Good morning and good afternoon, and welcome to the Novartis Q3 2025 Results Release Conference Call and Live Webcast. The conference is being recorded. 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 Ms. Sloan Simpson, Head of Investor Relations. Please go ahead, madam.

Thank you, Sharon. Good morning and good afternoon, everyone, and welcome to our Q3 2025 earnings call. The information presented today contains forward-looking statements that involve known and unknown risks, uncertainties and other factors. These may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. Please refer to the company's Form 20-F on file with the U.S. Securities and Exchange Commission for a description of some of these factors. The discussion today is not the solicitation of a proxy nor any — nor an offer of any kind with respect to the securities of Avidity Biosciences or SpinCo. The parties intend to file relevant documents with the U.S. SEC, including a proxy statement for the transactions and a registration statement for the spin-off. We urge you to read these materials that contain important information when they become available. Before we get started, I want to reiterate to our analysts, please limit yourselves to one question at a time, and we'll cycle through the queue as needed. And with that, I will hand over to Vas.

Thank you, Sloan, and thank you all for joining today’s conference call. Novartis showed solid sales and core operating income growth, and we reached important pipeline milestones through the third quarter. Sales increased by 7%, and core operating income also rose by 7%, resulting in a core margin of 39.3%. During the quarter, we achieved several important approvals, including Rhapsido, our FDA approval in chronic spontaneous urticaria for our BTK inhibitor, and significant Phase III results. Our priority brands performed well, driving strong growth despite facing losses from products like Entresto, Tasigna, and Promacta. Notably, Kisqali grew by 68% in the third quarter, outpacing both the market and our competitors in the CDK4/6 space. Our total brand new prescription data shows that we hold a market-leading position thanks to the early breast cancer launch, with U.S. growth at 91%. We are leading in metastatic breast cancer segments, with a 63% share in early breast cancer. We see substantial growth potential, especially in the exclusive population, as many patients are not currently on a CDK4/6 inhibitor. Internationally, we recorded 37% growth in constant currency, and our early breast cancer indication is now approved in 56 countries. In Germany, our new prescription share stands at 77%, demonstrating our potential to expand Kisqali's use globally. Additionally, Kisqali earned Category 1 NCCN guideline support as a preferred CDK4/6 inhibitor for early and metastatic breast cancer. Regarding Kisqali’s five-year data shared at ESMO, we observed a 28.4% reduction in recurrence risk among a broad population of early breast cancer patients. The data consistently indicates a positive trend across various patient groups. Our overall survival data, while still developing, shows a promising hazard ratio of 0.8, indicating a trend favoring Kisqali. We continue to see noteworthy improvements in reducing distant recurrence. Kesimpta also performed well, with a 44% increase in the third quarter due primarily to strong demand in the U.S., where we achieved a 45% increase, significantly outpacing the multiple sclerosis and B-cell markets. Nearly 80% of Kesimpta patients are on first-line therapies, indicating broad access. Our growth outside the U.S. stands at 43%, and we lead in new prescriptions in eight of the ten major markets we operate in. We anticipate significant growth potential for Kesimpta in international markets, as many treated patients are not utilizing B-cell therapies. Pluvicto saw a 45% increase in constant currency in the third quarter, driven largely by the pre-taxane castrate-resistant prostate cancer approval. U.S. sales grew by 53% with new patient starts increasing significantly. Our growth in the community is crucial, as 60% of our prescriptions are dispensed there. Our goal is to expand treatment access further, and we aim to increase treatment sites to support the new indications. Leqvio reported a 54% increase this quarter, putting us on track for over $1 billion in annual sales. Our U.S. market growth was 45%, and we performed strongly in various international markets, particularly China. We expanded our regulatory label in the U.S. to streamline access and presented important data at ESC, demonstrating Leqvio's efficacy. Scemblix grew an impressive 95% in constant currencies and is poised to become the most prescribed TKI in the U.S. We are rapidly gaining market share, particularly in early lines of therapy where we are approved in 26 countries. Cosentyx had a mixed quarter, though we remain confident in its long-term sales potential, estimating a peak sales opportunity of $8 billion. We experienced some short-term sales impacts but saw positive trends in volume growth, particularly in Europe and China. Our renal portfolio, particularly Fabhalta, continues to perform well, and we anticipate seeing key approvals in markets like China soon. Rhapsido was approved as the only oral targeted BTK inhibitor for chronic spontaneous urticaria and has received positive feedback from physicians. Ianalumab had promising Phase III study results, and we look forward to providing more details soon. Overall, it has been a strong year for innovation at our company, and we look forward to discussing our progress further in upcoming events.

