Novartis AG

Good morning and good afternoon and welcome to the Novartis Q3 2024 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 1 and 1 at any time during the conference. Please limit yourself to one question and return to the queue for any follow-up. A recording of the conference call, including the Q&A session, will be available on our website shortly after the call ends. With that, I would like to hand over to Ms.

Sloane Simpson, Head of Investor Relations. Please go ahead, Madam. Thank you so much. Good morning and good afternoon, everyone. Thank you for joining our Q3 2024 earnings 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 will hand across to Bas.

Thank you, Sloan, and thanks, everyone, for joining today's webcast. So we'll dive right in. I have Harry Kirsch on the line with me as well as always. So moving to slide four, you saw this morning the Novartis delivered strong operational performance in quarter three, really continuing now what's been two years of very strong operating performance for the company. Sales grew 10%. Core operating income was up 20% in constant currencies. In the quarter, our core margin went all the way up now to 40.1%. And we also had important innovation highlights, which we'll talk about a bit more over the course of the call. Cascalli's FDA approval and CHMP positive opinion in hormone receptor positive HER2 negative stage 2 and 3 early breast cancer, our Fab-Halta accelerated approval in IgA nephropathy. So, VICTO had its filing accepted for the PSMA4 population in metastatic castrate-resistant prostate cancer. And then we expect the Semblitz approval in the coming weeks. We received FDA priority review for first line CML. And lastly and importantly, we had our third guidance raised for the year, raising both our top and bottom line guidance. And Harry will go through that in more detail. So moving to slide five. Quarter three growth again reflected strong performance across our key growth drivers. You see 34% currency growth, which we expect to continue and help drive our 5% guide out to 2028 and also enable us to continue that strong margin expansion that you've seen. And let's go through each one of these brands in more detail. So moving to slide six, Entrestos sales continued to climb as they have now for multiple years. increasing 26% in quarter three. It's the 10th year now of continued momentum on this brand, which I think really shows our ability to create large and lasting cardiovascular medicines. 25% TRX growth, 20% NBRX growth, 500,000 TRXs per month. Ex-US, we're growing 26%. So we're confident in the growth up to the LOE. We have strong guideline positions in the US and EU. We continue to see very strong performance in hypertension in China, in Japan. We don't expect an LOE in Japan until 2031 at the earliest, and we continue to see protection for our business in China. For forecasting purposes, we maintain our guidance of the LOE for Entresso in the United States for mid-2025. And in the EU, regulatory data protection would expire in November of 2026. So moving to slide seven, Cosentix grew 28%, and this was primarily driven by the strong performance we've had in our new launches in HS and in the IV formulation. You can see 28% growth overall, but driven by very strong performance in the United States of 38% outside the US, 16% in constant currencies. We remain the number one IL-17 in the US dynamic market, and we're the leading originator biologic now in the EU and in China. In HS, we've achieved dynamic market leadership with over 60% NBRX share. In Germany, we're at over 50%, and we increasingly secured reimbursement in our key market. So we see the opportunity to continue to grow dynamically. We think we have an outstanding data profile, even versus the incoming competitors. And we also see an opportunity for a market that's going to continue to expand. A market that's probably 3 billion plus today, but has the potential to be a 5 billion plus market over time or even larger, depending on how patients continue to see their physician. In the IV, we have accelerated adoption in the US with over 1,250 accounts now ordering. That's a 52% growth. I think we'll continue to see more sales delivery in IV now that we have the permanent J-code, but that, of course, will take time, and we look forward to delivering that. We have two important LCM opportunities that will beat out in 2025 in polymyalgia rheumatica, as well as in giant cell arteritis, both sizable indications that could give us even further opportunity to well exceed Cosentix's $7 billion peak sales forecast. Now moving to slide eight, Simpta continues to see stronger men globally, and it's a unique profile that this medicine provides for patients and physicians. So 28% growth, but when you strip out the one-time RD adjustment that we had from a European market last year, our sales growth was 56% in constant currencies. We now have over 100,000 patients treated worldwide, either naive or first switch. The US, our growth, TRX volume growth was 38% versus prior year, gaining 3.7% share. Ex-US, we had strong underlying growth, excluding the one-time RD adjustment from last year. We also presented some important new data at ECTRIMS in the Aletheos trial. 90% of first-line Cosimsa patients had no disability progression independent of relapse activity up to six years. And we had an additional study that demonstrated no new active lesions 12 months after switching from an anti-CD20 IV therapy. So we remain confident in the continued momentum on this brand. We're annualizing now well above $3 billion and have the opportunity, I think, to well exceed our $4 billion peak sales guidance to date. To our knowledge, there are no Kesimpta biosimilars currently in clinical development, which should give us a long runway looking forward for this medicine. And moving to slide nine, Kaskali continued to cement its leadership in metastatic breast cancer and launched, importantly, in early breast cancer, as I mentioned. But perhaps most importantly, we achieved a Category 1 NCCN guideline recommendation for the full Kaskali population. Overall growth in the quarter was 43%. U.S. is up 50%. It's really gaining widespread adoption. Our NBRX share at 48%. We're now second in TRX share overall. We have over 7,000 physicians now actively prescribing Qiskali and I think reflecting our strong guideline position. Outside of the U.S., 36% constant currency growth as the preferred CDK4-6 inhibitor in the class. We have a leading share of 43% in those international markets. We're the fastest growing CDK4-6 in Europe. Now, as I mentioned, the FDA approved Qiskali with a broad label, fully in line with the Natalie population. CHMP has issued a positive opinion, and we're looking forward to a European Commission approval to allow us to launch in Europe. The Qiskali, if we go back to slide nine, the Category 1 guideline recommendation for the full study population, I believe, gives us the opportunity now to really fully realize the potential of this medicine, including a node-negative patient. And the early feedback we're getting from the market is very strong. The early scripts we're seeing show a very strong trend. And we look forward to now building upon that as we get broad access for this medicine. We would expect access in the early breast cancer setting in the range of 90%, which is what we have for Cascalli in the metastatic setting. Now, moving to slide 10, as a reminder, Kiskali showed a really strong deepening benefit in the update that we showed at ESMO. When you look at the graph on the left, across the intention to treat population, as well as stage 2 and stage 3 patients, as well as a node-negative disease, and a really strong four-year IDFS absolute benefit, benefit that's consistent, consistent also across secondary endpoints. We have a trend of improved OS, which which we expect to continue to deepen over time. No new safety signals were identified. So overall, we think we now have really the perfect positioning that we would want for Cascali to succeed in the long run. As a reminder, the early breast cancer indication doubles the number of patients