Good morning, and good afternoon, and welcome to the Novartis Q1 2018 Results Release Conference Call and Live Audio Webcast. Please note that during the presentation, all participants will be on listen-only mode and the conference is being recorded. [Operator Instructions]. A recording of the conference call including the question-and-answer session will be available on our website shortly after the call ends. [Operator Instructions]. With that, I would like to hand over to Mr. Samir Shah, Global Head of Investor Relations. Please go ahead, sir.

Thank you very much. And good morning and good afternoon to everybody and welcome to our quarter one investor call. Before, we start, I just want to read the Safe Harbor statements.

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. In addition, I just wanted to make clear from additional points that you should note in connection with AveXis tender offer. The tender offer for the share of the common stock of AveXis Inc discuss today has commenced and is being made pursuant to tender offer statement on Schedule TO-T and related materials filed by Novartis with the U.S. Securities and Exchange Commission. In addition, AveXis has filed a Schedule 14D-9 Solicitation/Recommendation Statement with the SEC. These materials contain important information and we urge you to read them carefully before you make any decision with respect to the tender offer. These materials and all of the documents filed by Novartis and AveXis with the SEC are available at no charge on the SEC’s website as well as on the Novartis and AveXis website. And with that, I will hand the call to Vas.

Thank you, Samir. And thanks everyone for joining today’s conference call. With me today, I have Felix Ehrat, our General Council, Harry Kirsch, our CFO, Richard Francis who leads our Sandoz Business, Paul Hudson who leads our Pharmaceuticals Business. I’d like to welcome Liz Barrett our new Head of our Oncology Business and Mike Ball, our Head of Alcon. Today, we're going to use a little bit of a different format. We'll have more of an abbreviated presentation so we have more time for Q&A with all of you. And we hope this allows for a better exchange. Now moving to slide 3. You saw this quarter we began executing a series of deals to focus our use of capital and focus our company. And this is in line with the stated priorities I laid out in January that we want to become a focused medicines company powered by data and digital technologies. We started in January with the closing of the acquisition of Advanced Accelerator Applications, a novel, a therapeutic for neuroendocrine tumors and a subsequent launch of Lutathera, sorry, not a gene therapy -- form of AAA. We licensed Spark the first gene therapy for ophthalmological condition and in March, we agreed to divest our OTC JV stake for $13 billion. We also announced the digital collaboration with Pear Therapeutics, which we expanded earlier this week to build out our capabilities in digital technologies. In April, we announced an agreement to acquire AveXis, which gives us a platform now in gene therapy and builds out our neuroscience portfolio. So, as you can see, we continue to progress on this strategy and look for bolt-on opportunities in line with our capital allocation priorities. Now moving to slide 4, we also made a number of new appointments to the executive…

Thank you, Vas. Good morning, good afternoon everyone. So, moving to slide 15. We are confirming our group and division 2018 guidance. As you have seen as a group, we grew sales plus 4% in constant currency in quarter one, which is at a level of our full year guidance of low to mid-single-digit sales growth. Now by division, innovative medicines sales were up plus 6% in quarter one driven by the growth plans. We expect this to continue for the rest of the year and innovative medicines to deliver the mid-single-digit growth in full year 2018. Sandoz declined in quarter one is expected due to competitive pressures in US. We continue to expect 2018 sales to be broadly in line with prior year to a slight decline. I currently expect to grow low to mid-single-digits. In 2018, as you have seen come from strongly in quarter one. But please keep in mind as Vas mentioned that the business started to turn around through our 2017 to quarter one ’17 was a bit of low base. For group four operating income, we confirm our guidance of mid to high-single-digit growth for 2018. Now, let me briefly comment and I expect the core operating income trajectory in 2018. The first quarter grew plus 4% in constant currency and we expect quarter two to grow up mid-single-digit as well. As I said, in January, we expect stronger core operating income growth to grow in the second half mainly due to increased contribution of innovative medicines launches. On slide 16. I would like to provide an update on financial items that should be head for you to monitor 2018. Most of this is related to recent announced transactions. I have assumed that both the AveXis acquisition and OTC joint ventures stake sale to…

Great, thank you Harry. So, in closing, on slide 18, we started the year strong from an operational standpoint and financial standpoint. Our launch growth drivers continue to drive momentum powered by Cosentyx, Entresto as well our oncology growth drivers. Our pipeline and key potential launches remain on track. And we're shaping Novartis as you saw with our actions taken in Q1 as a focus medicines company. And we look forward to continued progress over the course of the year. With that, I’ll open it up to questions. So, operator we can open the line.

[Operator Instructions]. The first question comes from the line of Michael Leuchten calling from UBS. Please go ahead.

It’s Michael Leuchten from Barclays. A couple of questions please. Number one just clarification on your commentary around the Alcon margin please. So is Q1 an unusually high margin now given some phasing or is the incremental margin step up from the Ophthalmic [ph] OTC transfer to the main reason and we’re actually looking at, this is a starting point to slight seasonality that we seek for the year. So that will be question number one. Secondly, on Cosentyx. One, your NBRx commentary in your slide is inconsistent with what one of the U.S. company reported, the other day. I just wondered whether you could comment on that what the differences are and definitions and they’re talking about psoriasis shares. So, when you talk about your 17% NBRx share in dermatology. How do you think that compares to their statement? And then related, are you able to breakdown the inventory swings versus the rebate impacting in Q1 Cosentyx?

First on Alcon margin, Mike.

Yes. Sure. So, the first thing is we don’t forecast the margin for the year. But having said that, when you add the OTC business on to Alcon that adds about 3 points of margin. So then that we state 2017 to about 17% margin. And what I’ve consistently said with 2017 is going to be the top year for Alcon. So, you expect margins to grow further from that. Now traditionally in Q1, our spending is lower than in other quarters, I would expect spend new ramp up in Q2. So, with your respect to your comment around seasonality as pertains to us spend that would probably be true. As Bob said, as we look over than out into the mid to longer term obviously our goal is to get the mid to or at least low to mid-20s in terms of operating income, which is consistent with our peer group.

