Good morning and good afternoon. And welcome to the Novartis Q3 2014 Results Conference Call and Live Audio Webcast. Please note that during the presentation, all participants will be in a listen-only mode and the conference is being recorded. (Operator Instructions). A recording of the conference call including the Q&A session will be available on our website shortly after the call ends. (Operator Instructions). With that, I would like to hand the call over to Mr. Joe Jimenez, CEO of Novartis. Please go ahead, sir.

Thank you. I’d like to welcome everyone to our third quarter conference call. Joining me on the Novartis end are Harry Kirsch, CFO; David Epstein from Pharma; Jeff George from Alcon; Richard Francis from Sandoz; Andrin Oswald, from Vaccines; and Brian McNamara from OTC. So before we start, I'd like Samir Shah to read the Safe Harbor statement.

Okay. Thank you, Joe. 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.

Thanks, Samir. All right, starting on slide number four. We had what I would call a very strong third quarter; and for me the highlights really were the innovation that we were able to deliver in the quarter, particularly the news around LCZ696 but also the fact that we delivered solid sales growth across all of our divisions, and at the same time, increasing operating income margin again across all of the divisions. So on slide five you can see the P&L. Sales were up 5% in constant currencies with core operating income up 11% and core EPS grew double-digit whether it's constant currency or in U.S. dollars. And Harry is going to talk more about the financials in just a minute. But what I want to do is spend just a few minutes talking about our three strategic priorities of extending our leading innovation, accelerating growth and driving productivity. So, starting on slide number seven. We had several regulatory advances this quarter. A couple of highlights include secukinumab which is our IL-17 inhibitor where we gained a positive FDA Advisory Committee recommendation in psoriasis. Simbrinza is our new combo treatment for glaucoma, we gained EU approval. And the FDA accepted Sandoz application for our biosimilar filgrastim. We’re the first company to announce that we’ve filed for approval of a biologic under the Biosimilars Regulatory pathway that was created in 2009. And on clinical news, on the next slide, it was also a strong quarter. You can hear more about this from David, but beyond LCZ, we also released some data on secukinumab, which had positive results in psoriatic arthritis and ankylosing spondylitis in several Phase III studies and this is going to be an important drug for the company going forward. We also filed regulatory application to the FDA…

Thank you, Joe. So before I get into the numbers, as a reminder, we are required by IFRS following the portfolio transformation announced on April 22nd, to report total group numbers for 2014 and the prior year as discontinuing and continuing operations. In addition, when comparing our performance with the prior year, we are comparing to 2013 figures excluding our divested blood transfusion diagnostics unit. This is consistent with how we reported our Q2 results. Now, to slide 20. So, Novartis delivered solid sales growth with strong margin expansion in the third quarter and first nine months of 2014. In constant currencies, net sales were up 5% in quarter three; core operating income was up 11% and constant currencies, driven by the sales uptick and by the impact of productivity programs. Net income improved substantially by 49% in constant currencies in quarter three due to one-time exceptional gain from the sale of our 22% Idenix stake to Merck. Core net income and core EPS do not include this one-time gain of course. Free cash flow was much stronger in quarter three than the first two quarters reaching $3.2 billion; I'll give you more detail on that later. Slide 21 clearly demonstrates our strong underlying growth. If you go step-by-step, underlying volume growth contributed 10% of net sales, pricing was flat, the generic impact was minus 5% and currency had a negative impact of minus 1% on sales resulting in sales growth of 4% in U.S. dollars and 5% in constant currencies. You'll see similar but much more pronounced picture for core operating income where underlying core operating income growth of 25% more than offsets to 14% impact of generic competition. Currency took us from 11% growth in constant currency to 8% growth in U.S. dollars. Please note the core operating…

