Novartis' (NVS) CEO Joe Jimenez on Q2 2014 Results - Earnings Call Transcript

Jul.17.14 | About: Novartis AG (NVS)

Novartis AG (NYSE:NVS)

Q2 2014 Results Earnings Conference Call

July 17, 2014 08:00 AM ET

Executives

Joe Jimenez - Chief Executive Officer

Harry Kirsch - Chief Financial Officer

David Epstein - Head of the Pharma Division

Jeff George - Alcon

Richard Francis - Sandoz

Samir Shah - Global Head, IR

Analysts

Graham Parry - Bank of America Merrill Lynch

Richard Vosser - JP Morgan

Alexandra Hauber - UBS

Andrew Baum - Citibank

Seamus Fernandez - Leerink

Tim Anderson -Sanford Bernstein

Michael Leuchten - Barclays

Eric Le Berrigaud - Bryan Garnier

Tim Race - Deutsche Bank

Keyur Parekh - Goldman Sachs

Steve Scala - Cowen

Operator

Good morning and good afternoon and welcome to the Novartis Q2 Half Year 2014 Results Conference Call and Live Audio Webcast. Please note that during the presentation, all participants will be in listen-only mode and the conference is being recorded. (Operator Instructions). A recording of the conference call including the Q&A session are available on our website shortly after the call end. (Operator Instructions).

With that, I would like to hand over to Mr. Joe Jimenez, CEO of Novartis. Please go ahead, sir.

Joe Jimenez

Thank you. I’d like to welcome everybody to our second quarter earnings presentation. Joining me at this end are Harry Kirsch, CFO; David Epstein, Head of the Pharma Division; Jeff George from Alcon; Richard Francis from Sandoz; Andrin Oswald, Head of Vaccines; George Gunn, Head of Animal Health; and Brian McNamara, Head of OTC.

Now before we start, I'd like Samir to read the Safe Harbor statement. Samir?

Samir Shah

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

Joe Jimenez

Thanks, Samir. Okay, starting on slide number four, we had what I would call a solid second quarter and for me the two main highlights were; first, continuing our strong innovation momentum and that included the approval of Zykadia in the U.S., which is ALK inhibitor for non-small cell lung cancer as well as the fact that we got Fast Track designation for our chronic heart failure drug LCZ. The second highlight for me was the margin improvement. And this is something that we said that we're going to start working on and you're starting to see the impact of it.

So slide five shows the P&L. Sales were up 2% in constant currency. Core operating income up 6% and core EPS up 7%. And Harry is going to take you through the details in just a minute. But on the next slide, we continue to make our progress on the three strategic priorities so we've been consistent with historically extending our leading innovation, accelerating growth and driving productivity.

So on slide seven starting with innovation, beyond the Zykadia U.S. approval, our MenB vaccine Bexsero continued to have positive news. We were able to file this new vaccine with the FDA that started in June and it was significantly ahead of what we had expected earlier on. The news flow from the pipeline was also quite strong this quarter. So you are going to hear more about this from David in just a minute but let me touch on a couple, the first is Ultibro where we showed superior efficacy versus Seretide in our Phase III study for COPD patients. This was the LANTERN study. And then also for LBH589, we presented data from a pivotal Phase III showing significantly improved progression free survival in patients with multiple myeloma. So, we filed in the U.S. in March and were granted a priority review in May and we plan to submit in the EU later this year.

On the next slide CART-19 received FDA breakthrough therapy designation for ALL this quarter and Novartis now has five therapies with this designation, more than any other company in the industry. We also announced this week our agreement with Google. We are collaborating to bring their smart lens technology to the eye care market. I think this really will be unique partnership in the industry, leveraging Google’s expertise in miniaturization of electronics. So this includes microprocessors and sensors and when you complement that skill with our deep knowledge of ophthalmology and vision correction, it’s going to be very powerful.

Now the second priority was accelerating growth and all of the divisions showed top-line and bottom-line growth except for vaccines. Vaccines was impacted by the phasing of both pediatric shipments that were in the year ago base and were not repeated this quarter, but that's a timing issue. And importantly, look at Pharma's core operating income of 8% that led to a 2 point margin improvement, behind some very good cost control.

Now the performance also was driven by our growth products. On the next slide you can see that they now account for 32% of our sales and they are up 18% versus year ago. This is anything washed in the last five years or with exclusivity through 18. And emerging markets were strong up 8% led by Russia and China. China was up about 13% at the group level.

Now in Pharma, the growth products continued their strong growth, just to pick out a couple: Lucentis up 7% and Gilenya up 28%, but I also want to point out the COPD portfolio, over a $100 million this quarter. And that's really before Ultibro has a significant impact. So, it had just about 20% of that total is Ultibro. So, we're feeling quite good about the respiratory franchise.

Now Alcon showed 4% growth this quarter; it was driven by the surgical business and in particular a strong Centurion launch. Alcon is not yet where we want it to be from a top-line but Jeff and his team are putting good ground work in place to drive IOL share up and to also execute against these new product launches in a way that will improve that trajectory.

In Sandoz, the major highlight, one of the highlights in the quarter was the continued roll out of AirFluSal now across 10 countries including some major European markets.

And then in terms of productivity, we had a good quarter and it drops through the bottom-line. We saw about 1.1 margin points at the group level improved and this was driven by R&D and M&S spend control as well as in the first half of the year we were up a full margin point. And then finally, we continue to have positive news in terms of quality in the second quarter. So we received good or acceptable ratings in all of our health authority manufacturing inspections this quarter. And in fact yesterday we were informed by the FDA that we had addressed all of the issues in the 2011 warning letter that were related to Sandoz manufacturing sites of Boucherville, Broomfield and Wilson, so that warning letter is now officially lifted.

Now I’ll turn it over to Harry to talk more about the financial results.

Harry Kirsch

Thank you Joe. So before I start I want to remind you that all our presentations today focus on full group results. However following the announcement of our portfolio transformation on April 22nd we are required by IFRS to separate the group’s data for 2014 and the prior year into discontinuing and continuing operations. Further, as you will recall for the deal announcement certain IP rights and related other revenues which are retained by Novartis are now reflected in corporate rather than the Vaccines division.

In addition, for comparability purposes as in line with our reporting in quarter one results we are comparing to 2013 excluding our divested blood transfusion diagnostics unit.

Now to slide 19. So, Novartis delivered a solid performance in the second quarter with core operating leverage across the quarter and so first half. In constant currencies net sales were up 2% core operating income was up 6% and core EPS was up 7%. The respective numbers for the first half were exactly the same.

As I would have expected free cash flow recovered in quarter two and was up 6% in the first half. As I said before, IFRS requires a split to continuing from the discontinuing operations another consequence of IFRS rules is that 2014 results excludes depreciation and amortization related to the discontinuing operations from the announcement date. This results in a small benefit and profit which we have laid out for core operating income on slide 20.

