Novartis AG (NVS) Q4 2015 Earnings Report, Transcript and Summary

Good morning and good afternoon and welcome to the Novartis Q4 Full Year 2015 Results Conference Call and Live Audio Webcast. [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 over to Mr. Joe Jimenez, CEO of Novartis. Please go ahead, sir.

Thank you. I would like to welcome everybody to our full year results. In the room with me today are Harry Kirsch, our CFO; David Epstein, the Head of Pharma; and Richard Francis, the Head of the Sandoz division. Now before we get started, I would like Samir to read the Safe Harbor statement.

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.

Thank you, Samir. Okay, starting on Slide #5, I am going to give an overview of our results and also talk about some of the changes that we announced in the company for 2016. So overall, you look at our underlying results in constant currency basis and sales were up 5%. We had a double-digit increase in core operating income margin and we – sorry, core operating income. We were able to grow our core margin 130 basis points. And even with the impact of currency, we were able to grow margin in this environment. Now the best part of the year really was the innovation, which we will go through in a minute, but on Slide 6, you can see an overview of our financials, core EPS, up 10% to $5.01. Interesting to note on this slide, net income is down versus a year ago, but it’s highly impacted by the exceptional gains that we had in 2014, specifically the sale of shares in Idenix based on the Merck acquisition as well as LTS Lohmann and some exceptional charges we had this year related to Venezuela. So that’s not really a factor in our underlying performance, but that’s why that number looks negative. Now at the beginning of the year, I laid out five priorities for the company and I want to hit each of them. Starting on Slide #8 with the financial results, you can see both the Pharmaceuticals and the Sandoz divisions had very strong years with mid to high single-digit sales growth and double-digit core operating income growth and this offset a weak performance on the Alcon division which we will get into also. Innovation, though, was very strong. On the next slide, you can see we had 20 major approvals in 2015. Entresto and Cosentyx, David is going to go into in pretty good detail, but just looking at the U.S. with 45 FDA approvals of new molecules, Novartis had by far the most with four new molecules approved, and I think it’s a statement of the innovation power of this company. The third priority was to complete our portfolio transformation and we did this ahead of time. The integration has gone extremely well with the GSK oncology business as well as the separation of animal health, flu vaccines, non-flu vaccines and the OTC business into the joint venture. So, I feel like we executed that well. We are now off and running. And we are a stronger and more focused company. Now, NBS has executed well on its priorities in 2015 to help us capture these cross-divisional synergies. Sales were – sorry, costs under their management were held flat and this was enabling the company to show margin improvement. This was one component of the margin improvement that we saw for the company. And then finally, our fifth priority was to build the high-performing organization and really good performance on quality assurance. 98% of our inspections were good or acceptable and the other 2% are pending, outstanding. So, let me talk a little bit more about ‘16 and the changes that we announced this morning, and I want to talk about two topics. The first is the Alcon growth plan and then I want to talk about how we are taking our strategy forward with some group-wide changes. So, let’s start with Alcon. Stepping back and just looking where we compete, ophthalmology is a very attractive sector within healthcare. So, it’s large, it’s profitable, and it’s growing. It’s going to continue to grow based on the aging population and a high level of unmet medical need. Alcon is by far the leader in the sector. And when you ask a physician what company they admire and recommend and prefer to work with in this space, the vast majority is Alcon. But Alcon growth slowed as we all know in 2015. We are down a point. The fourth quarter was more severe than that. And so we stepped back and we conducted a very extensive analysis on Alcon to understand the underlying issues. We talked to customers. We did analysis. And we really came to the root causes of the underperformance. The first is insufficient innovation, right? We are not replacing the products where we are losing patent protection. And so the question is why and I am going to get into that in a minute, but we also went probably too far from a cost standpoint and we have reduced some of the customer focus that this company was famous for, the evangelical focus on the physicians surrounding that surgeon. There are also some capabilities in Alcon that need to be upgraded and strengthened. So, let me hit on each of those. The first is I really asked why do we not have the kind of innovation that the other divisions have? And if you pick it apart, we are operating two models in the Alcon division, a medical devices model that is very different than a pharmaceutical model in terms of how you generate innovation, so medical devices, high frequency, very iterative development, sitting in the OR with the surgeon, understanding what they need, how can we make their life better, incremental innovation. On the pharmaceutical side, it’s higher spend, scientific discovery, longer term and we were sub-optimizing both by having – we were under – by having them both in Alcon, we were under-spending on Pharmaceuticals and didn’t have quite the scientific depth. We were treating medical devices a little bit like Pharmaceuticals. So that’s the first. The second is that we pulled back a little bit too much on surgeon education and training. You talk to our physicians, they are still of the belief that Alcon is really the only game in town when it comes to cataract surgery and ophthalmology, but they also noticed that we have had issues in the last 12 months. So, that’s the second area that needs to be fixed. The third area that needs to be fixed is that we don’t yet have the kind of capabilities in the pharmaceutical side of Alcon that we need in terms of targeting, in terms of messaging. It’s still a relatively small unit. So, the growth plan for Alcon has three core elements. The first is we are going to focus the business. We are going to strengthen that foundation that I talked about and we are going to put some more money behind those assets that we have right in front of us, so we don’t have to wait two or three years to see it turn. In terms of focusing the business, we are going to focus Alcon on the surgical and the vision care business. So, that gives management a 100% focus on this medical devices side of the business. We are going to move ophtha pharma into our Pharmaceutical division, where the full force of a great development organization, the great commercial organization can drive that ophtha pharma business in a way that will benefit the whole company. Now importantly, we are going to maintain the Alcon brand name, both from a sales rep standpoint and from a product standpoint. And the reason for that is that the Alcon name is a tremendous asset and we also want to make this seamless to our customers. We want the full benefit of the capabilities of Novartis, but we don’t want them to feel like they are dealing with two different companies or two different divisions. So in fact the franchise that will be ophtha pharma reporting into the Pharma division will be still based in Fort Worth, sitting next to the surgeon, surgical folks on Alcon coordinating customer calls, coordinating messaging. So this is the way that we can take the full force of Novartis, optimized for an even better experience for that physician. The second thing we are doing is we are going to strengthen the foundation. We need a world class surgical innovation model. We are going to build that from a people standpoint and from a spending standpoint. We also need to reinstate some of the training and education that – for the surgeons. For example, when we go out with Centurion, instead of minimal training or training and education on the machine that just gets them up and running, we are going to surround them with the kind of service that they were accustomed to at Alcon and return to delighting that surgeon in a way that Alcon is the only company that they want to call. And then the third area is that we are going to invest for growth. Now, we don’t want to wait 2 years to 3 years for the pipeline in surgical or in optha pharma, so we are going to put some money, incremental money behind those launches that are right in front of us like UltraSert. This is the new preloaded IOL that is launched in the U.S. and Europe and also PanOptix, which is our multi-focal lens. We are going to increase sales and marketing support up against these two. We are going to increase direct-to-consumer advertising on the contact lens business, particularly Dailies Total1, which we have seen is incredibly responsive to advertising. And we are also going to accelerate some in licensing so that we can fill that pipeline gap. So Alcon will become a $6 billion eye care division that’s focused on essentially medical devices, surgical and the vision care business with three big businesses; IOLs, consumables behind the equipment and contact lenses. Now what can you expect, we put the plan together. We will have full operational transfer by the end of – by mid-year, let’s say. The way to think about this is that the investments will kick in now. We are investing approximately $200 million incremental to what we would have under the previous plan that was put together for Alcon. That will be split between ophtha pharma and the surgical device business. But what we expect to see in Alcon is probably execution of this will take the first half of 2016. So we don’t expect to see a turn before then. And in fact, the first quarter is a very, very high base versus year ago if you go back and look at what the shipments were or sales were in Alcon in the first quarter. But after the first half, we believe that we will be able to turn the business. And in fact, we will exit the fourth quarter with low to mid single-digit growth in a sustainable way. We will build the 2017 plan in the autumn of this year as we start to see that turn so that we can try to continue to grow momentum and return the business to mid single-digit growth. And when you think about the business, these are the milestones that we are going to be measuring ourselves against. We need to start to see the business turn at mid-year and then we need to be exiting the year at mid – low to mid single-digit sales growth. Now, we are also – there will be a change of leadership at Alcon. I have a lot of respect for Jeff. Many of you know him and have spent a lot of time with him. He has been responsible for a lot of successes at Novartis over his 10 years, running the Sandoz business for 5 years. He has had a very difficult year and has made the decision that now that we are making these changes at Alcon, it would be a good time for him to step down and think about what he wants to do next. So I have hired a new division head. His name is Michael Ball. He was previously CEO of Hospira over the last 4 years. He has deep ophthalmic experience. So he was President of Allergan from 2006 to 2011 and he will be the guy that drives this growth plan forward. Now the shift to the Pharmaceuticals division of the ophtha business is going to create a nice, unified ophthalmic medicines business, including the combination of Lucentis with the pipeline of the Alcon ophtha business. And this is going to be a big powerhouse, especially when the Pharma division applies its capabilities to this business with a pretty strong combined pipeline. Again, a bit of a gap in the next 2 years to 3 years, but a lot of promise in terms of big areas of unmet medical need. So that’s the plan for Alcon. Now I want to spend a minute talking about how we are going to take our strategy forward on Slide 32. You can see last year, this – we announced that we were focusing the company on three sectors that have global scale and innovation power; Pharmaceuticals, eye care and generics, and that was all about focusing the company to make us a stronger and faster moving company. Now in ‘16, we are going to take the natural extension of that strategy and improve the effectiveness of the company internally. So we are going to further focus our divisions. We are going to create even greater innovation by integrating some of our drug development across divisions and we are going to centralize our manufacturing to lower our cost base. So starting with further focusing our division on Slide 34, we talked about the first two, but additionally we are going to take $1 billion of off-patent products from Pharma and we are going to give them to Sandoz. These are products that are not being promoted by the Pharmaceutical division today. There are many therapy areas where Sandoz has sales reps and a commercial activity that fit those drugs that are not being promoted. So putting them into Sandoz will allow us to create more value than just watching them decline as mature products. We took a very diligent view in terms of where we felt like we could really add value and we are shifting 19 products that account for about $900 million to $1 billion of sales. Now on the innovation side, we are integrating some of the functions across divisions that will help us standardize, simplify and reduce duplication. It’s not just within the divisions, even inside the divisions, sometimes we have multiple groups that are doing the same work; safety, pharmacovigilance, regulatory. And so this way, we are going to improve resource allocation. Instead of allocating development budgets at the beginning of the year and then working within those budgets, we are going to make this more of a real-time experience and manage on an innovation management board basis all of the development projects across the company regardless of whether it’s biosimilars or whether it’s oncology or whether it’s general medicine and this is the way that we are going to improve resource allocation on a real-time basis. Now importantly, clinical strategy and execution of the trials will remain in the divisions. So I have been able to name Vas Narasimhan, who is currently the Head of Global Development in the Pharmaceuticals division, as the new Global Head of Drug Development and Chief Medical Officer of the company. Vas will become a member of the Executive Committee and he will work for – he will report to me on his group activities. He will maintain his development responsibilities within the Pharmaceutical division and report to David in that capacity. Now the third area is to leverage cross-divisional synergies to lower our total cost base. So if you look today, we have got separate manufacturing organizations in – across our divisions. And it leads sometimes to suboptimal capacity planning. So we do have a tech ops council that is supposed to overcome this, but moving to centralization of a manufacturing network will enable us to really improve capacity planning. We are going to organize by technology so solids, aseptics, biologics, etcetera. And this is going to help us lower our total costs and improve our quality. But even more importantly, it will allow us to more quickly adopt new technologies as they emerge and spread them across the entire company. The second thing we are doing from a cost standpoint is we are expanding NBS to create an in-country service platform for sales and marketing across all divisions. Sales and marketing meaning back office like market research, market analytics. So certainly not customer facing that stays in the divisions, but there is a lot of support. This was always in the eventual plan of NBS, but we are accelerating it now because we think there is big opportunity. And I have named Andre Wyss, who is currently Head of NBS and country President of Switzerland, to take on the newly created role of President of Novartis Operations. So, he will continue in his current role, but he will also pickup global technical operations and public and external affairs. So, these changes should result in savings over $1 billion by 2020 and the savings start now. But more importantly, it’s going to allow us to continue to invest in what has driven this innovation machine, because if there is pricing pressure, if there is cost pressure around the world, we are focused on streamlining, simplifying, ensuring that we have the money both to invest in R&D, but also to deliver on our commitment of making sure that we improve our profit margins over the next 5 years. So, NBS was a start and this is going to add additional savings to that original view. Now, I would like to turn it over to Harry to talk about the financials in a little greater detail.

