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.