Novartis AG (NYSE:NVS) Q1 2024 Earnings Call Transcript

Novartis AG (NYSE:NVS) Q1 2024 Earnings Call Transcript April 23, 2024

Novartis AG isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning and good afternoon, and welcome to the Novartis Q1 2024 Results Release Conference Call and Live Webcast. Please note that during the presentation, all participants will be in a listen-only mode, and the conference is being recorded. [Operator Instructions] A recording of the conference call, including the Q&A session, will be available on our website shortly after the call ends. With that, I would like to hand over to Ms. Sloan Simpson, Head of Investor Relations. Please go ahead, madam.

Sloan Simpson: Thank you so much, operator. Good morning and good afternoon, everyone. Thank you for joining our first quarter 2024 earnings call. The information presented today contains forward-looking statements that involve known and unknown risks, uncertainties and other factors. These may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. For a description of some of these factors, please refer to the company’s Form 20-F and its most recent quarterly results on Form 6-K that respectively were filed with and furnished to the U.S. Securities and Exchange Commission. And with that, I will hand across to Vas.

Vas Narasimhan: Thank you, Sloan. I’d like to open today’s call by first thanking Samir Shah for his incredible tenure as our Head of Investor Relations for over a decade. We’re grateful for all of his contributions. We look forward to his continued contributions in a new role at Novartis. And I want to welcome Sloan Simpson. I think Sloan will do an absolutely outstanding job serving all of you as our Head of Investor Relations. I’ve worked with her for many, many years. I think we’re really pleased and grateful to have her on board. So, let’s turn to the quarter. Novartis delivered a really strong start to the year with double-digit sales growth, core margin expansion, which enabled us to upgrade our guidance, and Harry will go through the guidance in more detail.

Sales were up 11% in constant currencies, core operating income was up 22%, our core margin reached 38.4% as we steadily march to our goal of 40%-plus by 2027. In addition, we had a number of important innovation milestones in the quarter, which I’ll go through over the course of the call. But a few I’d want to particularly highlight the Fabhalta positive opinion enabled us to launch Fabhalta in Europe. Scemblix first line readout, we think will be very important for a major medicine for the company. And we also had the updated PSMAfore OS results, which will enable us now to move forward with the filing of Pluvicto in the United States. Now, moving to Slide 5. Now, our growth in the quarter was broad based, and we had strong contributions from many of our key growth drivers, including Entresto, Kesimpta, Cosentyx, which had a very strong quarter, as well as Kisqali.

I would also say geographically, our performance was broad based, with strong growth across U.S., Europe, China with very strong growth, and Japan. As you can see on the chart, the strong growth was indicated by 41% constant currency growth, and we expect this growth to continue over the course of the year, which is what gives us confidence to do the upgraded guidance that we’ve outlined this morning. Now, moving to Slide 6, and we’ll walk through the brands one by one as we always do. First, with Entresto, we had double-digit growth, up 36% in quarter one. That was again geographically broad based, U.S. and ex U.S. In the U.S. our weekly TRx continue to reach new highs. We have 38% constant currency growth outside of the U.S. And we continue to see momentum for this brand.

We’re in a strong guideline position both in the U.S. and in Europe. We have further penetration opportunities in heart failure globally, and in specifically in hypertension in China, in Japan. And in Japan, we have protection into the early 2030s with this medicine. For forecasting purposes, no change in our Entresto LoE outlook, continue to guide to a mid-2025 LoE while continuing to aggressively defend our, various patents. And then, in terms of the EU, we continue to guide to RDP in November 2026, benefiting from our pediatric extension. Now moving to Slide 7, Cosentyx grew 25% in the quarter, and I think really got back to the dynamic growth we expect from this medicine. This was fueled both by our core indications, but also some strong launches, and I’ll go through that in a bit more detail.

U.S. was up 25% in constant currencies, ex U.S. 24%. We had highly — we were highly competitive in our core indications, and so we saw return to market share improvement in psoriasis and in the rheumatology indications both in the U.S. and in Europe. And we’re now the leading originator biologic in the IL-17 class in EU and China. Now, in terms of our new launches, we saw very strong performance in HS, hidradenitis suppurativa, where we have over 50% now NBRx share versus adalimumab in U.S. and Germany. When we compare our launch on a comparable basis to the adalimumab launch in this indication, we currently see ourselves at nearly 3 times the performance of that previous launch. I think really highlighting how strong the uptake for Cosentyx has been in this new indication.

