Novartis AG

Good morning and good afternoon and welcome to the Novartis Q2 2021 Resorts Release Conference Call and Live Webcast. Please note that during the presentation, all participants will be in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions by pressing star and 1 at any time during the conference. A recording of the conference call, including the Q&A session, will be available on our website shortly after the call ends. Should anyone need assistance during the conference call, they may signal the operator by pressing star and 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 good morning and good afternoon, everybody. Big thank you to all of you again for participating in this call and spending the time to listen to our quarterly results. The information presented today contains forward-looking statements that involve known and unknown risks, uncertainties, and other factors. These may cause the 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. So thank you again. And with that, I'll hand across to Vas Narasimhan.

Thank you, Samira. Thanks, everyone, for joining today's conference call. Today with me, I have members of our executive team, And I also would like to introduce Karen Hale, our new chief legal officer. Karen joins us from the biopharmaceutical industry with over 20 years' experience in a broad range of medical devices and pharmaceuticals. So welcome, Karen. So if we could move to slide five. I wanted to start by reflecting on the journey we've been on as a company as we focused the company, rolled out our strategy, and delivered consistent performance over the recent period. Going back to the first half of 2018, when you look at our financial performance over the first half of the subsequent four years, our sales have grown at 6% CAGR, our core operating income at a 13% CAGR, and we've grown our innovative medicines margin from 31.8 to 36.8% in the first half of 2021, demonstrating that our operational execution has been strong. Now, when you look ahead, we remain confident in our growth outlook, as we outlined in Meet the Management last year, where we highlighted a 4% CAGR off of our 2019 actuals to a 2025 sales goal of $60 billion or more and a consensus IM margin that is currently at 37.6% that we remain confident that we can achieve. So, a strong performance track record and a strong growth outlook remains the story for Novartis. Now, going to slide six, when you look at our strong performance in Q2, it was strong across all of the key elements that we believe will drive long-term value for our patients as well as for shareholders. Our sales growth was strong, and Harry will go through that in a bit more detail. We had strong productivity with good core operating income growth and good margin expansion. We continued our innovation agenda, which will be critical to driving the growth to 2025 and, importantly, beyond. And we also consider it on our journey to be a leader in ESG with some important milestones. And I'll talk about each of these areas in turn. Moving to the next slide, when you look at our key growth drivers and launches over the period, we demonstrated, I think, strong performance across our key brands. Mary France will talk a bit more about the strong performance of Entresso, Cosentix, and Zolgensma, as well as Cosimta, which is off to a good and strong start. And then Susanna will also cover the various oncology growth drivers. So taken together, our key growth drivers and launches now account for 51% of our IM sales. And these products are growing at a rate of 29% in quarter two, which I think nicely demonstrates our transition from an older portfolio of medicines to a next wave of portfolios, which we believe will enable us to drive our growth over the next decade. Now, moving to slide eight, I also wanted to say a word on Sandoz. We saw the business stabilize in quarter two. We saw sales at 5% in the quarter. Biopharma sales were also up 5%, and core operating income was also up. Now, when you look at the story for the rest of the year for Sandoz, we continue to expect disruptions related to COVID, but we do expect also, assuming healthcare systems continue on their current trend, return hopefully back to a more stable situation. We haven't had a historically weak cough and cold season and decreased anti-infectives use, but we will see how this fall unfolds. And again, we're hopeful that we can get back to a more stable situation overall in the generic sector. Now, that said, we are confident in the longer-term outlook in Sandoz. We've made, we believe, the right investments in biosimilars. We've doubled the size of the biosimilars pipeline. with a focus in key therapeutic areas such as oncology and immunology. And we continue to also invest in our core generics capabilities. We've strengthened our antibiotics manufacturing setup as well as brought in new portfolio of assets, including our recent acquisition of GSK's anti-infectives portfolio. And we continue to make investments in complex generics, including oncology injectables and respiratory medicines. So over time, we remain committed to delivering a Sandoz outlook of mid-single-digit sales and