Thank you, Vas. Good morning, good afternoon, everyone. I'll now go over the financial results for the third quarter, the first nine months, and the full year guidance. As a reminder, all growth rates are presented in constant currencies. On Slide 20, you will see a summary of our financial performance. In the third quarter, net sales increased by 7% compared to the previous year, with core operating income also up by 7%. In the U.S., we experienced some negative adjustments for gross to net for the first time this year due to the Medicare Part D redesign, primarily based on invoices from previous periods, particularly the second quarter. Excluding these adjustments, the underlying growth would have been 9% on the top line and 11% on the bottom line, as our priority brands and launches helped counterbalance the rising generic erosions for Entresto, Tasigna, and Promacta in the U.S. Our core margin in Q3 was 39.3%, and core EPS reached $2.25, reflecting a 10% increase, while free cash flow amounted to $6.2 billion. For the first nine months, with less generic erosion, net sales grew by 11%, core operating income by 18%, and the core margin expanded by 250 basis points to 41.2%, with core EPS at $6.94, up by 21%. Free cash flow after nine months totaled $16 billion, a 26% increase in U.S. dollars compared to the previous year. Moving on, our free cash flow has improved by 26%, nearing last year's full-year amount of $16 billion after just nine months, indicating a solid conversion from profits to cash flow. Cash flow continues to be a strategic priority, enhancing our ability to convert strong core operating income growth into robust free cash flow. This allows us to reinvest in the business organically, pursue value-creating opportunities like the proposed acquisition of Avidity, and return significant capital to shareholders through increasing dividends and share repurchases. On capital allocation, there are no changes; we continue to optimize significant investments in our business while returning capital to shareholders at attractive levels. In the first nine months, aside from Avidity, we executed several smaller bolt-on M&As, reinforcing our key platforms and pipeline across our four therapeutic areas. We remain committed to investing in our internal R&D. On the capital return front, we completed our $15 billion share buyback program early in July and initiated a new program of up to $10 billion, aimed for completion by the end of 2027. During the first half of this year, we distributed $7.8 billion in dividends as part of our annual dividend. As for our full-year guidance, we anticipate high single-digit growth in net sales and low-teens growth in core operating income, even after considering the negative adjustments in the third quarter. Additionally, we now estimate core net financial expenses to be slightly higher at $1.1 billion due to increased hedging costs, but overall, this is not a significant change. The core tax rate has remained stable at approximately 16% to 16.5%, currently at 16.2% for the first three quarters. Moving forward, we usually do not provide detailed quarterly guidance since quarters are often more volatile than the full year. However, due to the entry of U.S. generics for three of our brands, including Entresto, Promacta, and Tasigna, we expect different quarterly dynamics this and next year. Last year's fourth quarter saw positive adjustments that contributed roughly 3 points to growth, making the base quite high. Adjusting for these anomalies, we expect low single-digit growth on the top line and mid-single-digit growth on the bottom line in Q4, reflecting the growing generic impact from Entresto's full year of generic competition. We will provide full-year guidance for 2026 next quarter alongside our full results, and we anticipate that it will be a year of two halves. The first half will likely be challenged by generics amid a high prior-year base, but we expect stronger performance in the second half. Regarding currency impacts, if exchange rates remain stable at late October levels, we expect a 0% to 1% impact on net sales and a negative 2% impact on core operating income for the full year in 2025. Looking to 2026, we foresee a slight positive impact of 1% on net sales with no significant effect on core operating income, and we publish these estimates monthly since forecasting currency from an external perspective is challenging. Lastly, if you were unable to attend our presentation on the proposed acquisition of Avidity, I encourage you to watch the replay. This acquisition is expected to increase our average sales growth rate from 5% to 6% over the period from 2024 to 2029 and reinforces our long-term mid-single-digit growth outlook, particularly impacting the 2030s and beyond. Additionally, it supports potential product launches with significant revenue potential unimpeded by IRA impacts. We also highlighted the expectation of some short-term core margin dilution of 1% to 2% over the next three years due to the initiation of Phase III trials. Nevertheless, we are confident in returning to a 40% core margin, which we achieved this year, by 2029. It's important to incorporate this 1 to 2 points of core margin dilution when finalizing your models for 2026. This acquisition is projected to generate substantial sales and profit contributions starting in 2029, significantly enhancing shareholder value despite a small margin dilution during the investment period. That concludes my remarks, and I will hand it back to Vas.

