Novartis AG

Good morning and good afternoon, everyone, and welcome to our conference call on the proposed acquisition of Avidity. 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. Please refer to the company's Form 20-F on file with the U.S. Securities and Exchange Commission for a description of some of these factors. The discussion today is not the solicitation of a proxy nor an offer of any kind with respect to the securities of Avidity Biosciences or SpinCub. The parties intend to file relevant documents with the U.S. SEC, including a proxy statement for the transaction and a registration statement for the spinoff. We urge you to read these materials and contain important information when they become available. Before we get started, I just want to remind our analysts to please limit yourselves to one question at a time. We'll cycle to the queue as often as we need to. We're also not taking questions on Q3 earnings or other clinical trials on this call. And with that, we'll hand across to Beth.

Great. Thank you, Sloan. And thank you, everybody, for joining today's conference call. We're very excited to go over with you the proposed acquisition of Ability Biosciences, which we think is a strong strategic fit for the company, builds our presence in neuromuscular diseases, builds our RNA technology platform, and materially improves the medium and long-term growth profile of Novartis. So moving to slide four, I wanted to give you first an overview of the transaction. Novartis proposes to acquire all outstanding shares of Avidity for $72 per share. This represents a 46% premium to the October 24th closing price. Avidity will separate its early-stage precision cardiology programs into a new spin code, including the relevant third-party agreements. Novartis will acquire the neuromuscular franchise, follow-on compounds, platform rights, And we do expect a closing in the first half of 2026, subject to the completion of the spinco and the usual customary closing conditions. Through this acquisition, we'll acquire three late-stage assets, which I'll go through in turn, a preclinical neuromuscular pipeline, and importantly, a platform for extrahepatic delivery of XRNAs, an area that's, as you know, a high interest to Novartis as one of the leaders in delivering XRNAs for cardiology, related indications to the liver. This will give us the capabilities to deliver these technologies outside of the liver in the future. And moving to slide six, I wanted to start with the strategic rationale for the deal in a little bit more detail. We've articulated to you we want to do deals in our core therapeutic areas and our core technology platforms. And this is a deal that fits both. We strengthen our neuroscience franchise by adding three late stage muscular programs. And this builds on the extensive experience we have with Zolgensma. It really complements the footprint that we have with Zolgensma. I'll go through that in a bit more detail later in the presentation. It advances the XRNA strategy that we began by firing the medicine company and now have built over the last year as a broad portfolio of RNA therapeutics targeting a range of cardiovascular targets. This now adds a unique platform for antibody oligonucleotide conjugates, enabling us to deliver RNA to the muscle. It also adds a first in disease pipeline, and we want to be in these areas where there are high unmet needs and a need for disease-modifying therapies. Delvisran and Delbrax have the potential to be meaningful disease-modifying therapies for DM1 and FSHD. As I noted, this enhances our growth profile, and I'll go through that in a bit more detail, but I already want to highlight that these are medicines without LOEs before at least 2042 and are IRA-exempt. And from a sales profile and return profile standpoint, unlock multiple near-term multi-billion dollar opportunities with three programs expected to launch before 2030. Now moving to slide seven, This transaction is also in line with the capital allocation priorities of the company. We've been consistent in saying we want to invest in our core business. We want to do value-creating, bolt-on to life, creativity, acquisition. We want to consistently grow our dividend, which we remain absolutely committed to. And, of course, ongoing share buybacks with excess capital, and we have an ongoing $10 billion buyback, which we expect to complete by the end of 2027. Now, over the years, we have done value trading bolt-ons in neuroscience to build out our capability in a range of areas, including, as you see here, these deals, including areas in neuromuscular conditions, including DTX and case therapeutics, amongst others. So this really complements the efforts that we've had over the recent years. It strengthens the key therapeutic area, it's the best in cash profile, and as I noted, the attractive sales and financial profile. Moving to slide A, and just to say a bit more about the impact that we expect avidity could have on Novartis, it raises our 24 to 29-hager from plus 5% to plus 6%. But even more importantly, in my mind, it adds multiple assets that can drive significant It adds to the portfolio of late-stage assets that we'll be talking about in a few weeks, adding these additional large-scale assets, which can bolster that growth profile 2030 and beyond. And as I noted, these are assets that have that outlook into the 2040s without exposure to IRAs. Now, we did note in the release we will have a few points of margin solutions of 1% to 2% we expect, and we expect to get back to our 40% plus core margin in 2029 with efforts, of course, as