For quarter two the impact of stopping depreciation which impacts core operating income is just under one percentage points of growth out of the total six percentage points of growth over the previous year. For core EPS it is just a $0.01 impact. As the benefits only occurred during quarter two the impact is even smaller for the first half.

Turning to slide 21. Our recorded top-line performance continues to be driven by underlying volume growth which contributed 6% in the quarter two. Pricing was flat which led to an underlying sales growth of 6%. This more than offset to generic impact of minus 4% or about 0.5 billion and resulted in net sales growth of 2%. You see similar but more pronounced picture for core operating income where underlying core operating income growth of 16% more than offset the 10% impact from generic competition. Currency took us from 6% growth and constant currency to 3% growth in U.S. dollars.

As all of you know, a generic version of Diovan mono was launched in U.S. on July 7th. On the same day, Sandoz launched to (inaudible) generic. Now as a result, we expect pharmaceuticals [to see an] impact of generic competition of around $2.6 billion for the full year 2014 in line with our previously stated expectations.

Slide 22, top-line performance was driven by the continued momentum of our growth products which now represent almost the third of total group net sales and 42% of pharma net sales particularly pleasing our growth product performance is broad based with key growth drivers including Gilenya, Afinitor, Tasigna pharma or surgical equipment Alcon and a number of authorized generics in Sandoz.

Now turning to slide 23 the improvement in group core margin in Q2 was mainly driven by pharma which was up 2.1 percentage points in constant currency to 31.6% of net sales and the continuing recovery of the Consumer Health divisions up 5 margin points in constant currency.

While Alcon’s core margin declined 0.5 percentage points in constant currency due to product mix it still remains high just under 37% of net sales. Sandoz declined marginally due to slight increased investments and strongly growing businesses in emerging markets. The vaccines business is impacted by seasonality which you see again in the first half of this year. Joe mentioned the vaccines net sales declined in quarter two (inaudible) related core operating income decline which is also due to the phasing of the buyback pediatric shipments, excluding this phasing effect demand in vaccines continue to be solid across the portfolio especially for meningitis and travel franchises. The change in margin for pharma is encouraging and I am satisfied to see the effect of our margin initiatives to improve margins bearing fruit.

Looking at some of the drivers of margin improvement so far let’s turn to slide number 24. Improvement in group core margin was mainly driven by decrease in R&D and M&A spend as a percent of sales. The R&D decrease in quarter two reflects 1.6 percentage points in constant currency improvement at Pharma, mainly due to prior year increased investments and late stage clinical trials and continued productivity efforts.

In Q2, core R&D spend as a percentage of net sales was 15.9% for the Group and 20.6% for Pharma. The decrease in M&A spend also reflects our productivity efforts and consequent resource allocation activities.

Slide 25 looks at our currency impact. The lower currency impact in the second quarter compared to the first quarter mainly reflects the timing of when the yen started to weaken last year. There was no currency impact in the current quarter for the top-line with the strengthening euro offsetting the effect of the emerging market currencies and the yen. The bottom-line was impacted by minus 3% as we also saw a stronger Swiss franc. If June average exchange rates prevail for the remainder of the year, we would expect a minus 1% currency impact on sales and between minus 3% and minus 4% on core operating income for the full year.

Let's now turn to free cash flow on slide 26. As we had expected, we saw a nice recovery of free cash flow generation in second quarter. Quarter two was up 38% versus prior year to 2.4 billion mainly due to higher operating income and lower net working capital despite the 0.2 billion outlaid for the ex U.S. rights to Fovista. This results the free cash flow being up 6% for the first half versus the prior year. And recall again that historically 60% to 70% of free cash flow for the year is generated in the second half and we expect this year to be no different from this pattern.

Let's look at net debt on slide 27. You can see how net debt increased from $8.8 billion at the end of 2013 to $13 billion at the end of the second quarter. This was mainly due to our dividend payment of $6.8 billion and share repurchases of $4.3 billion, partly offset by our free cash flow of $3.2 billion in the first half as well as proceeds from the divestments and from options exercises related to the employee participation programs.

Before I finish, I think it’s worthwhile looking at our continuing operations as an early indication of the more focused portfolio in Novartis. Despite the fact that continued operations do not include sales from the GSK oncology portfolio, our core operating income margin would improve significantly. You see that on page 28.

While there will be always some quarter-to-quarter volatility especially around the seasonality in the vaccines business, these numbers here are broadly consistent with the pro forma 2013 core op numbers I shared with you at the time of the deal announcement. As a reminder, Novartis will also benefit from the 36.5% interest in the GSK Novartis Consumer Health joint venture which will be recognized as income from associated companies i.e. below the operating income line.

Finally, on slide 29, I want to reconfirm our Group outlook for full year 2014. We expect our Group net sales to grow low to mid single-digits and are now refining our expectation for Group core operating income close to growing ahead of sales and growing mid to high single-digit in constant currencies.

While this guidance includes the [decision] of depreciation for discontinuing operations, we do not expect this accounting change to have a material impact on the results. And with that I hand over to David.

David Epstein

Thank you, Harry. So, in Pharma, despite the continuing generic pressures in this quarter from Zometa and from Diovan, we reported sales growth again for the quarter. In addition, as Harry explained very good core op leverage for the quarter. I want to note that margin will continue to fluctuate each quarter as it’s done in previous years. And while we strive for margin improvement over time, it will be a bit lumpy.

Turning now to next the page, you see that even more importantly portfolio rejuvenation is progressing very well. Growth products now represent 42% of division sales and that's up 15% from the same period last year. On the following slide, you see the main contributor to our growth were the emerging markets in Q2 driven in particular by strong growth in Turkey, Russia and China.

On the next slide, we see that our growth platform continues to deliver well with all products growing strongly. And as Joe mentioned, you can note the very large growth rates for some of the smaller products like the COPD portfolio and Jakavi. These products are now getting to a size that their growth is making a difference in terms of our overall growth rate.

Now, I'd like to just mention a few other products to you starting with Gilenya on page 35. It was a very good quarter for Gilenya and just a few things to point out to you. First of all, we achieved double-digit growth in the U.S. market; ex-U.S. as we've been predicting all along is growing even stronger than the U.S., even though Tecfidera launched and is continuing to launch during this period. In fact, if you look at Gilenya ex-U.S. our market share has now reached number one in the MS market which is quite impressive now with over 100,000 patients treated year-to-date. Later this year, we'll see the top-line primary progressive MS results probably in the fourth quarter of this year.

So turn this to the next page another strong quarter up 7%, the new indications representing 39% of the total so the focus there has continue to pay off. We have seen very good acceptance of the pre-filled syringe which is now the launch in Japan and France in some countries it now represents more than 50% of our volume.

This product has been in the news particularly in Italy and France where there is continuing pressure to use Avastin instead of Lucentis. Even though Avastin is not approved for the condition nor it is formulated for the eye the economic arguments in the European Union continue to be discussed.