Great, thanks Harry. Pharmaceutical sales were up 1% in constant currency in the third quarter with solid core operating leverage despite absorbing declining Diovan sales in the U.S. and Japan due to initial generic entries. On the next page 32, you see that our portfolio rejuvenation is progressing well with growth products now representing 44% of total division sales. I think this speaks well to our ability to innovate as well as our global launch capabilities. On page 33, this is the focus on emerging markets, continues to provide a nice return as growth in Q3 was robust driven by Brazil, China and Turkey. We are now according to IMS the number two pharma company in the emerging markets. On page 34, you see our growth platform is delivering well with the one negative number on the chart being Galvus, due to the cessation of distribution in the German market corrected for the German action. You see that Galvus also was up 8%. I’ll now spend a few minutes talking about several of these products starting with Gilenya, on the following page. Gilenya is growing strongly, despite this increasing competition in both the U.S. and Europe. In fact ex-U.S., Gilenya is now the number one product in the MS market based upon first half sales. We presented new data at ACTRIMS which confirmed the high efficacy of Gilenya in achieving no evidence of disease activity based upon four key measures of MS. And that's not least; we're looking forward to seeing the first results, the first top-line results from the primary progressive MS study which is expected before the end of this year. On the following page you see Lucentis continues to grow nicely based upon market expansion with the new indications as well as the continued roll out of…

Thanks David. So just to close, we had a strong quarter. We delivered strong innovation and sales growth with operating income leverage. But the thing that makes me most pleased about the quarter is that the team did it at a time of unprecedented change in the company with the portfolio transformations and setting up of NVS. So with that, I'd like to open the call to questions.

(Operator Instructions). And we will take our first question from Richard Vosser of JP Morgan. Please go ahead. Your line is open.

Thanks very much. A couple of questions please; it's Richard Vosser from JP Morgan. Just on the flu business disposal, I wondered if you could give us some details on how you came about the pricing. It does seem that relatively low sales multiple and you have put substantial amounts of investment into that business in terms of the R&D behind cord flu and upgrading the manufacturing facilities. So, just if you could give us some idea or some details around that that will be good? Secondly on Alcon, just give us an idea of where you are in the roll out of the Centurion machines. Where that is in terms of your installed base, I know you’re actually gaining market share on your installed base to have obviously good sales numbers? And then secondly on the IOL return to growth, how sustainable do you see that? Do you see strong growth for the second half driven by patients using their allocations with payers and therefore return to weaker growth in the first half of ‘15; some context there would be good? And then just finally on FX, if I could ask on what sort of FX you’re expecting, an impact on 2015 what sort of negative impact you would see there? Thanks very much.

Okay. Richard thanks for the questions. Look regarding the flu business we announced in April that we were going to divest this to somebody else to maximize value. Obviously, we took the best price, it was $275 million. But then this is a money losing business today so I feel good about the price that we’ve taken. And even though we are recording a loss on the sale of flu, when you look at the vaccines business in total, we do expect to register a fairly significant gain across the entire vaccines business when we closed GSK that will more than compensate for this hit. So, I have to make the decision as to whether or not we were going to double down in flu and invest more or divest the decision was to divest and $275 million was the best price. Jeff, Alcon?

Yes. Richard with respect to the Centurion roll out, this is exceeding our expectations and we're really pleased with the roll out so far. We're approaching 10% of our installed base globally and approaching 15% of our installed base in the U.S. So, still a good amount of further room for growth, remember that most phacoemulsification platform roll outs are multi-year roll outs. So, we're really pleased with the uptick that we're seeing. And we are picking up quite a bit of competitive here from older phacoemulsification platforms from our competitors. And I think notably, the increase that we're seeing in IOLs is significant in Centurion accounts where we're seeing 10% volume growth in IOLs in units, in accounts that have Centurion versus about 2% unit growth in IOLs in accounts that don't have it. So, I see our momentum and the improvement that we're seeing albeit modest in Q3 in IOLs as something that will be continued going forward and I expect to see that business continued to improve looking forward.

And Harry on FX.

Yes. On FX, as I mentioned, the last weeks have given us some more headwinds which led to our guidance for this year for minus 2 and top-line minus 4 to minus 5 on bottom-line. For 2015, I would like to give that guidance in January when we give you also both top and bottom-line guidance. So, I expect some headwinds, but I’ll give more specifics later.

Okay. Next question please.

We will take our next question from Andrew Baum of Citigroup. Please go ahead. Your line is open.

