Novartis AG (NVS) Q4 2016 Earnings Report, Transcript and Summary

I'd like to welcome our webcast audience. We're webcasting this for the first time and so we'll be happy to take questions as we get into Q&A, both from the audience here and also from the webcast, so feel free to send in your questions. Now before we get started, I would like Samir to read the Safe Harbor Statement.

Sure. Good afternoon, everybody. The information presented today 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 U.S. Securities and Exchange Commission for a description of some of these factors.

Thanks, Samir. Okay, we've got a pretty interesting agenda today. Harry and I are going to talk through 2016 results and the plans for 2017. Then we've got Paul Hudson coming up you to talk about the pharmaceuticals business. Mike Ball will give an update on Alcon. And then you're in for a real treat as Vas and Jay take us deep into the pipeline of Novartis. Okay, let's start by talking about 2016. At the beginning of the year, we set five objectives for the Company and we have tracked through these five objectives every quarter. At the end of the year, I'm happy to say that we've broadly delivered on many of these, but there are some areas where we fell short and so we'll talk about that in a minute. Let's start with the financial results. You saw from our press release today that we did deliver sales that were equal to last year in constant currency, so flat versus year-ago. And I think this is important to note that we were able to offset $2.4 billion of patent expiration, primarily Glivec, but some others also. This is a real testament to the growth products and their potential to fully offset $2.4 billion and deliver flat sales. Our core operating income was down 2% based on that patent expiration and also some of the investments that we made in the growth products. Importantly, though, free cash flow was quite strong, $9.5 billion, up 2% in U.S. dollar terms. The second objective was to strengthen innovation and the launch of Cosentyx continues to go very well. You saw the fourth quarter sales. The brand has crossed $1.1 billion and it has become a blockbuster in its first full year since introduction. Entresto, while we fell short of the objective, it was off to a bit of a slow start, there are indications that are giving us great encouragement on Entresto. Access is better, the field force that we put in place mid-year is now up and running and we're getting a depth of prescribing that is very encouraging. Paul's going to come up and talk about our plans for 2017 and beyond for Entresto. But also in terms of innovation, it was a good year for the pipeline. Our anti-CDK46, LEEO11, we have filed in both the U.S. and Europe. We expect to be selling that new medicine in 2017. Also call out erenumab, the AMG 334 in collaboration with Amgen in chronic and episodic migraine, something we're very excited about, fits right into our neuroscience franchise and we will file this year also. The third priority was to improve Alcon's performance and we fell short here, even though we have seen improvement on Alcon. In the fourth quarter, you can see that we were flat versus year-ago, so we have stopped the decline and when you look deeper in that, the vision care business is getting some good momentum. So vision care is about 40% of the business. It was up 5% in the fourth quarter and it's had three consecutive quarters of growth. Now, the surgical business is taking longer to turn, but there are also some signs that surgical could improve and Mike's going to take us through the plan for 2017. The fourth priority was to capture cross-divisional synergies and Novartis business services reduced costs under its control in 2016. They did it by reducing costs in IT and some selective off-shoring into our five global service centers in the low cost locations. That's going to continue. And then the fifth objective was to build a high performing organization. We did a lot of work inside this Company to position us for future growth and streamlining. We consolidated manufacturing and integrated it across divisions. We consolidated drug development and this is already starting to pay off with improved transparency and better resource allocation, but most importantly, it's going to be the basis of about $1 billion of cost savings between now and 2020. I want to step back for just a minute and talk about the industry and our strategy to win. You've seen this slide before. We're in a growth industry. All you have to do is look at demographics, look at chronic disease, the aging population. This is -- there's going to be more demand for products, healthcare products, specifically Novartis products in the future. This is also creating some opportunities in disease areas where Novartis is strong. Cardiovascular disease and oncology, for example, are expected to be about 50% of total deaths by the year 2025. But also neuroscience and ophthalmology will be growth areas as the population ages. At the same time, the same pressures that are putting demand or increasing demand, are putting pretty good pressure on the healthcare system, so we do expect pricing to continue to be constrained over the next few years and there's going to have to be a greater reliance on real world evidence and what's working and what's not working to get waste out of the system. To win in this environment, at Novartis we have said, look, we have to rethink everything that we do. We have to rethink the way that we innovate, the way that we sell and the way that we operate. We call this re-imagining medicine. I want to just hit a couple of highlights. You're going to see this afternoon from Jay and from Vas how we're focused on some new emerging technologies where we think we can win and we think we can be a leader, Crispr, so gene editing, cell therapy. We're re-imagining how we sell. One of the ways that we're diffusing the pricing debate in certain countries is that we're shifting away from this transactional approach towards an outcomes-based approach and this is getting paid or how much we get paid depends a bit on the delivery of what we claim our drugs can do. It's not just Entresto. We're also getting some progress on and Gilenya and also on Tasigna. It's in its infancy, so this is not something that is exploding, but we're moving down this path partly because you can take a tremendous amount of waste out of the system and that can fund a lot of innovation. We're also, though, digitally approaching our customers. Physicians today get 90% of their health data digitally. So we're bringing new tools to them. Instead of bringing physicians to Congresses, the old way, we're now bringing the Congress to the physician and we're doing that through a device, a vehicle, that we call Vivinda TV. We're finding that we can exponentially increase the number of physicians that we can bring this medical information to at a fraction of the cost. Finally, we're re-imagining how we operate. What we mean by this is you've seen a lot of activity in the Company internally in the last 18 months. We put R&D at the center of the Company with a new generation of leadership. We have focused our divisions, meaning with the movement of pharmaceuticals out of Alcon into Innovative Medicines, mature products into Sandoz and then splitting oncology and pharma, we now have focused divisions that are really focused on their customer and that's giving us greater commercial leverage. But importantly, the functions that are now centralized and support all of that will generate better service at a lower cost. We expect $1 billion in savings between now and 2020. Let me finish by talking about the next growth phase, because 2017 is going to look a lot like 2016. But if you look at beyond 2017, once we get to the end and we've got the Glivec patent behind us, we have done things in the last 18 months to position this Company for future growth. The pipeline is strong and broad, as you'll see today. I think we have a lower risk profile than some of our peers. I'll talk about that means in a minute. And then strong capital allocation discipline. Many people have asked, how will you grow if you have Afinitor and Gilenya losing patent protection between now and 2020? This is an illustrative chart. But if you look at the growth drivers, primarily Cosentyx and Entresto in the blue bar and then on top of that, you add oncology growth drivers. In 2016, our oncology business grew 12% if you just take the Glivec business out. Once we get out from under Glivec, oncology will be a growth driver for the Company. And then even when you take out the generic impact of what we expect over the next three years, you see Innovative Medicines division growth. Put on top of that Sandoz and Alcon growth and we're saying that we believe we can grow each year in the 2018, 2019 and 2020 period. That's not including anything that is not filed. Okay? So I said, look, let's take everything out that is not yet filed for marketing authorization. So it does not include erenumab, it doesn't include serelaxin, it doesn't include ofatumumab, on down the list. So this gives us confidence that we can grow the Company as we get out from under the 2017 Glivec patent expiration. Biosimilars is going to be an important part of that. We will launch five big biosimilars between now and 2020. The first two will be etanercept and rituximab in Europe. They have been filed, they're under review and we're looking forward to getting started with the big monoclonals. Look, I believe we have less risk, less IP and pricing risk than some of our peers. The reason for this is that we're underweight U.S. We've got about a third of our sales in the U.S. Many of our peers have over 50% of their sales in the U.S. where there's a pretty extensive pricing debate going on right now. Also, the portfolio gives us a bit of an advantage. The fact that we're so big in biosimilars, we're able to go to health systems around the world and talk to health ministers about how we can lower their costs based on the big new monoclonals that are coming in biosimilars, while we make some head room for the innovation like Cosentyx and everything else that is coming down the pike. Finally, we're going to continue to aggressively manage our capital structure. These are the priorities. These are not new. You've heard us talk about these before. But this morning, we did announce two actions based on those capital allocation priorities. We're going to conduct a review to look at the Alcon business between now and the end of 2017. That review will include everything from retaining the business to a capital markets exit, so an IPO or a spin. Importantly, the pharmaceutical business in Alcon will not be part of this review. If you remember when we acquired Alcon, it was a pharma business and a surgical business. The pharmaceutical business was taken out of Alcon and it is now resting with Innovative Medicines and you've seen that that is going to be a place for investment because we believe that ophthalmology and pharmaceuticals is right down our alley and there's growth there to be had. You saw our acquisition of Encore Vision that we recently announced and you're going to see more bolt-ons to try to improve that pipeline. So it's really about the medical devices business. It's going to take us some time. There's some activity that still has to take place and that will occur by the end of 2017 we'll give you an update. In the meantime, Mike and his team are going to continue to drive Alcon and continue to return that business to growth. We also announced a up to $5 billion share buyback this year and that is because of our confidence, our conviction, in the fact that we will start the next growth phase of the Company and we think that we're a good deal right now. So that buyback starts immediately. If you look at our priorities for 2017, from a financial standpoint, it's going to look a bit like 2016. We've said sales broadly in line with a year ago, core operating income would also be broadly in line or down low single digit. We're going to strengthen the pipeline, all of the pipeline. So we've got some important read-outs coming, serelaxin, Ilarus in atherosclerosis and also RTH, our wet AMD candidate. Commercial execution is going to be key because you've seen in the previous chart around the growth. Cosentyx and Entresto are key to the future growth prospects of the Company, so we must execute those well. We're going to continue to focus on returning Alcon to growth and then finally, embed this new operating model and get after the $1 billion of savings between now and 2020. Okay, with that, I'd like to turn it over to Harry to go through the financial results.

Thank you, Joe. Good morning. Just want to start with a quick comparison between the guidance we gave and the results. And clearly, we came in under our guidance of broadly in line with the 0% in constant currency sales and the minus 2% core operating income in the range of broadly in line to a low single digit decline. When you look at the numbers on the left side of the quarter, four numbers. We delivered, in quarter four, flat sales and core operating income was even up as the productivity efforts offset the significant increase in investments we made, not only, but also into Cosentyx and Entresto. On the full year on the right side, you saw the number zero and minus two. Net income is up one point as the Ode an die Zitrone venture continues to contribute and was, this prior year, a significant increase. Free cash flow was very strong at $9.5 billion. I'll give you a few more details later on. Overall, I would I say, given $2.4 billion of generic impact on the top line, solid financial results. The quarter four margin by division and total Company you'll see on the lower right side that the margin improves by 0.2%. It's a very strong performance from the Innovative Medicine division is offsetting the Alcon core operating income margin decline. Innovative Medicines, certainly Glivec, increased as an effect in quarter four minus 1% on sales, but very good productivity and resource allocation efforts, increasing core operating income by 4%, we're citing a 29% core margin. Alcon stabilizing sales, flat sales, but 36% decline of core operating to 11% margin. Given the investment into the growth plan and Mike will later on give you more details on that. Sandoz delivering a solid quarter with 3% and 4%. Onto free cash flow. We have lower operating income, but it's more than offset by a very good working capital performance, lower capital expenditure and the first dividend, that dividend we got from the OTC/JV in 2016. Now, onto CapEx. In the meet the management day, I laid out that our target CapEx spend is in the range of 3% to 4% midterm. We brought CapEx spend down from more than 5% a few years back to 3.8% this year and we see midterm 3% to 4%. Joe mentioned our capital allocation priorities. These are not new. We have worked along those over the last years. But I want to give you a few more details on how we have executed these last year. On the first one, investing into organic business, you'll see on the left side several of our more than 200 programs in the pipeline. We invested $8.4 billion of core R&D in 2016. On M&S we have increased behind the launches by 4%, our core M&S. Of course, a lot of productivity going on because this launch of course needs more than 4% of M&S increase but excellent work there. Still an increase of course as we have such a rich launch of in-market portfolio. The second priority we're recommending to our AGM the 20th increase of our dividend to 2.75, as a 2% increase, 4% attractive dividend yield and in terms of free cash flow, a 70% payout. On the third priority, bolt-on acquisitions, we have been very busy. Over the last 18 months, we have done 14 deals. You see all of them. Vas and Paul will talk about a few of them. And they are nicely strengthening our pipelines. Now, on the share buyback, we're initiating, we will start next week, a $5 billion share buyback. And we're aiming to execute this in 2017. Just there were some questions this morning, is this on top of employee participation? Yes, it is. This is a net share buyback. As you know, we have an ongoing commitment to mitigate any employee participation programs which we do in addition to this. We're leveraging our strong balance sheet and we'll finance this via new debt, clearly a sign of our confidence of future growth. Now, as I go into 2017 guidance, just want to give you the pulls and pushes. Basically, a bit similar to 2016. If we start on the negative side, generics will be again expected to be $2.5 billion, the majority of that being Glivec. The launch investments will continue with some full-year effects like, for example, the ramp-up of the U.S. field force in the U.S. Also, the Alcon growth plan, as you have seen ramped up over 2016, the investment part of it and we expect 2017 to be the trough year for Alcon core margin. We have also many positives. We expect continued significant growth of our pharmaceutical growth products. Of course, Cosentyx and Entresto being a major part of that. Also in oncology where the new assets we bought from GSK almost a couple of years ago perform extremely well and we expect they continue, in addition to Jakavi, as well as the expected approval of LEE. Biopharmaceuticals in Sandoz, of course, also from a launch standpoint, we expect to be a positive. And in the bottom line, the creation of NBS almost three years ago as well as the centralized manufacturing and centralized development besides better portfolio management, also in terms of efficiency of course, we expect significant savings. And you may remember a year ago we announced that the centralization of manufacturing and development will create a structural cost saving of about $1 billion as of 2020. For the full-year guidance, Joe already mentioned it. Don't have to go into details too much here. But broadly in line on sales, Innovative Medicines division, broadly in line as the launch products offset the generics. Sandoz, low single digit growth. We expect some volatility. It depends a bit on the Glatopa 40 milligram approval and Alcon broadly in line to low single digit growth. From a core operating income standpoint, given the generics of course, are also quite profitable, we expect, including our productivity efforts, to be broadly in line with prior-year or having a low single digit decline. Now, again like last year, in a broadly flat year, I have to comment briefly on the dynamics, half one, half two. And we do again expect that half two is better in terms of core operating income trajectory than half one. You see some of the reasons. I think they are obvious to you. Clearly, the full-year launch investment that ramped up for Cosentyx and Entresto. But the sales acceleration, of course, we expect to be even faster in the second half. Glivec, if you recall the first half last year, the first exclusive generic entry was in February, sanPharma until July, August. So higher base of Glivec in terms of generic impact in the first half. The momentum of the biopharmaceutical launches, we expect to accelerate a bit through the end of the year. Alcon, the investments ramped up over the last year from quarter to quarter and the full-year impact of those investments as we go forward. A few details for the modeling. In your models, basically we expect the core tax rate which has been 15% in 2016, to stay in that range. Currency impacts, if the currencies stay for the rest of the year where they were mid-January, minus 2% on the sales and a minus 3% on core operating income for quarter one, 2% negative on both top and bottom line. And then on core associated companies, we expect of course a higher contribution, especially from the joint venture as it continues to develop well. And on core net financial income, a slight increase given that we were issued bonds to finance the share buyback. And I think in summary, solid 2016 financials. 2017 being our final Glivec year. And we initiated a $5 billion share buyback as we move towards our next growth phase. With this, I hand over to Paul.

