Earnings Call Transcript - NVS Q4 2024

Operator, Operator

Good morning and good afternoon, and welcome to the Novartis Q4 2024 Results Release Conference Call and Live Webcast. 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 Q4 and full year 2024 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 company's 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 echo Sharon's comment for all of our analysts, please limit yourselves to one question at a time, and we'll cycle through the queue as many times as we can. And with that, I will hand across to Vas.

Vas Narasimhan, CEO

Thank you, Sloan, and thank you all for joining today's call to discuss our fourth quarter 2024 and full year results. As demonstrated this morning, Novartis achieved one of its best performances in history in 2024. In the fourth quarter, our sales increased by 16%, and our core operating income rose by 29% in constant currency. For the full year, we saw a 12% growth in sales and a 22% increase in core operating income, with our margin reaching 38.7%, progressing towards our target of over 40%. We also had significant pipeline highlights this quarter, particularly with Scemblix and Kisqali, which we will detail later in the call. Overall, we have met and exceeded our full year guidance for 2024, and we are optimistic about further growth in sales and core operating income for 2025, as Harry will explain later. Our key brands continued to show strong growth in the quarter, confirming our ability to sustain growth through the end of the decade. This group of brands grew by 38% in constant currency and by 41% excluding Entresto. We are confident in our guidance of more than 5% sales growth through 2029 and our expectation of mid-single-digit long-term growth. Entresto achieved sales of $7.8 billion for the full year, up by 31%. We experienced substantial growth in both the U.S. and international markets. Weekly prescriptions for Entresto in the U.S. increased significantly, with a 41% growth rate, while performance remained strong in heart failure and hypertension markets in China and Japan. Looking ahead for Entresto, we have updated our forecast, anticipating a loss of exclusivity in mid-2025. We believe we can secure pediatric exclusivity, enabling us to guide to a mid-2025 loss of exclusivity. In other regions, our RDP protection continues until November 2026, with Japan holding protection until 2030, and we are exploring additional means for protection in these markets. U.S. sales represent approximately 50% of total global sales, while Europe accounts for 20% and combined sales in China and Japan make up 15%. Cosentyx exceeded $6 billion in sales for the full year, a 25% growth driven by recent launches. In the fourth quarter, U.S. sales rose by 36% due to these launches, and outside the U.S., we achieved a 7% constant currency growth primarily through volume in our core indications. We maintain our leadership in the IL-17 market in the U.S. and are the leading biologic in both the EU and China. We aim to enhance growth through our HS launch, where we currently hold a 60% share for new prescriptions. The IV formulation has begun to gain traction in the U.S. with 1,625 accounts ordering and a 22% quarter-on-quarter growth. Additionally, two Phase 3 trials are expected this year in giant cell arteritis and polymyalgia rheumatica, which could further boost Cosentyx's growth. Kesimpta grew by 49%, reaching $3.2 billion for the full year, outperforming both the B cell and MS markets. In the U.S., we saw a 42% growth with a 29% rise in TRx, capturing a substantial share in the B-cell market. Internationally, Kesimpta experienced a 67% growth in constant currency, with 70% of new U.S. patients being first-line or first-switch. We now hold the number one new prescription status in seven of the ten ex-U.S. markets, which gives us confidence in achieving our peak sales guidance. Kisqali also grew by 49%, reaching $3 billion in sales, driven by strong performance in both metastatic and early breast cancer settings. In the fourth quarter, we achieved a 65% growth in the U.S. and saw significant share gains with a 50% share in metastatic settings and 52% in the early breast cancer launch. We have settled patent litigation to ensure U.S. patent protection until at least Q1 2031. International growth was 34% in constant currency, and we are optimistic about continued growth with ongoing launches. Pluvicto achieved full year sales of $1.4 billion, with significant growth in the post-taxane setting. We focused on preparing for the upcoming PSMAfore launch expected in the first half of this year, and we're already present in over 20 countries outside the U.S. We're working to expand Pluvicto and our RLT pipeline. Leqvio displayed strong growth, with a 114% increase in constant currency full year growth and 83% growth compared to the previous year. We have over 3,000 health systems ordering Leqvio, capturing a significant portion of market volume. Our international growth remains robust, with registrations in over 100 countries. Looking ahead, we have several clinical readouts planned in 2025, expected to enhance Leqvio's profile. Scemblix achieved a 68% growth, establishing leadership in the third-line CML setting with a 49% NBRx share and strong performance in earlier lines. We are excited about the potential for the brand as we continue to drive growth. Recent 96-week data shows Scemblix's superior efficacy and safety, reinforcing our confidence in future performance. Fabhalta has launched in two indications with solid early performance, particularly in PNH, and we see promising early signs in IgAN. We have received priority review for C3G and are preparing for a launch in 2025. Overall, we've achieved notable innovation momentum this year and we aim to maintain this in the upcoming year. Our recent STEER study for OAV101 IT showed promising results, meeting the primary endpoint and demonstrating an excellent safety profile. We are eager to provide treatment options for patients who have yet to access Zolgensma. Additionally, we are thrilled about our acquisition of PTC518 for Huntington's disease, with expectations for pivotal Phase 3 studies following positive Phase 2 outcomes. We are focused on maintaining our innovative momentum in 2025, advancing our pipeline across multiple therapeutic areas, and striving for mid-term sales growth of over 5% through 2029 alongside achieving a core margin of 40% by 2027. We have a solid growth outlook based on strong in-market drivers and an optimistic pipeline. We're looking forward to delivering outstanding results and innovation in 2025. Now, I'll hand it over to Harry.