Turning now to page 37 you get a [photograph] of how Ultibro is doing while still a small product we believe this product has significant growth ahead of us. And as you can see in the German market which is among our first launches it is one of the best primary care launches in Germany in the last several years.

Turning now to Afinitor on page 38 I will remind you that last quarter we reset expectation for peak sales for Afinitor to sales in breast cancer between $1.5 billion and $1.7 billion and for the total brand to be significantly higher than that. The good news is the performance this quarter was on track with that expectation providing some reassurance to us as Afinitor reach more women with breast cancer and as doctors gained more experience with the management of the major side effect which is stomatitis.

Turning now to Zykadia. While we don’t have really much sales value I can tell you that we got good initial physician feedback. One thing I want to note in this product which speaks to our innovation power and the quality of our development organization it took only 37 months from first invent to FDA approval for this product. At the same time when a product moves that fast you don’t have the time you need to fully optimize the dosing regimen, that work is underway to better control GI tolerability. And I would expect will be somewhat downward trend in the dosing for this product.

Now I would like to change track here spend a little bit of time on some of the pipeline products. We're particularly comforted by the very good progress in LCZ696 made during the quarter. Just a list of four particular facts for you. First the PARADIGM reduced our fraction heart failure, deduction fraction heart failure results were accepted for late breaker presentation at the European society of Cardiology in Barcelona and that data will be made available on August 31st which is good news.

In addition our discussions with the FDA have gone well, where they have granted Fast Track designation for the products as well as also granting us the ability to start a rolling submission for the product. We expect that rolling submission will wrap up by December of this year and that will fall with the EU submission in the first quarter of 2015.

We're also preparing for the launch of the preserved injection fraction trial called PARAGON and that will commence during the third quarter of this year.

Now I've read a lot of reports of the speculation about how good these products will be and how big it can be overtime. I'm actually getting pretty clear that all the facts not yet in and particularly because the data base was not even closed and I hope that happens in the next few weeks. But I want to try to put the data in perspective based upon the trial design in the previous heart failure trials that are in the literature.

You will note that most of the previous heart failure trials have been against placebo. For example, NovaPro which is a product what we compare to in our trial showed a 16% improvement in mortality versus placebo.

In addition, the patients in our trial are even better treated, because the vast majority over 90% around beta blockers and over 60% around spironolactone and its derivatives. Thus to trying to put numbers in perspective we were to achieve the same 16% improvement on top of the 16% already seen with full dose NovaPro that would be a very, very good result. Even we’d see a reduction in mortality that exceeded that 16% it would be a truly excellent result. We will know until the database is unbounded and we’ll share it with you at that meeting.

Turning to the next page I want to talk about another product which is important to our future and that’s AIN457 or Secukinumab or anti-IL17 monoclonal antibody within initial indication of psoriasis. We’re expecting a CHMP opinion for this product in the fourth quarter of this year and the FDA action date is January 2015. We’re very pleased with the head-to-head trial with Stelara accrued extremely rapidly. That tells us about physician excitement about the product as well as the unmet need in the field. Importantly this acceleration of this trial means that we’ll have the data available towards the end of this year and then public for the European pricing discussions that will more certainly take place next year.

Next I want to mention two important submissions that we had during the quarter for our oncology business starting with Jakavi in polycythemia vera. The data is very strong. We submitted in the EU in June and the submission in Japan is planned for the second half of the year. I believe there is an opportunity to more than double the opportunity for this product with the new indications.

Turning now to LBH on page 43. We see the regulatory submissions in the U.S. occurred in March as we’ve previously reported date. The filing occurred in Europe in May and in Japan in June. And this is for patients with relapsed and refractory multiple myeloma with multiple call second, third or even fourth line disease. This product will provide a nice additional benefit for these patients.

On page 44, we bring you up-to-date on our CTL019 program rather than go through the detail here, but in this data about the University of Penn working with us to achieve is Breakthrough Therapy designation. That program is on track and continues to progress as we would expect.

On page 45, you see our news flow achieved for the first half where with the exception of serelaxin has been very, very good. And you see what we expect for the second half for the year. We remain very busy as our investment in innovation continues to pay off at Novartis.

Finally on the last page, I just want to mention to you some key Pharmaceutical division leadership changes. These are two executives I have known for quite a while and they will help me drive our company to the next level as we work to become what we describe as the best pharma company.

The first is Vas Narasimhan who’s been appointed Global Head of Development. Vas has been at Novartis for a number of years. He has a Medical Degree as well as a Public Policy Degree from Howard University, He has run our North American commercial business for vaccines, and he was also a very successful Global Head of Development for our vaccines and diagnostics business. His research background is in the immunology. Vas is a great guy.

Turning now to Rainer Boehm, Vas will be partnered with Rainer who is appointed our Chief Commercial Officer of General Medicines. Rainer has worked in just about every region in the world; most recently he was running Emac or Asia, Middle East and Africa very successfully for our company achieving double-digit growth in each of his years in that business. And I think the two of them together will be a great team.

And with that, I'd like to hand it back to Joe Jimenez.

Joe Jimenez

Thanks David. Okay so just a sum up, we had a solid quarter, we delivered very strong innovation that sets us up well for future growth, we grew the business and we had core operating income leverage. So now I would like to open the call to questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). We will now take our first question from Graham Parry of Bank of America Merrill Lynch.

Graham Parry - Bank of America Merrill Lynch

All right. Thanks for taking my questions. Firstly on LCZ696, can you just provide us the detail on exactly what you have been able to share with the FDA on the basis of their Fast Track submission data? So is this just simply on a discussion based on the stopping criteria and the news that the trial was stopped and also provide us with any additional data you think might be needed to be supplied in that rolling submission on top of the PARADIGM trial? And then secondly on serelaxin, can you clarify the comments in the release indicating the need for more studies? Just wanted to check that does it refer to need for additional (inaudible) studies and that that is just the HF-2 cardiovascular outcomes trials that you are referring to? And then thirdly on the Pharma margin run rate, you are up a point in the first half. Can you give us a feel of what you are thinking in the second half; are we looking at still margins up flat or down given Diovan and substantial R&D pressures? Thanks.

Joe Jimenez

Okay, David?

David Epstein

I will just start, I will actually start with serelaxin. No change, basically we need to finish the enrolment and get the results of the second Phase III pivotal trial where we have mortality as the primary endpoint.

In terms of LCZ, they’ve seen basically the summary report of recommendation to stop the trial early which you've also seen the top-line for. When you asked about additional data that we will be required, we will submit all the data we have on LCZ. So, for example, as part of the safety data base, all the hypertension data will be included.