Thank you, Harry. Good afternoon, everybody. So I'm leading the pharma business. I thought I'd give you a sense of perspective where we're six months into the role and try and give you some type of indication of how we hope to perform as we go into 2017. So firstly, maybe it's good to touch base on the priorities. Firstly, we went from a single digit negative decline in pharma in the first quarter to a single digit growth in overall performance across the business in quarter four. We're pleased with that. We're pleased with you how we finished the year, but more importantly we really the focused the division on the key priorities. And what were they? Initially, to make sure we're resourced appropriately and appropriately means to win with Entresto and Cosentyx, to get back to some of the heritage, some of our strong DNA on commercial execution and of course, we've got 10 data readouts over the next couple years, I think four this year and some of the hard lessons learned in making sure that we were ready for those launches to deliver well and exceed expectation. From a culture perspective, of course we work on all the normal things, diversity and inclusion. But the key take-away is the external focus, the in market performance and setting the culture up for a winning outcome to 2017 and to beyond that. Cosentyx's first full year is a blockbuster. In fact, I think it's the best launch I think we've ever had at Novartis. It's been an incredible full year for Cosentyx. The team has done an outstanding job. The final quarter was close to $400 million. Exceptional. We'll guide a little bit, but because of thoughtful decisions on the rebates for 2017, Q1 will be modest in terms of growth expectations but as TRx grows in the U.S. and the rest of Europe gets into its stride, we're expecting a strong 2017. I think it's also important to remind you of the profile of Cosentyx. It sort of gets lost in the melee, in the discussion of the class. The medicines are all very unique and for us particularly, let's not forget, we're fully human with low to no immunogenicity. We have Phase III data beyond four years and I think the competition is Phase III one year only. So, we have sustainable response, we have low to no immunogenicity which means we can regain control for patients who take a drug holiday which is important in psoriasis. I think it's also important to know and I'll go on to talk a little bit about it, psoriatic arthritis and amkylosing spondylitis are major opportunities, not least for the patients and the outcomes we can help them achieve, but for the business overall. They are much bigger than you would expect. And in fact, PSA and AS are bigger than psoriasis alone. We have an opportunity of course to go into non-radio graphic axial progression and we'll achieve that at some point over the coming cycle and Vas will talk about it. Now, there's been some reports recently that we've been in a head-to-head and that perhaps we've not performed as we would like. I want to just correct any misconceptions. [Indiscernible] launch Cosentyx versus Taltz on TRx and of course, TRx are patients routinely prescribed the drug, we're outperforming our nearest competitor. Indeed, on the latest week, we're three-fold the performance on TRx. On a weekly perspective in the United States, on the NBRx, things are closer. But please also bear in mind, this is an important point. That the NBRx data includes the free drug provided by the competition. Whilst it's tight in terms of new patient prescriptions, I look forward to seeing what that materializes into dollars for the competition as we get through into 2017. I think importantly, again, when we have launched in psoriasis and not just least in the U.S., where the performance has been outstanding, but in Germany, on a value share basis, we went past the standards of care in less than a year and I include in there Humira and Enbrel. Again, an outstanding performance by the team. And in fact, we've gone on in most of the major European markets to be number one in the class. We're well set up in psoriasis and we have high expectations about how we'll perform for the remainder of the year. Now let me turn back to psoriatic arthritis and ankylosing spondylitis. Again, what you may not know is the fact that we're now you market leader on new prescriptions in the U.S. and in many of the major European markets. To go past Humira and Enbrel in psoriatic arthritis and ankylosing spondylitis that have been in those indications for more than 10 years and to do that in your first full year shows what we're capable of doing from an execution perspective. It also sets us up well because we believe that there is a significant opportunity going forward and we believe that if you look at the actual dynamics of what's available in terms of patient populations, AS and PSA represent significantly more patients than psoriasis alone. Why is this critical? Let's look at it. Taltz will not have a PSA indication until the end of 2017 or, the earliest, beginning of 2018. In fact, they won't have an ankylosing spondylitis indication until the second half of 2018. As for the P23 P19s, if you were there in EADV, you'll have seen some disappointed faces in terms of efficacy. There is, no doubt, no entry into this class before 2020. Market leader, strong in the U.S., strong in Europe and with some sustainability to the indication, a big indication. Let me turn to Entresto. Now, it's been really interesting for me getting to know Entresto in the six months that I've been here in Novartis. And whilst you're a little bit preoccupied with the left hand side of the slide, I'm a little bit more obsessed with the right hand side. It's been very important for me to get the foundations in place for a breakout performance in 2017. Absolutely important. And whilst perhaps we would have liked to have seen a little stronger performance on the dollars in 2016, really it would have not counted for much if we didn't get the underlying basics right to show just how big this medicine could be. Like I reminded you for Cosentyx, I'll do the same with Entresto. That our expectation is a little, a modest growth in Q1 because we've made a decision to go into Medicare. When you do that into Part D, you have to recognize that there's some rebating, thoughtful rebating, that goes with that. Now, whilst that's an important consideration, you also have to remember that's two-thirds of the patient population for heart failure. So we've been considerate about how we access. We'll be modest in Q1. Our TRx will catch up and we expect to finish the year very strongly. Why do we expect such an upturn in performance? Well, there are three fundamental questions and I alluded to them on the first Entresto slide. The first one is this prior authorization which I heard a lot talked about in 2016. We've spent most of the second half addressing it for 2017. We've gone from zero opportunities in Medicare without a PA to 23% of the patient pool can have a prescription written for Entresto without a prior authorization. Again, fantastic work by our U.S. team. And on the commercial side, we've gone from 26% to 48% of the patients being covered will not need a prior authorization. With the ambition that we've stated you may have seen in the slides and I'll come onto in a moment, this is more than enough access and more than enough simplicity in terms of prescribing to deliver on that as we accelerate through the remainder of the year. So the second major part is well, what does it cost a patient? What is the affordability piece that sets the challenge up for the climate of which Entresto is prescribed in the United States? We've gone to preferred in 88% of the plans. And what does that mean on Medicare? It means that the low-income subsidy patients are paying roughly $7.50, there are about a third of those in terms of out-of-pock. In general as preferred, we're the lowest out-of-pocket that you possibly can be. And for the majority, more than half of that 88%, it's less than a $10 copay. So we think for affordability, we're in the right place. And in fact, on the commercial side, accesses include, again, significantly, the 66% and I think 98% of the patients that are covered can use a $10 copay card. So we think we've put ourselves in the right spot for affordability for patients too. The final piece of the jigsaw was really something that the team had been working on since the very beginning of the year and it's been about getting the resources right. Now, whilst we've done that in Europe, in the U.S., we had to get an acceleration going on. We did our first big recruitment in April. By September, we had our cardiology coverage just where it needs the to be and we've rolled on primary care physicians. Now that we feel by the end of the month, the first week, two weeks in February, we're at a steady state for covering the heart failure potential. We'll cover roughly 70% of all the heart failure potential patients at this point. That's more than double what it was at the beginning of the year. So as we get to sit back and say why are we excited about 2017? Well, we put the basics in place. And the team globally, frankly, have worked incredibly hard. Remember, we're just coming online in Italy shortly. We're just coming out of article 48 in France, we hope. We're now in Germany and we're about to launch in Italy. So in the major European markets, we're well placed. And in the U.S., we have a very high expectation of trebling our TRx between quarter four 2016 to quarter four 2017. Now, that is ambitious. But when you think in the U.S., we grew 33% Q4 over Q3, you know we're well placed. Of course, it will take an acceleration. But as I pointed out, we have the three fundamentals in place. Low to no prior ROTH, depending on where you are in the payer world, resources exactly where they need to be and bringing on more than 500 new writers per week and indeed, an affordability that makes things very attractive. For me at least, as we look at Cosentyx and Entresto, as we set ourselves up for 2017, we've got good access in the United States. We're outperforming other molecules in their class in Europe. We're outperforming standards of care in the U.S. We're well positioned in PS as psoriatic arthritis and ankylosing spondylitis and we've set ourselves up with Entresto with all of the major criteria dealt with so we can find out just how big this medicine is going to be. And then, by way of summary, whilst excited about Entresto and Cosentyx and resourcing them to win, we've also had some other great performances across the portfolio and, of course, Ultibro grew 38% in 2016 and Gilenya grew 14% and of course Xolair continues to grow. So across the business, we're upped our execution. We feel good about the way we execute and we're nicely positioned for 2017. I think I now hand over to Mike. So Mike, on over to you.

Thanks, Paul. Good afternoon, everyone. I'm here to speak briefly but passionately about Alcon. So I want to tell you what we've done, where we're and where we're going. So I've been here almost one year now and when I came in the door last February, we quickly assessed what the major issues were with the Company and then we set to put out a game plan as what we're going to do about it. That game plan had three key elements associated with it. Number one was to invest behind the vision care business because what we really saw was that vision care being a consumer business would be more responsive than surgical. Number two, we wanted to fix the supply and service issues because in my mind, without those being fixed, we could not turn around the surgical business. And number three, referring to our innovation front, we really wanted to restock our pipeline through aggressive outreach and business development. So what are the results so far? Well, in my mind, I think we've made progress on both franchises. When you look at vision care, in fact, the investments seem to have carried the brand franchise forward so we got to plus 5% in Q4, 2% overall for the year. So I'm very pleased that we got one of the businesses turned around. Now, with respect to the surgical business, fixing the supply and service issues turned out to be more challenging than we had originally imagined. And those issues persisted throughout quarter three and I think really pushed back the turnaround of the IOL business and also allowed our competitors to continue with their penetration of our market share. And I want to talk about that in a moment. Consumables, as you can see, grew nicely, mid-single digit. Equipment was down and mainly because of a high prior-year comp, some market maturity and some emerging market economic issues such as in the oil producing countries. So let's talk then a little more deeply about what actually happened. First, on vision care. So we invested in direct to consumer advertising, it being of course a consumer brand. And we did that starting in Q1 and then going into Q2 in certain countries in Europe where we were prepared to do it. And we saw a nice pick-up in market share in those particular countries. We then moved into the U.S. late in Q3 and heavily in Q4 and what we saw was after 14 consecutive months of market share loss, we actually went to four consecutive months of market share gain. Now, to be honest with you, it was modest gain, but it was headed in the right direction which suggested to me some stabilization in the business. When I look at this graph which talks to the contact lens growth as was pointed out earlier, we have had three consecutive quarters then of contact lens growth and you can see in the four quarter there was a pick-up. Now, that pick-up, 7%, is skewed upwards because of a very low prior-year comp. So I would call it more like 4%. Nonetheless, the underlying growth is definitely there. Now, I really like the vision care business. It's got 3% to 4% growth. It's got high barriers to entry. And in my mind, there's still lots of untapped market potential here that we can go after. As I look forward to 2017, this momentum is helped out somewhat with the launch of our new DT1 multi-focal for presbyopia as well as our monthly lens, Air Optix with hydraglide in the United States. So I'm feeling good that the vision care business is moving in the right direction. Let's talk about surgical. So I talked about we needed to fix the service and supply issues. I wanted to get into some more granular detail, maybe more detail than you really wanted to see, but I think it's important to understand what really lies behind fixing this thing. So in the top left, you'll see our service levels have now got to a two-year high. So in December 2016, two-year high. So as I look forward to 2017, I see a far better situation than we had in 2016. In the middle, there's a really confusing chart saying custom pack disassociation rate. We sell hundreds of thousands of custom packs for cataract procedures. In each one of he these are 20 to 30 items. If just one of these items are missing, our sales representatives have to go to the account, figure out what the substitute would be and put the substitute into this particular pack. When I first started here and went riding with sales representatives, I was astonished at the amount of time that they spent doing this. In fact, my observation at the time was this has turned our sales reps into service reps and there is a significant difference. So we have beaten that down now to 80% down from where it is, so I would call it at a very acceptable level and the trick here now is that our sales reps are actually now back to selling and I believe that will be a positive in 2017 as well. Now, moving forward on this chart, we got some feedback that the surgeons would like to have more training on their equipment and faster service on the equipment. So we added more people to handle that. We also wanted to make the Company easier to do business with. And so in 2016, we started an ambitious project of installing SAP into the United States and this was a big project. So the net-net result of that, though, is with SAP on the ground, we're able to do things like turn around contracts much faster. We're able to offer our customers easier ways to order such as with e-commerce which we're rolling out in the United States. So in terms of fixing the service and fixing supply, I feel like we've made great strides. We're not all the way there yet, but I would say we're very much acceptable right now. Now, obviously, we needed to have the service and supply fix. We also need some new products to sell from an IOL standpoint. And as I look at our portfolio going into 2017, I'm pleased to say that our sales representatives have the UltraSert to sell and it just rolled out in Japan, so virtually worldwide, something new to talk about for our sales representatives. The PanOptix then is also been expanded worldwide, outside the United States. So this is our tri-focal lens. Also, the Toric lens in the United States is being approved. That is the Restore Toric and this is going to breathe new life into our Restore franchise which has been taking a hit from the competition. So I feel good about these products coming into the marketplace and that we can get on the front foot and start selling again. I'm also very pleased that we will be putting the Clarion into the EU regulatory authorities to get approval. And this is our new IOL material. So we look forward to that coming out in the midterm sometime. As I look further into the future, we're working on two exciting accommodating IOLs for presbyopia. One of them is PowerVision; the other one is Google. I won't go into a lot of details, given the time, but these work by brand-new mechanisms and allow us entry, I believe, into a huge untapped market opportunity. So as I summarize this, we've basically then taken great action I think against service and supply. We've stabilized the organization, so the organization believes in management and they believe in the new plan. We've seen turnover go down to a two-year low and we've seen morale go up and the sales force get back to selling which is what sales forces actually like to do. We've also become more customer-centric as an organization. We were too inwardly-focused before. Now we're looking out at the customers and moving resources to the front line. And in addition, on the innovation front, we have taken an aggressive stance looking at BD to enhance our pipeline. So I would say to you in 2016 we picked up the three best assets out there in ophthalmology which was NGENUITY, CyPass, both of which we're just launching now and also, PowerVision. So, as the channel leader, we should have access and we should demand of ourselves to get the best out of the entire industry and be agnostic whether it's internally developed or externally developed. I think we're taking the right actions and we will get the right results to drive long term, sustainable growth. This takes time. As you heard in FY17, we're looking for sales broadly in line with last year to slightly positive. First half of the year, we're looking for broadly in line. But I submit to you, as you look long term on this business, this eye care market is a great place to be. I look at the mega trends and they're all at our back. You look at lifestyle. Who wants to wear reading glasses? Anybody want to wear reading glasses? Of course not. People want spectacle independence. Then as you look at the aging population, the front edge of the baby boomers right now are moving into their early 70s. That is prime cataract time. And then of course -- sad to say -- then of course there's emerging markets, right? So great opportunities there. So what we have here is a $20 billion market, growing at 3% to 4%, with tailwinds behind it and, if you look at the medical industry, average Roths from the low-20%s to the mid-20%s. And as I said, a lot of untapped opportunity. So our view of Alcon I think is very exciting. Short term, we need to turn it around to top-line growth. But long term, we expect to drive it to sustainable growth and get the Roths back to industry type averages. It's a very exciting journey and I'm very pleased to be here to do it. Thank you.

Before we get into the R&D session, I wanted to break and do a Q&A session. So why don't we raise the lights and we'll start here. Yes?

Thank you. It's Michael Oustin from UBS. Question on your comments around alternative, potential alternative plans for Alcon. You talk about capital market solutions as a potential alternative. That seems to suggest you firmly believe that the division gets back to a better place and then you might think about what you do. But from our perspective, that probably means you're thinking about trading earnings versus balance sheet strength as well. What does that mean for Novartis going forward over the next few years if Alcon does turn around? Do you still think about a counter market solution and end trade earnings for balance sheet?

Okay, go ahead.

And sorry and a second question just on Entresto. Thank you for the details. Would you be able to tell us what percentage of your patients are currently coming from Medicare versus non-Medicare?

Okay. On the Alcon question, what we announced today is that we will be conducting a review and that review will be, include everything from retaining the business to -- we said a capital markets exit, so IPO or spin. But it could be anything in between. So, it's too early to speculate on what we will actually do. The reason why I personally believe capital markets exit could be attractive for our shareholders is that there's a scarcity of assets in that $25 billion to $35 billion market cap business today in healthcare and so if our shareholders could participate in that, that could be something that's very good for our shareholders. So it's premature to talk about what that would mean for the Company because we really haven't made a decision. This is really just the review process. And on Entresto?

So the number currently has been quite small, in the teens. What we've done is to, as I mentioned earlier, to try to access that two-thirds of the total population by entering into Part D. So you'll have seen we've gone to almost 90% preferred access. So we expect to see a significant acceleration in the Part D population into Medicare.

Other questions? Yes?

I've got two big picture questions, please. The first one, Mike, thank you for that very passionate talk about how you see the Alcon future. It kind of fits somewhat at odds with the comments you made, Joe, about whether you want to be a part of this future or not. So what are we missing? Is Novartis not the right owner of this asset and if so, why not? That's question number one. Okay?

Go ahead with question two.

Question two, you were kind of talking about a new operational model kind of for Novartis. It's been about two-and-a-half years since you kind of had the big strategy refocus. You identified three areas that you want to be long term future of Novartis, now maybe two. But, why has it taken you two-and-a-half years to come up with the new operating model?

Okay. So on the first one, Alcon owner, the answer is that both of those are right. This is -- if you think about what we acquired with Alcon, we acquired an ophthalmology business and a medical devices business. We've taken the pharmaceutical side of that business and it's now integrated and the medical devices business is a very good business. It's got leading market shares in growing categories, exactly what Mike said. We take full responsibility for the fact that that innovation did not come through as expected on the medical devices side. So that has taught us something. It's a very different kind of a business than the rest of our business. It doesn't mean that we can't participate in medical devices. But what it does confirm is that the pharmaceutical innovation cycle, everything that takes place in pharmaceuticals in terms of rejuvenating the pipeline and success in that are different key success factors than in that medical device business where you're in the surgeon's office, you're iterating very quickly, very short cycle times, incremental innovation and so this is the time to step back and say we should do a review and say whether that medical devices piece which is highly attractive in the market, are we the best owners for it? So I don't think that they're inconsistent. In terms of the second question on the new operating model, it's not as if we just said, we woke up one day and said we're going to go to a new operating model. This has been an evolution. So when we foes the Company with the GSK transaction and the Eli Lilly transaction, there were a series of events that made our portfolio very focused. We did not want to move into immediately centralization of manufacturing and global drug development at the same time as integrating those businesses and separating the vaccines business, the OTC business and the animal health business. It was just too much for the organization to absorb. So we staged it in an approach that would get us to where we're today, two-and-a-half years later, from that decision to now be fully ready to implement that new operating model. Yes? And then we'll go here. Richard?

Richard Vasa from JPMorgan. Just on the drivers of 2017 performance, I think you highlighted the savings from the development organization. Perhaps you could give us some idea of the level of contribution from the savings from that and potentially through the period 2018 to 2020 as well. And just on the 2018 to 2020 sales bridge, could I venture for you to give an idea of the path there? You've obviously said growth each year, but potentially, how you see the magnitude of that growth through 2018 to 2020 each year. Thanks.

On the first, some of the way that we're going to offset the Glivec patent expiration is not just from savings in global drug development, but also we get the beginning of the manufacturing cost savings that start to kick in. So we have not disclosed what our expectations are but I think you can expect to begin to see the savings that we have said will come from this new operating model beginning in 2017 and that's primarily through our Novartis business services organization, the manufacturing centralization and to a lesser extent, the global drug development. In terms of 2018 to 2020 sales growth, I really don't -- there are too many uncertainties. I don't want to get into making a projection. I wanted to show a graph that was illustrative of the kind of growth that we will expect and we've become as granular as saying we expect growth every year. But that's about as far as we'll go. Yes?

Three questions, first, for Paul. Could you come back on Cosentyx, just as a follow-up question, because you gave some color and you said that for 2017, you expect at the beginning of the year some pressure from Medicare. So the growth rate we understand should be a little bit softer as what you delivered in Q4. Could you elaborate a bit on that point? Because I suspect that the proportion of the population coming from Medicare is much lower versus what we have for example with Entresto. Then for Mike, I have two questions for you. Could you elaborate a bit on the product approvals on surgical side of Restore and PanOptix? Are they big growth driver for this division this year and beyond? And remember last year you said that you expect in 2017 by mid-year to have a good idea of if the recovery of Alcon is well on track or not. Could you tell us if it's still the case that by mid-year you will know if the recovery is on track? The last question is for Bruno. A quick one on the Afinitor. It seems that the Q4 was better than expected. Is there a recovery? Could you elaborate on where this is coming from? Thank you very much.

Paul?

So, Florence, I hope I heard you correctly. You mentioned Medicare and you mentioned Cosentyx. Is that right? So maybe just to be doubly clear. I said I was very pleased with the Q4 performance which was in the main, the growth was out of demand, is principally from commercial patients. And the comment I made about modest growth in Q1 is that we've been thoughtful about our access position for 2017. Of course, we know that there are more than one medicines in the class now. And so we have to be very deliberate. We're the market leader by some way, but we had to be thoughtful. So, we've improved our access into Q1, paid some rebate to get there thoughtfully which is why we'll see modest growth and an acceleration thereafter as volume catches up in 2017. It's principally commercial, yes.

