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Executives

Joseph Jimenez - CEO

Jon Symonds - CFO

David Epstein - Head of Pharma

Jeff George - Head of Sandoz

George Gunn - Head of Consumer Health

Andrin Oswald - Head of Vaccines and Diagnostics

Trevor Mundel - Head of Exploratory Clinical Development

Susanne Schaffert - Global Head of IR

Analysts

Tim Race – Deutsche Bank

Graham Parry - Bank of America/Merrill Lynch

Andrew Baum - Morgan Stanley

Matthew Weston - Credit Suisse

Kevin Wilson - Citigroup

Tim Anderson - Sanford Bernstein

Carl Hancock - Hellvia

Fabian Wenner - UBS

Alexandra Hauber - JPMorgan

Florent Cespedes Exane - BNP Paribas

Alistair Campbell - Berenberg Bank

David Evans - UT Credit

Novartis AG (NVS) Q4 2010 Earnings Call January 27, 2011 8:00 AM ET

Operator

Good morning or good afternoon, depending where you are attending from. I am Stephanie, the conf-call operator for this conference. Welcome to the Novartis Q4 and Full-Year 2010 Results conference call and live webcast. Please note that for the duration of the presentation, all participants will be in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions).

At this time, I would like to turn the conference over to Mr. Joe Jimenez. Please go ahead, sir.

Joe Jimenez

And I would like to welcome you all to our 2010 results conference call. Joining me today on the Novartis Center Jon Symonds, our CFO; David Epstein, Head of Pharma; Jeff George, Head of Sandoz, George Gunn, Head of Consumer Health and Andrin Oswald, Head of Vaccines and Diagnostics.

And before we get started, I’d like to ask Susanne Schaffert to read the Safe Harbor statement.

Susanne Schaffert

The information presented in this conference call contains forward-looking statements that involve known and unknown risks, uncertainties and other facts, this 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 Susanne. Okay starting on slide number 4, you can see that 2010 was really an outstanding year for Novartis. Our sales were up 14% in constant currencies. And this was driven by above market growth in all of our divisions. We delivered great leverage with core operating income growing 22%, and this led to net income up 18%, and EPS growth to 16% for the year.

I think though that the most important achievements for the year are around innovation, we have multiple key approvals including Gilenia in the U.S. Last week we received the positive opinion from the CHMP on Gilenia in the EU and also approval in Switzerland and Australia.

In the EU also in the fourth quarter we filed our meningitis B vaccine Visceral [ph] which will build our meningitis portfolio into a blockbuster franchise. And then finally the board proposed a dividend of 2.2 Swiss francs for 2010.

So slide 5 you can see a summary of the financial results. We crossed $50 billion for the first time in our history and Jon’s going to go into more detail regarding both the full year and the financials for the fourth quarter.

But on slide 6 you can see that our divisions grew at above market rates and it was all divisions. This is what we feel the best about 2010. Looking just at Sandoz, up 15% and vaccines and diagnostics growing at 25% behind the strong flu sales but also the meningitis swatch.

Our above market performance on the next slide was driven, I believe by, the focus that we have on our three strategic priorities and that’s extending our lead in innovation accelerating growth and driving productivity.

So just starting with innovation on slide 8, we had a very strong year in innovation. You’ll hear from David around the Gilenia launch in a minute but Oncology also had a tremendous year with Tasigna first line approval and Afinitor approval to treat benign brain tumors associated with tubersclerosis. Sandoz also with a launch of generic Lovenox, further generated leadership in differentiated generics.

Vaccine and diagnostics submitted the important infant indication from Anvil in the US and our meningitis vaccine Bexsero in Europe. So with the 2010 numbers in on slide 9 you can see that once again we outpaced the industry with new molecules in both the US and Europe in terms of total approval since 2007.

Now our second priority is on slide 10 and that is accelerating growth. We have shown the slide before but it keeps increasing, our new products have contributed 21% of our sales which is up 16% and it went up from 16% last year. This is going to critical as we face the beginning of the Diovan patent expiration.

On slide 11 we were also able to leverage our synergies across our four growth platforms to deliver incremental sales last year. One example was that we built a cross divisional field force in Venezuela to capture synergies on our pediatric line. So that is across Pharma, Sandoz and OTC, we were able to build one field force going up against physicians selling all products. We also rolled key account management with some of our key customers around the world.

In 2010, on slide number 12 you can see that we also expanded significantly in emerging markets. So in December we announced a $500 million commitment in Russia to build a Greenfield manufacturing site in St. Petersburg and also to collaborate with some of the local regions in Russia around health awareness. We also built a strategic partnership in Brazil to improve public health. So now all children under the age of two in Brazil are vaccinated by our Meningitis C vaccine.

Also in the area of growth each of our businesses is focusing on driving their emerging markets growth and we grew 12% as a total company. This is in our top six markets; we delivered close to $5 billion in sales. So, this is not a small piece of business. We continue to drive and I expect that that growth rate in those emerging markets will increase in 2011.

Around productivity on slide 14, we were able to grow our core operating income margin 190 basis points. All parts of the businesses have extensive productivity programs that are driving this result. For example, we are creating manufacturing centers of excellence.

We drove significant procurement savings this year. We are now up to pushing about 40% of our addressable spend through e-sourcing and this drove a $1 billion of savings in 2010.

We also realigned our field force and Sandoz, Germany, as an organization and took a charge in the fourth quarter to improve the cost structure of these businesses going forward.

On slide 15, our above market performance reflects the focus that we have on these five platforms. David will talk Pharma and then I will come back and just give a brief summary about the other four. But before we do that, I would like Jon to review in detail the fourth quarter and the full-year financial performance, Jon.

Jon Symonds

Thank you, Joe and good morning or good afternoon, everyone. As usual, there is quite a lot to get through. I will spend some time on the full-year first before turning to the quarter.

I think the full-year gives a much clearer picture of what we are trying to achieve. Although there are some important elements in the fourth quarter that are important in their own right, but also relevant for 2011.

Slide 17 provides the overview for the year. It is characterized by strong double digit growth across all performance metrics. I am particularly pleased with the operating leverage between the top line and operating income. There are obviously a lot of moving parts within this perhaps more than you and I would wish for but these results give a clear statement to where our aspiration lies.

One figure that is free from any distortion is cash and I believe here that we’ve really outperformed with the 31% growth over 2009 to $12.3 billion including a very strong finish to the year.

Finally, the one-figure that is in single-digit is the dividend which increases by 5% to 2.2 Swiss Francs. We’ve increased the payout ratio slightly to around 55% but you can see here how the strength of the Swiss Franc really bites. This represents a dividend increase for US dollar shareholders of 20%.

The slide 18 shows how I would score-card the results from 2010 using the performance model Joe and I used in November. I think this shows the consistency of performance we’re seeking from all of our divisions, outgrow our respective markets, growth profits faster and leverage cash flow. It’s a simple and effective model that over time it must be highly correlated to the creation of shareholder value.

I have to say for Jeff’s benefit and for Sandoz, the Sandoz cash flow is actually pretty good even if we did have a red cross and it’s paying the price for a very strong delivery in 2009. But if you look at this cash flow books -- performance metrics, you are in a different league from all of these competitors nevertheless a score card is a score card.

