Novartis AG

Good morning and good afternoon and welcome to the Novartis Q1 2020 results release conference call and live audio webcast. Please note that during 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 by pressing star and 1 at any time during the conference. A recording of the conference call, including the Q&A session, will be available on our website shortly after the call ends. Should anyone need assistance during the conference call, they may signal the operator by pressing star and 0. With that, I would like to hand over to Mr. Samir Shah, Global Head of Investor Relations. Please go ahead, sir.

Thank you, and welcome everybody to Novartis' first quarter 2020 conference call. Before we get started, I just want to read you the safe harbor statement. 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 20F and its most recent quarterly results on Form 6K that respectively were filed with and furnished to the U.S. Securities and Exchange Commission. I'd like to thank you all for participating in today's call and now hand across to Russ.

Thank you, Samir, and thanks everyone for joining today's call. With me today I have Harry Kirsch, our Chief Financial Officer, Mary France Chudin, President of Novartis Pharmaceuticals, Susanna Schaffer, President of Novartis Oncology, John Tsai, our Head of Global Drug Development and CMO, Richard Sanor, the CEO of Sandoz, and Shannon Klinger, our Group General Counsel. So moving to slide five, this quarter we were able to maintain strong operational performance while supporting the global response to COVID-19. When you look at our operational performance, sales grew 13%, core operating income grew 34%. This included the effect of approximately $400 million of forward buying we saw across a range of brands. When you strip out that $400 million effect, sales grew 9% and core operating income grew 22%. So very healthy and strong growth in the quarter with solid margin expansion, both in innovative medicines and Sandoz, excluding the COVID effect. Now, moving to our pipeline, we had a busy quarter once again in delivering our pipeline to deliver long-term growth. First, with respect to Zolgensma, positive CHMP opinion and a Japanese approval. With respect to Cosentix, we had a positive CHMP opinion in non-radiographic axial spots. Ofatumumab and Inclisterin had their filings accepted in U.S. and EU, and both filings are on track with FDA. In TRUSA, we submitted the HEPPAS submission to the FDA. Bay of View had its approval in a range of markets. And we also had a priority review for capmatinib and a fast-track designation for TQJ, our antisense RNA for LP little a. Now, we also, I think, demonstrated in the quarter a very robust pandemic response. I'd like to walk you through in a little bit more detail how we've set up to respond to the pandemic at Novartis. So moving to slide six, Throughout the quarter and through the remainder of this year, we want to demonstrate a relentless commitment to associate patients, healthcare providers, and society. In each one of these areas, we've set up clear efforts, task forces to ensure that we're really trying to do the right things to ensure our business continuity, but also that we're serving all of these stakeholders. So taking each in turn, if we move to slide seven, starting with business continuity and the manufacturing and supply chain operations, we've put in place robust plans across our suppliers, our own operations, and our dealing with customers to ensure there's no disruption in our ability to deliver medicines to patients. With respect to suppliers, we have excellent transparency across the value chain and We've been working in real time to adjust our inventory levels, and it's worth noting that less than 2% of our sales are supported by APIs that are single source from China and India, giving us strong resilience in that supply chain. With respect to our own operations, we've really put in place excellent plans across our supply network to ensure that we're able to maintain solid manufacturing operations and are currently maintaining greater than six months of inventory on key brands. And then lastly, in terms of supply reliability with customers, we're achieving currently 99.5% customer service levels across our innovative medicines portfolio. Then moving to clinical trials on slide eight. First and foremost, it's important to highlight our regulatory submissions for 2020 remain on track, and our COVID-19 impact on our clinical trials is largely manageable. You can see here a list of our key regulatory submissions. They are continuing to progress. We're managing them well with the relevant regulators. Now, with respect to clinical trials, we have over 300 trials currently operating with 96,000 patients. The only disruptions we're seeing is primarily studies that are in the startup phase or in the planning phase, where we have some slowdown in new enrollments on ongoing studies and startup with new studies. But I would say that in studies that are more in a maintenance or closeout situation, we've