Novartis AG (NVS) Earnings Report: Q4 2015 Conference Call...

CompanyName:Novart isAGCompanyTicker:NVSSector:HealthCareIndustry:Drugs

EventDescription:Q42015EarningsCallMarketCapasofEventDate:198.00BPriceasofEventDate:78.19

©2014TheStreet,Inc.Al l R ightsReserved Page1of30

NovartisAG(NVS)EarningsReport:Q42015ConferenceCallTranscriptThefollowingNovartisAGconferencecalltookplaceonJanuary27,2016,08:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

JoeJimenez;NovartisAG;CEOSamirShah;NovartisAG;InvestorRelationsHarryKirsch;NovartisAG;CFODavidEpstein;NovartisAG;PharmaceuticalsVasNarasimhan;NovartisAG;ChiefMedicalOfficerRichardFrancis;Sandoz;DivisionHead

OtherPart icipants

RichardVosser;JPMorgan;AnalystAndrewBaum;Citigroup;AnalystMatthewWeston;CreditSuisse;AnalystAlexandraHauber;UBS;AnalystSeamusFernandez;LeerinkPartners;AnalystKerryHolford;ExaneBNPParibas;AnalystGrahamParry;BofAMerrillLynch;AnalystJeffHolford;JefferiesLLC;AnalystTimAnderson;Bernstein;AnalystVincentMeunier;MorganStanley;AnalystTimRace;DeutscheBank;AnalystNareshChouhan;LiberumCapitalLimited;AnalystFlorentCespedes;SocieteGenerale;AnalystSteveScala;Cowen;AnalystMariettaMiemietz;Primavenue;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometotheNovartisQ4FullYear2015Resultsconferencecallandliveaudiowebcast.

(OperatorInstructions)

Arecordingoftheconferencecall,includingtheQ&Asessionwillbeavailableonourwebsiteshortlyafterthecallends.

(OperatorInstructions)

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

JoeJimenez (CEO):

Thankyou.I'dliketowelcomeeverybodytoourfull-yearresults.Intheroomwithmetoday,IhaveHarry




Kirsch,ourCFO;DavidEpstein,theHeadofPharma;andRichardFrancis,theHeadoftheSandozdivision.

Nowbeforewegetstarted,I'dlikeSamirtoreadtheSafeHarborStatement.

SamirShah (InvestorRelations):

Thankyou,Joe.Theinformationpresentedinthisconferencecallcontainsforward-lookingstatementsthatinvolveknownandunknownrisks,uncertainties,andotherfactors.Thesemaycauseactualresultstobemateriallydifferentfromanyfutureresults,performance,orachievementsexpressedorimpliedbysuchstatements.PleaserefertotheCompany'sForm20-FonfilewiththeSecuritiesandExchangeCommissionforadescriptionofsomeofthesefactors.

JoeJimenez (CEO):

Thankyou,Samir.Okay,startingonslidenumber5,I'mgoingtogiveanoverviewofourresults,andalsotalkaboutsomeofthechangesthatweannouncedintheCompanyfor2016.

Sooverall,youlookatourunderlyingresultsonaconstantcurrencybasis,andsaleswereup5%.Wehadadoubledigitincreaseincoreoperatingincomemargin,andsorry,coreoperatingincome.Wewereabletogrowourcoremargin130basispoints,andevenwiththeimpactofcurrency,wewereabletogrowmargininthisenvironment.

Nowthebestpartoftheyearreallywastheinnovation,whichwe'llgothroughinaminute,butonslide6,youcanseeanoverviewofourfinancials.CoreEPSup10%to$5.01.Interestingtonoteonthisslide,netincomeisdownversusayearago,butit'shighlyimpactedbytheexceptionalgainsthatwehadin2014,specificallythesaleofsharesinIdenix,basedontheMerckacquisition,aswellasLTSLohmann,andsomeexceptionalchargeswehadthisyearrelatedtoVenezuela.Sothat'snotreallyafactorinourunderlyingperformance,butthat'swhythatnumberlooksnegative.

Nowatthebeginningoftheyear,IlaidoutfiveprioritiesfortheCompany,andIwanttohiteachofthem,startingonslidenumber8withthefinancialresults.YoucanseeboththePharmaceuticalsandtheSandozdivisionshadverystrongyears,withmidtohighsingledigitsalesgrowth,anddoubledigitcoreoperatingincomegrowth,andthisoffsetaweakperformanceontheAlcondivision,whichwe'llgetintoalso.

Innovationthough,wasverystrongonthenextslide.Youcansee,wehad20majorapprovalsin2015,EntrestoandCosentyx,Davidisgoingtogointo,inprettygooddetail.ButjustlookingattheUSwith45FDAapprovalsofnewmolecules,Novartishadbyfarthemost,withfournewmoleculesapproved,andIthinkthatit'sastatementoftheinnovationpowerofthisCompany.

Thethirdprioritywastocompleteourportfoliotransformation,andwedidthisaheadoftime.Theintegrationhasgoneextremelywell,withtheGSKoncologybusiness,aswellastheseparationofanimalhealth,fluvaccines,non-fluvaccines,andtheOTCbusinessintothejointventure.SoIfeellikeweexecutedthatwell.We'renowoffandrunning,andwe'reastrongerandmorefocusedCompany.

NowMBShasexecutedwellonitsprioritiesin2015,tohelpuscapturethesecross-divisionalsynergies.Saleswere--sorry,costsundertheirmanagementwereheldflatandthiswasenablingtheCompanytoshowmarginimprovement.ThiswasonecomponentofthemarginimprovementthatwesawfortheCompany.Andthenfinally,ourfifthprioritywastobuildahighperformingorganization,andreallygoodperformanceonqualityassurance,98%ofourinspectionsweregoodoracceptable,andtheother2%arepending,outstanding.

Soletmetalkalittlebitmoreabout2016andthechangesthatweannouncedthismorning,andIwant




totalkabouttwotopics:ThefirstistheAlcongrowthplan,andthenIwanttotalkabouthowwe'retakingourstrategyforwardwithsomegroup-widechanges.Solet'sstartwithAlcon.

Steppingback,andjustlookingwherewecompete,ophthalmologyisaveryattractivesectorwithinhealthcare,soit'slarge,it'sprofitableandit'sgrowing.It'sgoingtocontinuetogrow,basedontheagingpopulationandahighlevelofunmetmedicalneed.Alconis,byfar,theleaderinthesector,andwhenyouaskaphysicianwhatCompanytheyadmireandrecommendandprefertoworkwithinthisspace,thevastmajorityisAlcon.

ButAlcongrowthslowed,asweallknow,in2015.Weweredown1point.Thefourthquarterwasmoreseverethanthat.SowesteppedbackandweconductedaveryextensiveanalysisonAlcon,tounderstandtheunderlyingissues.

Wetalkedtocustomers,wedidanalysis,andwereallycametotherootcausesoftheunderperformance.Thefirstisinsufficientinnovation,right?Wearenotreplacingtheproductswherewearelosingpatentprotection,andsothequestioniswhy,andI'mgoingtogetintothatinaminute.Butwealsowentprobablytoofarfromacoststandpoint,andwehavereducedsomeofthecustomerfocusthatthisCompanywasfamousfor,theevangelicalfocusonthephysiciansurroundingthatsurgeon.

TherearealsosomecapabilitiesinAlconthatneedtobeupgradedandstrengthened,soletmehitoneachofthose.Thefirstis,Ireallyasked,whydowenothavethekindofinnovationthattheotherdivisionshave?Andifyoupickitapart,we'reoperatingtwomodelsintheAlcondivision.Amedicaldevicesmodel,thatisverydifferentthanapharmaceuticalmodelintermsofhowyougenerateinnovation.Somedicaldevices,highfrequency,veryiterativedevelopment,sittingintheORwiththesurgeon,understandingwhattheyneed,howcanwemaketheirlifebetter,incrementalinnovation.

Onthepharmaceuticalside,it'shigherspend,scientificdiscovery,longerterm,andweweresub-optimizingbothbyhaving,wewere--byhavingthembothinAlcon,wewereunder-spendingonpharmaceuticalsanddidn'thavequitethescientificdepth.Weweretreatingmedicaldevicesalittlebitlikepharmaceuticals,sothat'sthefirst.

Thesecondisthatwepulledbackalittlebittoomuchonsurgeoneducationandtraining.Youtalktoourphysicians,theyarestillofthebeliefthatAlcon'sreallytheonlygameintownwhenitcomestocataractsurgeryandophthalmology,buttheyalsonoticethatwe'vehadissuesinthelast12months,sothat'sthesecondareathatneedstobefixed.

Andthethirdareathatneedstobefixedisthatwedon'tyethavethekindofcapabilitiesinthepharmaceuticalsideofAlconthatweneed.Imean,intermsoftargeting,intermsofmessaging,it'sstillarelativelysmallunit.SothegrowthplanforAlconhasthreecoreelements.

Thefirstiswe'regoingtofocusthebusiness,we'regoingtostrengthenthatfoundationthatItalkedabout,andwe'regoingtoputsomemoremoneybehindthoseassetsthatwehaverightinfrontofus,sowedon'thavetowaittwoorthreeyearstoseeaturn.Intermsoffocusingthebusiness,we'regoingtofocusAlcononthesurgicalandthevisioncarebusiness,sothatgivesmanagement100%focusonthismedicaldevicessideofthebusiness.We'regoingtomoveupthepharmaintoourpharmaceuticaldivision,wherethefullforceofagreatdevelopmentorganization,agreatcommercialorganization,candrivethatoffthepharmabusiness,inawaythatwillbenefitthewholeCompany.

Nowimportantly,we'regoingtomaintaintheAlconbrandname,bothfromasalesrepstandpoint,andfromaproductstandpoint.AndthereasonforthatisthattheAlconnameisatremendousasset,andwealsowanttomakethisseamlesstoourcustomers.WewantthefullbenefitofthecapabilitiesofNovartis,butwedon'twantthemtofeellikethey'redealingwithtwodifferentcompaniesortwodifferentdivisions.Soinfact,thefranchisethatwillbeoffthepharma,reportingintothepharmadivision,willbestillbased




inFortWorth,sittingnexttothesurgeon,surgicalfolksonAlcon,coordinatingcustomercalls,coordinatingmessaging.SothisisawaythatwecantakethefullforceofNovartis,optimizeforanevenbetterexperienceforthatphysician.

Thesecondthingwe'redoingiswe'regoingtostrengthenthefoundation.Weneedaworld-classsurgicalinnovationmodel,andwe'regoingtobuildthatfromapeoplestandpointandfromaspendingstandpoint,butwealsoneedtoreinstatesomeofthetrainingandeducationforthesurgeons.Forexample,whenwegooutwithCenturion,insteadofminimaltrainingortrainingandeducationonthemachinethatjustgetsthemupandrunning,we'regoingtosurroundthemwiththekindofservicethattheywereaccustomedtoatAlcon,andreturntodelightingthatsurgeoninawaythatAlconistheonlyCompanythattheywanttocall.

Andthenthethirdareaisthatwe'regoingtoinvestforgrowth.Now,wedon'twanttowaittwotothreeyearsforthepipelineinsurgicalorinoptha-pharma,sowe'regoingtoputsomemoney,incrementalmoneybehindthoselaunchesthatarerightinfrontofus,likeUltraSert.Thisisthenewpre-loadedIOLthatislaunchedintheUSandEuropeandalsoPanOptix,whichisourmulti-focallens.

We'regoingtoincreasesalesandmarketingsupportupagainstthesetwo.We'regoingtoincreasedirect-to-consumeradvertisingonthecontactlensbusiness,particularlyDailiesTotal1,whichwehaveseenisincrediblyresponsivetoadvertising,andwe'realsogoingtoacceleratesomein-licensingsothatwecanfillthatpipelinegap.So,Alconwillbecomea$6billioneyecaredivision,focusedonessentiallymedicaldevices,surgicalandthevisioncarebusinesswiththreebigbusinesses,IOLs,consumablesbehindtheequipment,andcontactlenses.

Nowwhatcanyouexpect?Weputtheplantogether.We'llhavefulloperationaltransferbymidyear,let'ssay.

Thewaytothinkaboutthisisthattheinvestmentswillkickinnow.We'reinvestingapproximately$200millionincrementaltowhatwewouldhaveunderthepreviousplanthatwasputtogetherforAlcon.Thatwillbesplitbetweenoptha-pharmaandthesurgicaldevicebusiness.

ButwhatweexpecttoseeinAlconisprobablyexecutionofthiswilltakethefirsthalfof2016.Sowedon'texpecttoseeaturnbeforethen,andinfactthefirstquarterisavery,veryhighbaseversusyearago.Ifyougobackandlookatwhattheshipmentswere,orsaleswereinAlconinthefirstquarter.

Butafterthefirsthalf,webelievethatwewillbeabletoturnthebusiness.Andinfact,wewillexitthefourthquarterwithlowtomidsingledigitgrowthinasustainableway.We'llbuildthe2017planintheautumnofthisyear,aswestarttoseethatturn,sothatwecantrytocontinuetogrowmomentumandreturnthebusinesstomidsingledigitgrowth.

Whenyouthinkaboutthebusiness,thesearethemilestonesthatwe'regoingtobemeasuringourselvesagainst.Weneedtostarttoseethebusinessturnatmidyear,andthenweneedtobeexitingtheyearatlowtomidsingledigitsalesgrowth.

