Novartis AG (NVS) 41st Annual J.P. Morgan Healthcare Conference (Transcript)

Novartis AG (NYSE:NVS) 41st Annual J.P. Morgan Healthcare Conference Call January 9, 2023 11:15 AM ET

Company Participants

Vasant Narasimhan – Chief Executive Officer

Conference Call Participants

Richard Vosser – JPMorgan Chase & Co.

Richard Vosser

Welcome to the Novartis presentation at the 41st JPMorgan Healthcare Conference. I’m Richard Vosser, European pharma analyst at JPMorgan. It’s my great pleasure to introduce Vas Narasimhan, the CEO of Novartis. Before I hand over to him for his presentation, I’d just remind you that the – we will transition after 20 minutes to Q&A in this room, no moving, which is a big round of applause clearly. And there will be microphones. So there’ll be people – so just put up your hand, I’ll indicate, and we’ll do questions that way. Awesome. Vas, good to see you.

Vasant Narasimhan

Thank you, Richard. Hi, everyone. Great to be here back in person at JPMorgan. Novartis has a 250-year history. And throughout that history, we’ve had to constantly reinvent the company. And most recently, when you think about the creation of Novartis 25 years ago in its current format, we were a healthcare conglomerate with eight different units, spanning everything from nutritionals and animal health to, of course, innovative medicines, pharmaceuticals and oncology.

Today, I have the opportunity to – I’m sorry, have to go back here, to really introduce the company in its next form as a pure-play innovative medicines company. Because with the planned spin of Sandoz, for the first time in our history, we will really be a focused company with a focused strategy, and we believe that’s a strategy that can create sustained value for shareholders, and importantly – more importantly, sustained value for patients, healthcare and of course, all of the stakeholders that we serve.

Now our vision is to become the most valued and trusted medicines company in the world. That’s a long-term vision. Of course, visions like this take decades to form. But that’s what animates our organization, gives our organization energy, the relentless pursuit of this goal. And what we’ve rolled out inside of the company is a focused strategy, one where we really thought hard about where do we want to play and how do we want to win. And our focus now is on five core therapeutic areas, which I’ll speak a little bit more about in a moment, five technology platforms; two that you know well, small molecules and biologics; and three, advanced technology platforms that we’ve been working on now for many years; four, priority geographies that we think will ultimately enable us to grow for the long-term.

And in terms of how we do this work, actually, the five elements here are the same five elements that I started with as CEO. But importantly, we’ve tried to prioritize thinking about growth, returns and thinking about foundations; culture, our unbossed philosophy, scaling data science and technology in the company and continuing to focus on ESG matters, building trust with society.

Now when you reflect on how we got there, and this has been a journey that’s taken a good part of the last decade. But most recently, over the last five years, we’ve done over $100 billion of transactions – or planned transactions to come to a 100% innovative medicines company. And with each one of these, we really strive to do things in a shareholder-friendly way, notably with the spin of Alcon, which was one of the largest spins in European public markets history and a very successful device company. We exited the Roche stake at a relative price high and then executed our ongoing share buyback program and most recently, our planned spin of Sandoz, which we also aspire to do in a tax neutral manner to our shareholders.

And what that allows us to be now going forward is uniquely positioned, we believe, as a scaled pure-play medicines company. In this chart, you see company revenue on the Y axis, you see pharma contribution to the overall sales. And with the changes that we have now implemented, we will be uniquely positioned as a scaled pure-play innovative medicines company with the scale of over $40 billion in sales, importantly with a global footprint operating in over 100 countries, and the scale in terms of R&D capabilities to win in the long run. We believe that applying that scale on the focus of innovative medicines will allow us to deliver returns for our shareholders.

And when you think about how this could translate specifically over time in terms of how the company is rated, what we know is diversified companies in our sector do trade at a discount. And over time, if we can demonstrate consistent growth with the work that we are doing within our R&D enterprise, we hope we can also rerate with some of the peer set that is more pure-play, more focused on high-end innovation.

