Ladies and gentlemen, good morning or good afternoon. Welcome to the Roche First Quarter 2013 Conference Call. I'm Joya, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Dr. Severin Schwan, Chief Executive Officer. Please go ahead, sir.
Thank you. Welcome to our Q1 sales call. We had a strong start into the year with overall 6% sales growth on a group level at constant rates. In Swiss francs, it was slightly lower at 5%, mainly due to a weakening of the Japanese yen.
If we turn to Page 6, then clearly we can see that the growth in Pharma of overall 7% is driven by our cancer medicines again. Actemra showing very strong growth, and also Tamiflu as a result of a severe breakout of flu in the U.S. in January and February. On the Diagnostics side, it's a mixed picture. On the one hand, solid growth in the Professional segment, but we are facing a challenging environment in Diabetes Care, and Roland will certainly comment on that in a moment.
As to the innovation, the pipeline progress, I mean, clearly the highlight in the first quarter was the approval of Perjeta in the European Union and the approval of Kadcyla in the U.S. We also plan to file Perjeta in the U.S. in the neoadjuvant setting, and we're looking forward to presenting the detailed data on GA101 and Bcl-2 at ASCO beginning of June.
So a strong growth in the first quarter on Page 7. And if we turn to Page 8, you can see that there are different dynamics in the different regions. There's a stable development actually in both divisions in Japan and in Europe. We have a continued strong growth in the emerging markets. And in the U.S., we have the split picture. On the one hand, very good performance on the Pharma side, in the double-digits. We have seen, however, a decline in Diagnostics. And again, this is driven by the performance in Diabetes Care.
Page 9. As to the long-term prospects, we can today rely on a strong pipeline with more than 17 new molecular entities in clinical development. As you can see, we have now 8 entities in Phase III. And we also have a number of late-stage enabling data to read out in the course of this year.
To conclude, based on the strong start into the year, we are very confident to confirm our guidance with sales growth in line with the growth we recorded in 2012, with core EPS ahead of sales and a further increase of our dividend.
And with this, I'd like to hand over to Dan for Pharma.
Good morning, good afternoon, everybody, from my side. We had a very strong first quarter in the Pharmaceutical Division, as you can see if you turn your attention to Slide #12. I just want to say, before I get into the figures, we're particularly pleased at the 2 key launches for the quarter, so Kadcyla in the United States and Perjeta in the European Union, really a big step forward for our HER2 franchise.
You can see, overall, the Pharmaceutical Division growing at 7%, really strong growth in the United States and in the international regions. Europe, relatively stable, but a very good sign in a challenging market. And in fact, if you look at Japan, there is a factor with Evista sales no longer included this year and also some price effects. The underlying volume is actually growing by almost 10% overall in Japan. I'll just remind you that as we head into the second half of this year in the U.S., we will have Valcyte going off-patent as well.
So if you turn to Slide 13, you can see the products driving the growth overall. Clearly, we had a good quarter with Tamiflu. It was particularly driven by a very strong flu season in the U.S. That demand has now stopped as of February, but you can see the impact, particularly in the U.S. sales for Tamiflu. But the main growth drivers continue to be: The oncology portfolio growing at 10%. Actemra in rheumatoid arthritis had very nice growth in the first quarter as well. You can see Avastin is growing in all the regions, certainly a nice change after the last 2 years. Herceptin, particularly in the U.S. and emerging markets where access programs are helping to establish Herceptin in those markets as standard of care. MabThera, further growth in the U.S. And this quarter was also impacted by the tenders in the emerging markets, especially in Russia. And Actemra, as we said, continues to further drive its monotherapy segment overall. You can also see that the negative growth drivers have become fewer year-on-year as we progress.
Taking a little bit more look, on Slide 14, into the oncology portfolio. Top 3 products continue to have very strong growth. Just a few words on Xeloda. We see a normalization versus last year because the 5FU IV supply is back up now in the United States, so you see a lower growth there. And Tarceva, we see, still experiencing some challenges as it continues to adopt and balance between the first-line EGFR-positive segment and also some settling down in second line with the wild type. Zelboraf had a good first quarter. We continued to penetrate a little deeper in the United States market, and good uptake in Europe overall.
So on Slide 15, a nice story with Avastin, continuing to grow after a turnaround. In the United States, it's driven predominantly by colorectal cancer, particularly treatment beyond multiple lines. And in the Europe, as we've said before, really strong ovarian cancer launch there, one of the strongest Avastin launches we've had in the history of the product. But also outside the U.S., good uptake in colorectal cancer. And in Japan, overall across many indications, but strong in non-small cell lung cancer and also in the metastatic breast cancer setting.
Turning to the HER2 franchise on Slide 16 and the next couple of slides. And just to position this, because I believe we'll be looking at this a lot in future quarters as well, early days for Kadcyla in the U.S., but we're encouraged by initial feedbacks from the customers on the launch. The product was actually dosed and utilized within 24 hours on a Saturday after launch at several centers in the United States, and one of the fastest NCCN guidelines post-approval, it actually occurred in 19 days. So good early signals on Kadcyla, but early, clearly. Perjeta continues to progress as well, with good continued uptake. And very importantly, we are happy to announce in this quarter that we'll be filing the NEOSPHERE data for early breast cancer in the second quarter of this year. That's in the neoadjuvant setting based upon feedback from the FDA. We're encouraged and therefore are enthusiastic about filing that in the United States as well.
If you look at the overall sales for the HER2 franchise on Slide 17, in the first quarter, 15% increase quarter-on-quarter. And you begin to see, I believe, at an early stage how these 3 products will work together to further penetrate HER2-positive breast cancer patients in a significant way. Of course, Kadcyla and Perjeta now in the metastatic setting, and over time, we look to get those earlier and earlier into the treatment protocols.
And if you look at Slide 8, a little bit more data on the Perjeta in the neoadjuvant setting. This data, of course, NEOSPHERE is not new. I just remind you of it. And it really shows the synergistic effect when you look at Herceptin plus Perjeta plus docetaxel in the neoadjuvant setting significantly differentiating itself from other combinations. I believe it's the strength of this data on what we feel with pCR now being encouraged as an endpoint, a regulatory endpoint, that we felt quite comfortable filing that data or will be comfortable filing that data in the second quarter. I'd also like to report that in the adjuvant setting, we started 1 of 3 trials that will feature Kadcyla and Perjeta eventually also in the adjuvant setting. This is the KATRINA [ph] trial. We did have our first patient in, in this trial in April. And if you remember, this was granted a Special Protocol Assessment by the FDA. So we're looking forward now to progressing these compounds into the full adjuvant settings.
