Novartis (NVS) CEO, Vas Narasimham on Q3 2020 Results – Earnings Call Transcript

Novartis AG (NYSE:NVS) Q3 2020 Earnings Conference Call October 27, 2020 9:00 AM ET

Company Participants

Vas Narasimham – Chief Executive Officer

Richard Sandor – Chief Executive Officer, Sandoz

Marie-France Tschudin – President, Novartis Pharmaceuticals

Susanne Schaffert – President, Novartis Oncology

John Tsai – Head of Global Drug Development

Harry Kirsch – Chief Financial Officer

Samir Shah – Global Head of Investor Relations

Conference Call Participants

Mark Purcell – Morgan Stanley

Graham Perry – Bank of America

Andrew Baum – Citi

Laura Sutcliffe – UBS

Kerry Holford – Berenberg

Peter Wellford – Jefferies

Keyur Parekh – Goldman Sachs

Simon Baker – Redburn

Florent Cespedes – Societe Generale

Richard Vosser – JP Morgan

Richard Wagner – Wolfe Research

Jo Walton – Credit Suisse

Naresh Chouhan – Intron Health

Richard Parkes – Exane BNP

Operator

Good morning and good afternoon, and welcome to the Novartis Q3 2020 results release conference call and live audio webcast. Please note that during the presentation, all participants will be in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions by pressing star and one at any time during the conference.

A recording of the conference call, including the Q&A session, will be available on our website shortly after the call ends. Should anyone need assistance during the conference call, they may signal the operator by pressing the star and zero.

With that, I would like to hand the call over to Mr. Samir Shah, Global Head of Investor Relations. Please go ahead, sir.

Samir Shah

Thank you very much, and thank you to everybody for participating in today’s call. We appreciate it’s a very busy day for you all as lots of companies are reporting out.

Before we start, I just want to read you the 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 and most recent quarterly results on Form 6-K that respectively were filed with and furnished to the U.S. Securities and Exchange Commission.

With that, I’ll hand across to Vas.

Vas Narasimham

Thank you Samir, and thanks everyone from my side as well for joining today’s conference call. With me today, I have Harry Kirsch, our Chief Financial Officer; Mary-France Tschudin, our President of Novartis Pharmaceuticals, Susanne Schaffert, our President of Novartis Oncology; John Tsai, our Head of Global Drug Development; Richard Sandor, our CEO of Sandoz; and Shannon Klinger, our Chief Legal Officer.

If we move to Slide 5, I’d like to start out by providing some perspectives on the third quarter. As you saw, we delivered very solid results, and I think it’s important to put those results in the context of COVID-19 and the impact it’s had on healthcare systems. Despite that impact and despite the impact of those healthcare system disruptions on some of our legacy brands, because of our key growth drivers, because of our execution on launches, we were able to deliver solid sales performance in line with Q3 of last year and 4% sales growth year to date, and strong operating income performance, core operating income performance of 11% in the quarter and 16% year to date.

As important was our ability to continue to deliver on our innovation agenda. In the quarter, you saw important approvals – Kesimpta in the U.S. for relapsing forms of multiple sclerosis, multiple approvals for Consentyx, Piqray, and then some indication expansions as well for Xolair. We had multiple positive readouts in Beovu in DME, ABL001 in CML, and importantly a range of readouts as well for LNP023 – Iptacopan, our factor B inhibitor which we believe could be the next–one of the next major medicines for Novartis. We also achieved positive CHMP opinion for Leqvio in hyperlipidemia and Adakveo for sickle cell disease, so a solid and strong quarter, really, for delivering on innovation.

There were also multiple important designations we received, both for LNP023 and also for LMI070 orphan drug designation for Huntington’s disease, and I’ll say more about that in a couple of slides.

Moving to Slide 6, turning to our growth drivers, there was strong performance across our key growth drivers. Some of the highlights include Entresto growing 45%; Zolgensma having a strong quarter with strong uptake in Europe, growing 79%; Consentyx growing 7%, ahead of a challenging market right now in dermatology but still demonstrating its overall strength in both dermatology and rheumatology and exceeding a billion dollars for the first time; and solid performance across the full range of our oncology portfolio. You also see Mayzent beginning to accelerate and continued solid performance for launches, such as Piqray as well as Lutathera.

Now when you look overall at our key growth drivers, they are now accounting for 50% of our sales in the quarter in Q3, and I think that shows a transition from our legacy portfolio to our next wave of innovative medicines as well entrenched and continuing at pace.

Moving to Slide 7, I just wanted to say a word specifically on Zolgensma. Zolgensma’s cumulative sales since launch now has exceeded $1 billion. You can see on the left-hand side of the chart we achieved sales of $666 million year to date with strong growth in Europe and also recovery in the U.S.

Just to say a few more detailed words about the geographic highlights, in the U.S. we saw a rebounding from the pandemic disruptions we saw throughout the summer, as well as in the spring, and that I think is allowing us to get patients tested again and on treatment. Seventy-four percent of newborns are now being screened for SMA and we see that rate continue to grow, and of course in states with newborn screenings, Zolgensma tends to have very high share.

We’re also seeing an overall shift to the incident population away from switches from Nusinersen. You can see 83% of our sales in Q3 were switches–were new starts from an incident population versus 34% in Q3.

In Europe, we’re seeing very solid uptake. Nine EU countries have established access pathways – that’s already covering 25% of the population. The overall dynamics we see in the ex-U.S. marketplace is as a country comes on board, we see a bolus of patients come onto Zolgensma, then we move back to the steady state and then we get new countries on board, so in line with that, Germany delivered 50% of our ex-U.S. sales in quarter three. We continue to see very strong uptake in Germany, and now we expect to see multiple other countries start to come online in the coming quarters.

The majority of the early patients are coming from prior treatment with Nusinersen, and over 30% of patients thus far have been over two years of age, given our broader label in the EU.

Now looking ahead in Japan, we see rapid uptake with the immediate deploying of full reimbursement. We’ve had an approval recently in Brazil and we’re expecting multiple approvals around the world, so we continue to believe ex-U.S. will be a key driver. The U.S. should stabilize now post the COVID situation, and we expect to reach a steady state on our U.S. sales and we continue to expect Zolgensma to be a strong growth driver for Novartis.

Now moving to Slide 8, Sandoz year-to-date sales were in line with prior year, and there were really two sides to the Sandoz story. When you look at the biopharmaceutical sales on the right-hand side of this chart, you see that we grew 13% in Q3 and the nine months year to date, we’ve grown 20% with biopharma, with primarily our biosimilars business. But you do see the drag of our retail sales was minus 4% in the quarter and minus 4% year to date – that’s been primarily driven by an oral solids decline in the U.S. as COVID-19 has impacted patient traffic, and also some similar dynamics we see in Europe as well as after the southern hemisphere flu season.

Now importantly, we’ve been able to maintain our profit trajectory with gross margin increases, both from product mix and productivity and reduced SG&A spend, so overall we have made some small adjustments to our Sandoz top line guidance, but overall feel good about our margin progression in Sandoz over the course of the year.

Moving to Slide 9, I want to take a step back again and provide some perspective on the overall trajectory of the company and give you some details on some of our pipeline assets. When you look at the outlook for the coming years, we continue to have strong in-market growth drivers. We’re in the midst of a range of major launches, multiple novel assets in our mid-stage pipeline, and I’ve been pleased to see multiple analyst reports yet appreciating the depth and breadth of our mid-stage portfolio, which we believe is one of the best, if not the best in the industry with 80 submissions planned, 50-plus late stage programs, and increasingly coming into focus as well will be our life cycle management program across many of our in-market growth drivers, as you can see on the right-hand side of this chart.

Now turning to Slide 10, I want to provide some more detail, and I’ll go through this slide in a little bit of a slower pace, Slide 10 and 11, just to make sure you have full clarity on where we are in the various pipeline elements. It’s important to note that we are seeing on select instances delays due to COVID, and those COVID delays typically are in the range of three to five months. We’re transparently reflecting that in our documentation to all of you so you can see where we are, but overall I think relatively speaking, our portfolio has remained resilient and largely on track, despite the massive disruptions of COVID all around the world.