Now last but not least, you asked me about Pharma margin, I know you know that we don't project margin on a quarterly basis. But just to put some things in perspective for you we will lose Diovan mono in the U.S., we will also see a significant deceleration of Diovan in Japan and Diovan is a high margin product, so it puts pressure on us. On the other hand we have our productivity initiatives, which continue to payoff and our growth products are getting bigger and bigger. So, we will continue to work towards margin improvement, some quarters will be easier than others for us to achieve it.

Graham Parry - Bank of America Merrill Lynch

If I can just pull upon LCZ, the hypertension data would be a rate limiting step and that’s all giving you to build that package, effectively you’re already prepared anyway?

David Epstein

There is not rate limiting steps for us, I mean to give you even more clarity by October the rolling submission should start and by December it should be completed.

Graham Parry - Bank of America Merrill Lynch

Okay. Thank you.

Samir Shah

Okay. Next question?

Operator

We will now take our next question from Richard Vosser of JP Morgan. Please go ahead.

Richard Vosser - JP Morgan

Hi, it's Richard Vosser from JP Morgan. Thanks, three questions please. Firstly on Alcon, could you give us some more details on the measures you can put in place to reaccelerate IOL growth in particular and also the surgical growth in more general and when you would expect those measures to have an impact?

Secondly on some Pharma questions, I noticed of course that you are removing Galvus from the German market, just wondering how much stock is in that market that could perpetuate sales there into the second half and do you think you can grow the brand in the second half with the negative impact from that? And then thirdly just on Lucentis, how much more room in terms of penetration do you have for in the diabetic macular edema market and just to confirm that that is basically all the growth from the product at the moment? Thanks very much.

Joe Jimenez

Jeff?

Jeff George

Yes. So Richard, first on IOLs and surgical more broadly, I think the IOL performance over the last few quarters hasn’t been as good as we would like and we’d put in place number of measures since I’ve taken over in the last couple of months. I think on a number of launches I think will work in our favor, so only walk through that a little bit. The first is really our cataract refractive suite which is really best in class in the industry and so our Centurion launch which is our new phacoemulsification platform is going really well and exceeding our expectations and we’re seeing a strong pull-through effect on IOLs in particular as well as disposables.

Secondly, we continue to see robust sales of LenSx which is our femtosecond laser system for cataract surgery which also has a pull-through effect from the equipment financing related to that. And then we just launched at the very end of June our Verion platform which is our pre-operative image based surgical planning suite in the U.S. and Europe. And as a result what we’re seeing is where as we had lost a bit of share in Europe and Japan and need to turn that around, we’ve seen Q2 an improvement in our IOL share across all three classes: Monofocals; D[Tour Express; Dignitism] as well as our multifocal lenses. So I think that’s really the key driver for us. I think there is some work that we can do to improve our marketing and our sales execution in general as well and the team and I are hard at work at that. But I believe we've got and a really important strategic weapon in our cataract refractive suite.

Joe Jimenez

Okay. David on Galvus.

David Epstein

In terms of Galvus. So as of July 1, we stop distributing Galvus in Germany. Actually an interesting story, they offer basically a price approval into generic therapies and they run willing to budge. Interestingly enough this means that these patients will ultimately be switched even higher priced EPP (inaudible) which means it is going to costs the German government money.

Having said all that and to try to healthy with your forecast and without being too specific. We think is about three months of inventory in Germany that will be run out and then you can use that to try to estimate what the Galvus out would look like for the rest of the year. And just to put things in overall perspective for the brand we believe this brand will continue to be a growth driver for the company across the globe.

In terms of 1 AMV, 1 AMV still a growth market for the company and it will be for a number of years. You have offsetting price effects, volume effects and eventually we think we will see reasonable growth in that market, but you're right as to new indications that are the primary driver of the expansion.

Joe Jimenez

Okay. Next question please.

Operator

We will now take our next question from [Joe Wagan] of Credit Suisse. Please go ahead.

Unidentified Analyst

Thank you. This time last year, we had a number of surprises in terms of drugs which had core positioning in the [formulary season] we are just about to enter the formulary season in the U.S. I wonder if there is any observations that you could make in terms of where we might see surprises for you. Last time some very big establish respiratory drugs were moved around in the formulary, you have a nascent COPD portfolio, could we see you as with enough of the position in the market to be a primary position with one of these new formularies?

Joe Jimenez

Okay. So I mean it is always hard to predict exactly what’s going to happen with the formularies. It turns out really for us that probably the products we were most exposed to formularies in the U.S. are really Diovan and (inaudible). And with Diovan going generic I don’t expect any kind of material surprises for us it’s just had to see it.

And in terms of COPD while we are doing very good with the products ex-U.S. where we have launched we really won’t even be submitting for approval into the very end of this year. So I think that is a factor for the future.

Unidentified Analyst

And could you also give us a little bit more color on the launch in Europe in terms of some formulary positioning which, which countries you are doing well in and also talk about the generic adds there how that launch is progressing?

David Epstein

So for Ultibro it’s a limited number of countries so far. I showed you Germany which was among the first launches in the deck. In the other countries where we have just recently gotten pricing for example in Spain and those launches are just starting. We have found in general that the price discussion has gone well even slightly better than we expected, the reimbursements are coming pretty quickly. And of course we have also launched in Japan which is a smaller COPD market. I don’t if you have anything to say about any…

Joe Jimenez

And Richard you want to mentioned anything else on air flu cell besides the fact that we are now in 10 countries and launching.

Richard Francis

No really Joe. I mean I think we are obviously pleased that we are available and we have marketing authorization in number of countries. We're pleased about the re-entry into Germany in the preliminary injunction with GSK. And the feedback we're getting from patients and physicians remains very positive. So, we're still very excited.

Unidentified Analyst

Thank you.

Joe Jimenez

Alright. Next question please?

Operator

We will now take our next question from Alexandra Hauber of UBS. Please go ahead.

Alexandra Hauber - UBS

Thank you very much. I have a couple of questions on Alcon please. Firstly coming back to the IOL business, just going through the qualitative [blooding and] (inaudible) there really seems three times which has been driving that minus 3% growth in the second quarter. Firstly you mentioned growth….

Joe Jimenez

Alexandra, it's hard to hear you. Could you just maybe go away from your microphone a little bit, I didn't catch the IOL question, could you just repeat it? It's hard to hear you.

Alexandra Hauber - UBS

Okay. I'll say again, is that better? Can you hear me like that? Okay.

Joe Jimenez

Yes, now we can hear you.

Alexandra Hauber - UBS

Good. So, it seems to really be three dynamics in the intraocular lenses market which contributing to the minus 3% which we saw in the second quarter. Firstly that it seems to be a soft market in the U.S. So, I was wondering whether you can give us some year-to-date procedure growth.

