Jul 19, 2012
Executives
Joseph Jimenez - Chief Executive Officer Susanne Schaffert - Head of Oncology - Novartis Pharma Germany Jonathan R. Symonds - Chief Financial Officer David Epstein - Division Head of Novartis Pharmaceuticals Brian Mcnamara - Division Head of Novartis Otc Kevin J.
Buehler - President, Chief Executive Officer, and Chairman Andrin Oswald - Division Head of Vaccines & Diagnostics Jeffrey George - Member of Executive Committee
Analysts
Tim Anderson - Sanford C. Bernstein & Co., LLC., Research Division Alistair D.
Campbell - Berenberg Bank, Research Division Alexandra Hauber - JP Morgan Chase & Co, Research Division Matthew Weston - Crédit Suisse AG, Research Division Naresh Chouhan - Liberum Capital Limited, Research Division Michael Leuchten - Barclays Capital, Research Division Andrew C. Weiss - Bank Vontobel AG, Research Division Seamus Fernandez - Leerink Swann LLC, Research Division Florent Cespedes - Exane BNP Paribas, Research Division Andrew S.
Baum - Citigroup Inc, Research Division Peter Verdult - Morgan Stanley, Research Division Florian Gaiser
Operator
Good morning and good afternoon, and welcome to the Novartis Q2 Half Year 2012 Results Conference Call and Live Webcast. [Operator Instructions] The conference is being recorded.
[Operator Instructions] With that, I would like to hand over to Mr. Joe Jimenez, CEO of Novartis.
Please go ahead, sir.
Joseph Jimenez
Thank you. I'd like to welcome everyone to our second quarter and first half conference call.
With me today on the Novartis end are Jon Symonds, the CFO; David Epstein, Head of Pharma; we have all of the division heads; and we have Tim Wright, who is the Head of Pharma Development, with us. So before we begin, I'd like to ask Susanne Schaffert to read the Safe Harbor statement.
Susanne Schaffert
The information presented in this conference call 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.
Please refer to the company's Form 20-F on file with the Securities and Exchange Commission for a description of some of these factors.
Joseph Jimenez
Thanks. Okay.
Starting on Slide #5. As you saw in the press release, our sales increased 1% in constant currencies versus year ago with our new product growth more than offsetting the loss from the Diovan patent expiration in Europe.
Our core operating income was down 3% in constant currency with good operating leverage coming from the Pharma and the Alcon business, offset by Sandoz and Consumer Health. The news really, though, in the quarter was innovation.
This quarter, we achieved 8 significant regulatory milestones, further proving that our R&D group is delivering. And I'm going to talk more about the specifics of it later, but I think it's important because it strengthens our future growth prospects.
On Slide 5, you can see an overview of the financials for the quarter and down at the bottom, core EPS of $1.38. So we are continuing to execute well against our 3 priorities of extending our lead in innovation, accelerating growth and driving productivity.
And I want to just touch on each of those in terms of the quarterly performance. So starting on Slide #7 with innovation.
Of the 8 regulatory milestones, 5 were in Pharmaceuticals in the second quarter and include 3 new molecules. But I think one of the most exciting was Afinitor for hormone-sensitive breast cancer.
The positive CHMP opinion means that we will -- we are ramping up to get ready for the launch of Afinitor in breast cancer, also, Jakavi for myelofibrosis. Seebri Breezhaler is important from a respiratory standpoint, which is our once-daily long-acting muscarinic for COPD.
Alcon, on the next slide, you can see also had a good quarter from an innovation standpoint. Toric multifocal advanced intraocular lenses received EU approval.
And Dailies Total 1, which is our best-in-class silicone hydrogel daily disposable lens, received U.S. FDA approval.
Now I think further evidence that our R&D group is differentiated from the industry is this rejuvenation index for 2012, which is shown on Slide 9. It looks at the percent of sales from drugs that are launched since 2007 across our competitors.
And you can see that we lead the industry. And I think the regulatory milestones that we delivered in the second quarter will strengthen this further.
Our goal here is to maintain the right balance between profit delivery today and investment for growth in the future. And with the approvals that we received in Q2, particularly Afinitor, I think it would be a mistake not to optimize future growth opportunities as they are in front of us.
So we're, therefore, going to invest up to an additional $300 million in measures such as optimizing sales and marketing spending for these launches and development projects. So this won't change our outlook for the year, but Jon is going to recalibrate what this means specifically for the balance of the year.
Now if you look at emerging markets, our sales as a company were up 6% versus year ago in the quarter, and Alcon led that with sales growth of 14%. Within the emerging markets, China was the fastest-growing market.
Actually, it was our fastest-growing market globally, up 23% versus year ago. And we also had some good news in the first half of the year in China with the approval of Lucentis and also the approval of Onbrez.
So I think this is going to result in continued positive momentum in China for the company. Also in terms of growth format, a very strong quarter with sales up 4% in constant currencies.
This is driven by some double-digit performance of these key launch products. Lucentis was up 20%.
It continues to perform very strongly. Galvus, for type 2 diabetes, grew an impressive 47%.
And remember, this is all x U.S. in -- for Galvus.
And Afinitor is ready to, I think, take the growth level to the next level with the upcoming approvals in advanced breast cancer. Alcon also continues to deliver solid growth.
Surgical and Pharmaceuticals grew nicely, but even embedded in their growth rate of 5% was a 6-point decline in the allergy pharmaceuticals. So because we're up against a weak allergy season, that suppressed the growth a little bit.
But some importance points here. If you look on the right-hand side of the slide, we had excellent launch of Dailies Total 1 in a number of European markets, this silicone hydrogel daily disposable achieving more than a 40% share in the first 6 months.
And as I said earlier, we received approval to Dailies Total 1 in the U.S. Now as expected, the increased competition on enoxaparin in the U.S.
weighed heavily on Sandoz's sales performance. Sales were down 7%.
But there are several strong underlying growth drivers in Sandoz. So our biosimilars business was up almost 40% in the quarter, and Western Europe outgrew its market by almost 10 percentage points.
And also, Sandoz will become the #1 global leader in generic dermatology once we close the Fougera acquisition, which we received FTC approval on just a while ago. Our quality remediation activities are progressing at our Lincoln, Nebraska manufacturing site.
We've resumed production, and we've initiated product validation for Excedrin in over-the-counter drugs and for Sentinel in Animal Health. And we expect to begin shipments of limited portfolio in the fourth quarter.
In addition, we've engaged third-party manufacturers for -- particularly for the over-the-counter drug products, and those will begin shipping in the fourth quarter as well. We're also making progress at Sandoz, the remediation of the 3 North American Sandoz sites.
We're on track to meet our commitments to the FDA. Sandoz has upgraded their operations leadership.
They're strengthening organizational capability. And I think an indication of that is that in the quarter, Sandoz had several satisfactory FDA site inspections across their network.