Yes. Good afternoon. Three quick questions please. So, first regarding secukinumab and the psoriasis market. How should we think about the market dynamics there? So, do you anticipate eroding first the anti-TNF usage in that segment or do you see from the get go increase penetration of biologics? Second if Rich is there, I’d be interested in any guidance you can give on realistically when to anticipate your biosimilar out of [lirilumab] to get approved within the U.S.? And then finally David, I heard your reinforcement of the continued commitment to respiratory. Given the wealth of assets that you have at your disposal, particularly with LCZ, but many others that were highlight in your presentation, what is the -- are you the best owner for the respiratory assets? And I note, in the UK, you’ve given outright. Should we expect the respiratory is going to be a permanent future in Novartis portfolio going forward?

Okay. So, why don’t you go David first, secukinumab and breast?

Okay. I think the best way to think about secukinumab, dermatologists are fairly conservative by nature and that’s one factor; second is that many psoriasis patients, even those on biologics are very dissatisfied with the quality of the products they are on today; they’re not getting clear skin, which is much more likely with the secukinumab. So what I think will happen you’ll see secukinumab used initially second line, but then you will see the market expand, because patients will be a happier, stick with it and perhaps some patients who didn’t take, who don’t do well on the orals will also switch over to an ever expanding biologics market. That market is about -- I think it’s about $5 billion now for psoriasis biologics. And then the second question about the respiratory market. I think we’re a company of almost two geographic worlds. So in Europe and ex-U.S. more generally, we have a dynamite portfolio. We have Onbrez, Seebri, Ultibro; we have Xolair for allergic asthma. We have several products that in the pipeline will hopefully go into Phase III next year called QAW. I think we really have a chance to become one of the market leaders in respiratory medicine. And I would see us in most markets doing that ourselves, the UK being an exception where we just but been unable to mount a really strong GP business and recognizing that it takes more than five years to get a return in the UK market. The U.S. is a bit of a different story; we're working on our strategy. And as I said earlier we may choose to work with another company. In the U.S. market, we may choose to do it all ourselves. And the good news is I have plenty of time to figure that out. So as we do during the course of next year, we'll likely know what our U.S. strategy is for our respiratory product line.

And Andrew on the biosimilar, we announced that we’re moving in Phase III. And I think we don't comment on the timing but we would obviously want to be ready by the time that that patent expired. So that's about as far as it will go.

Thank you.

Next question please?

We will take our next question from Matthew Weston of Credit Suisse. Please go ahead. Your line is open.

Thank you very much. A couple of questions if I can. Can you just tell us in Sandoz how much generic Diovan actually contributed to those Q3 sales and EBIT? David, if you can let us know on LCZ696 what was the early discussions with regulators indicated in terms of the possibility of a priority review or is the share size of the data package going to limit the opportunity there? You highlighted the number of products successes and real growth drivers, can you just walk us through where you now see Afinitor going in light of the [patterning] revenue and I note in your pipeline picture delays in B cell lymphoma and TCS seizures because of difficulty recruiting patients? And then finally Gilenya, I think we’re expecting the primary progressive MS data before year-end. Can you just let us know how you’re going to communicate that to us? Thank you.

Okay. Mathew, starting with Sandoz Richard, generic Diovan.

Thank you, Joe. Thank you, Mathew. So, generic Diovan to give you some guidance, the sales that we saw with Diovan were above a $100 million, so a good performance there. And if you look at the competition with Ranbaxy for the generic market price was slightly up with 50%. So, we’re very pleased with the results we have there.

And then David the three questions on…

Okay. So, we’ll start with, let’s start with LCZ. Obviously I can’t tell you the exact details on the regulatory discussion, I just want to say that I am pleased with them and they’re consistent across U.S. and Europe. It’s hard for me to imagine that we don’t get a speedy look at the data; the size of the package is not the problem. But we won’t know officially whether it is a priority review until we complete the submission and the FDA tells us. But I think we’re in good shape there, that’s what you should take away. Afinitor is more of a mix story. As we showed, the brand is growing really nicely; it’s effectively more than 20%. It should continue to grow. Breast cancer on the other hand will turn out to be as we indicated earlier smaller than we had hoped as the drug is used in later [volumes] of disease and we said that we’ve not seen any type of survival advantage that we could use to offset the stenotype, the patient’s experience. But as I pointed out some of other indications are actually fairly significant and also fairly early in the lifecycle. So, it is a multi-billion dollar drug, it is growing nicely. And we have a very nice development strategy meant to replace Afinitor before the patent expires with the PI3 kinase inhibitor. So, I think overall, it's a good solid franchise even though it may turn out to be a little bit less than we had once hoped. Regarding Gilenya and PPMS, we should get the results before year-end. Assuming the results are positive, I guess either way we would probably give some type of top-line release. But I have to go and think about that a little bit more before I confirm how I’m going to communicate to you.