We also had very strong performance in the intravenous indication ahead of the J-code, which we expect in July. I think again that indicates there is strong interest in having an IV option for patients with Cosentyx in the rheumatology indications. So, we’ll look forward to further acceleration in the back half of the year once we have that J-code in place. Now, moving to Slide 8, Kesimpta delivered 66% growth on the quarter, and this was again global U.S. and ex U.S. driven. We have over 100,000 patients treated worldwide on the medicine and the majority of these patients are either naive or first switch, which reflects the strategy we have for this brand. In the U.S., we saw a very strong demand-driven growth with NBRx volume at plus-26% versus prior quarter.

And one of our key priorities now in the U.S. is to increase our B-cell market share over the coming quarters. Outside of the U.S., we have leadership now in seven out of 10 major markets and we look forward to continuing to drive the convenience and high efficacy story that Kesimpta presents in these markets. In the quarter as well, we announced the ALITHIOS six-year long-term data, which demonstrated sustained efficacy and the consistent safety profile for Kesimpta. In this study, nine out of 10 patients were free on the NEDA-3 score of disease activity. And we also saw treatment-naive patients derive substantial benefits, across multiple markers of disease activity. So, even in the face of some competitor launches, we feel very confident about the one minute a month self-administered dosing, high efficacy, strong safety profile of Kesimpta.

Now, moving to Slide 9, Kisqali grew 54% in metastatic breast cancer with now continued leading share in new patient starts. U.S. was up 72%. And I think there’s increasing recognition of the unique profile that Kisqali offers given its broad data set of OS across three different studies in metastatic breast cancer. We have leading NBRx share at 45%, and we see a steady growth in writers, we’re also working to increase depth, as well as improve our market access position across key accounts ahead of the early breast cancer launch. Now, outside of the United States, 39% growth. We’re the fastest growing CDK4/6 in Europe and a market leader in the pre-menopausal indication. We also successfully entered the NRDL list in China in quarter one. And its early days in China, but given the strength of our China operations, we’re hopeful we can drive dynamic growth for Kisqali in China over time.

The regulatory review in early breast cancer is ongoing. We’re filed in the U.S. and EU, and currently expect regulatory review to proceed as planned. Our manufacturing adjustments, which we disclosed a few weeks ago, are on track to ensure alignment with latest regulatory standards in early breast cancer by the end of Q2, and we continue to expect to be able to launch this medicine in the second half of this year. Now, moving to Slide 10, Pluvicto had strong growth of 47% in the quarter, driven by new patient starts and very early beginnings of growth as well outside of the U.S. We have 400 treatment sites now up and running in the U.S., on steady progress to our goal to get well over 500 sites fully certified for the use of Pluvicto. Also, our supply performance is now consistently at a very high level with over 99.5% of injections administered on the planned day.

So, ample supply, Indianapolis facility up and running, continued expansion of our manufacturing network. So, we really feel like we’re now in a position to fully supply the market consistently globally, in — for this medicine. Now, over the course of 2024, we’re going to focus on share expansion within existing sites and particularly expanding referral network of medical oncologists who can refer into a Pluvicto treating center. We feel like this will be the key now in the post-taxane setting. We also want to build our business outside of the United States with some important launches in Europe as we also build towards launches — planned launches Japan and China, both countries where we have planned new manufacturing facilities to support the Pluvicto and Lutathera business.

Our existing indications are also on track. We announced earlier this quarter that the PSMAfore submission enabling OS readout was achieved and this will put us in a position to file Pluvicto early in the second half, so a mid-year filing for this medicine. And then, PSMAddition also on track as well as the PSMA delayed castration localized oligometastatic program as well. Now, a little more detail on the PSMAfore submission enabling OS readout. We had a primary endpoint that we read out last year where we met the primary endpoints as well as really strong data across all of the secondary and exploratory endpoints, a very impressive relative risk reduction for rPFS, strong profile across the patient reported outcomes, as well as the various response ORR, DCR and DOR.

What we announced earlier in the quarter was the updated third interim, which gave us a higher proportion of OS events. The OS hazard ratio was less than 1, which puts us in a position to file mid-year and other secondary endpoints were consistent with the previous results as was the rPFS. And what we feel and see is with the additional eight months of follow-up, we have high confidence in the safety profile of Pluvicto. And so, these results will be presented at an upcoming medical congress, and of , we’re working as quickly as we can to get this file in. Now, moving to Slide 12, Leqvio also had a really strong quarter. Adoption expanded steadily in the U.S,, but also outside of the United States. As you can see here on the left hand chart, very strong performance both in the U.S. and outside the U.S. Taking the U.S. first, we had growth outpacing the advanced lipid-lowering market.