Now turning to our five focused core therapeutic areas. In each one of these therapeutic areas, we have strong in-line brands supported by a deep pipeline in cardiovascular, of course, with Entresto and Leqvio and the number of assets now advancing into the – into the late-stage development and/or into registration; in immunology, Cosentyx and Ilaris and important assets such as remibrutinib or ianalumab advancing in the pipeline; in neuroscience, with Kesimpta and then our ongoing work with remibrutinib, our BTK inhibitor as well as earlier stage assets and other neurodegenerative diseases; solid tumors, hematology, each one of these areas consistent approach of building strong in-line brands and backing it up with outstanding pipeline.

And alongside that, we continue our long-term effort to shift towards advanced technology platforms. Today, they constitute around 27% of our sales. We have an aspiration with biologics and these technology platforms to be well over 50% of our sales by the end of the decade. In each one of these areas, we have anchor brands, we have key focus areas, and we have projects, and you can see with scale in each one of them. And taking each one in turn in gene therapy with Zolgensma, one of the most successful gene therapies ever to be launched. We continue to work on the intrathecal approach with Zolgensma. And now we have advancing into the late-stage development in multiple assets, including one that we are really interested and excited about from a recent acquisition of Gyroscope in geographic atrophy.

In cell therapy, building on the base of Kymriah, we recently launched data at ASH that showed with our rapid CAR-T, we have the opportunity to hopefully bring a next-generation technology that’s more scalable and also the opportunity to move into new areas like immunology, which clearly now is a focus area for these cell therapies. Radioligand therapy, I’ll come back to you in a moment. And of course, within RNA therapeutics, building on the back of Leqvio; pelacarsen, our ASO, we have the opportunity to build out a broader RNA portfolio.

Now specifically on radioligand therapy, this is an area we believe we’ve put ourselves in a pull position to win for the long run and with the opportunity to treat a broad range of solid tumors. We have a robust manufacturing network now, four manufacturing facilities, two in the U.S., one that is under construction in Indianapolis and should be up and running soon. This allows us to meet the challenge of just-in-time delivery, where you have no inventory. And so this is a real logistical challenge.

A large pipeline of assets, multiple proof of platforms, and we’ll come back to Pluvicto later in the presentation, and strong commercial execution. Now with over 500 centers executing on radioligand therapy, it’s attractive to the centers, highly efficacious for the patients and then, of course, allows us to drive differential growth.

Now turning to geographic focus. One key priority of ours is to improve our position in the U.S. We are the number one player in Europe. We will be one of the top three players in Japan and China. But clearly, the U.S. now is the place where we want to get to the next level. And the way we’re doing that is a very clear approach. We’ve moved the U.S. to report directly to me on the executive committee. We are embedding a U.S.-first mindset within our development teams and our commercial organization, prioritizing that within our target product profiles.

And what we believe we can do, as you can see on the chart, is while maintaining our strength in Europe and Germany, continuing the growth in Germany and Japan, we have the aspiration to get to number five organically in the United States. Now turning to our R&D engine, which is, I think, another critical thing if we’re going to be a successful pure-play innovative medicines company. When you look at the last 22 years, Novartis has been the most successful company in this industry in delivering drug approvals both in the U.S. and Europe. And you can see it’s quite a margin that we’ve been able to consistently do that.

Where we haven’t been good enough and where there’s a huge priority for us now is delivering high-value medicines. Medicines have really moved the needle for patients, for healthcare systems and for the company. And with that mindset with our new R&D leadership, we’re really embedding that in every element. We’re willing to not win the race of getting the most approvals, but hopefully winning the race of getting the most high-impact approvals. And we’ll hopefully see that in improved success rate, cycle time, and most importantly, value per asset delivered.

Turning to our research engine. One of the things I think that is a strength of our company over the long run is our ability to really scale technology platforms within research. There’s a full list of many of the areas that we’re working on, showing where we are relatively speaking, where we have in-market assets. And again, the mindset we are now putting into our NIBR organization is as much around the high science as about high value and can we make the trade-offs early on. So we would prioritize the select assets we think that can really drive long-term performance.

And maybe lastly on the strategy and kind of where we are. We’ve refreshed our leadership team, multiple new additions to our global leadership team, a new Head of our Drug Development, Sriram; our new Head of Research, Fiona, Ronny Gal has joined us as our Chief Strategy and Growth Officer; Victor Bulto, leading the United States. I really believe this is the right team for a pure-play innovative medicines company to really enable us to deliver on our long-term goals.