Thank you, Joe. Good morning and good afternoon everyone. Unless otherwise noted, my comments refer to our continuing operations and growth rates in constant currencies. This time last year, we guided that sales would grow mid-single-digit and core operating income will grow ahead of sales at a high single-digit rate. On Slide 41, you can see that we delivered on that guidance. On core operating income, we achieved even double-digit growth in constant currency slightly exceeding our guidance. By division level, Pharma and Sandoz achieved the guidance, clearly, Alcon missed. Slide 42 has the usual summary of our performance. Focusing on the full year first, we delivered sales growth of 5% and core operating income growth of 10%, generating strong core leverage. Core EPS grew 10% in line with core operating income growth. Operating income for the full year was down 2%, mainly due to the amortization of the new oncology assets we acquired from GSK last year. Net income was down 18%, impacted by exceptional prior year gains from the sale of our shares in Idenix and LTS Lohmann as well as exceptional charges in 2015 mostly related to our Venezuela subsidiaries. Free cash flow was $9.3 billion down versus year ago in U.S. dollars mainly due to the strong currency impact in operations and high prior year Novartis management fund divestments and the commercial settlements. And the fourth quarter sales were up 4%, core operating income was up 9% and core EPS was up 8%. Now to Slide 43, this is to emphasize our solid operational performance, which was driven by volume growth of 11% in sales and 27% in core operating income, which more than offset the negative impacts of generics and pricing. This allowed us to deliver growth of 5% and 10% on sales and core operating income respectively. The negative impact of currency of minus 10% and minus 15% on sales and core op inc brought us down to minus 5% for both sales and core operating income in reported U.S. dollar. Slide 44 shows the currency impact on sales and core operating income growth by quarter for 2015. This is very much in line with what we expected in the Q3 call in October, with 1% point worth on core operating income as the U.S. dollar strengthened further in November and December. Now, let me focus on 2016. If mid-January exchange rates prevail for the full year, we will anticipate a currency impact of minus 3% on sales growth and minus 5% points on core operating income growth for 2016. For quarter one, we would anticipate minus 5% and minus 7% respectively. The higher currency impact in the first quarter is due to the U.S. dollar getting stronger throughout 2015 and hence being relatively less strong in the first quarter of 2015 than the rest of the year. Slide 45 shows the full year core margin, which improved by 130 basis points driven by strong performance in Pharma and Sandoz. Pharma grew 6% in top line and 40% in the bottom line resulting in a core margin expansion of 2.4% points by investing in critical launches like Cosentyx and Entresto. This was due to improvements in core gross margin driven by the new oncology assets as well as productivity initiatives. Sandoz grew 7% and 17% on top and bottom line resulting in the core margin expansion of 1.5% points. This reflects the strong performance of our differentiated generics, including biopharmaceuticals with the recently launched Glatopa, the branded U.S. dermatology business as well as the strong flu season early in 2015. Alcon’s core margin was down 2.1% points in 2015 impacted by lower sales and higher spending primarily in R&D and M&S behind investments to drive growth and an increase in provisions for bad debt in Asia. Now, let’s turn to quarter four core margin on Slide 46. Overall, core margin improved by 1.1% points for the group driven by strong performance in Pharma, which grew core margin by 3.3 percentage points. Sandoz core margin improved by 0.6 percentage points despite the flat sales performance in the fourth quarter. This performance was mainly due to a strong comparator in the fourth quarter last year, which included more launches and still benefiting from Diovan Mono authorized generic. Increased price erosion compared to prior years and a weak start to the flu season in 2015 also contributed to flat sales. Alcon core margin decreased 2.6 percentage points primarily due to the declining sales and higher spending in R&D. As you will recall from this time last year, we said that we were expecting a significant improvement between 2014 total group core margin and 2015 continuing operations core margin. This would be both the reset of our margin level due to the portfolio transformation as well as continued productivity gains. As you will see from Slide 47, our gains from the portfolio transformation have been 250 basis points and our sales and productivity initiatives helped us achieve organic constant currency margin growth even offsetting the strong currency headwind getting to a core margin of 27.9% from continuing operations in 2015. Slide 48 shows the change in our net debt from $6.5 billion at the end of 2014 to $16.5 billion at the end of 2015. This was mainly due to the acquisition of the new oncology assets and share repurchases. To note, the share repurchases include buybacks from the 2-year $5 billion share buyback program as well as our share buybacks to mitigate dilution from our employee participation programs. Slide 49 shows that we are proposing a dividend of CHF2.70, up 4% in Swiss francs and representing a 3% dividend yield. If approved at the AGM, this will be our 19th consecutive dividend increase. The compound annual growth rate for the dividend is 9% in Swiss francs and 12% in U.S. dollars. This reaffirms our commitment to a strong and growing dividend and the payout ratio was 93% in continuing operations net income and 37% in total group net income assuming exchange rates as of December 31, 2015. As net income is driven partly by accounting impacts, we also look at the dividend payout as a percent of free cash flow, which is 73% of total group free cash flow. I now want to turn our attention to 2016. Slide 50 shows some of the key pushes and pulls for the year. Performance will be driven by growth products, including Cosentyx and Entresto, the new oncology assets, NBS, and cross-divisional synergies. Headwinds include obviously the generics as well as launch investments and continued expected currency impact. On Slide 51, I want to present some insights for the outlook for the full year 2016. With the announcements we made today, I want to start by showing the restated divisional sales for 2015. If we apply the new structure to 2015 actuals, sales for Pharma would have been $33.3 billion, for Alcon, $6 billion, and for Sandoz, $10 billion. From this base, we expect Pharma sales to be, in 2016, in line with 2015 or slightly below, Alcon to deliver low single-digit growth for the full year, and Sandoz to deliver low to mid single-digit growth. Overall, for continuing operations, we expect total sales to be broadly in line with 2015 in constant currencies. And if you exclude the generic impact of Gleevec, this would be arrived in the mid single-digit rate. We will provide full restated financials by division in the first half of April, so before we announce quarter one earnings. With that, our full year guidance given on Slide 52, we basically expect both sales and core operating income to be broadly in line with prior year in constant currencies. In 2016, we are expecting genericization of Gleevec to start in February in the U.S. and December in Europe, contributing to the overall expected generic impact of $3.2 billion. Excluding the Gleevec generic impact, sales growth is expected to be in the mid single-digit and core op income is expected to be in the mid-teens. We expect 2016 to be a transition year with very different dynamics during the different quarters and half one and half two within the broadly in line guidance for the full year. On Slide 53, I would like to highlight the key factors that impact core operating income in 2016. We expect core operating income growth in half two, but a core operating income decline in half one, more pronounced in Q1 than in Q2. The expected decline in the first quarter, which could be a double-digit core operating income decline in constant currency, is mainly driven by the following factors. In Pharma, we expect U.S. Gleevec genericization as well as significantly higher launch investment for Cosentyx and Entresto. In Alcon, we have higher prior year base in quarter one as well as investments for the growth plans starting, but expect positive sales impact mainly in the second half of the year. For Sandoz, we have a high prior year base in the first quarter with a strong flu season, but after a difficult Q1, we expect improvement in back half of the year. I would like to add some perspective on other key elements of our expected bottom line performance in 2016 beyond core operating income on Slide 54. Our key assumption for the full year core tax rate is expected to be in the mid-teens, so consistent with last and prior years. Currency, as already mentioned, minus 3% on sales and 5% impact on core operating income on the full year, if currencies stay where they are right now. Core income from associated companies is expected to be higher as we expect the OTC joint venture to realize further synergies in 2016 and also in 2015 there is an included negative true up on gross income for 2014 results. For core net financial income, we expect the total expense of about $0.8 billion to $0.9 billion. That is slightly worse compared to the $0.7 billion expense in 2015. The increase was mainly driven by expected higher hedging costs due to increased exposure and volatility in emerging markets currencies. Finally, with respect to today’s announcement, we expect to deliver over $1 billion in cost savings per year and as of 2020. Associated with these changes, we expect one-time costs of approximately $1.4 billion in total spread over 5 years. The distribution of these savings and costs is shown in an illustrative format on Slide 55. After $1.4 billion one-time costs, we expect about $0.8 billion to be cash flow relevant. The remaining $0.6 billion is mainly expected to be accelerated depreciation of assets and technical operations. As you can see, we forecasted already a small core op inc contribution in 2016, increasing over 4 years to $1 billion plus in 2020. The free cash flow impact from this program would be less than $100 million negative in 2016 and already free cash flow positive in 2017. The operating income impact is expected to be positive as of 2018. Clearly, these savings are substantial over time and I expect them to create significant value and support our core margin development as we go forward. And with this, I hand over to David.

