Earnings Call Transcript - NVS Q2 2025

Operator, Operator

Good morning and good afternoon, and welcome to the Novartis Q2 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.

Sloan Simpson, Head of Investor Relations

Thank you, Sharon. Good morning and good afternoon, everyone, and welcome to our Q2 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. For a description of some of these factors, please refer to the Form 20-F and its most recent quarterly results on Form 6-K that respectively were filed with and furnished to the U.S. Securities and Exchange Commission. Before we get started, I just want to reiterate what Sharon said. Please limit yourself to one question at a time, and we'll cycle through the queue as many times as we need. And with that, I'll hand across to Vas.

Vasant Narasimhan, CEO

Thank you, Sloan, and thank you everyone for joining today's call. As we look at Slide 4, Novartis has once again posted a strong quarter, with double-digit sales growth and core margin expansion leading to an upgrade in our full-year guidance for 2025. Sales increased by 11% in constant currency while core operating income rose by 21%. We achieved significant milestones in innovation this quarter, including submissions for OAV101 IT in the U.S. and Europe, as well as progress on Votoplam in Huntington's disease. I'll provide more details on these developments in the upcoming slides. Additionally, our core operating income guidance has been upgraded, and Harry will elaborate on that shortly. Moving to Slide 5, our priority brands have shown strong growth, illustrating the effectiveness of our portfolio. These brands increased by 30% in constant currency, and excluding Entresto, the growth reached 33%. Key highlights include Kisqali, Kesimpta, Scemblix, and Leqvio, all of which performed well, along with Pluvicto and Fabhalta. On Slide 6, Kisqali experienced a growth of 64% this quarter, leading to our TRx leadership in metastatic breast cancer, and we are gaining momentum in our early breast cancer launch. Growth has been particularly strong in the U.S., with a 100% increase in quarter 2. We now lead across all stages of the disease in the U.S., with a 61% NBRx share in early breast cancer. Internationally, we saw a 25% increase, and the early breast cancer indication is now approved in multiple markets, showing promising initial signals in our launch territories, particularly in Germany. Now on Slide 8, we note significant growth for Pluvicto, which spiked by 30% this quarter as we received pre-taxane indication approval in the U.S. The launch is off to a strong start with a 40% increase in new patient starts, and we achieved high patient starts in June. In the community setting, we've experienced 60% NBRx quarter-on-quarter growth. With the expansion of treatment sites, 90% of patients are within 30 miles of an active site. Continuing on Slide 9, we recently announced positive results from the Phase III PSMA addition study, which we believe will enable us to expand further into metastatic hormone-sensitive prostate cancer. The primary endpoint was met with clinically significant benefits observed in radiographic progression-free survival, with a positive survival trend expected to mature over time. Next, on Slide 10, Leqvio's sales rose by 61%, positioning us to exceed $1 billion. In the U.S., we achieved a 47% increase, significantly outpacing the lipid-lowering market. We're seeing substantial engagement in health systems that focus on cholesterol management and positive performance in our post-event patient population. Moving to Slide 11, Scemblix has shown strong growth of 79% in constant currency, and we are on track to surpass $1 billion in sales this year. Scemblix is now the most widely used TKI in CML, with a 15% NBRx share in the first-line setting. On Slide 12, while Cosentyx growth moderated to 6% this quarter, we still expect mid-single-digit growth for the full year. We're seeing stable demand from launches and strong NBRx shares among naïve patients despite some geographic short-term challenges. On Slide 13 regarding Entresto, we anticipate continued solid growth while navigating ongoing IP and regulatory negotiation challenges with a generic competitor. Half of our sales in this segment come from outside the U.S., and we see Entresto remaining a crucial contributor to Novartis's growth. Shifting to Slide 14, we have three renal medicines either launched or in progress. Fabhalta has seen steady growth, and we're observing positive early signals for C3G. Vanrafia has received favorable feedback from healthcare professionals thanks to its seamless integration into standard care. On Slide 15, we are excited about Remibrutinib, which showed significant benefits in a Phase II study for food allergies, marking a potential first in oral treatment options in this space. In Slide 16, we shared interim data from our Phase I/II study of YTB, our CAR-T therapy, which showed promising long-term results in patients with refractory SLE. Building on these results, we plan to advance YTB in various autoimmune diseases. Finally, on Slide 18, our key innovation milestones remain on track, and we're poised for further collaboration as we continue our progress. Now, I will hand it over to Harry.