Harry Kirsch, CFO

Thank you, Vas. Good morning, and good afternoon, everyone. I'll now discuss our financials for the fourth quarter and full year 2024, which, as Vas mentioned, has shown some of the strongest performance in our history. My comments will refer to continuing operations and growth rates in constant currencies unless noted otherwise. Starting with Slide 21 for some context, our results in 2024, shown on the far right of each of the three charts, represent our first full year as a dedicated Innovative Medicines Company. We continue to demonstrate a solid track record of sales growth alongside margin expansion. Over the past five years, we have achieved a 7% compound annual growth rate in sales and a 15% compound annual growth rate in core operating income through consistent, strong commercial execution and significant progress on operational productivity. This has led to core margin expansion of 1,100 basis points in constant currencies, placing us on a clear path to achieve our midterm margin guidance of over 40% by 2027. This track record clearly shows that we have elevated the company to a new level in terms of sales, margin, and, as we will discuss later, free cash flow. Moving to Slide 22, we had guided for low double-digit sales growth for the full year 2024 and achieved 12%, meeting our guidance. For core operating income, we delivered 22% growth, exceeding our guidance, reflecting strong momentum in our priority brands, successful launches, and cost discipline towards the year's end along with productivity gains. On Slide 23, you can see a summary of our financial performance. In the quarter, sales increased by 16%, and core operating income rose by 29%. Core EPS was $1.98, up 33%. Notably, in the fourth quarter, we benefited from growth in net favorability, mainly in the U.S., adding about 3 percentage points of growth from gross to net adjustments based on invoices from prior quarters in 2024. The underlying growth in the fourth quarter was a strong 13%, slightly better than the 12% sales growth for the full year in 2024. For the full year, core margin expanded by 330 basis points compared to the prior year in constant currencies, reaching 38.7%. Core EPS was $7.81, a 24% increase, while free cash flow grew 24% to $16.3 billion, setting a record high for Novartis. Regarding free cash flow, let's move to the next slide. You can see that our free cash flow generation has significantly accelerated since we completed our transformation into a pure-play pharma company at the end of 2023 and finalized our Transformation for Growth program announced in April 2022. This has been a priority for us to ensure that both core operating income and free cash flow increase, resulting in high-quality core earnings and strong cash generation. In fact, we've generated more cash than we did as combined businesses, whether it was with Sandoz or even with Alcon a few years ago. This provides us ample capacity to reinvest in the business, pursue bolt-on deals, and deliver attractive returns to our shareholders while growing dividends and buybacks. This brings us to my next slide. We continue to execute our shareholder-friendly capital allocation strategy, balancing the priorities mentioned earlier. We invested over $9 billion in R&D in 2024 and completed over 30 bolt-on deals in the past two years to strengthen our pipeline, particularly in neuroscience, RLT, and renal. In terms of returning capital to shareholders, we remain committed to consistently growing our dividend in Swiss francs per share and completing our ongoing share buyback, which has about $5.4 billion remaining to be executed in 2025. Now on to the next slide, please, to the dividend. So we are really pleased to propose the 28th consecutive dividend increase to CHF 3.50 per share, an increase of 6% in Swiss francs and 20 after the prior few years of 10 per year. As you know, we did not rebase our dividend for the spin-off of Sandoz, or Alcon. So this represents really an attractive, consistent growth over time, in line with our commitment to our shareholders. Moving to Slide 27. For full year 2025, we expect continued strong sales growth with margin expansion, with sales growing mid to high single digits and core operating income growing high single to low double digits. Embedded in our guidance with the financial planning assumption that Tasigna, Promacta and Entresto US generics entry occurs in the middle of and I'll give some more detail on expected half 1 versus half 2 dynamics on the next slide. To complete our full year guidance, please note that we expect core net financial expenses to be around $1 billion, and our core tax rate to be around 16% to 16.5%. On Slide 28, we have shown illustratively how we expect half 1 and half 2 dynamics should generics for Entresto, Tasigna and Promacta enter in U.S. in mid of 2025 as per our financial planning assumption. Overall, we expect continued strong volume growth from priority brands in 2025. In half one, we expect sales to grow low double digits, while we expect, of course, a softer half due to the impact of the three potential generic entries, with low to mid-single-digit sales growth. Likewise, we expect half 1 Corp Inc. to grow the high teens versus low to mid-single-digit growth in half 2. And finally, let's have a quick look at the currencies as they always move around. And if late January rates were to prevail for the remainder of 2025, we would expect the full year currency impact to be a negative 2% on sales and a negative three percentage points on core operating income. As a reminder, we always provide an estimated impact of exchange rates on our results on a monthly basis on our website. And with that, I hand back to Vas.