Now turning from that strategy and how do we translate that into financial performance and financial performance consistently over time. When you look at our profile, we have 6 major in-market brands, each with multibillion-dollar potential in sales, most of which have long LOE time lines; three, additional multibillion-dollar assets, which I’ll talk a bit more about it, have data readouts in the launch phase, and then a rich pipeline that’s maturing. It will take time, of course, to mature over the middle part of this decade. But that gives us that internal engine to grow the topline.

And then alongside that, we’ve taken on a relatively large restriction, one of the largest restructurings in Novartis’ history, to save about $1.5 billion in sales – in cost run rate and also simplify the organization so that we can be much more fast and agile. And what we expect that to deliver is consistent 4% sales growth and over 40% core margin. It’s important that 40% margin is for the total company, inclusive of the corporate cost of being a conglomerate. So that’s a pretty big step up from where we are today.

And you can see that in each one of the elements, sales, free cash flow, core operating income and return on invested capital, with the spin of Sandoz, the restructuring program and the sales growth we expect to deliver, a very nice profile of consistent upgrades in terms of how we perform. I’m very interested, particularly in return on invested capital, where I think we have the opportunity now to rerate ourselves into the top quartile of the peer group.

I would want to emphasize that with Sandoz, the spin, we do plan to maintain our dividend as where it is today and continue to grow that dividend as we’ve grown it over the past decades. Now in terms of our capital allocation and how we think about capital allocation, we continue to balance investing in our core business and returning capital to shareholders. The investments we made in our core business are consistent, $9 billion in R&D, $1.4 billion of capital investments in 2021. We’ve done about $30 billion of value-creating bolt-ons since over the last five years, continue to evaluate those opportunities. But at the same time, we are consistent in returning now $53 billion over the last five years to our shareholders with our ongoing share buyback program, $15 billion share buyback program with approximately $5 billion still to be completed.

And then when you look at that balance sheet that the company currently has, we have a lot of flexibility. You can see on the left-hand side of this chart, we are well positioned versus the peer set in terms of our overall rating. And then similarly, when you look at our leverage, very nicely – a nice balance sheet that gives us a lot of flexibility either to pursue attractive M&A or to continue to return capital to our shareholders.

Now turning to the pipeline. And I wanted to say a few words about some of the upcoming catalysts and some of the recent data that we’ve announced over the last six months. Six major assets where we have exciting data that we think will hopefully enable us to make these medicines significant with Pluvicto readouts in earlier lines of prostate cancer; Iptacopan in PNH, but setting us up to be a broad-based therapy in a range of rare diseases; Kisqali in the earlier adjuvant setting; Remibrutinib in both CSU as well as in MS; Scemblix with the opportunity to move into first-line CML; and then OAV101, which is our name for our Zolgensma life cycle management program to move into the intrathecal setting in two- to 18-year-olds.

And that, I think, nicely sets us up for a period of time in 2024 and 2025, where we have a very catalyst-rich period across this portfolio of assets. And we’ll continue to build with our efforts in NIBR to add to this and also add to the 2026 time period and on. But I think it shows we have a solid set of catalysts in the near-term and an expanding set of catalysts over the mid part of the decade, which will enable us to drive that growth 2025 to 2030.

Now turning to each one of the assets in turn. Kisqali has a proven OS benefit. We had new data at San Antonio, which only highlighted that further, what we believe a best-in-class profile amongst CDK4/6 inhibitors in the metastatic setting. You can see the data we’ve presented in the past in terms of our OS, new data, which demonstrated that Kisqali doubled PFS response rates in the RIGHT CHOICE study in patients with an aggressive form of metastatic breast cancer; and then in the MAINTAIN study, NICE data also demonstrating that in the second line in patients that had already failed a CDK4/6 inhibitor, Kisqali can provide a nice response even in those patients as they try a second CDK4/6 inhibitor.

