Good morning and good afternoon and welcome to the Novartis Q4 Full Year 2015 Results Conference Call and Live Audio Webcast. [Operator Instructions] A recording of the conference call, including the Q&A session, will be available on our website shortly after the call ends. [Operator Instructions] With that, I would like to hand over to Mr. Joe Jimenez, CEO of Novartis. Please go ahead, sir.

Thank you. I would like to welcome everybody to our full year results. In the room with me today are Harry Kirsch, our CFO; David Epstein, the Head of Pharma; and Richard Francis, the Head of the Sandoz division. Now before we get started, I would like Samir to read the Safe Harbor statement.

Thank you, Joe. The information presented in this conference call 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 Securities and Exchange Commission for a description of some of these factors.

Thank you, Samir. Okay, starting on Slide #5, I am going to give an overview of our results and also talk about some of the changes that we announced in the company for 2016. So overall, you look at our underlying results in constant currency basis and sales were up 5%. We had a double-digit increase in core operating income margin and we – sorry, core operating income. We were able to grow our core margin 130 basis points. And even with the impact of currency, we were able to grow margin in this environment. Now the best part of the year really was the innovation, which we will go through in a minute, but on Slide 6, you can see an overview of our financials, core EPS, up 10% to $5.01. Interesting to note on this slide, net income is down versus a year ago, but it’s highly impacted by the exceptional gains that we had in 2014, specifically the sale of shares in Idenix based on the Merck acquisition as well as LTS Lohmann and some exceptional charges we had this year related to Venezuela. So that’s not really a factor in our underlying performance, but that’s why that number looks negative. Now at the beginning of the year, I laid out five priorities for the company and I want to hit each of them. Starting on Slide #8 with the financial results, you can see both the Pharmaceuticals and the Sandoz divisions had very strong years with mid to high single-digit sales growth and double-digit core operating income growth and this offset a weak performance on the Alcon division which we will get into also. Innovation, though, was very strong. On the next slide, you can see we had 20 major approvals in 2015. Entresto and Cosentyx,…

Thank you, Joe. Good morning and good afternoon everyone. Unless otherwise noted, my comments refer to our continuing operations and growth rates in constant currencies. This time last year, we guided that sales would grow mid-single-digit and core operating income will grow ahead of sales at a high single-digit rate. On Slide 41, you can see that we delivered on that guidance. On core operating income, we achieved even double-digit growth in constant currency slightly exceeding our guidance. By division level, Pharma and Sandoz achieved the guidance, clearly, Alcon missed. Slide 42 has the usual summary of our performance. Focusing on the full year first, we delivered sales growth of 5% and core operating income growth of 10%, generating strong core leverage. Core EPS grew 10% in line with core operating income growth. Operating income for the full year was down 2%, mainly due to the amortization of the new oncology assets we acquired from GSK last year. Net income was down 18%, impacted by exceptional prior year gains from the sale of our shares in Idenix and LTS Lohmann as well as exceptional charges in 2015 mostly related to our Venezuela subsidiaries. Free cash flow was $9.3 billion down versus year ago in U.S. dollars mainly due to the strong currency impact in operations and high prior year Novartis management fund divestments and the commercial settlements. And the fourth quarter sales were up 4%, core operating income was up 9% and core EPS was up 8%. Now to Slide 43, this is to emphasize our solid operational performance, which was driven by volume growth of 11% in sales and 27% in core operating income, which more than offset the negative impacts of generics and pricing. This allowed us to deliver growth of 5% and 10% on sales and core…

Thank you, Harry. The Pharma division had a strong year, both in terms of its financial metrics and innovation metrics. For the full year, net sales grew 6% in constant currency and 14% on core operating income, allowing a core operating income margin gain. Looking more specifically at Q4, you see 9% sales growth and 23% on the bottom line, resulting in, as Harry had shared with you a 330 day basis point improvement in core operating margin, which speaks to the strong underlying power of the business in periods of time when there is not much generic exposure. Turning now to the next page, you see that our growth products net sales have grown 33%, now representing 44% of the total business for full year 2015. In Q4, that number was actually 47%. The reason we track this metric is a good guide for the sustainability of our sales over time. On the following slide, we see our attractive growth platform with the exclusivity to 2019 and beyond. These products are either blockbuster status today or are on their way to becoming blockbusters in time. Across the board, very good numbers for the year with the exception of Lucentis, where we continue to have price pressure as well as competition from both branded competition as well as off-label use of Avastin. There are multiple examples of healthy sales development throughout this portfolio, but what I want to do is just focus now for a few of them starting with our oncology business, which is on the following page. We achieved very strong growth momentum in 2015. And you can see that’s the case whether looking at our underlying oncology business pre the acquisition of the GSK assets, where we grew those – that business 8% or now the total…

Thanks David. So just to close, I want to lay out the priorities for the year. First obviously, is to deliver our financial targets while we absorb Gleevec and also invest in the launches. We are going to improve the pipeline across all divisions. At the same time, we need to turn the Alcon business in the back half of 2016. We have got a lot to do want cross-divisional synergies now with the centralization of manufacturing on top of our plans for Novartis Business Services and finally, strengthening the company through high quality and talent throughout the organization. So I think we have a plan for Alcon, in which we can execute immediately and this is going to make us a stronger and a better company as we move to make some of the changes in both drug development as well as our manufacturing footprint around the world. So with that, I would like to open it up to questions.

Thank you. [Operator Instructions] The first question comes from the line of Richard Vosser from JPMorgan. Please go ahead.