Great. Thank you, Harry. So moving to Slide 28. In summary, solid sales and core operating income growth in the quarter despite generic headwinds. So I think we're navigating that well with strong underlying performance of our priority brands, which is reflecting strong execution, and strong pipeline progress. We delivered strong pipeline progress in the quarter. And we also reaffirm our 2025 guidance and remain highly confident in our mid- to long-term growth, which is further bolstered by our proposed acquisition of Avidity, not just through the end of the decade, but into the next decade and beyond. I want to just quickly remind you as well, we have our immunology pipeline update on October 30, and our Meet Novartis Management on November 19 and 20, in person in London. So thank you again, and we'll open the line for questions.

We will now take the first question, which comes from Matthew Weston at UBS.

I hope you can hear me. It's a question about policy, Vas. And we've seen now two companies do deals with the White House around Medicaid and tariffs. And I wondered from your perspective, how much you felt we could see the industry do a cookie cutter of those deals or whether there are meaningfully greater challenges for some companies and when we should expect something from Novartis? And if Harry, I can steal, I guess, an extension of the same question. Can you walk us through CapEx over the next 5 years given the investments that you've announced in the U.S. and how we should think about modeling that as part of cash flow?

Thank you, Matthew. From an industry perspective, the general view in pharma is that the proposed negotiations will not effectively tackle the fundamental issues, which we believe include PBMs, 340B, and notably, how G7 countries, along with other countries outside the U.S., are compensating for innovation and determining fair prices for it. That said, as you mentioned, three companies have reached agreements with the administration. I can't comment on the actions of other companies, but we have been in dialogue with the administration since the start of the year amid various developments. We are meeting weekly to explore the best solutions possible. It's important to highlight that the President outlined four key parameters, which are the focus of our discussions. We will need to see in the upcoming weeks and towards the end of the year if we can agree on a viable approach for everyone involved. Now, regarding CapEx, Harry?

Matthew, I think as we mentioned when we also introduced the $23 billion over the 5 years commitment, we made it clear that the majority is actually not CapEx. The majority is R&D OpEx, where we have the choice to invest in the U.S. or anywhere else in the world. And we choose, of course, to have a strong commitment also for R&D in the U.S. And then there's a portion, yes, it's CapEx, but it's actually part of our overall worldwide financing plan also for — and we choose basically to invest incrementally in the U.S. to build up our manufacturing base to supply the U.S. from the U.S. instead of further expanding, for example, European sites. So from that standpoint, overall, I don't expect a significant or meaningful CapEx increase. We are always in this range of 2.5% to 3% of sales, actually quite a low end of the industry given our very focused and efficient manufacturing setup. And it's always — there can be annual fluctuations, but nothing meaningful. Also, we have further opportunities in cash flow and inventory. They are usually on the high side. We keep that as a bit of a buffer in certain times. So overall, in short, I would not expect a significant CapEx increase. And I would expect free cash flow to grow roughly in line with core operating income growth.

Your next question comes from the line of Peter Verdult from BNP Paribas.

Pete Verdult from BNP asked about the market's reaction to the ACR abstract. He mentioned the disappointment surrounding it and sought clarification on whether the market's negative response to the data set would improve once the full details are released tomorrow. He also requested a reminder of which of the 12 domains in the ESSDAI index are considered the most important to patients and physicians.

Yes. Thanks, Peter. I mean, I think for us, the most important thing is that we make a compelling proposition to patients and physicians. And then if we deliver a strong launch, then I think, obviously, the markets will do what the markets will do, but presumably will follow. I think we will present detailed data on Thursday, and I think that will help at least understand where our conviction comes from. I think very importantly for us is the individual patient benefit. I think practicing physicians and patients don't measure an ESSDAI. They're actually looking for symptomatic benefits in things like fatigue, in salivary flow, in activities of daily living. And I think looking at that — the global assessment of physicians and how they see patients benefiting is going to be really important for this launch. It's a highly variable disease. So a lot of this will depend on finding those groups of patients that have a significant benefit. And I think important for these patients as well is to feel like they don't need the same level of steroids that they typically are using, which can be hugely disruptive for their lives. Sleep is another topic as well. So we'll present that information. But I think we feel confident that there is a high willingness even from the physicians that we're talking to now in Chicago, a high interest and a high willingness to make this option available for patients. And assuming we can make patients materially feel better versus the current standard of care, which is frankly just high-dose steroids, we expect to be able to drive significant growth from this medicine.

Your next question comes from the line of Stephen Scala from TD Cowen.

It seems like there may be a subtle change in the messaging on Cosentyx in HS. While Novartis grew overall market share quarter-over-quarter on Slide 12 of the Q2 deck, Novartis noted continued HS market growth. And in the Q3 slide deck, that was not stated explicitly. It's clear Novartis has been playing defense on share. But with that now stabilized, is the point that you need to grow the market and it's not growing at the pace that you expected? So is that the contour of the market? This would seem to be a factor in whether Novartis grows earnings in 2026. And when Harry was talking about 2026, he didn't say that specifically.