As I mentioned at the beginning, there would be many moving parts in 2010. The slide 19 shows you the impact to the one-offs for the full year and in the quarter. I know these make life very difficult for you as by definition, they’re very difficult to model. I won’t go through them in any detail as I think the press release gives you all the details you need. I can’t promise 2011 will be any simpler, although outcome will be.

I’ll quickly go over the next two slides on 2010 top line performance. Firstly, on slide 20. You can see how we get to the top line growth of 14%, underpinned by 10% volume growth. Increasingly, over the next few years as we face generic competition and a challenging pricing environment, the underlying volume growth is going to be a key indicator where our business strength lies.

Eventually patent expiries will work through and pricing will stabilize and volume growth will become visible to the top line.

Slide 21 addresses the same point, but in a different way. Our volume is being driven by the recently launched products but having an increasing impact on our total business performance. Excluding outcome, they account for the majority of our sales growth.

Slide 22, shows a full year core margin improvement at a divisional level. 190 basis points is an excellent achievement given the size of the business, of which we all know, the story is much more complicated than is seen here.

Slide 23, gives a better picture of our progress on improving underlying margin. The margin improvement of a 190 basis points, 90 basis points came from an increase in H1N1 revenues over 2009. And from the impact of consolidating outcome, which has a higher core margin than the other divisions.

Don’t forget that for 2011, we lose all of the margin benefit of H1N1, 1.7 percentage points not the 50 basis points that you see here. Outcome will also contribute more but if you take the two together we will start 2011 at least 50 basis points behind which we aim to more than make up for.

So, turning to 2010, the underlying progression of a 100 basis points is the result of continuing productivity efforts and resource allocation, typified by the falling sales and marketing costs. This is driven by pharma where sales and marketing fell by 80 basis points to 28.5% of sales despite continuing to launch new products.

We estimate that all other productivity initiatives in 2010 were equivalent to approximately 400 basis points enabling us to absorb the impact of price decreases on growth margin continue to invest for the future growth and improve profitability.

So as far as the picture for the full year, slide 24 gives you the profile of quarter four, which shows quite a different shape although don’t miss the cash flow at the bottom of the page which was very strong in the quarter.

I’ll come to sales and core operating margin in a moment but before doing so, I want to explain the bottom half of the P&L especially for the core results where 2% growth in core operating income became zero at net income and a 6% decline in core EPS.

Let me go through the main pieces. The 2% decline to net income stems from low associated company income, Alcon no longer contributes here. In addition, there were higher interest costs from the Alcon acquisition as well as a finance adjustment relating to the Venezuelan devaluation. This was offset by a lower tax charge.

The fourth quarter tax charge was exceptionally low at 6%, benefiting equally from a revision to the underlying Novartis rate for the year to 16.3% and the consequence of incorporating Alcon, which carries a lower tax charge. And some of these effects flow through into the core tax charge.

On a more steady state, we would expect to report a tax charge to be in the range of 15% to 16% going forward.

The 6 percentage point between net decline, between net income and EPS is mostly attributable to the removal of the 23% minority interest in Alcon.

Slide 25 shows a top line movements in quarter four, demonstrating the impact of last year's H1N1 sales and the consolidation of Alcon. We strip away these two items. You see the high single digit volume growth is steady at 8%, although the impact of price has crept to up to 3 percentage points.

The Pharma price impact stands at 3 percentage points taking into account the impact of the price reforms in Europe and a Lucentis accounting adjustment.

Before looking at divisional operating performance, I want to make sure that you understand the movements at group levels first.

Slide 26 gives you the margin reconciliation to quarter 4, 2009. And at the bottom, you can see the two main distorting elements. The contribution of Alcon and the benefit of H1N1 sales in quarter 4, 2009. Excluding these two items, quarter 4 margin improved by 10 basis points. But for currency, the underlying improvement in margin would have been more.

As you know, in December particularly, there was a very strong movement especially in the Swiss Franc. In December alone, it strengthened against the dollar by 7% and the euro by 4%. The worst combination for us given the dollar moved very little against the euro. Given that over one third of our R&D is denominated in Swiss francs, more than half of the 110 basis point deterioration in R&D you see here is attributable to currency. The quarter, as a whole, we estimate currency reduced the margin by about 50 basis points.

There is also taking the underlying constant currency gross and margin to 60 basis points. There is also some seasonality in our spending hence where the quarter four margin was lower than quarter three.

There are three facts – things of fact to end here. Firstly, while there is no seasonality to R&D per se, every pharma company has a higher quarter four spend than the other quarters. In our case, quarter four spend represented about 28% of the total.

The second factor is that M&S tends to be high in the fourth quarter. This is particularly true for consumer health where nearly 30% of the spending is in quarter four directed towards a cough and cold season, which is a very important part of our OTC business.

Pharma marketing and sales spend was near – was at nearly 28% to the total this year, partly due to the investment in launch of Gilenia. So taking all these factors together, the constant currency increase in the underlying margin of 60 basis points in the quarter, I think is pretty good.

So with that as a background, the divisional margin on slide 27 should be easier to interpret. As you can see, from pharma and consumer health at the top, both had an operating income growth ahead of sales, but both reported a negative margin movement. In the case of both pharma and consumer health, currency reduced the margin by about 100 basis points, i.e. on a constant currency basis both increased their underlying core margin.

Sandoz had a great year; and in the fourth quarter revenue growth was very strong at 14%. However there were 3 factors affecting profits.

Firstly, mix as the press release says, higher low margin sales in the U.S and lower high margin sales in Germany.

Germany is a big contributor to Sandoz and we saw in the fourth quarter the impact of health reforms. While we outperform the market, it was still overall negative and the impact of this will work as—itself through the next few quarters.

Thirdly while our Bayer similar business has being doing superbly well, delivering sales for the year, of a $185 million we’re entering a period of investment as our development portfolio advances to later and more expensive stages of development. The same is true of our respiratory portfolio and this will hold back margin improvement in 2011 but for good reasons.

Finally Vaccines and Diagnostics I recognize it is very difficult to forecast given the volatility of the Flu business. We continue to make excellent progress with meningitis and our early portfolio and both of these will absorb incremental investments in 2011.

Finally cash flow, and I’ll let the next two slides do the talking. Lets say on slide 28 you can see the full year and quarter four numbers. Growth of 31% for the full year to $12.3 billion including Alcon of course.

Fourth quarter working capital management particularly was excellent from all divisions. This cash flow as you can see on slide 29 has enabled us to reduce our debt from $27.4 billion in August to $23 billion at the end of the year. You should be aware that the cash figure includes over $3 billion of Alcon cash that will not be available to us until we complete the merger.

Finally on slide 30, currency. I have mentioned this a few times already, so the picture ought to be clear, especially why the impact on profits was greater than the impact on sales in the fourth quarter. At the time of our third quarter results, I thought that if rates remained where they were then, the effect would be broadly neutral to operating profits. Over the sharpness of the movements right to the end of the year, turned the overall impact on operating profits negative.

