NOVARTIS-AG Earningcall Transcript Of Q2 of 2024

Vasant Narasimhan -- Chief Executive Officer

Thank you, Sloan, and thank you, everyone, for joining today's conference call. With me on the
call, as always, is our CFO, Harry Kirsch. So starting with Slide 4. As you saw on quarter 2, we
continued the strong growth performance at Novartis, which gives us conviction that we are well
on track to deliver our 5%-plus sales growth out to 2028 and our 40% margin target in 2027.

You saw that sales on the quarter were up 11% in constant currency; core operating income, up
19%. Our core margin reached 39.6%, reflecting our outstanding productivity programs but also
as a consequence of our strong sales growth. In addition, we had important innovation
highlights in the quarter, which we'll review over the course of the call. But some of the really
important ones included the Scemblix first-line CML FDA submission; updated Kisqali NATALEE
data, which we think really support the outstanding profile of Kisqali in the adjuvant setting, in
the early breast cancer setting, and we're looking forward to presenting that outstanding data at
an upcoming medical congress; and continuing to build out our renal portfolio with the

atrasentan submission; as well as our broader portfolio of presentations at the recent ERA
meetings.

Taken together, this allowed us to upgrade our full-year 2024 core operating income guidance.
Harry will go through that in more detail. Now moving to Slide 5. Our Q2 growth was broad
based, and we had strong contributions from multiple of our outstanding growth drivers.

Importantly, Kesimpta was off to a really outstanding start earlier in the year and continued that
momentum. Kisqali also continued its strong momentum. Cosentyx with the recent launches
continues to grow in a robust way. We saw steady growth in Pluvicto, strong growth in Leqvio
and Scemblix, and taken together, a 37% constant-currency growth which we expect to continue.

Now taking each one of these brands in turn, step by step. Entresto delivered 28% growth in
quarter 2, and we continue to have high confidence we will exceed our $7 billion peak sales
guidance for this medicine. The growth was driven by all our core geographies. You can see here
in the middle panel, U.S.

weekly TRx reached another record high. That 25% growth was fueled by consistent demand
across the various segments that we compete in. Outside of the U.S., growth was 30% with
strong contribution from China and Japan, where we continue to see momentum from Entresto
in heart failure but importantly as well in hypertension. So we remain confident in the continued,
sustained performance of the medicine.

For forecasting purposes, we continue to assume an Entresto LOE in mid-2025. However, we
continue to enforce our patents and litigate our patents, and we'll ensure that we maximize this
brand for as long as possible in the United States, alongside EU: RDP in November 2026. Then
moving to Slide 7. Cosentyx grew at 22% in the quarter, and this is fueled by our new launches
and I think, importantly, if you take a step back, puts us well on our trajectory to reach $7
billion-plus peak sales for Cosentyx.

When you look at the demand growth by geography, the U.S. grew 34%, driven by volume. Ex
U.S., we were up 10%, and this was partially offset by one-time pricing effects due in Germany, in
particular, due to the addition of -- additional new indications. Normal part of the German
process, as you get additional indications, you do see price adjustments.

We see Cosentyx doing very well in its core indications. I think one important dynamic is the
strong launch, and HS is supporting us in our core indications of psoriasis, PSA, and AS. We're
the No. 1 IL-17 in the U.S.

dynamic market, the lead originator biologic in Europe and China. In HS, we're seeing very strong
uptake with market leadership share, over 60% in the NBRx. In Germany, we're over 50%. And I

think, importantly, with the launch of Cosentyx, we're seeing increased diagnosis and desire to
treat among physicians and patients which I think will allow the HS market to grow to larger
than it's historically been, and of course, allowed Cosentyx to help these patients achieve their
treatment goals.

For Cosentyx IV, we saw solid adoption with over 700 accounts now ordering, and we do expect
further demand increases in the second half now that we have a permanent J-code in effect as
of July 1. So moving to Slide 8. Kesimpta also delivered, as I mentioned, a very strong quarter 2,
65% growth. This was broad based in terms of its geographic growth profile.

