Novartis AG (NVS) Q4 2012 Earnings Report, Transcript and Summary

Good morning, and good afternoon. And welcome to the Novartis Q4 Full Year 2012 Results Conference Call and Live Video Webcast. (Operator Instructions) With that, I would like to hand over to Mr. Joseph Jimenez, CEO of Novartis. Please go ahead, sir.

Thank you. Good afternoon. I'd like to welcome everybody to our fourth quarter and full year 2012 earnings webcast. Now joining me on the Novartis end are Jon Symonds, our CFO; David Epstein, Head of the Pharma division; Kevin Buehler, Head of Alcon; Jeff George, Head of the Sandoz division; Andrin Oswald, Head of Vaccines & Diagnostics; and Brian McNamara, Head of OTC. And before we start, I'd like to ask Samir Shah to read the Safe Harbor statement.

Thank you, Joe. So the information presented in this conference call contains forward-looking statements that involve known and unknown risks, uncertainties and other factors. These may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. Please refer to the company's Form 20-F on file with the Securities and Exchange Commission for a description of some of these factors. I’ll hand back across to Joe.

Thanks Samir. So as you saw today we made the announcement that Daniel Vasella, after 17 years of being either Chairman or CEO at Novartis will not stand for re-election at our February Annual General Meeting. And if you know Danny, you know that he shaped this company for many years and also had a significant impact on the overall healthcare industry. So he definitely will be missed. I’d like to welcome Dr. Jörg Reinhardt as the proposed non-executive chairman of Novartis. Many of you know Jörg, he spent 20 years with Novartis. He knows the company well and I am looking forward to working with him. Now on to the results. We delivered strong innovation in 2012 and we were able to offset the patent expirations that we saw, so our sales were flat versus year ago in constant currency and this is fully offsetting the almost $2 billion worth of patent expirations. Our core operating income was down 2% in constant currency. Cash flow was very strong at $11.4 billion. But I think the most important thing about 2012 was the progress that we made on innovation. We had 17 key approvals across the U.S. and Europe. You can see an overview of the financials on this slide for the full year. We had net income of $9.6 billion, up 4% for the -- versus year ago in U.S. dollars. Core EPS of $5.25 was down 6% in U.S. dollars, and Jon is going to through more of the numbers in greater detail. If you look by business segment, you can see that we had the strongest year in Alcon and Pharmaceuticals, and this offset some of the supply issues that we had in the other divisions. Now you heard me talk a lot about the other divisions…

Thank you Joe and good afternoon everybody. So before I get into the numbers, let me start with the score sheet for 2012. I think that you can see here that we have done pretty well against all the promises and targets we set at the beginning of the year and especially given what this year is throwing out at us. And I think it gives you also a sense of just how we determined we are to deliver against the promises we make. On this slide, you can see the summary of the performance for 2012 and let me just pick out four numbers amongst them. You can see under the reporting column, the growth rate in quarter four of 94% is rather dramatic but I am sure you will all appreciate that this is a result of the provisions we made last year in relation to Tekturna and Rasilez as well as on the shutdown of the Lincoln plant. And I have included at the back of the slides a full reconciliation of the quarter reported results and I won’t go into it in any more detail because there should not be any surprises. What I have – what I do think is striking in the middle column however for the fourth quarter is that all the P&L numbers are positive. Granted we’ve only had half -- about a half of the Diovan generic competition in the U.S. but that generic competition has still added up to $600 million. And you can see that notwithstanding this our profit performance is pretty robust. Finally in the full year column, you can see that sales were flat with core operating income down slightly as we were unable to fully absorb the impact of generic competition $1.9 billion for the year,…