All right, thanks.

Next question please.

Looks like I have a question from Alexandra Hauber of UBS. Please go ahead. Your line is open.

Good afternoon. Thank you. I've got four questions please. Coming quickly back to Seebri Ultibro and the U.S., the summary still says four quarter U.S. submission. I'm just wondering whether there is a final decision actually made. And also given whether you have the data and how soon you are -- by now which you probably need to if you want to submit it this quarter and whether you are confident you have a competitive profile for the U.S.? Secondly, I assume the strong performance in the emerging market this quarter had some -- in Pharma had some contributions from tenders. Could you just maybe sell out some of the products which were specifically affected by that? And then David you dealt with this briefly mentioning that your ABL inhibitor 001, can you just confirm that we will see some data here at ASH for that? And then finally for Harry, just a related thought you can share on savings from Novartis business services, the time, but also potential cash cost whether there will be any from any initiatives there?

Okay. Starting with the rest, David.

Okay. So Seebri and Ultibro, we do not have all the data in-house as of yet for the U.S. market. I have seen -- we have seen some of the data and there are no surprises. And as we had communicated earlier, most likely there will be a twice a day profile. So, it’s all going to be a question of what’s the overall efficacy safety along with that twice a day profile to understand how competitive it will be. I do believe that the market will eventually move strongly, the combination of LABA/LAMA. Our competitor has not done a good job doing that. And I think as other products from our company and other companies coming to the market, to LABA/LAMA market, we’ll expand. Regarding emerging markets, you’re right; the back half of the year is usually tender driven. We have not had extreme ups or downs in tender this year and in fact some of the most the best performing markets are not really true tender market. So, China for example is one of the highly performing markets. There is nothing really unusual there. And then ABL001 in an allosteric abl inhibitor, which could be used either as monotherapy or potentially combined with the drug like Tasigna or a drug like Glivec, we’re in the midst of dose escalation. So, I don’t think you’ll start seeing any data probably until 2015, but it’s a very exciting concept and an opportunity for us to expand that important BCR-ABL franchise.

And Harry on NBS?

Thank you, Alexandra. On NBS, the team is forming the organization, more than 7,000 associates joining as we speak that organization, announced on July 1 the leadership team. And dispense being managed in the final stage being around 6 billion. Mid-term we expect nice margin improvements from that. And we will update you on more specifics for 2015 in January where we'll give our full year '15 guidance.

But we would expect some level of restructuring to go with some changes not very significant or huge but something from a cash standpoint.

Okay, thank you.

Next question please?

We'll take our next from of Seamus Fernandez of Leerink. Please go ahead. Your line is open.

Great. Thanks for the questions. So just a couple of quick questions. First just strategically David, in terms for your plans for future post Gilenya, should the patent actually make for an expiration in 2019 or 2020 as you've guided, what would your plans be for building out an MS franchise long-term; is Gilenya really your only focus target? And then separately can you also update us on your -- the pricing assumptions as we think about potential pricing of LCZ in the U.S. and perhaps also in global markets? And then lastly, we have seen some consternation over the pricing dynamics that are occurring in the insulin market. Historically, Sandoz leadership has stated that that market, they view that market already as being largely generic. Just wondering if Sandoz has changed its position there perhaps because of differences in breakeven pricing for additional competition or if that remains an unappealing market? Thank you.