Over 100,000 patients have now been treated worldwide, naive or first switch, with Kesimpta. In
the U.S., we saw 49% growth. This demand growth was driven by TRx volume of 43% versus
prior year. We gained 4% market share overall in the segment.

Outside of the U.S., we have NBRx leadership in seven out of 10 major markets. So looking
forward, we feel confident we will exceed our Kesimpta $4 billion guidance -- peak sales
guidance. We see strong trajectory for this brand. Its profile is unique, self-administered B-cell
treatment option, one-minute-a-month dosing, no steroid pretreatment required, an attractive
safety profile with respect to injection site reactions.

Persistence and adherence we're seeing in the real world setting is comparable to infused B-cell
therapies. We also continue to generate data which support the strong efficacy profile of this
medicine. So moving to Slide 9. Kisqali grew 50% in the metastatic setting with now leading or
continued leading NBRx share in the U.S.

and ex U.S. As you know, Kisqali has an outstanding data profile in the metastatic breast cancer
setting that's really supporting us consistently now around the world. In the U.S., we saw 67%
growth where we gained widespread adoption. We have a leading share now, NBRx share of
47%, 7,000 HCPs are now prescribing, and that provides us a very strong base of physicians
which we can leverage as we move to the early breast cancer launch.

Similarly, outside of the U.S., 35% growth as the preferred CDK4/6 inhibitor. We have a leading
share of 38%. We're the fastest-growing CDK4/6 inhibitor in Europe. And when you look at the
early breast cancer setting, we're on track now for a launch in half 2.

We've completed the manufacturing adjustments in close collaboration with FDA, which we
outlined earlier in the year. We're now anticipating a U.S. approval by the end of quarter 3. We
remain confident in a broad label based on the consistency of results that we've seen across the
NATALEE population.

And as we announced this morning, we have now updated NATALEE data with a median
follow-up of four years. All patients have now completed their three-year course of the medicine,
and we see continued clinically meaningful benefit, consistent safety profiles, we believe very
compelling results that will really support the launch of this medicine. And so we're really
excited to present that data at an upcoming medical meeting and continue to support that
Kisqali will hopefully be the preferred medicine for patients with early breast cancer. Then
moving to Slide 10.

So Pluvicto demonstrated very steady growth versus prior year. Now when you take a step back
on Pluvicto, we are now in a transition point where our early rapid uptake is now transitioning to
a place where we need to generate demand in the next wave of centers and eventually out in
community oncology, both for the success of Pluvicto but also for the long-term success of
RLC. That said, we remain highly confident in the long-term prospects of Pluvicto to be a
multibillion-dollar medicine across the various segments that it will compete in. We do believe
that once we're through this period, we will get back to robust growth, particularly driven by the
PSMAfore indication and later the HSPC and oligometastatic indications.

We had growth, as I mentioned, of 44% on the quarter. Now when you look specifically at the
VISION population, we estimate our market share is in the mid-30 percentile with 50% share in
established RLC treatment sites. We see a dynamic where the sites where we're well
established, we could have market shares above 90%. We have another group of sites where
we're working to go from 50% to 90%.

And then we have a third -- about a third of sites of the 475 treatment sites that we're operating
in where we need to now get from 10% of share of the VISION population, hopefully up over time
now to 50, 90%. And that will drive the steady growth that we expect over the course of the
coming quarters. Now when you look specifically at what we're doing to supercharge Pluvicto
and also enable us to build a broad capacity for the system to take on royalty, we're increasing
our U.S. promotional efforts, including a field force expansion which is now completed.

We'll be launching a DTC campaign in quarter 3. We'll also have the phased launch of the
patient-ready dose, which is a very important, I think, step in that it reduces the time from
providing Pluvicto from around an hour to less than 10 minutes. And this will allow sites to,
hopefully, take on more patients, especially sites that have significant capacity to take on more
VISION patients. And then lastly, we had German pricing approved, which is why you've seen the
uplift in the ex U.S.

market -- ex U.S, sales profile. So looking ahead, FDA submission for PSMAfore, on track in half
2. We already have profiled the positive trend in OS and PSMAfore. China submission is planned
in the second half, and we did do a groundbreaking now for an RLC manufacturing site in China,
alongside plans now for also a manufacturing site in Japan.