Harry Kirsch, CFO

Yes. Thank you, Vas. Good morning, good afternoon, everybody. I'll now talk you through our financials for the second quarter and the first half, which reflects continued strong performance of our growth drivers and overall portfolio. As always, my comments refer to growth rates in constant currencies unless otherwise noted. So starting on Slide 20. Net sales grew 11% in quarter 2 versus the prior year, and core operating income grew 21%. Our core margin was 42.2%, reflecting a 340 basis point improvement, and core EPS was $2.42, up 24%, with cash flow even at $6.3 billion, up 37% in U.S. dollars. For the first half, also reflecting very strong growth momentum with sales up 13% and core operating income up 24%. Core margin increased even a bit more due to quarter 1, 370 basis points, reaching 42.1%. Core EPS, as you can see, was $4.69, up 27% and free cash flow almost $10 billion. Speaking of free cash flow, I think on the next slide, it's a simple slide, but I would say nonetheless quite impressive, with a 46% increase in free cash flow in the first half. As you know, cash flow always remains a key priority for us, as our ability to convert strong operating income growth into excellent free cash flow provides, of course, plenty of capacity to reinvest, pursue bolt-on acquisitions, and return capital to our shareholders through growing dividends in Swiss francs as well as share buybacks. This brings me to the next slide, where I'm pleased to announce that we are initiating a new up to $10 billion share buyback program targeted for completion by the end of 2027. This follows the completion of our previous $15 billion share buyback program earlier this month and is part of our ongoing commitment to balanced capital allocation. Importantly, this new buyback does not limit our ability to pursue value-creating bolt-on deals and remains a key area of focus for us to continue to strengthen our pipeline in our 4 core therapeutic areas. A good example from the second quarter is the acquisition of Regulus Therapeutics, which adds an asset targeting the most common genetic cause of kidney failure worldwide in our renal pipeline. Alongside bolt-on deals, we continue to invest in our internal R&D engine. Beyond buybacks, our commitment to a strong and growing dividend in Swiss francs remains strong with a payout of $7.8 billion in the first half to our shareholders. Moving to Slide 23 for the full-year guidance. We continue to expect high single-digit sales growth. However, strong business momentum and good progress on ongoing productivity programs have led us to raise our bottom line guidance. We now anticipate core operating income to grow in the low teens, up from the previous low double-digit outlook. Some people ask us what is low teens versus low double-digit. Low double digit, we see in the range of 10%, 11%, 12%, and low teens in the 13%, 14% range. Embedded in our guidance is the assumption that Entresto U.S. generic entry occurs mid-2024 to mid-2025. However, I want to emphasize that this is only for financial forecasting purposes. Of course, we will continue to appropriately enforce our valid IP and regulatory rights and hopefully lengthen that assumption. As a reminder, U.S. Entresto sales were $1.2 billion in quarter 2. Every month of sales is worth $400 million for us. To complete our full-year guidance, please note that we continue to expect core net financial expenses to be around $1 billion and our core tax rate to be around 16% to 16.5%. Now let's move to the next slide. Yes. So I want to talk you through the phasing we expect for the remainder of the year. Usually, as you know, we don't give such detailed quarterly guidance. But in a potential transformation year with Promacta, Tasigna U.S. generics, and depending on Entresto dynamics, I hope this is helpful to describe how our forecast scenario could unfold over the next couple of quarters should Entresto generics in the U.S. enter later in July or August. Clearly, if we are successful in the ongoing IP and regulatory litigation, this forecast scenario looks different without Entresto U.S. generics. With this forecast assumption, for the second half, we anticipate mid-single-digit sales and bottom line growth to arrive at the guidance we have given for the full year after a very strong first half. However, the dynamics in quarter 3 and quarter 4 would be quite different. We continue to expect strong growth in quarter 3 based on continued momentum in our priority brands. Of course, if there would be a generic entry, there would be initially in quarter 3, and this would impact sales, even though we would expect then multiple entries on Entresto. In quarter 4, however, we anticipate a step down in growth on both top and bottom lines, reflecting the full-quarter impact of potential U.S. generics Entresto U.S. generics based on our financial forecasting assumption as well as a quite large prior year gross to net adjustment. You may recall when we reported quarter 4 last year, we reported 16%, but actually underlying, excluding out-of-period gross to net adjustment, that was 13%. So quite a big on the top line. Similarly, the bottom line of that is like 2.5x in terms of growth rates, right? Therefore, if you would exclude this prior year one-time, we would have a quarter 4 at mid-single-digit sales growth and a mid- to high single-digit core operating income growth. I hope that was not too complicated. In case it was, we have, of course, the call to answer questions or our IR colleagues will take you through it later in the week. Now let's move to the final slide, where we outlined the expected currency impact for 2025. If mid-July rates were to prevail for the remainder of 2025, we would expect the full-year currency impact to be a positive 1 percentage point on net sales and a negative 1 percentage point on core operating income. As a reminder, we always publish these estimates on a monthly basis, assuming the exchange rates hold for the rest of the year, and it's on our website, which we hope you find that helpful. With that, back to Vas.