Hi. Thanks for taking my questions. A few on Entresto and a couple on Alcon please, so on Entresto, you mentioned that there is some prior authorization still there in Medicare coverage in the U.S. So just what proportion of lives still have prior authorization, please and what removes the prior authorization, what hurdles do you need to go through to get rid of it and over what timeframe do you think that could happen. Second question just on the treatment guidelines, I think we have seen the first batch from Canada and they have positioned Entresto as a second line agent, so if you could just comment on how you feel that leaves you relative to your marketing plan and what you think it might mean if you got the same thing in the U.S. And thirdly, just you mentioned changes to the sales force sort of retraining them in January, just if you could give us an idea of what’s changed with that at that training. And then maybe just a quick one on Alcon, which is the business plan that you outlined in terms of investing in the current products is similar to that we have seen for the last six months, so just what happens if the business doesn’t turnaround by mid-year, you have given us a very clear target that it should turn around, so just your thoughts on maybe a plan B there? Thanks very much.

David?

Yes. So starting with Entresto, most of the plans require prior authorization. That is not strange for this period of time, but generally takes prior authorizations off if doctor and patient demand. So as people start to complain about it and more and more come on then eventually the plan will engage in the conversation with us. There might be some of – a little bit incremental rebates, but then those will come up. I can’t give you exact time, but it won’t be in 2016. It would be later out. Then in terms of Canada, I thought the guidelines actually were quite positive. In terms of the guideline for Europe, we are told and remember, we don’t have complete transparency. We are told that there is likely to be guidelines issued around that time of the European Society of Cardiology meeting in Europe, which I would believe if I recall correctly is May. And for the U.S., I am told there is more likely to be in the back end of the year. We do not yet know how the products will be positioned whether it will be a choice, whether it would be Entresto first or there will be some other caveats. Remember, there is only one pivotal trial for doctors who will tend to be more cautious when they write those initial guidelines.

And changes to the sales force that you…

I am sorry. So the sales – the biggest thing for the sales force is first of all, as you can imagine they were struggling with lack of access and they needed additional training to know where the access was open and how to deal with it and assist practices through the prior authorization practice. Just as importantly, it wasn’t really until now that we have full detail materials for them because it was fairly long process with FDA to get those materials. So they were trained on the entire selling story. That’s why I tried to indicate it’s almost as if the launch is starting now in the U.S. market. And as you model that it’s probably a good way to think about the uptake of the product.

And Richard, in terms of Alcon turnaround, obviously we are executing now. We don’t expect to see the turn until mid-year. We then expect to see improvement. And as I have said, exit the year with low to mid single-digit growth. Now your question was what happens if that doesn’t happen and we are right now totally focused on executing that because the plan that I have seen is credible. If we execute it, we should turn it. And then if we don’t – if we are not able to turn it, then we obviously have to step back and ask why. What is it about either this business or about med tech or about any other element of Novartis and our ability to turn a business like that and that’s a question that I hope we don’t have to ask, because I do believe in the plan and I think with Mike’s full attention on it also and a team that’s focused on executing it that we will be able to turn it. But we have got a year to look and we are going to execute and then in the fall and as we build the plan for ‘17 we are going to evaluate where we are.

Thank you very much.

The next question comes from the line of Andrew Baum from Citi. Please go ahead.

Thank you. Question for Harry, David and Joe. So, Harry, two actual ones. So firstly, of the announced $1 billion plus in cost reduction by 2020, how much of that gets reinvested? And then second the anticipated timing of utilizing the $10 billion authorized buyback? To David, given you have 200,000 patients in integrated delivery network, namely, in the VA eligible for Entresto, why not accelerate the adoption by increased rebating given the uncertain U.S. patent life for the product? I understand obviously the dynamic volume or value, but what’s it going to take to get particularly the VA on board? And then finally, for Joe, in your explanation of Alcon’s challenges and looking at Page 25, the one area that you didn’t focus on or maybe I missed it was the line talking about supply chain. Obviously, innovation or lack of is the chronic issue in Alcon, but my understanding is some of the overfilled channels or debt that were written off in Asia on the surgical business reflected mismanagement or issues in relation to the supply chain. Have those been corrected in terms of both the bonus structure for your employees within Asia or within the surgical business? And do you feel now you have the oversight of the supply chain for the device business?

Okay, David, or no, Harry, sorry go with the costs.

Yes, first, thank you, Andrew. The $1 billion, I mean, as Joe laid out is there in order to partly reinvest into our pipeline and organic growth, but also partly of course to support our margin expansion. Now, to forecast that for the next four or five years is probably not the right thing to do at this moment also given that things always change, but I clearly see this as significantly supporting our margin progression beyond 2016. In terms of the share buyback timeline, just to clarify in our AGM proposal, there will be the request of the board through the AGM to authorize our seventh share buyback program, but it is basically an authorization request for [indiscernible] share buyback. It doesn’t have any time limit. And you may recall that our sixth share buyback program was going from 2008 to 2015 and we just finished it with our – the last element of the $5 billion buyback over two years. So, we are not announcing a specific additional share buyback at this moment. On the other hand also, we are always committed as we also did this year in addition to announced share buybacks to mitigate any potential dilution from employee participation programs.

David?

Andrew, I agree with you. The VA patients would very much benefit from this drug reduced mortality, reduced hospitalization cost. So, this is the kind of drug that makes a lot of sense for VA population. It took a couple of months of discussion. The VA has now at the end of last year partially opened the doors to us for roughly 30% to 40% of their population. And it’s discounted with the standard VA rate. There is no incremental discount. We are continuing to talk to them. We are willing to provide them some additional discounts to open the rest of the population, but I can’t yet put a time on that it really will be driven by the VA.