Now with Leqvio, you’ve seen our EU positive CHMP opinion. In the U.S., we’ve completed most parts element of the review with the FDA, including the full clinical review. The only outstanding item now is a single manufacturing inspection, which we’re working with the agency on in our facility in Italy. We’ve provided extensive documentation and currently work with the agency to try to maintain the action date of December 2020.

On ofatumumab, you’ve seen of course the strong U.S. approval, and Marie-France will provide you more context. EU approval is planned in the first half of 2021.

Now with respect to Entresto, two critical and important life cycle management and preserved ejection fraction and in the post MI, the FDA has released a notice today that we will have an ad-comm for the preserved ejection fraction filing in December. We’re fully preparing for that advisory committee and look forward to those discussions. The FDA action continues to be in the first quarter of next year.

Now with respect to AVXS-101 IT on the partial clinical hold, we continue to work on our proposed confirmatory clinical trial study and will plan to engage with FDA. Our hope is that we can come up with a lean program that will enable us to move extremely quickly, but it would be premature to provide any guidance on timelines at this point in time, so we don’t have any further guidance on specific timelines on AVXS-101 IT. We’ll continue to provide you updates as we continue those discussions with the FDA.

There were a few notes this morning also noting the ligelizumab timeline. We do expect the trial to read out on track fully enrolled and to read out in the second half of next year; however given the COVID disruption, we are now forecasting that the submission would be pushed into the first part of 2022.

Now moving down the line, the next item I wanted to highlight was canakinumab, our Canopy-1. As you know, enrollment is complete. The DMC did recommend a continuation after–without change after the interim analysis, so we remain fully blinded to that study. The full readout is expected in the second half of 2021, and similarly Canopy-2 is fully enrolled and we expect the readout in the first half of 2021 for that program.

Lastly I wanted to know on Kisqali that we did expand our adjuvant Natalee study by 1,000 patients, learning from the recent readouts from some of our competitors to ensure we maximize the success of this medicine in the adjuvant setting across both intermediate and high risk patients. As you know, there’s a unique profile here with Kisqali, the most potent CDK4 inhibitor which we believe is most important in the setting, and also three years of treatment in this patient population with a 400 milligram dose, lower than what we have in the metastatic setting to really ensure patients can stay on therapy. We’re optimistic about this program and look forward to continuing to provide you updates as it progresses.

Now moving to Slide 11, on the emerging pipeline assets, many of these we’ll provide more details on our upcoming Meet the Management. I had mentioned iptacopan – I’ll go through some more details on the next few slides, but a range of positive feedback, including positive Phase II results in PNH and C3G. We’re on track now to have a single PNH pivotal trial for the frontline and combination study in the start of 2020, as well as pivotal studies in both C3 glomerulopathy and IgA nephropathy to start in the first half of next year.

Moving down the line, the other asset I wanted to spend a little bit of time on is Branaplam, our mRNA splice inhibitor which we announced had received orphan drug designation for Huntington’s disease. This was based on extensive preclinical data which we expect to be published in the coming months, as well as clinical data from our SMA trial in which we were able to look at Huntington RNA expression. We believe Branaplam’s RNA splicing mechanism has a unique profile to be able to tackle Huntington’s disease as a potentially once weekly – we’ll have to see the final dosing – oral therapy, and we’ll plan to start that Huntington’s disease Phase IIb in the first part of 2021.

Now in terms of oncology, probably the one asset I wanted to spend a moment to highlight was our SHP2 inhibitor that is in a broad range of combination studies, multiple combination studies with spartalizumab, Kisqali, and nazartinib, as well as Mirati’s G12C, and we’re working very hard to finalize some of those early results which we hope can inform pivotal studies in the combination path going forward across a range of solid tumors.

Moving to Slide 12, just briefly on iptacopan and PNH, this was data we recently presented. It demonstrates that we were able to significantly reduce residual hemolysis in eculizumab-treated patients and return their hemoglobin to normal. It’s important to note there is a significant proportion of eculizumab-treated patients that don’t reach goal, and we believe as an add-on therapy this is important medicine, but even more importantly you can see in the black squares, patients that were able to move off of their eculizumab treatment and maintain their overall hemoglobin levels, which is the basis of us going forward as a monotherapy as well in this indication.

Moving to the next slide, similarly in C3G, we see a very strong result. This data was presented over the weekend just recently. It demonstrates a significant reduction in proteinuria. You can see a very impressive p-value, as well as importantly a stabilization of renal function as measured by eGFR – again, a very clean, safe, and tolerable profile. This medicine with this data was able to receive EU Prime designation – that’s the EU’s highest designation with respect to these sorts of medicines, so very exciting data for LNP023.

Now lastly moving to Slide 14, over the course of the quarter, you saw us making important strides in ESG across all our operations. It is our absolute goal to be a leader in ESG across large companies and in the healthcare industry. We’ve adopted ambitious targets in terms of access to innovation. Our global health program is committing to full carbon neutrality – that’s on top of already committing to full neutrality in our own operations by 2025. We track, we measure, we transparently publish our targets annually, which I really think is unique amongst companies in our sector.

We launched first sustainability-linked bond linked to social targets, particularly access to medicine – the bond was over-subscribed, and we also received upgrades to ESG scores from a range of third party rating agencies, now ranked number one by multiple agencies across the healthcare sector. We have a lot of work to do. We’re nowhere near where we want to be, but we continue to make important progress on this front.

With that, I’ll hand it over to our Chief Financial Officer, Harry Kirsch.

Harry Kirsch

Okay, thank you Vas. Good morning and good afternoon everybody.

I’m now going to walk you through some of the financials for the third quarter and nine months, as well as to provide you with an update on our full year guidance. As always, my comments refer to the results of continuing operations and growth rates in constant currencies, unless otherwise noted.

Slide 16 shows the summary of our performance for quarter three and the past nine months. First, I would like to focus on the year-to-date results on the right-hand side.

The nine months performance was strong with sales growing 4%, driving core operating income and core EPS growth of 16%. [Indiscernible] sales were mainly driven by Entresto, Zolgensma, and Consentyx on the nine months, as well as the rest of our growth portfolio, and the core operating income growth at this significant level was driven by higher sales, improved gross margin from various productivity and cost saving initiatives. Of course, COVID-related lower marketing and selling spending also contributed to core operating income growth.

Free cash flow was $8.3 billion – that’s down 12% in U.S. dollars, mainly driven by legal settlement cash-outs and lower divestment proceeds compared to the prior year. With respect to quarter three, net sales were in line with prior year due to the increased generic competition, particularly on [indiscernible] as well as the impact of COVID-19 mainly on our ophthalmology portfolio, which we will discuss in more detail later.

Despite this, we were able to deliver another quarter of double digit increase in our core operating income, which grew 11% driven by lower spending and improved gross margin. Overall, a strong year-to-date performance especially given the challenging business environment that we are all in.

Now next, let’s focus on our core margin on Slide 17, broken down both again by quarter and year to date. For the year to date on the right side, continuing operations core margin was 33.2%, growing 360 basis points with strong improvements in both divisions. Innovative Medicine’s margin moved up to 36.3%, up 270 basis points, and Sandoz margin grew 420 basis points to 25.4%. Innovative Medicine’s margin is likely to be around 35% for the full year, reaching our mid-30s margin target a couple of years earlier than planned. Of course, we had a contribution from COVID-related reduced spending, but a significant part of these margin gains were also a result of productivity and cost saving initiatives that we have implemented.

The quarter reflected a similar pattern with continuing operations margin at 33.2%, growing 320 basis points, and Innovative Medicines’ margins at 35.8%. Clearly we are also well on track to deliver on our Innovative Medicines margin target of mid to high 30s margin in the midterm.

Let’s now turn to Slide No. 18. We have updated the chart that we showed last quarter of the impact of COVID on our different categories. As a reminder, the graph shows you Innovative Medicines’ weekly sales evolution based on a rolling four-week average indexed to quarter four of last year. We have used the same classification categories as before to allow you to compare.

Our recent launches and the detail of what we can [indiscernible] you can see at the bottom of the slide footnotes, continue to grow quite strongly. The growth drivers line appears to be flat during the quarter; however, all growth drivers performed well. The flatness of the curve from July to December is also a reflection of [indiscernible].