Nowwearealso,therewillbeachangeofleadershipatAlcon.IhavealotofrespectforJeff.Manyofyouknowhim,andhavespentalotoftimewithhim.He'sbeenresponsibleforalotofsuccessesatNovartisoverhistenyears,runningtheSandozbusinessforfive.He'shadaverydifficultyear,andhasmadethedecisionthatnowthatwe'remakingthesechangesatAlcon,itwouldbeagoodtimeforhimtostepdownandthinkaboutwhathewantstodonext.

SoIhavehiredanewdivisionhead.HisnameisMichaelBall.HewaspreviouslyCEOofHospiraoverthelastfouryears.Hehasdeepophthalmicexperience,sohewasPresidentofAllerganfrom2006to2011,andhewillbetheguythatdrivesthisgrowthplanforward.




Nowtheshifttothepharmaceuticalsdivisionoftheophthabusinessisgoingtocreateanice,unifiedophthalmicmedicinesbusiness,includingthecombinationofLucentiswiththepipelineoftheAlconophthabusiness,andthisisgoingtobeabigpowerhouse,especiallywhenthepharmadivisionappliesitscapabilitiestothisbusiness,withaprettystrongcombinedpipeline.Again,abitofagapinthenexttwotothreeyears,butalotofpromiseintermsofbigareasofunmetmedicalneed.Sothat'stheplanforAlcon.

Now,Iwanttospendaminutetalkingabouthowwe'regoingtotakeourstrategyforward.Onslide32,youcansee,lastyear,weannouncedthatwewerefocusingtheCompanyonthreesectorsthathaveglobalscaleandinnovationpower.Pharmaceuticals,eyecareandgenerics,andthatwasallaboutfocusingtheCompanytomakeusastrongerandfaster-movingCompany.

Nowin2016,we'regoingtotakethenaturalextensionofthatstrategyandimprovetheeffectivenessoftheCompanyinternally.Sowe'regoingtofurtherfocusourdivisions.We'regoingtocreateevengreaterinnovation,byintegratingsomeofourdrugdevelopmentacrossdivisions,andwe'regoingtocentralizeourmanufacturingtolowerourcostbase.

Sostartingwithfurtherfocusingourdivisiononslide34,wetalkedaboutthefirsttwo,butadditionally,we'regoingtotake$1billionofoff-patentproductsfrompharmaandwe'regoingtogivethemtoSandoz.Theseareproductsthatarenotbeingpromotedbythepharmaceuticaldivisiontoday.TherearemanytherapyareaswhereSandozhassalesrepsandcommercialactivitythatfitthosedrugs,thatarenotbeingpromoted.

SoputtingthemintoSandozwillallowustocreatemorevaluethanjustwatchingthemdeclineasmatureproducts.Wetookaverydiligentviewintermsofwherewefeltlikewecouldreallyaddvalue,andwe'reshifting19productsthataccountforabout$900millionto$1billionofsales.

Nowontheinnovationside,weareintegratingsomeofthefunctionsacrossdivisionsthatwillhelpusstandardize,simplify,andreduceduplication.It'snotjustwithinthedivisions.Eveninsidethedivisions,sometimeswehavemultiplegroupsthataredoingthesamework.

Safety,pharmacovigilance,regulatory,andsothisway,we'regoingtoimproveresourceallocation.Insteadofallocatingdevelopmentbudgetsatthebeginningoftheyearandthenworkingwithinthosebudgets,we'regoingtomakethismoreofareal-timeexperience,andmanageonaninnovationmanagementboardbasisallofthedevelopmentprojectsacrosstheCompany,regardlessofwhetherit'sbiosimilars,orwhetherit'soncology,orwhetherit'sgeneralmedicine.Andthisisthewaythatwe'regoingtoimproveresourceallocationonareal-timebasis.

Nowimportantly,clinicalstrategyandexecutionofthetrialswillremaininthedivisions.SoI'vebeenabletonameVasNarasimhan,whoiscurrentlytheHeadofGlobalDevelopmentinthePharmaceuticalsdivisionasthenewGlobalHeadofDrugDevelopmentandChiefMedicalOfficeroftheCompany.VaswillbecomeamemberoftheExecutiveCommittee,andhewillreporttomeonhisgroupactivities.HewillmaintainhisdevelopmentresponsibilitieswithinthePharmaceuticaldivision,andreporttoDavidinthatcapacity.

Thethirdareaistoleveragecross-divisionalsynergiestolowerourtotalcostbase.Soifyoulooktoday,we'vegotseparatemanufacturingorganizationsacrossourdivisions,anditleadssometimestosub-optimalcapacityplanning.SowedohaveaTechOpsCouncilthatissupposedtoovercomethis,butmovingtocentralizationofamanufacturingnetworkwillenableustoreallyimprovecapacityplanning.

We'regoingtoorganizebytechnology,sosolids,aseptics,biologics,etcetera,andthisisgoingtohelpuslowerourtotalcostandimproveourquality.Butevenmoreimportantly,itwillallowustomorequicklyadoptnewtechnologiesastheyemerge,andspreadthemacrosstheentireCompany.




Thesecondthingwe'redoingfromacoststandpointiswe'reexpandingMBStocreateanin-countryserviceplatformforsalesandmarketingacrossalldivisions.Salesandmarketing,meaningbackofficelikemarketresearch,marketanalytics,socertainlynotcustomerfacing,thatstaysinthedivisions,butthere'salotofsupport.ThiswasalwaysintheeventualplanofMBS,butweareacceleratingitnow,becausewethinkthere'sbigopportunity.AndI'venamedAndreWyss,whoiscurrentlyHeadofMBSandCountryPresidentofSwitzerland,totakeonthenewly-createdroleofPresidentofNovartisOperations,sohewillcontinueinhiscurrentrole,butalsopickupglobaltechnicaloperationsandpublicandexternalaffairs.

Sothesechangesshouldresultinsavingsover$1billionby2020,andthesavingsstartnow.Butmoreimportantly,it'sgoingtoallowustocontinuetoinvestinwhathasdriventhisinnovationmachine.Becauseifthere'spricingpressure,ifthere'scostpressurearoundtheworld,wearefocusedonstreamlining,simplifying,ensuringthatwehavethemoneybothtoinvestinR&D,butalsotodeliveronourcommitmentofmakingsurethatweimproveourprofitmarginsoverthenextfiveyears.SoMBSwasastart,andthisisgoingtoaddadditionalsavingstothatoriginalview.

NowI'dliketoturnitovertoHarrytotalkaboutthefinancialsinalittlegreaterdetail.

HarryKirsch (CFO):

Thankyou,Joe.Goodmorning,andgoodafternoon,everyone.Unlessotherwisenoted,mycommentsrefertoourcontinuingoperations,andgrowthrates,andconstantcurrencies.

Thistimelastyearweguidednetsaleswouldgrowmidsingledigit,andcoreoperatingincomewouldgrowaheadofsalesatahighsingledigitrate.Onslide41,youcanseethatwedeliveredonthatguidance.Oncoreoperatingincome,weachievedevendouble-digitgrowthinconstantcurrency,slightlyexceedingourguidance.Ourdivision-levelpharmaandSandozachievedtheguidance,clearlyAlconmissed.

Slide42hastheusualsummaryofourperformance,focusingonthefull-yearfirst,wedeliveredsalesgrowthof5%andcoreoperatingincomegrowthof10%,generatingstrongcoreleverage.CoreEPSgrew10%,inlinewithcoreoperatingincomegrowth.Operatingincomeforthefullyearwasdown2%,mainlyduetotheamortizationofthenewoncologyassetsweacquiredfromGSKlastyear.

Netincomewasdown18%,impactedbyexceptionalprior-yeargainsfromthesaleofoursharesinIdenixandLTSLohmann,aswellasexceptionalchargesin2015,mostlyrelatedtoourVenezuelasubsidiaries.Freecashflowwas$9.3billion,downversusyearagoinUSdollars,mainlyduetothestrongcurrencyimpactonoperations,andhighprior-yearNovartisventurefunddivestmentsandcommercialsettlements.Inthefourthquarter,saleswereup4%,coreoperatingincomewasup9%,andcoreEPSwasup8%.

Nowtoslide43.Thisistoemphasizeoursolidoperationalperformance,whichwasdrivenbyvolumegrowthof11%insalesand27%incoreoperatingincome,whichmorethanoffsetthenegativeimpactofgenericsandpricing.Thisallowedustodelivergrowthof5%and10%onsalesandcoreoperatingincomerespectively.Thenegativeimpactofcurrencyofminus10%andminus15%onsalesandcoreoperatingbroughtusdowntominus5%forbothsalesandcoreoperatingincomeinreportedUSdollar.

Slide44showsthecurrencyimpactonsalesandcoreoperatingincomegrowth,byquarter,for2015.ThisisverymuchinlinewithwhatweexpectedintheQ3callinOctober,with1%pointworseoncoreoperatingincome,astheUSdollarstrengthenedfurtherinNovemberandDecember.

Nowletmefocuson2016.Ifmid-Januaryexchangeratesprevailforthefullyear,wewillanticipateacurrencyimpactofminus3%onsalesgrowth,andminus5%pointsoncoreoperatingincomegrowthfor




2016.Forquarterone,wewouldanticipateminus5%andminus7%respectively.ThehighercurrencyimpactinthefirstquarterisduetotheUSdollargettingstrongerthroughour2015,andhence,beingrelativelylessstronginthefirstquarterof2015thantherestoftheyear.

Slide45showsthefull-yearcoremargin,whichimprovedby130basispoints,drivenbystrongperformanceinpharmaandSandoz.Pharmagrew6%intopline,and40%onthebottomline,resultinginacoremarginexpansionof2.4%points,byinvestingincriticallauncheslikeLucentisandEntresto.Thiswasduetoimprovementsincoregrossmargin,drivenbynewoncologyassets,aswellasproductivityinitiatives.

Sandozgrew7%and17%ontopandbottomline,resultinginacoremarginexpansionof1.5%points.Thisreflectsthestrongperformanceofourdifferentiatedgenerics,includingbiopharmaceuticals,withtherecentlylaunchedGlatopa,thebrandedUSdermatologybusiness,aswellasastrongfluseasonearlierin2015.Alcon'scoremarginwasdown2.1%pointsin2015,impactedbylowersalesandhigherspending,primarilyinR&DandM&S,behindinvestmentstodrivegrowth,andanincreaseinprovisionsforbaddebtinAsia.

Nowlet'sturntoquarter4coremarginonslide46.Overall,coremarginimprovedby1.1%pointsforthegroup,drivenbystrongperformanceinpharma,whichgrewcoremarginby3.3percentagepoints.Sandozcoremarginimprovedby0.6percentagepoints,despitetheflatsalesperformanceinthefourthquarter.Thisperformancewasmainlyduetoastrongcomparatorinthefourthquarterlastyear,whichincludedmorelaunches,andstillbenefitingfromDiovanmonoauthorizedgeneric.Increasedpriceerosioncomparedtoprioryears,andaweakstarttothefluseasonin2015,alsocontributedtoflatsales.

Alconcoremargindecreased2.6percentagepoints,primarilyduetothedecliningsales,andhigherspendinginR&D.Asyou'llrecallfromthistimelastyear,wesaidthatwewereexpectingasignificantimprovementbetween2014totalgroupcoremargin,and2015continuingoperationscoremargin.Thiswouldbeboththeresetofourmarginlevelduetotheportfoliotransformation,aswellascontinuedproductivitygains.

Asyou'llseefromslide47,ourgainsfromtheportfoliotransformationhavebeen250basispointsandoursalesandproductivityinitiativehelpedusachieveorganicconstantcurrencymargingrowth,evenoffsettingthestrongcurrencyheadwind,gettingtoacoremarginof27.9%forcontinuingoperationsin2015.Slide48showsthechangeinournetdebtfrom$6.5billionattheendof2014to$16.5billionattheendof2015.Thiswasmainlyduetotheacquisitionofthenewoncologyassets,andsharerepurchases.Tonote,thesharerepurchasesincludebuybacksfromthetwo-year$5billionsharebuybackprogram,aswellasoursharebuybackstomitigatedilutionfromouremployeeparticipationprograms.

Slide49showsthatweareproposingadividendofCHF2.70,up4%inSwissfrancsandrepresentinga3%dividendyield.IfapprovedattheAGM,thiswillbeour19thconsecutivedividendincrease.Thecompoundannualgrowthrateforourdividendis9%inSwissfrancsand12%inUSdollars.

Thisreaffirmsourcommitmenttoastrongandgrowingdividend,andthepayoutratiois93%incontinuingoperationsnetincome,and37%intotalgroupnetincome,assumingexchangeratesasofDecember31,2015.Asnetincomeisdrivenpartlybyaccountingimpacts,wealsolookatthedividendpayoutasapercentoffreecashflow,whichis73%oftotalgroupfreecashflow.

Inowwanttoturnourattentionto2016.Slide50showssomeofthekeypushesandpullsfortheyear.Performancewasdrivenbygrowthproducts,includingCosentyxandEntresto,thenewoncologyassets,MBS,andcross-divisionalsynergies.Headwindsincludeobviouslythegenerics,aswellaslaunchinvestments,andcontinuedexpectedcurrencyimpact.

