditional blood glucose monitoring, a 1% growth.
This is also due to the introduction of the new meters, the Guide and the Instant meters, with a good reception and increasing testing volumes in diabetes. On molecular virology up 4%, very much driven by HIV, and here it's the global access program. Then a really outstanding HPV growth with 30%. This has a lot to do with us winning the majority of the primary screening for HPV in Australia. Then you see the cobas Liat point-of-care molecular. We were able to benefit from a very strong flu seasons in the U.S. and across the northern hemisphere with over 200% growth. Finally, tissue diagnostics. Advanced staining growing 12%, primary staining growing 16% even. Let me switch to the P&L here.
What you see is the sales of 6% flat core operating profit development, which has largely to do with two elements here that I'd like to point out in a bit more detail, which is royalties and licensing. On the other hand, high spending rate on R&D. Royalties and other operating income expected. We knew that our PCR licenses income would decline, then there is a one-off income from a license settlement from 2017 that we knew that wouldn't repeat in 2018. Cost of sales. Under sales growth, largely a lot of volume growth here, investing in the future, investing in instruments into the market. M&D also growing below sales line. In R&D, this is also coming off a very moderate growth in the first half of 2017, where R&D grew actually only by 1%.
Some investment in late stage, in particular, larger systems, cobas PRO, which I'll talk about, then also in some digital platforms and sequencing. Finally, G&A up 4%. We also have some one-time effects here with the medical device excise tax credit in 2017. Overall, the G&A line pretty well under control as well. I should also point out that we expect the core operating profit to increase for the full year 2018. I briefly touched on the cobas PRO, which is a medium throughput serum work area solution that we're about to launch in the second half. Very important part of our portfolio. We have introduced the E801, which will be one component here for the very high throughput solution. We're continuing to build this portfolio in a very modular fashion, seamlessly integrating into the integrated core lab.
Really focusing on everything that has to do with simplification of laboratory work. Many features, such as improved maintenance, higher onboard stability of reagents and others that will be found in this system. We're very confident that we'll continue to capture share also in the medium throughput segment. Also investing in a leading reagent portfolio. Here, what you can see is a very exciting breakthrough device designation that we just received from the FDA for Alzheimer testing. This is a cerebrospinal fluid test, the first of its kind, which measures actually it's two tests, p-tau and beta-amyloid. With that, actually providing broader testing availability for laboratories as opposed to the current standard of diagnosis, which is PET.
We have a concordance claim with PET, which is very exciting, we're looking for a progression claim as well to literally identify patients at a higher risk of disease progression and really being able to generate quantitative results over time here with this test. Also expanding on more of the test menu on molecular. What you see here is the main menu that we intend to complete for 2018. Some outlook on 2019 of additional menu coming onto infectious disease. This is, of course, combined with the further growing of the install base. We're at about 500 instruments in the market, the highest throughput in the segment, of course. The highest walkaway time for the lab. Again, looking at efficiencies in the laboratories, automation, and ease of use.
Finally on the portfolio, we are launching the Accu-Chek Solo micropump system, so-called patch pump, which is a new approach in taking discrete and tube-free insulin pump therapy. Making this again, putting this in the hands of the people and the patients with diabetes and really enabling them to manage the disease. User-friendliness is very high here on the list. At the same time, convenience in terms of the modular design, being able to detach and reattach the pump and maintaining some other features from the fixed and the durable pumps, such as the bolus buttons and bolus insulin delivery. This will also continue to help us to move into digital and the entire management of the disease, with connection across other solutions to better manage actually the disease through this pump, through other means and features.
We're introducing this in the CE mark countries, with a controlled launch in Europe for the remainder of the year. Further launches in 2019. Also filing for FDA in the United States approval in the future. So it's been a very busy first half. Many achievements along the instrument and device segments. I mentioned cobas PRO, which is the largest one, which is still coming for the second half of the year. Not the least also some further developments in software and decision support with our NAVIFY Tumor Board solution, which is also now able to integrate EMR data and which will continuously evolve across with the collaboration that we have with GE to also integrate imaging information. This is my last slide. I'm just pointing out a couple of events that we are staging this year.