And Andrew, on the supply chain for Alcon one of the issues that we ran into in the last 12 months is when we launched CENTURION, a lot of other things changed in the supply chain system in terms of equipment that those surgeons used to use that piece of equipment. And what that means is that it throws a lot of the consumables into, let’s say, a level of complexity that results sometimes in customer service issues with that customer. So, because it is a high touch business, we did have some service issues. We are largely through those now. In terms of the bad debt in Asia-Pacific that you mentioned regarding some equipment sales that is now behind us and we have – there are – there is training, there is education, there is change in incentives that put that behind us also. So, really it is ensuring that we have best-in-class customer service. And for the most part, we are through the woods after the fourth quarter.

Right, thank you.

The next question comes from the line of Matthew Weston from Credit Suisse. Please go ahead.

Thank you. Three questions if I can. The first simply on Entresto, in the U.S. for the enhanced access that we have seen this year, David, is that simply a function of the six months rolling off in Medicare Part D in the rules or is it that you have been forced to rebate more aggressively to open access on the product? Then with respect to Gleevec in your assumptions I am sorry to dig into this one, but you have given us divisional guidance. So, it’s pretty important to understand where you are putting things. We know some will enter on the first of February. We know they effectively have a license on your patent. Dr. Reddy’s recently announced that you had settled with them. Can you confirm that? And can you also confirm if you settled with anybody else on the 2019 be it a Crystal patent? And then finally during the 180-day period, I presume that you will still make sales? It will be a two player market. Are they in Pharma within your guidance or are they in Sandoz within your guidance?

Entresto rebate?

Yes. So, the answer is yes, it’s both. So, one is it’s a negotiation, and many of the plan, not all of them, will use time on the fact that they have their six months decision window to basically ask for very large rebates at the beginning. And then over time you reach in a place where both sides are happy. I actually feel that we did a good job. I won’t give you exact numbers, but actually the rebate request came down over time rather than going up over time. We also have two plans. And I won’t name the specific plans that have agreed to do outcomes planned with us in the way that works pretty straightforward. We agreed to a base rebate for the product actually fairly modest and then depending upon whether or not we achieved specific goals around reduced hospitalization and savings to the plan, the rebate would either go up or go down. And we think that’s going to become something that becomes more and more popular in the U.S. and around the world. For Gleevec, we have assumed that you pointed out at February entry of the first generic. We believe they will be exclusive for that first six months and our working assumption is there will be multiple entrants after that six months.

And then from the guidance standpoint, you should assume that at this point we are not planning on an authorized generic in Sandoz. So, it remains the Gleevec volume and sales remain in the Pharma group and obviously we don’t want to go beyond that just in terms of how we look and model and think about maximizing sales on Gleevec for the group, but that’s the current assumption.

Joe, thank you. Can I cheat with one other actually, because Harry’s answer to the prior question about share buybacks, in a year where you are challenged, but you have substantial cash flow and a very strong balance sheet, it would make sense to use share buybacks to support earnings growth for investors. And I guess my question is, is it semantics that you can’t talk about a share buyback, because you have no authorization until it comes through the AGM, because you have spent up or is it that you don’t see buybacks as an important element of supporting earnings growth this year?

Andrew, of course, we see share buybacks as continued important element of our capital allocation. On the other hand, we are still sitting on $16 billion of net debt due to the acquisition of the GSK oncology assets and we are working our way through that. Now, I would expect continuously that as part of our capital allocation, we may announce one, but at this moment, there is nothing specific. And our capital allocation priorities remain organic growth, then growing dividend and thirdly, bolt-on M&A between $1 billion and $5 billion, and fourth, last but not least, share buybacks in addition to mitigating employee participation programs.

Harry thanks.

The next question comes from the line of Alexandra Hauber from UBS. Please go ahead.

Good afternoon. Thanks for taking my questions. I guess starting on Alcon again, why – what gives you confidence that you really will see acceleration in IOLs in the second half apart from the fact that you have a lower base. I mean as far as I can assess the situation it still looks like you are losing significant share specifically in Europe, specifically Asia because your competitors have so much more innovative portfolio and I am not sure whether the trifocals and the other launch will be good enough to recapture share. Also, can you give us some directional idea about what Alcon margins are doing for the new perimeter of course, so is ‘16 going to be flat over ‘15 and then stay flat until the premium IOLs come through the new generation in 2017. And then thirdly, was Mike Ball involved in this whole strategic plan. And then I just have a final backup – follow-up question on Entresto and the prior authorization topic, David you said last year I think on the third quarter call that cardiologists are not used to fight for access and in December when we talked, you also said there is no need to establish any infrastructure to help them going through this, because this is temporary, so is this now not coming off this year, I don’t understand the sales dynamics you are guiding to as not much uptake in the first half, but then significant potentially better uptake in the second half if the prior authorization isn’t coming off?