Turning to Slide 19. You can see Lucentis has stabilized a bit since my report to you at the end of last year, with a 1% growth quarter-on-quarter between '13 and '12. We continue to see increases in the DME indication and a stabilization, a further stabilization, in AMD. AMD, in particular, we were able to achieve the less-than-monthly dosing now in the label in the United States, which allows for PRN dosing that is very competitive. And we've also gotten through the initial approval of the Eylea J-code in the first quarter this year. So I think we're more encouraged than we were even last quarter around Lucentis, but it remains a very, very competitive market in the United States, as you know.
Turning to Slide #10. Strong growth again in the emerging markets, 11% overall, 20% in China. You can see the rest of the growth rates there. I'd just make a small comment on Russia because that's really more tender-driven, particularly when you look at the size of the business in Russia in the fourth quarter of last year. It's one of the reasons we tend to look at our emerging markets over a 2-quarter period to balance a little bit the tenders that we have from quarter-to-quarter.
So I'll close with just 2 final slides. On Slide 21, we're equally excited about this year's ASCO. Clearly, GA101 will be one of the key points, where we'll be presenting, as you know, the GA101 versus chemotherapy arm and the MabThera versus chemotherapy arms. And you also know from our press release that we passed the futility analysis for the direct comparison. That will be one of the key presentations. We have also been very encouraged at the receptivity of ASCO for our Avastin data in metastatic cervical cancer. We have our anti-PD-L1, in which we will show efficacy in non-small cell lung cancer, melanoma and renal cancer -- I'm sorry, results of Phase I, I should say, on those 3 indications. And we'll have some information as well on the PD-L1 -- excuse me, the Bcl-2 inhibitor as well.
So just in closing, on Slide 22, before I hand it over to Roland. Well on track for our approvals for the year. Much more to do, and we're looking forward to, also, Kadcyla later this year, beginning to launch that in markets outside the United States.
So with that, I'll turn it over to Roland to cover Diagnostics.
Thank you, Dan. I'd like to report on the Diagnostics performance for the first quarter. As Severin mentioned, divisional sales growth, 1%, which is largely in line with our internal expectations. We expected a soft start to the year due to a number of specifics, which I would like to take you through.
Strong growth in Professional Diagnostics was 5%, which we believe continues to outgrow the market. On the Diabetes Care side, minus 5%. Continued challenges on pricing and on reimbursement, and I'll touch on that a little bit later. Overall, if we exclude Diabetes, the growth was at 4%. So I think a solid growth, excluding the Diabetes Care sales.
If we look at the regions in a bit more detail, you can see continued strong growth driven by emerging markets. Asia-Pacific was 10% growth, Latin America was 7%. Excluding Diabetes Care, again, 14% growth in Asia-Pacific, 20% in China, 10% Latin America, and our E7 countries growing 13%, excluding Diabetes Care. I'd also like to point out the strong performance in EMEA given the challenging environment. It was a plus 1%. And Severin touched upon the performance in North America already in his introduction.
A bit more detail on the different segments. On Professional Diagnostics, an important launch, which I will touch upon later. The strong immunoassay sales was 10% growth within Professional Diagnostics, continuing to driving that franchise forward. Then in Molecular Diagnostics, a high base, so a base effect from 2012, which is largely due to regional tenders and blood screening. And you can see this in the backup slide, blood screening year-over-year minus 12%. So this is really the main impact for the minus 2% overall in Molecular. Beyond that, though, we continue to see a good uptake of our HPV sales, in particular in the West. And then moving onto Applied Science, minus 10%. If we exclude this for the impact of the discontinued products, the sales are minus 6%. Obviously, lower research funding impacting sales, but also, of course, some continued good uptake with some newly launched product like the LightCycler 96.
And then moving onto Tissue Diagnostics. Very good sales in EMEA and APAC, double-digit sales growth there. And in the U.S., we had the impacts from the change of guidelines in reimbursement. So in essence, the negative controls are now not recommended anymore, and that impacted the sales growth in the U.S. to the tune of about 4%.
I'd like to move on to Diabetes Care. As I mentioned, a challenging market environment. Again, the various cost -- various reimbursement changes and cuts, price pressure, as we mentioned prior. And we expect this price pressure to continue. We also have seen the Medicare announcement for the first half of reimbursement strips to be announced. This will take effect by July 1, but we have already started to see some impact, and we expect to see some impact in the second quarter as well in the U.S.
How we're responding, of course, you've seen the restructuring that we have already undertaken that will continue: a closure in Switzerland site, another one in Israel, as well as the consolidation of R&D, more selective investments, fewer platforms going forward, and at the same time, also addressing our cost base in the different commercial organizations where the reimbursement cuts are effective.
On the positive side, we see a good uptake of the recently launched products, which are the other pillar of our approach, which is continuing to differentiate our solutions. We see good uptake in the differentiating innovative solutions, such as the Accu-Chek Mobile, the Nano in the U.S. or also the Combo in the U.S.
Moving onto Molecular. A particular approval in the U.S. for the next-generation HCV test, which is a novel dual-probe approach with very good performances. What is novel about this is that it is the only dual-probe test on the market, providing an extra layer of protection in detecting and quantifying a virus. So this is not just a diagnostic test, but it is also used in response-guided therapy. We have seen a very good uptake outside of the U.S., where this test has already been in the market.
Moving onto the next slide. Calcitonin introduced to the market, which in itself is a very important test. But as you can see on the left side of the slide, it does complement our leading menu, and it continues to support our Professional Diagnostics franchise. As I mentioned, immunology growing 10%. And you can see the leading position we have in endocrinology. So this again here, the Calcitonin, a specific tumor market for the diagnosis but also for the lifelong monitoring of patients with medullary thyroid carcinoma. So again, an important test expanding on our leading menu in Professional.