Onslide51,Iwanttopresentsomeinsightsfortheoutlookforthefull-year2016.Withthe




announcementswemadetoday,Iwanttostartbyshowingtherestateddivisionalsalesfor2015.Ifweapplythenewstructureto2015actuals,salesforpharmawouldhavebeen$33.3billion,forAlcon$6billion,andforSandoz$10billion.

Fromthisbase,weexpectpharmasalestobein2016,inlinewith2015,orslightlybelow.Alcontodeliverlowsingledigitgrowthforthefullyear,andSandoztodeliverlowtomidsingledigitgrowth.Overallforcontinuingoperations,weexpecttotalsalestobeproperlyinlinewith2015inconstantcurrenciesandifyouexcludethegenericimpactofGleevec,thiswouldberightinthemidsingledigitrate.WewillprovidefullrestatedfinancialsbydivisioninthefirsthalfofApril,sobeforeweannouncequarteroneearnings.

Withthat,ourfullyearguidance,givenonslide52.Webasicallyexpectbothsalesandcoreoperatingincometobebroadlyinlinewithprioryearandconstantcurrencies.In2016,weexpectgenericizationofGleevectostartinFebruaryintheUS,andDecemberinEurope,contributingtotheoverallexpectedgenericimpactof$3.2billion.ExcludingtheGleevecgenericimpact,salesgrowthisexpectedtobeinthemidsingledigit,andcoreoperatingincomeisexpectedtobeinthemid-teens.Weexpect2016tobeatransitionyear,withverydifferentdynamicsduringthedifferentquartersandhalfoneandhalftwo,withinthebroadlyinlineguidanceforthefullyear.

Onslide53,Iwouldliketohighlightthekeyfactorsthatimpactcoreoperatingincomein2016.Weexpectcoreoperatingincomegrowthinhalftwo,butacoreoperatingincomedeclineinhalfone,morepronouncedinQ1thanQ2.

Theexpecteddeclineinthefirstquarterwhichcouldbeadoubledigitcoreoperatingincomedeclineinconstantcurrency,ismainlydrivenbythefollowingfactors:Inpharma,weexpectUSGleevecgenericization,aswellassignificantlyhigherlaunchinvestmentforCosentyxandEntresto.InAlcon,wehavehigherprior-yearbaseinquarterone,aswellasinvestmentsforthegrowthplansstarting,butexpectpositivesalesimpact,mainlyinthesecondhalfoftheyear.ForSandoz,wehaveahighprioryearbaseinthefirstquarterwithastrongfluseason,butafteradifficultQ1,weexpectimprovementinthebackhalfoftheyear.

Iwouldliketoaddsomeperspectiveonotherkeyelementsofourexpectedbottomlineperformancein2016,beyondcoreoperatingincome,onslide54.Ourkeyassumptionforthefullyearcoretaxrateisexpectedtobeinthemid-teens,soconsistentwithlastandprioryears.Currency,asalreadymentioned,minus3%onsales,and5%impactoncoreoperatingincomeonthefullyear,ifcurrenciesstaywheretheyarerightnow.

CoreincomefromassociatedcompaniesisexpectedtobehigherasweexpecttheOTCjointventuretorealizefurthersynergiesin2016.Andalsoin2015,thereisanincludednegativetrue-upontherushincomefor2014results.

Forcorenetfinancialincome,weexpecttotalexpenseofabout$0.8billionto$0.9billion.Thatisslightlyworsecomparedtothe0.7billionexpensein2015.Theincreasewasmainlydrivenbyexpectedhigherhedgingcostsduetoincreasedexposureandvolatilityinemergingmarketcurrencies.

Finally,withrespecttotoday'sannouncements,weexpecttodeliverover$1billionincostsavingsperyearasof2020.Associatedwiththesechanges,weexpectone-timecostsofapproximately$1.4billion,intotal,spreadoverfiveyears.Thedistributionofthesesavingsandcostisshowninanillustrativeformatonslide55.

Ofthe$1.4billionone-timecostweexpectabout$0.8billiontobecashflowrelevant.Theremaining$0.6billionismainlyexpectedtobeaccelerateddepreciationofassetsandtechnicaloperations.

Asyoucansee,weforecastalreadyasmallcoreopincomecontributionin2016,increasingoverfour




yearsto$1billionplusin2020.Thefreecashflowimpactfromthisprogramwouldbelessthan$100millionnegativein2016andalreadyfreecashflowpositivein2017.Theoperatingincomeimpactisexpectedtobepositiveasof2018.Clearly,thesesavingsaresubstantialovertimeandIexpectthemtocreatesignificantvalueandsupportourcoremargindevelopmentaswegoforward.

Withthis,I'llhanditovertoDavid.

DavidEpstein (Pharmaceuticals):

Thankyou,Harry.Thepharmadivisionhadastrongyear,bothintermsofitsfinancialmetricsandinnovationmetrics.Forthefullyear,netsalesgrew6%inconstantcurrency,and14%incoreoperatingincome,allowingacoreoperatingincomemargingain.LookingmorespecificallyatQ4,yousee9%salesgrowthand23%onthebottomline,resultingin,asHarryhadsharedwithyou,a330basispointimprovementincoreoperatingmargin,whichspeakstothestrongunderlyingpowerofthebusinessinperiodsoftime,whenthereisnotmuchgenericexposure.

Turningnowtothenextpage,youseethatourgrowthproductnetsaleshavegrown33%,nowrepresenting44%ofthetotalbusinessforfull-year2015.InQ4,thatnumberwasactually47%.Thereasonwetrackthismetricisagoodguideforthesustainabilityofoursalesovertime.

Onthefollowingslide,weseeourattractivegrowthplatform,withexclusivityuntil2019andbeyond.Theseproductsareeitherblockbusterstatustoday,orareontheirwaytobecomingblockbustersintime.Across-the-board,areverygoodnumbersfortheyearwiththeexceptionofLucentis,wherewecontinuetohavepricepressure,aswellascompetitionfrombothbrandedcompetition,aswellasoff-labeluseofAvastin.

Therearemultipleexamplesofhealthysalesdevelopmentthroughoutthisportfolio,butwhatIwanttodoisjustfocusnowforafewofthem,startingwithouroncologybusiness,whichisonthefollowingpage.Weachievedverystronggrowthmomentumin2015,andyoucouldseethat'sthecase,whetherlookingatourunderlyingoncologybusiness,pretheacquisitionoftheGSKassetswherewegrewthatbusiness8%,ornowthetotaloncologybusiness,whichbenefitedfromtheacquisitionofthoseGSKproductsgrowing24%fortheyear,andalsoroughlythesamefigureforQ4.

Thenewassetscontributed$1.8billion.Theyaredeliveringlargelyinlinewithwhatweexpectedwhenwemadethedealcase.Theinterestingpartformeisthatwe'restartingtonowseeNovartis'commercialpowercomethrough.Inthebackhalfoftheyearthoseassetsdidbetterthaninthefronthalfoftheyear.Inaddition,AlessandroRivaandhisteamdeliveredonallofthesubmissionsandapprovalsthatwehadanticipatedforthoseacquiredproducts.

Onthefollowingpage,IjustwanttocalloutoneofourNovartisoncologybrands,andthat'sJakavi,whichisapprovedformyelofibrosisnowforafewyears,andmorerecentlyforpolycythemiavera.Youseethisproductcontinuestogrowstrongly,up71%fortheyear,59%forQ4.

Puttingthatintorealdollars,thatmeans$410millionforthefullyearand$119millionforthequarter.Soyoucanseewearewellonourwaytofulfillourprojectionforthistobecomeablockbusterbrand.Inparticular,thepolycythemiasaleshavereallyonlysofarcomefromGermanyandJapan,sothereismoreupsidefromhere.

NowchangingtoGilenya,weseestrongmomentuminmultiplesclerosis,withGilenya,bothintermsofnetsalesgrowthoverallwith26%intheUS,and17%ex-US,butalsointermsofgrowthinvalueshare,wherewegainedmarketshareof1.1pointsintheUS,and2.1pointsex-US,wherewe'veactuallynowata20%share.Thisbranddidjustover$2.7billionfortheyearand$742millioninQ4,whichmeanswe'renowalmostata$3billionrunrateforthisverysuccessfullaunch.BaseduponoursuccessintheMS




category,wealsomadethedecisiontolicenseintheremainingrightsofOfatumamabfromGSK,whichwillallowustostartarelapseremittingMSpivotalprograminthemiddleofthisyear,withaplannedfilingin2019,withwhatappearstobeaveryeffectiveasset.

NowIwanttoswitchgearsandspendalittlebitoftimeonEntrestoandCosentyx,ourtwoveryimportantbrands,whichwebelieveovertimecouldinfactbecomesomeofthebiggestassetsintheCompany.It'sveryclearthatEntrestostartedslowlyintheUS,andinfact,wecautionedthatuptickwouldbeslow.Butevenwiththatcaution,Iwouldsaythatthebrandperformedmoremodestlythanevenwehadanticipated.

Ifyoutakealookatthechartontheleft-handside,you'llseethatwhiletheuptickofEntrestoisoutpacingCorlanor,whichisAmgen'sheartfailuredrug,aswellasthetwoPCSK9sthathavebeenrecentlylaunched.ItiswellbelowtheuptakeforthefactorXas.

Thisisinlargepartdriven,webelieve,bythelackofformularyaccessthatweexperiencedduringthesix-monthofthelaunchofthisproduct.Asyouknow,65%ofthesepatientsareonMedicare,andtheseplanshaveuptosixmonthstomakeaformularydecision,andinmostcases,theytookthesixmonthstomakethatdecision.OurteamsworkedveryhardduringNovemberandDecember,andasaresult,wehavesignedalargenumberofcontractswithformulariesthatareintendedtoopenaccess.Andinfact,ifyou'llturntothenextslide,I'llwalkyouthroughwherewenowstand,whichisinamuchbetterplacethanwewereasweexited2015.

StartingwiththatMedicarepatientpopulation,youseethatwhenyougobacktoOctober,wehadvirtuallynoaccessforthebrand.Whatthatmeansis,ifadoctorwroteaprescription,thepatientwashighlyunlikelytohavetheirinsurancecompanypayforit.Lookingnowit'sJanuary2016orbyendofJanuary2016you'llseeaverydifferentstory.

You'llseethatroughly,inMedicare,roughly70%ofthepatientswillhaveaccess,oftenrequiringpriorauthorization,butaccess.Andofthat70%,44%ofthetotal,orabouttwo-thirdshavereimbursementonthelowesttier.AndthereasonthisisimportantisbecauseintheMedicaresegment,patientsinathirdtierorhigheroftenhaveco-paysaround$100orhigher.

Secondtierpatientsorlowco-paypatientstypicallyhaveco-paysaround$50.There'salsoalargenumberofpatientsherethatarelowincomesubsidizedpatients,whichwilloftenpayoutofpocketmorearound$5to$10,makingaccessquiteaffordableforthem.

Thecommercialsideofthebusinessisabitbetter,andyou'llseethatasofJanuary,wehad78%oftheplanswerereimbursingfortheproduct,orwillbereimbursingfortheproductbytheendofthemonth.It'sevenbetterwithroughly73%ofthosepatientsbeingonthelowesttier.Onthecommercialsideofthebusiness,lowtiertypicallyequatestoabouta$30co-pay,andahighco-payplanistypically$60inahighertier.

Thus,wewouldexpectsalestostarttoimprovenow.OurfieldforcewasretrainedduringthemonthofJanuary.Theywereprovidedwithnewpromotionalmaterialsandgreatclarityonwhichoftheirphysicianshavepatientsthathaveaccess,andwhichdonot.Havingsaidthat,onewaytolookatthisisreally,thisisreallythebeginningofthelaunch,whichmeansthefronthalfoftheyear,salesintheUSwillremainmodest,andthenwewouldexpectasignificantpickupinthesecondhalfoftheyear.

Turningtothenextpage,Iwanttocontrasttoyousomethingthat'sverydifferent,andthat'sourexperiencewithEntrestoinEurope.Nowtocautionyouhere,wehaveverylittledatainEurope,butwhatweareseeingisaverydifferentdynamic.WelaunchedinNovemberinSwitzerlandfortheproduct,andweseeanuptakethat'smorethanfivetimesasstrongastheUSmarket.




Ofcourse,that'sadjustedonapercapitabasiswhichownsamuchsmallercountry,butwe'reseeingisthatdoctorsunderstandthestory,you'llseethevalueoftheproduct,andifthey'rewritingtheprescriptions,andtheprescriptionsarebeingfilled.Whyisthat?TheSwisssystemismuchmorestraightforward,oncethepriceisnegotiated,themarketopenstothesepatients.

WehaveevenlessexperienceinGermany,wherewelaunchedjustoveraweekago.Havingsaidthat,withjustoneweekofdata,soIwanttobeverycautious,we'reseeingaphenomenonthatismorelikeSwitzerlandthantheUS,andinfactthefirstweek,wehadover1,000patientsalreadyontherapyinGermany,versusroughly11,000patientswehaveontherapyintheUSaftermorethansixmonths.SoI'mactuallyquiteabitmoreoptimisticaboutthesalesdynamicthatwillevolveduringthecourseoftheyear.