Notably next week at AACC at the largest convention in Chicago, we'll have a special analyst event. Later in the year in November, our Roche Diagnostics Investor Day in Rotkreuz in Switzerland on our premises. With that, thank you for your attention. Happy to hand over to Alan Hippe.
Roland. Welcome to everybody. My pleasure here to present really an excellent set of numbers here. Couple of highlights at the beginning. I think all set. Sales growth of 7%. Operating profit up by 10%. I will dig a little bit into that. A great momentum operationally, a little bit of an effect, which Dan has already mentioned the first half, as I come back to that core EPS growth at +19%, and certainly boosted by the impact of the U.S. tax reform. When you exclude that, we would have gotten to 8%. Cash flow. I think great story on cash flow.
I think that really has developed quite nicely in the first half. It is really mirroring in the net debt development, which is CHF 2.5 billion lower versus the end of June 2017, despite the fact that we had quite some outflow for acquisitions, and I will explain that on a later slide. Net financial results are quite beneficial. That leads to the IFRS net income up 33%, due to business growth on one hand, and lower impairments of intangible assets on the other hand. Here you see the full set, sales to cooperating profit. One effect I will dig into, good business quantity income, as said, boosted by the U.S. tax reform as the core EPS was flat 8%. IFRS net income, very much driven by the business, but at the same time, also driven by lower impairments in the first half of 2018.
You really see the operating free cash flow with CHF 8 billion in the first half at 2018, and the free cash flow at a level of CHF 6 billion. Good. Let me go through the P&L here. I think my colleagues have done a great deal already here to explain that. I won't go through the sales line. When you look at royalties and other operating income, you see really an increase of 19%, up to CHF 1.4 billion. What we have in here is really some impacts from divestment. Divestment gains that we have had in the first half. We won't see these effects in the second half. Basically we're getting back to the previous year level or the level that we have had at the end of 2017 on the royalties and other operating income line.
Cost of sales up 8%, but here are two different elements to mention. One is really here, the COGS and the period costs, which went up by roughly 4%. As described, I think a lot of good momentum here when it comes really to lean management and efficiencies. The other point to mention here certainly is that this means that the gross profit margin increased from 80.1%-80.5%. The gross profit margin improved in the first half of 2018. Really I think what comes on top is the royalty expenses. Certainly the royalty expenses are driven by Ocrevus, which I think is a very positive thing. That was roughly CHF 180 million on top here. As you've heard already, also from Dan, we have a couple of royalty expenses going away in the future, so we feel pretty comfortable about margins.
M&D, I think a very solid, very disciplined development. Same applies to R&D. You have G&A with +5%, which is in absolute terms, CHF 55 million, very much driven by legal costs and the acquisitions, which leads to a cooperating profit growth of 10%. When you look at the margins, overall group at 39.7%. Pharma did a great job increasing the margin and the Diagnostics division, as Roland explained, with lower royalty income in the first half 2018, but with good momentum in the second half. Core net financial results, relatively small basis here. An improvement of roughly CHF 30 million, which represents a 7% improvement. You see really the bars here. One is about equity securities. We held a stake in AveXis, so we benefited from that. Interest expenses was +CHF 16 million. That's something which might turn in the second half.
When you look really at currency gains and losses, more hedging here, then a couple of smaller things in all other net. Tax rate. Tax rate, I would say a pretty clean development here because the whole impact here is basically the U.S. tax reform, which represents the decrease here to 20.1%. That gave us positive, if you like, in the P&L roughly CHF 400 million. Very much fitting to the guidance that we have given to you. I think even the low 20s is reflected well here. As you know from an accounting point of view, the half year basically represents also what you expect for the full year. I think we'll be on a good level here. The non-core items, that explains the boost that we have seen on the IFRS net income.
Let me start with the core operating profit in the first line here, which went up by CHF 1 billion. We had the restructuring plans and the global restructuring plans in the first half of 2018 basically represent cash out. You have the amortization of intangible assets and the impairment of intangible assets. This is definitely lower than in the first half 2017. Smaller things on the lines of business combinations and legal and environmental. The total non-core operating items improved by CHF 1 billion, if you like, from a profit point of view. The IFRS operating profit went up CHF 2 billion, which leads to an IFRS net income increase of 33% in constant currencies. Let me talk about cash, that's really a strong story. In your first half 2018, CHF 8 billion of operating free cash flow.