So I feel good about the work at Sandoz as it's progressing. And then on productivity, our efforts continue to deliver to contribute to our margin.
The biggest contributor is procurement savings, but we're also seeing good improvement in sales and marketing spend efficiency even during this high level of new product launch spending. So now with that, I'm going to turn it over to Jon to go through the financial review.
Jonathan R. Symonds
Thank you, Joe, and good afternoon or good morning, everyone. So another quarter passes, and by and large, it's gone pretty well.
In 4 more quarters, you'll begin to see what the true potential of this business is in the second half of next year. So you can see here on Slide 17 the numbers for the quarter in constant currency.
Sales grew by 1% for the quarter and were flat for the 6 months. Core operating income declined by 3% in the quarter and by 5% for the 6 months.
You'll notice that core EPS declined by the same amount as core operating income in the quarter now that we have passed the anniversary of the Alcon's merger and the issues of shares that followed that. And free cash flow for the quarter was $2.3 billion and $4.4 billion for the 6 months.
Slide 18 gives you the detailed reconciliation between the core results and the reported results. For the quarter, you see that there was really very little distortion from exceptional items as there was very little difference between the exceptional income of $191 million and the exceptional charges of 230 -- $203 million.
It was a different picture last year when we had both higher exceptional income from divestments, as well as higher exceptional charges from both impairments and from legal settlements. I won't go into any more detail on this slide as I hope for you the table is clear.
If it is not, you can ask later. While talking about the business as a whole, I want to, over the next 2 slides, look at currency.
As you can see from Slide 19, the last year has been very volatile, especially if you look at quarter 2 last year where it was 8% positive on sales, and quarter 2 this year where it was 5 percentage points negative. A 13-point swing over the course of the year is really quite extraordinary.
On profit, it's been a slightly different story, less volatile, which is what you would expect, but nonetheless stubbornly negative. It's difficult to boil all of this down to a simple explanation.
But broadly, there are 2 factors. One is the extreme movements of a year ago which particularly affected the euro and Swiss francs, which is still working through its base.
As we get into the second half, this effect should be neutralized as the current peg rate of 1.20 will be in the base, meaning that the natural hedging effects of euro profits and Swiss franc costs should be visible again. However, the second factor is probably more relevant now, and that's the dollar strengthening against many other currencies in the last few months.
As there is a different mix of sales by currency and profits by currency, this trend has had a more negative impact. What I've just said is broadly laid out on Slide 20.
And the key point here is expressed in the final bullet point, where you can see that we now expect the negative impact of currency for the year as a whole on both sales and operating profits to be about 1 percentage point higher than we were expecting in quarter 1. So turning now to the results for the quarter.
And you can see on Slide 21 the disaggregation of the top line for the group. It shows that the base, which should be no surprise to you, a healthy underlying growth of 5%.
And as we get into the second half of next year, this should become more visible in our reported results, as some of the factors in this analysis begin to diminish. David will show you shortly how this picture looks for the Pharma division, and it's even more impressive.
Slide 22 is, in my view, the most important slide, as it demonstrates where the underlying momentum comes from. Overall, this group of products account for nearly 30% of our revenues.
And as Joe has already shown you, few of our peers can get anywhere near this level. Pharma continues to be a very important component to this with another 30% growth over the 6 months.
Although it has a different -- completely different product development cycle, you should not ignore the increasing contribution that Alcon is making to our new product growth. You can also see here the impact of the shorter product cycles in Sandoz and the benefit from enoxaparin in the authorized generics last year, which has depressed the overall growth rate this year.
I think the extraordinary contribution that we've had from enoxaparin has now run its course as the competition continues to drag prices down even in the absence of new competitors. So if recently launched products are one dimension of our performance, the other side is shown here on Slide 23, and that's the impact of generics.
You can see that the evolution over the last 6 months where we face generic competition to Femara and, since the latter part of last year, to Diovan in Europe. This quarter, we've tried to give you a picture as to how we expect the impacts of generics to unfold over 2013.
This should contain no surprises to you. But you can see that the next few quarters will be challenging as we begin to face generic competition to Diovan in the U.S.
from the end of September. What is also clear from this chart is that by the time we get to the second half of next year, the impact will largely be in the rearview mirror.
You'll also note that compared to the picture I showed you last quarter, the impact of generics in 2012 is less than we first thought. As a couple of the -- as for a couple of products, we benefited from a shortage of generic buy.
Slide 24 puts these 2 things together and shows for the Pharma division why its top line is being so robust in the face of generic competition. I think it also illustrates why 2013 is going to be a story of 2 halves.
So hopefully you have a good picture of what the moving parts on the top line are now. Let me now turn to margins on Slide 25.
And in a moment, I'll talk about productivity. Most of you have already identified that, as with the first quarter, the profitability trends would be a story of margin improvement in Pharma and Alcon, which they have achieved again, adding 80 basis points to the group margin and offsetting this margin erosion in Sandoz and Consumer Health.
The Sandoz story for the quarter will inevitably concentrate on 3 things: lower sales of enoxaparin in the U.S., which created the highest quarterly profit margin last year; the declining market in Germany; and the burden of quality remediation costs and the resulting lower production levels. But behind this, there are some excellent regional performances, especially in the rest of Western Europe and biosimilars, where sales grew by 39% and where we further strengthened our leading position in this important category.
The second half should be better for Sandoz, as enoxaparin started to face additional competition in the second half of last year. So we'll be comparing to a lower base than was the case in the first half.
The Consumer Health performance is really all about Lincoln and the slow resumption of production. And Joe's already given you a current update on Lincoln.
So if I now look ahead and reflect on the margin for the year, Joe has already mentioned that with the scale of the new product opportunities ahead of us, we have decided to increase the amount of investment behind our products and development projects so that we get the right balance of profit today and investment for growth tomorrow. So what does it mean?
In truth, it's not very dramatic and it doesn't change our overall guidance of a constant currency core operating margin slightly below last year. However, we would now interpret this as a bit more than 1 percentage point of margin decline.
We've been measuring productivity for some time to ensure that all parts of the business have the discipline to create the resources that are necessary to sustain longer-term performance and improve profitability. Slide 26 shows you the contribution from these measures in the quarter and for the year-to-date.
There are a lot of individual initiatives here, some of which commenced in the quarter. But most of them have been layered in over the last year or 2.
Overall, the projects are delivering well within -- well with the 4.3 percentage points of benefit generated in the 6 months and 5 percentage points for the quarter. Procurement savings, of which we've spoken of for some time, are a major component, and we continue to find new opportunities to exploit.
These, together with benefits from the manufacturing footprint project and ongoing shift in resource allocations, enabled us to continue to deliver benefits. And for example, in this quarter, we started to realize the benefits from the U.S.
field force restructuring, which we announced at the beginning of the year. So overall, if you look at how productivity benefited each division, for Pharma we've been able to improve the core margins for the 6 months by 60 basis points, continue to invest in the recently launched products and absorb the mix effects from generic competition on the gross margin.
