Good morning and good afternoon, and welcome to the Novartis Q2 2022 Results Release Conference Call and Live Webcast. Please note that during the presentation, all participants will be a listen-only mode and the conference is being recorded. [Operator Instructions] A recording of the conference call, including the Q&A session, will be available on our website shortly after the call ends. With that, I would like to hand over to Mr. Samir Shah, Global Head of Investor Relations. Please go ahead, sir.

Thank you very much, and thank you to all of you who’ve joined us today on this beautiful summer day for Novartis' quarter two results.

Before we start, I'll just read you the Safe Harbor statement. The information presented today contains forward-looking statements that involve known and unknown risks, uncertainties and other factors. These may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements.

For a description of some of these factors, please refer to the company's Form 20-F and its most recently quarterly results on Form 6-K that, respectively, were filed with and furnished to the U.S. Securities and Exchange Commission. And with that, I'll hand across to Vas. Thank you.

Thank you, Samir, and thanks, everyone, for joining today's conference call. We're pleased to go over the results. I have with me today, Harry Kirsch, our CFO; and Karen Hale, our Chief Legal Officer.

Moving to slide 4.

As you saw in the release earlier today, we delivered a solid quarter two across each of our key value drivers, 5% growth across the entire company as well as an Innovative Medicines and Sandoz, continuing our productivity agenda with solid core operating income growth across the business as well as continued margin expansion in constant currencies as well as an upgrade to our expected savings from our transformation program to now $1.5 billion.

Some innovation milestones, notably, we continue to garner approval for Scemblix, our new medicine for CML, including a positive CHMP opinion. And then, lastly, three milestones within our ESG efforts.

First, a $250 million R&D commitment as part of the Kigali declaration for neglected tropical diseases. We've increased our commitment to clinical trial diversity over the next 10 years through our Beacon of Hope project.

We also had an upgrade from MSCI to now a AA rating top quartile within the industry, and we continue to work to further improve our overall ESG profile.

Moving to the next slide. When you look at Innovative Medicines sales, we grew consistently across the U.S. and in our ex U.S. markets, primarily driven by our key growth drivers. We had 6% sales in the U.S., 5% sales ex U.S. And you now see on the right-hand side of the chart, 59% of our sales come from our key growth drivers, and those key growth drivers are now growing at 21%. And moving to the next slide and zooming in a little closer on the quarter.

You saw pretty consistent performance across our key medicines, and we'll go through this in a bit more detail. Two products I wanted to particularly call out. Kesimpta had a very strong quarter, I think, demonstrating its overall profile as a multiple sclerosis therapy of choice. And Kisqali as well is now gaining momentum in breast cancer -- in metastatic breast cancer patients, and we'll talk a little bit more about that throughout the call.

Now moving to the next slide. We've really focused attention as a company on six key growth drivers, we believe, which will enable us to deliver the growth profile we've outlined, both in the next five years and also beyond. Notably Cosentyx and Entresto continued their outstanding performance towards their respective peak sales goal. We'll talk more about Zolgensma, which continues its global expansion. Kisqali and Cosentyx, I've already mentioned. And Leqvio, we are building a strong base with which we believe will enable this medicine to reach a significant sales potential over time.

Taken together, these six brands now constitute 32% of Innovative Medicines sales. And they're growing at 31%, I think giving confidence in the growth outlook that we've outlined.

Now moving to slide 8 and going through each of these key brands, starting with Cosentyx. Cosentyx delivered 12% sales growth on the quarter. When you look at the outlook for Cosentyx, we continue to guide to a double-digit growth, driven by steady volume growth in the key geographies, U.S., Europe and China. We're very confident in the overall clinical profile now that we've treated over 700,000 patients across five of the indications indicated for Cosentyx. And we continue to get important guideline recommendations, including the GRAPPA psoriatic arthritis guidelines, which highlight Cosentyx' unique benefit versus alternative therapies, including the IL-12/23 in its ability to tackle axial manifestations of this disease. Overall, we're confident in the $7 billion-plus peak sales potential. This will be driven by global expansion of the product as well as life-cycle management where we had some good progress in the quarter, including approvals in pediatrics in Europe. We've submitted hidradenitis suppurativa in EU, and we expect to submit in the U.S. in the second half.

We have positive data on an IV study, looking at Cosentyx use in axial spondyloarthritis. And lastly, we do anticipate an IV submission in the U.S. as well in psoriatic arthritis, for proof points of our ongoing efforts on life-cycle management for Cosentyx. Then moving to the next slide, slide 9. When you look at Entresto, Entresto is continuing its really dynamic growth globally and in the U.S.

You can see we delivered 33% growth with Entresto.

Our weekly NBRx continues its strong progression with continued strong growth. We've now treated over 7 million patients globally and over 1 million patients in the U.S., growing in hospitals, cardiology and primary care, so really strong growth across geographies. We're confident in the future growth and delivering the $5 billion-plus peak sales potential for this brand. There's only one-third of the addressable population that's been treated. We see a strong profile consistently regardless of the setting the medicine is used in. And lastly, with the approval of Entresto in hypertension in Japan and China where there's a high unmet need, it gives another opportunity for future growth. Then moving to slide 10 with Zolgensma. Zolgensma is continuing to demonstrate the power of a onetime gene therapy to treat really in a dramatic way to treat terrible disease like SMA, 26% growth driven by global expansion, 2,300 patients now treated. We had recent reimbursement decisions, positive reimbursement decisions in Australia, Switzerland and Greece. And we recently received approval for our North Carolina new manufacturing facility, which further expands the capacity of our gene therapy network and really brings on line the state-of-the-art facility, continuing our leadership in the gene -- the AAV gene therapy space.

Now future growth drivers for Zolgensma are going to be that continued global expansion, 43 countries to date and growing.

We also want to enable stronger newborn screening programs outside of the United States. 97% of newborns are screened in the U.S., but only 30% in Europe, and those numbers are similar or lower in many other geographies.

As we can get more newborn screened, then we believe Zolgensma is the treatment of choice for these babies, allows for normalization of their overall development. And we saw that in a Nature publication that recently summarized the data from one of our earlier studies with 14 out of 15 patients walking alone and 11 of them in the normal development window when treated early with Zolgensma. I also want to note that both, our STEER studies and STRENGTH studies are progressing well, and we continue to outlook a submission in intrathecal for Zolgensma for 2- to 18-year olds in 2025. Then moving to the next slide with Kisqali.

We continue to deliver double-digit growth, you see 43% growth. And we see this as a brand that given its recent data releases is really coming into a strong profile and a strong growth profile. We're seeing increased traction based on the clinical data. I'll talk more about that a little bit later in the presentation. And we saw that at ASCO, once again, we were able to highlight some of the data sets, particularly around OS in the first-line setting, which demonstrates the strong profile of Kisqali. The NATALEE adjuvant study, primary analysis is expected in 2023 and continues to progress on track. And I'll talk more about that in the pipeline section.

Now moving to Kesimpta on the next slide, slide 12. The launch is continuing to -- and really continuing on a strong trajectory. We see an acceleration of the brand in the U.S., and we continue to work towards providing the medicine globally in our key markets.

We have U.S. demand of 18% growth quarter-over-quarter.

We have 3,200 adopters, physician adopters since launch.

You can see the NBRx up now 42%. It's really a dynamic growth for this medicine. And we're working to continue to strengthen the profile and differentiation.

