Earnings Call Transcript
NOVARTIS AG (NVS)
Earnings Call Transcript - NVS Q1 2023
Operator, Operator
Good morning and good afternoon, and welcome to the Novartis Q1 2023 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 Mr. Samir Shah, Global Head of Investor Relations. Please go ahead, sir.
Samir Shah, Global Head of Investor Relations
Thank you very much, and good morning and good afternoon, everybody. Thank you once again for all the participants on the call and the webcast for taking the time to listen to our quarterly conference call. Before I start, just a safe harbor statement. The information presented today contains forward-looking statements that involve known and unknown risks, uncertainties and other factors. These may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. For a description of some of these factors, please refer to the company's Form 20-F, its most recent quarterly results on Form 6-K that respectively were filed with and furnished to the U.S. Securities and Exchange Commission. And with that, I'll hand across to Vas.
Vasant Narasimhan, CEO
Thank you, Samir, and thanks everyone for joining today's call. If we move to Slide 4, Novartis had a strong first quarter to start the year with significant sales growth and robust margin expansion. We achieved our key innovation milestones and are raising our full year 2023 guidance, which Harry will detail. As noted in this morning's press release, sales increased by 8%. Core operating income rose by 15% in constant currencies. In Innovative Medicines, sales grew by 7%, and core operating income increased by 18%, achieving a core margin of 38.7% in IM. Sandoz also saw an 8% increase with core operating income up 3%. I will discuss some of the innovation milestones on the following slides along with updates on our recent approvals for our Millburn and Zaragoza manufacturing facilities. Moving to Slide 5, our key 2023 readouts for upcoming high-value medicines are on track. Earlier in the quarter, our Phase III NATALEE trial for adjuvant breast cancer met its primary endpoint at the second interim analysis while testing this medicine in a broad patient population. Pluvicto is also on track with the PSMA 4 trial in metastatic castration-resistant prostate cancer, which yielded a positive top line readout. We project to achieve the OS endpoints this summer with a detailed data presentation later this year and plan for regulatory submissions in the second half of 2023. Iptacopan is also following our timeline. Tomorrow, we will announce data from the APPOINT-PNH trial in treatment-naive patients. We are also on schedule with both IgAN and C3G readouts. Now to Slide 6, our submission-enabling readouts are anticipated to increase in 2024 and 2025 as several potentially exciting assets move forward, assuming the data remains promising. Remibrutinib will reach its primary analysis for efficacy in CSU in the second half of 2023, followed by a final analysis that includes additional safety follow-up and potential submission in 2024. We have accelerated our timeline for first-line CML, now expecting a readout and submission in 2024. Additionally, we are on track for our SMA IT readout for OAV-101 in 2024 and want to emphasize that ianalumab has begun Phase III clinical trials across a variety of indications including first and second-line ITP, as well as SLE and lupus nephritis. Moving to Slide 7, I will provide more details on these innovation highlights. The NATALEE study met its primary endpoint, demonstrating clinically meaningful IDSS in a broad early breast cancer population. This study evaluated Kisqali plus endocrine therapy at a 400-milligram dose, significantly reducing the risk of disease recurrence compared to standard endocrine therapy alone. This benefit was consistent across a diverse group of stage II and III early breast cancer patients. We expect to present this data at an upcoming medical meeting and are on track for worldwide regulatory submissions in the second half of 2023. It’s important to note that 30% to 60% of patients with Stage II and III early breast cancer treated solely with endocrine therapy remain at risk of recurrence. We employed a 400-milligram dose specifically to minimize dose-dependent adverse effects, which is crucial for ensuring a good tolerability profile in treating early breast cancer. On to Slide 8, I want to delve further into the patient population targeted by the Kisqali NATALEE study. We have previously indicated that this represents a multibillion-dollar opportunity for Kisqali, in addition to the significant market potential in the metastatic setting. Based on updated data, the NATALEE population encompasses 70% of Stage 2 and 100% of Stage 3 patients, making it 2 to 3 times larger than our competitor study. The profile in the Stage 2 population shows unique characteristics, particularly among Stage 3 patients, providing a strong comparison to NATALEE and MonarchE profiles. Moving to Slide 9 and focusing on iptacopan. Our APPOINT-PNH data revealed clinically significant increases in hemoglobin, and we initially reported this data in quarter 4 of last year. This was a single-arm Phase III study involving adult patients with PNH characterized by hemolysis and anemia; these patients had not been treated with complement inhibitors. The study met its primary endpoint and exhibited a robust safety profile. As mentioned, we will present the data tomorrow, and we look forward to using it alongside our previously completed trials in our regulatory submission. We have submitted iptacopan in the U.S. and are awaiting regulatory acceptance soon. Moving to Slide 10, we expanded our radioligand therapy pipeline with several deals this quarter. Recent business development efforts included a discovery collaboration with Bicycle Therapeutics to utilize cyclic peptides to target additional promising opportunities from a radioligand therapy perspective. We also acquired FAP-2286 from Clovis Oncology, which targets fibroblast activation protein and shows promise for a range of solid tumors. FAP-2286 is currently in Phase I/II development and has shown indications of efficacy. This acquisition aligns with our growing clinical pipeline, which includes advancing Lutathera