Now our NATALEE study is continuing as planned to the final readout in the second half of 2023. We passed the interim in the second half of 2022 last year, and the study is continuing unchanged. We are fully enrolled. As a reminder, this is a unique study, an opportunity to address both intermediate and high-risk patients. So you can see the data here, but 60% Stage III and 40% Stage II within the study with an effort to get a very broad label in this setting.

We have a longer treatment duration than our competitor with three years versus two years, which we hope will enable us to capture the time period when often these cancers recur, and then a lower dose that we hope also will enable us to manage the side effect profile for this medicine. So this is an exciting study for us. We’re working hard to make sure that we hit the time lines and have a readout in the course of 2023.

Now turning to Pluvicto. Pluvicto has really impressed us in terms of its in-line performance already in the late-line setting of metastatic castrate-resistant prostate cancer. And in the recent study that we read out for a radiographic PFS, the PSMAfore study, 1:1 randomization in patients who failed a prior RP, you can see we hit the primary end point. We’re looking forward to sharing that data over the course of this year. It really gives us opportunity now to move into the earlier lines, where there are significantly more patients.

And when you look at our goal with Pluvicto, it’s very much to cover the entire first-line setting and then perhaps move into even earlier lines of therapy. With the PSMAfore study now read out, we will wait to see how to get also OS data out of that study, the PSMA addition program as well. And you can see the opportunity for us to move into expanding the opportunity for Pluvicto by 3x to 4x over the coming years. So a very exciting program, validates the radioligand therapy platform gives us an opportunity to expand it further over the coming years.

Now turning to Iptacopan, which is our factor B inhibitor. This is data that we presented at ASH, very consistent data. We believe this medicine will become the standard of care in PNH. We believe this medicine will become the standard of care for any patient who is suffering from an alternative complement pathway-driven disease. Consistent data here, whether it’s baseline hemoglobin, hemoglobin over a threshold of 12, transfusion avoidance, breakthrough hemolysis. Striking data, you can see 42 out of 60 versus zero out of 35, 51 out of 60 versus zero out of 35. P values are impressive, really demonstrates the attractiveness of this oral molecule.

And then similarly, when you look at the secondary end points, very consistent data here as well whether looking at fatigue reticulocyte hemoglobin. And importantly, we were able to maintain LDH, which I think was a question on many investors’ mind, very consistent. So controlling both intravascular and extravascular hemolysis. And I think that just speaks to the attractiveness of this molecule. I think it’s really unique. It’s got the opportunity to address a broad, broad range of diseases that are hit by the complement pathway.

I think in the interest of time, I won’t drag you through the alternative complement pathway. But just to say that you can see that we have the opportunity in IgAN, C3dA, who’s – and then we’ll have a number of other ongoing Phase IIb studies. Our goal is to expand this medicine as broad as we can and really make it into a multibillion-dollar asset.

And then lastly, within the assets, I wanted to say a word about Scemblix, which is our STAMP inhibitor hitting a different pocket on the BCR-ABL molecule than the historical TKIs. Very nice 96-week data. But then importantly, we also shared data that demonstrated in the first-line setting in an IIT, very, very nice response rates as well as combination setting data in the second-line combination of this drug, Scemblix, with established TKIs, also very strong response rates.

This study is enrolling extremely fast in the first line. We’ll have the opportunity to read it out in 2024 and then hopefully continue our long legacy in being the global leader of CML, bringing another important innovation on the back of Gleevec to Cigna and taking the next generation going forward.

So in closing, just a few comments on some of the work we are doing to be a leader as well in the sector and across sectors on ESG. When we think about ESG, we think about it, if we just do our work well, we are delivering on our ESG mandate. We serve – because of the scale of Novartis globally, we serve 280 million patients with our innovative medicines, which we believe is the largest footprint of any company in the sector, 500 million patients served with Sandoz, a broad and rich pipeline, as we’ve already discussed, an effort to really be at the leading edge of new technologies.

And if we do that well consistently, that’s the best way for us to create value for society in the long run. And we see that work reflected in our ratings across the various ESG rating agencies. We are now within CDP. We were number one in the sector out of 456 companies with Sustainalytics. So across the board, we continue to take this seriously and continue to embed this in our daily work.