Yes. Thanks, Steve. So what I can say is that we feel confident that our share has stabilized after the competitor entry. I think we have not seen the market growth that we had originally hoped for that we — there's clearly a lot of patients who can benefit from biologic therapy with HS. We continue to see this as a $3 billion to $5 billion-plus market, but it's clearly going to take longer for that market to develop. And so I think we probably did not do the careful analysis that you did on our slides, and I'll look to our IR team to do that more carefully in the future. But I think your point is absolutely on that we need to see — we need to grow this market, and that's what really both companies should really be focused on and get more patients on these therapies. Now with respect to earnings, we don't comment on 2026. We're focused on clearing out 2025. And so once we get there in January, we can provide you our outlook. I would say that I think I would focus much more on the dynamic growth you saw in the quarter on Kisqali, Pluvicto, Scemblix, Kesimpta, all of which, to my eyes, were ahead of consensus. And I think that's where I think the focus should be now looking ahead for the company. Next question, operator?

Your next question comes from the line of Shirley Chen from Barclays.

Can I ask about Pluvicto? Congratulations on a great quarter. Could you provide some details on your position in the launch curve for the pre-taxane new label? How do you anticipate the inflection point in the fourth quarter and into next year? Could you also remind us of your peak sales goals for this drug, and when you expect Pluvicto to reach its full potential in the PSMAfore and potentially the PSMAddition populations? Additionally, I recall you mentioning some challenges in commercialization, such as reimbursement, education of staffing, and referral networks. How are you addressing these challenges?

Yes. Thanks, Shirley. So for Pluvicto overall, I think we're on the steep part of the curve right now. We see — as you saw, very strong growth in quarter 3. We would expect very solid growth in quarter 4. It's important to note in quarter 4, we always have a slowdown in the Thanksgiving and Christmas holidays. So in effect, lose 2 to 3 weeks because of those holidays, simply because patients don't want to 'have a nuclear medicine, radioactive medicine that prevents them from being around children or family members, so for a period of time.' So it's important to note that. But that said, we do expect continued strong performance in quarter 4. And then going into next year, we would expect solid growth, but I think as always with these launches, good growth, but maybe not the same levels of growth you're seeing in quarter 3 and quarter 4, kind of an S-shaped curve. And then our plan would be to bring on the HSPC indication, which will then propel us, we believe, to the $5 billion peak sales that we've guided to. So we fully are confident on that. We see high levels of now receptivity. And that, I think, brings me to your point on the structural challenges, which I think we've successfully tackled now with the PSMA and VISION launch, we struggled to get into the community in a way that was scaled. Now through years of effort by our U.S. commercial team, we've successfully, as I noted, have over 700 prescribing clinics across the country. 9 out of 10 patients are very close to a center that can provide Pluvicto. We're adding centers just to be on the safe side. We've done careful mapping to know the referral pathways. Physicians are much more comfortable now using the PFS, a pre-filled syringe and dealing with some of the other logistics associated with radioligand therapy. So we're in a very good spot in that sense. And that's what gives us confidence that the pre-taxane launch can propel us into the $3 billion-plus range and then the HSPC launch will propel us into the $5 billion-plus range and will be where we expect. We continue in the as well in the oligometastatic setting as well to go earlier. We also have a number of Phase IV studies including in the mCRPC setting in combination with ARPIs to give physicians even more options. So we're doing all of the work as well to fully build out the data package to maximize this medicine. I think while I'm on Pluvicto, I think all of that builds the base for our radioligand therapy platform more broadly. We have that full range of 10 — around 10 different indication medicines that are advancing in the clinic. And now as we bring those forward, we have that infrastructure built in the U.S. and now increasingly Japan, China, and other markets to make those other launches successful. So I think all on the right track. It was a very important element for us to strategically solve. And in my view, we have solved the challenge of rolling out radioligand therapy in the United States. Next question, operator?

Your next question comes from the line of Florent Cespedes from Bernstein.

A question on Rhapsido. Could you maybe share with us how you see the ramp-up of the product as you have a clean safety profile, convenient administration? And do you have any feedback from the Street even though it's still early days? And any thoughts for the situation in Europe, the adoption knowing that the product will be compared with much cheaper drugs?