Now turning to Cosentyx, the dermatology and to some extent rheumatology markets continue to see lower new patient starts as a result of COVID-19. Consentyx also was impacted by [indiscernible] with growth rates declining during July and August; however, there are clear signs of recovery in September. For ophthalmology, in order to understand the market dynamics, it is important to split the market for the back of the aisle and the front of the aisle. Back of the aisle clinic visits recovered much quicker due to the urgency of treatment. Our key ophthalmology products back of the aisle, dominated by Lucentis and shown in the grey line, began to see signs of recovery towards the end of that quarter. The recovery has not been seen in other ophthalmology due to roughly an equal impact from COVID-19 disruptions and the expected generics impact on the U.S., primarily for [indiscernible].

Similarly, our Sandoz retail business continues to be impacted by COVID, as Vas mentioned, as well as the [indiscernible] which we had decided to retain earlier this year.

Overall, COVID-19 continued to negatively impact demand in quarter three, particularly in dermatology and ophthalmology; however, we are pleased to see that our recent launches and growth drivers continue to do well.

Now turning to our full year guidance on Slide 19, we continue to expect continuing operations sales to grow mid single digits. We are now upgrading core operating income guidance to grow low double digits to mid teens. Within the divisions, we expect Innovative Medicines sales to grow mid single digits and we have lowered Sandoz top line guidance to be broadly in line with prior year. This is due to the decline of U.S. [indiscernible] which we decided to return, as mentioned earlier this year, and the impact of COVID on our retail business.

The key assumption for this guidance is that we see a continuation of the return to normal prescribing dynamics in the fourth quarter. September and early October patient visit data in the U.S points in that direction.

Now I want to go into some of the reasons behind our guidance and the various pushes and pulls. On Slide 20, we show the actual and expected quarterly development and expectations for the full year. During the fourth quarter, we anticipate for sales, which is here on the left side, low to mid single digit growth, and then for core operating income on the right side, mid to high single digit growth. The core operating income growth is expected to be somewhat lower than year to date as we will see some higher investments, including those for the Kesimpta and Leqvio launch and pre-launch investments. Still, after delivering 16% core operating income year to date, this results in our upgraded full year guidance of low double digits to mid teens for core operating income.

Of course, if there would be a resurgence of the COVID-19 impact on the healthcare systems and prescribing behavior in our major markets, there is a scenario of lower sales growth in quarter four versus what we assume here, which could also reduce our full year sales growth to the 3% to 4% range as we have delivered 4% sales growth in the first nine months.

On core operating income, we would expect this quarter four and full year level, even with potentially COVID-related lower sales growth in quarter four as we are kind of naturally hedged on the bottom line should lockdowns happen again, due to the expected lower spend levels in such a scenario.

Finally on Slide 21, as currencies are constantly changing, I want to bring to your attention the estimated currency effects of our results using the current exchange rates. If late October rates remain for the remainder of 2020, the full year impact of currencies on sales would be negative 1% and our core operating income would be negative 3%. If the same rates prevail for 2021, the full year effect of currencies on sales for 2021 would be positive 1% to 3% and our core operating income would be zero to plus 1%. As a reminder, we do update these effects on our website on a monthly basis.

With that, I hand over to Marie-France for an update on the pharma business.

Marie-France Tschudin

Thank you Harry. Good morning and good afternoon to all of you.

Let’s turn to the overall performance for pharmaceutical. The first nine months saw sales grow 6% with continued momentum from our two key growth drivers. Q3 saw sales growth of 2% despite the continued COVID-19 impact. Our focus continues to be on driving Cosentyx and Entresto, also leveraging the launch of new indications and geographical expansion, and of course executing on the launches of Beovu, Kesimpta, and Leqvio.

If we turn to Slide 24, for Cosentyx, Q3 brought us our first billion-dollar quarter and 7% year-over-year growth despite COVID-19 impacts, intensifying competition, biosimilars and pricing pressure. This was a great testament to the complete profile of Cosentyx. The market growth has slowed versus previous year due to COVID-19, and today we still see only an estimated 70% to 90% of patients returning versus the pre-COVID levels. We continue to see delays in diagnosis and slower new starts across the U.S. and the EU, particularly in dermatology.

Despite increasing competition, Cosentyx maintains a strong position in derm and is outperforming the market in rheum. If we look at the U.S., we saw double digit TRx growth year over year, strong momentum in the second half of this quarter. Our focus is on maintaining value in derm while driving the growing in rheum.

If we look a little bit more closely at dermatology, we maintained our market share and our IL17 leadership, and in rheumatology we’re growing three times the market year over year and leading in NBRx share around 30%. If we turn to EU, Cosentyx had stabilized market share in derm and maintains rheumatology despite the increasing mandatory use of biosimilars in our key markets. There is significant opportunity for short and long term growth through increasing biologic penetration, something this year has suffered given COVID, and expanding our geographic footprint as well as our future indications. We aspire to maintain a strong position in the dermatology space and we’re set to accelerate in rheumatology.

In Q4, we expect to return to double digit growth and we see a continued strong growth trajectory for Cosentyx in 2021 and beyond, with a potential of $5 billion and beyond for the brand.

If I turn to Slide 25 and to Entresto, Q3 saw another excellent performance quarter driven by underlying strong demand across geographies. Entresto’s great momentum is reinforced by how significant the unmet need is and how Entresto is increasingly used as an essential first choice treatment. The U.S. weekly NBRx returned to above 4,000 by the end of Q3 despite the seasonality of the summer, and we continue to see strong TRx growth versus previous year. China continues strong growth as well, increasing penetration and account expansion.

I think that we can say that Entresto is recognized as standard of care for treatment of HFrEF and delivers on its value proposition of keeping patients out hospital. This is of course especially important right now. We’re confident in the future growth of Entresto. Please remember that about three out of four eligible HFrEF patients are still not on Entresto. We’re seeing expansion in China and Japan and potential new indications in the near future.

If I turn to Slide 26, Beovu, so what’s new? If we look at three post talk analyses that have recently demonstrated the correlation between the role of fluid in wet AMD and vision outcomes, these recent analyses are showing that more than 50% of the eyes treated with the current anti-VGF therapies have residual retinal fluid after two years of treatment. What we also see is that about 30% of patients at year one of follow-up are dosed more frequently than every eight weeks. There is a clear unmet need for medicines that provide greater fluid resolution, which is what Beovu offers.

We have a full development program that’s continuing, and we’ve recently released the results of KITE, our pivotal DME study, which met its end point and confirmed the importance of fluid reduction on vision outcomes. We now have approval in more than 50 countries with an updated label. Ex-U.S. we see steady uptake in Germany and Japan. We’ve seen U.S. demand recover and stabilize around 1,200 vials per week. We believe that the rare events can be managed and we continue to educate HCPs about how to reduce risk as clinical practice impacts the effect of this medicine. With Beovu’s favorable benefit risk profile, we believe we can achieve blockbuster status with this product.

On Slide 27 if I turn to Kesimpta, Kesimpta has the potential to become our first choice high efficacy DMT for patients, physicians and payors. We’re launching with an agile approach and focusing our efforts on HCP adoption, patient initiation and access. For us, it’s key to have broad HCP engagement and have this translate into adoption. Our field force has reached above 90% of our targets either through face-to-face or through adaptive digital initiatives, and we are now covering over 90% of our field force territories as our field force has returned to the field.

We’ve delivered our first access wins in record time and we’re on track to obtain broad rapid access. Patients are experiencing seamless process in the patient and treatment initiation. This is seen as simple, easy and fast by both patients and physicians. We’re fully focused on execution. 2020 is about driving demand to benefit as many MS patients as possible, and we believe this will translate into solid sales growth in 2021.

If I turn to Leqvio on Slide 28, it’s a unique product and it addresses both clinical and non-clinical barriers. With Leqvio, we will be providing effective and sustained LDL-C reduction up to 52% with two doses a year. Our worldwide launches are progressing rapidly and underway, and we just received CHMP opinion ahead of schedule for the treatment of primary hypercholesterolemia and mixed dyslipidemia. The EU approval is expected in the December-January time frame for all 27 member states and the U.K., and the FDA action date, as Vas mentioned, is expected in December 2020.