And then on the last slide, or in the second-to-last slide. One of the elements that we see is continuous consolidation of customer base of laboratories. And one of the reasons why we're well positioned there and why we continue to outgrow the market is our integrated modular systems. And you can see an example here, fully integrated lab system, highly automated, which takes you from pre-analytics through to a very modular system for analyzers all the way to post-analytics in one workflow. And this is also, then, incorporated with IT solutions, so really taking advantage of the laboratory consolidation in the market. And you've seen a couple of examples there on how this plays out, in particular in developed markets, such as France and the U.K.
And with that, I'd like to close by mentioning that we're on track to delivering the differentiated solutions, key launches for 2013. So 5 out of 13 achieved in the first quarter. And with that, I'd like to turn over to Alan for finances.
Thanks, Roland. Yes. Good morning, good afternoon to everybody. It's Alan speaking. So sales call, as is -- was mentioned, so just a couple of comments from my side. When you go to Page and Slide 33 and you see the highlights and -- well, for the quarter, so I would like to touch on 3 topics and the changes in the pension accounting to shed some more light on this. Then you see we had some major cash outflows in the first quarter. As you know, the bond maturity of EUR 3.3 billion and the bond call that we had introduced last year already, and we paid it back now. But on top of that, the dividend of CHF 6.3 billion. And then I will give a short update on expected currency impact for the full year 2013.
If you go to Page and Slide 34, you see the change in accounting policy based on IAS 19, and you see that the revised version of IAS 19 was adopted by Roche on January 2013. The 2012 results were restated retrospectively, and there is no impact, as you can see, on the previously reported 2012 operating profit. The changes have a relatively minor impact on the group's ongoing nonoperating results and EPS in absolute terms. So for 2012, a minus CHF 164 million on nonoperating income and minus CHF 113 million on net income and minus CHF 0.13 on earnings per share. The effect on 2013 is expected to be of a similar magnitude. So no impact on EPS growth. Also, ongoing absolute EPS will be lower annually. And when you compare this to some of our peers, the overall impact is rather modest. And one of the reasons, and perhaps the key reason, is that the revised standard eliminates the option to defer the recognition of actual gains and losses from pension plans known as the "corridor" method. Roche has never applied this option, and this change in revised standard has no impact on the Roche Group's financial statements.
With that, I would like go to 34 -- 35. And 35 sheds some light on the debt maturity profile. So what you see here is that we have repaid 66% of the Genentech-related debt. So that means that we came down, really. From CHF 48.2 billion, we have paid back CHF 31.2 billion already. And as said, majorly driven by the bond maturity of CHF 3.3 billion, which was effective in January, and then the bond recall that we have done late last year of USD 1.75 billion.
With that, I would like to go to Slide 36. And this is more kind of an assurance to you. The new Pharma geographical sales split reflects through to the internal organization. And what we really want to demonstrate to you is that this has not a major impact on the growth rates in that region. The new -- the minor impact on the growth rate, as mentioned, we have added 11 countries on the new Europe region, of which the most important are Romania, Roland (sic) [Poland] and the Czech Republic.
With that, on Slide 37, and as promised, the currency impact in 2013. It's the usual update. And you know how we do it: it's, in fact, an assumption, and we assume the 29th March 2013 exchange rates remain stable until the end of 2013. And what you can take away from the slide is that based on that assumption, we expect rather minimal impact for the year going forward, which can certainly change anytime. It's very much assumption-driven but sheds some light on the current situation. And with that, to my last slide, which is 38. Once again, reconfirming the outlook, which reflects the continued commitment to further improve the profitability and efficiency. And it's certainly based on our belief in the strong fundamentals of our business.
With that, thanks a lot, and we're happy to receive your questions.
[Operator Instructions] The first question comes from Timothy Anderson from Sanford Bernstein.
Tim Anderson - Sanford C. Bernstein & Co., LLC., Research Division
My questions all have to do with the pipeline and different things that you've shown in the slides. On Slide 21, on your PD-L1 cancer compound, you talked about seeing -- presenting efficacy data at ASCO from 3 Phase I studies. Can you say whether it's reasonably possible that you'll leapfrog straight into Phase III trials from here in the current year, essentially bypassing Phase II? And then a couple of Alzheimer's questions. You have 2 monoclonals in development, gantenerumab and crenezumab, for Alzheimer's. Is it realistic to think that you're going to really push both of those through Phase III? Or at some point, are you going to choose just one or the other because those trials are expensive and those compounds have a reasonable amount of similarities? And then on your base inhibitors, Slide 94 shows that you're running quite a large Phase I trial. That raises the possibility in my mind that maybe you could go straight into Phase III after the completion of that trial.
And if you could take the first question, I think this was PD-L1, whether we would consider to directly go into Phase III.
Right. So at this stage, we haven't made any decision regarding that program. I think the best thing to do, because we have to really audit the data at ASCO, is to wait until ASCO. And I think after you take a look at the data there, we can have the discussion in more detail. But I would just say that we're looking forward to presenting the data. Clearly, there will be data on safety there. There will be some efficacy data as well in the indications that we mentioned. And it would be a bit premature to decide how fast we can move those programs at this stage. You'll also see some data there on biomarkers as well for PD-L1. The second question on neuroscience, I don't know if you want...
In neuroscience, we have gantenerumab that we have already 1 combined Phase II/III trial ongoing, and we expect data from crenezumab still this year. So it will all be data-driven, very clearly. Depending on the data we get from crenezumab, we will make a decision of whether to go forward with a second compound in Alzheimer's. And we might go forward with 2 if they are really differentiated, and we might go forward with 1 if 1 of the compound is clearly superior. Your last question was on...
The base inhibitor. Again, we appreciate your enthusiasm. It's still in Phase I right now, so -- and so far, it's a bit early to determine how fast we could progress that or when we could progress that. But as most of these products, once we get the data, bring it in-house, we'll make some decisions. But of course, if we see very compelling signs, we certainly won't be afraid to move those ahead quickly.
Tim Anderson - Sanford C. Bernstein & Co., LLC., Research Division
Yes. I guess the reason I asked is that your Phase I trial is really as big as other companies' Phase II trials with their base inhibitor. So it kind of looks like what you're running is really a Phase II trial. That was the reason for the question.
Okay. I appreciate what you're saying here. So let's take a look at the data. And if it's very compelling, I think we could progress then. We'll just have to take a look at it.
I mean, there is no indication either way, so it's really -- it will be data-driven.
The next question comes from Steve Scala from Cowen.