Puttingthatalltogether,Ithinkweshouldstill,aswe'reoutlookingfortheyear,expectrelativelymodestsalesforthebrandinQ1andQ2.Havingsaidthat,bythemiddleoftheyear,wewillhaveagoodreadonboththeUSandtheEuropeansalesdynamic,andbeabletobetterfine-tuneforecasts.Atthispointintime,webelievethatthepeaksalesguidancethatwegavefortheproductremainsintact,duetothevalueofthemedicine,andtheinitialsignsarounduptakewe'reseeingoutsidetheUSmarket.

Whatdoesthatreallymean?Whenwetookaquicklookatconsensus,Ithinkthatexpectationsfor2016areprobablysomewhattoohigh,especiallyinthefirsthalfoftheyear.

Havingsaidthat,Cosentyxisaverydifferentstory,ifyou'llturntothenextpage.We'veseenverydynamicuptakeofthisproduct.Thisproduct,asyouknow,wasinitiallyapprovedformoderatetoseverepsoriasis.Thepatientexperiencehasbeenverygood.

Inaddition,intheUSmarket,thevastmajorityofthesepatientsarecommercialpaypatients,sotheydon'tfacethehurdlesthatMedicarepatientsfacewithEntresto.Asyoucansee,intermsofpatientsthatarecurrentlypayingfortheirmedicine,wehave6%valueshareintheUS.Inaddition,there'salsoseveraladditionalpercentwhichisstillgettingfreedrugastheyworkthroughtheirinsurancebarriers.

JustlikewithEntresto,however,weseeaveryinterestingphenomenonintheEuropeanmarket.WithGermany,wherewelaunchedaftertheUS,inIbelieveitwaslateMaylastyear,you'llseethatwe'realreadyat12%marketshareinthisbiologicssegment.Evenmoreimportantly,roughly40%ofthesepatientsarebiologic-naivepatients,whichmeansthey'regettingtherapymuchearlierinthecourseofthedisease.

Thedoctorsareuninhibitedtogotothebesttherapy,unliketheUSwherepatientsoftenhavetofailtwo,threeorevenfourpreviousbiologictherapies,beforetheygetaccesstoamedicinelikeCosentyx.WealsoreceivedanexpandedlabelinJapan,andourdevelopmentteamdidareallyexcellentjobgainingapprovalbothinEuropeattheendoflastyear,andintheUSatthebeginningofthisyearforthenewindicationsofankylosingspondylitisandpsoriaticarthritis.

Yougetasenseonthenextpagewhatthemarketopportunitycanbe.WejusthavetheUSmarketonthischart.You'llseethatthosemarketshavebeengrowingrapidly,particularlyoverthelasttwoyears.Andinfact,ifyoulookatIMSdata,whichisfarfromperfect,forthefullyear2015,itlookslikethethreeindicationscombinedarerunningabout$13billion,growinginexcessof20%.Andrememberstill,lessthan20%ofthepatientswhowouldeligibleforabiologicareactuallytakingsuchaproduct,sotheopportunityformarketexpansionasmoreandmoreplayerscomeintothefield,isreallyquitegood.

JustasIhadcautionedonCosentyx,I'msorry,Entrestoconsensus,Iwouldprovidetheoppositecautionhere,whichisCosentyxseemstobeonatracktodobetterthanwhatmostpeopleareexpectingfor2016,andwe'reverybullishonthisproduct.InordertofullydriveuptakeintheUS,it'sclearthatoneofthekeystosuccessinpsoriasisisdirect-to-consumeradvertising.ThoseTVcommercialsstartedjustlastweekintheUS,andwe'reoptimisticthatcommercialwillplaywellwiththispatientbaseandfurthergrow




thebrand.

NowwhatI'dliketodoisjustspendalittlebitoftimeonourpipeline,startingwithPKC412,whichisnowontracktobecomethefirsttargetedtherapytoshowanoverallsurvivalbenefitin3mutatedAMLpatients.Wewillbefilingtheproduct,bothintheUSandEurope,inthefirsthalfof2016.Asyoucansee,overallsurvivalwasimprovedbyaremarkable23%,andwehaveatailofproductsthatseemstodoextraordinarilywellforaverylongperiodoftime,sothiswillbeaniceboosttoouroncologybusiness.

Onthenextpage,Ishowfourotherlate-stagepipelineassets,impactingdifferentdiseaseareas.Ourinternalteamhadabitofadebatewhichproducttosell,andwhichproductstoshow,excuseme,becausetheyallhadtheirownfavorites.ButIpickedfourherebecausetheyalltellslightlydifferentstories,butthereareindeedotherveryinterestingassetsinourpipeline.

StartingwithQAW039,thisisaoncedailyCRTh2that'sbeingdevelopedforpatientswithsevereasthma,particularlythosethathaveelevatedeosinophils.VasNarasimhanandhisteamhavestartedtwopivotaltrialsforthisproduct.Weexpecttofilein2019.Intermsofpositioning,it'sthekindofproductthatwouldbeusedpriortotheexpenseofabiologics,andwebelievethere'sabigopportunityforsuchaproduct.

ThesecondproductIwanttotalkaboutwehaven'tspentmuchtimeonitbefore,isAMG334.Thisisaproductthat'sbeingdevelopedforbothepisodic,aswellaschronicmigraine.It'sanewclassofmedicines,it'sananti-CGRPmonoclonalantibody.

Thereareseveralcompetitors.WelicensedthisproductaspartofourAlzheimer'sdealfromAmgen,wehaverightsfortheproductex-USandex-Japan.ThePhaseIIdatainthisclasshasbeenverycompelling,andwe'reveryexcitedasthesePhaseIIIprogramsareenrollingwell.

Thenextproductisonethatyou'veheardaboutbefore,SerelaxinorRLX030,ourproductforacuteheartfailure.Thatprogramisenrollingwell,anditsplannedtonowbe6,800patients,andwehopetofinishupthatrecruitmentduringthecourseof2016.You'llnotethatthefilingisnowplannedfor2017ratherthan2016,andthat'sbecausewewenttotheFDAandwewenttoEMA,andweaskedtoaddasecondprimaryendpointcalledworseningheartfailure.

Thetrialisnowdesigned,there'sachanceforthisproducttowin,ifithasapositiveoutcomeinmortality,orifithasapositiveoutcomeandworseningheartfailure,ameasurethat'sbecomingincreasinglyimportanttocardiologistsandhospitalsystemsingeneral.Webelievethesmalldelayisworththeincreasedsenseofcertainty,ortheincreasedshotongoal.

ThelastproductIwanttotalkaboutisinacategorythat'sclosetomyheart,sortoftimelyinaway,giventhatthisistheyearGleevecgoesoffpatent,thisisABL001.ThisisanovelandpotentallostericBCR-ABLinhibitor.ItworksbyadifferentmechanismthanGleevec,Tasigna,orSprycel.WeshowedsomeveryearlyPhaseIdataatASHthisyear.TherewillbemoredataatASHin2016.

Webelievewhatwe'veseensofarisavery,veryinterestingandverypositiveefficacyprofilefortheproduct.Thechartheresaysthattherewillbeafilingin2020orlater.ThatisassuminganormaltimelinewiththestandardPhaseI,PhaseII,andPhaseIII.Shouldthisproductworkwellinpatientsthathavefailedothertherapies,whichonewouldhopewouldbethecase,therewouldbeanopportunitytofileearlier,evenpotentiallyonrandomizedPhaseIIdata.Soalsoaproducttowatchandstaytunedto.

IfwecanturntoPage70,I'llwrapupthere.Theseareourexpectedselectedhighlights,intermsofnewsflowfortheyear.TwogreenchecksarereadyforCosentyx,whereweareaheadofourinternalplan.WeexpectregulatoryfilingsforIlarisinhereditaryperiodicfevers.Actually,abiggerconditionthanmostpeopleexpect,particularlyinSouthernEuropeandtheMiddleEast.




Afinitor,anFDAactiondateisexpectedforadvancednon-functionalnettumors.Thiswillbeimportantfortheproducttokeepitgrowing,tooffsetthenegativemarketpressureswehaveinbreastcancerandrenalcancer,fromfewcompetition.IalreadyspokeaboutPKC,andpreviously,wehadguidedthatweexpecttofileandgetananswerinthiscasefromPMDAformetastaticmelanoma,forthecombinationofTafandMek.

Secondhalfoftheyear,novelproducts,BYM,regulatoryfilingsforsporadicinclusionbodymyositis,newindicationsinlungcancerforTafMek.Votrient,wewillhavethedataandtheregulatoryfilingsforadjuvantrenalcell.Andthenlastbutnotleast,andyou'llseefromaslightlydifferentshade,LEE011,thistheCDK4/6forhormone-positivemetastaticbreastcancer.

Thereasonit'sshadediswehaveaninterimanalysisduringQ2.Webelievethere'saprettygoodchance,noguarantee,butaprettygoodchancetheinterimwouldbepositive,inwhichcasewewoulddefinitelyfilein2016.Howeverifwehavetogotothefullanalysis,thisisanevent-driventrial,andit'spossiblethatthefilingwouldbeearly2017orlate2016,sowejustwanttousethedifferentshade,tocautionyouwe'renotexactlysurewhenthatfilingwouldoccur.

Andwiththat,I'dliketohanditbacktoJoe.

JoeJimenez (CEO):

Thanks,David.Sojusttoclose,Iwanttolayouttheprioritiesfortheyear.ThefirstobviouslyistodeliverourfinancialtargetswhileweabsorbGleevecandalsoinvestinthelaunches.We'regoingtoimprovethepipelineacrossalldivisions.

Atthesametime,weneedtoturntheAlconbusinessinthebackhalfof2016.We'vegotalottodooncross-divisionalsynergiesnow,withthecentralizationofmanufacturingontopofourplansforNovartisbusinessservices.Andfinally,strengtheningtheCompanythroughhighqualityandtalentthroughouttheorganization.SoIthinkwehaveaplanforAlcon,inwhichwecanexecuteimmediately,andthisisgoingtomakeusastrongerandabetterCompanyaswemovetomakesomeofthechangesinbothdrugdevelopment,aswellasourmanufacturingfootprintaroundtheworld.

Sowiththat,I'dliketoopenituptoquestions.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)RichardVosserfromJPMorgan.

RichardVosser (Analyst-JPMorgan):

AfewonEntresto,andacoupleonAlcon,please.

SoonEntresto,youmentionedthatthere'ssomepriorauthorizationstillthereintheMedicarecoverageintheUS.Sojustwhatproportionoflivesstillhavepriorauthorizationplease,andwhatremovesthepriorauthorization?Whathurdlesdoyouneedtogothroughtogetridofit?Andoverwhattimeframedoyouthinkthatcouldhappen?

Secondquestion,justonthetreatmentguidelines,Ithinkwe'veseenthefirstbatchfromCanada,andthey'vepositionedEntrestoasasecond-lineagent.SoifyoucouldjustcommentonhowyoufeelthatleavesyourelativetoyourmarketingplanandwhatyouthinkitmightmeanifyougotthesamethingintheUS?

Andthirdly,just--youmentionedchangestothesalesforce,retrainingtheminJanuary.Justifyoucould




giveusanideaofwhat'schangedwiththattraining?AndthenmaybejustaquickoneonAlconwhichisthebusinessplanthatyououtlinedintermofinvestinginthecurrentproductsissimilartowe'veseenforthelastsixmonths.

Sojustwhathappensifthebusinessdoesn'tturnaroundbymidyear?You'vegivenusaverycleartargetthatitshouldturnaround,sojustyourthoughtsonmaybeaPlanBthere.

Thanksverymuch.

JoeJimenez (CEO):

David?


StartingwithEntresto,somostoftheplansrequirepriorauthorization.Thatisnotstrangeforthisperiodoftime.Whatgenerallytakespriorauthorizationsoffisdoctorandpatientdemand,soaspeoplestarttocomplainaboutit,asmoreandmorecomeon,theneventuallytheplanswillengageinaconversationwithus.Theremightbealittlebitincrementalrebate,butthenthosewillcomeup.Ican'tgiveyouanexacttime,butitwon'tbein2016.Itwillbelateroutthanthat.

IntermsofCanada,Ithoughttheguidelinesactuallywerequitepositive.IntermsoftheguidelinesforEuropewe'retold,andremember,wedon'thavecompletetransparency,we'retoldthatthere'slikelytobeguidelinesissuedaroundthetimeoftheEuropeanSocietyofCardiologyMeetinginEurope,whichIbelieveifIrecallcorrectlyisMay.AndfortheUS,I'mtoldit'smorelikelytobeinthebackendoftheyear.Wedonotyetknowhowtheproductswillbepositioned,whetheritwillbeachoice,whetheritwouldbeEntrestofirstortherewillbesomeothercaveats.Butremember,thereisonlyonepivotaltrial,sodoctorswilltendtobemorecautiouswhentheywritethoseinitialguidelines.

JoeJimenez (CEO):

Andchangestothesalesforce?


Oh,I'msorrysothebiggestthingforthesalesforceisfirstofall,asyoucanimagine,theywerestrugglingwiththelackofaccess,andtheyneededadditionaltrainingtoknowwheretheaccesswasopenandhowtodealwithitinpracticesthroughthepriorauthorizationpractice.Justasimportantly,itwasn'treallyuntilnowthatwehavefulldetailmaterialsforthem,becauseitwasafairlylongprocesswithFDAtogetthosematerials.Sotheyweretrainedontheentiresellingstory,andthat'swhyItriedtoindicate,it'salmostasifthelaunchisstartingnowintheUSmarket.Andasyoumodelit,it'sprobablyagoodwaytothinkabouttheuptakeoftheproduct.