I wanted to spend just a moment and talk a little bit about the unmet need in this space. It is extremely high for patients and healthcare systems. We see above 135 million ASCVD patients in the key markets, 18 million deaths a year. Eighty percent of patients treated on statins are not at goal and more than 50% of patients are not adhering to treatment. ASCVD costs the healthcare systems over a trillion dollars a year in healthcare spend. This is not because they’re not good treatments but because the non-clinical barriers are high, either access, affordability or adherence which we know will take time and a different approach to resolve. But this product has a long patent life and we’re committed to differentiated approaches to make an impact on ASCVD.

With this unique profile and our innovative commercial model, we think we have a real chance of tackling ASCVD at a completely different scale.

In conclusion, we expect to deliver further growth in Q4 despite the continuing COVID-19 impacts. With our relentless on our priorities and with our innovative approaches to deliver customer value, we are setting up ourselves for short and long term success.

We’re driving growth with Cosentyx and Entresto, leveraging new indications and geographical expansion, we’re executing on the launch of Beovu, Kesimpta and Leqvio, and we’re preparing the market for our future blockbuster launches.

I want to thank the teams for their hard work in these trying times and hand it over to Susanne.

Susanne Schaffert

Thank you very much, Marie-France, and let’s turn to Slide 30.

The oncology business remains resilient, delivering 4% of growth for the nine months with sales reaching $10.9 billion. In the quarter, we have seen a very strong uptake of our recent launches, Kisqali, Kymriah, Piqray, Adakveo, and the recently launched Tabrecta, and also our growth drivers, Promacta/Revolade, Tafinlar+Mekinist, and Jakavi continue very strong double digit growth.

The strong momentum across these brands was offset this quarter by increasing generic erosion of Afinitor, Exjade trade name in the U.S., and Sandostatin AR in Europe, as well as continued COVID impact in some areas of the oncology business. Due to the pandemic, our [indiscernible] therapy, Lutathera continued to experience increased number of cancellations and delays in new patient starts, still achieving sales of $109 million. But overall, oncology business remains very resilient and we are confident about the dynamic into the fourth quarter maintained by the strong performance of in-market brands and recent launches.

Moving to Slide 31, Kisqali continues its very strong growth trajectory with Q3 sales of $183 million and 50% growth from previous year, benefiting from the ongoing impact of positive overall survival data from two pivotal Phase III trials. We have seen very strong uptake in market share gains ex-U.S., especially in European markets where post and premenopausal indications were approved for reimbursement in Germany, Italy, France and Spain, and also in the U.S. where Kisqali continued to grow and gain market share in Q3, and this despite patient screening being suppressed and approximately 20% decline in NBRx of CDK4/6, and at the moment Kisqali is the fastest growing CDK4/6 in the U.S.

We are also pleased to see that differentiation within the CDK4/6 class is increasingly recognized, and just to remind you that Kisqali has a unique profile versus other CDK4/6 inhibitors with preferential inhibition to CDK4 over CDK6 and a high concentration to inhibit the target.

We are very proud to share with that Kisqali has received the highest rating as the only CDK4/6 on the ESMO Magnitude of Clinical Benefit scale, confirming once again the substantial benefit for patients based on significant overall survival benefit. On the development side, we are expecting a readout with overall survival results from our Monaleesa 2 study in H2 21.

Our Natalee trial, as Vas mentioned, in high and intermediate adjuvant breast cancer is enrolling well. We have extended the enrollment in the trial in order to enrich the data set generated with the increased sample size and allow more robust assessment of the treatment effect. The Natalee trial is on track for final readout in 2020.

Overall, we are very pleased with the performance of Kisqali, and with that, I hand back to Vas.

Vas Narasimham

Thank you Susanne.

Just in conclusion, as you can see, we had a very solid quarter with double digit core operating income growth despite the impact of COVID on healthcare systems. Our growth drivers, our launched brands, the key drivers for our mid to long term growth are well intact and performing well. We raised our full year core operating income guidance, as Harry outlined. Our mid and late stage pipeline is advancing, and I hope all of you will continue to appreciate the depth and breadth of our midstage pipeline in the coming months and years. Lastly, we continue to progress on our journey to become and ESG leader with concrete advances over the quarter.

We look forward to taking your questions, so Operator, we can open the lines.

Question-and-Answer Session

Operator

[Operator instructions]

Your first question today comes from the line of Mark Purcell from Morgan Stanley.

Mark Purcell

Yes, thank you very much for taking my question – Mark Purcell, Morgan Stanley.

Just a couple, if I may. In terms of Sandoz, I noted on the management event, there’s going to be a focus on this business, so perhaps could you talk to us about some of the pipeline opportunities you see here, and over to Harry in terms of if there’s a significant opportunity on the global manufacturing footprint within this business, what sort of operating margin targets do you believe you could get, and for the pipeline I mean things like Gan & Lee and Biocon and denosumab, which you haven’t spent much time talking about yet.

Then a second one for Harry on the group margin – 360 basis points improvement, could you help us understand the underlying improvement and the COVID-related improvement and how sticky that COVID-related part might be going forward?

The last question is on iscalimab, so a little bit like LNP, it’s a pipeline and a product here. Can you help us understand if there’s going to be any more interim analyses from the proof of concept data as that matures in the transplantation setting, and frame the opportunity in Sjogren’s syndrome? I think it’s the second most prevalent autoimmune disease, so how significant could that opportunity be ahead of proof of concept data in the second half of this year? Thank you.

Vas Narasimham

Thank you Mark. So first, Richard on Sandoz’s pipeline and global manufacturing?

Richard Sandor

Yes, thank you Mark. Let’s start with the pipeline. We don’t generally disclose specific elements of our pipeline, but we have a very strong pipeline across small molecules but increasingly biologics and more complex products to bring to market, with the goal ideally being at first entry in market at LOE formation across pretty much all our territories.

You raise the point about supply. First of all, supply this year has been remarkably strong given the challenges that we’ve had, and also we’ve gone ahead and formed Sandoz tech ops over this year. That means that we have far more control over site utilization, investment and strategy that is helping to bring better COG reduction and a greater degree of alignment between the retail and commercial businesses and the supply chain, which as you know in generics is a key success factor.

Thank you.

Vas Narasimham

Maybe just to add one point, we had signed a range of deals over the recent years to continue to bolster the Sandoz portfolio, including the Aspen Pharmaceuticals business in Japan which helps us build out our injectables portfolio and pipeline in Japan, the Gan & Lee as you mentioned in diabetes, the Biocon collaboration, so our aspiration both through the internal portfolio and biosimilars but also through a range of partnerships to not only tackle the largest opportunities in biosimilars but also the mid–so-called mid-tier opportunities in biosimilars and build a broad and deep portfolio.

I think, Mark, you also asked around margins. We have an aspiration to get to the mid to high 20s margins in Sandoz over time. This won’t be necessarily overnight, but we believe that we have the potential to be in line with the top tier peers in the generic sector, and that’s absolutely our goal.

Harry, on group margins?

Harry Kirsch

Yes, first on Sandoz, as we are in the mid 20s, clearly the mid to high 20s we see as achievable, and Mark, you are correct – of course the manufacturing initiatives, transformation initiatives are also in significant ways [indiscernible] the Sandoz margin. In addition to of course will be the biologics success, given that structurally biologics and the [indiscernible] are higher margin structures than the other part of the business, so very good potential here for the Sandoz business.

But of course, overall for the [indiscernible] and Innovative Medicines, also very positive. If you look at the first nine months, 360 basis points of improvement, and I think we can almost put a third, third, third – one third is driven by the gross margin, also here of course the manufacturing footprint and some mix looks like it has a positive impact for the third of that 360 basis points. The other third, I would say that is COVID related lower spend levels, and another third productivity and sales, you know, 4% sales growth maybe fixed cost pick-up.