Thank you, Harry. The Pharma division had a strong year, both in terms of its financial metrics and innovation metrics. For the full year, net sales grew 6% in constant currency and 14% on core operating income, allowing a core operating income margin gain. Looking more specifically at Q4, you see 9% sales growth and 23% on the bottom line, resulting in, as Harry had shared with you a 330 day basis point improvement in core operating margin, which speaks to the strong underlying power of the business in periods of time when there is not much generic exposure. Turning now to the next page, you see that our growth products net sales have grown 33%, now representing 44% of the total business for full year 2015. In Q4, that number was actually 47%. The reason we track this metric is a good guide for the sustainability of our sales over time. On the following slide, we see our attractive growth platform with the exclusivity to 2019 and beyond. These products are either blockbuster status today or are on their way to becoming blockbusters in time. Across the board, very good numbers for the year with the exception of Lucentis, where we continue to have price pressure as well as competition from both branded competition as well as off-label use of Avastin. There are multiple examples of healthy sales development throughout this portfolio, but what I want to do is just focus now for a few of them starting with our oncology business, which is on the following page. We achieved very strong growth momentum in 2015. And you can see that’s the case whether looking at our underlying oncology business pre the acquisition of the GSK assets, where we grew those – that business 8% or now the total oncology business, which benefited from the acquisition of those GSK products growing 24% for the year and also roughly the same figure for Q4. The new assets contributed $1.8 billion. They are delivering largely in line with what we expected when we made the deal case. The interesting part for me is that we are starting to now see Novartis’ commercial power come through. In the back half of the year, those assets did better than in the front half of the year. In addition, Alessandro Riva and his team delivered on all the submissions and approvals that we had anticipated for those acquired products. On the following page, I just want to call out one of our Novartis oncology brands and that’s Jakavi, which is approved for myelofibrosis now for a few years and more recently for polycythemia vera. You can see this product continues to grow strongly, up 71% for the year, 59% for Q4. Putting that into real dollars, that means $410 million for the full year and $119 million for the quarter. So you can see we are well on our way to fulfill our projection this would become a blockbuster brand. In particular, the polycythemia sales have really only so far come from Germany and Japan. So there is more upside from here. Now changing to Gilenya, we see strong momentum in multiple sclerosis with Gilenya, both in terms of net sales growth overall with 26% in the U.S. and 17% ex-U.S. But also in terms of growth in value share, where we gained market share of 1.1 points in the U.S. and 2.1 points ex-U.S., where we have actually now had a 20% share. This brand did just over $2.7 billion for the year and $742 million in Q4, which means we are now almost at a $3 billion run rate for this very successful launch. Based upon our success in the MS category, we also made the decision to license in the remaining rights of ofatumumab from GSK, which will allow us to start a relapse remitting MS pivotal program in the middle of this year with the planned filing in 2019 with what appears to be a very effective asset. Now, I want to switch gears and spend a little bit of time on Entresto and Cosentyx, our two very important brands, which we believe over time could in fact become some of the biggest assets in the company. It’s very clear that Entresto started slowly in the U.S. And in fact, we cautioned that uptake would be slow, but even with that caution I would say that the brand performed more modestly than even we had anticipated. If you take a look at the chart in the left hand side, you see that while the uptake of Entresto is outpacing Corlanor which is Amgen’s heart failure drug as well as the two PCSK9s that have been recently launched, it is well below the uptake for the Factor Xas. This is in large part driven we believe by the lack of formulary access that we experienced during the 6 months of the launch of this product. As you know, 65% of these patients are on Medicare and these plans have up to six months to make a formulary decision. And in most cases, they took the 6 months to make that decision. Our teams worked very hard during November and December. And as a result, we have signed a large number of contracts with formularies that are intended to open access. And in fact, if you turn to the next slide, I will walk you through where we now stand, which is in a much better place than we were as we exited 2015. Starting with that Medicare patient population, you see that when you go back to October, we had virtually no access for the brand. What that means is if a doctor wrote a prescription, the patient was higher than likely to have their insurance company pay for it. Looking now into January ‘16 or by the end of January ‘16, you see a very different story. You see that roughly in Medicare, roughly 70% of the patients will have access often requiring prior authorization but access. And of that 70%, 44% of the total or about two-thirds have reimbursement on the lowest tier. And the reason this is important is because in the Medicare segment, patients in the third tier or higher often have co-pays around $100 or higher. Second tier patients or low co-pay patients typically have co-pays around $50. There is also a large number of patients here that are low income subsidized patients, which will often pay out of pocket more around $5 to $10 making access quite affordable for them. The commercial side of the business is a bit better. And you see that as of January, we had 78% of the plans we are reimbursing for the product or we will be reimbursing for the product by end of the month. It’s even better with roughly 73% of those patients being on the lowest tier. On the commercial side of the business, low tier typically equates to about $30 co-pay and a high co-pay plan is typically $60 in a higher tier. Thus, we would expect sales to start to improve now. Our field force was retrained during the month of January. They were provided with new promotional materials and great clarity on which of their physicians have patients that have access and which do not. Having said that, one way to look at this is really – this is really the beginning of the launch, which means for the front half of the year, sales in the U.S. will remain modest and then we would expect a significant pickup in the second half of the year. Turning to the next page, I want to contrast you something that’s very different and that’s our experience with Entresto in Europe. Now to caution you here, we have very little data in Europe, but what we are seeing is a very different dynamic. We launched in November in Switzerland for the product and we see an uptake that’s more than 5x as strong as the U.S. market. Of course, that’s adjusted on a per capita basis. Switzerland is a much smaller country, but we are seeing as the doctors understand the story, they see the value of the product and if they are writing the prescriptions and the prescriptions are being filled. Why is that? The Swiss system is much more straightforward. Once the price is negotiated, the market opens to these patients. We have even less experience in Germany, where we launched just over a week ago. Having said that, with just one week of data I want to be very cautious, we are seeing a phenomena, that is more like Switzerland than the U.S. And in fact, in the first week, we had over 1,000 patients already on therapy in Germany versus roughly 11,000 patients we have on therapy in the U.S. after more than 6 months. So, I am actually quite a bit more optimistic about the sales dynamic that will evolve during the course of the year. Putting that altogether, I think we should start out looking for the year expect relatively modest sales for the brand in Q1 and Q2. Having said that, by the middle of the year, we will have a good read on both the U.S. and the European sales dynamic and be able to better fine-tune forecasts. At this point in time, we believe that the peak sales guidance that we gave for the product remains intact due to the value of the medicine and the initial signs around uptake we are seeing outside the U.S. market. What does that really mean? When we took a quick look at consensus, I think that expectations for 2016 are probably somewhat too high, especially in the first half of the year. Having said that, Cosentyx is a very different story if you turn to the next page. We have seen very dynamic uptake of this product. Now this product, as you know, is initially approved for moderate-to-severe psoriasis. The patient experience has been very good. In addition, in the U.S. market, the vast majority of these patients are commercial pay patients. So, they don’t face their hurdles that Medicare patients face with Entresto. As you can see in terms of patients that are currently paying for their medicine, we have 6% value share in the U.S. In addition, there is also several additional percent, which is still getting free drug as they worked through their insurance barriers. Just like with Entresto, however, we see very interesting phenomena in the European market. With Germany, where we launched after the U.S. and I believe it was late May last year, you see that we are already at 12% market share in this biologic segment. Even more importantly, roughly 40% of these patients are biologic-naïve patients, which means they are getting therapy much earlier in the course of the disease. The doctors are uninhibited to go to the best therapy. Unlike the U.S. where patients often have to fail two, three or even four previous biologic therapies before they get access to a medicine like Cosentyx. We also received an expanded label in Japan and our development team did a really excellent job gaining approval both in Europe at the end of last year and in the U.S. at the beginning of this year for the new indications of ankylosing spondylitis and psoriatic arthritis. You get a sense on the next page what the market opportunity can be. We just have the U.S. market on this chart. You see that those markets have been growing rapidly, particularly over the last two years. And in fact, if you look at IMS data, which is far from perfect, for the full year 2015, it looks like the three indications combined are running about $13 billion, growing in excess of 20%. And remember, still less than 20% of the patients who would be eligible for biologic are actually taking such a product. So, the opportunity for market expansion as more and more players come into this field is really quite good. Just as I had cautioned on Cosentyx, I am sorry, Entresto consensus, I would provide the opposite caution here, which is Cosentyx seems to be on a track to do better than what most people are expecting for 2016 and we are very bullish on this product. In order to fully drive uptake in the U.S., it’s clear that one of the keys to success in psoriasis is direct-to-consumer advertising. Those TV commercials started just last week in the U.S. and we are optimistic that, that commercial will play well with this patient base and further grow the brand. Now, what I would like to do is just spend a little bit of time on our pipeline, starting with PKC412, which is now on track to become the first targeted therapy to show in overall survival benefit in FLT3-mutated AML patients. We will be filing the product both in the U.S. and Europe in the first half of 2016. As you can see, overall survival was improved by a remarkable 23% and we have a tale of products that seem to do extraordinarily well for a very long period of time. So, this will be a nice boost to our oncology business. On the next page, I show four other late-stage pipeline assets impacting different disease areas. Our internal team had a bit of a debate which product to sell – which product to show, excuse me. And because they all have their own favorites, but I picked four here because they all tell slightly different stories, but there are indeed other very interesting assets in our pipeline. Starting with QAW039, this is a once-daily CRTh2 that’s being developed for patients with severe asthma, particularly those that have elevated eosinophils. Vas Narasimhan and his team have started two pivotal trials for this product. We expect to file in 2019. In terms of positioning, this is the kind of product that would be used prior to the expense of biologics and we believe there is a big opportunity for such a product. The second product I want to talk about, we haven’t spent much time on it before is AMG334. This is a product that’s being developed for both episodic as well as chronic migraine. The new class of medicines, it’s an anti-CGRP monoclonal antibody. There are several competitors. We licensed this product as part of our Alzheimer’s deal from Amgen. We have rights for the product ex-U.S. and ex-Japan. The Phase 2 data in this class has been very compelling. And we’re very excited as these Phase 3 programs are enrolling well. The next product is one that you have heard about before, serelaxin or RLX030, our product for acute heart failure. That program is enrolling well and it’s planned to now be 6,800 patients and we hope to finish up that recruitment during the course of 2016. You will note that the filing is now planned for 2017 rather than 2016 and that’s because we went to the FDA and we went to EMA and we asked to add a second primary endpoint called worsening heart failure. The trial is now designed that do we have a chance for this product to win if it has a positive outcome in mortality or if it has a positive outcome in worsening heart failure, a measure that’s becoming increasingly important to cardiologists and hospital systems in general. We believe the small delay is worth the increased sense of certainty or the increased shot on goal. So the last product I want to talk about is a category that’s close to my heart. It’s sort of timely in a way given that this is the year that Gleevec goes off-patent, this is ABL001. This is a novel and potent allosteric BCR_ABL inhibitor works by different mechanism in Gleevec, Tasigna or SPRYCEL. We showed some very early Phase 1 data at ASH this year. There will me more data at ASH in 2016. We believe that from what we have seen so far is very, very interesting and very positive efficacy profile for the product. The chart here says that there will be a filing in 2020 or later. That is assuming a normal timeline with the standard Phase 1, Phase 2 and Phase 3. Should this product work well in patients that failed on therapies, which one would hope would be the case, there would be an opportunity to file earlier even potentially on randomized Phase 2 data. So also a product to watch and stay tuned. If we can turn to Page 70, I will wrap up there. These are our expected selected highlights in terms of news flow for the year. Two green checks already for Cosentyx, where we are ahead of our internal plan. We expect our regulatory filings for Ilaris in hereditary periodic fevers, actually a bigger condition than most people expect, particularly in Southern Europe and the Middle East. Afinitor FDA action date is expected for advanced non-functional NET tumors. This will be important for the product to keep it growing to offset the negative market pressures we have in breast cancer and renal cancer from new competition. I already spoke about PKC and then previously we had guided that we expect to file and get an answer in this case from PMDA for metastatic melanoma for the combination of Taf and Mek. Second half of the year, novel products BYM, regulatory filings for sporadic inclusion body myositis, new indications in lung cancer for Taf-Mek, Votrient we will have the data and the regulatory filings for adjuvant renal cell and then last but not least and you see from the slightly different shade LEE011, this is the CDK 4/6 for hormone positive metastatic breast cancer. The reason it’s shaded is we have an interim analysis during Q2. We believe there is a pretty good chance no guarantee but a pretty good chance the interim will be positive in which case, we would definitely file in 2016. However, if we have to go the full analysis, this is an event-driven trial and it’s possible that the filing would be early ‘17 or late ‘16. So we just want to use the different shade to caution you we are not exactly sure when that filing would occur. And with that, I would like to hand it back to Joe.