And then you mentioned the competitive pressure in the [choice] segment. And then in the commodity lines the business seems to even worse, because in the advanced you are only down 2%, but overall minus 3%. So, we look after the share, I mean (inaudible) management you seem to send the signal, but you haven't achieved outside much and you have still over 80% market share which I then saw the statistics (inaudible) but now I wonder what 3% actually means you still have a lot to lose. So can you just quickly just talk through these three dynamics a bit market growth and then product closure and the commodities and really the market share and what is turning that round apart? I do understand the pull through from the cataract suite.

And secondly on the Japan effect that’s where we have mostly affected year Consumer division, just looking at the figures, can you roughly give us an idea how large Japan is on your contact lens business that you can have such a massive effect in your consumer business? And the third question is can you give us any idea about timelines for the smart lens project?

Joe Jimenez

Okay. Jeff, I think those are all yours.

Jeff George

Yes. So, Alexandra, first on the IOL dynamics, I think you’ve summarized most of it pretty well. In terms of cataract market growth, it has been slower than expected year-to-date, so about 1% to 2%. It sounds funny and when I came in I thought really can that be a driver, but weather in the Northeast did have an impact. I think we’ll see a rebound in cataract market procedure growth as people go, a lot of these people are elderly patients and as they get back to doing their cataract procedures which are rescheduled.

Secondly, we have lost share in Europe and Japan. You alluded to the mid tier or what you call the commodity segment in Europe and I think there is a big opportunity for us to improve our sales force execution and our marketing in Europe, and I am pleased with Riad Sherif’s initial start. He started a few weeks before me as Head of Europe, but there are some significant management and leadership changes that we will need to make to improve performance there.

Third factor on Toric and AT-IOL, actually I am seeing an improvement in our Toric performance, so we’ve had a couple of quarters where despite the competitive entry of Toric lenses from DNL and AMO in the U.S., we’ve now seen a couple of quarters where the share is stabilized in the market around 80%, a little above 80% which is in line with expectations and we actually saw an improvement in the U.S. in Q2 in Toric as well as in multifocal and monofocal due to the drivers that I talked about in the cataract refracted suite particularly Centurion and LenSx. On your second question with respect to Japan, this did cost us about -- it was about a 20 -- $25 million effect in terms of the shift between -- from Q2 into Q1 because of the pull forward into largely March associated with the April tax legislation change in Japan. Our business is not that big in vision care in Japan, so this was really a one point shift from that came at the expense of Q2 and benefited Q1.

I think the bigger effect that I would say in vision care is really the content lens care performance growth. There we have the number one position globally; it's about a $700 million business and that business declined. I'm not happy with the performance and we've got work to do. Clearly some of the flow is moving against us in terms of the shift and modalities to dailies in terms of content lens care, but of course that benefits us significantly in Dailies Total 1 and other daily disposables.

And then finally in terms of timing on the Google smart lens project. Alexandra, we're not giving much guidance on timing. What I can say is we're not talking a decade out, I think this will be a few years though as there is work that we need to do around the proof-of-concepts and the prototyping, both in terms of these more near-end glucose-sensing smart lens that you alluded to for diabetic as well as the accommodative technology which is a little bit further out but really represents an opportunity to go after the holy grail in the space for really truly autofocus technology, we're really excited about it. And if anybody can do it, I'm putting a good data, Joe and I are putting a good data on a Google capabilities combined with ours.

Alexandra Hauber - UBS

Thank you. Can I just, one follow-up question on the intraocular lenses. So volume growth in the U.S. is still 1:2 and you were fairly stable in the market share, the minus 3% in the second quarter and minus 1% in the third half, is that all -- is the price or share losses in Europe instead of the medium tear business and is that the key driver for the decline?

Jeff George

Yes, a lot of it is really Europe and Japan. We don’t give obviously regional breakouts at an IOL detailed share level but you are on the money in terms of your intuition?

Alexandra Hauber - UBS

Okay, thank you.

Joe Jimenez

Next question?

Operator

We will now take our next question from Andrew Baum of Citi. Please go ahead.

Andrew Baum - Citibank

Hi. Three questions please, number one to David; I mean we have touched before on where Lucentis best belongs inside Novartis. What is the tipping point in order for moving Lucentis across to the outcome business; obviously it would be a blow to general managers of the European countries given its contribution. But it does seem increasingly clear it would fit best within the world’s largest ophthalmology unit. Second question for Vasant, your predecessor was a fairly hard core research scientist. Given the competitive number of publications, your background is very much more managerial and less translational science base; you didn’t come from [neither]. Should we interpret this as an attempt to great tighter hurdles, greater focus in transitioning products from research into development? And then finally David perhaps if you could clarify where the cell therapy and the development organization, there is going to report into the center whether it goes directly into yourself? Many thanks.

Joe Jimenez

Okay. Actually Andrew I will take the Lucentis question since it crosses both divisions, obviously when you think about the successes we’ve had on Lucentis in the Pharma division, we have quite an infrastructure built up there around medical and commercial and somewhat linked with the overall specialty medicine business across Europe and the rest of the world. So, as we look at this the momentum that they have is resulting in wanting to maintain and continue to grow that momentum. There are ways that these two divisions are working together very carefully. So, there are joint committees on where they collaborate and specifically there are agreements that they have internally that really optimize for the entire company, the growth trajectory of Lucentis. David?

David Epstein

Yes, I would just even add that the fact though the development teams and commercial teams are very closely liked now. So whatever report probably doesn't make much of a big difference at the end of the day. Andrew, you asked the question about Vas, he’s actually not here yet; he starts on August the 1st. But to put it in perspective for you, Vas has quite a broad range of skills, truly that Tim's core strength was truly in early development and scientific insights, he was particularly good at that.

We have in NIBR, Evan Beckman who is a clinician who does our translational notes and who has much of the same skill set I believe that Tim had. So Evan and Vas will be working extremely closely together. So, between the two of them, we get I think the best of both worlds.

And in terms of cell therapy, I announced internally a few weeks ago the creation of the cell and gene therapy unit. Because cell that’s developing such a product, it’s really more than a product, it's process, it's production, it's service to the customer and we needed to bring together all the people that touched this technology. So, I formed the new group under name Usman Azam. He will report directly to me, he will have the development resources in his unit, but those people will obviously be connected to the other units in the company.

Andrew Baum - Citibank

Got it. Thank you.

Joe Jimenez

Next question please?

Operator

We will now take our next question from Seamus Fernandez of Leerink. Please go ahead.

Seamus Fernandez - Leerink

Thanks very much for the questions. So, just a couple of quick questions. So first off, for Joe, when should we expect an update on your plans for the flu vaccines business and perhaps the timing of the sale of that business? Second, with valuations very robust on the consumer side, can you just help us better understand what the Vision Care business really does add to the Alcon business overall. And would you ever consider a potential sale of the Vision Care business particularly given the commentary around the shift to Dailies?