that are eligible for Cascali versus the metastatic indication. And we estimate it is a three times larger population than is currently labeled for the competitor product in the class in early breast cancer. And moving to slide 11, PluVicto continued what we would characterize as steady performance in the post-taxing setting. Our focus at the moment is really laying the foundation for the PSMA4 launch in 2025, which would triple the number of patients eligible for PluVicto. We saw 50% growth in the quarter. When you adjust for the one-time price adjustment in Europe, our sales growth grew 36%. Just to provide more context, that was true volume growth that we had in earlier quarters. as is always the case in certain European markets, our prices get adjusted over time. So that was the reason for the uplift we saw in Europe. Overall, we would expect quarter four to be broadly in line with quarter three, excluding the RD adjustment. And I think for us now, it's really about preparing the market for PluVicto and PSMA4 opportunity. Our U.S. field force has now expanded. We've launched a DTC to drive HCP and patient awareness. We now have 530 treatment sites in the U.S., which we feel like covers the key geographic areas. We will continue to expand that over time quite significantly, but we feel comfortable that we have capacity now to fully support the PluVicto PSMA 4 launch, and we'll expand deeper into the community setting step by step. Our ExuEdge launch is progressing well with good pricing reimbursement discussions, and so we feel very good about where we are to prepare for that launch next year. Now, in terms of new indications and geographies, the PSMA-4 filing was accepted by FDA. We're preparing for a launch in the first part, first half of 2025. In China, both the post-taxing and in Japan, the pre- and post-taxing submissions have happened. We're in the midst of building up manufacturing facilities in both of those markets as we expect them to be sizable opportunities. The PSMA edition and PSMA-DC studies are progressing according to plan. And we've also begun construction of two additional facilities in the U.S. to support our expanding RLT portfolio, which now includes multiple additional programs that have entered the clinic, including assets such as a B7H3 actinium RLT, as well as a HER2 RLT and a folate RLT, all of which now either have first patient first visit or will soon have first patient first visit, giving us a broad portfolio that we need to now prepare for. Moving to slide 12. Now, Lectio continued its strong growth trend with accelerating adoption outside of the U.S. And we're very pleased by both the solid U.S. performance, but that acceleration we're seeing in our international markets. We have continued growth that's outpacing the overall advanced lipid lowering market. 4,600 facilities have ordered Lectio, which is a substantial increase versus prior year. We see demand increasing across all channels. And I'd say our targeting strategy in the U.S. to really focus on patients and physicians that are treated in the post-event setting where there's a high propensity to add an additional lipid-lowering therapy has worked really well. Now, outside of the U.S., we're reimbursed in 39 countries commercially available in 73. And as I said, we're seeing steady and strong uptake, particularly in markets such as Japan, where we recently launched, and our launch is well exceeding our expectations. Now, adding to the overall Lectio body of evidence, we did read out the V-mono trial, which demonstrated superiority as Lectio monotherapy in both placebo and azitomib versus placebo and azitomib in LDL-C reduction. And we are looking over time to think about how we can further expand Lectio into the monotherapy or frontline indication, depending on the geography. So moving to slide 13, Semblix grew 72% in quarter three, As you know, it has really become the preferred option for a third line CML. It's the market leader in NBRX and TRX across geographies with 26% TRX share growth. It's driven by 18% quarter over quarter demand. Outside of the US, we see a very strong sales trajectory for the product with a growing total market share and growing prescriber base. And that's critical for us to continue to build that strong base and third line. Because as we approach the first line launch, those physicians get more and more comfortable with the overall profile of Semblich. So as I mentioned, we have FDA priority review. We do expect the approval in the coming weeks. We're fully prepared for launch. We're also fully prepared to obtain rapid market access to really ensure a rapid launch in the US and eventually around the world. And outside of the US, China and Japan submissions have now been completed. And we're also on track for a European submission in 2025. Moving to slide 14. Fopalta, it's early days, but we were pleased by the performance in PNH, ultra-rare disease, not a lot of cycling of these patients. So it will take time to build this brand, but it's the only monotherapy, oral monotherapy, to provide extravascular and intravascular hemolysis control. We're seeing strong launch performance overall. We see a high compliance and continuation rate on the medicine. We have over 70% coverage to label. have nbr external now of over 30 percent and outside of the us as well we're seeing solid early signs of success with good patient activation with over a thousand htps now reached in the first three months post launch we're seeing utilization across naive and switch patients and we also have recent launches in japan uk and we were granted early access as well in france so taken together Early days, but step-by-step, this is an important building block as we build Febhalta across multiple indications to be over a $3 billion-plus medicine over time. And moving to slide 15, in addition, Febhalta received the accelerated approval in the U.S. as the first and only complement inhibitor in IgA nephropathy. That was based on the positive interim results of the APLAS Phase III study. The study is continuing to the confirmatory endpoint of EGFR at 24 months. We expect a completion date in 2025. We see very positive HCP feedback on the efficacy and safety and an understanding of the role of the complement pathway in this disease. We also see important early signs from a utilization standpoint. Over 1,000 HCPs are now REM certified, and we're leveraging our portfolio to ensure that we have broad and quick access for this medicine. perhaps most importantly, we're seeing patients with a positioning of this medicine for patients with persistent prone urea and glomerular inflammation as really getting traction in the marketplace. And that's enabling us to maintain the price of Fopalta consistent with the PNH indication, which will also be important for the subsequent indications that we have for Fopalta, including C3G. And if we go to the next slide, slide 16, We released results over the weekend of the 12 months of pure C3G data at ASN. On the left-hand side, you see the sustained proteinuria reduction over 12 months, and that that was replicated in the placebo arm after switch to etaclopan, so that was very positive and something the regulators had asked us for. But importantly, as well, we're seeing stabilization of the EGFR slope versus the historic slope decline, and that's been maintained now for 12 months. So we're seeing on the important outcome measure as well, very positive data. So we have ongoing health authority reviews in the EU and other countries, and we expect to make this submission now in the US before the end of the year. So moving to slide 17. Overall, we had good progress on our innovation milestones. We did suffer a few setbacks. With XXB, we will terminate this program. We saw a safety signal in heart failure. And overall, the hypertension blood pressure reduction we saw on top of standard of care was not sufficient to meet the TPP we think we need to achieve for this medicine. So we'll be stepping back and focusing on our siRNAs for hypertension, as well as other assets we have in our cardiovascular portfolio. So with that, let me hand it over to Harry.