Mike?

Okay. And then with respect to the new product pipeline, so, if I understood the question correctly around PanOptix and so PanOptix rolled out in Europe in 2016 and we're having it roll out over the rest of the world essentially, other than the United States, in 2017. The Toric version of PanOptix is being approved in the European marketplace. This will give us then a broader line in order to meet the competition in what I would call a more fair way or, for them, unfair way as we get into the marketplace. So I'm feeling good about it. The feedback on the trifocal lens is extremely strong, extremely good. And where we've launched it, we've seen very good pick-up. So very pleased with how that product is moving forward. With respect to then halfway through 2017, you took notes from when I talked before obviously. So one of the things I said was we'd be broadly in line with last year for the first half of this year. And obviously, we go through this year we'll see how things are picking up. One of the most difficult things in turning around a surgical business is you do the right things for long term growth, such as putting in training centers. So we've opened up wet labs to start training physicians again like we used to. When does that actually translate into sales? If the you think about getting your service and supply levels back, you still have to recapture the customers that may have gone elsewhere. So again, this basically takes time. But it is the right thing to do and with the right execution, it will, in my opinion, lead to growth. We're just challenged to figure out exactly where then. So again, update mid-year, as promise.

And Bruno, on Afinitor?

Regarding Afinitor, our two main indications, breast and RCC, were affected by competition, palpable and immuno oncology. We launched some new indications net of lung and GI origin that has compartly compensated for that. But I think the main point that happened in quarter four where we had, in the U.S., Afinitor grew 1%, is that we're getting into, in breast, into the zone now where patients that were put on palpable are starting to move to a later line of treatment. So that is having a positive impact on our sales. So I would talk of stabilization or slowing of the decline rather than full recovery yet. We'll see what happens next quarter.

Okay. Let's take a question from the web and then we'll come back.

Okay. We have a question from Graham Parry about the buyback. Is this in addition to the up to $5 billion bolt-on M&A target that we have previously indicated would allow us to retain the AA rating? Should we assume that the buyback precludes that level of bolt-on deals if you are to remain AA? And the last point is could you do a $5 billion buyback, a $5 billion bolt-on and still reduce debt? Second question more for Alcon. What factors go into the decision to keep or sell Alcon? Doesn't it make sense to execute a turnaround before selling? Or is sale the option you choose if you can't turn it around?

Okay. Let's start with Harry on the buyback.

The share buyback is, as I mentioned earlier, in addition to the employee participation program. So it's a net share buyback that will reduce the share count. It's also, we will continue to execute our bolt-on acquisition strategy. Now, credit ratings we leave to credit rating agencies, but we have, even with this additional leverage, a very strong balance sheet. And, of course, let's say $5 billion additional bolt-on, $5 billion share buyback, we will issue new debt for the share buyback. Our cash flow has been in the range of $9.5 billion. We expect it roughly to stay stable. Of course, cash flow is a bit more volatile than the P&L. And we pay out roughly $6.5 billion of dividend. So we will be able to continue to do the bolt-on and we have a strong balance sheet. We would need a bit more of debt in order to do up to $5 billion of a bolt-on in addition to the share buyback.

And the only thing I would add to that is that we did, in the fourth quarter of 2016, acquire two small bolt-ons as well as two option deals that could become acquisitions and these were upstream quite a ways. So they're supplementing the pipeline. They're not as big as $2 billion to $5 billion. You're going to continue to see us do those even with the buyback and if something bigger comes along, we'll take a hard look at it. We're looking at everything. Prices are at a level where we're not sure we can generate a lot of value for Novartis shareholders if they're bigger deals. And that's why we've chosen to do the buyback as well as to show confidence in the future. In terms of the Alcon, what factors would be required, the reason why I wanted to get this announcement out is that a lot of work has to take place. And I don't want to do it in a secretive way. We've got people at Alcon. I want make sure we're out in the open about this. For example, we have to determine what it will take to separate that business. So we have to go function by function to understand what it would like if we did a capital markets exit. We have to do carve out financials. We have to look at other things that would need to be done to make that a separate company. So it's going to take us some time which is why I said we would give you an update towards the end of 2017. Meanwhile, with Mike executing that plan, we fully expect there to be a nice story on Alcon as we get to that point when all of this work takes place. So it's premature to say what we will do. But I will tell you that we'll give you an update by the end of 2017.

Vincent Manye from Morgan Stanley. So follow-up question on Alcon and more broadly, your corporate strategy in terms of M&A. Based on your comments, you're concerned that you prefer bolt-ons rather than larger acquisitions, but if you can get some proceeds from Alcon, what would you do with that? Would you consider then buying something to replace Alcon, something big or something different, maybe giving back the cash to the shareholders or just split that in multiple acquisitions? And the second question is the R&D spend. So in your slides you say that you want to spend 20% of Innovative Medicines sales. Does it mean that you consider now that Innovative Medicines are the right perimeter and you will not reduce the number of therapeutic areas? Just confirmation of that.

In terms of the first question around Alcon and what we would potentially do with the proceeds, I think it's way too early to speculate. Part of it would depend on what we actually do and how we execute that. The guiding principle is going to be what's in the best interest of our shareholders. That will be the first criteria in terms of what we do with the Alcon business and also with the proceeds if the there are proceeds beyond that. So I would -- go ahead.

Regarding the shareholders and their interests, do you think that it's better for them to have another leg in the Company to some extent, some differentiation? Or be more focused and adopt a different model?

One of the things that I've learned since the GSK acquisition is that focus is good. Right? When we had the OTC business, the animal health business, the vaccines business, when we were able to execute that transaction and double down in oncology and really focus where we were strong, that was a benefit to the Company. And so I don't think necessarily that the Company needs to replace. Were we to exit that medical devices business, I don't think the Company needs necessarily another leg. What it could use is more depth and breadth within what we call our core which is -- I wouldn't call it our core. I would say where we have had the most success as a Company which is in that pharmaceutical and generic/biosimilar framework. So again, nothing's decided. But that's a bit of what we're thinking. Okay. Oh and your second question was on R&D spend as a percent of sales. And maybe, Paul, also in terms of the therapeutic areas, does that mean that we've got about the right mix of disease areas?

If you look at historically where we've been from R&D in Innovative Medicines as a percent of sales, it's around 23%. But with many of the changes we've made over the last 18 month, we're already 100 basis points down from that. And our goal is to continue that trend to get to the 20% in the medium term and particularly when you look at the sales growth along with better cost management, we think we can get there. I would say overall our goal is to build therapeutic area depth in the areas that we're in. We're always evaluating are we in the right disease areas? I'll talk a little bit more about it later on. But in our core disease areas, our core six disease areas, inclusive of oncology, we believe these are places where we can be leaders. Paul?

So, Joseph, in terms of TAs, I think what we've done with discipline and you've just seen it with the recent BD towards the end of last year, we tried to double down in the areas we have critical mass where we can add new assets over short-, medium- and long term, where they can be some synergies to the promotion and we can become even more expert. We've done with the Ionis deal in cardiovascular. We've done it in atopic dermatitis in immunology and dermatology. We've gone out. We've got our own assets, QAW, of course, in respiratory and the same with RTH. So we've tried to make sure that we're not breaking new ground as an unknown, but we're concentrating on where we have real effectiveness and market leadership. And Vas will talk later, but we've then tried to explore areas we think we're going to be fundamental to the future in healthcare. Nash is a great example and started to make our first plays in Nash. Good where we're and open minded and opportunistic about future areas of growth.

Mary Evan-Lewis, Prime Avenue. My first question is for Joe. Just want to make sure on Alcon, I'm reading the wording of your announcement correctly. So are you effectively ruling out selling to a strategic buyer or to private equity and if so, is that on the basis of discussions you've had or your analysis of structural issues with the business or your analysis of the antitrust situation? Second question is for Mike. Just again the famous Alcon margin question. It sounds like the margin is not going to be picking up any time soon. I'm just wondering if you can confirm that the 2016 full-year margin is the trough for 2017 and beyond and we're not going to see a margin below that. And quickly for Paul. You said that Entresto, you're only just finding out how big this medicine can be, so should I read that as you not reconfirming the previous management's guidance of $5 billion in peak sales in the ref indication? And then just finally a question on the Innovative Medicines margins and the oncology margins within that. So when Novartis took over the Galaxil oncology business, that business had a very low margin of about 25% and I think Novartis was very confident of getting it up to the sort of margin levels that we know this type of business is capable of. So I'm just trying to get a feel very roughly, I know you don't split out the margins for oncology, but very roughly how much of that structural margin improvement has taken place, how much scope is there still left to go, just so we can get a rough feel for also for what's been happening to the margins of the rest of the Innovative Medicines business. Thank you very much.

On the first question regarding Alcon, we have not ruled out sale to a strategic buyer. We haven't announced a sale today. The only thing that we've announced really is that we're doing a review and when we bracketed that by saying either retain the business all the way up to a capital markets exit, it really would include all options. So there was nothing beyond that in terms of how we disclosed. Mike, on the margin for Alcon?

With respect to the Alcon margins, look, the bottom line here is we've got to turn the top line. So we're continuing to make investments to make that happen. Because I think once the top line turns, then all kinds of good things flow through the P&L. Without that top line turning, that's not possible. As I think Harry referenced, we're going to have a wrap-around effect from 2016 on expenses, so we're going to continue to spend against this business. So I'd be looking at 2017 more as the trough year.

Paul, on Entresto.

As you imagine, I did plenty of diligence before accepting the role and subsequently on Entresto and what the opportunity could be as recently as talking to some top KOLs this last week or two. Clinically, there's no doubt that $5 billion and the previous ambition as stated is incredibly relevant. I think what we've talked about externally before and I've said this with Joe and the team, is that we should push on and exceed $500 million this year globally based on strong foundations in terms of setting ourselves up in Medicare and beyond and then Europe too. If we do that, I can see a line. When, I couldn't tell you, but I feel confident that we're resourcing it appropriately to get there and I feel l good about it.

And, Harry, on Innovative Medicines margins.

You mentioned GSK, ex-GSK, oncology assets had a 25% margin before we acquired them. And they have moved up significantly in their margin contribution. They are clearly around the average oncology which is very high margin and depending there will be some -- there's some ongoing combination trials. After that, they will be even above average. However, when you look at the profile of 2017, I mentioned initially this effect of Glivec being pretty high prior-year and prelaunch and other investments. The first half will be a bit depressed margins, core operating income declines, second half core op inc increase for the total Company driven by these dynamics in the oncology unit and quarter one will be even a bit more pronounced. We could have a core operating income declining high single digit to low double digit in quarter one versus prior-year. But GSK, ex-GSK, oncology is contributing very well to the overall oncol margin and the Company margin, ahead of our expectations.

Next question, yes.

It's Michael Leecoat from Main First. You've mentioned a lot about these value contracts, Joe and been very public about that. When will we see some hard data to give us an idea of how effective they are? If they're effective, how fast and how far can you roll them out across your business? And how will that impact the shape of your marketing costs, given on the one hand, you've got the value based contracts for Entresto and on the other hand, significant sales force investment?

That's a good question. Right now, as I said, the value based contracts are with a number of payers in the U.S. and also in Europe. They're confidential and so we're not going to, we're probably not going to be public with whether they're working or not working. What you will see is if they are working, you're going to see more of them. If they're not working, you're going to see kind of a retooling of what it will take. It's very interesting. Right now, everybody wants to do them and they're difficult to do because of data. The ability to get the data to actually see if hospitalization was reduced in that cohort or not. The integrated payers in the U.S. can do it. In Europe, there are many payer, single payer systems that have the data to be able to do it. But we're doing this more as a way to stay in the front of this because we know it's coming. There's too much waste in the system that will be eliminated once true outcomes-based contracting takes place. Not just in pharmaceuticals, but I'm talking about one of the reasons why we're doing this is that it's not just about the pharmaceutical. We're looking at a everything else, all other inputs that either result in that outcome or not and we're getting rid of the stuff that doesn't. And that is a lot of waste that we're getting out of the system. So I can tell you that it's going to be a journey. It's in its beginning phases. And so it's really too early to say how that would change the shape of the M&S spend right now. Yes, back in the back.

Thanks for taking the question. It's Narif Strahan from New Street. Firstly on Entresto, you've still got around 77% of Medicare plans with PAs and the vast majority of them are complex. Given that the guidelines couldn't have been much better, what is the kind of hold-up here and how much do you expect that to fall in the near future? And secondly, in your TRx guidance for 2017, have you assumed a material change in those PAs either on the commercial or the Medicare side? And then lastly on Cosentyx, we've seen a new entrant in Taltz and then eight price cuts. We may be seeing another one shortly in February for Cosentyx, in secukinumab. Should we expecting, given the changing dynamics in the U.S., is there a risk that there is a further rebate given through the year on Cosentyx?

Okay. So the 2017 number of exceeding $500 million globally includes the level of access as defined. Access will continue to improve in the complex to simplified to absence in both populations over the year but it will come gradually. The guidelines as we've all learned, I think in many therapeutic areas, not just in heart failure, they give wind at your back and a lot of confidence, but it takes time for the people to change prescriber behavior, particularly in conditions that have only been treated one or two ways for a very long period of time. So we made progress every day but it's not like a dam bursting. The take-away from the Entresto piece is the three variables that we've been fixing in the back end of 2016 for 2017 was to deliver more than $500 million. We will see and take stock then whether that's the right access. As for Cosentyx, I'm not sure I heard you right. Did you say a price cut? Is that what you said?

Rebates.

So we're the market can leader by some significant way in this class and of course ex-U.S., it's okay, but in the U.S., you have single and double stepedes depending on the condition, depending on the indication. We, by definition, have to rebate a bit less because we're the market leader. I think we've been very thoughtful and I think between us and the payers we've really looked hard at the patient populations and we recognize that rebate is just part of it. Then pull-through and turn into share performance and real patients, is on us to make sure that that happens. Whilst it will be modest growth at the beginning of 2017 in quarter one, I'm very much expecting an acceleration because of that access opportunity over the remainder of the year, any strong performance irrespective of number of competitors in 2017.

Question here and then we'll go to the right.

[Indiscernible]. Just a short question again on Entresto, just to have a bit more regional information about U.S. and ex-U.S., how it's been going and whether you can also say something going forward are there expectation is sliced by these by U.S., ex-U.S.

Sorry, Joe. So, I think we've touched on it before. We're roughly two-thirds, a third U.S. versus Europe at the moment. We don't -- that will resettle, we think, because don't forget that although ex-U.S. looks a little under-powered in terms of performance, we're about to launch in Italy. We're restricted for cardiology only and that will come off at some point this year in France. We had very favorable health technology support in the UK, but it's still early days. In Spain, we only launched in October. In terms of the major European markets that have a strong aptitude to treating in heart failure, you're expecting them to start to accelerate in the second half of the year and beyond. Then I think we'll see a rebalance and then perhaps the U.S. shift again based on how quickly we penetrate the Medicare population. So, I think the ex-U.S. looks a little bit lighter right now, but we'll start to gather momentum and then we'll see how they balance out throughout the remainder of 2017.

Next question on the right. Yes.

Manoj Garg from Healthco. Since we have Richard sitting patiently, I'll ask a few. The guidance provided for Sandoz, does it -- what does it contemplate for Glatopa 40. One. Two, what does it contemplate for U.S. pricing? And then three, we've recently so far this year seen some updated guidance out of the FDA on interchangeability for biosimilars. Just wanted to see from a practical sense, what impact you see to your business from that.

Thank you for the questions. Appreciate the engagement. So, on 40 milligrams, it's a good question. Maybe if I sort of explain the variables involved in that which I think make that quite difficult I think for people to model, including ourselves, is there are a number of factors. First, we have to have the approval from the FDA. As that happens, as you know, with Ananda, there is no specific time period that that has to happen in. That's one variable. There's obviously the litigation around the patent which also has a certain variability around that to when that happens. And then finally, as is very often the case in my sector is the number of competition or competitors coming in. So how many competitors will come in at the same time or later in the year and how will that play out for the revenue expectations on Glatopa 40 milligrams. So obviously, we're planning on launching that. Those are the variables which make it very hard to predict how that's going to impact the revenue for Sandoz. With regard to pricing --

Is it in this number or is it in the number of risk adjusted?

It's in the number. It's in the number. So then if you go to the pricing in general in the U.S. which was your question, we ended last year with a 6% price decrease, net price decrease which was slightly better than the year before. I wouldn't read too much into that. It's a market where we've always said it's around 6% to 8%. I would stand by that for 2017. So no major change from a pricing and the reduction in some of the price in the U.S. A lot of that, obviously, depends on competition, when competition comes in and how they come in. That's that question. On the interchangeability that we've just seen from the FDA come out, obviously that's just come out, so we're just absorbing that, but we think firstly the FDA set a very high bar with regard to having these products approved in the first place and biosimilarity and from an efficacy and safety. I think they followed that through to a certain degree on interchangeability. I think for us we see that as something which a Company like Novartis can manage very well. What it actually means in the market, I think, is a question a lot of people are asking now and I think that often will depend on whether it's in the hospital setting, the product or whether it's in the retail setting and then it also depend on how some of the states start to view substitution in individual states, because we know 26 states have made some decisions around that already. That's how we sort of view it. It's only a few days old, so we're still absorbing what that means.

Question in the back.

One question on the outlook for 2017. Can you guide us through your assumption on the pharma side, when do you expect the fourth and fifth generic of Glivec come into the market. One question for Richard regarding your biosimilars. I was expecting or you were as well in your presentation, the submission in 2016 of the Humira biosimilars in the U.S. Now looks like it's postponed for one year. One question finally for Paul. What will change once Humira biosimilars will enter the market? Do you expect the price to drop and for some patients to start first on Humira and eventually only after that on Cosentyx? Thank you.

Assumptions on the outlook for 2017 for Glivec, really, Glivec has already had generic entry in Europe, so they're already here. So really not much beyond that. Harry, do you have anything else to add?

I think [indiscernible] can maybe add more details. Several generics are already in Europe on the market and also in the U.S. we expect continued entries.

Richard? Go ahead.