In terms of Cosentyx Paul.

Thanks Michael for the question. Couple of comments. Think would you are referring to in dermatology in psoriasis. I think it’s important to understand that the IMS reported data is all I have in front of me. And that we are 17 share in psoriasis from NBRx. I think what you referring to is actually 6% from a competitor on NBRx. I have some of the commentary from other goals has included a significant amount of free drug from a competitor, which is perhaps even an internal calculation. So, we can’t comment specifically on that. But if it was to be believed then it would be a significant amount of free drug that’s been given away to get to that number. We maybe get a chance to give further background on Cosentyx, but we’re directly to the underlying performance.

And then on the inventory stock and trade?

So, on inventory, I know there is been a lot of comments already about Q1 of the Q4. To remind everybody, we don’t control the inventory levels in specialty pharmacy and there was a destocking in Q1. For me looking at the underlying health of the business, am I comfortable with consensus this year is because we're already growing volume enough to offset the additional rebates to take a more impressive market position into the first line setting. So, the inventory accounts for most of the gap versus Q4, but the rebate that we've offset with volume is really the impressive start to the year.

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

Yeah. Thank you. Can you just clarify on Cosentyx, you are buying access to earlier lines of therapy? Can you just explain what that means exactly? And then also on Cosentyx, you say in the press release, that in the most international markets it grew well. I'm wondering what markets were that it didn't grow well and why it didn't grow well there? And then last question on Cosentyx, head-to-head trial ongoing by J&J called Eclipse comparing your product Advair IL-23. And we've got results coming up in the back half of the year. And I can see that this is going to be one of the things that industrials are worried about next with the product. Can you give us your perspective on this trial? What do you think it's likely to show, and how do you defend Cosentyx if Eclipse comes out in favor of J&J?

Okay Tim, thanks for your questions. I often use expression for rebating about how we approach things. There are many elements on that. One of them is being very considered about where we think the relationship between price and volume as the volume can be accelerated. The other one, and that's what's interesting about opposition in 2018 is we wanted to move deeper into more availability in the first line setting. I don't want to overshare, but we've made low-double digit improvements both in psoriasis, AS and PSA to go into the first line setting into if effectively biologic naïve patients in terms of access. Whilst we have been predominantly competing in second line we're now moving into that patient population which is the majority just to remind everybody. So, we made a considered choice to do that which is really going to open up the volume and again you're already seeing the volume improvements in Q1. As for markets, we haven't talked specifically. I think I am enthusiastic that we're growing all geographies all markets. Some a little bit slower because of reimbursement or biologic penetrations in general. We have no specific countries where I think we have a challenge. Again, our efficacy is really what's making the difference in the innovation in most markets. Some are slower of course for the off of the whole class. In terms of the head-to-head. I think you described it you may want to comment technically, all I would say to you is from a commercial perspective, it's clear that everybody thinks that we will be the significant player going forward, so they feel that they should need to do this in some ways were flattered. But just to remind you again, we spent a lot of time separating out IL-17 and IL-23 in terms of indications that you can go into. And we feel uniquely differentiated as a class in PsA and AS. So, whilst we've maintained opposition all along that we think psoriasis will be competitive. And again, very pleased with our progress so far despite new entrants. But we still, we’ll remain as the winner in AS and PsA. Vas?

Yes. Just on the study design, I think Tim, the important points of course, this is, as to our understanding primary endpoint is non-interiority. So that’s I think indicative of a lot, when we think about the study and then of course there is secondary endpoint that may look at a superiority. I would also point out that in AS and PsA, as we went through the science and our Investor Day last call. But there are very unique attributes to how Cosentyx works on the NP or the insertion points into the join. Which clearly a show in our view scientifically medically, but also when you look at the data of the IL 17 A Class versus the IL 1223 Class. The IL 17a is the prominent downstream, upstream mechanism that really impacts the joins in the way you want for both PsA and AS. And we think that will bear out overtime, that’s why, we have such a strong NBRx already with Cosentyx in rheumatology, we’re running head-to-head studies versus adalimumab to demonstrate again once and for all that to be believe IL 17a is the right mechanism for those patients. And I would remind those on the call that the rheumatology market opportunity for Cosentyx equals that of the market opportunity in psoriasis. So, this is a significant opportunity that we’re very focused on driving. In addition to continuing to strength in our position in psoriasis. So, operator, we’ll take the next question.

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

The first one is on Kisqali. I mean you said that, it’s off to a strong start and the next key events will be MONALEESA-3 and 7, but what kind of bring really, because so far, the challenge seems to be safety more than efficacy. And so, what, should we expect that clearly from these MONALEESA trials? The second question is an update, sorry, the Advair generic CRL. Can you give more detail and feedback from the FDA? Do you need to perform new clinical trials? And the last question is on Alcon, an update on the process. [Might the same] recovery of the units be a reason for you to wait a bit more before potentially divesting or not that all? Thank you.

Thank you, Mr. Vincent. So, I’ll start with Kisqali and I’ll hand over to Liz.

Thanks for the question. I think what we said with that were the quarter one was in line with where we expected it to be. So, the good news is we continue to see growth in both new and total patient share in the U.S. I think after obviously coming in just a last couple of months have been evaluating where we are, where we need to be. And I think we’ve done a lot of things right. I also think we have a lot of opportunities for improvement, particularly around message and targeting. So, we’ve taken the opportunity to refine our messaging and our strategies against our targets and are rolling those out now in the U.S. We feel very confident that they will have an impact on our patient penetration going forward. Importantly, we’ve also taken those key learnings and included those in all of our strategies as we rollout in Europe and the rest of the world. Where our timing versus competition is really a lot closer or even some time, at the same time and some markets in Asia even ahead. So, I think overall, we feel very good about it, about where we are. To comment on the safety, I think you also have to think about it from keeping it in perspective as to what physicians are used to in this market and what our monitoring requirements are. And it's really a base line and two times. So, it's not -- I think there may be some perception. So, we want to make sure that those perceptions are laid and the reality of what exactly it is. And I think physician experience has been very positive so far.