So in closing, we have a clear road map to success. We’ve transformed ourselves into a pure-play IM company. We have five core TAs and a clear set of technology platforms and a U.S. geographic focus, nine big in-market brands, a focus on upskilling our R&D productivity and prioritizing high-value NMEs, commitment to deliver attractive financials consistently over the decade, shareholder-focused capital allocation and commitment to building world-class foundations.

And with that, we hope to continue to demonstrate to all of you that Novartis is on the track to become the most valued and trusted medicines company in the world.

Thank you all very much.

Richard Vosser

Right, transitioning to Q&A. So if there are any questions, please put up your hands. I believe there are mic runners in the room. So if there are questions, there’s a question over there. So let’s try that one with microphone number one.

Question-and-Answer Session

Q – Unidentified Analyst

Hi. [Angus Liu], Fierce Pharma. So Vas, we know cell and gene therapy as part of Novartis technology focus. So do you think that technology platform buildup is complete right now for this platform? I mean with cell therapies, we know after Kymriah, you have this T-Charge platform. But what’s going to happen after Zolgensma beyond Zolgensma IT? Are you interested in gene editing, for example? So what’s your plan – Novartis plan in gene therapy?

Vasant Narasimhan

Yes. Thanks, Angus. So first on cell therapy, with the T-Charge platform, we have the opportunity, I think, not only to continue to life cycle management – with life cycle management within the B-cell cancer space but also, as I mentioned, move now into immunology, where we’re rapidly trying to progress into SLE – late-stage SLE patients as well as other late-stage patients within severe immunological disease because what we see is you can really create an immune system reset by using CAR-T therapy. So I think that’s a tremendous opportunity. I think the industry overall will likely focus on this. And that’s a place where we want to win with the T-Charge platform.

In terms of gene therapy, I mean we’ve learned a lot, and I think the whole sector has learned a lot that this is a complex task to match the right capsid with the right tissue with the right disease biology with the right construct. So we have well over 15 projects in-house that are continuing to advance.

In the clinic, our recent acquisition of Gyroscope is probably the most advanced gene therapy that we have post SMA-related gene therapies. And I think going forward, I mean most of the work that we need to now do is around some of the foundational technologies, capsids and capsid design, can you move beyond AAVs to engineered capsids. I think that’s where a lot of the energy of the sector and Novartis will go in the coming years.

Richard Vosser

Further questions? Maybe I’ll build on that and just think about the radioligand technology. So we’ve seen the PSA4 – or we haven’t seen it yet, but we’ll see it, which is broadening that. But beyond sort of PSMA, where do you see that technology taking you?

Vasant Narasimhan

Yes. I mean, I’m quite excited, I said one of my goals today, Richard, is to get you to take up your forecast, see if I can get you to do it. But I think it’s a powerful technology. When you think about targets that you have, where you can either do an ADC or a radioligand therapy, I mean there’s a number of targets which are very attractive that show up on PET scans. You light up tumors. And then you have the opportunity where ADC may not make sense to use a radio particle to nanatactic cancer.

So we see opportunity already, of course, prostate well, neuroendocrine tumor, programs in glioblastoma in small cell lung cancer, in GI tumors. So we have two other assets in the clinic right now besides – beyond prostate in that. And then we’ve done a few deals recently as well to add additional ligands into the portfolio. So I think over time, this could really build out into a broad-based solid tumor technology.

Richard Vosser

Other questions? Maybe building on that ADC, I saw Phase I with ADCs. Maybe you could talk about that, your efforts there for more sort of traditional maps with linked to keep toxins or chemotherapy?

Vasant Narasimhan

Yes. I mean I wouldn’t say we’ve been one of the leaders in ADCs historically. I mean, clearly, some of our competitors were able to thread the needle on the pharmacokinetics of really ensuring you could avoid a lot of the toxicities associated with ADCs and still get the high therapeutic benefit. But nonetheless, we’ve learned from their efforts and in-house, we have a lot of the technologies that are required. So we’re advancing our own what we believe are novel targets. So mostly, we pursue novel targets. We’re not trying to do fast fall all our ADCs. And also the question is, can you use multi-format? So could you use bispecifics or trispecifics to hopefully broaden the overall therapeutic index for some of these ADCs.

