Novartis AG

Thank you, Sharon. Hi, everyone, and welcome to our Q3 earnings call. Let me briefly read the safe harbor statement before we can begin. The information presented today contains forward-looking statements that involve known and unknown risks, uncertainties, and other factors. These may cause actual results to be materially different from any future results, performance, or achievements expressed or implied by such statements. For a description of some of these factors, please refer to the company's Form 20-S and its most recent quarterly results in Form 22-K that respectively were filed with and furnished to the U.S. Securities and Exchange Commission. And with that, I'll hand over to Rob.

Thank you, Isabella, and thanks, everybody, for joining today's call. If we could move to slide four. So in the quarter, although one second, we're just getting our slides moving here. In the quarter, Novartis delivered sales growth and core margin expansion. And that supported an upgrade to our full year 2026 bottom line guidance. You can see sales were up 4% in constant currency. Core op inc was up 10%. Mukul will go into the numbers in more detail, but we also had a good margin performance in the quarter. A number of important pipeline milestones, notably, of course, as you all know, the Remy Bruton of data, but also Rapsido received FDA approval. Pluvicto also with important approvals in the US and China for HSPC. Blabrasib was also filed in Europe. And Delzota received FDA priority review for DMD44. Overall, this allowed us to increase our guidance, and we'll go through that in a bit more detail on the call. So moving to the next slide. Priority Brands continued to perform well in the quarter. They were up 29%, very strong performance across Cascali, Cosimta, Semblix, and Letbio, a solid quarter from Cosentix. Fluvicto, we're still in the midst of launching in HSPC, so we haven't seen that pickup yet, and we'll talk more about that in a bit. And Rapsido also with a very strong performance as well in the quarter. So moving to slide six. Kaskaly grew 37% and it continued to outperform the CDK 4.6 market. You can see that our EBC shares both in US and Germany are very stable and at a very healthy level. Turning to the US, first 38% growth in the quarter, $3 billion year to date. We are the leader in EBC and our NBRX share was up three points versus prior quarter. 53% of the patients now on Cascali are from the exclusive population. In metastatic, we're continuing to grow our NBRX share in first line, which is now at 55%. And we continue to grow our prescriber base as well. It was up 12% versus prior year and up 44% in early breast cancer. Outside of the US, we had 35% constant currency growth, continued leadership in metastatic breast cancer, Our growth is accelerating now in many of our key markets with the early breast cancer launch now approved in 84 countries and reimbursed in 43 countries. And I think some of the benchmarks that demonstrate the performance, Germany 80%, EBC share, UK 77%. In China, relatively recently after the launch, already reaching 55%. We also released a few weeks or last weekend, the Natalie six-year data, which showed a clinically meaningful overall survival with a hazard ratio of 0.809. And we expect that data to continue to support our growth in the adjuvant setting. I think notably having that OS data and showing that CDK4-6 combined with endocrine therapy in those node zero and node one patients gives us the strong case to have physicians provide patients with CDK4-6 inhibitors like Cascali. Casimta grew 22% fueled by strong demand. U.S. growth was up 21% in the quarter. Our TRX growth is outpacing the market. We were up three points overall in the MS market to 16% share. We were up four and a half points in the B cell class getting to 27% share. We see a continued trend to prescribing the medicine earlier in the earlier lines of therapy. 77% of our NVRXs now are first line or first switch. Outside of the U.S., also very solid performance. We have 80% of EU4 patients are from a first line, first switch, and we see strong growth across Europe as well. We continue to generate evidence to demonstrate Kazimta's activity in various lines of patients as well in longer-term follow-ups. I think that just allows us to continue to support this medicine and its very strong performance. Moving to slide eight. So Victor grew 20% in constant currencies. It was driven more by the ex-US momentum as well as by US pre-taxing growth. The US was up 9% in the quarter. That's primarily driven by the MCRPC pre-taxing setting, with use predominantly after the first ARPI. The first-line NBRX share is up 15% now, and we expect further share gains over time, and that remains our top priority to continue to drive that early utilization in the MCRPC setting. We are in the very early days of the PSMA Edition launch, and I'll cover that in a little bit further detail on the next slide. Outside of the