Steve Scala - Cowen and Company, LLC, Research Division
Three questions. First, on Kadcyla, the product has had a fantastic rollout. How far along are you in establishing access in the U.S.? Secondly, a follow-up on gantenerumab. In what venue might we see gantenerumab Phase II data? And will we see efficacy endpoints in Phase II? And then the third question is, our analysis of the dispute over 7977 suggests Roche has a very credible argument. Would you tell us whether or not negotiations with Gilead are underway or if arbitration has commenced? And does Roche's new information relate to prodrugs of 6130?
So Steve, I'll pick those up. It's Dan here. Thanks for the questions. Again, we're encouraged by the Kadcyla initial launch. But it's early days. It's only been weeks. We're looking forward to having months behind us, but we've had some good reordering of the initial stock. I would just say probably the best indication of reimbursement and access in the U.S. is, as you know, the NCCN guidelines, which we do have now after a very short period of time, 19 days. And at the present time, I think that is really, as you know, what insurers look to in the United States in terms of reimbursement. I think your second question was on gantenerumab. I just want to emphasize again that this has been a transition from a Phase II to a Phase, if you like, Phase II/III or a label-enabling program. And therefore, because it was transitioned to that, it was increased enrollment. We really don't expect any substantial news on that compound until it reads out, which I believe, if you remind me, is 2015. Yes. We do have perhaps an interim that's going to take a look at imaging and safety over the course of this year, but I want to put that into the proper context. We don't expect to see an awful lot at that particular stage, and certainly nothing on efficacy, accordingly. And then finally, on 7977, your persistency, I appreciate that. I would just say that we will really continue to stick to what's in the public domain at this stage, which is the Gilead's 10-K. We have asserted our belief in the rights to 7977. It is now in a process, which I'm not going to really speak to the details of what type of process we're in right now. But we'll continue to pursue that process and the rights that we believe we have. I'm afraid I can say much more than that at this stage.
The next question comes from Andrew Weiss from Bank Vontobel.
Andrew C. Weiss - Bank Vontobel AG, Research Division
First, a bit on the guidance, and if you could shed some light a bit. Last year's quarterly were 2%, 6%, 4% and 6%. You started off the year with 6%. The wording of your sales guidance leaves so many opportunities and possibilities how to read: "Better or sales in line with last year's." Should we think about that as the current level is what you're looking for? Or do you think about there's going to be some ups and downs over the next quarter? And then going into the Diagnostics, your internal expectation was for a soft launch or soft start for Diagnostics. Do you expect that to improve towards the latter half of the year? And then finally, a product question on Herceptin. Very strong local currency growth in the U.S. Is that because the HERA trial confirms, basically, that one-year use should be used and not half-year use as a shortcut?
This is Severin. If I can just take the overall question on the guidance. So just the confirmation is on the full year, is on the full year guidance, so in line with 2012 sales. But overall, of course, we are early into the year, and there is positive news, as you have seen. There are some offsetting effects like the ongoing difficulties in Diabetes Care, talking about Diagnostics, or the expiry of the Valcyte patent, for example, later this year in Pharma. But overall, we confirm our guidance, which we made at the beginning of the year. Perhaps, Roland, you want to make some additional comments specifically around Diagnostics.
Yes. Thanks for the question. So indeed, a soft start. We feel we're on track with, especially, Professional Diagnostics. We should see an uptake in molecular. But as Severin mentioned, the continued challenges around the Diabetes Care franchise, so I would remain somewhat cautious on that end. And then Tissue Diagnostics, as I mentioned, is largely the impact of the guideline and reimbursement change in the U.S., which is the biggest market. So overall, we're on track.
Herceptin, yes. Herceptin briefly. So here, we've had a very good quarter in the U.S. with Herceptin. I don't think it was due to the reason that you mentioned, the HERA trial. I think it's really predominantly due to a number of factors. Number one, continued increase in the HER2 testing, and the penetration of HER2 testing and retesting continues to be more accurate in finding the patients in the United States with HER2 cancers. We've got gastric picking up a bit. There's also a dynamic where there's a number of trials that have come to a natural conclusion in the competitive environment, and now patients are going onto Herceptin. And then finally, a small effect on the pricing side. So I think those are the major factors that are driving the growth of Herceptin in the United States.
The next question comes from Alexandra Hauber from JPMorgan.
Alexandra Hauber - JP Morgan Chase & Co, Research Division
Sorry to start again on the Diagnostics. This is really more about visibility. I mean, you said it was -- you expected a soft start, but it was a negative surprise for us. All I know is that this is the first year where we haven't got a guidance for Diagnostics. You don't even expect to beat the competition, as you'd guided in all previous years. And we have had so many quarters now where you were guided towards an improvement in Diabetes Care. And what I hear so far basically tells me that you think the other divisions' weakness is a bit of a one-off and those should improve, but you still have no visibility on Diagnostics. Is that right? Sorry, in Diabetes Care. And no visibility? Or do we actually see something which gives you confidence that Diabetes Care may also turn the corner at some point? And then talking about visibility, how can we rule -- and I'm aware of the ongoing restructuring. But if you haven't got visibility on how bad Diabetes Care really gets, have you got sufficient visibility that after the sales disappointment today, we can rule out a margin disappointment in July? I have also a few questions on Pharma. The first question is on the NEOSPHERE filing. What is actually the expected outcome here? And I'm asking the question because the FDA highlighted 2 potential outcomes, 2 potential approvals. And I think the desired one is obviously an accelerated approval in early breast cancer, but the FDA also talked about getting a full approval in the actual neoadjuvant setting. So is that something you're expecting to get as well or that you're going after as well, and what kind of approval timelines are you expecting? Is this going to take the full normal regular approval timeline? Secondly, on the CLL11, I know there's a submission is this year. But will you wait for the Stage 2 to read out before you submit? If so, or even if not so, when roughly should we expect the Stage 2, the Rituxan versus GA101 data to be mature? Finally, on the Catherine [ph] adjuvant study for Kadcyla. Can you comment on the exact patient population? It only says it's high risk. What proportion of early breast cancer population would actually fall under this? And just looking at the size of the study, it's fairly small, comparatively small, with only 1,400 or so patients. What kind of risk reaction are you intending to show?
