Novartis AG

I'd like to thank you for taking the time to participate in the Q3 Novartis conference call. The information presented today contains forward-looking statements that involve known and unknown risks, uncertainties, and other factors. These may cause actual results to be materially different from any future results, performance, or achievements expressed or implied by such statements. For a description of some of these factors, please refer to the company's Form 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 Vav.

Thank you, Samir, and thank you, everyone, for joining today's conference call. With me in the room, if I could have the slide up with our colleagues. On slide three, with me in the room, I have Harry, Marie-France, Susanna, John, Richard, Karen, and of course, Samir, who you've just heard from. So turning to slide four and then slide five, we wanted to start by taking a step back and really reflecting on how this quarter continues, I think, what has been a very strong trend for the company over the past four years. Looking at nine months for each of the years back to 2018, you see we've consistently demonstrated the ability to grow our sales at 6% annual CAGR, 13% on core operating income, and a consistent expansion of our innovative medicines margins. Now, looking ahead, we stand behind our belief that we can continue to grow our sales over the coming period at a CAGR of 4%, driven by, first and foremost, our key growth drivers, which we'll talk more about over the course of this call, our strong mid-stage pipeline, and the continued investment we have on technology platforms, which we think over time will differentiate us and enable us to have a steady flow of innovations to drive growth. Moving to slide six, for Q3, we had strong performance across each of our four main value drivers. We'll talk about sales growth throughout the call, and Harry and our colleagues, Marie-France and Susanna, will give you more details. We had good productivity with our core operating margin now reaching 37.8% in IM. On the innovation front, I'll go through some of the milestones in more detail later on, but I think it was a busy quarter for us. with some negatives, but more positives overall on balance, and we continue our journey on the innovation, on our innovation efforts. And then lastly, in ESG, we had our recent ESG Day, where we laid out our longer-term ESG strategy, and we continue to have the ambition to not only lead in the biopharmaceutical industry, but also across large companies. Now, moving to slide seven. Our key growth drivers and launches had good momentum in quarter three. We're very pleased with the performance. We'll go through some of the brands over the course of the call. But notably, we now have 53% of our sales in the quarter coming from these key growth brands. And that's up 26% versus prior year. And I think that demonstrates that we're a company that has replacement power that can continue to generate innovations that overcome expiries and drive that consistent growth over time. Moving to slide eight, we had particularly strong growth on some of our key brands, including Cosentix growing 18%, Entresta was up 41%, Zolgensma up 49%, Kaskali 27%, and Cosimta continues on its solid and accelerating launch trajectory. Marie-France will go through that in a bit more detail. Moving to slide nine. We denounced this morning we are raising our peak sales guidance for both Cosentix and Entrusto. So first from Cosentix, and we'll go through this in more detail a bit later, we've raised our peak sales guidance to $7 billion. This is driven by market growth, geographic expansion, as well as lifecycle management opportunities. And we expect this brand to continue to be a strong element of Novartis' story through this entire decade. And moving to Entresto, we believe we'll continue to have strong growth driven by market penetration guidelines and geographic expansion. Our peak sales guidance is consistent with our currently stated assumption of an LOE in 2025. However, we do have issued patents going out to 2027 and an additional group of patents that were recently issued out to 2033, and we'll continue to aggressively defend our IP to maximize the impact of this medicine. Now, moving to the next slide, I also wanted to say a word on China, where we continue Our strong growth trajectory, one of the leading multinationals in the market in China. We continue with a double-digit growth in the high teens, 16% and 18% on the quarter. This is driven by a few factors. One, the continued positive momentum we have on our growth drivers that have NRDL inclusion. And we believe we're outperforming other multinational companies. for the sales growth of these NRDL-listed brands. We also have limited exposure to the volume-based pricing. When you look at our commercial footprint, we've been expanding our commercial footprint to reach lower-tier cities and hospitals. And lastly, our late-stage pipeline continues to mature. In China, we had some important recent approvals in trustal hypertension, Lucentis, and additional indications. And we have 50 additional submissions planned in the next five years. So we're confident we're on track to double our China sales from the 2020 base by 2024. Moving to the next slide. Now turning to Sandoz, in Sandoz we had a mixed quarter. We see in the ex-U.S. dynamics normalizing, but a little more challenging environment in the U.S. So first in Europe, we had 2% sales growth, and this was