into various solid tumors, continuing to expand Pluvicto, and progressing NeoB alongside the FAP-2286 acquisition. We will continue to provide updates on our radioligand therapy portfolio. Now turning to Slide 11 and our growth in the quarter. Our key growth drivers yielded 67% growth in constant currencies, and we foresee this growth continuing. This performance was driven by Entresto, Pluvicto, Kesimpta, and Kisqali. Moving on to Slide 12, Entresto showed strong double-digit growth across regions, with a growth rate of 32% and positive trends observed both in the U.S. and ex-U.S. The U.S. shows a 30% uptick in NBRx along with growth among HFrEF patients in the EU. Notably in China and Japan, there's growth both in heart failure patients and a significant contribution from hypertension indications. We anticipate further growth, bolstered by robust guideline positions. Additionally, we received a positive CHMP opinion for pediatric heart failure, which if approved by the European Commission will extend our exclusivity in the EU until the end of 2026. Moving to Slide 13, the growth of Cosentyx outside the U.S. compensated for declines experienced domestically. Despite solid demand in the U.S., revenue deductions led to a decline, with about half attributed to base effects from prior years. We encountered some inventory movements, resulting in a high single-digit decline in U.S. performance, consistent with our expectations. Excluding the U.S., we saw strong growth in core indications, especially in China where we are outpacing the market following our NRDL listing. Our sales are expected to align with the previous year's figures with future growth driven by lifecycle management. Anticipated CHMP opinions for hidradenitis in Q2 support our optimism, alongside expected U.S. approvals for hidradenitis and our IV formulation in the latter half of the year. We are also progressing with lupus nephritis and GCA studies, while initiating two new studies for Polymyalgia Rheumatica and Rotator cuff tendinopathy. Moving to Slide 14, we released significant data for Cosentyx this quarter. In hidradenitis, we showed durable efficacy sustained over a year, addressing the painful lesions and abscesses patients endure. Data indicate over 70% of patients were flare-free and over 65% experienced solid pain control, showing fast and lasting improvements in quality of life. This positions the medicine well in a sizable market as more therapies are introduced for patients who need biologics. Now, on to Slide 15, Kesimpta has had an outstanding start, doubling its sales compared to the previous year. The chart illustrates a 100% growth driven by 89% growth in TRx and 60% growth in NBRx year over year. Currently, B-cell NBRx captures about 50% of the MS market, indicating further growth potential. In Europe, we see solid launch momentum, with 65% of the population now having access to Kesimpta. We are confident in this medicine's ongoing growth and in capturing further B-cell market share in the U.S., supported by a compelling product profile including once-a-month home dosing and strong 5-year efficacy and safety data. We expect to sustain strong performance for Kesimpta through this year. On Slide 16, Kisqali had an exceptional quarter, achieving momentum globally supported by strong Phase III outcome data. Sales grew by 81% in the metastatic breast cancer market, with U.S. NBRx share now at 28% and up to 38% in the EU 5. We have favorable NCCN guidelines as the sole Category 1 treatment for first-line metastatic breast cancer in combination with an aromatase inhibitor, along with positive data from the Phase III NATALEE study. We foresee continued momentum for Kisqali as it approaches its multibillion-dollar potential in metastatic settings. On Slide 17, Leqvio's adoption continues to expand as we progress in the launch. We've increased the number of facilities ordering Leqvio to 2,200, with 9,600 physicians now experienced with the product. We aim to deepen engagement in these accounts as they become more accustomed to buy-and-bill, critical for long-term success. Our access rate stands at 76%, with adherence to the second dose now at 75% within 95 days. Foundations for this medicine are being established, and we are tracking well against the Entresto launch curve, hinting at how we expect growth in the U.S. Globally, we are also witnessing the beginning of acceleration as we expand in Europe, with further acceleration anticipated in the U.K. through the NHS national program. Finally, on Slide 18, Pluvicto continues to experience strong demand due to its favorable benefit-risk profile in the unmet need for post-taxane metastatic castrate-resistant prostate cancer. Sales rose to $211 million this quarter, with Q2 expected to align closely with Q1 as we continue to scale up operations at the Millburn and Zaragoza facilities. With 200 active accounts, we also have an additional 100 accounts ready to come on board as supply increases, aiming for approximately 500 accounts in the U.S. Our FDA submission for PSMAfore, including OS data, is progressing as expected. To elaborate on supply, moving to Slide 19, Millburn has been approved for Pluvicto's commercial supply in the U.S. and has already commenced production. Zaragoza is approved in the EU and will start producing for EU patients shortly. We are adding lines in Millburn over the next months, anticipating a significant capacity expansion in the second half of the year, enabling us to accelerate our launch as we approach 2024 and 2025. Our Indianapolis facility is preparing for FDA filing, aiming for approval this year. Lastly, we're building automated production lines to bolster capacity, targeting at least 250,000 doses in 2024. Lastly, Scemblix is performing well in the third-line setting for CML, with Q1 sales at $76 million. Our global rollout is ongoing, with approvals in 46 countries and access pathways in 19. There is strong recognition of the efficacy and tolerability of this medicine, leading to rapid enrollment in the trial, which is ahead of schedule for a readout and filing expected in 2024. It has been a strong start to the year for us. To discuss our financial performance in Q1 further, I'll hand it over to Harry.