Okay. Let’s start with Alcon and why we believe that we will see accelerating IOL growth in the back half. It’s not just IOLs, Alexandra that will turn the business, it’s really a full plan that includes additional spending on the contact lens business as well as the IOL business and continued pressure on equipment in Centurion. Now, you asked specifically about IOLs and we are not losing share, remember particularly in the U.S., we are seeing a mix effect as multifocal reduces and mono-focal increases. So that is having an impact. In Europe, there was some share decline due to the introduction of more price competition on IOLs, but when you look at the two new products that we have, the UltraSert, which is in both geographies and PanOptix. PanOptix isn’t a panacea in Europe, but it already is helping us to regain some lost share because of the optics of that IOL. It is perceived as a quite interesting IOL, the toric multifocal, which also has become a very important element of multifocal. So there is multifocal or there is premium IOLs and then there is premium IOLs. And we missed it I think on the first round, but with PanOptix and with toric we are able to command premium prices. We are going to increase spending. So this is marketing and promotional spending up against those and it remains to be seen. I believe in the plan and we will see if it turns. If it doesn’t turn, we have to ask a harder question. In terms of Alcon margin, we ended the year at about a 31% margin. This is old Alcon, assume more spending a couple of margin points back on this plan, split across. When we show the pro formas in mid-April you will…

Entresto, yes. So Alexandra, there are differences in restrictive processes, so when a product is not on formulary at all you saw that even then we had a few prescriptions because if a doctor wants to jump through all the hoops and fight really hard, they can generally get a product on, but it’s extraordinarily burdensome and they will do it for a very few patients. Once a formulary is opened up, whether it be the second tier or third tier even if with the prior authorization, it becomes a much more routine, it’s much less information needed, it’s a quicker decision process of the plan and it’s repeated over and over, over time. So it becomes a standard practice for the office staff. We have actually built and I am sorry if I didn’t say clearly before, but we actually have built those support services for doctors just as we have for Gilenya and other products and that will be available to them. In addition, because you are right cardiologists have less experience with prior authorization. In addition, now that there is multiple other cardiology products launching, other companies are also educating cardiologists and their office staffs on how to do it. So over time, this will become much more routine.

Thank you.

The next question comes from the line of Seamus Fernandez from Leerink. Please go ahead.

Thanks very much for the question. So just a couple here, first off for Joe, this may sound a little bit unfair, but over the last few years, we have kind of moved from crisis to crisis in terms of the consumer business falling below expectations, now Alcon falling below expectations. Can you help us better understand where and when investors should have conviction that the business is really going to be on the right path on a sustainable basis, is it kind of kicking off in the second half of this year or is it more of a 2017 type event. The second question, as we think about Entresto I guess, given the 16% total mortality benefit and a striking label, what I struggle with is what is the prior authorization dynamic that’s being put in place and what is the justification on the basis of the plans to allow that to be the standard? Thanks a lot.

Okay. Seamus, starting with when to have conviction. When you look at the business, the whole portfolio transformation was around focusing our business on leading businesses in their sectors that have global scale and innovation power and losing some of the smaller businesses that were good businesses in their own right, but there were distractions or they had issues. So if you look at the company today, it’s a simpler and a stronger company than it was just 2 years ago. 2016 is going to be a transition year for us as we are going through what is the biggest patent expiration that we have seen since Diovan with Gleevec. This is a $4.5 billion drug. So we are going through it at a time when we are launching two drugs that we believe will become mega-blockbusters for the company on Entresto and Cosentyx. So I think as we move through 2016 and exit 2016, I believe we will put Alcon on a more, let’s say stable base, where we have got predictability, where we have got maybe not scintillating double-digit growth, but growth that we can rely on and count on sustainable growth. The – and the Pharma business also has that kind of predictability and sustainability. I think by definition, the generics business is going to continue to be volatile. We saw that in the fourth quarter. We had a base that was quite high, but we also did not see some of the pricing issues coming in Sandoz in the fourth quarter, which did come and we expect those now to continue through ‘16 and that’s why we are saying Sandoz will still grow, will have low to mid single-digit sales growth, not 7% like last year but still a good business. So you are going to have volatility in that kind of a business because that’s almost by definition the kind of business that it is. So I would say that as we are exiting like mid-year of ‘16 and as we exit ‘16, I believe that we will be on a more stable base particularly as we turn Alcon. David, on Entresto?

Yes, I can also be blunt. I mean prior authorization processes are meant to slow product adoption and keep cost down for payers. That’s what the basis is sometimes they are simple and they want to make sure the product is being prescribed and labeled, for example, in the Europe heart failure Class 2 to 4, the appropriate ejection fraction, blood pressure is in certain range et cetera. And other times, they are arbitrary and they will add things like full dose beta-blockers or something else simply to add the additional hurdle. Like I said earlier, once enough patients are on and doctors see this begin to see it as a standard of care and complain a lot to the insurers, the prior authorizations will go away, but that won’t happen this year.

Next question please?

The next question comes from the line of Kerry Holford from Exane BNP Paribas. Please go ahead.

Thank you very much. Product related questions, please. So, Afinitor, we saw sales decline in the U.S. in Q4 and clearly, you are seeing pressure from new competitors in renal and breast cancer, but I wonder if something you can address now ahead of patent expiry in 2019, any new clinical data or should we essentially assume that plan is now in terminal decline in that market? Also slowdown in growth for Tasigna in Q4 in the U.S., is this really reflecting anticipation of Gleevec generic arriving or what are your expectations for that growth rate going forwards? And then a point of clarification, sorry for me on Entresto, when you talk about lower co-pay, those patients who are accessing at lower co-pays are you referring specifically to Tier 2 there? And with regard to the marketing strategy here, are you focusing initially on those specialist prescribers or are you now affecting a broader marketing effort from the outset? Thank you.