always, to get there sooner and continue our strong productivity efforts in the company. Lastly, I do want to note that this is a deal that we believe clearly exceeds our internal rate of return threshold, has clear value creation potential, and will deliver, we hope, substantial return to our shareholders over time. And moving to slide 10, so now I want to take a moment to go into the core value drivers. And let's start with the technology platform. Vividi brings a pioneering AOC platform for RNA therapeutics, in particular with the ability to deliver RNA to the muscle. This platform consists of monoclonal antibodies that target specific receptors on the target tissue. Those monoclonal antibodies are combined with an oligonucleotide to create the AOC conjugate. This gives you the ability to target these RNA therapeutics to cells beyond the liver where normally RNA therapeutics track. It gives you flexibility to deploy either SI RNAs or all the nucleotides of different structures to the relevant tissue. We believe that the technology can give you the capability to maximize therapeutic durability as well as infrequent dosing, and it's reproducible and scalable. So moving to slide 11. Over the next few slides, I want to take each of the three assets in turn. This page hopefully is helpful to you in that it covers a lot of the key data that I'll be covering in more detail, giving you the patient populations, our base case timeline, and the mechanism of action. But let's dive into each one separately. So starting on slide 12, with DM1, myotonic dystrophy. This is a rare progressive neuromuscular disorder with a poor prognosis, no disease-modifying therapy, but with a relatively large patient population, with an estimated 80,000 patients in the US and the EU combined. There are no currently approved disease-modifying therapies for this condition. It's an under-recognized disease, so the prevalence may ultimately be higher than what we currently model. It's progressive and often fatal. It primarily affects skeletal, cardiac, and smooth muscle. Its autonomic dominance increases in severity from generation to generation. There's a significant impact on quality of life. Some of the quality of life measures and things we look at, these are muscle weakness and weight gain, myotonia that can be, cardiopulmonary comorbidities, And importantly, there is a reduced lifespan in these patients. The current standard of care primarily consists of supportive care, physical and pharmacological symptom management, and as I said, no disease-modifying therapies. So Delvisram is designed to address the root cause of DM1, and I'll go through that in a bit more detail. This is a medicine that's well-recognized by regulators. It has FDA orphan drug designations, it has fast-track designations, and it has breakthrough therapy designations. And it also has, in Europe, orphan drug designation. So moving to slide 13, Zeldesrin, as I noted, is addressing the underlying cause of DM1. So DM1 is caused by trinucleotide repeat, CTG repeat, that expand within the DMPK gene. These expansions change the mRNA structure such that mRNAs sequester splicing factors, including another splicing factor, importantly, called MBNL. This leads to loss of normal cell function and muscle wastage. And so the goal here is to restore normal NB and L function. Now, this one does that by degrading the DMTK, mRNA apparent transcripts in muscle cells and restoring normal NB and L function in splicing. The way this was studied in the clinic was in the Phase 1-2 Mirena study. The trial showed that the medicine is delivered to muscle, engages the target, and restores splicing. In the study, there were a number of endpoints which were also used in the Phase 3 program that's ongoing to assess myotonia, the video hand-opening time, to assess strength, hand grip, and quantitative muscle testing. and to look at activities of daily living, a patient-reported outcome measure called DM-1 active. Moving to slide 14, in the Phase I-II Mirena study, Del Vistaran demonstrated the potential to get transformational therapy in these patients with really meaningful improvements in all four measures. In the study, the comparison was to the natural history for these patients, but the video hand-opening time you can see was improved, significantly improved versus in natural history. The QMP composite and hand grip were also significantly improved. And from a patient-reported outcome study, there were very positive feedback from patients who were in the trial. So in total, in this Phase II study, efficacy endpoints were met. There was a reversal of disease progression compared to the natural history data. durable improvements in multiple functional endpoints over one year of follow-up, improvements across the domains that are relevant for the disease, and also significant VMPK knockdowns not shown here on the study. Overall, there was also a favorable safety profile. There were 37 patients enrolled that remained on the study, and all related AEs were mild or moderate. The most common related AEs was nausea, and there was no study drug-related treatment discontinuations or serious adverse events. So moving to slide 15, the Phase III Harbor Study really tries to replicate the Phase II study that I just went over. It's a global, pivotal trial with SEA, EMA, and other regulatory authorities' endorsement. It completed enrollment already in July 2025. The participants are currently eligible to roll over to an open-label extension study And it has 40 global sites, and the endpoints you can see here on the clinical endpoint