Richard Vosser

I have a question here around like, one of your growth drivers. And person is asking about the recent article on – in the British Medical Journal around FOURIER and a reanalysis of that on Amgen’s PCSK9 showing maybe a questioning the CV benefit. So I suppose the question is thinking about Leqvio. Leqvio doesn’t have a CV benefit at the moment. Do you think this – how do you think this impacts Leqvio’s uptake in the U.S. and globally?

Vasant Narasimhan

Yes. First, I think just on the science. I mean, I think the correlation between LDL lowering and cardiovascular benefit is one of the most well-studied correlations in our sector. So whether there was a nuance on that study, I’m not close enough. But I think broadly speaking, the fact that U.S. payers and, frankly, NICE has taken on faith that if you lower cholesterol 60%, you will generate a cardiovascular benefit. So that gives me, I think, a fair amount of confidence that we will demonstrate.

Now one of the things about the study that we’ve run with Leqvio in our cardiovascular outcomes is we have much longer follow-up than the PCSK9 monoclonal antibodies. Now we did that deliberately to try to demonstrate a larger CVRR. So we target a 25% to 30% CVRR with that study. And I think – at least everything I know about this biology would suggest we should be able to do it.

Richard Vosser

And the ramp-up in the launch, how is that going globally? Are you starting to see pockets of acceptance to buy and build here in the U.S. that within cardiologists that are notoriously, hopefully none in here, slow at adopting medicine. So how do you see that?

Vasant Narasimhan

Yes. So as you know, we have a lot of experience with this. It took us a couple of years to get Diovan going. It took us a couple of years to get Entresto going. It will likely take us some time to get Leqvio going. But we do see, I think, the beginnings now of the momentum. And what we have is a pretty broad base now of physicians’ offices, close to 5,000, that are actively prescribing the medicine. And really, our focus is to get more depth within those clinics. So can we get from two to three patients to the entire clinic changing over to the use of Leqvio?

When we index it versus Entresto and you look at where Entresto, if you start, Entresto was improved at a June time point. We’re roughly in line with the Entresto launch trajectory. Most of the metrics in terms of the number of visits to get an office to convert, the time lines to actually get the payers to get, all of those things are trending very much on it. Now our goal is to beat Entresto but we seem to be on an Entresto-like trajectory, at least for now.

Richard Vosser

And maybe broadening out, you mentioned midterm targets, 4% growth. Important drivers to that, what do you see as the – you’ve clearly got very key brands in line, Kisqali, Kesimpta, et cetera. But balance between pipeline and key brands to deliver that?

Vasant Narasimhan

Yes. So the 4% is predicated on Kesimpta. I mean, I think versus where maybe the consensus is, we have a view that Kesimpta, Kisqali can do better based on the trends that we’re seeing. That’s a big driver. Clearly, we need to demonstrate that Leqvio can get to where we believe it can be because I think the consensus would not even see it getting to where Entresto was at that time point. But I think the other two big ones are going to be now Pluvicto and Iptacopan. I mean Pluvicto, we believe has – and we’re excited to share more data over this year, but we believe this medicine can be a very significant medicine for the company. And I think Iptacopan, if successful in C3G and hopefully IgAN, but even in PNH, could be a blockbuster medicine just in PNH alone. And I think as everyone sees more data with Iptacopan and how consistent this data is in different settings, I think that hopefully will become more conviction in the markets as well.

Richard Vosser

Any further questions in the room? Can’t see any so I’ll – yes?

Vasant Narasimhan

Might take a second for the mic to get over.

Richard Vosser

Yes. Just here?

Vasant Narasimhan

We need a microphone, Richard.

Richard Vosser

Yes. We need a microphone in the middle. Well, that’s a good idea.

Unidentified Analyst

Sarah from Pepticom. I wanted to ask about – since we are here in San Francisco, very close to. We’re in the epicenter of technology. How do you see AI playing into whatever you guys are doing, especially on the discovery side? And you’ve mentioned this current novel targets, right? So I’ll be happy to hear your opinion about that? Thank you.