Okay. Let’s take them one at a time starting with Afinitor. So, Afinitor has additional competition in the area of breast cancer, which is about if I recall correctly roughly half of the business. We saw the launch of Palbo from Pfizer is CDK 4/6. As you recall we also have one in late stage development. These are the drugs and what they are doing is they are essentially pushing Afinitor to a later line of therapy. Likewise, in renal cancer we have the launch of the immunooncology agents which were often be tried earlier on as well as several other targeted and anti-VEGF agents into renal cell cancer, which pushes Afinitor a bit further about a bit later. Your question about sales projection is a little bit difficult, because some of these patients will eventually fail their new first or second line therapy and then roll on to Afinitor later. And in addition, we will have growth coming in tuberous sclerosis complex as well as the neuroendocrine tumors, where we are expanding our label. Having said all that, I think growth if there is growth it will be pretty modest for the products. So, I think that’s what we are seeing is a good indication that the product is getting closer and closer to its peak sales. In terms of Tasigna, in the U.S., it was if I recall correctly it was roughly in the quarter 9% growth versus the prior year. It was impacted by a stock entry drawdown during the period in a very strong prior year quarter in Q4 2014. So, we think actually the growth of the product is intact and it continues to perform well overall. Having said that, we have caution before there when Gleevec does go generic, it is likely that some…

Sure. It was referring to Slide 64 where you talk about patients on formulary to lower co-pay versus a higher co-pay those that sort of yellow shaded area, you talk about lower co-pay is that specifically Tier 2 access and higher co-pay is Tier 3, 4 or is lower mix of Tier 2 and 3?

So, different plans have different systems, but in general, the lower one, the light yellow is a combination of Tier 2 or patients that are low income assistance patients in Medicare who get a special out-of-pocket, which is typically between $5 and $10.

Okay, thank you very much.

You are welcome.

Next question please?

The next question comes from the line of Graham Parry from Bank of America Merrill Lynch. Please go ahead.

Hey, thanks for taking my questions. So firstly, on Entresto, just I am just trying to understand why there is almost no uptake of Entresto in the fourth quarter is a slightly 65% coverage in commercial. Is that due to free sampling? Is it de-stocking? Or is prior authorization still just a key there? So, perhaps you can quantify those elements to give us a better feel for just what the underlying was in the fourth quarter. Secondly, on Alcon perhaps give us some feel for the size or scale of M&A that you have considered to build pipeline at Alcon? And then thirdly, on serelaxin, when in 2017 should we expect the Phase 3 pivotal data now? And what was the rationale for including worsening heart failure as an endpoint in the trial when the product was essentially rejected on that endpoint by the FDA on the first time around? And does that reflect a low certainty from Novartis on meeting the endpoint or mortality alone? Thank you.

Okay. So, the first question is around why didn’t we see more business on the commercial side given better access? In fact, the majority of the business did come from the commercial side during the course of 2015. I don’t have the exact figures in front of me, but it was north of 65% of the business despite commercial being less than 35% of the patients. And what you got to remember here as I show you a chart at the end of October what it really means is we didn’t really have any access in the month of October. You are only talking about November and December. December is a holiday month and you just not have enough time to accumulate prescriptions. Having said that, we see each I just want to remind everybody, each week the number of prescriptions is going up and the number of prescribers is going up. So, the trend is in the right direction. We believe by reducing the access hurdle, which is now largely accomplished and the launch of the product with the field force with the appropriate marketing materials we will see an acceleration that occurs starting now, but it will take really into the second quarter. So, you start to see something really material in the back half of the year to see a nice inflection.

And Graham, regarding Alcon’s size and scale of M&A or in-licensing, these are all relatively small deals, because now that we focused the division on surgical and medical devices, they are mainly small companies with interesting new technologies that we could click in, but you are looking at relatively small upfronts, significantly below $1 billion, but those are the kinds of things that we think we will be able to bring in and click right in and move into a period where we could launch in ‘17 and start to impact ‘17, ‘18 and ‘19.

And then Graham, I have Vas Narasimhan sitting next to be me, our Head of Development. And given that he is much more intimately familiar with the program than I am, I am going to ask him to answer the good serelaxin questions.

So, Graham thanks for the serelaxin question. We currently forecast for complete study enrollment in Q4 of this year and then there is the 6-month follow-up for those patients to reach the primary endpoint. So, we would expect to read out in the first half of ‘17. Now, in terms of the worsening heart failure, we did complete an interim analysis you remember last year, which had the study continue and we remained blinded to the study results. So there is nothing new that has led us to add worsening heart failure. Worsening heart failure was added more to be in line with what we think would be our competition is doing and also to give us two shots on goal moving forward. That led to a sample size expansion to allow us to fully power to the mortality endpoint. So that’s what’s driving this.

Next question please.

The next question comes from the line of Jeff Holford from Jefferies. Please go ahead.

Hi. Thanks very much for taking my question and thanks spending so much time on Entresto and Alcon, which investors are very focused on right now. But just one more follow-up on Entresto for me, just one things that investors and we can all have concerned about is a bit of physician fatigue by the time access opens up perhaps if they try to prescribe a few times and perhaps that’s not ended well. So can you just give us some of the feedback that you had or just experience in terms of those cardiologists you have been accessing that there hasn’t mentioned sort of a buildup or frustration they have and potentially lack of willingness to prescribe now that access has opened up. Well, then if you can just talk a little bit about LEE011, just what you think your target profile is versus palbociclib, the end market product if you think that there are any specific points of differentiation that you will be looking for when that reads out. And then I wonder if I can just tempt then into just a bit more help on the pharmaceutical side in 2016, it’s clear that consensus needs to revise down sales for a number of products in Pharmaceuticals, you have kind of spoken to interest on consensus, I think it’s clear also that Afinitor have some challenges this year, are there any specific products that you might like to point out for the investment community to focus on in 2016 within the Pharma business, where perhaps we need to rethink some of our assumptions? Thank you very much.

