Good morning and good afternoon, and welcome to the Novartis Q1 2015 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. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] A recording of the conference call including the question-and-answer session are 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 everybody to our first quarter earnings call. Joining me on the Novartis end are Harry Kirsch, CFO; David Epstein, Head of Pharma; Jeff George, Head of Alcon; and Richard Francis, Head of Sandoz. Now, before we start, I’d like to ask Samir Shah to read the Safe Harbor statement. Samir?

Thank you. 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.

Thank you, Samir. Okay. Starting on slide number 4. We’ve had a strong start to the year as you can see. For our continuing operations, our net sales were up 3% and operating income was up 9%, both in constant currency. I think the best part was that all divisions grew sales and they grew margin. But we did have a significant currency impact on the reported results as you’ve seen. We closed the GSK and Eli Lilly transactions in the quarter and we have had smooth integration and separation of the business, and that work is going to continue. And also, we had a good quarter for innovation. So if you flip to slide 5, you can see the results in a little bit more detail, you’ll see sales, core operating income. Our free cash flow was $1.5 billion which is up about 27% versus prior year and Harry is going to give you some more details in a couple of minutes. On slide 6, I previously said that this year is all about execution and we have five key priorities for 2015. We made progress on all of them, so let me just touch on them, starting with the financial results on slide 7. You can see that in the first quarter, sales and core operating income increased across all divisions and importantly, Alcon and Sandoz registered double-digit growth in core operating income on a constant currency basis so it’s good to see that significant leverage. If you look on slide number 8, in pharmaceuticals, our portfolio rejuvenation continues. So sales from our growth products increased 25% in constant currency and they now contribute over 40% of pharma net sales. We also had very strong emerging markets growth, 13% in the pharma business, and that allowed us to…

Thank you, Joe. Good morning and good afternoon, everyone. As Joe said, we had a strong quarter from an execution standpoint with the completion of the transactions with GSK and Lilly. Unless otherwise noted, my comments refer to our continuing operations which is of course Pharma, Alcon and Sandoz, and starting from March the contribution from the new oncology assets acquired from GSK and the 36.5% stake in the GSK consumer as a joint venture. Slide 23 illustrates strong core leverage in the first quarter. In constant currencies, sales were up 3%; core operating income was up 9% and core EPS was up 11%. Free cash flow was strong in the first quarter of this year, reaching $1.5 billion for continuing operations, as Joe mentioned an increase of 27% compared to the prior year and I’ll give more detail on that later. And of course, the total group benefited from the significant divestment gains residing in reported operating income of $15.4 billion and net income of $13 billion. On slide 24, we have our usual breakdown of the top line performance, which shows the strength of our continuing operations. If you go step by step, we achieved 9% of underlying volume growth, driven by the strong performance of our growth products, including the new oncology assets we acquired from GSK in March. Price was negative 1% resizing in underlying sales growth of 8%, more than offsetting the negative 5% impact from generic competition. Currency was at 10%, taking us from a plus 3% in constant currencies to a negative 7% U.S. dollar on sales. As usual, you’ll see a similar but more pronounced story on the core operating income where we grew 9% in constant currencies, but currency impact less than by minus 13% resizing in minus 4% in U.S.…

Great. Thanks, Harry. Let me start on slide 35 and show you the high level P&L. We’re very pleased with a solid first quarter, good start to the year. Net sales, at constant currency, were up 1%. As you can see, our productivity efforts continue to deliver with nice leverage, with core operating income up 8% in constant currency versus prior year for the quarter. On page 36, I want to show you, from a high level, how the sales are likely to evolve during the year because there are two fairly negative impact, as you know, which are the generics for Diovan mono in the U.S. and Japan, as well as the loss of patent protection last year on Exforge in the U.S. market, so they’re negative and they slowed down growth. On the other hand, we’re seeing the first benefits from the GSK oncology portfolio. We had one month during Q1. We will see increasing sales of Cosentyx throughout the year and the launch of LCZ696 we expect from the third quarter. So the dynamics will essentially improve throughout the year with the second half better than the first half. On page 37, you see the growth products are doing well, with 25% growth quarter-over-quarter, now representing 41% of our total division sales. And this is the new definition. As you know, we rolled forward the date by one year, and this fairly reflects that roll forward. The good news is that the portfolio continues to be rejuvenated as we have the replacement power to grow through the generic inroads. On the following page 38, you see that the emerging markets did quite well, actually a bit better than we had expected with sales growth of 13% in the quarter, now representing 27% of Pharma division’s sale. We…

Thanks, David. So, just to conclude, I feel good about where we are in 2015. We’re executing well. We’ve got good momentum, sales, and core operating income, so we’re focused on margin, but at the same time, we’re focused on our launches and innovation. And we’re doing this at a time of great transition within the company. So, that concludes the call. And I would like to now open up the call to questions and answers.

Thank you. [Operator Instructions] We will now take our first question from Richard Vosser from JP Morgan.

Thanks very much for taking questions. A few margin ones to start with, please. Just looking at the GSK oncology business now you have it in-house, are you seeing the potential for – how are you seeing those potential for greater margins contribution, and shall we think of that now being higher than the 60% or 50% to 60% that may have been created previously? Secondly, looking at the significant expansion that we’ve seen this quarter in terms of 80 basis points for the continuing business. I understand of course the absolute level of margin will go down going forward. But how should we think of that incremental contribution over the subsequent quarters? Should we be thinking of this similar sort of level? If you could talk through the pushes and pulls there that would be very useful. And then a question just on – a couple of questions on Sandoz, as well, please. Firstly on Copaxone, now you have that approved, but obviously awaiting for the launch. If that does launch this year, would that be an upside to the Sandoz guidance? And then looking at Sandoz in Germany, the growth rate as you highlighted was very substantial. Is there anything sort of – that we should know about in terms of one-offs there or how you were delivering such stellar grade? Thanks very much.

