Novartis AG

Good morning, good afternoon, and welcome to the Novartis Q2 2020 result 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 one 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 zero. With that, I would like to hand over to Mr. Samir Shah, Global Head of Investor Relations. Please go ahead, sir.

Thank you very much, and thank you to all the participants for taking the time to join us today for our quarter two and first half yearly results for Novartis. Before we start, I just wanted 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. And with that, I'll hand across to Vassa, our CEO.

Thank you, Samir, and thanks, everyone, for joining today's conference call. With me today, I have Harry Kirsch, our Chief Financial Officer, Mary France Chudin, our President of Novartis Pharmaceuticals, Susanna Schaffert, the President of Novartis Oncology, John Tsai, our Head of Global Drug Development and Chief Medical Officer, Richard Saner, our CEO of Sandoz, and Shannon Klinger, our Chief Legal Officer. So moving to slide five, overall, we had a strong start to the year with a strong H1 performance when you look at it despite the impact of COVID-19. We believe the first half results are more representative of performance as largely the Q1 forward purchasing reversed out in Q2. Looking at our first half performance, you see sales grew at 6%, core operating income at 19%. And this underlying performance, I think, demonstrates the overall agility and resilience of the organization. When you look at our ability to deliver innovation in the quarter, a few highlights I would like to note. First, Tabracta received its approval in non-small cell lung cancer. This will be an important addition to our portfolio of targeted cancer therapies. Cosentix received U.S. and EU approval for non-radiographic axial spa, as well as a number of other approvals around the world. continuing our effort to expand Cosentix across a range of indications and continuing our long-term trajectory of strong growth with the brand. And Mary France will cover that a bit more in a future slide. Zolgensma received EU approval with a broad label for IV SMA therapy. BayoView, we had a label update with respect to the recent reports of retinal vasculitis and retinal vein occlusion. The label update was modest and I think reflects the fact that we continue to see a strong benefit-risk profile for BayoView. And then lastly, notably, we had five simultaneous approvals in Japan, enabling us to set up Japan for our next wave of innovation and growth. I did want to note we have continuing our robust pandemic response, both in terms of human capital and safety of our associates, and our ability to supply for patients and third parties. Our supply chain operations remain very stable. Customer service levels are at record high, and we're very pleased with our overall manufacturing performance. With our investments in data science and digital technologies, we've been able to minimize any disruptions on clinical trials. And I think overall, we're very pleased with our ability to maintain our clinical trial timelines. And then lastly, we continue our efforts both on phase three pivotal studies with canakinumab and ruxolitinib, as well as 35 investigator-initiated trials covering over 20 Novartis medicines currently in the clinic. And lastly, we announced last week a COVID-19 access portfolio for 15 medicines and 79 low-income and low-middle-income countries with a goal to have no profit for the distribution of those medicines. Turning to slide six, as you saw in our press release, our growth drivers continued their strong momentum. Notably, Entrusto had a very strong first half of the year. Zolgensma is continuing to grow well, and I'll talk about that in a bit more detail. Cosentix also had a strong quarter despite the challenging dynamics in the dermatology market. Mary France will cover that in more detail. And then in oncology, Kaskali, Kimraya, and Tafanlar and Mechanist all, I think, demonstrated very strong growth profiles, which Susanna will cover later on in the presentation. Taken together, you look on the right side of the slide, our growth drivers and launches now constitute 47% of our innovative medicine sales, which I think demonstrates we're well set up for the future. Now going to slide seven, when you look at Zolgensma, We had $205 million sales in the quarter, and that growth was driven primarily by geographic expansion. And just to go into a little bit more detail into the dynamics, in the U.S., we have about 60% of newborns being screened for SMA as of the end of Q2. Strong Medicaid access, 86% of lives now covered with a permanent J code in place. I think we did see some COVID-related disruptions in both April and May, given the hospital-based infusion of Zolgensma. But we did see a recovery in the second half of June. And the July dynamics are, again, positive back on the trend that we would expect. In Europe, we received a broad label conditional approval. We had a day one access program in place in many key markets, including in Germany, where we had agreements with 90% of the SIC funds in the country, as well as early access programs in the remainder of Europe. This enabled us to get off to a very strong start in Europe in the quarter. We're very pleased with that. Even in just having an approval really in late May, we already saw a strong uptake in Europe. And then our Japan launch has exceeded expectations, fast uptake in the first month of launch, and we continue to see requests from other pre-approved market countries through the named patient IND program. So overall, a strong global dynamic now for Zolgensma. Now, in terms of the regulatory and other milestones, for the AVXS 101 IT partial clinical hold, We had a Type A meeting with FDA and a very positive dialogue. FDA is open to either a six-month or a one-month data readout in our non-human primate study. We have taken the decision to go to the one-year readout of the non-human primate study just to ensure that we have a very robust data package so that when we move to a hopeful filing in next year, we'll have the best possible data to support our filings. We plan a pre-BLA meeting this year. A pre-BLA meeting can be held while on clinical hold. And assuming these meetings and discussions and ultimately non-human primate data is positive, we would plan to submit a BLA in 2021. In terms of geographical expansions, we have a number of approvals expected in the second half of 2020 as well as in early 2021. You can see the countries listed here. And we continue as well to progress our manufacturing efforts, including the expected plants in Colorado and North Carolina coming online in 2021. So overall, Zulgensma on a positive track. We are positive on the outlook and looking forward to keeping you up to date. Now moving to slide eight on Sandoz, our first half results really highlight continuing good performance. When you look at it in Q1, we had some significant effects. of stocking, which largely reversed in Q2, but the underlying performance of the business was solid with 1% sales growth and 26% core operating income growth when you look at the first half in total. Some important performance drivers, including biopharmaceuticals, growing at 25%, as well as good gross margin improvement and ROS improvement over this period of time. So we'll look forward for the second half. Of course, it remains a volatile environment in the generics industry, but we remain confident that Sandoz is well positioned for the remainder of 2020. Now, moving to slide nine and taking a bit of a step back, I think it's important to, despite the, I think, significant focus on COVID-19 and the impacts on our business, to keep the longer term in view. And when you look at Novartis, Overall, strong in-market growth drivers, significant number of major launches ongoing, a solid portfolio of novel assets, and a range of new indications. In summary, 15 ongoing launches, 80 major submissions planned to 2022, and 50 late-stage programs. And this collection of assets is why we have such a strong view that we can maintain solid growth well into the coming years. And I wanted to take a moment just to give the community, investor community, an update on both our late-stage pipeline and our mid-stage pipeline. So moving to the next slide. When you look at our late-stage pipeline, just to go through some of the key assets in detail, Ofatumumab, we continue to have very good discussions with FDA. We're on track for our action date in September of 2020. No major issues and happy to, of course, answer any questions, but we feel very good about where we are. in that discussion and in the ongoing label negotiation. With respect to Inclisarin, our U.S. and EU submissions are complete. The review is on track. As far as we know right now, all the manufacturing reviews are happening on time, and we maintain an FDA action date of December 2020. BYL-719 in PROSE, which is a more rare disease, but I think a very important medicine for this rare disease. We have a real-world evidence phase 2 ongoing, and we expect a submission in the second half of 2020, which will enable us to continue the momentum for that medicine. Tafenlar Mechanist with spartalizumab, our PD-1 inhibitor, a triplet in BRAF mutant melanoma. We're on track for the Phase III readout also in 2020 and expect a submission if the data is positive as well before the end of the year. Acinamib, our ABL001 allosteric inhibitor of the BCR-ABL for third-line CML. Pivotal study is on track for a readout in 2020 with a first submission in Q1 2021. With canakinumab, our enrollment is complete and we have both the first line and second line studies now moving towards important milestones. The first line study will have a DMC interim analysis in Q4 2020 for both PFS and OS. There's also an additional interim next year with the final readout expected towards the end of next year. And of course, the decision making with respect to the status of that program will depend on the data. Canopy 2 will have its final readout in the start of next year in second line non-small cell lung cancer. With our PSMA asset, Lu PSMA 617, the Vision Phase 3 trial, we've recently done an updated review of the pace of event accumulation. And those events are accruing at a slower rate than we initially projected. That is leading for us to now predict a readout in the first half of 2021 and a filing as well in that timeframe. Because this is an event-driven trial, we'll continue to monitor this closely and keep the markets up to date as we see the events unfold. In TRUSTO, in HFPAF, the HFPAF indication is now filed. The Paradise MI enrollment is complete. We expect FDA action on the HFPAF indication in the first half of next year, and we expect the Paradise results as well in 21. And then ligalizumab, our... an anti-IgE monoclonal antibody for CSU. Both superiority studies versus Zoller are ongoing and on track for readout and submission in 2021. And lastly, Cascali in the adjuvant breast cancer setting, we continue to progress towards the Natalie Phase III readout, which we expect in 2022, both with intermediate and high-risk patients. where we believe we have a unique study design and a unique opportunity to bring a broad label to this indication, as well as the Mona Lisa 2 OS readout in 2021. Now, moving to slide 11, some of the emerging pipeline assets that we've discussed in our recent R&D, they continue to progress as well. And I think many of these assets are underappreciated. LNP023, our factor B inhibitor, is being developed in a range of applications renal diseases as well as PNH. The single PNH pivotal trial will be expected to start in 2020 as well as the full range of renal studies as well in 2021. Remibrutinib, our BTK inhibitor, which we believe has a truly unique profile in terms of its overall chemistry, is progressing well in both CSU and Sjogren's disease. Escalimab, our anti-CD4 monoclonal antibody, also progressing well in kidney transplant and is on track We hope for a regulatory submission in 23 as we negotiate a unique endpoint for that study. TQJ, our first-in-class antisense oligonucleotide targeting LP little a, is continuing to progress well in its outcome study, and we're on track for a readout in 2024. And then three oncology assets, which we recently highlighted, MBG in our anti-TIM3 monoclonal antibody in MDS as well as AML. LXH, our BCRAS inhibitor, which we're progressing, and TNO, our SHIP2 inhibitor, are all progressing rapidly into pivotal stage studies. I would note we have a significant effort to accelerate LXH and TNO, as well as a number of other early stage oncology assets where we look now to take our molecules more quickly in pivotal studies, and we look forward to keeping you up to speed on that progress. So I hope that gives you a sense of the strength and the scale and breadth of our portfolio and pipeline and gives you confidence that we have all of the assets we need for long-term growth. And with that, I'll hand it over to Harry. Oh, sorry. I have one more slide. My apologies. We have one more important update, which is progressing on our journey of building trust with society. So as you saw over the course of the quarter, we were able to resolve a number of our longstanding legacy legal matters. I won't go through all of them, but I think it's important to note these primarily relate to events between 2002 and 2015. Since that time, we've put in place a number of important efforts that we've outlined to all of you, our code of ethics, our enterprise risk management approach, having a trust and reputation committee, a new head of ethics, risk, and compliance, as well as a robust set of activities around governance, which you can see here. This is starting to be reflected as well in the ESG ratings. We'll note that Sustainalytics has upgraded our rating in terms of their risk scores and in terms of their overall score in the risk area from 30 to a little less than 21, which puts us at the top end of our pharma peer group. I would encourage investors to ensure your ESG analysts are up to speed on the latest data from SysAnalytics, and we'll continue to work with the other ESG agencies to properly reflect the efforts Novartis is making. And with that, I'll hand it over to Eric.