been able to manage extremely well with minimal disruptions. Overall, across the portfolio, our ability to deploy digital technologies to look at real-time across all of our clinical trial sites, across our clinical trial portfolio, is enabling us to intervene to ensure that we minimize the disruptions. Some of the highlights include a significant number of remote monitoring visits, which we're continuing to scale up, and we also hope to use post-pandemic as an ongoing normal course of business to increase the efficiency of our operations. We have 2,500 users on our artificial intelligence-driven sense platform to predict where there are issues in clinical trials and to intervene. And we're having a very rapid ability across the network to detect, evaluate, and respond to any site-level issues. Now, moving to slide nine, when you look at our approach to ensuring the well-being of our associates, we've tried to ensure job safety with no job-related losses to COVID-19. We've paused ongoing restructurings, provided additional leave and child care assistance. We have a range of employee well-being programs. And we're also looking to adapt and have adapted our ways of working with our field force, protecting our associates in the field, and changing the way we look at incentive schemes to ensure our associates are treated fairly. This is a critically important slide because I believe it's what enables us to really see the kind of operating performance we've seen in the first quarter and expect to see over the course of this year. We have very high engagement levels across our associate base. Moving to slide 10, when you look at our engagement with HCPs and with patients, we've moved very quickly to look at digital solutions to enable patients to have online drug refills, access disease education, and access direct-to-patient services. With respect to HCPs, we've scaled quickly on web meetings, WeChat, and email in China. We've provided a range of tools to our sales associates to be able to engage in real-time and are building additional portals to really try to be at the leading edge of how digital technologies can improve the ability to engage with customers. Now, lastly, I wanted to turn to the important role we're playing in responding to the COVID-19 pandemic on slides 11 and 12. First, starting on the left-hand side, you can see with our COVID-19 response funds and donations, we've committed $40 million to countries across the globe to really support local efforts at relief, local efforts for healthcare systems to build resilience in the face of this challenging situation. We've also committed over 130 million doses of donated drugs with hydroxychloroquine, which are reaching now over 60 countries with 50 million doses shipped to date. And that's, of course, at the request of those ministries of health. We're working on a range of external collaborations. The COVID Accelerator, where with Bill and Melinda Gates Foundation, I serve as the co-chair, and we're working very hard to accelerate the next generation of treatments that we hope will come about from our collaborations, as well as a range of other partnerships you see here. From an internal discovery standpoint, we've launched our own drug discovery efforts to try to find our own direct antivirals in collaboration with a number of academic and other collaborators, and Jay Bradner and the NIBR team are working hard to bring these efforts forward. And then lastly and importantly, we've engaged in our own clinical investigations with Novartis-sponsored studies and IITs. Going to slide 12 just to briefly review some of those efforts. With respect to Novartis-sponsored Phase III studies, we have three Phase III studies now endorsed by the FDA, canakinumab, ruxolitinib, and hydroxychloroquine. Of course, it's important to note that we have to be humble with respect to any time we try to repurpose drugs in this kind of setting. And we've seen, of course, with the early IL-6 data, this will be a challenge. Nonetheless, we think it's critical to that we focus now on generating double-blind, randomized, controlled, adequately powered studies to really figure out which of these interventions could help patients. We've supported over 32 IIT proposals from a full range of our portfolio, ranging from drugs like cecukinumab, Cosentic, as well as imatinib, Valsartan, and omelizumab, Zolaire. And then lastly, with respect to access initiatives, we've approved now 697 individual requests and 23 from governments all around the world. So in slide 13, thinking about now taking a step back on the dynamics we expect to see on the full year, I think one of the things we're watching very carefully are inpatient physician dynamics On the positive side, we see longer script lengths. We see higher rates of compliance to many of our medicines. But on the flip side, we have, I think, all seen the declines in visits to providers and hospitals over the course of recent weeks, particularly for us in certain therapeutic areas like ophthalmology. So we're watching those dynamics