Okay. Let’s start with David on GSK onco margin.

Yes. So as we said before, the GSK products will overall run at a margin that’s higher than our overall pharma business, and we believe that over time those margins will come in line with the rest of our oncology business which is much higher than pharma overall. My quick assessment from looking at these products in the P&L is that they have actually – Glaxo had actually underinvested in the launches of these products, and there is going to be an opportunity to actually accelerate growth in a pretty significant way going forward which means while the margin will come, it will not be necessarily in the next couple of quarters bigger than it was in the previous quarters. But over time, our expectations will be in line with the rest of oncology culture.

Okay. Harry, the shape of margin.

Thanks for your question, Richard. So overall, we are satisfied with a strong start also from a margin standpoint into quarter one. This gives us confidence that on the full year, where we have also guided to margin expansion that this is, of course, fully substantiated. So, please recall that in constant currencies, we are giving marginal expansion guidance by sales mid-single digit, and core operating income, high-single digit. Then of course, you have to model in onto the currency impact that I have given you if the currencies prevail, but overall also for the full-year margin expansion. And I would just ask you to stick to those modeling assumptions.

And, Richard, Copaxone?

Thank you. Thank you, Richard, for the question. Copaxone, short answer is yes, but Copaxone launch isn’t the biggest for this year for Sandoz. Moving on to Germany, yes, we have strong performance in Germany, and that’s based on a number of factors. We’ve had some good product launches within Germany early in the year. We’ve also benefited from a good cough and cold seasonal product performance versus last year, as well as we have increased performance across the business as a whole. And this is due to the focus we placed on some of our core big market. Thank you.

Okay. Next question, please.

Thank you. Our next question comes from Andrew Baum, Citi.

Hello. It’s Andrew Baum actually, but four questions, very quick ones. Firstly, in relation to bio-similar, when you get your clear decision [indiscernible] on Zarxio, should we assume that we will launch at that date? And then more broadly, could you characterize for us your understanding of whether triple damages exist or not under the 351(k) pathway, the first to small molecules. Second, on immuno-oncology, you’re obviously building a portfolio that interesting assets on top of your cut. You’ve had a major KOL with Glenn Dranoff. But there’s a kind of gap between where you are now versus where you would like to be. Could you just talk about the additional BD that you need to build around that space to help us form a clear idea? On LCZ, is there any reason why the uptake of LCZ should not be significantly faster than the market believes with the pricing higher given the frequency of penetration, given the fact that you’re going to be on Medicare partly formularies, again, I’d be interested to hear your views. And then finally, AbbVie just put $15 billion peak sales forecast for franchise that currently doesn’t exist. Given your historic legacy in the area and breadth of your presence, I’ll be interested if you care to put a peak sales forecast on Novartis oncology business. Thank you.

Okay. Starting with Richard. Biosimilars?

Thank you for the question. Obviously, we’re very excited about Zarxio, particularly as we’ll be adding that to our biosimilars business, which is growing at 19% for quarter 1, so we have good momentum there. As with regard to the exact timing of the launch, we cannot comment on that for competitive reasons. Leads on to your question about damages, once again, that’s something which we won’t comment on due to interpretation of the legal situation. But in summary, we’re very excited about this year with Zarxio and looking forward to adding that to the portfolio.

And David, immuno-oncology?

Yes. So, Andrew, thanks for pointing out the progress we’re making in immuno-oncology. So, I think as Joe pointed out in his presentation, we’re likely to have three compounds in the clinic this year. For some of them or at least one of them, we are behind leaders who are in either on the market or in pivotal trials. For another compound, we are going to be likely in the top 1, 2 or 3. And for one of these compounds, we believe there’s a possibility we will actually entering the clinic first. So we think our immuno-oncology position is improving nicely and we have the opportunity to combine these in ways that perhaps others can’t either with each other or with exciting compounds like MEK and BRAF. And if fact at ASCO, we should see the initial data of the MEK and BRAF Doublets and Triplets coming through in melanoma in combination with another company’s immuno-oncology products. So we’re committed to immuno-oncology. We think it nicely matches with our targeted therapy business, and it will help grow the oncology business. That answer your question about a peak sales forecast for oncology. I wouldn’t even know how to do that because it will be growing for quite some time. And perhaps unlike the other company, we’re not under pressure to do so because we have multiple important franchises. In terms of LCZ, the dynamic as we expect them and we’re going to continue to learn as we go along is that the population is heavily Medicare, roughly 70% and then about 30% commercial. What that means is that this product will likely to NDC block for the six months. And as a result, as I’ve cautioned, I think uptake will be relatively modest at first until we work through the access issues. And then we think the product could be quite meaningful and sizeable than the efficacy benefit it brings, as you know, both in terms of – including quality of life, survival and then reduction of cost because of lower hospitalizations. And as I said before, this could become one of our biggest products. But it’s really too early to put a specific number on it. I’d almost forget about those estimates we had in the past. Let us get to the launch and we’ll be able to fine tune a better number for you. Thank you.

Next question, please?

Thank you. Our next question comes from Alexandra Hauber, UBS.