Yeah, thank you, Vas. Good morning, good afternoon, everybody. I'm now going to walk you through some of the financials for the second quarter and the first half, as well as to provide an update on our full year guidance. My comments refer to the results of our continuing operations and growth rates in constant currencies, unless otherwise noted. So on slide 14, you see the summary of our Q2 and first half continuing operations performance. I will focus on the first half, as this is the better indicator of our underlying performance, as we saw Q1 forward purchasing largely reverse in Q2. The first half was strong, with sales growing 6%, driving core operating income and EPS growth of 19%. Sales growth was mainly driven, as was laid out, by Interestos or Jensmann Cosentics, And core operating income growth was driven by the higher sales and productivity, particularly in gross margin, and partly offset by some launch investments. Net income, as you can see here, grew slower than operating income as it was impacted by slightly higher tax rates and higher net financial expenses due to the acquisition of the medicines company in quarter one. Free cash flow grew 3% to $5.7 billion in the half year, and I will give a bit more detail on that later in the presentation. Next, let's focus on core margins on slide 15, again broken down both by quarter and first half. The first half sales of the 6% plus the productivity and savings have resulted in a significant increase in our core margins, as you can see here. For innovative medicines, in the first half, margin was 36.5%, up 2.8% points versus prior year. Sundance significantly grew margins by almost five points to 24.5%, driven by a favorable product and geographic mix, as well as ongoing productivity improvements. Please consider in your modeling that our second half margin tends to be somewhat lower than the first half, mainly due to higher spending patterns in the fourth quarter. Clearly, we are very well on track to deliver a mid-30s margin this year and a mid to high 30s margin in the midterm. If we now turn to slide 16, so many of you have asked us about the impact that COVID-19 has had on the therapeutic areas we work in. we wanted to describe to you in some detail what we are seeing in our business. So the key message is that most therapeutic areas were somewhat impacted at the start of Q2, as you can see here, the gray shaded area, but the magnitude of that impact was quite different. COVID affected demand most notably on docentes and mature ophthalmology, where we saw also in quarter two of this year, about 0.3 billion lower sales versus quarter two of last year. Of course, new prescription starts requiring hospital administration were also impacted, which is reflected in some of the growth rates by brand. Now on slide 16, we show the Innovative Medicine's weekly sales evolution based on a rolling four-week average, just to take some of the variability out but show the trends. indexed back to quarter four weekly sales of 2019. We have divided this up in a few different categories, which we believe is helpful as they describe the different behaviors. First, the recent launches, then the growth drivers, excluding Cosentix, which we show separately on the slide, and then we group BOFU, Lucendis, Excitra all together, and we have other sort of more mature ophthalmology products. So our recent launches and key growth drivers, excluding Cosentix, which are here shown by the lines in blue and black, did see a bit of an impact on sales growth at the beginning of the quarter, but they remained quite resilient and by early May were continuing to grow again. Cosentix, here the line in orange, also saw a decline in sales at the start of the quarter and another dip in June, but it's now normalizing. in the second half of June. In fact, Cosentix increased U.S. market share in both dermatology and rheumatology, so out through the market. The ophthalmology portfolio, shown here in the gray and green lines, so a bit more at the bottom, was the most affected, with a significant impact on sales at the start of the quarter. Importantly, we have seen a rebound with levels beginning to return to quarter four weekly sales averages by the end of June. I think that's also quite important for the outlook. Generally, we do not anticipate a COVID-related sales decline of Q2 and after to continue as we are seeing this recovery. However, we do expect some of the COVID-related cost savings on productivity that we have seen during the quarter to stick also in the midterm as we continue with our new ways of working. internally and externally. It is for these reasons that we remain confident in our margin goals and existing guidance, both for the full year and midterm. Again, I will get into some more detail on the guidance later. Now, slide 17 shows here the key factors that impacted the first half, core operating profit performance, and what we anticipate in the second half. Clearly in the first half, cooperating income growth was driven by the continued momentum of our growth drivers, especially innovative medicines and the key launches. In addition, there was increased productivity driven by our transformation programs, both at NTO and NBS. And of course, lower spending driven by COVID-19 related lockdowns. We saw some generic erosion. particularly to mature after and oncology brands. And as discussed earlier, the negative impact on those centers and mature after sales. Now, as we turn to the second half, we anticipate co-operating income growth to be somewhat lower than the first half. Of course, we expect the momentum of our growth drivers and launches as well as the productivity benefits to continue. But we also expect increased generic erosion, mainly on Affinitor and X-Shade, as well as increased investments to support upcoming launches, particularly of Atumumab and Eclisiran. Further, we will also start lapping the acquisition of Xytra as of Q3 of this year. Slide 18 shows our guidance and key assumptions. we are confirming our guidance and tightening the given prior ranges to be at the higher end for co-operating income and at the lower end of the range for sales. So we now expect continued operation sales to grow mid-single digit. Co-operating income is expected to grow ahead of sales at low double digit. And within this, the divisions, we expect innovative medicines to grow mid-single digit and Zandos to grow low single-digit. Our guidance assumes that we see a continuation of the return to normal global healthcare systems, including prescribing dynamics, particularly in ophthalmology, in the second half of the year. In addition, we assume that no Jelenia and no Sandostatin LAR generics enter in 2020 in the U.S. On to free cash flow. on slide 19. of course cash flow remains very important particularly light of the current situation but of course always important for us and on slide 19 you see our free cash flow growing three percent in the first half it's mainly driven by our operating income growth of course adjusted for non-cash items and somewhat a bit under represent the operational growth because of lower divestment proceeds. You may recall last year we had quite large divestment of parts of our Basel Composites and overall very strong operational cash collection. It's very important because also today's sales outstanding are in line with year 2019, so we don't see any issue on cash collections. And maybe one additional point as we look into quarter three, we do expect to pay most of the legal settlement fees in quarter three. Finally, on slide 20, as currencies are constantly changing, I want to bring it to your attention what we see as the estimate currency impact and our results using the current exchange rates. So if mid-July rates prevail for remainder of 2020, The full year impact of currencies on sales would be a negative one to 2% points and on core operating income, negative 4% points. For quarter three, it would be zero to negative one point on sales and negative three points on core operating income. As you know, we do update this every month. I encourage you to look at it because it is also with the US dollar, the Euro quite volatile. With that, I hand over to Marie-France.