We have new extension data, which demonstrated 8 out of 10 patients treated continuously with Kesimpta, had no evidence of disease activity. From an operational standpoint, we continue to work to drive fast initiation. Patients are now getting on therapy within 6 days, 80% of patients achieving that goal. And 77% of patients remain on therapy at 12 months, which I think, again, demonstrates the medicine's impact as well as its ease of use for patients.

So, very excited about the outlook for Kesimpta.

Now, moving to the next slide, on slide 13. With Leqvio, we're laying the foundation as we've outlined in 2022 for the ramp we expect over the coming years. And we continue to expect the remainder of 2022 for a steady ramp-up of Leqvio. But I think there's important proof point that we're beginning to lay that groundwork successfully.

First, with respect to access. And as a reminder, Leqvio is under the medical benefit.

We have 65% of -- 65% of patients now covered with -- aligned to our label or near our label. And that's within 6 months of launch. This is higher than relevant competitor brands, both from PCSK monoclonal antibodies and/or other recently launched anti-cholesterol therapeutics, and those brands have been in the market for many years.

So I think it demonstrates we've been able to drive fast access. And the J-code now is in place as of July 1.

So, I think from an access perspective, we're progressing well, progressing on or ahead of our plan, and I think that sets us up well for the future.

Secondly, on affordability, we can now confirm the two-thirds of patients have zero co-pay for Leqvio, including Medicare Part B patients with supplemental insurance. This, again, we believe, will enable a strong uptake and strong adherence to this medicine so patients can get the benefit that they need from lower cholesterol. And lastly, we're making progress working through logistics and administration for this medicine in cardiologist offices as well as in relevant hospitals and medical centers. We've increased the number of unique locations ordering Leqvio to over 700. We're expanding the depth now with 55% of our customers already having placed repeat orders. And we're seeing growing usage now with 2,100 HCPs and now 3,900 patients in the service center.

So, all of this taken together, I think, points to a strong future for the brand. And we'll continue to work through the second half of this year to build out this base to enable long-term growth. Then moving to the next slide, slide 14, with Pluvicto. And moving to our two recently launched medicines in oncology, Pluvicto and Scemblix. The Pluvicto’s launch is really progressing in a strong manner, and it's either at or above our own expectations. We've seen our manufacturing issues remediated and we've cleared our backlog. Commercial and clinical supply resumed in June.

We have a permanent A code that was granted in July, and that will be effective in October. Over 50% of insured lives now are covered.

We have over 100 RLT sites now operational, 40 sites have completed orders.

So, a strong trajectory from the start, and we're hoping to maintain that over the coming months. We're preparing for further expansion with this medicine given the clinical profile we've seen to date. Both the Phase 3 studies are on track, both in the pre-taxane setting and the hormone-sensitive setting with a readout for the pre-taxane study still slated for the -- before the end of this year. The manufacturing scale-up is ongoing.

We have a new facility in Indianapolis that we plan to bring on line in the second half of next year, and we have capacity and our expansions ongoing in our Italy and New Jersey sites. And we're making significant investments to ensure logistics can support access as the patient population that can be reached by radioligand therapies continue to expand across Pluvicto, Lutathera and our pipeline.

So moving to the next slide, slide 15. Scemblix as well is off to a very strong U.S. launch. And then, we achieved the, as I noted earlier, important regulatory milestones in the EU, $31 million of sales, primarily driven in that third-line setting, 44% share in the third line, which I think is a good marker, given how recently we launched the medicine, and 16% NBRx share regardless of CML line of treatment.

In terms of future growth for Scemblix, it's going to be driven by the first-line study, which is enrolling ahead of plan.

Just as a reminder, it’s versus investigator choice of TKI and the CHMP positive opinion in the ex U.S. markets where we continue to work to get a global rollout of the medicine.

So, moving to the next slide and turning to Sandoz.

As you saw, Sandoz had a really solid quarter in quarter two. And we raised the full year guidance for Sandoz, and Harry will talk a little bit more about that. When you look at the drivers for Sandoz sales performance, it's primarily in Europe, where we are a leader, the leading generics company with 4% growth, driven by both, launches as well as recovery of the health care systems. We had double-digit growth in the rest of world markets, Japan and other emerging markets. And we've seen a stabilization in the U.S. business, setting us up with future biosimilars launches, small molecules launches to drive growth in the U.S. over the years to come.

You can see our retail sales growth in the quarter was 4%, biopharma was up 11%.

So, we've raised the guidance as mentioned. And when you look longer term, we believe this creates a solid base of growth -- for growth 2023 and beyond. And a lot of that will be driven by the biosimilars portfolio. The portfolio of biosimilars and Sandoz targets $80 billion of originator sales, over 15 assets in the portfolio and some recent progress, including the acceptance of the adalimumab high concentration formulation as well as natalizumab in the EU. We're also continuing to pursue small molecule opportunities to bolster the small molecule portfolio. Overall, the strategic review for Sandoz is continuing to progress on track, and we expect an update at the latest by the end of this year.

So, moving to the next slide on slide 17.

Our broad pipeline of novel medicines progressed in quarter two, but we've also worked to focus our efforts, as you saw, in both our earnings release as well as with some of our pipeline decisions, five core therapeutic areas while being opportunistic in other therapeutic areas. And we're trying to make consequential decisions to really ensure we're focused and getting scale in those five core therapeutic areas. On this slide, a few things to highlight. We had important designations and milestones, Scemblix, as mentioned. Pelacarsen completed enrollment for the Phase 3 HORIZON study, so on track on its journey to become the first medicine to treat Lp(a)-driven cardiovascular outcomes; JDQ443, our G12C inhibitor for solid tumors; the Phase 3 study in second, third-line non-small cell lung cancer was initiated, and we continue to also progress combination studies for that medicine. Cosentyx was filed -- had a filing for hidradenitis suppurativa in Europe, and we continue to work towards the U.S. filing. And then lastly, we continue to streamline the portfolio. We had a number of projects that we made the decision to either partner our self. And notably, we're exiting our efforts, development efforts in COPD and general asthma with the decision to partner two assets in that portfolio. And we'll continue to look to streamline the medicine -- portfolio in our pipeline, so that we can focus on the medicines that matter most in our core therapeutic areas.

So, moving to slide 18, I did want to say another word on Kisqali.

Given the OS benefit now we've seen across all three of the Phase 3 trials in the metastatic setting we've conducted to date, on the left-hand side, you can see the results that we've generated in the first-line metastatic setting.

You can see impressive risk reduction and importantly, median OS that's been achieved consistently across these three studies, the longest median OS ever published. And we've seen that same OS benefit regardless of situation.

We also maintain that benefit even after prior CDK4/6 use.

So, we think this data set is part of the reason we're seeing the real growth acceleration behind Kisqali.

Now, in the middle frame, you see the reason for this clinically, we believe, is that Kisqali is unique in its ability to hit the CDK4 target. And we hit it 8 times harder than we hit CDK6. And that's relevant because we believe CDK4 is the key driver of the benefits you're seeing for this medicine. And you can see our relative performance versus -- in preclinical studies versus our competition.

Now, when you look at the adjuvant study, it's fully enrolled as we've already noted. We've already cleared the first futility analysis. The primary analysis is planned at 500 IDFS events, and we expect that by the end of 2023. The two interim analyses are to be conducted at 350 and 425 event.

We have not yet reached the first of those interim analyses.

We expect that in the coming quarters. We do guide for the study to really complete at the end of next year when we reach a full number of events. But we'll, of course, keep the market updated as we progress through these interim analyses. Then moving to the next slide on slide 19. We're on track largely against our key 2022 events.