Vas Narasimhan, CEO

Terrific. Thank you, Harry. So coming to the final slide, and really, just in summary, continued strong business momentum in quarter four, one of the best financial performances in the company's history met and exceeded our full year guidance. We're advancing our pipeline, including new approvals, but importantly, readouts for assets that will fuel our mid to long-term growth and really ensuring we advance the mid-stage pipeline and expect to continue strong sales growth with margin expansion in 2025, as Harry outlined. And we remain on track to deliver our mid-term guidance of 5% plus sales growth through 2029. So, with that, Sharon, we can open the line for questions.

Operator, Operator

Thank you. We will now take the first question. And your first question comes from the line of Florent Cespedes from Bernstein. Please go ahead.

Florent Cespedes, Analyst

Good afternoon. Thank you very much for taking my question. A quick one on the guidance, as the guidance is a little bit better than expected top line, but also on the margin. And as Entresto is a very profitable product and that you will lose percent in Europe generics from the mid of this year, I was just wondering if you could elaborate, i.e., what are the – where we should see some pressure? And where you will have some growth that will offset the generic impact on the P&L and on the top line? Thank you.

Vas Narasimhan, CEO

Thanks, Florent. Harry?

Harry Kirsch, CFO

Thank you, Florent. Ultimately, it all begins with the top line in the pharmaceutical business. Therefore, achieving mid to high single-digit sales growth, bolstered by the strength of our growth brands and recent launches, provides a solid foundation. Additionally, our other products are quite profitable. Profitability does vary by brand, but overall, with mid to high single-digit sales growth and our ongoing resource allocation and productivity programs, we are confident that we will see some moderate margin increase. As I mentioned for the first half, we will certainly be more optimistic. If generics enter the market, we expect the second half to show low to mid-single digit growth on both top and bottom lines. Overall, we remain confident in that sales growth, supported by assumptions regarding underlying volume growth, which sits at approximately 14% to 15%. Pricing was relatively neutral last year and will depend on generic market conditions. We also anticipate a 5% compound annual growth rate over the next five years. By 2027, moving from 38.7% to over 40% in margins is quite achievable. Our ongoing productivity improvements, particularly in SG&A through effective resource allocation, alongside launches in established stronghold areas, should lead to SG&A growth lagging behind sales growth, as we've observed in the past two years.

Vas Narasimhan, CEO

Thank you, Florent. Next question.

Operator, Operator

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

Simon Baker, Analyst

Thank you for taking my question. And it's, kind of, a continuation from Florent’s question. Just mindful of the lots of exclusivity potentially for Entresto later in the year. Historically, you have been very, very good at managing gross margin through patent expires. I just wonder, Harry, I know you don't guide on gross margin, if you could just give us any commentary around the resilience of the gross margin in 2025 in light of that event? Thanks so much.

Harry Kirsch, CFO

Thank you, Simon. As I mentioned in previous calls and during investor roadshows, I anticipate that additional margin improvement will primarily come from SG&A. We will manage our G&A growth to be slightly above inflation, but significantly less than sales growth. The gross margin may experience some pressure as we transition away from small molecules that do not incur royalties to either small molecules that have some royalties or larger molecules. However, these challenges will be more than balanced out by the efficiencies we achieve in SG&A. Additionally, our teams in manufacturing and the supply chain are making excellent progress with productivity and cost reduction initiatives for each of our products, all while maintaining exceptionally high customer service levels above 99.5%. Therefore, while there may be some pressure on gross margin due to rising royalties, this will be largely compensated by the efficiencies in SG&A.

Simon Baker, Analyst

Thanks so much.

Vas Narasimhan, CEO

Thanks Simon. Next question?