Vasant Narasimhan

Yes. We’ve had ongoing efforts in AI now for, I mean, close to six, seven years. I think where we’ve seen the use cases in the research space, most successful are primarily after we have a target when we want to optimize the candidate molecule, an iterative chemistry and really enabling us to design attractive molecule relatively quickly, it’s very powerful. And clearly, alongside our researchers, it’s really sped up drug development or that part of drug development.

I think the opportunity now clearly with AlphaFold and some of the other discoveries that are happening, is could you move further upstream and could you use AI to speed up your ability to identify novel targets altogether. Fiona Marshall, our Head of NIBR, is very keen on this. We have a large collaboration with Microsoft. We actually house an AI innovation lab with Microsoft. And that’s a big focus of the effort is to try to see can we accelerate the discovery of novel targets, which would then hopefully lead to more medicines in the portfolio.

Richard Vosser

I’ve got a question here on your PD-1 collaboration with – and TIGIT collaboration with BeiGene. A person basically asking for an update. It wasn’t on the slide. So how are you thinking about the immuno-oncology efforts at Novartis, I suppose?

Vasant Narasimhan

We remain committed to the collaboration with BeiGene. I mean one of the challenges we face is the inability of FDA to inspect sites in China has delayed the launch within the first set of indications for the PD-1 inhibitor. We’re hopeful that at some point this year, it doesn’t look like we will be in the early part of this year, but at some point this year, those inspections can happen and we can start the commercialization of PD-1. It’s continuing to progress in Europe.

I think on the TIGIT, we’ll see. We’ll see how the data matures. Of course, one of the competitors put out some data a few weeks ago, yet another set of data. But I think we can all agree, it’s still unclear as to what exactly TIGIT’s role is going to be within the treatment paradigm in non-small cell lung cancer.

Richard Vosser

Question over here.

Unidentified Analyst

Hey, Vas. Quick question, [Jami Ison, new Biotix]. Could you again kind of give an overview of Novartis’ role within the ADC space? And also, if you have considered any glycopeptide conjugates, basically tagging peptides to conjugates as a way to enable T- cell engagement?

Vasant Narasimhan

Yes. So on ADCs, we’ve had a long-running effort actually based out of our San Diego site for some time. So we have the, we believe, the relevant linker technology and understanding of the chemistry to target payloads. What we haven’t done as well perhaps at AZ and Daiichi and Seattle Genetics is get that all together in a way to, as I said earlier, thread the PK so that you can get that high efficacy without the toxicities that we’ve often seen with ADCs.

So we don’t feel at the moment that we need to bring in any novel technologies but rather apply the learnings of the sector and to what we have already in the portfolio. We do have, just to your question, though, a collaboration with PeptiDream in radioligand therapy, where PeptiDream is generating novel peptides that we’re evaluating for whether they could be used in radioligand therapy. So that’s been certainly a large focus for us is on the RLT side with peptides.

Richard Vosser

You mentioned the inability to inspect manufacturing sites in China. And obviously, China is now starting to open up like the rest of the world. Maybe a couple of questions. Just near term, how is that impacting your business? But also longer term, you’ve got, as you said, you want to double the size of the business. What are the drivers for doing that? How are you seeing the impact of Chinese government on pricing, et cetera, and your ability to deliver?

Vasant Narasimhan

Yes. So first, I’d say, in spite of all of the challenges that we’ve had in China in the last year, the business still grows pretty well. And so I think it demonstrates that it’s a tremendous opportunity. We continue to see the opportunity to be one of the top three players is one of the big growth opportunities for Novartis as one of the most global players in the sector.

But without question, I think through the Q3, Q4 and now getting into Q1, there’s a significant impact to the wave that we’re seeing. We see that. We have manufacturing sites. We have a very large presence. We have close to 10,000 people in China. And so we certainly see that impact.

I am optimistic that as this wave and perhaps one more wave to come that as we exit Q1, we’ll see a normalization. And what we might see is a pretty strong rebound in terms of growth. I think you’re going to see a lot of pent-up demand start to come back, and it will come back quite aggressively. I think there’s a lot – in the middle class, a lot of desire, of course, to have high-end medicines. So we remain, I would say, in – over the course of the back half of 2023 and then beyond, this will be a critical growth driver. But through Q4 of 2022 and the first part of 2023, this is a challenge for sure.