Just three things to note: three submission-enabling readouts coming up in the second half of this year, CANOPY A, iptacopan and PNH, and as already mentioned, Pluvicto in the pre-taxane setting.

So, we'll look forward to those study readouts and updating all of you as we get that data in-house.

So, with that, I will hand it over to Harry.

Yes. Thank you very much, Vas. Good morning and good afternoon, everybody. I'm now going to walk you through some of the financials for the second quarter and the first half. And as always, my comments refer to growth rates in constant currencies unless otherwise noted.

So on the next slide, yes, we show our quarter two and half one financial results summary.

As you can see, quarter two sales and core operating income both grew 5% in constant currencies with sales benefiting from the continued strong performance of our key growth brands and core operating income growth driven mainly by the higher sales.

However, operating income and net income declined significantly in the quarter. This was mainly due to prior year divestment gains from tail end products and higher impairments and higher restructuring costs this quarter, mainly for the transformation for growth program. Core EPS grew 1%.

However, if you exclude the impact of the prior year Roche income, core EPS would have grown 10%. Overall, we delivered solid sales and core operating income growth for the quarter, resulting also in a strong operational half one performance, with sales growing 5% and core operating income 7%. Core EPS in half one grew 11%, excluding the Roche stake impact.

On the next slide, I would like to drill down a bit into the performance by division.

So, for quarter two, you can see that Innovative Medicines top line grew 5% and the bottom line, 6%, resulting in an improvement in the core margin of 15 basis points to 37.2%. Sandoz net sales also grew 5% although core operating income decreased 4%, mainly due to increased M&S investments and higher other expenses. This was reflected in the core margin, which decreased to 20.4%. Overall, for the first half, we saw a strong performance for Innovative Medicines and Sandoz, Innovative Medicines sales growing 5% and core operating income 6% in half one. Sandoz grew 6% on the top line and 10% on the bottom line in half one, driven by a very strong quarter one. And as a reminder, as we discussed in April, Sandoz benefited from a return towards normal business dynamics compared to a lower prior year base.

Our half one core margin improved by 30 basis points for Innovative Medicines, 70 basis points for Sandoz and 60 basis points for the total group.

Turning now to our guidance on slide 23.

So, within the divisions, we expect Innovative Medicines sales growing mid-single digit and core operating income growing mid- to high-single digit ahead of sales. The expected IM core margin increase will be driven by expected continued good top line momentum and continuation of our productivity programs, of course, including the new organizational structure, giving us some benefits in the second half already.

For Sandoz, the performance year-to-date allows us to upgrade sales guidance to grow low single digit, which is a one-notch upgrade, and core operating income guidance is upgraded by 2 notches to now be broadly in line with the prior year.

For the group, we confirm our overall full year guidance.

We continue to expect both, top and bottom line to grow mid-single-digit in 2022. The key assumption for this guidance is that we see a continuing return to normal global healthcare systems, including prescription dynamics and that no Gilenya and no Sandostatin LAR generics would enter in the U.S. in 2022.

As many of you know, in June of this year, the U.S. appeals court held the Gilenya U.S. dosing regimen patent invalid. We plan to petition the appeals court for further review to uphold validity of this patent. And as a reminder, there's no generic competition in the U.S. at this point in time for Gilenya. And in quarter two, U.S. sales were $332 million for Gilenya. It is worth noting that U.S. Gilenya sales have been steadily declining due to competitive pressures and, of course, our key focus [ph] being on Kesimpta.

Next slide, please? I would like to provide some further details on the expectations for the second half dynamics on top and bottom line.

We expect sales to continue to grow mid-single digits, bringing us to our guidance for the full year.

For half two core operating income, we expect to grow slightly slower compared to half one at low- to mid-single digits. This is mainly due to the higher prior year base for Sandoz in half two.

As you know, half one core operating income growth benefited partly from a very low prior year base at Sandoz.

We will, of course, continue to monitor the impacts of inflation and utility costs, particularly on the Sandoz product portfolio as well as the situation around COVID-related lockdowns in China given that we are seeing improving signs as of June, which we will continue to monitor in half two.

On the next slide, I would like to provide an update on our new simplified organization model and the financial impacts of the restructuring.

As Vas discussed earlier, we have increased our estimate of SG&A savings to approximately $1.5 billion. We anticipate the savings to be fully embedded by 2024. This year, we also expect some savings, but the overall impact will be minimal as we will be offsetting higher energy cost and inflationary pressures. Part of the $1.5 billion savings we expect to be reinvested into our pipeline and a significant part will contribute to achieve our mid- to long-term low-40s Innovative Medicines' core margin guidance. With regards to the onetime restructuring costs, we could narrow this range a bit, and we estimate this now to be 1 time to 1.2 times of the annual structural savings of $1.5 billion. On slide 26, I want to provide an update on expected currency impact if currencies stay at the current levels. Obviously, currency impacts are significant this year given the strengthening U.S. dollar against many currencies.

So, if currencies stay as they are now, for the full year, we estimate the impact on top line to be negative 6% to 7% points and on the bottom line, negative 7% to 8% points. And given it's volatile, we wanted to give you also a bit of an outlook for 2023.

So, for the full year in 2023, we would expect sales to be impacted by negative 2% and core operating income negative 2% to 3% in 2023 versus 2022.

As a reminder, we update these currency impacts on our website monthly. And I think especially in these times, it's quite important to watch that.

Finally, on page number 27. Thank you.

Finally, a reminder about our capital allocation priorities where we remain disciplined and shareholder-focused, of course. We aim to balance investing in the business with returning capital to shareholders via our dividend and share buybacks. In the first half, our investment in the organic business was $4.5 billion in R&D and $0.5 billion in CapEx.

We also had bolt-on M&A, which was around $0.9 billion, mainly for the Gyroscope acquisition. Alongside this, as you can see, in terms of returning capital to shareholders, we paid our annual dividend of $7.5 billion earlier this year and have $9.4 billion still to be executed of our ongoing $15 billion share buyback program, of which we have completed $5.6 billion by the end of June. And with that, I hand it back to Vas.

Thank you, Harry.

So, if we move to the last slide, slide 29.

We continue to progress against our top 2022 priorities as we've outlined, successful launches, particularly ensuring the foundation is laid for Leqvio but driving the dynamic performance of Kesimpta, Pluvicto and Scemblix, which, as you've seen, are continuing at pace; maintaining the growth momentum across our six key in-line growth drivers; progressing the pipeline, where we have 20-plus assets where we expect significant sales potential with approval potential by 2026 and the pipeline is on track. We're tracking well on our Sandoz review and a bit a solid quarter from Sandoz in quarter two. And we'll keep you updated as we move towards an update before the end of 2022 at the latest. And we remain disciplined in our business development, looking for important opportunities to build out our pipeline but remaining disciplined with how we allocate our capital. Continuing to deliver our returns, and you've seen that with our productivity initiatives, our increase to $1.5 billion of SG&A savings with our new organizational model. And we continue to reinforce the foundations we believe that in the long run will drive Novartis' performance around culture, data science and as I noted earlier, ESG.

So with that, we look forward to taking your questions. If the questioners could please limit themselves to one question, we will be able to get through hopefully the list and allow people to ask multiple rounds over the course of the call.

So, operator, we can open the line for questions.

Thank you. [Operator Instructions] We will now take our first question from Matthew Weston from Credit Suisse. Please go ahead.

Your line is open.