In Europe, we believe the dynamics are very different from what they are were in the U.S. and it varies from country to country. On average we have eight to 10 generics that are registered per country and it's still early days that we lost the patent on the 21st of December. But there are 20 generics in Germany and in France we haven't seen a generic yet. It's still very early days. We'll see what happens over the next few weeks.

Richard.

In the U.S. we anticipate there will be more generics this year, clearly and some further decline in the U.S.

Maybe you could give --

With the Humira biosimilar originally had intended to file in Q4. Based on discussions with the FDA and ongoing capacity upgrades we're making at our production site and the timing of regulatory inspections that would be required, we have pushed that into the first half of this year. We expect to file it in the first half.

Paul.

In the U.S., particularly in AS and PSA and even somewhat in psoriasis, there's a single or double-step edit through a different mechanism irrespective of whether it's a biosimilar or not. So, we live in a world where other standards of care are expected to be -- to have failed. The difference between the Humira net price and the biosimilar price, I have no idea about. But I think that will settle down and I think because of the efficacy differential that we have in the major indications that we're in, that they will reach Cosentyx in the right period of time.

We have time for one more question and then remember, there's going to be a Q&A session after the development session and after the research session. Go ahead.

A question regarding your capital allocation policy. Just like you have done Alcon and you expect to do with Alcon review this year. I'm just thinking, what has been your thoughts on capital allocation. If you go back the last five years. If you look into your share buybacks how much they have created for your shareholders and compare that to paying out a dividend cumulative over the last five years and also looking into the actually rate of return that you made on bolt-ons over the last five years and how you see that actually, let's say that spill over into the next five years or three years.

Harry.

So I think I've demonstrated we have these four priorities. They are also in that priority. So first the organic investment and we have made significant ones despite the Glivec generics, for example and overall, we try to find always a very optimized balance. So we have done share buyback in 2014 and 2015. We announced now, given that the share price we believe is at a very low level that allows us to be a very good investment and good deal for our shareholders and as we go along our business situation, we optimize based on each of the elements. In terms of the bolt-on, if you go a few years back, we started in 2012 with Fujairah, $1.5 billion. Then we did a bit bigger than bolt-on with the GSK, buying oncology for $16 billion. Now we have done 18 smaller bolt-on deals to strengthen the pipeline over the roughly $2.5 billion, if you add all of those together. So, we really optimized the capital allocation according to the business situation and the market external environment.

What I'd like to do is have Vas do his section on development. We'll then take a break and then we'll come back and do Q&A on R&D. Vas.