So, on the next question on average Advair [ph] on the CRL. We would expect to have to do a small bridging study of bioequivalence bridging study, but we don't view that to be a significant hurdle for what we can see right now. So, our plan will be to get that study started. And as I said stated to be a ready for launch within 2019. And then on Alcon, we have always said that we wanted to be able to take a decision on Alcon from a position of strength to really have the return of Alcon which again is the leading Ophthalmology device company and contract win company in our view in the world. And we see a continued strong trajectory. So, there is no real change in our outlook. We planned to have a potential action in the first half of 2019 if and when a decision is taken. So, there is no change in our perspective on that. And Mike and the team are just continuing to focus on driving the business, continue to grow the top-line which you can really see now picking up, continuing smart margin expansion to enable us to get into the profitability range of our peers. And we'll keep you posted on our decision-making process.

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

Thank you, very much and quick questions, if I can. Paul, I'm sorry to come back to Cosentyx and you probably won't be surprised by the question. But can you give us your experience in the first quarter of the year as to whether or not copay accumulated plans have had any impact on patient demand or your requirement to rebate the products. And how those fit in given your confidence of the future growth? And one for Richard, there have been some industry reports that Sandoz has supply issues on its biosimilar rituximab. I wonder if you can comment and put those stories to bed. And then just very quick one for Mike. I see that there is no stocking in the implantables business. There is been a lot of focus on Cosentyx destocking. Can you just quantify how much of the growth came from stocking within that marketplace? Thank you.

So, thank you Matthew good question. Maybe just an upfront comment about copay accumulators. I think we feel like many others quite strongly on this subject. And while every year there is a new initiative to try and extract further value somewhere in the chain. I think this is one we all feel passionate about because it's really against the interest of patients. So disappointing that some patients may get to choose or have to choose because of the way this has been configured by the third parties. For us the effect if you're looking for a Cosentyx effect is negligible. It's very small number than frankly in line with the normal puts and takes through Q1. If this became a wider challenge, we would let you know for sure as we go forward through the year. But right now, with actions and measures taken, we don't see this as any reason to hamper the growth for Cosentyx. And maybe I could just add again. Very pleased with the underlying performance in Q1 in terms of volume drive. When you do provide more rebate to the system to access new patients or you're looking for is a kick up in volume to show that you’ve made the right choice. And the volume numbers really do speak for themselves over 60% growth versus Q1 last year in TRX, which is impressive. So, in case I forgot to mention it earlier, we are very comfortable with the full year outlook and indeed, where Cosentyx sits right now. Don’t see co-pay accumulation as a challenge to that.

Thank you, Paul. Richard on supply for biosimilars?

Thank you for the question Matthew. So, we’re very pleased with the launch of biosimilars across Europe that we rolled out last year. And the uptake and the willingness to prescribe has been very pleasing particularly Rixathon. I think as I’ve mentioned in the past, the physicians have adopted it across all indications. So obviously, the penetration of biosimilars is moving very well. The success of Rixathon is looking very good. So that means that in a way we have a nice challenge. But what I would say around supply is that where we launched the product and where we launched the product and where we have the ability to supply those market and to grow this market and so that’s the way we manage it. But I would say we have supply issues, we won’t have how we manage to roll out of the product across the country that we’re launching it.

And maybe just one other comment on biosimilars. We continue to believe we have the broadest portfolio in the industry, and we also continue to believe that given the environment in the U.S. where there is clear commentary from the FDA commission or from the head of CMS in support of the broad use of biosimilars to remove cost from the U.S. healthcare system and expand patient access that we’re well positioned when those changes happen. And we believe those changes are going to happen, because it’s a right thing for the healthcare system, right thing for patients and right thing for physicians. On Alcone Mike?

Yes. So, on the question with respect to implantable, I assume the question is around the big growth we saw an implantable in this quarter. I think there is really four areas to look at here. In terms of the stock and trade, it wasn’t an increase in stock and trade in 2018 rather was a reduction from last year in 2017 in the Asia marketplace. So that has added some kick to that particular number. I should also remind you that the IOLs in Q1 in 2017 or rather low. So, it’s a low comp as we’re starting to turn that business. As I look at the business and its performance right now. We’ve seen some nice stabilization in the monofocal IOLs, but a really nice uptick in the advanced technology IOLs. So, I’m pleased with that, because that’s one of our major focuses, it’s been on PanOptix and ReSTOR. And finally, CyPass is in that particular group. As I said in the prior call, we’re just getting reimbursement in the United States on the CyPass, which is our mix product, and it is starting to get traction in the United States. So, it’s really those four things that all combined for that result in implantables.

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

Thanks for taking the question. And apologies for the reason that Cosentyx to start off with. Quarter-on-quarter prescriptions were flattening somewhat due to the highlighted good growth from Q1, there is any about 3% growth in TRX quarter-on-quarter and could get to consensus of full year is around 3 billion is probably going to require some sort of outbidding inflection in prescriptions in the U.S. or extras to take up a lot more of the flat figure. Just help us understand how you expect that to progress. And secondly and given the deals that you’ve been engaging in this year have a diluted impact below the operating income line impacting associates in net interest charges. Is now the right time start moving to EPS guidance for the market and can you perhaps comments on how comfortable you are with the current consensus EPS level? And then thirdly on AveXis, you had said on the call, you discussed with the FDA data and felt comfortable with the data package. But do you have line of sight on FDA you see on the AAV-9 vector specifically, given the Wilson papers target this vector and Solid Biosciences clinical hold on its DMD trial, which is [off seizing] trial which is also using an AAV-9 vector. Thank you.

Yes. I take your point Graham. I keep trying to repeat that whilst we transition through Q4 into Q1. And we try to make the right comparison with this as we've converted free drug into commercial drug. I think the most useful comparison is the Q1 over Q1 last year and then TRx overall TRx growth. As I showed the chart a little bit earlier. That NVRX number is really our leading indicator. And forecasting that forward, our own internal analysis puts us comfortably close to Cosentyx. So, I'm very comfortable again with the underlying prescription trends both at Ns, Ts, indications and geographies. Otherwise it be difficult for me to say that I was comfortable.