Quite a significant number driven by both divisions. You see really a significant number in pharma. You see quite a nice increase in the Diagnostics division. When you put all that together and you look at the major impacts, where is it coming from? You see then the first green bar basically by the underlying business. Networking capital movement is nothing which is really concerning. CHF 200 million really from receivables. As we had significant sales growth in the first half, you can imagine not everything converted into cash already. That's one element here. Another element are the receivables as if the payables. We have the investment in PP&E and investment in intangible assets, very comparable to what has happened last year. That leads to a strong operating cash flow of CHF 8 billion. What does that mean to net debt then?
Let me start on the right-hand side with that dark blue bar, the minus CHF 11.7 billion. That's the net debt position at the end of June 2018. When you compare that with the level at half year 2017 of CHF 14.2 billion, we have an improvement of CHF 2.5 billion. What is so remarkable here is that we have had in the first half 2018, really an outflow for acquisitions of CHF 3.2 billion. We were really able to overcompensate that. I think that shows really how strong the cash flow generation is at the moment. Really when you compare it to the net debt level end of December 2017 of CHF 7 billion, you find then on the left-hand side of the slide, then the operating free cash flow with CHF 8 billion, then outflows for taxes and treasury.
You really see the dividend, which is certainly the bulk of the CHF 10.7 billion in this rose bar. You see really the business combinations. Strong picture here. Certainly net debt to total assets, we are now at a level of 15%, so that's the range where we want to be in. I think for the full year, we are expecting a level net debt on total assets of around 10%, and even taking already Foundation Medicine into account, a transaction which is not closed yet. Balance sheet. Just couple of remarks. When you look at the left-hand side, cash and marketable securities went down from CHF 12 billion to CHF 9 billion. Why that? Cash out for the acquisitions. The other current assets went up by CHF 1 billion, receivables. Non-current assets went up quite a bit.
This is on one hand goodwill and on the other hand intangible assets from the acquisitions. Current liabilities went up a little bit. That's short-term debt. The non-current liabilities went down. These are the pension liabilities which have reduced due to increases in the discount rates. You really see the equity position and the equity ratio, which is now at 39%. Outlook. Let me talk a little bit about currencies, it's a pretty simple environment for us at the moment, I can say. What's really quite interesting is when you look at the left-hand side and really at the June bars for Swiss franc and US dollar or Swiss franc on Euro. You see really that a stronger Euro basically compensated for a negative impact from the US dollar in the first half. That's the story for the first half.
Assuming that all these currency rates end of June remain stable until the end of the year, which is very hypothetical, admittedly, but what it would mean is that the impact from the US dollar, which has been negative, goes basically down to zero. Therefore, the Euro, it means that this positive +9% would reduce to a +5%. What that means in total is basically nothing happens. Still we have a compensating effect as we had at half year, we would have the same compensating effect at full year, and you see that on the right-hand side in the table, what that would mean in the P&L for sales, operating profit, and for core EPS.
With that, coming back to the guidance here, as I've said, I think the guidance is very plausible, when you look really what's happening with our development on the full year when it comes to the royalty income and the other operating income. Nevertheless, very happy that we come up here with an increased guidance. Thanks a lot for your attention.
Alan, thank you very much. With this, we come to the Q&A session. Just as a reminder, those people who join us on the telephone, of course, can ask their questions by telephone, but we also have the possibility for those who join us at the web to submit questions via the web. I suggest that we start with a question from a telephone. Can we have the first question, please?
We'll now begin the question and answer session. Anyone who wishes to ask a question might press star and one on your touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Anyone who has a question may press star and one at this time. The first question from the phone comes from the line of Sachin Jain from Bank of America Merrill Lynch. Sir, you may now go ahead.
Hi, it's Sachin Jain from Bank of America. A couple of financial and a couple of product questions, please. First, on the financials, a commitment to grow into next year that you've outlined, Severin, does that include growing pharma EBIT specifically from the higher 2018 base? If so, if you could just give us some color as to what U.S. biosimilar erosion is assumed within that. Secondly, on margins implied within the 2018 guidance. Obviously, sales guidance has been upgraded through the year from the bottom end being stable to now being mid-single digits, although it seems that margin guidance is roughly unchanged at flat. Just wanted to understand why the additional sales have not had some margin benefit. Then product questions, crenezumab, 2, you mentioned, Dan, you were encouraged by read-through from the Biogen data overnight, if you could specify.