Thank you very much. A question on Kisqali please, Vas. And you very clearly set out the interim analysis timelines and the final analysis timeline. One question that we've received a lot in recent weeks is how you would communicate when you go past an interim. Would you consider that a material event, which you have to press release to the market? Obviously, if it's positive, it would be positive and would see a release. But if you simply pass an interim and move forward, would you see that as requiring a press release, or would we simply learn that at the next quarter where you would update the timelines? Many thanks indeed.

Yes. Thanks, Matthew.

So, I think as you outlined, clearly, if at any time in the study that we either get a definitive positive result as determined by the DSMB or a negative result, we would update the market. Otherwise, our plan would be at the quarterly call to provide updates on where we stand on the study. We don't believe passing an interim analysis warrants any sort of further update. Thank you very much, Matthew.

Next question, operator?

Thank you.

Your next question comes from the line of Tim Anderson from Wolfe Research. Please go ahead.

Your line is open.

Hi.

Just a high-level question on healthcare reform, and just talk of reconciliation pushing ahead. It seems like it's finally going to happen to us, at least, your thoughts on the likelihood of this happening and what it could mean to industry financials and to Novartis specifically over time and if you have certain products that you think would be impacted the most.

Yes. Thanks, Tim.

I think as everyone is reading in the press, there is renewed momentum behind a reconciliation package, which would consist of a drug pricing reform and supporting ACA subsidies.

Of course, our overall view remains that there are good and bad elements to the package. Clearly, Part D reform is needed. Capping out of patient -- patient of pockets will be, I think, a positive step, enable patients to fill their prescriptions and also enable from our sector demand to be supported. But of course, there are onerous elements as well, which we think go too far and don't support long-term innovation, will have detrimental effects to the long-term outlook for the industry, particularly the negotiation elements.

Now for Novartis specifically, we view these as not significant impact in the near to midterm. We've analyzed this quite in a detailed manner. I mean, I think as is well known, we're the number one company, pharmaceutical company in Europe and a leader in many emerging markets.

Our business in the U.S. is one we plan to grow significantly over time. But our relative exposure to the peer set in terms of both, government programs and overall U.S. sales is at the low end of the peer set.

So, we would expect to have a far lower effect than our -- impact on us relative to our peers.

And so, I would say in the near to midterm not a significant impact, overall net of the positives we get from the Part D reform and, of course, the impact from inflation caps as well as negotiations.

So, that's how we see it at the moment. But of course, we'll continue to analyze as the final bill text is available.

Next question, operator?

Thank you.

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

Your line is open. Hello Richard, your line is open. Are you on mute?

Hello.

Sorry, apologies, completely my fault.

Just on Kisqali, if you can hear me now.

Just wanted to go back to the growth potential in the first-line opportunity and how much of the Ibrance market you think you can take with the OS benefit? Obviously, we can see Verzenio benefiting as well, but just your thoughts there. Thanks very much.

Yes. Thanks, Richard. With Kisqali, we're starting to see a positive trend on NBRx in the first half of the year versus the competition in the metastatic setting. And that comes primarily from Ibrance. And I think that's reflective of the data set that we have in OS as I've outlined. It's important to note as well in many European and ex U.S. markets, we are either number one or close to number one, depending on the market. And we can, we believe, drive additional momentum in those ex U.S. markets as well.

So, I think it's positive signs. We want to see that trend continue for hopefully a couple more quarters, particularly given that now the dynamic market within breast cancer is starting to recover. I would know that it's just recently on our data coming back to where it was pre-COVID, which again is an opportunity for us to gain share as there's an opportunity to get either new patients or switching patients onto Kisqali.

So, I think it's all positive directions and we'll see how the trend goes in the coming months. Thank you, Richard.

Next question, operator?

Thank you.

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

Your line is open.

Perhaps I'll take one on Sandoz, please.

As you called out, biosimilars clearly the key to returning to reasonable levels of growth in the midterm.

You recently filed the biosimilar Humira Hyrimoz high dose in Europe. Could you just give us an update on where you are with respect to the U.S. for that opportunity, i.e., both as regard to high-dose filing and potential interchangeability? And how significant an opportunity you think that may be for the business and indeed whether that would have any influence on your considerations on strategic options? Thank you.

Yes. Thanks, Emmanuel.

So, we're on track overall to be launching Humira -- the adalimumab biosimilar ad market formation in the U.S., and it's our intention to have the high concentration formulation available.

I think as soon as we have a file accepted by FDA, would, of course, put out a release and update the market.

So I would say, overall, we're on track with respect to that.

I think, clearly, the number of entrants when the adalimumab market formation happens will mean that it will be a highly competitive market set. But nonetheless, given the size of the opportunity, it will help meaningfully drive growth for the brand. I would also note that natalizumab where we are one of the early entrants is a significant opportunity for Sandoz. And I think natalizumab both in the U.S. and Europe is one we're excited about as an opportunity to drive growth within the next few years. And the other upcoming opportunity for us is denosumab where, again, I think we would be one of the earlier entrants amongst biosimilars players. But those would be the three key upcoming biosimilar launches for Sandoz and particularly in the U.S.

Next question, operator?

Thank you.

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

Your line is open.

So, I think at the Q1, as you said you were at 300 events.

So I wonder if you could give us an update on how many events you're at in the trial. And is that the sort of event rate as it sits that you still have a couple of months delay before the DMC report to you what the outcome of those interims are? And in the event you were to get positive data, to what extent can you put subgroup analysis, et cetera, in the press release, so whether you've hit across all subgroups, high-risk, low-risk, et cetera.

Just what would be in the press release would just be quite interesting to know. Thank you.

Yes. Thanks, Graham. On Kisqali, obviously, I don't want to get into what exactly the number of events are. I would say the event rate that we've seen and as we noted previously, we had a slower event rate than we had originally projected and that event rate has continued.

So, there's no change in the overall event rate. I would also note that you are correct that from the point of a lock, it does take a few months to get the readout with the DMC and particularly because we work with one of the large CROs in the U.S. as part of the study.

So, that's, I think, important to note from a time line standpoint.

In terms of what's in the release, I mean, I think we typically would only comment on the primary endpoint. And in this case, that's the IDFS across both, the medium- and high-risk patient populations. We wouldn’t, of course, get into subgroups. I would also note that the DMC's primary basis for stopping the study would be IDFS. We would hopefully see in the OS trend, but I think that's an important note as well. I would expect that as would be the case normally in such an oncology study, OS takes more time to mature. And of course, we'll have to see how it all unfolds over the coming quarters.

Next question, operator?

Your next question comes from the line of Yoki Izawa from Cowen. Please go ahead.

Your line is open.

Hi. Can you hear me?

Yes.

Hi. This is Steve Scala. On remibrutinib, is there any sign of liver tox similar to Sanofi's tolebrutinib? And is there any reason to believe that liver tox is a class effect?

Yes. Thanks, Steve. We've been watching this space very closely. I mean, when you look overall at BTK inhibitors in cancer, historically, liver has not been a signal, at least to our knowledge, that's been a significant concern. And also BTK is not differentially expressed within liver.

So, in our view, this is related to the drug itself, either metabolites or off-target toxicities in the liver. To date with remibrutinib, we haven't seen any liver signals. We've taken it forward into chronic spontaneous urticaria as its first lead indication where there are two pivotal Phase 3s ongoing. And then similarly, now are progressing in our MS studies and also evaluating taking the medicine into other areas of rheumatology, dermatology, et cetera.