Thanks David. So just to close, I want to lay out the priorities for the year. First obviously, is to deliver our financial targets while we absorb Gleevec and also invest in the launches. We are going to improve the pipeline across all divisions. At the same time, we need to turn the Alcon business in the back half of 2016. We have got a lot to do want cross-divisional synergies now with the centralization of manufacturing on top of our plans for Novartis Business Services and finally, strengthening the company through high quality and talent throughout the organization. So I think we have a plan for Alcon, in which we can execute immediately and this is going to make us a stronger and a better company as we move to make some of the changes in both drug development as well as our manufacturing footprint around the world. So with that, I would like to open it up to questions.

Thank you. [Operator Instructions] The first question comes from the line of Richard Vosser from JPMorgan. Please go ahead.

Hi. Thanks for taking my questions. A few on Entresto and a couple on Alcon please, so on Entresto, you mentioned that there is some prior authorization still there in Medicare coverage in the U.S. So just what proportion of lives still have prior authorization, please and what removes the prior authorization, what hurdles do you need to go through to get rid of it and over what timeframe do you think that could happen. Second question just on the treatment guidelines, I think we have seen the first batch from Canada and they have positioned Entresto as a second line agent, so if you could just comment on how you feel that leaves you relative to your marketing plan and what you think it might mean if you got the same thing in the U.S. And thirdly, just you mentioned changes to the sales force sort of retraining them in January, just if you could give us an idea of what’s changed with that at that training. And then maybe just a quick one on Alcon, which is the business plan that you outlined in terms of investing in the current products is similar to that we have seen for the last six months, so just what happens if the business doesn’t turnaround by mid-year, you have given us a very clear target that it should turn around, so just your thoughts on maybe a plan B there? Thanks very much.

David?

Yes. So starting with Entresto, most of the plans require prior authorization. That is not strange for this period of time, but generally takes prior authorizations off if doctor and patient demand. So as people start to complain about it and more and more come on then eventually the plan will engage in the conversation with us. There might be some of – a little bit incremental rebates, but then those will come up. I can’t give you exact time, but it won’t be in 2016. It would be later out. Then in terms of Canada, I thought the guidelines actually were quite positive. In terms of the guideline for Europe, we are told and remember, we don’t have complete transparency. We are told that there is likely to be guidelines issued around that time of the European Society of Cardiology meeting in Europe, which I would believe if I recall correctly is May. And for the U.S., I am told there is more likely to be in the back end of the year. We do not yet know how the products will be positioned whether it will be a choice, whether it would be Entresto first or there will be some other caveats. Remember, there is only one pivotal trial for doctors who will tend to be more cautious when they write those initial guidelines.

And changes to the sales force that you…

I am sorry. So the sales – the biggest thing for the sales force is first of all, as you can imagine they were struggling with lack of access and they needed additional training to know where the access was open and how to deal with it and assist practices through the prior authorization practice. Just as importantly, it wasn’t really until now that we have full detail materials for them because it was fairly long process with FDA to get those materials. So they were trained on the entire selling story. That’s why I tried to indicate it’s almost as if the launch is starting now in the U.S. market. And as you model that it’s probably a good way to think about the uptake of the product.

And Richard, in terms of Alcon turnaround, obviously we are executing now. We don’t expect to see the turn until mid-year. We then expect to see improvement. And as I have said, exit the year with low to mid single-digit growth. Now your question was what happens if that doesn’t happen and we are right now totally focused on executing that because the plan that I have seen is credible. If we execute it, we should turn it. And then if we don’t – if we are not able to turn it, then we obviously have to step back and ask why. What is it about either this business or about med tech or about any other element of Novartis and our ability to turn a business like that and that’s a question that I hope we don’t have to ask, because I do believe in the plan and I think with Mike’s full attention on it also and a team that’s focused on executing it that we will be able to turn it. But we have got a year to look and we are going to execute and then in the fall and as we build the plan for ‘17 we are going to evaluate where we are.