Thank you, Paul. On EPS guidance Harry?

Yeah thank you Graham. We don't intend to change the way we guide. I think by giving sales and core operating income in constant currency and ranges. And then I would say very specific guidance on the elements below core operating income and currency, I believe in what we have seen over the last years that in this community on certain side is -- were able to model us quite well. Now of course the changes are very recent. So, we have to see how the overall consensus reflects this now, but I think with the comments I made today of last week, everybody should have very good information about how to model us. Including the expected uptick of core EPS accretion more as 20 for the AveXis deal and as of 21 for the combined deals.

So lastly on AveXis. So, all questions related to AveXis regulatory filing continue to be directed to AveXis. But what I can comment on as our assessment of AAV9 and the overall safety. So important points to note about AAV9 and in general about the AAV space. So AAV9 is the strain of vector we talked about. But then there is multiple variance within AAV9. And so, it's important to understand the different variance that we were talking about here. The second is that all of the findings that have been reported today have been in animal studies and that these animal studies also vary from company-to-company. And based on animal studies, that we've seen and we've evaluated, we feel comfortable very comfortable with the profile. The third point is that risk benefit matters here. So, when you have a 100% or near 100% terminal illness and you have the opportunity to have a dramatic effect. Regulators have a different view towards risk. And importantly in the reported studies in the New England Journal of Medicine, we saw no evidence of any of the dramatic toxicity finding seen in animals that Dr. Wilson reported. We see none of that in the clinical data. We have seen in that paper you can see the trend in the liver enzyme elevation that resolve and don't recur. And it's a single therapy, so we're not talking about a chronic therapy. So once the trends and elevations resolved these elevations presumably will not come back. And the last point is dose. So, when you look at the dose, it’s important to look at the doses that we have been given in this different situation. And important as well that in the SMA2 and in the older children that AveXis has publicly recorded in the clinical trials, they’re not using, they’re using an interest equal dose which is a small fraction. So, when the risk benefit changes somewhat, you could argue, that I would still argue. It’s still widely in favor of treating SME and SMA2 that you would still have a situation of an interest equal dose, which is far lower than what the doses that we’re talking about in these animal studies. So those are all the considerations that we had in our judgment that we don’t feel is a significant concern for us.

The next question comes from the line of Michael Leacock calling from MainFirst. Please go ahead.

I have 3 questions, if I may all relating to volume and price. In terms of the Cosentyx, I do apologize getting back to this. When was the rebate, when was rebates actually put in place? And how soon will it reasonable to expect the change in prescription terms and to be manifest? Secondly, you talked about this in the U.S. Is there any risk or for that matter opportunity outside in terms of price versus volume adjustments? Are there any other products that might be suitable for price volume adjustment if you truly believe that this delivers opportunity? And finally, on a group level, we’ve seen a very fairly stable volume price Gx FX over the last few quarters with volume rising slightly. What are your expectations in terms of absolute volume growth rate in the longer term and what are the implications to your gross margin? Thank you.

So, first Paul, on Cosentyx in the U.S. and EU?

So maybe the, I think it’s just worth reminding everybody that we include the rebates from pretty much the first of the year, that’s how we calculate it. I think we have seen a volume improvement just to remind everybody again that our Q1 over Q4 minus inventory plus additional rebate has been offset by volume. And I don’t want to miss that point. Just to be clear and I didn’t give them the full answer earlier our quarter-on-quarter growth rate in NBRx was 12%, that we’re feeling it nicely setup. I think ex-U.S., I think you also mentioned, we do see opportunities, and in Germany, for example, we’re a market leader in biologic naive patients in indications that we compete. And we’re really making sure will result appropriately to take these markets somewhere. We’re very pleased with direct U.S. performance at the same time. And just maybe just want to clarify. A question asked earlier around free drug and like-for-like and things, I just want to remind everybody that all calculations include all drug free and commercial. The competitive comment, which is one of the earlier questions that I got the free drug early to absolutely in the competitive on us and when we aggregated up to on the NBRx performance, just want to provide some clarity in case there are some people confused. Other opportunities on price volume.

Yes. I mean, I think in general, we’re always looking obviously to optimize our formulary position for all of our medicines and looking at how we do that through of course the rebates and other elements in terms of formulary positioning. And of course, we are watching the evolution in the U.S. market as well to be prepared for however the market evolves in terms of how the structure in the insurance and rebate environment changes given all of the focus on this. And then in terms of group volume growth Harry.

Yeah, I think your question Mike -- won't again how do we expect to gross margin to develop. One element is of course price volume. Overall, we expect the gross margin to develop positively this year but also over the next years. One element of that is that high value medicines will become part of the mix, number one. The second one is that we have at least when you look as of August 19, the expected LOE Gilenya we have loyalty on it. And the products that replaced it is a more than replaces from our expectation don't have loyalty or adjusted normal [ph] effect on loyalty or positive loyalty mix. And thirdly, the significant manufacturing network transformation that we are driving forward will increase capacity utilization and reduce also production cost. So, while these things happen overtime I am quite positive on the positive gross margin development over the next years.

The next question comes from the line of Florent Cespedes calling from Société Générale. Please go ahead.

Good afternoon. Thank you very much for taking my questions. Three quick ones. First for Paul, on Entresto it seems that there is an inflection point so maybe early days, but do you know if it could be attributable to your new marketing methods on quality of life that resonates within the medical community or is there anything else? Second product-related question for Paul on Gilenya, could you add a little bit more color on the performance in the U.S. and in Europe after product within the multiple sclerosis phase? And what is the form of the U.S. performance which is driven by probably a stocking gap, stocking effect?. And last question for Liz, Kisqali, followed from Vincent's previous question. Liz, could you be a little bit more specific on the new method, new target that you will ask for the product? Thank you.