Now we do expect that some of the COVID-related under-spend will come back, and by the way also the current situation, we do invest into our products where it’s possible, and of course we don’t waste money, and some activities I think are not possible or possible only at lower levels, but we do also believe that most of the productivity that we find in this new situation will also stick for the future, and that’s of course a key element that we work on for next year and the three to five-year plan.

So we expect that with this, we do increase our core margin on the Innovative Medicines business and the company each of next years, and that we are very well on track to get to the mid to high 30s with these margin improvements year by year as we continue on our productivity programs and also figure out how to make most of the COVID-related productivity initiatives also stick, so overall on a very good trajectory there.

Vas Narasimham

Thanks Harry, and then John on iscalimab?

John Tsai

Yes, as you know, Mark, iscalimab is our anti-CD40 that we’re advancing in multiple indications. Our primary indication that we’re pursuing is in renal transplant, and we’d shared some of the data previously, and we’re moving forward with an innovative approach that we call iBox, which is a risk prediction scoring that combines measurements of kidney function, and we look forward to bringing that to the market, working with the health authorities in early ’23 time frame. That’s for renal transplant.

You were referring to Sjogren’s syndrome, which is an additional indication that we’re exploring, and that is moving forward currently in a Phase IIa study. There is an interim reading out in the Sjogren’s syndrome population – that will not come out until the first half of 2022, so those are the general timelines. But we are looking at multiple indications for iscalimab and we are hoping for potential multiple approaches to treating patients.

Back to you, Vas.

Mark Purcell

Thank you.

Vas Narasimham

All right, next question, Operator?

Operator

Thank you. Your next question comes from the line of Graham Perry from Bank of America.

Graham Perry

Hi, thanks for taking my questions. Firstly on the margin guidance that Harry was just touching on there, so year to date you’re almost into your mid to high 30s margin target which I think you’d previously pitched as being by 2022, so can you just help us understand when does margin and where does margin growth stop, and so where is it capped at above that level?

Secondly on Kesimpta, were there any actual sales in the quarter or was it all free drug, and how long do you expect the two-month free drug program to continue? Is that scheduled for all of Q1 or first half of 2021, for example?

Then thirdly on the changes on the Natalee trial, so you’ve highlighted you’ve increased to 5,000 patients, but have you changed recruitment criteria there at all to enrich the population for higher risk patients, or amended the statistical analysis plan to allow a primary end point readout only in high risk patients, for example, or do you think that the differences that we’re seeing between the Ibrantz [ph] and the Vizenio [ph] adjuvant trials were actually product rather than trial population related? Thank you.

Vas Narasimham

Thanks Graham. On the mid to longer term margin, Harry?

Harry Kirsch

Thank you Graham. Of course we have to first recognize the first nine months, the margin on our business is usually a bit above the full year as quarter four margins tend to be for seasonality reasons lower. We are the first nine months at 36. I indicated for the full year we’d see roughly 35 for Innovative Medicines, so we have room to go for the mid to high 30s.

Then we don’t put a cap on it, but first you want to get into a range of mid to high 30s. I think most of our large comparable market cap companies are in this mid to high 30s, and it depends also of course on the mix of business and the launch cycle, so I don’t want to put a cap on it at the moment but first you want to get to the mid to high 30s. We always want to ensure that we have the right investment levels at the same time as we drive productivity and the resource allocation.

Vas Narasimham

Thanks Harry. On Kesimpta, Marie-France?

Marie-France Tschudin

Yes, so our focus in 2020 is really just about driving appropriate demand in initiation of patients; in other words, for us the broad HCP adoption and ease of access and initiation is key. As you know, we have this free drug program and this will be a significant bridge for a number of patients until we get to paid scripts, so so far our key metric is going to be NBRx. We’re not underestimating the extra lift it takes to launch a product during this pandemic, and that’s why we’re really focused on driving demand and initiation. We’ve already seen some early access wins and we’re focusing on broad availability for patients. We’ve seen that with CVS, and now we’ve had our first Medicare win and we want to ensure that patients have preferred single step access.

We believe that Kesimpta has the potential of being the first choice CMT for patients, physicians and payors because it’s highly efficacious, it’s safe, and it can be administered at home, so that’s what we’re doing right now in 2020, is really focusing on demand and initiation of patients.

Vas Narasimham

Thanks Marie-France, and John on Natalee?

John Tsai

Yes, thanks Graham. Thanks for the question on Natalee.

As you know, we increased the sample size from 4,000 to 5,000 patients to allow for a more robust assessment of the overall treatment effect. What I will say is for competitive reasons, we don’t want to disclose too much details, but we do believe in the unique Kisqali profile and the overall trial design remains the same.

What we can disclose is that the enrollment is continuing and going very well. We also are using a 400 milligram dose here, and what we’ve seen so far is that this has been well tolerated, which is different from the 600 milligram dose in the advanced breast cancer patients. Overall it’s going well, and recruitment is going very well.

Thanks Vas, back to you.

Vas Narasimham

Maybe just to build on John’s comments, we believe that Kisqali is unique and it’s focus, as I mentioned in my earlier comments on CDK4, we also believe with a robust trial in which we limit patient discontinuations in the study, which we think hampered some of the other studies, we have the opportunity to have the broadest indication in the entire competitive set, which would be of course a unique selling proposition for Kisqali around the world, so we’re quite excited about taking this forward.

Thanks Graham. Next question, Operator?

Operator

Thank you. Your next question comes from the line of Andrew Baum from Citi.

Andrew Baum

Thank you. Three questions for Marie-France, please, on Inclisiran. Firstly, in terms of the launch and marketing, should I assume that the Entresto field force is going to do the bulk of the heavy lifting? Second, when would you expect a J-code to be issued? I understand they’re issued quarterly now, so I’m assuming either first or second quarter. Then finally, just thinking about the degree of cost advantages you have in terms of pricing to payors versus the PCSK9 antibody, could you just compare and contrast the COGS on Inclisiran versus a monoclonal? Thank you.

Vas Narasimham

Thanks. Marie-France, if you want to take the first, I can tackle the COGS. On the field force and the J-code, Marie-France?

Marie-France Tschudin

Yes, so clearly there are a lot of synergies between the field force that we’ve built with Entresto and what we would like to do with Inclisiran. I think the approach that we’re taking with Inclisiran will require us to also build our capabilities in managing different stakeholders, such as government and insurance companies and payors and working with systems, so we will have to build additional capabilities. But overall, I think it’s clear that when you look at Entresto, when you look at Inclisiran, and when you look into the future of our CVM portfolio, that there are a lot of synergies that we can leverage across the board.

When it comes to the J-code, yes, you’re right – they are giving out J-codes quarterly. I think I’d just remind you that a lot of cardiologists in this space are not necessarily set up for the buy and bill process, but systems of care are and many of these cardiologists are affiliated with systems of care, so we believe that through the systems we will be able to overcome this initial hurdle. That being said, we will be building the capabilities for buy and bill possibilities for cardiologists and beyond.

Vas Narasimham

Thanks Marie-France. Then on our longer term strategy and how it links to the cost of goods, we of course have the aspiration to take the product broad into the ASCVD secondary prevention market – we have the ongoing secondary outcome study, and then we also have the aspiration to test the medicine in primary prevention in agreement with the NHS to take that forward and potentially additional supportive studies to get us to a primary prevention, which would open up the patient population quite dramatically.

In order to enable that, we of course will then have to over time be able to provide this in larger volumes at a competitive cost. We believe that as an RNA-based therapy with a small molecule production profile, we have the opportunity to drive these COGS quite low, not as low perhaps as the traditional small molecule, but in that range.

The way we’re going to do that is we are over time planning to build up our own internal capabilities to produce this medicine. We are working with collaborative groups also in the U.K. to look at next-gen technologies, but the aspiration would be certainly to have the cost be a fraction of the cost of the typical monoclonal antibody, and that would enable, I think, that large volume possibility.

Thanks Andrew. Next question, Operator?

Operator

Thank you. Your next question comes from the line of Laura Sutcliffe with UBS.

Laura Sutcliffe

Hello, thank you. Firstly on Kesimpta, you’ve been clear about your plans to drive demand in the short term, but could you outline for us what you think the ramp towards profitability looks like for this drug? Is it quicker than usual because you’ve made oftumumab historically, albeit in a different formulation?