Thank you very much.

The next question comes from the line of Andrew Baum from Citi. Please go ahead.

Thank you. Question for Harry, David and Joe. So, Harry, two actual ones. So firstly, of the announced $1 billion plus in cost reduction by 2020, how much of that gets reinvested? And then second the anticipated timing of utilizing the $10 billion authorized buyback? To David, given you have 200,000 patients in integrated delivery network, namely, in the VA eligible for Entresto, why not accelerate the adoption by increased rebating given the uncertain U.S. patent life for the product? I understand obviously the dynamic volume or value, but what’s it going to take to get particularly the VA on board? And then finally, for Joe, in your explanation of Alcon’s challenges and looking at Page 25, the one area that you didn’t focus on or maybe I missed it was the line talking about supply chain. Obviously, innovation or lack of is the chronic issue in Alcon, but my understanding is some of the overfilled channels or debt that were written off in Asia on the surgical business reflected mismanagement or issues in relation to the supply chain. Have those been corrected in terms of both the bonus structure for your employees within Asia or within the surgical business? And do you feel now you have the oversight of the supply chain for the device business?

Okay, David, or no, Harry, sorry go with the costs.

Yes, first, thank you, Andrew. The $1 billion, I mean, as Joe laid out is there in order to partly reinvest into our pipeline and organic growth, but also partly of course to support our margin expansion. Now, to forecast that for the next four or five years is probably not the right thing to do at this moment also given that things always change, but I clearly see this as significantly supporting our margin progression beyond 2016. In terms of the share buyback timeline, just to clarify in our AGM proposal, there will be the request of the board through the AGM to authorize our seventh share buyback program, but it is basically an authorization request for [indiscernible] share buyback. It doesn’t have any time limit. And you may recall that our sixth share buyback program was going from 2008 to 2015 and we just finished it with our – the last element of the $5 billion buyback over two years. So, we are not announcing a specific additional share buyback at this moment. On the other hand also, we are always committed as we also did this year in addition to announced share buybacks to mitigate any potential dilution from employee participation programs.

David?

Andrew, I agree with you. The VA patients would very much benefit from this drug reduced mortality, reduced hospitalization cost. So, this is the kind of drug that makes a lot of sense for VA population. It took a couple of months of discussion. The VA has now at the end of last year partially opened the doors to us for roughly 30% to 40% of their population. And it’s discounted with the standard VA rate. There is no incremental discount. We are continuing to talk to them. We are willing to provide them some additional discounts to open the rest of the population, but I can’t yet put a time on that it really will be driven by the VA.

And Andrew, on the supply chain for Alcon one of the issues that we ran into in the last 12 months is when we launched CENTURION, a lot of other things changed in the supply chain system in terms of equipment that those surgeons used to use that piece of equipment. And what that means is that it throws a lot of the consumables into, let’s say, a level of complexity that results sometimes in customer service issues with that customer. So, because it is a high touch business, we did have some service issues. We are largely through those now. In terms of the bad debt in Asia-Pacific that you mentioned regarding some equipment sales that is now behind us and we have – there are – there is training, there is education, there is change in incentives that put that behind us also. So, really it is ensuring that we have best-in-class customer service. And for the most part, we are through the woods after the fourth quarter.

Right, thank you.

The next question comes from the line of Matthew Weston from Credit Suisse. Please go ahead.

Thank you. Three questions if I can. The first simply on Entresto, in the U.S. for the enhanced access that we have seen this year, David, is that simply a function of the six months rolling off in Medicare Part D in the rules or is it that you have been forced to rebate more aggressively to open access on the product? Then with respect to Gleevec in your assumptions I am sorry to dig into this one, but you have given us divisional guidance. So, it’s pretty important to understand where you are putting things. We know some will enter on the first of February. We know they effectively have a license on your patent. Dr. Reddy’s recently announced that you had settled with them. Can you confirm that? And can you also confirm if you settled with anybody else on the 2019 be it a Crystal patent? And then finally during the 180-day period, I presume that you will still make sales? It will be a two player market. Are they in Pharma within your guidance or are they in Sandoz within your guidance?

Entresto rebate?

Yes. So, the answer is yes, it’s both. So, one is it’s a negotiation, and many of the plan, not all of them, will use time on the fact that they have their six months decision window to basically ask for very large rebates at the beginning. And then over time you reach in a place where both sides are happy. I actually feel that we did a good job. I won’t give you exact numbers, but actually the rebate request came down over time rather than going up over time. We also have two plans. And I won’t name the specific plans that have agreed to do outcomes planned with us in the way that works pretty straightforward. We agreed to a base rebate for the product actually fairly modest and then depending upon whether or not we achieved specific goals around reduced hospitalization and savings to the plan, the rebate would either go up or go down. And we think that’s going to become something that becomes more and more popular in the U.S. and around the world. For Gleevec, we have assumed that you pointed out at February entry of the first generic. We believe they will be exclusive for that first six months and our working assumption is there will be multiple entrants after that six months.

And then from the guidance standpoint, you should assume that at this point we are not planning on an authorized generic in Sandoz. So, it remains the Gleevec volume and sales remain in the Pharma group and obviously we don’t want to go beyond that just in terms of how we look and model and think about maximizing sales on Gleevec for the group, but that’s the current assumption.

Joe, thank you. Can I cheat with one other actually, because Harry’s answer to the prior question about share buybacks, in a year where you are challenged, but you have substantial cash flow and a very strong balance sheet, it would make sense to use share buybacks to support earnings growth for investors. And I guess my question is, is it semantics that you can’t talk about a share buyback, because you have no authorization until it comes through the AGM, because you have spent up or is it that you don’t see buybacks as an important element of supporting earnings growth this year?

Andrew, of course, we see share buybacks as continued important element of our capital allocation. On the other hand, we are still sitting on $16 billion of net debt due to the acquisition of the GSK oncology assets and we are working our way through that. Now, I would expect continuously that as part of our capital allocation, we may announce one, but at this moment, there is nothing specific. And our capital allocation priorities remain organic growth, then growing dividend and thirdly, bolt-on M&A between $1 billion and $5 billion, and fourth, last but not least, share buybacks in addition to mitigating employee participation programs.

Harry thanks.

The next question comes from the line of Alexandra Hauber from UBS. Please go ahead.

Good afternoon. Thanks for taking my questions. I guess starting on Alcon again, why – what gives you confidence that you really will see acceleration in IOLs in the second half apart from the fact that you have a lower base. I mean as far as I can assess the situation it still looks like you are losing significant share specifically in Europe, specifically Asia because your competitors have so much more innovative portfolio and I am not sure whether the trifocals and the other launch will be good enough to recapture share. Also, can you give us some directional idea about what Alcon margins are doing for the new perimeter of course, so is ‘16 going to be flat over ‘15 and then stay flat until the premium IOLs come through the new generation in 2017. And then thirdly, was Mike Ball involved in this whole strategic plan. And then I just have a final backup – follow-up question on Entresto and the prior authorization topic, David you said last year I think on the third quarter call that cardiologists are not used to fight for access and in December when we talked, you also said there is no need to establish any infrastructure to help them going through this, because this is temporary, so is this now not coming off this year, I don’t understand the sales dynamics you are guiding to as not much uptake in the first half, but then significant potentially better uptake in the second half if the prior authorization isn’t coming off?

Okay. Let’s start with Alcon and why we believe that we will see accelerating IOL growth in the back half. It’s not just IOLs, Alexandra that will turn the business, it’s really a full plan that includes additional spending on the contact lens business as well as the IOL business and continued pressure on equipment in Centurion. Now, you asked specifically about IOLs and we are not losing share, remember particularly in the U.S., we are seeing a mix effect as multifocal reduces and mono-focal increases. So that is having an impact. In Europe, there was some share decline due to the introduction of more price competition on IOLs, but when you look at the two new products that we have, the UltraSert, which is in both geographies and PanOptix. PanOptix isn’t a panacea in Europe, but it already is helping us to regain some lost share because of the optics of that IOL. It is perceived as a quite interesting IOL, the toric multifocal, which also has become a very important element of multifocal. So there is multifocal or there is premium IOLs and then there is premium IOLs. And we missed it I think on the first round, but with PanOptix and with toric we are able to command premium prices. We are going to increase spending. So this is marketing and promotional spending up against those and it remains to be seen. I believe in the plan and we will see if it turns. If it doesn’t turn, we have to ask a harder question. In terms of Alcon margin, we ended the year at about a 31% margin. This is old Alcon, assume more spending a couple of margin points back on this plan, split across. When we show the pro formas in mid-April you will be able to see how that breaks out between Pharma and surgical, but there is still quite a bit of decision that has to be made around where we are going to move costs if they are going to move them to the optha pharma business or if they are getting to stay in the surgical business. So we still have some work to do before we can talk about both the pro forma margins and then also the margin evolution. Assume though that we have now got a base in 2016 from a margin standpoint upon which we will be able to if we are successful with our innovation, where we can margin up where we could start to grow back to that level that was sustainable at Alcon. And the issue is we have to remember that we have got to ensure that we are still servicing this business with what it takes on these customers because it is a competitive environment. We want them only to call Alcon and that’s going to mean training, education, making sure that we have the technical folks that we need to service those machines and delight those customers in a way that competitors will not be able to. In terms of Mike, he has reviewed the strategic, he is in general agreement with him but obviously as he comes in, and when it gives him full flexibility to move things around in terms of where he sees opportunity. We have hired him to really take the business and turn it and so he is going to have a free hand in that. David, on Entresto?