Yes. Good afternoon. I’ve got three questions. First, the obvious one, you had a very strong quarter with core operating profit up 9%. This is actually what you guided for the full year but you – and I always assume conceptually that the first quarter was going to be the weakest given [indiscernible], given oncology coming later and based on the conception slides that David presented. So, I’m just wondering why you haven’t raised the guidance yet after that strong quarter. And though, Harry, you put some comments on slide 27 that the first one – first quarter is -traditionally have been a strong quarter and you’re also hinting to marketing and sales going up. But is that essentially the issue that marketing sales are sort of been fast from this level and, therefore, the growth will be staying at that level rather than accelerating? Secondly, question on Alcon. We’re still seeing no pull through on the intraocular lenses despite very strong implementations. So, I’m just wondering whether – it’s not happening yet or whether we’ve just not seen it due to the weakness in Japan. So, question is are you using – is that the issue? And if so, are you losing – if you’re losing market share in Japan that’s the reason that probably [indiscernible] potentially compensate for that. So, just a very little question on the MEK, BRAF breakthrough that you’ve mentioned in non-small cell lung cancer with BRAF mutation. Could you actually point out based on this study you intend to do the following in 2016 which you’ve been hinting both in the release this morning and on the filing chart given that there’s only one study and clinical trial which seems to report 2019? Thank you.

Okay. So, let’s go to the guidance. Harry, why don’t you address that?

Yeah. So, thank you, Alexandra. As you point out, our performance in the first quarter is nicely in line, 9%, with our guidance for the full year and constant currency growing high-single digits. Now, I alluded to Beth and also David, that, of course, in terms of the launches for LCZ and Cosentyx, we have to make sure that the appropriate resources are in place. That’s clear. And furthermore, it’s early in the year. So, we’ll see how things develop. But, of course, we have to make also sure that the launches are fully deployed.

Yeah. Alexandra, I’ll add to that. We are pleased with the first quarter. If you look historically, we would rarely raise guidance in the first quarter. We just want to see how things play out. But we are quite enthusiastic about the momentum, not just on the top line, but also these margin efforts that we have had are really starting to play out. So, we’ll see how the next few months progress. Alcon?

Yes. So, Alexandra, on your question on surgical and their relation to the IOL pull-through and consumables pull-through, as Harry mentioned, we saw 6% growth in constant currency in surgical in Q1. We actually saw a very good pull-through on our non-IOL consumables portion of the business, which is also something that we leverage equipment financing agreements for both that and IOL. Non-IOL consumables are actually a little bit bigger at $1.4 billion or $1.5 billion versus $1.3 billion or $1.4 billion per IOL. New sales were up 7%. IOLs were flat, but we had 3% growth in units. And it’s a bit of a mixed story on this. We’ve seen four quarters in a row in the U.S. where it was actually regain share on IOLs in unit terms. We are seeing challenges in Japan, as you mentioned, particularly on our ReSTOR lenses which are priced over $1000 a lens, and that has a big impact on value as that category has not seen strong uptake from a market perspective due to the fact that you’ve got a split light and there is some visual side effects that some patients experience with multifocal category across competitors. And then in Europe, this year has been not as good as we’d like. So, what we’re really doing on IOLs is focusing on accelerating innovation, and this is really key for the future. Since last June, we nearly tripled our IOL pipeline from about 9 active projects to 25 projects as we really focus investments spending behind IOLs, and we’re excited that we’ll be launching – we expect to launch later this year both a trifocal lens in Europe where we’ve lost a bit of ground to Zeiss in Europe, and as well the preloaded IOL for the end of the year also in Europe. So, I think we’re going to come on that, but I’m also looking at a bit better comps on the back half of this year. So, overall, roughly in line with expectations on IOLs despite the flat performance.

Okay, David. Next BRAF.

Yeah. So, the is question about non-small cell lung cancer. As you heard me said earlier we’re pretty excited by some of the additional data that GSK had been developing. In this case, the V600E BRAF mutated non-small-cell lung cancer. If things go well and you’ll see some initial data at ASCO, there could be the possibility of filing based on Phase II data during 2016. So, that’s what we’d be looking at. Just to caution you with the relatively small portion of the lung cancer market, but it would provide a nice upside for the brand.

Okay. Next question, please.

Thank you. Our next question comes from Tim Anderson, Bernstein.

Thank you. On biosimilars filgrastim in the U.S., I’m hoping you can share some degree of details about commercial strategy, such as the sales force support behind product. Will it be similar to how you launch a normal brand? What side of the organization will that come from? Is the stakeholder to convince your prescribers? And what’s the enthusiasm from payers that you have had? Presumably, you’ve have had initial discussions with them. I won’t bother asking about price, because you probably won’t say anything, but hoping that you can share some of these other details. And then on M&A, I’m wondering where Novartis is headed on this topic. I would imagine that with the restructuring and with the refocus and with the recent closure of the various transactions, perhaps you don’t have much of a desire to seek out any sort of larger transactions. But what could we expect to see from the company over, let’s say, the next year? Is it likely to only be smaller deals or could everything be on the table?

Okay. Let’s start with Richard on biosimilars.