I'd like to comment on your question on Diabetes Care and then overall on Diagnostics. I think that the challenge continues to be continued on the reimbursement side and on the pricing side. On the pricing side, it's largely competitors with very low pricing. And on the reimbursement, it was, for last year, reimbursement cuts in large European markets, and it looks to be this year, the U.S. market with the announced reimbursement cuts for CMS. Now the reason why this is difficult to assess is this is the Medicare CMS cuts. So the difficulty will be how will it affect the markets overall, how will it flow into the private market? And we know in the U.S., for instance, we have the mandatory tender process. How will that be played out by the different players in the market? And so there is always going to be certain base effects from year-to-year when these cuts materialize. Overall, on Professional Diagnostics, then, I would expect us to continue to beat the market going forward, especially in our very strong core lab franchise. I think this is where we continue to grow ahead of the market. So in terms of the margins, then, I'm afraid we don't guide particularly on the margins. But obviously, we're addressing our cost base. We continue to do that as we move forward. And I mentioned, we do this on the commercial side, we do this on the R&D and manufacturing side.
So Alexandra, picking up on the Pharma questions. The NEOSPHERE filing, just to clarify that, I mean, our expectation is that we will be filing for a neoadjuvant claim with the pCR as the endpoint. You know we have, of course, the adjuvant trials ongoing. We'll continue those, but we're focused really on a neoadjuvant approval. In terms of the timeline, we are not completely sure yet, but we would expect to get some news back in the first half of 2014. We're going to file next quarter. And in terms of how rapidly the agency reviews the file, we'll keep you informed and we'll let you know as we progress, but we're expecting first half of next year. On GA101, yes, we will move ahead with the filing now in this second quarter for GA101 on the Stage 1 trial result. So excluding the head-to-head, really, GA101 versus chemotherapy and MabThera versus chemotherapy is what we'll be filing on. And I think that was the question you had there. And of course, we'll follow up -- your question was when can we expect the head-to-head data? We expect the head-to-head data also in the first half of next year. We'll kind of have to see how the events go with that as well. But the first half of next year is what we're expecting. And then finally, you asked a few questions on the KATRINA [ph] trial. So the end, as you rightly point out, is 1,484 patients. As you see from the protocol assessment, these are high-risk patients with residual disease, so continued pCR. And the endpoints, we would expect the readout early as 2016, 2017. The endpoint is 3-year disease-free survival. And in terms of how much of the patient population we're talking about here, I think actually Slide 18 helps you a little bit because, if you look at the NEOSPHERE trial, for instance, those that were able to get a complete pathological response is in the magnitude of 45%. So we would expect these patients that have residual disease to be at least in the 50% range, possibly more, in the adjuvant setting for breast cancer, to give you an idea of the population.
The next question comes from Sachin Jain from Bank of America.
Sachin Jain - BofA Merrill Lynch, Research Division
Sachin Jain, Bank of America. Three questions, if I could. Firstly, just back on Diabetes Care, just to try and get a sense of the extent of price pressure. A potential commentary on price differential between yourself and the low-cost providers is an indication of how much further we may have to go. And is that the right way of looking at it? Secondly, a couple of questions on PD-L1. Firstly, I wonder if you can comment on the biomarker diagnosis program that you may run within your Phase III program and how that differs from the competition, particularly Bristol? And then secondly, a comment on any combinations you're looking at for PD-L1 other than with Zelboraf, any color you could give there. And then the final question is on Avastin. Where do you think treatment duration has gone to following the TML label, and where do you think it could go to with continued education in the sphere? The reason for the question is, I guess, a year or so ago, internally, you were a little bit less optimistic on the opportunity. Has that changed?
Thanks for the question. Allow me to start on Diabetes Care. We don't expect that we have seen a bottoming out of the price pressure, clearly not. We continue to see different markets moving also into cutting the reimbursement. The difficulty there is the timing of when it comes, sometimes little visibility ahead. And then also the impact. Just taking you back to last year when it was announced in Germany, it was then revised again and changed. So this allowed certain exceptions that were changed subsequently. I mentioned earlier the announcement for CMS for Medicare in the U.S. It will take effect July 1. It is a cut of 72% on the reimbursement. But how exactly that will work out in the marketplace, how this will flow over into the private sector, how the mandatory tendering process will be played out, how the mail-order companies will actually sustain in this marketplace, this all unknown, and this is what makes it difficult to project.
Sachin Jain - BofA Merrill Lynch, Research Division
You also flagged the low-cost providers, so I'm just trying to get a feel of what the price differential between yourselves and those providers was.
It's in different ranges. What we see overall is a price pressure roughly around 5% to 10%. But we see low-cost providers coming in with very, very low pricing. In some cases, it can be as low was 30%, 40% lower. But then again, that does not apply across the entire segment. That is only for just very basic supply. So in other cases, where we have the opportunity, we've also seen the ability to drive higher reimbursement. We have several examples here in Europe from this year and last year. For instance, in France with our Accu-Chek Mobile. Also, in some countries, in Scandinavia, where we'll actually be able to increase the reimbursement based on the differentiating solutions that we offer with [indiscernible].
Okay. Sachin, thanks for the 2 questions, PD-L1, Avastin. PD-L1, I mean, I think as you know, this is going to be a competitive field. I think the compounds will be evaluated on a variety of parameters, certainly safety, biomarkers, spectrum, number of tumors that can be targeted, and therefore, the combination partners, as you rightly point out. I would just say on the biomarker program versus other competitors, we have a prospectively defined biomarker that we'll be pursuing in our trials, and we may talk a little bit more about that at ASCO coming up. But as you know, on both the Diagnostics and the Pharma side, there are significant advantages to having a trial that's designed with a prospective marker from both a regulatory, a medical and a pricing perspective. Of course, there have been examples when companies have done retrospective work on biomarkers. And I wouldn't say that's impossible, but it clearly makes it a bit more difficult. And of course, paramount to that is that the All Comers trial has a robustly positive endpoint. We're also going to do segmentation as well in the future. So it is, I think, a very competitive component of the PD-L1 space, and it's one that we spent a considerable amount of time working on for the past several years to get it right, to try to take that into the trials moving forward. What I would say on Avastin, yes, we continue to see good uptake in TML. I think what you're seeing in the U.S. and outside the U.S. is with the TML label, there's even a stronger desire for clinicians to treat first line because they know they can continue their products into second line. We're seeing increasing patient share in the second line overall. It's a little difficult to guide you specifically on that overall -- second line share is -- sorry, I'm just getting some figures here. Second line share is plus 9%, and Avastin TML in general is growing by an increase of 4%. So we do see that continuing. I think we stand by our projections for Avastin with CHF 7 billion peak sales, and TML will be a component of that.