Thank you, Harry.

Thank you, Harry. Good morning, good afternoon. If we take a look at slide 22, pharma had a solid growth of 8% for the first half of 2020, despite the significant market disruptions in Q2. The products that had a strong TR base and that are self-administered saw very solid performance, and in particular, our main growth drivers in Trusto and Cosentix outperformed the markets. We stayed focused on our strategy, and we've quickly pivoted to virtual execution. We've learned a lot, how to accelerate the patient journey, how to make our engagement more seamless, and how to deliver our promotion in a more customized way. We will continue to think boldly about how we use digital to enhance the way we activate patients, tailor education, and execute launches. If we take a look at Cosentix on slide 23, Cosentix has been resilient despite a significant COVID impact on dermatology and rheumatology new starts. Cosentix outperformed in the U.S. across indications. As I said, Cosentix has a strong TRX base. In fact, 75 percent of our business is TRX-based, supported by five years of safety and efficacy data and broad first-line access. Our focus during this time has been on maintaining patients on therapy and supporting the physician community. Now we're seeing recovery in the market. We've been back in the field since June 1st, and we expect to continue to outperform the market. If I go to the next slide, I wanted to spend a little bit of time talking about Cosentix. There's been a lot of news flow within this space recently. This market space is very competitive and is becoming more and more competitive. And although we should never underestimate the competition, there are very good reasons why Cosentix will continue to grow and go beyond $5 billion in sales. If we take a look at the dermatology market, it's a big market. And despite all of the good treatments, biologic penetration is still low. Remember that Cosentix offers a complete treatment approach. We have robust evidence in skin and unique data in scalp, nail, and palmoplantar. Together with broad first-line access, we have everything we need in this space to continue to grow. If we look at rheumatology, it's a less competitive market space as the IL-23s are not proven across the actual spa spectrum, and obviously then IL-17s are the class of choice for this indication. We have a strong momentum to continue to grow, and in fact, we're growing faster in rheumatology than we are in dermatology. We've also just received our non-radiographic axial spa approval, completing our label and allowing us to move earlier in the disease spectrum. If we look at the way forward, we want to trailblaze with Cosentix. We want to bring this drug to a potential 3.5 million additional patients with an LCM strategy that brings us from 5 to 10 indications. If we move on to Entresto, Entresto is Entresto. It continues to do well. Demand was resilient as physicians were keen to keep patients out of hospital. Cardiologists now see Entresto as standard of care, and Q2 has only reinforced this. While our NBRX were affected, the TRX base remained solid. In Q1, we talked about NBRX at 4,500. We saw a drop to almost half of that, and now we're back to 3,800. So we have complete confidence that we'll see Entresto back to its Q1 trend line. In addition, we've passed some milestones towards opening up new patient populations. The FDA has accepted our file for HFPS. We've seen approval in Japan, and we continue to progress our Paradise MI for heart failure prevention. Moving on to slide 26. With BioView, our focus continues to be on safety and transparency, and we're staying fully committed to BioView. We concluded the SRC review. We've also continued to publish all of the post-marketing data on our website in full transparency. We've had the health authority decisions on the label updates and approvals, which confirm the benefit-risk profile remains positive. We're also working with 25 external experts to help us work on root causes, risk factors, mitigation, and treatment options. The reason why we're staying committed to BOVU is that patients need treatment that provide better fluid resolution. Twenty-five percent of patients receive monthly injections, and many of them abandon treatment due to the burden of treatment. They need a different solution. From the get-go, we had great feedback from retina specialists on the efficacy of BOVU. Now we've just presented a post-doc data that was presented at Arvo that firmly establishes the link between fluid and visual outcomes, something we always believed in and now we can prove. We know from Hockenheria that BioView is better in reducing retinal fluid. We're playing the long game here and we're staying committed to this product. If I move to slide 27, we're very much looking forward to bringing Offitumumab to market. and we believe the FDA now has all the data they need to give us the green light. What is most compelling about ofetumumab is that it can give patients the possibility to live relapse-free for 9 to 10 years. What ofetumumab does is it effectively depletes B cells. This is the most efficacious way to treat MS. We've also developed this product specifically for MS with a favorable safety. It's also dosed precisely to sustain B cell depletion. and it comes in a sub-Q injection. This has the potential to truly change how physicians treat MS in first line and first switch. Our focus in these past months has been to make it as easy as possible to prescribe and access this product. We've invested significantly in patient services and are rethinking our onboarding to make it seamless and flexible. Our launch will be tailored in a very different environment, but with a very different approach, state by state, prescriber by prescriber, And as soon as we get the green light from FDA, we'll be ready to launch. If I move to slide 28, last but not least, we're progressing on our launch preparations for NCLSRAN. ASCVD is a major burden for patients and for healthcare systems. In fact, in the U.S., more than 15 million patients have uncontrolled LDL-C despite treatment. It's also a major burden for healthcare systems. The U.S. spends $350 billion on CV diseases every year, and although there are effective options available, the problem persists. We think we can tackle ASCVD much more effectively by leveraging the unique aspects of Inclisiran with a new commercial model that addresses the non-clinical barriers. That means addressing affordability for systems and patients, enabling access that ensures rapid patient onboarding at point of care, and impacting adherence with an HCP-administered product. If we can do that, we have a real chance of tackling ASCVD at a completely different scale. So in conclusion, our growth drivers, Cosentix and Entresto, have delivered solid performance. We remain focused on our strategy to maximize our growth drivers, deliver on our launches, and prepare for our next big bets. The organization has showed high agility in our current context. We've accelerated our journey to digital, tested new engagement models, and focused on customer solutions. This will only make us stronger in the future. Over to Susanne.