For Alcon, the synergies arising from the integration programs have improved margins by 60 basis points and enabled a launch of Dailies Total 1 and make further investments in emerging market expansion. For Sandoz, we've been able to absorb the impact of price erosion but not obviously the full impact of the low enoxaparin sales and quality remediation costs.
And not surprisingly here, Consumer Health has been unable to recover the loss of sales from Lincoln. Finally, turning to cash flow and net debt.
On Slide 27, we see the evolution of cash flow for the quarter and for the 6 months. I won't go through all of the details here, but for the quarter, you can see the impact of payments out of provisions, as well as the absence of divestments proceeds.
And this picture will continue through the year, especially as we continue to cash our previously made provisions and as CapEx begins to build and will become more of a feature in the second half. Finally, to net debt, and Slide 28 shows you the movements for the quarter and for the half year.
Again, it should be relatively self-explanatory and it shows how the quarter's free cash flow has reduced net debt from $19.2 billion at the beginning of the quarter to $16.5 billion at the end. So with that, I hope you see that quarter 2 is another solid performance on our journey.
I believe we continue to execute well on the top line and are focused on generating resources from productivity to protect ourselves from the impact of generic competition while also sustaining the investments the business needs to continue to grow. And with that, I'll now pass you over to David and the Pharma performance.
David Epstein
Thank you, Jon. I believe our quarter 2 results in Pharma show that our strategy to focus on driving our launches is working as we offset generic competition with new patent-protected growth drivers.
As you can see on Slide 30, net sales in constant currency were up 4% with good leverage again this quarter, with core operating income up 6%. Turning now to Slide 31.
We see that recently launched products provided 9 points of growth, offset by 1 point of price erosion and 4 points of lost sales growth to generics for that net 4% increase in the top line. Of note, recently launched products grew 28% and now account for 34% of our sales.
On Slide 32, we see that in addition, valsartan family sales, while they're eroding in Europe, they are continuing to grow in our emerging growth markets. And as a result, we can reaffirm our expectation that valsartan family sales should exceed $2 billion for the full year of 2014.
On Slide 33, you see that while we are launching multiple new products, we are focusing very hard in Pharma on driving efficiency, both in terms of better positioning our products, better targeting our activities against the right customers, optimizing sourcing, as well as benefiting from the portfolio shift to specialty care. So as a result, M&S spend as a percent of sales has continued to come down steadily since 2009 with another good showing in Q2 of 2012.
On Page 34, I'm showing you a slide that you have already seen before but now updated for the Q2 numbers. We're very proud of this slide and believe that this group of products, this family of products that gives us an unparalleled launch platform and it's a set of products that I continue to believe, expectations are still rather modest.
And as a result, we continue to overdeliver obverse [ph] expectations. Each of these products posted double-digit growth during the quarter.
And as you can see, in some cases, Tasigna, Galvus, Afinitor and others have very substantial double-digit growth. What I'd like to do now is just take a few moments and talk about a couple of these products, starting on Page 35 with a focus on Gilenya.
Gilenya is well ahead of all other benchmarks in the comparable launch period. It's on track to become a blockbuster this year, well ahead of previous MS-launched successor products like Tysabri or Avonex.
When I've read some of the analyst commentary on Gilenya, what I see pervasively is a misunderstanding of the x U.S. opportunity for the brand.
If you take a look at our numbers, what you see is, if you compare first half 2012 to the end of last year, what you see is that the U.S. growth was about 33%, while our x U.S.
growth is 94%. So while the U.S.
business has been somewhat flatter as we have worked through the first-dose observation label and are working to set up appropriate first-dose observation services for our physicians, we're seeing dynamic growth outside the U.S. And as a result, I believe people still have expectations which are too low for this very, very important brand for us.
Turning now to Page 36. I'm not going to go through this in any detail, but rest assured that we are now well into providing first-dose observation capabilities in the U.S.
market and in other markets where neurologists are not in a position to do this themselves. We've set up a network of 263 sites in the U.S., and that is further expanding.
And we are also providing remote monitoring services for ECG for neurologists who want to do it in their office but do not have the equipment to do it in their offices. So we think we're making very good progress on addressing the first-dose observation issue.
Just to remind you that once a patient is started on Gilenya, they tend to do very, very well. So it's all about getting the patients start and then I think we will be in good shape.
Turning to Page 37. We see Lucentis continues to grow dynamically through both continued expansion in the wet AMD segment, as well as now growth in DME and retinal vein occlusion.
During the quarter, we also had additional data confirming the long-term benefit and safety of Lucentis and continued hint that there is a growing body of evidence suggesting that there are safety concerns with Avastin. We also would like to update you on our expectations to file for a new indication, something called pathologic myopia.
We should file in EU in Q3 of this year, as well as in Japan before the end of the year. Now on Page 38.
The last product I want to mention, one that I'm particularly excited about because of the unmet need it fulfills and the really excellent data, is Afinitor. As Joe mentioned, we received positive CHMP opinion in hormone HR+ and HER2- advanced breast cancer.
I can tell you that at this point, we feel very confident taking our sales forecast well above $1 billion in breast cancer, and this is based upon our insight into the label, which we expect to get in the European Union, and the fact that the FDA discussions are progressing very well. And we would expect to get approval in the U.S.
market shortly. So look for more information on this product during the upcoming quarter.
Turning now to Page 39. You see that our pipeline is delivering.
Our R&D organization is delivering 5 significant regulatory milestones in the quarter, in particular, the positive opinions for Jakavi in the EU and for Afinitor, as well as a positive CHMP opinion for Seebri, originally called or previously called NVA, for once-daily administration for the treatment of COPD, which also we believe a very good label. In the second half, we will be even busier with up to 8 more expected milestones, hopefully, to be achieved during the second half of the year.
Now on Page 40, I just want to mention one pipeline product to you. We don't spend a lot of time talking about our pipeline at Novartis despite the fact that we believe it is best in class.
And the reason we don't spend a lot of time on it is because we have so many recently approved products, and so just getting through those takes usually much of the discussion. But there's one product, LDK378, we presented some data at ASCO, and I believe that this asset is underappreciated.
This is an ALK inhibitor designed for non-small cell lung cancer. It is meant to be, and as a fact, it is a highly selective and potent ALK inhibitor, was designed specifically to be an ALK inhibitor.
And you can see from the data that once we get to effective doses of 400 milligrams per day or greater, we see partial response rate, even in crizotinib failures, of greater than 80%. So this is very, very impressive.
And as a result of this, we will be starting pivotal trial at the end of 2012. So look for more information coming on LDK378.
In conclusion, on Page 41, I'd like to just wrap up by saying the division is on track to realize its plans for 2012 and beyond. Our growth platform is delivering above-market expectations.
We're expecting 9 or more blockbusters by year end, up from 6 in 2011. Gilenya, Galvus, Afinitor, Lucentis and Tasigna are expected to further outperform expectations.