And then lastly, as we think about LCZ, David it sounds like you’re establishing sort of a threshold of about 16% risk reduction in cardiovascular death as a possible outcome. And if that were the outcome, can you just help us understand what these number needed to treat would be in that scenario. So really what I am saying there is what’s the absolute kind of expected event rate in terms of the percentage of patients who might have a cardiovascular death over either an annual period or two year period? We’re estimating that that number might be around 5% over a year and perhaps as much as 10% over two. So I just want to get a better sense of what the absolute benefit might be with the 16% reduction? Thanks so much.

Joe Jimenez

Okay. Starting with your first question around when to expect an update on the flu sale, I can give you an update now and that is that the process is underway. It is going along the normal course. And as we’ve said we’ll be able to give an update as soon as we come to some kind of an agreement. So I think that probably as far as I would go other than just saying that it's been a process that started virtually after we made the announcement, we took a couple of weeks to get organized and then moved into it at that point.

In terms of your question about the Vision Care business, I'm assuming you're talking about both contact lenses and lens care. It was not exactly clear if you were just meaning lens care or contact lenses. But as you know, if you just look at the contact lens business, it's a tremendous business, it is one where there is a quite low penetration globally, huge upside opportunity and right now our hold job is to figure out how to increase penetration around the world on contact lenses.

Now you make a good point about lens care in terms of that actual lens solution, less strategic obviously for us. But right now there is great synergy between the two and from a selling and from a marketing standpoint. Jeff you want to add anything about that.

Jeff George

I would agree what you said Joe. I think Vision Care holistically as you alluded to provides a lot of growth potential through the shift to the dailies mortality and I'm pretty bullish on DT1 and some of the line extensions we're doing even in the weekly, monthly is our AIR OPTIX colors. I do think there synergy with contact lens care and frankly Vision Care does provide local country level scale when you look out what we're able to do that are competitors, our pure replay competitors in either Vision Care surgical or pharma or not because we have it all under one roof at a local level. So I'm optimistic on this, I also think there is more that we can do with the contact lens care business in emerging markets in particular.

Joe Jimenez

And David on LCZ?

David Epstein

LCZ question is very well formulated, we decided we're going to hold off any more numbers or different scenarios until we get to the [ESC] meeting. Our current plan is to have an investor call at that meeting so some of these questions should be answered at that meeting.

Seamus Fernandez - Leerink

Alright, thanks so much.

Joe Jimenez

Next question please.

Operator

We will now take our next question from (inaudible) of [Josea Brother Bank]. Please go ahead.

Unidentified Analyst

Yes, good morning, thank you for taking my questions. You have announced on Monday a deal with the banner institute for two investigational treatment for Alzheimer’s disease. And now we are with very low success rate and the reason why you didn’t want to move into this year so what have changed your view on that market to really push this project into investigation?

Then coming back to the core operating margin guidance that you gave growth mid to high digits, as you said there will be two moving factors, the Diovan obviously a generic competition but also productivity. So what should we expect is productivity saving the around the same as we have seen in the first half of the year or should we expect how your productivity savings? And then last question of Alcon maybe you can just give us a feel of what has been the centralized contribution in terms of sales to the surgical segment? Thank you.

Joe Jimenez

David?

David Epstein

Yes. So regarding Alzheimer’s, after looking at all the trials that have been done those that have failed, those that have subsets of patients that may have responded, we decided the only way we would go forward is the way to select for population that would give us a high quality answer in a reasonable period of time and also at a reasonable cost. Banner provides just that because they have the population of patients that have the double Apo E mutation which is people that are most likely to develop Alzheimer’s and progress. And that we believe that in collaboration with them we have a very good way of doing this trial. And we kept two different approaches in the same trial which is a cost effective way to get some answers. So we decided to go ahead.

Joe Jimenez

And Harry, on core operating income?

Harry Kirsch

Yes. So as we said, we are reconfirming our guidance for the full year at the group level, which was sales low to mid single-digits in constant currency, core operating income ahead of that we find now to mid to high single-digit in constant currency and that's at group level.

Now we have good progress especially in Pharma; David mentioned some lumpiness behind Diovan mono coming in. On the other hand, Sandoz has launched an authorized generic and overall for the group I'm confident that we will deliver that guidance.

And our productivity program has been already very good. Now we have some further effects from redeployment exercise for example in Pharma which will have a big effect, but not significantly. So, I think overall our productivity programs, our growth products getting bigger especially in Pharma, the authorized generic in Sandoz will certainly support us to deliver the full year guidance.

Joe Jimenez

And Jeff, on Alcon?

Jeff George

Yes. I'm sorry, I couldn't quite hear you, I heard your question was something to do with surgical contribution, but I didn't catch your question. Could you repeat it?

Unidentified Analyst

Yes. Sure. It's just to have a bit more color on the femto laser sales in this surgical segment. Could you give us more color on the uptick?

Jeff George

Yes, so you said femto as in femtosecond lasers, correct?

Unidentified Analyst

Sure.

Jeff George

So, LenSx is a really great product for us and I’ve been out now with about a 100 KOLs across a dozen markets including a lot of our top cataract surgeons in the U.S. and Europe who really are having good experiences with LenSx. We've seen particularly good performance of (inaudible) and the related PIs where the procedural revenue that comes with that as well as due to the equipment financing that we do also pulls through in particular AT-IOLs. So while I think the AT-IOL performance hasn’t been as good as we would have liked the last year or two, we’re starting to see toric growth move more as a result of our femtosecond platform and the need thing about the Verion launch that we’ve just done is its pre-operative image based surgical planning which really not only guides the surgeon on cataract toric placement but also links directly with the femtosecond laser which of course links directly with our Centurion platform. So it’s a pretty unique cataract refractive platform that I believe will be a growth driver for us in the back half of this year as well as ‘15.

Joe Jimenez

Yes. And I think the best thing about it is that these equipment pieces work synergistically together so you actually see femtosecond increase as we sell more Verion and as we sale more Centurion.

Next question please?

Operator

We will now take our next question from Tim Anderson of Sanford Bernstein. Please go ahead.

Tim Anderson -Sanford Bernstein

Thank you. A few questions on Sandoz, there seemed to be continual margin erosion in that division. In your long range planning assumptions that go out perhaps five years or longer, is Sandoz something that you think will be a significant driver of overall improved margin expansion in our model, at least we have that occurring driven by about a similar, but I am wondering if that’s realistic. So the question here is really at some point over the next few years, can we expect to see Sandoz margins undergoing significant margin expansion. And then on secukinumab, the data on psoriasis looks best in class essentially relative to existing therapies. My question is your confidence in seeing something similarly impressive in the RA indication based on what you know about disease biology and what you may have seen in earlier stage studies and then on panobinostat, is there an opportunity to try to move that into first line multiple myeloma?