Thank you, Jon. I will just start with some numbers. The pharma division delivered 2% sales growth and 5% core operating income growth which was ahead of what most of us would have expected this time one year ago. And as Jon mentioned, productivity improvement allowed us to increase the margin while we continue to invest in our growth portfolio. More importantly is where that 2% sales growth came from and on this chart you see that 8% growth was driven by our recently launched products and that was offset by 6 point loss or $1.9 billion generic impact for the net of 2% sales growth. If you look at geographies and where that has come from, what you start to see is that the emerging growth market are becoming ever large portion of our Pharma business, they contributed nicely during 2012. Going forward, as we left Diovan you will see the established markets contributing more to the future growth of the division. Very importantly, we’ve talked often about being innovation focused company, innovation driven company, it’s very clear that in our hands those innovation investments are paying off, with recently launched products growing 28% in constant currency and that representing 35% of the business. In addition to this innovation focus we built a very strong global commercial launch capability, which is also contributing and paying off, particularly when one looks at our strong growth platform, products that have protection whether it would be patent or exclusivity until 2017 and beyond, products that all have in our opinion blockbuster potential and these are products that we will continue to talk a lot more about. In the next couple of slides, I want to give you an update on few of these brands and also share with you some new data…

Thanks, David. I’d like to close by talking about 2013 and beyond. So you’re going to see us focus on again, innovation. We will strengthen the pipeline in ‘13. In terms of growth, it’s all about executing these launches with excellence because this is going to be key to the ‘14 and ‘15 time period. And then, you will also see us focus on additional productivity, activity in the area, primarily in procurement because we see a big opportunity there. So our guidance for ‘13 is group net sales, expected to be in line with 2012. So, in terms of the divisions, this results in pharma low single-digit decline but then all the other divisions are up; Alcon, Sandoz and V&D mid-to high single digits increase and consumer health high single-digit increase. In terms of our core operating income, we expect to decline mid-single digits but that's while covering $3.5 billion of patent expirations. I want to give you a view also of what happens post 2013. We expect to begin our next growth phase, once the Diovan patent is in our base and this will start in 2013. It’s going to be driven by three factors. The first is growth products, emerging markets, greater exposure and lower exposure to patent expirations going forward. Our growth products, we showed you how much they were worth in 2012. But we fully expect this number to continue to increase over the next three years up through 2015 and the fact that 80% of the product, this product sales that we expect in ‘15 are already on the market to me underscores the confidence that we have in those projections. In terms of emerging markets, we expect to have a greater percentage of our total business from emerging markets as countries like China…

(Operator Instructions) We’ll take our first question today from Tim Race of Deutsche Bank.

Quite a lot of market commentary speculated about what Jörg Reinhardt and the change of chairman is going to do to the company going forward. The share price seems to suggest that you’re going to slump strategy into reverse and divest and buyback. Could you just comment on how Novartis is going to be different going forward and in terms of capital allocation et cetera? Then a couple of other questions, just in terms of emerging market growth, it was very good in China but slightly lower for the overall group. Can you just point to which markets you’ve seen declines in and why? And just in terms of the long term growth, you -- don’t mention 2016 when you feel the full brunt of Glivec and Exforge. Will that be a [growth or decline year] [ph] in terms of core EBIT margin?

Okay. Starting first with the change at the chairman level, Dan has publicly said that he believes that the strategy of the company is sound in terms of focused diversification and that we are navigating through the patent expiration period in a way that is as good as I think we could be expected. So we felt now is a good time to have a smooth transition. Jörg Reinhardt knows the company, so he was with the company for 20 years. He and I have worked well together. I don’t think you should speculate that there will be a change in strategy, some of the way that we execute may be different but I think this is a company that has continuity but we also are focused on ensuring that we deliver what we say we’re going to deliver. So I would say you shouldn’t speculate big changes in strategy. We’re going to continue to execute up against those three strategic priorities. We’re going to continue to be driven by research and development and we’re going to invest in research and development. We’re going to focus on translating that into sales and profit that hits the P&L in terms of growth and then we’re going to continue to drive productivity pretty aggressively. In terms of the EGM growth, we did have a couple of the EGM markets that dragged down the total number but partly because of timing of big tenders. So for example, our business in Russia was not robust in the fourth quarter and even in the full year partly because of the timing of a specific tender that was significant a year ago. But overall our emerging markets business is growing at a significantly faster rate than the business, we still had some of the characteristics of the rest of the business but it is growing at a much faster rate and we would expect that to continue into the future. In terms of long-term growth not going into ’16, I thought a lot about this but I also agree that when you look at ’13, ’14, ‘15 that's a good period of time and ‘15 does have the U.S. patent expiration of Glivec. So I can tell you that we will move through Glivec in a way that is different than we moved through Diovan. The oncology group has gone on record saying that when you look at their pipeline and their launch brands, they believe that unit itself can move through the Glivec patent expiration in ‘15 and ‘16 with growth and that's because – and so you take the oncology unit then you add on top of that the pharma division in which it sits and then you add on top of that the group. And so I think that's what we're expecting, we’re not going to go out as far as ‘16 but you can see from ‘15 we still expect growth.