Generic erosion of Diovan is in line with what we expected, and we keep our outlook for greater than $2 billion in sales in '14. And we believe our pipeline is best in class, delivering 5 significant milestones in the recent quarters.
So with that good news, I'd like to turn it back to Joe.
Joseph Jimenez
Okay. So to close, we made solid progress on our 3 strategic priorities in the second quarter, and our full year performance is on track.
So our outlook for 2012 remains unchanged, and that's group sales are expected to be in line with 2011 in constant currency. And we expect core operating income margin for the group to be slightly below 2011 on a constant currency basis.
Now I'd like to open the session for questions.
Operator
[Operator Instructions] We will now take our first question from Tim Anderson of Sanford Bernstein.
Tim Anderson - Sanford C. Bernstein & Co., LLC., Research Division
I think one of the investor concerns with Novartis has been whether 2012 is a trough year or whether 2013 is going to be a trough year. And you talk about 2013 being a story of 2 halves, but I'm not sure what it looks like when you put those 2 halves together.
So I'm hoping you can give us a simple directional answer here and say whether 2013 earnings would likely be higher, lower or the same as 2012. And then on emerging markets and the growth rate of 6%, that was about in line with last quarter which was 5%.
And I think if you were to exclude China, that could even be a negative growth rate or substantially lower than the 6%. And I'm wondering why is it so low x China?
And do you think that double-digit growth rates in emerging markets are sustainable like a lot of industry observers seem to think?
Joseph Jimenez
Okay, I'll start. Tim, this is Joe.
Just in terms of the '12 versus '13 being a trough year, as we get closer to '13, we'll be able to give more definitive guidance. But if you look at between now and the end of the year, obviously, we're going to be making choices around what we invest in and what we don't invest in, but it would be premature to say it today.
We're right now working up our budgets for 2013, and we're not finished yet. But if you look at the charts that Jon showed, you can see that it is a year of 2 different halves where the first half is going to be impacted by Diovan in the U.S.; and then in the second half, once we get the Diovan expiration in the base, we have a different growth trajectory that will carry us through '14 and '15.
And so I would just say, as a policy, we have said we're not going to give guidance beyond the year that we're in, and that's partly because as we are working up our budgets, we're making choices. In terms of EGM, if you take China out and you look at what's happening in some of those countries, they're highly influenced by the timing of -- well, a couple of things.
Number one is that you've got some pretty significant price pressure in a couple of them such as Turkey, where there has been significant price cuts. And I don't think anybody's growing very fast in this industry in Turkey today.
But if you -- and you also have to look at the timing of some of the tenders in some of these emerging markets that can provide significant swing. So again, while we provide this number as an EGM, which is everything essentially except the developed countries, you really have to be granular around where we're placing our bets.
And one of those bets is in China, where we have a good business and a big business. And I do believe that double-digit growth for us in China is sustainable well into the future just based on the current momentum that we have and the new approvals that we're getting over the past -- I would say, even just in the past 6 months.
Tim Anderson - Sanford C. Bernstein & Co., LLC., Research Division
If I can just follow up, my question was really double-digit growth across the entire emerging market bucket. Do you think double-digit growth is achievable across all of those markets, not just China?
Joseph Jimenez
I would say that because of the size of that, I would say no because remember that we changed the definition of emerging markets to be more consistent with our peers. It's about 25% of our total.
And to do that, you put in a number of markets that we're not placing bets in. So I would say of the ones we are placing bets in, yes, we will be able to sustain double-digit growth.
But as a reported segment, I would say no.
Operator
Our next question comes from Alistair Campbell of Berenberg Bank.
Alistair D. Campbell - Berenberg Bank, Research Division
A couple of questions, please. Just first of all, on Consumer Health, obviously, it sounds like Q4 you're probably still won't be fully up and running.
So wondering if you could talk about how should you actually think about when you think you might be back to sort of closer to full capabilities coming out of Lincoln. Is that something we should think about for Q1 next year, Q2 next year?
Just to get some line of sight into how the business can recover going into next year. And secondly, as it takes clearly, perhaps, more time than you might have thought to get these lines fully up and running, do you still remain confident that you'll actually regain the share you've lost or regain the position of these brands as you go further out?
Joseph Jimenez
Okay, Brian?
Brian Mcnamara
So as we communicated, we're starting up Lincoln line by line, product by product. And we started with Sentinel and Excedrin, 2 of our biggest and most important brands.
And importantly, we're going to communicate to customers today in the U.S. that we're going to launch, relaunch and start shipping Excedrin migraine and Lamisil in October of this year.
As we go line by line, product by product, as we qualitate and validate, we'll move to the next ones, and that's our plan going forward. I think we can give much better guidance in 2013 as we get later in the year.
Joseph Jimenez
I think the other thing to remember is that we are bringing on a stream of contract manufacturers for these brands also to supplement that. So it is going to be a slow build.
It's going to be slower than what we expected because it took longer to get the thing up and to start to build inventory. But now that we've got some momentum, we'll be able to create -- we'll be able to provide greater clarity as we get closer to '13.
Brian Mcnamara
On your second question, we are confident we can regain share. On our big brands, we have a very high loyal consumer base.
They want our brands back, and we're going to support them heavily to regain that share when we launch.
Operator
Our next question comes from Alexandra Hauber of JPMorgan.
Alexandra Hauber - JP Morgan Chase & Co, Research Division
Firstly, just on these additional $300 million spend, could I just clarify that this is really truly $300 million incremental spend rather than a sort of a mix of less profits made in consumer and, therefore, it's just some extra stuff that's just penalizing the margin? And if it's $300 million incremental spend, I do understand that, that just needs to be updated, but could you just be a little bit more specific what has actually changed?
Secondly, on your target on the valsartan group sales just to exceed $2 billion by 2014, I think when it was originally made, I wasn't aware that Exforge was included in that number. Now Exforge is now -- the x U.S.
Exforge is at a run rate of $1 billion. So based on that, I think that $2 billion is not -- looks -- it doesn't look particularly challenging.
But could you just give us an idea how much of the x U.S. Exforge sales are actually at risk given that the European market exclusivity should really survive that 2014 timeline?
The third question is on the Alcon Dailies. The market share gains you have shown early on in the presentation are quite impressive.
Could you also tell us what has happened to the market? So what is the patient share of daily users in the total contact lens market in those markets?
Joseph Jimenez
Okay, this is Joe, Alexandra. I'll start with the first one.
Remember, I said we would spend up to an additional $300 million. And essentially, what has changed is, when you look at the approvals and you have guys like David Epstein who are challenging his group to come up with ways to really drive new growth based on these launches, there are a number of ideas that I want to fund, and because I do believe that we can maximize the growth opportunities if we take some early spend and apply it to these launches and then set it out.
So for example, more spending on the Afinitor launch on breast cancer just from a marketing and sales standpoint. But it's to give it a little bit of a push so that we can get these -- the growth trajectory for the company to a place where we want to get it that will maximize these launches.