Thank you, Marie-France. Moving to slide 30. So you see the oncology business remains resilient in the face of COVID-19, delivering 6% of growth in the first half of this year, with sales of $7.2 billion. We have seen very good momentum across our portfolio, mainly driven by strong uptake of our recent launches, namely Qiskali, Qimraya, Picray, Adacvio, and most recently launched Tabracta. But also our growth drivers, Promacta Revolate, Tafelar Mechanist, and Chakavi continued strong double-digit growth. These brands could more than compensate for the continued generic erosion that we saw on Affinitor and XShade ShadeNu in the US, and Zendostatin LAR in EU. Lutathera achieved 105 million, and here we saw software performance driven by an increased number of cancellations and delays in new patient starts due to COVID-19. Overall, the oncology business is very resilient, and we see continued strong performance of in-market brands and recent launches. Moving to slide 31, We are very pleased with Qiskali sales reaching 159 million and continued growth through the pandemic. This growth is based on very strong demand as Qiskali is the only CDK4-6 inhibitor with two positive overall survival readouts. And just to remind you that Qiskali has a differentiated profile versus other CDK4-6 inhibitors with preferential inhibition to CDK4 versus CDK6, and a high concentration to inhibit the target. In Q2, we have seen very strong uptake in market share gains ex-US, especially in European markets where now both post- and pre-menopausal indications were approved for reimbursement in big markets like Germany, Italy, France, and Spain. But also in the US, Qiskali continued to grow and gain market share in Q2, Despite the slowdown of the CDK4-6 class driven by delays in new patient start, an MBRX for the class was down 10% in Q2. To further support physicians and patients, we have implemented a home monitoring program to ensure that patients can stay at home and have the required monitoring they need for Qiskali treatment. We are also rapidly enrolling in our Natali trial in high and intermediate Ativan breast cancer and are on track to complete enrollment in 2020. Natali has a different design than the other ongoing trials in Ativan setting with a three-year treatment regimen. So overall, we are very pleased with the performance of Qiskali. And moving to Kimraya on slide 32, Kimraya continued its very strong trajectory with Q2 sales of 118 million and this was driven by strong continued growth in the US and in Europe. Our team has done an outstanding job by ensuring no interruption of supply during COVID-19 and no single dose of treatment was missed during the pandemic. We continue to expand our global presence. We have now over 240 centers qualified to administer Chemriya across 25 countries where Chemriya is covered for at least one indication. But we also have made significant progress in expanding our global manufacturing capacity in the first half of 2020 with a 75% increase compared to previous year. EMA has now approved commercial manufacturing of Chymriah at our Novartis-owned facilities in Stein, Switzerland, and in Leserly in France. We are also pleased that FDA has granted a regenerative medicines advanced therapy designation to Chymriah for relapsed refractory follicular lymphoma. And we have completed enrollment to our ELARA trial and are on track for submission in 2021. Moving to Tabracta on slide 33, this is the first and only MET inhibitor approved by the FDA to specifically target metastatic non-small cell lung cancer patients with a MET exon 14 mutation. This is indicated for three to four percent of non-small cell lung cancer patients that have this mutation. And there is a substantial unmet need existing among these patients As usually, they have, unfortunately, a very poor prognosis and modest benefit from existing therapies. We have launched Tabracta simultaneously with an FDA-approved MET X on 14 CDX test. And due to the pandemic, we went with the first-ever wave-based full digital launch. We already see good market response and positive customer feedback. with more than 20,000 visitors on our patient website and 9,000 visitors on the HCP website in the first month of the launch. And last week, we had our first Tabracta livestream week, and we had outstanding more than 1.8 million views. So the market is responding well. More than 30 leading cancer institutions have started patients on Tabracta. We have also received approval in Japan in June, and we are now preparing for the launch. We initiated also a strong development plan to maximize the potential of Tabracta with the opportunity to serve an additional 40,000 patients. We have started planning several monotherapy trials. a confirmatory phase three trial as well as further trials of Tab Recta in specific populations such as brain metastasis and in a tumor agnostic setting. But what is even more exciting is our plan to explore Tab Recta into combinations that will allow us to potentially expand beyond the MET Exon 14 subset. So overall an encouraging start for Tab Recta. We are now gearing up for a launch in Japan. And I believe we have very exciting plans to maximize the potential of Tabracta. And with that, over to Vals.

Thank you, Susanna. So moving to slide 35, here's an updated list of the key catalysts. I've already covered, I think, or we've covered most of them over the course of the presentation, but just for all of you to have them on one place. And so turning to slide 36, in conclusion, strong first half performance, demonstrating the agility and resilience, I think, of the company. confirming our full year 2020 guidance with some tightening on the specific sales and core op-inc parameters. Our growth drivers are on track as you heard throughout the presentation, and the pipeline is delivering with the full range of mid to late stage assets as we've outlined. With that, we'll open the line for questions. So, operator.

Thank you, ladies and gentlemen. We will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star 1 on your telephone. If you wish to cancel your request, please press the hash key. Once again, please press star 1 if you wish to ask a question. And I can see there are already questions coming. First question comes from the line of Peter Welford from Jefferies.

Hi, yes, thanks for taking my questions. I'll just start with two, please. One just on Zolgensva in terms of the intrathecal formulation. Thanks for the update on that. I understand the decision to make for the one-year non-human primate data. Curious if you can also update us with regards to the dose. Are you still considering filing the mid-dose, and is there any requirement to get any follow-up of patients on the high dose at all for FDA? What's your latest thinking with regards to the clinical package that you'd be submitting to the agency? And then secondly, if we just move on to Cosentix, I wonder if you could just update us on two things there. Firstly, the dynamics you're seeing in Europe with regards to the recovery in the Derm and Rheum segments. And secondly, also on the dynamics you're seeing in China there with regards to, I think, the launches obviously in psoriasis and also now AS, just with regards to what you're seeing with patient dynamics in China, please. Thank you.

Thank you, Peter. So first on Zilgensma IT, we are currently in the process of submitting the clinical data for review to FDA, planning a series of discussions with them over the course of the fall leading up to a pre-BLA meeting. Our position is that our mid-dose is sufficient to support a licensure from a clinical package standpoint, and that's what we will be presenting to the agency. In terms of Cosentix, EU, and China dynamics, Mary Francis?

Yeah, so as I said, we outperformed the market in the US. We still don't have the Q2 data for Europe, but what I can say is that the situation was very different depending on the countries. So those countries that were in strict lockdown, we obviously saw a real impact in the new starts or switches, but we're slowly returning back to normality. So For Europe, I would say our estimate is that we'll probably see a flat growth over Q1. We saw significant growth in both dermatology and rheumatology, but there was probably some stocking in there that was reversed. In China, the pattern is very similar. So we did see in Q1 versus Q2, so Q2 was back to normal. But in China, we did see quite a significant drop in cosentics. We're now completely back on track.

Great. Thanks, Mary-Fran. Thanks, Peter. Next question up here.

Thank you. The next question comes from the line of Andrew Baum from Citi. Please ask your question.

Thank you. A couple of questions. First to Vaz, I'd be interested in your thoughts to the extent that the goodwill the industry is generating as a result of its work on COVID therapeutics and vaccines. protects them from the uncertainties over U.S. reimbursement reform. We've obviously all seen the unity platform proposals from Biden. I just wonder how relaxed we should or should not be and how protective you think the goodwill being generated ultimately is. Second, if John is on the call, I think historically he's answered the question to me about the preserved objection for action filing from Tresto as saying you're seeking a broad label, not subgroups. I'm assuming that the Parallax data supports that, particularly the six-minute walk endpoint. We haven't seen that data. Perhaps you might like to share what that trial showed to inform our confidence about potential FDA decision. And then finally, on Horizon, the TQJ230 Phase III trial, could you talk to whether there are interims in the trial that may result in readout prior to 2024? whether there's no interims because you're looking for cardiovascular mortality. Thank you.

Thanks, Andrew. On the first question, I think it's been very positive to see the recognition of the important role the industry plays in global health response, pandemic response, and overall the appreciation of R&D both in vaccines and therapeutics. That said, I don't believe that the goodwill will carry over to a significant degree into the legislative I think more what I would expect to see is a range of different proposals as we've seen in the past and what will ultimately come forward out of that still remains to be seen as to whether it will be the continued incremental changes we've seen historically or something more fundamental. I think overall we are supportive and I think many of our peers are supportive of a benefit redesign that really enables patients to pay less out of pocket in order to get their medicines. But I think in the current dynamic in the U.S., there's a lot of uncertainties and we'll see how it plays out. But I don't believe the goodwill insulates us from those policy dynamics. John, on HFPAF?