Thank you. We now move on to a question from Andrew Baum of Citi.

Good afternoon. It’s Andrew Baum from Citi. With regard to your group structure, when I look across that you have four areas where, I think you’d probably acknowledge your sub scale, so Animal Health, OTC, Vaccines and Diagnostics, a number of your peers in response to shareholder pressure have been considering whether they are the right owners of these assets seeking either scale or to divest? Is it reasonable to expect that given the change in the Chairman position, these opportunities will be carefully reviewed with an eye to looking at both near-term and long-term shareholder value creation? That’s first question. Second question with regard to your CHF drug and LCZ696, could you just outline if there is an interim analysis plans for this year related to 75% [events ][ph] or something similar to that, for the primary end point? And then finally, you have a Phase II compound, a cell cycle inhibitor which LEE011 which is a competitor to a very high profile Pfizer drug. Could you just outline your development strategy in breast and indicate how many years you think you are behind Pfizer in bringing this drug to the market in breast, if indeed you are taking it forward in breast? Many thanks.

Okay. In terms of the group strategy, we have been consistent in saying that, obviously we have three big engines I think at Novartis today, Pharmaceuticals, Alcon and Sandoz, these are $10 billion businesses. They are -- they have scale. They are driving good results for the company. And when you think about the other businesses, particularly Vaccines and Diagnostics, I have said before that I think about this as a business that is in start-up phase especially with the approval of Bexsero that can really transform that business. So we are company that has the ability to look and invest in a business like that with the intent of making it a significant return for shareholders in the long-term and that’s what the objective is. I don't think the change of Chairmanship would change that. We are constantly reviewing our portfolio, if it look like those businesses as being less scaled than they potentially needed to be successful we would take action on them. At the same time, you look at a business like Animal Health. It is a small business but ex-Lincoln it has consistently grown year after year after year because the -- when it operates in a market, in a particular category while it may be sub scale on a global basis, it is significant and significant market presence in parasiticides or whatever it competes, and so it's able to have advantage within that category level and that's one of the reasons why it grows. So we will continue to review the portfolio. The change in Chairmanship will bring what it will bring, just in terms of how the future is going to look. But I don't think that really changes the way that we are looking at our portfolio and the standard by which we are holding each of these businesses to return to shareholders in the long-term. David, on the pipeline questions?

There are two questions, one was on LCZ, so just to remind you there are two indications, ones in hypertension where we are focusing largely on Asia. We’d actually be in a position to submit before the end of this year for hypertension. And I think Andy -- Andrew your question was mostly about the chronic heart failure indication. We’ll have data in 2014 for that indication. We are particularly excited about it because this will be a chronic therapy which will compliment the use of serelaxin in the acute setting which will really set up a nice franchise in heart failure for our company. The other question was about our cell cycle inhibitor in breast cancer, I think if you take a step back, we have multiple assets in the breast cancer arena. As you know, we are just launching Afinitor for HER2- patients. Hopefully, we’ll have nice data in HER2+ patients before the end of 2013. We have a series of PI3 kinase inhibitors that are in clinic. In fact, we are in pivotal clinical trials in breast cancer with our PI3 kinase inhibitors and that should position, that is potentially one of the next launches in the field of breast cancer. And then we have the cell cycle inhibitor which is much earlier, what’s unique about the Novartis strategy is we are in a position to combine these drugs in a way that other companies can’t because we have each of them in our portfolio. And we firmly believe that breast cancer patients will rotate through all these therapies, all these lines of therapies, pushing off chemotherapy as long as possible in the company that figures out the ideal combination will be best positioned to win, and we think that’s an advantage that we have.

