Novartis AG's CEO Hosts Investor Day (Transcript)

Nov.22.13 | About: Novartis AG (NVS)

Novartis AG's (NYSE:NVS)

Investor Day

November 22, 2013 08:00 AM ET


Samir Shah - IR

Joe Jimenez - CEO

Harry Kirsch - CFO

Kevin Buehler - Division Head, Alcon

David Epstein - Division Head, Novartis Pharmaceuticals

Tim Wright - Global Head, Development

Hervé Hoppenot - President, Novartis Oncology

Alessandro Riva - Global Head, Oncology Development and Medical Affairs


Matthew Weston - Credit Suisse

Alexandra Hall - UBS

Laura Balan - Capital Research

Graham Parry - BofA Merrill Lynch

Joe Jimenez

Good afternoon. I’d like to welcome everybody here this afternoon and I’d also like to welcome everybody who is viewing by webcast. Now before we get started I’d like Samir to read the Safe-Harbor statement.

Samir Shah

The information presented in this meeting and the webcast contains forward-looking statements that involve known and unknown risks, uncertainties, and other factors. These may cause actual results to be materially different from any future results, performance, or achievements expressed or implied by such statements. Please refer to the Company's Form 20-F on file with the Securities and Exchange Commission for a description of some of these factors.

Joe Jimenez

Thank you. Okay, we have a great agenda today. I’m joined by some of the top managers at Novartis. I’m going to start by giving an overview of the strategy and then Harry is going to come up, talk about productivity and capital allocation then we’re going to go deep into the businesses. And we’re starting with Alcon and Kevin Buehler to give you a view of that business that I think you have not had before. And we’ll take a short break, and then David will come up and start the Pharma deep dive.

And we’ve got Tim Wright, who is going -- who is our Head of Global Development in Pharmaceuticals that will talk about the pipeline. And Hervé Hoppenot, is also here to go very deep on the Oncology business. So I think it will be quite an interesting day.

So let me start by talking about the strategy and I want to start by talking a little bit about where we have come from as a company. So back when Novartis was formed in 1996 with the combination of Ciba-Geigy and Sandoz, we were less than 50% healthcare and over the next 17 years obviously we managed the portfolio to be focused 100% on healthcare. And you can see here some of the acquisitions and the divestitures that occurred over the years and shaped the company. The most significant was Alcon done in 2010. Now we have completed the Alcon acquisition and we’re moving into the next growth phase of the company. Those shareholders that have stuck with the Company have been well rewarded so our total shareholders return since creation of Novartis has exceeded that of our peers and the world pharma market.

Now, we’re now moving into a new phase of the Company and we’re sharpening the execution of our strategy and we’re strengthening the portfolio. So what does that look like? I want to reinforce the strategy of the company and that has not changed. Our strategy is to win through science based innovation that’s focused on high growth segments of healthcare. Since I’ve become CEO, I have focused the company on three strategic priorities; the first is, extending our leading innovation, which to me means, making sure that our pipelines are best in class in every segment that we compete in; the second is accelerating growth, which means turning that innovation into sales and profit growth that hits the P&L; and then finally driving productivity. I talk about productivity as being strategic at Novartis given that it allows us to reinvest and to also show profit improvement.

Now let me touch on innovation. For over 10 years, we have been refining our approach to discovery and starts with the pathways approach continually focusing on future technologies as well as creating a unique culture in our research organization that leads to significant innovation. Now the pathways approach that we talk about involves studying molecular signaling networks within cells that are responsible for normal cell function. Now we know that there is only a handful of pathways that we know of and they’re shared across diseases.

So our discovery team starts by studying a pathway in a particular disease, usually it’s a rare disease with a homogeneous patient population. Once we have new molecule that interrupts that pathway then we would expand mechanistically after that. And a good example of that is BYM338, which is our myostatin blocker. We’re starting that in body myositis but we also have plans to move into [indiscernible] and other muscle wasting diseases.

Now we think about new technologies in terms of answering specific scientific questions so how can we increase the druggable universe or is there a new technology that will lead to a step change in a particular disease. You’re going to hear from Hervé particularly about CART 19 and what that can potentially do in certain areas of oncology.

The third area that we focus on from an innovation standpoint is culture. So many of you have been in the [Basel] you’ve seen the campus and the lab of the future where we bring biologists and chemists and geneticists together to work together in a collaborative way that is different, than I think some of our peers, and results in a significant innovation through building that kind of an innovative culture. The approach has translated to real innovation that is now moving through the clinic and beginning to have an impact from an in-market launch standpoint. You are going to hear about many of the new molecules that are up there as well as medical devices. So that’s the first priority, is to focus on innovation.

The second priority is to turn that innovation into sales and profit growth that hits the P&L. So the effectiveness of this company from an innovation standpoint has required that we become a launch machine and I think if you look at the past five years and new medicines that we have introduced, accounting for now a third of our total sales out of the almost $60 billion in sales. That’s a significant transformation of this portfolio that could only be possible with the kind of launch trajectories that we have seen with Gilenya, with Afinitor, with Galvus. But also key to accelerating growth is to continue to invest in products post launch.

So we have been focusing now on real world outcomes that can help payers and physicians understand how our product reviews in the real world and this is benefiting the business; so a couple of example. The first is Lucentis where real world data showed that the average patient for Lucentis was being injected five times a year which was below where we were from a clinical trial standpoint but that we were able to use data like this and immediately counter claims from a competitor like Elia, around the number of injections that is not different versus Lucentis. Another example is Gilenya where real world data confirms that patients that are on Gilenya have about a 50% reduction in relapse rate versus those on standard injectable therapy.

Now, another driver of growth is emerging markets. We reported in the third quarter that our emerging markets growth rate was 9%. This is on top of six consecutive solid quarters of growth in emerging markets. I think this is driven by the commercial footprint that we have in emerging markets but also the fact that we are committed to research and development in some countries like China. And I think that is having a real impact on our growth rate on emerging market.

Now the final priority is to drive productivity and Harry is going to go deep on our cost reduction objectives and how we’re going to deliver those over the next few years. But these are the five main areas that we’re focused on; from procurement all the way down to research and development.

Let me finish by talking about where we are taking the country. I said that we’re now entering our next growth phase and we’re focused on driving continued growth at Novartis but also on delivering good shareholder returns. So we’re sharpening the execution of the strategy as we move into this new growth phase and we are doing it in three ways. First is active management of the portfolio. The second is leveraging the diversification for competitive advantage. So many people asked what is the benefit of being something other than just a peer play pharma company and I want to try to dimensionalize that today. And then finally driving superior shareholder returns.

So let’s start with the active portfolio management. I told many of you that back in the spring, we started our annual strategic review. We do this annually, but this year we focused more strongly on the portfolio. Because if you think about what’s happening externally, payers are getting tougher, regulators are getting tougher; I believe that you have to have leading businesses, businesses of scale to succeed in some of these segments.

So we took each of our businesses, not just at the division level but even within divisions, and we asked ourselves some key questions. How attractive is this market? What competitive position does Novartis have? Do we have the ability to win in this segment, and is this the place where we want to invest? So for example in the vaccines and diagnostics business, we looked at meningitis, we looked at flu, and we looked at the diagnostics business. And we said, look, let’s think about each of our businesses in this way and make some key decisions about where we are going to invest or what has to happen? And I have also been public about the fact that we have three big growth engines in the company. Pharmaceuticals, Alcon and Generics. That’s 85% of this company.

So also the thing that we have to remember that when we are talking about a portfolio review, that of the smaller businesses, it’s still is just somewhere between 10% and 15% of the company’s total. But how do we strengthen those businesses? Or if we can't strengthen them, the smaller businesses, what do we do? What are our other options? The first action that we’ve taken based on this review is that we did announce the divestiture of the blood transfusion business for just under $1.7 billion. This is a good deal for Novartis shareholders. This was not going to be a place where we were going to invest to grow. Grifols wants to invest to grow and as of now a platform so it’s a good execution of the strategy for Novartis.

Now the second area that we focused on in this portfolio -- not the portfolio review but the strategic work that we’re doing is getting more value for the diversification that we have in the company. We see value in four areas; the first is in research and development, collaboration; the second is in revenue synergies; the third is cost synergies; and the fourth is talent synergies. Now let me just touch on those for a second.

The strongest example of revenue or of R&D synergies across these businesses is what we’re doing in biosimilars. This company has the scientific capability of an innovative pharma company but it has the commercial capability of a generics company and when you bring those two together we will be unstoppable in biosimilars. We are the ones to beat in biosimilars. You see look at what’s happened to some of our peers, you can recreate that combination through partnerships, through joint ventures, they don’t seem to work, this is working in our company and I think this gives us competitive advantage by having both that innovative pharmaceutical company and the generics company.

Now the second area of synergies is in revenue synergies. We have a program at Novartis called customer first. And in certain markets where we have customers who can deal with one company and don’t need to deal with separate generic, separate innovative pharma, we are going to market as one company and this is creating competitive advantage. For example, a customer like Walgreens in the U.S. who are able to go in with a, let’s say a flu vaccination program for at the pharmacy level but also one that will leverage the over the counter drug business that we have at Novartis together with a generic program that would be in the back of the pharmacy. We’re able to deal with customers at a different level. Last year this generated about $800 million in incremental revenue. We expect a $1 billion this year and I still think this is the very beginning of synergy that we can create across these divisions from a revenue standpoint.

The third area is cost synergies across these divisions. The best example that I can show is what we have done with procurement. We have even though we have individual divisions we have organized procurement on a global basis. That means that a business like Alcon that is just a $10 billion business gets the low prices that we’re able to secure globally from suppliers because of the power of the $60 billion business. And if you look at how we’ve been able to take cost out some cost out of Alcon that was not possible before they were part of the Novartis family. There are cost synergies here to be had across divisions.

And then finally the fourth area that I think of when we want to leverage our cross divisional capability it’s in the area of talent. We’re able to move managers to different -- have different experiences so they might spend two or three years in pharma and then three or four years in generics. And I think the best example that I can give you here of difference is if you look at our generics management team many of you know them you’ve talked to them I would put that management team up against any other generics management team in the sector and I think we would win hands down. We have great managers running that business and it’s starting to show in terms of the performance of that business.

So these are areas that we believe are places where we have perhaps underleveraged the true synergies associated with being somewhat of a -- being a focused yet still diversified company and we’re putting special attention particularly over the next three to five years to fully leverage the value of this synergies that exists.

Now finally I want to confirm our commitment to delivering strong shareholder value. Harry is going to explain in more detail the capital allocation strategy as a company. But if you look at the fact that the Alcon integration is finished; we are now in a position of having paid down debt to an acceptable level; we are looking hard at our portfolio; and I think the announcement this morning of the $5 billion buyback over the next two years is one indication of the confidence that we have in the company’s growth prospects going forward between that dividend over the next two years and the share buyback there is a considerable amount of cash that is being returned to shareholders.

So to conclude; our strategy remains consistent. There should be no question that this company will continue to be focused on science based innovation, on high growth segments of healthcare. But we’re now moving into a phase where we’re going to sharpen the execution of that strategy around the portfolio, around capturing synergies across our divisions and also ensuring that we optimize our capital allocation to ensure strong shareholder returns.

Now I would like Harry to come up and then Harry is up we'll take a short Q&A session.

Harry Kirsch

Thank you Joe good morning and good afternoon everyone. So Joe talked about his strategy as well as focused on our two first priorities of growth and innovation. I will talk mainly about our third pillar of our strategy which is productivity as well as financial discipline and about how we actively manage our capital structure allocation. All of this together I see as the key framework to maximize shareholder value.

On Slide number 36, you see that we have an aggressive productivity agenda; we confirm our continued commitment to productivity. We have achieved 3% to 4% on productivity in the last years, we're on track to deliver 4% this year and we will continue to drive aggressive productivity in the future.

The key focus areas are procurement, marketing and sales, manufacturing as well as off-shoring and R&D. Joe featured already some activities around procurement, certainly procurement and leveraging our 60 billion scale around the world and across divisions is very important and we have started that agenda. For example locally about 70% of our spend is managed cross divisionally, on a global level about 50% of our spend is done with strategic suppliers who work across and supply different divisions, but there is more opportunity to do that as we continue.

Also this year you have seen this in the first nine months we have generated 1 billion, so we are again on track to deliver in the range of 1.3 billion for the year on procurement savings.

The second area of marketing and sales, over the years we have driven marketing and sales efficiency forward and as a percent of sales whilst this is illustrative our marketing and sales came down.

Now we're driving at certainly via resource allocation as well as procurement savings of course embedded also marketing and sales, but [indiscernible] right sizing as well as taking back office functions and keep processes from marketing and sales to our service hubs are other key important area to in order to continue to drive M&S efficiency.

Manufacturing footprint we started this program in 2010, we're roughly in the middle of it until now we have either exited or divested 18 sites of over more than 100 manufacturing sites, again this program will continue.

In terms of global business services, we have several service hubs; I just want to feature here our biggest service hub which is doing in the area of knowledge services, more than 2,200 Novartis associates in Hyderabad in India driving productivity and excellence on key processes. About half of the colleagues are working on key development processes, like medical writing, regulatory and so on, the other half roughly on commercial operations, finance and IT. In addition to that on the more commoditized transactional processes we have more than 2,000 third party associates in the outsourcing operations.

Now turning to an area which is especially for science driven innovative healthcare company, very important its R&D productivity, of course there are many, many attempts to measure this and I think everybody is still struggling with really having the one KPI. Now what is very important to us and to me is the rejuvenation we can show based on our launches and our sales. The chart here is from an UBS analysis earlier this year based on 2012 sales. We continue to rejuvenate and we are clearly leading the industry here and as you have seen in our quarter three results we continue about 39% of our sales in pharmaceuticals and 32% of the total group sales are driven by our gross products with long patent protection.

Now besides portfolio management in order to allow this rich pipeline as well as launch momentum, we're also working -- that's on Slide number 42 on other elements of R&D productivity. Here are few examples; in sourcing we work with key suppliers on comparative tracks on laboratory and other key categories in the R&D space. Data management and drug safety as well is a key area where we continue to extract productivity which then can be reinvested or fit to the bottom line.

One other element and we had announced early November, the closure of four smaller research sites is to reduce infrastructure, fixed cost in order to enable flexibilization for our key programs. Now to one question on page number 43 that we get asked very often which is we feature our productivity program and where is it on the bottom line. Now, as you know, we as a Company in the last two years through quite of some Generic impacts in 2012, 1.8 billion, this year we estimate 2.3 billion its driven by blockbusters losing exclusivity like Femara, Diovan and Zometa and of course as you can see on the chart the immense amount of productivity that we have created allowed us to more than offset the generic impact as well as to increase investments in our rich pipeline and extremely strong growth portfolio.

That’s in constant currency led to relatively flat operating income but of course we will continue to drive productivity and as the generic events in the future will washout this will become more prominent also on the bottom line.

Now, to the second area of financial discipline, whenever we do investment decisions we make sure that besides the strategic implications and the strategic fit of an opportunity, of an M&A opportunity and so on that we make sure we apply strict financial discipline. Most of our measures are discount of cash flow related NPV, return -- rate of return CFROI but of course depends also on what kind of opportunity we look at. This is an ongoing business or is it more of a pipeline asset or else CFROI creation what happen actually later.

I just want to feature here Fougera, a bolt-on acquisition we did in 2012 for 1.5 billion. And Fougera exactly fits our strict financial discipline as well as analysis and this really has driven this acquisition significant shareholder value, CFROI and NPV. These kind of bolt-on acquisitions in our stated guidance is that we look for 3 billion to 5 billion of hold on acquisitions per year is exactly what we see happening and what we also are looking for in the future.

Now, when it comes to midterm resource allocation, we certainly apply as one key element CFROI. Now this chart here is illustrative, so please do not get out your rulers in order to figure out what the bubble sizes are and so on. It simply shows that we expect from all businesses improvements over time on their cash flow return on investment. We would expect that our large businesses in especially Pharma and Alcon are the high CFROI level but still the plans, the divisions are putting together and the challenges will reside in further CFROI improvements and of course as smaller divisions have to significantly improve as we go forward.

Now, I don’t what to bore your with the textbook slide but this is in the end how the concept of CFROI gets operationalized by very clear KPIs that we use at all parts of the organization in order to ensure that all activities be it in the manufacturing side on the local organization, region or division drive shareholder value on CFROI.

Now, let’s talk about our capital structure and capital allocation. Now, as we look at our target rating and optimal capital structure we mainly have a frame work of four key considerations. Probably not surprising our targets capital structure has to support our long term strategy given the nature of our businesses. Also, we want to of course, maximize the value of the firm by optimizing the cost of capital.