Okay. So, the first question is around our commitment to MS which is very strong. We see ourselves building a leadership position in MS. Just to clarify some facts, the loss exclusivity for Gilenya is 2019 in the U.S. only, so outside the U.S., in particular in Europe it’s 2021 which gives us more time. We have other compounds in the pipeline like our anti-IL-17 inhibitor and we are looking at other options as well to continue to build upon our success in the MS market. Your second question was around pricing assumptions for LCZ; I’ll start by saying we haven’t decided upon the price. Obviously, there is a number of things to think about, the strong benefit of the product overall in terms of reduction in mortality, improvement in quality of life, also the cost offsets because this product will reduce hospitalizations for example as well as other health costs. And then we also have to think about the total size of the patient population, so whatever we do have to be reasonable from a pricing standpoint. You probably won’t hear about the price from us until a few days before we actually launch the product in the U.S., so we have a little bit of time to nail it down further.

And Richard, on insulin?

Thanks Joe. We’re constantly looking at opportunities to expand the business and the portfolio, so we constantly look at every market and insulin is no different. But we do not still consider an attractive opportunity because both things from pricing, low pricing to high capital expenditure required and a high level of competition. So that’s not one of our focuses right now.

Okay. Next question please?

And we’ll take our next question Graham Parry with Bank of America. Please go ahead. Your line is open.

Hey, thanks for taking my questions. And so firstly on LCZ696, I think what a better view on what sales force you think would be needed to launch the product and the extent to which you might need to access GPs longer-term to switch the stable patients once you establish yourselves with cardiologists? And secondly and are you still on track to enter the clinic in 2015 for the immuno-oncology portfolio from CoStim, any thoughts on which mechanisms are actually going in first? And then thirdly on Novartis business services, in terms of benefits in 2015, we've seen the effect of this happening now. How much of the benefit could we really see 2015 or should we really be thinking about ‘16, ‘17 for the timing of benefits from that business? Thank you.

Okay. So, for the LCV launch and you asked the question is one of how -- what type of sales force do we put out there? No, clearly we will fully cover cardiologists who will be the main decision makers and prescribers for this brand. We will also cover a part of the GP market either physicians and internists who act much like cardiologist. So, they initiate prescribing. And then we will use a series of different methods in order to encourage GPs to refer patients back to the cardiologist so that their prescription can be changed and the drug can be titrated up to the effect, the effect of dose in the cardiologist with the cardiologist guidance. So, there is multiple channels we'll be using including digital. The current plan is not to have broad coverage of GPs in the U.S. We will in time refine those plans, but the recent terms of the launch in 2015, you should not expect any kind of significant field force expansion.

And the question...

Yes. So, the second question around CoStim, CoStim has a series of first and second generation immuno-oncology drug. I'm very excited we've accelerated those second-generation products in particular; they will enter the clinic in 2015. And I think we're going to wait until 2015 to tell you exactly which ones those are.

Okay. And Harry on NVS.

Yes. Graham thanks for the question. So, I expect the major impact as of ‘16 and ‘17, but also some impact in 2015. And we plan to update you on more specifics in January when we give the 2015 guidance. Please recall also this is about standardizing and automating processes, systems, implementations are also part of it. So, one has to be a bit careful to expect significant benefits too early. So to some of that some benefits in 2015, majority in ‘16 and ‘17.

Okay. Next question please.

We will take our next question from Tim Race of Deutsche Bank. Please go ahead. Your line is open.

Thanks for taking my question. Tim Race here from Deutsche Bank. Just a question on pricing, I see it this year at about 20% price increases. Could you just comment on how much you’re sticking and perhaps just also call out some of the over products in the specialty space where you’ve been able to actually increase price so dramatically, whether that’s just a Glivec specific. And then just a comment generally on your portfolio in the U.S., which we’ve seen obviously participant to today is the insulin market and prices taken, invested prices rise where or why that was ought to be relatively secure? And hopefully generic, what I’d call specialist, but are you seeing any extra pressure in some of these areas traditionally would have been protected? And then just another question just perhaps on Lucentis, we saw the NIH headline data of Lucentis albeit on Avastin and I know it’s a U.S. study, but there was obviously not great efficacy for Lucentis in that study and the CB safety signal is a bit. Do you expect any read across to the EU from this and any impact to your business? Thank you.