Secondly, at the higher dose, you've seen roughly a 40% improvement in ADAS-Cog and CDR. If, and obviously it's a big if that was repeated in the phase III, would you hit the interim analysis next year, or should we wait for data in 2020 at the final analysis? Thank you.
Okay, let me start off with the question on the guidance and the outlook beyond the current year. First of all, indeed, we expect to grow the business into next year. That, of course, first of all, relates to the sales forecast. We do believe that with the good momentum we have with the new product launches, that this will overcompensate for the biosimilar erosion. Biosimilars, of course, will increasingly enter in Europe now with the addition of Herceptin to be expected to have an impact already in the second half of this year. As far as the U.S. is concerned, we expect the first biosimilars in the U.S. as well. This takes consideration of the biosimilar erosion, both in Europe and also to be expected in the U.S. next year.
As far as the operating profit is concerned, you know that we are losing the income from the Cabilly patent as we go forward. On a gross base, this is slightly above CHF 800 million, I think CHF 830 million. Actually, there are also related expenses to that. On a net base, we are talking about an impact of CHF 600 million, which we have to digest. I'm confident that we can make that up with productivity improvements. I would like to be more specific at this point in time, but overall, with the good dynamics we see with the new product introductions, and I should also say, with the encouraging readouts and the progress in our pipeline, certainly our ambition to make up for the royalty decline. Right.
As far as the margin development is concerned, in the first half of the year, you have seen increasing margins in pharma, actually. We did see a decline in the margins in diagnostics. We had a stable operating profit with an increasing top line. That is primarily a base effect, both on the royalties and also relatively strong R&D expenditures. In fact, for the full year, we expect operating profit to grow beyond sales. That should shift as we go forward. As an offset, however, on the royalties and other operating income, which we have seen at a relatively high level in the first half of this year, we expect that to decline and wash out for the full year so that we will be back about the same level of other operating income and royalties as we have seen in 2017.
With this then, over to the products questions.
Thanks for the crenezumab question. Just important to point out some clarity on the data that we just presented at AAIC. As you rightly point out, we showed, and again, this was the ongoing phase II trials at a point out in time, we showed a 43% reduction in antibody, sorry, A-beta oligomeric levels, which are precursors to plaque, of course. I just want to point, that was in mild and moderate patients. That was actually at a much lower dose than we are taking into phase III. The phase III dose is roughly four times the dose that you see here in this report from AAIC, the two trials that have been recruited. I would not want to speculate on the interim versus the full year. These are two-year trials now that they are fully recruited. I mean, they are two years for a reason.
That is to give us the best chance of showing cognitive improvement, which as we know from previous studies, in mild to moderate patients, takes some time to develop, and we want to give ourselves the best chance there. We will take a look at the data in 2019, the study is powered to seek a result in 2020.
Dan, just a clarification. The data I was referring to was not the AAIC data. It was dose modeling data at that higher dose where you had shown a 40% reduction in CDR. I was referring to that. Any comment on that level of reduction versus the interim? Thanks.
Okay. You are referring to the dose escalation that we did previously. I mean, not really as such. I think what I would say is that the dose we selected was the dose that we thought was going to be optimal to show an effect. And still, as you know, with crenezumab, the safety profile at those levels has so far proven to be quite well. I would not want to necessarily project ahead now to say from that phase II extension data. There is a lot of triangulation that needs to be done. I think it is a well-crafted trial, and we will see how it plays out.
Thank you.
Can we have the next question, please?
The next question comes from Luisa Hector from Exane. Please go ahead.
Thank you for taking my questions. I just wondered if there's any more to say on the dividend, given the strength of your earnings growth this year. Your statement is to further increase dividend. Could you achieve more than the 1% growth that you've seen in the last couple of years? On Herceptin and Rituxan in the U.S., how much did price contribute to the growth that you saw in the second quarter? On Lucentis, could you comment on any stocking impact in Q2, quantify that? I just wanted to check on the port delivery situation in ex-U.S. Do the rights still lie with Novartis there? Thank you.