We also need to ensure the ability to write through trouble and times and most of us have experienced 2008 maybe to mention one of them in order to make sure that as we go into commercial paper programs and so on we really can minimize the cost have very strong credit rating. And last but not least satisfy the needs of our different stakeholders and capital providers of course shareholders and investors but also our debt investors.

Now looking at this framework and our internal analysis, we come to the conclusion that we continue to target double A rating but debt also means that debt we continue to be part of our ongoing balance sheet and as you know Novartis prior to Alcon was usually cash positive and AAA rated we will not return to this we will leverage our balance sheet but it will remain a very strong balance sheet. As part of that and we have very clear priorities how we allocate our capital. First of course investment into the organic business be it manufacturing sites be it other high return opportunities in the businesses. Second, a strong and growing annual dividend and thirdly value creating bolt on acquisitions in the -- like I featured Fougera last year and if capital is left at the end of this allocation process to return via share buybacks.

Now, just on an exemplary basis let me show how we have planned for the next couple of years and what the conclusions are. So clearly our operations will generate substantial free cash and capital over next couple of years the target rating of AA and right now we are AA minus will create and allow us for additional headroom within that target rating and then we will return the majority of this capital to the shareholders via growing strong dividend as well as share buybacks.

Now we also have planned for as I mentioned earlier bolt on acquisitions we haven’t identified them yet but of course we are screening the market always and the two year plan has also plans for that.

As a right side of that Joe mentioned it and you have seen it this morning in our press release we have announced a 5 billion share buyback program which we will execute over two years it will be in the second trading lines or the shares will be cancelled after that. We will also continue to do our first line opportunistic buyback in case we need to mitigate potential dilution from employee share programs. You know that this year we have bought back in that concept about 2 billion there was lot of exercising given the high share price earlier this year and on an ongoing basis that first line what has to be done to mitigate dilution is usually around 1 billion.

Just to sum it up our focus on productivity financial discipline as we make major decisions and in our ongoing business as well as our clear capital structure and allocation it is key and very important to us to maximize shareholder returns and our 5 billion share buyback program announced this morning gives us and shows our confidence in our future growth. Now with this I turn back to Joe.

Question-and-Answer Session

Joe Jimenez

What we thought we would do is right now do a Q&A session on just the general themes before we go into the product specific questions. Matthew?

Matthew Weston - Credit Suisse

It’s Matthew Weston from Credit Suisse three quick ones if I can. The first on productivity, Harry historically as your slide illustrates it was 60% was reinvested in [Novartis] in generic loss and the other 40% in growth effectively. If we were to take that metric forward is that a fair reflection of what you expect for the next two years if you are going to continue a similar productivity and on that basis that basically implies an exit rate for group margins in 2015 of 30%. Are you comfortable with that?

Harry Kirsch

Yes first as you know we don’t give this kind of specific guidance. Now we also wouldn’t -- I wouldn’t say we invest into generic impacts unfortunately generic impacts happen and that of course has to do now also how do we model generic impact as we go forward. Now we have guidance -- we have given guidance for the next two years earlier this year where we said that in constant currencies we will grow our sales by mid-single digits and co-operating income would grow faster than sales. That underlying guidance is intact.

However one has to look about we had additional upside from Diovan this year and that’s why given this different moving parts we will also give better guidance for 2014 in January as we give our full year results.

Matthew Weston - Credit Suisse

Quickly Slide 38 you showed marketing and sales with a downward facing arrow do you actually think that over the next couple of years it can physically decline in dollar spend even with the launches?

Joe Jimenez

I don’t think it was dollar spend I think it was as a percent of sales if you look at the Company’s current performance even with all of the launches we were able to accomplish that. So I wouldn’t say absolute but I would say yes as a source of margin expansion yes.

Matthew Weston - Credit Suisse

And then quickly the last one Slide 47 you said don’t get your ruler out but it clearly showed vaccines and diagnostics getting to a group CFROI you have just sold the single biggest profit driver within that business which is the diagnostics business. So it was…

Joe Jimenez

No, remember that the view that we showed was a five year view and if you think about Bexsero and the fact that we have approval for Bexsero outside the U.S., we're now starting to -- we are actually shipping product in Germany and a number of other countries. Even though reimbursement will take some time to come, the profile of that vaccine will be significant over a five year period. And again we have said look even with Bexsero we have to take a hard look at the vaccines business because today it doesn’t have scale. So I don’t think we would say yes, the way that we’re currently managing vaccines is the way that we’re going to manage it in the future. I think the point of that slide was, with the pipeline that we have, with the approval of Bexsero, returns on that business will be significant over time. Other questions? Yes.

Unidentified Analyst

Its [indiscernible] from Citi. A couple of questions. The slide on page 52 illustrating the buildup of capital and then returns to shareholders covers the existing business as it looks right now. You’ve obviously talked about reviewing the portfolio potentially divesting non-core assets. So my question is, given you’re looking to be very close to animal health, as one asset, should we assume that all that money comes back to shareholders? How should we think about the reallocation of that capital inside the business versus distribution?

So that’s one question and then the second one is, you’ve previously commented that you’ll control R&D productivity by beginning to externalize some of your successful phase II assets. Are there any phase II assets that you’ve have had posted data that you’ve since externalized through third party?

Joe Jimenez

I think we will, we said the externalization question for one time when David speaks. Because I think they are going to go through a lot of the pipeline and that will be an appropriate place to discuss that. In terms of the chart that Harry showed on capital return that explicitly excluded any additional funds that might be generated. So I think -- I wouldn’t want to speculate on whether there would be -- we would say that we would return if there was a divestiture or not return. But I think the purpose of that slide was to say that, look, in terms of how we’re generating productivity, the point there was it was masked, right. The benefit of that was masked over the last two to three years because of the generic position that we were going through. And that once we were through that position it would be our expectation and our management to be able to allow that productivity to come through which is why we were saying we're not happy where the margins are and margin expansion is part where we were going.

Unidentified Analyst

Richard [indiscernible] from JPMorgan. Just two questions please. On the bolt-ons just wondering whether those are upsides to your topline sort of mid-term guidance with mid-single digits, so three to five billion will that be on top.

And the second question, just thinking about the synergies that you mentioned between going out as one company to customers, just thinking about vaccines, talking to governments, and enabling discussions and as well consumer with people like Wallgreens et cetera. Just wondering what contribution they have had to the synergy number you mentioned and you enforce there on the synergies those businesses provide?

Joe Jimenez

So the bolt-ons are not explicitly in the assumptions about revenue growth, so because bolt-ons we can't really count on. So really they’re excluded. But again when we say three to five, we are talking about cash outlays not necessarily what the sales would be coming in. So that was that, in terms of the revenue synergies, you think about the benefit comes in the breath. Even if this, you could argue that our three big businesses of pharma, generics and Alcon is a good definition of a focus yet diversified portfolio, that doesn’t mean that that’s where we will end up looking like. We want to build some of those other business, but even if it were just those, that would be enough to be able to get revenue synergies with customers like Wallgreens in the U.S. because you would have the tools and the capabilities to be able to go where other companies that were let’s say peer plays wouldn’t be able to go.

Unidentified Analyst

Good afternoon, it’s [indiscernible] from Goldman Sachs. Three questions please. First, Joe, you alluded to kind of focusing more on the topline synergies across the various divisions going forward. If I could just conceptually understand what stopped you thus far from exploring those synergies and what is going to change over the next 12 to 24 months that you’re going to benefit from that much more.

Secondly, I guess as you go -- you’ve been looking at the kind of portfolio since the spring of this year one of the easier decisions you might have had to make was what to do with the Roche stake and yet kind of there has been no comment today about it; just any thoughts on that?

And lastly had I realized you won’t give us an explicit guidance which is conceptually the three to four percentage points of savings you’re talking on an annual basis. Should we expect more of that to flow through to the bottom line the next two years than has historically flown through, or is that likely to be less than historic levels? Thank you.

Joe Jimenez

Okay, I’ll take the first two and then Harry can do the second. On the top line synergies what we keeping us from getting cross divisional top line synergies before we have gotten them but not at the level that I want. So I showed 800 million from 12 and about 1 billion in ’13 but part of it is the let’s say cultural behavior within the company in a particular country if you’re driving a division then you are not necessarily focused on trying to figure out how you’re going to help your other divisions generate additional revenue.

So we've changed some of the incentives around that so that we’re turning lose what we call enlightened self-interest where an individual division head will be able to benefit from combining their work and by building the entire group sales within a particular business. So there is more of a financial incentive and a benefit. So I think that’s going to be something that will help us take those revenue synergies to the next level.

In terms of the Roche stake the reason why we were silent is that there is no news. I mean what I’ve said before on the portfolio piece is that I want to take the action and I want to announce the action like we did with the blood transfusion units when we’ve got something to talk about. Roche have continued to say is an investment that is -- that I inherited we have it, it’s worth I believe more than what the market prices and from a value standpoint that’s what would be required for us to exit it.

So I think there is really nothing new to describe on Roche. Do you have also information on the productivity, 3% to 4%?

Harry Kirsch

Yes, I think as you look at our Company the last two years we have generated roughly 4% of sales productivity. And you have seen in that chart that basically given the big generic impacts and the investment and growth from the bottom line standpoint that helped us to keep to bottom line. Before the last two years we have increased productivity at about 3% and some of that fell through the bottom line and improvements. Now for the next years generalize yes, more will come through bottom line as phase of generics will wash out but that has to be modeled also year-by-year.

Joe Jimenez

But the answer is yes.

Unidentified Analyst

[Indiscernible]. Could you please elaborate specifically on the allocation of resource to biosimilars in a complex generic such as inhalers because there you obviously have a very, very broad range of potential outcomes, a lot of upside but also risk on the regulatory front, pricing risk was seen with Lovenox. So you can basically calculate pretty much an CFROI figure. So I am just wondering I mean are you reinvesting cash flows from biosimilars and Lovenox into the business or have you actually set some sort of an absolute cap for R&D spend until the current Phase III products reach a certain revenue threshold or essentially what is your stop loss formula there so to speak?

Joe Jimenez

No, it’s a good question. Biosimilar right now is a net capital importer I would say meaning we are investing in biosimilars right now knowing that as we launch and over the next 10 years this is going to be a place of significant profit and cash generation for the company but right now its investment. But we are taking a very disciplined view of what we will invest-in in biosimilars and what we won’t invest in, so we’re looking at the originator molecule, we’re looking at what’s behind the originator molecule, we look at who else is out there in terms of the timing of the launch of our biosimilar and we’re making hard choices not funding everything that we think would be a good -- with let’s say generate good sales for the company but would generate a good return. And so we’re applying that same CFROI discipline to biologics but we’re looking at it on a much longer time line for biosimilars.

Alexandra Hall - UBS

Alexandra Hall with UBS, you talked about your analysis, your portfolio analysis how to enhance the synergies from the diversification. I was wondering whether you could also share your thoughts and maybe some of the analysis you did and on the flip side of this how to reduce the risk and the costs that come from the diversified structure. I mean every text book has talked about risk of in-official capital allocation, lack of management focus. I mean there is also the [indiscernible] every day that is how would you make -- you have huge communication channels to make sure the investors understand your business properly that we don’t get caught out with something like recently oh the Centurion has launched and therefore your margins are going to be much lot lower in this business for some time. So I have not specifically on the last one but more in general what analysis have you done.

Joe Jimenez

And did we say our margins are going to be lower because of Centurion? Kevin is coming up next so we can ask him that specific question. But in terms of the dis-synergies yes we did study that as part of the analysis that we’ve done. And if you look at dis-synergies and potential dis-synergies there is a way to mitigate the dis-synergies I mean I think specifically our structure helps us mitigate some of the dis-synergies because if you have dedicated divisions that are relatively autonomous you have focused management teams on each of these businesses. We can hire the best in OTC into that business and they are focused to 100% on that business. We can hire the best in innovative pharma and focus them on that business. There is absolutely the risk of resource allocation where you are saying okay every business needs some level of base capital that we need to invest to ensure that that business remains healthy and then investment beyond that is going to have to be based on the returns that we can get for the entire Group.

So for example the oncology business, you could imagine one of the highest CFROI businesses in the company has access to resources that they wouldn't have if they were a standalone unit. Because the diversification of the company gives us cash flows that that business by itself is a standalone unit would not have. So I would argue -- so just to answer your question we are looking at the dis-synergy side and trying to mitigate or eliminate those dis-synergies as well as accentuate the synergies.

Laura Balan - Capital Research

Laura Balan, Capital Research. You have committed to a strong and growing annual dividend, what does that mean?

Joe Jimenez

It means strong and growing.

Harry Kirsch

It's growing, but we also know that the last couple of years the growth was relatively small. And now you know that the process is in a way that we -- once we have to final actions of the year and generally we get Board approval for our proposal and then the AGM has to approve it. So for sure we wanted to signal and by the way before hand for this year some analysts and investors were concerned because we guided earlier in the year to a decline, mid-single digit decline of profit what would it mean to the dividend. And with this we want to clarify our dividend will continue to grow and we'll be very strong.

Joe Jimenez

And I think one of the reasons why over the last two years the growth in the dividend has been lower than you would expect is partly because of the fact that we're going through that period, the period of the Diovan patent expiration. So as the Company turns and as net income begins to grow both on a U.S. dollar basis and on a constant currency basis in real cash we will we will -- the intention -- this is a Board decision because the Board votes on the dividend every January, but that would be able to follow that trajectory.

Laura Balan - Capital Research

But will you clarify your dividend policy at some point in more detail?

Joe Jimenez

I don't know if we would say more than strong and growing and wanting to have it link with the growth and net income from the company. I probably wouldn't go beyond that.

Laura Balan - Capital Research

And my second question relates to the duration of this new phase that you’ve entered. You have talked about 2010 to date the Alcon integration and now you are starting this period of sharpening the strategy and portfolio execution.

How long should we expect that this period will take and in particular the portfolio piece of it?

Joe Jimenez

The portfolio piece I think relatively quick. Meaning I have said that there is relative uncertainty within the Company and people that are working in those units want to know if there are going to be places of investment or not. So I have publicly said that I would be disappointed of one year from now we're still talking about portfolio issues. I think when you think about coming through the next growth phase, you are going to see later this afternoon from David and from Hervé some pretty compelling evidence that we believe that we can grow through the Glivec patent expiration which is going to be '15, '16. And so I do believe that we're at an infection point of the company's history and that we are entering a new growth phase. I don't want to describe how long that will last but we think it is substantial.

Graham Parry - BofA Merrill Lynch

It's Graham Parry from Bank of America Merrill Lynch. And just first just clarify the point you made on 2015 guidance. The bridge between 2013 and '15 you are basically saying you are still looking for at least mid-single digit growth and faster EBIT. But the construct to that between 2014 and '15 has shifted versus the original i.e. tougher '14 given our base and faster '15. And if that is the case, what is in 2015 that's helping the numbers there.

And secondly on the productivity, sorry to get back to this one again, the 3% to 4% historically has been offset by the things you showed on the chart, if you look ahead you do still have the royalty headwinds, launch investments FX headwinds and in 2014 in particular generalization, same again in 2016 with Glivec. So why wouldn't we expect the chart to look the same in 2014, '15 on launches and '16 on generics again.

And then thirdly your criteria for divestments is synergies, one of your criteria for divestments I should say is a synergistic fit with the rest of the business. You have commented in the past about the heavy synergies or strong synergies for OTC in emerging markets. So should we rule out a divestment of this business on that basis?

And then just finally on vaccines and diagnostics that big jump you had in CFROI, is that from top line, is it from cost cutting where you crystallizing value in another way. Thanks.

Joe Jimenez

We’ll start with the '13 to '15. We’ve be able to give most specific guidance in January when we announce our full year results, but I don’t want to overplay this Divona windfall that we had in 2013. We’ve said, back in January when I said, ‘14 and ’15 should have sales growing mid-single digit and operating income growing ahead of sales that was before I knew we’re going to get this windfall but even if you look at that billion dollars or so or whatever it is, it’s not going to have a material impact on that in guidance and that guidance work as strong or stronger in terms of our conviction about that guidance than we were back in January. So, I would say, yes maybe adjust for Diovan because it wasn’t included when I was saying that but that doesn’t mean the Company is not going to grow in ’14 and we’ll be able to lay that out more specifically in January.

In terms of productivity and the chart, Harry do you want to take that?

Harry Kirsch

So, I think you really have to model this year-by-year and what is really important is that later on when Hervé and David lay out the growth of oncology and Pharma overall and assuming and I know it would be convincing, you’ll see that growth that certainly will create a lot of headroom. And Glivec also modeled along our worst case assumption is not going in one year. So, we have been here through the worse Generic impact this Company had, Femara , Diovan, Zometa, Glivec will also of course been impact but the rest of the portfolio will carry through that. So, that would be very important to understand that.