Next question?

And just to clarify.

Oh! Yeah. Go ahead.

Is there an interim analysis for LCZ696 during ’13?

I do not -- all I can tell you, I don’t have in front of me, I don’t recall an interim analysis, if it turns out I’m wrong, we’ll let you know.

Okay. Thank you, David.

Next question.

Thank you. We now move on to Matthew Weston with Crédit Suisse. Matthew Weston - Crédit Suisse: And just two for Jon and one for David. Jon, there was a sharp ramp-up in costs in 4Q as a percent of revenue. It seems to be across the divisions but particularly in pharma and Sandoz. Was it a function of effectively having super normal revenue in both of those divisions and therefore trying to allocate costs accordingly? I thought you were trying to get away from that and smoothing the impact to the cost base going forward, or is the 4Q effect a fairer reflection of what we should consider for those divisions going forward? And then the second financial question just on indications on tax, you normally help us out at the beginning of the year, 15.2 reported for the full year ’12, is that a fair indication going forward? Does the dive in U.S. loss have any impact on tax and should we consider it going up? And then finally, David, you mentioned the opportunity for Seebri in Japan. I know that your joint venture co-promote deal with SI would cancel only about a year after it was formed, what’s your intention for marketing the respiratory assets in Japan? Why did you decide to end that deal and does that require incremental investment going forward?

On your first question, we have tried to smooth costs out but there is an inevitability about the fourth quarter being slightly higher than the rest of year because some of the costs are only determined at the end of the year. If I look at the overall distribution of profit for the group, it’s actually distributed – it was actually, just over 22% in 2011 and 24% in 2012, and for the pharma business it was pretty much the same – same contribution of the annual profit in the fourth quarter it was the same year. So I would assume the cost broadly phases, you’ve seen them this year. I don’t see an opportunity to dramatically rebase beyond what we have done. And on tax rate, I pretty well assume for 2013 what you saw in 2012 and there won’t be impact on the tax rate because of Diovan.

In terms of Seebri, just as a reminder we’ve now launched in Germany and Denmark. It’s too early to give you sales number qualitatively, we are hearing physicians were happy to have an alternative to Spiriva and as you know this is a key component for QVA which is the big opportunity for the company. In terms of Japan, it was a joint venture decision with our co-marketing partner that both of our strategies had changed and didn’t make sense to continue. Yes, we will put some incremental resources behind the product in Japan and we have a very nice outlook for the brand there.

We take our next question from Alexandra Hauber of JP Morgan.

Firstly on your dividend, given the 2.30 which stands at about 47% payout ratio of core EPS which is basically at the bottom end of the peer group (inaudible) promising 50% plus, you have pretty good idea of where you stand on buybacks, have less good idea of what your outlook on dividend policies, can you just see how – tell us how you see that payout ratio evolving in the coming years? Secondly on Alcon, you emphasized that you have – I see the cost saving targets achieved one year early but if you can make comments on productivity, so is it correct to assume that you think further margin improvement for that division and if so, can you just tell us whether this is mostly coming from the gross margin, or whether the fixed costs are continuing to shrink further as a percentage of sales? Third question is on Bexsero, I have not watched too closely as a huge number of European vaccine launched. So can you just point that what’s different to the rollout of a new vaccine versus a new drug? And in terms of your approval, can you launch like the way in sort of the private pay markets in the UK and Germany, is it going, can you launch with free pricing and then [Abnox] is doing – go through the [Abnox] procedure? Can you – is anything different in the reimbursement procedures and to which extent does the inclusion into the paediatric vaccine schedule really slow things down?

Okay. Let me start on the dividend and then Jon can jump in. The dividend of 2 francs 30 that is proposed is payout ratio, you said 47% of core but it is 65% of reported operating income, I think about 65% of payout ratio. Jon, you want to?