Yeah, thank you, Bas. Good morning and good afternoon, everyone. I will now talk you through our financials for the third quarter and the first nine months, which were very strong. As always, my comments refer to continuing operations and growth rates in constant currencies unless otherwise noted. On slide number 19, It's a pleasure to present results like those that we have on slide 19. I think you hopefully agree with that. Quarter three, net sales grew 10%, cooperating income was up 20%. Our core margin, as Vaz already mentioned, 40.1%, which reflects a 340 basis point improvement versus prior year. Core EPS was $2.06, also up 20%, and free cash flow was basically $6 billion, the highest we have ever achieved in any one quarter. For nine months, net sales grew 11% and core operating income was also up 20% when the core margin increased, so 39.4% the first nine months, demonstrating continued good or very good progress towards achieving our mid-term margin guidance of 40% plus by 2027. Core EPS was $5.83 up 21% and the free cash flow in the first nine months grew 15% to 12.6 billion. Now on to the next slide please. Our continued strong business momentum together with operating efficiencies despite the many launches we are fully funding and of course the R&D pipeline allowed us to once again raise our full year guidance on both top and bottom line, which you will see on slide 20. We now expect sales to grow low double-digit from high single to low double-digit previously, and we expect core operating income to grow in the high teens from mid to high teens previously. Embedded in our guidance is the key assumption that there will be no Tasigna, Promagta, or Entresto US generic entries in 2024. And we also expand a bit so that you can start with the modeling for next year. And we make an assumption that these generic entries in US will happen in the middle of 2025 for forecasting purposes. And to complete our full year guidance with always the other two components from Co-op Inc down to Brady Core EPS, please note that we expect core net financial expenses to be around 0.7 billion for the full year. And our core tax rate continues to be around 16.2%. Moving to slide 21. We remain committed to our shareholder-friendly capital allocation strategy to invest in the business whilst also returning attractive shareholder returns. In the first nine months, we executed multiple bolt-on M&A and BDL leads, particularly to strengthen our R&T platform, our regional pipeline, and AI capabilities, in addition to having invested, of course, in our internal R&D engine. In terms of returning capital to shareholders, we paid our growing annual dividend of seven per share in SwissRank, this time $7.6 billion in March of this year. And we also continued our $15 billion share buyback, which has approximately $8 billion left to be executed by the end of 2025. Now onto my final slide already. where we have outlined details regarding the expected currency impact. In quarter three, FX had a mild negative 1% point impact on that sales, a negative 3% points on co-operating income, of course, driven by one dollar strike thing, but also of course on the bottom line due to our Swiss franc cost base. If late October rates were to prevail for the remainder of 2024, we would expect the full-year currency impact to be, again, around 1% negative on net sales and negative 3 to 4 percentage points on core operating income. As we already start to look forward into 2025, again, to inform your modeling assumptions, we expect a negative 1% point impact on net sales and negative two percentage points on co-operating income. Again, if currencies stay for next year where they are right now. Of course, as you all know, currencies move every minute. And so we will, given it's hard to predict this from outside of the company, each month, in the middle of the month, we will give you an update, which is posted on the website. So you always have that element of the forecast as well. And so thank you for your interest, of course, and back to you, Lars.

Great. Thank you, Harry. So moving to slide 24, in summary, we see continued strong business momentum in the quarter, and I think the numbers speak for themselves, the 10 and the 20% growth. We've raised our full year 2020 for guidance for the third time, just showing the underlying momentum we're seeing across our growth drivers and new launches. We continue to deliver on our pipeline, building off of 10 Phase 3 readouts and positive Phase 3 readouts with indication expansions of Kaskali, Pabhalta, and the submission of Fluvicto PSMA 4. And we're well on track to achieve our midterm guidance of 5% sales growth, 23 to 28, and 40% plus operating income margin by 2027. So moving to my last slide, we also wanted to just flag for all of you, we will have Meet Novartis Management on November 20th and 21st in London. It'll be a great opportunity for our investors to meet our leadership teams across the company with a focus on our TA leaders in R&D. We'll also be able to provide an update on our 23 to 28 midterm guidance, as well as a 24 to 29 sales guidance as well. And then lastly, we'll also provide an update on the peak sales outlooks for many of our brands, which continue to have really strong momentum. So with that, operator, we can open the line for questions.

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We will now go to your first question. And your first question comes from the line of Richard Foster from JP Morgan. Please go ahead.

Hi, thanks for taking my question. It's a question on the impact of coverage gap reform on the business in 2025. and particularly thinking about the impact on Cosentix and Entresto. If you could give us any color on how that's panning out, that would be great. Thanks very much.