I just feel like it would be a mistake not to take advantage of what we have in front of us. Not everybody in this industry has this level of innovation.
So I would leave it at that. David, do you have anything to add to that on top of the valsartan question that was asked?
David Epstein
No, just maybe I'll go right to the valsartan question. So Alexandra, since I've come into the role, I've been talking about valsartan family.
And you may be right. Before that, it may have been described in another way.
Just a couple of thoughts. The $2 billion number is not ambitious, okay?
So it will be substantially exceeded. We just -- I just want to reassure people that given that we're going into the U.S.
laws of patent now that it wouldn't be worse than that. So that's really the only intent there.
And more specifically into your question, Exforge, x U.S., yes, that business should be sustainable for quite some time. You see, it's a growing business.
It's an important product. It includes ExforgeHCT as well.
So I think we're in good shape there, and this will be an important overall franchise for the company for the foreseeable future.
Joseph Jimenez
Kevin, on Alcon Dailies? Oh, sorry, go ahead.
Alexandra Hauber - JP Morgan Chase & Co, Research Division
So just to make sure that, that number doesn't exclude some very big Canadian proportion or Brazilian proportion, which all of a sudden you may lose, and we're not aware of that, that Exforge x U.S.
David Epstein
The $2 billion valsartan family includes all forms of valsartan, including Exforge. There's no hidden message or anything here.
We think Exforge is in good shape, particularly outside the U.S., in terms of lots of growth opportunity. And as I said, the only goal was to put a real floor on things so that people wouldn't panic essentially as we lost the U.S.
patent on Diovan.
Joseph Jimenez
Kevin?
Kevin J. Buehler
On Dailies, it's an interesting question, and it's obviously early in the launch of Dailies Total 1. But to give you a sense in terms of the product performance and specifically the excitement of the fitter, we're seeing sourcing of patients coming from a number of sources.
Obviously, the first and probably the largest segment is from the Dailies HEMA segment, which is moving to silicone hydrogel, which is an easy move considering the same wearing modality. But we're also seeing movement in sourcing of patients because of the performance and the convenience of the lens.
Weekly and monthly wear regimen, we're also seeing conversion to Dailies Total 1. And probably the most exciting part is that we are seeing fits on virgin, new patients to contact lenses being put in Dailies Total 1.
So we're seeing sourcing across all of those segments. And right now, we're going to continue to focus on the markets that we launched in, in Europe.
And then as Joe highlighted, we're going to look at the approvals going into '13.
Operator
We will now take our next question from Matthew Weston of Crédit Suisse.
Matthew Weston - Crédit Suisse AG, Research Division
There are a number of quick-fire ones and then pretty one a little bit longer. You mentioned the change in your expectation for Pharma generic impact going from $2.6 billion this year to $2.2 billion.
Can you just set out which products where you are seeing the benefits of a shortage of generic entrants? Also, with respect to consumer, can you set out how much of the $1 billion of revenue lost with respect to Lincoln would be made up from the Excedrin family, Lamisil and Sentinel combined?
Looking forward in terms of clinical data drivers, relaxin and Afinitor, the overall survival data, I just wonder if you could give us a guidance as to when we should expect those data, either in the second half of this year or into early 2013. And then finally, I guess just a bit more longer term, vaccines R&D, I know you rarely get vaccines questions, but it runs at $0.5 billion a year.
I mean, the basic question is what do you actually spend this on? And I suppose more importantly, Menveo and Men B, how much of that $0.5 billion spend is spent on those 2 products?
And when should we expect the R&D programs on those 2 products to come to an end?
Joseph Jimenez
Okay, let's start with David. I want you to take the 2 Pharma questions on the change in Pharma generic assumption, as well as the clinical data.
David Epstein
Yes. So the first question is why do we see a little bit less generic erosion this year in Pharma.
It's mostly around some of the smaller brands that were going generic, where the competition either didn't get approval or launched late or had product shortages. One example for it is Lescol XL in the U.S.
market. In terms of the survival data, I think you asked about relaxin and Afinitor, if I heard correctly.
We will have our relaxin data at the end of this year. You will likely see some results there.
And one of the endpoints, of course, is survival in that study. And with Afinitor, we will probably see some interim mention of survival in the EU label.
And then definitive data will come sometime next year, early next year.
Joseph Jimenez
And Brian, for the first set of brands that are coming out of Lincoln.
Brian Mcnamara
Yes. Excedrin, Lamisil and Sentinel represent approximately 30% of the overall sales coming out of Lincoln.
But as we relaunch, we are linking -- we are launching with a limited SKU lineup.
Joseph Jimenez
And Andrin, can you talk a little bit about R&D?
Andrin Oswald
Yes. So the $0.5 billion, Matt, that you are referring to, of course, also includes diagnostics because we also take some of the R&D spend from our partner, T-Pro [ph].
So taking that out, and I think it's more closer to the $400 million. Now of that amount, roughly, I would say 1/3 is for meningitis portfolio, 1/3 for our flu portfolio, and then 1/3 for the rest of the pipeline.
I would expect that the meningitis spend will slowly go down in the years to come. Not that much, however, because we are also investing in life cycle management.
I think we are not done yet even if we launch Bexsero. We want to make a combination product, an ABCWY.
And we are also working on other life cycle activities to make sure that, that portfolio would become a long-standing very attractive business for us. And then, of course, we also expect in the future that some of our earlier products will come through.
And we will definitely, once we would free up with meningitis, wants to invest in our next opportunities. First one to look at there would be our Group 2 streptococcus vaccine, which now has completed Phase II, and we believe that, that would also become a very promising Phase III program in the not-so-distant future.
Operator
We will now take our next question of Naresh Chouhan of Liberum Capital.
Naresh Chouhan - Liberum Capital Limited, Research Division
On the Sandoz margin, you talked about the quality remediation issues having a meaningful impact on the margin contraction we saw in Sandoz. How much of that was because of the quality remediation?
How long should we expect that to last? Or is that now a permanent feature for Sandoz business?
And should we expect something similar in terms of read across the consumer? And then secondly, on the buyback, we've seen $200 million for the first half.
Should we just play rough [ph] to that for the full year or is there likely to be an acceleration in the second half?
Joseph Jimenez
Okay, Jeff, on Sandoz margin?
Jeffrey George
So we don't break out sources of the margin decline, but I can say, as it's been mentioned, that it's driven by the enox competition and lower pricing and share on that product in the U.S., which drove the U.S. sales down significantly, and the quality investments and related manufacturing variances at our North American sites, as well as a third factor, which is the biosimilar R&D.
To comment on the warning letter remediation, we're making good progress in our remediation efforts. As Joe mentioned, all of our warning letter commitments to FDA and Health Canada are on track.