We have now nearly 3,900 facilities that are ordering Leqvio, increased breadth and depth across our key accounts. We continue to see buy and bill as the key driver overall of the business, but we do see also the use of other channels as well. Outside of the U.S., we have a consistent rollout now. We have 29 countries where Leqvio is publicly reimbursed and an additional 39 with private commercial coverage. This puts us in a strong position with our top three European markets contributing 50% of international sales, but really strong growth across the international region. And strong early uptake in China in the self-pay setting with over 200 new patients a day ahead of our planned NRDL listing in the first half — first part of next year. Lastly, we had new data at ACC and a publication as well, which supported the early initiation of Leqvio, demonstrating that starting Leqvio early in patients requiring secondary prevention for cardiovascular event allowed these patients to achieve their LDL-C goals earlier.

Now, moving to the next slide, Slide 14, Scemblix grew 83% in the quarter, again, primarily driven by the third line indication with our first line submission on track to be completed in the coming months. We had continued momentum in the core third line indication over 40% NBRx share. Outside of the U.S., we’re at a 32% total market share, driven by our key markets, Japan, France and Germany. And here in the third line setting, we primarily focus on early identification of patients who could benefit from a switch to Scemblix post two TKIs. As a reminder, our ASC4FIRST study enabled first in line submission — first line submission in half one. Primary endpoints were met versus all standard of care TKI and — versus Gleevec as well, favorable safety and tolerability profile.

And we can confirm that the full data will be presented at ASCO in 2024. Now turning to Fabhalta, we’re at the early stages of the PNH launch, and we didn’t expect really to see significant sales at this very early stage given the complexity of this launch, but we are very pleased with the early launch indicators. We’ve had a rapid increase in the number of HCPs who are certified under the REMS program. An increase in new writers and patient starts, which are exceeding our internal expectations. We see uptake across naive and switch patients for this medicine. And we also are really happy to see HCPs willing to work through the medical exception process to get patients on this medicine. So, we also have the positive CHMP opinion for PNH, and we expect that full approval to happen in the coming few months.

And we’ll consistently work to launch this medicine across the globe as well as drive rapid uptake in the United States. Now, turning to Slide 15, we also announced our Phase 3 APPLAUSE-IgAN study full results earlier in the quarter where we demonstrated 38% proteinuria reduction relative to placebo. In this study, we randomized patients to iptacopan versus placebo. The results we read out was the nine month interim proteinuria analysis. These patients will be continued to be followed out to month 24 for the full eGFR analysis. You can see on the right-hand panel, very impressive proteinuria reduction of 43.8% versus placebo at 9%, clinically meaningful and statistically significant. We know that complement activation is a key driver of inflammation in IgAN.

And importantly, the overall safety profile was consistent with data we previously reported. We’ve submitted this data to FDA, and just one clarification, we did not use a priority review voucher for this medicine. The FDA had granted us priority review based on the dataset that we provided. So, this study continues as well for its eGFR readout in 2025, and we look forward to really getting a full approval very shortly — or getting the initial approval in the coming period. Moving to Slide 16, Remibrutinib demonstrated — had already demonstrated in an earlier study at 12 weeks robust efficacy and safety, but we needed to wait for the 52 week data to be in a position to file in chronic spontaneous urticaria. And this data came out positive, enabling us now to move forward towards this important filing.

As a reminder, there’s about 400,000 CSU patients in the U.S. not controlled or refractory to antihistamines. And only less than 20% of these patients are currently on biologics. So, there’s a large opportunity for a high efficacy oral medicine. The previous primary endpoint data at week 12 is shown here, where we very consistently showed improvements versus placebo at week 12 on the UAS7 score. And so, we’ll look forward to presenting the full dataset in the second quarter for this medicine out to 52 weeks. And with the consistent favorable safety profile we’ve demonstrated with overall rates of AE comparable to placebo and balanced liver function test, as well as the clear efficacy data, we’ll look forward to global submissions in the second half of Remibrutinib.

So, all taken together, we’re on track across our innovation goals for the year. I did want to highlight that we have shifted our iptacopan C3G U.S. submission to the second half. There is no great correlate for efficacy in C3G given the ultra-rare nature of this disease. We provided the FDA our six-month data. While certainly we believe that six-month data was very compelling, the FDA wanted to see the additional six-month follow-up for these patients after all patients had rolled over onto active. The first six-month period was randomized, second six-month period, all patients are inactive. So, we will complete that six-month follow-up and then file in the second half, and we remain very excited about the opportunity to bring Fabhalta as well to patients with C3G.