Yeah, thanks, Richard. And I also want to add, we should have one question. Thank you for adhering to that already, Richard, but one question per person, and then we'll cycle through the list as many times as we can. So in terms of the coverage gap reform, there's going to be pushes and pulls, which we'll have to understand better over the course of 2025. On the positive side, we'll see how demand generation increase with the 20% out-of-pocket cap, especially depending on how many patients sign up for the smoothing. You could see those impacts happening relatively early in the year, but that's something we'll have to see how it ultimately plays out. On the positive side, in terms of headwinds, certainly our cost sharing within the system will go up, and that's something we'll have to manage. But on the flip side, our patient support programs also should be adjusted down given the number of patients who would qualify, would no longer qualify given adjustments, given the IRA being in place. So net-net, we see this as neutral to slightly negative, but that's already factored into the guidance that we've given for the long run. So that's already in the 5% out to 28. So no material impact on how we look at the business. And I think we're going to learn more over the course of the year. Thanks, Richard. Next question, operator.

Thank you. Your next question comes from the line of Emily Field from Barclays. Please go ahead.

Hi, thanks for taking my question. I'll ask one on Pruvicto. I was just wondering, you know, when you'd expect some of these new promotional efforts to have an impact on Pruvicto patient growth in the U.S. and the vision population, or should we more expect sales to really start to grow again once PSMA4 is launched? I believe earlier in the year you said that that launch would be an inflection in sales, so any color you can provide would be helpful. Thank you.

Yeah, thanks, Emily. So we know in terms of the timelines for those investments, we started the DTC in September. We got the full field force out really in the August, September timeframe. So usually takes six months before you see any impact for those expansions and investments. So I think for us right now, we want to maintain the vision population. We always guide it to vision to be about a 2 billion peak sales globally. So in the US, we're already annualizing in that kind of 1.2 to 1.4 range. We expect as we bring China, Japan, and other markets on board, we can reach that 2 billion over time. But the real inflection for this medicine is the tripling of the patient population with PSMA4 and then a further large addition of additional patients with the HSPC PSMA addition studies. So we've got to make sure that we have adequate capacity, which we feel pretty good about in terms of bed capacity. A lot of our work now is getting the referral systems in place to ensure that community oncology understands how they can refer and when to refer to be able to get Fluvicto and get those patients also then back to community oncology. Also making sure that large academic centers are prepared for what we expect will be a surge of patients on the approval of PSMA4. So all of that work is very much in focus, but I wouldn't expect a significant inflection point before we get PSMA4 fully launched. Next question, operator.

Thank you. Your next question comes from the line of Florence Cespedes from Bernstein. Please go ahead.

Good afternoon. Thank you very much for taking my question. A quick one on 2025. I know it's early days and you won't provide any guidance, but could you remind us which are the main tailwinds and headwinds for next year and how you see this challenging year given the generics expected to be launched mid-2025? Thank you.

Yeah, thanks, Laurence. Obviously, we don't provide guidance until January, but I can say we're confident we'll grow top and bottom line, and we'll provide more color on that, obviously, in January. When you think about the tailwinds that we have, it's clearly the new indications and launches. I mean, you've already seen Cosentix is continuing to have strong performance in HS, in IV. We, of course, have now the Kiskali early breast cancer with a broad label and a broad NCCN. guideline. We're in the early days of the Ataclopan launch, but the Ataclopan launch both in TNH and IGAN, we expect to accelerate over the course of next year. Importantly, the Semblix first-line launch in CML will continue to allow us to expand that drug, hopefully substantially. And then, of course, Casimta, you've seen, is already on just a steady, strong pace, and Cascalli and metastatic breast cancer also in a really strong pace. And then, Entresto, outside of the U.S., also with continued strong performance. I mean, I think the biggest headwinds we're going to have, as we noted, is the LOEs that we currently forecast for forecasting purposes for mid of next year on Cisigna, Promacta, and Entresto. Of course, it depends on how those ultimately all the various litigations go and whether our products are approved, et cetera. But that's our current forecasting guidance on those medicines. But beyond that, we see continued opportunities for strong margin performance, strong free cash flow performance. We feel very good with where the business is. So I think we can navigate that. And as we said all along, we factor those patents or those LOEs into that 5% plus guidance up to 28. So it's well captured in our long-term guidance and we'll navigate it and continue to grow the company strongly. Next question, operator. Thank you very much. Very much. Thank you, Florence.

Thank you. Your next question comes from the line of Simon Baker from Redburn Atlantic. Please go ahead.

Thank you for taking my question. One on Cosentix and HS, if I may. You've seen a very, very fast adoption in HS, which is testament to the superiority of Cosentix over previous treatment options. But there were quite a few behind Cosentix coming into HS. So I just wondered if you could update us on your thoughts on the competitive dynamics there. How long do you expect that preeminence of Cosentix to persist, bearing in mind what is coming behind over the next 12 to 18 months? Thanks so much.

Yeah, I mean, look, Simon, thanks for the question. We continue to expect Cosentix to be over a billion dollars plus in HS. And Now, the reasons we have that conviction, as you noted as well, there's a tremendous support for Cosentix amongst dermatologists who are very comfortable using this medicine given the long period of time that it's been on the market and successfully used. But the other thing is I think there's confusion in the market in terms of the comparison of Cosentix to the IL-17 AF and psoriasis versus what at least we see in HS. Importantly, in HS, when you look at the HIS-CR50, you have pretty comparable results. Cross-trial comparisons are always, of course, challenging for patient population. So it has to be taken with appropriate caution, but very similar. And then when you look at flares, in our study, we had 60% of patients free of flares. And in pain, we showed a meaningful reduction of 50% for these patients in pain. I would encourage the investor base to look at that data versus the competitor entry. And I think that would enable us to have really a strong clinical positioning on top of the strong account positioning and long history that we have. So then really the focus is in a growing market with additional patients who hopefully will come in. Can we continue to maintain a strong share position given that data, given our access position, which is why we think, you know, because HS will be a really substantial opportunity for the medicine. But I think that distinction between psoriasis and HS data is absolutely crucial for everyone to understand. Next question operator.