And then PSMA addition and PSMA-DC continue to progress as per plan. Moving to Slide 11.
Leqvio had strong growth as well, 134% growth. I think we're seeing step by step more and more
acceptance of the option to take twice-a-year medicine to achieve 50% to 60% cholesterol
lowering, and that's a trend we're seeing broad based around the world.

We have now 4,200 facilities ordering Leqvio in the U.S. We continue to steadily expand our
breadth and depth, continue to generate additional data to support the profile of Leqvio as we
move also toward our outcomes trials -- two outcomes trials for Leqvio, as well as continue to
progress efforts to move Leqvio into the front-line setting for cholesterol management. Outside
of the U.S, rollout continues with over 35 countries with reimbursement, strong market growth,
24% versus prior year. And so we feel confident that step by step Leqvio will also be progressing
toward its multibillion-dollar goal.

Now moving to Slide 12. Scemblix momentum continued in quarter 2. And I think, as you're all
aware, we have U.S. market leadership in the third-line setting.

And most importantly at ASCO, we presented our outstanding first-line data, which I'll go in a
little bit further detail about on the next slide. Now when you look at the third-line setting, we're
the market leader in NBRs and TRx share in the U.S., outstanding performance as well we're
seeing outside of the United States. TRx and monthly prescribers continue to grow across all
geographies. One important note for modeling purposes is that in -- shortly, we'll be launching a
100-milligram SKU for the T315I patients, a patient group that requires 400 milligrams of
Scemblix, which is about 10 pills per day.

They'll now be able to take four pills per day. But what that will lead to is about $15 million sales
that will not repeat in quarter 2 and quarter 3. So for all your modeling, just to take into account
that because of that price adjustment, the 100-milligram dose being launched and because we
have consistent pricing across SKUs, that adjustment just needs to be factored into your models
for Scemblix. But more importantly, we're very confident in the first-line opportunity.

We have FDA submission under Real-Time Oncology Review. We received Breakthrough Therapy
designation. I think all of you saw the truly outstanding day at ASCO that positions Scemblix as
the medicine of choice for patients in the front-line setting, and we're looking forward to also
completing our ex U.S. submissions in 2024 and 2025.

Now moving to Scemblix ASCO data. As a reminder, this was data that demonstrated superior
efficacy and a favorable safety and tolerability profile against standard-of-care TKIs in first-line
CML; efficacy wise, superior MMR rates; and also deep molecular response importantly as well
against all TKIs and against Imatinib with very impressive differences. We had earlier
achievement of MMR, greater depth of responses, also important improvements versus
second-end TKIs in MMR speed and depth; and then very importantly as well for these patients

and I think from a physician standpoint as well, outstanding safety and tolerability, fewer grade 3
AEs, fewer dose adjustments or interruptions, really making Scemblix, I think, from a safety
profile the medicine of choice for these patients. So we're very excited about bringing this
medicine forward.

We guided to $3 billion-plus peak sales for Scemblix. As a reminder, Scemblix has protection
into the mid-2030s, also is not -- because as a rare disease medicine will not be part -- expected
to be part of the IRA, so a really great profile, great medicine, very excited about its future. Now
turning to Fabhalta. We had the U.S.

PNH launch, which is off to a very encouraging start. We saw really strong growth in quarter 2
versus quarter 1. Ex U.S. approvals have also been received now in multiple markets.

And when you look at the profile of Fabhalta, we're making steady progress. We have
REMS-certified HCPs ahead of competitive benchmarks. We see continued uptake across naive
and switch patients. Patients are getting treated across all hemoglobin levels but also including
those patients, the 10 to 12, who were just slightly below normal I think showing the interest
there is in a twice-a-day oral option.

We also see increasing commercial coverage as part of our -- from our bridge program, so all on
track with respect to Fabhalta. We would expect in the second half to now see steady growth
but also to take into account that the bolus of patients that we saw in the first half, especially
the conversion from bridge. likely won't repeat in the second Half. So our growth rate will be
steady, and I think it's exciting but also certainly not at the rates that we saw in the early part of
the year.