Our hope and expectation is that the profile of remibrutinib continues to be clean relative to the peer set, particularly with respect to liver signals. We believe that in the MS market, but also in the dermatology market, it's going to be critical to have a medicine that has a safe profile with -- especially with respect to more complex side effects like liver.

So, that's where we stand, and we remain optimistic on that unique profile of remibrutinib based on its chemical design and the lack of any off-target toxicity seen to date.

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Your next question comes from Florent Cespedes from Société Générale. Please go ahead.

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A quick one on Kesimpta. Could you elaborate a bit on how do you see the dynamic on the ex U.S. sales? They are still quite small for the time being, but are ramping up nicely. Could you give us what should boost the sales here? Thank you.

Yes. Thank you, Florent. With respect to Kesimpta, already, we covered the U.S. land. I mean we're starting to now move through, as you know, the longer reimbursement processes that were required in Europe, Canada and other global markets.

So, we would expect to see in the second half and then moving into next year more significant sales contributions from our ex U.S. markets.

Of course, the big markets in Europe, but I was also recently in Canada, where there's a lot of excitement as well about the medicine. And then to a lesser extent, in Asia, Japan, et cetera, where MS rates are lower, but the market sizes are significant. I mean, I think it's important to note in those markets a monthly subcu patient administered drug is very attractive because of those markets, they're not the same incentive structures around infused medicines as well as the ability to deload the hospital system by having at-home administration.

So, we feel optimistic about the opportunity now for Kesimpta as its next wave of growth to really be about a global expansion of the medicine.

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

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I just want to ask a question on the development plans for ligelizumab. I believe kind of the slides just mentioned food allergy. But on clinicaltrials.gov, the PEARL-PROVOKE study in CINDU still looks to be recruiting.

So, just any update on the other indications.

Yes. With ligelizumab, as you know, we made the decision not to take it forward in CSU, but we continue to the development program in seafood allergy. We'll complete the program as well in CINDU. And we continue to believe the medicine has potential in some of these indications where IgE inhibition has demonstrated the ability to impact symptomatic disease as well as disease progression.

So, we still think the medicine has potential, particularly in food allergy, where if we could find the right setting for its use and get a relatively broad label from the regulators, it would have a significant potential.

So, those development programs continue on track, and we would expect the readouts as we note in our documentation.

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

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A quick two-parter question, if I may, please.

Firstly, on Zolgensma.

As you talked about the strong ex U.S. growth, but actually, the growth in the U.S. was pretty impressive this quarter. I just wondered if there's anything to add behind that. And secondly, on Leqvio, I wonder if you could update us on the U.S. performance, particularly the UK.

Yes. With respect to Zolgensma, we were pleased as well to see the performance in the U.S. That's primarily driven by expansion in newborn screening where you'll remember when we launched the medicine, we were down at 60%, 70%, and now we're moving into the mid- to high-90s. And as we get that newborn screening rate up, it tends to be the case that patients who are identified in newborn screening ultimately receive Zolgensma.

And so, I think that will continue as we move up the newborn screening, but then, of course, we would expect to be back to a steady state.

As with all gene therapies, eventually, you get to the steady state of the ability to identify the diseases at birth in so-called incident population. When you look at the specifics on Leqvio ex U.S., I'd say in the UK as well, we've been systematically building up towards what we hope will be a trend break.

I think the UK NHS had to, of course, deal with COVID for much of the first part of this year. In the last few months, we've now successfully upgraded and enabled NHS EHR, so identify patients who would be able to use Leqvio.

We have now I think over 70% of primary healthcare units with Leqvio available on their formularies. We've launched a large-scale education campaign in the UK.

So, I would expect to see as well, hopefully, a trend break in Leqvio the UK in the first part of next year as we continue to build that foundation in the second half and as the NHS works through the backlog it has from other -- from other diseases because of the COVID pandemic.

Beyond that, we see a very strong uptake in Germany with Leqvio on a per population basis, the uptake is very good. We've assigned successfully large-scale agreements with certain Middle East governments to roll out Leqvio at scale in those markets. And then, we also continue to work to bring Leqvio forward in the large markets of Japan and also are finalizing the plan for a filing in China as well. But all of that is going -- of course, again, as always, with cardiovascular launches, it takes time. But on this one, I mean, absolutely, our goal is to ramp this medicine faster than we were able to in Entresto. And obviously, with a runway that goes to the late 2030s, at the very least, the significant opportunity to make this a really, really significant medicine.

Next question, operator?

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Your next question comes from the line of Kerry Holford from Berenberg. Please go ahead.

Your line is open.

Focusing on radioligand therapies and the recent manufacturing delays, can you now confirm that you outsourced suppliers [ph] on running an inventory building for both Lutathera and Pluvicto? I wonder if you can also elaborate on your plans for expansion of RLT manufacturing supply going forward and how you work around what you've learned through those recent delays. And is there any risk to recent manufacturing cap result and delay to the ongoing Phase 3 PSMAfore study, which I think is due by year-end. Thank you.

Yes. Thanks, Kerry.

So, a couple of points on radioligand therapy manufacturing, which is a challenge, but also, I think, points to why if we can get it right creates a long-term competitive advantage. This is a medicine where you cannot build inventory. We make the medicine and depending on, whether it's Lutathera or Pluvicto, we have between 3 and 5 days to get it to its relevant site.

And so, because of that, you have to be world-class with respect to the supply chain. And it's not something easy, I think, for anyone to build from scratch. What we've learned is to increase capacity with redundant lines and different manufacturing sites to enable us to ensure we have a steady supply, if we were to have a disruption at any one of our sites, and within those sites to segregate the line so that the one line having an issue doesn't affect any of the other lines. And we've been able to do that now at the relevant sites, particularly in our Italian site and in our U.S. site.

So with all of that being said, we've cleared the backlog.

We are now shipping to order successfully. We're also with large centers moving to a model where we provide Pluvicto doses ahead. Even if they don't have patients ready yet, their supply is there. And, of course, that enables them to book additional patients with confidence. And then to further expand the supply, we'll be bringing on a third large-scale manufacturing facility in Indianapolis. That will actually have automated lines moving away from more manual lines, which just further increased capacity.

So, we would expect by mid to second half of next year to have three separate U.S. manufacturing facilities to support the U.S. for both, Lutathera and Pluvicto, giving us the redundancy large-scale capacity and, of course, the ability then to fulfill what we hope if the data supports it a potential multibillion-dollar opportunity for Pluvicto across lines of prostate cancer. And I'd also take the opportunity to say that the feedback, both from the nuclear radiology community as well as the urology community, which is an important customer base for this medicine has been very positive to date. With respect to the Phase 3 studies, we've been able to fully reopen enrollment and we currently forecast is no change in time line, either for the pre-taxane study, which is slated to read out before the end of this year or the hormone-sensitive study, which is slated to read out in 2024.

So, both of those studies now are on track and, if anything, are enrolling slightly ahead of schedule.

Next question, operator?

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Your next question comes from the line of Seamus Fernandez from Guggenheim Securities. Please go ahead.

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Just one quick question on iptacopan. Vas, just wanted to get your thoughts on relative positioning in PNH and aHUS versus the well-established C5 inhibitors.

Just wanted to get your sense of the ability to compete in the treatment-naïve setting as well as the sort of patients that are struggling as we look at this first data set and then I think the treatment-naïve data set will come in the first half of next year. Thanks.