Richard Vosser

And in the mid-term, how the business develops in terms of older medicines price pressure in new medicines?

Vasant Narasimhan

We’ve transitioned our portfolio out. So the Glivecs and Diovans are not a priority for us. We put those on carryover. We’re very much focused on the innovative medicines. I think the challenge in China is to strike the balance that when you are NRDL-listed, you have significant volumes.

I mean you look at our Cosentyx performance, our Entresto performance, these are very significant medicines and still very attractive gross margins. But then over time, as your volumes get higher and higher, your price has come down quite dramatically within the NRDL. And so you’ve got to be thoughtful about how do you approach that and at what point do you say you have to pull out, right, because the prices get too low.

Thus far, we haven’t gotten there. And I think Leqvio is a massive opportunity in China. We are on our way to an approval there. And when you think about hypercholesterolemia in China, this could be huge if we can get it right.

Richard Vosser

Any further questions? One over there.

Vasant Narasimhan

Angus again. Angus?

Unidentified Analyst

Yes, me again. So Vas, you’ve laid out five focused therapeutic areas. How should we think about the assets beyond those five therapeutic areas? Should we expect – there were some market rumors about the [respiratory and ophthalmology asset]. So should we expect further slimming down in Novartis?

Vasant Narasimhan

Yes. So we have another TA that we keep internally called TAX where we incubate, let’s say, TAs that we think might ultimately mature. And so our ophthalmology assets, for instance, in ophthalmology gene therapy as well as we have a portfolio of assets in optogenetics as another example. They remain there. The research and development teams continue to operate.

Right now, we have no intention of despite what that Bloomberg article said. I mean we’re very committed to Xolair. Xolair is a very attractive medicine. We’re committed to our in-line ophthalmology brands. But of course, we’re – from a relative prioritization, I mean these are just less resourced. I mean our focus is in those big five therapeutic areas.

Now if something were to come up and if something were to be a significant breakthrough, if for instance our gene therapy for geographic atrophy were to ultimately demonstrate it could meaningfully stop or improve the deterioration of patients with GA, we, of course, would build back up because this could be a very, very significant medicine. But right now, not the priority. We resource as kind of a lower-priority TA, and then we see what happens in the early-stage research.

Richard Vosser

And taking that wider maybe on capital allocation. You mentioned $5 billion left on the buyback program. Over time, you’ve done varying sizes of deals. Where are you on all the capital allocation at the moment?

Vasant Narasimhan

I mean no big change. I mean I think the one shift, and if you notice on the slide, is we don’t now have a kind of rank order on these priorities. So we’re quite comfortable that when our current share buyback ultimately completes, if we don’t have attractive M&A that’s imminent, we’re happy to continue returning capital to shareholders.

We continue to evaluate, I think, all of the various M&A opportunities. But we try to be very disciplined to take the lens of is there real value creation, is there a real strategic fit and try to stay disciplined. I would say we see most of the opportunity in the sub-$4 billion, $5 billion space, not in the larger space at the moment. Prices are quite high, as you’ve seen. So I think – yes, I think that’s where we are.

Richard Vosser

Maybe time for one more question. Maybe I’ll take it then. And just – oh, there’s one over here. Sorry, I will be quiet.

Unidentified Analyst

Yes. What do you see as the ongoing challenges in cell therapy manufacturing and meeting demand?

Vasant Narasimhan

Yes. I think – we’ve made a real breakthrough on cell therapy manufacturing. If you saw our recent data at ASH with our YTB, what we call our T-Charge process, we believe once we fully optimize it, we can bring it down to a seven-day manufacturing process. And on seven days, we think that is attractive enough in terms of the scale that we have that we wouldn’t need move into any sort of allo-based technologies. So we restate the course on autologous-based therapies. We think that we can scale that now at the volumes that you would need. So we feel pretty good. I mean we’ve had multiple rounds of FDA inspections, and we think we’ve now gotten over the hump in terms of really having a sustainable manufacturing model for cell therapies.

Richard Vosser

Brilliant. That concludes the session. Thanks very much, Vas.

Vasant Narasimhan

Thank you all very much.