Great. Thank you, Joe and thank you all for giving us an opportunity to give you a bit of an update on what we're up to in R&D at Novartis. Over the next two sessions Jay and I will give you a perspective on our late-stage development portfolio, as well as our mid-stage portfolio, as well as many of the exciting things going on at NIBR, as well as with our immuno-oncology portfolio. What I can say is what we're about to show you is what really animates the over 120,000 employees we have at Novartis. It's what makes us come to work every day to find breakthrough medicines that can change the lives of patients and change the trajectory of healthcare systems. Today in development, we have three key priorities. Creating an efficient and agile development organization that is future-proof for the next decade, delivering our late stage pipeline of 13 potential blockbusters and advancing our high value mid-stage opportunities, internal and external. I'm looking forward to giving you much more transparency as to some of the assets we're excited about in our mid-stage pipeline. Let's start with the development organization and some of the work we're doing. When you look at Novartis's track record in R&D, we have a deep pipeline. That's always been the case. Today we have over 200 projects in the clinic and 90 NMEs. We're very proud about the depth and breadth of our pipeline. We also have been recognized for our innovation power. We have 13 breakthrough therapy designations, seven FDA fast tracks last year in a range of different indications. We've also been successful, with 29 approvals over the last five years which puts us in the top three in the industry when you think about approvals in major markets. We also see an opportunity to change how well we perform and really drive our R&D returns. We see opportunities to do better at portfolio prioritization. Better at lowering our cost space and driving efficiency. Better at leveraging new technologies and better at leveraging talent that we have internally, as well as bringing in more external talent to strengthen our organization. So what I'd like to do he is talk to you a little about the five priorities we have in creating an efficient and agile organization and walk you through them, one by one. Our overall goal is to drive a higher return on investment on our R&D investments that we make as a Company. Our efforts to lead in cost efficiency and how we will actually get to that 20% stable R&D spend as a percent of sales in Innovative Medicines. So let's start with rigorous portfolio prioritization. What we've instituted at the Company is, first, a rigorous approach to how we think about the disease areas we play in. Every year we get our key scientists, development leaders and commercial leaders together to really think about where do we have strength in Novartis, where is there unmet need and evaluate, are we playing in the right areas? Some recent examples of shifts we've made is to prioritize liver diseases, where NASH, but also beyond NASH, there's a tremendous unmet need for better medicines to treat the epidemic of liver disease, but also to de-prioritize areas, like transplantation, where we've been leaders historically, but we don't view at the moment a significant opportunity for our assets to make a difference for patients. We've also institutionalized now across all the divisions in Novartis a common approach to project prioritization, where we evaluate projects based on their science, their risk and their financials. And that really drives how we prioritize projects into four categories. Race projects which are the top priority for the Company. Go projects which go at a normal pace. And pace projects, where we actually gate projects to very specific deliverables or specific data and that then drives resource allocation. That's one of the important shifts we've made. We have linked our portfolio prioritization to how we resource. Do we resource at risk? Do we only resource up to a certain milestone or do we really hold back resources for further decision making? The second element is to really consistently measure our R&D performance. We're focusing on five key measures, output, cycle times, cost, quality and returns. We're looking at that systematically from the best data we can really find from external benchmarking groups and really asking ourselves over a five and 10-year period, how can we lead in each of these areas? When you look at output and cycle times across most of the validated benchmarks, we're leading the industry, but where we see opportunities to improve is in our costs and particularly in our returns, where we want to generate better three, five and 10-year returns moving forward. Now, when you think about one important measure, replacement power which I believe is one of the most important measures for a Company of our size, based on the latest data from EvaluatePharma, we ranked third in the industry, really showing the depth and power of our pipeline to continue to drive the growth of the Company. Third, is drive-rating operational efficiencies and as both Joe and Harry highlighted, we have now brought together drug development across the Group. What that allows us to do is a couple of things. We can harmonize our processes and integrate our operations to really ensure we're spending every dollar in the best possible way. It's also allowing us to look for synergies across duplicated functions and make sure we get the costs down, so that we're spending appropriately for the portfolio. We're also able to better leverage our global scale which allows us to work with CROs and other partners on the procurement side, but also leverage low cost centers of excellence. In Hyderabad, India, we have a world class center, one of the large in the industry, with over 2,000 people dedicated to really driving our development portfolio. Fourth, we're leveraging technology. We're upgrading our core systems. We have one of the most ambitious programs in the industry to take all of our core systems in development and make them cutting edge. As well as scaling digital technologies and digital development where we have numerous partnerships with tech companies from Silicon Valley and are rolling out studies with digital sensors, as well as other partnerships to bring forward digital technology into our portfolio. And finally, we're bringing in external talent to complement our internal talent. These are just a few examples, but Eric Hughes joined us from BMS where he was a leader in translational medicine and a real expert in liver diseases. Badhri Srinivasan was previously the head of delivery for Quintiles, where he ran Quintiles's massive operations and now he runs our operations here at Novartis. Christine Dingivan, a general surgeon who had significant roles at MedImmune and more recently was chief medical officer at PPD. And Subodh Desmukh, who now is running our Indian operations, who is the head of R&D at Sun Pharmaceuticals. So really top-notch people we're attracting to the development organization to help us get to that next level of performance. So now what I'd like to do is walk you through systematically our late-stage pipeline of 13 potential blockbusters. These next two sections are quite detailed, so I hope you'll stay with me. I'll try to do it in as clear way as possible and then of course we can answer any questions in the Q&A. When you look across our portfolio, we have a broad and deep late-stage pipeline. In every one of these therapeutic areas, we're looking either through our internal portfolio or through external deals to ensure we have the breadth and depth needed to actually sustain the portfolio and sustain our growth. In addition, as Jay will highlight to you, we have over 100 projects in 70 NMEs and exploratory clinical studies that also allow us to keep fueling this pipeline for the future. Now, when you look at it, we have 13 potential blockbusters at Novartis. Since the Q3 earnings, there have been of movement. Of course, for Vista fell out, because of the Phase III failures that we saw in early December. We've added in CTL019 and DLBCL and ALL, where we're moving forward with filings that really could revolutionize the care of late-stage cancer therapy. As well as SEG101 therapy for sickle cell pain crises. What I'd like to do now is walk you through each one of these sections and give you some perspectives on every one of these products. Starting with oncology, oncology we have one of the broadest portfolios in market in the industry, in development, as well as in research. And there are important milestones that we'll have in oncology which are not listed here, including PKC where we did receive priority review. We also have Mekinist and Tafinlar in non-small cell lung cancer, as well as Zycadia now moving. We filed last year for first-line indication also in non-small cell lung cancer. Those are all also advancing. We wanted to focus our discussion on these three molecules. First, with LEE, our overall strategy in LEE is to differentiate along three axes. One is to generate the most first-line data in the advanced metastatic setting. Second, is to ensure that we look at pre-specified subpopulations where we can show differentiation. And third, is to continue to build a pipeline behind LEE that can support it into the future which we're doing on the research side with selective estrogen receptor degraders, among other technologies. With our portfolio on the MONALEESA studies, we continue to progress well. You all know well the MONALEESA-2 result which was the basis of our filing. We expect the U.S. regulatory decision in Q2 and an EU regulatory decision in the second half and those discussions are going extremely well. We've fully enrolled our MONALEESA-3 study which is in first and second line, in combination with fulvestrant. Based on the data that we see later this year in the second half, we expect the possibility of a filing in early 2018. MONALEESA-7 which takes us into premenopausal women in the first line with a readout in the first half of 2018. Most importantly, we're pleased to announce we will be moving forward with Adjuvant trials in high-risk and medium-risk Adjuvant. Those trials will initiate in the first half of this year. These are long studies. We believe it's important for us to round out the portfolio of indications for LEE to move into the Adjuvant setting. In terms of differentiating based on data and what we see in pre-specified populations, we presented some important data in San Antonio which highlighted that LEE in cross-study comparisons might have better efficacy in certain patient sub-populations. This includes populations such as patients with de novo advanced breast cancer, as well as patients with visceral metastases. These are tougher to treat patient populations and I think it's really good to see that LEE has the kind of efficacy that you see here and at least looking at cross-study comparisons, we believe this is very attractive versus the competitor that's already on the market. I know what's on a lot of people's minds is the safety profile of LEE. And when we looked at this very carefully, we believe this is a safety profile that has quickly identifiable, manageable and reversible side effects. When you think about the netropenia you see with LEE, it's exposure related. There's about 60% grade 3, 4 which is consistent with what you see with the licensed competitor and the time to onset is relatively early. When you look at the QT prolongation, we had about 11 patients that were over 480 milliseconds. The time to onset was, again, was within 15 days and was readily detectable and resolved, either with dose reductions or spontaneously. Finally, in terms of hepatobiliary toxicity, we had four Hy's Laws cases, but all were reversible and all were identified within the first six months. Overall, you only had 7.5% of patients discontinue. When we've discussed this and as we now work with the agencies to get to our final labeling, our proposal and our approach, that we will of course need to finalize with both the FTA and EMA, is design an approach that minimizes the burden for patients. On the first line here, you see the neutropenia monitoring that's already in place for the currently-approved agent, with visits on cycle day one, 15 and on cycle two, day one and day 15 and then day one for every subsequent cycle. When we look at the EKG monitoring required and it's important to note that we estimate upwards of 75% of U.S. oncologists have regular access to an EKG machine in their offices. There's no additional visit required. The EKG monitoring would happen on visits that are already occurring. Similarly, with liver enzyme monitoring which is really just part of standard blood testing that can be easily done, it's again aligned with visits that are already happening. So we would not be in a position where we expect physicians or patients to have to deal with additional visits with LEE. Taken together, you have a very big market. You have Novartis's long legacy in oncology. You have an impressive efficacy profile and a manageable safety profile and we're looking forward to launching this product in 2017. Moving to CTL019, many of you saw at the end of last year we had very impressive data with Eliana, our Eliana trial, where we showed that 82% of children received or were able to achieve a complete response within three months. When you think about pediatric ALL, the current prevalence is around 7,000 patients and we would expect in the third-line setting around 700 patients and the second-line around 1,100. When you look at this trial, we have a primary end point that was hit and a very acceptable safety profile. No deaths due to CRS. No neurological toxicities or no cases of cerebral edema that were reported. We're on track for a filing in Q1 of this year, as well as a filing in Europe targeted for later in 2017, where we hope to combine the filing with ped ALL and DLBCL into a single filing. Very exciting and shows our commitment and that we executed on our plans within cell therapies. When you look at our DLBCL data, so far from the University of Pennsylvania, very compelling data in the DLBCL line of therapy. We have a pivotal readout that will come later this year and assuming that data is positive, we expect to be able to file also within 2017. We have completed treatment of 80 patients and the interim analysis of 50 patients should be available in Q1, as well as 80 patients in Q2 which will then inform our filing decisions. DLBCL is a much larger indication than pediatric ALL. You have about 56,000 patients, while with DLBCL and about 19,000 patients in the third line. This is the indication we believe that could propel CTL019 to become a blockbuster over time. Submissions, as I said, are planned in the U.S. and EU for Q4 of this year. Our CAR-T cell enterprise continues apace. Our colleagues at NIBR are continuing their collaboration with Penn and we feel very confident we've got this now set up in the right way to succeed. Finally, with SEG101 which is the molecule we recently acquired through the acquisition of Selexys, this could be potentially the first new therapy for sickle cell disease in 15 years. Sickle cell disease is debilitating condition, primarily affecting children of African descent, who later move on to adulthood and have very truncated life expectancy. The life expectancy can come down to as low as 38 to 42 years and much lower in Africa. Diminished quality of life due to these pain crises which bring these children back and forth to the hospital and that continues on into adulthood. Hydroxyurea is the only approved therapy for this. This was approved in 1999. With a pretty severe toxicity profile. Only about 25% of patients remain on therapy. So a big unmet need. With SEG101 in the Phase 2 sustain trial, we had really striking results. We reduced the number of annual pain crises by 45%. If you look at the median time to the second pain crisis, it more than doubled and we doubled the number of patients who had no pain crises in the study. This is an antibody to the P-selectin which is in the vessels and is involved with adhesion of red blood cells and platelets. It was also effective regardless of whether hydroxyurea, the currently approved therapy, was onboard or not and was generally well-tolerated. We plan to take this data to FDA and EMA to discuss what would be required beyond what is very impressive efficacy data, both from a manufacturing standpoint and a clinical standpoint. And I'll be updating you in Q1 as to the next steps on this. We expect to be able the to file this within the 2019 time period, at the latest. Moving to cardio metabolic, where we have three assets with relatively near term readouts. Relaxin Entresto preserved ejection fraction heart failure and Ilaris in CV risk reduction. Let me walk you through where we're and some of our thinking about these three assets. Starting with Serelaxin and acute heart failure. This is a significant unmet need, where there is no approved therapy that's actually shown a mortality benefit. You have about 3.4 million acute heart failure events a year in the U.S. and the EU5. If you look at the inclusion criteria we have in the study, patients had to have above 125 millimeters of mercury and systolic blood pressure in order to be able to take Serelaxin. We estimate that brings down the population down to 2.5 million. Also in the study, though we don't know how regulators will ultimately view this, glomerular filtration rate, so the functioning of the kidney needed to be above a certain level and that brings the population to around 1.2 million. When you take that together, a very large indication and the potential to be the first drug with mortality benefits. The RELAX-AHF-2 trial is fully enrolled, 6600 patients and we have reached the required number of events in the study. So we're now in the process of closing out the study, working with the investigators to lock the database and on track for a study readout in Q2. Why do we feel confident about the RELAX program within the, of course, uncertainties of any cardiovascular outcome study. When you look at the first study that we conducted, you had an early and significant reduction in all cause in CV mortality. You can see the curve split right away from almost day two. And there was a favorable safety and tolerability profile, because Serelaxin is actually a derivative of a naturally-occurring hormone that occurs during pregnancy. What I think we probably haven't discussed enough is the totality of data we've seen between the phase II and the phase III. And I have tried to summarize that here in this chart. When you look at every efficacy parameter across a range of measures, Serelaxin had highly statistically significant improvements over placebo. Those include in the relief of dyspnea, the decrease length of stay in the hospital, the prevention of worsening heart failure. Importantly, when you look at the results of ularitide reduction of organ damage, where we had important reductions within 48 hours and most of the markers of heart wall stress which really indicates that Serelaxin might be having that protective effect you need in those first 48 hours to have a mortality benefit at six months later. Also, when you look at of course the reduction in mortality, we have two studies, pre-RELAX and RELAX-AHF-1 that had a mortality benefit. Taken together, we're very excited about the program. We'll of course keep all of you posted as soon as we have the results and we look forward to discussing that with you in the first half of the year. Moving to Entresto, Entresto, of course, we have the approval and reduced ejection heart failure. We're now expanding into preserved ejection which will double the number of patients that are eligible for the therapy. Into the post AMI setting which is really pre-heart failure, really intervening after a patient has a heart attack, but before they've progressed to heart failure. All four of these studies are on track. The PARAGON study has fully enrolled. In December, we completed enrollment four to five months ahead of plan. We're on track for an interim analysis in 2018, as well as a filing in 2019. The post AMI study is enrolling well again with a completion in 2019 and both the TRANSITION and PIONEER studies which are really studies to support Entresto's use and initiation in hospital which will be very important in Europe, where we want to continue to expand the guidelines. These will also read out in 2018. When you look at the Entresto PARAMOUNT data, why would we expect Entresto to work in preserved ejection heart failure, when no other drug has shown to be effective in preserved ejection heart failure? I wanted to bring us back to the Lancet study that was conducted, published in The Lancet in 2012. The PARAMOUNT study which showed that both in terms of hemodynamic parameters and structural parameters, Entresto is the only drug to ever actually hit the primary end point in a preserved ejection heart failure trial. We showed a highly statistically significant reduction in NT-proBNP, but more interesting to me is the structural benefit that we showed. You can see we had an increasing structural benefit out to 36 weeks. This is actually work looking at the pressures in the atrium that were actually improving the biology of the heart. This gives us, I think, a reasonable amount of confidence as we take this forward and I know the investigators are very excited as well about the preserved ejection fraction program. Finally, in the cardiovascular space, we have Ilaris for cardiovascular risk reduction. This is a situation where we have 10 million patients who are post MI in the G7, but really what we're looking at here are patients with an elevated highly-sensitive CRP, so who have active inflammation post their heart attack. That takes it down to about 4 million patients. This is a new approach, of course, to reducing excess mortality. It would be the first drug approved for addressing inflammation's role in the plaque. We think this could build on the portfolio I'll tell you about a little bit later with LP little a and ApoCIII. Two compounds we brought in from Ionis or have an option deal with Ionis to potentially develop. I think the key point I wanted to highlight here and looking at the discussions that have been happening externally is how we powered the study. There was some discussion about was the study now under-powered? This study has been powered based on an event rate. The events we agreed with the regulators that we needed to achieve was 1400 events and we have achieved 1400 events, as designed in the protocol. The sample size adjustment only affected the length of time the study would be ongoing. If we had recruited more patients, we might have been able to finish the study quicker. When you look at the overall power we've not lost any power. We have powered the study appropriately and as we agreed with the regulators. In terms of the safety profile, this is a drug that has passed three futility analyses and 20 DMC safety reviews and has been taken all the way to completion. I think we can feel reasonably confident that there is no significant safety signal either from infections or other risks that might have occurred in this study. Now moving to neuroscience, where we have three potential blockbusters, ofatumumab, BAF312 and our migraine drug AMG 334 which is a partnership with Amgen. So, starting with multiple sclerosis. We're trying to build a sustainable long term portfolio in multiple sclerosis that covers both relapsing remitting, as well as progressive forms of the disease. In terms of the size of the populations in the relevant markets, we estimate there's about 530,000 patients in RRMS. Within the 250,000 patients who are in relapsing and non-- are in SPMS, they split about half and half relapsing and non-relapsing. Our goal is to cover this entire patient population with BAF and with ofatumumab. So, when you start with looking at ofatumumab, why did we bring this drug in. Of course, we all saw the very impressive results with Ocrelizumab as a B-cell therapy. In phase II data, ofatumumab had an almost identical result when you look at the reduction of MRI lesions. Almost 100% reduction in MRI lesions versus placebo with a highly statistically significant result. Based on this and additional data we saw from the study, we have now initiated two parallel phase III studies versus Aubagio. They both started last year and we're on track for a filing in 2019. How will we position ofatumumab versus Ocrelizumab in that 2019 or 2020 time period? We see ofatumumab as having five key differentiating factors. One, the binding is selective and we think that could have impact down the line in terms of sustained efficacy. We have low immunogenicity, it's a fully human antibody. You don't he see immunogenicity in studies so far with ofa. A very good safety profile. I'll tell you a little more about B-cell recovery in a moment. Subcutaneous dosing, that's monthly versus IV infusions every six months. Patients and providers have control of their therapy and a relatively low dose. Some of the most interesting data with ofatumumab which I'm not sure has been fully appreciated, is the B-cell recovery. This is not a drug where you give a patient a very potent drug in MS where they're going to be on these drugs for a very long period of time. You wipe out the B-cells and then you're going to have no B-cells for an extended period of time. Here you see regardless of the dose we gave solid B-cell depletion. When you look at the dotted line on the graph, that's where we stopped therapy. You can see that within five months you have 80% recovery of the B-cells. So you have relatively fast recovery of B-cells. In chronic therapies, like MS, we believe that over time physicians are going to want the reassurance that there's that B-cell recovery, should there be safety issues. This is an important differentiating point, versus IV, more potent B-cell depleters. Finally a brief update on BAF. I don't have any new data to share on BAF, this is the data we already showed at Q3. There was a consistent effect demonstrated across all subgroups with BAF. We continue to wade regulatory feedback. We've had initial discussions with four regulators from EMA as well as interactions with FDA. The formal meetings that will actually give us written guidance will happen in the February and March time frame. I would expect in Q1 to be able to give you guidance on what we expect next for BAF. The most important elements we're having to work through with regulators is data in the non-relapsing population, versus the relapsing population. As well as in patients who have active gallium enhancing MRI lesions and those who don't, as well as the intersection between those patient populations. We're doing those analyses and then we'll have the discussions with the regulators and of course keep you up to date. Moving to migraine and why are we excited about migraine. Not migraine, but are excited about treating migraine. Migraine is the sixth leading cause of disability in the world. These patients and a large number of patients with high prevelance in the range of 1% to 2% have a debilitating condition that prevents them from working, interacting with their families. When you look at patients who are with chronic migraine, they live their lives with more than 15 days a month of these migraine attacks. Most of the currently licensed of prophylactic trade treatments have significant side-effect issues. These include antidepressants, anti-epileptics and beta blockers. Most patients don't stay on therapy because of the side-effect profile. They're looking for something safe and effective they can use over the long term. With AMG334, we have a very unique molecule. It's the only molecule of the four molecules in the late stage development that targets the receptor. It does not target the ligand. It's only targeting the receptor. It's very specific to the receptor. It's associated with migraine which is actually found in the central -- in the peripheral nervous system and it inhibits CGRP function regardless of CGRP circulating levels which also could be important in sustaining efficacy. There's important profile differences between this molecule and the others that will soon come forward. When you look at our clinical data, it's very consistent. That's what I want to highlight, between episodic and chronic migraine. When you look at the monthly migraine days, particularly at the 140-milligram dose, you're at 1.9 and 2.4 for episodic and chronic. If you compare that to the phase II data for our competitors and if you also adjust for the baseline levels that the patients enrolled were at, I think you have a very compelling profile there. Most compelling is what's in the gray box. Neurologists, we're taught to say this is what matters. When you have 40 -- over 40% of patients having a 50% reduction in their monthly migraine days, somebody goes from 15 days a month to seven, that is a big change in somebody's life, especially when you have safety that's placebo-like. So, very compelling profile. We're on track to file this in Q2 2017 and our goal will be to be the first in Class CGRP receptor antagonist or receptor modulator on the market outside the U.S. Moving to immunology and dermatology. Paul mentioned our work in non-radiographic axial spa and how for Cosentyx psoriatic arthritis and ankylosing spondylitis is going to be really the key growth driver well into the post-2020 time frame. Cosentyx has shown unprecedented strong and sustained efficacy regardless, regardless of the time point you look at, whether it's one year, two year, three year or four year. We sustain the efficacy and patients can recover when they've gone off drug. That's because this is a drug that has almost zero immunogenicity or very low and has very low injection site reactions which is also an indicator, perhaps, of increased immune response. Very favorable safety profile and what I'm most excited about is the consistency of results we're seeing in psoriatic arthritis and ankylosing spondylitis, whereas Paul mentioned, the markets are even larger than what we see in psoriasis. When you think about spondyloarthritis, this is really now becoming a much better understood disease. The epidemiology is a little bit moving around, but we estimate now there's about 5.4 million patients with either PSA, AS with radiographic features, meaning you can diagnose it on x-ray or non-radian x-ray or non-radiographic features, meaning that the patients show up with some indicators on MRI, as wells as in their serology, but don't show up on x-ray. You can see here that we estimate there's about half the patients are in this non-radiographic group which the FDA has now recognized as a distinct disease entity. Our goal is to differentiate Cosentyx versus the existing standards of care and to move into that non-radiographic population. Cosentyx data we released last summer showed that over 80% of patients did not progress while they were on Cosentyx on x-ray. And based on this data, now we're moving forward with head-to-head studies in psoriatic arthritis and ankylosing spondylitis versus adalimumab. And our goal there to the question earlier is to show definitively that Cosentyx should be the first-line therapy for these patients, regardless of the availability of biosimilars and really ensure and entrench Cosentyx for patient care. The other critical phase III trial we have ongoing now is in this non-radiographic group. Think of it as an early spot before patients have progressed to x-ray. We estimate in the U.S. and EU5 around 1.1 million patients with this. We have a single phase III trial we've agreed with FDA for registration and there's currently no approved drug with this indication in the U.S. Our primary objective, as you can see, is at week 16, trial is enrolling well and our filing is expected in 2018. Taken together, the head to head with AS and PSA, as well as moving into earlier lines of -- earlier parts of this disease, we could have a really significant medicine that changes the course of axial spa for patients around the world. Moving to respiratory, where we have two critical phase III programs ongoing in asthma, QVM and QAW. Our goal in respiratory disease is to build off the foundation of Xolair. As you saw with Paul's presentation, Xolair continues to do extremely well. It's the first choice biologic for allergic asthma. Even with the anti-IL-5s coming, Xolair continued to perform extremely well. Our goal now is to build out a portfolio of oral and inhaled agents to support Xolair. QVM is our inhaled combination therapy. There the phase III of trials are ongoing. We have a planned filing in 2019. What QVM will give us in severe asthma is both a LABA/ICS as well as a LAB/LAMA/ICS, the way the trials are designed and is as agreed with regulators. We get two products as part of that. QAW which is our oral CRTH2 antagonist. We're enrolling two pivotal phase III studies in eosinophilic asthma. I'll say more about that medicine in a moment. And then we continue to build out our portfolio of data with Xolair. We have moved into pediatrics with Xolair and are looking for other indications to expand its label. QAW, you've seen this data before, but a couple of nuances I wanted to add. Here you see what QAW was able to achieve in spiramycin philia reduction for severe allergic asthma. This is in line with what you see with mepolizumab, as well as the other anti-aisle 5, so, very compelling. Our pre-clinical data now demonstrates versus other CRTH2s. Multiple other CRTH2s have confirmed this result now in eosynophilic asthma that there is this effect on spiramycin philia. That we have much higher potency. We have the ability now to move up on the dose which we're also looking at in the trial. And we expect the readout in 2019. Speaking to investigators, they're very excited about this medicine, because obviously, if you had a safe oral before having to go to a biologic, especially in a disease that impacts children the potential could be very large. We're very excited about this and we're looking forward to finishing the study and moving to a readout. Now, finally, in Innovative Medicines before I move to biosimilars is the RTH program in neovascular AMD. As all of you well know with the long legacy we have with Lucentis, we've been pioneers in this space and there's 44 million people who suffer from age-related macular degeneration, leading cause of vision loss in people over the age of 50. There's a need still for reducing the burden of intravitreal injections. Patients and physicians would love to have even a lower burden than what they see with the currently available medicines. RTH had very compelling phase II results. This is versus Aflibercept or Ilia. We were non-inferior with quarterly dosing versus bi-monthly dosing. And in addition, we saw with this antibody which actually has about an eight-fold higher concentration, because it's a fab fragment versus a monoclonal which allows us to increase the binding capacity by getting that higher dose. You see a greater resolution of retinal fluid. I think also importantly as I've received many questions, the safety profile in this phase II study was comparable between RTH and Aflibercept. Here you can see number of AEs, significant adverse events greater than four in any of the treatment arms. Any event versus the others were all comparable. We've had no safety issues in the two studies. Those two studies now are fully enrolled. We're on track for a readout in Q2 of this year for RTH. Now turning to biosimilars, a few updates I wanted to provide before turning to the mid-stage pipeline. As I noted earlier we had a few things move around with adalimumab, our Humira filing with FDA. We've moved that into 2017 in order to time inspections appropriately for when our facility will be ready for those inspections, but no issues with our clinical data. As I've already told you previously with pegfilgrastim, we're going to need to refile both in the U.S. and Europe, based on additional studies, the PK study that we need to complete, but we will be completing that and we're on track to submit that in 2017 and 2018. 2017 for Europe and 2018 for the U.S. Overall, when you look at our biosimilars portfolio, etanercept was approved in the U.S. and as Joe mentioned, the review in Europe is ongoing. We're working well with the regulators to get that review done on time and approval. Pegfilgrastim, I mentioned. For infliximab, our confirmatory study for Europe demonstrated equivalent efficacy to Remicade and importantly with rituximab, our application for biosimilar was accepted by EMA. We're working through now the process to make sure that we also get that product approved in the 2017 time frame for launch. So, overall, our monoclonal antibody enterprise to really build off of our legacy in recombinant proteins in biosimilars is going well. Now what I'd like to do is actually turn to in the last 20 minutes, hopefully take a little less than that, is to give you a little more perspective on our mid-stage opportunities. Historically, we haven't provided a lot of transparency, but our goal going forward is to give investors much more visibility into what's happening in that phase II pipeline and keeping you up to date as we progress these molecules through the clinic. When you think about how we build that mid-stage pipeline, what's really critical is on the internal research and development side is that we have a seamless integration between research and development. And Jay and I have been working to do that by integrating our governance, integrating our teams, aligning our priorities and focusing on speed to eliminate white space, so that we move much more quickly out of proof of concept studies or phase I studies, in the case of oncology and much more quickly into pivotal studies. We're also working on continuing to execute our bolt-on strategy, where we bring in external compounds through acquisitions and licensing to strengthen that internal portfolio we bring in from NIBRs. Harry mentioned we've done a large number of deals which are exciting assets to help us build the portfolio. And I'll give you some insights on a few of those assets in a moment. When you think about our pipeline watch list, what I wanted to accomplish here was to give you a visibility into what our organization is working on in the phase II B portfolio. You can see here it's an impressive list. We didn't want to list them, but Jay will walk through them, 15 IO assets that we're preparing for and you can see in oncology a number of other interesting therapies. A broad portfolio on cardio-metabolic, ummunology and dermatology, neuroscience. In every area we have a number of assets that are coming through that we'll read out in the coming two to three years. They're not even factored in our filing chart. Some of these, if they have significant results, obviously we could be moving to filing much more quickly. A few of them I wanted to highlight. Most importantly, I know on many, including our minds, but many of your minds, is where are we on our immuno-oncology pipeline. We continue to progress 15 different agents. Jay will go through it in detail. On the development side, we're ensuring readiness to move quickly. I wanted to give two examples. You'll see now in clinicaltrials.gov, we have initiated a pivotal study with our own PD1 inhibitor along with Mekinist and Tafinlar in melanoma. That study will start in February. We're also rapidly advancing our PD1 in four other indications, all of which have now been posted to clinicaltrials.gov to move quickly now, to not only have our own foundation with a PD1, but also now to move into attractive combinations with our targeted therapy. And we feel Mekinist and Tafinlar was one to highlight, because this really could be a very exciting combination to build for our melanoma portfolio. We're fully ready and we're going to move quickly as we get the readouts in the middle of this year. Second, is ABL001 in the oncology side. This is really a triumph of chemistry, where we've created a potent allosteric inhibitor for the BCR-ABL protein. We've now taken this forward into late stage studies in the third line, where we have very compelling data in patients were heavily pre-treated, we were able as you could see here to get a very impressive molecular response and we think that this could really be a much more well-tolerated as well as more effective therapy in the third line but now we are going to move also into the first line where the question would be given regulators and clinicians are much more interested in a deep molecular response and given that the traditional [indiscernible] are not the best tolerability profile. Could we add ABL-001 to TKI's in the first line and get patients to remission like stay much quicker and get them off drugs. So this is a study now we're in the planning phase on but to move into the first line on ABL-001. LIK is our SGLT-1/2 inhibitor. This was a drug we have on the shelf because we relate versus the SGLT-2 inhibitors in diabetes but based on a few clinicians great insight we took it into obesity where of course the SGLT-1 has a impact on the intestine and we're still T2 in the kidney. Our proof of concept data projected that we would have 10% plus placebo adjusted weight loss at 52 weeks. We're now optimizing the dose in a Phase 2b trial and trying to move forward with this drug in weight loss especially also in combinations to think about in the future but we're very excited about this because it's a pretty remarkable result versus the currently approved drugs. Next in cardiovascular disease we've also brought in through an option deal with Ionas or [indiscernible], two very novel agents which are the first to target the next wave of targets for cardiovascular risk reduction. After you've optimized patients on satins or PCSK9s you have optimized their LDL and they continue to have residual risk factors, there's not been any drug approved for two of the most genetically validated risk factors, LP little A and triglycerides. This is of course is an RNA interference based technology and we're excited to see now how this Phase 2b results come out from Ionas which would then enable us to take this on in 2018 in the case of LP Little A, in 2019 in the case of ABL-3. What I think excites Paul and the commercial team is this also is an opportunity to segment risk to use biomarkers to identify very specific patient populations which we get then take forward to give them payers a much more compelling value proposition. On neuroscience we've now initiated our pivotal Phase 3 studies in all pre-Alzheimer's. We are I think the only company in late stage studies targeting what I'll call preclinical Alzheimer's disease. While most of the industry is focused on mild to moderate severe ADE or prodromal AD with or without plaque showing up on MRI. We're the only company to move into this preclinical space where we are on a large scale looking for patients who are homozygous or the APOC3 mutation which dramatically increases your risk for Alzheimer's disease and asking can you treat with a base inhibitor to prevent progression to Alzheimer's disease. We've gone through an SPA with FDA and also detail scientific advice EMA, we have aligned on a protocol and we have taken this forward now in homozygotes with a plan to start a study in heterozygotes and even larger population in Q3 of this year. Obviously these studies are long so the complete expectation will depend on the completion will depend on the enrollment time, we did achieve FDA fast track designation for this and this is I think a very exciting program that's a collaboration between the Banner Institute, NIH, Novartis and Amgen. Now we’re also building a portfolio in Nash [ph] as I'm sure you all saw we in-licensed -- create an option deal with for a drug called [indiscernible] inhibitor. We also have total now of five projects which are in Phase 2b development both with the FXR which I will tell you a little bit more about mechanism as well as other mechanisms. Interestingly so serelaxine [ph] has given us a result that we presented in AASLD in cirrhotics that showed pretty compelling result to really improve blood flow into the liver and kidney. So we're taking this portfolio forward, we believe this will be a market that will be determined by combinations and whoever can build a portfolio to really impact what's becoming I think an epidemic in terms of patients in the U.S. and E.U. and the need for more livers for liver transplants because of this condition. Now LGM452 why are we excited about this, this is the first synthetic FXR agonists, it's not bile acid [ph] derived. Our potency in pre-clinical models suggest that we are 250 to 300 times more potent than the current drug that’s in Phase 3 studies, we don't see elevation of LDLs, or we don't see pruritus in our studies to-date which I think are important if you're going to chronically treat people for Nash and we also just received FDA fast track designation for this as the FDA was also impressed by our data. We have a 12 week Phase 2b ongoing, we'll expect to readout towards the end of this year and we would like to move very quickly into Phase 3 trials. The other project of course was the one we in-license in [indiscernible] or we have an option to in-license. Here you can see in patients who are at end stage liver disease we could get them off the transplant list or our partner company was able to show data you can pull them off the transplant unless you can think about it but if you have a mel score of 15 you probably need a liver transplant. They were able to reduce the mel score in a range of three to four and this is with relatively short dosing. So I think this is an exciting opportunity to also treat the end stages of liver disease. Another deal we did for immunology and dermatology was ZPL-389 from Xeraco. This is an exciting once daily oral for atopic dermatitis, this is in our minds a way to fit between the topical which have recently been licensed as well as the [indiscernible] and the other monoclonal anti-bodies with a safe oral medication that has efficacy that's not quite where the monoclonals are, we will see once we max out the dose in Phase 2b studies. It's a first in class histamine four receptor antagonist you can see the green line here, the blue line and a cross study comparison is dupilumab. The green line is the [indiscernible] drug. We have the opportunity to go up on the dose and so our goal will be to try to get the most compelling efficacy, we can with a safe oral medication that could treat a broad population. And then finally another molecule I wanted to highlight was in presbyopia. Now there are 1.8 billion people in the world with presbyopia. So I think most of the market models would suggest there's a high potential here even if you take a very small percentage of them relatively want to get treated. Now when you look at it recent research has really given us insights into why presbyopia occurs, and we think there's a potential here for a self-pay drug that could really help patients who choose not to wear reading glasses and would prefer to use twice a day drops at least in the Phase 2 study and we're going to look at dosing. So when you look at the results that we saw with [indiscernible] for which we acquired in our acquisition from our Oncore Medical. You can see here that we had 82% of patients with 48 and the placebo group getting to 20, 40 or better in near vision business corrected near vision visual acuity. 2032, you can see we almost tripled the number of patients and then you can see 2020 or better. Important to note that this was twice daily drops for three months, the efficacy was sustained at six months we saw a minimal AE's associated with this and we have opportunities to go up on the dose and also work on the dose finding. So the acquisition is now closed or closing and we will be moving very quickly now to dose finding and try to take this forward. This is an example of the kind of medicine we might be able to bring into the filing chart if we see compelling data in Phase 2. So taken together that was a whirlwind tour but we have over 60 projects planned for filing between 2017 and 2021, a diverse pipeline that covers over 13 potential blockbusters and you can see a very broad mid-stage pipeline. So we're very excited about the possibilities of continuing to advance and reimagine medicine and importantly we have a few expected key 2017 milestones and this is the chart I will keep you up to speed on in Q over the quarters for this year. Obviously LEE and PKC and [indiscernible] in non-small cell lung cancer. The GP2015 is at approval in DEU as well as Ikedia for positive non-small cell cancer in the U.S. and then also in half-two you can see the same also for Europe for most of these products. Important submissions migraine in the first half of the year as well as CTL-019 as well as submitting the adalimumab filing in the EU as well as infliximab and then we will of course keep you updated on both [ph], and then the major trial readouts will be RELAX and CANTOS with RTH currently shown as Q2, I said earlier in June we will keep you updated on exactly the timeline for this read out. So in conclusion we are 10,000 people at Novartis dedicated to changing patient care, we have a focus on operational excellence and productivity. Our goal is to be sustainably at 20%, I made medicine sales in terms of our cost. We have a broad high-value late stage pipeline strong and diverse emerging assets from internal research which will also give you much more visibility on now moving forward and you will hear from Jay some of the incredible things we have ongoing in the early clinic in the preclinical space. So why don’t we take a break for 20 minutes and then we will be meeting back in here for the Q&A and then Jay's research session. Thank you.