JoeJimenez (CEO):

Richard,intermsoftheAlconturnaround,obviously,we'reexecutingnow.Wedon'texpecttoseetheturnuntilmid-year.Wethenexpecttoseeimprovement,andasIsaid,exittheyearwithlowtomidsingledigitgrowth.Now,yourquestionwas,whathappensifthatdoesn'thappen?

Andwearerightnowtotallyfocusedonexecutingthat,becausetheplanthatI'veseeniscredible.Ifweexecuteit,weshouldturnit,andthenifwedon't,ifwearen'tabletoturnit,thenweobviouslyhavetostepbackandaskwhy.WhatisitabouteitherthisbusinessoraboutmedtechoraboutanyotherelementofNovartisandourabilitytoturnabusinesslikethat,andthat'saquestionthatIhopewedon'thavetoask,becauseIdobelieveintheplan,andIthinkwithMike'sfullattentiononitalso,andateam




that'sfocusedonexecutingit,thatwe'llbeabletoturnit.Butwe'vegotayeartolook,andwe'regoingtoexecute,andtheninthefallandaswebuildtheplanfor2017we'regoingtoevaluatewhereweare.

RichardVosser (Analyst-JPMorgan):

Thankyouverymuch.

Operator :

AndrewBaumfromCitigroup.

AndrewBaum(Analyst-Citigroup):

Thankyou,questionsforHarry,DavidandJoe.SoHarry,sofirstly,oftheannounced$1billion-plusincostreductionsby2020,howmuchofthatgetsreinvested?Andthensecond,theanticipatedtimingforutilizingthe$10billionauthorizedbuyback?

ForDavid,givenyouhave200,000patientssittinginintegrateddeliverynetworksnamelyintheVAeligibleforEntresto,whynotacceleratetheadoptionbyincreasedrebating,giventheuncertainUSpass-byfortheproduct?Iunderstandthere'sadynamicbetweenvolumeandvalue,butwhatwouldittaketogetparticularlytheVAonboard?

ThenfinallyforJoe,inyourexplanationofAlcon'schallengesandlookingatpage25,theoneareathatyoudidn'tfocuson,ormaybeImissedit,wasthelinetalkingaboutsupplychain.ObviouslyinnovationorlackofisachronicissueinAlcon,butmyunderstandingissomeoftheoverfilledchannelsordebtsthatwerewrittenoffinAsiaonthesurgicalbusinessreflectedmismanagementorissuesinrelationtothesupplychain.HavethosebeencorrectedintermsofboththebonusstructureforyouremployeeswithinAsiaorwithinthesurgicalbusiness,anddoyoufeelnowyouhaveabsoluteoversightofthesupplychainforthedevicebusiness?

JoeJimenez (CEO):

Okay,David?OrnoHarry,sorrygowiththecosts.

HarryKirsch (CFO):

Yes,first,thankyou,Andrew.Sothe$1billion,asJoelaidout,isthereinordertopartlyreinvestintoourpipeline,andorganicgrowth,butalsopartlyofcourse,tosupportourmarginexpansion.Nowtoforecastthatforthenextfourorfiveyears,it'sprobablynottherightthingtodoatthismoment,alsogiventhatthingsalwayschange,butIclearlyseethisassignificantlysupportingourmarginprogressionbeyond2016.

Intermsofthesharebuybacktimeline,justtoclarify,inourAGMproposal,therewillbetherequestoftheBoardthroughtheAGMtoauthorizeourseventhsharebuybackprogram,butitisbasicallyanauthorizationrequestforaframeworkofsharebuyback.Itdoesn'thaveanytimelimit,andyoumayrecallthatoursixthsharebuybackprogramwasgoingfrom2008to2015,andwejustfinisheditwithour--thelastelementofthe$5billionbuybackoverthetwoyears.Sowearenotannouncingaspecificadditionalsharebuybackatthismoment.Ontheotherhandalso,wearealwayscommittedaswealsodidthisyear,inadditiontoannouncedsharebuybacks,tomitigateanypotentialdilutionfromemployeeparticipationprograms.

JoeJimenez (CEO):

David?





SoAndrew,Iagreewithyou.TheVApatientswouldverymuchbenefitfromthisdrug,reducemortality,reducehospitalizationcosts.SothisisthedrugthatmakesalotofsenseforaVApopulation.ThroughacouplemonthsofdiscussiontheVAhavenowattheendoflastyearpartiallyopenedthedoorstousforroughly30%to40%oftheirpopulation,andit'sdiscountedwithastandardVArate.There'snoincrementaldiscount.Wearecontinuingtotalktothem.Wearewillingtoprovidethemsomeadditionaldiscountstoopentherestofthepopulation,butIcan'tyetputatimeonthat.ItreallywillbedrivenbytheVA.

JoeJimenez (CEO):

AndAndrew,onthesupplychainforAlcon,oneoftheissuesthatweranintointhelast12monthsiswhenwelaunchedCenturion,alotofotherthingschangedinthesupplychainsystem,intermsofequipmentthatthosesurgeonsusetousethatpieceofequipment.Andwhatthatmeansisthatitthrowsalotoftheconsumablesinto,let'ssay,alevelofcomplexitythatresultssometimesincustomerserviceissueswiththatcustomer.Sobecauseitisahigh-touchbusinesswedidhavesomeserviceissues.We'relargelythroughthosenow.

IntermsofthebaddebtinAsiaPacificthatyoumentionedregardingsomeequipmentsales,thatisnowbehindus,andwehave,thereistraining,there'seducation,there'schangingincentivesthatputthatbehindusalso.Soreallyitisensuringthatwehavebest-in-classcustomerserviceandforthemostpart,we'rethroughthewoodsafterthefourthquarter.

AndrewBaum(Analyst-Citigroup):

Great,thankyou.

Operator :

MatthewWestonfromCreditSuisse.

MatthewWeston (Analyst-CreditSuisse):

Threequestions,ifIcan.Thefirst,simplyonEntresto,fortheUS,fortheenhancedaccessthatwe'veseenthisyear,David,isthatsimplyafunctionofthesixmonthsrollingoffinMedicarePartDandtherules?Orisitthatyou'vebeenforcedtorebatemoreaggressivelytoopenaccessontheproduct?

AndthenwithrespecttoGleevecandyourassumptions,I'msorrytodigintothisone,butyou'vegivenusdivisionalguidance,soit'sprettyimportanttounderstandwhereyou'reputtingthings.WeknowsomewillenteronFebruary1.Weknowtheyeffectivelyhavealicenseonyourpatent.Dr.Reddyhasrecentlyannouncedthatyouhadsettledwiththem.Canyouconfirmthat,andcanyoualsoconfirmifyou'vesettledwithanybodyelseonthe2019betacrystalpatent?

Andthenfinally,duringthe180dayperiod,Ipresumethatyouwillstillmakesales,itwillbeatwo-playermarket.Aretheyinpharmawithinyourguidance,oraretheyinSandozwithinyourguidance?

JoeJimenez (CEO):

Entrestorebate?


Yes,sotheanswerisyes,it'sboth.Sooneis,it'sanegotiation,andmanyoftheplans,notallofthem,willusetimeonthefactthattheyhavethissix-monthdecisionwindowtobasicallyaskforverylargerelates




atthebeginning,andthenovertimeyoureachaplacewherebothsidesarehappy.Iactuallyfeelthatwedidagoodjob.Iwon'tgiveyouexactnumbers,butactually,therebaterequestscamedownovertime,ratherthangoingupovertime.

Wealsohavetwoplans,andIdon'twanttonamethespecificplansthathaveagreedtodoanoutcomesplanwithus,andthewaythatworks,prettystraightforward.Weagreetoabaserebatefortheproduct,actuallyfairlymodest,andthendependinguponwhetherornotweachievespecificgoalsaroundreducedhospitalizationandsavingstotheplan,therebatewouldeithergouporgodown.Andwethinkthat'sgoingtobecomesomethingthatbecomesmoreandmorepopularintheUS,andaroundtheworld.

ForGleevec,weassumed,asyou'vepointedout,aFebruaryentryofthefirstgeneric.Webelievetheywillbeexclusiveforthatfirstsixmonths,andourworkingassumptionistherewillbemultipleentrantsafterthatsixmonths.

JoeJimenez (CEO):

Andthenfromtheguidancestandpoint,youshouldassumethatatthispoint,wearenotplanningonanauthorizedgenericinSandoz.Soitremains,theGleevecvolumeandsalesremaininthepharmagroup.Andobviously,wedon'twanttogobeyondthat,justintermsofhowwelookandmodel,andthinkaboutmaximizingsalesonGleevecforthegroup,butthat'sthecurrentassumption.


Joe,thankyoucanIcheatwithoneotheractually?BecauseHarry'sanswertothepriorquestionaboutsharebuybacks,inayearwhereyou'rechallenged,butyouhavesubstantialcashflowandaverystrongbalancesheet,itwouldmakesensetousesharebuybackstosupportearningsgrowthforinvestors.AndIguessmyquestionis,isitsemanticsthatyoucan'ttalkaboutasharebuyback,becauseyouhavenoauthorizationuntilitcomesthroughtheAGMbecauseyou'vespentup?Orisitthatyoudon'tseebuybacksasanimportantelementofsupportingearningsgrowththisyear?

HarryKirsch (CFO):

Ofcourseweseesharebuybacksacontinuedimportantelementofourcapitalallocation.Ontheotherhand,we'resittingon$16billionofnetdebtduetotheacquisitionoftheGSKoncologyassets,andweareworkingourwaythroughthat.Now,Iwouldexpectcontinuouslythat,aspartofourcapitalallocationwemayannounceone,butatthismoment,there'snothingspecific.Ourcapitalallocationprioritiesremainorganicgrowth,thengrowingdividend,andcertainlybolt-onM&Abetween$1billionand$5billion.Andfourth,lastbutnotleast,sharebuybacks,inadditiontomitigatingemployeeparticipationprograms.


Harry,thanks.

Operator :

AlexandraHauberfromUBS.

AlexandraHauber (Analyst-UBS):

Goodafternoon,thanksfortakingmyquestions.StartingonAlcon,again.WhatgivesyouconfidencethatyoureallywillseeaccelerationinIOLsinthesecondhalf,apartfromthefactthatyouhavealowerbase?AsfarasIcanassessthesituation,itstilllookslikeyou'relosingsignificantshare,specificallyinEuropeandAsiabecauseyourcompetitorshavesomuchmoreinnovativeportfolio,andI'mnotsure




whetherthetrifocalsandtheotherlaunchwillreallybegoodenoughtorecaptureshare.

Also,canyougiveussomedirectionalideaofaboutwhatAlconmarginsaredoingforthenewparameter,ofcourse?Sois2016goingtobeflatover2015,andthenstayflatuntilthepremiumIOLscomesthrough,thenewgenerationin2017?Andthenthirdly,wasMikeBallinvolvedinthiswholestrategicplan?

Andjustafinalbackupfollow-upquestiononEntresto,andthepriorauthorizationtopic.David,yousaidlastyear,Ithinkinthethird-quartercall,thatcardiologistsarenotusedtofightforaccessandinDecember,whenwetalked,youalsosaidthere'snoneedtoestablishanyinfrastructuretohelpthemgoingthroughthis,becauseit'stemporary.Soisthisnownotcomingoffthisyear?Idon'tunderstandthesalesdynamicsyou'reguidingto,asinnotmuchuptickinthefirsthalf,butpotentiallybetteruptickinthesecondhalf,ifthepriorauthorizationisn'tcomingoff?

JoeJimenez (CEO):

Okay,let'sstartwithAlconandwhywebelievethatwewillseeacceleratingIOLgrowthinthebackhalf.It'snotjustIOLs,Alexandra,thatwillturnthebusiness.It'sreallyafullplanthatincludesadditionalspendingonthecontactlensbusiness,aswellastheIOLbusiness,andcontinuedpressureonequipmentandCenturion.Now,youaskedspecificallyaboutIOLs,andwearenotlosingshare,remember,particularlyintheUS.Weareseeingamixeffectasmulti-focalreducesandmonofocalincreases,sothatishavinganimpact.

InEurope,therewassomesharedeclineduetotheintroductionofmorepricecompetitiononIOLs,butwhenyoulookatthetwonewproductsthatwehave,theUltraSert,whichisinbothgeographies,andPanOptix,PanOptixisn'tapanaceainEurope,butitalreadyishelpingustoregainsomelostsharebecauseoftheopticsofthatIOL.ItisperceivedasquiteaninterestingIOL,alathetoricmulti-focalwhichalsohasbecomeaveryimportantelementofmulti-focal.Sothere'spremiumIOLs,andthere'spremiumIOLs,andwemissedit,Ithink,onthefirstround,butwithPanOptixandwithtoric,we'reabletocommandpremiumprices.We'regoingtoincreasespending,sothisisMarketingandpromotionalspendingupagainstthose,anditremainstobeseen.Ibelieveintheplan,andwe'llseeifitturns.Ifitdoesn'tturnwehavetoaskaharderquestion.