Vasant Narasimhan, CEO

Great. Thank you, Harry. In summary, Novartis showed strong performance in the second quarter with double-digit sales growth and core margin expansion, marking our tenth consecutive quarter of raised guidance. Key product launches are gaining momentum with consistent and strong execution, particularly with Kisqali, Scemblix, and Pluvicto, as well as across our entire portfolio. We are also making progress in our pipeline with exciting updates, including the readouts for Pluvicto HSPC, Remi food allergy, and YTB. We have upgraded our full-year 2025 profit guidance. Importantly, given our current outlook, we remain very confident about our mid to long-term growth prospects, which supports our decision to initiate another $10 billion share buyback. Moving to the next point, I want to acknowledge the announcement we made earlier today. As part of our commitment to a smooth transition, I want to express my gratitude to Harry for his unwavering dedication over his 22 years at Novartis. By the end of this year, Harry will have served as CFO for 13 years, and he has played a crucial role in transforming Novartis into the pure-play medicines company we are today. I deeply appreciate all of Harry's significant contributions. He will retire and step down from the Executive Committee effective March 15, 2026. I am also pleased to welcome Mukul Mehta as our new CFO, starting March 16, 2026. Mukul has been with Novartis since 2003 and has held various key finance roles throughout the company. After a thorough selection process, we are confident that he is the right leader to guide Novartis into the next chapter. So, please join me in welcoming Mukul. Now, we can open the line for questions.

Operator, Operator

We will now take the first question, which comes from Sachin Jain from Bank of America.

Sachin Jain, Analyst

First one just on Sjogren's actually, if I may. Vas, thanks for confirming no data in-house. Wonder if you could just update on your level of confidence into the Phase III data for 3Q? And can you just clarify whether you need both studies to be positive for a filing process?

Vasant Narasimhan, CEO

Yes. Thanks, Sachin. So on Sjogren's, I think this is an incredibly exciting opportunity, but I think we should acknowledge that there's been no drug that has ever demonstrated a statistically significant benefit on the SI. So I think we go in with a very strong Phase II data. We believe very much in the mechanism, but also acknowledging this is a tough indication. It definitely has risk going into the Phase III. Now in terms of whether or not both studies need to be positive, I think that really depends on the data. We've had very robust discussions with FDA regarding both the primary endpoint and secondary endpoints where we have full agreement. Based on the data from the 2 studies, we'll and, given that the study has a third dose level, dosing every 3 months versus every month, I think we'll have the opportunity to use different statistical approaches and find the best path forward. We look forward to getting to the database locks and ultimately, the readouts. Given that these studies are very close together, we would plan on informing the markets based on the results of both studies at the same time.

Operator, Operator

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

Shirley Chen, Analyst

One on Cosentyx. You called out a slowdown in Cosentyx uptake in China due to broader-based healthcare spending tightening. So can you please share more about how significant this impact is relative to your assumptions and whether it is affecting the broader portfolio? And how are you adapting your China strategy to maintain growth in the face of increasingly constrained government pricing? Also, something interesting that you mentioned on Leqvio growth from out-of-pocket in China. Do you think it will be the case for your other products for commercialization in China?