Joe Jimenez

On the divestment, question that you had about OTC. We have talked about OTC is being having a strategic year because if you think about the lifecycle of molecule going from innovative Pharma to Generic to OTC, it makes strategic sense although OTC is probably the least close to what we do in terms of our scientific research and discovery, animal health is much more of a synergistic fit than OTC when it comes to research and development discovery of new medicines.

So, I would say both of those businesses are good business. Again, when you think about opportunities to give them scale chances are we wouldn’t -- and you also look at where the assets are out there most of them are embedded in other company. So, the likelihood of getting bigger and both might not be great but at the same time you can imagine that there is a number of conversations going on right now and I wouldn’t want to rule anything out in terms of either having it not be a part of the portfolio or being a part of the portfolio.

The jump in vaccines and diagnostics CFROI, you could argue that look if there was a chart that we show that didn’t show a big increase in CFROI for vaccines given where it is today, it would be problem, under any circumstance and if you look at just the Bexsero launch and what you could expect on a very conservative view over a five year period by itself create a significant return for that particular business. It doesn’t answer the bigger strategic questions of whether you have scale and what it would take to get scale or whether you don’t want to have scale in that business but it does just to specifically answer that question would be driven not by cost reduction and getting it in but to let`s say falling it into another division but the fact that you’ve got that vaccine that could be very value creating going forward.

Harry Kirsch

Let me add to the vaccines piece, right now as Joe says, it clear on the plan of growth the high end investments we make in development for innovative vaccines, so say its growth. Should a couple of these not payout, of course then the cost restructuring comes into play. So, it’s very clear that first we have these investments, sales are part of the key assumption to increase CFROI but there are always fall back options.

Joe Jimenez

Maybe one more question and then what we’ll do is go into the deep dives and then we’ll also come back with, you can ask any question in the Q&A session.

Unidentified Analyst

It's [Jeff Holt] from Jefferies. So one way the industry is down with these issues strategically in the past through joint venture and a lot of those have been pretty successful, is that part of the discussions and thought process that you’re going through for potentially animal health, vaccines and consumer health, is that being considered?

And just the other part, you haven’t really talked about any potential synergies doing Sandoz and animal health is that also something you have considered try to do in the past, might consider doing it more of in the future.

Joe Jimenez

In terms of the -- you have to go back to the objectives which is how do we get these businesses that are smaller, that have global scale. So I wouldn’t rule anything out in terms of things that Novartis typically has not considered before, so potentially joint ventures, joint ventures even in which we were potentially a minority shareholder, we would consider any option that would allow us to participate in the growing of a business that could significantly increase its performance if it were a good financial proposition for the Company and if it was right for that business and then in terms of Sandoz and animal health we have looked at synergies there is quite a bit of synergy in terms of some of the generic compounds that Sandoz has with what animal health can register in certain countries for use in either companion animals or farm animals. So that is another source it just didn’t make it on the slide.

Okay what I would like to do now is have Kevin come up and we are going to a deep dive in Alcon then we will do Pharma and then we will all come up for another session of Q&A. Thanks.

Kevin Buehler

Well good afternoon, it’s certainly my pleasure to be here to provide the update on Alcon and clearly the focus for us is around innovation and accelerating growth. And very quickly the agenda is just a few comments about the merger and some of the activity that’s happened since we last spoke but then a review of the three businesses and then a few concluding comments. And you can see over the last couple of years and we're reflecting these in the near term column. We got new products that were in launch mode across all of our three products areas and specifically in pharmaceutical we have got Jetrea and continued expansion of our combination Glaucoma business.

In surgical we are going to spend a little bit of time this afternoon to really take you through the sort of unique position that we're in where we have major new products across both equipment and disposables. And then specifically in vision care it’s been our focus to build out the portfolio and we are actually launching more products across more of our contact lens portfolio than we have had in the recent past.

Lastly we did deliver against the $370 million in synergy. If you look at the right hand side you will also see the longer term view where in fact we still believe that there is an opportunity with NIBR focusing on ophthalmology that we can deliver new products. Secondly that we can continue to penetrate the advanced technology IOL opportunity which is significant and thirdly, in vision care we have the opportunity to even further broaden this portfolio in order to expand our position in contact lenses.

So if you look at the overview which really has not changed in term of ophthalmology it’s growing above 5%, surgical is the leading position and you would expect that Alcon would be well positioned to take advantage of this growth. But specifically the level of unmet medical need in ophthalmology and the focus on new products positions us better than ever in terms of launching new products that would accelerate growth, so if you are looking for the headline in [events] of all of the detailed reviews it’s look at the number of new products that Alcon has and then translate that to how we can grow at an accelerated rate.

So let’s take a look at surgical. Clearly it’s large in terms of cataract and its planned to grow at 7% we have a number one share position and the growth of cataract is against the things that you would expect, procedure growth, the ability to transfer mono focal procedures, to multi focal or Toric procedures and then specifically the emergence of more phaco or folded IOL procedures and the development of the emerging markets.

But then when you look at Alcon’s growth drivers and very honestly I don’t remember the last time where Alcon launched a major platform of equipment in a phaco emulsification unit where we have had new IOLs new multi focal IOLs and now a new approach to where we are looking to focus on clinical outcomes so this wealth of our portfolio positions us well to not only hold share but also to grow share and to grow value.

So obviously this is an illustrated chart intended to give you a sense for how we create value starting with procedure growth and then obviously when you launch phaco equipment that’s our entry into the operating room that’s where we are touching the surgeon in the context of how to do a better procedure along with that is the opportunity to sell the entire procedure including the intraocular lens and the box at the far right is this concept and just to give you the level setting in cataract surgery today only about 60% of the time are we achieving the target within a half diopter 60% of the time.

Whereas if you were to think about lasik surgery that number is in the 90s so the opportunity here if you think about how the procedure is planned you are basically measuring the length of the eye and selecting an IOL and then implementing that plan in the OR. So we have got new products, starting in ’14 across all three of these areas which is represented in this chart which you would see under the category of market. We’re currently continuing to launch LenSx and we are in the process of launching the new Phaco equipment Centurion. You can see the new IOLs that are referenced under the one to three years and then obviously we have got longer term plans to think about products like an accommodating IOL, that obviously will be outside of a three year window.

So let’s start with the Phaco machine. Clearly we are already the best in class product with infinity where we’ve got very high install base positions north of 60% and we’re already launching the next generation machine with considerable improvements. And the concept here is how do we deliver control to the surgeon operating in a relatively small space and it is through controlling the fluidics. Typically you would hang the [indiscernible] pole and you would put a bag on the pole and use [indiscernible] gravity to control the fluidics.

What we have done in this system is automated that process where we’re controlling the fluidics, we’re controlling the intraocular pressure through the software of the machine and we’ve also added a tip that allows for the particles as they’re broken up to simply move to the tip for aspiration. So this is infill launch mode. We launched in Europe about a month ago, and last week we launched in the U.S.

Obviously you’re well aware of our intraocular portfolio, on the left hand side is monofocal procedures, on the right hand side would be specialty AT-IOL procedures, either managing presbyopia, managing for astigmatism or both. So the second circle is the lens that I want to talk about next. Now clearly when you think about doing surgery on the eye, the smallest impact that you can make to the structure of the eye is the best way to manage correction of refractive air. So therefore the larger the incision would create more disruption and actually induce astigmatism to an eye. The smaller incision obviously is the better way to go so that you have less disruption to the eye.

The intraocular lens material that we primarily used in AcrySof has structural features that makes this more of a challenge to go through a smaller incision. So what we’re introducing is in fact a true sub 2 millimeter IOL. Now from a competitive positioning standpoint, there are other sub 2 lenses that are on the market today. So it was a competitive gap for us but we’ve actually turned it into a positive. Because those other sub 2 millimeter products actually force the surgeon to push the lens through with such force that you disrupt the cell structure around the wound. So you either do it on the front part of the incision or the back part; both are bad.

This lens allows us to insert through a true sub 2 without changing the wound structure, it’s preloaded and it closes the gap between compatible offers and what we have to offer at Alcon. So clearly when you think about monofocal procedures our goal is going to be launch Centurion and then on the INTREPID lens.

So then we start thinking about the next driver for growth and we get into multifocal IOLs and clearly you’re managing primarily presbyopia and then in some cases both presbyopia and the management of astigmatism. So on the left hand side, you have the traditional ReSTOR lens where we’ve corrected for presbyopia and then added the correction for astigmatism. Now this product has been launched outside of the U.S. but the goal here is to bring this technology to the market in the U.S. and Japan.

Now one of the challenges with why these lenses have not adopted at the same rate is that you must manage astigmatism in order to deliver clear visual acuity. If you leave residual astigmatism in place, they blame the correction on the lens, this allows us to be much more accurate in correcting for both presbyopia and astigmatism. So we would expect this should help us in terms of penetration of these lenses.

On the right hand side, it’s another choice, it’s another tool in the surgeon’s toolbox that is a ReSTOR 2.5. So all we’re talking about is the ability to direct more light to the distant image. That allows you then to improve the visual acuity at distance and it carries over into intermediate. By definition you would lose something at the near but the other side benefit that is impacting penetration is that it may have the profile of reducing halo and glair at night. So again functionally you would correct for distance and intermediate in those cases where you may be wearing glasses you may choose to do that but the overall wearing -- the overall experience to the patient may be better during the distance and intermediate periods of time. That lens will be available at launch both in regular as well as toric versions. So clearly part of the answer here is bringing new technology should improve penetration.

So let’s talk about management of the stigmatism and even just to [dementalize] for you the size of the patient pool. So 40% of patients who have cataract surgery have astigmatism of one dioptor or more. So if you think about the U.S. 3 million procedures you’re looking at something like 1.2 million procedures that would benefit from a toric lens.

Now obviously in order to correct astigmatism you’re having to have a very accurate placement of the lens. And it starts actually in the clinic where you’re measuring the level of astigmatism so you need to be very good at measuring but you also need to have the ability to plan the procedure including flat imaging of where is the access that you’re trying to correct on and placing the lens against that access or against some part of your surgical plan.

Then you get into the OR and you have to have some way to mark the registration on the eye or again you don’t know where you’re placing the lens and then you actually have to do it. And all of this adds up in terms of the clinical results. So one of the reasons why these lenses are maybe not penetrating at the rate we would like in terms of a standard of care is that it does add some level of complexity in doing the procedure. So then the question is how do we make it more straight forward for the surgeon? And this is the part of how we’re moving from launching products to launching into clinical outcomes.

So the planning unit labeled as Verion is actually allowing for the measurement of the eye and the creation of an image and the creation of a surgical plan and that surgical plan is then being transmitted into the operating room to allow the surgeon to go through the steps. But rather than try to do it verbally, what I’d like to do is just give you a short video because I think it helps you to understand how this whole process works.

[Audio-Video Presentation]

Makes it look easy so pretty much all of us should be able to do cataract surgery starting maybe in a couple of weeks of training. As you would expect that system also has the ability to measure track outcomes and it also becomes a learning system that you as a surgeon understand that when you make those adjustments to the surgical plan, you can actually track how you can improve your surgical outcomes over time.

So then let's talk about what does this mean, because clearly we're talking about outcomes but the expectation would be that we can actually change the penetration around toric lenses. So when we think about waiting where are we going to put priority. I think the greater priority is on toric lenses as compared to presbyopia correcting lenses, both will benefit more will come from the toric side. Again think about this chart in 40% of the patients are clinically eligible and in the U.S. roughly 15% are receiving the procedure today. So there is a significant upside if we can improve surging confidence through this improved planning.

So then let's talk about the other component maybe why these lenses are not penetrating at the rate we all would like. One of the things that we know is that the patient simply is not aware of their options. And historically the cataract surgeon spent very little time talking to the patient; because it was primarily you get a monofocal eye well. So we started in the U.S. through an association with the AARP to communicate to the patients. And our goal is really to direct them to freedom from And the goal is pretty straight forward, either one, they get additional patient education material so that when they are coming into see their surgeon they know about their options and they are actually intending to ask about those options.

On the other side is called which allows us to talk to the patient, there tends to be periods of time in between diagnosis and when the surgery is actually planned, that gives Alcon an opportunity to talk to the patient, address issues, make them more comfortable with their choices.

And then in the middle is that when you think about adopting a new standard of care everyone doesn't get there on the same time period. So we have surgeons today that are much more converted than other surgeons and yet the patient simply goes out and goes to the surgeon that they are most comfortable with. In the middle is the opportunity to highlight surgeons who are doing toric lenses, multi-focal lenses, have a LenSx machine and ultimately will have Verion and we believe that will also change the conversion rate of advance technology IOLs

And lastly in cataract is the emerging markets still represent a very large opportunity for cataract surgery. As you know, China still has 10 million people who are blind due to preventable cataracts, and it's seen in these numbers. If you look at the penetration rate for both China and Russia and make the comparison to the U.S. it tells you very clearly there is not enough surgeons and they are not doing enough cataract procedures. Alcon I think has made an impact in terms of the established training program that we put in China.

You can see that those trained surgeons did about 100,000 procedures of the 1.3 that were done across the whole country. Our focus in '14 is to put a 3x factor on the number of surgeons that we train in China.

Secondly look at markets like India, where in fact the penetration rate is quite good, it's comparable to the U.S. but yet the rate of [Faco] is third. So when you look at where we need to improve is skill set around doing small incision cataract surgery.

So if we sort of recap before we move on to the pharmaceutical group, this is all about new products. And it's a jump ahead in terms of the question around capital equipment. We need to think about capital equipment as the investment in this whole business. And that's where we start our relationship; it's going to be our approach as to how we change the clinical outcomes. But yes it's true that the gross margin from capital equipment is less than our disposables, it's the investment to drive increased disposables and it's just simple a timing factor as to when did do those things happen. Obviously the investment happens first, the pull through happens second. But clearly, our surgical opportunity is around a new type of machine, a new mono-focal IOL multiple advanced technology IOLs, a program to improve surgical planning and outcomes and lastly a consumer engagement program that leads to our ability to drive growth and to improve share position.

So, let’s move to the pharmaceutical side of our business and clearly there are a number of things going on inside of this phase that we can talk about. Clearly, Alcon is well positioned in terms of our share but when you look at the size of Glaucoma and the current state of new products, we would expect that that growth rate is going to be relatively flat across all of Glaucoma there will be segments that due have growth like the combination segment. Obviously, you look at the other large segment which is the retinal treatment, you’ve got large patient base, relatively unmet medical need in terms of the products that have been approved for some of the retinal conditions a number of retinal conditions like dry AMD still without a treatment approach.

So, clearly what we’re going to see is the evolution of our portfolio where the growth is going to come from retina, as compared to Glaucoma. Secondly we’re going to see growth in our combination Glaucoma segments with some new products, some share expansion and then we’re going to see the introduction of Jetrea which should provide a currently unmet medical need in terms of another option for the position. So, as I said in terms of Glaucoma, you’re going to see the single entity business become smaller and the combination segment become larger and that’s going to come from the treatment pattern, it’s going to come from new products like Simbrinza in the U.S. and it’s going to come from approvals of Azarga in major markets like Japan and clearly in the state of where we are in terms of new products in Glaucoma, it’s sort of challenges outcome to think about other possibly non-pharmaceutical options such as surgical intervention.

But we are where we are today and the opportunity for us is Simbrinza in the U.S. So, obviously this is the combination of two agents directed at reducing intraocular pressure that does not include a beta-blocker and the benefit here is the reduction in IOP, intraocular pressure but without the systemic side effects of a beta-blocker. Secondly, the U.S. market is significantly under index based upon the current approvals and this represents an opportunity for us to take advantage and build out the combination segment.

If you also look at dry eye, this is an relatively undertreated segment, the patient base pretty consistently is under diagnosed and therefore and therefore treated, there is really only one product pharmaceutically that’s approved for dry eye, the balance of the market is managed through a pallet of treatment or over the counter products, obviously you look at Alcon growing at a faster rate than the market we can continue to drive this opportunity for growth through demand creation and differentiation to the prescriber at the same time of using more traditional over the counter approaches.

Jetrea and we should take a few minutes to talk about Jetrea to really understand what this is. Clearly today, patients are being identified through an OCT image were in fact the [indiscernible] is pulled away from the retina and you’ve actually created a confirmed picture of traction, so this is something that can be confirmed on an image. The patient would be experiencing at the early part of the disease progression some level of visual acuity disturbance. Normally that that would motivate them to go their primary care eye doctor and be then referred.