Yes. Thank you, Florent. So we're in the early stages of the launch. Right now, our focus is on sampling through patient start form, getting through patient start forms and negotiating with payers to ensure broad access in the early part of next year. I think once we get to the early part of next year, we get that base up through sampling in this initial phase, we would then start to expect a more rapid uptake through Q2 forward next year, where I think there will be the opportunity then to really drive uptake. We would expect initial uptake to be in patients who are not responding to biologic. But then our goal very much is to be positioned pre-biologic. That's really where the opportunity is for this medicine, and that's what we're going to be our long-term focus in the U.S. and really around the world. I think in Europe, you raised an important point. I mean, a lot of this will come down to our payer negotiation. And I think in light of the current situation in the U.S., it will be absolutely our goal to hold the line and ensure that Rhapsido is appropriately reimbursed for the innovation it's bringing and not have it be compared to old generic drugs, but really compared to what it is a peerless oral twice-a-day option for patients that really need a rapid onset of action. And we're hopeful that European payers will realize that and then appropriately reward it, and then we'll be willing to be patient to achieve that. But then I think once we get access, all of our indications, there's a lot of enthusiasm in both the allergists and the derm community for a safe oral option, and we should see rapid uptake there as well. So I think overall, very excited about the medicine. As you know, we're progressing as well in CINDU. We would expect that readout next year. We're progressing in food allergy. We're progressing in HS. So we have a number of opportunities now ahead of us as well for this medicine. Next question.

Your next question comes from the line of James Quigley from Goldman Sachs.

I have a follow-up question regarding Ianalumab. One inquiry we have is related to the NEPTUNUS-1 data, which indicates that statistical significance was only reached in the final two data blocks. Was this timing related to when the tests were conducted, or is this the expectation for future study planning? Additionally, I have another quick question about Ianalumab, and I hope I'm not getting ahead of the discussion for tomorrow or Thursday. You mentioned that secondary endpoints like fatigue and salivary flow are more significant, yet those endpoints did not show statistical significance. Was this due to hierarchical testing or another factor? How can you present this data to physicians once the drug is hopefully approved?

Yes, definitely. I believe the main point is at 52 weeks. We aimed to outline all necessary time points to achieve nominal significance. The objective is 52 weeks, and both studies met the pre-defined primary endpoint at this time in both the independent analysis and the combined analysis. There were no issues there. From a regulatory perspective, the standard timeframe is 48 weeks. As shown on Slide 17, this target was met in both trials. Additionally, there is hierarchical testing involved, which is common. If one of the secondary endpoints is met, even if it achieves nominal significance but fails in the hierarchy, it doesn’t hold validity from a strict statistical hierarchy perspective. It might be nominally significant, but wouldn’t meet the required threshold for regulatory approval. That being said, as I’ve tried to explain, regulatory considerations are crucial, especially for a disease that has never had an approved drug. We are focused on understanding what both patients and physicians look for once we hopefully obtain regulatory approval and how we can educate them. You will hear more about this on Thursday, but our team has conducted various analyses of secondary outcomes, post-hoc outcomes, and biopsies to show the benefits that patients need. I have personally spoken with patients suffering from Sjögren's, and what truly matters to them are specific quality of life metrics that vary from person to person. For them, the ESSDAI score may not be the defining factor; rather, it will be whether their symptoms improve and if they can manage their daily lives more easily. Next question.

Your next question comes from the line of Richard Vosser from JPMorgan.

One on Kesimpta, please. Just whether you're seeing any impact in the U.S. from the OCREVUS subcutaneous launch. It doesn't seem like it, but just wondering what you're seeing here. And linked to that, there's some discussion from you about your new formulation. Just wondering on details of treatment interval, whether this could be a new BLA and how this could protect from potential biosimilars down the line.

Yes. Thanks, Richard. So on OCREVUS subcu, we don't see an impact to date, as you can see on our overall performance. We're holding share in a growing market. I think — the overall market growth for multiple sclerosis drugs has been solid. Within that, the B-cell class continues to steadily increase with a bigger opportunity outside of the U.S., but still we see the opportunity. I think 25% of patients in the U.S., give or take, are still not on B-cell therapies that could be. And so we're really benefiting from the market growth. We are doing a lot of work now to get better at targeting physicians that we think would be more amenable to a patient self-administered administration rather than the various other options available. But I think overall, this is a growing market where the medicine is holding its share, performing really well. It's all volume-driven growth. From a life cycle management standpoint, we are advancing our Q2-month formulation. And so we'll keep you updated as we progress, but that's something that's a trial that's currently on rolling. And then we're exploring other options, no details I can get into at this point to get into longer intervals as well potentially with novel technologies. And I think as those progress and if there is the opportunity to get those launched before biosimilar entry, that's something that we're highly, highly focused on, absolutely. But I think it's premature to comment on that at this point. Next question, operator?