Great. So welcome back. We will now open up the Q&A for the development section of the presentation so if we could have the lights up and we will move to questions.

Couple of questions, first one on Paragon though we are hearing from some of your competitors who are just literally starting out with a heart failure development now that now the regulators want to study combining reduced and preserved ejection fraction. So you know if you want to do it now you have to combine paradigm and Paragon. So the question really is do you know what the reasons are the regulator is asking for that and have you had any conversations both with the regulators and the clinicians how in the unlikely event that Paragon is negative and I think you laid out the reason why it should be positive but if it's negative what the ramifications would be actually for the current label and the marketability in the current indication and my second question is on [indiscernible] and how efficacy correlates with the severity. I'm a little bit confused there because at the extremes [ph] there was a question towards the end of the presentation whether patients with long standing SPMS had a different response compared to patients who had just literally started progressing and I think couples. response was he thought not but the data were being analyzed. So I wanted to follow up with you on that today anyway, but I wonder whether on page 38 with your forest plot you've given a partial answer where you’re showing us the SPMS sort of relapsing positive versus negative patient population and I just wonder what is really asked SPMS with overlapping relapses is that actually sort of like patients who are starting to progress and quite close to the RRMS and I mean is there a risk here that really you mainly have efficacy driven by the patients who are not that far into the progressive phase yet and ultimately you know the distinction between RRMS and sort of early progression is a bit fluid. Thank you.

First on paragon, it's actually the first time hearing of any real discussions of combining preserve rejection and fraction -- ejection fraction -- our clear guidance from FDA has been on interest so that you know patients with injection fraction less than 40 or call for the reduced ejection fraction indication and greater than 40 for the preserved ejection indication. So I don’t believe there will be any read through from the results of paragon on the Entresto for reduced ejection fraction and our overall end points for Paragon remain cardiovascular mortality as well as rehospitalization so we also have an endpoint there on serial rehospitalization. I think we're the first company to work out how to actually measure that in a way that it's not just the first hospitalization but rehospitalization so we will be collecting both of those end points. So I can't provide any further insight beyond that but both of these pivotal protocols have gone through all the necessary regulatory reviews. Regarding [indiscernible] couple of points I would want to make, when you look at that fourth slide first the patients that we enrolled in the study had a mean EDSS score of 5.5 which means that they're pretty severe. So that gives you a sense that we did not enroll patients that were kind of in the early SPMS phase but really in the in the later stage of the disease. Now one of the questions that came up at ACTRIMS was that there was a greater effect size when you look at the [indiscernible] and the patients who have had symptoms for 10 years as opposed to 30 years but it's important to note that the number of patients that we had at 30 years was relatively small, so the study was empowered but it really of forced plot you want to look at the trend of all of the pre-specified subgroups and all the trends are to the left of the chart. When we think about what the regulators are really asking us is particularly in the U.S. where some MS drugs have a relapsing MS indication which depending on how you define relapsing MS that could include relapsing SPMS or not. So I think that's why FDA is particularly interested, I would say in three groups. One is the group of non-relapsing patients which is in you can see in the fourth slide there we had a point estimate of around 13% in reduction in confirmed disability progression when patients who had not relapses in the last two years and in patients who don't have MRI -- in human enhancing lesions so if you go to the fourth slide, we have it up here, you have it as the second line so you can see with patients with zero gadolinium enhancing lesions I think we're around 16% or 17% in confirmed disability progression. One of the interesting points is actually intersect those two groups and so that's really the analyses we're now conducting, it's actually say the real patient population who want is patients who have not had for one year or two years relapses or gadolinium enhancing lesions and all I can say at this point is the data looked very good and so we'll continue to present those to the regulator. The challenge always of course is we weren't powered to look at all these subgroups per se. So that's going to be the discussion we will need to have.

Three questions on [indiscernible] and one on Alzheimer. First on serelaxine could you come back a bit on the current situation. I understand that you’ve achieved a number of events targeting but the database is not just closed and on this could you share with us the potential for this product knowing that you compare with the existing drugs that are used in acute heart failure are pretty cheap and given the current pricing environment so that’s serelaxine. Second on the [indiscernible] as we are approaching the decision from the FDA could you come back on how you will position this product on the CK46 landscape given the fact that there is product already put you and established on the market and that's a question Alzheimer's on your base inhibitor could you share with us what's the size of the eligible operation the people with the efficient with limitation [ph] and the standard homozygous population is quite a tiny population. I know it's quite early days so just some force and some ideas on the size of the potential for this product. Thank you.

So first on serelaxine and I will hand it to Paul on the commercial considerations, on serelaxine right now we have completed the -- we have seen the necessary events in the study. It's an event driven study based on the number of deaths adjudicated cardiovascular deaths that occurred at six months in the study. So right now we're in the process of the normal process we go through of course cleaning the database, finishing all of the necessary paperwork on the of adjudication and then we'd move to a database lock in and analysis. So right now we're forecasting that we would have a result in Q2 but if we did have anything sooner we would of course let you know. In terms of the commercial potential of serelaxine, maybe Paul will comment.

So I think you will remember from the past slides it was 1.2 million acute heart failure episodes a year roughly 50:50 Europe and the U.S. So just in case you may not have done, this message is infused over two days so one-off opportunity with what we hope is ground breaking efficacy later outcomes in the same year. We did 108 in two days, there was clearly a significant unmet need given the severity of this population. We’re working through the pricing analytics right now to decide where it should sit, and there is two very different environments we operate in there is the U.S. environment which of course has bundle payments to hospitals for heart failure patients and the ex-U.S. environment and in Europe and what that means in terms of protocols, listings, P&T committees. So I think it's safe to say that if we were to reach the goals as we've seen in the earlier days and to be well received by payers the number of patients means we've been several billion dollars category with this medicine. Also important to point out what we really have to work on in the intervening time but predominantly in the U.S. is how we access that protocol in the emergency room into the sort of cardiac care units because it's a new muscle for us getting listed, getting used, getting protocol in the hospital itself and overcoming what is known as the DOJ which is the bundled payments that I talked about. So we're upscaling in capability, we’re doing the pricing research but if the efficacy data reveals what we think it should then we are sat on the several billion dollars blockbuster open.

And then on [indiscernible] as I mentioned we had the clinical data to differentiate in particular subgroups as well as the additional data in the first line indication or maybe Bruno you want to comment on the differentiation.

Sure. My first order it's a very large market as we know we have made advancement of major study breast cancer. We're talking about 180,000 patients new patients per year between the U.S. and the Europe. You had the [indiscernible] setting and you more than double that number so it's a very large number and by all accounts the prediction for that market is that it could be 10 billion plus. We've seen the efficacy data, we’ve seen the side effect profile where the side effects are quickly identifiable, manageable and reversible. So we believe that we have a very competitive product and we're very excited about getting ready to launch that product. At one point I'd like to add is the history that we have in that field, this is a field that we know extremely well we've been present in that field for many, many years with [indiscernible] and we have one of the broadest programs not only with Monaleesa 2 but Monaleesa 3, Monaleesa 7 and also the adjuvant trials that we are going to start later on this year so we believe we are very well equipped to be extremely competitive in that market.

And then last on Alzheimer's, I don’t have the data on hand right now. So we'll get back to you but what I can say is the homozygotes population is a much higher risk population but obviously much smaller. I mean there is a multi-fold greater risk of developing Alzheimer's for the homozygotes. Of course they are moving into heterozygotes which will move later this year the population expands quite substantially the key element that will determine how fast we really come over the result is actually getting genetic screening done and getting patients ultimately enroll. So we have launched a number of programs to actually expand the genetic testing so that then we can start the funnel of getting patients to actually want to enroll that's a big part of the collaboration's we have with Banner in the National Institutes of Health. So maybe Richard then we will go right side of the room.

Richard Vosser from JPMorgan, just one extra question on [indiscernible] just wondering how you’re treating the co-primary endpoints inclusion of the worsening heart failure around the statistical hierarchy and perhaps you could explain the latest thinking for the hospitalizations going, I think in the previous Phase 3 the wrong way was the thinking there. Then on cosentyx, the FDA Adcom I think in 2015 still had some reservations about the FDA's belief in non-radiographic x-bar. So just thoughts what's different your trial looks to be similarly designed to [indiscernible] trials of the past. So what's changed there and then just finally on QAW039 I think atopic dermatitis results where a little bit where it doesn't seem to be going forward there so just is there any way across from that into the customary [ph] settings as well. Thanks.

Yes absolutely. So on serelaxin when we decided to add worsening heart failure on top of the cardiovascular mortality end point we actually made a sample size adjustments to not reduce the power on the mortality endpoint. So as part of the reason why the readout of the study got pushed out of quarter but there's no loss of power on the mortality end point and so there is no hierarchical testing these are actually both tested independently and then and powered appropriately. In terms of the cosentyx non-radiographic axial, I think the FDA has evolved in their thinking as more and more physicians and we had expert opinion as well as part of these discussions to understand better this is a real condition that warrants and approves therapy and labeling I think one of the important elements I'm not sure exactly what Humira had in their original studies in the U.S., but it is of course having evidence on MRI that you actually see some of the evidence early evidence of the disease and that's one of the most important inclusion criteria as part of the study design. For QAW039 I mean I think what, an atopic dermatitis we're on hold we're focusing our resources on the Ziarco compound. I think what we saw there in atopic dermatitis was a I think a mixed result we had a very compelling result at the interim analysis, the analysis at the final analysis did not show a significant result. We're not sure if that's because patients were allowed to be rescued on the placebo group or not, taken together right now, I mean we think that Ziarco present or the Ziarco product it's a better option for us in atopic dermatitis, we don’t believe there is any REIT across and I think you probably have saw two other studies that have now read out on the CRTH2 any [indiscernible] one in Japan and one in Europe and both had similar results and so I think that the mechanism and its relationship to reducing [indiscernible] is real.

We mentioned earlier but I think it's important to clarify again some of the notes I saw after the Ziarco acquisition made a direct comparisons to dupilumab and there were some questions about why we go in that space and just to reinforce what was said earlier, I mean it would be great if our efficacy gets closed that will be fantastic but remember first oral pre-biologic in that space is a very, very important space from the patient. We have seen it with otezla in psoriasis and we may take up a position like that with QAWR itself and it's driven severe asthma. So we are well placed on the back of cosentyx to come through on a topic with Ziarco.

I have two question, the first one on cart in Europe. You are now planning to filing in late 2017, I was wondering how well is the construction of your money factoring going in Germany and if you would be ready for commercialization later in 2018 and then on also in PPMS, I was wondering why have you not started to the best of my knowledge in PPMS.

It's a good time, on part we do we are working with a partner in Germany and so we are prepared to actually have that facility ready for the European filing. I think we will have a mixed approach between Morris Plains and the facility in Germany but that will be part of our launch plan in Germany and things are progressing on track. With respect to Ofa in PPMS, I think our plan at the moment is given the timelines that we’re in is to see the final labeling for ocrelizumab to inform how we would actually take — [indiscernible] in PPMS. Obviously PPMS study is large and a substantial investment for a relatively long study. So once we understand over ocrelizumabs label I think that will inform our study design of how we then move forward.

Two questions please, first on biosimilar rituximab program. You have kind of said you will file or you filed in Europe you are expecting approval by the end of this year. Can you just update us where you’re with that program from a U.S perspective and kind of why it's essential kind of combines on that. And second one taking a lot of your IO programs ahead. we haven't seen a lot of data either on your PD1, PDL1. We’re just taking all of the data that you’ve and how it's in totality, is there anything about those assets that stands out compared to before that we all know about or are they broadly similar, just compare and contrast why those assets might actually be interesting?

Yes absolutely. So for biosimilar and rituximab the EU filing is currently under review and as you said our plan is to have an approval this year. In the U.S., the U.S. asked for additional a progression free survival data from the Phase 3 studies. We have to wait for that data to mature in order to provide it for the filing but there's no other issues that's behind the difference in timelines of different data requests from the two regulatory authorities. They're on track to file that in 2017 as well. With respect to our PD1, I think we haven't shown data yet because it's still to be published but I think Jay could comment in more detail but broadly we would say our PD1 is performing in line with what we see from the other competitors and that's the basis for our moving forward. Our PDL-1 is an earlier stage of development and I think Jay could comment on that on the next session.

It's Michael Dion from UBS. Just going back to LEE-001 you made a comment about how many oncologists have access to an AKG [ph] in your remarks earlier. So I understand from a patient perspective just how you frame to slide that wouldn’t be a problem but from a physician's perspective how do you think about the patient having to move from one department to another and then coming back?

So maybe Bruno can comment but I think given the variety of drugs that are currently available that require some level of EKG testing, this is a normal course of business and important to note as well that there is ultimately a tech who comes in and is running the actual EKG reading and then deciding whether or not to bring in a cardiologist and then of course a cardiologist as a formal review. Bruno anything else you want to?

No that’s exactly what you're saying and in fact we have had a similar experience with [indiscernible] where we had exactly the same situation and where we had hematologist who went to perform EKG as well, so there was -- as we described and it didn’t prevent us from making a success out of the product. So we don't see that as being a really an issue going forward. I think the important point in what [indiscernible] presented was that it would be performed at the same time as the other visit and it won't be any extra visit.

It's Naresh Chouhan from New Street. Couple of questions on [indiscernible] please? We have discussions with neurologists who suggested that the upper limb function would be a very useful secondary end point given we didn't see any major improvement in 25 walk test. So do you clear the nine hole test and if so how did that look? And then secondly earlier approval of [indiscernible] would be quite material for growth in '18 and '19. So could you give a little bit of color on what the FDA is asking for to be comfortable with just one study and your level of confidence that you may have on whether or not you may have filed this year.

So on that we did collect a range of other data and we are providing that to the agency but none of that was a formal secondary endpoint, the only formal secondary end point we had on mobility was the six minute walk test. So I think that's important consideration, we of course will provide the additional data but typically particularly with FDA having exploratory analysis as part of a basis for registration it's typically not been the case and at least in neuroscience division. I think in general the discussions as I've said with -- have been I think everyone agrees that it's a positive study with a statistically significant key value in the -0.01 range. I think there is probably two levels to the discussion. One does this meet the standard of a single study submission and so that key value is on the edge of that depending on which guidance and which kind of precedent you look at. So I think that's one thing the regulators are rightfully understandably grappling with and then the second as I've mentioned previously is the sub population of non-progressing, non-relapsing patients and the kind of continuously progressing. I think that's more of a concern for FDA because of the certain labels that exist in the market of a relapsing MS so they would like to be able to see something clear and progressing patients. In Europe it's a little more open and so I think there are of course we'll have to wait for formal EMEA guidance to really guide us as to what else it would be looking for and would they be find the single study acceptable but I think in our interactions with EMEA regulators at the country level it's been a mixed feedback some are very positive and some are a little more cautious and want to see additional analysis.