Thank you. Your next question comes from the line of Graham Parry, Bank of America. Please go ahead.

Great, thanks. Question on Povicto. So the flat fourth quarter guide implies no growth ex-US as well as in the US. So I understand US centres are pretty fully penetrated in the vision population, but why no growth ex-US? And on PSMA4, just wonder why you didn't use a proprietary voucher or attempt to accelerate the review there in any way. Thank you.

Yeah, thanks, Graham. So on Pluvicto, so I think ex-US right now, we do continue to see, you know, growth generation. But of course, with the pricing dynamics, as we continue to work to secure the final pricing, we don't expect that to translate yet into revenues. And then I think China and Japan will be absolutely critical to really get the ex-US going. In Europe, we're primarily focused in Germany and France, and we have ongoing negotiations in those markets regarding the pricing situation. So I think that's why we want to be realistic and say, in addition to that dynamic, we also have the holiday period in the U.S. We know from prior years that for Pluvicto, Thanksgiving and the Christmas holidays is not a time that patients want to initiate therapy because post-dose, they can't be around families, be around children. At least that's the current guideline. Whether biologically sensible or not is irrelevant. That's the current guidance. So that leads to a few weeks that we lose in quarter four always. So taking all of that together, we think it's reasonably and prudent to provide a guidance that will be in line net of the adjustment. Now, in terms of PluVicto PSMA-4, we chose not to use a priority review voucher purely because we had discussions with the FDA. The FDA's view was given that we'll provide 100% OS during the review period. They wanted flexibility for the timing to review that data. Now, hopefully, given that data continues to trend positive, assuming that holds and that we have a very compelling package, we hope that we can get an approval on a faster timeline than the typical PDUFA timelines. But in consultation with the FDA, that was their request, hence we didn't use the voucher. Next question, operator.

Thank you. Your next question comes from the line of Matthew Weston, UBS. Please go ahead.

Thank you very much. My question's about payer dynamics in 2025 as well. Vas, I'm just aware that you have a very strong position in immunology and commercial PBMs have lost a significant amount of rebates from Humira over the course of this year. I wonder whether we should expect a particularly strong and dynamic rebate environment at the beginning of 2025 and we should be prepared for that as we look at the forecast into next year. If I can cheekily sneak a second, it's just, can you remind us factually, when do you anticipate Qiskali XUS patent expiry?

Thank you, Matthew. So first on Cosentix and the overall immunology dynamic, we've completed largely our payer negotiations and we're really pleased with the broad access we've been able to maintain um for for cosentix and i would say while we do see increased uh rebates it's modest and not substantial so we've been able to keep that as a single digit increase overall across the portfolio so we shouldn't expect well of course that is a headwind we do expect overall the opportunities in hs and iv alongside the opportunities that we have in um With additional launches, as well as the overall momentum we have globally, Cosentix should continue to grow in the double-digit range. And so that's our current expectations for Cosentix. Now, in terms of Qiskali LOE, it is August 2032 is our current estimate in Europe. Thank you very much. Next question, operator.

Thank you. Your next question comes from the line of James Quigley from Goldman Sachs. Please go ahead.

Great. Thank you for taking my questions. I've just got a quick one on Zola. So, Rosh is seeing some strong uptake in the U.S. for the food allergy indication. Does Novartis plan to use the data from the Outmatch trial to potentially file for the indication in in the Novartis territories? And what would you think about the potential opportunity here? Obviously, there's a bit of discontinuity in legalism in this indication as well. So does that leave a potential clear run for you and Zola in XUS markets? Thank you.

Yes, James, I'd have to come back to you. I don't actually know off the top of my head on what our plans are on Xolair for ex-US food allergy. Obviously, in the US, we have our existing contractual obligations with Roche Genentech. In general, my first instinct to say is if food allergy ex-US is challenging given the overall payer dynamics, particularly in Europe, but let us come back to you because I don't want to make that a definitive statement without knowing for sure. We do continue to develop remubrutinib as an oral option. uh in food allergy and we're going to see how that data pans out because we think the option of giving patients the twice a day oral therapy for food allergy could be quite attractive so that that development program is continuing on track next question operator thank you your next question comes from the line of peter walford from jeffries please go ahead

Oh, hello. My question is on the broader cardiovascular portfolio now at Novartis, particularly focusing on the pipeline. And obviously, we're aware of Pellicarsen, which I wonder if you can confirm, you know, we're still expecting the phase three readout there next year. But obviously, following the news on XXB, when you now look at the late stage cardiovascular portfolio outside of nephrology, I guess, how do you now think about the need, perhaps, in Novartis to bolster that? Or are you comfortable, given the long life that we see still with Lectio ahead, despite the loss of interest in the US, that you will basically just build the cardiovascular pipeline largely internally and through the early stage phase one preclinical programs that you have? Thank you.

Yeah, thanks, Peter. So obviously disappointing with XXB, but overall, we feel confident. Given where we see Lectio's continued expansion and the adjustments we've anyway made to the field force, we think we're right-sized for Lectio. Pellock-Parson on track. It's event-driven, so we'll have to continue to track the events, but we currently guide to a 2025 readout. And then behind that right now, we're really focused on accelerating our siRNA portfolio. Those SIRNAs could either be as monoindications or in combination with Lecbio. So we're exploring a range. And we have now a couple in phase two or one. It's even a bit later than that. So we'll be providing updates on those over time. But certainly SIRNAs in hypertension, SIRNAs against HMG-CoA, which could be then used in combination or independent of Lecbio. as well as other earlier phase one SIRNAs are all advancing. So we continue to want to build out a broad SIRNA portfolio and then also look as appropriate for combinations with Lectio. The other two elements of our story, I think, on cardiovascular, one is a portfolio of agents in arrhythmia, high risk, very high risk, but we're relatively on our own in arrhythmia. And so we have a few agents now in phase one or proof of concept studies. So we'll certainly see how those evolve. those ultimately play out and then we have you know obviously as all companies do a broad preclinical portfolio but including preclinical efforts on novel targets in in obesity as well um as in other areas of cardiovascular risk reduction particularly around nephrology so we'll see how those advance as well so obviously we'll always look externally but there's no urgency to plug any gaps at this point next next question operator

Thank you. Your next question comes from the line of Ed Sado from BMO Capital Markets. Please go ahead.