Harry Kirsch, CFO
Yes. Thank you, Vas. Good morning and good afternoon, everyone. I'm now going to talk you through some of the financials for the first quarter. And as always, my comments refer to growth rates in constant currencies unless otherwise noted. As you will see from the numbers, it really has been a very strong start to the year. Now on Slide 23. We detailed the strength of the top and bottom line performance during the quarter. Overall, we really have excellent business momentum, and our efforts to focus and streamline the business are starting to pay off on both the top and the bottom line. Sales grew 8%, benefiting from the strong performance of our in-market brands, in particular, Entresto, Pluvicto, Kesimpta, and Kisqali, as Vas already laid out. Core operating income growth was up 15%, driven mainly by higher sales and core EPS even grew 25% to $1.71, faster than core operating income, benefiting from a lower weighted average number of shares outstanding. Free cash flow was $2.7 billion, growing 95%, mainly driven by higher income, favorable changes in working capital and some one-time legal matter. In summary, as I said, a very strong start to the year. Next slide, please. Details here due to the performance of Innovative Medicines and Sandoz. Overall, the picture is quite clear above the board. On the back of the strong sales performance of our growth drivers, IM sales grew 7%, which drove an increase in IM core operating income of 18% and the core margin reached 38.7%, up, I would say, an impressive 360 basis points increase versus prior year. Sandoz net sales grew 8% this quarter, mainly driven by Europe, which benefited from continued momentum of prior year launches and a very strong cough and cold season. Sandoz core op inc was up 3% lower than sales, mainly due to some prior year divestment income and Sandoz core margin was 21%. Next slide, please. The strong start of the year and confidence in our future growth allows us to raise both top and bottom line guidance for the full year of 2023. As you recall, we usually don't do that in quarter 1, but we really do have good momentum, and we don't think that will change as we go forward. For Innovative Medicines and Novartis excluding Sandoz, we now expect sales to grow mid-single digits and core operating income to grow high single to low double digits. For Novartis, including Sandoz, which is based on the group guidance and assuming for the forecasting numbers that Sandoz would remain within the group for the entire full year of 2023, we now expect sales to grow mid-single digits and core operating income to grow high single digits. Our key assumption is that no Sandoz generics would enter in the U.S. in 2023. As you will note from the next slide, Sandoz guidance also rates for the top line. For 2023, we now expect Sandoz top line to grow mid-single digit. We are maintaining Sandoz core operating income guidance as expected to decline low double digits for now. This is mainly related to the investments to transition to a separate Sandoz and expected continued inflationary pressures. As you can imagine, bottom line performance for the business during the separation is a bit more difficult to predict. Therefore, we want to see quarter 2 before considering a guidance upgrade also on the bottom line. Midterm, we expect Sandoz sales to grow low to mid-single-digit CAGR and core operating income margin is expected to expand to the mid-20s driven by continued sales growth and operational efficiencies. On the next slide, I would like to detail some of the important news flow and milestones for the Sandoz business. As mentioned, Sandoz had a good start with 8% sales up, sales in Europe were particularly strong, up 16% and biopharma growth was also very strong at 17%. Sandoz continuing to progress by a similar pipeline, biosimilar adalimumab was approved in both U.S. and Europe, denosumab biosimilar filings were accepted in the U.S. and we expect the Phase III readout of aflibercept biosimilar in the second half of '23. The planned spinoff is well on track for the second half of this year. Capital Market Days are planned in early June in both New York and London. We also announced that Gilbert Ghostine has been appointed as Sandoz Chairman Designate. Just for your information, Novartis implemented a couple of small transfers of certain manufacturing services and our malaria drug Coartem between Sandoz IM it's around $200 million of sales. So it's a very minor impact on segment reporting and the financials related to those. To help your modeling for the future, we will publish these small changes on our website tomorrow. Should there be any questions, our Investor Relations team is always ready to help. On the next slide, I'd like to outline again, as I did 3 months ago, the key drivers of core operating income growth for the rest of the year. Expected core operating income growth drivers include the continued strong sales performance of our in-market growth brands and the acceleration of recent launches. Pluvicto growth, mainly as of quarter 3 is now also well supported after the just announced FDA approval for our Millburn manufacturing site for the U.S. We expect China growth to accelerate, particularly in the second half of the year. We saw a good quarter 1 of 5%, but not to the usual growth rates we would expect and our team is ready to execute in the reopened market in China. Our simplified organizational structure and productivity programs are expected to continue delivering SG&A savings and core operating income growth. If you go to the right side, of course, there are a few headwinds, which we like inflation would expect to continue throughout the year. Of course, we monitor that. If there's any change, we would update you as always. There are also some headwinds from generic erosion as we still continue to have Gilenya generics erosion in the U.S., Lucentis in Europe. And of course, then the further acceleration of standup investments to transition Sandoz to a standalone company. We had relatively little of the standup investments in quarter 1, but it's also one of the reasons for the expected Core Op Inc decline at Sandoz. In short, I'm convinced we are very well set up to continue our business momentum and are confident in our short-, mid- and long-term growth objectives on both top and bottom line. Last but not least, on the next slide, a few words on the currency impact, noting the constantly changing currencies. In Q1, currency had a negative 5% point impact on net sales and a negative 7-point impact on core operating income. Looking forward, if late April rates prevail for the remainder of '23, we expect the full year impact of currencies on the top line to be neutral, and in the bottom line to be negative 3% to negative 4% points; that has mainly to do with the Swiss franc actually strengthening also versus the euro as overall, the dollar has weakened a bit again, but still better than what we had before, and we see a bit of positives on the currencies. As a reminder, in order to help you model these impacts, which is never easy from the outside in, we update the currency impacts expected on our website monthly. And with that, I hand back to Vas.