Okay. So, you asked the general question pricing and I think stickiness. Just -- a couple of things on pricing. One, in Japan this was the negative price year for Japan and every other year system. We're down about 6% in Japanese pricing. In Europe, pricing declined or pretty much in line with we've had over the last couple of years, minus two to minus three depending upon the quarter. And in the U.S. we've had a small amount of price increase. And I think you're correct, it's been easier to pass through price increases on the specialty brands where there is less competition than on the primary care portfolio and that pricing does seem to stick. Having said that, payers are increasingly focusing on categories like MS, they're starting to look at oncology. And we will anticipate continued price pressure in those categories as well. And regarding the Lucentis and this was a comparison of Lucentis and Avastin in DME and if you know that was an open label trial relatively modest size trial. The key issue there in terms of trying to extrapolate data is a doze use, the U.S. dose for DME which is very low compared to the EU dose. So, there is really no efficacy conclusion that can be made since our doses are higher. And they had a very what I would odd unvalidated definition of side effect which is not traditionally used in I trials. So, I think we have to get deeper into the data to see if there is anything really there or not.

Okay. I think we have one additional question in the queue.

We will take our next question from [Kerry Holford]. Please go ahead. Your line is open.

Hi, thank you. I have three questions and follow-up for me please. Firstly on Glivec I saw that you reported very strong growth in the U.S. in the quarter, just wondered whether you can give us a bit more detail on the drivers here, what level of growth you expect for the remainder of the year and into 2015? Secondly on Xolair, strong growth still remaining for that product in the quarter. Can you detail how much of this is being driven by the asthma indications versus the newer recently launched dermatology indications; and if you’re able to comment on how big an opportunity those dermatology indications might represent to Xolair in terms of peak sales? And then lastly on secukinumab, I feel that you are now planning file for psoriatic arthritis next year, previously this year, is that just to really make a simultaneous filing with AS in 2015 or are you waiting for any additional data to read out in psoriatic arthritis? Thank you.

Okay, thank you for the questions. So, in terms of the Gleevec, we were up 7% Q3 2014 versus Q3 2013. The growth was primarily driven by the U.S. which was up 24% which compensated for the declines in the other regions. The U.S. was a combination of price and inventory which have been low coming back to a normal rate. You would expect over time Gleevec sales will decline for a number of reasons, generic compensation, patients switching from Gleevec to Tasigna and the like. Regarding Xolair, the chronic spontaneous urticaria launch is actually doing very well, even a bit better than we had hoped. The peak potential is probably over $0.5 billion in the ex-U.S. markets because remember we don’t book sales in the U.S.; Genentech books those sales. I don’t have a good split for you right now between allergic asthma and CSU in part because of overlap of prescribers. So, we're trying to do some better market research to understand it. But when you look at the acceleration of the brand, it's pretty clear that chronic spontaneous urticaria indication is what's driving the acceleration of the growth. And last but not least, you're correct. We decided to push one of the secukinumab indications into early next year so we could file a contemporaneously with psoriatic arthritis, we think that gives the file the best chance of the smooth regulatory review.

Okay. We have time for one last question.

We will take our next question from Steve Scala of Cowen. Please go ahead, your line is open.

Thank you very much. Two questions for David. When all exclusions from the PARADIGM trial are considered, how much does that reduce the potential Class II heart failure population for LCZ696? That's the first question. And secondly, I apologize if this has already been asked, but what are the next data readouts for LEE011 potentially in 2015? Thank you.

Okay, I'll start with LEE, this is the CDK46 for breast cancer. The product is going to be going into along with Pfizer’s drug into -- will become a very big category. Most likely scenario for us is we'll see data at the beginning of 2016, now quick either all are event driven things can shift a couple of months one way or another. Regarding LCZ, I can't give you an exact answer. I'm not even sure people really know exactly how many chronic heart failure patients there are? As you know a large number of them are under diagnosed. But exclusion criteria which such that most patients with Class II to Class IV chronic heart failure should be eligible for this drug regardless of whether or not they were on enalapril or prior [chip]. Now we’ll see when it comes to the labeling discussions, if there are any constraints in the U.S. and Europe, but we’re not anticipating them at this point.

Thank you.

Okay. I’d like to thank everybody for tuning in. And we look forward to giving you an update on our fourth quarter results at year-end. Thank you very much.

Thank you. That will conclude today’s conference call. Thank you for participation ladies and gentlemen. You may now disconnect.