That’s right. That is the way that we have – we will continue to look at the payout as part of the actual reported numbers. Yeah, on Alcon, I tried to signal that actually we’ve done a pretty good job or Kevin’s done a very good job on delivering the synergies. We delivered 370 million which attributes about a three point improvement in margin from the time we took it on although we have given a little bit of that margin back because they are now absorbing some of the research costs. And so I think at 36.2%, we had a pretty high level of margin and we’re not expecting really in 2013 to see much improvement in that. It does have the launch of [ditria] to come through and there are some important great opportunities in the emerging market. So I think the place to focus on Alcon is a topline and less on significantly improving profitability from here.

And Andrin on Bexsero?

Bexsero, they have, sort of, seen different form of pharmaceutical. I think the first point I would like -- want to highlight is that their production time for Bexsero is quite long. It takes about six months from the moment when we start to fill it until we can finally release it, which has to go with the quite long sophisticated liquid testing release procedure. This is why we would expect the supply to be available in sufficient quantity for us to start shipping only the second half of 2013. With regards to what happens then in the respective markets, overall, irregardless almost of the country, we can start shipping instead to the private market once we have product. However, in most countries, the uptake normally of a vaccine is very low unless you have a recommendation from the public health authority. Now, how you get such recommendations that differs for country. For example, in the U.K., where I think we are quite advanced and there is a committee which is called the JVCI who will review the submission that we make with regards to the public health benefit of the vaccine including, of course, its cost effectiveness at different price points and that will then make a recommendation to the minister of health of the use of the vaccine. If that recommendation is positive then the vaccine is automatically introduced into our public health campaign. And what we know from that committee is that they will renew the vaccine in June of 2013 of this year and then make a recommendation. And of course, we prepare for a positive one and if it is positive, it will then start to negotiate exactly how to shape the vaccine to be introduced into immunization schedule, most likely I would say in sufficient quantities however on in 2014.

So Alexandra, I’m not sure we’ve fully answered your dividend policy question. So let me just try again. We’ve said before that the most important thing for us is to make sure that the dividend remains strong and growing. So we increased the dividend or we’re proposing an increase in the dividend to [2.30 francs] this year which is about just over 2% increase. When you look at this, that takes us to about 65% payout ratio and we also have to take into account the 2013 earnings. So we want to make sure that there is room, given the importance of the dividend to ensure that it remains strong and growing. We haven’t announced the share buyback in 2013. We have said publicly that we’re balancing the balance sheet, strong balance sheet together with reinvestment in the business and cash return to shareholders that when we think about our capital allocation policy with the priority being on that dividend while we continue to pay down our debt. Our net debt is now at just over $11 billion. So as you see us start to recover, there may be a change in approach in terms of buyback while we just have not announced anything formally today.

Okay. So given that, I mean, earnings may decline, the payout ratio may rise but if next year earnings are growing, is the payout ratio then going to decline as well as in the payout ratio is really not a number you’re focusing on. And it’s more like the dividend is growing that’s the key message?

Well, the dividend is growing, obviously, within an acceptable payout ratio. So we want to make sure that we removed the range that we said that we’d stay within in terms of a payout ratio. It is important for us to see that dividend remain strong and growing.

I think you can look it as a sign, Alexandra. As Joe said, it is a very significant shift in the Swiss franc rate last year and we took the payout ratio out significantly. If you look over the 16-year period, the growth in dividend has been strong. So we’re committed to growing in. It’s just that we take as the base the reported because that’s the real number. Core is a derivative of it but it’s not a real number.

We move on to Gbola Amusa of UBS.

Just noticing with the proposed board changes that – you do have one-off 2014 and 2015 guidance. Both are seemed new IR leadership as well, could you comment firstly on changes to culture at the organization especially around communication and what we might see going forward? Second three questions on your Roche stake is worth over $10 billion and I know you are saying that your strategy going forward is the same but could you confirm that, that stake falls under that commentary, or are you looking at how you view it differently today versus a year ago what will you be? And then lastly on Serelaxin and with this new mortality trial coming in a way it’s your third time around. Could you comment on whether recruitment running the trial analysis and filing might go faster given that you have some experience now testing this drug?