Thank you Florent and thank you for the question on Entresto. Paul, I think is quite excited to answer, so Paul, go ahead.

So very excited Florent. And I think I'm interpret is a [term break] [ph] based on great marketing capabilities. And our communication of the quality of life data. It is not a question on Entresto. We work incredibly hard in this area. The news flow in Entresto whilst everybody is of course likely looking forward to preserve projection fraction. The actual news flow through the last few months and into this year is really staggering when you think about the quality of life data. In fact, the quality of life data is probably one of the single biggest generators of interest to this specific patient population. And when we get great anecdotal feedback from patients and indeed partners of patients it is always about that feeling that different. So that's very reinforcing for the prescriber to go after debt because they haven't have that opportunity before. So the news flow only strengthened this year. And we have to applaud the team and the commitments we've made '16 and earlier really on this level of data. As for [trend break], we try to guide all along that we think, we know in fact that Entresto will be accretive from the very first day of 2019, we’re really nicely setup. And that our performance this year is really trending towards a large number and I think it just indicates the work put in by everybody and the commitment. As for Gilenya, what went against those a little bit on inventory movements, especially pharmacy with Cosentyx went for us a little bit with Gilenya. So, the U.S. performance was increased in terms of dollars by in the majority I should add and inventory improvement and a little bit on price. What’s really important remember, I don’t want to get lost in the conversation, the underlying health of the business in the U.S. both on TRX, NBRx and indeed what we see on the SRS, the patients that are lining up to start is very strong, irrespective of new entrants. So, it’s important to have that confidence as we run through this year. And in fact, that tees off slightly ahead of perhaps where we expect given the level of new entrants. So, we’re delighted all around. The other important point you raised it in terms of ex-US. Let’s also be clear, we have a patent that runs through to I think March 22 and a share around about 20% and stable and in fact growing in some market. So, it’s important to separate those two conversations as you know. Because that’s a very big-time difference. But healthy business in U.S. and little bit void by and inventory movement in Q1 but underlying very strong.

Thank you, Paul. And then on Kisqali, Liz.

Yes. My first thought was I don’t want to share too much, because from a competitive standpoint, but I see some most important thing to focus on is that we will be focused on growing the market. The CDK market is a large market. It’s still if you look at the penetration of CDKs, it’s only about 50% in first line and about 40% overall. So, there is a lot of room and a lot of patient segment and population that can still benefit from this treatment. The important thing for us to be the first CDK use and them use them first line, so that’s where our message will be focused on ensuring that we are the first CDK use versus Kisqali. So that’s really where we’re focused and making sure that we’re growing to market and focused on gaining those front-line patients. The good news is when you look at our share and as we’ve seen over the last couple of months is that we are stronger in first line and see an increased penetration in that market. So that’s been our focus and that will be our focus going forward. So, thank you.

The next question comes from the line of Steve Scala coming from Cowen. Please go ahead.

I have several questions. First, you provided a lot of helpful commentary on Cosentyx, but I’m wondering on the magnitude of the de-stock, it looks like it was about $30 million. So maybe you can comment on that. And the magnitude of the enhanced rebates where they roughly and incremental 15%. Questions for Liz, you did a great job building brands but perhaps too good because the franchise now looks impenetrable. What are the weaknesses of brands [ph] that you can now exploit? And you agree that MONARCH 3 has established Verzenio as delivering the best performance in first line disease? And then lastly, why won’t Roche’s CD79 bispecific rituximab [ph] lower the opportunity for CAR-T in DLBCL? Thank you.

Thank you, Steve. So, first Paul on Cosentyx.

Yeah. So, it's good to talk about this. We really needed to clarify these things, because as you know I am again excited about our underlying performance. In fact, we are exactly if not slightly better than where we predicted on demand at this point. So, it's worth reinforcing and we don't know how many questions we get to support this. Because again we feel very good where we're at. I chose the word the majority, we can be more specific, but there are some competitive elements to how these variances are made up. So, I think I'll stick with the majority of the quarter-over-quarter change was due to inventory. As for rebates, same applies really. We did improve rebates, but I won't share the exact percentage. But please don't underestimate what it meant to get low double-digit improvements in unrestricted access in the first line setting. This one thing rebating to maintain a position in the market with new entrants, there is a very different thing rebating to expand the available patient population and compete in the big pool. And to have got back to roughly the right sales number by volume given increased rebates. We know we've made the right choice.

Yeah sure. Thanks for the message, I think that I'm not going to comment obviously on our brands, but I do think that as we talked about before, this is a large market. It's a large market and it's going to grow overtime. It's going to penetrate in the metastatic setting and hopefully eventually move to the adjuvant setting. And we expect to be a formidable player in that market. We think there is room. The addition of now 3 CDKs in the market will continue to grow the market. And I think that's the most important thing. One of the things that we see if you look at it from a market perspective is that there are still patient populations that aren't seeing the CDK. And I think if you look at the clinical data across all of the competitors particularly in Kisqali today every patient population and can benefit from Kisqali in addition of Kisqali [ph]. And I think that's where we have to focus on this increasing penetration in the market. As we said it's a big market and there is an opportunity and we believe that will continue to be able to be an important relevant medicine in this market. As far as MONARCH I'm not going to comment too much because there are not obviously head-to-head studies. But what I will say is that if you look at inclusion criteria the different trials are different. And so, I think it's very difficult to make comparisons. I think you need to look at the hazard ratio and look at the patient populations in which they're all studied which is like I said slightly different across the board. And I think what the third question…

Yeah and maybe just one a detailed comment on CDK4 in Kisqali [ph]. I mean one of the striking things that tore the market particularly in many of the European markets is our long legacy in breast cancer. I mean we know the breast cancer community. We have experience because of Femara and Zometa. I mean we've been with these physicians for a long time. We're not a new entrant in breast cancer. And that gives us a strong commercial position then to launch a new medicine. I think that's going to help us as we are much more comparable in some of the European markets. On the last topic, on the bispecific versus CAR-T therapy. I think the clinical thing here is durability. I mean we know that with Kymriah and pediatric ALL we seen durability of up to 5 years in many of the patients. In DLBCL, we're following where we know patients to get the 6-months usually stay in response up to 12 months and then longer term. I think the open question with bispecific and some of the other technologies as they can lead to durable response, because with these patients what you’re looking for, is a durable response to give them back their lives. So that’s going to be the open question. I don’t know the answer, but we do know that CAR-T cells because of the ability for the T-cell clones to expand again when the cancer recurs, when you do have patients that have at that long-term response they tend to stay in a positive state. So that’s how we think about the threat of bispecific and other technologies versus CAR-T cells.