Vasant Narasimhan, CEO

Yes. Thank you, Shirley. So for China broadly, we have seen over the first 6 months of this year a notable slowdown. Our China business last year grew over 20%, and we saw a very robust overall market growth as well. This year, we've seen a sector-wide slowdown in pharmaceutical spending, and our growth has come down as well. We continue to expect China to grow for Novartis in the high single-digit to low teens range. So still very robust growth. We do see this though as a reset in the market because several policies aimed at limiting prescription spending will likely continue for the foreseeable future. We continue to see China as a double-digit growth market for Novartis, but not at the 20% plus range where we've been historically. In terms of impact on the portfolio broadly, primarily medicines that are part of the NRDL listing, as you noted, not medicines that are in the private market, particularly those that are higher volume. We saw the impact primarily on Cosentyx, Entresto, drugs like Lucentis where we saw the largest impacts so far in the first 6 months of the year. We expect this to stabilize in the second half, and with that base, we'll continue to see our business grow in that high single digit to low teens range. Now in terms of Leqvio out-of-pocket, it hasn't been, I think, a pleasant surprise to see how strong that uptake has been. It gives us confidence that in the future, when we launch medicines of a similar profile, we can go out of pocket before deciding whether it makes sense to move into the NRDL listing at a lower price versus continuing in the out-of-pocket. I think that debate is ongoing for us right now as to when we'll move Leqvio into the NRDL listing. Seeing that out-of-pocket market materialize in China, I think is also positive overall for the sector.

Operator, Operator

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

Peter Verdult, Analyst

Yes. Peter Verdult, BNP Paribas. Vas, I'm probably the millionth person to ask you. I'm sure you're tired of having to respond. But the sector is under a cloud; investor apathy is high, concerns more on pricing than tariffs. Is there anything you can share with us regarding the latest you've heard from CMS, HHS, your people on the hill about what the administration is thinking about in terms of framework implementation or when we might hear what they plan to do going forward on drug pricing in the U.S.?

Vasant Narasimhan, CEO

Yes. Thanks, Peter. Not at all; happy to have that discussion because it keeps evolving on an ongoing basis. I would say, broadly speaking, that the conversations with the administration from our standpoint have been productive. There has been a very open dialogue, trying to find solutions. The goal is to see how we can have the markets outside of the U.S. in the OECD pay more for innovative medicines, which we fully support to reward innovation, and to help support the R&D efforts of the industry as well as give patients in the U.S. options for lower-priced medicines, primarily through going more direct and cutting out much of the 50% to 60% that goes to PBMs, 340B, and all of the other elements in the system. We are moving forward with proposals. HHS is evaluating our proposals, and we're looking at different options. It will still be some time before we get a full resolution. There is a strong desire within the administration to maintain U.S. leadership in biopharmaceutical innovation and not feed that leadership to China or any other market. That is high on their agenda, so I think we're continuing to work towards that. We have to do a better job educating more broadly about the disparity in innovative medicine spend, given that 94% of volume in the U.S. is estimated to be generic medicines and the U.S. has the lowest generic prices among major OECD countries. The U.S. total drug bill, when it's appropriately volume-adjusted, is lower than many countries overseas, most in the OECD. We have to educate policymakers about these dynamics, and how the system can work effectively.

Operator, Operator

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

Simon P. Baker, Analyst

I have a question about Cosentyx. Could you provide more details about the price volume dynamic this year? Additionally, could you explain your comments on the competitive environment and why you consider it a temporary issue rather than a persistent challenge?

Vasant Narasimhan, CEO

Yes. So I'll give the price volume dynamics to Harry. Harry?

Harry Kirsch, CFO

Yes. Overall, of course, in Cosentyx, we do have an impact due to the Medicare Part D redesign. So rebates go up as we contribute in the catastrophic phase versus the prior design where we didn't do that. The 2 brands are mainly in our portfolio: Cosentyx and Kisqali. Obviously, Kisqali, the launch completely outweighs that. But Cosentyx does have some impact. There's also the fact that last year, the HS launch really got momentum as of quarter 2. So the comparable base is quite high.

Vasant Narasimhan, CEO

Thanks, Harry. In terms of the competitive entry, I think the way we see it is, and we've experienced this many times over the last decade with Cosentyx: when a new competitor enters, there is an initial impact, and then the market settles down into a new dynamic. When you look at it, Cosentyx's very strong frontline access across all of the relevant indications, including HS, is evident. The opportunity we see is that while initially now during the launch of the competitor, patients who were not achieving full control on Cosentyx monthly—let's say after 9 months or 1 year—are switching off to the competitor product. We see the opportunity to educate more to show that there is the option to move to a bimonthly increase in effect, increasing the dosing of Cosentyx to achieve disease control. As we do that, we'll moderate some of the switches off of Cosentyx. Continued strong performance in that first switch off the anti-TNFs. We think that will continue to be a solid source of growth for Cosentyx in HS. Taken together, we continue to see HS as a $3 billion-plus market and Cosentyx as a brand that can deliver $1 billion of sales in HS, which gives us confidence overall in our $8 billion peak sales guidance.