Okay. Thank you very much. On the dividend side, as usual this will only be decided by, or the proposal for the dividend increase will only be decided by the board towards the end, beginning of next year. I wouldn't be able to be more specific at this point in time. Dan, on Herceptin.
Right. Herceptin, Rituxan, I think your question, Luisa, was around pricing impact. First of all, with Perjeta it's really volume growth overall. 36% Perjeta growth in the U.S. With Herceptin, 11% growth. The growth was driven really by three factors. One, lower sales reserves. Two, longer duration. We know we're getting longer duration of Herceptin, particularly, yes, in the adjuvant setting, but also the extension between the neoadjuvant and the full year of therapy. Some pricing impact also in the Herceptin figure in the totality of it. Largely driven for the HER2 franchise, Perjeta and Herceptin by volume. Lucentis, no, we didn't see any stockpiling of the prefilled syringe. I think there's not excess inventory in the trade by any means. That's true pull-through. Of course, there's always stocking at the physician's office, but nothing unusual that we would see there.
Yes, the answer to your question is Novartis does have opt-in rights to the Port Delivery System ex-U.S.
Thank you.
Thanks. Can we have the next question, please?
The next question comes from Jack Scannell from UBS. Please go ahead, sir.
Hi. Thanks very much. Jack Scannell here. Got two questions. The first relates to different intellectual property strategies relating to biosimilars in the U.S. and Europe. For example, if we look at Herceptin biosimilars in the U.S., there seem to be about 40 patents, which are still being wrangled about. Whereas in Europe it appears that there are none. I just wonder, how much of this is a difference in your patenting strategy versus, for example, the U.S. patent office, what it will give patents for versus the way the courts deal with patents? The second question relates to the Tecentriq trials. I think there's a huge amount of excitement on lung this year, but there's a bunch of other stuff going.
I know it's like choosing between your children, but if you had to point to one of the non-lung Tecentriq indications you are particularly interested in, which one would it be?
Okay. I'm interested in your choice, Dan.
Okay.
As far as IP is concerned, I wouldn't be able to give you a detailed answer on that. There is nothing changing in the dynamics or timelines in our expectations. The delays we have seen for biosimilars was really driven by regulatory action that some of our competitors couldn't enter as early as we would have expected. I'm not aware of any specifics which would make us change our assumptions here. We do expect Herceptin to enter now in Europe, and we do expect biosimilars to enter in the U.S. next year.
Yeah. Thanks, Severin. I think Severin captured it well. Just to avoid any misunderstanding out there, we do have patent landscapes in both the U.S. and Europe on Herceptin, MabThera and Avastin. Where appropriate, we are defending those accordingly. In some cases in Europe now with both MabThera and with Herceptin, some of our fundamental patent landscape has delayed some entrance. Having said that, exactly as Severin said, we expect a full entry on Herceptin with multiple competitors now in the second half of this year. That's on target. To your point, in the U.S., we'll continue to defend those patents. Having said that, we expect entry of MabThera and Herceptin next year in the U.S. That's all baked into our plans and baked into our assertions about the future. Tecentriq, yeah, Jack, you make me try to pick one of my children.
Let me see here. What I would say is the following. I think what's been shown now across multiple different tumor types is that Avastin plus Tecentriq does play a role in enhancing on top of what you would get with Tecentriq alone or Tecentriq plus chemotherapy combination. We've seen that now in renal cell carcinoma, we've seen it in lung cancer, and we've seen it in hepatocellular carcinoma. I'm excited about a variety of things outside of lung. I would point your attention to triple-negative breast. I think that's going to be an interesting one coming up here. Certainly, although early data, hepatocellular also seems to be very encouraging. I wouldn't rule out, sorry, I know you've asked me, I wouldn't rule out the role that we'll play in renal cell carcinoma, particularly in the fit group of patients as well.
I failed, sorry, at picking one, but gives you a little bit of sense into my mind.
We love all our children. Thank you, Dan. Can we have the next question, please?
The next question from the phone comes from Tim Race from Deutsche Bank. Please go ahead, sir.