mid to high 20 core operating income margin. So moving to the next slide and turning to innovation, Q2 continued our progress on the innovation front. We had approvals of Cosentix in the U.S. in pediatric psoriasis, as well as Entresto in essential hypertension in China, which can be another growth driver for Entresto, building on its already strong performance. I'll say a bit more on some of these other milestones and subsequent slides, but I did want to note that Siminib, or ABL001, has been filed in the U.S. in the third-line setting. We do believe this medicine has blockbuster potential in the third-line setting alone, not to mention our efforts to move it into earlier lines, which I'll say more about. And we also had important advances on Kimriah and Apelacib as well, which I think will enable us to broaden the indications for both of these medicines. So, moving to slide 10 and taking a little bit of a deeper dive on our portfolio, starting with our lifecycle management. I already mentioned the China approval and essential hypertension, but for Cosentix, we remain on track for the hydro adenitis superativa readouts in the second half. There is strong open label data that supports the use of Cosentix in this indication. And then we also have a range of other indications we're developing, as we've noted, to enable Cosentix to continue its strong trajectory. We're on track for Qiskali's Mona Lisa 2 OS readout in the second half, which would be the third OS readout. Two have already been favorable for Qiskali, really building on the unique profile we believe Qiskali has. We also are on track for the Adjuvant readout in 2022. We'll speak more about Lectio in a moment. Now, turning to pharmaceuticals, we'll go through etaclopam's data in a bit more detail, but I wanted to highlight as well that legalizumab's CSU studies are on track for phase three readouts in the second half. We have also initiated or are progressing chronic inducible urticaria studies as well as food allergy studies. And we have continued to progress Braniflam with an agreement now with the regulators for a start in the second half of a Phase IIb study in Huntington's disease. Moving to oncology, our canakinumab readouts are also on track. For Lew PSMA, we have submissions planned for the second half, and we've started the phase three studies in the earlier line settings. I'll say a bit more about that. And I also wanted to highlight that with TNO155, or SHP2 inhibitor, we've already now advanced both in combination with other KRAS agents, but are also now moving into the clinic with our SHP2 in combination with our own KRAS agent, JDQ, as well as other SHP2 combinations that we're currently exploring. Lastly, I wanted to note that Asiminib now has entered our wildcard box on the bottom here in the first-line setting where Asiminib is going against investigator choice of TKI. Our hope is if we were able to deliver this result, we would be able to once again transform the care of CML patients with a multi-blockbuster potential indication for Asiminib. It's worth noting that across the wildcards you see in that box, While these programs are still early, each one of them has the potential to be a multibillion-dollar medicine if we're ultimately able to deliver on the clinical value of these assets. Moving to slide 11, saying a bit more on Inclisarin, you likely saw that our PDUFA action date is now January 1, 2022. We have filed the refile from our shaft and outside, which is the manufacturing location where we currently do secondary manufacturing for products such as as well as other biologic sites. It's well known to the regulators. We also have. I believe we've addressed the concerns that FDA has raised, and it's notable that FDA has not raised any concerns related to the efficacy or safety of Inclisirin in any of the interactions that we've had. So, this is a Class II resubmission, a six-month timeline. We, of course, will continue to work with FDA to see if there's opportunities to move this up earlier in the time period, but hopefully now this will get us to a place where we can bring this very important medicine with a very substantial potential for the company to market in the United States. Then moving to the next slide, turning to Lou PSMA, you likely saw the ASCO plenary session. The medicine had really remarkable results of a 38% reduced risk of death and a 60% improvement in RPFS. Regulatory submissions are on track for the second half. The movement into earlier line studies with the PSMA-4 and the PSMA addition studies are already underway. And we're also evaluating whether to move the medicine even into earlier line settings. We're working very hard to also expand the relevant capabilities to administer the medicine, and Susannah will speak more about that in a moment. Moving to the next slide. Eptaclopan continues to show its utility across a broad range of indications that you saw in the quarter. With IgA nephropathy, we presented the primary endpoint at ERA, EDTA, a 23% reduction in protein ERA at three months. And it's important to note that this was a three-month time point. We expect that protein ERA over time to continue to