are aligned with what was done in the Phase II study. Overall, the study is a 54-week study with 159 patients randomized to placebo or the active group. You can see here the population is targeting patients who are over 16 years old and with a significant number of repeats, over 100 repeats in the gene. We expect the 54-week readout in the second half of 2026 and global regulatory submission in 2027. There is an earlier look at the study in week 30. We'll certainly evaluate that, but our base case remains a submission in 2027. And I think it's important to understand the study well because this is a key differentiator, we believe, of avidity versus competitors. This is the only fully enrolled phase three study that will generate randomized placebo-controlled data. It's the only study that has participants from around the world, including the United States, and we think can generate a compelling data package that can be used with regulators, health authorities, and payers. Now moving to slide 16. Returning to the second disease in the portfolio, SSHD, this is a rare hereditary disorder causing relentless loss of muscle in certain parts of the body, as designated in the actual name of the disease, osteoscapular humeral dystrophy. It is estimated to be somewhere between 45,000 and 87,000 patients, but as with DM1, I think there will be better understanding of the number of patients as therapies become available. No currently approved therapies. It's one of the most common forms of muscular dystrophy, causing, again, the progressive muscle weakness, pain, and fatigue. The onset typically occurs in the teenage or adult years, but what happens with these patients is there's a steady loss of independence, and 20% of these patients ultimately become wheelchair-bound. Now, this particular disease is caused by a barren expression of a gene called Dux4, which leads to cell death, immune response, and oxidative stress. It is an autosomal dominant disorder, potentially affecting multiple generations. 20 to 30% of cases also arise from spontaneous mutations affecting the death of a gene. And Delbrac is designed to address this root cause of FSHG. And it's the only asset to demonstrate disease-modifying potential in a CHG study. Delbrac has orphan drug designation, fast-track designation, and EMA orphan drug designation. Now, moving to slide 17. In the FACE 1242 study, Delbrecht improved mobility, strength, and upper limb function compared to patients that were treated with placebo. You can see here in the floor graph at 12 months with Q13 week dosing. You can see the improvement in the 10-minute walk test. Also, improvements in other functional measures as well, including the RWS, which is the reachable Workspace test is a timed up-and-go test, which, again, is a measure of mobility in these patients, as well as in the QMT test, which is a composite endpoint. Overall, the study met its efficacy endpoints with improved mobility and muscle strength, consistent improvement in quality of life as measured by patient-reported outcomes, And from a pharmacodynamic standpoint, rapid and significant reduction in the levels of C-DUX, which is a marker of DUX4, and creatine kinase, which is a key marker of muscle damage. From a safety and tolerability standpoint, all participants remain on study, no discontinuation, and mostly mild and moderate adverse events. Moving to slide 18. Overall, this compelling data could support C-DUX as a biomarker for an accelerated approval, though as I'll go through, our base case remains the filing with Phase III data. C-DUX is a direct target of Dux4, and it's elevated six to nine-fold in people living with FSHD. Elevated C-DUX levels are also linked to worsening disease muscle weakness. Significant and rapid reductions in C-ducts like we saw in the study and creatine kinase in these participants was seen following treatment with Delbrac. And with that we saw, as you saw, the improved functional mobility and muscle strength. So right now there is a biomarker cohort ongoing for the Fortitude study to better understand the reductions in C-ducts. And the FDA has confirmed the potential for an accelerated approval based on demonstrating that reduction in C-ducts combined with the clinical data, which I went through in the earlier slide. So that data is expected in the second quarter of 2026. Our base case remains filing with Phase III data, which I'll go through in a moment. But we'll certainly be looking at that bottom marker cohort to see if there is the potential for an accelerated approval. And moving to slide 19. The Phase III Fortitude Study of Delbrecht in FSHD is already enrolling. It's intended to serve as a confirmatory study for full approval. Participants are across 45 sites in North America, Europe, and Japan. The registrational endpoints you can see here are in line with what we saw earlier for the Phase II study. And in addition, there are signs and symptoms of FSHD as well as specific endpoints around the C-DUX increasing kinase biomarkers. It's a 200 patient randomized study. You can see here a few six weeks, two milligrams per kilogram versus placebo. And as I noted, our phase three readout of global regulatory submission under a standard filing path is expected in 2028. And moving to slide 20. The third asset amongst the LASIK portfolio of femininity is in DMV and a certain subgroup within DMV. You all likely well know that DMV is a severe early onset disease marked by progressive muscle damage and reduced life expectancy. There's an estimated 10,000 to 15,000 patients with DMV. This is a monogenic X-linked recessive