Today, prior to the launch of Jetrea, the retinal surgeon really did not want to see these patients because they were not ready for surgery and there was no treatment option available, they just simply sent them home and they waited to see whether the traction released on its own which it does in some cases or its simply continue to get worse until finally they needed to surgery.

So, what we have today is Jetrea which is one injection and in the label Jetrea is indicated for BMT when in fact the macular hole is less than 400 microns and the clinical data show that with one injection it releases that traction in 26% of the cases. Now that’s a little deciding and that when you actually go in and look at some of the subset data because all of the patients were included in that 26% there is a couple of conditions that would obviously make it either less effective or more effective so when the macular hole was greater than 400 it’s less effective. But obviously when it’s less than 400 microns it’s more effective. The other condition is called epiretinal membrane which is think of it more or less as a wrinkle and it’s not clean and when in fact that is not present when that wrinkle is not there the release rate goes up to something like 40%.

So clearly what we have here is a when the patient is identified early which we can through imaging and secondly when the patient is treated we have got a very good chance of releasing the traction which then obviates the need to go to surgery. I think the other thing that is encouraging in the launch where we are so far and we are very early in this launch is that the clinical efficacy was replicated in both the U.S. and the European studies obviously the label that we have been able to achieve in Europe is exactly what we wanted but most important is the recognition by the third parties the reimbursement agencies in the UK and Germany both looking at the clinical efficacy reports but also looking at the benefit versus cost has confirmed in both cases that this is a good treatment option.

So where we are in terms of the launch is that we're continuing to roll out in the European markets in advance of the reimbursement and the fee structure for the physician we're trying to get clinical experience against those early disease patients so that we can reinforce that this product does work against the target profile and our plans are that we would be rolling out both registry and additional Phase IV studies where we can control the patient profile to demonstrate a higher level of confidence with using Jetrea.

So when we look at the overall pharmaceutical sales and on the illustration you can sort of see we have got the LOE risk and obviously at the beginning part of the period relatively limited growth we are getting pluses from the combination Glaucoma we are getting some trade off from the LOE but clearly we have got new products with Jetrea we have got the combination Glaucoma products and then the real upside is where we enter into the retinal pharmaceutical space and that’s where you see the acceleration of growth in the outer years.

And this is captured in this chart with the same format where we have talked about the products that we are currently launching but in the longer term we have got two major projects that I want to talk to you about. One is, related to the acquisition that we did with ESBATech and the idea here was to purchase a biologics platform that we thought was uniquely designed for use in the eye and so the physical structure of our ESBATech 1008 molecule you could see the comparisons against the full sized antibody is that we potentially believe that is product may offer a longer duration of effect versus treatments and clearly that’s the challenge when you think about the rate of intravitreal injections.

At the same time this product is also capable of being injected on an intravitreal basis similar to SENTIS but it also has the ability to be used in a drug delivery vehicle which I will show you in the next slide. Where we are is currently in Phase II and looking at proof of concept against standard of care to understand the duration of affect benefit that this product may or may not have. Obviously when you think about the potential of this product it’s against the same indications as you would think about Lucentis so obviously wet and diabetic macular edema and RVL.

Drug delivery so we know burden that we are putting on both the patients as well as the treating physician and it is the frequency of injection and the time it takes for the surgeon or the physician to do the author’s flow and the management of these injections. So we have been working on a drug delivery device the benefit of this device is that it is surgically attached to the eye but it is fully programmable so literally soft where it would allow you to plan the amount of drug and the frequency of drug that it would be delivered so think of it as a very small insulin pump.

At the same time it has the ability to put in multiple drugs so you could put in ESBATech 1008 and potentially something else if you needed to. And lastly it’s rechargeable you can see the concept of the glasses, but literally we're talking about the ability to have the pump stay in the eye and refill, reprogram the pump to deliver against the condition that we're trying to treat.

Clearly where we are we've had this pump in [there], we're relatively comfortable with the safety profile, what we saw with the surgical approach, it was something that could be done consistently it's safe and so now we're moving to adding drug and the device together. So when you think about the space and you know it well from David's business with Lucentis, this a very large segment with an opportunity for growth and when you think about the Alcon growth rate, this is basically on the pharmaceutical side where we have been growing but without being in the benefit of in retina. So clearly the size of this opportunity would have a meaningful impact on our ability to grow at a faster rate.

The second project I want to talk to you about is actually an output of the work at NIBR. So clearly we've seen and confirmed the interest in the complement factor area, this if for specifically dry A&D, it's a very large segment, 8 million patients, obviously this is the downstream form of, I guess actually be up stream, upstream form of the wet so this would be you know trying to prevent wet from happening and clearly today there are no treatment options and that's why it's progressing downstream to wet.

Now where we are and this has been a program that's been inside of NIBR, this is not Alcon but where we are is phase one and we're expecting to see a readout of this program in 2014, depending upon what we see, the priority would be for us to move into phase three and move to development as quickly as we could and again very large driver in terms of an opportunity for entry into the retinal space. So clearly we've got this dynamic where we're changing in the portfolio moving from glaucoma single entity, moving more to combinations, will continue to drive products like Dry Eye, but at the same time two other issues, one is maximizing the opportunity with Jetrea which is a standard of care treatment change that is going to take time and then obviously entry into the retinal space with one of these two projects or both. So let's move to vision care and this also is an exciting space for us.

As you know contact lenses is new to Alcon but it really is the driver, it's the largest segment and it also represents the segment that's growing at 4% and we’re currently number two behind Johnson and Johnson, the lens care segment is also smaller, it's also expected to grow at a slower rate and very honestly you would expect it to decline if we're successful with daily disposable lenses where you're not caring for the lenses with solutions.

Now the drivers in terms of moving to silicone hydrogel lenses is obviously what’s driving the overall category, you still see the unmet medical need with patients still dropping out due to lack of comfort. But really the opportunity for Alcon lies in our portfolio change and I'm going to give you the examples, but they're consistent in terms of concept and in this case we're dealing with improved comfort or we're dealing with expanded portfolio but with premium pricing. And that allows us to not only grow share but to grow our value as we introduce these new products.

So if you think about the HEMA, this is the original daily disposable product segment and roughly think about Alcon in this brand having about a fifteenth share and it’s actually a credit to the commercial team that we got this share position where we’ve basically been selling sphere only. So just the minuses and we're really not driving either minuses and pluses but we really not driving toricity, so correction for astigmatism and we’re not driving multi-focality and if you're an eye care professional, you don’t want to use this brand for just for your patients and then when a toric patient comes in you change.

So, what our plan is in 2014 we finally been able to get to a point we're in the beginning of the year in most markets we will be launching the toric and the multifocal at premium prices to the sphere so that we’ve got the full complement of products available for the eye care practitioner.

Same concept in terms of Air Optix, you know our positioning in terms of colored lenses has been around a special fresh look brand and that’s not the way brands inside of the eye care professional area recommended. So today we’ve got a very nice share position with Air Optix in the range of 20%. We’ve been selling sphere, toric and multifocal but we’ve had no color option. So we will be introducing colors and this is not just the cosmetic version, there is a high level of technology in terms of applying color to a contact lens that’s going to be on the surface of the eye. We’re going to have both technical differentiation as well as the cosmetic benefit but also this product will be premium priced to our Air Optix portfolio.

We’ve talked about this before. I think we’re making very good progress. We’ve got a wonderful lens that is really addressing the heart of dropout rate due to the lack of comfort. So you can see the little image in the middle which gives you a sense as to how the lens is designed. So the core part of the lens is actually silicone hydrogel which allows for readability with oxygen moving through that space. But on the outside edges is literally think of it as 100% water and that’s the part that touches the surface of the eye.

So it’s a relatively complicated design directed at how do I improve comfort for the patient. And we have basically launched in Europe at middle part of last year we most recently launched in the U.S. give you a quick update as to what the patients and the eye care professionals think. So in Italy, you can see the Johnson & Johnson was the darker line they were the first in this space and then in the middle part of this year we cross the line and we became the number one share position inside of silicone hydrogel daily lenses.

Look at the U.S. where we launched in May in roughly three months we’ve been able to get a 20 share and we really haven’t rolled out fit sets to all of the eye care professionals at this stage. And the question is why? Clearly, this is a complicated design lens and it’s specific to the manufacturing platform. But very honestly the best news that we have is that we’ve been able to I think validate this manufacturing platform. And historically the concept inside of this industry has been to create a product and then create a unique manufacturing platform that is simply not going to be work going forward. This platform seems to demonstrate that we have been able to achieve the theoretical capacity on the units and now we’re continuing to build out capacity.

But you can see where we are in ’13 and where we would hope to be in 2018, significant volume increase literally we are selling every lens that we can make, we had to delay the launch in the U.S., we’re now very happy with where we are, we have approval in Japan and we will launch as soon as we’re comfortable that we’ve got capacity.

Speaking of Japan, this gives you another opportunity to think about maybe how we manage our business but it also gives you a sense for the opportunity. Daily disposable lenses Japan is the single largest market in the world and you can see that in comparison to the U.S. and the G7. On the other hand the share for Alcon is 8%, that’s not where we want to be. We’ve got a detailed action plan to launch Dailies Total1 to launch the additional Dailies AquaComfort Plus HEMA product and to bring colors. Colors will be the late product it probably will not be ’14 or ’15. But clearly we will launch new products into this marketplace in order to improve the share position.

And I think I’ve referenced most of these products through my slide, so I won’t repeat them. But clearly on vision care it’s all about launching new products and expanding our portfolio. This is specific to improving our Dailies portfolio to bring the specialty lenses, to bring colors to our Air Optix and to be able to launch Dailies Total1 around the world. And clearly we believe that we can expand beyond that because the chart I was showing you on Dailies Total1 is sphere only we’re still not addressing the management of stigmatism what the toric lens or a multifocal lens.

So to give you a little bit of summary conclusion if there is again the headline that I would like you to takeaway is Alcon has a number of new products across all three of our segments that’s going to be the engine for our growth. And I’ve listed on here in terms of giving you multiple [arils] to give you a sense a little bit about the impact areas but in surgical it’s about our new phaco-machine, our new IOLs and the ability to move to clinical outcomes.

In pharmaceuticals it’s around combination Glaucoma products, including Simbrinza in the U.S. maximizing Jetrea and finding a way to enter into retinal pharmaceuticals with our two later stage projects and then in vision care it's all about the portfolio to expand our premium priced products and to be able to build out the Dailies Total 1 launches around the world.

So hopefully you will agree that ophthalmology continues to be a very attractive space, primarily around the demographics of the aging population, the ability to innovate, the ability to utilize premium pricing and developing the emerging markets. And bottom line is, it's our expectation that we're going to lead in that innovation, secondly that we're going to grow at a faster rate than the market through leveraging our current portfolio and our new products.

So thanks for your attention, I think the plan right now is to take a break and maybe if we were thinking about 15 minutes, that would be great. Thank you.


Hello, can everyone be seated please so we can start again. Thank you.

David Epstein

Okay welcome back, so now starts the Pharma section, what I'm going to try to do is give you an overview and give you a different way to look at our business and I'll be followed by Tim Wright, our Global Head of Gen Meds Development, and Hervé who has I think a really exciting oncology presentation, then we'll come up and we'll use these cushy chairs and do the Q&A. So probably the best place to start is to take a look at what's transpired since we were together about a year ago in Boston, at that point in time what we essentially told you was, we had an exciting late stage pipeline and that we believe this pipeline would be contributing to the growth of the company in the near term but also build a very substantial revenue stream for the company over the coming years.

And I'm very proud of what our development teams both in Gen Meds and oncology have accomplished this year. As you see, on the top half of the chart multiple approvals, some quite significant, over the course of the year we're going to talk about Ultibro Breezhaler in particular which is off to a good start and you see a number of very important filings, Serelaxin or RLX030 for acute heart failure, in both Europe and the US, Xolair in new indication for chronic spontaneous urticaria, Signifor for Acromegaly and AIN457 for psoriasis all during the fourth quarter. So we’ve delivered on the promise, some have come a bit earlier, some a bit later but overall it’s been a quite productive year from a development perspective.

Taking a look forward, looking at the next 12 months and the next 24 months we also showed you in Boston, a chart that was very similar to the one in the center of the page, actually that, the chart we showed you in Boston is in the upper left hand corner in a very small type, actually the words were very tiny last year, now they're even tinier.

But essentially you see more or less the same picture which is that we expect our R&D engines to deliver approximately one pivotal study readout every month which I believe is at the highest end of this industry which could result in as many as 20 filings over the next two years and as many as about 15 approvals over the next two years. So it's very clear that the R&D engine is providing a good return, and a lot of new assets and many of them are either best in class, or first in class kinds of therapies.

I promised that we'd look at our business in a different way; it's what I want to do. In my mind there is the old company, it's the legacy brands, the blockbusters that fueled the growth in the not too distant past, past products like Diovan and Zometa which we are now working through those patent explorations. As was pointed out earlier, we got the benefit of an additional year or so of our Diovan monotherapy in the U.S.; not quite sure how long it’s going to last.

Our growth platform, which is what we talk about each quarter when we give the results, these are our eight product assets and families that are fueling the near-term growth and are replacing the sales of Diovan, Zometa and other products that have gone generic.

And then a new way to look at our business; which is in terms of business segment. Business segments give us the opportunity, like we have in oncology business to have multiple products in the market as well as a pipeline which allows us to build deeper conversations, deeper relationship with our customers, allows us to build expertise in development which can be used for subsequent molecules and allows us to commercialize in a therapeutic category, cheaper than any company who will have just a single agent; which means that margins can go up over time.

So let’s start again with a quick reminder on the growth platform. You’ve seen this chart over and over again, and just as a reminder, September year-to-date, with the exception of Lucentis we had strong double digit growth from each of these products and product families and as a result we’re able to report continued decent topline despite the fact that we’re losing quite a lot of revenue to generics.

What I want to do in the next couple of charts is just give you a little bit more information so you can begin to think about for a couple of these assets, how to think about what the future might look like, say over the next five years, some information that will help you model the potential sales growth for these drugs.

Starting first with Galvus and Galvus Met, these are diabetes medications, DPP-4 inhibitors, medication that tends to be under looked by some because we never launched it in the U.S. market. Having said that, this product is now in a blockbuster run rate and if you take a look at the market overall on the left hand side of the chart, what you see is that the diabetes market is expected to grow significantly from about $19 million to $32 million over the next five years or so.

And importantly the DPP-4 segment, which is in the bottom part of the chart will grow at a CAGR of about 11%. And we expect to have a significant portion of that growth occurring to our product, in part, because if you look at the right hand side of the chart, besides the fact that we’re beating many of the competitors ex-U.S., where we are commercializing we still have not yet seen sales in China where we have our first approval but we do not have national reimbursement yet. And in Japan, while we have sales in the monotherapy we do not yet have sales for the combination of metformin and that’s a substantial upside related to that. So as a result, as you can see from the chart, this gives you some directional idea where we expect the Galvus franchise to end up in around 2018.

Turning now to Lucentis, and you saw a similar chart from Kevin here. I am looking just at the ex-U.S. market, we are not present in the U.S. You see in market that’s anticipated to grow from about $3 billion to $6 billion between 2013 and 2018 fuelled by the launch of multiple new indications, at a CAGR of about 12%. Lucentis as I showed you in the chart earlier has been more or less a little bit down to flat and that’s because we went through a period of having to give price in order to get reimbursement for the multiple new indication.

Unit growth has been very strong with Lucentis. We expect you will start to see that unit growth come through in the not too distant future. As a result you see that our expectations for the brand over the medium term are quite good, still working through some of the price reduction, still some additional penetration of new competition into a few of our markets, but after we worked through, that this brand will come back to growth and contribute again to the growth of the pharma business.

Lastly I would like to look at Gilenya, actually one of the best specialty launches now in the history of the pharmaceutical industry. Yes, it was beaten by Tecfidera in the U.S. another MS product. So that give that company a lot of credit. But definitely a product that has delivered on its promise. A product that’s running at about a $2 billion annualized rate now.

We believe the market is going to continue to grow from about $14 billion in U.S. and Europe in round about $18 billion by 2018. The orals could one day account for more than 50% of this market and as a result we believe Gilenya will continue to grow. And on the right hand side you get a sense of where we think this brand can go over the course over the next five years.

Now let’s switch gears a little bit and look at the business segments. I’m going to try to give you a snap short in each. The first is our oncology business. This is a business that’s had excellent performance year-to-date under Hervé’s leadership and Alessandro Riva’s leadership of development in that business. We have received numerous new approvals over time. We have built, in my opinion, an excellent pipeline, best in class skills both in the commercial and the development side, and as Hervé will explain to you in his presentation as he goes deeper why we have confidence and we will grow through Glivec patent exploration in the oncology business.