Now moving to Slide 15. Turning to our renal portfolio, as you all know, we've been working to
build an attractive portfolio to manage IgAN, C3G, and related renal diseases. And as part of
that effort, we acquired atrasentan. And in the Phase 3 ALIGN-IgAN study, we announced at ERA
in May a 36% proteinuria reduction relative to placebo.

We're very excited about this medicine as we think it can be a foundational medicine to provide
hemodynamic and nephro-protective potential for patients and physicians. It's a clinically
meaningful proteinuria reduction. We see a very favorable safety profile. We think up to 50% of
patients with persistent proteinuria progress to kidney failure, so important that these patients
get better options.

We've submitted to FDA. And of course, the study continues in a blinded fashion to 2026 when
we would read out the EGFR, so looking forward to launching this medicine in 2025. Alongside
to -- with Iptacopan, we also announced at ERA the full result Phase 3 APPEAR-C3G study which

demonstrated 35% proteinuria reduction relative to placebo. You can see the design on the
left-hand side of the slide.

On the right-hand side, you see that impressive minus 30% versus an increase of 7.6% in the
placebo arm. We saw numerical improvements in EGFR, favorable safety profile overall. This
would be the first treatment -- potential treatment targeting the complement pathway in C3G.
And again, in these patients, 50% of patients developed kidney failure requiring dialysis.

Now importantly today. we're also announcing that we have end-of-study results for this
medicine at the 12-month time point. That data is consistent with the six-month data which now
allows us to move forward with the filing in the second half of 2024 with an expected launch
next year. We'll present that end-of-study data at an upcoming medical meeting, but I think this
is an important update for this medicine, allowing us to now have Fabhalta hopefully in next year
in three separate indications.

I'd also note we're also working to develop Fabhalta in atypical hemolytic uremic syndrome. We
announced the start of a Phase 3 program in myasthenia gravis, and so we're very excited,
another medicine that has LOE protection well into the 2030s, and then as well primarily treating
younger patients, not a medicine that's exposed to the Medicare Part D IRA, so another medicine
that we have, we think, that can really drive our growth well into the 2030s across a broad range
of rare diseases. Now moving to the next slide. So in closing, before handing it over to Harry, we
expect to continue our innovation momentum in half 2.

We had 10 positive Phase 3 readouts in as you -- as you all know, in 2023. Really, this year is
about filing and really making sure that we get these medicines ready to launch. But we are
excited as well about the next wave of medicines. One thing we did want to note is we have
shifted our Remibrutinib CSU filing slightly as we do need to make a few CMC adjustments.

But as a reminder, Remibrutinib showed biologic-like efficacy in the control of CSU, a very good
safety profile. So we're excited to get that medicine submitted in 2025 and then out to launch.
We do, of course, also expect a steady stream of readouts as well in '25, '26 which we'll profile in
upcoming meetings. So with that, let me hand it over to Harry.

Harry Werner Kirsch -- Chief Financial Officer

Yeah, Thank you, Vas. Good morning, and good afternoon, everybody. I now walk you through, as
always, through our financials of the second quarter and the first half, and my comments will
always refer to growth rates in constant currencies, unless otherwise stated. I will also be
referring to continuing operations that will be still remainder of this year, given the Sandoz spin
in October last year.

And as you see and have seen already, we had a very strong first half of the year and continued
momentum of our quarter 1 start into Q2. So on Slide 19. Now Q2 sales grew 11%. Core
operating income was up 19%.

Core EPS was $1.97, growing 21%. Free cash flow was $4.6 billion, very strong also, 40% up in
U.S. dollars. For the first half, which you see on the right side, again, 11% -- the same, 11%
growth; and core operating income, up 21% as Q1 was a bit higher than Q2 but both quarters
super strong.

And our core margin on the half year, always better look a bit longer periods, not only one
quarter, up to 39% and up 310 basis points, demonstrating clearly our continued progress
toward achieving our midterm margin guidance of 40% plus by 2027. Core EPS, $3.77, up 22%;
and free cash flow, almost up to $7 billion, up 11%. So clearly, these numbers reflect also the full
effect of our pure-play pharma company and our transformation for growth with a very strong
worldwide execution. So -- and turning to Slide 20.