So, moving to the next slide, we also are on track for our range of submissions, ’24, ’25 and ’26 to ’28. So, we’ll continue to keep you abreast of how datasets unfold as well as potential readout timelines, as we understand those readouts timelines better, and really excited about the catalyst-rich profile that we have out through the coming years. So, moving to Slide 19, I’ll hand it over to Harry.

Harry Kirsch: Yeah, thank you very much, Vas. Good morning, good afternoon, everyone. And I’m going to walk you through some of the financials for the first quarter. And as always, my comments refer to growth rates in constant currencies, unless otherwise noted. Also throughout the presentation, I refer to continuing operations. And as you see from the numbers, it has been a very strong start to the year. So, on Slide 20, you’ll see a summary of our financial performance, with net sales up 11% and core operating income up 22%. Our core margin grew 340 basis points to reach 38.4%, showing that we are very well on track to achieve our mid-term margin guidance of 40%-plus by 2027. Core EPS was $1.80 for the first quarter, growing 23%, a bit ahead of [indiscernible] to the share buyback program.

Free cash flow was $2 billion, declining versus quarter one of 2023, but that was due to a prior year one-timer and the timing of some tax payments this year. However, and importantly, for the full year 2024, free cash flow is expected to grow approximately in line with core operating income. So, in summary, very strong start to the year, as our efforts to focus and streamline the business continue to pay off. This brings us already to our full year guidance on Slide 21. So, the strong momentum in our business across our in-market growth brands and launches both in U.S. and international markets give us the confidence to upgrade both top- and bottom-line guidance. We have also a favorable update on generic entry assumption in U.S., but that’s actually a smaller element of the analysis driving our 2024 guidance upgrade.

We now expect net sales to grow in the range of high-single digit to low-double digit, and core operating income to grow in the range of low-double digit to mid-teens. Underpinning our guidance are two key assumptions that no Entresto and no Promacta generics will launch in 2024 in U.S. And to complete our 2024 full year guidance, please know that we continue to expect core net financial expenses to be in the range of $0.6 billion to $0.7 billion, and our core tax rate to be around 16.5%. Now, moving to Slide 22, I’m very pleased with the quality of our quarter one sales growth, driven by our key in-market brands, which grew, as Vas showed also on the prior slide, 41% in the quarter. And the vast majority of these brands still have many years of patent protection ahead of them.

So, their continued momentum strongly supports our mid-term growth outlook of 5% CAGR through 2028. Slide 23 please. Just to highlight that we continued our shareholder-friendly capital allocation strategy in quarter one, of course, investing in the business alongside returning capital to shareholders. Notably, in Q1, we announced two value-creating bolt-ons in our core therapeutic areas, the proposed acquisition of MorphoSys and the licensing deal of Arvinas, both of which align with our strategic focus in oncology. In terms of returning capital to our shareholders, we paid $7.6 billion of our growing dividend in quarter one, and we also continue our up to $15 billion share buyback program, and we still have $11.7 billion remaining to be executed by the end of 2025.

All right, to my final Slide 24, we have outlined some of the details regarding the FX impacts. And as you see, in quarter one, FX had a 1% negative impact on sales and 6 points negative on core operating income, the latter driven by the strong Swiss francs. And if late April rates prevail, including the most recent strengthening of the U.S. dollar, we expect the full year impact of currency still to be less than it was in ’23, on the top-line, negative 2%, bottom-line, negative 4%. As a reminder, as this is hard to forecast from the outside and moving all the time, we are updating our — the expected FX impact on our website on a monthly basis. And with that, I hand back to Vas.

Vas Narasimhan: Great. Thanks, Harry. So, as you heard, a strong start to the year with double-digit sales growth, strong core margin expansion, and with the strong momentum we see in the business, we’re able to raise our guidance for the year. We saw this momentum across all of our key growth brands and across geographies, I think indicating the high quality of the performance that we’re seeing in the company. Our pipeline continued to advance with multiple submissions and submission enabling readouts as we outlined, and we continue to have confidence in our mid-term guidance of 5% constant currency sales growth ’23 to ’28, and 40%-plus core operating income margin by 2027. So, with that, I’ll hand it back to Sloan, who will outline some of our upcoming investor events.

Sloan Simpson: Thank you, Vas. Before we open up for questions, I just wanted to flag a few investor events that we’re planning to hold this year. First, we’ll have an in-person event at ASCO in Chicago on June 2, highlighting the Scemblix ASC4FIRST data, which Vas mentioned. We’ll also have a virtual event on our renal pipeline in the second half of the year. And we’ll be having our annual Meet Novartis Management event in London on November 20 to 21. We hope to see many of you at these events. And with that, operator, let’s open the line for questions, please.