As you can see at the bottom, if current rates persist throughout 2011 which of course they won’t, then currency would be slightly positive on sales and slightly negative on profits compared to 2010 and with that I will hand you over to David.

David Epstein

Yes thanks, Jon. Yes my point here today to share a 2010 pharma performance, we believe is among the best of the multinational companies. Net sales growth of 6% in constant currency. Perhaps even more important than the absolute level of growth is the fact that our product portfolio rejuvenation is ahead of plans with now 23% of our sales in Q4 from products that have launched since 2007.

We took out over a $1 billion in cost in pharma as we focused on driving productivity and cash flow and Trevor Mundel, the head of our Global Development function has done a really terrific job in advancing the new product portfolio, the very portfolio that will help us to grow to the upcoming patent expirations of Femara and Diovan. A return to the next page I will just focus you on three numbers 6% net sales growth, 10% core operating income and cash flow growth of 16% as we continue to lever the P&L and take cash out of the business which can then be reinvested.

If you look across our different franchises, you see strong growth across all franchises, in particular, double-digit growth in Oncology, Neuroscience, Ophthalmics and Integrated Hospital Care.

Of note, in the Respiratory franchise, we are starting to see the Ombrez sales coming through and this is the franchise to watch for the future as we will have multiple new launches and we believe this would be another strong growth driver for the Novartis business.

If you turn slide 35, you will see that our new product portfolio actually grew 41% for the year 2009 to 2010, and that’s what’s growth our confidence in the future and the quality of our sales.

But I wanted to now talk to you about few of our products and then our pipeline, starting with Gilenya, which we very recently launched in the U.S. As a reminder, Gilenya is a multiple sclerosis product, which shows a 52% reduction in relapse versus standard of care of the interferon. And this is a product that is available in once-a-day oral formulation. We have gotten very good feedback from patients, physicians and payors.

Turning now to page 35, you see the IMS data, which shows encouraging prescription trend. I would remind you a few things, in particular, the IMS is understating the actual number of patients on drug because we have a thoroughly liberal program to get patients on therapy, with basically free medicine while working their way through the reimbursement process and we are estimating now that there are over 2000 patients on drug.

We have done well with managed care payors, over 1000 physicians have prescribed this product in the U.S. The global sales of $15 million to $13 million which have come from the U.S. market and as you know we have just received the EU CHMP opinion, which should result in EU Commission approval in the coming months and a launch up in Europe this year.

Page 38, we want to share with you where the business is coming from and mind you this is a relatively small data set so there could be some fluctuation in the numbers in the coming months. But it appear that about half the patients have not been on therapy for the past 12 months.

So these are patients who are either newly diagnosed or patients that had discontinued previous therapy because they couldn’t tolerate for example, side-effects associated with interferon, up to 50% of patients who have been recently treated.

What you see is about half of the new business is coming from interferon, we’re strongly taking business also from Capaxon and then to a much lesser extent Tysabri, which is largely in line with what we would have anticipated.

So what we see here is our market is expanding and the market share just coming in the places that we brought.

Turning now to Tasigna. Tasigna is an important new medicine where we recently gained and launched in the U.S. for de-novo CML. During the course of the year, we also received approval in Europe and Japan, which I believe it’s one of the first time in our industry for a product to have receive approval in each of the three major markets all within the same year. We speak to our strategy to design a clinical program to achieve rapid access all around the world.

You can see from this chart since we have launched the de-novo CML setting, our market share for Tasigna has grown by the way, the overall franchise is now standing at $5 billion. It grew a roughly 10% and we seemed to be growing current factor than the other second generation product.

In the most weekly data, we have now passed Sprycel among the second generation products in terms of market share, so our plan is delivering in line or slightly ahead of expectations.

Now, I’d like to spend a moment on Ilaris, a product, which I feel is still somewhat misunderstood. This was a product that was originally launched for CAPS a relatively rare disease. We achieved about $20 million in business and sales potential is going to be in the range of $100 million, which is really exciting are the new indications. We have positive data in gouty arthritis. The file has gone in the European Union.

We would expect to file during the first quarter in the U.S. and we would hope for an expedited review. Just as importantly, based up on our understanding of the biology in gout, we have started a program to prevent secondary MI in patients who have high inflammatory burden. This is a market which is quite large measured in the millions of patients. That Phase III program will start mid-year and we believe this is a sizable opportunity that if the product will work to be worth billions of dollars.

Lucentis is another example of this approach, where we build indication up on indication based up on where the science takes us. First approval in age-related generation macular degeneration now have the European approval of a diabetic macular edema, which we are very excited about and we would anticipate a CHMP decision in the second quarter for retinal vein occlusion that’s earlier than originally planned. These new patient population should allow us to continue the strong growth of Lucentis.

Now taking a look at productivity, I mentioned earlier that we took about a $1 billion in cost out, resulted in a six points improvement in core return on sales, stripping out FX effects that actually would have been roughly a four-point improvement, and I’m optimistic that going forward, there is still much more productivity in our pharma business, which we can realize to offset the pricing pressures and to continue to invest in the launches of as well as dropping some of it to the bottom-line.

Free cash flow reached a historic high, now at 35% as a percent of sales. And I just want to close with one slide which I really think sums up our business and differentiates us from many of our competitors. We have very strong news flow based upon very well thought out, well designed clinical trial program, which is exactly in line with the strategy we spoke about, which growth innovation as well as productivity.

The only change on the slide is we now have the EU regulatory CHMP approval, or CHMP decision, so we are well on our way to delivering the first item on the chart. With that, I would like to turn it back to Joe.

Joe Jimenez

Thanks David. I’m just going to touch on the other businesses, starting with Alcon on slide 48. We remain on track to close this transaction in the first half of the year. So once we close the deal Alcon will become the second largest growth platform Novartis at about 17% of sales and will include CIBA Vision. We are planning two integrations, one is CIBA Vision and pharma and Ophtha and the other is sorry -- pharma ophtha into Alcon and the other is Alcon into Novartis.

So, since the announcement we have been able to form teams on both the Alcon side and on the Novartis side. Those teams have met, we’ve got a governance process in place and the integration planning is well underway. Our intention is to have the planning completed by the time that we close the transaction, so we will be able to execute on day one and get the new division up and running within three months of ….

20

The execute on day one and get the new division up and running within three months of post-close.

The third platform on the next slide, Sandoz achieved, as you saw, 15% sales growth. This is driven by significant volume expansion by the new product launches. So, I think the focus on differentiated and difficult to make generics is paying off and really generating significant growth for Sandoz. It's also important to note, I think, that biosimilars was up 63% versus a year-ago and further strengthened our number one global position.

Sandoz also had great performance. It’s shown on 51, in emerging markets. Double digit growth in Central and Eastern Europe, Asia-Pacific, Middle East, Turkey and Africa.

Our growth platform number 4, the Consumer Health unit grew 6% in 2010 and I am quite pleased that all of the business units, OTC, CIBA Vision and Animal Health delivered growth that was ahead of their respective markets.

OTC was supported by double-digit performance on some of the key brands as you can see on slide 53. Prevacid 24HR became one of the fastest growing brands in our OTC business and also in the category.