Operator, Operator

Thank you. Your next question comes from the line of Matthew Weston from UBS. Please go ahead. Hello Matthew, are you on mute? Due to no response, I'll move to the next question. One moment please. Your next question comes from the line of Richard Parkes from BNP Paribas. Please go ahead.

Richard Parkes, Analyst

Thanks for taking my question. I think I'll take one on the Huntington's program. Obviously, a huge unmet medical need, terrible disease, but there have been some of the failures in that area the past. So, I'm just wondering what makes you more confident in the approach what you've learned from those past experiences? And to what degree do you think the PIVOT HD trial will derisk the probability of success given it's a slowly progressive disease in the studies relatively short? Or will we still be seeing it as a high-risk program? That would be really helpful. Thank you.

Vas Narasimhan, CEO

Thank you, Richard. The goal is to reduce mutant Huntington to a level that avoids adverse effects from excessive reduction. The consensus in the field is that a reduction of 30% to 50% of mutant huntingtin protein is desirable, and it's important to observe clinical improvements alongside this biomarker. PTC has shown relevant lowering of mHTT and some signs of clinical efficacy with a strong safety profile, avoiding the peripheral neuropathies observed in our own studies. This suggests that the program is progressing well. The key question remains whether reducing mutant Huntington at this level will result in significant clinical benefits for patients and lead to regulatory approval. We'll need to see the results from the Phase 2b study; a compelling outcome could allow us to pursue a filing, while uncertain results might necessitate a full pivotal study to determine if this level of reduction yields the anticipated clinical advantages. PTC has developed the product appropriately and maintains good communication with regulators, so we are optimistic about the Phase 2b study results, after which we can proceed with Phase 3 studies and strive to provide an essential first disease-modifying therapy for patients in need.

Richard Parkes, Analyst

Thank you.

Vas Narasimhan, CEO

Thanks, Richard. Next question, operator.

Operator, Operator

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

Emily Field, Analyst

Hi. Thanks for taking my question. The first one was just a clarification question from the first question that was asked by Florent. If you could just confirm the contribution of favorable gross to net adjustments to sales in Q4 2024? And then I just wanted to ask a question about Pluvicto. I mean, I know the guidance has been not to expect significant sales growth until the additional indication of PSMAfore was added. But was there any particular driver between the sequential decline in the U.S. quarter-over-quarter? And would you expect any of the DTC and promotional efforts that you've been putting in place to have an impact on sales ahead of the PSMAfore approval? Thank you.

Vas Narasimhan, CEO

Yes. Thanks, Emily. So back on the guidance, Harry?

Harry Kirsch, CFO

Yes. So I think your question was about the gross to net and quarter four impacting the guidance. So let me try and then you can tell me if it was sufficient. So we had a growth of 16% in quarter four, as you have seen in constant currency. About three points of that was due to true-ups of gross to net for prior quarters of 2024, so underlying 13%. The full year sales by brand in 2024 is basically undistorted. The underlying growth for 2024 is 12% as you see in the report. So if you want to have a basis, it's best take the full year 2024 sales, and these are undistorted overall. Now, of course, that has lifted the overall 2024 sales and we have, of course, computed that, if you will, into our 2025 gross to net calculation. And a key element of this as really Medicaid utilization is continuously reducing to pre-pandemic levels. Now, we do not assume that it gets lower and lower, we basically assume that in 2025, we see what we have seen at the latest for 2024, which is a reasonable assumption. So we never take risky assumptions on gross to net. It's obviously a big part of money, like $16 million to $20 billion of sales is we have like 50% of our U.S. list prices be gross to net. But from that standpoint, it has lifted this more favorable gross to net situation for 2024, our sales level. And from that, we expect to grow mid to high single digit. I hope that clarifies your question.

Vas Narasimhan, CEO

And then Emily, thank you. On Pluvicto, when you look at it in Q4, it was really in line with what we had expected. In Q3, we had the benefit of some one-time adjustments in France and Germany. But then when you overall look at where we had guided for Q4, it's roughly – exactly with where we had expected. Now I think looking ahead, we are hopeful to see further progress in the VISION population, but I think that will be not a rapid increase. I think we've already gotten to 40% NBRx share and that we'll need to get to steady gains by expanding further and further the number of treating sites for VISION population. But it is possible certainly that the DTC will start to have an impact that we kicked off in quarter three of last year. Usually, it takes six months for DTC to have an impact, so it would be around February, March of this year, we might see some impact on the VISION population. But really, our organizational focus is PSMAfore launch. I think now that we have a really compelling rPFS data. We have very compelling data on distant mets. We have now the OS unadjusted for crossover at 0.91, I think everything now is a good setup to go into a population that's three times larger, really ensure the sites that are already using Pluvicto now fully maximize their capacity to get as many patients to benefit from the therapy as possible and also accelerate our efforts to get even more sites ready in the community. We've launched a number of initiatives. We're launching a few more over the course of the quarter to really simplify and hopefully get clinicians very comfortable even in the community oncology setting providing radiopharmaceuticals or radioligand therapy. And that's where I think we're going to see the next uplift for the brand. Next question, operator?