And with our remediation efforts in the first half of the year, we did slow down production output, but we've seen month-over-month output in service levels continue to improve at each of our 3 North American sites. And looking forward, we would expect to see continued service level improvements but at a higher, more sustainable compliance level.
It's also worth noting that last year's first half core return on sales of 22% was exceptionally high and was at the top of the generics industry. So we're coming off a pretty high base driven by enox.
I think the last comment that I'll make is that while some of the costs will be reflected on an ongoing basis due to the increased quality and compliance investments we've made, a lot of the costs are also onetime and will fall out of the cost base moving forward.
Joseph Jimenez
Yes, I would say the similar thing for consumer in terms of the read-through that most of this is onetime. I don't think it's going to materially affect the margin going forward.
Jon, on buyback.
Jonathan R. Symonds
Yes, now, as we said at the beginning of the year that we would conduct share buybacks under 2 circumstances: one, some were opportunistic; and the other, to negate the impact of shares issued under employee program, which is really what we did. And in the quarter, you saw a very weak share price at the beginning, which we somewhat took advantage of.
And I think we will -- we've made no -- we've got no commitments for the second half, and we will continue to look at it in the -- under those two circumstances.
Operator
Our next question comes from Michael Leuchten of Barclays.
Michael Leuchten - Barclays Capital, Research Division
A couple, please. Firstly, on the Alcon gross margin, that was quite strong in the second quarter.
How do I interpret that? Is there a structural change in terms of fixed cost within that margin, so product placement versus disposables?
Can we assume it's going to continue with this improving trend, or is Q2 just an outlier? Secondly, I know you just said you don't want to give numbers on Sandoz, what drives the margin.
But can -- from a group level, can you tell us what the overall cost in Q2 was for the remediation efforts across all divisions? Thirdly, just going back to the $300 million investments in the launches, is that budgeted for this year or is that an ongoing program that we should take into the model?
And then lastly, for David, on Lucentis, it's a little hard to model that product outside the U.S. given that it's really just one line in a product breakdown.
Can you give me a feel as a feel for what is driving that growth in terms of launches in markets, new indications, anything from a reimbursement side? Any color for that would be very helpful.
Joseph Jimenez
Okay, Kevin, on Alcon.
Kevin J. Buehler
Michael, I think I would guide you a couple of ways. While we have programs in terms of trying to year-over-year improve our cost of goods, I think when you look at the quarter, I would look at 2 things.
One is product mix. And because of the weakness in the allergy season and the impact on Patanol, which is a high-royalty product, obviously, that had a benefit.
Also, I would guide you to look at the geography and look at where the growth came from. Heavier growth in the U.S.
with our pricing position is going to yield better pricing as compared to a weaker European result. So I would look at it primarily as geographic and product mix.
Jonathan R. Symonds
Yes, on the next couple of questions, Michael. On quality, we haven't broken it out because, actually, if you think about it, it's not as straightforward.
I mean, there are some direct costs. We've got consultants.
We've got additional employees to sort the problem out. We've got lower production, and we've got some lost sales.
And I think if you take all of those pieces together, if we put a number together, we would have to go through an extraordinary amount of explanation to put it into the right context. So I think the way to look at it is to track what happens to margin on a quarterly basis and follow the story that Jeff and -- that Jeff will go through on Sandoz.
On the investment program, I mean, Joe described it as up to $300 million, and it was going to be in relation to specific products or projects. I think it's sensible for you to plan it into your expectations for the year, but I think we'll give you a bit of an update each quarter as it progresses, and some of it may fall into next year.
But don't think about this as a one-off increase in the cost base. This is really directed to very specific programs.
Joseph Jimenez
And David, on Lucentis?
David Epstein
Yes, I'll try to give you a little bit of background. Essentially, think of it this way.
First of all, in terms of numbers of patients treated, that continues to grow by double digit. In fact, the DME prevalence is about 650,000 patients; RVO incidence is about 225,000.
So when you add that together, that's between 2/3 to 100% of the wet AMD opportunity, and we've only captured 15 -- about 15% to 20% of the current Lucentis businesses from the new indications. Offsetting the volume growth is some single-digit price decline on the brand, in part as European governments roll back prices generally.
And also, as we've negotiated market entry for DME and RVO, we've given a little bit on price. The other thing to remember is we've recently launched in Japan.
We're having good success there. We have a long way to go in terms of capturing, fully capturing that opportunity.
And we've just gotten approval in China. And while you don't see any sales from China yet, that will start to grow in -- basically, starting next year, you'll start to see some numbers coming in from the Chinese market.
I happen to believe that the market for VEGF inhibitors is still underdeveloped. There's a lot of growth.
And the key for your model, frankly, is to figure out when the other branded VEGF inhibitor will launch and what share they will take from us, and then you can put a model together. But we're bullish on this product.
Operator
Our next question comes from Andrew Weiss of Bank Vontobel.
Andrew C. Weiss - Bank Vontobel AG, Research Division
Just very quickly to the $300 million of additional investments, so this is an additional cost buildup. This is not just a investment in infrastructure and, therefore, does not create cost, but this is getting more people in or more infrastructure and then will then be able to leverage -- can be leveraged by new sales, that's the first.
Number two, on Sandoz, one of the segments, the Asia, Africa and Australasia revenue growth is minus 4%, but you break it down as Asia is 24%, Eastern Europe is 14%, Africa -- is that where it's happening, that there is Middle Eastern, and Africa is falling off the cliff? And thirdly, David, I have difficulties reconciling on the Afinitor overall survival expectation data.
The next interim analysis is 275 patients. The last one was 200.
That happened in January. Why are only you expecting that event to happen in the first half or January of next year?
Joseph Jimenez
Jon, on investments?
Jonathan R. Symonds
Andrew, I think this is a targeted investment program with specific outcomes. I mean, as Joe said, the beginning of the year, we had to put a plan together based on what we saw was a realistic set of opportunities unfolding.
I mean, we have seen this quarter and what we expect this year to be a much stronger package of opportunities than we'd anticipated. So I think it makes sense that we allow some acceleration of investment.
We put money by specific -- behind specific projects so that we have the opportunities to drive the business more strongly. It is not a general increase in the cost base.
It is very targeted.
Joseph Jimenez
So not infrastructure cost, project by project. Jeff, on Sandoz growth.
Jeffrey George
Yes. So Asia growth, excluding Australia, is up 20%.
That includes Japan, which was up 14%, its 18th consecutive quarter of double-digit growth. China was up 35%, and Southeast Asia was up 26%.
Australia was down, mid single digit negative, and it's a bigger base so that affected the overall number. Also, the Middle East and Africa was slightly negative due to some supply issues in South Africa and North Africa.
Central and Eastern Europe, you mentioned. That's separate, so that's reported in the European numbers.
Their business was up 14% versus prior year in constant currency on the back of double-digit growth: over 20% in Russia, over 30% in Poland, and over 35% in Turkey.
Joseph Jimenez
David, on Afinitor?