Great. Thanks for taking the question. I had a question on Pella Carson readout next year for LP little a. And apologies if you've commented on this in the past. Just curious, there's literature on the impact of LP little a on GLP-1 levels, but curious as to the reverse. And I guess given the increasing use of GLP-1s broadly, just Curious if GLP-1 use matters in this study, and if so, how you're accounting for its use in the trial. Thank you.

Yeah, absolutely. So I think GLP-1s are noted to have, I think, modest reductions of LP little a. I mean, the focus of this study is on patients that are much higher on the range of LP little a, so the top quartile and the top decile, which we believe you need to have pretty substantial knockdown, 70% to 90% of the LP little a levels. 90% plus, ideally, that would then enable you to have, you know, the hope for at least the genetically validated efficacy benefit. So we don't believe, you know, GLP-1s alone or PCSK9s alone, PCSK9s also knocked down LP little a, are going to be sufficient for this patient population that is at a very high risk of cardiovascular events due to their LP little a levels. In terms of background therapy, I don't know offhand how many patients were on a GLP-1 at baseline, but with all of these trials, we always have, of course, patients who are on standard of care for their various comorbidities. And then, of course, we would do subgroup analyses based on, you know, the various patient populations. Those would not be powered, of course, and would be post-hoc. But as always, we generate those forest plots to demonstrate how different I would expect would happen in this case. Thank you. Next question, operator.

Thank you. Your next question comes from the line of Kerry Holford from Barenburg. Please go ahead.

Thank you for taking my question. Just going back to the theme of M&A, given your strong balance sheet and a growing pattern expiry burden, just interested to hear you talk about your appetite for more M&A in future here. Or if you can comment specifically on your degree of interest in obesity, you referenced it, just send that with regard to your early stage internal pipeline, but interest in potentially bolstering that externally. And tied to this, I think somewhat disappointing that we should see an impairment so soon after the morphosis deal closure. So my question then is how can investors gain confidence in your future M&A choices? Any commentary you would add there? Thank you.

Yeah, thanks, Kerry. So on overall, we have, of course, adequate firepower. And as Harry mentioned, we have a balanced approach to capital allocation, invest in the business, growing dividend in fiscal year. Swiss francs, ongoing share buyback with adequate capacity to continue share buybacks as deemed appropriate. And then we've been very active in the deal front, really in the sub $1 billion asset space. Most of these don't hit the radar, but we've built out, I think, a pretty, and we'll outline this in a bit more detail and meet the management, but a really broad range of assets across our key therapeutic areas, as well as key technology areas to fill either mechanism of action gaps or technology gaps, which we think are critical for us to succeed in those four core TAs or in our three key technology platforms. A great example being the various deals we've done in RLT, including Mariana Oncology, to build out a strong actinium profile, or even the deal we announced, I think, yesterday with Monterosa Therapeutics, which gives us a strong opportunity within the world of molecular glues for immunology. I think to guard your specific question on obesity, no change. We think GLP-1, GIP, et cetera, are well served by the current incumbents. And we expect a flood of companies from China and elsewhere to attempt to enter these spaces. And so we don't see an opportunity to really build a differentiated profile, especially given what will likely be a very intense payer rebate environment in the U.S., as well as genericization of first-line GLP or older GLP-1 agents over the coming years. So we don't think that's a game to play. And as a fast follower, a late follower, rather focus on novel assets. And I think overall, when we look at our M&A track record, we've done it very carefully and we systematically look at it. We see our overall success rate in line with the overall sector. There are companies that are worse than us. There are a few that are a little bit better than us. But of course, if you look at the GSK oncology acquisitions, if you look at Cosimpta, if you look at building out a strong RLT portfolio, I expected with Avexis ultimately showing the positive impact of our intrathecal readout later this year or early next year in the 2 to 18-year-old patients, well, that will also be a strong, strong payback. So, well, obviously, whenever you do clinical stage deals like we did with Collaborative, you will have updated clinical data. I think that's normal in this business. I would expect sophisticated investors not to read too much into one-offs, but rather look at the overall portfolio of how a company does and executes M&A. Next question, operator.

Thank you. Your next question comes from the line of Seamus Fernandez from Google IAM Securities. Please go ahead.

Oh, thanks so much for the question. So really just one question to follow up on business development and areas of interest. The dynamics in immunology are obviously heating up, accelerating across by specifics, long-acting assets, and overall asset development. I wanted to just ask, I guess, a bit of a blended question, not two, but what the effort with Generate is really seeking to execute, and if there's an awareness or when we might have the targets potentially disclosed in that collaboration, and, you know, how you're thinking about immunology writ large from a VD perspective, simply because we know that Generate is also doing quite a bit there along those lines. Thanks. Thanks.

Yeah, thanks, Seamus. I'll divide my commentary into first AI and then separately into specific immunology. So with Novartis, our primary collaboration is with Isomorphic Labs, where we partner with the Nobel Prize winning team there to really work on novel targets to generate hits and leads that we can take then further into development. So that's a collaboration that's ongoing for small molecules. and potentially could expand over time into other areas of drug development. And then with GENERATE, we focus on biologics. We have not disclosed the targets that we're working on, but generally speaking, it would be difficult to drug targets or we want novel biologics with novel formats, as you mentioned, bispecifics, trispecifics, et cetera. So that's the focus of the GENERATE-Bio collaboration. And then we're going to learn and see how it goes as we continue to use AI to hopefully speed up our research and early development process. We can expand into additional targets with both of those collaborations over time. But I think it's early days, and I think we need to see the results of those efforts, the first efforts, and then, of course, progress step by step. I think more broadly in immunology in-house on top of remibrutinib and VAY, both of which will have readouts over the course of 2025, 2026, which would allow us to, I think, build two more very substantial medicines to continue to build off of the success of Cosentix. We have a number of bispecifics and tri-specific programs that are in phase one, phase two, And then, of course, we have YTB now in either phase one or phase two development for immune reset. That's our rapid CAR T therapy. I think now enrolling in six or seven indications, continuing to look to expand across immunology as well as in neuroscience indications. And so I think our BD and MNA efforts are either to bolster the areas I just mentioned by specifics or cell therapies, or to look at novel targets like Monarosa that we recently have done. Those are the things I think we're broadly looking at, but I would say we do believe you need to move now into more specialty immunology, more targeted immunology, going into the mass market with a number of biosimilars coming out at the end of the decade and high rebate pressure. You need to really find places where you can have a differentiated offering in the United States, particularly given that pair dynamic. Next question, operator.