Vasant Narasimhan, CEO
Thank you, Harry. So moving to Slide 30. Just in conclusion, we had a strong start to 2023, as you heard throughout the call, particularly with Entresto, Kisqali, and Kesimpta with broad-based. Our launches are performing well, Pluvicto and Scemblix continue on a strong trajectory and Leqvio is progressing steadily. We're confident in our midterm growth outlook. NATALEE had its positive Phase III readout looking forward to presenting that data. We had positive top-line iptacopan data and consistently not presenting additional data as we move to C3G and IgAN. Pluvicto reading out in earlier lines of therapy, we'll have readouts upcoming with Scemblix, remibrutinib, SMA, amongst others. With all of that momentum, we're raising our full-year guidance, and we'll look forward to continuing the strong operational performance over the course of this year. So with that, I'll open the line to questions. I would ask each of the questioners to limit themselves to one question. In addition, because our presentation was a bit shorter today, we'll aim to end the questioning period at 3:15 Central European Time. So operator, you can open the line for questions.
Operator, Operator
And your first question comes from the line of Graham Parry at Bank of America.
Graham Parry, Analyst
So predictably on Kisqali naturally, you've spoken in the past to about the adjuvant and early breast cancer opportunity being around a $6 billion addressable market. And I know you don't want to share too much more of the data, but do you think that your data is consistent with that sort of market opportunity?
Vasant Narasimhan, CEO
Yes. Thanks, Graham. I think the opportunity would continue to be in that range based on the data. The key driver will be how much uptake we can drive in the Stage 2 patient population, so those with node-negative patients given that there is more reluctance, I think, amongst physicians to start patients on additional lines of therapy. However, we believe that the data is strong enough overall that there should be broad use across both Phase II/III patients at risk with breast cancer, including node-negative patients.
Operator, Operator
Your next question comes from the line of Matthew Weston from Credit Suisse.
Matthew Weston, Analyst
My question is about the R&D pipeline. It's quite notable that in the quarter, I think 20 Phase I and Phase II trials were removed from your pipeline roster and you only added 2. In particular, it looks like a deep prune in oncology. I'd be very interested if it's a change in strategy, whether it's a clean out and we should expect a refresh of new projects in the coming quarters or whether it's a key focus of reducing costs in early stage to concentrate on some of those new Phase III trials that you set out in your opening comments, Vas.
Vasant Narasimhan, CEO
Yes. Thanks, Matthew. So I think there are a couple of dynamics here. First, as we've outlined, starting with our Capital Markets Day last year, we have a clear strategy in five therapeutic areas plus TAX where we house our renal and ophthalmology gene therapy programs. What we did is we systematically looked at the pipeline to identify projects that were outside the scope of those core therapeutic areas or in the case of oncology, addressing tumors that are no longer priority tumors for the company and we wanted to stop those projects. I think that was probably the biggest driver of the shift you see. However, also when we benchmarked ourselves versus the peer set, we thought that we had more projects than our peers, which led to us having less investment per project versus the peer set. We think that's important because having strong investment in the early stage preclinically or in early clinical can also help us go faster, go broader into more lines of therapy, more indications. We want to get up on those metrics with the goal of having more high-value medicines generated from the pipeline. Looking forward to your specific question in oncology, we've identified five tumor types we're particularly interested in, and we're trying to focus our energy there. We also want to pivot much harder to RLT-based therapies where we see the strong performance of Pluvicto and Lutathera. I hope that you will see —I don't know about a higher number of projects but higher quality projects in our oncology portfolio going forward. Thanks for the question, Matthew.
Operator, Operator
Your next question comes from the line of Richard Parkes, BNP Paribas.
Richard Parkes, Analyst
Congratulations on a great quarter. The question is on remibrutinib, you brought forward the readout in CSU to next year. Obviously, there's been more news on the liver toxicity profile of the class recently. So I just wondered if you could update us on what you've seen so far in the clinical program, what monitoring you have in place? And any reason to believe that remibrutinib could have a differentiated profile there?
Vasant Narasimhan, CEO
Yes. Thanks, Richard. So just to clarify, the CSU readout that we would expect over the course of the summer is a 12-week efficacy readout. The relevant regulatory authorities have asked us for additional safety follow-up. So the study, we would top line the study if positive or negative. If positive, the study would continue, and we would monitor for safety prior to a regulatory filing in 2024 in CSU. Overall, now we have 1,600 patients exposed to the medicine across a range of doses. We have yet to see any signs of liver toxicities, LFT, problematic LFT elevations. Our best hypothesis at the moment is that given that the BTK receptor is not expressed in the liver, the toxicities our competitors are seeing are primarily compound-related, and our hope is that our chemistry has avoided that. But there are no guarantees. We foresee fully running these studies both in CSU and in multiple sclerosis where we have two studies ongoing in RMS. If the current profile holds, we have the opportunity to hopefully have a unique profile versus our compare set. Our position is that this should not be considered a cost effect given that it seems to be compound specific and not mechanistically driven, but that's obviously something we'll also have to take up with the regulators as the data continues to unfold.
Operator, Operator
Your next question comes from the line of Simon Baker from Redburn.
Simon Baker, Analyst
Question on Leqvio, if I may. As you showed on Slide 17, you are tracking nicely, if not slightly above the Entresto launch, but I'm guessing at some point, we should still expect it to be an inflection. And I just wanted to get an update on how close we are. When one looks at the numbers of facilities that have ordered, the HCPs with like experience, presumably at some point that linear trend starts to move up. I just wonder if you could give us any update on how far you think you are from a point when the trend starts to exceed interest?