John, HFPAF. Thanks, Andrew, for the question. Thanks for the question, Andrew, on HFPAF. As we said previously, we're looking for a broad label and our position hasn't changed. As Marie France noted earlier, You know, the FDA has accepted our filing in June, and that's the approach. You alluded to the parallax data, which we did actually get the results late last year. And this is a 24-week study looking at the primary endpoint, which is NT-ProBNP. We did reach the NT-ProBNP endpoint. You referred to the six-minute walk test. We did not see a significant difference in the six-minute walk test. As you probably know, this endpoint is particularly challenging when we look at cardiovascular endpoints. But however, with the NP-PRO BMP, we do believe that this is supportive of our overall filing for the broad population. So with this overall endpoint, we will move forward with the filing and look forward to feedback from the FDA.

And then, John, Horizon, is there any interim analysis, LP little a?

Yeah, currently we're recruiting for LP little a with TQJ. There is interim analysis built in. I don't have the exact time points of when the interim is built in, but we're currently in the early stages of recruitment for the TQJ study.

Great. Thanks, John. Thank you, Andrew. Next question, operator.

Thank you. The next question comes from the line of Steve Scala from Cohen. Please ask your question.

Thank you. A few questions. It looks like a number of key timelines have been pushed out, so Zildjian type 2, 3, Entresto post-acute MI data, Cascauley OS data in the 177 LU-PSMA phase 3 data in the filing. I know each has an explanation, but no timeline was brought forward. Are these pushouts due to COVID-19, or is there some other systemic reason for all of these pushouts. Secondly, Anzal Jansma, is there a specific scientific reason to seek longer-term primate data for the IT formulation? For instance, is there evidence that dorsal root ganglia toxicity can appear late post-dosing? And then lastly, the Novartis COVID-19 vaccine collaboration was not mentioned in the release. Is this still in development? Thank you.

Yeah, thanks, Steve. On the first question, you know, I'll take that. First, I think it's important to note, as you rightfully pointed out, there's different dynamics in each, and not to tell a simple story when there's obviously complex things going on. Both Castalia OS and Loop PSMA are event-driven studies that are driven by our ability to accumulate events. In both studies, we're seeing events accumulate more slowly. We're hopeful that could be because of the effect of the drug. We can't confirm that. But because these are event-driven studies, we're ultimately at the mercy of when these events happen. And as soon as they read out, they read out. With respect to the Paradise study, I don't believe it's a push-out. Is it, John?

Well, what we had is we were accruing events, and this is another event-driven trial. So I think we're looking for the events to accrue, and the timelines will be sometime next year when we get the readout.

And then lastly, I think Zolgensma was a company decision based on a development strategy, which leads me to the second question. When you look at non-human primate data, the only thing you see, of course, with a one-time therapy, you see certain findings on pathological examination at the time of the initial dosing. Over time, you can evaluate the primates for any clinical manifestations as well as how those pathologies evolve. The longer the you follow, the more likelihood you have for further resolution and more data you have that this had no clinical impact on the primates. FDA initially requested one year. We went back with the proposal for six months. FDA accepted the proposal but encouraged us to consider the ramifications of six months versus one year. And I think in the end we made the decision to go with one year because we think that gives us the highest probability of success on this very critical medicine for these patients. So that's the analysis for how we approach that and we'll follow the monkeys. But we don't expect to your specific question any late insult. This is actually monitoring the resolution of the initial findings over the course of the first year. And then the referral to the vaccine program, you know, overall, our goal was to support a novel vaccine development using AAV technology. We are going to produce the preclinical lots, but we are not a vaccine manufacturer. Our goal in COVID is focused on therapeutics. We have two pivotal studies. We have over 20 IITs, 30 IITs, I should say, of our existing medicines. We have a novel drug discovery program targeting two different targets to try to find a pan-coronavirus medicine, and we hope to get those hopefully into the clinic next year if things go according to plan. So our focus is very much on medicines, not on vaccines, but we're very willing to use our manufacturing capacity to support the development of any candidate vaccines for COVID. Next question, operator. Okay.

Thank you. Thank you. The next question comes from the line of Graham Perry, Bank of America. Please ask your question.

Hi, thanks for taking my question. So firstly, on the canopy study, I think you previously said the interim analysis in Q4 is 2021. I think I heard you say there is now both PFS and OS in fourth quarter, not just a PFS analysis. So is that a change in the statistical analysis plan? and has the hurdle therefore changed as well? Secondly, on Zolgensma intrathecal, just to be clear, is the non-human primate data needed both for a BLA filing and also to get off clinical hold at the high dose, or is it possible for you just to file low and mid-dose and never actually get off high-dose clinical hold? And then thirdly, on Ophetumumab, could you help us with the exact PDUFA date and clarify if by then you think the site inspections would have happened, because I know they were delayed or canceled because of COVID-19, and just thoughts on the environment you'll be launching into in the second half of the year and how you might have to tailor that launch. Thank you.

Thanks, Graham. Can it be done, the PFS OS interim?

Yeah, thanks. Thanks for the question, Graham. First, I'd like to say that we haven't had any changes in terms of our statistical analysis plan for Canopy. Just a reminder for the folks online, Canopy is our first-line trial in non-small cell lung cancer with CanuCanumab. And really, this study is designed using co-primary endpoints. It's a novel approach that we've taken, looking at both PFS and OS in the first interim analysis, which will occur in the fourth quarter of this year. And this will be our first opportunity to really take a look in terms of the results that we'll get. I should outline that there will be a high hurdle for us to look at the PFS and OS for the stopping rules of the study. So, if the PFS endpoint is met, I think we will make a decision whether we will stop the study or continue with the study in terms of continuation with the OS overall results. With that as the background, I think this is how we will approach Canopy 1.

And just to be clear, we can win on either PFS or OS at both interim analyses this year and next year when the final readout at the end of next year. In terms of Zulgensma IT, we do need to get a clinical hold to be able to file the BLA or partial clinical hold. So that is why our goal is to get off partial clinical hold by generating this one-year non-human primate study. But from a clinical standpoint, we are proposing with the FDA to go forward with the mid-dose strong data, which we believe has compellingly demonstrated the impact Zolgensma has in these two- to five-year-old children. And then lastly, I think the third question was on the OFA-PDUFA timeline, Sean?

Yeah. So the timing for OFA was based on, as you remember, the three-month extension from the FDA. And the timelines currently are in the mid-September timeframe. I don't have the exact date, but it's mid-September. And so We're negotiating the aspects of the label with FDA, and we expect to reach those timelines as Foss presented earlier.

And there's no outstanding inspections or otherwise outstanding topics, so really in the final stages. And I think, Marie-France, on the launch?

Yeah, so we really feel that there's no better time to bring a highly efficacious and safe treatment that can be administered at home to MS patients Our initial focus will be to really drive the broad adoption with MS specialists and general neurologists, and we're using a really highly agile approach between face-to-face and virtual outreach. We've actually developed a digital affinity score for physicians to understand where they are and how much digital promotion we can do. We're also leveraging our learnings from recent launches and placing significant focus on patient services to ensure seamless and flexible onboarding. So that's really our objective is to make sure that patients can access quickly and easily off of Tumamab. We expect to see a ramp-up in 2021 as we see the conversion to paid product and XUS towards the second half of 2021.

Thanks very much. Thanks, Graham. Next question, Operator?

Thank you. The next question comes from the line of Mark Purcell from Morgan Stanley. Please ask your question.

Yeah, thank you for taking my questions, and thanks for all the detail in the slides today as well. Firstly, on innovation, can you help us understand on Incliterin the appetite for governments outside the UK to participate in risk-sharing deals with you? I'm just trying to understand what your expectations are for the uptake ahead of the outcome stage in 2024, and whether we should look at inclycerin and the rollout of that product as being a barometer of potential success for TQJ230. And then secondly, on the other side of the coin, clearly growth drivers, 47% of the farmer cells, but there are some drags which are difficult for us to quantify. So maybe for you, Harry, The VBP preliminary list was announced today, so Femara, Sandimune, Galvis, and Diavan. We estimate that's roughly 20% of your China sales, but to get your view there. And then secondly, on the other established and the other ophthalmology products, there's about 4.3 billion of sales in those buckets last year. Could you help us with an outlook in terms of the run rate there? So we can follow things like Travertown sales in the U.S., but it's more difficult for us to understand the size of these perks and the potential drags going forward. Those are my two questions. Thank you.