condition leading to progressive muscle damage and weakness. Symptoms can occur very early on in life by four years of age. Insanity leads to loss of ambulation for these teenage, often teenage boys, with significant reductions in life expectancy, caused by the mutations in the DMD gene, which encodes dystrophin proteins. So you're trying to restore proper dystrophin protein in these patients. Six to seven percent of patients have mutations to exon 44 skipping, DMD44, and that's what we're targeting here. So Del Dota is designed specifically to skip exon 44 of the dystrophin gene and produce functional full-length dystrophin and restore the function of this protein. Delzota has orphan drug designation, fast-track therapy designation, breakthrough therapy, and rare pediatric designation, as well as EMA orphan drug designation. Moving to slide 21. So the phase one, two is 444, Registrational Study of DELZOTA, showing improvements across key biomarkers and points. You can see on the left-hand side, I think from expert community perspective, remarkable increases in the dystrophin protein, as well as striking reductions as well, increasing kinase. I think this is viewed, in my mind, a very strong proof of principle of the overall platform, but importantly, also an important therapy for this group of patients. There was a 40% increase in the exon skipping across the dose score, a 25% increase in dystrophin production, as I noted, 80% reduction in TK levels, and clinically meaningful improvements across functional endpoints with a favorable safety and tolerability profile. So this is a program that's on track to replicate submission for accelerated approval in 2026. So also, I think, an important part of this acquisition. Moving to slide 22. Now, I think one of the most important things to note from a commercial standpoint and why I believe we can drive an uptake in these medicines is that it's aligned with our commercial capabilities and the neuromuscular experience we've built up since the launch of Zolgensma. We have deep understanding of patient journeys in rare diseases, in areas like spinal muscular atrophy as well, diseases like PNH and C3G. We've built up patient identification and activation capabilities. We have strong payer engagement capacity as well. Our field structure is ready to deploy across neuromuscular indications. I'll come back to that in a moment. And we also have built up scalable support programs as we've gone through the launches of medicines, such as Dulgenta, Subhalta, Ben Raffia, and also Ilaris before this. And when you think about coverage of diagnosing neurologists, we see here already with a first launch in BMD, a 90% overlap. And already with FSHD and BM1, 60% and 40% overlaps of the primary prescribing physicians, which we believe will allow us to have a relatively small scale to be able to fully cover the physicians in question in FSHD and BM1. And we're absolutely prepared to do that. So, taking together, avidity is highly synergistic with our commercial footprint in the rare neuromuscular space and in rare diseases generally. The moon, just like 23. We also wanted to give you a perspective on external forecasts. You can see here the min, median, and max. At this point, we would just highlight that both the assets in DM1 and SSHD have multibillion-dollar potential and certainly we think very sizable potentials given the size of the patient populations. and our expertise in launching these medicines. And as I already noted, you don't have an LOE for either medicine before the early 2040s, at the earliest, and neither medicine is currently or expected to be subject to IRA. So moving to slide 25, so in closing, and just to give you a summary transaction, Hopefully it's clear, $72 per share. The total transaction value is estimated to be $12 billion on a fully diluted basis, representing an enterprise value of $11 billion at the expected closing date. We expect to close in the first half of 2026, subject to the separation of the spin co and other closing conditions. We believe this deal will bring potential value to the company with multiple multi-billion dollar peak sales opportunities, near-term launches, and exclusive rights to an exciting RNA platform outside of cardiology. This enables us to raise our near-term sales guidance from plus 5% to plus 6%. But importantly, and perhaps even more importantly, bolsters our growth for all 2030 and beyond. It does involve short-term dilution of 1% to 2%, but we expect to get back to the 40% plus core margin in 2029 with an aspiration to get there sooner. And we expect an IRR to well connect us to our cost of capital with significant value creation if the assets are successful. And then lastly, this fits with our capital allocation priorities, no change to our capital allocation strategy overall. So, taken together, we think an attractive opportunity for Novartis, our shareholders, and most importantly, for the patients that these therapies can treat. So, with that, let me open it up for questions. Oh, and maybe before I open it up for Q&A, just to mention on the call with me, we have a number of folks. We have Harry Curse, of course, our CFO. Alongside that, we have Sriram Arabia, our Global Head of Development. We also have Dr. Norman Kutsy, who is our Head of Neuroscience, a developer and a neurologist. and Dr. Bob Bailo, our head of research in neuroscience and neuroscience in our biomedical research. We've been really one of the global thought leaders in muscular diseases, such as the ones we talk about here. So with that, we can open the line for questions.