Hello, Tim. Thank you for your question. So, to give you some flavor of how we’re approaching Zarxio, the commercialization. You’re correct in understanding that we will be putting a sales force behind that, as well as a market access team, and as well as an SL team. So approaching a very similar model to the originated type business. We’ve been working obviously with the medical community already in educating on the biosimilar potential and what that means to them as prescribers. We’ve also started to reach out to the market access in the payer side of the business. I think everybody is looking forward to the opportunity to have a full access to this very important therapy to make sure more patients can benefit from it. With regard to thinking how we’re leveraging the expertise in David’s group, obviously, we’re making sure we maximize the whole capabilities of Novartis as an enterprise as we see that as a real asset and competitive advantage of moving forward. But the details of that is something that I can’t go into for competitive reasons. Thank you, Tim. Thanks for your question. And Tim, in terms of M&A, after the year that we’ve been through in terms of completing the transactions that we have, we still have the CSL transaction that closed by the end of this year. But I think the objective of that was to focus the company in a way that we would not be needing to do other big M&A. That doesn’t mean we won’t, but it just means that we’re in a good place, that we will continue to generate a lot of growth and momentum by investing in the three platforms that we have. So, I think you can expect us to – what we said, which was smaller bolt-on acquisitions that would strengthen either the pipelines or the commercial structures of each of the three divisions. And by bolt-on, I’m talking about anywhere from $2 billion to $5 billion. You also see us step up, I think our activity in business development and licensing. So, you saw the Aduro deal that we just did. And we’re looking for assets that will help us strengthen the pipelines of each of the three businesses. So, that’s really what we’re focused on over the next – at least, over the next 12 to 18 months.

Thank you.

Next question, please?

Thank you. Our next question comes from Matthew Weston from Credit Suisse.

Good afternoon. Thanks for taking my questions. There are numbers. The first on SG&A. You’ve previously talked about the fact that you felt you could reallocate a lot of the resource that you had within the existing organization to support the launches coming up in 2015, 2016. Seeing now 1Q as a base, how should we think of that reallocation? Do we need incremental investment if I was to think about SG&A as a percent of sales going forward into the end of the year? Or would the arrival of the GSK revenue, do you think it’s achievable to launch with a similar level of relative spend? Secondly on your comments that you just made, Joe, around R&D in-licensing. One thing that you’ve also highlighted in the past is around streamlining your early and mid-stage pipeline, focusing on priorities and potentially passing on some of the products that you have, which are no longer within your core focus to others. That’s not something we’ve really seen happened yet. When are we likely to see those decisions made? And then, David, Exjade and the transition to the new Jadenu formulation. As I recall, Exjade patent expires in the U.S. towards the end of 2017. Does Jadenu give you any incremental protection. And if so, how?

Okay, let’s start with SG&A and David, why don’t you take this one.

Let me talk about the pharma SG&A. So, you’re right, but the launches – the majority of the support for these brands will be a reallocation, which we largely worked through as we’ve taken our resources off Diovan, Exforge even Galvus and others, particularly when it comes to field force, incremental field force is really, really tiny. Having said that, whenever one launches grant with a potential that Cosentyx and LCZ have, there is some additional spending, additional marketing spend. There are some additional space for clinical trials that are needed to support the brand, to drive health economic data, et cetera. So there will be some increase in spend. And that’s why what we said is, essentially, based on the pharma margin perspective, first quarter was high. First quarter is always high. Historically, it is. And then it tends to trend down through the year. This year we get the benefit, as you point out, from GSK, which helps. On the other hand, there is more money being spent against these launches. So, you’ll probably see a pattern that is not dissimilar, overall, to previous years.

And, Matthew, I think from a total group standpoint, obviously, we’ve guided to margin improvement on the year. So, if you look across the company and you look at the number of launches that we intend to have with filgrastim and Glatopa, and in Alcon Centurion, and a number of the pharma products, as well as in the pharma division, we will, obviously, drive to deliver despite the investment in all of these launches across division. So, there is a considerable amount of reallocation that is going on here. And if you look at our M&S as a percent of sales as a group year-on-year, and you saw it go down this quarter despite the increase in the number of launches that we have. So, I think that’s evidence that that will happen. On your second question regarding R&D and licensing, yes, obviously, as we in-license, we have to look at our total portfolio in development and think about prioritizing constantly. You have not seen us yet out-license much. And that’s not because we’re not trying. There, obviously, is a lot of activity underway, and I think it’s just a matter of time before you see that. But I think the key metric to watch will be R&D as a percent of sales, relatively flat with a year ago. So, despite the fact that we’ve got additional incoming programs and projects, our commitment is to have R&D not be a hurt and not be a help to margin, but to maintain a level of spend that is at the high end of the industry, but do it by prioritizing pretty ruthlessly the projects that they come. So, David, on Exjade?

Yes. So, just to put your mind at ease, actually the patent is quite a bit longer than you guessed. So, outside the U.S., so Europe and Japan, the patent expires in 2021. And then in the U.S. with the pediatric expansion should put us in the fourth quarter of 2019. We’ll have to wait and see whether or not Jadenu any additional protection is not 100% clear at this point. Thanks.

Next question, please?

Thank you. Our next question comes from Graham Parry from Bank of America Merrill Lynch.

Okay. Thanks for taking my questions. So, on LCZ696, any updated thoughts on how quickly you can target the mix of prescribers here and perhaps run us through your latest thoughts on what proportion of the target physician population is primary care versus internists versus cardiologists and your ability to reach them over what timeframe. Secondly, we’ve seen now detailed Phase III data for brodalumab at the AAD meeting. Any thoughts on the competitive profile there versus Cosentyx especially the suicidality? Is there any risk of a cost effect label there? And then thirdly, on Sandoz’s margins, currency was actually a positive to margins in the quarter because of the strong euro cost base, and does that hold for the full year? And when should we expect to see SG&A ramp in the second – is this going to second half or even second quarter because of the Zarxio and the other launches? Thank you.