Joe Jimenez

Okay. Tim, I'll start on the margin and then throw it over to Richard. When you think about the long-term plan on Sandoz, yes, this year there has been bumps around, volatility around the margin and that's not going to end. I mean I think this by nature is a quarter-by-quarter kind of a business. Last year, as you know, we delivered about 17% core operating income margin. But if you look out at the increase and the speed with which there will be a shift towards differentiated generics, I'm still confident that we will see steady progression of margin improvement. And Richard, why don’t you -- is there anything that you want to add around also maybe the cost saving side of it?

Richard Francis

Yes, Joe. Thanks for the question, Tim. I think obviously strategically, we've planned for this and build on what Joe said, through moving more into the differentiated portion of the market is something which we started and we progressed very well, the same could be study with biosimilars. At the same time, we're driving very hard and aggressive productivity gains and we constantly do that. So if you put all those things together, we are confident that we can continue to look at improving margins over the…

Joe Jimenez

David?

David Epstein

So, you are right. Secukinumab has really, really impressive efficacy. We think one of the keys is to get to data in the psoriatic arthritis. I think you know about 30% of psoriatic patients have that as well and being able to treat both will give the product competitive advantage. And I’m also relatively bullish that we'll see good data in ankylosing spondylitis. In terms of RA, the hurdles are a lot higher for a variety of different reasons including much heavier competitive set. So that one if I had to give you a guess I would say the odd the success in RA are quite a bit lower than in psoriasis, psoriatic arthritis, but we won’t know until we see the next data set.

Joe Jimenez

Next question please?

Operator

We will now take our next question from (inaudible) of Exxon. Please go ahead.

Unidentified Analyst

Good afternoon gentlemen, thank you for taking my questions. I have three quick product related questions for David, first on respiratory. Could we have a net date on the situation in the U.S. when will we have the publication of the new data? And more importantly as now you see Glaxo launching its products there, could you tell us what could be the strategy for this big market in respiratory? Second question on multiple sclerosis in Gilenya, could you give us some color on why the product so successful in Europe despite the launch of Tecfidera and is it sustainable? And the last one on AIN is still a product which is under estimated by the market in our view and if yes, could you explain what could be the size of the contribution of the product going forward? Thank you.

David Epstein

Okay. So starting with respiratory, so nothing new, we plan on filing for [Sibri] and Ultibro at the very end of 2014 in the U.S. and my best guess would be a standard review process. In terms of the strategy, we haven’t finalized the strategy. It’s going to be looking at two things. One is what is the efficacy data, what’s likely to be a twice a day dosing regimen. So does it better than the other agents similar or not. And then second in the order entry question, as you know there is multiple companies that are trying to get approvals. And once we know all that we'll make a decision on how the product is launched and it can be all the way from we do it all ourselves to someone else does it and everything in between and that's something we can sort out over the next probably 12 months or so.

In terms of Gilenya in Europe, I think the successful product is sustainable despite Tecfidera. Why is our product doing better there? Well first of all we got a head start in launching it over Biogen which helps a lot, so physicians have had the time to become accustom to the use of Gilenya. Second as we had explained in the past, I think Europe is much more center driven and hospital driven than it is in the U.S. So the monitoring that needs to occur before the initial dose is less of a burden for many, many European physicians. And we've had the opportunity to position in Europe as the best efficacy for switch.

So, as soon as the patient realize has an episode for example on an interferon is now permanently (inaudible) that this is a go through product. Don't get me wrong Tecfidera will also do well in Europe, there are large number of warehouse patients that are going on the products and I'm sure it will be a good product for Biogen but on a relative basis we will do much better in Europe than we did in the U.S.

And then your next question was about AIL and I think you asked me about the, you are trying to get a sense of how big the product can be is that really your question?

Unidentified Analyst

Yes. And maybe it’s still under estimation by the market because I think you said that's couple of months ago.

Joe Jimenez

I actually don't have the current consensus in front of me at the time the number’s in the relatively modest. And you see products like Stelara that are already selling well over $1 billion. The market for these biologics is growing very, very rapidly over 20% a year. And we have a very good drug. So at the time, we would underestimate it. The product we believe will be a blockbuster product.

Unidentified Analyst

Thank you very much.

Joe Jimenez

Next question please.

Operator

(Operator Instructions). We will now take our next question for Michael Leuchten of Barclays. Please go ahead.

Michael Leuchten - Barclays

Thank you. Two questions in pharmaceuticals and one is going back to Sandoz. For pharmaceuticals the margin was to a large extent driven by the R&D decline in constant currencies. I was wondering if you could elaborate on how much of that is just a phasing of Phase II trials that will obviously come back to some extent with large trial starting and whether or not there is a step down in the underlying expenses in R&D?

The second question briefly on Secukinumab, is there any chance you will have the head-to-head trial results versus Stelara already for the advisory committee or will that not feature? And then on the Sandoz margin I just wondered whether you’d be able to elaborate a little bit on the investment that is going into the emerging markets in that division? Thank you.

Harry Kirsch

Okay. So, I’ll start with margin. Yes, R&D as a percentage of sales came down. On the other hand you will get the comparable period of last year we’ve had an acceleration of spend because we had multiple opportunities and we’ve spoken about some of those. The big picture is unchanged. Our peak in R&D as a percent of sales was most likely last year and we expect it to trail down overtime but it will be lumpy quarter-to-quarter.

In terms of the Secukinumab head-to-head, I would not expect it to feature at the outcome. I don’t think it’s going to be actually relevant to the decision in any regard.

Joe Jimenez

And Richard, Sandoz margin?

Richard Francis

I think that, thanks a lot. I mean the question is referring to the M&A spend in emerging markets. Michael, of course we don't give such a specific data. Is that what I can say is emerging market is a strong foothold for us, 20% of our revenue, we're growing strongly there and that’s hence the reason why we are investing in that part of the geography.

Michael Leuchten - Barclays

Thank you.

Joe Jimenez

Next question please.

Operator

Next question is from Eric Le Berrigaud of Bryan Garnier. Please go ahead.

Eric Le Berrigaud - Bryan Garnier

Yes, good afternoon. Two drug related questions one in R&D. For drugs very quickly on XOLAIR, is there any first feedback or qualitative view we can have in first launches for XOLAIR (inaudible) in ex-U.S. markets? Second could you remind us how much Diovan Japan represents and what kind of declining rate you're expecting for the drug in Japan? And in R&D in terms of triple combo in respiratory I think ICS to [Alabama] is there any project currently run at Novartis and what stage those that is if any? Thank you.

David Epstein

Okay. So starting with XOLAIR. We've gotten both in the U.S. and then in the other markets where we've launched a very good reception to the urticaria indication, physicians are comfortable using it, you can see from the revenue growth of the product, it is making a different. We're still in very early days in terms of penetration of the market.

In terms of Diovan in Japan just looking over here to some numbers to give you an idea. So I give you a rough idea of sales for Q2 in Japan there were about a $140 million to give you an idea of the product and there will be the multiple generic launches. We expect from what we understand the Japanese market is more ready to accept generic competition in the past, so you would the fairly fast emergence of the product in Japan. Can you repeat the respiratory question?