Okay. In terms of the first question around, let’s say, change in culture or change in communication stands, I think a company that is as big as Novartis evolves over time and while we are rooted in the past we also recognize market requirements and things that we need to communicate in full transparency. And I think you’ve seen over the last probably 18 to 24 months more information, more transparency and more guidance. Now I think this – today we also gave mid-term guidance in a way we haven’t historically and I want to make sure that people don’t think that we’re going to continue to do that in the future but it made sense to do today because when you look at ’13, it doesn’t necessarily reflect what is going to happen as we emerge from our patent loss of Diovan and we start to move into our next growth phase. So because we wanted to give the market transparency and visibility to what we believe will be a period of good growth for the company that’s why we decided to drive that communication in a way that we haven’t in the past. In terms of the Roche stake, yes our standard answer is that this is a strategic investment and that is worth more than the market price today. So for example, you could not recreate that position in Roche today in the open market. And so there is value there. That doesn’t mean that we will never exit that stake. What it means is that there is a value there that we believe exceeds what we could get for in terms of what if we liquidated today. So I guess I would just leave it at that. And then Serelaxin?

Yeah, I think your comments are correct in that the more use that in a particular therapeutic area you could better at designing trials that are simple, you get to know the sites and things tend to go a little bit more quickly.

But nothing granular on how quickly it could get down?

We are not in a position yet to talk in detail about the Serelaxin program and in addition to this trial there will be other trials because there are probably multiple opportunities. At some point during the year we will update it.

We move on to Seamus Fernandez of Leerink Swann.

Just a couple of quick questions. Joe, can you just give us a sense of your statement with regard to animal health and the consumer businesses which we all know are kind of sub-scaled relative to competitors? We know that they are growing or potentially recovering going forward but is there a true benefit to scale that you see where those businesses would – you would prefer to see them larger inside Novartis or even perhaps – even consider strategic partnerships that could benefit those businesses and Novartis shareholders? And then separately, as we think about Serelaxin, David, maybe you can just give us a sense of how the preliminary kind of positioning would be with hospitals off of a single trial with regard to this product and how you would envision in a cost conscious environment Serelaxin really adding pharmaco-economic value?

Okay. So starting with the first question around animal health and OTC, I do believe there is benefit to having those businesses in the portfolio, even though today they are not generating the -- at least from the size standpoint, they don’t have the scale to make a significant impact on the results. They -- for example, Animal Health, this is a business where our research and development people in Animal Health can go into the Novartis Institute of Biomedical Research and they can take products off the shelf for their business and they can develop them faster and less expensively than if they were not part of a company like Novartis. So I think there is benefit. In terms of OTC, one of our biggest brands in OTC is Voltaren which was an Rx switch. So I think there are strategic benefits to having those businesses. And that said that doesn't mean that we have to acquire in those businesses to make them bigger and bigger more material part of Novartis. We would consider strategic partnerships in a way that would benefit Novartis. If they were right for the business and if they were right for the shareholders as well as right for the patients and the customers that are stakeholders in those business, so I would not exclude that. David on serelaxin.

Yeah. So in terms of serelaxin, first of all just to remind you, we’ve just submitted. I think there is going to be a lot of discussion around what the right label is with the regulators, so until you really have -- until we really have more clarity on that, it’s hard to know exactly what positioning will be. But just remember these patients are miserable. They don’t have an alternative and they die. There are other categories either like this. We have some experience like in oncology. So it’s not all about health economics because you’re essentially going to keep people alive. There were some benefits in terms of reduced hospitalization during the study. But I don’t think that should limit our thinking in terms of how the product should be priced. So we have to do some more work and then we’ll discuss it.

I think we have time for two more questions.

We take our next question from Michael Leuchten of Barclays Capital. Please go ahead.