Your next question comes from the line of Thibault Boutherin from Morgan Stanley.

Just a question on abelacimab, the injectable Factor XI acquired with Anthos. I think we're getting the first Phase III data in AFib next year. This is for patients at high risk of bleeding and for whom oral anticoagulants is not adequate. Can you just sort of frame the opportunity in terms of size? And are you looking to potentially go into a broader patient population with this asset?

Yes. Thanks, Thibault. The antibody we acquired back from Anthos originally came from Novartis, so we are familiar with it. The study next year will focus on patients who cannot use DOACs or NOACs, which represents a significant patient population and offers them a robust monthly dosing option. We believe the opportunity here is quite substantial, potentially worth billions, but the extent of this opportunity will largely depend on the performance of an oral Phase III program from one of our competitors. If that oral medication, which includes a broad patient group in a large study, is not successful, our medicine could have a considerable market potential. While an oral and an antibody might attract more attention towards patients with more complex needs, the overall opportunity remains significant. In any case, we can integrate this as a multibillion-dollar asset into our cardiovascular portfolio, and we are very enthusiastic about it. Next question, operator?

Your next question comes from the line of Michael Leuchten from Jefferies.

If I could please go back to Cosentyx. Could you tell us, please, what your pricing assumptions, the net pricing assumptions are for the U.S. into the fourth quarter? Do you expect any drag? And just trying to understand the increase in step-up dosing comment on your slides around HS, the 25% utilization. Could you put that into context? What was that maybe at the half of the year? And how has that developed?

Yes. Thanks, Michael. So on Cosentyx pricing, we don't expect any shifts going into quarter 4. And I'd say, overall, we expect stable gross to nets as well going into next year. I mean it's relatively mature brand, but also with multiple new indications and a solid payer position. So I think we should be stable on that front. We are also monitoring the impact of the Part D redesign, but most of the impacts we've seen on Part D redesign have actually been on Entresto earlier in the year, and then I think that will fade away now as generics enter. On HS, this really referred to the fact that early on with the competitor launch, what we were seeing is with patients who were on the monthly dosing, if they weren't seeing the effect that they are, physicians weren't seeing the effect that they hoped for, the effect was wearing off, they were switching rather than updosing Cosentyx every 2 weeks. And so now we see about 25% of patients on Cosentyx moving up to that every other week dosing. And that's something we'd like to get even higher over time because I think that really demonstrates patients are persisting on Cosentyx, and that's going to be important for us to retain our greater than 50% NBRx share and then the correlating TRx share as well. So that's very much in focus for us. And then I'd come back again that we also just need to work on growing the market. I think if this ends up being two competitors just trading the same group of patients, that would be disservice to this patient community. I think we have to get better now at reaching patients who have either fallen out of the system or for whatever reason are being identified as biologic appropriate patients and get them on therapy. Next question, operator?

Your next question comes from the line of Simon Baker, Rothschild & Co Redburn.

I hope you can hear me okay. So this is Qize Ding speaking on behalf of Simon Baker. So I have one quick question. So one quick question on the rebate adjustment. Is there anything you can call out other than the Cosentyx? And also, did any drug benefit from the rebate adjustment in the Q3?

Yes. Thank you for the question. I'll hand that to Harry.

Yes. Thank you for the question. So overall, of course, when you see the amount that is prior period is roughly $180 million. You see that this has about this 1.5 almost rounding the 7% to 9%, if you will, effect on the quarter. And Cosentyx is a big piece of it. Another big piece of it is Entresto actually where patients got quicker into the catastrophic as part of the Medicare Part D redesign. And of course, that part really should go away as Entresto kind of goes away. And there has been some smaller elements, including like really going back into '24 with some inflation penalty part. But the two biggest ones are Cosentyx and Entresto.

Thank you, Harry. So Sharon, next question.

And your next question comes from Rajesh Kumar from HSBC.

Just trying to understand the margin cadence over 2026. I know you're not giving a '26 guidance at the moment. But very helpfully, you said it will be a year of 2 halves. So given what you know about Part D now and how generics are coming and what sort of operational gearing you're getting on your Kesimpta, Pluvicto, and other, drugs which are growing. If you were not cutting the costs, would the cadence be a lot more steeper? And what have your actions done to offset that impact? So what is the mix impact versus self-help? If you could help us quantify as well as the seasonality of Part D cadence? Because this year, you have done a prior period adjustment that might not be the next year because you have some accrual history now. So it would really help us model out first half, second half for '26.