IntermsofAlconmargin,weendedtheyearatabouta31%margin.ThisisoldAlcon,assumemorespending,acouplemarginpointsbackonthisplan,splitacross.WhenweshowtheproformasinmidApril,you'llseehowthatbreaksoutbetweenpharmaandsurgical,butthereisstillquiteabitofdecisionthathastobemadearoundwherewearegoingtomovecosts,iftheyaregoingtomovethemtotheophthapharmabusinessoriftheyaregoingtohavetostayinthesurgicalbusiness.Sowestillhaveworktodobeforewecantalkaboutboththeproformamargins,andthenalsothemarginevolution.

Assumethough,thatwe'venowgotabasein2016fromamarginstandpoint,uponwhichwewillbeableto,ifwe'resuccessfulwithourinnovation,wherewecouldmarginup,wherewecouldstarttogrowbacktothatlevelthatwassustainableatAlcon.Andtheissueis,wehavetorememberthatwe'vegottoensurethatwearestillservicingthisbusinesswithwhatittakesonthesecustomers,becauseitisacompetitiveenvironment.WewantthemonlytocallAlconandthat'sgoingtomeantraining,education,makingsurethatwehavethetechnicalfolksthatweneedtoservicethosemachines,anddelightthosecustomers,inawaythatthecompetitorswillnotbeableto.

IntermsofMike,hehasreviewedthestrategicplan.He'singeneralagreementwiththem,butobviouslyashecomesin,I'mgoingtogivehimfullflexibilitytomovethingsaroundintermsofwhereheseesopportunity.We'vehiredhimtoreallytakethebusinessandturnit,andso,he'sgoingtohaveafreehandinthat.David,onEntresto?





Sotherearedifferencesinrestrictiveprocesses,sowhenaproductisnotonformularyatall,yousawthateventhenwehadafewprescriptions,becauseifadoctorwantstojumpthroughallofthehoopsandfightreallyhard,theycangenerallygetaproducton,butit'sextraordinaryburdensome,andtheywilldoitforveryfewpatients.Onceaformularyisopenedup,whetheritbethesecondtierthirdtier,evenwiththepriorauthorization,itbecomesmuchmoreroutine.There'smuchlessinformationneeded.It'saquickerdecisionprocesstoplan,andit'srepeatedoverandover,overtime,soitbecomesastandardpracticefortheofficestaff.

Wehaveactuallybuilt,andI'msorryifIdidn'tsayitclearlybefore,butweactuallyhavebuiltthosesupportservicesfordoctors,justaswehaveforGilenyaandotherproducts,andthatwillbeavailabletothem.Inaddition,becauseyou'reright,cardiologistshavelessexperiencewithpriorauthorization.Inaddition,nowthatthere'smultipleothercardiologyproductslaunching,othercompaniesarealsoeducatingcardiologistsandtheirofficestaffsonhowtodoit,soovertime,thiswillbecomemuchmoreroutine.

AlexandraHauber (Analyst-UBS):

Thankyou.

Operator :

SeamusFernandezfromLeerink.

SeamusFernandez (Analyst-LeerinkPartners):

Sojustacouplehere.Firstoff,forJoe,thismaysoundalittlebitunfair,butoverthelistfewyears,we'vemovedfromcrisistocrisisintermsoftheconsumerbusinessfallingbelowexpectations.NowAlconfallingbelowexpectations.Canyouhelpusbetterunderstandwhereandwheninvestorsshouldhaveconvictionthatthebusinessisreallygoingtobeontherightpath,onasustainablebasis?Isitkickingoffinthesecondhalfofthisyear,orisitmoreofa2017typeevent?Thesecondquestion,aswethinkaboutEntresto,Iguessgivena16%totalmortalitybenefitandastrikinglabel,whatIstrugglewithiswhatisthepriorauthorizationdynamicthat'sbeingputinplace,andwhatisthejustificationonthebasisoftheplanstoallowthattobethestandard?Thanksalot.

JoeJimenez (CEO):

Okay,Seamus,startingwithwhentohaveconviction.Whenyoulookatthebusiness,thewholeportfoliotransformationwasaroundfocusingourbusinessonleadingbusinessesintheirsectors,thathaveglobalscaleandinnovationpower,andlosingsomeofthesmallerbusinessesthatweregoodbusinessesintheirownright,buttheyweredistractions,ortheyhadissues.SoifyoulookattheCompanytoday,it'sasimplerandastrongerCompanythanitwasjusttwoyearsago.

2016isgoingtobeatransitionyearforus,aswe'regoingthroughwhatisthebiggestpatentexpirationthatwe'veseensinceDiovanwithGleevec.Thisisa$4.5billiondrug.Sowe'regoingthroughitatatimewhenwe'relaunchingtwodrugsthatwebelievewillbecomemegablockbustersfortheCompany,onEntrestoandCosentyx.SoIthink,aswemovethrough2016andexit2016,IbelievewewillputAlcononamore,let'ssay,stablebasewherewe'vegotpredictability,wherewe'vegotmaybenotscintillatingdoubledigitgrowth,butgrowththatwecanrelyonandcounton,sustainablegrowth.Andthepharmabusinessalsohasthatpredictabilityandsustainability.

Ithinkbydefinition,thegenericsbusinessisgoingtocontinuetobevolatile.Wesawthatinthefourthquarter,wehadabasethatwasquitehigh,butwealsodidnotseesomeofthepricingissuescomingin




Sandozinthefourthquarterwhichdidcomeandweexpectthosenowtocontinuethrough2016,andthat'swhywe'resayingSandozwillstillgrow,we'llhavelowtomidsingledigitsalesgrowth.Not7%likelastyear,butstillagoodbusiness.Soyou'regoingtohavevolatilityinthatkindofabusinessbecausethat'salmostbydefinitionthekindofbusinessthatitis.SoIwouldsaythataswe'reexitinglikemidyearof2016andasweexit2016,Ibelievethatwewillbeonamorestablebase,particularlyasweturnAlcon.David,onEntresto?


Yes,ifIcanalsobeblunt.Priorauthorizationprocessesaremeanttoslowproductadoption,andkeepcostsdownforpayers.That'swhattheirbasisis.

Sometimesthey'resimple,andtheywanttomakesuretheproductisbeingprescribedinlabelforexample,inNewYorkheartfailureclass2to4theappropriateejectionfraction,bloodpressuresincertainrange,etcetera,andothertimestheyarearbitraryandaddthingslikefulldosebetablockersorsomethingelse,simplytoaddtheadditionalhurdle.AndlikeIsaidearlier,onceenoughpatientsareonanddoctorsseethis--begintoseeitasastandardofcare,andcomplainalottotheinsurers,thepriorauthorizationswillgoaway.Butthatwon'thappenthisyear.

Operator :

KerryHolfordfromExaneBNPParibas.

KerryHolf ord (Analyst-ExaneBNPParibas):

Someproduct-relatedquestionsplease.SoAfinitor,wesawsalesdeclineintheUSinQ4,andclearlyyou'reseeingpressurefromnewcompetitorsinrenalandbreastcancer.ButIwonderifthere'ssomethingyoucanaddressnowaheadofpatentexpiryin2019,anynewclinicaldata,orshouldweessentiallyassumethatbrandisnowinterminaldecline,inthatmarket?

AlsoaslowdowningrowthforTasignainQ4intheUS,isthisreallyreflectinganticipationofGleevecgenericarriving?Whatareyourexpectationsforthatgrowthrategoingforward?Andthenapointofclarification,sorryforme,onEntresto.Whenyoutalkaboutlowerco-pay,thosepatientswhoareaccessingatlowerco-pays,areyoureferringspecificallytotiertwothere?AndwithregardtotheMarketingstrategyhere,areyoufocusinginitiallyonthosespecialistprescribers,orareyounowaffectingabroadermarketingeffortfromtheoutset?Thankyou.


Okay,let'stakethemoneatatimestartingwithAfinitor.SoAfinitorhasadditionalcompetitionintheareaofbreastcancer,whichifIrecallcorrectly,roughlyhalfofthebusiness.WesawthelaunchofpalbofromPfizerinCDK4/6.You'llrecallwealsohaveoneinlatestagedevelopment.Thesearegooddrugs,andwhatthey'redoingisthey'reessentiallypushingAfinitortoalaterlineoftherapy.Likewiseinrenalcancer,wehavethelaunchoftheimmuno-oncologyagent,whichwilloftenbetriedearlieron,aswellasseveralothertargetedandanti-VEGFagentintorenalcellcancer,whichpushesAfinitorabitfurther,abitlater.

Yourquestionaboutsalesprojectionsalittlebitdifficult,becausesomeofthesepatientswilleventuallyfail,theyareanewfirstorsecondlinetherapy,andthenrollontoAfinitor,butlater.Andinaddition,wewillhavegrowthcomingintuberoussclerosiscomplexaswellasneuroendocrinetumors,whereweareexpandingourlabel.Havingsaidallofthat,Ithinkgrowth,ifthereisgrowth,willbeprettymodestfortheproduct,soIthinkthat'swhatwe'reseeingisagoodindicationthattheproductisgettingcloserandclosertoitspeaksales.




IntermsofTasignaintheUS,itwas,ifIrecallcorrectly,itwasroughlyinthequarter9%growth,versustheprioryear.Itwasimpactedbyastockintradedrawdownduringtheperiod,andaverystrongprior-yearquarterinQ42014.Sowethinkactuallythegrowthoftheproductisintact,anditcontinuestoperformwelloverall.Havingsaidthat,wehavecautionedbeforethatwhenGleevecdoesgogeneric,itislikelythatsomedoctorsandsomeplanswillstarttheirnewpatientsongenericimatinib,andthenwaittouseTasignaforthepatientthathasnotachievedacertaincytogeneticresponse.

ThenextquestionwasaboutEntrestoco-paysandalsoaboutEntrestomarketing.LetmetakethemarketingaudiencepartfirstandthenI'llneedyoutore-askmetheco-payquestion,becauseI'mnotsureIquitegotit.Sowe'refocusingoncardiologistsprimarily,andabout10%oftheinterniststhatwritethemajorityoftheheartfailureprescriptions.Ofthecardiologists,intotalthatrepresentsabout35%oftheheartfailuremarketpotential,andwewentlightatthebeginningintheUS,consciouslyknowingthataccesswasgoingtobelow.Wedidn'twanttowasteresources.

Wewillexpandthatfieldforceabitduringthesecondquarterofthisyear.Thatwillprovidemoreaggressivecoverage,coveringabout51%oftheprescriptions,aswellasmorefrequencyagainstthekeytargets.IfIhadtocontrastthatforyouinGermany,wherewehaveaverydifferentsetup,andwhereprimarycareismuchmoreimportant,we'vegoneoutwithfullcoverageofcardiologists,andwe'realsocoveringthemajorityofprimarycarephysiciansfromtheget-goinGermany.Soit'saverydifferentmarketingandsalesmixindifferentcountries,dependingupontheirvocalsituation.Canyouaskmetheco-payquestiononemoretime?


Sure,itwasreferringtoslide64,whereyoutalkaboutpatientsonformularythathavelowerco-payversusahigherco-pay.Thoseyellowshadedareayoutalkaboutlowerco-pay,isthatspecificallytiertwoaccessandhigherco-paystierthree,four?Orislowermixoftiertwoandthree?


Sodifferentplanshavedifferentsystems,butingeneral,thelowerone,thelightyellowisacombinationoftiertwo,orpatientsthatarelowincomeassistancepatientsinMedicare,whogetaspecialoutofpocket,whichistypicallybetween$5and$10.


Thankyouverymuch.

Operator :

GrahamParryfromBankofAmericaMerrillLynch.

GrahamParry(Analyst-BofAMerrillLynch):

Sofirstly,onEntresto,justwanttotryandunderstandwhythereisalmostnouptakeofEntrestointhefourthquarterdespite65%coverageincommercial.Isthatduetofreesampling,isitdestocking,orispriorauthorizationstilljustthekeythere?Soperhapsyoucanquantifythoseelementstogiveusabetterfeelforjustwhattheunderlyingwasinthefourthquarter.

AndsecondlyonAlcon,perhapsgiveussomefeelforthesizeorscaleofM&AthatyouconsidertobuildpipelineatAlcon?AndthenthirdlyonSerelaxin,whenin2017shouldweexpectthePhaseIIIpivotaldatanow?Whatwastherationaleforincludingworseningheartfailureasanendpointinthetrial,whentheproductwasessentiallyrejectedonthatendpointbytheFDAonthefirsttimearound?AnddoesthatreflectalowercertaintyfromNovartisonmeetingtheendpointonmortalityalone?Thank




you.


Okay,sothefirstquestionisaroundwhydidn'tweseemorebusinessonthecommercialside,givenbetteraccess.Infact,themajorityofthebusinessdidcomefromthecommercialsideduringthecourseof2015.Idon'thavetheexactfiguresinfrontofme,butitwasnorthof65%ofthebusiness,despitecommercialbeinglessthan35%ofthepatients.AndwhatyouhavegottorememberhereisI'llshowyouachartattheendofOctober,whatitreallymeansiswedidn'treallyhaveanyaccessinthemonthofOctober.You'reonlytalkingaboutNovemberandDecember.Decemberisaholidaymonth,andit'sjustnotenoughtimetoaccumulateprescriptions.

Havingsaidthat,weseeeach,Ijustwanttoremindeverybody,eachweek,thenumberofprescriptionsisgoingup,andthenumberofprescribersisgoingup.Sothetrendisintherightdirection.Webelievebyreducingtheaccesshurdle,whichisnowlargelyaccomplished,andthelaunchoftheproductwiththefieldforcewiththeappropriatemarketingmaterials,wewillseeanaccelerationthatoccursstartingnow,butitwilltakereallyuntilthesecondquarteruntilyoustarttoseesomethingreallymaterialinthebackhalfoftheyear,toseethat,aniceinflection.