Entresto, yes. So Alexandra, there are differences in restrictive processes, so when a product is not on formulary at all you saw that even then we had a few prescriptions because if a doctor wants to jump through all the hoops and fight really hard, they can generally get a product on, but it’s extraordinarily burdensome and they will do it for a very few patients. Once a formulary is opened up, whether it be the second tier or third tier even if with the prior authorization, it becomes a much more routine, it’s much less information needed, it’s a quicker decision process of the plan and it’s repeated over and over, over time. So it becomes a standard practice for the office staff. We have actually built and I am sorry if I didn’t say clearly before, but we actually have built those support services for doctors just as we have for Gilenya and other products and that will be available to them. In addition, because you are right cardiologists have less experience with prior authorization. In addition, now that there is multiple other cardiology products launching, other companies are also educating cardiologists and their office staffs on how to do it. So over time, this will become much more routine.

Thank you.

The next question comes from the line of Seamus Fernandez from Leerink. Please go ahead.

Thanks very much for the question. So just a couple here, first off for Joe, this may sound a little bit unfair, but over the last few years, we have kind of moved from crisis to crisis in terms of the consumer business falling below expectations, now Alcon falling below expectations. Can you help us better understand where and when investors should have conviction that the business is really going to be on the right path on a sustainable basis, is it kind of kicking off in the second half of this year or is it more of a 2017 type event. The second question, as we think about Entresto I guess, given the 16% total mortality benefit and a striking label, what I struggle with is what is the prior authorization dynamic that’s being put in place and what is the justification on the basis of the plans to allow that to be the standard? Thanks a lot.

Okay. Seamus, starting with when to have conviction. When you look at the business, the whole portfolio transformation was around focusing our business on leading businesses in their sectors that have global scale and innovation power and losing some of the smaller businesses that were good businesses in their own right, but there were distractions or they had issues. So if you look at the company today, it’s a simpler and a stronger company than it was just 2 years ago. 2016 is going to be a transition year for us as we are going through what is the biggest patent expiration that we have seen since Diovan with Gleevec. This is a $4.5 billion drug. So we are going through it at a time when we are launching two drugs that we believe will become mega-blockbusters for the company on Entresto and Cosentyx. So I think as we move through 2016 and exit 2016, I believe we will put Alcon on a more, let’s say stable base, where we have got predictability, where we have got maybe not scintillating double-digit growth, but growth that we can rely on and count on sustainable growth. The – and the Pharma business also has that kind of predictability and sustainability. I think by definition, the generics business is going to continue to be volatile. We saw that in the fourth quarter. We had a base that was quite high, but we also did not see some of the pricing issues coming in Sandoz in the fourth quarter, which did come and we expect those now to continue through ‘16 and that’s why we are saying Sandoz will still grow, will have low to mid single-digit sales growth, not 7% like last year but still a good business. So you are going to have volatility in that kind of a business because that’s almost by definition the kind of business that it is. So I would say that as we are exiting like mid-year of ‘16 and as we exit ‘16, I believe that we will be on a more stable base particularly as we turn Alcon. David, on Entresto?

Yes, I can also be blunt. I mean prior authorization processes are meant to slow product adoption and keep cost down for payers. That’s what the basis is sometimes they are simple and they want to make sure the product is being prescribed and labeled, for example, in the Europe heart failure Class 2 to 4, the appropriate ejection fraction, blood pressure is in certain range et cetera. And other times, they are arbitrary and they will add things like full dose beta-blockers or something else simply to add the additional hurdle. Like I said earlier, once enough patients are on and doctors see this begin to see it as a standard of care and complain a lot to the insurers, the prior authorizations will go away, but that won’t happen this year.

Next question please?

The next question comes from the line of Kerry Holford from Exane BNP Paribas. Please go ahead.

Thank you very much. Product related questions, please. So, Afinitor, we saw sales decline in the U.S. in Q4 and clearly, you are seeing pressure from new competitors in renal and breast cancer, but I wonder if something you can address now ahead of patent expiry in 2019, any new clinical data or should we essentially assume that plan is now in terminal decline in that market? Also slowdown in growth for Tasigna in Q4 in the U.S., is this really reflecting anticipation of Gleevec generic arriving or what are your expectations for that growth rate going forwards? And then a point of clarification, sorry for me on Entresto, when you talk about lower co-pay, those patients who are accessing at lower co-pays are you referring specifically to Tier 2 there? And with regard to the marketing strategy here, are you focusing initially on those specialist prescribers or are you now affecting a broader marketing effort from the outset? Thank you.

Okay. Let’s take them one at a time starting with Afinitor. So, Afinitor has additional competition in the area of breast cancer, which is about if I recall correctly roughly half of the business. We saw the launch of Palbo from Pfizer is CDK 4/6. As you recall we also have one in late stage development. These are the drugs and what they are doing is they are essentially pushing Afinitor to a later line of therapy. Likewise, in renal cancer we have the launch of the immunooncology agents which were often be tried earlier on as well as several other targeted and anti-VEGF agents into renal cell cancer, which pushes Afinitor a bit further about a bit later. Your question about sales projection is a little bit difficult, because some of these patients will eventually fail their new first or second line therapy and then roll on to Afinitor later. And in addition, we will have growth coming in tuberous sclerosis complex as well as the neuroendocrine tumors, where we are expanding our label. Having said all that, I think growth if there is growth it will be pretty modest for the products. So, I think that’s what we are seeing is a good indication that the product is getting closer and closer to its peak sales. In terms of Tasigna, in the U.S., it was if I recall correctly it was roughly in the quarter 9% growth versus the prior year. It was impacted by a stock entry drawdown during the period in a very strong prior year quarter in Q4 2014. So, we think actually the growth of the product is intact and it continues to perform well overall. Having said that, we have caution before there when Gleevec does go generic, it is likely that some doctors and some plans will start their new patients on generic imatinib and then wait to use Tasigna to the patient has not achieved a certain cytogenetic response. The next question was about Entresto co-pays and also about Entresto marketing. Let me take the marketing audience part first and I need you to re-ask me the co-pay question as I am not sure I quite got it. So, we are focusing on cardiologist primarily and about 10% of the internists are right, the majority of the heart failure prescriptions. In total that represents about 35% of the heart failure market potential and we went late at the beginning in the U.S. consciously knowing that access was going to be alone. We don’t want to waste resources. We will expand that field force a bit during the second quarter of this year. That will provide more breadth of coverage covering around 51% of the prescriptions as well as more frequency against the key targets. If I would contrast that for you in Germany, we have a very different setup and where primary care is much more important we have gone out with full coverage of cardiologists and we are also covering the majority of primary care physicians from the get-go in Germany. So, it’s a very different marketing and sales mix in different countries depending upon their local situation. Can you ask me the co-pay question one more time?

Sure. It was referring to Slide 64 where you talk about patients on formulary to lower co-pay versus a higher co-pay those that sort of yellow shaded area, you talk about lower co-pay is that specifically Tier 2 access and higher co-pay is Tier 3, 4 or is lower mix of Tier 2 and 3?

So, different plans have different systems, but in general, the lower one, the light yellow is a combination of Tier 2 or patients that are low income assistance patients in Medicare who get a special out-of-pocket, which is typically between $5 and $10.

Okay, thank you very much.

You are welcome.

Next question please?

The next question comes from the line of Graham Parry from Bank of America Merrill Lynch. Please go ahead.

Hey, thanks for taking my questions. So firstly, on Entresto, just I am just trying to understand why there is almost no uptake of Entresto in the fourth quarter is a slightly 65% coverage in commercial. Is that due to free sampling? Is it de-stocking? Or is prior authorization still just a key there? So, perhaps you can quantify those elements to give us a better feel for just what the underlying was in the fourth quarter. Secondly, on Alcon perhaps give us some feel for the size or scale of M&A that you have considered to build pipeline at Alcon? And then thirdly, on serelaxin, when in 2017 should we expect the Phase 3 pivotal data now? And what was the rationale for including worsening heart failure as an endpoint in the trial when the product was essentially rejected on that endpoint by the FDA on the first time around? And does that reflect a low certainty from Novartis on meeting the endpoint or mortality alone? Thank you.

Okay. So, the first question is around why didn’t we see more business on the commercial side given better access? In fact, the majority of the business did come from the commercial side during the course of 2015. I don’t have the exact figures in front of me, but it was north of 65% of the business despite commercial being less than 35% of the patients. And what you got to remember here as I show you a chart at the end of October what it really means is we didn’t really have any access in the month of October. You are only talking about November and December. December is a holiday month and you just not have enough time to accumulate prescriptions. Having said that, we see each I just want to remind everybody, each week the number of prescriptions is going up and the number of prescribers is going up. So, the trend is in the right direction. We believe by reducing the access hurdle, which is now largely accomplished and the launch of the product with the field force with the appropriate marketing materials we will see an acceleration that occurs starting now, but it will take really into the second quarter. So, you start to see something really material in the back half of the year to see a nice inflection.