The next question comes from Peter Verdult from Morgan Stanley.
Peter Verdult - Morgan Stanley, Research Division
Pete Verdult, Morgan Stanley. Three questions. Just Severin, a top-down question just on -- can you update us on the expected impact from healthcare reform this year, U.S, x U.S. and any major changes you see coming on the horizon? A quick one for Dan, just on Lucentis and stabilizing. You've been pretty conservative or cautious about the medium- to long-term outlook for Lucentis. Has that changed, and how are you thinking about Allergan's DARPin? And then one for Alan. I realize this is a sales call, but it's pretty clear from the presentation you provided with the sales call today that we've probably reached the point where net debt to total assets is within your 0% to 15% target. So in the absence of any M&A or significant increase in cash returns, I mean, we could see Roche reaching a net cash position in 2014. So the question is, basically, how comfortable are you with that scenario playing out?
If I can just comment high-level on the healthcare reform, and then Dan, if you can give a bit more color in particular from the Pharma side. I mean, overall, of course, we have factored it in, in our guidance for the full year, and we haven't seen any development which would lead us to a change in the guidance. So far, actually, the impact is limited. I think that the key underlying reason is the differentiation of our portfolio. It's the quality of our medicines and how much clinical benefit we provide for patients. And as such, we are in a more protected position, if you like, to defend our prices as we go forward. Dan, if you could comment on that from a Pharma perspective?
Sure. So just a couple of things. I mean, obviously, the ground continues to move in the U.S., just as recently as Obama's recent budget publication a couple of days ago. And in particular, there were some questions around Medicare Part B and Part D. I would just say on Part B, in particular, in the United States, which has an effect on the ability to, if you like, increase prices on products, I'd just remind you that already for Roche, because we're in cancer, because we're in biologics and nonoral meds, we have a very limited ability to increase prices on the vast majority of our portfolio. So I wouldn't think that would have a very significant impact on us moving forward. On Part D for the dual eligibles -- and again, we'll see how the policies play out on Part D on the dual eligibles. We have an exposure of only around 5% of our overall sales exposure to the Medicare Part D, just to put that into context. And then finally, on the sequestration, there's been a lot of talk about this site-of-care shift going from the physician treating office to the hospital. What we're seeing is that there is a bit of that shift. I don't think it's an issue of patients not being treated, but their site of care may be shifted slightly. I think this is going to be more of an evolution over time. I don't think it's going to be a revolution. And of course, as that happens, there is a bit more pressure in the hospital setting relative to that 340B discounts that we give hospitals. But at this stage, I wouldn't call that dramatic. So there's a number of things going on. To Severin's point, I think, given our portfolio and the dynamics in our portfolio, certainly, we could be less affected than others in this area. Finally, Lucentis, you asked for. I would love to have a crystal ball on Lucentis. It continues to be a very challenging market. We are encouraged by our continued share uptake in DME, but it's going to be competitive in the mid- to longer term, for sure. And we'll have to see how that plays out with cannibalization, perhaps, of Avastin or by Eylea or Lucentis. As I said at the end of the year, I expected a slight decline in Lucentis. For this year, first quarter looks more promising. We'll have to see how the other quarters move, but I remain that it's a highly competitive field, and in fact, quite difficult to predict at this stage.
Yes, we'll, I'll pick up on this point here that you've made about the net debt on total assets, and I think you introduced the topic well by saying, okay, this is in fact a sales call here. But I think on the other hand, I think it's really evident here that we're moving in the right direction with our reduction of debt, and I've emphasized that at the beginning of the call. But very clear, net debt on total assets, as we've said, the target is to get into a range of 0% to 15%. We haven't reached that range yet. You have outlined a certain day where we might be net cash positive. I'm not commenting on this, but I think definitely we are moving into a direction where we reduce debt further and where we really get into the range. But we have said this, I think we will come up with some more specifics about what we're going to do with the cash once we get into that range, and we're not there yet.
The next question comes from Michael Leuchten from Barclays.
Michael Leuchten - Barclays Capital, Research Division
If I could go back to Lucentis for a minute. In the performance in the first quarter, the one thing you didn't talk about is a potential for market expansion given the issues we've seen with the compounding pharmacies in the U.S. Just wondering how much of that performance should have been driven by the market becoming bigger. And then I was wondering if you could give us any feel for the Perjeta penetration in the U.S. You did give a bit more detail around the launch last quarter, which is absent in this presentation.
Yes, thanks, Michael. SO going back to Lucentis, again, I mean, just to give you an idea of where we stand on the share side, and then I'll talk a little bit more about Avastin and compounding pharmacies. But AMD, that share is relatively stable, with about 25% Lucentis, 25% Eylea, 50% Avastin; RVO is then also quite stable with Avastin having more than 50%, Lucentis around 30%; and DME is really where we're getting the increase. Now Lucentis has been increasing quite a bit and is now at a share of around over 20%. Surprisingly, we're not seeing a big shift on the Avastin side despite now it's been a variety of different compounding pharmacies in different states around the United States. But we really don't see a lot of cannibalization yet of Avastin. As I've said before, I think we're very likely to see any federal action here on compounding pharmacies. Our anticipation is that we're more likely to see state-by-state efforts, and it's still early days to see if there'll be further, if you like, legislation at a state level relative to compounding pharmacies. But at present, what I can say is we're really not seeing a lot of cannibalization on the Lucentis side. Perjeta. Yes, how are we doing with Perjeta? So I mean, Perjeta continues to be in line with our expectations in terms of penetration in the United States. Even more physicians are now using the product in the United States quarter-on-quarter. We continue to have some slight increases in new patient share. I think, also, we're very interested now we've launched in Germany, in some of the Nordic countries, basically all the European markets that we can launch right away without reimbursement, we're starting to see just the early signs of uptake there. It will be interesting to see how the dynamics play out between Perjeta and Kadcyla between the U.S. and Europe. I think there could be some different dynamics there, but we'll have to kind of see how that progresses on for the rest of the year. But so far, Perjeta continues on a good track.
The next question comes from Keyur Parekh from Goldman Sachs.