Thank you. As a reminder, to ask a question, you will need to press star 1, 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1, 1 again. We will take our first question. The first question comes from the line of Sachin Jain from Bank of America. Please go ahead. Your line is open.

Hi there. Thanks for taking all the questions. A question on accelerated pathways, which you touched on, Vance, but if you could just detail a little bit more. So in FH, HD, I think avidity had almost framed the accelerated as base case. So just trying to understand your reason for greater caution. And you referenced you'd wait and see the biomarker data. Do you have a specific benchmark agreed with the FDA as to what needs to be seen? And then a similar question for DM1. Again, you slightly referenced it, but competitor Dyn has talked to Accelerated Pathway, your perspective on that, and your competitive profile should they get to the market slightly ahead of you. Is it just a larger global study, or is there anything else in the clinical profile? Thank you.

Yeah, thanks, Sachin. So I think first on the accelerated pathway, we certainly think the company, Avidity, has had very robust discussions with FDA. I think it's just our general experience to always assume full clinical data sets are required for approval. So that's our base case assumption. But certainly if the C-DUX reductions are significant, I think there's a very good reason to give them a high-end need to approach FDA and see if there's a pathway forward for accelerated approvals. So no concern, but I think we want to take a pragmatic, thoughtful, conservative approach to how we think about the filing timeline. And then I think on DM1, I think it's really important here to note that the importance here, we believe, of placebo-controlled data and having a full Phase III program that involves, as well, U.S. patients, which is something that we think Divinity has done very well, a fully enrolled Phase III study in placebo-controlled data sets. And so, certainly, we will look as well at the 30-week endpoint. There is an opportunity to have an interim read and see if that would enable faster quality. We think what will enable differentiation is the robust data set, and that will enable us to launch to both regulators, payers, and physicians with a compelling data set that we think will enable a rapid update. I think both medicines, of course, are very good at achieving the desired goal. and biomarker impact. I also would say that these are large enough indications that it can be multiple competitors. Our goal, of course, is to be the market leader in each one of these three diseases, and that's what we'll be able to do. Thank you. Next question, Margaret.

Thank you. Please stand by. Your next question comes from the line of Kirsty Cogley from BNP Paribas Exame. Please go ahead. Your line is open.

Hi there. Yeah, it's Kirsty Ross-Stewart from BNP Paribas on behalf of PETA. Just on the kind of revised midterm guidance, I think it's implying a kind of two to three billion revenue contribution from the Avidity Acquisition in 2029. And that's kind of ahead of current Avidity consensus. So just a bit of clarity on what's driving your high conviction here, is it? kind of pricing leverage that you can bring commercially or patient identification, breadth of reimbursement or something else. Thanks very much.

So maybe just generally the first time we get headed to Harry on the guidance.

Yeah. So, so overall, of course, as you mentioned, right, a 1% five-year CAGR on a business of our size is roughly 3 billion. And now we don't expect in 2029, 3 billion from these assets. Roughly half, I would say, of that is due to these assets. And then overall, the portfolio is overperforming. So that's contributing to the other half. These are large ranges, but I also should not distract. The most important here is the contribution as of 2030, well into the early 40s, to further bolstering our long-term outlook. And we just saw the updates to five-year as this comes in handy as we looked at our five-year anyway being a bit stronger, and then these assets expected to further contribute.

Maybe, Kirstie, to the second part of your question, we do believe that our ability to drive uptake, given our commercial profile, we do believe that we can drive substantial uptake of these medicines, given the expertise that we have in neuromuscular disease and the established footprint and relationships that we have. And, of course, we'll provide appropriate T-cells guidance as we launch these medicines and work further along.

Next question, operator.

Thank you. Your next question comes from the line of Harry Sefton from UBS. Please go ahead. Your line is open.

Brilliant. Thank you very much for taking my questions. I'd just like to get your thoughts on the structure of the deal with the spin co and why the cardiology assets weren't directly included as part of the deal. and whether you see any potential use of this technology for future implications and the platform value from the deal. Thank you.

Yeah, absolutely. So I'll have the platform potential to Bob Bale in a moment. But first, on the structure of the deal, given the third-party agreements that Abivity has, we thought it would be the simplest and most straightforward structure to create a spin code that can enable those third-party agreements to be serviced. And we'd rather focus on the neuromuscular portfolio and related assets as well, as well as revelating You know leveraging the technology health platform in the future.

So maybe Bob if you want to cover as well potential the technology platform Sure, you know, we're clearly very interested in utilizing CFR Delivered to different tissues including brain muscle and we found that it is an incredible job in tuning the sense of the ability of these different shuttles to target different tissues over time. This one is clearly targeted to muscle, and it does an effective job for skeletal and cardiac muscle. And they have further generations of that technology to sort of bring its next generation even therapies to these diseases. So we think it can be more broadly used, but really the focus for this first generation is in these key lead diseases where we've seen such an effective delivery of the agent to the muscle and hitting targets.

Thank you, Bob.

Next question operator.

Thank you. Please stand by. Your next question comes from the line of Seamus Fernandez from Guggenheim. Please go ahead. Your line is open.

Oh, thanks very much. So, I was just hoping you might be able to walk us through a little bit of the timing around when we'll have, you know, clear validation of the xRNA platform from your perspective, that does seem like a major potential value add opportunity here. Just wanted to kind of get your sense along those lines. It was our impression that sort of first half of next year was really going to be the major sort of stepping off point for Avidity in this context. And then separately, you know, in terms of Spinto, is this really just being executed from the perspective of overlapping assets and to protect from FTC-related delays or issues in that regard? And if so, if you wouldn't mind just highlighting to us some of those overlapping assets where you are advancing your own targeted cardiology programs. Thanks so much.