Thank you, Mark. So first on the Inclusterin commercialization outlook.

Yeah, so I think everyone realizes that ASCVD is a major burden for systems. And we also know we've got about a million patient data points on LDL and the fact that it's a modifiable risk factor. So we know that. And actually what kind of stands in the way are the non-clinical barriers. So when we think about population health, what we're talking about is really trying to develop new partnerships with healthcare systems, systems of care, that address these non-clinical barriers. And we believe that if we do that, and InclusRAN has a unique profile that allows us to address some of the main non-clinical barriers that are out there. One is affordability, there's access, and there's adherence. So if we do that and we model that properly, then we really have an opportunity to impact this disease at scale, but also the cost. So, so far we're in discussion with different payers, with different systems, not only in the U.K., and it's, of course, early days, but the conversations we're having are encouraging because I think that systems realize that if they can address this burden, it would make a major difference for them.

And read through the TQJ.

So, yes, absolutely. So if we are able to establish these partnerships with health care systems and with governments, then it does open the door for us to start partnering with healthcare systems in a completely different way. So in the same way that we would be looking at LDLC and trying to make a major difference for these patients, we could actually do the same with LP little a. Now moving to China, you know, I'll take that question.

We're certainly aware that with the VBP, a number of our products will be in this next round, round three. But I think it's important to know when we set the aspiration to double our China business, our focus was on new launches. And when you look at it with over 50 NDA submissions into China – or 25, sorry, NDA submissions into China between now and 2022 – really a leading number of NRDL listings. We've already talked about how Cosentix is performing and Trusto, our oncology portfolio. We've guided our China organizations to really focus on new launches and driving their uptake and accept the fact that there will be some commoditization of our legacy brands. So our guidance to double our China sales takes into account the fact that we will have the impact of the round three of China's EPP. And then lastly, Harry, on other ophthalmology?

Yes. So I think your question also alluded to that some of the established medicines, you know, how are they behaving? And you see that in our established medicines bucket, we usually have mid-single-digit declines. Now, Diavan and X-Forge are holding up. You know, they have seen the first half, each half a billion, and roughly flat to prior year. When it comes to OFTAH, We have highlighted that a couple of OFDA products, mainly Travata and Travapost, have basically generic exposure. That group was last year roughly 400 million, and we are basically having a generic impact also on quarter two in the range of 40 to 50 million. So part of the mature OFDA impact, but it's not significant yet. is a generalization of the TravaTran TravaPost group.

Great. Thanks, Harry. Thanks for the questions, Mark. Next question, operator.

Thank you. The next question comes from the line of Laura Sutcliffe from UBS. Please ask your question.

Hello. Thank you. I think you said on your first quarter earnings call that you still see Biobu as being a blockbuster product. Given that you have another quarter of experience, should we assume that that's still the case? And I think from some of your commentary today, should we assume that there will be a fairly long grind up towards blockbuster status if it is still the case? And then secondly, on Solgensma, it looks as though Biogen is going to do some work looking at using Spinraza in patients who have already been treated with Solgensma. So I was just wondering if you had any updates on what you plan to do with Brown and Plum. Thank you.

Yeah, thanks, Laura. So first on Bayview, Marie-France.

So to answer your question, yes, we believe. We absolutely believe, and we're staying committed to this product. We have a safety issue. It's a rare safety issue. We're taking that seriously. We've got to understand what the root causes, what the mitigation factors are, But we have an outstanding product, a product that is better on fluid resolution and where there's a clear unmet medical need for many patients who abandon therapy and end up losing their vision anyway. So we're absolutely committed to finding the solutions for BOVU to re-give confidence to physicians. We know that this product works extremely well in the vast majority of patients. We continue to focus on the benefit-risk, and we're not going to lose sight of the longer-term potential of BOVU.

Yeah, and then on Zolgensma, we continue to evaluate a full lifecycle management plan for Zolgensma to really enable us to profile the medicines, impact in a range of different patient populations. I would note that, to date, we have not seen any decline in Zolgensma patients who have received this therapy. In fact, in our clinical trial data, as well as in the real world, we see patients maintaining the milestones they gain with Zolgensma. So I think that's important in thinking through any combination-based approaches. That said, we do have our evaluating potential approach with Ranoplam, and we're also evaluating the use of Braniflam in other neuromuscular diseases as well. And so we'll keep the markets updated as we finalize those plans. Next question, operator.

Thank you. The next question comes from the line of Akhil Parke from Goldman Sachs. Please ask your question.

Good afternoon, and thank you for taking my questions. I have three, please. One for Vaas, one for Harry, and one for Marie-France on Zorgansma. Vaas, to you, the last 12 months Novartis has made significant progress on a bunch of things, including, as you alluded to, the historical legacy issues on delivering on cost initiatives and some of the launches. But they've also been benchmarked by what people are considering some execution wrinkles. Do you think the rest of the organization is able to keep up with the pace of change that you want the organization to change at? Or do you think that's not a factor in some of the issues we've seen over the last 12 months? That's question number one. Question number two for you, Harry. Given the 19% operating core operating profit growth you've delivered in the first half of the year, your guidance for the full year essentially implies kind of zero to very little operating profit growth in the second half of the year. I'm cognizant that you guys typically guide very conservatively, but would love to hear how much of the second half conservatism or the guidance includes an increase in spend from some of the kind of normal marketing activities becoming real. or do you think if the current situation were to continue, that would be upside to your targets for the year? And then lastly, on Zolgensma, the U.S. number at 105 million this quarter, I suspect it was a bit below what most people are expecting, and copies in that, a lot of it was due to the lack of switches from Spinraza users. So my question is whether that lack of switch is attributable to COVID-19, or do you see some of those lack of switches also being attributable to physicians kind of warehousing their patients in front of a potential risk plan launch? Thank you.

Yeah, thanks, K.R. So first on the first question, I get this, I've got this, I think, during a few different investor conversations. What I'd note is, on the one hand, we have had a few issues which we would have preferred to avoid, some beyond our control, like the Bay of View safety issue as well as the ofatumumab delay because of CMC delays at the FDA. But again, those were not necessarily fully in our control. And I think it's also notable that with respect to the Zolgensma data topic, again, there was no action taken. At the same time, it's worth investors remembering that we also delivered the largest spin in European capital markets history with Alcon. Six new NMEs that were approved last year, which was also an industry record, have transformed the overall strategy of the company and have upgraded our ESG rating. So I would actually say the organization is executing well. very well, but we, I think, also accept the margin for error is small, and so we'll keep working to avoid those errors. I would say our perception is there's been an overreaction when you look at the overall dynamics of the business, 6% sales growth, 19% core operating income growth, and a pipeline that's consistently ranked one of the top three in the industry in almost every measure that we can find, as well as the broad range of assets that you see on the slides. So that is our feeling. We feel like the organization is in a strong position. The culture change is on track. Our pivot to innovation is on track. Our margin expansion is well on track to get to the mid to high 30s as we guided well ahead of the commitments we made. I think we're one of the leaders in the data and digital transformation. And when you look with building trust with society, it's not just us talking. Now you're seeing the rating agencies also move as well. So I would stay tuned, and we're grateful for the long-term investors who stay the course and see the strong potential of the company, and we hope to convince the remainder. Now, with respect to guidance, Harry?

Yeah, thank you, K.R. Clearly, within the first half, having delivered 19% and guiding on the full year to low double-digit kind of takes low to mid single-digit in the second half. That looks achievable, so you can assume that our guidance is prudent and but it's also volatile times. So, you know, we will update on quarter three. Would be great to see some upside, but it's a bit too early to upgrade.