CIBA Vision also continued to deliver strong growth. The Air Optix brand was up 32% versus year-ago driven by new product launches. And the Multi-Focal Silicone Hydrogel Lens became the number one multi-focal lens within 12 months of launch.

Animal Health, we also strengthen our leadership position in specialty areas of companion animal and farm animal categories.

On slide 54, you can vaccines and diagnostics, continuing impressive growth of 23%, but even when you take out H1N1, the base business, grew 16% versus a year ago. This is due to a strong flu season and also the Menveo launch in 38 countries in 2010.

Slide 55. With the submission of the infant and toddler indications for Menveo, we became the only meningococcal vaccine with data that supports all age groups. We successfully launched Menveo in 2010 and we expect to build this meningitis franchise with the MenB vaccine.

And then finally on slide 56, because of the breadth of the portfolio, I wanted to point out the fact that we were able to protect or treat a billion, almost a billion, patients in 2010. So over 900 million patients around the world. Whether it was in innovative pharma – pharmaceutical or a vaccine or some kind of a self medication. This speaks to breadth and importance of all of the touch points that a business of this scale has with patients and with customers around the world.

So now let me close with our outlook. On slide 58, you can see that Novartis has delivered strong double digit top and bottom line growth over the past six years and this has resulted from our strategy of focusing on our high growth segments of healthcare as well as delivering on the innovation premium that we’ve been able to prove we can deliver. And based on this, the Board has proposed our 14th consecutive dividend increase and this will be voted upon at our annual general meeting in February 2011. Its on February 22.

So for 2011, on slide 60, we expect to continue this growth story. Everybody knows that we are facing some expected headwinds like the beginning of the Diovan patent expiration, but we have many positives in 2011 specifically the growth of recently launched products will continue to ramp up, that includes now Gilenia which will start to get some good traction. I believe that on a emerging markets growth will accelerate and we will also have the integration of Alcon.

So we’re going to stay focused on the same three strategic priorities that we have kept this year which is extending our innovation, accelerating growth, and driving productivity and for 2011 on slide 62 we expect cost and currency sales growth around the double-digit mark, that includes pharma sales in the low to mid single-digit range including offsetting the patent expirations as well as cost containment.

For Sandoz, we expect to grow mid single-digits and with our continued focus on productivity we aim to grow core operating income margin while absorbing price cuts, generic competition and the anticipated loss of the H1N1 endemic sales. So we’re bullish on 2011 and with that I’d like to close and open up the call for questions.

Question-and-Answer-Session

Operator

We will now begin the question and answer session. [Operator Instructions]

First question is from Mr. Tim Race, Deutsche Bank; please go ahead

Tim Race – Deutsche Bank

Hi there gentlemen, thank you ; I just want to ask on Gilenia. 2000 patients treated thus far. How many of those have actually rolled over from clinical trials and how much actually is the true number of new patients since the approval of the drug?

And then just secondly perhaps on QMF, I see that in the US you are not developing any further for sale of COPD, just how much of that is due to the LIBOR issues or is this reflecting greater confidence in the QVA combination. Perhaps you could just shed a little bit of light on that please?

Joe Jimenez

Yeah regarding Gilenia most of these are patients who were not involved in clinical trials. Of the 2000 patients, about 35% of these patients are in commercial drug, the rest are on free starter packs. Trevor, do you want to address the QVA QMF question?

Trevor Mundel

Yes indeed. So, just to remind that people that the QVA which is the combination of the anti-muscarinic and the beta-agonist is really the center point of our Q strategy, so that’s what we are really focused on and we are going to submit that at the end of next year, both in the US and in Europe.

So indeed you are right about the LIBOR issue in the US which means that for a drug like QMF, even if we develop that for COPD we would need a very large safety study which should really be prohibitive. Thanks.

Tim Race – Deutsche Bank

Yeah thanks.

Operator

Next question from Mr. Graham Parry, Bank of America/Merrill Lynch. Please go ahead sir.

Graham Parry - Bank of America/Merrill Lynch

Thanks for taking my questions. Just on guidance and margins for 2011, if you are targeting an increase in group margins. In other words you can see a boost from having a full year of Alcon, so I am just wondering if you could an indication of directionally where you see the other divisional cooperating margins trending flat up or down.

And second just wondering if you can just -- quantify the impact of US in e-healthcare reforms incrementally in 2011 versus 2010 on your sell and EBIT margin for the pharma and then thirdly on Sandoz, I was just wondering if you could give us your view on pricing and margin outlook. So you are not factoring generic if Tavist product is approved this year and clarify whether your guidance actually does it seem and it's ever approval.

And also whether it seems any approval of your generic abstract product in Europe this year. And then, final question for Jon on dividend. Just wondering if you could update as what power ratio you are now intending to maintain and whether this is calculated as of core or GAAP EPS when you are thinking about this now. Thanks

Joe Jimenez

Okay, let me start on margin and I would probably disappoint you a little bit by not going to the same divisional tool that you would like, but I wanted to just reemphasize one of the points that I made as I went through as you translate 2010 into 2011, you are quite right in saying that we get an incremental boost to our margin from Alcon. It's a bit over 1% because there was already 0.4% in the 2010 margin.

But we also lose the full effect of H1N1 which is 1.7% in aggregate. And so that means that actually to aim to improve underlying core or improve core margin, we’ve got a half a point or more to make up before we get there and that’s why we continue to believe that we are still on track in terms of churning the turning productivity into margin improvement and so that’s -- I think that’s why we are still confident that this business is capable of generating more. But you got to take those two big moving pieces into account before thinking about what's really happening at the macro level.

Graham Parry - Bank of America/Merrill Lynch

Pay-out ratio.

Joe Jimenez

The payout ratio, I think, we’ve always said that the ceiling for the payout ratio was 60% and you know, right now we are at a 55% payout ratio. We don’t really need to adjust the base metric for the dividend because we still have got a little bit of headroom in there. But right now we are 55% and I think that’s a pretty decent payout.

Jon Symonds

Probably the best way to speak about the reforms is to really just take it through pricing at a high level and then you can model from there.

In the Pharma division, the full year pricing impact was around that minus 2%, it was slightly higher in Q4. For next year, the full impact of US Healthcare Reform as well as the full impact of the European measures that we’re taking this year. So pricing will be slightly worse than in 2010 and we would say it’s probably in the minus 2% to minus 3% worldwide. I think that probably gives you enough to make an estimate. Jeff?

Jeff George

Graham, with respect to Enox , obviously I can’t really comment on when Teva could enter the market. I think what is significant before I come to your question on price and margins is that Sandoz was the first to market and then we’ve been the sole generic for over six months now.

Our market share estimates, the range is quite significant even based on IMS data, we believe we’re around or slightly over 40% market share and we’re continuing to work to increase our supply beyond that.

From a pricing and margin perspective for competitive reasons, wouldn’t really be appropriate for me to show guidance on that. I would say from a timing perspective, I will say that if we stay as the sole generic beyond the first half of the year that we could see our top line move upwards from mid single-digits to high single-digits, but of course, that’s speculative at this point.

With respect to generic Advair again, apologies but for competitive reasons there’s nothing more that I really want to say on that.

Graham Parry - Bank of America/Merrill Lynch

Just clarify whether you have assumed any launch in your guidance for the year.