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

So, a question on Cosentyx, sorry. Basically, those destocks. Can you just confirm that it is actually a destock from normal levels to lower stocking levels? So, we should expect a restock in second quarter? Or is it stock levels were too high before and they have come down. That will be the first thing. And then secondly, maybe just talking about acquisition strategy. You made a big point in most of your communication Vas, since you become CEO to talk about digital and data. Could you just help us understand your tangible financial targets that you have behind this? And whether that actually, we should see you making sort of acquisitions in this space as well to further optimize and enhance your portfolio? Thank you.

So, I think on the destock, I mean just to show you how deeply we’ve looked at [budget] Harry's comment, because Harry look at the numbers in detail. Harry?

Of course, Tim. Thanks for the question. As you know, we are very diligent in every month in every quarter and especially year-end that we should be in line with demand. Of course, not every little millions, so to say is part of our control, but overall what we have seen here in Cosentyx very normal inventory levels, especially in U.S., of course is especially pharmacies. So, we don’t control everything to the last dollar. But we have in quarter 4, very normal inventory level as we had throughout the last couple of years. And this is a destocking from a normal level. Now we do have countdown that's coming back because still okay level, but normal levels has been higher over the last two years.

So, on the digital front, I mean we look at this as overtime and this is more of a medium to long-term impact, transforming the efficiency of our operation from a research, development and commercial standpoint. And then I hopeful also leading to new therapeutics and new innovation, more things like Pear therapeutics, the 2 deals we’ve announced in the quarter. So, we do look externally now to make significant partnerships and investments. I think you’ll hear more and more from about building off of the things we’ve already done in Q1. I think it’s too premature to give a hard-financial number, other than to say that when we look at how other industries have used these technologies to improve productivity and drive margin expansion and also to improve the overall efficiency of the operation, it’s quite significant. And we would like to be a leader in our industry in doing that, which is why we have Bertrand and the team and continue to do the work that we’ve already set forth. I think more uncertain is how digital therapeutics will unfold, but we’re the first company now to take a digital therapeutic forward and repair [ph] and we’re going to learned a lot about how this unfold and it could end being quite significant. If you look at some of the news flow on things like Omada Health and some of the other companies out there that have done quite an impact on patient outcomes by using digital technologies here with Pear Therapeutics, you have a technology that actually have an FDA label for addiction therapy. And so, we're going to take this to launch and we are going to learn a lot. And then it could lead to a whole new business line to be seen. But I think the only way we're going to win in this space and transform our business is to start to get out there and make partnerships with some of the leading companies and that's where we're setting out to do. Next question operator?

The next question comes from the line of Richard Vosser calling from JPMorgan. Please go ahead.

Hi, thanks for taking my questions. First you alluded to changes in the U.S. market. And I think we've got a communication from President Trump coming up in the next week or so. So just what's your thoughts for that communication, what could change for the industry and specifically around Novartis. Second question, just on Sandoz [indiscernible] LAR, clearly no patents left in the U.S., but should we be thinking about a generic in 2018 or 2019. And then finally just on Sandoz and pricing pressure. Clearly significant pricing pressure in this quarter, could you sort of give us an idea of the level and how you expect that level to continue throughout the rest of 2018. Thanks very much.

Yeah thanks for the question. In my time, so far in visiting Washington DC multiple times and being in the various discussions including participating in some of the dinners and the walk with the President. My overall expectation as well as conversations with the FDA Commissioner and hearing his perspective as well as the CMS administrator. I think there is a few areas of focus and I don't they're new. I think they're going to get continued focus on Part B in reforming part B and taking out some of the incentives for excess utilization in Part B. and I think that's very real that could happen. I think 340B in reform of the 340B and how 340B may create distortions in the use of Medicaid hospitals I think that's another area that's going to be in focus. Continuing to enable biosimilars and competition in the marketplace is a huge interest to the administration, you have seen them to take actions both as CMS in the commentary of the FDA commissioner. I think that's going to be clearly in focus ensuring that generic companies have the ability to enter at the appropriate time with the appropriate access to samples in order to do their studies. Again, it's going to be an area of focus. And I would say another big theme is going to be trying to increase transparency in terms of how does the money flow, what is actually getting to the patient and what is getting pocketed in between the pharmaceutical company and the patient. There is a huge interest to try to best, the toughest one but that's also I think a huge area of interest. Now In general I take a longer-term view on this. I say we have to be part of the sustainable solution for that healthcare system. We have to find ways to make this sustainable so we as a company can succeed. When you look at any one of these and even when you look at the recent action on the Part B Donut hole see that limited impact on Novartis given our portfolio and overall profile. We don't have many Part B medicines, we're not exposed to biosimilars risks, we have limited medicines that were really impacted by the Donut hole action in the recent budget round. So, we view our exposure as well, but I more view our role as being positive for us to try to shape this environment so that it's a sustainable environment and drastic and destructive actions aren’t taken that would impact our industry and impact innovation.

I think the important thing on Sandostatin we've got had good results, we're flat even despite competition in this area. But they, when you talk about generics or other entrants, the most important thing that can think about is the complexity of the manufacturing. So many have tried in the past unsuccessfully to enter this market and it’s really driven by the manufacturing complexity. So, while, we do and are always looking at potential risk from generics in the competition in the future, we know ourselves with our own experience how difficult it is to make and I think the quality of the manufacturing is going to be a deciding factor on anybody’s ability to get in. I can tell you that we don’t expect are not projecting in 2018 or there be any competition from generics. As we move into 2019 and beyond it will depend on again the ability of other manufactures. So, I don’t think that anyone is going to be able to supply globally, the way that we’ve been able to at Novartis, because of our expertise in this area.