US, we see great performance, 68% growth. We see accelerating adoption in Europe, in many of our key markets, Canada, and Japan, as well as early momentum in China. Japan became the fastest market to reach 1,000 patients, supported by ongoing site expansion, and also we are building a facility there. China, we had the approval of the PSMA addition indication in August, and we expect that to support growth as well. Then moving to slide nine, turning to the PSMA addition launch. I think first it's important to highlight we have strong foundations in place for the brand. Two-thirds of hormone-sensitive prostate cancer patients are managed by physicians who are already using Plavicto or are connected to established referral pathways. We see broad treatment capacity with 9 out of 10 patients within 30 miles of a site. And we're also continuing to address the non-clinical barriers you can see are the images of both the availability of an infusion and the scaled availability of the pre-filled syringe. It's important to note we expect about five to 10 weeks of lead time for new patients to be treated, a combination of doing the testing required as well as the scheduling. We do expect the fastest uptake in high tumor burden patients and as well as the de novo patient segments where there is unmet need versus the current standard of care. We also expect continued expansion in the community, particularly in urology. Overall, I'd say we're encouraged by the early uptake indicators. But we do think through quarter four, we will see some uptake. And also important to note, we will hit the holidays, Thanksgiving and Christmas. So we really think next year is when we'll see further acceleration with the HSBC launch. Lectio continuing to perform extremely well, up 63% in the quarter. And this is demand around the world. In the U.S., we're up 60%, 60% outgrowing the advanced lipid lowering markets. are monthly TRX growth going well ahead of the market and our main competitor. And I think that's in part driven by LECVO's persistency and the high compliance rates we're seeing. We see very strong performance in Medicare, which is a good indicator of our performance in buy and bill, where we're up to now 22% share. We also see increasing depth in our key healthcare systems. And we really focus on patients post-event where there's a high propensity to want to get patients to their LDL goals. and then we also had our U.S. label updated with a cardiovascular outcome statement and we're on track for the Orion 4 and B2P readouts that are expected in quarter four and in 2027 respectively. Outside of the U.S. 65% growth China growth continues post NRDL and we've noted previously very strong growth in China as well as the same growth in Europe. and then we're continuing to expand the electio evidence base. The challenge was presented which showed LDL-C lowering better is superior to pemphidoic acid. Moving to slide 11, Semblix was up 67% driven by strong U.S. momentum. In the U.S. we continue to see very strong performance in first line. We have reached 33% share and so you can see we're edging towards market leadership. We're really at market leadership now. and we're maintaining leadership as well in later lines where we expect continued shift in the treatment mix from second, third line towards first line. So very pleased with the U.S. performance. Outside of the U.S. as well, we're building off a very strong third line leadership where we have 77% share across key markets. The early line indication is now approved in 69 countries outside of the U.S. Japan has sustained first line NBRX leadership at 56% share and Germany already at 33% share. So very excited about the trajectory of Semblance as we move forward. Now, Cosentix had a solid quarter, up 9% in constant currencies. I think when you net out some of the gross to net, we were in the mid single digit growth range. So I think that's very solid performance with growth in both HS and the SPA indications. The US, you can see our HS share is very stable in the high 40s. The spa business is remaining resilient, so you can see as well in the bottom panel here our share is steady at 14%. Outside of the U.S., continued growth in Europe and most emerging markets, stable in China. And we expect continued indication expansion as we move towards the end of the life cycle for Cosmetic. PMR, Polymyalgia Rheumatica, was approved by the European Commission. We expect the FDA decision in quarter four. and the HSIV was added to the label as well in October. Now Rapsido has had really strong launch momentum. You see that in quarter three. And we also had the additional approval of symptomatic dermagraphism, which covers about two thirds of patients with chronic inducible urticaria. Let's start with CSU. We continue to see the launch trajectory in the U.S. on a steady, strong pace, over 6,000 subscribers split between allergists and dermatologists, over 15,000 patients treated. Our NBRC share is