Yeah, thanks, Seamus. So first off, from a de-risky standpoint, I mean, certainly, you know, there'll be important readouts next year, but in our mind, the platform itself has been de-risked with the DMV data set, and that now FDA has aligned with the company satisfactorily for filings. So I think it's important to note, while that is a smaller indication, I mean, that is a huge validation that the company has successfully delivered on the promise of delivering the RNA therapeutics with antibodies to muscle, having significant therapeutic effects, and building a package that can ultimately be followed. Maybe before I get to the spin, though, Bob, do you want to just say a few words about why you think the DMV was such an important de-risking event for the technology?

Yeah, absolutely. I mean, I think, as you can see in the slide that was presented, and really in the reaction from the community, the degree of district and restoration, as well as the normalization, essentially, of the CK levels that were observed, is something that hasn't been seen before in exon skipping therapies for Duchenne, and it really opens up the possibility that while earlier generations of these have not really met the unmet need for these patients, that it may have simply been the lack of ability to deliver the medicine effectively to muscle. And that's why we really think that this and potentially future exon skipping therapies using this platform could be highly effective for these patients.

Thanks, Bob. And then on the SPIN code, the SPIN code has nothing to do with FTC concerns. The company has research collaboration agreements with third parties, which we simply think would be better served by a SPIN code than Newmard is executing research collaboration agreements. And so that's the primary driver. There's no other concerns with respect to FTC for the SPIN code. Next question.

Thank you. Your next question comes from the line of Richard Vosser from JP Morgan. Please go ahead. Your line is open.

Hi. Thanks for taking my question. Just a question on the hypersensitivity that was mentioned on the slide for the Delzota product in a few patients. I think avidity might have suggested that it was related to the antibody when they looked into it. So I just wanted to understand your thoughts around that and and the thoughts and what data you've seen that suggests this is an isolated incident. Thanks very much.

Yeah, so now I'll turn it over to Norman Putzke, our head of neuroscience development. So, Norman, on the hypersensitivity topic.

Yeah, thank you, Vas. I think we're looking at a probably generic concern when you use a modality like that. It's still fairly novel, so some inherent risk there. Generally, the overall AE profile was very favorable, and we have only seen moderate side effects. I think hypersensitivity is one of the things that you will be looking out for, but so far we haven't had any concerns with the continuation of treatment. We haven't seen any severe effects to that end. So far with the experience in the clinic, we have more than 100 patients dose in the avidity program, some for up to three years at four mgs per kg. So I think overall a fairly mature safety profile in the program. Thank you.

Thank you. Thank you, Richard. Next question, operator.

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

Good afternoon. Thank you very much for taking my question. Question for Ari, please. Could you maybe generate some cost synergies when you will merge with this company as you have some overlap on some rare diseases? So is the 1% to 2% potential negative impact is something that takes some potential savings from this merger? Thank you.

Thank you for your question. I mean, as you know, usually both on biotech companies, you know, the cost synergies are limited. It is more important that we have synergies on the commercial side, on the medical, on the R&D side, and in terms of driving top line and pipeline executions. Now, the one to two points over the next three years is mainly due to we have quite some expensive Phase IIIs ongoing. And initially, before we take over the production of the product, the clinical trial material is quite expensive. So that's why this has a bit of an unusually high cost impact for the next two to three years. As far as that, we always look for productivity anyway, and we will see if we can come back to the 40%, which we will basically achieve this year, maybe even before 2029. But it's a worthwhile investment given the expected huge returns and sales uptake in the 30s.

Thank you, Farhan. Thank you. That's very clear.

Thank you.

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

Hi there. Thanks for taking my questions. The first one is, after the steel, can you just ballpark, give us an idea of how much more firepower You've got for deal making. And if the size of the steel is a template for deals going forward, or this was an exceptional opportunity. And that's why you deviated away from your standard bolt on model. Second one is just on the readouts in 26. Can you give us a clear definition of what you would consider as success in terms of, you know, outcomes? Or, you know, just if it can't be quantitative, just a qualitative idea of what are we looking for when we see the readouts? And then, you know, we can evaluate them whether, you know, it has met your expectations or not. Thank you.

Great. Thank you. Thank you, Rene. So first on firepower here.

Yeah, Cash. So I would still consider this to be a bolt-on for a company of our size and cash generation. You know, our EBITDA per year is roughly $22 billion. Our net debt is below a one-time EBITDA at the moment. Now with this, it goes a bit up, but still super strong balance sheet. So we have continued significant growth. both on MMA and firepower. So no concerns there. And, you know, it's not for lack of trying that you want to do more of these or we cannot really predict size of both arms. It always has to come with the strategic fit and the science with the conviction on the science and what the patient impact will be in the return for it. So, of course, all of these are a bit opportunistic, but clearly, for me, this is absolutely in line with our strategy of bold on M&A to strengthen the pipeline of our 48.