improve as we typically see in studies like this. So we look forward to looking at the six-month and beyond endpoints. Also importantly, there was a stabilization of renal function, which will be very important from a regulatory as well as clinical utility standpoint. The APLAS IgA nephropathy study is now ongoing to support the filings worldwide in this indication. We also continue to progress our C3G indication for this medicine with EU prime designation already achieved. We had a 49% reduction in proniura with this medicine at three months. Again, we would expect that trend to hopefully continue in subsequent months. A stabilization of renal function, also well-tolerated. And this Phase III study now is enrolling to support filings worldwide. And moving to the next slide, when you look at etoclopan in PNH, we also – presented data here in the frontline setting to complement the data we already have as an add-on therapy. This new data, which we presented at EHA, showed clinically important benefits of monotherapy of taclopan. And this novel agent with its ability to inhibit factor B with both the impact intravascular and extravascular hemolysis gives us hope that we can be ultimately indicated for frontline usage as well as add-on to ecolizumab, Worth noting, it's unique as an oral agent with a great safety profile, so we look forward to completing the applied PNH studies with the superiority endpoints and then, again, to support filings worldwide. As you likely saw as well in our recent investor day on this medicine, we have a broad range of indications also now advancing. We believe this medicine has a substantial potential to treat a range of immunological, renal, and hematological diseases. And moving to the next slide, one piece of data that came out in the quarter that didn't attract as much attention as what one might have expected is our Zolgensma Sprint data. This was remarkable data showing the impact that gene therapy can have on children with SMA. In this study, 100% of the patients met the primary endpoint of sitting independently when treated in the pre-symptomatic setting. So these are patients who are identified through newborn screening and treated with Zolgensma. 100% of patients met the secondary endpoint. Also with respect to walking and standing, we saw remarkable gains for these patients, which we hope will continue to improve over time. This data reinforces that Zolgensma is a foundational therapy for pre-symptomatic and symptomatic children with SMA. It also continues to give us confidence that over time, as gene therapies as a sector matures, our capabilities in gene therapy, having learned so much with the introduction of Zolgensma around the world, building outstanding manufacturing and technical capabilities will allow us in the long term to be a leader in gene therapies for the decade to come. Now, moving to the next slide, I also wanted to say, and as a last note on the pipeline, an update on the Sabitolum and Simulus program, which is progressing in MDS and AML. And as a reminder, in Phase 1 studies, we showed that Sabitolum had a 58% ORR in myelodysplastic syndromes. And given its unique mechanism of action, it's the first IOA agent in the hematological setting. It gave us confidence to move forward in MDS and AML with the stimulus programs, which are pivotal studies that tackle both of these indications. Now, the parallel execution of these trials offers us a range of filing options. We did have the CR readout, and the DMC recommended that we continue the study blinded to the PFS readout. And then, of course, the OS readout as well will come over time. It's also worth noting in the MDS program, we have a third study in the stimulus array of studies that also looks with a triplet combination, including venetoclax. So, we believe we have a program that can adequately cover the range of potential options that would be needed for patients to be treated effectively with a medicine such as MBG. So we remain very excited about the program. We think scientifically, mechanistically, and as a first-in-class asset, it can be an important addition to AML and MDS treatment, an area that we've been a leader in for many years. So we'll look forward to keeping you updated on this program. Now, moving to ESG, we had strong progress on ESG. I think some notable milestones in our effort to be a leader in this space. We reached one billion courses of anti-malarial treatment delivered since 1999. It's one billion patients we've been able to treat with our co-ARTEM, a pioneering agent to treat malaria. Very proud of that achievement. We also recently announced a 10-year commitment to empower 1,200 African American students working with historically black colleges and universities to really address the inequities in medical education and broadly inequities in healthcare in the United States. And you can see other important milestones that we hit over the course of the quarter. So we'll look forward to continuing our progress on this front and being a leader in ESG for the long term, ultimately embedding this into our business to drive long-term performance. So with that, I'll hand it over to Mary Franz.