Thanks for the question Richard. So, we don’t actually breakout the pricing number for the US. So, I apologies for that. But to give you my view on going forward. I don’t actually see a significant change in the pricing pressure in the U.S. and I’ll give you some reasons for that. One is the challenge talk is consolidated and there’s huge pressure on the channel to drive their margins, and so they are obviously pushing that pressure back onto the manufactures. The second is competition continues to rise, while the FDA approvals continue to come through and companies continue to enter the U.S. market. So, I think that’s the reason why, I don’t see significant change now. Obviously, pricing can fluctuate just based on dynamics competition. What I would say, is our focuses on changing our portfolio and making sure we drive through more differentiated portfolio. And as you know, we’re going to be, biosimilars coming through the U.S. market and we’re very comfortable bringing that 2 big products to the US market in a short period of time. We are also moving on products towards a more differentiated portfolio where obviously there’ll be less competition. So, I think that’s another thing to there in mind. And that’s a strategy we’ve been executing for some time. Now I will close and apologies for the long answer, when you look at our number in the U.S and the decline of 18%. There are a couple of factors within that, that go beyond price and one of those is pruning a divestment of our portfolio to our couple of years, going back to what I said about reshaping our portfolio, that’s the action you see there. And that’s the impact on the Q1 number. And the second thing is there has been a fluctuation set which has also hit Q1 as well. So hopefully that helps give my perspective Richard and answer question. Thank you.

The next question comes from the line of Diana Na calling from Goldman Sachs. Please go ahead.

Hi. It’s actually Keyur Parekh here. A couple of questions please. Vas, you talk about Novartis being a more kind of focused company. Can you expand a bit more on kind of where do you see, that you see, do you see the actions you’ve done year-to-date as being kind of in the early innings of the focus? Do you think kind of you’re becoming, you are there where you want to be, what should we expect over the next 18, 24 months from a big picture perspective? And secondly obviously very strong from an oncology perspective big heritage that, but still a lot of questions about the role you guys might play in the immunology kind of market going forward. Based on what you’ve learned at ACR, does that change your perception of Novartis’ position that would be, where do you think, you guys might end up paying in that market? Thank you.

Yes. Thank you. So, on the actions, I think we’re it’s always evolving of course. But we have a -- we started out and we of course have a position in consumer health, we have a position in medical devices and ophthalmic devices. We have our generics business, we have our innovative medicines business. So, we've taken action now on the OTC. We've stated we're under an active evaluation and preparations with respect to Alcon. In Sandoz we have also stated that we're continuing to evaluate the portfolio in the U.S. we have a strong business in the U.S. and a strong commitment to the U.S., where we're evaluating our best approach especially with respect to certain segments in the U.S. and that will continue. And then in parallel to that, we also want to continue to focus our capital and build our innovative medicines business. So as what we did already with the AveXis transaction and we'll continue to look at bolt-on M&A. Our capital allocation priorities remain focused and investing our business. We believe we have the best pipeline or one of the best pipelines in the industry. We have the 13-potential blockbuster launches coming. We have a world-class R&D engine. Second, strong and growing dividend that does not change and third to use our capital defined strong bolt-ons that continue to build up our business in our core therapeutic areas and also bring new platforms like gene therapy or like radio nuclei therapy into the company or even digital therapeutics. And then lastly one appropriate share buybacks as we've always done. We always offset the employee share programs and we'll continue to evaluate appropriate shares buybacks as well overtime and that doesn't change either. And those capital allocation priorities are clear. But I think the big shift…

I am going to make one more comment about IO. And I think that one of the other learnings we're having is IO in combination with targeted therapy. So, if you look at that Taf + Mek plus our own PDR that we’re studying in today. And some of the other IOs in combination, I think that’s also an area that we will continue to interrogate and opportunity.

And we see Mekinist, Tafinlar plus PD-1 is a very exciting opportunity for us given our leading position in BRAF mutant cancers.

So, this doesn’t follow-up, when do we see data on the program next?

We’re all looking at each other. We’ll come back to you with a precise answer. I don’t want to say anything...

The next question comes from the line of Jean-Jacques Le Fur Berrigaud calling from Bryan Garnier. Please go ahead.

Yes. Good afternoon. Four quick questions please. First to come back on Harry’s comments about the $0.20 dilutions coming from the tourist [ph] and transactions. Could we understand that this is going to go through the P&L or do you intend to mitigate that at least in part as a dilution? Secondly also coming back to previous comments about supply for Rixathon. The understanding is that you can supply in markets where the drug is already launched. How should we interpret that in light of the upcoming U.S. approval at the end of the year? Should we expect additional supply capacity by then or a meaningful delay between approval and launch in the U.S.? Third, on Aimovig, as we come close to the approval could you maybe just remind us, how it's going to play out for U.S. in your accounts was there any sales or only part of profits book in other revenues or anyhow other way to book that in your P&L? And fourth and last question. You [booked a voucher] [ph] back in December and I guess probably got another one from Kymriah early on. Could we ask maybe what you intend to do with those road show. Or it’s fair to assume that at least one of the two filings i.e. [indiscernible] this year will benefit from one or two of them? Thank you.

First on dilution, Harry?

Brian, so to $0.20, I mentioned, the majority of that is from not having the OTD joint venture income from associated companies as of April, it’s roughly 3 quarters of it, $0.15. $0.05 is from the ongoing, roughly ongoing trials as you see the inclusion of the expected, after expect closure from AveXis acquisition. But that’s within our core operating income guidance. So those are the two elements on dilution.

Great. Thank you, Harry. On Rixathon supplier, Richard?