Operator: Thank you. [Operator Instructions]

Vas Narasimhan: And one thing, operator, can we just ask each participant to limit themselves to one question, and then they’ll go back through the queue?

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Q&A Session

Operator: Thank you, sir. [Operator Instructions] And your first question comes from the line of Matthew Weston, UBS. Please go ahead.

Matthew Weston: Thank you for taking my question. It’s going to be on Pluvicto. And so, Vas, you set out some of the metrics in terms of improving revenue. I think there’s definitely an expectation amongst investors that we might see an inflection as supply comes online and physicians get more comfortable with your ability to supply and add nurses and chairs into their networks. I wanted to understand whether you thought that was a realistic assumption, or whether or not investors should get more comfortable with a kind of continuous grind in the growth of Pluvicto over the coming quarters?

Vas Narasimhan: Yeah, thanks, Matthew. So, first on Pluvicto, we have resolved our supply issue, but we are still working through, I think, the remnants of the base of patients that were a bit lower in quarter four, given that we were still working through things then. Now, when you think about the growth of Pluvicto medium to long term, first, we have this post-taxane indication, where you can see we’re already annualizing at a pretty healthy blockbuster, about $1 billion-plus sales range. And we expect that to steadily grow. And we guided to that indication to being a multi-billion dollar, so a $2 billion-plus indication. So, we expect it to steadily grow over the coming quarters in that post-taxane setting. And this will be primarily driven by, as I mentioned, expanding the base of medical oncologists who are able to refer into the existing centers.

We don’t see the opportunity at this point in terms of expanding the number of centers for this indication. So that will steadily grow over the course of 2024 to get us steadily marching up towards that multi-billion dollar guidance, $2 billion-plus guidance that we’ve given in the VISION indication. Then we expect the PSMAfore pre-taxane indication to be the next catalyst, and we do expect an inflection on that launch, which will then — I should also mention in Pluvicto, outside of the U.S. as well, we will get additional momentum as we bring on board Germany, France, other countries in Europe. And then, in the coming years, we do expect a substantial inflection from China and Japan. We’re building dedicated manufacturing facilities for those countries in order to drive further growth, both in the pre-taxane and the post-taxane indication.

Next catalyst will be the pre-taxane approval, which we hope to have in the first half of next year. Then, the hormone sensitive indication, then the oligometastatic. And then, we also have two programs advancing with Actinium PSMA as well to also further bolster the overall portfolio. So, I think a steady growth in the VISION indication with then catalyst coming from ex U.S. expansion and the indication expansions for the brand. Thanks, Matthew. Next question, operator?

Operator: Thank you. Your next question comes from the line of Steve Scala from TD Cowen. Please go ahead.

Steve Scala: Oh, thank you so much. Vas, you noted in the prepared remarks that the Kisqali review was on track, but how confident is Novartis that FDA will meet the priority review regulatory deadline for Kisqali with a broad label? There seems to be a number of things that could give FDA pause, including the nitrosamine issue as well as liver tox. So, what is your level of confidence? Thank you.

Vas Narasimhan: Yeah, Steve, we’re very confident on the broad label. I think on the timeline, we currently guide to the current timeline that we have as we implement these manufacturing shifts. We, of course, are discussing these manufacturing adjustments and they’re minor adjustments, but they do require discussions with FDA. And so, once we have a better clarity on — if at all, if there was going to be any shift in timeline, we would, of course, let the markets know. But we think this will be still a second-half launch for this medicine, and we feel very good about that guidance. And so, while we talk here about minor shifts, we’re not talking about anything significant. And again, expect the broad label. We don’t have concerns about liver.

This is something that’s well known with Kisqali. [LSTs] (ph) are currently monitored in the metastatic breast cancer setting. No change in monitoring requirements is what we expect. So overall, we feel good with the ability to launch this medicine in the second half of the year.

Steve Scala: Thank you.

Vas Narasimhan: Next question, operator?

Operator: Thank you. Your next question comes from the line of Graham Parry, Bank of America. Please go ahead.

Graham Parry: Great. Thanks for taking the question. And another one on Kisqali actually. Just — could you just explain to us what the process amendment needed for Kisqali is in early breast cancer? So, is that something in the actual reaction? Is it purification? And do you know at the moment whether you do or don’t need an inspection by FDA? And if there is one, do you think that would still be completed within the second quarter timeframe and therefore not delay the NATALEE PDUFA timeline? Thank you.