David?

So, starting with LCZ, your question has a different answer depending upon the country we’re speaking about. So, in the U.S., LCZ will be started almost exclusively by cardiologists and we think about 10% of internists will be writing initial scripts. And our plan is to launch initially to exactly that target audience. Whether we would expand to more GPs later who will be writing refills is something that we can decide together really at a future date. On the other hand, when you have a country like Germany where the – really the primary care physician holds the budget for the most part, you have really no choice but to call them both cardiologist and GPs at the time of launch or the product won’t take off; and that’s our plan in Germany as well. I don’t plan to go through much more for the LCZ launch plans at this point other than to say we’re pretty excited about the campaign we’re putting together. The use of social media, the use of other approaches to get the word out about this important drug which is going to help patients live longer with chronic heart failure. And in case of the IL-17s, actually the biggest surprise for me as I was reading today that it looks like Lilly will be filing before Amgen, I hadn’t anticipated. That doesn’t have any impact on our physicians, but nonetheless that was interesting news. The efficacy of these compounds at least in psoriasis doesn’t look too different, but interestingly enough, it looks like we’re the only company at least in the near term that will have a meaningful data as well as a filing in ankylosing spondylitis which is a big part of the opportunity. And it will also help us from a formulary perspective because of the breadth of the label. And I don’t want to comment on other company’s side effects. Suffice to say we do not see those issues with our product and we’ve done a very thorough review. And Harry, why don’t you take the margin question?

So I think, Graham, the question was around currency impacts on the margin. So we don’t give guidance by division on margin, as well as on currency impact. But when we look at our quarter 1 results, it’s – as a company, on sales minus, 10%. Sandoz has a bit more than that, minus 12%. And you can imagine that Q2 already the large business in Central and Eastern Europe and Russia, but ruble devalued more than the average of the other currencies. But then on the core operating income, the company had a 13%, and Sandoz had a 12%, a little bit less than the company and that is, in fact, due to a higher cost base in the Eurozone given the manufacturing size and headquarter.

[Indiscernible]) is SG&A around?

Sorry, go ahead, Graham.

The second part of the question was just then thoughts on phasing of SG&A through the remainder of the year in Sandoz and timing of SG&A around for launches? Thank you.

Okay, Richard?

So, thank you, Graham. So, on the SG&A obviously we will be investing in the launches of Zarxio that will be coming. That said, we’re very committed to slight margin improvement as we’ve mentioned in the past.

Thank you.

Next question, please.

Our next question comes from Florent Cespedes from Société Générale.

Good afternoon, gentlemen. Thank you very much for taking my questions. Two quick ones for David and one for Jeff. So, first of all, David, on the respiratory, could we have a quick update on the risk structure report for you, your plans in the U.S. is the partnership the most likely scenario? And also why Onbrez shows a decline? And the last point, could we have a feedback from the prescribers in Europe on Ultribro? Second question for David on emerging markets, you said during your presentation that you did well than expected on emerging markets. Could you elaborate on that? And third question. So, the one for Jeff, on Alcon. It’s on Centurion. Jeff, what is the reasonable penetration rate for the Centurion products that could trigger meaningful impact on the top line? So, in other words, what could trigger an acceleration of the growth of the division and for Alcon in general as well? Thank you.

Okay. So, and starting with respiratory. As you can see, overall for their franchise, ex-U.S. were doing quite well. One of your questions was why did Onbrez slow down. In fact, what we’re noticing is that as we focus more and more on Ultribro which has the biggest efficacy benefit and overtime the biggest economic benefit for us, the two other respiratory brands have not maintained their momentum. So, we’re looking at ways to address that. In the U.S., what I’ve said before, and I don’t have an update, is that we’re looking at different options for a launch, which ranges from a limited specialty launch to a full-blown launch by us or a launch with our partner. And we’re still working through what’s the best option. We’re talking to some people about the best way forward. We should have approval in the fourth quarter. But obviously we need to sort it out before that time. In terms of emerging markets, as last year wrapped up, we assumed that some of the geopolitical issues, the declining price of oil would play through in terms of a slowdown in the emerging markets. So far, that hasn’t happened. I still think at some point it will, but so far it hasn’t. We had a good Q1. Thanks.

And Jeff, Centurion?

Yeah. So, Florent, as Joe mentioned, Centurion has been a very successful launch for us. I think probably the most successful launch that we’d ever seen in phacoemulsification technology and cataract surgery. As Joe mentioned, about 25% of our U.S. installed base, so well ahead of expectations. It is already impacting the revenue growth and that it is offsetting or helping to offset the flat IOL sales that you saw in the first quarter and we’re seeing very strong consumables pull through, as I mentioned, in reference to Alexandra’s question. And that’s not only Centurion, but we’re also driving a lot of success with our cataract refracting suites, so both the preoperative diagnostic surgical planning tool, VERION, as well as our femtosecond laser, LenSx, as well as after the during phacoemulsification the technology we acquired from WaveTec which is called ORA, or intraoperative aberrometry which has been really helpful in driving consumables as a package and we’re looking to further integrate the surgical suite going forward. I think what you’ll see as we continue to improve our shared position in IOLs in the U.S. and elsewhere is that this business will improve as a result of the continued uptake in Centurion. One sailing and factor that in is that accounts that have Centurion versus accounts that don’t have Centurion, there’s about 4 times better performance in the IOLs alone of the accounts that have Centurion.

And, Jeff, do you want to just comment on his question about expectations regarding penetration rates?