Then secondly for John on the [indiscernible] in C3G, have you heard from the regulator on what the appropriate end point is for a Phase III trial? Is proteinuria enough or will you need EDFR?

Then maybe finally on Zolgensma sales outside the U.S., I think you said Germany is playing a very substantial part, but could you tell us what other countries are contributing meaningfully to revenue at this point? Is it just Japan? Thank you.

Vas Narasimham

Thank you Laura. We’ll start with the Kesimpta ramp. Marie-France?

Marie-France Tschudin

Yes, I think we have to think about what Kesimpta is, right? Kesimpta is a high efficacy therapy. It’s well tolerated, it can be administered at home, and for this reason we firmly believe that our position goes beyond the current B-cell market. If you think about the fact that 70% of patients are currently on either subcu or oral DMTs and 63% of patients remain on low efficacy therapies, when you look at what’s happening in the marketplace today, it’s very encouraging to see that the shift to higher efficacy therapies. We know that there are a number of physicians that are not necessarily–don’t necessarily have access to infusion capabilities, or patients certainly in these COVID period who are going to be looking for options that don’t require them to spend time in an IV infusion center, so we believe that the way we should be positioning Kesimpta is in a first line or a first switch, and that’s why the focus for 2020 is really on the appropriate demand, the initiation of patients.

If you look at some of the estimates on what the B-cell market could look like over the next 10 years, there are some estimates that point us to 35% to 40% of the market. We certainly want to be participating in that very strongly, so what the focus is now is broad adoption, ease of access, initiation. We’ve learned a lot from our previous launches in this space and we know that it’s absolutely crucial for us to have strong access and for patients to be able to initiate this drug very easily.

We’ve got, as we’ve said, the free drug program, and our key metric over the next couple months is going to be NBRx.

Vas Narasimham

Thanks Marie-France, and then John on the C3G LNP and Phase III end points?

John Tsai

Yes, for LNP, Laura, I guess we’ll call it iptacopan, if you guys know the new name for it. In fact, as we look at C3G, as you know, there’s no therapeutic agent designed to really target the underlying disease, which is complement dysfunction here, so we’re really encouraged. You saw the results that Vas shared in the presentation slides, so we’re really encouraged by those results.

Now as you pointed out in terms of proteinuria reduction, this is not a validated surrogate marker with the FDA, so we’re currently working with the FDA and looking at both the urine protein creatinine ratio as well as looking at the estimated glomerular filtration rate – EGFR. What we did see in the Phase II studies was that there was benefit in both, so as we move forward, we’re capturing both in our studies and looking for the best path forward with the regulatory authorities.

Vas Narasimham

Then lastly on Zolgensma ex-U.S., there is, I would say, maybe four groups of countries that are relevant – the U.S. of course, Japan as we continue to launch. In Europe, you have some early adopter countries, so primarily Germany and a few other smaller countries, but then we’re now working very hard on expanding access in the U.K., France, Spain and Italy. Then the fourth group will be the emerging market countries, which are substantial markets, countries like Turkey, Saudi Arabia, and the Gulf Coast countries – Brazil, Australia–not emerging markets, but Australia and Canada. As the next 12 months unfold, various markets will come online at different points in time, depending on how fast the various access bodies move in providing reimbursement.

We do continue to see a reasonable number of patients in self-pay situations as well, and also compassionate use of course through our compassionate use program.

I’d say overall, the demand is very robust across these markets, both below two years of age but as I noted also, a significant number of patients, proportion of patients above two years of age as well.

Thank you Laura. Next question, Operator?

Operator

Thank you. The next question comes from the line of Kerry Holford from Berenberg.

Kerry Holford

Thank you – Kerry Holford. Three questions, please.

Firstly in multiple sclerosis, looking at Gilenya, how much of the sales decline in Q3 was due to pandemic disruption versus the increased competition you mentioned, and which competitor are you losing share to? I wonder if this is also a reflection of you promoting Mayzent [indiscernible] Gilenya and [indiscernible] continue going forwards.

ATZ, can I ask is there another interim analysis scheduled for the Canopy-1 study before the final readout, and if so, when that might be? Then on Lutathera, I guess I’d like to understand what the risk is here that the disruption we’re seeing currently due to the pandemic results in a permanent loss of access or interest from physicians and new patients. How can you retain that interest and that relationship? Thank you.

Vas Narasimham

Thank you Kerry. First on the Gilenya, Marie-France?

Marie-France Tschudin

Yes, so our Q3 Gilenya decline is as expected, and it’s been driven by some inventory decreases which should bounce back. We have seen, as you know, a significant slowdown in the NBRx, especially in the S1P class, and Gilenya, due to its pre-testing and first dose observation has seen a slowdown in the NBRx market. We’ve also seen a slower recovery in the S1P market versus the others during this COVID pandemic.

We have had lower demand due to increased competition – there are new oral DMTs, and also we have seen some switches happening with other competitors, higher RDs, and the fact that the full organizational focus is on driving new patient starts for Kesimpta and Mayzent.

Gilenya continue to be a third most prescribed DMT worldwide. We know it’s a high efficacy oral. It’s the only DMT prescribed in pediatric patients 10 years or older, and the U.S. we’ll continue to promote it in this population or patients who prefer orals, but our focus has clearly shifted.

Vas Narasimham

Thanks Marie-France. On canakinumab, John?

John Tsai

Yes, for canakinumab in the first line non-small cell lung cancer study, Kerry, what Vas did mention earlier in the presentation is that the DMC did meet earlier this month and recommended that we continue the study without modifications, and this was an interim, as noted previously. We continue to have high thresholds for the interim analyses for both Canopy-1 and Canopy-2. The end analysis that is planned for Canopy-1 is in the second half of next year, and for Canopy-2 the end analysis is planned for the first half of next year, so those are the overall timelines moving forward.

Vas Narasimham

And we do have, Kerry, additional interim analyses, but we’re not in a position right now to predict exactly when those are going to happen, based on the statistics. We’ll of course keep everyone up to date when we have better visibility.

On Lutathera, Susanne?

Susanne Schaffert

Yes, thank you Kerry for the question. Lutathera was more or less in line with previous year, reaching 190 million, and it is, as you rightly say, impacted by COVID. When you look at the different dynamics, for the U.S. we had a slight decline of 4% but on the other side in Europe, where the situation opened up again, we saw growth of 10% versus previous year. We remain very confident in Lutathera given the very strong profile of the product. As you remember, Lutathera has demonstrated overall survival benefit over some other statin treatments, and we see still very high interest for the product.

We saw some postponement and cancellation of new patient starts, but we’re still activating our plan to further growth. We are reaching out to the community level, where over 65% of the patients are treated, and we’ve had very encouraging discussions there.

Overall, we remain very confident and the current softness is mostly impacted by COVID, and as soon as the situation is released, we expect to have new patients taking up again.

Vas Narasimham

Very good. We have a number of questions on the line, so I’ll ask the next set of questions to please limit yourself to one question with no more than two sub-parts.

If we could have the next question, Operator?

Operator

Thank you. Your next question comes from the line of Peter Welford from Jefferies.

Peter Wellford

Hi, thanks for taking my question. Just on Gilenya, going back to that, whether you can provide us any visibility now on the timing of potential U.S. generics after, I think, all the legal cases have now been finalized.

And sorry, can I just go back to John just for a clarification on canakinumab? I know you said there were other interim analyses, I think you said, but is the second half ’21 headline date that you’re talking about, is that your best estimate for the final readout of Canopy-1 or is that your assessment of when we could next hear, which actually could be one of the next interim analyses? Thank you.

Vas Narasimham

Yes, I can take both of these. On Gilenya, we of course are very pleased with the response of the district court to uphold our patent. We do understand the filer has filed an appeal, so over the next 12 to 18 months that appeal will now unfold. We continue to stand by our patents, including some of the more recent patents that have been issued, so we would expect again a court case that could potentially happen over the next 12 to 18 months. In the meantime, we continue to operate as planned and continue to aggressively defend our IP.