Joseph Jimenez

So, Graham, as I said, I can’t really comment further on the respiratory space in terms of what’s in our pipeline or the assumptions on what we launch when.

Graham Parry - Bank of America/Merrill Lynch

Okay. Thanks.

Operator

Next question Mr. Andrew Baum, Morgan Stanley. Please go ahead, sir.

Andrew Baum - Morgan Stanley

I have three questions, please. First one is, one of your major competitors has decided to delink sales rep bonuses in the U.S. from target physician’s script trends. I wondered on your current practice and whether unless you are forced to you have any assumptions on following suite?

And secondly question for David, on QVA. Could you just outline for us the implications; if the FDA again, declines to recommend and then approve QAB for COPD? What are the implications in terms of QVA, does it mean you’d have to initiate a new set of clinical trials, how much of a delay will that mean in terms of potential U.S. registration?

And then the final question is, John, you alluded to Lucentis and described as a one-time in the press release. Could you give us a little bit more detail and help us understand the potential implications?

Joseph Jimenez

Andrew, as I said on the U.S. field force, the way that we compensate our field force today is obviously different than the way that one of our competitors moved, but we have a system where we not only compensate them based on the results that they get in market, but also the behaviors that they exhibited to deliver those results, and because of that we believe that we have a good compensation system that gets out some of the issues that our competitor wanted to get us.

So, already designed within our current compensation system for the sales force, so we don’t anticipate any changes to this whole pattern.

Andrew Baum - Morgan Stanley

You don’t feel the need to go to the extreme of actually delinking in absolute?

Joseph Jimenez

No, we don’t. We absolutely don’t. We also executed a call back. In every sales person’s incentive that if there was discovered that there was any non-compliance from a marketing or sales standpoint, we would go after any compensation that was earned based on that.

Andrew Baum - Morgan Stanley

Thank you.

Joseph Jimenez

David, QVA,

David Epstein

I think, lets have Trevor put it into perspective and then I’ll take the Lucentis question.

Trevor Mundel

Andrew, as you know we have filed at the moment in the U.S. for doses of 75 and 150 micrograms of the QAB and we have the advisory coming up in early March. I think we are very confident about that data package. We generated 2,000 additional patient data as requested by the FDA. There is the open issue of the doses for the global program versus the U.S. program and we have see what happens at the advisory.

We think there is a good chance that we have doses which are compatible but we have plan for the eventuality that they would be a mismatch in doses and we have the additional trials in our pocket.

David Epstein

Regarding Lucentis I think you question is why was Q4 growth a low trend. Basically what happened is we have a risk share agreement in one country where we needed to make an accounting adjustment and that artificially brought down the underlying growth rate.

If you subtract that out actually Lucentis grew at roughly 19% in the fourth quarter, which I think is reflective of what you would anticipate for this kind of run.

Andrew Baum - Morgan Stanley

Thank you.

Operator

Next question is from Mr. Matthew Weston from Credit Suisse. Please go ahead, sir.

Matthew Weston - Credit Suisse

Good afternoon and thank you for taking my question. I got a number of if I can. Firstly, Jon, regarding Pharma guidance, you said that you are going to change the consolidation and ophthalmic-pharma out and put it in Alcon. Can you clarify whether the low to mid single digits includes that adjustment or whether that’s on a -for-like basis?

And then secondly, I think, just a more general question, you are perceived to be really quite upbeat around margins when you presented to us in November. You now seem to be somewhat more cautious or certainly that’s the markets perception today. I just ask what's changed in that time. Is it at a thing or long-term, do you still see the margin potential of the company or albeit do you see it in 2011 as well.

And just a couple of quick financial questions; Jeff on Enoxaparin, you reported $292 million in the third quarter, I calculate, that means it’s a $170 million in 4Q. Obviously, there is going to be some pipeline selling. But what’s actually representative of a quarter of Enox's sales given your market share. Is it somewhere in between the two.

And then finally on the vaccines, taking your comments that pandemic contributed 1.7 percentage points in margins that basically suggested $859 million to $900 million of operating income for the V&D division. That basically suggests the underlying performance of the division is abysmal and significantly below what it was before pandemic flu kicked in. What should we expect for 2011? Should we be aiming for single-digit underlying or can it do better than that?

Joseph Jimenez

Okay, Jon.

Jon Symonds

Okay. Let me start. On Pharma guidance is being on the like-for-likes. So, it doesn’t take accounts of any transfers out into Alcon. And at the point that we complete and that the new division is formed, we will provide you with new performas on that.

I think, your question on margin, I don’t think anything has changed in my view. I think what you are seeing in 2011, is the fact that we are facing generic competition and we will over the next year or two. But the fundamental investment thesis that lies behind the productivity drive remains absolutely intact and that’s why to the earlier question, I would point it out that actually you take away H1N1 and Alcon, we are still driving the underlying margin forward and investing at the same time.

And one of the things that I should have made to the earlier question is actually we are investing in vaccines and we are investing in biologicals and we are still moving it forward. And so, David talked about more productivity to go forward. The purchasing benefits that Joe referred to were over $1 billion. In aggregate it was 4 percentage points.

So I think we are absolutely in line with what we said in November but the difference now is that you are seeing the impact in generic competition with the underlying is moving.

Joseph Jimenez

I also think if you look at what we said in November and you think about the next five years, the underlying margin potential in the company is significant. All you have to do is look at our marketing and sales ratios relative to other companies and look at where we are going to get procurement savings and the manufacturing footprint projects that we’ve have taken.

We also have said, it is going to linear, right. So if people were expecting kind of a nice move curve, its just not going to look like that but I think we said that we aimed to improve core operating income margin.

Some of the charges that we took in the fourth quarter will improve our cost structure like the U.S. field force restructuring, the manufacturing restructuring that we took in vaccines in the fourth quarter and the German Sandoz restructuring that wee took in the fourth quarter. All of this is going to help improve the cost structure and we’re going to keep plugging away with it. Jeff, Enox?

Jeff George

Matthew and your question on Enox, the monthly run rate you saw in the forth quarter of $56 -$57 million a month is roughly a line, with what we’d expect for this year. I’d say maybe slightly more than that if we continue to stay alone. Obviously its higher than if Teva enters or Teva Enoxacin enter. On a margins I’ll just mention that Sandoz quarter was also an all-time high of 19.8% in 2010 and we are working hard to continue delivering very strong underlying profitability going forward.

On the productivity side one last time and I’d make we drove well over $450 million of productivity savings in your savings in 2010. That’s on top of close to $400 in 2009 so about $850 million cost savings in that two year period to drive that kind of margin improvement. Andrin?

Andrin Oswald

First on your kind of balance on your calculation and one can assume without the H1N1 in one pandemic we would have hatched the numbers that you describe to just taking the pandemic sales out and it is a volatile business and opportunities come from different sides.

And I also would like in that to context to highlight that if you compare the figures before the pandemic also in 2007 we had significant sales from at that point in time, avian pandemic stockpiled supply to certain governments so I think that has to be taken into account as well. And we will see next year, what are the opportunities to grow that come along.