Yeah. We don’t give guidance on penetration rates. Typically, what you see in equipment is five to seven year selling cycle and you typically, in year two, which is what we’re in would see 15%, 20% penetration on the high-end, and we’re at 25% in the U.S. and 15% to 20% on a global basis. So ahead of expectations and we’ll continue to ramp this and we’re getting now into – starting to get into the middle of the adoption curve.

Thanks. Thanks very much.

Next question, please?

Thank you. Our next question comes from Naresh Chouhan from Liberum.

Hi. Thanks for taking my questions. Just two for me. Firstly, on Alcon, the contact lens solution business has been a drag on Vision Care sales for a while now. When do you expect that impact to stabilize? And if you were to remove the impact of that decline, how much would Vision Care sales have grown by? And then secondly, can you tell us the level of net price rise or decline in Pharma and the impact that that has had on the margin in Q1? Thank you.

Okay. Jeff?

Yeah. So, Naresh, on contact lens solutions, what I would say, maybe just starting at a macro level on Vision Care. We continue to see good performance on contact lenses, which were up 8% in constant currency last year and up 6% this year. And part of that has been driven by the continued shift to daily disposables. We’re continuing to see over 55% growth in Dailies Total1 But as you see more and more consumer shifting to daily disposables, they don’t have the same need for contact lens solutions. So, the category, overall, has been flattish, flattish to slightly declining. We have lost share over the last couple of years in contact lens care solutions. But we’ve been regaining share back, particularly in the U.S., as we’ve invested more behind retail merchandising and category management in contact lens solutions. So, I do expect to see an improvement looking forward. It’s not going to be a big growth driver for us. We have introduced a couple of new products. And we also are seeing good growth in emerging markets. But, overall, there’s headwinds against the category. Nevertheless, it gives us a bit of brand halo for Alcon overall that does play positively on the lenses side.

And, David, pricing?

Yes. So, just to – so, overall, I’ll just give you three numbers. Volume is 9%, then we lost 8% to generics, and pricing was 0.

Thank you.

Next question, please?

Thank you. Our next question comes from Seamus Fernandez from Leerink.

Thanks very much. I have a few questions here. So, first off, just with the decision from the agency with regard to LCZ that new panel is necessary, can you just confirm that there’s been no evidence of a concern around Alzheimer’s? I think this was a mechanistic concern that was raised related to NEP. But I’ve never seen anything in the data. Just wanted to confirm that. Second question, can you just update us on the timing of the interim analysis for serelaxin? Previously, I think you had said that that was expected in the second quarter of 2015. Next question, can you just give us like a quick update on your thoughts around the launch of palbociclib and how the competitive landscape is developing here and how Novartis is going to address that the ability to kind of move LEE 011 forward in that context. And the last question is on the allosteric Abl inhibitor. First off, when might you move this in the Phase III clinical studies and how might this enhance the Tasigna franchise? Thanks a lot.

Okay. So, yeah, for LCZ, there has been virtually no questions about the highly theoretical Alzheimer’s risk, as you spoke about the mechanistic issue. There are multiple enzymes that are involved here and it was absolutely nothing to see in the pivotal trial on cognition. So, let’s put that to bed. So I don’t believe that will be an issue at all in the review process. In terms of serelaxin, we are on track, what we said earlier, which is a back-half most likely in the fourth quarter interim analysis, safety interim analysis of serelaxin. Just to set expectations, interims usually result in no change because they are focused on safety. For a trial like this to stop early, as with LCZ, the efficacy really needs to be outstanding. So the most likely scenario, as we go through that interim and then we get the final results during 2016. In terms of the CDK4/6 inhibitors, I think they’re very, very exciting class. They will, over time, be used routinely in breast cancer patients. We should be the second to market behind Pfizer. Our strategy is very clear. We will have data mid next year also for the PI 3-kinase inhibitor BKM. We also have alpha specific PI 3-kinase inhibitor called BYL that’s in Phase II. We hope to start Phase III this year. And we believe there’s the possibility of making four different combinations of these products and offering a full portfolio of breast cancer therapy that will make us very, very competitive in the class. And of course, we have Afinitor now, which gives us a lot of experience. And last but not least, thank you for pointing out ABL001. We’re actually very, very excited by this compound. As you know, it bind a different part of the BCR-Abl protein as a result, and it’s active on its own and it’s also active in combination. We would hope to be able to put this product in pivotal trials as soon as we figure out exactly what the right dose is for patients. That could be as early as next year that trial starting. So, I think this would be really important for our franchises in continuing the CML franchise growth over time. Thanks.

Next question, please?

Thank you. Our next question comes from Kerry Holford from Exane BNP Paribas.

Hi. It’s Kerry Holford, Exane. I have three questions, please. Firstly, on Gilenya. Very strong in the U.S. In particular, you mentioned in the slides earlier that there was strong demand. Was there any impact there from price and on stocking? Secondly on biosimilars, when I looked at the Enbrel and Humira Sandoz studies that are running and clinical trials took off, they look as that they’re due to complete this quarter. I’m wondering whether you would look to publish that data and whether what you’re able to say when you may file that. And then more generally, whether you could just talk about why you’ve chosen to start Phase III studies in psoriasis to both. And ultimately how you position those biosimilars in the market versus Cosentyx? And then finally, what should we expect from Novartis at ASCO this year? I know you mentioned COMBI-d and the BRAF [ph] Mek data in lung cancer, but anything else? And we host an investor event. Thank you.

Okay. Maybe David, Gilenya and ASCO.