Thank you, Rajesh, for your thoughtful question. In our business, we typically do not see different gross to net levels related to Medicare on a quarter-by-quarter basis, except when we have a gross to net adjustment. Changes in channel mix or when a product rapidly falls into the catastrophic tier can cause deviations, and we always have some variations. With over 20 billion RDs in the U.S., when deviations are significant, we inform you, as we did in the fourth quarter of last year, which saw a 3-point growth now affecting this high base. In the first quarter, we had a positive 2-point effect, and in the third quarter, we experienced a negative 2 points. We provide this information, but these are essentially adjustments; the underlying dynamics remain stable for us. Looking ahead to next year, you will see a very high base for the first quarter due to the 2 points of growth we recorded and a relatively low base for the third quarter owing to the 2 negative points from this year. Beyond that, the focus is on launch uptake and generic erosion of our three main products. I may have been a bit long-winded, but I hope this addresses your question.

And we'll do our best, I think, at the full year earnings as well to provide more guidance on how best to think about the full year 2026. Next question, Sharon.

Your next question comes from the line of Matthew Weston, UBS.

It's just a quick follow-up actually to one of the prior questions. Harry, Kesimpta looks like a very strong quarter in Q3 that looks somewhat off trend. And I'm just making sure that as we go into Q4, we aren't going to learn that it was lumpy one way versus the other. Can you just confirm that was underlying operational growth?

Yes, it was mainly underlying operational growth, a little bit of inventory, but not much.

Just a strong global volume, I think, in both U.S. and ex U.S. for this matter. Next question.

Your next question comes from the line of Simon Baker, Rothschild & Co. Redburn.

Just one quick question on the Ianalumab in Sjögren’'s disease. So we observed the placebo response in the Sjögren’'s trial tend to plateau at week 48. So why did it reverse in the first trial of those two Phase III trials, please? The Phase III trial is called NEPTUNUS 1.

Yes. I think the question is regarding the placebo response. I mean I think — look, I think these were both adequately controlled, well-designed studies, global studies. This is just a highly variable disease. And so you're going to see some variability in how the placebo responds. When we look at background therapy as well, it's very comparable across the studies and so also versus normal standard of care. You do see as well that the month data looks much better than the Q3-month data, but you do see as well the dose response that we would expect. So I think that's all positive. And so we'll have our experts on the line on Thursday. So if you want to get into more detail, they'll also be able to go through some of the background on the study design and baseline characteristics. But I think, obviously, I can't comment more until the full data is presented. Next question, Sharon?

Your next question comes from the line of Stephen Scala from TD Cowen.

Novartis raised the long-term revenue guidance yesterday, half of which was attributed to the existing business. Of the half attributed to the existing business, how much is due to currently marketed products? And how much is due to higher sites for the pipeline agents?

Yes, Steve, I think we can provide better midterm guidance on that and meet the management. But most of that is in-line brands. Obviously, you see the strong performance of Kisqali, Kesimpta, Pluvicto, Scemblix, I think solid performance on Leqvio. And there is probably some in there of what we expect will be a strong launch for remibrutinib, so Rhapsido and the label expansion for Pluvicto. Yes, I think that's roughly the breakdown more or less. I think any other pipeline assets we would expect to have limited ramp in this period, just given how long it takes to ramp up these launches when you think out to '29. And we will provide guidance as well out to 2030, as I said yesterday, and meet the management as well as update our peak sales guidance on our various brands where appropriate. Next question, Sharon?

Your next question comes from the line of James Quigley from Goldman Sachs.

Just a quick one for me. I mean you may have already answered it, Harry, but again, it's coming back to the Cosentyx, the rebate adjustment. Which prior periods does that relate to? Is that a Q1, Q2 this year? Or is that a 2024 thing? I'm just trying to think in terms of modeling for next year as we look at Cosentyx. Is there a slight headwind from where there was a higher price that you realized in Q1 and Q2 that then reversed out in Q3? And also what does that mean sort of going forward into 2026? Again, I appreciate there is going to be other dynamics with PMR and HS, but just wanted to clarify that from a modeling perspective.

Thank you, James. It's mainly quarter 2 this year, most of it. And — but the quarter 3 underlying, that's why we gave you the quarter 3 underlying is what the underlying is already taking into account if such channel mix would continue to prevail. So from that standpoint, it gives you a good basis for future modeling.

I think, Harry, if I'm correct, if you net out the prior period upside versus this that really the year-to-date is relatively clean.

Quarter 1, we had 2% upside. Now we have almost 2% downside, right? It's a bit different brand by brand. But that's why we've given you on the brand that has most of it and is — Entresto is deteriorating, of course, but this one, of course, is a brand that will stay long with us. That's why we gave you the underlying, which gives you the real underlying at the moment for quarter 3.