With respect to canakinumab, the final analysis for the second line study is in the first half of next year, and the final analysis for the first line study is in the second half of next year. There is an interim, another interim analysis for both studies, both the second line and the first line. Learning from some of the disruptions that have happened with COVID, we would feel more comfortable not providing specific timing until we have a better sense of when exactly those interims will occur.

Is that clear, Peter?

Peter Wellford

That’s great, thank you.

Vas Narasimham

All right, perfect. Thank you.

Next question, Operator?

Operator

Thank you. The next question comes from the line of Keyur Parekh from Goldman Sachs.

Keyur Parekh

Hi, good afternoon. Hopefully you can hear me okay.

Vas, would you mind just setting the tone for the upcoming advisory committee for Entresto and [indiscernible], based on your conversations with the regulatory agencies, what should we expect to be the focus of the advisory committee? That’s one.

Then very quickly, secondly for Harry, can you just remind us for your priorities for capital allocation as we get into next year, and especially how are you thinking about stock buybacks versus business development? Thank you.

Vas Narasimham

Yes Keyur, thank you for the questions. On the advisory committee, we’ll see ultimately what the FDA focuses on. I think our expectation is two major areas of focus: one, on the primary end point. As you know the centrally adjudicated result was narrowly missed. The investigator adjudicated result was in fact positive and met statistical significance. A re-analysis by an independent group also indicated a positive result, so parsing those various results, I think will be one major topic.

Then looking at the various sub-group analyses, there was a clear trend for benefit in patients with an EF up to a certain cut-off, roughly 57%, as well as in women, and how the FDA might navigate all of the above from a labeling perspective. We expect those to be the major topics, so from a safety perspective, don’t expect major discussions.

Harry, on the capital allocation?

Harry Kirsch

Yes, hi Keyur. Thank you. As you probably imagine, there is no change in our capital allocation strategy. First strategy always has the investment in the organic business, the second priority being an attractive growing annual dividend [indiscernible] which we again expect to pay out maybe in March of next year, should the AGM, as always, approve. The third priority is value creating bolt-on M&A, and fourth share buybacks, so it depends very much what opportunities do we find. We all know that these are usually on M&A, bolt-on, quite heavy premiums have to be paid, and so we are super selective on them, so let’s see if we find them up to 5% of our market cap, and should we not find them, of course share buybacks, I expect always to be part of our capital allocation, but the fourth priority.

Having said that, we always do some share buybacks to avoid any dilution from our employee participation programs, [indiscernible] ongoing commitment to not dilute our shareholders.

Vas Narasimham

Thanks Harry, thank you Keyur. Next question please, Operator?

Operator

Thank you. The next question comes from the line of Simon Baker from Redburn.

Simon Baker

Thanks very much. Firstly, a question on Sandoz. I wonder, Richard, could you give us an idea of how important label carve-outs for generics are for you in light of the recent ruling that potentially renders them illegal in the Glaxo-Teva case earlier this month?

Then secondly, I noticed on the slides the mention of Luxturna in a few of the footnotes, but no other commentary on it. If you could just give us an update on where you stand with Luxturna. Thanks so much.

Vas Narasimham

Thank you Simon. On Sandoz label carve-outs, Richard?

Richard Sandor

No, it’s a really important and interesting topic. I think clearly we’re watching the progression now with Teva, I think going to appeal on the GSK coreg case. Clearly the use of skinny labels has been a routine route to market, particularly in the U.S. It really goes against really the provision that was recently put in place, and clearly as an industry it’s something we need to explore and consider how we challenge.

Vas Narasimham

On Luxturna, Marie-France?

Marie-France Tschudin

Yes, so as you know, we have the rights for Luxturna ex-U.S., and we have certainly made a lot of progress in making sure that we prepare centers from a training perspective to manage the product. I will say that during this COVID period, we did see a complete stop to those surgeries as they were considered non-urgent. What we are seeing is we are seeing pick-up happen now, so the hope has to be that we can continue to see these children getting use of Luxturna.

We’ve seen an increase in approvals overall. We’re working on reimbursement and making sure that centers are basically apt and trained to administer the product, so definitely a slowdown but hopefully for the rest of the year, we’ll get as many children treated as possible.

Vas Narasimham

Thanks Marie-France. Next question, Operator?

Operator

Thank you. Your next question comes from the line of Florent Cespedes from Societe Generale.

Florent Cespedes

Greetings everyone. Thank you very much for taking my questions.

Two quick ones. First for Marie-France on Mayzent, can you please elaborate on what is behind the acceleration of the product and if it sustainable? My second question on ligelizumab for John, could you share with us how you believe you will differentiate this product versus your BDK inhibitor which is in Phase II? Thank you very much.

Vas Narasimham

Thanks Florent. On Mayzent, Marie-France?

Marie-France Tschudin

Yes, we have seen an acceleration in Mayzent. We’re very happy to show 41% quarter over quarter growth. This is a unique set of patients and Mayzent has unique data in this population showing really great results in the SPMS population. We’ve seen growth despite COVID, and this is just a tribute to the fact that physicians are identifying these patients and are bringing these patients to treatment. We’ve got breadth in our Rx. Patient on-boarding is happening and it’s easier, so we’ve improved when it comes to that, and also we have a clear positioning.

We’ve also launched in additional markets, so we’ve seen that Germany has above 1,000 patients. We’ve also recently seen a nice nod from the U.K. and we’re preparing to launch in China and Japan, so I think you can continue to see this growth quarter over quarter and year over year with Mayzent.

Vas Narasimham

And John on ligelizumab?

John Tsai

Yes, thanks Forent. Thanks for the question on ligelizumab. As you know, ligelizumab is our anti-IgE that forms free complexes and binds up free IgE. We did have a publication earlier in the year in the New England Journal which compared ligelizumab and CSU, where we showed significant benefits at 42% versus 26% in Xolair, so based on that, we are moving forward obviously and are fully recruited in our trial for ligelizumab. We expect the readout to be in the second half of next year.

You asked about differentiation versus remibrutinib, BTK inhibitor. Currently we’re still looking at–we’re awaiting the full results for remibrutinib in CSU, so obviously for remibrutinib–this is an oral versus ligelizumab, being a subcu formulation, so as we get more information on remibrutinib, I think we’ll be able to clarify what the differentiation is between the two agents.

Forent Cespedes

Thank you very much.

Vas Narasimham

Thanks John. Next question, Operator?

Operator

Thank you. The next question comes from the line of Richard Vosser with JP Morgan.

Richard Vosser

Hi, thanks for taking my question. One, please. You talked, Vas, in the opening remarks about continued improvement in the U.S. prescriptions. We’ve seen in terms of COVID coming back with a vengeance maybe in Europe, so just your thoughts on how new patient starts and your therapies are going in Europe and outside the U.S. to just give us a flavor going into Q4. Thanks very much.

Vas Narasimham

Thanks Richard. I think it’s a very variable situation. What I do believe is that it’s variable by country and jurisdiction. What I think is clearly the case, though, is healthcare systems have, one, gotten better at managing COVID, severe COVID cases, understanding when to hospitalize, when to bring patients into the ICU, and therefore better manage the load. I think second, there’s a broad recognition, broadly also published in academic literature that there is a substantial impact of this pandemic on non-communicable diseases writ large. There’s, I think, a broadening desire in the public health community not to see that expand, so trying to maintain patient’s visit schedules in oncology, in all of the various non-communicable disease categories, rheumatology, cardiology, pulmonology, dermatology, ophthalmology, etc.

Then third from just an economic financial sustainability, healthcare systems are quite motivated based on my conversations to also maintain their normal activities to the extent possible. I think for all those reasons, we certainly are seeing an impact of the second, next wave in Europe, but it hasn’t been thus far as severe as what we saw in April and May. As Harry noted, we’re hopeful that that will remain that the case. Now if we do see significant disruptions, of course, we’ll have to adjust accordingly.

I think it’s a similar situation in the U.S. The U.S. appears right now to be a bit more resilient in making sure the healthcare systems operate, also I think because of the financial strain those systems have been under.

Thank you Richard. Next question, Operator?

Operator

Thank you. The next question comes from the line of Tim Anderson from Wolfe Research.

Richard Wagner

Hi, thank you for taking my question. This is Richard Wagner for Tim Anderson.