really driven by both biosimilars as well as retail and a return to gaining market share in our key markets. In the rest of the world region, we were up 6% with steady growth across regions. However, in the U.S., we did see a 20% decline, and this was driven by price erosion as well as contract terminations in our oral solids business. We also had an impact on core operating income. This is primarily driven by the unfavorable gross margins from the product mix in the U.S. Now, turning to Q4, we do expect performance to normalize in the ex-U.S., and it will continue to work to stabilize the U.S. We expect our direct demand business segments to normalize, but at different rates. We continue to expect demand to be in line with what we saw in Q3, and we're hopeful that we'll see a cough and cold season that returns to pre-COVID levels. We did have a minor impact as well from a negative impact from Losartan in Q3, and we continue to expect to see some of those negative impacts in Q4. Now, moving to the next slide. We did announce this morning that we're commencing a strategic review of Sandoz, consistent with what we outlined a few years ago. We had stated that we wanted to create a more autonomous Sandoz within Novartis that would give us the optionality to ultimately determine where is Sandoz best owned, by Novartis or by our shareholders or another party. Now, we believe the GX market is attractive. We think Sandoz is well-placed to capitalize on its growth drivers over the next decade. And we think Sandoz is also well-placed to really be a leader in the next wave of biosimilars launches. When you take each of those in turn, attractive market, $400 billion of sales going to LOE over the coming decade, a CAGR of 4%. Sandoz was a number one position in Europe and in biosimilars, as well as a leading position in areas like antibiotics. And a clear strategic focus that Richard and his team have put in place. We have a very strong biosimilars pipeline with 15 assets in development, aiming for $3 billion in sales by 2025 and $5 billion by 2030. A clear strategy in complex small molecules. and ongoing margin improvements, primarily through improved COGS through our technical operations unit. So we expect to conduct this review over the coming period, and we would plan to provide an update on progress latest by the end of next year. It is notable that Sandoz is more integrated into Novartis than Alcon was historically, and so there are important considerations we'll need to work through from an IT and business services standpoint to really enable us to make the best decisions. And moving to slide 13, from a pipeline standpoint, we had a busy quarter, some approvals, a number of readouts, many readouts that went our way, but also important readouts that didn't go our way. And we acknowledge those and are working to learn from them to continue to improve our pipeline performance. But on balance, we would say we continue to be at the industry. Benchmarks are better in terms of pipeline success rates by phase. From a submission standpoint, a number of submissions went in, and I think importantly, we received two designations, priority reviews for both Siminib and Lu PSMA 617. Both of those reviews are ongoing and should enable a launch in the relatively near term. Moving to slide 14, going a bit deeper, and we've reframed these next two slides rather than looking at Pharma and Onco to really break it out by business franchise and global franchise of the various businesses. So starting in pharmaceuticals and cardiorenal, where of course we build on the strong position we have with Entresto. Lectio, we remain on track for an action date in January 1. We have good discussions with FDA, are continuing to progress. The assessment of our Austrian facility, no issues have been flagged, so we remain on track for that approval. Iptaclopan, we continue to have solid progress on this medicine with Phase III started in IgA, C3G, and atypical hemolytic uremic syndrome. disclosed in our quarter that the final readouts for both C3G and IgA nephropathy, which followed these patients for a bit longer, continued the trend of improving renal function. Peloparson continues to perform well in its Phase III. From an immunology standpoint, we announced today that Cosentix had a positive Phase II readout versus steroids standard of care for giant cell arteritis, and we've moved now to begin a Phase III program. And, of course, the hydradenitis readouts are continuing as well as the – on track as well as the other Phase III programs. Legolizumab remains on track for its readouts, and we'll talk about remibrutinib. I did want to highlight we see very good data, mid-stage data, for inolumab, which is our anti-BAF receptor antibody, and we'll be presenting more data in the coming quarters on this medicine. But we are excited about its potential in a range of autoimmune as well as hematological indications. Turning to neuroscience, the SMA intrathecal, AVXS-101 intrathecal FDA hold has been lifted as we previously disclosed, and the Phase III now is initiating. It's a global Phase III program covering 2- to 18-year-olds. Branoplam, our splicing inhibitor for, splicing modulator, I should say, for Huntington's disease, has its Phase IIb now starting with all the relevant regulatory clearances achieved. And we will announce, and we've announced, and I will talk a bit more about remibrutinib in a moment. Turning to the next slide, from an oncology standpoint, here we had, of