And as you already know, this is a high-margin business. It has all the characteristics that you would expect in a good specialty segment, limited number of customers and an example of the business where we have multiple products in the market, in a pipeline. And the idea is just try to replicate that, maybe on a smaller scale, but try to replicate that approach in other segments.

So the first one I want to talk to about is the dermatology opportunity for our company - two medications, which have been submitted, AIN or Secukinumab for the treatment for psoriasis and Xolair for chronic spontaneous urticaria. We believe this business has peak sales potential on a range of $2 billion to $3 billion and like oncology it should be a very good margin opportunity.

Going into a little bit more detail to help you model the opportunity for yourselves, I want to describe the two segments starting with psoriasis. There are roughly 1.8 million patients with moderate to severe psoriasis, 50% of those that are on conventional therapies are actually quite dissatisfied with the treatments, they don't have sufficient clearing, they find that they can't go out in public. Many of them have, some have even given up their work because of their disease. And interestingly enough, only 200,000 are on biologicals at this point, which speaks to the opportunity for market expansion, and in fact the G-7 market is already $4.5 billion for those biologicals and it's growing at about a 25% cumulative average growth rate. So do not underestimate the potential of what's here in psoriasis.

We previously presented Phase III data for AIN457. The efficacy is really outstanding. On the left hand side of the chart you see the PASI 90 score. This is essentially clear skin or almost clear skin and what you can see is that the high dose of AIN handily beats Enbrel, which was at the time that we launched this Phase III trial, the biggest product in that market. Patients have better clearing, they clear their skin faster and the duration or the durability of that clearing is greater than the competing product.

We have a lead over competing [indiscernible] that we believe is substantial and this product showed a good and consistent safety profile during the Phase III, so a result we're pretty excited about this filing and launch, which should probably come towards the end of next year.

In our portfolio, we currently sell a product called Xolair for severe allergic asthma and have recently completed a Phase III program for chronic spontaneous urticaria. Many people have asked me what is chronic spontaneous urticaria. It's a disorder that actually is not well characterized, many do not know. Actually it's not clear why patients have these attacks. But the attacks that they get which result in sloughing in the skin, hives, itching sometimes eyes that are shut, lips that are swollen, even loss of airway, ability to breathe, leaves these patients in constant fear of when the next attack is going to occur. And there are large numbers of people that have this problem. 1.6 million people are diagnosed in the U.S. and Europe alone.

It is true that many are treated but the only thing really to treat them with are antihistamines and in really severe cases steroids. About half of the patients are completely refractory to very high doses of antihistamines, even four times the normal dose. So as a result over 700,000 patients do not have a licensed treatment option at this time.

We did multiple clinical trials, perhaps one of the most exciting is the Asteria trial, Asteria 2 trial, where we were able to show that up to 44% of the patients were completely itch free and hive free at week 12 and you can see on the left hand side of the chart, with each injection how the outcomes improve and when you stopped the injections how over time the patients come back to base line. We do not expect a competitive entry for quite some time, so there is another very good opportunity for our Company as we build a new dermatology business.

Switching now to heart failure, a category that I'm especially excited about. Two opportunities there, one in the acute part of the disease where patients are rushed to the hospital, usually the emergency room because they have difficulty breathing, because they have accumulated large amounts of fluid, because they're really in serious distress, and on oral therapy for the chronic form of the disease. I'm going to talk to you about both of these opportunities. It’s actually pretty hard to peg the sales potential in this category. This is a disease, particularly in the acute form that's every bit as severe as metastatic cancers in terms of outcome. There’s huge need for new therapies, nothing has been introduced on the pharmaceutical side for quite a long time.

If one just takes a moderate look at potential you get to the $2 billion $5 billion range, and I put the plus symbol there because frankly, depending upon what these trials actually show it could be even more. There's another business that we believe gives the opportunity of above average margins in time.

So now let's look at those sequentially. Just looking at the, starting with the CHF population overall, you see there's about 11 million patients diagnosed in the U.S. and Europe. You see that about 5.3 million of those patients have decreased ejection fraction or reduced ejection fraction patients. Many of them are treated, but there's still many that would benefit from a still better therapy and we think about 3 million patients or so would be a reasonable target population.

LCZ696 we believe has the potential to restore neurohormonal balance in these patients. This chart gives you an idea of what we think would happen with this product and as a result we would expect these patients' outcomes to improve. We expect a filing before the end of 2014, in the second half of 2014, and we've noted here what we believe the loss of exclusivity will be because there has been some debate around this molecule and what that could mean. So it gives you some idea of what we are planning for in our forecast.

The acute heart failure segment is even closer. This is our drug Serelaxin, a product that we filed last year in Europe and this year in the U.S. You can see that in the U.S and Europe alone there're over 2 million annual discharges. We're looking at patients because of our study design that either have normal or elevated blood pressure and patients that have mild to moderate renal insufficiency, which tells you there's over a million patients, 1.3 million patients that could be potentially eligible for Serelaxin.

What's very exciting about this product is clearly the 37% reduction in mortality that we saw in the Phase III clinical trial, which is very similar to the benefit we saw in the Phase II trial, but just as importantly the fact that all the biomarkers, whether it be troponin, Pro-BNP, or Cystatin C, all went in the right direction. What this tells us is that when patients are treated with this drug, tissue is saved, tissue is preserved, whether it be in the kidneys or in the heart. And we believe it’s that tissue preservation is directly correlating with the improvement in mortality for this drug.

You see the filings on the chart, you also note that we started a second trial, a second pivotal trial called RELAX-AHF-2. This trial is now enrolling patients and as additional information, because so many of you asked, we're providing that there will be an interim analysis planned for this roughly 6000 patient trial once 60% of events have been achieved. I think that's important in terms of thinking about when it's possible for us to have a mortality benefit in the indication section of the label.

The last business segment I want to touch upon is the respiratory business. With a very thoughtful strategy we went forward and took two different medicines and created three different drugs with one Breezhaler device. It was our experience from market research, that patients struggled to use different inhaler devices and it would be important to have a simple device but also one that as they progress through different lines of therapy, they could stay on that same device, not have to learn how to inhale with yet another device. It's actually anxiety provoking for both the patient and the doctor's staff when the patient comes back and the have to go on a different device.

So whether it's LABA with Onbrez, LAMA with Seebri or the combination of the two with Ultibro, it's all in that same device. The markets are very competitive but we believe at least outside the U.S. where we now have approvals and very good drugs, leadership is indeed possible and within the U.S. we will see how things play out as we expect an approval for Seebri actually, it's like the filing for Seebri in the first half of '14 and the filing for Ultibro in the back half of '14, where we're clearly later to market than we are outside the U.S.. We’ve pegged peak sales between $2 and $4 billion and since this is a primary care drug, albeit at lower margins that you see for the business segments.

How do we look at the size of the market for Ultibro? Very clearly large numbers of patients, about $15 million patients worldwide that have COPD. That's actually growing fairly rapidly particularly in the emerging markets where patients continue to smoke tobacco, or where they smoke other things and in addition where sometimes the environment, particularly the air is not clean and that's also inducing symptoms and disease progression in these patients.

You can see that not all patients are yet treated, certainly not treated adequately and many remain symptomatic despite the current standard of care. Now as you can see from the bottom of the chart, the COPD market in U.S. dollars is over $12 billion already, is expected to grow at a CAGR of about 7%. The LABA, LAMA segment, which Ultibro is now entering is expected to capture about 16% of the worldwide market by 2018, and as much as 40% of that market by peak. So the opportunity is very-very good for us.

Another way to look at the market is to take a look at the GOLD guidelines which many physicians around the world, looking at a risk classification on the vertical axis and symptoms on the horizontal axis and you can see that importantly, because of the very, very good label that we got, we're able to achieve with Ultibro, that Ultibro can compete for the vast majority of these patients. Actually over 80% of the patients are potential candidates for Ultibro and there's no restriction about first or second line. So doctors if they feel the patient is appropriate, can go right to Ultibro.

Actually the feedback we are getting, in the markets where we have now launched, which was in Netherlands, Germany, just a couple of days ago in Japan; is very, very good. Our physicians are seeing the responses. We actually have a picture of a patient. She sent in her picture. She was having difficulty on her previous medication. She was having difficulty breathing and living her normal daily life. She actually pedaled her bicycle back to the doctor’s office for the check up after using the drug and shared with everybody that she is back to exercising again. So it gives you a sense of at least for this patient, how much better this particular drug is.

We’ve also demonstrated some data in terms of reduction in exacerbations with Open-label Spiriva. Based upon this data and other data we have, we’ve now started the FLAME trial, which is a direct head-to-head trial versus Seretide, which we believe will complete in the second half of 2015 which should show a superiority in terms of exacerbations versus Seretide.

The other thing to note and we shared a little bit of this data earlier, when we looked at where the initial prescriptions were coming for Seebri, the LAMA, a lot of the prescriptions are coming from the ICS/LABA. So when you begin to think of the market, we’re not telling about just moving people for example from Spiriva, but the entire category are potential switches in time both to Seebri and to Ultibro.

The last piece of segment I want to briefly touch upon, where I think Novartis is leading the industry, we believe the science is evolved to a point where there now a real tangible opportunity to use cell therapy to change patients’ lives. Sales potential is very difficult to predict and in fact if we actually did all the modeling and added it up, the number will be fairly large.

So rather than try to put a number on the page that people might laugh at, we just said it would be blockbuster plus and I leave it to you to figure out how big that this market could be and clearly here again the margins in time should be above average, because the target audiences are rather small and although there is additional cost associated with cell processing, that is more than offset with the fact that the marketing costs will be much more targeted than you would expect to see for example in the respiratory business.

Three distinct approaches that we’re taking, where there are some synergies in terms of technologies and techniques and learnings that will be shared across the different approaches to the use of cell therapies to transform patients’ lives. The first is CTL109. Hervé will go into great detail, essentially taking patient’s T-cells and modifying them and giving them back to cancer patients to save their lives.

The second approach which, we call FCRx; is the ability to take selected cells from transplantations, re-administer those cells to make it possible for patients to have a transplantation without the need for immunosuppression, the technology that may also apply to other immune diseases down the road.

And last but not the least HSC835, which would provide the ability to allow actually more stem cell transplants. Why would that be possible? Because it would be possible to access cord blood, which has stem cells, to expand those stem cells and to re-infuse them into patients to allow the stem cell transplants to take possible, perhaps in patients where it would not be possible before. I would say to you, do not underestimate the potential for really transforming medical care through these three different approaches.

So in summary here, I asked you to look at our business differently. I hope you will start to do that. Five very, very interesting business segments, with very different outlook in terms of sales growth and profitability, but in total a very nice business for our company.

The other thing that we have been working on; and I’m not going to go through all the details today, because we don’t have them all and we are not finished with the process, it was to take a look at how we spend our R&D money? It is clear that in 2013 our R&D spend as a percentage of sales was higher than it had been in the past. I think it was well justified by their large number of late stage programs and the number of filings and approvals that we have achieved and you saw that in the beginning of the presentation.

But we’ve decided that there is an opportunity to be even mindful and thoughtful and more efficient about our spend and as a result we started to work to better prioritize, to discontinue a few agents, but also to identify assets that could be potentially externalized. As a result it is pretty likely that this year’s R&D as a percent of total sales is the peak and you will see that trend down somewhat over time. Some of the money that we saved in that category will allow us to fund the launches of these new drugs, but also to explore new indications for these drugs that are in the process of being approved.

Now a year ago, I did something risky, our team did something fairly risky. We gave you a five year outlook for sales, something our company had never done before. It cause for lots of debate. Some people believed us, many did not, but it engendered a lot of discussion. Rather than show you year-by-year, because one of the things I learnt from that process is you can predict with certainty when a product is actually going to go generic. So as a result things move a little bit in a short run. So we felt we’d just take a look at year five, you will get the same year, 2017 and compare that, what our view for 2017 is now versus what it was a year ago. And while the mix has changed and some products have gone up in our forecast and some have gone down, essentially it’s about the same in terms of what we believe the sales potential is for our pharma portfolio in 2017 and that still remains above analyst consensus.

Like Harry mentioned to you when he was showing you some charts and some bubbles, don’t take the rulers out, this is not meant to be an exact exercise but it is directionally correct. What does that all mean in terms of blockbusters? Well it means that this Company will have more blockbusters than any other Company in the industry across multiple therapeutic categories. As you see, we’ll have roughly 10 blockbusters in 2013 in 14 or more products with over $1 billion in sales, some of them having multibillion dollar sales potential by 2018, which makes us a very exciting place to work. It means that we can treat and help more patients than anyone else and it also means that we have a business that can provide steady growth over the next several years.

Just to try to wrap it all up before I turn it over to Tim, who is going to take a deeper dive into the development portfolio, I firmly believe we have a very productive R&D engine, which is fueled by increasingly efficient spend. Of course at the high end of the industry that’s paying back. Our pipeline is very rich with a record number of approvals, doing better than expected just one year ago. And that we’re about to enter a new growth phase for our pharmaceuticals business, numerous blockbusters forecasted to continue fueling our growth and multiple new business segments with both significant sales potential and the opportunity to grow margins over time, which will complement an already very successful oncology business.

So with that I’d like to turn it over to Tim.

Tim Wright

Thank you, David. Well, it’s a pleasure to be with you here today and to share with you some of the exciting science that underlies our innovative pipeline. And I want to begin with a reference that goes back about seven years. As David and Harry pointed out, our current 30% plus of growth within the pipeline has been delivered by the products that have been registered over the last seven years.

And if we look ahead, that pipeline is full. So what I want to leave with you today is the fact that yes we’re in a growth phase and that growth phase has a promising future. In fact that promising future is not just built on incremental innovation, it’s built on the innovation of breakthroughs. We’ve got three breakthrough designations this year from the FDA; LDK378, Relaxin and BYM338. Hervé will tell you little bit more about the oncology portfolio including the LDK program. David touched on the serelaxin, the RLX030 and I will share with you a little more detail including the science behind BYM338 and why we feel this is one of the major breakthroughs for the years to come.

Now something we’ve been telling you for few years is one of the things that makes us unique in the industry is the ability to take a new pathway and to follow the science, the basic science, the pathways to the clinic and understand where the new medications will have the benefit for patients.

David shared with you some information about the IL-17 blocking molecule, AIN457, the monoclonal antibody we have and I want to take you through some of the biology behind this and why we believe that this offers a potential for differentiation from some of the other treatments that are currently marketed for diseases such as psoriasis.

So if we start with the cells that are the centers in the immune system, those that respond to what we call in stimuli or stimuli that are picked up from bacteria and foreign organisms, the dendritic cells are one of the sensing cells, And as you can see one of the things they respond to is TNF-alpha among other what we call in a -- or primary cytokines. They also respond to antigens and including self-antigens and in that case it may lead to autoimmune disease. Dendritic cells themselves produce cytokines and among these are IL-12 and IL-23.

They also process and a percent of antigens to primarily the T-cells. And shown here are three of the T-cells that respond to dendritic cell activation, Th1, Tc1 and Th17. Now Th17 is a cell type that’s only been recognized for a little over about a decade. And in fact this particular T-cell was defined by the cytokine that it produces. What’s important to recognize is that these cells have multiple functions. One of the key functions that they deliver is a defense against pathogens and immune surveillance. And all three cell types play a role in this. And again they are driven by these primary cytokines and secondary cytokines as I’ve shown you.

What we’ve discovered over the last decade is that IL-17, in particular IL-17A plays an important role in amplification of this response. So it's not a main driver of pathogen response or immune surveillance but it's an amplifier. And indeed, in many of the autoimmune diseases, those that seem to be chronic diseases of inflammation, IL-17 plays a pivotal role. And you can see that by blocking IL-17A, as shown by the Phase III data that David showed earlier we can have a huge impact on diseases such as psoriasis.

So if a picture is worth a thousand words, here I am showing you four that are probably worth 4,000 and indeed I will probably say a big chunk of my talk. You can see the images here on two patients from our Phase III program, who were treated with Secukinumab. In both cases, they had a response of near clear skin shown on the right hand side eight weeks after the initiation of the trial. This is remarkable, and this is the image that goes with those graphs that David showed earlier.

Now shown on the left, you can see where we're with psoriasis. As David mentioned, we have submitted this for registration both in Europe and in U.S. and we're continuing our Phase III programs and Phase II programs and other indications. What I am going to show you now are some data from our psoriasis Phase III program and because patients were admitted in that program who also had psoriatic arthritis, it provided information to us about the potential for this drug even in advance of our Phase III program completing to be excited about the potential for psoriatic arthritis.