The second point I wanted to make is that if you look at core operating income for this year it was above $1 billion. I think that is for me is a pretty given that we are significantly investing in growing this business and we have some catch up to do versus the leading competitors and I think as Jon has said we definitely will keep on investing, we have I think one of the leading pipeline if not the leading pipeline in the vaccines industry that will absorb money as well as the launch of our meningitis franchise and I think you know that definitely have an impact that you will see on our P&L in the quarters to come.

Matthew Weston - Credit Suisse

Gentlemen, many thanks.

Operator

Next question from Kevin Wilson, Citigroup. Please go ahead sir.

Kevin Wilson - Citigroup

Thanks, two questions for you. Trevor, just a follow on really on your comment on the subject [Aruba] safety study. Can you explain why in COPD you would need a different size safety study for QMS then you would for QVA? And secondly for just on enoxaparin, could you broadly run through the scenario where a second entrant comes in and confirm that if that is the case, the economics to you in terms of operating contribution could actually improve or deteriorate?

Joe Jimenez

Trevor?

Trevor Mundel

Yes, so on the QVA versus QMS, so the antimuscarinies are not currently widely used in asthma. So I think there is not the same expectation that there would potential crossover usage from COPD to asthma as these would be inhaled corticosteroid as a QMS product?

Joe Jimenez

So Kevin with respect to the scenario sproutings of all this, if there is an second entrant. I read your note on the generic economics where we would ship from a 45% profit share to a high-single digit to a low-double digit royalty to Momenta.

The conclusion, you reached in your report on the economics is largely right. Some of the assumptions in terms of how you got to the actual [gross] I think you may want to look at your pricing assumption in terms specifically what percent of brand Vac you’re assuming which will give you better guidance on the contribution margin. But I think you actually ended up coming out to largely correct number.

Kevin Wilson - Citigroup

Thanks

Operator

Next question from Mr. Tim Anderson, Sanford Bernstein. Please go ahead.

Tim Anderson - Sanford Bernstein

Thank you. Couple of questions. On Gilenia of the 50% that have not been on therapy for last 12 months, what’s the split between first line versus treatment failures? And then second question is on Alcon. There seem to be deceleration in growth in the surgical and consumer product lines, in fourth quarter was 3% for surgical, 1% for consumer and I think surgical is also weak in the third quarter, and sales growth across all three divisions was 5%. I am wondering why we’re seeing certain divisions slow recently, and I am wondering if that 2011 guidance for Alcon sales of high single digit percent might end up being a stretch.

Joe Jimenez

Gilenia, Regarding Gilenia the data base is still early and volatile; we do not have the breakdown at any level of competence of the patients are over treatment failure. I think in time we will have better data sets to show over there.

David Epstein

And Tim, regarding the Alcon question, if you look at some of the surgical procedures and what’s happening with the economy, there is a high level of discretion around delaying surgery that seems to be impacting that business, they have seen this phenomenon occur before and it comes back eventually and so we are still quite bullish on the original guidance that was given by Alcon when you look at it across the board.

Tim Anderson - Sanford Bernstein

All right, thank you.

Operator

Next question is from Carl Hancock, Hellvia. Please go ahead, sir.

Carl Hancock - Hellvia

Good afternoon everyone. Thanks for taking my questions. I have one on Gilenia. What is there, how many patients do you expect to convert to be reimbursed and out of the 2000 in the first quarter and could you give us a sense of how many patients do you add per week or per month whichever metrics you’re looking at.

Then on Ilaris and do you expect any significant off label use with the drug and given that you’ve achieved and the important paying score into studies, you’re going to present.. And the last but not the least on Lucentis, I'm trying to understand the dynamics behind the sales in Europe because my understanding is that you have forwards package deals for certain governments around different countries and to determine ceilings now, how does this work as you get new indications in.

Does the average can actually, do you get to a higher threshold and total the sales level per country or is the only that happens at the average price per patient goes down. Thanks very much.

Jon Symonds

Okay, I’ll answer your question. I’ll start with the last one first. Lucentis, a new indication. In most cases, a new indication drive a re-discussion of the price and any type of reimbursement or rebate program. So everything would largely be reset. You should anticipate some modest price aversion when you go back and expand the indications for our product. Regarding Ilaris and whether or not it will be used in GADI arthritis, we don’t promote off-label. I would not anticipate much in the short run.

And then regarding the patients who were on free drug for Gilenia, it seems like the typical period to get reimbursement is anywhere from one to three months. So that we would anticipate, the vast majority of the patients who are currently free drug would be on reimbursed drug in the next quarter, but of course new patients will be coming on a free drug would be a dynamic process.

Joseph Jimenez

And the only thing I would add on the Lucentis answer was that, with the new indication in diabetic macular edema there is as many patients as there are in wet AMD outside the U.S. and so even if there were, let’s say when you’re going back for an additional indication and renegotiation on the price, the potential incremental volume is significant and this incremental volume will not fall under the same caps that we originally negotiated unless we run successful in opening up those discussions.

Carl Hancock - Hellvia

And on the new number of patients per week or per months that you are adding to Gilenia, can you see anything in that regard?

Joseph Jimenez

Not ready to yet, and part of the reason is, we just ramped through two holiday periods of Thanksgiving and Christmas, so it’s really not meaningful right now.

Carl Hancock - Hellvia

Thanks very much.

Operator

Next question from Fabian Wenner, UBS. Please go ahead, sir.

Fabian Wenner - UBS

Hey, good afternoon. A couple of questions. First of all, coming back to the margin guidance, you highlighted productivity improvements in Q4 up about 400 basis points. Now I suppose the COGS increase was driven also by higher raw materials. Do you expect a further rise in COGS for the year or have you fixed largely – fixed the annual contract.

And secondly, can you – or to what extent are you incentivizing your reps to switch from Diovan to Teckturna combos. We have the accelerated study recently. What initiative do you have underway here? And then couple of smaller ones. When would you roughly start your buyback and when do you expect the F4 approval roughly?

Jon Symonds

Hi, Jon, March in guidance in Q4.

David Epstein

Okay. On productivity, you’re right, you know, the total value of productivity was 4% in the quarter across all programs. And in relation to rising price of inputs we have contracted to take us through 2011, so where we are seeing increase in on packaging for example, they are being debated in relation to 2012 contracts.

On the buyback well we’re free following this call to commence buyback if we wish but you know, you won’t expect me to tell you when we are and when we are not going to be buying back, but as from now it’s open.

There is really nothing to mechanics for the F4, we have always said that the principle governing - factor the timing is the F4 and as Joe said earlier we are on track for first half completions, so you can read into that that there is no change in the guidance from December.

Fabian Wenner - UBS

So, the question was regarding moving patients from Diovan to Tekturna I wouldn’t think of it that way rather I would think about the Tekturna strategy which is to focus on patients with hypertension which are renal complications where we think the drug is particularly well suited and we are about to introduce now into the U.S. market a combination of Tekturna and amlodipine called Tekamlo where there is roughly a 50 point drop in blood pressure which is a efficacy positioning for the brand and just for additional clarity, in Europe, we have virtually no promotion on Diovan at this time.

Fabian Wenner - UBS

Thank you.