Eric Le Berrigaud - Bryan Garnier

On the triple combination, is there any plan for triple combo LABA/LAMA ICS?

David Epstein

Yes, so we are working on the formulation work for the product. Once we have a good formulation, then we would make a decision on taking it into the clinic.

Eric Le Berrigaud - Bryan Garnier

Okay, thank you.

Joe Jimenez

Okay. Next question please?

Operator

Our next question is from Tim Race of Deutsche Bank. Please go ahead.

Tim Race - Deutsche Bank

Yes, just one question left on Gilenya, just looking at the ongoing data in primary progressive and multiple sclerosis, could you just help us share thinking about the market opportunity here? I appreciate that [perhaps] primary-progressive MS is around about 10% of the patients but how should we think about that in terms of the demographics of the patient population [perhaps] progression of the disease itself in these group of patients and whether there is any sort of particular sub groups we should be looking at? Anyway I’ll just leave it there and if you could just help us with color there that would be helpful.

David Epstein

Let me try. It represents as you point out high unmet need, it is roughly 10% of the population as none of the disease modifying therapies have shown a positive result in this pretty hard to treat patient population. I think the real opportunity, the halo impact, right, if it works here it will further solidify the positioning of Gilenya as very high efficacy product and that’s really what we are hoping for.

Joe Jimenez

Okay, next question please?

Operator

Our next question is from Keyur Parekh of Goldman Sachs. Please go ahead.

Keyur Parekh - Goldman Sachs

Good afternoon. I have two, one for Joe and one for David. Joe, historically you have mentioned that unlike some of your peers, Novartis is pretty happy with its established products portfolio and not looking to monetize on it. But given some of the recent deals and valuations we’ve seen around those assets, has your thinking around that changed at all?

Secondly for David, as you cannot think about bringing in the Glaxo portfolio, can you help us think about some of your own kind of own quality assessors as we’ve got the MEK inhibitor and how do you see those assets surviving within the new world? Thank you.

Joe Jimenez

Okay. The first question, I think when you look at our established medicines business across all of the divisions and in those products that have lost patent protection, first of all they are quite important in the fast growing markets. And if you look at our emerging markets business, it now represents about 26% of our company's total and it's growing at about 8%.

So, while in the developed world there are potentially faster declines and you wouldn't see the same strategic benefit as obviously having it in emerging markets, where not only can you grow it, but also add scale. So obviously we're never saying never, but at this point across the different divisions, we believe that they provide a level of critical mass and scale that is important to the business.

David on GSK?

David Epstein

Yes. So I think at this point it wouldn't be a wise thing to speculate about ongoing regulatory reviews and what the outcome might be.

Keyur Parekh - Goldman Sachs

Joe, just a follow up. Sorry, if I could just follow up on Joe's comments.

Joe Jimenez

Sure.

Keyur Parekh - Goldman Sachs

Does that mean you might be more open to potential thinking or structures around those products in the western markets and in the emerging markets or the faster growing markets as you call them?

Joe Jimenez

Not at this point. I think that when you look at even the role of those products in the developed markets; some of our peers have significant double-digit declines and they significantly benefit by existing those, by accelerating their growth rate. We’re not at that point even in the developed market. So that’s why I would say not at this time. But we would never say never. So I would just as strategy is essentially a roadmap that you use to look at the direction that you want head your business but there is also opportunities that arise that may change some of the action that you take. So I would just say look nothing has really changed for us. We believe that the mature products provide critical mass and scale in emerging markets and scale in developed markets, and just leave it at that.

Keyur Parekh - Goldman Sachs

Thank you.

Joe Jimenez

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

Operator

Okay. Our next question is from Steve Scala of Cowen. Please go ahead.

Steve Scala - Cowen

Thank you. I have a few questions for David. First David, in the past you’ve said the oncology business would not shrink if Gleevec generics came in 2015. So two things have changed since then. Gleevec generics are coming in ‘16 but also GSK gets layered in some time in ’15. I assume growth will be even easier to achieve, but please clarify your expectations.

Second, given the arrival of the Diovan plain, are you still comfortable with your expectations of amlodipine being a $2 billion molecule in 2020? Thirdly on the Q1 call you noted that some Gilenya was given away free as re-verification process was underway. Was there any impact to that in the second quarter? And then last question is why did you feel the need to comment on the LCZ696 in the first place? I assume you felt the need to reign in enthusiasm but please elaborate. Thank you.

David Epstein

Yes. So, yes, four questions, if I got. The first is about the overall growth profile of the oncology business. And when we had made our projections about growing every year through the Gleevec patent cliff, the expectation was that the Gleevec patent would go mid-‘15, but as you know that's now February ‘16. So with that means is ‘15 will be better than we anticipated and ‘16 will be quite a bit worrisome as we expected. So ‘16 will be a down year for the oncology business, without Glaxo. At this point in time I’ve decided to stay away for making any forecast, detailed forecast about what's the Glaxo business does to our business until we get further down the road. So I'm not going to go there as of now.

Next, I think you said that I or somebody in the company had promised that the [starting] would be over $2 billion in 2020 or some such number. I certainly didn't make that forecast. I do recall, usually saying that by 2014 it would be over $2 billion and of course that is being delivered. It should continue to be a good product for us but obviously a declining asset.

Joe Jimenez

Next question was for Gilenya re-verification. Do you have any…

David Epstein

Yes. You asked us to re-comment on, you’ll recall we had week Gilenya sales in the first quarter in particular during the months of January and a little bit into February. And we had mentioned we had given away some free drug during that re-verification process or patients when go up. And I think that trend out to be the right decision because you see the brand is growing nicely because we didn’t lose those patients. And your last question is why did I choose to comment on LCZ. And it’s exactly what you said, I saw numbers all over the place and indicated to me that people might not have understood what the current data set was in terms of most of the previous trials being versus placebo, the fact that we had gone up against a good competitor it already had a 16% benefit and the fact that our patients are already really on full doses of data blockers as spironolactone derivatives. So I want to make sure when we got to that meeting and we had a very good result the people wouldn’t say that’s not good I wanted to try to frame it for everybody.

Joe Jimenez

Yes. So I think just to add some more color to that. It was not too temper expectations LCZ it was more to clarify the fact that we tested against standard of care as opposed to placebo and that there were a number of analyst reports that were read about that that were less clear than that. So I think David’s comments clarify that and show that if you we don’t know what the numbers look like, but if you did have a 15% to 16% reduction relative risk you would that would be a number that translates to a pretty darn big drug. So I think that was really the purpose.

Okay. Thank you very much for joining the call and we look forward to updating you at the third quarter. Thanks a lot.

Operator

Thank you. That will conclude today’s conference call. Thank you for your participation ladies and gentlemen, you may now disconnect.

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