Operator, Operator

Thank you. Your next question comes from the line of Matthew Weston, UBS. Please go ahead.

Matthew Weston, Analyst

Thank you. I don't know what happened earlier. It's a question for Harry. And it's again about guidance, Harry, but particularly about the impact of Medicare Part D reform on what you've assumed within your growth. So, one of the questions we've had a lot this morning from investors is how can you be so confident given that you have a very large oral oncology portfolio, which is assumed to be used largely in the Medicare Part D population. So what have you assumed in your outlook are the puts and takes around that portfolio from that new reform?

Vas Narasimhan, CEO

Thank you, Matthew. I’ll address that. Overall, we anticipate a slight challenge from the Part D reforms, which we have fully incorporated into our guidance. The two brands that will experience the most significant impact from these reforms are Cosentyx and Kisqali, particularly regarding coverage during the catastrophic phase. However, we have accounted for the anticipated headwinds in our projections. While we see potential for increased volume, we're cautious and prefer to assess how things develop throughout the year. We believe we can manage this modest challenge, which is already reflected in our guidance. In the medium term, this policy should encourage more patients to remain on therapy, aligning with the industry's goal of a $2,000 out-of-pocket cap. This would enhance patient compliance with their medications and positively influence sales in the years ahead. For this first year, it's difficult to place much confidence in that expectation, but we're confident in our modeling approach, which we believe contains suitably conservative assumptions.

Matthew Weston, Analyst

Thank you.

Vas Narasimhan, CEO

Next question operator. Thanks Matthew.

Operator, Operator

Thank you. Your next question comes from the line of Richard Vosser from JPMorgan. Please go ahead.

Richard Vosser, Analyst

Hi, thanks for taking my question. Question on Kisqali. Looking at the NBRx share in metastatic, it stayed at sort of 50% for a number of quarters and maybe a couple of years now. So, I'm just wondering what it takes to change that. You have a superior product. Does the sort of halo effect from the adjuvant allow you to get more accounts on board? Just can we see that displacement of Ibrance, just your thoughts? Thanks very much.

Vas Narasimhan, CEO

Thanks, Richard. I believe that the Kisqali shares began to grow significantly in the first half of last year after we received the early breast cancer readout, which boosted overall confidence in the brand and aligned with the NCCN guidelines supporting Kisqali's use. We are optimistic that with the early breast cancer data and the potential to offer a single medication for all patients in a clinic, we can raise our overall NBRx share to more than 52%. However, we anticipate a ceiling around 75% to 80% due to certain payer dynamics and contraindications for Kisqali. Our aim is to increase from 52% as much as possible towards 75% in the coming years, and we have ample time to achieve that. I expect we will see gradual improvements in that area. Our primary focus currently is on maximizing the opportunity among node-zero and node-one patients without risk factors, where Kisqali is uniquely positioned, and our competitors are not. Ensuring these patients are diagnosed and put on therapy is crucial, given the significant population size and the public health benefits we can provide. This remains our core focus, and we should also see gains in metastatic cases as a result.

Richard Vosser, Analyst

Okay. Thanks.

Vas Narasimhan, CEO

Next question, operator.

Operator, Operator

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

Graham Parry, Analyst

Great. Thanks for taking the question. It's just on Entresto, just wanting to get perhaps a little bit more detail on the dynamics that are factored into the guidance for 2025. So what sales progression are you looking at worldwide and in the U.S.? And in the U.S., do you see a benefit in the first half of the year from don’t hold discount removal? And to what extent does that offset some of the generic decline you should get in the second half of the year? And on generics, how confident you can hold off Entresto generics until 16th of July, and the court filings seems to suggest that MSN is trying every, which way to launch at the moment and there's only one appeal court stay in place, blocking them from doing that? And are you confident they haven't shipped any product at all in that narrow window there wasn't actually stay in place a couple of weeks ago? Thank you.

Vas Narasimhan, CEO

Yes. Thanks, Graham. On the overall dynamics, Harry.