Vas Narasimhan: Yeah, Graham, so first on the manufacturer adjustments that we talk about here, just as a reminder, Kisqali already meets the requirements in metastatic breast cancer. So, these are just additional requirements given that early breast cancer is an asymptomatic population. The adjustments we talked about here are primarily, how we source material from third parties. We want to go to higher-quality sourcing of third-party material, which is something we believe we can implement in a very straightforward way. And then also just some additional adjustments within our supply chain for the management of Kisqali, prior to actually leaving our supply chain to go to physicians. So, these are, we believe, relatively minor changes, nonetheless changes we do need to review with the regulators.

In terms of an inspection, we don’t believe there would be any inspection required for this. And so that’s what I think overall gives us confidence in the guidance to launch the medicine in the second half.

Graham Parry: Thank you.

Vas Narasimhan: Next question, operator?

Operator: Thank you. Your next question comes from the line of Emily Field from Barclays. Please go ahead.

Emily Field: Hi. Thanks for taking my question. I just want to ask a question on Cosentyx. I know you mentioned you’re expecting the J-code, but are you currently generating much sales from the IV formulation? Just in that context, if you could frame the current pricing environment in the U.S. specifically? Thank you.

Vas Narasimhan: Yeah, thanks, Emily. So, Cosentyx IV, I’d say better-than-expected uptake than what we had thought prior to the J-code. But when you look at Cosentyx’s current outperformance in the quarter, it was driven primarily by the strong hidradenitis suppurativa launch, as well as that leading to stronger performance as well in psoriasis globally. So, the IV launch is still, I think, in the midst of kicking up. What I would say is we are having a high — we have reached already the vast majority of accounts that we expected to order Cosentyx IV. They’re already, at least in the process of ordering the medicine ahead of the J-code, trying to use an exceptional code to use the medicine. So, in terms of account reach, we’re already in a very good position, and we think we’ll be able to then drive a strong depth once we actually get the J-code in place.

So, we feel very good. So, this could be another, I think, good driver for Cosentyx’s growth, in the second half post that J-code being rolled out. Next question, operator?

Operator: Thank you. Your next question comes from the line of Simon Baker, Redburn Atlantic. Please go ahead.

Simon Baker: Thanks so much for taking my question. It’s a broad question on the commercial performance. Vas, you’ve highlighted a few specific reasons for strength in the quarter like the Cosentyx HS launch. But to what extent is the broad-based performance we’ve seen in this quarter a result of the changes to commercial organization that have been underway over the last couple of years? I wonder to what extent that is responsible. If you could give any color on where it’s impacting and how much is left to come from that initiative? Thanks so much.

Vas Narasimhan: Yeah. Thanks, Simon. We do believe that probably the biggest — big picture driver for our strong performance over the recent quarters has been the reorganization and focus of the — focusing of the company. And as a reminder for investors, a few things we did, we elevated the U.S. and we went to a geographic model U.S./international. We focused down the portfolio to four key therapeutic areas. We focused the commercial area on nine key drugs. We shifted our investments in most places. Over 75% of the M&S investments go to the growth drivers. A heavy focus on U.S., China, Japan, and Germany. And taken together, that I think is compounding to show the broad-based performance you see across U.S. and international, and particularly in some markets like China, very, very strong performance.

So that is, I think, the biggest sustainable driver. In terms of specifics in the quarter, clearly, Cosentyx performed extremely well. Putting aside consensus, if you look at the growth rates of Kisqali and Kesimpta, Leqvio, Scemblix, these were all very, very strong. Even Pluvicto, if we put aside on quarter-on-quarter growth, these were all very strong growth rates. And I think that also, I think, gives us confidence to raise the guidance for the full year.

Simon Baker: Great. Thanks so much.

Vas Narasimhan: Next question, operator?

Operator: Thank you. Your next question comes from the line of Emmanuel Papadakis from Deutsche Bank. Please go ahead.

Emmanuel Papadakis: Thanks for taking the question. Since you flagged it will be forthcoming at ASCO, perhaps just a question on the Scemblix ASC4FIRST data details. The primary endpoint was MMR. So, we’re going to be very interested to see how that fares. It’s obviously physician standards or physician’s choice standard of care control arm versus the potential comparators, in particular Tasigna and Gleevec. Can you talk a little bit about what we could expect to see in terms of some of the standard of care comparators on that primary endpoint? And indeed any secondaries you’re willing to provide thoughts on would be helpful as well. Thank you.

Vas Narasimhan: Yeah. Let me outline how the Scemblix study was designed and then hopefully give you some perspective. So, this was a first line study and this is, of course, our third medicine in the world of chronic myelogenous leukemia, so long history in the company. The primary endpoint was Scemblix versus investigator-choice TKI with a goal that over — roughly 50% of patients would be on imatinib or Gleevec. And the primary endpoint was Scemblix versus the overall pool of the patients’ intention to treat, regardless of TKI. So that’s first primary endpoint. And the co-primary endpoint was Scemblix versus Gleevec. And we hit both of those primary endpoints, with clinically meaningful, highly statistically significant improvements in MMR.