about 26%, and that's up about three points versus prior quarter. We've been very disciplined with the contracting, so that performance is in the context of about 50% ACMEs to label. We do expect further access expansion over quarter four and into 2027. And of course, as that access expands, we expect continued acceleration on the sales. Outside of the US, we're now launched in seven markets and we're steadily getting reimbursement step by step, market by market. We do see strong early uptake in Germany and China. When you turn to inducible urticaria, as a reminder, symptomatic dermagraphism, This is the first ever approved treatment for this condition. There's about 100,000 U.S. Sindhu patients who are uncontrolled on antihistamines out of about 500,000 patients total and two-thirds of those with SD. We have 100% overlap with the CSU prescribers, so that should enable us to get to a very efficient launch. And we're already rapidly working towards filing the medicine across all three subtypes around the globe. So we're upgrading our peak sales guidance for Rapsido and CSU and Sindhu combined to over $4 billion. And moving to the next slide, we had some important readouts in the quarter, which you're well aware of. Remy Brudnib, hopefully many of you heard the call on Friday, so you know well. So I won't belabor, but we'll go a little bit and further review on the next slide. We were really pleased with the results. We show that we achieved disease control with outstanding, consistent safety. And the FDA submission is on track for quarter four with a priority review voucher. Del Desseren, we didn't meet the endpoint in Harbor, but we did have the evidence of clinical activity in the secondary exploratory analyses. We'll present that data in an upcoming medical congress. We're doing a lot of work now to prepare the next steps. and engaged with health authorities to chart out the next right steps for the development of the medicine. We did take a partial impairment charge of 1.9 billion, primarily driven by the timeline shifting out by the additional clinical work that needs to be completed. And then lastly, Pella Carson, the phase three of Horizon, a study did not meet its primary endpoint. We will have that full data set presented at AHA and published in a major medical journal. And I think that will provide further insights into that data Further development of DII-235, our once-annual SRNA for LPLLA, is still under consideration. All of that taken together, we reaffirmed our 5% to 6% constant currency sales guidance for 2025 to 2030 and our mid-single-digit constant currency long-term growth outlook. We've done all the modeling. We feel very comfortable with those numbers. Now, turning to remodel, Remy Brutnib, we were really pleased with this data. It delivered comprehensive disease control. you can see here on the left all the data that was reviewed including the six-month pura so independent of relapse progression impact of 30 reduced by 30 percent very favorable safety profile robust consistent no liver signals no infection imbalances 50 nearly 50 percent fewer discontinuations due to 80 immunomodulation without b-cell depletion and as we all know in multiple sclerosis with so many options it starts with safety and if you can't demonstrate a clear, clean safety profile. Understandably, neurologists will look for other options. So we think having that safety profile and then showing disease control is why we're so excited about the medicine. So the filings are ongoing, as I already mentioned. And if you go to slide 16, as a quick review for anyone who is not on the call, we see an opportunity in the naive populations. That's about 30% of that naive population we think would be open to take a medicine like remubrutinib. in the oral switch population, 40 to 100% of patients over time could prefer ramirudinib given its excellent safety profile and comprehensive disease control. We expect over time as patients are fully controlled under anti-CD20s, patients who might want to be switched to an oral medicine, about 45% of those patients in the US. And then the other segment, which is some of the older injectable medicines, over time we hope to be able to address 100% of that patient population. Outside of the US, we estimate about, you know, around 38% is addressable. All of that taken together gives us confidence in a $4 billion plus medicine with a further upside with a non-relapsing SPMS population. And as well, we will read out data in two years on the Ocrevus switch data, which could provide further momentum to these forecasts. Going to slide 17, I won't go through the slide in detail, but just to highlight, we have multiple readouts coming out in 2026 and a strong catalyst path for 2027. We can cover it on the call with your questions, but all of the milestones that we have for the remainder of this year as well as next year are on track. Moving to slide 18, and with that, I'll hand it over to Mukul.