My question is regarding LAG525, your LAG-3 inhibitor. In Q2, it was shown as a 2023 submission. It’s dropped off of the submission slide. Wondering if you had some underwhelming data with this, and if not, [indiscernible] which changed its prioritization. I know it’s not a high [indiscernible] program, but it’s relevant to one of your IO competitors, Bristol Myers Squibb, who have a more advanced LAG-3 program.

Thank you very much.

Vas Narasimham

Thanks Richard. John, I don’t know if you have the latest on LAG-3? I certainly don’t. Maybe you can–

John Tsai

Yes, so based on portfolio prioritization, Richard, we made some decisions, and the area that we were looking at was LAG in triple-negative breast cancer. We decided not to move forward with that indication, so that’s why it’s dropped off.

Vas Narasimham

Thanks John. Next question, Operator? I believe it’s maybe our last question.

Operator

The question comes from the line of Jo Walton from Credit Suisse.

Jo Walton

Thank you. Two quick ones. Do you have any visibility on Sandostatin LAR generics, and I believe it was mentioned that Sandostatin generics in Europe were a factor. Are there more countries? Is that becoming a more serious issue?

The second one on Cosentyx, please. I know that you say that there’s been a drop in visits to derm, but we are seeing in the first three quarters of this year substantially higher prescription than sales growth, so there’s obviously some increased competition here. I wonder if you could address the competition angle as much as the lack of derm patients in the U.S. I believe in Europe you said there’s now mandatory use of biosimilars. I wonder if you could expand on that comment, too.

Vas Narasimham

Thanks Jo. So first on Sandostatin, Susanne?

Susanne Schaffert

Yes, thank you Jo. As you saw, Sandostatin sales were declining, and this was mostly driven by generic erosion in Europe. [Indiscernible] there is one generic that has received marketing authorization in Europe and has started commercial activity in limited countries, namely Germany, France, U.K., and a few other small countries. On the U.S. side, we know that there is one generic application going through the regulatory process, but at the moment we have no further update.

Vas Narasimham

Then on Consentyx competitive dynamics, Marie-France?

Marie-France Tschudin

Yes, so I’ll just start off by saying that it’s a very competitive class and it’s getting more competitive by the quarter, almost. But despite this, Consentyx continues to deliver very strong growth, and if I could just take you through it, first of all, we had our first billion dollar quarter, which I think is definitely something to celebrate. We have seen a slowdown in the market, so if we look at the expansion in the market this year versus last year, there has clearly been a slowdown. There’s been more competition – we’ll get to the biosimilars question in a second, and what we have seen is we’ve seen a faster recovery in the rheumatology space versus the dermatology space.

If we look a little bit more carefully at the U.S., we’re maintaining TRx share and NBRx share in derm even though you see the slower recovery, and the increased competition of IL23s. In the rheum space, we’re actually growing three times TRx versus the market year over year, so what our aspiration is, is to maintain our share in derm and accelerate in the rheumatology space.

If I look at EU, where biosimilars have entered and where there’s mandatory use, so it’s exclusively in some of the markets in the EU, namely Germany, Spain and the U.K., what we’ve done is we’ve actually maintained the share in dermatology after the initial entry of biosimilars, and the same with the rheumatology space where we’ve seen the biosimilars being more used.

What this means, actually, is that we’re just seeing a delay in use for Cosentyx in Europe. We still maintain a number one or number two position in most EU major markets.

Then with China, we’re outperforming incumbent biologics and we expect NRDL listing in the first half of this year, so this all leads us to believe that through the complete treatment approach of Cosentyx, we see very broad indications from the PSO space to the actual SAW [ph] spectrum the fact that we believe that we and others will continue to grow this market. If you consider the market penetration rates or the biologic penetration rates in both rheum and derm, they’re still relatively low, and the fact that Consentyx, we’re investing in future indications, you can anticipate three additional indications in the rheum space, three additional indications in the derm space. This will address approximately an additional 3.5 million patients, so for these reasons, we believe that Cosentyx, despite the slowdown of COVID, despite the competition, despite the biosimilars, we have the potential to go beyond $5 billion in sales.

Vas Narasimham

Thanks Marie-France. I think we have two more, perhaps, questions on the line, Operator. Please take the next one.

Operator

Thank you. The next question comes from the line of Naresh Chouhan from Intron Health.

Naresh Chouhan

Hi there, thanks for taking my questions. Just one big picture one on ESG. It’s often been a big topic when discussing Novartis with investors, and you’ve certainly made a concerted effort to improve your rating. To what extent have those efforts surprised you in that they actually led to better financial or operational outcomes, and is it unfair to assume that all ESG efforts come at the expense of the bottom line? Just a bit of color around what you’ve seen. Thanks.

Vas Narasimham

Thanks Naresh. I think the ESG efforts have had multiple benefits for us. It’s been a big focus for us. We’re really pleased not only to have gotten important ratings, number one ratings across many of the agencies, also in very specialty agencies in climate and diversity, also moved off of the red list for MSCI, which I think a lot of investors had on their minds. All of that is cleared off the table, so I see a few fundamental benefits for ESG.

First with our own associates, it’s a huge motivator to be a leader in this space. I think for our people, more than 50% millennial, this is a huge topic, so we see it as an element of our own story internally.

I think second with a broader stakeholder group, the issuance, is in the case of the issuance of our bond, led to me to get very positive feedback from a range of stakeholders, ranging from ministers of health, very senior people in government, the Gates Foundation, and so I think it creates the ability to have a broader conversation about your company and the impact you’re trying to have.

Then lastly, we do believe that getting much more efficient on how we use energy, much more diverse in how we source and bring in people into the company, getting to be a leader in building markets, in emerging markets and low income and low and middle income countries through our work in Africa, all of these things will benefit Novartis strategically for the long term from a talent, market, and all of the fundamentals of the business.

I actually think it’s totally sensible. We talked about it as a leadership team and a committee that I chair. We systematically have the targets, which we’ve published transparently. I think we had a leadership team that’s very passionate about it, and again in the long run, it will–it won’t show up in the quarters, but it will show up in the long run trajectory of the company, that I’m convinced of.

Thanks for the question, Naresh. Last question, I believe, Operator?

Operator

Thank you. The final question comes from the line of Richard Parkes from Exane BNP.

Richard Parkes

Hi, thank you very much for taking my question. Just one on iptacopan – it looks like you’re also initiating a Phase III in IgA nephropathy. I know you might not want to talk about those Phase II [indiscernible] until its published, but maybe you could compare your experience with the Phase II trials in C3 glomerulopathy and IgA nephropathy to the previously reported anecdotal experience of eculizumab, and also how you’re thinking about the safety of the drug in terms of infection risk and how that’s developing. There’s very conflicting opinions from experts whether that leads to a greater or lesser risk of serious infection with factor B inhibition, so I’d be interested in your perspective. Thank you.

Vas Narasimham

Thanks for the question, Richard. John?

John Tsai

Thanks for the question, Richard. Across the board, as you know for iptacopan, we’re looking at multiple indications, GMH as well as C3G IgA, as well as idiopathic membranous nephropathy. As we’re looking across the board for C3G, what we see is obviously the data that we shared recently. For IgA, the full data set is going to be available early part of next year. As we look at the opportunity, it is a–there’s no disease modifying treatments out there currently, and so the profile that we’re seeking is one where we do believe there’s benefit.

You asked specifically about infection risk. So far based on our Phase II studies, we see that it’s well tolerated. We haven’t seen significant increases in infections across the board, and that’s across both IgA, C3G, as well as in the PNH. I think with all of that information, we will have a large pool of safety information to move forward in all of these indications. I’ll leave it there. Hopefully that answers your question.

Richard Parkes

Thank you.

Vas Narasimham

Perfect. Thanks everyone for joining the call. I hope everyone stays safe and healthy and energized in these difficult times. We’ll continue to drive the growth of Novartis. We’re confident in the long term outlook of the company. I hope increasingly all of you will be as well, and we’ll look forward to keeping you up to date.

Thank you.

Operator

Thank you. Ladies and gentlemen, that does conclude your call for today. Thank you all for participating, and you may now disconnect.

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