I think most importantly it's to understand that we have our continued strong underlying growth
dynamics will really continue. We expect that also for the second half. Usually, we do not provide
quarterly guidance. But this time, it may be helpful as you model the remainder of the year.

So with respect to quarterly phasing, I want to remind you that last year Q3 and those were -- we
had a couple of one-time effects which are not super significant, but you likely will see in quarter
3 because of these 2 points of one-time effect, more high single-digit growth, so still very strong.
But you may remember, we had a one-time revenue reduction true-up of Kesimpta in Europe, and
then we also had some Sandoz inventory built up ahead of the spin, right? I mentioned this
quarter 3 last year, but some of you may not remember that as you cover so many companies.
And these two items add up to 2 percentage points of sales growth. And so we would anticipate
this high single-digit growth in Q3.

And then, of course, there's a bit of an effect on core operating income but usually two to three
times of the top-line points. But again, underlying is exactly what we have seen roughly you
know so far. And then in Q4, it really depends on how the two potential generics come in,
Sandostatin LAR and Tasigna. And if they don't come in, I would expect us to be at the high end
of the guidance, both for that quarter as as well as for the year.

So I hope that helps you a bit with the quarterly phasing. And again, usually don't do this, but I
think this is warranting also as we increase the guidance for the year on the bottom line. At the
same time, we had this quarter 3 base effect last year. Now moving on to Slide 21 for the
full-year guidance.

We continue to expect the sales growth to be in the high single digits to low double digit.
However, the strong momentum we are seeing in the business, together with continued
productivity results, gives us the confidence to upgrade our bottom-line guidance. We now
expect core operating income to grow in the range of mid to high teens from prior double digits
to mid-teens. Now as I mentioned before, underpinning our guidance are the assumptions that
no Entresto or no Promacta generics would launch in the U.S.

in 2024. To complete the full-year guidance, please note that we expect the core net financial
expenses to be around $700 million and our core tax rate to be around 16.2%. On Slide 22. Just
a little reminder that we remain committed, of course, to our shareholder-friendly capital
allocation strategy to invest in the business while also returning attractive lead to our -- capital
to our shareholders.

In the first half of the year, in addition to investing in our internal R&D engine, we also brought in
external innovation via bolt-on M&A and BD&L deals, particularly to strengthen our pipeline in
oncology, as well as our RLT platform. In terms of returning capital to shareholders, we paid out
$7.6 billion in dividends in the first half, and we also continue our up to $15 billion share
buyback, which has approximately $10 billion left to be executed by the end of 2025. Now on to
my final slide around currencies. As always, currencies fluctuate, and we always outline that.

And in Q2, FX had a negative 2%-point impact on both net sales and core operating income on
our results. And if mid-July rates would prevail for the remainder of 2024, we would expect a
full-year currency impact to be negative 1 to 2 percentage points on net sales and negative 3
percentage points on core operating income. And as a reminder, the estimated impact of
exchange rates on our results are always provided mid-month on our website. Back to Vas.

Vasant Narasimhan -- Chief Executive Officer

Great. Thank you, Harry. So before taking your questions, just to briefly summarize, continued
momentum in quarter 2 with sales, up 11%; core operating margin, approaching 40%. We see
strong commercial execution, which I think demonstrates our ability to drive our in-market brand
medicines, drive our growth brands, drive new launches.

This supports our bottom-line guidance raise for full-year 2024. Our pipeline continues to
advance with the FDA submissions of Scemblix in the first line, atrasentan in IgAN, our updated
data for Kisqali in early breast cancer. And we're on track to achieve our midterm guidance, 5%
constant-currency sales growth through 2028 CAGR and a 40% core operating margin by 2027,
so we think a really -- a great quarter for the company, and we look forward to continuing to drive
strong performance through the remainder of this year. So with that, we can open the line for
questions.

[Operator instructions] Thank you.

Questions & Answers: