Novartis Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 25, 2023

There are 19 speakers on the call.

Operator

Morning and good afternoon and welcome to the Novartis Q1 2023 Results Release Conference Call and Live Webcast. Please note that during the presentation, all participants will be in a listen only mode and the conference is being recorded. A recording of the conference call, including the Q and 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.

Operator

Please go ahead, sir.

Speaker 1

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.

Speaker 1

For a description of some of these factors, please refer to the company's Form 20F and its most recent quarterly results on Form 6 ks that respectively were filed with and furnished to the U. S. Securities and Exchange Commission. And with that, I'll hand across to Vas.

Speaker 2

Thank you, Samir, and thanks everyone for joining today's call. If we move to slide 4, Novartis delivered a strong Q1 to start the year. Strong sales growth, robust margin expansion. We hit our key innovation milestones and we're raising our full year 2023 guidance, which Harry will go through in more detail. As you saw in this morning's press release, sales were up 8%, core operating income was up 15% in constant currencies.

Speaker 2

In Innovative Medicines, sales were up 7% and core operating income was up 18%. We achieved a core margin of 38.7% in I'm Sandoz was up 8% with core operating income up 3%. I'll go through some of the innovation milestones in the subsequent slides as well as an update on our recent approvals of our Millburn and Zaragoza manufacturing facilities. Now moving to Slide 5, Our key 2023 readouts for our upcoming high value medicines remain on track. You surely saw earlier in the quarter our Phase 3 NATALY trial in adjuvant breast cancer testing this medicine in a broad patient population have met its primary endpoint at its 2nd interim analysis.

Speaker 2

Pluvicto continues to stay on track with the PSMA-four trial in metastatic castrate resistant prostate cancer. Having a positive top line readout, we expect to achieve the OS endpoints over the course of the summer with a detailed data presentation in the second half of the year and plan for regulatory submissions in the second half of twenty twenty three. And ipacopan continues to stay on track as well. Tomorrow, we will read out the data from the APOINT PNH trial in treatment naive patients. I'll speak more about that in a moment.

Speaker 2

And we're on track with both the iGand and C3 gs readouts. Now moving to slide 6, our submission enabling readouts are expected to increase in the 2024 and 2025 timeframe with a number of we think potentially exciting assets if the data continues to hold. Remibrutinib will achieve its primary analysis in CSU for efficacy in the second half of twenty twenty three and the Final analysis, which would include additional safety follow-up alongside potential submission in 2024. We've accelerated our Semblix Timing and first line CML with a readout and submission now expected in 2024. Also of note, we remain on track with our SMA IT readout for AOV-one hundred and one for 2024.

Speaker 2

And I also wanted to highlight that ionilumab across a broad range of indications has begun Phase 3 clinical starts, including in first and second line ITP, as well as in SLE and lupus nephritis. Now moving to the next slide, Slide 7 and turning to a little bit more detail on some of these innovation highlights. The NALY study met its primary endpoint demonstrating clinically meaningful IDFS in a broad early breast cancer population. The study looked at KIPDALI plus endocrine therapy with a 400 milligram dose and it significantly reduced The benefit was consistent in a broad population of Stage 2 and 3 early best breast cancer We expect to present this data at an upcoming medical meeting and we're on track for worldwide regulatory submissions in the second half of twenty twenty three. As a reminder, 30% to 60% of patients with Stage 2 and 3 early breast cancer treated with endocrine therapy alone remain at risk of breast cancer recurrence.

Speaker 2

And also wanted to highlight that our 400 milligram dose was used specifically to reduce dose dependent AEs given the importance of a good tolerability profile in treating Now moving to Slide 8, I wanted to get into a little bit more detail on the patient population addressed by the Cagalli and NATALYSE We've previously guided that this is a multi $1,000,000,000 opportunity for Kisqali in addition to the multi $1,000,000,000 opportunity we have in the metastatic setting. You can see here on the left hand side of the slide the incidents that we now estimate based on updated data sets that we've been able to identify. The NATALIE population covers 70% of Stage 2 and 100% of Stage 3 patients and it's approximately 2 to 3 times The size of the competitor study. You can see the profile in a bit more detail on the right hand side of the slide. You can see that in the Stage 2 population, we have unique to Natalie and a total population across the Stage 3 as well that's unique to Natalie.

Speaker 2

So it gives you a good sense of the comparison across the NAVALY and MONARCHE profiles. Now moving to Slide 9 and turning to etacopan. Our APOINT PNH data showed clinically meaningful increases in hemoglobin and we top line this data in the quarter 4 of last year. This was a single arm Phase 3 study in adult patients with PNH with hemolysis and anemia that were naive to complement inhibitors And complements the data we've already demonstrated in patients who were not adequately controlled by C5 inhibitors. The study met its primary endpoint, had a strong safety profile.

Speaker 2

And as already mentioned, the data will be presented tomorrow. And we look forward to Using that data alongside our already completed previous trials as part of our regulatory package, we have completed the submission of iptacopan in the U. S. And we are awaiting regulatory acceptance, which we hope will happen soon. Now moving to Slide 10, We strengthened our radioligand therapy pipeline with multiple deals over the course of the quarter.

Speaker 2

Some of the recent business Development activities included a discovery collaboration with Bicycle Therapeutics, which employs cyclic peptides, and that allows us to target additional Interesting targets from a radioligand therapy perspective and it supplements our existing discovery platform. In addition, we completed an acquisition of of safety-two thousand two hundred and eighty six from Clovis Oncology, which is a fibroblast activation protein and we believe it represents the promising RLC target in a range The asset is in Phase III development. It's shown for signs of efficacy And it complements the growing clinical stage pipeline we have outlined on the right hand side of the slide, which includes taking Lutathera into multiple different solid tumors, The continued expansion of Pluvicto as I've already outlined as well as the progress we're making on NeoB and now the acquisition of FAP-two thousand two hundred and eighty six. So we'll look forward to keeping you updated as we continue to progress our radioligand therapy portfolio. Now moving to Slide 11 Turning to our growth in the quarter and growth drivers.

Speaker 2

Our key growth drivers delivered 67% growth in constant currencies, and we expect that growth to continue. This growth was highlighted by performance from Entresto, Pluvicto, Kesempta and Kaskali. Now turning to these brands, each one in turn on Slide 12. Entresto delivered strong double digit growth across Geographies, you can see a growth rate of 32% with growth across ex U. S.

Speaker 2

And U. S. A strong weekly TRx trend, which is continuing the trend we've seen now for multiple years with this medicine. The momentum is outpacing the market with the U. S.

Speaker 2

NBRx now up 30%. We continue to see growth in the EU with hep RAF patients. And importantly in China and Japan, We're not only seeing expansion in heart failure patients, but also significant contribution from our indications in these geographies in hypertension. We remain confident in the future growth profile. We expect further penetration across half breadth, robust guideline positions to support our overall growth.

Speaker 2

And importantly, we We received CHMP positive opinion for pediatric heart failure, which if ultimately approved by the European Commission will extend the loss of exclusivity in the And as we've guided to, we continue to believe that global full year sales will be broadly in line with the prior year. Getting into a little bit more on these dynamics. In the U. S, we saw demand growth, which was solid, offset by revenue deduction. About half of the decline that we saw was due to prior year base effects where the revenue deductions that we disclosed in quarter 4 We're not in Q1 of last year.

Speaker 2

In addition, we did have some inventory movement. So overall, we do see in the U. S. Approximately a high single digit And Cosentyx performance, which is in line with what our expectations were. Ex U.

Speaker 2

S, we see strong growth in our core indications. Importantly, in China, we're outperforming the market with our NRDL listing with Cosentyx, double digit growth now post COVID. As I mentioned, we expect our sales to be broadly in line and our future growth will be driven by life cycle management. We have the CHMP opinion for We're on track with our lupus nephritis and GCA studies and we've initiated 2 additional studies in polymyalgia rheumatica and rotator cuff tendinopathy. So moving to Slide 14, just to highlight some of the data we released in Cosentyx in the quarter in hidradenitis.

Speaker 2

We had demonstrated durable efficacy This is a disease that's characterized by lesions and abscesses. Patients really suffer from the disease. So really what is critical is that we can address and address some of the more problematic manifestations of the disease. On the right hand side, our data demonstrate durable efficacy, which is sustained out to 1 year across the various patient populations, greater than 70% of patients were flare fee, greater than 65 Well positioned in what could be a sizable market as more and more therapies become available to treat these patients with the biologics that they likely need. And moving to the next slide, Slide 15.

Speaker 2

Cosinta continued its strong launch trajectory, doubling sales versus prior year. You can see the 100% growth on the chart. This was driven by strong TRx growth, we're up 89% versus prior year, strong NBRx growth, we're up 60% versus prior year. Importantly, the B cell NBRx share that we have is currently about 50% of the MS market, so there continues to be room for further B cell expansion. In Europe, there was strong launch momentum as well with now 65% of the population with access to Casimpta.

Speaker 2

We're confident in the continued growth of this medicine. We think there's significant room to grow the B cell market share in the U. S. We also have a compelling product profile, 1 minute a month dosing from home or anywhere, strong 5 year efficacy and safety data. So we'll continue to drive strong performance with XIMTA over the course of this year.

Speaker 2

Now you likely saw on Slide 16 that Kigali had an outstanding quarter and we're gaining momentum Globally with increasing recognition of its differentiated profile supported by strong Phase 3 outcomes data. So growth of 81% on the sales line are metastatic breast cancer market share. NBRx share is now at 28% in The U. S. In EU5, our NBRx share is up to now 38%.

Speaker 2

We have the favorable NCCN guidelines as the only Category 1 treatment for first line metastatic breast cancer with an aromatase inhibitor and a positive readout as we've already discussed So we expect continued momentum for Kigali as it achieves its multibillion dollar potential in the metastatic setting. Now moving to Slide 17 with Lectio, our adoption is continuing to expand as we steadily progress this What we wanted to highlight here is when you look at adoption, the number of facilities that are now ordering Lectio, we're up to 2,200 facilities. Our number of physicians that have experience now with Lexview is up to 9,600. And our focus now is to drive greater depth in these accounts as these accounts get more comfortable with buy and bill, which will absolutely be critical for the long term success of this product. Our access rate is at 76%, adherence now to the 2nd dose within 95 days is at 75%.

Speaker 2

So the foundations are getting put in place for this medicine and we continue to track well against the Entresto launch curve, which I think gives you an indication of how we The launch to progress in the U. S. Globally, we're also seeing now the beginning of an acceleration as we continue to expand in Europe And also wait for further acceleration in the UK with the NHS National Program. Now turning to Slide 18, So AVEKTO is continuing to see outstanding demand and a strong benefit driven by a strong benefit risk profile and the unmet need in the post taxane You saw the sales evolution now up to $211,000,000 on the quarter. We do expect Q2 sales to be broadly in line with Q1 as we continue to ramp up the Millburn and Zaragoza facilities.

Speaker 2

We have 200 unique accounts, but importantly have over 100 additional accounts we're prepared to add on as supply continues to ramp, Moving towards our goal to estimated 500 accounts in the U. S. As we move into broader and broader settings. Our FDA submission for PSMA4, including the OS data is on track as I previously mentioned. And to get into a little bit more detail on the supply, turning to Slide 19.

Speaker 2

As you saw in our announcement last week, Millburn is approved for Pluvicto commercial supply in the U. S. And we already have started production in this facility. We also have Zaragoza approved in the EU and we expect that facility to start producing for EU patients over the course of the coming weeks. As we continue to add additional lines and bring additional lines operational in Millburn over the course of the coming months, We will expect to see in the second half of the year significant expansion in capacity, which will allow us to accelerate the launch as we move in to the end of 2024 2025.

Speaker 2

Importantly, our Indianapolis facility as well as now in preparation for FDA filing, We hope to have that facility approved before the end of this year. And the last element of our story on production is the building of automated production lines, which allow substantial capacity. We continue to target a capacity of at least 250,000 doses in 2024. Now lastly, turning to Semblix. Semblix continues to do well in the 3rd line setting for CML.

Speaker 2

Q1 sales were at 76,000,000 Our global rollout is ongoing with approval in 46 countries. We have access pathways in 2019. I think there's Strong recognition of the efficacy and tolerability benefit of this medicine, and that's indicated by the rapid enrollment of the Ask The first study was completed enrollment ahead of plan with a readout and filing now expected in 2024. So a strong start to the year, a Strong first quarter and to give you more perspective on the financial performance in Q1, I'll hand it over to Harry. Harry?

Speaker 3

Yes. Thank you, Vas. Good morning and good afternoon everyone. I'm now going to talk you through some of the financials for the Q1. And as always, My comments refer to growth rates in constant currencies unless otherwise noted.

Speaker 3

And as you will see from the numbers, It really has been a very strong start to the year. Now on Slide 23, we detail the strength of 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, Plovictico, Cinta, Cascali, 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 Fasten and Co operating income benefiting from a lower weighted average number of shares outstanding. Free cash flow was €2,700,000,000 growing 95%, mainly driven by higher income, favorable changes in working capital and some one time legal matter.

Speaker 3

In summary, as I said, a very strong start to the year. Next slide, please. Details EBITDA to the performance of Innovative Medicines and Sandoz. Overall, the picture is quite green above the board. And on the back of the strong sales performance of our growth drivers, I'm sales grew 7%, which drove an increase And I'm 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.

Speaker 3

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 Co 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.

Speaker 3

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 digit and core operating income to grow high single to low double digit. For Novartis, including Sandoz, which is basically 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 digit and core operating income to grow high single digit. Our key assumption is that no Sandostatin ADR generics would enter the U.

Speaker 3

S. In 2023. As you will note from next slide, Sandoz guidance is also raised 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 digit for now.

Speaker 3

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 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. Mid term, 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.

Speaker 3

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 its biosimilar pipeline. Biosimilar adalimumab was approved in both U. S.

Speaker 3

And Europe. Denosumab biosimilars filings was accepted in the U. S. And we expect the Phase 3 readout of Aflibercept biosimilar in the second half of twenty twenty three. The planned spin off is well on track for the second half of this year.

Speaker 3

The Capital Market Days are planned in early June in both New York and London. We also announced that Gilbert Gottstein 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 co ordum Between Sandoz I'm it's around €200,000,000 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.

Speaker 3

Should there be any question, 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 acceleration of recent launches. Pluvictu growth, mainly as of quarter 3, is now also well supported after the just announced FDA approval for our Milbern manufacturing site for the U. S.

Speaker 3

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 and A savings And the core operating income growth, if you go to the right side, of course, there's a few headwinds, which we Like inflation, we'd expect to continue throughout the year. Of course, we monitor that. If there's any change, we would update you as always.

Speaker 3

And also some headwinds from generic erosion as we still continue to have gilenya generics Erosion U. S, Lucentis in Europe and of course then the further acceleration of stand up investments To transition Sandoz to a standalone company, we had relatively little of these stand up investments in quarter 1, but it's also one of the reasons for the expected core 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.

Speaker 3

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 2023, we expect the full year impact Currency is in 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.

Speaker 3

And with that, I hand back to Lars.

Speaker 2

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 Cosymtiv with broad based. Our launches are performing well. Pluvicto and Simplex continue on a strong trajectory and Lecceo is progressing steadily. We're confident in our mid term growth outlook.

Speaker 2

Natalie had a positive Phase 3 readout, looking forward to presenting that data. We had positive top line of pacopan data and consistently now presenting additional data as we move to C3 gs and IGAN. Pluvicto reading out an earlier lines of therapy. We'll have readouts upcoming with Semblix, remibrutinib, At the May, Suzyldentzma, IT amongst others. And 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.

Speaker 2

So with that, I'll open the line to questions. I would ask 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

Thank you. We will now go to your first question. And your first question comes from the line of Graham Parry, Bank of America. Please go ahead. Your line is open.

Speaker 4

Great. Thanks for taking my question. So predictably on Kisqali and NATULI, you've spoken in the past about The adjuvant and early breast cancer opportunity being around a $6,000,000,000 addressable market. And I know you don't want to share too much more of the data, but do you think that

Speaker 5

your data is consistent

Speaker 4

with that sort of market opportunity? With that sort of market opportunity?

Speaker 2

Yes. Thanks, Graham. I think the opportunity would continue to be in that range based on The data will of course, the key driver will be how much uptake we can drive in the Stage 2 patient population, So those with no negative patients given that there is more reluctance I think amongst physicians to start patients on additional lines of therapy. But We believe that the data is strong enough overall that there should be broad use across both Stage twothree Patients at risk with breast cancer including node negative patients. Next question, operator?

Operator

Thank you. Your next question comes from the line of Matthew Weston from Credit Suisse. Please go ahead. Your line is open.

Speaker 6

Thank you. My question is about the R and D pipeline. It's quite notable that in the quarter, I think 20 Phase 1 and Phase 2 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 this fits 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 cost in early stage to concentrate on some of those new Phase III trials that you set out in your opening comments, Saf?

Speaker 2

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 5 therapeutic areas plus TAX where we house our renal and ophthalmology gene therapy programs. And 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, we're addressing Tumors that are no longer priority tumors for the company. And we wanted to stop those projects.

Speaker 2

And so I think that was probably the biggest driver of the shift However, also when we benchmarked ourselves versus the peer set, we saw that we had more projects than our peers, which led to us have less investment per project versus the peer set. And we think that's important because I think having strong investment in the early stage or an early clinical can also help us go faster, go broader into more lines of therapy, more indications. So we want to get up on that those metrics also with the goal of having more high value medicines generated from the pipeline. So I think that was the 2nd shift that was on our minds as we made this clean up of the portfolio. Now I think looking forward to your specific question in We have identified 5 tumor types we're particularly interested in and we're trying to focus our energy there.

Speaker 2

We also want to pivot much harder to RLT based therapies where we see the strong performance of Flubecto and Lutathera. So I think that was also on our minds. I would 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. Next question operator.

Speaker 2

Thanks.

Operator

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

Speaker 7

Hi. Yes. Thanks very much for taking my question. Congratulations on a great quarter. The question is on remibrutinib.

Speaker 7

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 revibrutinib could have a differentiated profile there? Thank you.

Speaker 2

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.

Speaker 2

And then 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 1600 patients exposed to the medicine across a range of doses. And we have yet See any signs of liver toxicities, LFT, problematic LFT elevation. Our best Hypothesis at the moment is that given that the BTK receptor is not expressed in the liver, That the toxicities our competitors are seeing are primarily compound related. And our hope is that our chemistry has avoided that.

Speaker 2

There's no guarantees. We of course need to fully run these studies both in CSU and in multiple sclerosis where we have 2 studies ongoing in RMS. If the current profile holds, we have the opportunity hopefully to have a unique profile versus our computer set. It's our position that this should not be considered

Speaker 6

Thank you, Richard.

Speaker 2

Next question, operator?

Operator

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

Speaker 8

Thanks for taking my question. A question on Lekvio, if I may. As you showed on Slide 17, you are tracking nice, If not slightly above the Entresto launch. But I'm guessing at some point we should still expect there to be an inflection. And I just wanted to get an update on how close we are.

Speaker 8

When one looks at the numbers of facilities that have ordered the HCPs with Lakeville experience, presumably at some point that linear trend starts to move up. And 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? Thank you.

Speaker 2

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 Getting more depth per physician office that orders. And that's something we're very focused on.

Speaker 2

It primarily has to do with comfort with The buy and bill process, understanding the reimbursement process. Also, if to add additional patients in buy and bills, in some instances that may mean more administrative So it's difficult to predict exactly, but we continue to hope that over the course of the next 6 months, we'll start to see increasing depth, which then should compound over the course of next year to lead us to maintain or I Ideally beat the Entresto curve, but I think at this point our aspiration is to stay on that Entresto curve, which has driven I think pretty impressive overall sales And so that's where we're tracking at the moment. As we see anything shift in the marketplace, we'll of course let you know. Next question, operator?

Operator

Thank you. Your next question comes from the line of Mark Purcell from Morgan Stanley.

Speaker 9

Faz, I hope you could give us some insights into how you feel The prostate cancer space is going to be treated going forward. As you move from the post taxane to the pretaxane setting, obviously, there There's Pluvictone, there's other radiotherapies, which are going to hopefully help the uptake of that category, thinking of, for example, Point Biopharma's PNT2002, where we're going to get pifidades in the same setting as PSM4 in the Q4 period, but there's also ADC is entering this space as well. So I just wanted to help us understand the logistical and other challenges of radioligand therapy versus ADCs, for example, And where you think this big opportunity is going to go in the pretaxane setting? Thank you.

Speaker 2

Yes. Thanks, Mark. When you look at Pluvicto and why you've seen such 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.

Speaker 2

And the opportunity to cycle patients to 6 doses or 4 to Doses depending on the situation and not have them be on chronic therapy. That's led to a significant increase, At least as we've seen in capacity for radioligand therapies at centers across the United States, given that also There already is very good capacity for F-eighteen diagnostics for looking at these patients. So I think right now the capacity increase is Quite substantial, at least what we're seeing, to enable us to move into the pretaxate 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 3 full scale manufacturing sites, we hope by the end of the year, The U. S.

Speaker 2

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. So I feel pretty comfortable Of course, there's always going to be different options. You have the ARDTs. As you mentioned, you have ADCs. You have many different options.

Speaker 2

But I think Given the profile of Pluvicto and if the data continues to demonstrate its benefit, there will be a solid significant proportion of patients in the metastatic setting in the pre taxane setting that will choose to use Pluvicto with their providers. And I don't think logistics constraints will be the issue. Now as we move into earlier lines of therapy and we look at delayed castration or Other settings, that's another ballgame. And there, I think we would have to find ways to expand the ability to administer radioligand therapies further into the community. There, I do think we would need to do some additional quite a bit of additional work to expand that capacity.

Speaker 2

But we, of course, have time for that. Those readouts are still 3 years And by that time, I hope we would have better solutions for community oncologists to be able to administer radioligand therapies. So bottom line is I think these can all coexist and I think it still supports multibillion dollar potential for each of the Pluvicto indications if ultimately successful.

Speaker 9

Thank you.

Speaker 2

Next question, operator.

Operator

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

Speaker 10

Hi. Thanks for taking my question. I just wanted to follow-up on Plavicta as well. And Just thinking about your supply into the second half as you ramp up the Millworm facility. So just some thoughts on The proportion of the 2024 target you might be at of the doses you might be able to have in 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?

Speaker 10

Thanks.

Speaker 2

Yes. Thanks, Richard. I'd say Broadly, we believe we're comfortable that Pluvicta will exceed $1,000,000,000 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 FDA. And Because this is an approved facility, that review is a relatively short review.

Speaker 2

And then ultimately, the Indianapolis facility, which we're also raising now to file as So difficult at this moment to dimensionalize the scale above that $1,000,000,000 mark. And I think as we get those lines Operational, I think by Q2, we can provide some better color on the scale of the supply increase.

Operator

Thanks.

Speaker 2

Next question, operator.

Operator

Thank you. Your next question comes from the line of Emmanuel Papadakis from DB. Please go ahead. Your line is open.

Speaker 11

Thank you for taking the question. Perhaps I could take one on the Longer term implications of Natalya for the financial outlook. So on the one hand, your previous margin guidance Getting about 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 the timing of potential IRA inclusion, high price negotiation if the commercial opportunity proceeds as We hope it may.

Speaker 11

Thank you.

Speaker 2

Yes. Thanks, Emmanuel. So first on the margin, I'll give it to Harry. Harry?

Speaker 3

Yes, Emmanuel, thank you for your question. I mean, overall, of course, as we do our 5 to 10 to 15 year forecasts, which we base our guidance to you all. There's, of course, a portfolio with certain probabilities and all of that. We had, I would say, the NATALI trial as appropriate Phase III higher probability. I would say, as we always mentioned, that was one of the disconnects Of the consensus to our 4% CAGR.

Speaker 3

As I think when I looked at the consensus, there was almost nothing in Consensus for NATA Ali, which I always find a bit strange, but in the end, everybody makes their estimates. So that is certainly we Increase now on, of course, modeling now from a Phase 3, call it 70%, 80% probability to 100%, right, if you will. Of course, approval still has to happen, but we are close to that. So it's positive. It's certainly supporting our case.

Speaker 3

And I think that the confidence levels go up. Now on the other hand, the 40%, I mean, we always had very strong plans for the 40% to hit that margin in 27%. Again, when a drop line is great on high margin products, that is always helpful. Often I get the question and what beyond the 40%. I think let's first get to the 40% and recall that 40% is for the new Novartis After the Sandoz spin, so it also includes roughly 1.3 points of corporate costs, Right, which was back then when we gave the guidance basically an inherent upgrade.

Speaker 3

And then beyond that really depends on the product mix. But let's first get to the 40%. Once we get closer, we will have more visibility on the mix beyond. But I think it's anyway important that we and you all are confident in our top line growth, right, which is always the most important in the pipeline. Thank you.

Speaker 2

And then I think Emmanuel on IRA, The Kisqali today, roughly about a third of the patients are Medicare patients. So I think it's early days for us to forecast when Exactly. It would fall within the IRA. I think that we've previously stated, we would expect it to be at the end of the decade, Given that Xtali's LOE would be in the early 2030s, we think it would roughly coincide. But obviously, with the NATALY data, now We'd have to obviously 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.

Speaker 2

As you know, that's an ongoing topic and one certainly 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. Thank you. Very helpful. Thank you. Next question, operator.

Operator

Thank you. Your next question comes from the line of Steven Scala from Cowen.

Speaker 12

Thank you. As noted earlier, when describing Natalie results, Novartis refers to the benefit as consistent. When using the word consistent, we assume Novartis is referring to a consistent station you want investors to have heading into the readout? Or should that expectation be modified? Thank you.

Speaker 2

Yes. Thanks, Steve. So we don't want to provide excess data here given that we We have committed to present the data at upcoming medical Congress. We want to preserve that and also preserve our ability to publish the data in a major medical journal. But certainly when we say consistent benefit in a broad population of patients with Phase 2 and 3 early breast cancer at risk of recurrence, We're referring to the primary endpoint in the study and I think that is always what we're referring to when we look at that data.

Speaker 2

And I think then you can interpret that as you will. It will be hopefully soon that you'll be able to see the full data set and understand better the specifics both from the primary endpoint, but also the trends in OS as well. Next question, operator? Thanks, Steve.

Operator

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

Speaker 13

Hi. Thank you for taking my question. I had another question on Kisqali. I believe you discussed earlier today about developing potential And 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 CDK4six There's been a focus of some competitors.

Speaker 13

So would that be an idea? Or just any insights you can provide there would be helpful. Thank you.

Speaker 2

Yes. Thanks, Emily. I think my comments earlier today were mostly referring to our internal programs to develop additional Mechanisms that we think would be relevant for the breast cancer setting. So that would include of course the CDK2 class, Perhaps a stronger CDK4, CDK2, 4. So we have a number of projects ongoing within the research unit within NIBR to look at additional Oral agents that can target the various elements of the cyclin dependent kinase cascade.

Speaker 2

So that's, I think, a big area of focus. We also continue to evaluate in house if there's a role for any of Our radioligand therapies as well as our own in house ADC programs as well. It is a priority for us to build a deeper breast cancer portfolio behind Kisqali, but it's all very early and I think something we want to address now given the probably very strong decade we expect to see with Kiskali in the position we'll build in breast cancer to make sure we have a steady portfolio. So I think more to come on how we progress those internal assets as we get more Preclinical and then hopefully clinical data. Next question, operator?

Operator

Thank you. Your next question comes from the line of Tim Anderson, Wolfe Research. Please go ahead. Your line is open.

Speaker 14

Thank you. On NATALY, 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 for ZENEO, given just a qualitative description, efficacy and tolerability? And then you mentioned in intermediate patients and especially node negative, it might be more challenging to drive uptake. And I'm wondering Why is that focused primarily on tolerability? And Natalie used a lower dose, of course, to mitigate tolerability.

Speaker 14

What can you say about the tolerability in NATALY at that lower dose in general? Thank you.

Speaker 2

Yes. Thanks, Tim. So I won't repeat what I said Steve, obviously, we don't want to in any way impact our ability to present and publish the data set in the upcoming period. So not much more I can say the data is consistent. We believe clinically compelling and we said that it's clinically meaningful And I think it's been well described in all of your reports as to what it requires to be clinically meaningful.

Speaker 2

In I probably can't characterize it any further 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 We need to now educate physicians that there remains risk for recurrence and no negative patients And that those patients also would benefit from CDK4six on top of endocrine therapy. So it's much more of a, I think, a patient a physician education And change in clinical practice, nothing to do with the safety profile that we've seen. As you've noted, we took it down to 400 milligrams we took Going down to 400 milligrams based on our belief that this would give us a better safety profile and there has been The Phase 2 study, the AMOLED 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.

Speaker 2

Next question, operator.

Operator

Thank you. Your next question comes from the line of Terry Holford, Berenberg, please go ahead. Your line is open.

Speaker 15

Thank you. A question please on Business Development. Bas, I would just like Here your latest thoughts here. What is your appetite for external R and D opportunities either in the form of partnerships, And I guess Novartis has been reasonably quiet on PT over the past year or so. And clearly, Many of you are picking up the pace here now.

Speaker 15

Has Novartis tried and failed to secure some deals Yes, just love to hear your latest thoughts with regard to appetite for size of deal through BDC area focus. Thank you.

Speaker 2

Yes. Thanks, Gary. There's no change in our strategic thinking On how we approach BD and M and A, I would agree we've been relatively quiet over the last year, but we've also had a major transformation program ongoing and also focused on accelerating are internal assets, and I think that's borne fruit with the positive readouts of Pluvicto, Octacopan, Kibkali as well as the additional assets I outlined on the call. But we are very actively looking across a range of both partnering, licensing And of course bolt on M and A and we continue to focus primarily in the sub-five billion dollars range as we've outlined. We of course look at all deals and deal sizes given are strength of our balance sheet, but we want to stay extremely financially disciplined.

Speaker 2

I mean, I think one thing that's a priority for us as a management team If you look at the science, is it compelling strategically, but importantly, is there a clear and compelling case for value creation given the premiums that are paid? And 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. So that's, I think, a high priority on our mind as we look at the external environment. So we hope to, of course, execute some additional deals in our core therapeutic areas over the Coming year. But I think given our positive readouts, we also don't feel pressured to do that.

Speaker 2

We'll do it if it makes sense scientifically and strategically. Next question, operator?

Operator

Thank you. Your next question comes from the line of Peter Welford from Jefferies. Please go ahead. Your line is open.

Speaker 16

Hi, thanks. Just a sort of broad question in terms of we've obviously seen very strong commercial performance during the first Quarter that I think surpassed certainly most people's expectations.

Speaker 10

But at

Speaker 16

the same time, we're obviously undergoing a pretty big strategic review And also obviously a lot of changes in the commercial organization. So just curious, is it that there hasn't really been an impact to our own disruption from this? And I wonder if you could sort of update us how far you are through now, sort of exiting in terms of the headcount reductions and some of the changes that are done with that review. And therefore, 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, Just wondering if there was any disruption in the first place and this has all been managed.

Speaker 16

And 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? Thank you.

Speaker 2

Yes. Thanks, Peter, and I appreciate the question. So to be clear, we believe the performance we're seeing Q1 is a result of the focused strategy we implemented over the course of last year, which is largely Other than a few countries in Europe, it's largely in place. And there were a few key drivers. 1, the simplification of the organizational structure as well as The focus on the United States as a key market.

Speaker 2

2nd, identifying the 9 key brands and putting all most of our M and S focus On those 9 key brands to drive outstanding growth, which also created a higher degree of organizational focus on those brands. I think also 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 medicines company. I believe all of that has led to, I think, a very strong performance in Q1, which we expect to continue. But Harry, anything you want to add?

Speaker 3

I think you said it all. And I think what people always were a bit concerned when we did the Transformation for Growth program, which probably many people understood as only a restructuring. That's actually not the case. It was about focus. Yes, there was also given the internal merger mainly between Among Onco, some restructuring elements, but in the end, that led to more focus.

Speaker 3

And of course, still we are working on some things fine tuning, But I think that focus on the commercial side as well as on the key assets has led to a lot of clarity and therefore good uptake that we see and as Vas mentioned, we do not expect that to slow down much.

Speaker 2

And maybe the last element, the efficiency and productivity you're seeing, the leverage, It's in part because of the streamlining of 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. And I think that additional productivity is what you're seeing flow through the pipeline when you look at the Thank you, Peter. Next question, operator?

Operator

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

Speaker 5

Great. Thanks for the question. 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 the NMS as well. Bas, 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 Patients' exposures to kind of move past that seemingly 70 day time point that FDA has been raising concerns about against 2 other assets.

Speaker 5

Thanks so much.

Speaker 2

Yes. Thanks Seamus. So we have The detailed monitoring in place, which FDA has asked for, we have 1600 patients exposed across dose levels. We have not seen the liver Toxicity or liver signals that others have seen. I think coming back to the science again, BTK is not expressed In the liver, importantly, patients who genetically don't express BTK also don't have liver abnormalities.

Speaker 2

And from what 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. So we believe this is related to the structures of the medicines, not actually the BTK as a target. And our hope is we can demonstrate that through the CSU, 2 ongoing studies and the 2 MS studies. But ultimately, this will, of course, be data driven. But I believe that if we can demonstrate that there's strong mechanistic reasons why there should not be class labeling and really specific to the individual molecules.

Speaker 2

And I believe in prior slides, we've my recollection is we showed the structures of the 4 BTK inhibitors in prior R and D days. And you would notice that our BTK inhibitor has a very unique structure relative to the other three. Our hope is that it can drive a better safety profile, but we'll ultimately see based on the clinical data that we generate. Thanks, James. Next question, operator?

Operator

Thank you. Your next question comes from the line of Erik Le Borregard from Stifel. Please go ahead. Your line is open.

Speaker 17

Thank you. Good afternoon. Two questions for Victor related, please. The first on your slide that the footnote says that the 2,500,000 doses per annum will be If Lutatira is then included, could you mention how many doses currently are supplied for Lutatura 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.