Yes. So, Gilenya really at this point has nice growth. It’s almost all volume. The vast majority is the volume. And in the ASCO question, I didn’t catch Joe.

It’s expectations for ASCO, beyond what you said earlier.

Yes. So, in addition – so as you know, we have the various trials with BRAF and Mekinist in melanoma, colorectal cancer, lung cancer, combination with PD-L1 to some data around Farydak. And then there are a fairly large series of Phase I abstracts that are going to be important for the future. So it should be a great solid ASCO for us.

Okay. Richard, on biosimilars.

So on the biosimilars, as you know, we progressed well with Enbrel and with Humira with the studies that with regard to file the timing, we don’t comment on that going forward, but we’re making the progress we anticipated. And with regard to your question around Phase III in psoriasis, I think it was about why did we choose psoriasis. We expect to – we chose psoriasis as opposed to getting across multiple indications because we believe we will get the multiple indications when we actually get approved. So hopefully that answers all your questions, Kerry.

Yes. [Indiscernible] to understand how you’ll then position those biosimilars versus the BRAF Cosentyx?

Position those biosimilars versus Cosentyx? Well, I think David can also comment here. I think Cosentyx has proved to have a step change in the treatment with regard to treating psoriasis as it’s shown on the slides today. We think this is actually very complementary and making sure payers can balance budgets, where they can use the core efficacy that we’ve seen through Enbrel and Humira, as well as pre-up budget to actually to start to use the innovative and highly-efficacious product like Cosentyx.

Right. So when you start to see the combination between biosimilars and the innovative side of the business, we’ll be taking a category approach from a Novartis standpoint. But each division will be driving their own interest and overall Novartis will win.

Okay. Next question, please?

Thank you. Our next question comes from Michael Leuchten from Barclays.

Thank you. Two questions for Harry, please. Firstly, we see a very strong Pharma gross margin in the first quarter. That was last year boosted by some inventory adjustment, and we’ve seen a step-up from that higher level. So, is that a yearly recurrence now, and if so, can you quantify that? And then secondly, on NBS. Does the NBS still support the joint venture on OTC, and if so, for how long? Or is that going to run for a while or free up resources eventually? Thank you.

Thank you, Michael. So, to your first question of the pharma growth margin, there is always a bit of quarterly volatility. You mentioned last year, quarter one inventory we were – this year, we had also little bit of that effect. But I would focus more on year-over-year, which I expect roughly to stay flat because we have fairly two elements One, is the ongoing productivity efforts, also manufacturing footprint. You have seen we have closely divested; and number two, manufacturing side. On the other hand, I would expect the slight increase from the royalties mainly from Gilenya, so that, overall, from a growth margin standpoint I see it at the level of last year for the full year with some quarterly volatility. And then in terms of NVS, you have seen very good start operationally gen one and almost 9,000 people there. A of the execution is to give transition service agreements, both to Lilly and to GSK. And depending on the service, I would expect us to be between 12 and 18 months. But, of course, these services are being charged, and plans are in place to eliminate any fixed cost after these services are finalized.

Thank you.

Next question please.

Thank you. Our next question comes from Jeff Holford from Jefferies.

Hi. Thanks very much for taking my question. Just a couple of more around Afinitor. Can you just help us understand how much of the sales for Afinitor are actually in breast cancer? And also, just your thoughts around how the impact of [indiscernible] might impact – potentially it’s in two ways as patients who didn’t get the chance to take it first line could take it the second line instead of Afinitor and also possibly patients going on first line, how their treatment duration might hopefully we extend it and, therefore delays going onto Afinitor, just how do you think that might impact that brand over the next 12 months to 18 months or so. And then secondly, I just try to ask from where you can see it right now because I assumed, look at it in great detail, how do you view the IP protection around Humira? Is it the company’s planning? Do you anticipate how to go to core of the period of years to be able to launch against the second group hands that are out there beyond the December 2016 molecule patent? Thank you.

I think the best way to think about the ER-positive breast cancer market is with each new therapy and each new line of therapy is introduced. Essentially, what’s happening if patients are living longer and longer. Sometimes therapies slide in that will push another therapy later. And that’s what’s going to happen. I believe in the case of Afinitor, the CDK 4/6 will be used first. But the patients will still progress through their therapy and will eventually need Afinitor. Now, our strategy is actually to replace Afinitor with a PI3 kinase inhibitors, which we believe or we’re hopeful will be even better products based upon the early data, and then to eventually combine our PI3 kinase inhibitor with LEE and make sure an ideal combination regime. But overall, the market just gives getting bigger because people lives longer, but also because this newer agents are priced at a different higher level. So, overall, we’re not worried. There will be a bit of pressure on Afinitor for a while as some starts to come a bit later.

And Jeff regarding Humira IP, we wouldn’t comment on what our view of their patent is.

Next question, please?

Thank you very much.

Thank you. Our next question comes from Marietta Miemietz from Prime Avenue.