Thank you, Harry. And then, Rajesh, on the readouts, look, there is the, as I mentioned, the CDUS biomarker readout in FSHD. And assuming we see compelling impact on the biomarker, It would be absolutely our intention to go to FDA and have a discussion to see if we can get an accelerated approval. But the phase three study is continuing to enroll, and we'll continue to ensure that enrolls as fast as possible. And then I think for DM1, it's relatively clear, but we know the primary endpoint that we need to hit. and we need to hit those primary endpoints as well as have the functional benefits in the secondary endpoints aligned with what we saw in the phase two study. And assuming we see that at the end of study 54-week readout with the 30-week interim, but our goal would be to deliver this at the 54-week readout, then that would also create a compelling filing pathway. I mean, I think the existing with these assets is the phase two endpoints are aligned with what we're studying in phase three. So we have, I think, a pretty good road map here of what we're trying to achieve in the phase three studies, and that's what we're going to aim to do. Next question up.

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

Excellent. Thank you for taking my questions. I've got two, please. So, as you mentioned, Harry, this is a fairly opportunistic deal and it's difficult to sort of time when you can pull the trigger on these things. But clearly, this is going to have a positive impact on the long term through the 2040s. But how comfortable do you feel now with the portfolio as a whole? There's some fairly, obviously, highly... high-profile LOEs that are coming up in the next four or five years. How are you thinking around your ability to grow through those as well as the balance between M&A going forward and your current early to mid-stage pipeline? And second question, how broadly applicable could this technology be and where do you think the key differentiators are in the technology? So is it the antibody targeting sort of neuromuscular system? Is it the linker or RNA combination? Or, for example, is there an ability to have a plug-and-play asset here where you can substitute the antibody, substitute the linker for a different payload, et cetera? Sort of how much does Fiona have to play with when she bolts this into her development organization? Thank you.

Yeah, thank you. I think first from a growth standpoint, it's important to know we have full confidence in the internal pipeline and internal assets that we have. If you just look this year, we're launching remibrutinib, which we believe will be a multi-billion dollar asset. We have a positive readout for hormone-sensitive prostate cancer with Plavicto. We have the Ionilumab readout, which I know in different views, I know your view is But we have a very optimistic view that we can drive significant growth with Ionelamab as well. So three major launches. And then we expect a very robust mid-stage pipeline as well behind that to give us confidence going in. So the goal then is to bolster the portfolio more, of course, because we want to continue to drive that dynamic growth into the next decade. So we did deals like Tourmaline, we did deals like Anthos, and now with this deal, we bring in three more late-stage assets, a total of five additional late-stage assets, all with four out of five of those with multi-billion dollar potential. So of course, we'll continue to evaluate when we find highly attractive deals, but we're not in a situation where we're We're going to reach for deals where we feel like we have to do a deal. But we find something that's very aligned with our technology interests, aligned with our therapeutic area interests, where, of course, we're going to go after it and ensure that we put Novartis in the best possible position. So in terms of the technology here, I think there's many applications. I mean, here you've already seen in these three drugs, you have both an antibody linked to an SIRNA as well as an antibody linked to an oligos, so you have the ability to do both. SIRD and all of those. All three of these assets, the antibody is using targeting to the transferrin receptor, but as Bob mentioned, there's a potential to use this sort of antibody technology to target Other targets for SIRNA delivery, I would note, you know, Bob has a substantial portfolio of assets that he's pursuing for other neuromuscular conditions as well as other disease targets. So we think there's a possibility to hopefully address a number of different organ systems in the body over time. Bob, anything else you'd want to highlight on the platform?

No, I think you said it well, and just that they have even further iterations with novel formats that we're really excited about exploring even further into the future.

Thank you. Next question, operator?

Thank you. Your next question comes from the line of Michael Luton from Jefferies. Please go ahead. Your line is open.

Great, thank you. It's Ben Jackson from Jefferies. Look, I get the reason internally for why you did the acquisition and the overlay with the existing portfolio, but could you perhaps touch on to what extent the macro overlay dictates the therapeutic areas of focus for M&A? Is rare and neuro easier to do at the moment versus kind of cardiovascular and INI? So any thoughts on that would be useful. Thank you.

Yes, thanks, Ben. No, I don't think it was – Based on a relative view, I mean, we have a strong expertise with Bob and his team in neuromuscular disorders. And if you've looked over the history, you know, we've done acquisitions like a DCX, like Cape Therapeutics. We have an internal portfolio. We've worked, of course, with Zolgensma and following programs. So I think this is very much aligned with our long-term interests. in neuromuscular diseases. I don't think it's necessarily easier per se. I think it's just a very good strategic fit for what we've been investing in and want to leave in in the long run. Makes sense. Thank you. Next question.

Thank you. Your next question comes from the line of Paul Kern from TD Securities. Please go ahead. Your line is open.