Vasant Narasimhan, CEO
Yes. Thanks, Simon. So as I said, I think the adoption now is very broad-based, and that's a positive trend. The biggest topic for us is to get more depth per physician office that orders. That's something we're very focused on. It primarily has to do with comfort with the buy-and-bill process, understanding the reimbursement process. Also, to add additional patients in buying bills, in some instances, that means may mean more administrative capacity in the relevant ordering facility. So it's difficult to predict exactly, but we continue to hope that over the course of the next six months, we'll start to see increasing depth, which then should compound over the course of next year to lead us to maintain our ideal trajectory.
Operator, Operator
Your next question comes from the line of Mark Purcell from Morgan Stanley.
Mark Purcell, Analyst
Vas, could you share your thoughts on how the treatment landscape for prostate cancer is evolving, particularly as we transition from the post-taxane to the pre-taxane setting? There are therapies like Pluvicto and other radiotherapies that are expected to enhance this category, including Point Biopharma's PMC2002, which should be entering the same space in the fourth quarter. Additionally, we see antibody-drug conjugates starting to emerge in this area. I’d like to gain a better understanding of the logistical and other challenges that radioligand therapy faces compared to ADCs, and your perspective on the future of this treatment in the pre-taxane setting.
Vasant Narasimhan, CEO
Yes. Thanks, Mark. When you look at Pluvicto and why you've seen such a strong uptake, I think it's a couple of things. One is surely the strong overall benefit-risk profile. You have a solid efficacy profile, a very good safety profile, probably better in practice than we had expected, and the opportunity to cycle patients to six doses or four to six doses depending on the situation and not have them be on chronic therapy. That's led to a significant increase in capacity for radioligand therapies at centers across the United States, given that there already is very good capacity for F-18 diagnostics for looking at these patients. Right now, the capacity increase is quite substantial, at least what we're seeing to enable us to move into the pre-taxane setting and not have logistics be a topic. We also believe our expertise that we've now developed over the last year in terms of supply chain, having now three full-scale manufacturing sites, we hope by the end of the year, servicing the U.S. population, but also the global population with plans to add additional capacity would make us the clear leader in terms of being able to reliably supply these medicines to patients across the globe and across the United States.
Operator, Operator
Your next question comes from the line of Richard Vosser from JPMorgan.
Richard Vosser, Analyst
I just wanted to follow up on Pluvicto as well. And just thinking about your supply into the second half as you ramp up the Millburn facility. So just some thoughts on the proportion of the '24 target you might be for doses you might be able to have available in Q3 and by the end of the year, just to give us some idea of how that supply is going to phase as we go forward in the second half?
Vasant Narasimhan, CEO
Yes. Thanks, Richard. I'd say, broadly, we believe we're comfortable that Pluvicto will exceed $1 billion in sales over the course of this year. And by how much will largely be dependent on when the additional lines are operational in Millburn, which we're working very hard on to file those lines with the FDA. Because this is an approved facility, that review is relatively short. Ultimately, the Indianapolis facility will also lead to a further unlock. It's difficult at this moment to dimensionalize the scale above that $1 billion mark; As we get those lines operational, I think by Q2, we can provide some better color on the scale of the supply increase.
Operator, Operator
Your next question comes from the line of Emmanuel Papadakis from DB.
Emmanuel Papadakis, Analyst
Perhaps I would take one on the longer-term implications of financial outlook. So on the one hand, your previous margin guidance, getting above 40% from 2027. Does this reaffirm that outlook? Or does it actually potentially tip the probabilities to the upside of that? And then on the other hand, your best estimate at the timing of potential IRA inclusion, price negotiation if the commercial opportunity proceeds as we hope it may.
Vasant Narasimhan, CEO
Yes. Thanks, Emmanuel. So first on the margin, I'll give it to Harry.
Harry Kirsch, CFO
Yes. Emmanuel, thank you for your question. Overall, as we do our 5- to 10- to 15-year forecast on which we base our guidance to you all, there's a portfolio with certain probabilities and all of that. We had, I would say, the NATALEE trial as a Phase III high probability. I would say, as we always mentioned, that was one of the disconnects of the consensus to our 4% CAGR. When I looked at the consensus, there was almost nothing in the consensus for NATALEE, which I always find a bit strange, but in the end, everybody makes the estimates. So that is certainly—we increased our own modeling now from a Phase III, call it, 70%, 80% probability, to 100%, if you will, with the understanding that approval still have to happen. But we are close to that. It’s positive. It’s certainly supporting our case. The confidence levels go up. Now on the other hand, the 40%, I mean, we always had very strong plans for 40% to hit that margin in '27. When the top line is great on high-margin products, that is always helpful, often I get the question of what beyond the 40%. Let's first get to the 40%. Recall that 40% is for the new Novartis after the Sandoz spin. It also includes roughly 1.3 points of corporate costs, which was back then when we gave guidance basically an inherent upgrade.
Vasant Narasimhan, CEO
For the IRA, Kisqali today roughly about 1/3 of the patients are Medicare patients. It's early days for us to forecast when exactly it would fall within the IRA. We previously stated we would expect it to be at the end of the decade, given that Kisqali's LOE would be in the early 2030s. We think it would roughly coincide. But obviously, with the NATALEE data, we need to observe that over the coming years to get a better estimate of when we might qualify in our Medicare sales and also depending on how CMS ultimately measures the sales. That's an ongoing topic. The industry is planning to provide a full opposition to maybe some of the unfair approaches that are currently being taken by CMS at least in our view.