Operator, Operator

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

Richard Vosser, Analyst

Just one more on Cosentyx. As we look out with that, I think mid-single-digit growth that you implied to '29, how should we think about direct negotiation towards the end of that period? Do you think Cosentyx will be hit by that in terms of the IRA? Or should we not be expecting that?

Vasant Narasimhan, CEO

Yes. Thanks, Richard. We factored IRA into all of our guidance. That would be the first point. Cosentyx overall, we estimate that about 30% of our sales are exposed to Medicare pricing. There will certainly be an impact. Overall, we think it can be managed appropriately, and that is factored into the guidance we have. I think overall as well, we believe there was a net positive that the ORPHAN Cures Act was enacted as part of the recent reconciliation package, allowing medicines to target multiple rare diseases without losing the medicines exclusion from the IRA negotiation price setting. So that's a positive overall as well for the sector. But all factored in, and at 30%, we think manageable.

Operator, Operator

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

Michael Leuchten, Analyst

Question on, please. It looks like the...

Operator, Operator

Apologies, Michael, we cannot really hear you. Your audio is really bad.

Michael Leuchten, Analyst

Okay. I shall try again. A question on Fabhalta. It looks like the IgAN as well as the C3G performance is quite well. You've got Zigakibart coming, but the way you frame the product and the opportunity still seems a little bit conservative. I was just wondering what you are looking for to maybe become a bit more optimistic about the performance of the overall franchise?

Vasant Narasimhan, CEO

Yes. I think overall with Fabhalta, we believe each one of these indications can stack up to be $1 billion, $1 billion and ultimately get us to our peak sales guidance for this medicine overall. There's clearly the opportunity in IgAN, where we've positioned the medicine with the higher pricing that we've set just to get physicians more and more comfortable with using it in that later-line setting. C3G, as well, presents a good opportunity. PNH, we're seeing continued uptake as well. So I think we're very optimistic overall in the brand. The intention was not to show a lack of optimism; it's more that this will be a steady climb. I don't think we're going to see a rapid inflection. It will take time as we build out IgAN, build out C3G in PNH, and work through the various vaccination requirements. Every one of these things will have to be addressed. Step by step, as we add more indications, we think we will reach the significant peak sales that we've guided to.

Operator, Operator

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

Emmanuel Douglas Papadakis, Analyst

Perhaps I'll take a question on Remibrutinib, if I may. Intriguing to hear about the positive Phase II in food allergy. Perhaps you could just give us an indication of how that compares to the Xolair data in the setting and perhaps your willingness to go head-to-head in Phase III to round out the profile? Also, a reminder on your expectations for the speed of the commercial CSU launch, assuming approval later this year would also be helpful.

Vasant Narasimhan, CEO

Yes. Thanks, Emmanuel. On food allergy, we will present the data at an upcoming medical congress. We see the results as compelling relative to Xolair, particularly for an oral option in this setting. Xolair has been effective and successful in food allergy; however, having an oral therapy with a strong safety profile is compelling. When we looked at comparable cross-trial comparisons, we saw compelling overall efficacy. We are optimistic about that. The opportunity will depend on how broad an indication we can ultimately achieve. Moving into adolescent or pediatric range with Remibrutinib is also part of that future work. In terms of CSU, we're quite excited. We think there's a significant opportunity here. When you look at Remibrutinib's profile, it can work after 2 weeks and has the ability over 52 weeks to manage the symptoms of urticaria, which is compelling. So we expect both in the U.S. and ex-U.S. to see strong demand from patients and physicians. We are doing a head-to-head versus dupilumab to demonstrate that we can achieve a preferable profile if that is important in the early treatment phase, where patients want resolution. That will also be important data that we'll get out there as well. We're investing heavily to maximize Remibrutinib's potential across multiple conditions.

Operator, Operator

Your next question comes from the line of Harry Sephton from UBS.

Harry Thomas d'Alton Sephton, Analyst

I just wanted to follow up on MFN. So how does the industry go about getting ex-U.S. countries to pay significantly more? And presumably, this wouldn't be on current products, but only new product launches. So in this case, would the consequences be fewer new product launches in markets that don't accept your price?