Speaker 17

Would it be a great and First assumption to say that Melbourne, once all lines are approved and operational, will be of the same size as the Bria in Italy and that Indianapolis will be maybe the largest one, representing more than 50%. And also could you repeat that Asia is not part of the 2,500,000 doses and will have to come on top? Thank you.

Speaker 2

Thank you, Eric. So multipart question, and I'll try to take them up 1 by 1. So Lutathera is a very small volume product, so 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 would 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 a Bria standalone.

Speaker 2

And as we, of course, get that site fully ramped up, it could do potentially even more. But I think as a base case assumption, Millburn doubles our capacity versus EBRIA. Indianapolis is a much larger scale facility with both semi automated and automated lines, Which one running at full scale a few years from now would have significant capacity, but it would add significant it would be a larger site than either Millburn For EBRIA in terms of the capacity it could generate. So taken together, those three sites obviously have a lot of production capacity for Pluvicto And of course, Lutathera, but Lutathera is not a production issue for us. Now in terms of the ex U.

Speaker 2

S, we currently would plan to supply the ex U. S. From IBRIA and Zaragoza outside of Europe, outside of the U. S. So Asian markets, but we have plans in place to Put up greenfield facilities in Asian markets.

Speaker 2

We've 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

Operator

Your next question comes from the line of Michael Leiston from UBS. Please go ahead. Your line is open.

Speaker 10

Thanks so much. A 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. But your guidance increase seems a little bit modest in relative in relation to that.

Speaker 10

So just Wondering as we think about phasing over the quarters, like 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?

Speaker 17

Thank you.

Speaker 3

Yes. Thank you, Michel. I mean, we do have to note that on the bottom line, we upgrade So I think that's not too small for a quarter one update. Clearly shows our confidence in the future. Now the one thing we have to watch a bit is inflation.

Speaker 3

That's where we have to see. When you think about it, right, the inflation on the cost of goods, actually the products we sell now are from an inventory produced in the second half of last year, Right. So the products we produce now will be sold in the second half of this year, right, with the usual standard cost approach and so on. It's not a super big deal, but overall, we expect another €500,000,000 of inflation after having €350,000,000 last year. Again, our productivity efforts are expected to much more than offset, but given the large Part of the Sandoz as part of the total COGS, right, that hits them a bit over proportionally, but it's something we have to watch as we go forward.

Speaker 3

And that's why it's the first of the 3 negatives, if you will. I mean, when you look at our top line, you feel like there's no generics. There is generic impact as we speak, right? You see in Gilenya, as some of you pointed out, there's a miss on Gilenya. I mean, we take I would always To normal modeling on these small molecule generics, right, it goes extremely fast in the U.

Speaker 3

S. And Still outside of U. S. A bit slower. And of course, we are holding some of the IP in Europe, Some European countries, but still and Newcenters in Europe, we haven't seen the most mass effect.

Speaker 3

But I think I don't want to over talk it too much. I mean we are upgrading to high single digit, low double digit, right? So certainly the green pluses by far outweigh the red minuses.

Speaker 2

Thank you, Michael. Next question, operator?

Operator

Thank you. Your next question comes from the line of Andrew Baum from Citi. Please go ahead. Your line is open.

Speaker 18

Thank you. Please forgive the voice. I'm struggling with COVID. Question for Vas. I suspect you remember, historically, I've described the vastness of suffering from Piedler Nier syndrome in I'm always being the early adopter and taking, let's say, risks relative to peers.

Speaker 18

I'm going to completely contradict myself. The early data from SHET with RT CD19 in refractory autoimmune is remarkable. The biology is strong. Patient access needs 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 So is this 12 patients just the start and it's materially going to expand?

Speaker 18

Or is there some risk that the pendulum is overcorrected and Novartis risks missing out on a major commercial opportunity.

Speaker 2

Yes. Thanks, Andrew. So we're very excited about the potential of Card therapy and immunology. We believe with YTB, perhaps unlike our competitors, we have a low cost rapid manufacturing process with Hopefully better safety profile and much more scalable, particularly for the immunology indications. I don't know where the competitive set is on that technology.

Speaker 2

We've opened up an initial program in SLE. We plan to expand that across a range of other immunology indications. Once we have the initial data set that regulators have asked for us before safety data before we can make an expansion cohort Across multiple immunologies. Those protocols are all written. This is our top priority for CAR therapy.

Speaker 2

I mean, we are Putting immunology ahead of DLBCL and multiple myeloma, our CAR teams are working around the clock now to 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 seems to target B cell antigens that lead to these diseases. So full steam ahead. It's going to be a race.

Speaker 2

We accept that, but we want to go as big and broad as we can given our long history in immunology. And we believe versus the 2 peers, Given our experience running trials in immunology, that should give us an advantage if we execute well. Next question, operator?

Operator

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

Speaker 4

Great. Thanks for taking my follow-up. So just wanted to just follow-up on conference presentation. So naturally, I think you haven't ruled out ASCO, but I think The headline that will release the titles will be released tomorrow. So if it's not in those titles, is it possible still that it could be at ASCO?

Speaker 4

And I know you are going to do an ASCO event. So is that anything with the intent to discuss, Natalie? And then for Plavixo, with the PSMA 4, do you think you'll be able to hit the ESMO conference or can you confirm now that you wouldn't make that conference without data? Thank you.

Speaker 2

Yes. So I think on Natalie, I would say I can't comment on the specific conferences that we are putting forward. But we're obviously moving as fast as we can to get Natalie out into the public, so it can be obviously reviewed by investigators, clinicians and of course the investment community. So I'll leave it at that on Natalie. On Pluvicto, it's too soon to say.