The first one is no RTH, do you think that the drug will replace lucentis [ph] or you could co-position it's -- across along with lucentis and what are your options in case of failure because that’s our particular areas smaller compared to the other ones. So would you prune lucentis or would you reinvest in other mechanisms of action and another question on Nash. You already have I think four or five mechanisms of agent. So do you think that in order to address Nash you need both for you of mechanisms of agent, what's your view regarding the diagnostics and stratification of the population of patients because competitors have been changed specifically on these so what is your view on that?

So first on RTH I will hand it to Paul as well. The way the study is design the primary endpoint look at tier testing, first we look at can we -- are we non-inferior to aflibercept with quarterly dosing versus bi-monthly dosing and if we fail on that parameter then we can test for non-inferiority at bi-monthly dosing versus bi-monthly dosing. So we have kind of a fallback design within the study. I think the attraction of this of course is we also we get access to the U.S. market where we currently do not have access commercially, so RTH opens that up for us. I would say overall for portfolio, we're continuing to look at bolt-on opportunities. W presbyopia drug as I mentioned we also have an option for a dry eye drug from a company called Lubris which we’re quite excited about and we're continuing to look as well from the internal pipeline what we could bring forward. In terms of the positioning with lucentis, Paul?

Well lucentis, we have been under a little bit of price pressure ex-U.S. volume is stabilizing and we’re in a reasonable shape and in fact we picked back up a little bit in Japan which is where we had struggled a little bit and we've increased resources. I think if we do have a quarterly dosing with RTH I think that could be well received by the community and that’s what we’re hopeful. Could you then stratify and find different patient populations, it's possible but it also gives us ex-U.S. and pricing flexibility, also if you both in the market and we would get to decide. As for the mechanisms then that’s been complicated we have tried it with Vista, with the PDGF and they are not that many mechanisms traditionally follow up on so I think we're well placed right now. We have our little ways to go before we'd be in the market with RTH if we get there. I think that we have significant infrastructure already in play. So it would be nice to be both of them but the real flexibility would probably be around pricing.

So just on Nash I think I would say couple of things one on mechanisms I mean we’re quite pleased to have the different mechanisms in-house and you want a mechanisms here that’s anti-inflammatory you want a mechanism here that has metabolic properties like we do with LIK and there is a competitor in Phase 3. I think you also want to kind of linchpin assets like the FXR agonist that you can add these different compounds on top of so I think we're pretty happy with the combination of assets that we have there we're continuing to look at bolt-on opportunities because we don't exactly which combination is going to be the one that ultimately lead to significant improvements. I think the overall Nash base will evolve very rapidly now as multiple companies come forward with different proposals I think there's a few dimensions for that one is the length of time of the studies because I think initially there was a view you need to have two year studies and announce more and more data, will FDA evolve their expectations on how long you need to follow to really convince them of an anti-fiberoptic effect or other improvements in Nash course. I think the other is going to be and how we diagnose, right now there's still on a biopsy which is involved in our programs right now that we're running we do have biopsy. There's a lot of work we're doing and others are doing to look at biomarkers to say can you find other ways to convince the FDA that this is Nash and importantly can you stage it because that's the challenge I mean we of course. We have a portfolio that's both in the F1, F2, or F2, F3 kind of kind of early Nash as well as with [indiscernible] and some of our other compounds after F4s and cirrhotic. So the hard part is to make sure you can stage them with biomarkers and hence the need for biopsies. I expect in the next three years to be a lot of evolution in the whole trial design space around Nash.

So first one [indiscernible] can you comment on your IP position with your PD1 agent in light of the recent patent settlement between Merck and BMS. What is the reasons for PD1 finished the BMS [ph], and what would you have to do?

So I think the way we look at this situation it's too early for us to say and we need to be further long before we really engage in those discussions. I think the important point is there is a path forward that's now been charted by the market BMS agreements. So when the right moment comes we will assert our position and work our way through this situation but we don't see this any longer as a hindrance to our advancing our portfolio.

Another from Graham Berry, Bank of America Merrill Lynch [ph], related to ABL001, in a world where payers are mandating failures in first line before using it. This far superior data, what is the likelihood you can get ABL001 reimbursed in first time.

I will comment and maybe Bruno can also add. I mean I think in the world where we finally have first line data for ABL001 which is some years out, you would have multiple generic TKIs I would say available from the first line and that will open up fiscal space. If we can show that ABL001 on top of the TKI leads to that deep molecular response that patients and physicians want, that then allows them to stop therapy and only have to come on if they relapse earlier than they would have otherwise. I think there is a compelling opportunity there just given the overall timing.

I think there will be the continuation of what we're seeing today. In fact we see that testing [ph] is still growing nicely and we see that there is a space for passing out even in first line. Some medical doctors believe that acting fast and acting on the clinical response is important even in first line. So I think that it would be room for a product like a ABL001 and particularly because it lends itself to combination with TKI as well. So clearly we would have to demonstrate a superiority to the existing assets and we believe that there is certainly a space for such a product.

And maybe I will just add, thus far ABL001 on top of the TKI that’s a very nice safety profile and that's the combination we have been looking to bring forward in the first line.

On BAS 312 it's a long question but essentially in northeast that we don't have a Phase 3, second Phase 3 stops. Is possible interpretation is that this means we have a positive signal coming from the agencies and he's asking if we can comment on what would be the argument in favor of being able to file in this single trial?

All right. So first on why we did a single Phase 3 at the time we have started both Juliana [ph] PPMS and BAS 312 and SPMS because we knew progressive MS was a very challenging indication and so that’s part of our thinking as it was to see which of these molecules would likely work but we did go for an SPA to ensure that the agency fully was on board. I think the case for approving BAS would be that we do have a Phase 2 study in RRMS which read out positive so we have RRMS data and therefore in principle we have a two study package of Phase 2 and RRMS and a completed settting in SPMS which could support depending on the labeling you look at in SPMS or with plus minus relapses that would be kind of our the positive case of the native case would be if you didn't want to include that Phase 2 and you wanted to take a more conservative view on a single study then of course you would have a different approach and that's exactly the discussion we plan to have with both FDA and EMEA in the coming weeks. Anything else in the room? Yes, please. We have time for two more.

Maybe an overarching question on the whole pipeline because you’ve 90 [indiscernible] big numbers overall, maybe you can help us to give us your thinking about the commercial value that you have maybe by let's say how many of these components on a standalone basis if it was a kind of biotech company would exceed one billion in terms of in-licensing potential or market value and on the emerging assets if you can just keep two of them which would be the ones you would pick. Thanks.

Yes I think on the as I said I mean we really are focusing on this 13 plus late stage blockbusters that we believe we have, I think in the mid stage pipeline it would be too soon to forecast which of these we think would be blockbusters and I think that's where your question is going more in the mid stage and early stage correct?

[Indiscernible] you are willing to pay a 1 billion plus for in terms of dollar -- not the revenues on the market.

Let me frame it differently, what we do when we prioritize the pipeline is we're looking for molecules that have a significant commercial potential. I mean so one thing we want to do is reshape the pipeline is to look for assets that we think have the potential to be at least 750 million I will throughout a number of peak sales but all the way up from there and then of course we have the lifecycle management of the existing assets but we know we need to shape the pipeline for existing assets and what that means is that Phase 2 interface were becoming much more aggressive about deciding what we will out license and what we will keep. So in general if you see something on mid-stage pipeline that’s watch list that I showed you we believe that there is a potential for these to be significant assets that's why you see things like ABL001, atopic dermatitis, presbyopia, stroke prevention, resistant hypertension, neuropathic pain. If we have a hit on one of these in a Phase 2b study we would expect this to be a drug that yes we would pay a $1 billion to bring in. So that's what I want to highlight in that list I don't give you the full list of every possible thing but I really want to focus the attention. I will take one last one and we will stop.

Richard Wagner with Bernstein for Tim Anderson, the question is bout LEE011 and specifically it was about the historic analog to Tasigna Tasigna and the EKG monitoring. If you’re referring to the Glivec intolerant or resistant indication wasn’t the competitive context a choice between Tasigna and a different drug -- that had a more serious toxicity pleural effusion such that the oncologist choice to undergo the EKG monitoring requirement was in fact a choice not to take the risk of pleural effusion. So if I were to take that lesson instead and apply it here to LEE011 wouldn't the expected reaction be not to bother with the additional monitoring instead stay with the established product. Thank you.

So what I was referring to was that we were in a competitive situation where you had two assets, Sprycel and Tasigna, we came with Tasigna behind Sprycel and in addition we had actually a black box and we had to conduct and perform the EKGs and didn't prevent us from developing the product and making it a success. So I was looking at the practical aspect of running EKGs if you will for payment hematologist and making that parallel with what's going to happen in a breast cancer context with oncologist.

, :

I'm Jay Bradner, I'm a hematologist and I read my own EKGs. Thank you for joining and good afternoon. It's a pleasure to share with you insights from Research and Early Development. It turns out we live at a very unique time and we practice research and medicine here at Novartis in a very unique environment. At this time, we witness a convergence of the biological and physical sciences, a convergence also of guiding insights into the hard wiring mechanisms of disease as well as an expansion in the enabling technologies that facilitate the next generation of therapeutics together those like us at Novartis appropriately resourced to leverage disease biology insights for definitive therapeutics addressing profound unmet medical need are well positioned to make tremendous contributions to medicine and to make medicines that really matter for a company even as large as ours here at Novartis. This is therefore a very unique moment. Drug Discovery and early clinical development are integrated within the Novartis institutes of bio-medical research. I came to lead NIBR to make NIBR the most impactful and importantly most productive Biomedical Research Institute in the world to make definitive medicines for life threatening diseases we're not here to make Band-Aids and this will become important as we talk about cancer moving forward. For sure historically NIBR has been a leading site and a productive site for research and early development even for the last 13 years. You can see here on this slide, a good number of the licensed products used worldwide, they have significant impact for patients as well as for the bottom-line of this company. In that regard NIBR is highly inductive [ph]. We're fortunate though to work at a company that does not need to choose between internally innovative products and also to leverage internal insight into biology and therapeutics to acquire at often in earlier stage than would be obvious to most others, potentially impactful drug molecules. So while I'm highly respectful of the contributions of NIBR in the past, I'm very excited about having the opportunity to reshape NIBR for the future. I believed that building on this legacy, we can organize this engine around an even more impactful consequence for patients as well as for Novartis, and I hope to exemplify this here today with all of you. NIBR is an extraordinary place to work. We have 6,000 scientists working on 400 projects at 7 sites worldwide organized by a deep dive into eight disease areas. This organizational structure allows our research scientists over the horizon of research era appropriate in their resourcing to become true experts and even thought leaders in their biology, this is a reversal of the historical trend in pharmaceutical science where innovation comes from academia and government and the drug companies opportunistically developed discrete technologies. Now deeply embedded in these disease areas over the last decade, I have already been witness to unique insights that fuel the pipeline -- some of which I've shared with you moments ago. Limited only by time I'll talk to you today in depth about how we've positioned NIBR 2.0 strategically for the future and then a deeper dive into immune-oncology at which point I'll be joined by three beloved colleagues from oncology unit. So NIBR 2.0; I had a chance in coming here to reimagine what NIBR might be and this last year was a period of focused study of listening to the organization, understanding the pipeline and addressing some of the historical challenges to drug development in the old Novartis that pre-existed the integration that Joe's spoke of earlier today. We then numerated five strategic objectives which I'm delighted to share with you very much for the first time outside of our walls. First, we intend to innovate a new science of therapeutics, I'll explain what that is in a moment but if one were to play chess you would first set up the chess board and then be executing your strategy; often in biopharmaceutical drug discovery people collect the lowest hanging fruit. And this company has shown historically that it is best positioned, its greatest contributions are when we reach the highest hanging fruit. This requires innovating new science of therapeutics from which breakthrough drug molecules can be developed. Second, we need to be better aligned with development. Third, we perform research now in a different era than ten years ago where innovation is hyper fragmented and democratized around the world. We need to connect innovation where it sits and that requires us to open our framework. Fourth, we will invest in our people, this is a wonderful place to practice science and unique place to practice science; my email inbox is full with requests from top academics to join our ranks. We want to preserve and enhance that experience. We'll conclude with one measure to rebuild and prioritize discrete discovery areas. We are organizing a major thread of our research science around the emerging concept of chemical biology; chemical biology has not been a focused discipline within the pharmaceutical industry but it turns out that NIBR is a leader in this way of thinking, the study of biological pathways through manipulations of genes finds targets and targets then lead to drugs. But if one studies disease biology through the lens of bioactive molecules you initiate your research with the prototype drug and science can move very, very fast. We therefore will leverage a chemical biology way of thinking to create new types of medicines that never existed before. But first we need starting points, we need prototypes, I am fundamentally a molecular locksmith that starts with a prototype molecule and optimizes it to a drug like compound. When I arrived at Novartis I was blown away by this workout [ph] building just up the street, you should visit it, is all inspiring where the more than two million molecules that define the chemical equity of Novartis sit with a robot shown in the lower left of the slide that can in a fast-aisle way nimbly grab these medicines like needles in a haystack. But would you believe that some of the most high value targets are just out of reach, even to firms like ours and other companies that have three million molecules curated over maybe 100 years of science here in Switzerland, this is a very special collection but we have proposed to Joe that in the next three years we will increase the chemical equity of Novartis to 300 million compounds with a hope that this expanded scope of chemistry will give us more starting points. And indeed we initiated this research last year. We're building these libraries of molecules not in big fortresses of robotic repositories but rather on DNA so that they can be collectively add-mix with a barcode of DNA such that when a target, shown here in red, say a protein of interest is dipped into the soup we pull it out and then sequence the DNA coming with it and that gives us an indication of what molecule is bound, the first key in the keyhole. This science innovated in academia was thought of as a science fiction, we have now reduced it to practice and have more than 100 million molecules already made, Joe, well on-track to what we've promised. We have seen this technology reveal compounds that hit targets that previously have escaped coordinated efforts and like in discovery, being here for just one year has recalibrated my sense of what it means to be undruggabble. With these molecules that bind there are tricks that we can do to turn molecules into super charged drugs. One such example is the new chemistry of targeted protein degradation, most drug molecules work as a one-to-one interaction, a key into a keyhole. But what happens if the business end of a protein target is not druggable, if there is no keyhole; how do you get through a door that has no lock. You would have fixed a plastic explosive and blow open that door and so we have performed -- we have accomplished the chemical version of just that. We've made molecules that have two hands; one hand as shown here with this simulation of a drug binds to approaching target of interest; and the other hand binds to the cells garbage disposal system. We tricked the cell to destroy one and only one of its proteins. This allows historically undruggable proteins to being degraded, destroyed; and when I started here having taken five years in my academic laboratory at Harvard to degrade one molecule, I boldly said to Joe, in five years we would degrade five proteins of interests and indeed in one year we degraded more than 12, science at NIBR is truly supercharge. I look forward to telling you more about these molecules as we now make drugs like derivatives of them and march them hopefully soon in human clinical investigation. Nothing is undruggable. Another way to handle the undruggability of certain biology is not through chemistry but through new advances in self-therapy. Novartis has been a leader in self-therapy and regenerative biology for many, many years; this was well known to me before I arrived. Let's take sickle cell disease; first described by Herrick [ph] in 1910, the molecular pathogenesis was disclosed in 1949. And we understand sickle cell disease to be a mutation of adult hemoglobin that impairs not only its oxygen carrying capacity such that low oxygen tensions, the red blood cell sickles and precipitates in the bloodstream as Vas earlier described. As a hematologist, it is unacceptable that 60 years later we would still not have a targeted therapeutic for sickle cell disease. It's tremendous contribution to society and an important medicine for Novartis. The challenges is that this sickle hemoglobin does not have an over-site for a drug and you shouldn't destroy it or you would have even worst problems. Enter CRISPR, first identified in bacterial systems; cellular machinery exists that allows us to in a site-specific edit the human genome. This is the therapeutic that interacts with the human genome and can correct inborn errors of heredity. For sickle cell disease, you might know that when you are in utero, you have a different form of hemoglobin, fetal hemoglobin. But upon being born you switch to adult; if you could turn back on fetal hemoglobin you would have ameliorate the symptoms of sickle cell disease. Scientists at NIBR collaborating with Intalia [ph] Therapeutics empowered by the freedom to operate of IP now jointly expanded with Caribou Biosciences has allowed us to take CRISPR CAS9 and destroy the off-switch for fetal hemoglobin. As shown here this data is turning fetal hemoglobin back on in cultivated blood stem cells. This was science fiction just five years ago, now science fact; we are marching this technology in a highly competitive space towards human clinical investigation. When I arrived and I talk to scientists at NIBR and development colleagues in Vas's organization people were frustrated that technologies weren't moving swiftly enough through the organization and that the priorities were not shared between two organizations. Vas and I assured our leadership that by halfway through last year we would solve this problem and we worked very hard to rework the governance structures like a zipper, such that each pin is now fully aligned between each of the disease areas where drugs are discovered in the therapeutic areas where drugs are commercialized. This wasn't easy to take an organization through such a stepwise change in culture but through setting expectations and recruiting new leadership we have now seamless integration of research and development and you should check back in with us to see how the timelines look this time next year. As I mentioned innovation now is highly democratized, we need to connect innovation exactly where it happens. I believe firmly there is no science that wouldn't benefit by having access to the resource that exists within NIBR. We will have a chance to describe in full the tactics that define the open source strategy to drug discovery that we intend for Novartis but I'll just share with you a sneak peek at three early approaches. First, we're going to build a faculty here, a faculty of scholars. These are scholars that are leading disruptive innovators in their academic institutions but they don't have to leave their day job, they visit with us, perhaps one day a week, shoulder-to-shoulder with our innovators leading drug discovery programs, accessing technologies that would not be feasible in their academic setting. Stuart Schreiber [ph], expanding our capacities of SP3 high chirality DNA encoded libraries, Romnick Xavier [ph] working to understand the microbiome, and Stuart Orkin [ph], the leading figure in gene switching to help us with sickle cell disease. Second, we're going to take empowering chemical probes and distribute them worldwide to guide the definitive development of our drugs and continue on with partnerships such as the fabled experience we've had with the University of Pennsylvania to innovate CAR-T cells. As I mentioned this is an amazing place to be a scientist and a doctor and we're going to work hard to engender the type of collaborative culture that allows us to create careers for our young scientists. And we're going to enrich our pipeline with new recruits leading thought leaders. There are certain areas like oncology that did require some rebuilding; we had historically a very narrow strategy and targeted therapeutics and perhaps missed the first breaking wave of new oncology but as I'll show you in the next two slides, we are very much riding the second breaking wave. So now to oncology; I'll focus first on immune-oncology. As a stem cell transplant clinician by training, I've been prescribing immune-therapy for a long time, cell-based immune-therapy. So it was no surprise when scientists demonstrated that one could release the power of the T-cell, normally that would eradicate a virus from your body to eradicate cancer from your body. And the first breaking wave of checkpoint inhibitors are very important medicines but they importantly will be used in combination with other drug molecules. It turns out that wonderful as CTL-4 and PD-1 and PDL-1 manipulation are and I'm thankful that those medicines exists; the vast majority of patients with cancer will not respond to these drugs, the vast majority of patients, if not all that respond to these drugs, will not be cured by these drugs. So to make definitive medicines for cancer we must have access to these enabling reagents and use our biological insights to position these molecules for success and the only relevant model of cancer, our patients. This was jump-started by a very aggressive business development campaign. As I mentioned, we don't have to choose here between internal innovation and leveraging our unique internal insights to access external innovation. Glen Dranoff [ph] was brought here from the Dana Farber Cancer Institute to curate a suite of immune-oncology technologies and then to innovate himself the third breaking wave of immunotherapy. A critical piece of this is cell-based immunotherapy with UPAN [ph], as well as I'll show you in a moment having access to a PD-1 immunoglobulin. We obtained our PD-1 directed immunoglobulin through an acquisition of a technology from co-stem and at the time it came in 2014, we are forecasting it would take two years to prepare this early technology for human investigation. I have been blown away by how fast this organization can move. We have reorganized discovery and development for seamless end-to-end development of this compound, filed an IND in just over a year. Between May and December of last year, Lily Petra's [ph] colleagues in TCO Phase 1 unit enrolled more than 50 patients establishing proof-of-concept seamless hand-off to Vas as you heard in development; and as we're now able to share with you, we have announced registration Phase-3 double-blind placebo-controlled trials on clinicaltrials.gov. The question was fairly asked how does this molecule SAP stack up its early days but all data we have suggests that it's every bit as active as one would expect the PD-1 to be shown in the lower left is a remarkable response in a 56-year old with squirm [ph] cell carcinoma in the lung and in the lower right is an equally impressive response in a patient with the rough wild type melanoma. We envision PD-1 now 2017 as a stable platform for immune-therapy for both immune-immuno combinations as well as immune targeted combinations. But what Glenn has done here is very unique from a pipeline that had not one immuno-oncology therapy three years ago, we now have as competitive a pipeline as exists in the industry, out of all the view to tell me if I am right. What Glen did is he worked mechanism by mechanism through the biology of immune scape populating a leading set of technologies through a admixture of in licensing that internal innovation. We may be asked which is our favorite we could not choose. There are some remarkable compounds on this list; [indiscernible], these are important medicines and it is now our charge to bring them forward in combination for patients. Indeed a great many of the second wave of immunotherapies we have here at NIBR stand to be potential first-in-class drugs that list is provided for you here and you will notice all the checks on the slide; how many of these are already clinical stage assets. This is an organization with great haste. If I shared with you the earlier I will just underscore the fact that as it's not lost on us that these drugs must be developed in combination our clinical trials are being written so leverage that technology immediately accessible around us. I come from the biotech sector where one would have a biotech company with a discrete or single asset and you would work very hard to find companies willing to partner with you and that takes time but it doesn't take time here at NIBR. All of those medicines are available for immediate combination study. And you can see on this list exactly how we mean when we say PV one being used as a platform with novel IO agents as well as with targeted agents. Beyond the likely 18 immuno-oncology medicines within our pipeline at NIBR and we have a suite of targeted therapies this is a legacy of the last 12 years of dedicated drug discovery and some of these compounds are very important substances. You wouldn't be fooled that immuno-oncology will be enough to eradicate cancer. In combination with targeted therapies is how the agents might best be deployed. Cell based immunotherapy with CAR T-cells is an important medicine and to underscore this if less than 20% of patients will respond to P.D. one therapy, 82% of patients with relapsed refractory ALL will achieve a CR to CAR019, some patients will be disease free for more than five years. When we start to talk about care, having witnessed the efficacy of CAR T-cell therapy in CD19 positive malignancies such as ALL and a few B-cell performance, scientists at NIBR are now redirecting this gene cell therapy towards new epitopes, towards new cell types such as myeloma through the BCMA, our target, as well as solid tumors. We have indeed doubled our investment and at NIBR into CAR T-cell therapies focusing on the discrete steps in manufacturing that will allow ultimately this medicine to reach the broadest population of patients and a glimpse into that pipeline is shown here. We have found Lupin [ph] to be a wonderful collaborator and look forward to working with them in the future as well as other leading sites. So how do you develop combination therapy immuno-targeted-immuno-immuno. One way is to take the 31 clinical stage molecules in a binary fashion to nine hundred clinical trials but Harry has not resourced us in that manner and we wouldn't want to do that, rather we need to leverage the deep biological insight at NIBR and the unique tools that we have to perform these studies efficiently and directed by mechanisms of a new state. Now it turns out that the divide between bench and bedside in immuno-oncology even with insights revealed by checkpoint therapy is very broad and so we recruited Jeff Agnomen from the Massachusetts General Hospital to build a state of the art oncology Translational Research Laboratory a serious investment of our associates and our resources to ensure that we are sampling on treatment biopsies of patients treated with these agents to understand the pharmacology as you see at the top of T-cells rushing into a tumor and when they don't. As well as when patients progress on therapy integrating on the bottom of the slide a suite of sophisticated new and integrated measurements with historical measurements of immunohistochemistry, we see a great opportunity to learn as much from the patients on our studies as we typically do in pre-clinical research. So in sum, by bringing the best minds and the best medicines together in an environment that is an area appropriate investment in research and development we intend to make a great contributions to the cure of cancer patients worldwide. I will stop here except to say that if anybody at NIBR was distracted by the changes the leadership, by the purposeful and strategy focused global restructuring, by the forced integration of research and development by the ruthless prioritization that Vas and I took the organization through to ensure that we are deploying our resources in the most effective way for patients and for this company it doesn't show. In 2016, we need exceeded all goals put upon us by my beloved predecessor and I think 13 positive proof-of-concept studies, there is 10 more molecules I'm transitioning into global development this year. I thank you very much and look forward to getting to know all of you. And at this time would ask my colleagues from oncology to join as well as Vas for Q&A.