JoeJimenez (CEO):

AndGraham,regardingAlconsizeandscaleofM&Aorin-licensing,theseareallrelativelysmalldeals,becausenowthatwefocusthedivisiononsurgicalandmedicaldevices,theyaremainlysmallcompanieswithinterestingnewtechnologiesthatwecouldclickin.Butyou'relookingatrelativelysmallupfronts,significantlybelow$1billion,butthosearethekindsofthingsthatwethinkwe'llbeabletobringinandclickrightin,andmoveintoaperiodwherewecouldlaunchin2017andstarttoimpact2017,2018and2019.


AndthenGraham,IhaveVasNarasimhansittingnexttome,ourHeadofDevelopment,andgiventhathe'smuchmoreintimatelyfamiliarwiththeprogramthanIam,I'llaskhimtoanswerthegoodSerelaxinquestions.

VasNarasimhan (ChiefMedicalOfficer):

Graham,thanksfortheSerelaxinquestion.WecurrentlyforecastforcompletestudyenrollmentinQ4ofthisyear,andthenthere'sasix-monthfollow-upforthosepatientstoreachtheprimaryendpoint.Sowewouldexpecttoreadoutinthefirsthalfof2017.Intermsoftheworseningheartfailure,wedidcompleteaninterimanalysisyou'llrememberlastyear,whichhadthestudycontinue,andweremainedblindedtothestudyresults.Sothere'snothingnewthathasledustoaddworseningheartfailure.Worseningheartfailurewasaddedmoretobeinlinewithwhatwethinkwouldbeourcompetitionisdoing,andalsotogiveustwoshotsongoalmovingforward.Thatledtoasamplesizeexpansiontoallowustofullypowertothemortalityendpoint,sothat'swhat'sdrivingthis.

Operator :

JeffHolfordfromJefferies.

Jef f Holf ord (Analyst-JefferiesLLC):

ThanksforspendingsomuchtimeonEntrestoandAlcon,whichinvestorsareveryfocusedonrightnow.Butjustonemorefollow-uponEntrestoforme.Justonethingthatinvestorsandwecanallgetabitconcernedaboutisabitofphysicianfatigue.Bythetimeaccessopensup,perhapsthey'vetriedto




prescribeafewtimesandperhapsit'snotendedwell.Socanyoujustgiveusthefeedbackthatyouhadorjustexperienceintermsaboutthosecardiologiststhathavebeenaccessing,thattherehasn'tbeenabuildupoffrustrationthereandpotentiallyalackofwillingnesstoprescribenowthataccesshasopenedup?

ThenifyoucanjusttalkalittlebitaboutLEE011.Justwhatyouthinkyourtargetprofileisversuspalbociclib,theendmarketproduct,ifyouthinkthatthereareanyspecificpointsofdifferentiationthatyou'llbelookingforwhenthatreadsout?

AndthenIwonderifIcanjustDanintojustabitmorehelponthepharmaceuticalsidein2016.It'sclearthatconsensusneedstorevisedownsalesforanumberofproductsinpharmaceuticalsandyou'vespokentoEntrestoonconsensus.Ithinkit'sclearthatAfinitorhassomechallengesthisyear.Arethereanyotherspecificproductsthatyoumightliketopointoutfortheinvestmentcommunitytofocusonin2016withinthepharmabusiness,whereperhapsweneedtorethinksomeofourassumptions?Thankyouverymuch.


RegardingEntresto,sowhatwefoundis,andthecardiologistsareinterestingtotalkto,essentiallyiftheywouldtryonepatientandtheplansaidit'snotonformulary,thevastmajorityofthemwouldnottryagain.SoIdon'tthinktherewasanyfatigueissuethathastobereallyworriedabout.Inadditionwhatwestartedtododuringthefourthquarterisweincreasedourprogramtogiveamonthoftheproductawayforfree,particularlysothepatientscouldgetstarted,whenwewereanticipatingthataccesswouldopenup,whichshouldstarttohelp.

RegardingLEE011,wethinkthisisgoingtobeaverybigclassofdrugs.WebelievethatwhileweareclearlybehindintheUS,we'llbesecond.WebelieveinEurope,thetimegapbetweenourapprovalandthePfizerapprovalisnotasgreat,whichgivenourcommercialstrength,shouldbeabighelp.Andintermsofthedifferencesinthedrugintermsofmonotherapy,theyseemactuallyballparksimilar,intermsofefficacy,althoughtherearen'tanycross-studycomparisons.ItlookslikepalboandLEEhavemoreneutropenia,whiletheLillydrugappearstohavemuchmorediarrhea,andwe'llhavetoseehowthatultimatelyplaysout.

Andthenourstrategywiththedrugisoneofcombinations,combiningwithexemestane,combiningwithAstraZeneca'sFulvestrant,combiningwithourPI3kinaseinhibitor,withanideathatwecancomeupwithacombinationthat'sevenbetterthanthesingleedgeagent,andthencatchupandmaybeevenultimatelyleapfrogifthosecombinationswork.IwasalittlebitnervousabouttalkingaboutconsensusforEntrestoandCosentyx,butsincetheywerenewproductsandwefeltthedeviationswereprettymeaningful,wedecidedtodothat,whichisnotusuallywhatwedo.ButIreallydon'tplanongivingaconsensusestimateforeveryotherproduct.YoualsohavetolookattheoverallguidancethatHarryprovided.

Operator :

TimAndersonfromBernstein.

T imAnderson (Analyst-Bernstein):

Afewquestionsplease.Onslide7,theupcomingcatalystinpharma,there'stwoPhaseIIIreadoutsnotlistedwhichisBAF312andFovista.I'mwonderingwhythosearenotonthatslide.Secondquestiononemergingmarkets.4%inthequarter,whatshouldwebeexpectingin2016?

Thirdquestion,justgoingbacktoAlcon.CanI,didIunderstanditright,youexpectoperatingmargins




arelikelytotroughoutin2016inthatdivision,withgrowththereafter?AndthenonEntrestoyoutalkedaboutpriorauthorization.Doesanyofthatentailafailfirstpolicy,wherepatientshavetofaileitheranACEoranARBbeforetheygetclearancetogoonEntresto?

JoeJimenez (CEO):

David,maybethecatalystofBAFandFovista?


YessoBAFwillinfacthaveaPhaseIIIreadoutroughlymidyear2016,andFovista,thetwopivotaltrialsthatarerunbyourpartnerOphthotech,theywillbe,ourunderstandingistheybeanalyzingthedataatthesametimeinlate2016,sothoseareasexpected

JoeJimenez (CEO):

AndthenTim,intermsofemergingmarkets,asyoulookatthetrendsthere,westartedthefirstquarterIthinkatabout11%growth,wewenttothen7%growthasthoseeconomiesstartedtoslow,andfourthquarterwas4%,sowecontinuetoexpecttheemergingmarketstoslowthrough2016.Idon'tknowwheretocallitintermsofwhatwillhappen.Idon'tthinkthatgrowthisgoingtogonegative.

Emergingmarketshavebeenbouncingaroundanywherefrommidtohighsingledigitanddoubledigitatsomepoint,soIwouldassumethat4%isalownumber.Wedidn'tthinktheyweweregoingtoseeit,butwehaveseenit.Andit'spartlydrivenbywhat'shappeninginChinaandRussia,andso,Ithinkyoushouldexpecttoassumethat'sgoingtocontinue.

IntermsofAlcon,yes,youdidhearmerightintermsoftroughmarginin2016,notnecessarily2015.AndthenDavidonEntresto?


Yes,soIdon'thaveeverypriorauthorizationplaninfrontofmebutwe'llgobacktotheteam,soIcan'truleoutthatthereisn'tsomeplansomewherethathaslanguageyouuse.If,however,it'scertainlypossiblethatsomeplanswillrequirethatapatienthadbeenonanACEoranARB,becauseyourememberwehadthetwo-weekruninperiodinourclinicaltrial,sosomeplanswillusethataspartoftheirpriorauthorizationprocess.

Operator :

VincentMeunierfromMorganStanley.

VincentMeunier (Analyst-MorganStanley):

Thankyoufortakingmyquestions.ThefirstoneisontheUSpricing.Basedonyourcommentsearliertoday,doyouthinkthereisasortofinflectionpoint,particularlyintheUS?ThesecondquestionisM&A,andparticularlyforAlcon,Iunderstandthatitwillbeessentiallymadeofbolt-onacquisitionsfornewtechnologies,butisthereatrade-offbetweenthepharmaM&AandtheM&AforAlcon?

AndthelastquestionisonEntresto.Canyoupleasegiveuswhatisyourtargetwhenthedrugwillbemorestable,intermsofsalessplitsbychannelandalsoprofitabilitybychannel?Thankyou.

JoeJimenez (CEO):

USpricing,David,doyouwanttotalkaboutthatonthepharmaside?





Yes,soit'saninterestingstorythat'sevolving.IfyoulookoverallattheUSmarket,clearly,thevariouspayerswhohavemergedsometimesboughtchainpharmacies,boughtPBMs,havetheabilitytoslowadoptionmorethantheydidinthepast,andtocommandgreaterpricediscounts.Havingsaidthat,theyaremuchbetteratitwhentherearealternativesavailable.Sototheextenttherearemultipleproductsinatherapeuticcategory,they'redoingaverygoodjobatextractingdiscountsfromproviders.Whenthereisnotanalternative,theygetmuchlowerpricediscounts,ifanydiscountatall.

IthinkthenewthingthatwereallylearnwithbothEntrestoandCosentyxisthattheyhavereallynowdevelopedtheirtoolsextensivelyaroundtheintroductionofnewdrugs,whichcreatesaperiodoftimewhereaccessisdifficult,andthenitgetsresolved.AndthatperiodoftimeactuallyisnowlongerthanitisinEurope,whichisprobablythebiggeststrikingchangeintermsofthemarket.

Themarket'scryingforhighqualitypharmaceuticalproductsatalowerprice.Theywantdrugsthatarecosteffective.That'swhywe'retryingtomovetomoreoutcomescontracts,getvalueforadditionallifeandforoffsettinghealthexpenses,andtheproblem'snotgoingtogoawayanytimesoon.AndIbelieveintheUSmarket,eventuallytherewillbeapoliticalsolutiontoaddresstheveryhighoutofpocketsforpatients,becauseitdoesn'tdotheworldanygoodtospendallofthismoneyoninnovation,ifthepatientsultimatelycan'tgetthemedicineatthedrugstorebecauseoftheco-pay.

JoeJimenez (CEO):

AndthenontheM&AquestiononAlcon,yes,obviouslywelookvery,veryhardathowwe'regoingtospendourcapitalspendacrossthedifferentbusinesses,andwehavethesamehurdlesforeachofthebusinessesaroundwhatit'sgoingtotake,togetcapitalallocatedfromthegroup.Nowagain,whatwe'retalkingaboutinAlconarerelativelysmalltransactions,whereyoumighthave$100millionor$200million,maybe$300millionupfrontwithmilestonesafterthat.Andwe'veallseentheimpactofbeingabletoshowsteadyandconsistentsalesgrowthandearningsgrowth.Sothereissomethingtobesaidintermsofhowinvestorswouldrewardsmallbolt-onacquisitionsinAlcon,andinthatsurgicalbusinessandthat'swhythat'sstillonthelist.AndthenDavid,intermsoftheEntresto?


ForEntresto,I'mnotgoingtosaymuchmore.We'vegivenpeaksalesguidance.We'venowoutlinedthepathfor2016.Clearlyintermsofchannels,Medicareisbiggerthancommercialintermsofpatientnumbers,butbeyondthat,I'mnotpreparedtosaymore.

Operator :

TimRacefromDeutscheBank.

T imRace (Analyst-DeutscheBank):

Threequestionsplease.First,justonSandoz.YoutalkabouttheUSpricingpressures.Canyoujustdiscusswhattheyactuallyare?Isthatspecialtypharmarelated,dermatology,anythinginparticular,potentially,couldyoudiscussthat?

AndthenjustonpricingofEntrestoinSwitzerlandandGermanyintheexampleyoushared,what'stherelativepricingofEntrestoversusUSandGermanyandSwitzerland?AndthenfinallymaybejustonAlcon,ifyoudon'tmind.Canyoujustremindme,whatisthestrategicfitofAlconwithinthegroupofNovartis?Isitthereasadiversificationelementbecauseitdoesn'treallyfitwiththerestofthebusiness,especiallynowyou'removingdrugstopharma.Sohaveyougonethroughthewholeprocessofwhetheryouwouldactuallyspinthisdivisionandthatkeepingitwasabetteralternative?Thankyou.

JoeJimenez (CEO):




Okay,let'sstartwithRichardonSandoz.

RichardFrancis (DivisionHead):

Thankyouforthequestion,Tim.SoifyoulookatUSpricing,itreallyfallsundertwocategories.Youhavethepricingthat'sforcedthroughthechannelandtheconsolidationthatwespokeabitaboutlastyearandtheyearbefore,andthenyouhadjustthecompetitiveenvironmentyouhaveintheUS,wherethemorecompetitorscomein,thepriceactuallygetsforcedout.Andthetimingofthoseandwhenthosehappenisveryunpredictable,andsoit'sthosetwofactorswhichhaveledtothepricingsituationwesawinquarterfourintheUS.