Thank you, Harry. So Sharon, next question.

And your next question comes from Sachin Jain from Bank of America.

So firstly, just a clarification on margins for Harry. So 3Q margins were a little bit below Street. I guess, partly on gross margin, which is sort of first impact from generics. I wonder if you could just talk about gross margin, EBIT margin as we think about a full year of Entresto impact in '26. My simple question is, can you maintain margins stable next year through the full year of generics before we model the underlying Avidity dilution? And then given, I might just take an additional one on pipeline for Vas. You flagged good uptake in IgAN. You have the Phase III for the APRIL, BAFF next year. So I wonder if you could just talk to your excitement on that and differentiation and what's the competitive landscape?

So on the margins, of course, when you have a product like a small molecule, high-priced products like the 3 going off patent, especially Entresto being so big, there's a slight negative mix effect. Now Kisqali is also a super high-margin product, right, and growing significantly. So that's partly offsetting. But we have also a significant productivity effort, especially in our manufacturing and supply chain. So as I mentioned before, there will be, as we go forward, some pressures on the gross margin. On the other hand, we do also expect that our SG&A becomes even more efficient as we go forward, offsetting that. Now for the next couple of years, this year, we will be around 40%. And quarter 4 is usually a bit lower. Historically, we have been in the first 9 months at 41%. So Q4 brings that in the range of around 40%. And then for the next 2, 3 years, we said because of the Avidity proposed acquisition, 1 to 2 margin points down from the 40% and returning to 40% in 2029. So with that, basically — but it's driven by development investments. And overall, to close that long answer on a short question, basically, the gross margin headwinds, I do expect to be offset by SG&A productivity.

And then Sachin, was your second question around the anti-APRIL antibody, I didn't catch it.

Yes. Sorry, in the introduction, you talked about the strength of the existing IgAN launches, but I wonder if you could touch on the APRIL BAFF with data next year and how that wraps out your portfolio.

Yes, absolutely. So first to note, ours is an anti-APRIL antibody. Our competitors are anti-APRIL, BAFF. And so I think one question, of course, will be to see the profile of those two drugs and does BAFF add anything and also differences in safety profile. But I would say, overall, we expect to see proteinuria in the range, we hope of what the others have seen. And certainly, our Phase II data — final Phase II data indicated we have very strong proteinuria reductions. We will be third to market in all likelihood. And so for us, it's really going to come down to a portfolio opportunity that we bring to patients, physicians, payers, firstly physicians' offices and payers because we'll have the opportunity to have an endothelin antagonist with Vanrafia. We have the Factor B inhibitor with iptacopan and then with Fabhalta, and then we have the anti-APRIL antibody and bringing that entire solution set to the clinic and then also the opportunity for us to run combination studies. So we're already now evaluating what would be the right combination studies to run, generate that combination data so that nephrologists know what would be the right combination agents to optimize care for these patients. So these are all the opportunities I think we're looking at. But it's going to be important for us to think through those given that at least in the anti-APRIL space, we'll likely be third to market. Next question, Sharon. I think it's the last question, if I'm not mistaken.

It is. Your final question for today comes from the line of Stephen Scala from TD Cowen.

Given the proof of concept established by the CANTOS trial 8 years ago, what new evidence compelled Novartis to go down the same pathway and acquire Tourmaline at this time?

Good question, Steve. We understand that targeting IL-1 beta and the inflammasome can significantly reduce cardiovascular risk. However, in the trial where we studied patients with a prior event, we encountered challenges in achieving a noteworthy cardiovascular risk reduction. IL-6 provides an opportunity to act further downstream from IL-1 beta. Our plan is to intervene within the first few months to a maximum of six months to a year after an event, especially when patients have elevated hsCRP levels. Reducing CRP at that stage could lead to a significant impact on cardiovascular risk. The insights we gained from the CANTOS study have enhanced our understanding of the biology surrounding this. By focusing on patients soon after an event who have elevated CRP as a sign of inflammation, we believe we can achieve better cardiovascular risk reduction than the 14% to 15% observed in the CANTOS study. While we do face competition, we are committed to designing a study that optimally leverages our expertise with the Tourmaline asset, which targets anti-IL-6. Thank you all for joining us for two calls in two days, and we have another call scheduled for the day after tomorrow. We hope you will attend to learn more about our immunology portfolio, including updates on Rhapsido, our Ianalumab data, and our exciting immune reset portfolio. Thank you for your interest in the company, and we look forward to connecting again soon.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.