David Epstein
Yes. So just to go back to the regulatory process, the regulators looked at survival data trends for Afinitor as part of their review.
And as I mentioned, you will likely see something in the European label which will give you a sense of what they have seen so far. So that label should be out in the next couple of months.
And then in terms of when we will be public with more survival data, I expect that to be early next year. So I'm not telling you necessarily when we're going to see it.
I'm talking about when you will likely see something.
Andrew C. Weiss - Bank Vontobel AG, Research Division
Okay. And the additional overall survival data to be included in the EU label is over and above what we saw at ASCO?
David Epstein
You have to remind me what you saw in ASCO.
Andrew C. Weiss - Bank Vontobel AG, Research Division
We saw the 18-month cut with -- basically from the 15th of January.
David Epstein
I'm going to have to go -- we're going to have to go back and double check. I don't want to give you the wrong information, so we'll follow up after this call.
Operator
Our next question comes from Seamus Fernandez of Leerink Swann .
Seamus Fernandez - Leerink Swann LLC, Research Division
So just a couple of quick questions on Afinitor and how we should be thinking about the pacing of the growth of the breast cancer indication and approvals in European markets. David, maybe if you can just give us a little bit of color on that.
And also when you say substantially above $1 billion, we can get to some pretty big numbers just in the BOLERO-2 patient population. As you think about that, that incremental greater than $1 billion, is that just for the BOLERO-2 patient population?
And then the second question is, can you just update us on the overall growth of the o U.S. market and how you're seeing it, how the market share is breaking down between Avastin, Eylea and Lucentis?
Joseph Jimenez
David?
David Epstein
I'll start with the Avastin, Eylea and Lucentis. So in Europe, there is no Eylea yet, although there are various rumors from time to time that they might be launching towards the end of this year.
We do better in the U.S. -- I'm sorry, in outside the U.S.
with Lucentis versus Avastin that is done in the U.S. market.
We have about -- it's hard to get an exact number, but we have about -- say, 2/3 of the market is Lucentis, and the rest is Avastin outside the U.S. Regarding Afinitor, yes, this could be a fairly long story, but I'm going to try to keep it relatively brief.
What I've been talking about -- when I'm talking about the much greater than $1 billion, I've been talking about -- certainly, I've been talking about breast cancer overall. Clearly, even the HER2- opportunity would be greater than $1 billion, in my opinion.
We will see the HER2+ breast cancer data. Basically, the final analysis for that data will be in 2013.
Of course, it's possible that there be some interim analyses before that, which could impact the brand, hopefully, in a positive way. We would expect, given the physician reaction to the data that we have shown them, plus what we expect the label to be in Europe, that takeoff should be relatively quick for the product.
Obviously, we have to get through pricing and reimbursement discussions with some countries. And then there are other markets where the fact that Afinitor is already on the market for renal cancer, and TSC.
We can begin to sell right away. But the really big driver for Afinitor in breast will be the U.S.
approval, where you would expect the fastest uptake in the world, and we would hope to have that approval in the near term.
Operator
Our next question comes from Florent Cespedes of Exane.
Florent Cespedes - Exane BNP Paribas, Research Division
Florent Cespedes, Exane BNP Paribas. Three quick questions, 2 for David and one for Kevin.
First, and this one for David, could you give us the pricing impact for Pharma in Europe, U.S. and Japan and a quick comment on how you see the trend there?
Second question for David, on the respiratory, when we see your competitor which filed LABA plus an ICS in the U.S., could you decide to change your plans and to file your own product in this country following this submission? And the last one for Kevin on Alcon, the new fixed combo on glaucoma that you submitted recently seems quite important for you.
Could you give us some color why is it important? And could it be the product that could cushion the TRAVATAN generics in the U.S.?
Joseph Jimenez
Okay, David?
David Epstein
So starting with pricing. Basically, the toughest part of the world for pricing right now is Europe.
We've been consistently down in terms of price between 5% and 6%. We're more or less been running at that rate for some time now, and that's very much in line with what we were forecasting at the beginning of the year.
In addition, in Japan, this is a every-other-year effect, so this is a price-cut year. So we're starting to see now in the second quarter the negative Japanese price coming through.
In the U.S., there is still some price increases. So overall, we are down more or less minus 1%, and this is, as I said, really very much what we projected.
In terms of respiratory, a couple of things. We were very pleased with the NVA once-a-day COPD CHMP recommendation in Europe.
That brand is now called Seebri. We have -- we will be and we're starting to enroll patients in the NVA and QVA remaining pivotal trials so that we can meet the U.S.
regulatory requirements. Those enrollments will start in the back half of this year.
We will also be in a position to file QVA in Europe before the end of this year, and we believe this will be a very, very important growth driver for the company. And then the QVA filing, as you know, will come later in the U.S.
market. Now I think your question was specifically about the combination of basically Onbrez with a steroid, given that our competitor has just filed their new combination LABA steroid in the U.S.
only in COPD. They chose not to file in asthma, which I think is a change in strategy.
We are now re-looking at our product, QMF, which is that LABA-steroid combination, to see whether it would make sense to develop more of the U.S. market for COPD.
But we have not made any such decision as of yet.
Joseph Jimenez
And Kevin, on [indiscernible].
Kevin J. Buehler
The combination glaucoma product is an extension of our continuing strategy. If you look at our combination products, DuoTrav and Azarga, you see very dynamic growth on both of those products primarily or exclusively outside of the U.S.
So when you think about combination products in the treatment of glaucoma, the challenge is, obviously, compliance which is addressed by putting 2 drugs together. Secondly, it's the ongoing reduction of intraocular pressure.
Today, almost all of the combination products, with the exception of one, contain timolol. And obviously, timolol, as you probably know, is a nonselective beta blocker that has systemics effects outside of the control of intraocular pressure that are normally not wanted.
In this case, it would be a combination product where you do not have timolol in the combination. And it brought very encouraging IOP reduction.
And as a result, as you also probably know, because we don't have combination products per se at the same degree in the U.S. as in the international markets, we are looking at the IOP reduction and the ability to file in the U.S.
So we are encouraged by this new product opportunity.
Operator
Our next question comes from Andrew Baum of Citi.
Andrew S. Baum - Citigroup Inc, Research Division
Three very quick ones. First, to David, could you outline the timing of initiation of Tasigna discontinuation trials and when you first expect 6 months data?
Second, could you outline your expectations for timing of generic entry for generic Glivec in both the U.S. and outside the U.S.
and some comments on legal strategy here? And then the final one is in relation to the incremental $300 million spend.
Doesn't it simply reflect the fact that you start facing generic versions of Afinitor in 2018? I'll stop there.
Joseph Jimenez
David?
David Epstein
Lots of questions, Andy. So let me start.
Tasigna discontinuation, so for background for people on the phone, we believe we have pretty good evidence now that Tasigna drives a much more complete molecular response than Glivec. And as a result, it will be possible to design clinical trials which will allow patients that are treated on Tasigna for a period of time, for some of those patients to actually discontinue their therapy, which would be great for patients and would also be a big economic benefit for payers, making Tasigna potentially the most attractive viscer-able [ph] therapy in the category.