Oh, yes. It's Tim Race here from Deutsche Bank. I've only got a couple of questions left. Just on Lucentis, should we be looking at this as a growth product going forward? You've previously sort of tempered our expectations for the product, and now it's outperforming. Should we actually look at Lucentis going forward because of this delivery as a growth product for you? I suppose generally, just a question on your Tecentriq platform going forward. You've spent a lot of money on building in a next generation of immuno-oncology products with a Tecentriq backbone. Obviously, data's coming out relative to competitors with PD-1s, PD-L1s, et cetera. Are you considering doing more studies with other people's PD-1s as a backbone? Do you see that there is a difference between PD-1s, and it makes sense to continue with yours? Thank you.
Thanks, Tim. Well, clearly, Lucentis was a growth product in the first half of the year. I can confirm that. You're right, I think we kind of underestimated the competitive dynamics of the pre-filled syringe and a few other things that are going on out there in the market. What I would say is that, to be candid with you as well, that we do expect the competition to also have a pre-filled syringe in the beginning of next year. As we've seen in this market, you can have an advantage for a period of time, and then you can move back to equilibrium and an advantage, move back to equilibrium. I don't think I'm ready yet to kind of guide on 2019 with Lucentis. Clearly it'll be a growth product for us in 2018.
Because of the very clear competition in this field, our desire, and I know this wasn't your question, our desire is to really move the entire field. This is where the two shots on goal, both port delivery and the bispecific antibody, we think we'll be able to get out of this tit for tat over time, and that's what we're looking forward to. Tecentriq, yeah, I think no doubt that with Tecentriq, the data continues to unfold. There's no doubt that we have six out of seven positive trials. Your question about backbone agent is a valid one. I think it's one we don't have all the data to be able to answer. What I would say is that clearly Tecentriq is a backbone agent in cancer immunotherapy broadly.
There may be some indications in some disease states where there could be different backbones developed. I think to your point about the future, clearly we feel confident that the next generation cancer immunotherapies that we are pairing with our Tecentriq, based upon the body of data we have now and the results, that that is the right decision, that's the right strategy to pair them with Tecentriq. We will be data-driven. If something changes our opinion as we progress with this, we will certainly consider and look at that. I would just leave it at that. I would point out because there's also the concept of looking at the bispecific antibodies. We've got two bispecific antibodies that you'll see at ASH this year. One from gRED, one from pRED in blood tumors, and you're going to see those in different combinations.
I think you'll begin to see also how the new agents play in a backbone of Tecentriq, with and without Tecentriq. Thanks, Tim.
Great. Thanks.
Thank you. Can we have the next question?
The next question from the phone comes from Rebecca Harper from Credit Suisse. Please go ahead, madam.
Hi. Thank you for my questions. I've got three, please. On biosimilars, I was just wondering if you'd give any further color on the price and volume erosion for Herceptin in Europe, just the initial launch, and is it similar to what you saw with Rituxan? Secondly, on restructuring, there was CHF 427 million of restructuring charges in 1H. Can I just confirm, I think you mentioned that it was mostly cash, and secondly, should we consider a similar amount for the second half of the year as you continue the productivity improvements? Lastly, on LADDER. Our conversations with physicians suggest that infection rates are one of the key concerns for this device, and I was wondering if you could give any color around them and when we should expect the phase III results in AMD.
Lastly, do you need a separate study for DME or will one suffice for both indications? Thank you very much.
Thank you very much. Do you want to start off then?
Sure. Let me start with the biosimilar. As you know, with MabThera, where we have the greatest body of data now, we continue to have a 75% volume effect and a 25% price effect. That's now after close to a year of experience and data, which you actually need some history to be able to put those numbers. It's a bit premature to answer your question on Herceptin now because there isn't enough launch yet, we don't exactly know where the price points will come in. I'll certainly inform you on that as we go throughout the coming quarters. Suffice it to say, I certainly expect it to be generally similar, generally greater volume than price as we proceed here.
I would just point out, again, at the opportunity of the Herceptin biosimilar, to point out that the subcutaneous has proven to be quite durable on the MabThera side. In fact, we really haven't lost a lot of subcutaneous on the MabThera side. We know that at some point in time, there's a price point where we could see that conversion. The dynamics with Herceptin are different. On the one hand, we have a higher subcutaneous share. On the other hand, we have more entrants and more competitors, therefore, in our modeling, we're expecting basically a similar type of erosion than we had with MabThera, which I think is the right approach to take. On the LADDER trial, I'm thinking about the rate of Let me just look this up quickly. Do you want to handle the restructurings first?