And Graham, regarding Alcon’s size and scale of M&A or in-licensing, these are all relatively small deals, because now that we focused the division on surgical and medical devices, they are mainly small companies with interesting new technologies that we could click in, but you are looking at relatively small upfronts, significantly below $1 billion, but those are the kinds of things that we think we will be able to bring in and click right in and move into a period where we could launch in ‘17 and start to impact ‘17, ‘18 and ‘19.

And then Graham, I have Vas Narasimhan sitting next to be me, our Head of Development. And given that he is much more intimately familiar with the program than I am, I am going to ask him to answer the good serelaxin questions.

So, Graham thanks for the serelaxin question. We currently forecast for complete study enrollment in Q4 of this year and then there is the 6-month follow-up for those patients to reach the primary endpoint. So, we would expect to read out in the first half of ‘17. Now, in terms of the worsening heart failure, we did complete an interim analysis you remember last year, which had the study continue and we remained blinded to the study results. So there is nothing new that has led us to add worsening heart failure. Worsening heart failure was added more to be in line with what we think would be our competition is doing and also to give us two shots on goal moving forward. That led to a sample size expansion to allow us to fully power to the mortality endpoint. So that’s what’s driving this.

Next question please.

The next question comes from the line of Jeff Holford from Jefferies. Please go ahead.

Hi. Thanks very much for taking my question and thanks spending so much time on Entresto and Alcon, which investors are very focused on right now. But just one more follow-up on Entresto for me, just one things that investors and we can all have concerned about is a bit of physician fatigue by the time access opens up perhaps if they try to prescribe a few times and perhaps that’s not ended well. So can you just give us some of the feedback that you had or just experience in terms of those cardiologists you have been accessing that there hasn’t mentioned sort of a buildup or frustration they have and potentially lack of willingness to prescribe now that access has opened up. Well, then if you can just talk a little bit about LEE011, just what you think your target profile is versus palbociclib, the end market product if you think that there are any specific points of differentiation that you will be looking for when that reads out. And then I wonder if I can just tempt then into just a bit more help on the pharmaceutical side in 2016, it’s clear that consensus needs to revise down sales for a number of products in Pharmaceuticals, you have kind of spoken to interest on consensus, I think it’s clear also that Afinitor have some challenges this year, are there any specific products that you might like to point out for the investment community to focus on in 2016 within the Pharma business, where perhaps we need to rethink some of our assumptions? Thank you very much.

So regarding Entresto, so what we found is in the cardiologists are interesting to talk to essentially if they would try one patient and the plan set is not on formulary the vast majority of them would not try against. I don’t think there was any fatigue issue that has to be really worried about. In addition, what we started to do during the fourth quarter was we increased our program to give a month of the product away for free, particularly so the patients could get started when we were anticipating that access would open up, which should start to help. Regarding LEE011, we think there is going to be a very big class of drugs. We believe that while we are clearly behind in the U.S., we will be second. We believe in Europe, the time gap between our approval and the Pfizer approval is not as great which, given our commercial strength should be a big help. And in terms of the differences in the drug in terms of monotherapy, they have seen actually ballpark similar in terms of efficacy although there aren’t any cross-study comparisons. It looks like palbo and LEE have more neutropenia, while the Lilly drug appears to have much more diarrhea and we will have to see how that ultimately plays out. And then our strategy with the drug is one of combinations combining with exemestane, combining with AstraZeneca’s Fulvestrant, combining with our PI3-kinase inhibitor with an idea that we can go up on a combination that’s even better than the single agent and then catch up and maybe even ultimately leave if those combinations work. I was a bit nervous about talking about consensus for Entresto and Cosentyx, but since they were new products and we felt the deviations were pretty meaningful. We decided to do that, which is not usually what we do. But I really don’t plan on giving a consensus estimate for every other product. I think you have to look at the overall guidance that Harry provided. Thank you.

Thanks very much.

Next question.

The next question comes from the line of Tim Anderson from Bernstein. Please go ahead.

Thank you. A few questions, please. On Slide 70, upcoming catalysts in pharma there are two Phase 3 read outs not listed, which is BAF312 and Fovista, I am wondering why those are not on that slide. The second question on emerging markets, 4% in the quarter, what should we be expecting in 2016. Third question just going back to Alcon, can I – did I understated it right, you expect operating margins are likely to trough out in 2016 in that division with growth thereafter. And then on Entresto you talked about prior authorization, is any of that entail a fail first policy where patients have to fail either an ACE or an ARB before they get clearance to go on Entresto?

Okay. David maybe the catalyst of BAF and Fovista?

Yes. So BAF will in fact have a Phase 3 readout roughly mid-year 2016. And Fovista, the two pivotal trials that are run by our partner Optotech, they will be – our understanding that they will be analyzing the data at the same time in late 2016. So those are as expected.

And then Tim in terms of emerging markets, if you look at the trends there, we started the first quarter I think at about 11% growth. We went to then 7% growth as those economies started to slow and fourth quarter was 4%. So we continue to expect the emerging markets to slow through 2016. I don’t know where to call it in terms of what will happen. I don’t think that growth is going to go negative. I mean there is – the emerging markets have been bouncing around anywhere from mid to high single-digit and double-digit at some points. So I would assume that 4% is a low number. We didn’t think we are going to see it, but we have seen it. And it’s partly driven by what’s happening in China and Russia. And so I think you should expect to assume that, that’s going to continue. In terms of Alcon, yes you did hear me right in terms of trough margin in ‘16, not necessarily ‘15. And then David on Entresto?

Yes. So I don’t have every prior authorization plan in front of me. But we will certainly go back to the team. So I can’t rule out that there isn’t some plan somewhere that has language you use. It’s however, certainly possible that some plans will require that a patient have been on an ACE or an ARB, because you remember we had the two week running period on our clinical trials with some plans will use that as part of their prior authorization process.

Thank you.

Next question?

The next question comes from the line of Vincent Meunier from Morgan Stanley. Please go ahead.

Good afternoon. Thank you for taking my questions. The first one is on the U.S. pricing, based on your comments earlier today, do you think there is a sort of inflection point, particularly in the U.S. The second question is M&A and particularly for Alcon, I understand that it will be essentially made of bolton acquisitions for new technologies. But is there a trade-off between the Pharma M&A and the M&A for Alcon. And the last question is on Entresto can you please give us what is your target when the drug will be more stable in terms of sales split by channel and also profitability by channel? Thank you.

U.S. pricing, David you want to talk about that on the Pharma side?

Yes. So it’s an interesting story that’s evolving. If you look overall at the U.S. market, clearly the various payers who have merged sometimes bought chain pharmacies, bought PBMs have the ability to slow adoption more than they did in the past and to command greater price discounts. Having said that, they are much better at it when there are alternatives available. So to the extent that there are multiple products in a therapeutic category, they are doing a very good job at extracting discounts from providers. When there is not an alternative they get much lower price discounts if any discounts at all. I think the new thing that we really learned with both Entresto and Cosentyx is that they have really now developed their tools extensively around introduction of new drugs, which creates a period of time, where access is difficult then it gets resolved and that period of time actually is no longer than it is in Europe, which is probably the biggest striking change in terms of the market. The market is crying for high quality pharmaceutical products at a lower price. They want drugs that are cost effective. That’s why we are trying to move to more outcomes contracts, get value for additional life and for offsetting health expenses and the problem is not going to away anytime soon. And I believe in the U.S. market eventually there will be a political solution to address the very high out of pockets for patients, because it doesn’t do the world any good to spend all this money in innovation if the patients ultimately can’t get the medicine of the drugstore because of the co-pay.

Then on the M&A question on Alcon yes, they are obviously, we look very, very hard at how we are going to spend our capital spend across the different businesses and we have the same hurdles for each of the businesses around what it’s going to take to get capital allocated from the group. Now again, what we are talking about in Alcon are relatively small transactions where you might have $100 million or $200 million, maybe $300 million upfront with milestones after that and we have all seen the impact of being able to show steady and consistent sales growth and earnings growth. So, there is something to be said in terms of how investors would reward small bolt-on acquisitions in Alcon and in that surgical business and that’s why that’s still on the list. And then David in terms of the Entresto?

Yes. For Entresto, I am not going to say much more. I mean, we have given peak sales guidance. We have now outlined the path for 2016. Clearly, in terms of channels, Medicare is bigger than commercial in terms of patient numbers, but beyond that I am not prepared to say more.

Okay, next question please.

The next question comes from the line of Tim Race from Deutsche Bank. Please go ahead.

Hi, there. Three questions, please. First, just on Sandoz, you talked about the U.S. pricing pressures. Can you just discuss what they actually are? Is that specialty pharma related, dermatology anything in particular potentially could you just discuss that? Then just on pricing of Entresto in Switzerland and Germany and the example you showed, what’s relative pricing of Entresto versus the U.S. and Germany and Switzerland? And then finally, maybe just on Alcon if you don’t mind, can you just remind me what is the strategic fit of Alcon within the group of Novartis? Is it there as a diversification element, because it doesn’t really fit with the rest of the business, especially now you are moving drugs to Pharma. So, have you gone through the whole process of whether you would actually spend this division and keeping it was a better alternative? Thank you.

Okay. Let’s start with Richard on Sandoz.

Okay, thank you for the question, Tim. So, if you look at U.S. pricing, it really falls under two sort of categories. You have that pricing that’s forced through the channel and the consolidation that we spoke about a bit last year and the year before and then you have just the competitive environment that you have in the U.S. where the more competitors come in, the price actually gets forced out and the timing of those and when those happened is very unpredictable. And so those two factors which have led to the pricing situation we saw in quarter four in the U.S.