We are currently discussing study design with regulatory authorities and others. So as a result, I am not going to comment on those plans yet, but I'm sure Hervé Hoppenot who runs our oncology business, once we have the plan, we'll share them extensively with you.
Now the second question is around timing for Glivec generic. Also, not the easiest story to tell, unfortunately, but we will see some patents begin to expire as early as next year, and that's in places like Russia and Brazil.
But the big markets, of course, are coming much later: the U.S. market, with the expiration in the back end of 2015; and in Europe in the back end of 2016.
But what I have to point out to you, that's an expiration of just one of several patents. And as there are additional patents around various crystalline forms of the product, and we do not yet know how that may play into the eventual launch of generic, so you'll have to do some -- make some assumptions around that in order to fine-tune your model.
Obviously, we're going to protect any intellectual property that we may have. In terms of Afinitor, we have just been granted a pediatric exclusivity for the product, and so that will push out the U.S.
generic date into early 2020. And I am actually trying to look up the European number for you because I don't remember it off the top of my head.
And maybe what we'll do, Andy, is we'll just get -- Andrew, we'll get back to you after the call and give you the specific EU dates, if that's okay with you.
Andrew S. Baum - Citigroup Inc, Research Division
That sounds fine. I think it was 2018, but we can follow up.
Operator
Our next question comes from Jami Rubin of Goldman Sachs. [Technical Difficulty]
Joseph Jimenez
We can't hear you.
Operator
Our next question comes from Peter Verdult of Morgan Stanley.
Peter Verdult - Morgan Stanley, Research Division
Three questions for David, Jon and Joe. David, on the ALK inhibitor, big excitement at ASCO this year.
I was wondering if it's too early to ask for some more detail on the trial design, and whether you're considering further studies in other counter-indications. And there was at ASCO some discussion about whether you would consider lowering the dose range in Phase III to try and maintain the efficacy but sort of get the total breezy [ph] profile up.
So wondering if you can make any comments there. Secondly, it's been touched upon -- but Joe, it's been touched upon by some other people, but in terms of your European pricing, I think everyone knows it's tough out there.
But I just wanted to get a sense how concerned you are about market access and reimbursement issues, facing new drugs that are getting approved there. And then lastly, for Jon.
Could you just remind us, Jon, as we currently stand, with all the restructuring programs you've announced, on a greater level, what sort of state -- where are we now in terms of the savings you've achieved and the restructuring cost expense? And should we assume as a reinvestment rate around 50%?
Joseph Jimenez
Okay, David?
David Epstein
You faded out when you mentioned the name of the drug. Can you tell me which one you're referring to?
Peter Verdult - Morgan Stanley, Research Division
378, the ALK inhibitor.
David Epstein
The ALK inhibitor. Yes, so as I said, we'll start the pivotal trial at the back end of this year.
We're very excited about the opportunity there. I think in terms of giving you more color, I would rather wait for a future IR event once we've started the pivotal trial to go into what the full development plan is for that product.
But I think you are right to be excited about this product. This could make a really big difference for patients.
Joseph Jimenez
Jon, on the savings.
Jonathan R. Symonds
Yes, on the restructuring programs, you notice that we give you an update each quarter in the press release of what we see as some of the most important developments. And this quarter, we highlighted the impact of the U.S.
restructuring. I mean, there are many different ways of showing this, and I think what we -- what I think we are now most comfortable with, rather than say that there's a productivity and there's a reinvestment rate, is to look at the total amount of resources that we've been generating because, of course, there are many other things going on in the business.
I mean, if you think about procurement, much of what procurement is seeking to do is to offset some of the impacts that we're seeing on gross margin, for example. We've got the mix effects.
So I don't think it's actually very helpful to sort of give you a line by line of where the money is and where it's gone. But just think about what the 3 big moving pieces in our business are in terms of margin: it's one, generics; two, the increasing impact of the contribution that's coming from the new product portfolio; and three, productivity, and sort of take it all in the mix rather than think about one element of coming from here and going into another opportunity.
Joseph Jimenez
And then, Peter, in terms of the market access and reimbursement, it is a tough environment obviously everywhere, particularly in Europe. But what we're finding on our new product launches is if you think about the Novartis philosophy from a research and development standpoint of going after areas of high unmet medical need and really differentiating the product, we're not seeing an inhibition of the ability to get reimbursement and to get pricing that allows us to recover the cost of that R&D and a good profit margin.
So despite the tough environment, we're not seeing a huge inhibition in our ability to get pricing and reimbursement. But I think it's because of the fact that you've got products like Afinitor, like Lucentis, like Jakavi, which will be quite differentiated.
I also think if you look at Novartis, our diversified portfolio puts us in a little bit of a different place than some of our pure-play pharma peers in that less than 60% of our total sales are reimbursed by some kind of a public agency. And that's because we have over-the-counter drugs, we have Animal Health, we have other products that are self-pay.
So we're a little bit insulated from what's going on right now as a company, and I don't think that's fully understood.
Operator
We will take our next question from Florian Gaiser of BZ Bank.
Florian Gaiser
It's quite about free cash flow. You used to have that nice $1 billion a month free cash flow.
Now at the half year, you're at $4.5 billion. It's obviously below that run rate.
Can you talk a bit about the seasonalities of your free cash flow, the one-offs and what you might see in H2? And the second question is about the slight decrease in margin.
You talked about a little bit more than 100 basis points. Is that constant currency or nominal?
Joseph Jimenez
Jon?
Jonathan R. Symonds
Yes, the second part, it's constant currency. And then on free cash flow, I think if you look at our cycle of cash flow, annual cycle, we are generally slightly higher in the second half than we are in the first half.
We have some seasonal business impacting Sandoz in the Consumer Health business. So generally, we're a bit more than 50% of cash flow in the second half.
In terms of the overall cash flow for the year, I think the only 2 things that I'm signaling to you that will affect it vis-à-vis last year or maybe 3 year -- 3 things, I mean, obviously, profits [indiscernible] obviously generates less cash. Then there's an increase in the CapEx program, and we have payments out of some of the provisions, some of which we made this year and some of which we made last year, which has a slight impact on the total overall free cash flow.
But generally, the first half is a little softer than what we see in the second half.
Joseph Jimenez
Okay, just to close, I'd like to say that it is a difficult environment out there, but you're listening to a quite optimistic management team about the future of Novartis. And I think part of it is driven by what we have coming out of our pipeline and the launches that we have across the division.
So it's not just Pharmaceuticals but also launches in Alcon, launches in all of the divisions around driving continued growth. So we look forward to updating you at Q3, and thank you for joining today.
Operator
Ladies and gentlemen, this will conclude today's conference call. Thank you for your participation.
You may now disconnect.