And last on the Zolgensma topic, I'll take that as our VEX's unit is run by Dave Lennon, who reports to me. The dynamics in the U.S. are really one driven by COVID, and we do expect our run rates in the U.S. to come back up to really a situation where we get the vast majority of patients identified in newborn screening and back to a healthy level of switch. Understandably, in the context of COVID in April, May, and June, parents were reluctant, of course, to bring their young children who are immunocompromised into the hospital for potential switch evaluation. We're already seeing a rebound. I think what's really notable and important is to understand the SMA market, unlike many other markets, is larger ex-U.S. than in the U.S. And as you saw in the dynamics, even in Q2, we have very robust performance in the ex-U.S. markets, Japan and Europe, as well as with the name patient programs and markets where we don't have approval yet, and we expect to have a broad range of approvals going forward. So the real catalyst now is going to be those ex-U.S. markets moving forward. Thank you, Carol. Next question.

Thank you. The next question comes from the line from Simon Baker from Redburn. Please ask your question.

Thank you for taking my questions. Two, please. Firstly, for Harry, in Q1, you helpfully gave us The margin X, the effects of COVID. I just wanted to ask if, given you haven't done that this quarter, that there are no COVID-related impacts, be they positive or negative, in the margin. And if there are, could you tell us what they are and in what direction? And related to that, you talked about the greater use of digital within product launches. Over time, what sort of impact do you think that could have on SG&A? And secondly, a Sandoz question for Richard. Given that the FDA's public meeting on GDUFA reauthorization started 15 minutes ago, I thought it would be a good time to ask you what your hopes and expectations for GDUFA 3 are. Thanks so much.

So Harry, on the margins.

Thank you, Simon. Of course, we were thinking a lot about this. You know, what kind of details do we put in? Now, as we progress in this kind of COVID year, things get a bit blurred, if you will, right, to exactly. I mean, it's never exact science here. So I think what's most important is to look at half one, where we see we had the forward buying or stocking of the patient level in quarter one. Then we have signs that mostly this has been depleted. And then what are COVID effects? No, we have positive COVID effects because in our chronic, let's say at home administered medicines, we see more persistence and better dynamics. In some of the hospital initiated, we have less. Then we have the ophthalmology business where people cannot get their injection because the physician, so it gets quite mixed and all of this together. Therefore, we look at half one, and of course you can make your own calculation, right? You take the 400 million of stocking in Q1 and say, okay, I assume that now destocked. If you do that, you know, that gives you, of course, you know, a higher percentage on Q2, but all of this gets a bit, I think, meaningless in the end. So what we have seen is unwinding of that 400 million stocking of Q1 and Q2, We have seen 300 million roughly of lower ophthalmology sales, which otherwise was stable in all the standards mature of the business. And our growth brands have grown, but then you can speculate how much would have grown without COVID. So therefore, I think you have the elements. Important is the underlying business and the strong first half where most of the stocking effects are out. In terms of SG&A, I mean, The discretionary spend that, and again, you can look at, you know, spent versus prior year. And, of course, one can assume that with the growth of sales and the launches we had assumed in an ex-COVID world, some growth of those investments, of course, below the sales line, but still there. So several hundred millions of discretionary spend savings. And we do capture the key work stream we have, I'm sure also others have, but certainly we have a key work stream here to figure out how these new ways of working internally and externally drive more productive and efficient behaviors. But the first and ultimate goal is always to best serve our patients and customers and, of course, to ensure that our own associates are safe, satisfied, and work very productive. But we do believe that a good portion of those savings can stick also in the years going forward, and that actually digital and virtual technologies would enable us maybe to save our patients and customers even better.

Thanks, Harry. On digital launch, on the use of digital technologies,

So our focus has been on three areas. The first area has been on HCP engagement, and clearly the objective here is to make sure that we can become more productive and so that we can get prescriptions faster, and we've got a number of initiatives in place to make that happen. The second initiative on the digital side is on the patient journey. So what can we do to activate patients faster, to look at areas like diagnosis, transition of care, adherence. There are a lot of digital tools that we're putting in place to just streamline that. The third area is around patient services. So looking at patient services and how can we onboard and make sure that patients get access more easily.

Good. Thanks, Mary Fontenot. And lastly, on the PDUFA negotiations, PDUFA discussions, I'd say broadly industry is looking at a couple of key areas. One is just always the continued focus on operational excellence at the agency, both in terms of the ability to hire the necessary personnel as well as meeting excellence. Second is ensuring the agency has enough capabilities to take on cell and gene and other advanced technologies. therapy platforms and really focus on that. And then continued emphasis on data and digital technologies and ensuring the agency is in a position to support data and digital technologies in the future. Of course, these are our hopes. Of course, the agency will have their hopes and will hopefully get progress in the negotiations over the coming months. So I think for the remainder of the time, if you could limit yourself to one question, maybe with no more than two parts, because we still have a number of questions on the line. So next question, operator.

Thank you. The next question comes from the line of – from Tim Anderson from Wolf Research. Please ask your question.

Thank you. A question on Tiscali and Natalie. In Q1 – You said that the interim analysis would happen in first half 2021. So one quarter later, now you're saying it slips by a year to one half 2022, which is not very far from the trial completion date that you lay out, which is second half 2022. and I'm just wondering why that big shift. Is that a change in the statistical analysis plan that led to the timing shift, perhaps based on how you're interpreting and thinking about your trial versus Pallas, or is that just merely a reflection of less events coming in? It just seems that moving that interim analysis closer to the completion of the trial may have reflected the former, some sort of some sort of guess on how your results may play out relative to Paula's.

Yeah, thanks, Tim. John?

Yeah, thanks. Thanks for the question, Tim. We've not made any changes to the statistical analysis plan for the Natalie trial. What I can say is that the recruitment is going really well. You know, currently we have 4,000 patients for the study. We're recruiting over 250 patients per month on the study, so things are coming along very well. On the interim, currently we have interims planned at 50% and 70%, so there are no changes there. One thing that you did note is the Monarch-E study, which was reported out with Abema-Cyclib, and those results have not been fully disclosed with the exception of the press release. So based on information that we get, we are thinking about how we would evaluate. Moving forward, Natalie, like we said earlier and Susanna highlighted, We're looking at both stage two and stage three patients for the adjuvant population of advanced breast cancer. So this would give us a comprehensive evaluation of these patients.

So, John, just to clarify, so we do still have the interims at 50% and 75%. So if we saw overwhelming efficacy, the trials would obviously stop. Exactly.

That's the current approach. Thank you.

Next question.

Thank you. The next question comes from the line of Shamus Fernandez, Guggenheim Partners. Please ask your question.

Great, thanks. Just two quick questions. First, I guess this is more for Harry. Harry, can you just help us in terms of the second quarter, Sandoz prior period adjustments, and then also from that perspective, how you're going to drive growth in the second half as we kind of face some tougher comps in the second half of the year. And then just a quick question. Can you just update us on the Factor B data that we are likely to see towards the end of this year? What's the next data set that we're going to see on Factor B? Thanks so much.

Thanks, Seamus. Harry, on Santos.

Yeah, I think you referred to a revenue deduction basically where on one of the products there was simply a better, one of the biosimilars in the US, a better contract outcome and therefore the revenue deductions were positively impacted by an amount between 20 and 30 million, so not so significant. Maybe on the growth for the second half, it's more for Richard.

Richard? Thanks, Brian.

So, yeah, second half, again, our guidance is low single digits. We're seeing strong growth in biosimilars, and we're assuming that most of the COVID impact has been washed out by the end of H2, H1.

Thanks, Richard. And on Factor B, John, that readouts?

Yeah. Thanks, Amoson. On LNPO23, which is our Factor B inhibitor, Bas highlighted earlier that we're looking at this in multiple indications, including hematologic as well as various renal indications. The next set of data, as you were asking about, is really in the PNH space. This is what we're looking, in terms of PNH, as an add-on to ecolizumab, which is the C5 inhibitor, which I'm sure you're familiar with. We're going to be presenting this data at the EBMT Congress at the end of August. And based on that information, if results are positive, we would move forward with a Phase III start at the end of this year. Now, just backing up one step in terms of the various nephropathies, most of the results will read out in the early part of next year, and based on the Phase IIs, if those are positive in both IgA nephropathy and C3 nephropathy, we would quickly pivot to Phase III, so these would be a quick transition from Phase II to Phase III studies in the nephropathies.