Shown on the right hand side are results of analyzing a health assessment questionnaire disability index for patients who have psoriatic arthritis, again derived from our Phase III study in patients with psoriasis and it shows the improvement over time in patients who were treated with Secukinumab, 300 milligrams 150 versus [indiscernible] and placebo. What you can see is that there is statistical significant difference over the first 12 weeks from the 300 milligram dose and placebo in the HAQ-DI and this is the duration of the placebo treatment in the study. Of note, this HAQ-DI correlates with reduction of disease activity in psoriatic arthritis.

Moving on to the next indication that we currently have in Phase III, our data is showing from our Phase II program, showing an improvement in ankylosing spondylitis 20 score and patients who were treated with Secukinumab, in this case for only six weeks during this proof of concept study. On the right hand side you can see an 85% ASAS 20 score being achieved with the treatment of Secukinumab. And on the left hand side in patients pre-treated with biologics, we're seeing a very similar response. Of note this is the first non-anti-TNF biologic to show activity in ankylosing spondylitis.

So I know over the period of time that I have been in this role, I’ve been asked this questions are these one-off examples where you have got a molecule that has multiple potential indications. And what I’m here to share with you today is we don't believe so. The next molecule that I am going to tell you about we believe also has the potential for multiple indications, and this is one that targets a unique pathway, regulating muscle growth.

So this molecule is BYM338. It's an anti-body against the ACT R2B receptor, that's active in receptor type 2B. And as shown in the right hand side Activin Type 2B receptor binds Activin and other ligands, its present on muscle cells, and when it's activated it sends an inhibitory signal into that muscle mediated by the SMAD signaling system. Why this is important is I'll tell you about the indication we're pursuing and the fact that we found up regulation of this pathway. When the SMAD pathway is activated, muscle cells go quiescent, they don't grow, they don't hypertrophy. And if you inhibit with BYM338, it releases this tonic inhibition on the muscle cell and it can then respond and grow.

So where are we? We’ve completed our proof-of-concept study. It’s now in an extension phase and we moved right into a Phase IIB Phase III. And this is the most recent molecule that we received breakthrough therapy designation from the FDA. Shown on the right hand panel is a MRI of muscle, thigh muscle and the upper panel, it's a patient at baseline pre-treatment and then below eight weeks later.

What's important to note, even though 5% muscle growth may not seem much to you, this is the kind of muscle growth you would expect to have with roughly eight weeks of intensive exercise. What I can tell you is that these patents in spite of exercise, in spite of any other treatment, their muscle goes down over time, never up. So we have achieved in this study for the first time muscle growth in the context of a chronic muscle wasting disease. It’s not only that the muscle grew, but as you see at the bottom, our statement indicating that we saw this in conjunction with increased strength and also improved functional outcome. And on the left hand side, you can see the indications that we’re currently exploring. These are all early, but we have to hope that many other chronic muscle wasting conditions will be treated with BYM338.

David mentioned our commitment to advance cell therapies and I’m going to share with you some details on two of these programs and Hervé will share with you the last one in Oncology. And I’m going to discuss with you the biology behind our plans to treat patients how are in need of stem cell treatment with HSC835 and then patients who are receiving organ transplants to receive the treatment we call FCRx, which is a treatment that is in conjunction with a solid organ transplant.

So first HSC835, what is it? Well, many patients who are need of stem cell transplants don’t have an HLA match donor. The HLA system is what makes us unique, unless you happen to have an identical twin and even in families, there is often enough HLA diversity that many individuals are not appropriate donors of bone marrow or stem cells.

As David mentioned, there are large numbers of cord blood samples that are stored in cord blood banks throughout the world. These are now available for stem cell transplants only in children because of the number of stem cells that are present in cord blood. What our group found is that by taking that cord blood, processing it, extracting the stem cells and then putting that cell population in a medium, containing growth factors and a proprietary compound, we’re able to expand those cells and maintain their phenotype as a stem cell.

Now this is key because in the past there have been many attempts at expanding stem cells and many of them have led to differentiation and they won’t replicate in the host for a long period of time. When we transplant cells with treatment with HSC835, these cells can then repopulate the recipient and restore bone marrow function. What this does is now provides the ability to provide stem cell transplants to a larger number of recipients.

Now, what about FCRx? We’ve been in the transplant business for some time. We understand the mechanisms of immunosuppression and we also understand that many of the immunosuppressants, especially the chronic treatment can have some side effects and in case of some of these treatments, it requires an adaptation of therapy over time.

Working with an outside group, getting an academic collaboration and then forming a company, we’ve unlicensed this technology, which allows to provide a donor organ and a specialized stem cell transplant with facilitating cell population simultaneously that then leads to a Cymric immune system in the recipient that makes the recipient tolerant of the solid organ graft.

So starting the let the donor in this case shown with dots is providing not only stem cells shown in the bottom pathway but also a solid organ and when these are given simultaneously to the recipient, a Cymric immune system is set up which allows the recipient to become tolerant and over time do not require chronic immunosuppression.

Now Joe and David mentioned our focus on the pipeline and also our efforts to prioritize. Shown in the upper left is our way of looking at the overall prioritization of our compounds and developments. We’ve taken another look at our efforts and we’re in the process of evaluating these now. Our focus is to put our resources behind those projects that are in the upper quadrant on this graph. We’re investing in the priority projects, we’re reevaluating those on the lower left, the non-priority projects and as David mentioned, you’ll hear more about this later, about what we do with those programs.

We’re also looking at our fixed cost and monitoring our R&D investments, both in hiring and also in our external spends. We’ve also implemented recently a number of innovative processes that allow us to improve our productivity throughout development. And one are these is our risk base monitoring.

I’m going to leave you with a couple of thoughts. One is, you’ve heard a lot of about innovation and in many cases those who speak about innovation are talking about incremental advances. What I shared with you today is what we call breakthrough innovation or disruptive innovation, and as shown here we were identified as one of the 50 top disruptive innovators by the MIT Review. We were in fact the only pharma in this classification in 2013. And we are proud of that but we think it is just the beginning.

And with that I’m going to hand over to Hervé who will take you through innovation in oncology.

Hervé Hoppenot

Thank you Tim. So what I will do in the next few minutes is try to put in perspective some of the progress we have made in oncology and I’m joined here by Alessandro Riva who is the Head of Development for the oncology team and he would be part of the Q&A we have after my presentation.

What I will do is just take it from we where we left it last year in Boston. So in Boston I was trying to communicate that when we look at our current portfolio, when we look at the worst case scenario for Glivec, where we would be losing exclusivity as we are losing the main compound patent. In fact we believe we can grow the business through the next five years, impact from our current portfolio of the Tasigna and Afinitor growth and from what could our pipeline at the time which was driven by Jakavi and the launch of Jakavi and the new products.

So what I would like to do is a little of a performance update of telling you where we are versus that plan of last year, and speak a little bit about another aspect which is our pipeline and why we believe it is a key strategic advantage to have a large and broad pipeline and how it can put us an organization ahead of many of our competitors.

So first on the performance itself, if you look at the Q3 results that we have just published, you can see that the six products that are going to drive us through this period till 2018 are growing today at a rate of 30%. For the first time in fact Glivec is not growing. In the past 10 years it is the first quarter where we can see that Glivec is now stable and obviously we had reduction of sales coming from Femara and Zometa. So if you compare to last year’s plan and the way we were thinking about this performance after one, Tasigna and Afinitor are in fact ahead of plan, Tasigna going at 33% and Afinitor above 80% growth from last year, and in fact Zometa went down a little bit faster than what we were expecting at the time when we were presenting this number. So overall 12 months later we are ahead and we are ahead in the right way where our strategic products is really what’s driving our progress there.

And you can see it when you look at the ratio of our topline coming from different categories of product, where obviously we are now close to 50% of our business from this growth driver of the future and Femara and Zometa becoming a smaller part of our portfolio and Glivec is stabilizing in sales and decreasing as a percentage of the total portfolio. So I must say from the business over the last months, we have been successful in launching our new products and we have been successful at gaining share with Tasigna translating into what we think is a very good performance and is a little better than what we thought at that time.

Now when you look ahead at the next five years at the picture we have in front of us. So we have six products that would be driving us, are already approved in some indication and you see at the bottom that we are planning for six new indication potentially over the next few years for this existing portfolio with Jakavi in PV for new potential indication for Afinitor and Signifor in Acromegaly.

And you have to put Signifor and Sandostatin as a family of product because that would be playing in the same type of indication. And then we have 10 new products, that could be coming over the next 5 years and I will be speaking about that in a little bit more detail, but what it tells you is that we have a number of ways where this growth of our pipeline that we are projecting over the next five years would more than compensating for the loss coming from other parts of the business.

So let me start with Tasigna. So Tasigna is a product that would be exceeding this year with a billion mark by much in fact because we are almost there after three quarters and what you see on the left is a very important indicator which is the adoption Tasigna as a front line treatment; so this is market result from Europe; as a front line treatment in the treatment of CML.

So that’s a place where you see Glivec is decreasing, that the line at the top, you see supply cell being relatively stable and you see Tasigna growing as we are getting the first line reimbursement in European countries and it’s important to realize that in spite of the fact that the interest data has been available for a number of years we are still today as we speak in the phase of launching Tasigna in the first line of CML, because reimbursement took some time.

So the second aspect of the Tasigna perspective for the next five years is that we will get at ASH in a few weeks the interceding updates, five year update of ENESTnd and ENESTnd is comparing Tasigna to Glivec as a frontline treatment in the treatment of CML, and as we know from the folio update that is already published, that it is confirming the superiority of Tasigna versus Glivec as a frontline treatment and this will drive further this adoption curve in the frontline, which over time is going to translate into continuously increasing sales as these patients are staying on treatment for a long period of time.

The other piece of the strategy with Tasigna that is important to understand is what we call the best of two and it's a series of studies, we have two pivotal studies that are ongoing where we are testing the hypothesis that for patients who have undetectable disease, are still treatment with Tasigna, it is safe to stop treatment and to monitor them closely.

So obviously the two studies, one of them is in de-novo patients the other one is in switch from Glivec previously treated with Glivec patients. So obviously it's very important to understand it as a reason to use Tasigna, because when the studies will be available, what it will do is completely change the goal of treatment in CML from control of the disease to literally cure for the disease where patients can be taken off treatment.

We believe there's a good chance for these studies to be positive. There's a lot of data that has been accumulated around this concept and we believe it will be a reason to move from Glivec to Tasigna, if you are on Glivec and you don't have a complete molecular response, because Tasigna will be the opportunity to go to the cure and it will be a reason to start with Tasigna if you are newly diagnosed with CML, because it will give you an opportunity in a relatively short period of time around two years to be in a situation without a treatment. So we see the dynamic of this market, very positively. We believe Tasigna will continue to grow over the next year and will be a significant contributor to our business unit in 2017 and '18 at five years.

On the Afinitor front, so this is the second big growth driver in our portfolio. You see the quarterly sales of Afinitor over the past three years since we launched. Obviously the launch in breast cancer had a very clear impact on the dynamic of the sales and we are still at the beginning. The launch in breast cancer for Afinitor is not behind us. In fact it has not yet happened in a number of countries where we are still at the reimbursement phase.

So this curve does not include countries in Europe like France and Spain and Italy and Japan outside of Europe. And so we believe over time, that we will continue to keep as a growth rate that we have. Right now we are, this year up to date, we are at 80% growth rate. So that may not be for a number of years but the growth of this Afinitor business will be very substantial, driven by adoption in breast cancer.

And on this slide I'm trying to describe to you where we are in terms of Afinitor sales in breast cancer that shows the total potential. On the left you see a result from the U.S. where the drug has been on the market for a year now and where you see the red part of the graph is the share of patients who are treated with Afinitor today versus the total potential of patients who could be treated based on the indication. So we have not saturated this market by a lot. There is a number of patients who will benefit from Afinitor in the future, who have not used it and you can see, where the adoption of drugs in metastatic cancer are going is very consistent from drug to drug and we are in this phase where the first pool of patients has been treated with Afinitor when it was launched and the flow of patient coming through diagnosis, first line treatment is really what’s going to drive it in the future. So a lot of potential in the U.S. and as you see on the right there's still a number of countries where the launch in breast cancer has not taken place.

So when we think about Afinitor for the next few years we are very much in line with what we said last time is that we see a franchise of indication. So it's number of indications where the big one will be the metastatic breast cancer indication and will continue to grow significantly over the next year and will be complemented by growth in neuroendocrine tumor and GSC [ph] and potentially with also new indications in the future.

When you compare to what I was showing last year, in fact we are very much in line on most of the indications. Hepatocellular carcinoma indication will not take place. As you know we have published that the pivotal study we had in that indication was negative, but at the same time the carcinoid studies that we were speaking about last year has been advanced earlier. So net, net of the two is that the potential for Afinitor is certainly as large as what we were speaking about a year ago and we see it as a multibillion potential for our portfolio by 2017 and '18.

Now speaking of Jakavi, Jakavi is a very synergistic product with the rest of our portfolio. It’s a drug that is used mostly by the same physicians who are using Tasigna in CML. It’s the same family of disease and the launch has been extremely successful ex U.S. where we have the commercial right and it has, the curve was a little strange because there were some onetime events.

So it was not like a chance in the epidemiology in Q2 versus Q1, but what we have seen is that there is a growth curve that was ahead in fact of what we were expecting. And again we are just at the beginning of this curve. A lot of countries are today in the process of launching Jakavi, in fact very successfully.

The other side of Jakavi, that was launched as a product to address symptoms of myelofibrosis, at the time it was launched. Since then a lot of data has been accumulated from our pivotal study COMFORT 1 and COMFORT 2, and what you see here is pull data from both studies that we did last year, showing that not only is Jakavi changing the life of patient with myelofibrosis by controlling their symptoms, but it is also having an impact on the overall survival for this patient. And frankly it is something that is beyond what we were expecting at the beginning of this project. It is very significant in the sense that it is going to help patient not only live an easier life but also live a longer life with myelofibrosis and this data will be updated at ASH in just a few weeks from now. So very positive feedback from customer, a very good drug that is really helping patient with myelofibrosis.

And myelofibrosis is not the end of the story because we have a Phase III study that is already fully accrued in polycythemia vera and that study will be available at the beginning of next year and it’s study also has been accruing relatively quickly which shows the interest of the community in this disease. The Phase II data we have in PV is very promising and showing activity for this drug.

At the same time we are also working in myelofibrosis, in combining Jakavi with some of the other products we have in our portfolio and other products in fact from other companies, and we believe that there is potentially a lot of benefit of this kind of combination approach to the treatment of this disease and in addition we are looking at other cell tumor, or any methodological indication where the [indiscernible] is activated in cooperation with Insight where we believe there could be the future further indication possible for this product. So overall, I think a very positive picture from these three product that are driving our growth today, this three existing product, Tasigna Afinitor, Jakavi with very good growth prospect.

Now considering the pipeline, a year ago I was speaking of this list of product you have on the left and I did this graph as a way to indicate what is the share, proportional share of each of these to our business by 2017. So it is basically describing LDE as a smaller indication, became as a bigger one. LDK, LBH et cetera.

If you order that today what you see is that TKI had a negative study in RCC. So that would go away, but the probability of success of LDK has increased so much that in fact it has more than compensated to the loss of TKI. All the other programs are running as planned and we have now new programs that could be in fact impacting our business by that timeline. One of them is CTL019 that you heard about. I will speak about it in more details. And we have also programs that have entered now our late portfolio, like LEE011, that is now moving into Phase III and products like LGX, our RAF-inhibitor and MEK, our MEK-inhibitor.

So overall when you look at how are we evolved our late portfolio, the portfolio that will be coming to market before 2017 from when you’ll go in fact we have made a lot of progress and we believe the potential is even larger than what we were speaking about last year.

So let me spend a minute on the CART 19 project because it is a project that can be potentially transforming the way people think about treating cancer. So the way it works is a process where we are sampling T-cells from patients. We are transforming them. In fact we are redirecting the cells against a target with an antibody and that target, in the case of CART 19 is a CD19. So it’s B-cell malignancies, but it could be any target that we choose to go against. We re-inject the cells in the patients and the new cells are growing and developing in the patients and literally eradicating cancer because T-cells are extremely powerful weapons against cancer.

And in that case we have married the targeted therapy approach to the immune therapy approach in such a way that we can re-direct the immune system to fight against cancer. And we have shown that it works because we have now treated a number of patients and we have invested into a manufacturing center in the U.S. where we are currently now putting together what will be an industrial scale cell processing center that would be used for the pivotal studies and will be used for the commercial phase of this project.

So it’s fairly exciting. We have been moving forward fairly quickly in the past few months to industrialize it and scale it up so that we would be ready and we would be starting pivotal studies during the year 2014, just a reminder of the kind of response rate we have seen with the current CART-19, both in CLL and ALL. These are unprecedented numbers. And this is different from other therapeutic approaches.