Thank you very much, Vasant. Good morning, good afternoon, everyone. I will now share more details on the financials for the quarter. and as a reminder, my comments as always refer to growth rates in constant currencies unless otherwise noted. Moving to slide 19. So in the third quarter, net sales grew 4% to $14.5 billion, while core operating income grew 10% to $6 billion, mainly driven by our growth drivers as well as continued productivity in our business. Quarter three, core operating income margin was at 41.6% of net sales. This is an increase of two percentage points versus prior year, and this is mainly driven by gross margin improvements as well as continued productivity initiatives primarily in our SG&A business, SG&A part of our business. Core EPS grew 8% to $2.46. On a reported basis, in quarter three, operating income was negatively impacted, was $1.8 billion, which is a decline of 61% mainly due to higher R&D expenses. The higher R&D spend includes the $1.9 billion partial impairment of Deldaceron. This impairment follows the phase three harbor readout in DM1 and it reflects our updated assessment of the value of the asset as we evaluate the full data set and engage with the health authorities on the future development path for the product. Net income for the period was at $1.2 billion, which was a decline of 71%, mainly due to lower operating income and higher interest income. And free cash flow for the period was at $5.1 billion, which is below prior year, primarily due to lower net cash flow coming out of our operating activities. For the first nine months of the year, net sales were flat and core operating income declined 2%. Core operating income for the nine-month period was a decline of 0.8 percentage points and free cash flow for the same period was at $14 billion. Moving to slide 20, please. We remain committed to our shareholder-friendly capital allocation strategy, balancing discipline growth investments in the business with meaningful capital distribution back to our shareholders. In quarter three, we completed the acquisitions of Myrex Bio adding to our early stage oncology pipeline. We also exercised our option to acquire Seronaxis blood brain barrier delivery platform. And at the same time, we continue to invest in our internal R&D programs. On capital distribution front, in the first nine months of the year, we have now repurchased $2.8 billion worth of our shares under the current up to $10 billion share buyback program. Please note, we still have $4.9 billion of the program still to be executed. Slide 21. Moving to guidance. So given us very strong bottom line performance in the quarter, we are raising our full year 2026 guidance for core operating income. We now expect for the full year 2026 core operating income to be in line to growing low single digit. For reference, this is an upgrade from the previous guidance of core operating income of low single-digit decline for the full year. At the same time, we are maintaining our full year guidance on net sales, expecting to grow net sales at low single-digit for the year. For 2026, we also continue to expect core net financial results to be an expense of $1.7 billion and the core tax rate to be around 16.5%. This is in line with our previous guidances for them. Moving to slide 22. So beginning of the year, we talked about 2026 as a year of two halves. And with this quarter reading out, we're pretty much sticking to that outlook. As a reminder, in H1, net sales declined 2%. Core operating income declined 7%. Both were impacted by the US interest or generic erosion. With a strong Q3 delivery, we now expect a stronger H2 Performance. For H2, we expect net sales growing mid to high single digit and core operating income growing high single to low double digit. After stepping up in Q3, quarterly sales growth is expected to accelerate further in Q4 as we move beyond the impact of the US interest with generic erosion. On the core margin, we do expect a decline in Q4 versus Q3. This reflects the typical year-end phasing of our spend also higher royalties as growth drivers scale up would play a part. And finally, we will also see the impact of lower other income as a result of the Zoller biosimilars in the US. As a reminder for 2027, we will provide our full year guidance with the Q4 results in February next year. Moving to slide 23, yeah. If exchange rates remain at late October levels, we expect a positive one percentage point impact on the full year net sales and a positive one percentage point impact on our full year core operating income. If these rates also prevail in 2027, we would expect a negative one percentage point impact on top line and no impact on core operating income. As a reminder, we publish updated FX estimates monthly on our website. and that concludes my remarks and I will hand it back to us.