Thank you. Your next question comes from the line of Rajesh Kumar from HSBC. Please go ahead.

Hi. Good afternoon. Thanks for taking my question. On capital allocation, can you help us understand how you think between your choice of doing deals versus buying back shares? At what share price or multiples would doing a deal would become the only good use of capital? Your share price isn't quite strong if we leave today aside, but if we look at the earnings momentum, et cetera, at what point would you stop share buybacks and deploy more capital towards deal making?

Thanks, Rajesh. I'll give that to Harry. Harry?

Thank you, Abbas. Thank you, Rajesh. I mean, it's, of course, a question that has never had an absolute answer, right? Obviously, we believe that our share price has much more potential. If I just look at our five-year growth rate outlook, even consensus is not there yet at the 5%, slowly creeping up every few months. Now I think consensus just makes it to 4%. Of course, we keep that dynamically. In terms of balance sheet and cash flow, we call it firepower so nicely, right? But anyway, we have such a nice capacity that we have the situation, we can do all M&A, bolt-on deals that we come up with. And by the way, it's not so easy to come up with good ones, right? Given the premium someone has to pay and the high conviction we have to have to have a great deal for our shareholders, also in terms of returns. But we can do both. We can do both on M&A. Our net debt is even below one-time EBITDA at the moment with 16 billion. EBITDA is higher, 18, 19 billion and growing. And so we have that luxury situation. On the one hand, we keep doing, I would say, continuous good share buyback at an attractive level. As you may know, Switzerland, has an interesting situation, I think it's unique in the world, that we can only do over time, roughly 10 billion a year max. And on the other hand, do all the bolts on M&A to continue to further strengthen our 4TA pipelines. And again, obviously we believe that our share price has significant upside potential, and that's why we continue to do both for the foreseeable future. Thank you.

Thank you. Thank you. Your next question comes from the line of Steve Scala from TD Cowan. Please go ahead.

Oh, thank you very much. No generics of Entresto and Promacto were already assumed in the 2024 guidance, so Ticigna is the only update. What amount of the guidance raised is attributable to no generics of Ticigna? And it sounds like the extension to 2025 for all three is due to litigation for Tesigna and Promacta in addition to Entresto and not slower generic progress and or settlement. Is that correct? Thank you.

Yes, Steve, I can take the second part and I'll give it to Harry on the contribution of Tesigna to the overperformance. Overall, I mean, we're not going to comment on specific legal cases, but I think it's a combination of our litigation, our settlements, and our kind of competitive intelligence to where various players are and their approvals that gives us our current forecasting estimate of middle of next year. But that's not a definitive date. It's really going to depend on a number of factors. As you know, we have Three litigations ongoing with respect to Entresto, with respect to the approval with FDA, the combination patent where we're appealing the decision and the first instance hearings on the co-crystal patents. So that's all unfolding. And then Promacta and Ticigna is not something we've disclosed, but we continue to estimate amid 2025 and we'll see how the actual market develops. Harry, in terms of the Ticigna contribution?

Yeah, thank you. Yes, Steve, so it has some contribution. I mean, you know, also on the Q2 call, I mentioned that, you know, if there's no generic entry, likely we will be at the higher end of our guidance. That's what has happened now, right? So we don't expect any generic. We have a bit of Sasslar. There's a small entry in the U.S., but it's only in one account, 10% of business. So that's very little in terms of impact model this year. So there's a contribution of the signal to it. We also had some close to net favorability in quarter three. You know, prior I got into high single digits. Now we came in at 10%. So there was a contribution that was basically offsetting prior year favorability at one timers. But overall, if you look at our business, our model at the moment is like we have a 14% volume growth. Then we have two points of generic impact and one point of negative pricing adding up to the 11% year-to-date sales growth. And that's the model we go into operationally into Q4 as well into next year. And then what is expected to happen with a generic component goes a bit up and then a bit of pricing, not too much, but also partly or fully offset by some volume impacts in the U.S. So overall, some slight contribution to getting to the high end. But overall, what we just see at the moment is a fantastic, continued, very good business momentum. And the only dynamic next year is really when are these generic impacts happening. But the underlying growth of the portfolio is really excellent. And that's why we are also very confident in our 5% plus CAGR for 2023 to 2028.

Great. Thank you, Harry. I think we have a few more questions, so Opera will continue down the line.

Thank you. Your next question comes from the line of Emmanuel Papadakis from Deutsche Bank. Please go ahead.

I'm trying my luck and squeezing one and a half. The half is a follow-on on Palabrasib just to understand what has changed versus, as Harry noted, your high conviction at the time of completing that transaction. And the one is on Kiskali, if I may. Next year looks like it's going to be a particularly important offset to some of the potential headwinds you may face. Could you just talk about the realism of consensus or conservatism of consensus expectations for $4 billion? Is it realistic to expect you to add another billion dollar of sales? And are you expecting a gradual increase in pace of prescription adoption or some inflection post-NCCM, et cetera? Thank you.