course, a number of events. We'll talk about Kisgali and canakinumab, lupi-SMA we've already mentioned. I did want to flag we've started now both our earlier stage studies in the pre-taxane as well as the hormone-sensitive metastatic settings and are continuing to evaluate to potentially move this medicine into earlier lines. We did announce as well that JDQ443, which is our in-house KRAS inhibitor, has had good PK, good dose finding. We think it's a very good profile for this medicine and are now moving it into phase three studies in non-small cell lung cancer, but then we'll also look potentially at other indications. And this enables us to have in our own hands our own combination of a KRAS inhibitor and a SHIP2 inhibitor. Our TNO SHIP2 inhibitor is now in a number of early stage studies looking at combinations And we'll hopefully be able to present more data on this in the early part of next year. Turning to hematology, our first-line study for a siminib now has also started. PNH for iptaclopan is progressing well. Our sabatolamab programs remain on track. And importantly now with YTB, our next-generation CD19 card, we've seen very good data in the early phases, which will present ASH along with our multiple myeloma next-phase card therapy program. And we plan to start the pivotal studies in 2022. So moving to the next slide, I just wanted to say a few words on remibrutinib. This, I think, is a really well-designed medicine. We have excellent chemistry at Novartis, and our scientists have worked to really create a highly selective, potent, and safe covalent BTK inhibitor. And when you look at the data in CSU, we're the first BTK inhibitor to be able to demonstrate the kind of data that you see on these slides. First, a very good dose response with significant improvements versus placebo, and you can see the statistics here are very compelling with no safety signals. Then when you look at the improvements in the relevant urticaria score over placebo, you can see across the dose range we see a clear improvement versus placebo, and that improvement was very rapid as early as week one and maintained through week 12, the endpoint of the study. Moving to slide 17. When you look at the complete control that patients on remibrutinib BID were able to achieve versus the placebo group, very high response rates that were consistently maintained over the course of the study, I think showing the potency of the drug. But in terms of differentiation, particularly in dermatology as well as in multiple sclerosis, we were really pleased with the safety profile of this medicine, which we think will be critically important. One, there was no dose-dependent increases or treatment interruptions or discontinuations due to LFT elevations, no dose-dependent cytopenias or treatment interruptions for low blood cell counts, and no clinically relevant adverse events associated with what has been historically associated with the BTK inhibitor class across the entire dose range tested. So overall, we think this is a potential best-in-class profile for CSU, positive benefit-risk, and those Phase III studies are in the midst of starting right now. Moving to slide 18, and as mentioned, we're now initiating phase three trials with remibrutinib. We understand that we're behind some of our competitors, but we believe our expertise in conducting large-scale RRMS studies gives us the ability to close the gap. And importantly, we think for neurologists, what's really important is they have a very safe medicine that is also high efficacy, and we think we can deliver that with remibrutinib. And what will this allow us to do? We've already got the all clear to move ahead into our phase three studies. And what this allows us to do over the longer term is build on our multiple sclerosis per portfolio, Gilenya, Mazant, Cosimpta, and now adding, eventually, assuming success, Remy Brudnit. So moving to slide 19. You also saw in the quarter Kiskali achieved statistically significant OS in the Mona Lisa II study. This is the third study where Kiskali in the metastatic setting has demonstrated a significant overall survival benefit. That benefit now out to five years. It's really, we believe, should be the preferred treatment option for these patients given the compelling OS data that's been demonstrated. We plan to submit this OS data into our labeling in the relevant geographies Moving to slide 20, I just wanted to say a word, as I know there's a lot of interest now in the adjuvant readout, which we expect in 2022. It's on track, fully enrolled. Just to remind you, there's some unique elements of this study. One, it includes patients at high and intermediate risk, which is a larger patient population than some of our competitor studies. And the way we have designed the study is to base enrollment on the prognostic staging from the AJCC. A little bit different than the KI67 that has gotten a lot of attention, but we believe, and with regulatory sign-off, a very relevant prognostic staging to really ensure that we enrich for the risk of recurrence in this study. We have a longer treatment duration of three years versus two years. We lowered the dose to make sure this was manageable for patients in the adjuvant setting to overall improve the tolerability. So, as I said, enrollment complete. It's an event-driven study. We expect a late 22 readout. And, you know, feedback from FDA, which we reviewed again, says that the IDFS endpoint is acceptable as the primary analysis provided