So regarding Entresto, so what we found is in the cardiologists are interesting to talk to essentially if they would try one patient and the plan set is not on formulary the vast majority of them would not try against. I don’t think there was any fatigue issue that has to be really worried about. In addition, what we started to do during the fourth quarter was we increased our program to give a month of the product away for free, particularly so the patients could get started when we were anticipating that access would open up, which should start to help. Regarding LEE011, we think there is going to be a very big class of drugs. We believe that while we are clearly behind in the U.S., we will be second. We believe in Europe, the time gap between our approval and the Pfizer approval is not as great which, given our commercial strength should be a big help. And in terms of the differences in the drug in terms of monotherapy, they have seen actually ballpark similar in terms of efficacy although there aren’t any cross-study comparisons. It looks like palbo and LEE have more neutropenia, while the Lilly drug appears to have much more diarrhea and we will have to see how that ultimately plays out. And then our strategy with the drug is one of combinations combining with exemestane, combining with AstraZeneca’s Fulvestrant, combining with our PI3-kinase inhibitor with an idea that we can go up on a combination that’s even better than the single agent and then catch up and maybe even ultimately leave if those combinations work. I was a bit nervous about talking about consensus for Entresto and Cosentyx, but since they were new products and we felt the deviations were pretty meaningful. We decided to do that, which is not usually what we do. But I really don’t plan on giving a consensus estimate for every other product. I think you have to look at the overall guidance that Harry provided. Thank you.

Thanks very much.

Next question.

The next question comes from the line of Tim Anderson from Bernstein. Please go ahead.

Thank you. A few questions, please. On Slide 70, upcoming catalysts in pharma there are two Phase 3 read outs not listed, which is BAF312 and Fovista, I am wondering why those are not on that slide. The second question on emerging markets, 4% in the quarter, what should we be expecting in 2016. Third question just going back to Alcon, can I – did I understated it right, you expect operating margins are likely to trough out in 2016 in that division with growth thereafter. And then on Entresto you talked about prior authorization, is any of that entail a fail first policy where patients have to fail either an ACE or an ARB before they get clearance to go on Entresto?

Okay. David maybe the catalyst of BAF and Fovista?

Yes. So BAF will in fact have a Phase 3 readout roughly mid-year 2016. And Fovista, the two pivotal trials that are run by our partner Optotech, they will be – our understanding that they will be analyzing the data at the same time in late 2016. So those are as expected.

And then Tim in terms of emerging markets, if you look at the trends there, we started the first quarter I think at about 11% growth. We went to then 7% growth as those economies started to slow and fourth quarter was 4%. So we continue to expect the emerging markets to slow through 2016. I don’t know where to call it in terms of what will happen. I don’t think that growth is going to go negative. I mean there is – the emerging markets have been bouncing around anywhere from mid to high single-digit and double-digit at some points. So I would assume that 4% is a low number. We didn’t think we are going to see it, but we have seen it. And it’s partly driven by what’s happening in China and Russia. And so I think you should expect to assume that, that’s going to continue. In terms of Alcon, yes you did hear me right in terms of trough margin in ‘16, not necessarily ‘15. And then David on Entresto?

Yes. So I don’t have every prior authorization plan in front of me. But we will certainly go back to the team. So I can’t rule out that there isn’t some plan somewhere that has language you use. It’s however, certainly possible that some plans will require that a patient have been on an ACE or an ARB, because you remember we had the two week running period on our clinical trials with some plans will use that as part of their prior authorization process.

Thank you.

Next question?

The next question comes from the line of Vincent Meunier from Morgan Stanley. Please go ahead.

Good afternoon. Thank you for taking my questions. The first one is on the U.S. pricing, based on your comments earlier today, do you think there is a sort of inflection point, particularly in the U.S. The second question is M&A and particularly for Alcon, I understand that it will be essentially made of bolton acquisitions for new technologies. But is there a trade-off between the Pharma M&A and the M&A for Alcon. And the last question is on Entresto can you please give us what is your target when the drug will be more stable in terms of sales split by channel and also profitability by channel? Thank you.

U.S. pricing, David you want to talk about that on the Pharma side?

Yes. So it’s an interesting story that’s evolving. If you look overall at the U.S. market, clearly the various payers who have merged sometimes bought chain pharmacies, bought PBMs have the ability to slow adoption more than they did in the past and to command greater price discounts. Having said that, they are much better at it when there are alternatives available. So to the extent that there are multiple products in a therapeutic category, they are doing a very good job at extracting discounts from providers. When there is not an alternative they get much lower price discounts if any discounts at all. I think the new thing that we really learned with both Entresto and Cosentyx is that they have really now developed their tools extensively around introduction of new drugs, which creates a period of time, where access is difficult then it gets resolved and that period of time actually is no longer than it is in Europe, which is probably the biggest striking change in terms of the market. The market is crying for high quality pharmaceutical products at a lower price. They want drugs that are cost effective. That’s why we are trying to move to more outcomes contracts, get value for additional life and for offsetting health expenses and the problem is not going to away anytime soon. And I believe in the U.S. market eventually there will be a political solution to address the very high out of pockets for patients, because it doesn’t do the world any good to spend all this money in innovation if the patients ultimately can’t get the medicine of the drugstore because of the co-pay.

Then on the M&A question on Alcon yes, they are obviously, we look very, very hard at how we are going to spend our capital spend across the different businesses and we have the same hurdles for each of the businesses around what it’s going to take to get capital allocated from the group. Now again, what we are talking about in Alcon are relatively small transactions where you might have $100 million or $200 million, maybe $300 million upfront with milestones after that and we have all seen the impact of being able to show steady and consistent sales growth and earnings growth. So, there is something to be said in terms of how investors would reward small bolt-on acquisitions in Alcon and in that surgical business and that’s why that’s still on the list. And then David in terms of the Entresto?