Operator, Operator
Your next question comes from the line of Stephen Scala from Cowen.
Steve Scala, Analyst
As noted earlier, when describing NATALEE results, Novartis refers to the benefit as consistent. When using the word consistent, we assume Novartis is referring to a consistent hazard ratio across and among all the relevant groups depicted on Slide 8. Is that the expectation you want investors to have heading into the readout? Or should that expectation be modified?
Vasant Narasimhan, CEO
Yes. Thanks, Stephen. We don't want to provide excess data here, given that we have committed to present the data at upcoming medical Congress. We want to preserve that and our ability to publish the data in a major medical journal. But certainly, when we say consistent benefit in a—when we say consistent benefit in a broad population of patients with Stage 2 and 3 early breast cancer at risk of recurrence, we’re referring to the primary endpoint in the study. You can interpret that as you will; it will hopefully be soon that you'll be able to see the full data set and understand better the specifics.
Operator, Operator
Your next question comes from the line of Emily Field, Barclays.
Emily Field, Analyst
I had another question on Kisqali. I believe you discussed earlier today about developing potential partner assets for Kisqali. I was just wondering if you could give any insights just into how you're thinking about that. Obviously, the oral third class in combination with CDK4/6 has been a focus of some competitors. So would that be an idea? Or just any insights you can provide would be helpful.
Vasant Narasimhan, CEO
Yes. Thanks, Emily. I think my comments earlier today were mainly referring to our internal programs to develop additional mechanisms that we think would be relevant for the breast cancer setting. This would include, of course, the CDK2 class perhaps a stronger CDK4, CDK2/4. We have a number of projects ongoing within the research unit to look at additional oral agents that can target the various elements of the cyclin-dependent kinase cascades. We also continue to evaluate if there is a role for any of our radioligand therapies as well as our own in-house ADC programs as well. It's a priority for us to build a deeper breast cancer portfolio behind Kisqali, but it's all very early. More to come on how we progress those internal assets as we get more preclinical hopefully clinical data.
Operator, Operator
Your next question comes from the line of Tim Anderson of Wolfe Research.
Timothy Anderson, Analyst
Thank you. On NATALEE, we obviously don't have the data, but in high-risk patients on side-by-side analysis, what can you say for how it compares to Lilly's Verzenio even just a qualitative description of efficacy and tolerability? You mentioned in intermediate patients and especially no negative it might be more challenging to drive uptake. And I'm wondering why is that focused primarily on tolerability and NATALEE use a lower dose, of course, to mitigate tolerability; what can you say about the tolerability in NATALEE at that lower dose in general?
Vasant Narasimhan, CEO
Yes. Thanks, Tim. I won't repeat what I said to Steve. We obviously don't want to impact our ability to present and publish the data set in the upcoming periods. Not much more I can say than what I've already said. Now with respect to node-negative patients, that's not related to our tolerability profile. That's more just clinical practice where we need to educate physicians that there remains risk for recurrence in node-negative patients and that those patients also would benefit from CDK4/6 on top of endocrine therapy. It's much more a patient-physician education matter and changing clinical practice, nothing to do with the safety profile that we've seen. As you noted, we took it down to 400— we took it slowly down to 400 milligrams based on our belief that this would give us a better safety profile and there has been a Phase II study, the AMELI study, which looked at that clinical profile to show you, at least give you an indication of how the drug performs at the 400-milligram dose level.
Operator, Operator
Your next question comes from the line of Kerry Holford, Berenberg.
Kerry Holford, Analyst
A question please on business development. I'd just love to hear your latest thoughts here. What is your appetite for external R&D opportunities either in the form of partnerships or acquisitions. I guess you have been reasonably quiet on BD over the past year or so. Many of your peers are picking up the pace here now. Has Novartis tried and failed to secure some deals in this recent planning pre? Yes, I'd just love to hear your latest thoughts with regard to appetite or the size of deal tertiary focus.
Vasant Narasimhan, CEO
Yes. Thanks, Kerry. There’s no change in our strategic thinking on how we approach BD and M&A. I would agree we've been relatively quiet over the last year, but we've also had a major transformation program ongoing and been focused on accelerating our internal assets. That's borne fruit with the positive readouts of Pluvicto, iptacopan, Kisqali as well as the additional assets I outlined on the call. We are very actively looking across a range of both partnering, licensing, and of course, bolt-on M&A. We focus primarily in the sub-$5 billion range, as we've outlined. We look at all deals and deal sizes given the strength of our balance sheet, but we want to stay financially disciplined. One thing that's a priority for us as a management team is to examine whether the asset is compelling strategically, importantly, that there is a clear and compelling case for value creation given the premiums that are paid. We don't want to get into the situation where we pay out so much value that in the end, we're not able to generate value for the company or our shareholders. That's a high priority for us as we look at the external environment. We hope to execute some additional deals in our core therapeutic areas over the coming year, but given our positive readouts, we don't feel pressured to do that. We'll do it if it makes sense scientifically and strategically.
Operator, Operator
Your next question comes from the line of Peter Welford from Jefferies.