there's no detriment in OS. And we're, of course, taking that into account as we see the various readouts over the course of next year. Moving to slide 21. Now I wanted to turn to Canopy, and if you'll indulge me, I'll just take a few minutes to explain the data that we released yesterday to make sure it's clear, and then we'll, of course, be happy to take your questions. The Canopy program is based on the results we saw in Cantos, where we saw 60% to 70% improvement in the incidence and mortality of lung cancer in a cardiovascular trial. This was based on You know, a pretty good understanding that IL-1 beta as well as HSCRP are very relevant in the tumor microenvironment for lung cancer as well as other inflammatory cancers. The KNP2 study was in the second line there. We didn't see any signals of efficacy overall. And there, of course, as you saw at ESMO, the trend was not positive with canakinumab versus the control arm of chemo. In this study, while we did not meet our primary endpoints of OS and PFS and previously untreated locally advanced metastatic non-small cell lung cancer, in the overall population, we did see a positive trend, though not statistically significant. Importantly, we did see potentially clinically meaningful improvements in both PFS and OS. These improvements in these pre-specified subgroups and biomarker-driven subgroups were nominally statistically significant, and the upper bound of the confidence interval specifically did not include one, and we saw treatment effects that were meaningful in our view. However, we don't believe at this point in time that this would constitute a fileable program. Now, what we do believe is these results support the continued study of canakinumab in earlier stages of lung cancer. We believe they also support further evaluation of pro-tumor inflammation because the signals we saw were meaningful. On Canopy A, the study, we believe, more closely reflects the Canto study. It remains a high-risk study, to be clear, but nonetheless, we think it's important to complete this study to really understand if there's a possibility to replicate the remarkable findings of the Canto study. It's so important for patients if we could actually demonstrate that. Now, in addition, we would want to highlight, as I think there has been confusion about this, in this study, we did not see meaningful differences in the safety profile of the canakinumab arm versus the control arm of PD-1 plus chemo. So that kind of gives you an overview. We would note as well, we have a number of other pro-tumor inflammation medicines, oral medicines, as well as you have a Kizumab, which is another anti-IL-1 agent that has regulatory, or has LOE into the mid-2030s, and of course we're evaluating that medicine in a few other cancer settings, and we'll evaluate as well if there is a credible case to do anything further in metastatic non-small cell lung cancer. Then moving to slide 22. Lastly, before handing it over to Mary France, we've accelerated our ESG efforts. Twenty-nine million patients reached next-generation malarial therapy, now entering phase three studies, a 10-year commitment. to really support addressing health inequities and health disparities in the United States. And we've committed to net zero carbon on top of all of our other environmental commitments using science-based targets to achieve by 2040, consistent with many of our other large companies that will be announcing these at COP26. And with that, I will hand it over to Mary France.

Thank you, Vas. So moving on to slide 24, good morning, good afternoon to all. It's my pleasure to share the results of the pharmaceuticals division for Q3. Sales grew 8% this quarter, driven by a clear focus of our launch drivers, our growth drivers, and supported by the solid execution across geographies. As you can see, the growth drivers and launches have strong momentum. We're growing 32%, and now they account for 54% of sales. This is 10 points above prior year and in line with our strategy. Looking at year-to-date, you can see it's accelerating our momentum, and we're on track to have a strong finish to the year. Moving on to slide 25, Cosentex grew 22% with solid contribution from both dermatology and rheumatology. In the U.S., we're growing volume with the market. We're holding our leadership position in Europe, and in China, we're leveraging our NRDL listing. China is now our third biggest market. We've also strengthened our evidence base with multiple pediatric indications, further reinforcing the proven efficacy and safety of Cofentix. To maintain a momentum in Q4 and beyond, we remain focused on our competitiveness in the field, the flawless execution of our marketing teams, and the activation of two key groups of patients, those with PSO-PSA comorbidity that need strong efficacy in both skin and joints, and the axial SPA patients who can benefit from all-in-one release. If I move on to slide 26, while Cosentix has been on the market for six years, every year is a launch year. Cosentix has approved across five indications. All of them have low biologic penetration. With its strong value proposition and evidence base, Cosentix will continue to capture growth. Cosentix is also the only IL inhibitor with NRDL listing in China. we see strong growth potential in this market. We have an ambitious life cycle management plan, which is starting to deliver. We've seen positive readouts for giant cell arthritis and our IV formulation in Q3. We also expect data for