Speaker 2

We have had discussions with FDA and FDA has made clear the Information fraction that they want in terms of the number of OS events. So we're just waiting to hit that number. We'll lock And then 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 1st part of the summer, But it's all data dependent and until we have the events, we obviously can't make the lock at FDA. But I would say the guidance we received from FDA is fully in line with the guidance that Our competitors received as well in December.

Speaker 2

AstraZeneca received I think very similar guidance for their prostate cancer medicine. Next question, operator. Thanks, Greg.

Operator

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

Speaker 7

Hi. Thanks very much for taking my follow-up. It's Just a follow on from Michael's question over the guidance. It's obviously a very impressive margin performance in I am in Q1, but guidance doesn't seems to suggest that's not sustained at that level of Year on year basis point improvement through the year. So I just wondered if you could talk again about phasing benefits that might have been in Q1, How Innovative Medicine Margins Should Evolve?

Speaker 7

I Know You Talked About Inflationary Impacts on COGS, but that sounds like that's more impacting Sandoz. So yes, any insight helpful. Thank you.

Speaker 3

Yes. Thank you, Richard. Actually, I don't think I can say so much more. I mean, Quarterly margins, as you know, they are not as linear, right? You have the improvement in Q1.

Speaker 3

We cannot just multiply that or assume that is happening each quarter now. But overall, we are of course highly confident in margin improvement on the year. It's actually also quite significant if you model it out. And then The inflation we have to watch altogether, right? I mean, that's not it's not only hitting on Sandoz, it's also hitting on Innovative Medicines.

Speaker 3

It's just not as big there For the overall P and L, right. So I would just let's be a little bit cautious after 3 months. I would continue to expect good productivity in top line. How exactly the margin by? We also I don't believe in quarterly guidance, be it on sales or margin, right?

Speaker 3

It corners us too much. We have dynamics. We always want to ensure we do the right investments and everything. And but I would expect a very good further dynamic margin development as we go forward as I also expect the top line and productivity programs to further positively develop. But this is a very high margin improvement in 1 quarter And I would not suggest to simply assume that for the rest of the year.

Speaker 3

Okay.

Speaker 2

Thanks, Harry. Okay.

Speaker 16

Thank you very much.

Speaker 2

Thank you, Richard. Next question, operator?

Operator

Thank you. Your next question comes from the line of Steven Scala from Cowen. Please go ahead. Your line is open.

Speaker 12

Thank you very much. I'm curious if Novartis has any more visibility on the profile of MBL-nine forty nine for obesity. On the Q4 call, you said that you would have greater visibility on dose and schedule in the Q2. I'm curious if the data is in house. And I'm wondering why Novartis rarely mentions this product, particularly given the global focus on obesity?

Speaker 12

Thank you.

Speaker 2

Yes. Thanks, Steve. I was just looking at my colleagues. So the answer is we don't have the FIR data set yet, but we will have it in the coming period and then We'll update accordingly. I think our reluctance is just to we want to be sure we have a real medicine here because I think given the overall Euphoria, I guess, around obesity, we don't want to create any kind of pulse.

Speaker 2

So we want to make sure that this is if it is a real drug and if not, We'll disclose it that way as well. So as soon as we have a clear understanding of did we adequately navigate the safety and

Operator

Questions for today? One moment please. And the question comes from the line of Matti Weston from Credit Suisse. Hello, Matthew, are you on mute?

Speaker 6

Can you hear me? Apologies. Yes.

Speaker 2

You'd have thought for a couple of years

Speaker 6

of COVID, I would have figured it out. It's a slightly odd question about contract manufacturing actually. You've now taken the Biologics contract manufacturing out of Sandoz, and it's a relatively meaningful quarterly revenue number growing strongly. I also noted that you recently took on, I think, a contract manufacturing contract for Kati from Bristol and Legend. I'd just be very interested to understand whether it's a strategic part of the Novartis business And you're trying to fill excess capacity across the network that you have or whether it remains more just of an ad hoc and opportunistic affair?

Speaker 6

And how big could it be, Harry? Could it be a $1,000,000,000 business for Novartis over time or more?

Speaker 2

So I'll start with the strategic side and then Harry can comment on the financial outlook. It is strategic. When you look at our investments over the last 5 years in advanced therapy platforms, we built up Quite a bit of know how. We believe we're one of the largest producers of AAV gene therapies in the world, one of the largest Producers of CAR therapies using lentiviral technologies in the world through the pandemic. We became a major producer of plasmids, Also a producer of mRNA through Letbeo, we will soon be the largest producer of siRNAs through our here in Switzerland through the capacity expansions, particularly with automated lines with RLT, we will likely or surely be the largest A producer of RLTs in the world.

Speaker 2

And so the opportunity exists when appropriate competitively to leverage that manufacturing base to generate A high margin business for the company, and that's why we moved it over. It will build over time, not overnight, but it certainly was a strategic consideration to move it in this direction. Harry?

Speaker 3

Yes, Matthew, I would call it, it's a mix of strategic and opportunistic, right? We have very good capacities. Our production manufacturing teams are doing a great job increasing yields. So also our Cost of goods are very competitive. Of course, in terms of priority, first is the Innovative Medicine strategy as well as The Sandoz biosimilars, right, with which the future Sandoz will have very clear contractual obligations.

Speaker 3

And then of course, if there's capacity available, again with contractual obligations, we will leverage further and we do have further capacities. And that's so at the moment when you look at it, we are at a run rate €500,000,000 if I recall correctly, but it's growing. So your €1,000,000,000 is not too far away over the years. So that could be a meaningful contribution. Of course, not like a big product, a big brand, but very important in terms of further maximizing our capacity as well as nice delivery to the bottom line.

Speaker 2

Very good. So thank you all for joining today's conference call. I really appreciate the interest in Novartis. We'll look forward to continuing to deliver over the course of this year and keeping you all updated as we progress and we wish you a great week. Thank you.

Operator

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

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Earnings Conference Call
Novartis Q1 2023
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