Novartis AG

Good morning and good afternoon and welcome to the Novartis Q4 and Fall Year 2021 Results 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'll 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 good morning and good afternoon, everybody. A big thank you for joining us today on our Q421 full year 21 results. 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 20-F and its most recently quarterly results on Form 6-K BATS respectively were filed with and furnished to the U.S. Securities and Exchange Commission. With that, I now hand it, of course, to Vaibh.

Thank you, Sameer, and thank you, everyone, for joining today's conference call. Moving to slide three, with me today, I have Harry, Mary France, Susanna, John, Richard, Karen, and, of course, you've already heard from Sameer. Now, turning to slide five, and before moving into the quarter, I'd like to just make a few overarching statements about the company, our direction, and our overall profile. We believe we continue to present an attractive profile for investors, a clear strategy as a focused medicines company powered by technology and technology platforms, which we believe will define the future of our sector and the future of medicine, an attractive growth profile where we're confident in the 4% plus sales CAGR that we've guided to, and with the goal to be above pure median beyond 2026, and an aspiration to be in the high 30s IM margin, which we're well on our way towards. A strong mid and late-stage portfolio with over 20 assets with significant peak sales potential, platform leadership, which we continue to work towards across multiple defining platforms in the sector, and a balanced approach to capital allocation, which I'll speak more about in a few slides. Now, moving to slide six, we continue to evolve and sharpen our strategy. We are continuing to look at where to play with a particular focus now on four key therapeutic areas with two additional therapeutic areas we are selectively participating in. Focus on four key geographies while always evaluating our geographic footprint and aspiration to transform Sandoz. Five key priorities on how we win, which we continue to focus on and believe will enable us to outperform the sector over time. And a clear aspiration to be a top three innovator, be in the high 30s in terms of our IM margin and attractive return on invested capital, and continuing to be one of the leaders in material ESG factors in the biopharmaceutical sector. Then moving to slide seven, when you look at our track record on our financial performance, our track record, particularly on IM, has been solid. IM sales in the last four years have grown 7%. IM core operating income has grown 13%, which is amongst the highest in the sector. Our IM core margin has now reached 36.2, and our group free cash flow continues to perform well, and we continue to look at improving our free cash flow generation as a firm. So I think this demonstrates that we are delivering against the goals we set ourselves, and we plan to continue to do that in the years to come. Then moving to slide eight, just as a reminder, over the coming years, we expect to grow at that 4% or better rate, overcoming the estimated $9 billion of potential generic impact that we could have in this period with a series of strong growth drivers, six major assets, which we believe will have multibillion-dollar potential, a strong pipeline, which would then be added on top, leading to that 4%. And, of course, depending on when the Entrusto LOE falls, the potential to do even better. So now turning to Q4 and on slide 9. In Q4, we delivered strong performance across our value drivers. Growth was plus 6% in the quarter with IM reaching 7% of sales productivity, continued with group core operating up 12%, IM core operating income up 15%, demonstrating that productivity power we have within the company. I'll come back to innovation, but we had important innovation milestones in the quarter. And in terms of our progress on ESG, we had improved scores on multiple ESG metrics, including the MSCI, and continued our progress on environment and human rights. So focusing in on growth and turning to slide 10, Our key growth drivers grew 24% in the quarter and now represent more than half of the IM sales. We were pleased with the performance on our growth brand, and Mary France and Susanna will go through that in a bit more detail. And as you can see on the right-hand side of the slide, the steady increase we've had of these growth drivers constituting more and more of our sales, demonstrating the replacement power of our core sales space that we have within the company. Then moving to slide 11, Across the six key brands that we're hyper-focused on, we saw double-digit growth. Cosentix growing 17%, Entrusto at 40%, Dolgen's now 46%, and Cascali at 36%. Cosimta is off to a very strong start on its first full launch year. Mary France will go through that in a bit more detail, but we saw very strong share gains. And Lectio is in a build year this year, and we expect over the course of this year to consistently build momentum towards an inflection point in the 23 and beyond time period. As you can see, and as we highlighted in our R&D day, these brands are protected outside of Entrusto into the late 2020s or into the 2030s, forming a strong foundation for the company, which we can build on with our pipeline assets. Then moving to slide 12, and when you take a geographic view of the business, We had consistent growth across U.S., Europe, and China in innovative medicines, driven by different brands in each case. But in the U.S., we continue to show consistent growth, and we have an aspiration to become a top five player in the U.S. over time. In Europe, we remain the largest pharmaceuticals company and, again, are looking forward now to launching Cosimta and Lectio in the market to continue that growth dynamic. In China, we have been one of the most consistent growing companies in the high teens over recent years. And we are confident that we will get to our goal of over $4 billion in sales in China by 2025. And we'll go through a little bit more on some of the dynamics in China in quarter four. But we've already seen a recovery for some of the slowdown we saw in Q4 due to the buying patterns. NRDL listings and some of the other considerations that we have, and we'll speak more about that in the conference call. Now, moving