Operator

Next question from Ms. Alexandra Hauber of JPMorgan. Please go ahead, Madam.

Alexandra Hauber - JPMorgan

Thanks, good afternoon. Several questions please. Firstly, in vaccines, you mentioned some rationalization of the manufacturing facilities. Can you just elaborate a bit here because I was under the impression that you have too many points in vaccines. This was rather an area of future CapEx spend. And if there is rationalization, will that effect in any way, your flu capacity going forward?

Secondly, the DME approval came in January as in 2011. So, since you have to go through new reimbursement discussion. I was wondering whether in Germany, this is now covered by the new procedure that you have to submit data to justify your pricing them by beginning 2012 we will all know whether you get the price or whether you have to take significant haircut? So, just some color on that procedure in Germany, how this is changing, I would appreciate?

The third question is on QMF. The insight thought you will now prohibitively launch safety database for approval. Does that insight e come from end of phase 2 meeting with the FDA on QMF, or is it a read across you are making from your QAB program?

And the final question is just on comments from Jon on Sandoz R&D becoming more expensive because of investments for biosimilars and the respiratory pipeline. I recall that about a year-ago, you said that biosimilar is breaking even. Is that topping investments for biosimilar within the longer breaking even or was your breakeven comment meant on the pre-R&D basis?

Joseph Jimenez

Hey. Andrin why don’t you an address the vaccines

Andrin Oswald

We’re restructuring that two major elements, the first one is on manufacturing. We had a very small flue facility in Germany that produced a local product and…

Alexandra Hauber - JPMorgan

Excuse me, I don’t hear you very well. Can you repeat?

Andrin Oswald

Sorry. Is it better now?

Alexandra Hauber - JPMorgan

Yes.

Andrin Oswald

Okay. So that you had a very small flue facility, an egg-based facility in Germany that produced a product called [bakery vat]. It was very low volumes and not cost effective and second one is in Liverpool, we were, as you may know, building a new site. It started to operate last year but due to the pandemic, we also kept the old site open until the end of the pandemic and we’ve now closed down the old site that we were at and planning to replace with the new one that is now operating.

The second major driver of the facility is streamlining of secondary manufacturing, which is filling and packaging. We still had to due to the -- for historic reasons, three almost independent operations in Liverpool, in Marburg, Germany and in Siena, Italy and we just optimized these processes to have a better capacity utilization.

Alexandra Hauber – JPMorgan

So going forward on your one big egg-base facility, that’s Liverpool and the same quantity as the four?

Andrin Oswald

And as far as egg-based is concerned you will have one large modern facility in Liverpool and we will remain also a smaller facility that we have in Siena that produces an egg-based vaccine. The overall quantity is expected to increase compared to the past.

Alexandra Hauber - JPMorgan

Okay.

Jon Symonds

Alexandra I am going to give you a mixed answer. I don’t know with a 100% certainty whether Lucentis and DME falls under the pricing rules or not. I will double check. But the reality is most of the Lucentis pricing is negotiated with the individual health insurers in Germany. Anyway, they are already getting the product at a discount, so I doubt that the timing of the approval of DME will have any kind of major consequential impact on German pricing but I will double check your specific question and I will get back to you.

Alexandra Hauber - JPMorgan

Thank you.

David Epstein

Alexandra on the QMF questions so you are correct that this is an inference from our discussions around QAB but also around Foradil and the LABA safety issue

Joseph Jimenez

Alexandra with respect to your question on the ramp up in investments for biosimilars in respiratory, Jon was eluding to the significant increase in R & D spending in Q4 for Sandoz, and we’ll see that in Q1 as we move forward as key map programs in biosimilars moving to clinical trials. The same thing for respiratory.

And while this is you know a short-term impact on the P&L this is a very good mid-term item process. We look to retain and strengthen our number one position in biosimilars globally with just around half of the world’s market, in the regulated markets in Europe and North America.

I mentioned broadly speaking on biosimilars that the businesses grew 63% to just under $200 million with over 200% growth in eastern Europe, over a 100% in western Europe, also with respect to profitability, our newest biosimilar grew 245%.

With respect to profitability, I would say that steady state profitability of biosimilars is very attractive. What takes out of the profitability in the short term is the significant investments we’re making into our future to continue to position ourselves to be a very significant business looking out five years when we have a number of patents in what will be probably over a $50 billion - $60 billion biologic products, they are coming of t that in the next five to six years. So it’s a great opportunity for us and we are investing behind that.

Jeff George

And I think the only thing I would add is that because biosimilars rest within Sandoz. Sandoz has just got a margin top target that he needs to beat and he can move around spending within his group. Also that it looks that those greatest new product opportunities, new innovation opportunities and choose to invest in there without having to say, Okay I want the profitability of biosimilars to be X this year , as long as you have taken cost out of other areas of the enterprise.

Joseph Jimenez

The other thing I would point out Alexandra is just more broadly on the injectables business. Sandoz has over a $1.5 billion business now. We move to number two globally ahead of both Teva and Fresenius. We were number four, two years ago and this is a business with oncology injectables that is highly profitable.

Alexandra Hauber - JPMorgan

So can you just say how large your injectable business is?

Jon Symonds

Well upwards of $1.5 billion I would say probably a good bit bigger than that, I don’t want to give too much more guidance on that.

Alexandra Hauber - JPMorgan

Bigger than 1.5, $1.5 billion?

Jon Symonds

Yeah. If you look at the IMS data, you will see even a bigger number than that and that if you take the Enox run rates but keep in mind products come and ago, it was actually flat and was $40 million and up in Q1 last year and we don’t have that in Q1 this year.

Alexandra Hauber - JPMorgan

Okay thank you.

Operator

Next question from indiscernible} Please go ahead, ma’am.

Unidentified Analyst

Yeah thanks very much. Just a few financial questions please. The first on the European Diovan patents, where are you at in terms of getting a six months extension in the various countries i.e should we expect the bulk of the European Diovan generics in the first or the second half?

The second question, can you give us the 2010 Diovan sales specifically for Spain and for the rest of Europe just for our on modeling?

And a technical question on the guidance. Am I right in assuming that any core operating margin improvement this year would automatically translate into constant currency core EPS growth versus last year despite the non-recurrence of Alcon associate income and I know you don’t want to go onto a lot of detail on the divisions, but are there actually any divisions we would definitely not see a margin improvement this year? Thank you very much.

Jon Symonds

I think that was relatively clear. Spain and Portugal have actually – and Brazil as well if we go early in the year, February. The rest of Europe we expect to go in November. I do not have the figures broken out by regions in front of me.

Joseph Jimenez

No, But I think it’s safe to say that the majority will be second half say.

Jon Symonds

About November.

Joseph Jimenez

November.

Jon Symonds

Yeah, Maria, I thought you would want to go back through the comments I made before. But I think if you do go through the transcript that you will see that there is quite a lot of indications on division by division basis.

And the reason for holding to a constant currency target at this point is because we are seeing quite a big shift in the last month and we don’t really know what the currency situation is going to be going forward. So, we felt that it was wise not to add a currency exposure to the target. But of course, as we go through each quarter, we will update you on the currency assumption as they develop during the course of the year.