Well, thank you. This is Steve Scala. Several questions. Just to be clear, Harry, I think you said half of the sales guide boost was from Avidity and half was from Novartis' existing business. Is that true of the margin hit as well? So half is from the acquisition and half is from Novartis' existing business. So that's the first question. Second question is, what were the three most important questions during Novartis' due diligence process for the deal? So what were the three things that you had to kind of get over in order to move forward. And then third, I don't know if we're allowed three questions, but if we are, thinking back to the AVEXIS acquisition a number of years ago, it never really lived up to initial expectations set by Novartis. So why will this acquisition be different? Thank you.

Thank you, Steve. So first on the half and half questions.

Yeah. No, the margin expects, in fact, to the R&D expense this year of this deal. The rest of the portfolio is wonderfully driving forward and offsetting onto some negative gross margin makes WIRE a very good productivity program and expected top-down growth.

Yeah, thanks, Steve. And I'm not going to get into our due diligence, but I can say that we did an absolutely thorough due diligence on WIRE. The profile and all the assets, and of course all the standard areas, safety, efficacy. As always, there's risk with all programs that are in Phase 3 studies. And so there's risk, of course, always. There's no guarantees in this business. But I think based on what we saw in the Phase 2, what we saw in the design of the Phase 3 studies, the regulatory feedback, the mechanism of action, the biomarkers, everything aligned, so we think it's a reasonable bet. I would also say we have great expertise in this area, I think Bob and his team. the space extremely well. So we feel confident that this is a phase-appropriate bet and a phase-appropriate investment, but there's risk. I think if that's your point. And then I think, look, with Avexis, actually it's over a billion dollars of sales, and we are about to launch the IT indication. So I'll invite you to look back in three years as to what your view is of the deal then. It's always easy to cherry pick in the middle. But I think actually the two deals are unrelated in some ways, right? I mean, this is a completely different technology. I think RNA therapeutics here and the phase two data and the phase three and the huge unmet need, similar huge unmet need in novel technology, but completely different technology. So I think trying to read through disparate deals is probably not very productive. Next question, operator.

Thank you. Your next question comes from the line of Sachin Jain from Bank of America. Please go ahead. Your line is open.

Oh, hi there. Thanks for taking my follow-ons. Two just on topics we sort of touched on. So first in the due diligence, I wonder if you could just comment on your level of comfort with the safety of the technology platform and mechanism given the clinical hold Avidity had. I know it was lifted a while ago, but just your level of comfort there. And then second, there's been a couple of questions around the LOE and mid-term growth. You've obviously raised the 24, 29% today. We've got the CMD around the corner. Is there still an intent to roll that guide to include 2030, which is obviously the post-closantics impact? Any thoughts there? Thank you.

Yeah, so just on the second question, we will roll forward the guide to 2030 if it meets the management. Then on the political hold, Norman, do you want to cover that?

Thanks, Vas. Yeah, I think you alluded to the fact that safety was an important consideration during the due diligence since we're looking at a novel mode of action with a novel platform. The partial clinical hold occurred in 2022 due to a serious and rare neurological event that was fully investigated, and then the clinical hold was lifted in 2024 after that full investigation was completed. In the meantime, we are looking at a really fairly established and mature safety profile. This is based on actually more than 100 patients dose with more than 500 drug users, some of these patients for up to three years. And that is at the dose of four mgs per kick, which was the dose that was implicated previously. So I think at this point, We were confident that we were looking at an idiosyncratic event, and we feel good about the overall safety profile. There are no discontinuations in the study because of side effects, and overall, AEs were mild to moderate, so good level of confidence at this point.

Great. Thank you, Norm. Next question?

Thank you. Please stand by. Your final question comes from the line of Gina Wang from Barclays. Please go ahead. Your line is open.

Thank you for taking my questions and congrats on the deal. My question is why now giving the phase three data will read out in like say half a year or less than a year and I know the phase one, two data is very convincing but do you have a risk of a phase three? So why not wait for a little bit longer, so that would be completely risk before, you know, do the full acquisition.

Yeah, thanks. I mean, this is always the question, right? If you go in at the clinical stage or after the readout, the valuation, of course, could more than double. And then you're looking at a transaction that's quite substantially larger than this one. So I think that is a judgment call. You, of course, could wait, but then you're looking at a very, very large transaction, potentially twice as big. And in our view, that the phase-appropriate risk was reasonable given the data that we've seen. We also have two shots on goal of significant assets, either one of which would pay back the deal and both of which hit a very large value creation for our shareholders. And so we feel good about that as well. And so we think it's an appropriate risk to take. But I think there is always that question. But if you wait, of course, the valuation will run away from That's why we thought this was a prudent move to do.

Thank you.

Okay, great. Thank you all for joining. I'm sure we'll be speaking with most of you tomorrow as well in our earnings call, so we'll look forward to connecting with you then. Thank you again.