Vasant Narasimhan, CEO

Yes, Harry, good question, and I don't think there's a straightforward answer. In the medium to long term, there are a few changes the industry is advocating for, particularly with respect to trade negotiations. We feel strongly that when you look at the percentage of spend on innovative medicines relative to GDP, the U.S. is significantly higher than most OECD markets. Can we get a commitment from these key markets to increase their funding for innovative medicines as part of government budgets? If we can do that through trade negotiations, it would set the actual pool of money available up. There are also specific policy changes we advocate for as part of negotiations. Ending the practice of clawbacks for above sector growth or benchmark growth in many European countries is one area. We also believe when new indications yield additional patients, facing a price cut instead of price maintenance is valuable. The MFN policy, if rolled out as planned, might lead to markets requiring products to enter public markets, which means fewer launches in those markets would be considered. However, the devil is in the details of how policies are structured.

Operator, Operator

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

James Patrick Quigley, Analyst

Firstly, congrats, Harry, on the retirement and all the best for the future. I've got a question on Pluvicto. So obviously, you've highlighted some encouraging metrics following the PSMAfore launch. How are you thinking about its use in earlier lines now that PSMAddition is underway? Patients tend to be a bit younger here and a few KOLs we've spoken to have suggested they may think twice about Radioligand therapy because of its potential impacts on continence and sexual function. Is this consistent with what you may be hearing? Or could this be more of a minority view? Are there differences in geographic launch you expect in the earlier lines, perhaps less worries in the U.S. versus ex-U.S.? Additionally, how could the Actinium PSMA fit in? I think you previously mentioned it moved into Phase III. How could that fit into the market as you position it towards earlier lines as well?

Vasant Narasimhan, CEO

Yes. Thanks, James. We haven't heard the feedback regarding Pluvicto's safety profile being a concern with respect to sexual function and chemical castration, which are consequences of hormonal therapies that these patients are on. Pluvicto itself sees impacts on salivary glands and bone marrow but is generally well-tolerated in various populations. As we move earlier in lines, we do see more competition, which will create different utilization pathways. We see that with compelling rPFS data; the OS data will mature, strengthening Pluvicto's position in HSPC on top of standard care and post-chemotherapy settings in CRPC. In the U.S., we have launched in several European markets and are preparing to launch in Asia with the PSMA Addition trial design, which we feel is compelling. Regarding Actinium, currently, our plan is to move that into the post-Pluvicto setting for patients progressing on Pluvicto to switch from beta emitter lutetium to alpha emitter actinium to hopefully achieve control of cancer. There is still an open question regarding moving Actinium earlier in subsequent trials, but we have multiple PSMA actinium approaches in-house and are working through the correct positioning.

Operator, Operator

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

Kerry Ann Holford, Analyst

One on capital allocation. The new share buyback program, $10 billion, is clearly smaller than the size of your previous program, and to be spent over a similar time frame. Just interested to understand why you're more conservative here going forward? Does this signal a growing appetite for more business development over that time frame or any other expected demands that would change your future cash flow?

Vasant Narasimhan, CEO

Thanks, Kerry. Harry?

Harry Kirsch, CFO

Yes, thank you, Kerry. So first of all, we are absolutely convinced of our 5-year plan and 5% sales CAGR. Accordingly, we will see continued core operating income and free cash flow growth. Last year, we saw cash flow of $16 billion. This year, we've already achieved $10 billion in the first half, showing our continued strong growth. Now our current program of up to $10 billion is smaller than the previous $15 billion programs, which we initiated after selling our Roche stake at high prices, realizing $21 billion to $22 billion from it with a $14 billion profit. We are almost returning to the prior $10 billion buyback rhythm. We want a balance here; we seek bolt-on M&A opportunities to strengthen our pipelines. We are confident about $10 billion over 2.5 years being a nice balance versus business development and M&A. We have strong cash flows and if an attractive asset comes along, we will pursue it. It is not due to a lack of trying.

Vasant Narasimhan, CEO

Thanks, Harry.

Operator, Operator

We'll now take the next question, which comes from Simon Baker of Rothschild & Company.

Simon P. Baker, Analyst

Vas, I just wanted to return to a comment you made about pricing outside the U.S. and moves to stop clawback. There seems to be quite a lot of activity from your peers with respect to that in the U.K. at the moment, either directly or indirectly to reform VPAG. I just wonder if you could give us an update on what you've been participating in and learning about potential changes in the U.K.