In ALL we are around 80% response rate with a very large number of durable complete response from many of these patients and as you can see on the right there are other CD19 positive diseases where that same CART-19 the CTL019 could be used in the future. We are planning pivotal studies in ALL to start in 2014 and obviously we will be potentially starting other pivotal studies in some of this CD19 positive disease.

Now CD19 is not the end of the story. When you think about what kinds of CART technology do for cancer treatment, obviously it is where we are starting. So by itself it’s an important potential improvement of what does exist but we are already working first on the humanized version of the CART-19 which will be available in the future, but we are also working with the University of Pennsylvania of new targets where in fact the same technology could be applied for potentially other tumor types. Two of them have been discussed and published widely in the public, one of them is Mediterranean targeted CART that is at the very, very early stage but where we have some work that has been done, and another one on EGFR-8 [ph], which is a very specific target for some patients with glioma.

So it’s very early, it’s not year ready for going into a full scale development but we are certainly looking at what could potentially be a rough time, a series of products based on the same technology of redirecting the immune system to attack cancer cells very specifically, and certainly it is part of our research portfolio that’s very exciting and could be potentially very significant in the future.

Now what I would like to do is to speak a little bit about the portfolio and why we believe it is key competitive advantage to have a broad and the deep portfolio. When we show this picture many of you has told me it’s a little confusing there is a lot of stuff we don’t know really how to do deal with it because there are number of products here and this is difficult to calibrate all of them currently and I would tend to agree with that because the reality of the way the science of treating cancer is evolving, it is going to make it far more complex fields and maybe what it was in the past and the first aspect is how do we think about cancer. And the past was the definition of cancer based on the way the cancer is. Breast cancer is in the breast and colon cancer is in the colon, that was the way people were thinking, the way people were treated.

What we saw is BOLERO-2, so you see on the right its 200 patient from BOLERO-2 where we did next gen sequencing on the tumors and we were able to identify for these 200 patients what type of mutations are present in the tumors. So these operations were all treated with the same treatment in the past, hormonal therapy and what we find is that 40% of them have PH3 [ph] kinase mutation and then the number of them have a very specific type of tumor that in fact has genetic characteristics that are unique to the tumor. And these patients in the past were all treated with the same kind of drug in the future and that’s what you see here, having a broad portfolio will allow us to have a disease approach to cancer where we will be able to give patients drugs that have been specifically developed for the type of tumor that they have that goes beyond just the definitions, the whole definition of cancer.

In breast cancer you can see that because we remember when HER2 was not identified and in fact the patients with HER2 positive breast cancer were treated the same way as the patient who did not. And then when HER2 was identified and the treatment for HER2 positive breast cancer, targeted treatment was made available, in fact breast cancer was redefined. We know the same thing with estrogen positivity and negative breast cancer when the biomarker was identified, the treatment was evolving we see breast cancer evolve into a series of disease where the mutation status of the patient may and will in some cases have an impact on the way this patient should be treated. So that’s the work that is ongoing and Novartis is at the forefront of that. It’s sort of redefining the disease but I think it’s important to realize that you need to have multiple drugs to be able to address the need of the patients with this type of disease.

Now the more profound reason why having a broad portfolio can be a key competitive advantage is what I tried to show on this slide here, is that we know that single agent targeted therapies can be very effective but we also know in certain tumors that most patients at some point are progressing. So the question is what is the mechanism of resistance after a response and what we find is that in many cases and we have seen that in melanoma with the rough treatment of positive melanoma, that is another pathway that is activated and combination therapy can lead to a better outcome for patients with cancer is we know what mechanism of resistance is and if we can target directly this type of mechanism with the product.

So what I did hear, I went to, which is one of your favorite sites and I drew a line between the different products, when we have an ongoing clinical study with this combination. And what you can see is very interesting because it shows that we have some nodes in fact in our network of products and that there are products that are literally by themselves difficult to predict, but as a combination partner become very important part of the strategy we have at Novartis Oncology and two of them are BKM, our PI3 kinase and our LEE CDK4/6 inhibitor.

So let me show quickly a picture for each of them. So the BKM program is the most advanced pan PI3 kinase inhibitor in development today. We have two Phase IIIs ongoing in breast cancer. You can see on the left that BKM is active as a single agent. In fact it's a drug that in some patients can shrink tumor by itself, but as soon as you combine it with an ER targeted agent, what you see that there is a very strong synergy between the two. So you can start thinking about what is the mechanism of resistance to ER positive targeted agent, like you treat a patient an aromatase inhibitor, and why are they progressing after a while and you start seeing that maybe there is a role to play here for drug like BKM. And we're also developing it in multiple other indication in lung cancer and the head and neck cancer. So it's an example of a drug that by itself does have potential but as a combination partner has multiplied potential in many indication.

So LEE is a CDK4/6 inhibitor and it's now entering Phase III, by the end of this year where we have a Phase III study that we'll be starting in combination with Letrozole for patients with first line metastatic breast cancer, ER positive metastatic breast cancer. What you see on this slide is that LEE is a very active CDK4/6 inhibitor, it's fairly specific. It has neutropenia identified as one of the side effect. And by the way neutropenia is a un-target side effect; you expect neutropenia from the CDK4/6 inhibitor. If you don't see it, it tells you something a little bit different. It's a drug that is well behaved, has a very good PK and where the drug level can be sustained over 24 hour, suppressing the CDK4/6 over the entire period.

So what we have ongoing with LEE011 is a series of single agent trials, where we are looking at dose escalation in different tumor type in some form lymphoma and head and neck cancer, but more importantly we have a series of combination trials that are already ongoing in combination with MEK for NRAS mutated Melanoma, in combination with Exjade, our rough inhibitor. We have studied with Afinitor and exemestane and we have studies obviously with Letrozole, some of them in the newer setting and if you see the Phase III in metastatic setting.

So it's a very exciting program, it's an exciting drug that is active but it is also a drug that can be a key pivot of our combination strategy. And just to follow on the breast cancer example, what you see here is xenograft model. So it's an annual model where we look at the activity of different strategies on this sales and what you see is that Letrozole is an active drug, LEE is almost as active as Letrozole in this model BKM is an active product. But when you use LEE, BKM and Letrozole together you are looking at multiple pathways and you start seeing tumor regulation, which is exactly what we are looking for this disease.

So just one example it's in animal, so it's not yet proven in the clinical setting but we are working on using this kind of productive model as a way to build intelligent combinations that we can do because we have this entire portfolio and we are one of the only Company who has PI3 kinase inhibitor and CDK4/6 inhibitor in our own development portfolio, able to do these kinds of studies.

Now before I close I wanted to speak last about CML and the vision we have with CML. It is a disease where obviously Glivec had the sort of a massive impact on the life of this patient by changing the outcome. The change in outcome is control of the disease when you think if Glivec. We are developing Tasigna as a way to cure some patients potentially if the studies are positive. What I want to speak about here is our continuous commitment to improve further on that success that has been happening CML.

And here is just one example of a drug that will be in the clinic. So it's not yet in the clinic. It will be in the clinic next year. And what's interesting with it is that we’re trying to address the question of why are not old patients going to undetectable disease, because that would be the goal of treatment; Take patient to undetectable disease, induce potentially cure for some of them.

And here we are speaking of a drug that called ABL001. It’s a very potent inhibitor of BCR-ABL but what makes it really even more exciting is a fact that it is drug that has a different binding side to BCR-ABL from all of the imatinib family of products and what it means is that resistance to both, a drug like Tasigna and this drug will be very difficult because if mutation is happening on one side of BCR-ABL it should not be on the other side and you can see the experiment showing that when you combine ABL001 with Tasigna or imatinib you can reduce the chance of mutation leading to resistance or leading to suboptimal response in a way.

So, it’s an exciting project, it’s still early. We are starting the clinical studies next year. But I wanted to speak about it because it shows in some ways that the treatment of cancer is now evolving into speaking about how to cure patients, is a case now in CML.

So I will conclude on that. I mean the broad pipeline that we have is giving us two keys things. One is the ability to have disease approach, the other one is the ability to do proprietary combinations earlier and faster than many of our competitors. We also believe that in the future when these products are commercialized having, proprietary combination in our portfolio will be very helpful in terms of market access and being able to do innovative pricing strategy. So, that’s a little bit what’s coming downstream when we have approval for this product.

You can see our lead developments with 24 pivotal studies that we have. I spoke about many of them leading to approval in the next few years. And as you can see the news flow for the next 24 months is based on the 11 pivotal trials that will be coming to Fulvestrant, Jakavi, LDK and BKM being as most significant from this list.

And I would just like to go back to slide I presented last year. I hope this year I would be more convincing in saying that we truly believe that we can go through the Glivec worse case patent expiration, growing our oncology topline and that in fact many of these products that we are showing for irrespective purpose on these graph are not very stretch versus what could happen. So this is not like a super optimistic focus. It is just taking reasonable assumptions and showing that we would be able to grow through this period with a change of our portfolio but where fundamentally lot of the components we have on the last would be transferred to numeric cures that you can see on the right

So the conclusion is we are well on track. I seek the transformation is the portfolio is happening a little bit even faster than what we were expecting. So broad pipeline and the exciting products, are not only by themselves important but they are also giving us a key strategic advantage in being able to combine them early and potentially move the field of oncology in the new direction and in addition to that we have technologies like CART technologies that can transform cancer treatment completely and will take little bit of time but where Novartis is certainly at the forefront of that collaboration.

So, I stop here and Joe will be leading our Q&A. Thank you.

Joe Jimenez

I’d like to invite the management team up and Alessandro also, you’re not presenting but we’d like you to come up for the Q&A session.

Unidentified Analyst

Three quick questions. We’ll start first for David. On [indiscernible] chronic urticaria could we have your comments on the costs of the treatment that is an expensive of course anti histamines products knowing that half of the patients are not responding according to the data you were presenting? So in other words, what is the eligible preparation of what all is very severe [indiscernible] in this indication.

My second question will for Hervé. It’s on LEE011 which was the product last year, which was not really under the spotlight this year. So it starting at Phase III some competitive presented interesting results. So could you share results why at Novartis you have been able to accelerate this project and what is unique, what is different compared with some of your competitors at Novartis to have such situation.

And my last question is for Kevin. It is about the cataract surgery. Sometimes we see some volatility in cataract surgery business. Could you explain that and going forward, should we see again this kind of situation, all the new products will help towards the smoother growth? Thank you.

Joe Jimenez


Kevin Buehler

So the first question was about XOLAIR and if I took it correctly how will you achieve pricing given the anti-histamines are very expense and that’s very clear. The half of the patients that benefit from anti histamines will keep taking anti histamines. Others don’t because they are getting no benefit, than they will use XOLAIR and given the magnitude of the clinical benefit we do not expect there to be any pricing issues.

Joe Jimenez


Hervé Hoppenot

So LEE, the way to think about it is that the whole process of moving drugs from early stage into late stage development has been transformed. So it is not just LEE. We did with LVK. In fact we did it with Tasigna three years ago, is that there is views that if you know what you are going after, then you are really changing the way you can move products from early stage to later stage development and that was a case for LVK where we are able to move it and to file it based on -- we would be filing it in the next few weeks based on the single arm study.

In the case of LEE, because it is in first line lung cancer -- breast cancer sorry, we have been moving through understanding the specificity and the mechanism of the drug, to make sure it was doing what it’s supposed to do, working on the safety profile and we have treated now 150 patients with this product and we are ready to test it in a larger scale study, knowing that we know the effect we are planning to see has been already seen with the product from Pfizer. So that is really the logic there.

And I believe that the lot of the product that we will have on this graph or this finding chart in a few years may not be yet in our early stage pipeline, because the speed at which product are moving through the different phase of development is very different from what it was in the past.

Joe Jimenez

Yes, I’d like to just add something to that and I think you are not giving enough credit to your team because they have a clinical trial footprint in relationships with investigators having put now many, many drugs through this process that they can move faster than companies that are entering the oncology space maybe for the first or second time. So it makes a big difference. And Kevin?

Kevin Buehler

It is true, that we have seen some variability primarily on cataract procedures in a given quarter, but if you think about the fact that the patient is already demonstrating the presence of a cataract and that it does become visual limiting, it is not something that can be put off or a real long time. So it can move from quarter-to-quarter so I think in general the condition is still the same but the reason you see some volatility could be we are seeing markets like Korea where reimbursement changes do influence when the procedure is done. We are seeing the impact in India for example with some of the economic issues where the patient is the primary payer. So you will see from quarter to quarter, variability but it should not be something that when you look at it over a longer period of time really changes.

Joe Jimenez

Okay next question.

Unidentified Analyst

[Indiscernible] Just couple of questions first on Alcon, Kevin you said that Alcon will basically grow above the market in all division. In pharma the market is expected to grow at 5%. We know that retinal treatment will be the fastest growing segment. So I was actually wondering do you include Lucentis and follow on of Lucentis as well as your product in dry AMD in your forecast? That is my first question.

Kevin Buehler

Yes you would have to, based on the way that the chart was built, that the retinal growth is obviously in that 5% and we’re not participating in that space. So when you look at the segments that we are participating in we are growing share and growing at a faster rate. Obviously David is the only one competing in the retinal space other than Jetrea launch.

Joe Jimenez

Yes second question?

Unidentified Analyst

And second question also for Kevin on dry eye, which is also quite a big opportunity in a very immature market in a way because finally you only have Restasis, the only prescription drug and your OTC tiers are also a leader but they are a lot of development there and I didn’t see any -- how do you see maintaining your market share basically with all the competition in this dry eye?

Kevin Buehler

Yes, so you really almost have to break it into two segments right. So the pharmaceutical side, we are continuing programs. The challenge for clinical is the ability to show both signs and symptoms of dry eye and the improvement. It’s is one of the reasons why Restasis is the only product approved. We tend to think that inflammation is playing a significant role in dry eye and if we can confirm a confirmation of clinical effect we will bring it forward. We’ve had one proof of concept that has been positive. I think we want to do more work in that space. And then secondly in the absence of a real therapeutic product option, I think we can significantly expand dry eye if we can just simply increase the level of patients being diagnosed, who will benefit from even pilotive [ph] treatment globally. So we're looking at both sides.

Joe Jimenez

Okay let's take one question from the webcast, if you could put up the first question on LEE, it was the first one that came in. Did you complete phase one or phase two and level of neutropenia have you seen, do you have biomarkers? Maybe Alessandro.

Alessandro Riva

We have completed the phase one study. We have presented the data, the first data, the ACRA at the CSCI [ph] meeting just back in October. You see we have clearly showed that this compound is active. We have identified the recommended dose, which is a 600 milligram once per day. We have characterized the pharmacokinetic profile in dose. And so we have already shown and we show updated data at [indiscernible] that this compound is able to delay the progression of the tumor, it is monotherapy in dose, so in multiple tumor types and also in breast cancer for example in, on mono receptor positive breast cancer we are receiving objective responses.

Then we have also completed a very, very large translation, amazing plan, where we have clearly demonstrated that this compound and combination with multiple agents that are in our portfolio provides a synergism across different tumor types and on the basis of that we have started of course with the Phase III trial in combination with letrozole in our mono receptor positive breast cancer and in parallel we are doing a few new combinations; for example with MEK [ph] in (inaudible) melanoma with our [indiscernible] and also in melanoma but also in nose or lung cancer. So it's a very-very promising compound and we look forward to update you in the future.

Joe Jimenez

Next question. Andrew? Go ahead, sorry, Graham go ahead and then Andrew.

Graham Parry - BofA Merrill Lynch

Graham Perry from Bank of America, Merrill Lynch. So first question on the guidance for the oncology division to grow each year through Glivec. If I look on the chart, it doesn't look as if you achieving any sandostatin lar generics in there. The originator product, the original sandostatin does have generic competition. So I think the patents are 20, 14 and 17. So if you can just talk us through why you're expecting no generics there.

Second one is for David on the heart failure franchise, I think you said $2 billion to $5 billion, that's a fairly wide range, the low end obviously below consensus is that just accounting for risk on LCZ696 readouts. And then on the respiratory franchise and I guess related into the potential launch of LCZ696, but as you look to launch respiratory in this product can you just talk through the sales force that you have in the U.S. for that. I believe your general meds is probably only about a 1000 reps at the moment. Do you need to hire reps to do that? Thanks.

Joe Jimenez

Okay Hervé on onco guidance.

Hervé Hoppenot

So, we have like one category called XJ sandostatin and what we are planning on that category is the following. We have developing -- we are developing new formulations for XJ that will be available over the next two years and we believe there is a growth opportunity with XJ that will continue over the entire year. That’s the plan.