Give me a minute to look at.
Yeah. First of all, the question was about the restructuring charges, CHF 427 million in the first half. Yes, I think that's predominantly cash. We had no major write-downs of assets in there. I think that's a fair assumption. Always hard to tell how is that moving forward. I think experience tells us, yes, there will be additional charges in the second half. I have to admit, I think it's hard for me to say what the exact number will look like, and that's why I pumped back a little bit to the past. There will be charges. I think that's normal, and that's what you've seen in most of our second half in the last years.
As productivity is really on our mind, I think it has shown well in the P&L, as we drive these programs further, certainly, I think there will be certain charges. As said, I think it's hard for me to predict what the exact number will be.
Great. Sorry, Rebecca. I now have the answer that there's no increase in infection comparable to placebo in the Lucentis between the Port Delivery System and the Lucentis. Now, with the experience with the surgeons with inserting the device, it's really a very manageable operation for the patients.
There was the question then on do we need separate studies for DME?
Thank you very much. Yes, we will need additional studies on DME is my understanding.
Great. Thank you very much.
Okay.
Good. Thank you. Can we have the next question, please?
The next question comes from Richard Vosser from JP Morgan. Please go ahead, sir.
Hi, thanks for taking my question. First question on Perjeta, please. Just thinking about the European uptake in terms of the adjuvant indication, could you give us an idea of how the negotiations around price and reimbursement are progressing and whether you'd expect an acceleration similar to the U.S.? Second question, just on Hemlibra. Obviously, you pointed in the presentation to the HAVEN 3 data, which was pretty good. Could you talk about the reaction you're receiving from the KOLs as you go and see them marketing for inhibitors? What do they think of the non-inhibitor data? Also, could you give us an update on your negotiations to attract a furnishing fee potentially for Hemlibra? Final question, just on the U.S. environment.
I think we've seen some canceled price rises in the second half of the year, certainly for the industry and potentially on your behalf as well. How do you expect pricing to pan out going forward? With regard to the Part B reforms, how do you see those impacting potentially 2019, particularly with regard to ophthalmology, and do you expect to benefit in 2019 from the 340B reforms? Thanks very much.
Thank you, Richard. Dan?
Thanks, Richard. Let me just correct something I said before. I think we may not need an additional study for DME with the LADDER study. I apologize. I think I misspoke there before. Richard, going to your questions for Perjeta. The reaction has been I think very positive given both the broad label that we received in Europe and the initial discussions with health authorities, HTAs, I should say, on the pricing. It is very much in line with what we expected. Very routine in European countries that when you expand the patient population, when you have the strong data that we have, when you have the label we have, those discussions, we expect, will go very much in line with our expectations. We are already having good uptake in Germany. No surprises with Perjeta in Europe.
In fact, we would expect the dynamics to be similar in terms of uptake once it is reimbursed in the countries in Europe as well. HAVEN 3 and Hemlibra, yes, of course, I already announced the very good news that this will be a Medicare Part B drug versus Medicare Part D drug that was confirmed by CMS, not the least of which was confirmed because of the very strong ICER report and results. I think that is extremely important, the most important thing relative to potential impact on patients out-of-pocket costs. The furnishing fee is something that we continue to dialogue with CMS on, and there has been some movement there. We think that it is in the range that will be acceptable to the hemophilia centers, and we continue to work on CMS with the final publication of that furnishing fee.
We would go to U.S. pricing environments. A couple of things on that I think are important to put into perspective from the Roche business side. The first one is that, as you know, at Roche and Genentech, we have taken a very thoughtful approach to how we price our medicines. In fact, the last seven medicines that we priced in the United States were priced less than comparator products that we showed improvements on in our late-stage trials. You might say, why? The reason for that is it is important that we balance access with rapid uptake in the U.S. For a variety of these markets like MS, where we launched our medicine 25% below the comparative product, or Hemlibra, where we launched a product 50% below in the inhibitor segment.
This has proven to be a very thoughtful strategy from the standpoint of areas where pricing we didn't think was sustainable in some of those markets. Secondly, it has allowed us to have favorable recommendations from insurers and providers out there, and certainly been contributory towards the fast uptake. I think this is important. We want to be a part of the solution of some of the healthcare concerns in the United States, and that is why we have taken that particular approach. I would also point out that as with all administrations, we have been working very closely with this administration on the Blueprint initiative that was published a couple of months ago. We have given comments on things like Part B reform, where we see a need for Part B reform. We have given comments on 340B. We have given comments on value-based pricing. This is all work in progress.