Harry Kirsch, CFO

Yes, we anticipate continued strong growth for Entresto until approximately the middle of the year based on our forecasts. Our legal and intellectual property teams will work diligently to protect our patents. For now, that remains our financial forecast assumption. We expect to see growth in that area. Additionally, you are correct that there is favorable impact from the Medicare Part D design on Entresto, as it is not classified as a high-priced specialty product, leading to positive dynamics until the loss of exclusivity occurs in the U.S. When we examine the multi-year outlook and our forecasts, Entresto is significantly under-forecasted compared to our models and consensus. This is largely because of the timelines for Europe, projected for late 2026, and Japan in 2030. Moreover, there is a significant potential for sales in emerging markets, as Japan is expected to be a blockbuster, and we foresee substantial remaining sales until generics enter the European market after 2026.

Vas Narasimhan, CEO

Thanks, Harry. We're exploring all possibilities in Europe and Japan to maximize the exclusivity of Entresto in those regions, and there are certainly options that could arise. Regarding the U.S. situation, to our knowledge, no products were shipped into the channel during those few hours. The stay remains in effect, and MSN has requested that the Circuit Court reconsider its stay. We will keep an eye on that situation, but we believe the intent of the law is clear: our pediatric exclusivity studies and the six-month extension on the combination patent should be respected. This is our firm stance. We are also actively pursuing litigation concerning the complex patents and the lawsuit regarding the FDA's approval of products with a carve-out on the dosing regimen in the label. Those legal proceedings will continue over the coming months, and we will see how things progress. Currently, our best estimate is to provide forecasting guidance for the middle of the year. If there are any updates, either we or IPD will inform you, likely IPD will do so sooner. Thank you, Graham. Next question.

Operator, Operator

Thank you. Your next question comes from the line of Etzer Darout from BMO Capital Markets. Please go ahead.

Etzer Darout, Analyst

Great. Thanks for taking my question. I had a couple of inbound this morning. Just wondering if you had any maybe additional commentary you could provide on the push out of the Horizon Phase 3 and maybe what could be driving that the event sort of rate dynamic relative to your initial event rate assumption? Thank you.

Vas Narasimhan, CEO

Yes, thank you, Etzer. This is an event-driven study, and we’ve been analyzing the event rates. I’ve also noted some questions regarding this. There has been no interim analysis influencing our decisions. This is strictly based on the modeling of the blinded event rates we observed, and we anticipate reaching the final number of events, which is always ideal for a cardiovascular study, ensuring it is sufficiently powered in the first part of next year. We do not have a concrete guess at this time. Generally, cardiovascular outcome studies have shown a trend towards lower event rates over time. It’s crucial that in these studies, we ensure all patients are appropriately treated for LDL lowering so we can accurately assess the impact of the Lp(a) lowering therapy, as required by the FDA. The background rate could be influencing outcomes, or it could indicate that the drug is effective; that is our hope, but we cannot confirm this yet. We will see how the study progresses as we move through the next year. We remain very confident that the drug is functioning as intended. The mechanism of action is well understood. The patient profile we enrolled consists of high-risk individuals with elevated Lp(a) levels, and we expect that the lowering we’re observing will lead to the hoped-for reduction in cardiovascular risk. This is the best guidance I can provide at this moment.

Etzer Darout, Analyst

Great. Thank you. appreciate the color.

Vas Narasimhan, CEO

Next question operator.

Operator, Operator

Thank you. Your next question comes from the line of James Quigley from Goldman Sachs. Please go ahead.

James Quigley, Analyst

Great. Thank you for taking the question. Going on the guidance, Harry, would you be able to sort of split the guidance out between volumes, generic impact and pricing, presumably, pricing is close to zero or slightly negative. But super helpful if you could give us an idea of how that breaks down? And then secondly, on the slide, where you break out the half one versus half two, obviously, the second half takes a hit because of generics. Where would that land if you didn't have the generic impact and is low to mid-single-digits, say, a sort of sensible exit rate for the second half of your guidance out to the end of 2029? I appreciate that you don't guide on the individual years, but just some color would be useful.

Vas Narasimhan, CEO

Yes. Thanks James. Harry?

Harry Kirsch, CFO

Yes. Okay. So, let's give a try. So, overall, we expect continued, if not slightly increased volume growth due to our launches and continued very good execution from a volume standpoint, Pricing probably will be a little bit more pressure. Usually, we have on a year like 1% to 2% points negative. Last year, in 2024, we had flat, but there's a little bit of growth to net pressure was due to Medicare point redesign, but nothing dramatic there. And the key impact will be an increased generic according to these forecast assumptions. Now for the U.S., we have taken simply analogs for small molecules in the different categories, cardiovascular as well onco. And that's what you can model yourself. Now if these three would not happen, I would expect the first half to look like the second half. Unfortunately, there is not an unreasonable assumption, that will happen. So that's why we carefully have modeled this.

James Quigley, Analyst

Thank you.

Vas Narasimhan, CEO

Thanks, James. Next question, operator.