Vasant Narasimhan, CEO

Yes. Thanks, Simon. There has been active engagement, and we appreciate the U.K. government actively looking at VPAG, which is the system in the U.K. to cap pharmaceutical market growth, that asks the industry to rebate back certain levels of growth beyond specific levels. There have been productive engagements and discussions. Our goal is to create an agreement that achieves the U.K.'s aim of building a vibrant biopharmaceutical sector, which is a stated aim of the government. It is a challenging environment with NICE and the reimbursement system in the U.K., where levels are close to middle-income country levels and uptake is quite slow. Our goal is to find common ground in these discussions, which are ongoing.

Operator, Operator

Your next question comes from Harry Sephton from UBS.

Harry Thomas d'Alton Sephton, Analyst

Just one on Pluvicto, please. We saw an acceleration in growth in the second quarter over the first quarter, but presumably, PSMAfore didn't really pick up meaningfully until the end of the quarter. I want to get your thoughts on the expectation for further acceleration in the third quarter. Also, can you comment on the average doses for Pluvicto? Historically, they run around 4. Do you expect any difference in the earlier setting?

Vasant Narasimhan, CEO

Yes, absolutely. Harry, you're correct that we observed the primary impact of PSMAfore during the last 4 to 6 weeks of quarter 2 when patients post-approval underwent necessary pretreatment procedures to eventually receive the treatment. We expect continued acceleration over the second half of the year. I anticipate steady growth and acceleration, though I don't expect to see a 'hockey stick' effect. It will be steady acceleration as we delve deeper into community centers moving from treating a few patients in those clinics to multiple patients and hopefully to teens of patients. Regarding average dosing levels, you noted correctly that historically, they sit in the 3.7 to 3.9 range while the label suggests 6 doses. It's early, but we perceive positive trends in the number of doses per patient. We're still determining how it will look over a couple more quarters. However, we aim to approach the stated labeled dosing of 6 doses in earlier settings, especially given the health of these patients. Notably, as we move earlier, we also see a more robust effect likely due to better PSMA expression and fewer cells having mutated away. The robustness of efficacy is evident in PSMAfore and in the top-line PSMAddition data.

Operator, Operator

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

Kerry Ann Holford, Analyst

My second question is a follow-up on something you mentioned earlier about U.S. politics. You mentioned a desire to look at more options to go direct to patients. I wonder if you can be explicit on what you're referring to here. Could this be something similar to the DTC strategy that we see in place in Novo and Lilly in the obesity market? If that's the case, which of your drugs would you see as best suited to that channel?

Vasant Narasimhan, CEO

Yes. That's correct. The idea would be to offer patients access to our medicines at net price, thus avoiding the complexities of the U.S. pricing system. It is something we are currently evaluating. Depending on our products, gross-to-net ratios range from 50% to 70%. Delivering those discounts directly to patients instead of passing through various intermediaries would be a very attractive option. We're in the early evaluation stages, and certainly, it's product-specific. We also have to examine the knock-on effects on best price and implications for other parts of the system. That's the idea we're pursuing.

Operator, Operator

Your final question for today comes from Sachin Jain from Bank of America.

Sachin Jain, Analyst

Another one on U.S. policy, if I may, Vas. Within the answer to the prior 2 questions, nothing that you described as the Novartis solution involves a price cut, as I understand it? Is HHS comfortable with that? The reason for the question is the public commentary from the administration has been very vocal around the industry coming to the table with a price solution. I wanted to confirm that's correct. Also, you mentioned it could take time. Obviously, it's unknown, but what's your best guess as to when this could be resolved? Is it in '25? Or could this bleed into '26?

Vasant Narasimhan, CEO

Yes, so regarding solutions, it is indeed correct. Our focus is to explore options for patients to reduce their out-of-pocket burdens, while minimizing any perceived price cuts across our U.S. portfolio. These discussions with HHS are productive, aimed at alleviating the burden for patients. There's an understanding that adjusting list prices does not significantly impact patient cost directly. It could take additional time to find a resolution. There are multiple ongoing efforts and choices being evaluated by HHS, and given the complexities, there may be a substantial amount of rulemaking and implementation required before practical shifts can occur. You may expect foundational developments in the coming quarters with potential rollout taking considerably longer; perhaps well into 2026.

Operator, Operator

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