to slide 13 and turning to innovation, we had multiple milestones in the quarter. The approvals of Semblix in the U.S. and Lecuveo in the U.S., importantly, from an approval standpoint. Additional submissions, including Lou PSMA 617 in Europe. as well as alpalisib in PROS, an opportunity for us to take on a very high unmet need, though small, indication. Our readouts, multiple readouts in the quarter, positive data for placentic and hydradenitis, azucaratevia, as well as with IV administration and psoriatic arthritis. Ligalizumab read out as well, positive versus placebo, non-inferior versus Zola, and we continue to evaluate the path forward for ligalizumab And YTB and PHE, which I'll speak more about as well in terms of our novel CAR-T platform. We began our phase three studies for remibrutinib, both in multiple sclerosis and CSU, as well as with legalizumab in food allergy and cold-induced urticaria. Now moving to the next slide on slide 14, just a few words on some of the data readouts. Ionilumab is an acid we're very excited about. This is our anti-BAF receptor monoclonal antibody. Had very strong data in Sjogren's syndrome in a Phase 2B study. We'll be moving into Sjogren's Phase 3 later this year. We are all planning as well shortly to initiate studies in Phase 3 for lupus nephritis. We're advancing in SLE as well as in autoimmune hepatitis and expect additional data over the coming 12 months on these two indications. And we're also looking to progress within B-cell malignancies, where we believe an antibioperceptor antibody could provide an additional option for these patients. Taken together, we think this asset has the potential to be the quote-unquote pipeline in a single asset, and we look forward to advancing it across a broad range of indications. I already mentioned the Cosentix data in HF. This is a high unmet need area. Hydroxymatis supertiva is a severe debilitating condition. A good efficacy profile, a strong safety profile. We are keeping the study blinded until the 52-week time point. And following that 52-week safety data, we will then be able to move forward with submissions in the U.S. Submissions in the EU are already under preparation, and we would expect them in the first half. And as I mentioned with legalizumab, data demonstrated superiority versus placebo, but not superiority versus Zolaire. And we'll provide a further update on this asset in terms of its progress in CSU shortly. However, we do believe there's potential for the medicine in food allergy and Sindhu, given there is no approved anti-IgE therapy, IgE therapy indications. Then moving to slide 15. Just to say a word about the data we recently presented in December on our T-CHARGE platform, our next generation CAR-T platform, which we're excited about given the potential to provide fast access to therapy, hopefully improved rates of response and longer durability, as well as attractive economics in terms of its production and scalability. YTB, which is indicated for DLBCL, in a small study of 16 patients demonstrated a 73% CR rate at month three, and we're looking forward now to reading out the six-month data over the coming months. And we plan to start a phase three trial in DLBCL this summer for this asset. And PHE in multiple myeloma is a BCMA-directed CAR-T. Again, early data, but in the first six patients, 100% ORR. And what's unique about this technology platform is its ability to preserve what's termed as T-cell stemness, the ability of T-cells to regenerate themselves, to hopefully lead to more long and durable responses if a cancer occurrence should occur. Also enables a shortened timeframe for cells to be out of the patient's body. So many things to be excited about early days, but we look forward to taking this forward and hopefully over time bringing additional targets onto the T-CHARGE platform. Then moving to slide 16, in the quarter as well, we signed four additional BDML deals to strengthen the pipeline. We acquired Gyroscope, which has a one-time subretinal phase two gene therapy that has the potential to transform the care of geographic atrophy. In early data in nine patients, rather remarkable results that we saw for this one-time administration. We'll now have to see how those results hold up in larger phase two studies, but at least the potential to address a very large market and a very large patient unmet need with a one-time therapy. We signed an option agreement with Beijing for Osiprolimab, the phase 3 TIGID inhibitor, currently being run by Beijing in global phase 3 studies in solid tumors, particularly in lung cancer, EFCC, and cervical cancer. We are looking forward to working with Beijing to fully build out this program over the course of the year, and then as data continues to materialize, determine if a full opt-in would be warranted. We signed our opt-in agreement with molecular partners for Enzovibep, which has the potential to be a broad-spectrum coronavirus therapeutic for patients in the outpatient setting. It has three – targets the spike protein in three separate binding domains, opportunity for bacterial production, so much higher yield and much more efficient production, also higher scales. We are on track in our discussions with the FDA to complete an emergency use authorization filing, and then it would be determined by a review matter if the FDA would ultimately provide an approval. We also continue to be in discussions with the U.S. government as well as other governments around the world regarding this therapeutic, as well as advancing the phase three trials and subcutaneous formulation. And then lastly, we signed an agreement with UCB for the co-development and co-commercialization of an alpha-synucleon small molecule inhibitor, an opportunity to tackle Parkinson's disease with a small molecule agent against, I think, a very exciting target, early data, early days, but certainly the potential to address a major unmet need. Now, turning to slide 17, slide 17 and the following slide as well give you an overview, one kind of a snapshot of our portfolio in pharmaceuticals and cardiorenal. Things are on track, and you can see some additional progress we've made on the electio outcome studies, and if Tacopan and Pelocarsin also remain on track. In neuroscience, Zolgensma, we've initiated the phase 3 intrathecal study now. Branoplam has also now initiated its phase 2B study in Huntington's disease. I already