Given I think where we've priced our medicines, the value they bring, in some cases, the personalized healthcare approach, we think we're in a good position to help craft and shape kind of the future of reimbursement in the U.S. as well, and we're certainly a part of that dialogue.
Great. Thanks.
Thank you very much. Can we have the next question?
The next question comes from Michael Leacock, from MainFirst. Please go ahead.
Hi there. Thank you very much for taking the question. Just a couple if I may. Firstly, following on from the earlier question on restructuring, I guess as the costs last year were much to do with site closures, and this year they are much more to do with employee costs and cash cost out. Are we seeing a mix away from manufacturing restructuring towards R&D and marketing? I wonder if you could talk a little bit about how you see that over the next couple of years. Are you getting to a position where you are mostly efficient but just continuing to work around the edges, or is there a major project still to come? Secondly, a simple question. I notice there is a shortage of sterile water in the U.S. Does that impact any of your products that need that sort of component for usage? Thank you.
Sam.
Sterile water in the U.S. is no longer impacting our products in the United States. We did have an issue out of some supply out of Puerto Rico in the first half of this year. It never had a patient-level impact, and it has been resolved. On the restructuring side, I think the spirit of this is to, given the external changes, things like phase less development that is going on with regulatory authorities around the world. Given the internal changes in our product mix, therapeutic areas, customer bases, using our personalized healthcare strategy and data to be more efficient out there, it is really touching all parts of our business.
Whether it is the lean program in manufacturing, which is really focused on COGS, or whether it is looking at how we can make faster, better decisions, in our research and development organizations and/or following that through to have line of sight to our activities on the customer base. It is in the spirit of really being more customer-focused, more patient-centric focused. In that process, by the way, we are gaining efficiencies in productivity across the organization. Your question was, how will that play out over time? I still think in many areas we are in the process of going through this kind of thoughtful process. It will continue to both aid us in bringing medicines to patients faster in the coming years and also contribute to our productivity. I think that is what I would like to say.
It is really a very holistic program at looking at the business and finding the best way to evolve it given the outside and inside changes.
Thank you very much.
To add on that, as far as manufacturing is concerned, it is true that we have had major shifts in our capacities where we had over capacity in small molecules, we had the same, this led to the closure of a number of sites, or the sale of sites, respectively, and related restructuring costs. At the same time, we were building up capacities for biologics to meet the growing volume demand on the biologic side. This kind of, if you like, broad restructuring on the capacity side is now moving more into an optimization of our existing footprint, that is also reflected in the nature of the restructuring costs, if you like. Can we have the next question, please?
The next question comes from Steve Scala from Cowen. Please go ahead.
Thank you. I have a couple questions on IMpower132. Based on your knowledge of the findings of the study, which of course is greater than our knowledge, what can you tell us about how it compares to KEYNOTE-189 on PFS? For instance, are you confident that it is fully competitive with KEYNOTE-189? Secondly, Roche has said that the OS readout will be in 2019. Presumably, Roche knows the complexion of the Kaplan-Meier curve to date. Would you advise us not to strongly consider a scenario where the readout could be at an interim in 2018? Those are the two questions. Thank you.
Thanks, Steve. Either World Lung or ESMO, you're going to get all the data on 132. It's really difficult to disclose anything at this stage. Let's be clear. At a similar point in time in the readout of 189, we have OS not yet mature, where OS was mature in the 189 data. I don't want to create any large expectations around here. I think we're going to find areas in cancer immunotherapy, like I've always said, where we have positive readouts, but we may not be as competitive, and other areas where we have positive readouts and are very competitive. I think that's going to change by treatment regimen, by disease.
We're really looking forward to showing you the entirety of the data, not just on 132, but the entirety of the data, in the September-October timeframe that we have in our house so far.
Thank you.
We can have the next question.
Gentlemen, that was our last question.
Okay. Do we have any questions from the web? Nope. This is not the case. I thank you very much for your interest in Roche and wish you a good day. Thank you very much.
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