JoeJimenez (CEO):

David,onEntresto?


SoastheUS,asareminder,thelistpriceperdayis$12.50butofcourseintheUSdiscountsareprevalent,sometimesmandatedbygovernment,sometimesnegotiatedwithindividualplans.ThepricinginEuropeisclusteredaroundEUR5toEUR5.5,giveyouaballparkidea.Justtocautioniswestillareearlyinnegotiationsinmanycountries,soit'sgoingtobeawhilebeforeweknowsomeoftheothermarkets.

JoeJimenez (CEO):

AndjustregardingthestrategicfitofAlcon,ifyouthinkaboutourstrategyoffocusingonhighgrowthareasofhealthcare,wherethere'sahighlevelofunmetneed,withglobalbusinessesthatarenumberoneornumbertwointheirsectors,thisfits.Atthesametime,wegottoprovethatwecangrowitsustainably,andthat'sreallywhatwe'refocusedonthisyear.Andwe'vegotacleargrowthplan,we'vegotmilestonesthatwehavetosee.Ifwearenotabletodeliverthat,thenthat'sadifferentquestion,butrightnowwe'lltakethenext12months,andwe'regoingtoexecutethisandseeifit'sgoingtoplayoutthewaythatwethink.

T imRace (Analyst-DeutscheBank):

Thankyou.

Operator :

NareshChouhanfromLiberum.

NareshChouhan (Analyst-LiberumCapitalLimited):

Justonequestionleftforme.Canyoujustgiveussomecoloronthe12%declineinAfinitorinQ4,andwhetherornotweshouldbeexpectingthattocontinueorpotentiallyacceleratethrough2016?Thanks.

JoeJimenez (CEO):

David,AfinitorinQ4?


Youaskingmespecificallyaboutsales?


SalesintheUS,yes.





Soforfullyear,wewereup10%.InQ4,wewereminus4%.Theseareworldwidegrowthnumbers,andasIsaid,it'sdrivenbythelaunchofIbrancewhichwon'tchange.TherearealsosomereimbursementchangesintheUK.Youknowthattheytooksomeproductsoffthedrugcancerfund.

Andthenjustingeneral,therearepricedecreasesinEurope,notjustforAfinitor,butthevastmajorityofplansacrossmultipleEuropeanmarkets.SoIwouldexpectthisproducttodeclineinbreastandrenal,anditwouldgrowinsomeofthenewerindicationsoftuberoussclerosiscomplexandneuroendocrinetumors.AndIthinktheopenquestioniseventually,asthisproductispushedtoalaterlineoftherapy,willpatientsrolloffthatfirst-lineandeventuallycomebacktoAfinitor,andthat'shardertojudgeatthispointintime.


Thankyou.

Operator :

FlorentCespedesfromSocieteGenerale.

FlorentCespedes (Analyst-SocieteGenerale):

Threequickones.First,onophthalmologypharmaceuticals,howcouldyoureenergizethisbusiness,knowingthatitisquitedifficulttoinnovate,andyouaresufferingfromgenericsandLucentisnotgrowing?Couldyouenvisageanyuniquegrowth?

Andthentwoquestionsontherespiratory.FirstontheUSmarket,fortheUSmarketwiththenailproducts,areyoustilllookingforapartnertoboostthesalesthere,andlastquestiononrespiratoryand[CD]asthma,dowehavetounderstandthatnowthefocuswillbefollowingthenegativeresultsontheproduct,Xolair,thefocuswillbeontriplecomboandtheQAW039?CouldyougivealittlebitmorecolorontheseproductsandyourstrategyintoCDasthma,thankyou.

JoeJimenez (CEO):

David?


Good,sostartinginophtha,weactuallyseeanumberofopportunitiestodevelopproductsfasterthanwerepossiblebefore,giventhedepthofthepharmadevelopmentorganization.Inparticular,therearetwoopportunities,actuallythree.Oneistodoadditionallifecyclemanagementinsomeoftheexistingbrands.Ophthalmologistssometimeswantversionsoftheproductthataresingleuse,preservativefree,etcetera,etcetera.

Second,intheareaofretina,wenowhaveanopportunitytoputtogetherinamoreseamlessway,aprogramthatdevelopsbothFovista,RTH,Lucentis,inawaythatwillbemorepowerfulandmoreimpactful,soessentiallywehopetobringinnovationforward.Andlastbutnotleast,there'saverygoodconnection,abetterconnectionthanexistedinthepastwithAlconinthere,butthepharmaAlconconnectionisactuallyquitegoodnow,whichmeansthere'sanumberofnovelprogramscomingoutofJayBradner'sshopfocusedonAMD,dryeye,anti-inflammatories.Someofthesewillhaveproofofconceptsinthenearfuture,andwiththissetup,wethinkwecanbringthoseforwardmorequickly.

IntermsoftheUSrespiratory,SeebriandUltibro,yesthosediscussionswithpartnerscontinue.I'mhopefulthatinthenextcouplemonthswewillbeabletotellyouexactlyhowthatplayedout.Andthen




insevereasthma,wethinkit'saveryinterestingfield.

WehaveXolair,inallergicasthma,whichissellingwellandcontinuestogrow.Wehave,we'redevelopingthedoubleandtriplecombinationwiththesteroid,soUltibroisasteroidinsevereasthma,ex-US,andthenyousawthe,onmycharttheQAWdevelopmentprogram.Andwhenyoulookearlierintheportfolio,withoutgoingintospecifics,there'sactuallyotherprogramsthatlookliketheycouldbeinterestinginthatfield.Soit'sacategory,respiratoryisacategorywe'recommittedto.Thankyou.

Operator :

MichaelLeuchtenfromBarclays.SteveScalafromCowen.

SteveScala(Analyst-Cowen):

Thankyou,Ihavethreequestions.TwoforDavid.First,youmentionedthatyouthinkLEE011'sinterimlookcouldbepositive.Isthisjustbasedonwhatyou'veseenfromIbrancestudiesoraretheresignalsfromtheLEEclinicaltrialsthatareincreasingyourconfidence?

Secondly,whatareyourlatestonLilly'sixekizumabrelativetoCosentyx,giventhatixekizumabwilllikelybeapprovedverysoon?Andthenlastly,inthepastNovartishasexpresseduncertaintyabouttheuptakeofagenericversionofGleevec,andwhetherornotitwillhaveallofGleevec'sindications.Doyouhaveanymoreclaritynow,andisNovartiscertainthatSunwilllaunchthebetacrystalformandofadequatepurityonFebruary1?Thankyou.

JoeJimenez (CEO):

David?


Okay,sostartingwithLEE.Iknownothinginaddition,otherthanmodelingtheIbranceresponseratesandtryingtoportthoseovertoourprogram,tolookattheinterimanalysis.IntermsofCosentyxandthecompetingprogramfromLilly,there'sacoupleofplacestothinkabout,intermsofdifferentiation.

Firstofall,breadthofindication.Sowehavenowthreeindicationsinourlabel,myunderstandingistheywillhaveoneorperhapstwowhentheylaunch,whichisimportantforphysicians,andalsoformularyplacement.Second,wehavelongtermdata.Weactuallyhavedatathatgoesoutnowthreeyears,andyou'llseereallynicesustainabilityofeffect.Andwebelievethat'sbecauseoftheverylowimmunogenicitywithCosentyx.

AndmyunderstandingiswiththeLillyproduct,thereanybehigherratesofimmunogenicityandwedon'tknowwhetherornottheproductwillworkaswellinyeartwoandyearthree.Andlastbutnotleast,atleastfromthedatathat'sbeensharedsofar,maybetherewillbeotherdata,isthattheLillydrughadmoreinjectionsitereactionsthanCosentyx.Havingsaidallofthat,theLillydrugisagooddrug.Itseemstoworkwell.IthinkhavingmorethanoneIL-17onthemarketwillgrowtheshareforIL-17,andwewelcomethecompetition.

JoeJimenez (CEO):

Okay,Ithinkwehavetimeforonemorequestion.

Operator :

MariettaMiemietzfromPrimavenue.




MariettaMiemietz (Analyst-Primavenue):

IhaveacouplequickquestionsforDavid.ThefirstisonChina.InSpring2015,Ibelieve,theyreallycrackeddownonhospitaldrugbudgets.Shouldwethinkaboutthatasone-offresetthatwilllapsesoonandChinagrowthcanpotentiallyrecover,orisitamorecontinuousprocessintermsofcontrollingdrugsspendthere?

AndsecondlyontheABLinhibitor.SoTasignaisclearlymorepotentthanGleevec,butit'sjustverydifficulttocomeupwitharobustdatasetthatcanreallycompetewiththemassiveGleevecdataset.SoI'mjustwonderingwhatdatadoyouactuallythinkyouwillneed,nottofile,buttoreallyprevailinacommercialmarketofGleevec'sgenerics,andhowfastdoyouthinkyoucanpotentiallygetthatdata?AndthenIjustwantedtocheckforthe2015procurementsavings.Doyouthinkthatwecangetanythinglikethatagainin2016,2017,oristhatcomingtoanend?

Andfinally,Joe,IwasjustwonderingwhetherIcouldmakesureIunderstandthemethodforcalculatingthepotentialAlcontargetmargincorrectly.SoifIunderstandcorrectly,2013to2015marginswereuppotentiallystructurallyalittlebithigh,andnowyou'reinvesting$200millionrelativetoanearlierplanthatprobablyalsohadsomeincrementalinvestment.Sowhenallofthedustsettles,thenwouldyousayweshouldtakeoutalotmoreoralotlessthan$200millionoutofthe2013,2014profit,togettoanappropriatebenchmarkforthetargetmarginsforAlcon?Thankyouverymuch.

JoeJimenez (CEO):

David?


StartingwithChinasoChinaisputtinginplaceanumberofreformsacrosssectors,butinparticularinhealthcare,inordertobothcontrolspending,andtoexpandaccesstomedicinesacrosstheirpopulations.Sotherearepositivesandnegatives.You'reright,theychangedthedrugprescribingincentive,whichslowsgrowth.

Youaskedwhetherthatwouldbecyclical.Imean,obviouslytheimpactatthebeginningisgreaterthanlateron,becauseofaninventorydrawthathappenswithinhospitals.Havingsaidthat,therearemultipleotherchangestoreimbursementpoliciesinChina,includingmorebiddingonalocalbasis,whichdependingupontheproductandtheCompany,caneitherbeanupsidegrowthoradownsidegrowth.

Havingsaidallofthat,theChinesemarketoverallhasclearlyslowed.Fromaboutayearandahalfago,it'sgrowingabout14%ayear,andtheoverallmarketaccordingtoIMFisgrowing4%ayear.We'redoingmuchbetterthanthat,butnonetheless,themarktomarkethasslowedandgiventheChineseissueswiththeireconomicgrowthingeneral,Iwouldnotexpectittobouncebackinthenearterm.Buteventually,weallhopethattheChinesemarketeconomydoesultimatelyrebound.

AndintermsofABL001,it'sacompletelydifferentmechanism.Itdoesn'tbindinthesametargetasGleevecorTasigna,soit'snotjustapotencyissue.Weseethatpatientswhohavefailedmultiplelinesoftherapyrespond.Wealsoseesynergieswhenbothdrugsarestudiedtogether.Soweactuallyseeseveralopportunitiestocreateanicemarketopportunityfortheproduct.AndwhatIwanttodoisIwanttowaituntilthenextsetofstudiesisdone,wewillbeabletoindicatealittlebitmoreonwhatthedoseis,andwhatthedevelopmentstrategyfortheproductis.Thankyou.

JoeJimenez (CEO):

Procurement?




HarryKirsch (CFO):

Onprocurementsavings,Marietta,asyoumentioned,ourprocurementteamtogetherwiththebusinesseshasdoneaverygoodjobcreating$480millioninthequarter,averyhighnumber.Ontheotherhand,wehavecontinuedopportunities,theprojectpipelinesarefull,andtherefore,Icontinuetoexpectverygoodlevelsofprocurementsaving.Certainlyalsotheannouncementofintegratingdevelopmentfunctionsaswellascentralizingmanufacturingwillgiveadditionalopportunitiesontheprocurementside.

JoeJimenez (CEO):

OntheAlconmarginthethingthatIwasreferringtowas,weendedtheyearwithafull-yearAlconmarginofabout31%.I'vesaidthat$200millioniswhatwe'regoingtospendback,sothatwouldtakeyouintothehigh20s.Andbeyondthat,whatI'dliketodoislet'sgetthrough2016,andthenwe'llprovidemoreguidanceintermsoflongertermonAlcon,andwhattheexpectationsare.Sowe'vegotalotofmovingparts,we'refocusedonturningthebusinessinthebackhalfoftheyear,andIthinkwe'llbeinabetterpositionasweseethatturn,toreallyprovideanoutlookforthebusiness,bothfromatoplineandbottomline,thatwillbesustainable.

Okay,Iwanttothankeverybodyforjoiningus.Welookforwardtoprovidingupdatesaswemovethroughtheyear.Andwiththat,I'llclosethecall.

Operator :

Thankyouforjoiningtoday'sconference.

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Novartis AG (NVS) Earnings Report: Q4 2015 Conference Call...

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