hydroiodinitis superativa in Q4. Overall, we're looking at a potential of 10-plus indications in areas of high unmet need and an ambition to double the number of patients on Cosentix. This gives us confidence that we can grow Cosentix to at least 7 billion. Moving on to slide 27, Entresto grew 44% in the quarter, reaching 2.6 billion year-to-date. The ACC and ESC first-line recommendations for Entresto are translating into penetration gains, and the expanded U.S. label is driving NBRX growth and uptake in primary care. In Asia, China continues to deliver strong growth on the back of our NRDL listing and Japan is gaining traction. Both have acceleration potential based on our recent approvals and hypertension. As we pull through the US and the EU guideline recommendations and promote the expanded label in the US, we're well set up to maintain growth in Q4. On slide 28, if we think about the future story of Entresto, it continues in line with our existing trend. We know that there remains significant patient potential. We have 4 million patients on treatment with Entresto today, yet 70% of eligible patients can still benefit. In the U.S., where we have a broad chronic heart failure label, 85% of addressable patients are still on prior standard of care, and that makes ACE and ARBs our clear competitive focus. With the recent guideline changes, positioning Entresto in first line, we now have an opportunity to drive broader and earlier adoption of Entresto globally. So overall, we're bullish about the continued growth of Entresto to at least $5 billion. If I move on to slide 29, Zolgensma had a strong quarter and has just surpassed $1 billion in sales for the year. In the U.S., we're treating over 90% of babies, according to our label, due to the high rates of newborn screening, In Europe, we had strong uptake in Germany and Italy, and we saw a bolus of sales in the UK following reimbursement. We expect we've seen the bulk of this in Q3, but we have also reached agreement on reimbursement in Russia and a number of smaller EU markets. So if we look ahead, we see four key drivers of future growth. New markets with Egypt, Saudi Arabia, Ben Al-Aqsa expected to contribute in Q4. increasing newborn screening so that we can treat patients early on when the benefit of gene therapy is the greatest. Heavier patients, our SMART study aims to drive confidence in Zolgensma's value across the full EU label and intrathecal. Following the alignment of our phase three study design, we're now one step closer to bringing IT to patients aged two to 18 and thus ultimately address the full spectrum of SMA. If I move on to slide 30, While the multiple sclerosis market has contracted quarter over quarter, Casimta grew 56%. Importantly, Casimta has been a strong driver of the dynamic B-cell market with an additional 1,000 patients on treatment. Our strategy remains focused on three elements. Increasing familiarity. We're maintaining a high share of voice, and we've added more than 500 prescribers versus Q2. Driving further clinical differentiation. We just presented three and a half years of IgG data at ECTRIMS, and we're generating evidence on switching and patient-reported outcomes needed to change clinical practice. We're also focusing on customer experience, ensuring fast onboarding and broad access to make it easy to initiate patients. We continue to see more than 50% of our uptake in first-line first switch, and we know how important this is because this is where we can have the highest impact on progression and long-term outcomes. We see huge potential in this B-cell market, and we're driving the growth in the dynamic segment. We have the right strategy, and we're going to take further share as the market rebounds. Moving on to site 31. On LECVIO, you most certainly saw that we received nice approval, and we're currently working to implement our broad-reaching commercial agreement with NHS England. We have also been fully focused on the upcoming U.S. launch. We're working closely with healthcare systems to prioritize ASCVD, to identify patients, to set up buy-and-bill, and we're also leveraging our Entresto sales force to educate on the unmet need in ASCVD. For customers who may not want buy-and-bill, we're creating a network of alternative injection centers where patients can receive Lectio. We've signed up more than 1,000 centers and expect them to become a significant factor in pulling through our demand early on. We're also ensuring we generate the right evidence needed to succeed in the U.S. market. Based on our engagement, we expect the majority of the 200 prioritized healthcare systems to start treating patients in 2022. The uptake will be skewed to the second half of the year when the majority of the systems should be ready for buy-in bill and our permanent J-code should be issued. We're working with diligence. We're taking a long-term perspective on what needs to be done to transform how ASCVD is treated to make Lecvio one of the biggest medicines for Novartis. In summary, we continue to execute against our strategy, maximize our growth driver, deliver our launches, and prepare for the next wave of products. The teams are working with a strong sense of urgency and purpose to be more customer focused so we can bring our innovation to more patients faster. I want to thank the teams around the world for their commitment and show my confidence in the continued momentum for a strong year end. Now let me hand it over to Susana. Thank you, Marie-France.