Keyur Parekh - Goldman Sachs Group Inc., Research Division
I have 2 questions on your breast cancer franchise if I may, please. The first one, Dan, you were just referring to the uptake in Europe. Wondering if you could help us how to think about the pricing in Europe. How are you negotiating with the various authorities on potentially a price per patient for Herceptin plus Perjeta and kind of how should we think about that, both from monthly basis as well as per-patient basis? And secondly, and kind of you mentioned kind of the potential for some change in trends once you launch Kadcyla in the U.S., more appropriately within the second half of this year. Just wondering if you can elaborate a little bit more. Do you expect Kadcyla front-line use, to the extent that it is, to come at the expense of Pertuzumab? Or how should we think about the different settings there?
Okay. Thanks very much. Appreciate your -- so on the pricing situation with Perjeta, I mean, just to put this in perspective. So in Europe, we've launched at a price of around EUR 4,000 Perjeta on an x factory basis. So you compare that a bit to the United States. If we do a currency comparison in the U.S., we have a price of around USD 5,900, and that would correspond to around USD 4,800 in Europe. So we're seeing around a 15% differential in price between the U.S. and Europe on Perjeta alone. And then, when you look at the combination of Perjeta and Herceptin, there's a difference of around 30% to 35%. And that's because, in a variety of European countries, we'll be looking at either episode of care capping, if possible in a country, or entire treatment capping, as appropriate. And that's a bit of the price ranges we're dealing with in Europe. And this is, obviously, a result of a lot of pricing research we have done. And we'll begin to roll that out and look for reimbursement for that throughout Europe in the months to come. On Kadcyla relative to the front-line usage in the U.S. No, we're really seeing it used in second line and later lines in the United States right now. And we'd expect that it perhaps will be a little bit -- as you know, our label does allow for a very small percentage of patients coming off of adjuvant, around 5%, to continue on Kadcyla in the U.S. for first line, but it's a very small amount. And our folks, with their past experience in the U.S., feel that the likelihood of that moving up to the first-line setting is going to be quite limited until and if we see good results from the MARIANNE trial. Now I think the dynamic in the U.S. marketplace is, if MARIANNE does become positive in the U.S. marketplace, and it's a very data-driven market and guideline-driven market, then at that time, between the announcement of the data and perhaps the filing timeline, we could see, presuming it's positive, more use in the first-line setting. But until then, I think we'll see its predominant use -- vast majority of the use in second and later lines.
The next question comes from Matthew Weston, Crédit Suisse.
Matthew Weston - Crédit Suisse AG, Research Division
Three questions if I can. Just following on from Pete's question about regulatory changes or reimbursement changes. If the budget proposed last night does come through, and we do we see a reduction in Medicare Part B infusion cost to ASP plus 3 instead of ASP plus 6, is there anything that you could do to prevent small oncology practices from actually potentially having to only be reimbursed on a loss-making basis for oncology? I can't see anything you can do because, obviously, if you lower the price, then ASP comes down with it, and they end up in a similar problem. But is there anything that you've already thought of that you can do to potentially mitigate problems caused by that proposal? Secondly, just looking at the detail, I see international Rituxan with a negative trend. You obviously mentioned issues around tendering, but is this the first sign of Reditux actually having an impact in international markets? If you could explain that, I'd be grateful. And then finally, I guess, a bigger-picture strategic question. We've seen a very significant decline in the yen relative to international currencies. Obviously, you have a relationship with Chugai. If you could just remind us of your stated goals for the Chugai stake and whether there are any barriers in place that prevent you from increasing that opportunistically?
Great. Thanks. Thanks very much, Matthew. So I'll just take maybe the first 2, and then Alan, the third on the yen. So again, I think it's still early days for whatever budget proposal is on the table in the United States, and there'll be a lot of back and forth, as you well know, on each one of these proposals. But relative to Part B, in particular, I think you've answered your question by saying that there really isn't an awful lot we can do. I mean, the system is the system. It takes a couple of quarters for the adjustment in the pricing. The plus 3, plus 6 does have some impact. But remember, our price increases, back again to the injectable portion of the anticancer market, have already been quite limited for this -- from the system. So I don't think we'll see a significant impact on our biologic business in the U.S. Now relative to Rituxan, as I said before, to answer your question directly, I mean, we're not seeing more uptake of Reditux. I mean, there are a couple of markets where it has been in the past, and we don't see it necessarily increasing significantly, like Mexico, but we're not seeing a lot of new markets with penetration of biosimilars for Rituxan at this stage. The real shift in the emerging markets with Rituxan is the tender effect in a couple of the larger markets. So I think it'll be important when we get to the half year to take a look at this, but I do think we'll have some leveling out of that over the next several months. And, Alan on the...
This is Severin again. If I could just comment on the Chugai stake. We don't see changes in the actual setup. And I'd like to remind you that sometimes people compare the situation in Japan with the situation we have in the U.S. And there's a very different history, there is a very different setup of contracts between us and Chugai. And very importantly, when we bought the majority in Chugai, at that very point of time, we brought our complete Japanese Roche business into the Chugai organization. So we don't have the duplication of structures in Japan. Now you’re more specific question on the Japanese yen. I mean, currency fluctuations would not drive such strategic M&A decisions to start with. But perhaps, Alan, it would be useful if you comment on the weakening of the yen in operational terms. What does it mean for our business on an ongoing basis?
Yes, I'm happy to do that. Thanks, Severin, and thanks for the question, Matthew. I would make 2 comments here. One comment is about the currency sensitivities. And as you know -- and we're pretty transparent about this, and we have published that on Page 33 on our finance report 2012. And what you find over there is that an impact of a 1% rise or decline of the yen versus the Swiss franc has an impact of the core operating profit of CHF 20 million. So when the Swiss franc -- or the yen strengthens against the Swiss franc, CHF 20 million more; if it declines, CHF 20 million less. So it's relatively simple to calculate what that means. Certainly not showing in constant currency reports. And the other point is, let's assume for a second we would increase the stake or decline it. I think very clear, for the time being, we share our exposure, our currency exposure in the Japanese yen with the minority shareholders in Chugai. So I think that's a pretty beneficial position that we have currently.
The next question comes from Tim Race from Deutsche Bank.