Yeah, thanks, Amelia. On collaborative, it's nothing new. I think the data was presented in ESMO and in other settings. This is a medicine that had a safety imbalance that we think has to get fully resolved prior to being able to use the data for any kind of filing. We need to follow these patients longer to see how the two arms perform. There is an indication that OS is going in a positive direction. However, we need to, I think, see this unfold, I think, for a longer period of time and also determine what additional trials will be required given that safety signal to have a positive benefit risk. So that's what we're monitoring and we'll continue to monitor. These things, I think, happen in clinical development that safety signals emerge and then you have to deal with them. So that's, I think, normal course of business in our industry. With respect to Kiskali, I don't think we're prepared here to give additional peak sales guidance, but we will update our peak sales guidance for Kisgali at Meet the Management. I think it's pretty clear you can all annualize right now the metastatic indication and where that's heading. So that already, I think, is really strong momentum in that area. And then now that we have the broad label, including those negative patients, as well as the NCCN guidelines and no negative patients, as well as a positive overall label at CHMP, I think we clearly are very optimistic for the overall size of this medicine and we'll provide that update at Meats and Management. I think one more, two, three more. Next question, operator.

Thank you. Your next question comes from Richard Foster from JP Morgan. Please go ahead.

Hi, thanks for taking my follow-up. Just one on Cosimta. A competitor is rolling out their subcutaneous formulation. Just thoughts on how that's impacting. Are you seeing any impact at the moment? Thanks very much.

Yeah, thanks, Richard. So we haven't seen, in our experience, impacts to date. We see steady overall share, slightly increased NBRX share. Our focus right now is to capture more of the growth of the B cell class, as it's been our real focus, as the B cell class continues to grow 60% plus to hopefully greater and greater proportions of first lines, first switch for MS patients. Most of the impact that we hear about is primarily to the competitor product within the IV class of these medicines. I think given the The fact that there is required for a healthcare professional that you need the various pre-treatments and post-dose monitoring, and then you have a pump involved with the sub-Q administration, it's not viewed as comparable to the experience of having Cosimta, which takes seconds or minutes to inject and is relatively straightforward at-home administration for patients. So we haven't seen that impact today. That said, we have to be really diligent and our teams are fully prepared to continue to argue for the value proposition. I think outside of the U.S., we really don't see the impact. I think there we feel really confident that given the structure of those ex-U.S. markets, there is a preference for when you can get patients out of the medical home using Cosimta. So I think that's a lot of us to continue to have strong momentum outside of the United States as well. Next question, operator.

Thank you. Your next question comes from the line of Graham Parry, Bank of America. Please go ahead.

Great. Thanks for the follow-up. It's just on the Kiskali Patent Challenge from MSN. Just thoughts on timelines of ruling from the Delaware court on that. And if MSN was actually successful in invalidating the patents, just your expected timelines. a resolution of an appeal, and just correct me if I'm wrong, but are you sort of past the stage of settlement here, or could that still be an option? Thanks.

Yes, so no updates. Ruling could come at any point, so we'll continue to monitor that. We are prepared to immediately file the necessary injunctions and appeals, and that process can take, as you know, some period of time. In addition, I think the of course, the approval has to also happen. So there's a number of things here as well. And we think we have some important elements as well to highlight with respect to that. And so I think there's, I think we're in a good place, but we'll have to see how the ruling happens. Difficult to say. I mean, I think, you know, without knowing exactly how the courts would time the various appeal hearings, we would say 26 and beyond. But I think We'd have to see with the timing of the ruling and the appeals and the hearings to provide more granularity on that. Next question, operator.

Thank you. We will now take our final question for today. And the final question comes from the line of Matthew Weston from UBS. Please go ahead.

Thank you, Vas. It's a question about politics and SIRNA. So clearly SIRNA as a mode of action is very important to Novartis. I believe you're very active in the legislation to try and get an amendment to IRA to extend the life from nine years to 13 years in terms of government pricing action. Can you give us any update as to where that legislation is, please?

Yeah, absolutely, Matthew. So I'll take the opportunity, given that nice broad question. And thank you, Matthew, for your third question today. to provide, I think, a broader perspective as well. So first on the IRA, which of course is a top priority for the industry, the broader desire to, and I think important for public health and of course pipelines and oncology, neuroscience, cardiovascular disease, indication expansion, to get the 9 to 13 small molecule versus large molecule aberration corrected. And there is legislation tabled currently in Congress to try to get that broad correction to happen. I believe now there's bipartisan support in the House for that broad correction. Alongside that, there's a number of limited fixes that are being proposed by various actors. One of those is the MINI Act, which targets correcting for genetically targeted therapies such as SIRNAs, ASOs, et cetera, and trying to get their definition more in line with what was done in 21st century cures. That also has bipartisan support in the Senate and the House, and a relatively low pay-for. So that's also out there as well. Actually, a minimal pay-for, I should say. So I think now it's much more moving through the election period, moving through, obviously, the establishment of a new session And then trying to get those bills, whichever combination of the various bills that are out there, there's also efforts to correct the rare disease, multiple indication versus single indication situation, similar definition, et cetera. And finding a right context to get those bills put in place, as well as trying to get the broad fix overall for IRAs. So I think all of those efforts are ongoing. And a completely separate track are the various litigations that are ongoing to repeal the IRA. We have one, other companies have them, the industry overall has one. So we'll see how that also plays out. I think it will be in the two to three year period, we get more understanding of all of those various pieces. We continue to, of course, push for PBM reform in as broad way as we can, and then also to get hopefully a more sensible 340B environment, which is, I think, a significant issue for the overall industry, starting with transparency of who are the patients and what are the centers getting this money and how is it used for. Those are, I think, the three big priorities for us as a company and overall for the industry from a legislative standpoint as we move to a new Congress and a new presidency. So thank you all very, very much. I really appreciate all the great questions and interest. I hope we'll see all of you at Meet the Management in London. And in the meantime, wishing you all a very nice autumn. Take care.

Thank you. This concludes today's conference call. Thanks for participating. You may now disconnect.