closely. We're optimistic that given the desire of physicians in the healthcare community not to have the hidden cost of deferral of care for patients, as well as these health care systems' own economic incentives to get their health care systems running appropriately again. We'll get to a balanced situation in the coming months. Also, important payer and health care system dynamics. We're going to see, I think, over the course of the year, shifts in sources of reimbursement in the United States as patients shift their insurance to whether a government insurance and private insurance plans In addition, in Europe, we may see some delays in reimbursement decisions based on where different health authorities decide to take things in the coming year. So those are dynamics we're watching. Hard to say exactly how it will play out, but important dynamics. And then lastly, from a clinical trial regulatory dynamic standpoint, FDA is working very hard based on all of our engagement to maintain clinical review timelines. That is our current expectation. But, of course, we need to watch those dynamics very closely as the year unfolds. So that, I think, summarizes where we are on the pandemic. You can see we stable operations, trying to be a leader in respect to the global response to overcoming this situation and taking care of our associates, people, and putting ourselves in the right place to have resilience for the long term. Now, turning to our operational performance on slide 14, you can see that in the quarter, we had very strong growth across our key growth drivers. Highlights included, of course, Entresto, Zilgenza, and Cosentix also with very solid performance. And then across the full range of oncology assets, again, you can see that our medicines are doing well across the key brands in Novartis. And on the right-hand side, now we've moved up to 46% of our total innovative medicine sales coming from key growth drivers and launches, demonstrating the rejuvenation in our portfolio for the mid to long term. Now, turning to slide 15, a few words on Sandoz. Sandoz had an outstanding quarter, benefiting in part from COVID-19-related forward purchasing, but also very strong underlying performance with sales growth of 11% in constant currency. This was driven by a strong biosimilar performance with 31% constant currency growth, as well as excellent performance in Europe with 19% cost and currency growth. Now, with respect to the U.S. divestment of Aurobindo, we've mutually agreed, as we've announced, to terminate that transaction, and we'll be focused now on optimizing that U.S. business, and Harry will have some more comments as well on the overall size and dynamics of that portfolio. Now, moving to Zolgensma on slide 16. Our U.S. growth momentum continues. You saw in the quarter as we guided our Q1 sales were in line with our Q4 2019 sales. The next catalyst for Zodensma will certainly be the launches in Japan and Europe, and that's what I think is going to lead to the next sales ramp for this product. But in Q1, we also announced important data at MDA, which demonstrated the intravenous formulation had outstanding results, both in terms of persistence out beyond five years, as well as in asymptomatic patients meeting their WHO motor milestones. And we also announced in the quarter that FDA completed its review of its August 2019 form 483 response with no further enforcement actions. So upcoming milestones, CHMP positive opinion achieved, European Commission decision expected shortly, Japan reimbursement decision expected shortly, and I think importantly and perhaps underestimated, the launches we'll have in a range of other countries around the world providing additional opportunities for growth. Now moving to slide 17 with Avexis 101 IT, we believe in the quarter we also showed with the strong data, very compelling clinical profile using the gold standard Hammersmith score, demonstrating a very robust response with a mean six point increase in Hammersmith, twice the clinical meaningful threshold, as well as 92% of patients in that study in the two to five year old age group achieving a clinically meaningful response. So we're in the process now of working with FDA to resolve the clinical hold with the ongoing preclinical studies that we currently have initiated. We'll be meeting with FDA in the course of Q2 to clarify the scope of the data required and then moving to a pre-BLA meeting where we hope to clarify then our ability to file a BLA for AVXS-101-IT. Now moving to slide 18 for 2020, overall our catalysts remain on track. You can see the full range of catalysts here. I look forward to continuing to provide you updates on the various approval submissions, readouts, and phase three starts. So I think a very strong start to the year. You can see great operational performance, strong innovation performance, and well prepared for the pandemic and showing resilience throughout the coming period. So with that, I'll hand it to Mary France to give you some more details on the pharmaceuticals performance.