Thanks, John. Next question, operator?

Thank you. The next question comes from the line of Florent Cespied from Societe Generale. Please ask your question.

Good afternoon, everyone. Florent Cespied from Societe Generale. Thank you very much for taking my question. A quick one for Harry regarding a full year guidance on the top line. Could you maybe share with us the main reasons why you have slightly adjusted down the world the sales growth guidance to the low end of the range. Is it mainly due to a delay of Atumimab? Is it due to the softer unexpected performance of the ophthalmology in Q2 or maybe Sandoz or a bit of everything? So any call on that front would be great. Thank you.

Thanks Laurent. Thank you Florent. I mean clearly the key change between Quarter one and quarter two now is the impact on the ophthalmology business, which we have to see patients in order to make the injection. And there we lost quite a bit, if you will. I regard this as a one-timer. Now, of course, we see end of June these visits to come back. It's not yet fully on pre-COVID levels, but it's coming back. And, of course, we had a couple of things. Beforehand, that doesn't help us, but didn't change our guidance from a range standpoint. You know, of course, BOFU and the other one is, you may recall, as we retained the business in the U.S., the oil solids, that is taking down the growth rates of the company by a point. So all of these together, but the real news is the OFDA part, which moves it more into the mid-single-digit range.

Thanks, Harry. Thanks, Laurent. Last question, operator? Or no, five more questions. All right, let's keep going. Next question.

Thank you. The next question comes from the line of Matt Weston from Credit Suisse. Please ask your question.

Thank you very much. Two very quick ones, if I can. Vas, you mentioned that you were in final labeling discussions with FDA on offer Tumamab. Given it was filed as an SPLA and Arzera has a black box warning, should we be expecting a black box warning for offer Tumamab? And just quickly on Zolgensma, you're now in pricing discussions in Europe. Can you just lay out where the price point has settled in Europe to date?

Thanks, Matthew. So, John, you want to cover the OFA approach?

Yeah. So, on Arzera, I think the black box warning specifically refers to both PML cases and HPV reactivation. And, you know, looking at the mechanism of Ofatumumab, if you think about the overall approach, what we've actually looked at for opitumumab is the fastest B-cell repletion. So when patients are actually receiving sub-Q injections, they have very low and very quick recovery of their B-cells. So in return, in the studies for Ascopius 1 and 2, we did not see any cases of PML, and we also did not see any cases of HPV reactivation. So I think the FDA will accurately reflect what was in our Asclepias 1 and 2 studies, and I believe that will be the read-through in terms of how we will have the label moving forward.

And do you want to also comment on the fact that it's a different brand?

Oh, right. And we expect to get a new trade name, which will actually reflect both the efficacy and safety of the label. So we will get a new brand name associated with this. So I think this would be a different overall label and brand name for Opitumaman.

And then on Zulgensma European Dynamics, you know, overall, right now our focus has been on early access agreements. Those agreements generally allow us to have an initial payment for the use of the product and then a true-up for final price negotiation. So we're still in the process of securing those Pricing negotiations overall, though, the discussions have been very, very positive. So I think we're in a good place. As I said, 90% of SIC funds have supported the use in Germany. Early access agreements across Europe, you already see that in the sales dynamics in the second quarter. So we remain optimistic we'll be able to secure pricing in the range of what we had expected. And, of course, we'll make those transparent as soon as those negotiations are complete.

Hi, it's Samir here. Just to mention, we're going over the time, so we've got four more people on the question list. So if you're very quick, and we can do it within 30 seconds each, it would be great. Otherwise, we have a hard stop in five minutes. Thank you.

Okay, operator, next question.

Thank you. The next question comes from the line of Richard Wasser from GB Morgan. Please ask your question.

Thanks very much for taking my question. Just to follow up on LNP023, the data in the abstract at EMBT shows patients being able to discontinue Solaris and maintaining strong efficacy, I think at least five of those patients. So just the thought is when can we actually see some monotherapy data and would you progress into monotherapy in the phase three? Thanks very much.

Yeah, so we will disclose the monotherapy data at a future Congress. We do intend to take the medicine forward, both as an add-on to Aculizumab and as a monotherapy. Thanks, Richard. Next question.

Thank you. Thank you. The next question comes from the line of Emmanuel Pavarikis from Barclays. Please ask your question.

Thank you. A quick one on Cosentex, if I may. You've obviously weathered the storm from the isle 23 is relatively successful in terms of them producing a series of positive head-to-head data sets in dermatology. Would a positive head-to-head result from an IL-17 competitor impact your assessment of the robust outlook you outlined earlier? Thank you.

Yes, I think in the interest of time, I'll quickly take the questions. You know, with respect to Cosentix, you know, our belief is that we have a solid position in dermatology and that the future competitive entrants will not dislodge our overall position, whether it's an IL-17C or F or whatever the next variants are. Our focus is to drive growth through rheumatology and our new indications, as well as, as Mary France laid out, the broad range of additional indications that we have, most notably this year the approvals in non-neurotographic axial SPA. I think we've shown we can weather the entry of multiple competitors over time. Thank you, Manuel. Next question.

Thank you. The next question comes from the line of Kerry Holford from Bamberg. Please ask your question.

Thank you. Just a quick one on Zydra, please. Just interested to learn what more the regulators in Europe wanted in order to get that approved in that region and why that prompted you to give up on Europe. And then also essentially what you assume for the European opportunity within the 3.5 billion price that you paid to Takeda, and the U.S. is clearly disrupted by COVID, but I'd be interested to understand what's your next priority to turn that brand around in that market.

Yeah, thanks for the question, Carrie. Overall, our basis for paying Takeda, what we paid, was based on the U.S. plan as well as select ex-U.S. markets. It's important to note, again, as we've tried to emphasize, we paid an upfront payment, which we thought was very reasonable. We only pay the milestones based on strong sales performance. And obviously, if we hit those blockbuster milestones, we'd be happy to pay the milestones. We did not factor in the EU approval. It was an upside. The European authorities requested additional head-to-head studies, which we don't think it would be worthwhile to pursue. So our focus is the DTC campaigns in the U.S., continuing the momentum, 50% access to date, and trying to grow that access going forward in Part D. And we continue to remain, over time, optimistic we can get Zydra to the blockbuster level. Next question, last question. Last question, operator.

Thank you. The last question comes from the line of Ronnie Gow. Please ask, from Bernstein, please ask your question.

Thank you very much for speaking, for fitting me in, guys. Two very quick ones. Regarding Bellevue, is the thinking you will argue for this product with the existing data set you've created, or are there specific, perhaps to generate specifically new clinical, preclinical data to address that physician concern? And regarding Kaimara, can you discuss the impact of the change in reimbursement by CMS coming in in October? Does it essentially erase the economical benefit for physician of out-of-hospital administration versus in-hospital administration? And I know it differs between hospital, but overall.

Yeah, so on Bay of View, as Mary France mentioned, we have a robust team looking at the clinical data, looking at manufacturing formulation and preclinical data. It's important to note that there's still a very limited number of cases. And then if you look at the subset of cases with vision loss, as we transparently show on our website, it is a very small subset. So this is a tricky thing to find the precise root cause, but we do have multiple hypotheses, both from preclinical work as well as clinical work. And as soon as we have a path forward, of course, on those kinds of approaches, we'll let the community know. I think as the earlier question cited, Bay of View is going to be a long-term journey, but given the fact that we believe this medicine can be a very important part of patients maintaining their vision, we are in it for the long term. On terms of shifts in Kimraya reimbursement in the U.S., you know, I think, of course, we're very pleased by the improvement of hospital reimbursement Overall, though, we don't believe this will lead to a significant shift in dynamic other than hopefully making it easier for the in-hospital use of Kymriah over time. It's important to note that Kymriah can be used in the outpatient setting. The vast majority of patients we receive are used in the outpatient setting where it can be used under the Part B program, and we expect that dynamic to continue. Thank you all for the call. Wish everyone good health and well-being and look forward to keeping you updated at our next quarterly conference call.

Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.