Yes. For Entresto, I am not going to say much more. I mean, we have given peak sales guidance. We have now outlined the path for 2016. Clearly, in terms of channels, Medicare is bigger than commercial in terms of patient numbers, but beyond that I am not prepared to say more.

Okay, next question please.

The next question comes from the line of Tim Race from Deutsche Bank. Please go ahead.

Hi, there. Three questions, please. First, just on Sandoz, you talked about the U.S. pricing pressures. Can you just discuss what they actually are? Is that specialty pharma related, dermatology anything in particular potentially could you just discuss that? Then just on pricing of Entresto in Switzerland and Germany and the example you showed, what’s relative pricing of Entresto versus the U.S. and Germany and Switzerland? And then finally, maybe just on Alcon if you don’t mind, can you just remind me what is the strategic fit of Alcon within the group of Novartis? Is it there as a diversification element, because it doesn’t really fit with the rest of the business, especially now you are moving drugs to Pharma. So, have you gone through the whole process of whether you would actually spend this division and keeping it was a better alternative? Thank you.

Okay. Let’s start with Richard on Sandoz.

Okay, thank you for the question, Tim. So, if you look at U.S. pricing, it really falls under two sort of categories. You have that pricing that’s forced through the channel and the consolidation that we spoke about a bit last year and the year before and then you have just the competitive environment that you have in the U.S. where the more competitors come in, the price actually gets forced out and the timing of those and when those happened is very unpredictable. And so those two factors which have led to the pricing situation we saw in quarter four in the U.S.

And David, on Entresto?

So, in the U.S. as a reminder, the list price per day is 12.50, but of course, in the U.S. discounts are prevalent sometimes mandated by the government, sometimes negotiated with individual plans. The pricing in Europe is clustered around €5 to €5.50 give you a ballpark idea. Just to caution as we saw early negotiations in many countries, so it’s going to be a while before we know some of the other markets.

And just regarding the strategic fit of Alcon, if you think about our strategy of focusing on high growth areas of healthcare, where there is a high level of unmet need with global businesses that are number one or number two in their sectors, this fits. Now, at the same time, we got to prove that we can grow sustainably and that’s really what we are focused on this year and we have got a clear growth plan. We have got milestones that we have to see if we are not able to deliver that, then that’s a different question. But right now, we are going to take the next 12 months and we are going to execute this and see if it’s going to play out the way that we think.

Thank you.

Okay, next question please.

The next question comes from the line of Naresh Chouhan from Liberum. Please go ahead.

Hi, there and thanks for taking my question. Just one question left for me. Can you just give us some color on the decline in Afinitor in Q4 and whether or not we should be expecting that to continue potentially accelerate through 2016? Thanks.

David, Afinitor in Q4?

Okay. Yes, about sales right, so…

Sales in the U.S., yes.

Yes, yes. So, just remember, for full year, we were up 10%. In Q4, we were minus 4%. These are worldwide growth numbers. And as I said, it’s driven by the launch of Ibrance, which won’t change. There are also some reimbursement changes in the UK. You know that they took some products off the drug cancer fund. And then just in general, there are price decreases in Europe not just for Afinitor, but for the vast majority of plans across multiple European markets. So, I would expect this product to decline in breast and renal and it would grow in some of the newer indications, tuberous sclerosis complex and neuroendocrine tumors. And I think the open question is eventually as this product is pushed to a later line of therapy, patients roll off that first line and eventually come back to Afinitor and that’s harder to judge at this point in time.

Thank you.

Next question.

The next question comes from the line of Florent Cespedes from Societe Generale. Please go ahead.

Thank you very much for taking my questions. Three quick ones. First, on ophthalmology pharmaceuticals, how could you reenergize this business knowing that it is quite difficult to innovate and you are suffering from generics and recently not growing, could you envisage any inorganic growth? Then two questions on the respiratory, first on the U.S. market, for the U.S. markets with the e-mail products, are you still looking for a partner to boost the sales there? And last question on respiratory and severe asthma, do we have to understand that now the focus will be following the negative results on the product, Xolair, focus will be on triple combo and the QAW039? Could you give a little bit more color on these products and your strategy on severe asthma? Thank you.

David?

Okay, good. So, starting it off, we actually see a number of opportunities to develop products faster than were possible before given the depth of the pharma development organization. I mean, in particular, there are two opportunities. One is – actually three, one is to do additional lifecycle management on some of the existing brands. Ophthalmology sometimes wants versions of a product that are single use, preservative free, et cetera, et cetera. Second in the area, we now have an opportunity to put together in a more seamless way a program that develops both Fovista, RTH, Lucentis in a way that will be more powerful and more impactful. So, essentially we hope to bring innovation forward. And last but not least, there is a very good connection, a better connection that existed in the past with Alcon, but the former Alcon connection is actually quite good now which means there is a number of novel programs coming out of Jay Bradner’s shop focused on AMD, dry eye, anti-inflammatories. Some of these will have proof of concepts in the near future. And with this setup, we think we can bring those forward more quickly. In terms of the U.S. respiratory, Seebri and Ultibro, yes, those discussions with partners continue. I am hopeful that in the next couple of months we will be able to tell you exactly how that played out. And then in severe asthma, we think it’s a very interesting field. We have Xolair, in allergic asthma, which is selling well and continues to grow. We are developing the double and triple combination with the steroid. So, Ultibro was a steroid in severe asthma ex-U.S. And then you saw on my chart the QAW development program. And when you look earlier in the portfolio going into specific, there is actually other programs that look like they could be interesting in that field. So, it’s a category, respiratory is a category that we are committed to. Thank you.