Thank you. Florence [ph]. Two quick questions, first an easy one, could you share with us when we should see the first immune oncology products. I think will results remember from a discussion last year with you guys. That should be biggest thing of the half of this year so do we have to understand that the addition of B&E results [indiscernible]? And second question on specific on BYL719, BI3 Kinase Alpha product, my understanding that make sense to combine this product with your CDK [ph] project. Maybe I'm wrong any clinical trials combining a complex with something that you have in mind as well? Thank you.

I'll start and then hand over to Lilly around the timing. I want to be clear that I consider CAR T-cell therapy immune therapy. It is cell-based immune-therapy there can be nothing more immune than administering or prescribing T-cells to a patient and so in that regard there be very meaningful progress in early part of this year but I do understand your question to mean a result surrounding this next generation of agents. Lilly, can you share the expected timeline?

We're going to rebuilt our really robust pipeline last year the studies are enrolling quite well so we will this year we should begin to see the emergent data from these studies I can't give you an exact timing but they're really progressing very nicely.

I think I will take the BYL. On the BYL so we are continuing to actually we do have a study on going study to look at BYL plus LEE plus [indiscernible]. I think the key thing now is for us to look at the toxicity profile overall of the triple combination to make sure it is positive to take forward as soon as we make that decision we will let you know.

Michael Ekoff [ph]. It's a very simple question that probably with a yes or no answer. In all your chart where you have IO combinations of the PD-1 is it your PD-1 is it the same PD-1. And if yes to those two, how do you know that's the best PD-1?

That's not a yes no question but the answer is C, all of the above. We have studies planned and open with our own medicines as well as with established medicines. And we think that this is an important part of leverage, as well as our developing internal experience with each of these types of drugs.

Thank you.

Marriott [ph], couple of questions please. The first one on CRISPR, I mean teams everybody's working with CRISPR in some shape or form. So I'm just trying to understand you know is there a particular IP around this, do you have to unique right to use this to modify approach and to become drug of all target -- targets or how should we think about that. And second question just very briefly on the CART and solid tumors, can you just give us a rough feel for the timelines for that, and what some of the key obstacle to overcome would be, thank you.

Thank you. I’ll just start on CRISPR and then ask one to weigh in on solid tumors with CART. CRISPR is so easy even a chemist can do it. You're right. Everybody is using crisper but everybody is using it for target identification, such as crisper screens target validation, walking along the open reading frame of the genes of figure out what's a drug, model creation, it's the new faster way to make mouse knockout models and mouse knock in models. But as it turns out few groups are organized in a way to make a definitive therapeutic out of crisper. And we believe we're collaborating with two of the best at Intel and in Caribou. So our strategy with crisper does lean on the creation of novel intellectual property, and accessing new intellectual property as it is described, this is a field that is moving very, very fast. And we believe we have a very competitive position regarding IP both through FTO interactions and tell you a as well as our internal intellectual property elaborated over the last several years. Glenn, would you care to comment on solid tumor CART.

Yes, thank you for that, important question about CART cells. I think it's critical to underscore that CART cells, really are a form of definitive therapy. And that the data achieved in children with refractory lymphoblastic leukemia, is remarkable transformative and raises the possibility that single treatments can actually give rise to very, very durable clinical benefits. So we are quite excited about continuing to explore the power of CART cells, in the solid tumor space with all our colleagues at University of Pennsylvania, we are currently interrogating two targets, the variant three ice a form [ph] of the epidermal growth factor receptor that's expressed that about 20% or so of Glasgow multiform [ph] a leasehold of brain cancer. As well as [indiscernible] a cell surface protein that's expressed on many important, I don't know carcinoma which is pancreas, colon, ovarian and long. Now it does appear that the challenges in CART cells and solid tumors will involve many of the same problems that we are addressing through the portfolio of immunotherapy assets that they illustrated because solid tumors created immunosuppressive microenvironment. But we're quite optimistic that with this tool kit that we have, that will be able to identify what are the limiting parameters for holding CART cells back from better therapeutic efficacy in this solid tumor space and will rely a lot on the translation all research laboratory, that set up to help us understand that a very detailed level how we are impacting the tumor microenvironment.

Thanks, this is Richard Vosser for JP Morgan some track some trial signs that potentially suggests PDO-1 lack of interaction with these 7-1 could provide sort of greater long term survival benefits, it's just really your thinking on that and the emerging science and development signs, a and your first develops on D1, just how do you think about the merging signs there, thanks.

That's a great question and the PD-1 pathway is not monolithic. It doesn't simply involve the interaction of the PD-1 receptor with a single light and PDL-1. But rather there is at least the second light in PDL-2 and that. PDL-2 is able to engage in another receptor and PDL-1 disable to engage another receptor in B7-1 that you talk about. There is very active study both pre-clinical and clinical systems to try to understand which of all of those interactions really are critical. I think it's still a bit premature to talk to identify PDL-2 versus PD-1 as being fundamentally different, but this is extremely important issue as the complexity of if you know ecology residents get increased. So for example, where the regulatory T-cells may be impacted by a specific therapy, they express very high levels of CTLA-4 as you know, that interacts with high affinity with the B7-1 molecule that you described, but if CTLA-4 is not in the picture because T-cells have been paired, then B7-1 and PDL-1 interaction comes to a much higher importance. So we're very excited about exploring that biology or the context of the arsenal that we have.

Two questions please. The first one just gives us a sense for kind of between [indiscernible] kinds of least the replacement. -- are we talking a billion or 3 billion, just kind of give us some flavor.

So we don't discuss the sub division of the R&D. spend quite in that way though we could think on that number for you. I can say that it is significant and vast can say it is increasing.

And the second question perhaps a stupid question to ask, but a somebody who's kind of who you describe the neighbor environment, somebody who's kind of vast described development organization would be very interested in understanding how the decision making actually happens for the organization. I suspect you got 18 programs, you got probably at least 70 combination for the insurance you're thinking about 10 tumor types, we're thinking about two or three lines of treatment. So somebody comes to you and says I want to study this agent with this agent in this line of treatment. How do you as a manager running that business unit, decide what is the right study to run. What is not the right study to run. At least from the output perspective you don’t have access to a lot of the diagnostics stuff it's not a field you've been in for the last 10 years. So just help us understand what's driving your confidence in making the right decision making that.

It starts with having the best people in science that are sitting around you, that we're very blessed, with that circumstance and there are there's no question, but also it needs quite a bit of structure. These creative minds and quite a bit of structure, and Vasant and I have a series of checkpoints governance bodies one for the formal entry into the Novartis pipeline, it's called TNT targets and new technology. We have a portfolio not just of targets that we're prosecuting for therapeutic innovation, but also as you say periodic-matic [ph] therapeutic technologies and we can work on everything. And so these decisions are taken quite seriously formal entrance to the pipeline. As technology matures as drugs a bubble up from that research environment, they are presented for the second checkpoint at organ -- at a meeting called the translation into early development, that's where medicines are identified nominated and received the extra funding necessary to repaire7 technology for human clinical and innovation. That is also the step where we adjudicate the response of phase one and two study. Vasant attends these meetings and so it's a seamless handoff when the medicines then graduate into development. They will ultimately meet with the INB board that Vasant chairs, and that's where a decision is taken whether or not to commit the major spend necessary to perform registration studies. But perhaps Jeff could talk leading oncology about how discrete scientific projects emerge, from our largest disease area oncology.

You know, so one of the things we try to do in oncology, is we're really trying to identify the next wave of transformative therapies. Glenn spoke about the IO therapies and that -- Jay spoke about that as well. Some of the technologies that Jay outlined open up possibilities that we never knew existed before in terms of what we could target with molecules and what we could actually develop as drugs. We now -- as Jay mentioned, it used to be in a pharmaceutical company you would rely on the academic centers to help you identify what you would want to drug and how you want to drug it, what types of combinations you want to develop. Novartis made the investment to develop an outstanding research institute and that type of work now is done at the highest level internally and we have -- we understand the genetic dependence of almost every cancer model we have according to every gene that exists in the genome. This type of data is extraordinarily powerful and we use this information now to develop the next wave of therapies that as Jay and Vas and everyone says, we're not really here just to budge the needle forward a little bit, we're going to try to make therapies that really have an outstanding impact on patients with the new immunotherapies. With their targeted therapy profile we're really thinking about what are the next wave of therapies that will change patient's lives and when we find those we bring them to TNT and we hope Jay says we can go forward and if he does, we go forward quickly.

This is Michael Ekoff [ph]. I mean just on your pie-charts of the diseased areas, I just wondered Jay how you get to manage this? It looks more like the institute of oncology in immune-oncology. How do you avoid the infectious disease people, feeling sort of pushed-out, left-out and eventually probably leaving? How do you get in there and proportionate shout in the scheme of resource allocation?

Yes, thank you for this question. It's the first time I've ever thought about it because that's not their experience, I think they feel very supported and loved. But the way that we've done this is to strategically position groups that might be in some sense fringe groups to create real centers around them. Last year I took the difficult decision to move the Novartis Institute of Tropical Diseases from Singapore where it was very productive to Emeryville, California. To bring our tropical disease infectious drug hunters into the same laboratory spaces as Donegan [ph] on their anti-viral an anti-bacterial drug hunters. They are supported also by one of the top protein science fragment-based NMR screening in crystallography groups with the Novartis if not the world, they now have a community. At that site that to them they wished others were around them, they feel very well supported. Another way that we do this is we have scheduled throughout the year TED meetings that will -- and TNT meetings that will focus on specific areas where they can bring forward their full portfolio. And then the last for the leadership team, we initiated last year something we call SOLANS [ph] based on the European salons in Paris where artists of the day would bring their artwork to dazzle the other artists and their cohort. We did the same with our science, it is a first step of our annual strategic planning process and so we shine a big bright light on these other disease areas. And you then wouldn't be surprised by having these leaders, all mix together through these coordinated events that we see technologies transition innovated in oncology and then applied immunology and vice versa. It is a highly collaborative and surprisingly not siloed [ph] research environment despite the geographies and territories that we span. We have time for one more question.

Thank you very much. [Indiscernible]. I want to ask a question outside cancer because at CMC [ph], outside cancer is more than 50% of the total molecules in your portfolio. I'm going to understand how you decide which areas because I see some areas which are quite challenging; if I take cardiovascular for prevention or [indiscernible] quite a graveyard, and some older areas if I look at neurology disorders or know if I kicked paid [ph], the bar is quite high and developing new antibiotics is quite challenging. Can you share with us why you believe at NIBR even though they consider the resources and you know how to find new drugs on this area?

You could imagine that we've put a lot of thought in this at the leadership level within NIBR, in collaboration with our colleagues in innovative medicines and development, and at the board level we think hard about the places where we make investment and we invest in research in places that we think have extraordinary potential. Neuroscience has been a challenging area to make drugs, yet we think that there is great potential by reconsidering the models of these diseases. Multiple sclerosis was a very difficult area to develop drugs yet we may Gelania [ph]. Cancer was a very difficult area to consider target therapies, yet we make Glivac. I think this is exactly the environment where you nuanced insight into disease biology can open up new markets. Joe?

Okay, I want to thank everybody for coming today. I want to just close the session by saying that our intent today was to give you in-depth look at the depth and the breath of our pipeline, and I hope we were able to accomplish that. But I think another byproduct of that was that we were able to give you a look at the depth and the breadth of our management talent which is very important because we are undergoing a generational change at the company and its part of the rejuvenation of Novartis. So thank you very much again for coming and we look forward to keeping you up to speed every quarter with our results through the fiscal year.