Then we had a descriptive secondary endpoint of Scemblix versus the two second-gen TKIs. And again, there — we will disclose the full data at ASCO, but we feel very good about the profile of the medicine. And then, on safety, which I think is one of the key elements of Scemblix story already in the third line setting, we saw outstanding safety profile. So, I think that’s the other thing to look out for at the ASCO presentation is the overall safety profile of Scemblix. Because, clearly, to move into that frontline setting, physicians will want to see both a strong efficacy, and a clean safety profile. Now, it’s important to note that once we get to the point of filing the medicine, shortly and then ultimately launch the medicine, in the U.S., we believe there’s a portion of the market where we can drive very rapid uptake.

These are patients who are currently on second-gen TKIs or in physician practices that are very open to switching. We do know that there is an element of CML market that’s contracted and tends to use generic imatinib, that will take us longer to overall to move through. But I think one of the exciting things about Scemblix is that this has a long LoE, and based on targeting a rare disease, it’s not part of IRA negotiations. So, we have here a medicine that can drive Novartis growth through this decade and well into next decade, both U.S. and around the globe. And we, of course, are one of the global leaders in CML. So, I think that positions us well overall. So, thanks for the question, Emmanuel. Next question, operator?

Emmanuel Papadakis: Thank you.

Operator: Thank you. Your next question comes from the line of Richard Vosser from JPMorgan. Please go ahead.

Richard Vosser: Hi. Thanks for taking my question. Can I return to Cosentyx? You mentioned the launch in HS being sort of 3 times Humira. How do you see the sizing of the indication of HS now? Is that a $2 billion to $3 billion indication for Cosentyx? And thus, do you see continued potential double-digit growth over the next few years for the product? And I suppose one just clarification just to — any quantification on the HS size of the HS contribution at this stage? And I don’t think there was any pricing or stocking in the first quarter, but just to clarify that as well. Thanks very much.

Vas Narasimhan: Yeah, thanks, Richard. So, just as context, we estimate as best we can from public information that adalimumab had over $1 billion in sales in HS historically. We do think that the market is significantly underserved. There’s a large number of patients who are not on biologics in this indication. So, it could be a substantial market. I don’t think we’ve given yet guidance on specifically the overall size of the market. But certainly, there’s a potential of a multibillion-dollar market here. So, we think Cosentyx has the opportunity to drive very significant growth for the brand as we try to reach $7 billion. Probably not in a position yet to give specific indication based guidance on Cosentyx, but we think with the combination of HS, of IV, giant cell arteritis Phase 2, which is ongoing, the polymyalgia rheumatica indication that we also have, as well as the strong performance we have in China that this gives us even more conviction that we can get to that $7 billion peak sales by the end of the decade.

Next question, operator? Thanks, Richard.

Operator: Thank you. Your next question comes from the line of Tim Anderson, Wolfe Research. Please go ahead.

Tim Anderson: Thank you. I have a couple of questions on Entresto and just timing of generic entry. So, in the U.S., can you map out for us what we should be tracking from here in terms of events and news flow that will help in inform whether mid-’25 is a good assumption? And as we’ve conceivable that sometime in ’24 you’ll have a different point of view? And then ex U.S. and the timing of generic entry, you guide for later ’26. Is there a similar level of uncertainty on that? And then, if you could wrap in China as part of that discussion on generic timing as well?

Vas Narasimhan: Yeah, thanks, Tim. So, on Entresto right now, we do have an appeal ongoing to the Circuit Court on the combination patent, which we believe will be heard and ruled on in the second half of this year. It’s important to note that there have been no Entresto generics approved as of yet, and we have two citizens’ petitions pending at the FDA on the basis for approval and also the labeling for any potential product with respect to Entresto. So, based on that fact that we don’t expect any generics to launch this year, though we can never exclude, of course, somebody trying to do something at risk. And then, separate from that, we have a number of other patents that are currently being litigated towards the end of this year and then towards the — all through the coming period, which is what overall makes us have the best estimate in the U.S. of mid-2025.

And of course, as we get better resolution on that, we can, of course, provide further color. I would also say that Entresto is on the IRA negotiation list, so that we would expect in Jan 2026, to our best understanding, at least in the Medicare population that IRA pricing would hold, and we would get better read on how that looks in September. Outside of the United States, we already include our pediatric exclusivity. So, we think our current guide of end of 2026 is reasonable. Of course, we’re always looking for ways to adequately defend all of our patents, but we think that’s a very reasonable assumption at this point in time. In China, at the moment, we currently have, I think, a number of different approaches, but the key there will be the number of generics and when they get approved.