Peter Welford, Analyst
Just a sort of broad question in terms of—we've obviously been very strong commercial performance during the first quarter that I think surpass certainly most people's expectations, but at the same time, we're obviously undergoing a pretty big strategic review and also obviously a lot of changes in the commercial organization. Just curious, is it that there hasn't really been an impact to or any disruption from this? I wonder if you could sort of update us how far you are through now sort of acting in terms of the headcount reductions and some of the changes that have done with that review. Should we, in fact, anticipate that actually some of the commercial focus and performance could improve during the rest of the year? Or are we just, I guess, wrong in assuming that there was any disruption in the first place and this has all been managed? In fact, you've seen with the greater focus actually already the benefits of the change in the structure that we see with the company.
Vasant Narasimhan, CEO
Thanks, Peter, and I appreciate the question. To be clear, we believe the performance we're seeing in Q1 is a result of the focused strategy we implemented over the course of last year which is largely executed other than a few countries in Europe. It's largely in place. There were a few key drivers. First, the simplification of the organizational structure as well as the focus on the United States as a key market. Second, identifying the nine key brands and putting most of our M&S focus on those nine key brands to drive outstanding growth, which created a higher degree of organizational focus on those brands. Ensuring that all of the incentives and all of the various elements are focused on driving the performance of those brands as a pure-play innovative medicine company. I believe all of that has led to a strong performance in Q1, which we expect to continue.
Harry Kirsch, CFO
I think you said it all. What people always were a bit concerned about when we did the transformation for growth program, which many understood meant there's only a restructuring, that's actually not the case. It was about focus. Yes, there was also given the internal merger mainly between pharma and Onco. But it's actually led to more focus. We are still working on some things fine-tuning, but I think that focus on the commercial side and the key assets has led to clarity, and therefore, a good uptake that we see. We do not expect that to slow down much.
Vasant Narasimhan, CEO
One last element, the efficiency and productivity you're seeing is partly due to the streamlining the organization from a headcount, but also that focus leads to much more efficient resource allocation and the elimination of unnecessary spend in many areas. Additional productivity is what you're seeing flow through the pipeline when you look at the core operating income performance and the margin expansion within the Innovative Medicines business.
Operator, Operator
Your next question comes from the line of Seamus Fernandez from Guggenheim Securities.
Seamus Fernandez, Analyst
So just hoping that we could get a little bit of color on one of your key assets, your BTK for CSU and which is studying NMS as well. Vas, maybe if you could just tell us how confident you are that your asset can avoid the liver safety pitfalls that have plagued this class of agents in MS at a minimum. Have we seen enough patient exposures to kind of move past that seemingly 70-day time point that the FDA has been raising concerns about against two other assets?
Vasant Narasimhan, CEO
Yes. Thanks, Seamus. We have the detailed monitoring in place that the FDA has asked for. We have 1,600 patients exposed across dose levels. We have not seen liver signals that others have seen. I think coming back to the science, again, BTK is not expressed in the liver. Patients who genetically don't express BTK also don't have liver abnormalities. From everything we could see in our preclinical work, the structure of our molecule didn't generate any metabolites or other off-target liver effects within preclinical models. We believe this is related to the structures of the medicines, not actually the BTK as a target. Our hope is we can demonstrate that through the CSU and the two MS studies. We believe that if we can demonstrate that, there are strong mechanistic reasons why there should not be class labeling and it's really specific to the individual molecules.
Operator, Operator
Your next question comes from the line of Eric Le Berrigaud from Stifel.
Eric Le Berrigaud, Analyst
Two questions, Pluvicto related, please. The first on your slide, Vas, the footnote says that the 250,000 doses per annum will be achieved across all RLTs included. Could you mention how many doses currently are supplied for Lutathera today so that we can deduct how much is left for Pluvicto? And the second question, in terms of capacities yet to come and the split between the different sites, would it be a great and a fair assumption to say that Millburn once all lines are approved and operational will be of the same size of the Brio in Italy and that Indianapolis will be maybe the largest one, representing more than 50%. Also, could you repeat that Asia is not part of the 250,000 doses and will have to come on top?
Vasant Narasimhan, CEO
So a multipart question, I'll try to take them off one by one. Lutathera is a very small volume product. It's not a meaningful contributor. So I don't think it would have a big—I don’t know the exact number, but I don't think it will have a meaningful impact on the 250,000 dose target. Roughly speaking, when Millburn is fully online, it would more than double the capacity over Ivrea standalone. As we get that site fully ramped up, it could do potentially even more. I think as a base case assumption, Millburn doubles our capacity versus Ivrea. Indianapolis is a much larger scale facility with those semi-automated and automated lines, which when running at full scale a few years from now would have significant capacity but would add significant—would be a larger site than either Millburn or Ivrea in terms of the capacity it could generate. So taken together, those three sites, obviously, have a lot of production capacity for Pluvicto. Lutathera is not a production issue for us. In terms of the ex U.S., we would currently plan to supply the ex U.S. from Ivrea and Zaragoza outside of Europe. Asian markets, but we have plans to put up greenfield facilities in Asian markets. We have not disclosed exactly. But certainly, Japan is high in our mind amongst others to put forward those greenfield facilities to add capacity in Asia, particularly given the strong interest we've seen in Japan, Singapore, and other markets for Pluvicto.
Operator, Operator
Your next question comes from the line of Michael Leuchten from UBS.