Operator, Operator

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

Seamus Fernandez, Analyst

Great. Thanks for the question. So my question is on ianalumab. You guys have Sjogren’s data coming this year in my understanding as well as some additional Phase 2 and 3 data sets. Where are you most excited about the opportunity for ianalumab, which strike me that Sjogren's is the highest unmet medical need where even just a positive study would gain substantial utilization. Just trying to get a better understanding of how you're thinking about the market opportunity in Sjogren's and then more broadly for ianalumab? Thanks so much.

Vas Narasimhan, CEO

Yes. Thanks, Seamus. We are very excited about ianalumab's potential, both in hematology and in immunology. So in immunology, clearly, the Sjogren’s will be the first key foundational readout. We're studying it in the roughly 40% of patients who have systemic manifestations of Sjogren's disease. In the Phase 2b study, we demonstrated, for the first time, significant improvements in the SDI, which is focused on the systemic manifestations, including improvements in areas such as fatigue and other physician assessed parameters. And so if we can get a positive read, we'll try to get as broad a label as we can. And we're also assessing should we also study the medicine over time in those patients, the remaining 60% of patients, a subset of them who primarily have symptom manifestations without the systemic manifestations. So I think there's significant opportunity in HS. Then, of course, following up on that, we have the systemic lupus and lupus nephritis studies as well running and as well you note, the Phase 2b in hydrodenitis. Alongside that, I think while there is a reasonable standards of care in idiopathic thrombocytopenic purpura, ITP, this medicine also has the potential with its mechanism to be an improvement in second line and first line ITP and that we also have a readout in 2025 as well. And so that would, obviously, enable us to start the process in hematology. We have worked through ensuring we have different dose levels as well so we can manage the different indications in immunology and hematology from a price standpoint. So taken together, I mean, you have six Phase 3 studies across the board already running by ianalumab, multiple Phase 2s. So assuming they go our way, this could be a very significant medicine, probably underappreciated overall.

Operator, Operator

Thank you. Your next question comes from the line of Naresh Chouhan from Intrinsic Health. Please go ahead.

Naresh Chouhan, Analyst

Hi there. Thanks for taking my question. Just one on OAV please. So, Cosentyx is currently modeling very little, if anything at all for OAV101. Can you help us think through the bolus opportunity and the speed of ramp up? We think it could be a blockbuster by 2027. Is that unreasonable? And how do you think about the speed of ramp-up? Thanks.

Vas Narasimhan, CEO

Yes, it's still early for us. However, if I reflect on our experience with Zolgensma, we did observe a rapid ramp-up followed by a steady state that we maintained for about two to three years. This is generally what we anticipate for gene therapies. In the case of OAV, the situation is somewhat different since many patients will need to switch therapies. When we consider the competition, one of our competitors requires patients to have quarterly intrathecal injections into the spinal cord, which can be quite challenging over time, and patients can experience deformities due to those repeated injections. Another competitor's treatment was not evaluated using the standard Hammersmith score, which is what we used and is regarded as the gold standard. We aim to communicate to physicians and patients that they have access to a one-time gene therapy that has shown statistically significant improvements based on the Hammersmith score, along with a safety profile that is very reassuring. We believe this could be very appealing to a large patient population. This will be our strategy for launching the medicine, and I am optimistic it will exceed expectations because, as we've indicated, this could potentially evolve into a $3 billion-plus product over time. That is our goal. Moreover, with gene therapies, we believe these treatments tend not to face significant generic competition, allowing them to remain valuable in our product portfolio for the long term. Thank you, Naresh. Next question, please.

Operator, Operator

Thank you. Your next question comes from the line of Eric Le Berrigaud from Stifel. Please go ahead.

Eric Le Berrigaud, Analyst

Yes, hello. Do you hear me?

Vas Narasimhan, CEO

Yes. Go ahead Eric.

Eric Le Berrigaud, Analyst

Yes, on guidance, particularly regarding the midterm outlook and the 2025 projections in relation to that. Since the introduction of the midterm guidance, you have consistently exceeded expectations. The results for 2023 and 2024 were significantly better than anticipated. Initially, we thought that the major loss of exclusivities in 2025 and 2026 would lead to a reduction in the midterm guidance. However, with your current guidance for 2025 indicating mid to high single-digit growth, it appears higher than the midterm expectations. If we assume that 2026 will resemble 2025 due to the 50/50 impact of mid-2025 and mid-2026, and considering that 2027 and 2028 should experience a recovery with no significant loss of exclusivity, it becomes challenging to comprehend why the midterm guidance isn't more optimistic. There may be something missing in this narrative, so could you clarify or explain if this aligns with your strategy of under-promising and over-delivering? Thank you.