Unidentified Analyst

I wasn’t actually wondering about the currency. I was just wondering how to correlate operating margin improvement with EPS improvement. So, I just wanted to make sure what was currently implied in your guidance is a constant currency EPS growth.

Jon Symonds

Well, no. Look, I think you got to take each of the lines below constant currency, operating profit and in fact doing the assumptions. So, the way interest is going, the fact that there is no Alcon and associated companies, I have given you the tax rate. And you know that’s I think a more easier piece of the puzzles that enfold, group operating income.

Unidentified Analyst

Thank you.

Operator

Next question from Florent Cespedes, Exane BNP Paribas. Please go ahead, sir.

Florent Cespedes Exane - BNP Paribas

Good afternoon gentlemen, thank you for taking my question. First question for Jeff. Is there any read across for [adverse scenario] in the U.S. following this season on QMF and have you changed your plan regarding the development of generation of hardware in the U.S.? My second question is from Gilenia, you’re gaining market share against all the products in the U.S.. Do you believe that it will be the same in Europe as you have a slightly different label and the last one on the M&A Maybe can you give us the rational of the Genoptix acquisition from the Oncology division. Thank you.

Jeff George

Yeah, Florent, as I said earlier I haven’t had to give any guidance on specific products within our respiratory pipeline but as I said I want to meet on the Investor Day, when similar question I would just reiterate that we at Novartis and at Sandoz believe in the potential for full substitutability of combination as of COPD product. So the potential to leverage the 505 (j) pathway as opposed to necessarily having to go through a 505(b)(2) route.

One correction to our comment I made earlier to Alexandra, the injectables number globally presented is closer to 1.8 billion. I just reference checked. It’s not 1.5 billion.

Joe Jimenez

Regarding expectation for joining in Europe, first we’re very excited about the launch I think there is quite a good demand for the drug-based upon the phone calls and e-mails we’re getting. There’s no reason to believe that there’ll be substantially different source of business leap in terms of the product the patients are migrating from in Europe.

Regarding Genoptix, I think you know that our strategy is to increasingly on the development side and the commercial side match the right drug to the right patient in order to do that we need to develop molecular diagnostic tests and Genoptix was a company that has a very good reputation in the marketplace among hematologists and oncologists in terms of servicing the need and thought that would be a good vehicle to make sure that are readable available as we launch our new pharmaceuticals.

Florent Cespedes Exane - BNP Paribas

Okay, very good. Thank you.

Operator

Next question from Mr. Alistair Campbell of Berenberg Bank. Please go ahead.

Alistair Campbell - Berenberg Bank

Thanks for taking my question. It’s just a quick one on Gilenia again, and I apologize this time it’s probably pushing your market intelligence data too far, but if we look at the patients you are picking up from TYSABRI in the U.S. I mean my guess half of patients on TYSABRI are involved in the stratified studies, therefore they know the JC virus spaces, is there a risk that in fact the patients you are picking up are patients who are richly defined for JCV positively and therefore perhaps is there risk profile attached those patients you are picking up and how do you think about managing that. Thanks.

Jeff George

Regarding, Gilenia, the main focus is in the areas where we have head-to-head data example versus interferon that’s where our commercial efforts are targeted, but it’s clear that TYSABRI patients want to come off drug and they are looking for alternatives. And we really can’t control what those patients have been exposed to. How long they’ve been on the drug, but that’s not where we’re going.

Alistair Campbell - Berenberg Bank

Okay. Cool. Thanks.

Operator

Next question from Mr. Mark Beers from Goldman Sachs. Please go ahead, sir.

Mark Beers - Goldman Sachs

Thank you. Few questions. Firstly, emerging markets. So it’s seems like the growth rate in the top six markets is reducing from 19% last year’s, 9% this year, just comment from where these things that will continue. And secondly, on whether the margin – the change in margin is being driven by a geographic mix changes.

Thirdly, on your dividend policy, are you looking for year-over-year growth in dividends or just say a control of the cash flow specifically. So, if you can help on those, that will be great.

Joe Jimenez

Okay. Starting with emerging markets, our total emerging markets business this year on the top six were $4.6 billion and it grew 12%. Well, I think that is a good performance, it’s not a great performance, and so we would expect to see that increase back probably closer to the 19%, 20% range or hopefully more than that.

We had a couple of slowdowns particularly in China when we moved from a very centralized structure to a regional structure, it was the right thing to do, but we did, it caused some level of disruption that is now back on track and believe that 2011 will be a better number.

Also Turkey took significant reductions due to the price hit that we took in 2010 which should not repeat itself in 2011. So, in total we expect improved performance in emerging markets.

Mark Beers - Goldman Sachs

Around the margin?

Jon Symonds

I don’t think are any major. I don’t think there are many major geographical shifts in the analogy and I think we’re such a big pool that it’s not really detectable in the trends that we see.

And then finally on dividends, I mean, I think the way Joe proudly presented 14 years of consecutive increases in dividend I think is a record that we would aim to continue.

Joe Jimenez

Okay, last question perhaps.

Operator

The last question for today is from Mr. David Evans from [UT Credit]. Please go ahead, sir.

David Evans - UT Credit

Thanks very much. Just couple of questions on Sandoz. On a very strong sales in Q4, and then enoxaparin benefits from otherwise U.S. activities seems to be passing or sliding throughout 2011. So should we expect to see any other major first of all options in Sandoz in 2011 to make up for these losses. If not, is there any reason to believe why that would not honestly meet negative margin impact in 2011 versus 2010.

And then also on the Ex-U.S. businesses, maybe some general comments, or maybe say the general market landscape stabilizing with multi-source tenders and other impacts. And then maybe some other color on the scale of the other major price impacts you expect across Europe and whether any cost savings can fully offset these? Thanks so much.

Joe Jimenez

Great. So, David, the answer to your question kind of around that, I’d roll them out quickly. In the U.S. business we got great momentum. We grew 46% last year, we over took Mylan the number two player in the market. We are seeing new competitors on some of our some of our key products like [Tachero, Vencelpracar, Lucerten] [ph] some of the others. But we have you know a strong position over half of the market Gemcitabine We are launching a number of oral contraceptives, we have a couple small first to file that are key.

I think also Germany we’ve talked about, specifically the market well, its declining, it declined 12% to 15% last year. We only declined 6%, so we continue to strengthen our number one position in the market and it’s critical to look at net sales, not gross sales. The gross market may show low single-digit. Net sales will show in 2011 double-digit decline.

However, in Western Europe, we grew 10% in 2010 and I had mentioned key markets that are in Southern Europe that have low penetration in generics. We grew 44% in Italy. There are other untapped markets like Japan that have significance potentially, we grew 30% there.

And finally, I will wrap it up by commenting on emerging markets that three of our four regions grew at two to four times the market growth rates and we continue to see tremendous potential in Asia-Pacific, the Middle East, Central and Eastern Europe and even Latin America where tour business was softer in 2010.

Okay. With that, I would like to close the call. Thank you for your attention and we look forward to updating you quarter-by-quarter.

Operator

Ladies and gentlemen, the conference is now over. Thank you for choosing the Coralsco facility. And thank you for participating in the conference. You may now disconnect your lines. Good bye.

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