Tim Race - Deutsche Bank AG, Research Division
Yes, Tim Race, Deutsche Bank. So a question maybe last for Severin, just on strategy and how you look at the Diagnostics business going forward. Obviously, you got a portfolio of different businesses here. Some that are performing very well and are well integrated with all the parts of the business, some that are relatively separate and perhaps not performing very well, these competitive elements or funding element. And basically, even if you adjust them short term, there's a risk long term that the future is not as bright. And what -- how would you assess those businesses, and at what point do you make tough portfolio decisions on these businesses?
Okay. Well, as you know, the synergies we can achieve as a group by leveraging the capabilities across Diagnostics and Pharma are, of course, very central to our strategy. Now in terms of Diabetes Care, I mean, we are facing an extremely challenging environment. And I think the answer can only be, on the one hand, to adjust the cost structures to the new realities. That is what Roland has been referring to, and there is a number of ongoing initiatives to tackle this situation. And secondly, for the long term, to build a differentiated portfolio. And again, Roland has pointed out on the early and very good signs, however, with some of the new products we recently introduced in the United States. It's this 2 avenues which we pursue as we go forward.
The next question comes from Vincent Meunier from Exane BNP Paribas.
Vincent Meunier - Exane BNP Paribas, Research Division
Three questions, please. The first one is a follow-up on MabThera in emerging markets. Can you please tell us, what are the trends in terms of pricing in that region? The second question is on Zelboraf. You say that in the U.S., now, it's fully penetrated. Should we then expect a stabilization of sales in the U.S. for the product? And the last one is on Tamiflu. Tell me if I'm wrong, but you said earlier today that we should not expect material sales amounts this year. But does this comment include the possibility for a bird flu outbreak or not?
Okay. Very good. I'll take a stab at those. So MabThera in emerging markets, we're not seeing any significant changes in the pricing pressure there. As you know, we have a lot of different programs with MabThera in the emerging markets, including special par pricing to the public segment, for instance in Brazil, for particular indications. We have a second and a third branch strategy in India. So we have really the normal levers that we use for MabThera in the emerging markets to gain access always based on a sound business case. But I think that also needs to be differentiated from any price impact elsewhere in the world or outside those particular markets and countries. So we're not seeing any trend that's been different than the past. On Zelboraf, I really do think we're at a point of stabilization in the United States right now. Very high patient penetration, very high testing rate in the United States. And outside the United States, we're well into the penetration in Europe, so we still have some countries that we're still in an adoption phase and a progression phase. I think we'll continue to see Zelboraf for the year increase outside the United States as well. And then finally for Tamiflu on the bird flu side, obviously, we're in close contact with the WHO as we have been for many years. We've indicated that Tamiflu does seem to be sensitive against the current circulating strain of bird flu in China. However, very importantly, we have not yet seen person-to-person transmission of the bird flu in China. So I think that really needs to be put into perspective. And our business in Tamiflu for epidemic like this is predominantly based on the stockpiling that we've done with the countries for the past several years at both individual country levels, and also, we hold a strategic stockpile for the WHO. So we're not seeing any significant, major changes to that stockpile. We really have fulfilled most of the orders or all the substantial orders on Tamiflu into those stockpiles at this stage.
The next question comes from Eric Le Berrigaud from Bryan Garnier & Co.
Eric Le Berrigaud - Bryan Garnier & Co Ltd, Research Division
Three questions, please. First is on the EPO market in the U.S. How do you see this market developing, and do you see any opportunity for you to introduce MIRCERA [ph] at some point in the coming years when you will be able to? Second question is on Herceptin plus Perjeta in the U.S. How much do you evaluate the penetration in market share of the combination of the 2 products in first-line breast as we speak? And the third question is on Xeloda. Is there any significant country where Xeloda should lose its patent and see generic competition already in 2013?
Okay, very good. Well, the EPO market in the U.S. is obviously a very competitive market in the U.S., as you know, today, both with branded products and also the introduction of some generics. So it's quite an aggressively competitive market. I would say relative to MIRCERA [ph] , I don't have a lot of comments on that. We're considering our options accordingly, but I wouldn't want to get into a lot of details on that at this stage. In terms of number two, your question on Herceptin and Perjeta. As I said before, continuing to penetrate in first-line setting. Continuing to have a number of new physicians having first-time usage of the product. So I would say it's on a penetration curve, as we've expected, in the United States. And then finally, with Xeloda, no, we don't expect any patent expiries in 2013, but we expect significant patent loss in both the U.S. and x U.S. in 2014. So I think we can expect a significant decline in Xeloda as we approach 2014.
The next question comes from Fabian Wenner from Kepler.
Fabian Wenner - Kepler Capital Markets, Research Division
One question on Avastin, actually 2. You stated stronger uptake in ovarian in Europe. Could you give us an update on the rough sales split between the different cancers in Europe and the U.S.? And then secondly, how excited are you about the roadblock EGFL7 in combination with Avastin, and when this year will we see the Phase II data from NILE and CONGO?
Okay. Thank you. On the Avastin share for each area, we've got -- I mean, what we've disclosed so far before is the colorectal cancer is around 50% of the overall share, and lung is around 20% to 25%. So the remaining would be the other indications at this stage. That's what we've disclosed so far on Avastin. And of course, EU versus U.S., of course, you don't have the ovarian so sufficiently in the United States as you have the label in the EU. And relative to EGFL7, well, I mean, it's a Phase II readout this year. We would expect to have data in-house hopefully at the end of the year, most likely at the end of the year. As you know, Avastin is a challenging drug to improve upon because of its efficacy. This is a mechanism of action that our researchers are quite excited about, but it carries all of the risks that would go along with a particular Phase II program. So we hope to be in a position to be able to make a decision on that during the course of this year.
Fabian Wenner - Kepler Capital Markets, Research Division
But just a follow-up on ovarian in Europe. So basically, despite the growth, it's still very small. You used to have like a 5% penetration or something, or has that changed markedly?
Yes. I mean, in ovarian in Europe, does our share increase, is that what your question is?
Fabian Wenner - Kepler Capital Markets, Research Division
Yes, I mean, can you give a rough estimate of where you think the penetration has gone in the first line?
I'm afraid I don't have that data in front of me. Maybe we can -- I'm not sure if we have that data. We can follow up with you on that, if you don't mind.
Ladies and gentlemen, we have no more questions at this time.
Thank you very much. Thank you for your interest in Roche. And have a good afternoon. Bye.
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