Yes. So, pleased to offer you clarity. So, we are all set for U.S. launch. So, from a supply point of view, we obviously targeted and prioritized U.S. market to make sure that was possible. So that is the case. And maybe to clarify what I said in the past. We are in a position to supply the markets, we’ve launched into as we see increasing demand and interest. And we obviously prioritized the markets we move into after that. And as we go into we make sure, we have enough supply. And finally, I’d like to say and I didn’t earlier, but we are building capacity at the same time. So, in parallel as we see this high level of interest in biosimilars and Rixathon as well, we believe more capacity within the Novartis network.

Thank you, Richard. On Aimovig financials, Harry in the U.S.

Yeah, in U.S. as you can see also in our press release when we announced the deal. And we made the core commercialization where we do not book the sales but -- Amgen would book to sales. We get the royalty which you will see coming into our P&L as other revenues.

And the last one on priority review vouchers, you are correct we have multiple priority reviewed vouchers given the strength of our pipeline. We think it's prudent to have multiple priority review vouchers to enable us to accelerate programs. We'll comment on which priority vouchers we have used and which programs when we've received acceptance of the file from FDA and their confirmation on the priority review. So, you'll be hearing more from us over the course of this year. So, we have five minutes left. I'll ask the next couple of questions that you could keep them quick so we can try to get through everybody's questions. So, operator let's go to the next question?

The next question comes from the line of Emmanuel Papadakis calling from Barclays. Please go ahead.

Thank you for taking the question. I'll try and keep them quick. As a quick follow up on rituximab U.S. timing. I think the previous question cited end of the year, by my math is should be more like July. Haven't seen any sign of an outcome yet. Maybe you could just comment on timing and expected uptake in volume terms relative to what we see in the Europe where you have launched. And the second quick question, if you could answer is just bit more color on Kymriah. I will tell you they have helpful sales figures you said the majority lives are now covered maybe you could talk a bit about patient centers trajectory you expect for the rest of this year? Thanks very much.

Yeah so quickly on rituximab there is no planned outcome right now. We've got confirmation from FDA that won't be the case. In terms of the commercial uptick Richard?

Yeah, we are very positive, a lot of it depends on obviously timing and when we actually get approval and when we actually went through and if there are any issues around litigation. But what we're seeing right now is a high-level interest. I think the U.S. market has started to see what's happened in Europe. And so that's really helped generate more enthusiasm and also obviously it’s a small community so they are speaking to each other. So, I think it's timing what I would say timing is something which is hard to predict. And pretty sure it's going to be this year. And then we'll see exactly when it is but with regards to uptick, enthusiasm is high and we'll obviously get over there. And we're not give forward guidance on sales so I want to stick to that. I will let you know as and when we launch and keep you updated as and when the launch progresses.

Great and on Kymriah.

Yeah, sure. Love to give a little bit more color on that. As we've talked about before, their revenue in Q1 was actually in line with our expectations. We have been focused on exactly what you're talking about expanding the sites, we now have 35 sites up and running. Just keep in mind the new therapy is the new therapy for us it's also new therapy for the hospitals and centers. So, we spent a lot of time making sure that the experience that they're having is a positive one and that we are getting the logistics down properly. And we feel very good about where we are in preparation for the DLBCL hope for anticipation of expansion soon. So, I think we saw the reimbursement, we have not had any issues as reimbursement that's going very smoothly. The sites are up and running, we felt very good about that and in anticipation again of the expansion of the label soon. So, I think so far so good, yes, we expect that we'll see the trajectory improve overtime. But again, keeping in mind, not only with ALL but also with DLBCL outlook starts to launch that these patients need to be referred to the centers. And so, I think you'll see a continuous improvement quarter-over-quarter. But you will see it, it will take time for these centers to get up and running and used to use in this new therapy.

The next question comes from the line of Luisa Hector calling from Exane. Please go ahead.

So, on Cosentyx, I would like to ask whether your infrastructure selling assets is sufficient or needs to be expanded. So that you can make sure you take full advantage of the increased access and rebates. And could you comment on the duration of contract. Have you locked these rebates in for 1 year or possibly for longer? And then finally on the -- in the SEC documents for AveXis. The internal forecast seems to show a revenue step down in 2026. I just wondered if there was something specific anything that you could comment on that, please? Thank you.

So, Paul on Cosentyx.

Yes, very good question actually. Perhaps we haven’t shared this widely. But over the last 6 and 12 months, we have built field capacity to fully maximize each indication, that we separated, it's not a secret. We separated our sales forces to align between each of the three major indications. So, we wanted that level of accountability and specific focus, no different in the US. We don’t need to add any more results in the U.S., for Cosentyx, other than some small opportunistic investments. We are absolutely perfectly deployed, because we cover these things, physicians, rheumatologist, dermatologist with the right frequency to be able to be front and center for this first line patient, which will be focusing a lot on. The duration of contracts. We have worked very hard also to make sure that we are a long-term partner of the major players. We think in multiple years it’s not always easy to achieve that. But of course, when you add additional rebate to the system, you run a business case that allows for a short and long-term. We’re very careful with how we do it. It’s a long-term partnership would want to give away more specifics than that.

Thank you, Paul. And on AveXi, I can't obviously comment on their forecast, so I can tell you how we look at this. I mean, we look at this as an opportunity first in SMA1 expanding to SMA2. And importantly, the prevalent pool of patients, which we view as sizable and we also view this therapy as the first line of therapy choice for these patients given its a transformative efficacy that you have seen thus far in the clinical trials. Now as the prevalent pool that gets penetrated through, you peak the sales and then you come back to the incident population over time whereas I presented as well, newborn screening and our expectations around that, would allow us to deal closest and us take a forward the medicine. So, you have a consistent and sales-base overtime. So, the key is how you model that prevalent pool, we have a perspective on that. But I think that’s what you see, when you see that big bulge in the sales curves. Last question operator.

Okay. So, I think, we run out of time. I’d like to thank everyone again for joining. We appreciate it the conversation. And we look forward to speaking with all of you and Meet the Management in May. Have a good day.

Ladies and gentlemen thanks for joining today’s call. You may now replace your handset.