And so, I think we could reasonably expect potential entry of Chinese generics sometime in the course of 2025. But the question in China was when we will enter the VBP list. And that, of course, is something we’re monitoring. And once we have a better understanding of the number of generics and their status legally when we enter the VBP list, we’ll be able to provide further clarity. And lastly, in Japan, we currently, outlook 2031 — I believe, 2031 or 2032, our team will get back to you exactly, but certainly into the 2030s for Japan at the current point in time. So, hopefully, that’s helpful, Tim. Thank you for the question. Next question, operator?

Operator: Thank you. Your next question comes from the line of Richard Parkes, BNP Paribas. Please go ahead.

Richard Parkes: Hi. Thanks for taking my question. Just wondered if you could help us with cost phasing. I think guidance is implying a lower margin improvement than the very strong margin improvement you saw in Q1. And I know there’s slightly missed model last year going into Q4 extrapolating the margin. So, can you just help us understand the phasing in terms of costs over this year? That would be very helpful. Thank you.

Vas Narasimhan: Yeah, thanks, Richard. I’ll hand that to Harry. Harry?

Harry Kirsch: Yeah, thank you, Richard. So, overall, as you have seen, our quarter one costs were growing in constant currency roughly 2%, which was driven by R&D, right, up roughly 6%, whilst SG&A was basically flat. That’s a consequence also of the full implementation of transformation for growth, restructuring programs, leaning out, going to one organization locally between pharma/onco and leading out above country and customer-facing functions, our organization structures and leading our processes. So, we see some continued benefits from that. Of course, we will continue to leverage new technologies, leaner processes to keep driving the multiple launches, but all within our four therapeutic areas where we have significant commercial infrastructures and medical and medical infrastructures.

So, I would expect that SG&A continues to be quite flattish, maybe here or there a bit more investment, but certainly significantly below sales growth. And then, the level of especially development spend depends also a bit on the M&A, in-licensing agenda. So clearly, we have some placeholder for that in the second half of the year as well. And then, we will update you after Q2, of course, how things are going when we have clear visibility. But overall, very good focus on cost consciousness, as Vas mentioned, excellent resource allocation to our top nine brands and pre-launches. And with that, as I always outlook, the key contribution to our margin growth is expected to come from SG&A, as we expect very dynamic sales growth this year and on a five-year basis and very limited SG&A growth.

Richard Parkes: Thank you.

Vas Narasimhan: Thanks, Harry. Thanks, Richard. Next question, operator?

Operator: Thank you. Your next question comes from the line of Mark Purcell from Morgan Stanley. Please go ahead. Your line is open.

Mark Purcell: Yeah, thanks very much for taking my question. It’s on Scemblix. I wonder, Vas, if you could help us understand the level of uptake you anticipate in the first line setting. The slide show 40% NBRx share in the third line setting, and you talked about the sort of potential ease of identifying specific patients who might most likely benefit from Scemblix versus the current standard TKIs? And I also wondered on Scemblix, have you seen any early impacts of the Part D redesign when it comes to treatment initiations and volumes? Any sort of comment there for Scemblix and across your business would be great. Thank you.

Vas Narasimhan: Yeah, thanks, Mark. I think on Scemblix, we would expect, I would say, a modest early uptake because we would have to work through — CML is one of the few cancer areas that’s currently contracted. And so, we would need to work through the access in the first couple of quarters from launch. But then, after that, we believe that given the overall data set that we’ll share at ASCO that it should be able to drive very strong uptake. And of course, you all know well that the second-gen TKIs were on the order of $2 billion medicines, Gleevec was a $4 billion-plus global medicine. And so, certainly, our goal is to make this, over time, the leading CML treatment in the world. We wouldn’t face any competition, at least branded competition.

And given that we will have demonstrated MMR superiority over the pooled group of Gleevec and the second-gen TKI, so it should put us in a very good position over time to make this into a significant medicine. I think on Part D redesign, it’s really early days for us to have a strong sense of the impact. And so, we’re monitoring this very closely, also reading all of your reports on how you’re monitoring it to really understand what is the impact of out of pocket caps, and some of the other shifts that are happening in the system on patients taking up their medicines. I think certainly as we move down from a $3,500 cap to a $2,000 cap, I would expect, in general, to see more — patient’s ability to fulfill their medicines to improve as the cost becomes lower at the pharmacy counter.