Thank you.

Next question.

The next question comes from the line of Michael Leuchten from Barclays. Please go ahead. Mr. Leuchten, your line is now open. The next question comes from the line of Steve Scala from Cowen. Please go ahead.

Thank you. I have three questions, two for David. First, you mentioned that you think LEE011’s interim look could be positive, is this just based on what you have seen from Ibrance studies or are there signals from the LEE clinical trials that are increasing your confidence? Secondly, what are your latest thoughts on Lilly’s ixekizumab relative to Cosentyx given that ixekizumab likely will be approved very soon? And then lastly, in the past, Novartis has expressed uncertainty about the uptake of a generic version of Gleevec and whether or not it will have all of Gleevec’s indications, do you have any more clarity now. And is Novartis certain that Sun will launch the beta crystal form and of adequate purity on February 1? Thank you.

David?

Okay. So starting with LEE, I know nothing in addition other than modeling the eye brand’s response rates and trying to port those over to our program to look at the interim analysis. In terms of Cosentyx and the competing program from Lilly, there is a couple of places to think about in terms of differentiation. First of all aggressive indication, so we have now three indications in our label, my understanding is they will have one or perhaps two when they launch, which is important for physicians and also formulary placement. Second, we have long-term data. We actually have data that goes out now 3 years. And you see really nice sustainability of effect and that we believe that’s because of the very low immunogenicity with Cosentyx. And my understanding is with the Lilly product there may be higher rates than immunogenicity. And we don’t know whether or not the product will work as well in year two and year three. And last but not least at least from the data that’s shared so far maybe there will be other data that the Lilly drug had more injection sites reactions than Cosentyx. Having said all that, the Lilly drug is a good drug, it seems to work well and I think having more than one IL-17 in the market will grow the share for IL-17 and we welcome the competition.

Okay. I think we have time for one more question.

The next question comes from the line of Marietta Miemietz from Prime Avenue. Please go ahead.

Thank you. I have a couple of quick questions for David. The first is on China, in spring 2015 I believe they really cracked down on hospital drug budgets. Should we think about as one-off we set that will lapse soon and then China growth can potentially recover or is it a more continuous process in terms of controlling drug spend there. And secondly, on the ABL inhibitor, so Tasigna is clearly more potent than Gleevec, but it’s just very, very difficult to come up with a robust data set that can really compete with the massive Gleevec data sets. So I am just wondering what data do you actually think you will need not to file, but to really prevail in a commercial market of Gleevec’s generics and how fast you think you can potentially get that data. And then I just wanted to check for the 2015 procurement savings, do you think that we can get anything like that again in 2016, 2017 or is that coming to an end. And finally Joe, I was just wondering whether I could just make sure I understand the method for calculating potential Alcon target margin correctly. So if I understand correctly 2013, 2015 margins were potentially structurally a little bit high and now you are investing $200 million relative to an earlier plan that probably also had some incremental investment. So when all of the dust settles, then would you save we should take out a lot more or a lot less than $200 million out of let’s say 2013, 2014 profit to get to an appropriate benchmark for the target margins for Alcon? Thank you very much.

Okay, David.

Starting with China, so China is putting in place a number of reforms across sectors, but in particular in healthcare in order to both control spending and to expand access to medicines across their populations. So there are positives and negatives. You are right, they changed the drug prescribing incentive, which slows growth. You asked whether that would be cyclical, I mean obviously, the impact at the beginning is greater than later on because there is an inventory draw that happens within hospital. Having said that, there are multiple other changes to reimbursement policies in China including more bidding on a local basis, which depending upon the product and the company can either be an upside growth or a downside growth. Having said all that, the Chinese market overall has clearly slowed from about 1.5 years ago it’s growing about 14% a year and the overall market according to IMS was not growing 4% a year. We re doing much better than that, but nonetheless the mark to market has slowed. And given the Chinese issues with their economic growth in general, I would not expect that the bounce back in near-term, but eventually we all hope that the Chinese market economy does ultimately rebound. In terms of the ABL001, it’s a completely different mechanism. It doesn’t bind in the same target as Gleevec or Tasigna. So it’s not just a potency issue. We see that patients who have failed multiple lines of therapy respond. We also see synergies when both drugs are studied together. So we actually see several opportunities to create a nice market opportunity for the product. And what I wanted to do is I am going wait until the next set of studies is done. I will be able to indicate to you – we will be able to indicate to you a little bit more on what the doses and what the development strategy for the product is. Thank you.

Procurement.

Procurement savings, Marietta, as you mentioned our procurement team together with the businesses has done a very good job creating $480 million in the quarter for very high number. On the other hand, we have continued opportunities. The project pipelines are full and therefore, I continue to expect very good levels of procurement savings. Certainly also the announcements of integrating of development functions as well as centralizing manufacturing will give additional opportunities on the procurement side.

And on the Alcon margin, the thing I was referring to was we ended the year with full year Alcon margin of about 31%. I have said that $200 million is what we are going to spend back so that would take into the high-20s. And beyond that, what I would like to do is let’s get through 2016. And then we will provide more guidance in terms of longer-term on Alcon and what the expectations are so we have got a lot of moving parts. We are focused on turning the business in the back half of the year and I think we will be in a much better position as we see that turn to really provide an outlook for the business both from the top line and bottom line that will be sustainable.

Okay, I want to thank everybody for joining us. We look forward to providing updates as we move through the year. And with that, I will close the call.