Yes. Thanks, Seamus. We've done a lot of work with the U.S. team here and really to understand the physician expectations and the dynamics. And overall, we believe that hematologists would be highly interested in iptacopan, both in the first-line setting and for patients who are not receiving -- achieving an adequate response to the anti-C5 monoclonal.

I think, unlike some of the other areas where a Part B-infused medicine can create a barrier, this is a low enough volume situation where we believe that patient ease of use to avoid having to come in and out of the hospital, also a very safe drug that can be used across lines of therapy would be highly attractive for physicians.

So, you're correct, the first data set will be focused, both on add-on therapy as well as switch. And then, we'll have a second data set, the PNH applied study, which would then be in the frontline setting. And those two data sets together will support the overall filing.

So, we remain optimistic on that PNH. And that, of course, would translate as well into atypical hemolytic uremic syndrome in that setting. I'd also note that the opportunity for -- hopefully, everyone on the call is aware for iptacopan is not only in that hematology setting, but we also prepare in the renal setting, where this could be the first medicine approved for C3G glomerular nephropathies as well as an opportunity to treat patients on the severe end of the spectrum with IgA nephropathy. And then we continue to expand across a range of other Factor B-driven diseases. And the unique profile here is a twice-a-day oral with a very, very safe safety profile, which I think for these rare diseases will hopefully make a lot of sense.

Next question, operator?

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

Your line is open.

A question on your BeiGene collaboration, a couple of parts.

So first, I'm curious whether you could provide some color on the FDA's guidance not to file in a monotherapy. I assume that they have Western data.

I think they do.

So, I'm just curious as to why, is it because they feel the market is well served, site inspections or some other? And then second, you have an option on the BeiGene ticket. It sounds like Roche is now not going to be presenting the interim data at ESMO. When do you have to exercise that option? And can you give us any guidance on what you will do given the available data?

Yes. Thanks, Andrew.

On the first question on monotherapy, I think the FDA's assessment of our overall data set was that it didn't adequately reflect the U.S. population in terms of the number of patients and the standard of care that was used in that BeiGene-driven first-line study.

So, our focus right now is to finish the filing in the second-line small cell lung cancer -- sorry, esophageal cancer. And then we had very good data in the first-line setting as well.

As we announced, that's been pushed back as we await the ability for FDA to inspect the facilities in China. And then hopefully, we'd be able to have both, first and second line in esophageal. We'd have been hopefully second line in non-small cell lung cancer, and we would expand from there. I do think that the FDA is making it very clear now that they expect a -- any studies to be filed that they're global in nature, they have an appropriate amount of U.S. patients and that the standard of care used reflects standard of care in the U.S. With respect to the anti-TIGIT, we haven't changed -- no change from our option agreement. The option agreement is driven off of the data from ociperlimab, the BeiGene anti-TIGIT molecule.

And so that option would be based on when their data set becomes available. And we'll continue to wait for that -- their data to mature, which we would expect, I think, if I'm not mistaken, but we can verify in the second half of the -- first or second half of next year.

Now, in terms of the Roche data set, I mean, it doesn't change anything for us. We'll continue to wait and watch as the field evolves and then make an appropriate decision.

I think it's important that we -- everyone would like to understand where is the appropriate use of this medicine and in which PD-1 subgroup, all comers and if there is a place, which place would it actually be. But for us, there's no change to plan at this point in time.

Next question, operator?

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Your next question comes from the line of Laura Sutcliffe from UBS. Please go ahead.

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Could you help us understand who the typical U.S. prescriber of Leqvio is, who's already prescribing to multiple patients or who is already a repeat prescriber? Thanks.

Yes. Thanks, Laura. I spent -- it's a great question. I spent three days now in the field here in the U.S. meeting clinicians, visiting hospital centers, visiting larger cardiology centers. I'd say right now, where we see the strongest uptake are in group cardiology practices where they already have the ability to run, buy and bill, they make their own decisions on how they want to approach treating for cholesterol and how, I think, the infrastructure largely set up and also the scale.

So, I'd say group cardiology, mid- to large-sized group cardiology practices have been really, I think, a key area so far for the medicine. Combined with, I would say, large volume cardiologists and smaller practices who are leveraging alternative injection centers where we continue to see solid uptake. And that's a solid base for us to grow from.

Now, the goal is to move into larger centers where you, of course, have to work through the pharmacy and the various P&T committees to get everything set up. There now the J code being in place and the overall clinical experience increasing is helping, and then also moving towards smaller cardiology offices where there is the need to set up buy-and-bill capabilities, which historically have not been in place for those cardiology offices. What I would say, though, is what I consistently hear regardless and I think our team’s here on the ground is a lot of enthusiasm for a twice-a-year physician-administered medicine that can modify the single most important risk factor in cardiologists' mind for preventing repeat cardiology events -- cardiovascular events. And I think seeing that and hearing that again and again gives us confidence, gives me confidence that we will work through the logistical hurdles, which seems to be the primary topic and then get this medicine into wide-scale use.

I think, we often hear from practitioners, especially when they put the patient on the medicine and then at the next visit, they see a significant drop in the LDL levels. That's a very winning proposition after a single dose. And then I think those practitioners get really excited about getting more patients on therapy.

So again, laying all the foundations, but I think all the right steps are being taken to get us to where we need to be.

Next question, operator?

Thank you.

Your next question comes from the line of Keyur Parekh from GS. Please go ahead.

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Vas, a big picture kind of capital allocation question for you.

If you look at slide 27, kind of first half, obviously, it's only first half, which shows that you kind of returned somewhere about $13 billion kind of to shareholders versus investing kind of about $6 billion in businesses and your kind of organic and bolt-on transactions.

As we look forward to the next kind of 12 to 18 months, do you expect that balance to be somewhat similar to what we have seen in the first half? Do you expect that to be more counterbalanced by greater investments, either from an R&D or an M&A perspective for Novartis? And then, just kind of more specifically, you are telling us that you'll provide us an update on Sandoz by the end of the year. What is that update expected to be? Are we going to get a decision on what you would do? Is it going to be, if you plan to separate it, we will we get details on structuring of separation, et cetera? So just any color you might be able to provide on what that detail or what the update might involve? Thank you.

Yes. Thanks, Keyur.

So I'll let Harry start and then I can add on. Harry?

Yes. Thank you. Hi, Keyur.

So on the capital allocation, of course, the whole thing is a bit skewed by our dividend being an annual dividend, right, $7.5 billion.

So, if you want to do it mathematically, you almost have to half that and put it on two sides, but it's the annual dividend. Overall, of course, all of these elements, R&D, we expect to continue to grow in line with sales at least.

And so, there will be continued growth on R&D investments. And we don't expect margin leverage from the R&D line as we go forward, more from the SG&A line where also our transformation for growth program is targeted at and where we have some gap to benchmarks and we can -- we have found some structural opportunities, which is great. And then, in terms of how much it goes to bolt-on M&As, that obviously depends on the opportunities we find. And given our very attractive net debt position and strong cash flows and balance sheet, of course, we have quite significant bolt-on M&A firepower, if you will. And if we don't find the right opportunities, of course, share buybacks will always continue to be part of the mix.

In terms of Sandoz, I think you said it all. We make very good progress in line with our plans on the carve-out financials and looking at all different options.

So, would be, of course, happy to give a preliminary decision by end of year. But this is, of course, subject to Board approval and from that -- and the progress overall on our whole planning. But end of year should be quite -- giving you some good hints to what direction it goes, given that we take appropriate time for all the homework we are doing on the carve-out financial, separation costs, tax situations and all of that.