Michael Leuchten, Analyst
Question for Harry, please. Going back to Slide 27. There's a lot of pluses and not that many minuses and obviously, Q1, the performance was very good. Your guidance increase seems a little bit modest in relative—in relation to that. So just wondering, as we think about phasing over the quarters, what is it in the rest of the year that we should keep an eye on beyond the integration costs or the separation costs for Sandoz?
Harry Kirsch, CFO
Yes. Thank you, Michael. We do have to note that on the bottom line, we upgraded to notches. I think that's not too small for quarter 1 update that clearly shows our confidence in the future. The one thing we have to watch a bit is inflation. That's where we have to see. When you think about it, the inflation on the cost of goods, the products we sell are from inventory produced in the second half of last year. The products we produce now will be sold in the second half of this year with a huge standard cost approach and so on. Not a super big deal, but overall, we expect another $500 million of inflation after having $350 million last year. Again, our productivity efforts are expected to much more than offset. Given the large part of the Sandoz as part of the total COGS, that hits them a bit over proportionately. But I think I don't want to overtalk it too much. We are upgrading our guidance to high single digits, low double digits, so certainly, the green plus is by far outweighing the red minuses.
Vasant Narasimhan, CEO
Next question, operator?
Operator, Operator
Your next question comes from the line of Andrew Baum from Citi.
Andrew Baum, Analyst
Please forgive the voice. I'm struggling with COVID. A question for Vas, suspect you remember, historically, I've described the ecosystem in always being the early adopter and taking a less risk relative to peers. The early data from SET with CAR T CD-19 in refractory autoimmune is remarkable. The biology is strong, patient access node patients is much easier in oncology. We understand that Bristol is about to open a very large program with their CAR T in lupus and multiple other autoimmune diseases. When I look at Novartis, the trial that's posted that's just opened has got a sum of 12 patients. So this 12 patients just to start, and it's materially going to expand? Is there some risk that the pendulum is overcorrected and Novartis risk missing out on a major commercial opportunity?
Vasant Narasimhan, CEO
Yes. Thanks, Andrew. We’re very excited about the potential of CAR therapy in immunology. We believe with YCB, perhaps unlike our competitors, we have a low-cost rapid manufacturing process with hopefully better safety profiles and scalability, particularly for the immunology indications. I don't know where the competitive set is on that technology. We opened an initial program in SLE. We plan to expand that across a range of other immunology indications once we have the initial data that regulators have asked for us before safety data. These protocols are all written. This is our top priority for CAR therapy. We are putting immunology ahead of DLBCL and multiple myeloma. Our CAR teams are working around the clock now to expand as fast as we can, given the very powerful case reports we've seen out of Germany and other jurisdictions. I've read those case reports myself, and I would agree with you, it's pretty remarkable to see what you can do with a full reset of the B-cell compartment. B cells come back, but you don't have B-cell lineages that seem to target these self-antigens that lead to these diseases.
Operator, Operator
Your next question comes from the line of Graham Parry, Bank of America.
Graham Parry, Analyst
I just wanted to just follow up on conference presentation. You haven't ruled out ASCO, but I think the headline or the release titles will be released tomorrow. So if it's not in those cycles, is it possible still that it could be at ASCO? I notice you are going to do an ASCO event; is that with the intent to discuss NATALEE? For Pluvicto, the PSMAfore, do you think you'll be able to hit the ESMO conference? Or can you confirm now that you wouldn't make that conference with that data?
Vasant Narasimhan, CEO
Yes. I think on NATALEE, I can't comment on the specific conferences that we are putting forward. However, we're moving fast to get NATALEE out into the public. So it can be reviewed by investigators, clinicians, and of course, the investment community. I’ll leave it at that on that. Regarding Pluvicto, it's too soon to say. We had discussions with the FDA, and the FDA has made clear the information fraction that they want in terms of the number of OS events. We’re just waiting to hit that, that number will lock, and as soon as we lock and have the data, we'll move forward to a Congress as fast as we can. We're hopeful that can happen in the first part of the summer, but it's all data-dependent. Until we have the events, we can't make the lock at the FDA. The guidance we received from the FDA aligns with the guidance that our competitors received for their prostate cancer medicine.
Operator, Operator
Your next question comes from the line of Richard Parkes, BNP Paribas.
Richard Parkes, Analyst
And just to follow on from Michael's question over the guidance. It's obviously a very impressive margin performance in IM in Q1, but guidance doesn't seem to suggest that's not sustained at that level on a year-on-year basis through the year. Just wondered if you could talk again about phasing benefits that might have been in Q1, how Innovative Medicine margins should evolve or—I know you talked about inflationary impacts on COGS, but that sounds like that's more impacting Sandoz. Any insight would be helpful.
Harry Kirsch, CFO
Thank you, Richard. Actually, I don't think I can say so much more. Quarterly margins, as you know, are not as linear; you have the improvement in Q1. We cannot just multiply that or assume that will be happening each quarter now. Overall, we are, of course, highly confident in margin improvement for the year. It's quite significant if you model it out, and then the inflation we have to watch altogether. It's not only hitting on bundles, but it's also hitting on innovative medicines, just not as big there for the overall P&L. So let's be a little bit cautious after three months; I would continue to expect good productivity in the top line, but how exactly the margin by we also—I don’t believe in quarterly guidance, be it on sales or margin; it is too much. We have dynamics. We always want to ensure we do the right investments on everything. I expect a very good further dynamic margin development as we go forward. I expect the top line and productivity programs to positively develop. This is a very high margin improvement in one quarter, and I would not suggest simply to assume that for the rest of the year.