In parallel we are also and we recently did a deal with Kameras on the new formulation for octreotide. So it's a way to continue the lifecycle management of the molecules, that could be potentially replacing the lar formulation and that also will be helping over the planning period. In addition to that and that's what makes this entire thing somewhat conservative. We have not seen good quality substitutable generics of sandostatin lar where the patent is already expired and it has been going on, it's very difficult product to mimic, to have the same PK over a month. So it's not easy to do, and what we have observed is that it was not happening where it was possible from the patent standpoint. So in some way you have a mix of all these elements that says XJ sandostatin will be growing over the next five year and I think in some way we could do better than that.

Joe Jimenez

And David, heart failure.

David Epstein

On heart failure the sales projection, we modeled many different outcomes which will include one drug, two drugs, multiple indications, one indication, different levels of pricing and then you get, you get a fairly broad range. If it was only 2 billion I'd be pretty disappointed.

Joe Jimenez

And on respiratory sales, David

David Epstein

On respiratory sales, I think the question is focused on the U.S. market correct? Okay so we're launching Seebri and Ultibro worldwide. We have field forces in place ex-U.S. So in Europe, in Asia, Latin America they’re in place. There's not any significant incremental hiring associated with that. In the U.S. we have approximately a 1000 people. They’re selling, they're selling XFORGE [ph] and then they would be switched over time to those products.

Joe Jimenez

Okay Andrew, and then a question over here.

Unidentified analyst

Three questions I'm afraid again. So when I look at your plethora of TKIs, of small molecules in oncology, it reminds me of a jigsaw but with all the corners missing and the corners being immune-oncology or PD1s. So the question is given the world we’re moving to should we think about you entering a strategic relationship with someone who has a PD1 for your portfolio to explore combinations? Or is that more on a case by case basis, a drug by drug basis, you would explore potential relationships with such a sponsor?

Second question is could you give us an update on the patent situation on the CART, on the CTL019, between UPENN and St. Jude. I know I don’t think you’re directly involved but obviously it impacts you. And then finally on Afinitor, on the very low adoption rates you got on the U.S., could you just give us some background as to the reason behind that rather than focusing the opportunity? Is it the total potency of the drug? Is it the perception, does Novartis benefit? What’s behind that and how can you overcome it?

Hervé Hoppenot

Thank you, I will take them in order, if you want so. The first is about what you can think about the way we will combine with PD1, and frankly you can think that broadly because there are a lot of different options that are possible. One of them would be to have a transactional discussion with a company who is interested in combining with some of the products we have in the portfolio. And by the way there is a number of these products where there is a rationale way it could be interesting. Or we can do more systemic type of partnership and both are completely open.

So that’s either way. It’s the possibility. Remember that PD-1 used in melanoma and kidney cancer, was never a surprise. Because everybody knew that immunotherapy and these two diseases are active, like IL2 is active in both. But I think where the PD1 story is changing, size is where we are looking at the lung cancer data and thinking of how the future could be in term of combination and you can think of it either way, as sort of one by one study or as more of the partnership nursing is a setting stone. Yet, in term of the CART19 patent and the discussion ongoing between St. Jude and PENN, frankly I cannot comment on it because the way we have established our relationship with PENN is that it is their responsibility to manage some of the IP issues that were related to their own product. I cannot really not say very much about it.

On Afinitor, I think you have to put it in perspective. Because I have heard, I have read some of the comments about Afinitor. Adoption of a new drug, metastatic disease follows a curve that is very similar from product to product, in metastatic disease. There is a pool of patients who have no treatment option. As of time, when the drug becomes available, you see a fairly quick adoption in these patients who have no other treatment option. And there is a flow of patients that are going through the diagnosis, first line treatments on line and then they become eligible for Afinitor.

What we are witnessing now is that we are moving from the pool to the flow. And that gives you something that looks like any scale. I think the so called aspect of Afinitor is not the safety, also tolerability concern because where Afinitor is used, is really in a place after a single agent aromatase inhibitor before chemotherapy. That’s where the core value has been shown and what you can see is that you can delay progression by 10 months by using Afinitor, and this is 10 months before you start chemotherapy.

So the comparison of the side effect is [indiscernible] what it would be if you had to put your patient on chemotherapy, and Afinitor is far better tolerated than chemotherapy. So what we are seeing is progressive challenge in the way physicians are practicing medicine. They had been using AIs, hormonal therapy, and then chemotherapy and we are asking them now to think differently and it takes a little bit of time to get there. But I can tell you I’m very confident that we will go there over time and I mean it is the drug that has shown, in disease free survivor a benefit that is very similar to what Herceptin was showing at the time in HER2 positive metastatic breast cancer. So the benefit is extremely clear.

Joe Jimenez

Next question, on this side.

Unidentified Analyst

Few questions, mainly for David, please. First one maybe also for Hervé, on Glivec. I‘m not going to ask you to speculate about U.S. generics, but it would be extremely helpful if we could just get an update on the situation in those markets where its generic. So which countries have actually approved the generic based on the alpha crystal, and how do they justify, given the anecdotal evidence of loss of response, given that the alpha crystal might actually be inactive and which countries have approved the beta crystal and what was the legal basis for that? Did your beta crystal patents just get invalidated or circumvented? Do you want me to ask the second question straight away or wait?

Joe Jimenez

Yes, why don’t you get them all out?

Unidentified Analyst

Okay. The second question is just around Gilenya. I was just wondering if you can quantify it all, what proportion of current business is coming from BRACE therapies, or how the switch rates from BRACE therapies are evolving. The reason I am asking is because I got the sense that there is not really a very clear algorithm right now for switching patients. So is there actually a risk that Gilenya could reach an initial plateau and then later on we accelerate once the concept of freedom from disease activity just becomes a lot more universally accepted. And the third question is just on COPD. You mentioned forecast, 16% penetration rate of the LABA/LAMA. And I was just wondering if you can elaborate a little bit where that’s coming from? And just looking at the GOLD guidelines, they still seems to really recommend LABA-ICS combos in the severe cases. Do you have any indication that that’s going to be changing very soon as more LABA/LAMA combinations actually become available? Thank you.

Joe Jimenez

Okay, Hervé starting on the Glivec.

Hervé Hoppenot

Or do you want to answer the other question first? So first, I don’t know the exact answer to your question of how many countries has alpha-beta, so I just don’t know. We have -- first the case I have presented today is a case where we take the worst case scenario for large country where we are not having any benefit of any of this additional IP. So in some way one year ago I was speaking about this program. We told you that we would not update you on a regular basis on the IP aspect of Glivec because in some way it would be defeating the purpose of the strategy that we have. So I cannot -- what I can tell you in general terms is that there are countries where we have this type of additional IP and that the only thing we can do is improve our, what I’ve been showing is worst case scenario for the entire franchise.

Joe Jimenez

And that’s what we said, is model the worst case in terms of the compound patent and then as we get closer and closer, if there is news we’ll be able to see it. David, in terms of Gilenya?

David Epstein

Yes, I don’t think this is the kind of drug where you’re going to see any type of plateau. What’s happening is the oral market is expanding, physicians are getting more and more comfortable using orals. Patients who are demanding orals, now that they know there are several out there and so the product should have fairly steady growth. The only thing that impacts the growth rate is when Tecfidera comes in, there is a little bit of a slowdown and then you see it starts to come back up. We’ve seen that now in the U.S. market.

In terms of the respiratory, in terms of how we’ve got to 16% to 60% by 2018 and as much as 40%. We made a -- we did a series of analogs in cardiovascular and other diseases and modeled it out. The reality is we really don’t know. It could go much faster. I do not know the GOLD, I don’t have the special insight as to when the GOLD guidelines will be next updated. But what I do know and I mentioned it in my talk is we have doctors that have been already switching people from ICS LABAs to Seebri where we have a little bit more market experience because they’re not satisfied. And you got to remember in COPD, now the evidence that a steroid is helpful is much less compelling than in asthma. So if there is something to switch to I think people probably will.

Joe Jimenez

Okay, Matthew -- and then we’ll go to that side, yes.

Matthew Weston - Credit Suisse

Two quick questions if I can, one specific one for Hervé on LEE011. You mentioned or it’s been discussed already the competition and the race with Pfizer. You effectively both started Phase III at a very similar time but if I look at, our favorite website, I see that they expect to report their primary endpoint about two years earlier than you do. Is that because they’ve randomized 2:1 on drug or is that because your timing is for the full reporting of the OS endpoint and PFS comes earlier. So I guess the ultimate question, when should we see PFS endpoint?

Hervé Hoppenot

So we don’t know what Pfizer was thinking when they give the study in the website, but I mean from a Novartis standpoint, we estimated to recruit the patient in 18 months. And then you know it’s a long progression free survival. So it’s kind of in three years we are going to have a results. But of course that we can also accelerate the recruitment. So we have already proved that thing. In breast cancer we have a various sorry network of investigator able really to recruit very, very quickly when there is a specific medical need. And here there is an important medical need there is an important promise for patients, given the translational medicine data that we have and also given what Pfizer has already demonstrated in randomized Phase II progression. So we are convinced that this study would be really a success from a recruitment perspective and hopefully also from a clinical data perspective.

Joe Jimenez

And PFS is a primary endpoint.

Hervé Hoppenot

The PFS is a primary endpoint and survival is the secondary endpoint. The study also of course is -- it's power to look at the survival at the later stage but we would be able to provide the data to the head based on the progression free survival.

Matthew Weston - Credit Suisse

And then a question for Kevin. So it seems to me and maybe I’m wrong the first part of the outcome, return to growth story or accelerating growth story is a hidden one where you populate physicians with equipment and then it moves to a very substantial and very visible growth rate as they use the consumables, which will see much more demonstrably in terms of revenue and margin.

So the question to you is what should I ask every quarterly call over the next 18 months? Realistically what metric should we use to judge you on whether the rollout of equipment is actually going according to rate? Is it, you said 60 population in terms of penetration for Infinity. Should I ask you what the penetration is to Centurion? Should I ask you how many units you have in clinics? And then if whatever you tell me, I’m going to say what’s the target for year-end ’14?

Kevin Buehler

Well, I was hoping you would ask an easier question. No, I think it’s fair what you’re asking and when we rollout equipment, when you’ve got to share position that we have, one sort of the focus is converting our installed base, because when we convert our installed base, our own units, Infinity units, obviously the benefit that we get is the trade up in the increased price of the disposables. But when I convert competitive units, I have the opportunity to not only get incremental business but I’m converting IOLs. And at the end of the day we have always said we start the relationship with the equipment and that starts the process.

But ultimately where want to go is we got to be evaluating to what degree have we been able to grow total IOLs. So when we look at it we're monitoring how many procedures we think are happening with our equipment, and our equipment is large enough that it sort of replicates the total market. And then we can look at what our growth rate is in IOLs, because there is not like a great IMS system to determine share. So I can't give you quarter-by-quarter share, but I can reference where we are in terms of selling units and then we can co-relate it to what our IOL growth rate is.

Joe Jimenez

And we have clear analogs in terms of the expectations but if you look at Infinity in the ramp up and then we can compare that to Centurian. I don't think there is a competitive reason not to disclose how we're ramping Centurian, right?

Kevin Buehler


Joe Jimenez

So on a quarter-by-quarter basis I think there would be clear metrics with a target at the end of the year.

Matthew Weston - Credit Suisse

That will be helpful.

Joe Jimenez

Eric, and then right behind Eric.

Unidentified Analyst

Sure three questions, first of all on BYM, why are you not concerned or are you concerned about the fact that you are hitting the receptor and therefore there are other pathways that might be involved in the potential for off target activity. Some of your competitors are going straight from myostatin and what do you think the advantages are of hitting the receptor?

Second question on heart failure, when it comes to mortality trials in any situation, in a cardiovascular disease, there are numerous historical examples of early studies that show magnesium in myocardial infarction. You saw two studies that showed mortality benefit. You did the definitive 20,000 patient study. It went away. I could give you five examples. Why are you convinced that this particular heart failure, mortality benefit is going to stand up against the full outcome study? And then the third question is on LEE011, have you thought about looking at that in prostate, given the potential analogies between and breast and prostate for CDK4/6 prolonging the response.

Joe Jimenez

We'll start with Tim on BYM.

Tim Wright

So regarding BYM, what's really interesting is you may know already that there was an anti-myostatin antibody in the clinic and it really didn't show much of effect. Now that could have been the design with the study, the diseases they studied but the reality is we study this in a very difficult disease and saw clinical benefit is well as muscle growth. And we have also confirmed our findings in healthy volunteers initially. We believe that going after the receptor in this case actually is very important, because by blocking the receptor as I showed; there are multiple ligands that can activate that receptor. So myostatin is only one. And in fact we were guided to this by the fact that this is a receptor that is somewhat pleiotropic in terms of its activation.

And so A, we have the biology and B we think that there may be other ligands that might be important at least in some diseases. And what I can tell you so far is based on the pre-clinical safety profile and the safety profile we have seen in the clinic; granted we have limited duration of dosing, but so far we have a very nice safety profile.

Now regarding Serelaxin, we have not just one but two trials. So pre-relax, even though it was relatively small Phase IIB also demonstrated not only symptomatic benefit but also the trends in mortality and in fact if you look at individual dose strengths within the Serelaxin trial, the dose that we took into the late stage had a p-value of 0.05 in terms of mortality benefit.

So we feel that we already have conformation of the mortality benefit to a certain degree. It may not hold up against some of the criticism of some of the experts. Realize that the RELAX-AHF trial, the Phase III trial was 1,100 patients. So this was not a small pilot study and indeed the effect is fairly robust with a highly significant p-value and a hazard ratio 0.37 in terms the reduction in mortality.

Joe Jimenez

And Alessandro, on LEE

Alessandro Riva

So a short answer is of course we think that LEE011 in combination with an androgen blockade could be synergistic. So we are applying the same cost that we have applied in breast cancer, in other words the double vertical inhibition of the mono receptor pathway, the ER positive for breast cancer, the androgen positive for prostate cancer in combination with CDK4/6 011 can be synergistic. And also we're going to explore the treatment in combination also with PI3K. We have now ongoing a study with PI3K in combination with Abiraterone and we will do exactly same in our prostate strategy that we have applied in breast cancer, with treatment combination with PI3K, CDK4/6 and Hormone therapy. So prostate and breast, you can see the same approach that could make sense for metastatic patients.

Joe Jimenez

Okay, I think we have time for one last question.

Unidentified Analyst

Three questions. First I think with LDK, you increased substantially your forecast for this drug since last year. What is behind your confidence on this drug because considering what [indiscernible] is reporting in terms of sales, and even though it’s a better product if you only take ALK positive lung cancer, it doesn’t seem to be necessarily a blockbuster? So is there any other indication you can put on top of lung to reach a blockbuster status.

Second question would be on the first drafts of David. You provided peak sales for products that are not yet on the market, but not peak sales for existing products. So instead of having illustrative charts, is there any chance we can have the same kind of range for Galvus, Lucentis and Gilenya?

And lastly on respiratory and dermatology, which looks to be two new segments, the peak sales, do they address only on side Breezhaler or also products like XOLAIR or [indiscernible] any other existing products and in dermatology is it only for Urticaria? And I don’t know any other products.

Joe Jimenez

Okay, Hervé, maybe start with LDK.

Hervé Hoppenot

The way that that works is that they are probabilized. So what we change of LDK is a probability of success, now as that we are so close to the deciding and we have scenes of confirmatory study from what we had last year. So, only change we did in the middle is the changing probability of success of LDK from somewhat low to higher now that we are so close from filing.

In terms the overall potential, I just want to say, well is that when you think about 4% or 5% of non-small cell lung cancer it is in fact a fairly large number of patients because there are in the U.S. 150,000 new cases diagnosed every year and you can multiply and you end up with number of patients that for us with our experience in gist, our experience in rare tumor is very consistent with what we are comfortable with.

Joe Jimenez


David Epstein

I’ll go through some of the verity of sales forecast if I miss one please tell me. So the respiratory numbers this was for the respiratory products we identified today in the Breezhaler device. So, we’re talking about Onbrez Seebri and Ultibro. In the case of the dermatology, it’s for Secukinumab and Psoriasis, Psoriatic arthritis because we’ve linked those and also the XOLAIR in chronic spontaneous urticaria along with those.

In terms of giving you more exact forecast for the other products, we chose not to because then we get very boxed in. Even where I give you for new categories I gave you ranges. What we try to provide was an ability to model and directional graphs which would allow you to do that and then I gave you the summary. So, you probably have 80% to 90% of what you need.

Joe Jimenez

He feels like he has given a lot. Okay. I want to thank everybody for coming. I think you’ve been able to see the confidence that we have in the Company’s future and we look forward to updating you at our year end results in January. Thank you very much.

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