Thank you. Three question please, one on Glivec, one on corporate expenses and one on Alcon. On Glivec, we now have generics in Brazil. Could you help us understand what other markets are potentially going to see some decline by generic erosion prior to 2015. On the corporate expenses, that was particularly light in Q4. I understand there is a reduction in the IT and in infrastructure spending. I’m just wondering how sustainable is that, how much of that is phasing? And then on Alcon, you’ve called out a warning letter in one of the facilities even though you’re saying it doesn’t have an impact on the product coming out of that plant. So I’m just wondering why you need to call that one out? Thank you.

Okay. Glivec, David.

Yeah. So there are generics on the markets in a number of countries, the Glivec Brazil, Turkey, and a few others. In fact, there were even some, there were generics out there as you know, around the same time that we launched Glivec. Having said that, there will be some additional countries in the not too distant future, there is some small markets in Eastern Europe. There is Canada, there is Russia. These are probably the biggest ones before the U.S. in 2015 and Europe in 2016.

And Jon, on corporate expenses?

On corporate expenses, you are right in spotting that there was a trend breaking quarter for, I mean, it was the total corporate line was $552 million in ‘11 and $337 million in ’12. Most of that difference arose in quarter four where there was some true-up on, as we said in the press release, there was some captive insurance adjustments and some environmental provisions that were bit more one-off in nature. So I would not assume that would be an annualized effect but a one-off in Q4 ’12 and go back to normal stream for 2013. And I would also just point out, at this point that the incremental pension costs from the application of the new standard from 1 January, 2013 will be about [$18] [ph] million -- was [$18] [ph] million in – a quarter in 2012 and will be similar sort of amount in 2013 and that will be reported on the corporate core line.

And then in terms of Alcon, I can just also answer that you’re right in that this was a very small site in Aliso Viejo, California that produces the LenSx laser. They won’t impact the sales but it -- and also LenSx is quite a small amount of total sales today. But, just, I think due to the sensitivity of some of the quality issues we’ve just decided to disclose it even though it wasn’t material. Kevin, anything you want to add.

The only point that I would add is, is that obviously we take the warning letter seriously. Secondly, we work diligently with the FDA, this is an area that’s around devices and the warning letter was specific to some of the changes that happened when you introduce a new device and so we are working through those issues.

Our last question comes from Odile Rundquist of Helvea.

The first one if you could just give us what has been the impact from the price cut in Europe and if you assumed any negative impact in your guidance for the top line let’s say, versus 2013. Then on the vaccines, they all had quite a good performance 18% this last year. Could you just give us the breakdown U.S., Europe especially versus if you take any market share there, and then give us an update on the pentavalent vaccine that is currently in phase 2, are we going to see any data in 2013? Finally on Ilaris, we have seen a positive opinion from CHMP recently, you’re still in discussion with that following your complete response letter a year ago, where do we stand there?

Okay. In terms of the impact of the price cuts in Europe across all the divisions, we do have assumptions about Europe in 2013, ’14 and ’15 and we don’t anticipate the pricing environment in Europe getting any better. So we do have it built into the guidance that we gave today. As long as it’s in line with where it was in 2012 which was quite significant, I think our pharma in Europe saw about 5 points of negative price. So that’s what would be in the forecast. In terms of vaccines –

First on Menveo, the majority of the sales come from the U.S. and the U.S. growth is double digit. We of course see a bit slowing down as one would expect after certain period of time but we of course also hope that we will get the (inaudible) indication also which was that –give the brand further momentum in 2014 and beyond. With regard to the pentavalent we have completed the phase 2, I think you mean that ABCWY which is the combination of Bexsero with Menveo, that data looked very good as far as immunogenicity is concerned. We have also not seen any interference between the different components which is normally the biggest risk in such a combination program and based on that now we have to evaluate when and how to start the phase 3.

Yes, as you know we just got a positive recommendation from the CHMP for Ilaris and (inaudible) for patients who have multiple attacks a year and can take other more standard medications. We’re in discussions with the FDA on an appropriate study design. As soon as that’s nailed down we would start phase 3 trial in the U.S. market.

Great, I'd like to thank everybody for attending, and we look forward to updating you at the end of our first quarter. Thanks very much for coming.