Vas Narasimhan, CEO

No, certainly not a global policy. We do our best to give you the midpoint estimate of where we think things will go. And then, of course, if we do better, and over the last two years, I think our performance, operating performance has been outstanding, I see two-plus years now. And I think that's part of the reason you've seen the consistent beats and raises. I think certainly, over the coming years, we'll see. I mean, we, of course, will update over time. I mean the 2026, we have the full year impact, of course, of these generic entries. And then we'll clear them and then accelerate growth from there. So I don't think we're in a position at this moment to change our mid-term guidance. But obviously, if we consistently perform at a higher level than the 5% mid-term guidance, we'd have to reconsider it. But I think right now, our focus is delivering 2025 per plan, getting these launches up on the trajectory, closing the current gap that consensus has to our view, which I think is roughly two points 2024 to 2029. So I think, Eric, you're there, but some of your colleagues are not. And so I think that getting that gap closed by showing confidence in Kisqali, in Leqvio, in Pluvicto, in Scemblix, in Fabhalta with the remibrutinib launch with some of the pipeline delivery, continuing delivering on Cosentyx, and then, of course, we'll reconsider the mid-term outlook as appropriate.

Operator, Operator

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

Richard Parkes, Analyst

Hi. Thanks for taking my follow-up. It's just on Cosentyx, the competitive environment. We've now had a competitor on the market for a year or so. I believe that has some recent formulary wins and obviously launching in the HS indication. So just wondering how that competitive environment is playing out and what you anticipate in your guidance? And maybe if you could quantify the opportunity for Cosentyx and new indications that you outlined, GCA and PMR? And then finally, I'd like to thank you for the Lp(a) test at your management day because given it was minus borderline, I've now started on a statin. So I appreciate the opportunity. Thank you.

Vas Narasimhan, CEO

That's great to hear, Richard. I'm glad we could help. On Cosentyx, we had 25% growth this year. So I think that shows the robust growth profile of the brand. In terms of the competitor entries, when you look at our formulary position, it's as we expect, we've had to give the appropriate level of adjustments on our rebates, but we've maintained very good formulary position. We see very good performance in Asian markets such as China as well as continued good performance in Europe. In Asia specifically, we think our profile of having very good flare resolution where we showed very compelling data on flare, on pain, I think on itch on some of these, I think this really gives us a very compelling data set. And given the long history of safety with Cosentyx, we have a very competitive profile to hopefully maintain that 60% plus NBRx share that we have. We believe in HS, Cosentyx to be over $1 billion medicine globally. Now for GCA and PMR, our current estimates are $500 million plus for each one of these. I think the question, of course, we'll have to see. I think originally for HS, we thought this would be $500 million to $750 million, and we delivered that almost in the first year. So I think we're learning as we go, as we get into these new indications. And as we have a better sense from launching of, of course, positive data and then launching, we can, of course, update over time. Is there more questions operator?

Operator, Operator

We have one more sir. And your next question comes from Florent Cespedes from Bernstein. Please go ahead.

Florent Cespedes, Analyst

Good afternoon again. Thank you for taking my follow-up question. This time, not on guidance, but on the pipeline. For you Vas, as is now expected in 2026, and it was supposed to be the big Phase 3 readout. Now, on the list of the products that will readout this year that will be the Phase 3, please, could you share with us which is or which are the most meaningful one, please?

Vas Narasimhan, CEO

Yes, definitely, Florent. There are a few key points to mention. First, ianalumab is crucial for us, and we've already noted that both Sjogren's and second line ITP will be significant for its profile and potential. This could also provide insights into what we might achieve in lupus and lupus nephritis in frontline ITP among other areas. Additionally, we will be looking at the results for Pluvicto in hormone-sensitive prostate cancer, which will expand the patient population, comparable to the VISION and PSMAfore populations. This could further support our ambitious goal of exceeding $6 billion over time for Pluvicto. Furthermore, we anticipate the remibrutinib food allergy Phase 2b results, which will allow us to swiftly pursue another third indication, building on its success in CSU and CINDU. We plan to file for remibrutinib soon and intend to utilize a priority review voucher. We are confident that remibrutinib in CSU will surpass market expectations. The prospect of having an oral treatment that can alleviate symptoms within two weeks is very promising to us. We are focused on ensuring a successful launch for that. Lastly, while there are many other initiatives to consider, these are the key areas that I believe will significantly impact us this year.

Florent Cespedes, Analyst

Thank you very much.

Vas Narasimhan, CEO

I think that's it. So, thank you all very much for joining. We look forward to seeing you in various settings over the course of the coming quarter and then again at the Q1 earnings call. Have a great day.

Operator, Operator

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