mentioned remibrutinib and our agent in Parkinson's disease. And across the immunology portfolio, a number of ongoing projects and programs in Phase II and Phase III are largely on track. At the bottom, you see the status of our wildcard programs. Later this year, we would have readouts for QBW and UNR, and we continue to also progress the other agents in that box as well. And turning to slide 18. In oncology, we also are progressing on track in solid tumors and hematology. The Qiskali-Natalie readout is on track for an event-driven readout, but we continue to expect it by the end of 2022 if the event rate changes and it flips into 23. We'll, of course, let the markets know. The Canopy A study also is on track for a readout in the second half of this year. Lew PSMA, importantly, the additional readout for our PSMA-4 study, again, an event-driven study, but we're hopeful to have a readout on that in the earlier lines of prostate cancer by the end of 2022. And the review of Lew PSMA with the FDA is on track, given its action date later this quarter. And we also progressed JDQ with TNO. We look forward to presenting additional data on the combination, we hope, over the coming 12 months. In hematology, the Asiminib first-line approval, third-line approval, we've already achieved, and Susanna will speak more about that. And then I've already mentioned some of the other agents here. Sabatolamab, our anti-SIM3, on track for a PFS readout in the first half of this year, and the various other studies moving towards PFS and OS will come over the coming year as well. So a lot going on. We expect additional readouts, particularly in the back half of this year and heading into 2023. When you look at slide 19, you can see the full list of expected events, regulatory decisions, submissions, submission enabling readouts, additional readouts, and you can also see a large number of pivotal study starts. These studies will be important for us to continue to advance the 20 plus assets that we've been talking about that will drive growth 2025 and beyond. So moving to slide 20, Just to say also a word on Sandoz. We saw Sandoz stabilizing in quarter four. You saw sales grow plus 2% in the quarter, as well as biopharma growing 7% in constant currencies. When we think about the outlook for 2022, we forecast sales to be broadly in line. And Harry will talk a little bit more about the specifics on the guidance. We're assuming here that cough and cold reverts to pre-COVID levels. That biosimilar continues to perform, particularly in Europe, where we have a very strong market position. But we also face continued gross margin headwinds due to the price erosion and unfavorable mix, particularly in the U.S., which we expect to fully bottom out in this year and start to move towards a growth dynamic in the back half of next year. Our biosimilars launches, however, continue to be on track, and we're expecting these launches to drive material growth in the back half of 2023 into 2024 and beyond. There are $80 billion of originator sales, a large opportunity. We have 15-plus assets somewhere in development. So that will be absolutely critical to move Sandoz into a strong growth dynamic looking ahead. Moving to slide 21, a word on our capital allocation strategy. We remain disciplined and shareholder focused and really trying to balance the four elements of our strategy. And this is a shift. We're not ranking them, but rather really showing them as a balanced approach. We invest in organic business. You can see $9 billion in R&D, over a billion dollars in capital investments. We also continue to look at value creating bolt-ons. We've done around $30 billion of acquisitions since 2018. And we also return value to shareholders through our annual dividend, where we propose this year to increase by 3% Swiss francs and 6% U.S. dollars. And as announced in the quarter four, we continue to also return our capital to shareholders where appropriate. Share buybacks of $2.8 billion were executed in 2021, and we're on track with respect to the $15 billion share buyback program that we announced. the back half of last year which we expect given the nature of the swiss second line second trading line cancellations take us until the end of 2023 to fully complete so moving to slide 22 from an esg standpoint we continue to make important progress in sub-saharan africa with respect to our human rights commitments in terms of disability inclusion our environmental targets are on track with 34 scope one and two Reductions excluding offset waste disposal also reduced and on track to be at half by 2025, all on track towards our goal of being carbon neutral across scopes one through three by 2030 and fully net zero by 2040 and as soon as possible is our aspiration. And this is all led to improved scores from an MSCI. We are no longer having an MSCI controversy red flag. ranked number two in the Access to Medicine Index and also favorably ranked in the S&P Global ESG ratings, amongst other ratings that we've had over the course of the year. So in closing on slide 23, I just want to highlight the priorities for the company over the course of this year. The successful launches of Lectio, Cosimta, Lu PSMA, which we believe has the potential to be a very significant asset, And Semblix, where, again, we have the opportunity to build on a third-line approval and hopefully move into earlier lines of therapy. Maintain the growth momentum on our six multibillion-dollar assets that are the assets that we believe will drive the company's base level of growth over the coming years. Progressing the pipeline of 20-plus potential significant sales assets with the opportunity that be approved by 2026. optimize our portfolio with the sandoz review with a plan to have this updated by the end of 2022 and remain disciplined and thoughtful on our bd and m a to build the growth profile of the company but also ensure attractive returns for our shareholders deliver those returns through our productivity initiatives but especially in manufacturing and business services as we move towards the high 30s in our margins as well as an attractive return on invested capital profile and continue to reinforce the foundations of a great company, a strong culture that drives performance, leadership, and data science to drive value across the business and being an ESG leader. So thank you very much. And with that, I'll hand it over to Mary Fromm.