Good afternoon. It’s Marietta. Thanks for taking my questions. The first one is on Sandoz. I was just wondering Zarxio substitutability in the U.S., so the FDA panel, so it was up to the state pharmacy board. So could you actually share with us some initial insights into that process, which way the board are leaning, what drives the decision, and is it sort of a clear-cut yes-no decision or does it actually involve a lot of ambiguity still for the pharmacist? The second question on Alcon and to Thuja, what is your plan for filing and marketing the OASIS data and are there any meaningful reimbursement gaps that you expect to close in the back of this? And just very high level, your commercial expectations, the OASIS data are clearly much better from the pivotal data because they’re much more geared towards the real world. But you still have a significant non-responder population. So, how confident are you now, based from the headline data, that the Thuja can get to at least couple of hundred million in peak sales over the coming years, which I believe was the original expectation? And finally, a Pharma margin question, so marketing and selling, as a function of pharma sales, David, I think you’ve tended to look at 24% as the kind of floor based on Novartis’s mix of specialty on primary care products in the past. So now that you’re basically there, how much room do you see structurally to bring that down further or do you actually see a risk that it could rise overtime? Because my sense is looking at oncology. If a lot of these immuno-oncology combinations come through and are relatively undifferentiated versus one another, this could become a really, really detailed sensitive area. So, just any really high-level thoughts there would be much appreciated. Thank you very much.

Okay. Richard on Zarxio substitutability.

Yes. For Zarxio. Thank you for your question. So firstly, from interchangeability, which is where we are still waiting FDA to give clear guidance on that. That is something which as I said – we’ll address that as when the FDA give clear guidance which they are forecasting they will do. With regards to substitutability at a local level, at a hospital level, that we’ll be down to the pharmacists then the physician. Obviously, we have gotten our guidance on to how that is going to play out. And we will not give any guidance on that based on some market research that we may have got prior to launch.

Okay. Jeff on the Jetrea.

Yeah. Marietta. On Jetrea, I think on the Oasis data, it is better than the pivotal data because with the real-world data, we see better efficacy rates around vitreomacular adhesion and vitreomacular traction due to the third party OCT screening out of epiretinal membranes in large macular holes. And so, I think the data is helpful for us. And we have been seeing by the way on the reimbursement side and on the approval side some good progress with Jetrea approval in Brazil, a number of approvals now across Europe and ex-U.S. As for the product side, look, the data gives me more cause for optimism. But I’m still cautious on this product given that it is a challenging market to break into. It’s effectively a chemical knife when a lot of the surgical community is used to doing in-vitro retinal surgery the traditional way. So, I don’t want to get too much guidance as to product size and peak sales in the future. As I’ve said in the past, I do believe that it’s an important niche product but nevertheless it’s not a huge product for us. But, again, to your point on the Oasis data, cause for optimism.

And, David, on Pharma margin?

Yes. So, thanks for pointing out. The productivity and more specifically better resource allocation is resulting in better Pharma margins, and also over M&S as a percentage of the total, as well as absolute M&S spend. Just to caution again, as it has been explained during the course of the year, we tend to have the lowest spend in the first quarter, and it tends to have creeped up over time. It’s going to bounce around now because of the different launches that we are going to be executing particularly Cosentyx and LCZ. But our intent over time is to continue to improve overall margin. And as you get out a couple of years, what you’ll start to see is we start to put the generics behind us and if we do a good job with the new launches they will become more meaningful. And actually the margin will increasingly then be driven by the sales growth even more than the productivity effort and that should flow through to the bottom line.

Thanks, Marietta. I think we have time for two more questions.

Thank you. Our next question comes from Steve Scala from Cowen.

Thank you. First, a follow-up on LEE011. Novartis has encouraged investors to not assume early stoppage of the Phase 3 trial in breast cancer. But post the recent stoppage of the palbociclib study, are you still urging us to not consider early stoppage of the study? And please remind us when that interim look is? And secondly, various signs suggest that Sandoz will launch a Advair generic in the U.S. in a discus-like device sometime next year. Would you take this opportunity to tell us that those signs are not correct? Thank you.

Okay. David?

Okay. So for LEE we have an interim in the first of 2016, and we have a final result in the second half of 2016. I have learned through life not to count on early stops of trial. That happens rarely. If it does stop early, then, of course, we celebrate at that time. So, I don’t want to speculate any further?

And, Richard?

[indiscernible] to your question, Steve, following up from what David said with regards with up-and-coming launches and potential launches of the Advair generic in the U.S., we don’t comment on the timing of that.

All right. I think we have time for one last question.

Our final question comes from Odile Rundquist from Helvea Baader.

Yes. Good morning. Good afternoon. Thank you for taking my question. Just coming back to your guidance on the margin and the high-single digit growth you’d expect on core operating profits, could you maybe give us a bit more color on what’s really the contribution from Novartis business services versus Glaxo oncology business? Then if you can also confirm if you fully enroll the reduction of certain Biosimilar studies? What actually Russia highlighted today with the potential Biosimilar entry into 2017. That’s it. Thank you.

Okay. Harry on margin?

Thank you, Odile. So, as you point out, our full year guidance is for the company margin expansion with the high-single digit core operating income growth ahead of sales growth. And MDS already played in quarter one role in this, and we expect also NBS to contribute to that on a full-year basis. In terms for your modeling, what you can assume is that basically NBS is holding their cost under management flat, which happened already quarter 1 and as we said a couple of quarters ago and on the last call, this year we expect NBS to have roughly $5 billion of cost under management. So I think those two facts should help you to model the impact on the margin from MDS, given that our sales grow mid-single digit and that $5 billion of costs would stay flat.

And, Richard, on biosimilars?

Sorry, I didn’t actually hear the question...

The question was about rituximab and Herceptin, are they fully enrolled and when do you expect to launch or file?

So on both those by phase studies are progressing well. The report I have is we don’t comment on the progression of our studies and where we are and particularly don’t comment on the filing dates with regard to those on any of our portfolio. Sorry.

Okay. What I’d like to do is thank everybody for listening, and we’re looking forward to giving you an update at the half year. This concludes the call.

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