So it would be -- think end of year later, we should be in a good position to inform you about the next steps here. Vas?

No. That's perfect.

I think, Harry said it all. Thank you, Keyur. Thank you, Harry.

Next question, operator?

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Your next question comes from the line of Naresh Chouhan from Intron Health. Please go ahead.

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Some of the work we've done suggests that people costs are around 40% to 50% of the total cost of the industry.

And so, my question is, how we should think about the timing on the -- of the inflationary impact on salaries? Is it fair to assume that the whole 2022 salaries and, therefore, your guidance has factored in only last year's inflation and that really, we have to wait until next year's salary rounds before we start to see this year's inflation baked into your cost base on the salary side? Thank you.

Thanks, Naresh. Harry, do you want to take that?

Yes.

You're absolutely right. I mean, the current inflationary effects, mainly on energy, utilities, freight costs and so on, those cost categories as we speak; on wages and salaries, not much yet, if anything.

So, that needs to be closely monitored. And I would expect this to come more in annual cycles. If there is something short term, it's probably depending on certain countries.

Of course, we always monitor the markets to be very competitive. And we have, of course, quite a big, if you will, workforce in Switzerland where inflation and wage increases are below, I would say, developed market average.

So, from that standpoint, our home base gives us also here a bit of a competitive advantage. But we have to watch it, right? As you say, the wage and salaries are a large portion of the P&L of any pharma company given its innovation-driven and people-intensive business. And we have to watch that and we'll monitor this, of course. I would say, we believe it is manageable for us, but we have to monitor how the situation develops.

Thank you.

Your next question comes from the line of Sarita Kapila from Morgan Stanley. Please go ahead.

Your line is open.

Please, could you discuss where you stand on the development of the diabetes and obesity franchise? So, you have the MBL949 in Phase 2. I don't believe the mechanism has been disclosed, but it appears to be dosed every two weeks. And you also have an existing cardiovascular and metabolic commercial platform. And there are a number of assets focused on diabesity in Phase 1/2, which remain unpartnered.

So, it looks like from today's update, respiratory is less of a focus, but it's not necessarily clear where you stand on diabesity and adding assets around Entresto, Leqvio and TQJ. Thank you.

Yes. Thanks for the question and noted the Morgan Stanley report as well on obesity. Yes, I mean, I think we, of course, are observing the significant unmet need for better obesity medicines. And because we do have a dedicated cardiovascular research unit in-house led by Shaun Coughlin really, I think, a global leader in the thinking on developing world-class cardiometabolic drugs, we do have assets in our portfolio.

We have not disclosed NBL, but we are awaiting our Phase 2 data on weight loss with NBL. If that's positive, that would be an exciting opportunity to hopefully address with a unique mechanism of action obesity on a large scale. And I think based on that readout, we would determine if we advance other earlier stage opportunities and combination partners we would have for NBL as well as potential external opportunities.

So I think more to come. Certainly observing the need for better obesity drugs and hopefully, alternative mechanisms to those already out there, it's something we're looking at, and we'll keep the market up to date as we learn more.

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Your next question comes from Peter Welford from Jefferies. Please go ahead.

Your line is open.

A question on Cosentyx, please.

You've talked a little bit about the aim for this year, wondering if you could just talk a little bit about next year. And in particular, you've also talked a lot about Humira biosimilars in your plan there in the U.S. Can you just talk a little bit about how you see coverage negotiations for Cosentyx next year? And perhaps you could just talk about the impact of HS, which I guess is unlikely to be approved for the negotiating cycle this time around. But IV, on the other hand, also available and how you think that fits into the potential patient access dynamics for Cosentyx going into next year? Thank you.

Yes. Thanks, Peter. I mean I think right now, our assessment is that with the introduction of adalimumab biosimilars that it's a manageable situation. I mean we already have significant gross to nets on Cosentyx in some accounts. In other accounts, we have very strong overall positioning and as a first-line therapy. And of course, we'll have to see as the upcoming year unfolds, and also how some of the upcoming legislation that potentially might be passed by Congress will impact the gross to net environment, given that there would be if the law passed as currently designed, less ability to offset increased rebates of price increases.

I think there is a possibility we see a rethink on rebating at least on the industry side on how the whole structure of the market works. It's all to be determined and to be seen. I mean, I think for us strategically on Cosentyx in the U.S., the goal is within rheumatology and dermatology to grow with the market and you see healthy market growth in both of those categories. And as you point out, expand both in terms of indications, we would hope to get hidradenitis approved over the course of next year, which then means in 2024, it would be an additional labeled indication for us in a unique labeled indication for Cosentyx, but also to expand into -- with IV into other payment settings and to have IV approved, hopefully, across both axial SpA as well as psoriatic arthritis would enable providers to also provide Cosentyx in those reimbursement settings. And hopefully, that also helps us manage the overall payer environment. It’s probably the best answer I can give at this point in time. But I think as we learn more in the second half of the year, as we enter towards the January negotiations in Q4, we'll keep you posted.

Next question, please?

Your next question is from the line of Matthew Weston from Credit Suisse. Please go ahead.

Your line is open.

Just a couple of follow-on housekeeping items, please. Harry, the quarter we saw a significantly lower finance charges and also significantly lower corporate costs than consensus was anticipating. I know there was a hyperinflationary write-back in the finance charge. Can you give us any help with what we should anticipate for both those lines for the full year? And then, if I can cheat and ask another question, Vas, you obviously deemphasized COPD within development, does that mean that we can n anticipate that you may consider divesting your legacy respiratory assets or that's something where you're going to maintain an existing commercial franchise? Thank you.

Harry?

Yes. Matthew, welcome to the second round.

So on the corporate cost, we guided so far to $600 million to $650 million this year.

Our new guidance now would be a notch down, $550 million to $600 million.

Now, the biggest piece of that is actually currency because, as you can imagine, given our headquarters in Switzerland, most of our corporate costs are in Swiss francs. And the Swiss franc also weakened versus the dollar.

So the corporate dollars, if you will, will be a little bit less and will be a bit lower.

If you take in constant currencies, it's probably hard for you to model on corporate costs, right? This year's quarter two costs were only $5 million lower than last year's quarter two cost. And of course, we do also work on corporate cost efficiencies.

So, I think that is just the corporate part.

In terms of the core cost on net financial results, we, of course, do have some income, right? We have some hedging gains, which is the other side of the currency impact.

So, that should also be a little bit lower. But, of course, both of this is the -- corporate costs are part of our core operating income guidance in constant currencies, and then, a bit of gains on the on the net financial results also versus prior year, but not so significant.

Thanks, Harry. And then, Matthew, on the respiratory side of things, I think as you rightfully point out, we do have a business in inhaled respiratory LABA, LAMA ICS outside of the U.S., primarily in Europe and, to some extent, in emerging markets. And as well as we have the Xolair business outside of the United States in severe asthma as well as the co-promote in the U.S. all those businesses remain intact. And of course, we will continue to continue to drive them. We always do evaluate what is the right mix in the markets. And I think with our recent -- the transformation announcement where we moved to a single Innovative Medicines unit in every country that we operate in, we are going through an exercise to ask what is the right portfolio, not necessarily specific to respiratory, but what is the right portfolio of medicines for us to really focus our resources on and where can we optimize or deprioritize so that we drive the most growth out of the business and really have the most impact that we can from the portfolio.

So, as we get to better clarity on those decisions and if anything changes, we'll, of course, let you know.