And David, on Entresto?

So, in the U.S. as a reminder, the list price per day is 12.50, but of course, in the U.S. discounts are prevalent sometimes mandated by the government, sometimes negotiated with individual plans. The pricing in Europe is clustered around €5 to €5.50 give you a ballpark idea. Just to caution as we saw early negotiations in many countries, so it’s going to be a while before we know some of the other markets.

And just regarding the strategic fit of Alcon, if you think about our strategy of focusing on high growth areas of healthcare, where there is a high level of unmet need with global businesses that are number one or number two in their sectors, this fits. Now, at the same time, we got to prove that we can grow sustainably and that’s really what we are focused on this year and we have got a clear growth plan. We have got milestones that we have to see if we are not able to deliver that, then that’s a different question. But right now, we are going to take the next 12 months and we are going to execute this and see if it’s going to play out the way that we think.

Thank you.

Okay, next question please.

The next question comes from the line of Naresh Chouhan from Liberum. Please go ahead.

Hi, there and thanks for taking my question. Just one question left for me. Can you just give us some color on the decline in Afinitor in Q4 and whether or not we should be expecting that to continue potentially accelerate through 2016? Thanks.

David, Afinitor in Q4?

Okay. Yes, about sales right, so…

Sales in the U.S., yes.

Yes, yes. So, just remember, for full year, we were up 10%. In Q4, we were minus 4%. These are worldwide growth numbers. And as I said, it’s driven by the launch of Ibrance, which won’t change. There are also some reimbursement changes in the UK. You know that they took some products off the drug cancer fund. And then just in general, there are price decreases in Europe not just for Afinitor, but for the vast majority of plans across multiple European markets. So, I would expect this product to decline in breast and renal and it would grow in some of the newer indications, tuberous sclerosis complex and neuroendocrine tumors. And I think the open question is eventually as this product is pushed to a later line of therapy, patients roll off that first line and eventually come back to Afinitor and that’s harder to judge at this point in time.

Thank you.

Next question.

The next question comes from the line of Florent Cespedes from Societe Generale. Please go ahead.

Thank you very much for taking my questions. Three quick ones. First, on ophthalmology pharmaceuticals, how could you reenergize this business knowing that it is quite difficult to innovate and you are suffering from generics and recently not growing, could you envisage any inorganic growth? Then two questions on the respiratory, first on the U.S. market, for the U.S. markets with the e-mail products, are you still looking for a partner to boost the sales there? And last question on respiratory and severe asthma, do we have to understand that now the focus will be following the negative results on the product, Xolair, focus will be on triple combo and the QAW039? Could you give a little bit more color on these products and your strategy on severe asthma? Thank you.

David?

Okay, good. So, starting it off, we actually see a number of opportunities to develop products faster than were possible before given the depth of the pharma development organization. I mean, in particular, there are two opportunities. One is – actually three, one is to do additional lifecycle management on some of the existing brands. Ophthalmology sometimes wants versions of a product that are single use, preservative free, et cetera, et cetera. Second in the area, we now have an opportunity to put together in a more seamless way a program that develops both Fovista, RTH, Lucentis in a way that will be more powerful and more impactful. So, essentially we hope to bring innovation forward. And last but not least, there is a very good connection, a better connection that existed in the past with Alcon, but the former Alcon connection is actually quite good now which means there is a number of novel programs coming out of Jay Bradner’s shop focused on AMD, dry eye, anti-inflammatories. Some of these will have proof of concepts in the near future. And with this setup, we think we can bring those forward more quickly. In terms of the U.S. respiratory, Seebri and Ultibro, yes, those discussions with partners continue. I am hopeful that in the next couple of months we will be able to tell you exactly how that played out. And then in severe asthma, we think it’s a very interesting field. We have Xolair, in allergic asthma, which is selling well and continues to grow. We are developing the double and triple combination with the steroid. So, Ultibro was a steroid in severe asthma ex-U.S. And then you saw on my chart the QAW development program. And when you look earlier in the portfolio going into specific, there is actually other programs that look like they could be interesting in that field. So, it’s a category, respiratory is a category that we are committed to. Thank you.

Thank you.

Next question.

The next question comes from the line of Michael Leuchten from Barclays. Please go ahead. Mr. Leuchten, your line is now open. The next question comes from the line of Steve Scala from Cowen. Please go ahead.

Thank you. I have three questions, two for David. First, you mentioned that you think LEE011’s interim look could be positive, is this just based on what you have seen from Ibrance studies or are there signals from the LEE clinical trials that are increasing your confidence? Secondly, what are your latest thoughts on Lilly’s ixekizumab relative to Cosentyx given that ixekizumab likely will be approved very soon? And then lastly, in the past, Novartis has expressed uncertainty about the uptake of a generic version of Gleevec and whether or not it will have all of Gleevec’s indications, do you have any more clarity now. And is Novartis certain that Sun will launch the beta crystal form and of adequate purity on February 1? Thank you.

David?

Okay. So starting with LEE, I know nothing in addition other than modeling the eye brand’s response rates and trying to port those over to our program to look at the interim analysis. In terms of Cosentyx and the competing program from Lilly, there is a couple of places to think about in terms of differentiation. First of all aggressive indication, so we have now three indications in our label, my understanding is they will have one or perhaps two when they launch, which is important for physicians and also formulary placement. Second, we have long-term data. We actually have data that goes out now 3 years. And you see really nice sustainability of effect and that we believe that’s because of the very low immunogenicity with Cosentyx. And my understanding is with the Lilly product there may be higher rates than immunogenicity. And we don’t know whether or not the product will work as well in year two and year three. And last but not least at least from the data that’s shared so far maybe there will be other data that the Lilly drug had more injection sites reactions than Cosentyx. Having said all that, the Lilly drug is a good drug, it seems to work well and I think having more than one IL-17 in the market will grow the share for IL-17 and we welcome the competition.

Okay. I think we have time for one more question.

The next question comes from the line of Marietta Miemietz from Prime Avenue. Please go ahead.

Thank you. I have a couple of quick questions for David. The first is on China, in spring 2015 I believe they really cracked down on hospital drug budgets. Should we think about as one-off we set that will lapse soon and then China growth can potentially recover or is it a more continuous process in terms of controlling drug spend there. And secondly, on the ABL inhibitor, so Tasigna is clearly more potent than Gleevec, but it’s just very, very difficult to come up with a robust data set that can really compete with the massive Gleevec data sets. So I am just wondering what data do you actually think you will need not to file, but to really prevail in a commercial market of Gleevec’s generics and how fast you think you can potentially get that data. And then I just wanted to check for the 2015 procurement savings, do you think that we can get anything like that again in 2016, 2017 or is that coming to an end. And finally Joe, I was just wondering whether I could just make sure I understand the method for calculating potential Alcon target margin correctly. So if I understand correctly 2013, 2015 margins were potentially structurally a little bit high and now you are investing $200 million relative to an earlier plan that probably also had some incremental investment. So when all of the dust settles, then would you save we should take out a lot more or a lot less than $200 million out of let’s say 2013, 2014 profit to get to an appropriate benchmark for the target margins for Alcon? Thank you very much.

Okay, David.

Starting with China, so China is putting in place a number of reforms across sectors, but in particular in healthcare in order to both control spending and to expand access to medicines across their populations. So there are positives and negatives. You are right, they changed the drug prescribing incentive, which slows growth. You asked whether that would be cyclical, I mean obviously, the impact at the beginning is greater than later on because there is an inventory draw that happens within hospital. Having said that, there are multiple other changes to reimbursement policies in China including more bidding on a local basis, which depending upon the product and the company can either be an upside growth or a downside growth. Having said all that, the Chinese market overall has clearly slowed from about 1.5 years ago it’s growing about 14% a year and the overall market according to IMS was not growing 4% a year. We re doing much better than that, but nonetheless the mark to market has slowed. And given the Chinese issues with their economic growth in general, I would not expect that the bounce back in near-term, but eventually we all hope that the Chinese market economy does ultimately rebound. In terms of the ABL001, it’s a completely different mechanism. It doesn’t bind in the same target as Gleevec or Tasigna. So it’s not just a potency issue. We see that patients who have failed multiple lines of therapy respond. We also see synergies when both drugs are studied together. So we actually see several opportunities to create a nice market opportunity for the product. And what I wanted to do is I am going wait until the next set of studies is done. I will be able to indicate to you – we will be able to indicate to you a little bit more on what the doses and what the development strategy for the product is. Thank you.

Procurement.

Procurement savings, Marietta, as you mentioned our procurement team together with the businesses has done a very good job creating $480 million in the quarter for very high number. On the other hand, we have continued opportunities. The project pipelines are full and therefore, I continue to expect very good levels of procurement savings. Certainly also the announcements of integrating of development functions as well as centralizing manufacturing will give additional opportunities on the procurement side.

And on the Alcon margin, the thing I was referring to was we ended the year with full year Alcon margin of about 31%. I have said that $200 million is what we are going to spend back so that would take into the high-20s. And beyond that, what I would like to do is let’s get through 2016. And then we will provide more guidance in terms of longer-term on Alcon and what the expectations are so we have got a lot of moving parts. We are focused on turning the business in the back half of the year and I think we will be in a much better position as we see that turn to really provide an outlook for the business both from the top line and bottom line that will be sustainable.

Okay, I want to thank everybody for joining us. We look forward to providing updates as we move through the year. And with that, I will close the call.