I don't know if my mic is on. I don't know whether a follow-up is appropriate. But could we see those spun out with Sandoz given that they'd fit with that kind of long life cycle ex U.S. footprint that Sandoz has?

So, I'm getting in trouble with all of my IR colleagues for taking your follow-on, Matthew, but I will answer it since we know each other for so long. Right now, our intention is not to move any of our Innovative Medicines business with any consideration with Sandoz. We'll keep Sandoz in pure-play, small molecule generics and biosimilars business.

Next question, operator?

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Your next question comes from the line of Wimal Kapadia from Bernstein. Please go ahead.

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So just firstly, with Kisqali, you previously suggested that adjuvant is a $6 billion opportunity. But I'm just curious how we should think about it. Because when you look at the epidemiology, it would suggest a much larger opportunity in intermediate pension pool.

So, I'm just curious what assumptions you're making in terms of which -- actually receive the drug in this population because really, if you see a decent penetration, the market potential should be significantly larger. And then just to be tricky because we've done one round.

Just on sabatolimab, given the delay in filing due to needing Phase 3 OS data and the high hopes that physicians seem to have for VENCLEXTA and MDS in the VERONA trial, I'm just curious how you're thinking about the potential for the product in MDS at this point. Does it now become somewhat of a lower priority, or do you still believe that greater than $1 billion opportunity you discussed previously in MDS is still feasible? Thank you.

Yes. Thanks, Wimal. On Kisqali in the adjuvant setting, we do believe that with the possibility of adding intermediate risk on top of high risk, that is a significant expansion in the patient population, probably 3x to 4x what we see in the high-risk patient population. We previously guided to, I think, $6 billion based on what we saw in kind of consensus outlooks in various market projections. But I mean I would agree that if we are successful in demonstrating a meaningful benefit across that entire intermediate risk range, there could be a larger opportunity for the medicine. And we're certainly doing that work now as we move towards the final readout of the study.

So I agree, it is a significant opportunity and to be a fundamental inflection point for the Company if Kisqali is successful and most importantly, for all of those women with breast cancer who need better therapeutics so that their cancers don't recur. But I think it's a good push, and we'll try to come back with better numbers. On sabatolimab, I think the data that we have suggests that we need to wait for the OS data in Phase 3. The opportunity for this medicine is both, across AML and MDS. We do know that there is a rapidly changing treatment landscape in MDS. Nonetheless, we think that if the medicine has a unique mechanism of action with targeting TIM-3 and could be used in combination with other agents and if the safety profile would reasonably hold up, we do think it has that $1 billion potential in each of the indications. But I would know, if we need to wait now for the full Phase 3 studies, and it wouldn't be prudent to put too much more on to it until we see that data readout.

Next question, operator? And we'll try to do as many as we can in the last 5 minutes.

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Your next question comes from the line of Richard Parkes from BNP Paribas. Please go ahead.

Your line is open.

Just a follow-up on Leqvio in the U.S. Feedback we've received recently from U.S. physicians is that they're still seeing difficulties accessing injection centers and the reimbursement is still challenging.

So, I just wondered whether that's just an issue of experience and lack of infrastructure or whether there are the barriers that payers are putting into place in order to manage utilization such as requirements for specific injection centers or anything we haven't expected? And then can I just ask a clarification because I think I heard you say that the final NATALEE readout was the end of next year, but I might have missed that.

So, could I just clarify that timeline? Thank you.

Yes, absolutely.

So first on NATALEE, it would be in the second half of next year, which I think is what we guided to previously, not end. I didn't mean to give a new time line. Time line is exactly as we've said previously, so no change in time line. On Leqvio, I think there is an element of experience and also understanding the Part B and the payer dynamic. There is 30% to 40% of patients who are in Medicare Part D fee-for-service that don't have any relevant blocks and can access the medicines. They assess patients where there is a prior authorization and then there's a set of patients that do have a step at it. And I think physicians are just getting experienced seeing how different patients actually have to move through the system.

I think as they get smarter about that and understand those dynamics, as offices get better and as we get better in supporting offices, we should be able to overcome those. And as I noted, we have a very high percentage of patients covered now to the full Leqvio label. To my knowledge, there's no restrictions on which alternative injection centers or other administration centers that can be used that would really be impacting that perception.

I think it's just if you happen to put a certain -- a patient on certain insurance as the first patient through the system, you do have to work through the reimbursement hurdles and get that all set up in the office. Normal things for a U.S. healthcare launch in cardiovascular, things that we’re well adept at managing having successfully launched Entresto and things we're working very hard to resolve as quickly as possible.

Next question, operator?

Thank you.

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

Your line is open.

Just one on the LOEs that we should expect in '23.

I think Promacta is slated, but there are some formulation and use patents that might actually push that out. And maybe similarly, just anything else like Lucentis that we should be thinking about? Thanks very much.

Yes. Thanks, Richard. Yes, on Promacta, we're continuing to work to really support all the full range of patents we have on the medicine.

I think in appropriate time, if we're successful, we'll provide an update on Promacta. But it is something we're very focused on. And then, on Lucentis, we do expect the biosimilar -- a few biosimilar entries in Europe.

I think it's important to note that with the broad scale availability of Avastin for now many, many years that we believe the biosimilars market has -- in effect, already happened in Europe.

So, we would expect a moderate decline on the launch of the biosimilars, but maybe not what you would see with other biologics when biosimilar entry occurs.

So, that's how we're forecasting Lucentis now for the coming years. And one last question, operator?

Thank you.

Your final question comes from the line of Graham Parry from Bank of America. Please go ahead.

Your line is open.

So just one on Gilenya.

So, obviously, you've had the overturning the decision from the appeal court and you said you're going to petition.

So just help us understand time frame for the petition? Does that prevent a launch happening in the intervening time frame, so your level of confidence that we won't see a launch this year, or is the guidance just a guidance assumption but that could change depending on what happens with the court? And then, just one last one, Kisqali growth was just well above prescription growth, although, obviously, we are seeing resurgence there. Is that reflective of real volume growth, or could it be just a sort of prescription retail versus other channels that we're seeing and actually the reported growth is much more in line with the real volume growth? Thank you.

Yes. On Gilenya, right now, no generics can enter the market.

We are petitioning the court. And we would expect to get a response from the court in the coming months. If granted, then it would be another set of months before the hearing and then the hearing will take another set of months.

As a reminder, we guided to generics entering in 2024.

So really, what we look at here is between now and that time line when exactly the entry might happen.

So, we'll know more, I think, as the court gives us feedback once we -- we have -- yes, we are in the process of submitting the petition. The petition would then need to be reviewed. We’d either be rejected at that point or the petition would be granted and then we would then move forward from there.

So, that's kind of the scenarios right now on Gilenya. But to remind again, the longstop date was any way in '24.

So from a midterm growth standpoint, this is not having a significant bearing. Also in Europe, where we were granted the patent by the European patent office, we expect that patent to be issued later this year, and we'll continue to defend Gilenya across Europe.

So, a lot of things, puts and takes, I think, on Gilenya at the moment. And I think on your question on Kisqali, I don't know the answer, so we'll just have to follow-up with you. But we'll get back to you on that to make sure you're clear on the volume price dynamics. But I would say that what we see in our numbers is a strong growth in underlying demand for Kisqali that we'd like to sustain.

So, thanks, everyone, for joining the call. Apologies we didn't get to every single question. But I really appreciate everyone taking the time, and we'll look forward to catching up soon. Bye, bye.

Thank you. This concludes today's conference call. Thanks for participating.

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