Oct 28, 2014
Executives
Joe Jimenez - Chief Executive Officer Harry Kirsch - Chief Financial Officer David Epstein - Division Head, Novartis Pharmaceuticals Jeff George - Division Head, Alcon Richard Francis - Division Head, Sandoz Samir Shah - Global Head, IR
Analysts
Richard Vosser - JP Morgan Andrew Baum - Citigroup Matthew Weston - Credit Suisse Alexandra Hauber - UBS Seamus Fernandez - Leerink Graham Parry - Bank of America Tim Race - Deutsche Bank Steve Scala - Cowen
Operator
Good morning and good afternoon. And welcome to the Novartis Q3 2014 Results Conference Call and Live Audio Webcast.
Please note that during the presentation, all participants will be in a listen-only mode and the conference is being recorded. (Operator Instructions).
A recording of the conference call including the Q&A session will be available on our website shortly after the call ends. (Operator Instructions).
With that, I would like to hand the call over to Mr. Joe Jimenez, CEO of Novartis.
Please go ahead, sir.
Joe Jimenez
Thank you. I’d like to welcome everyone to our third quarter conference call.
Joining me on the Novartis end are Harry Kirsch, CFO; David Epstein from Pharma; Jeff George from Alcon; Richard Francis from Sandoz; Andrin Oswald, from Vaccines; and Brian McNamara from OTC. So before we start, I'd like Samir Shah to read the Safe Harbor statement.
Samir Shah
Okay. Thank you, Joe.
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.
Joe Jimenez
Thanks, Samir. All right, starting on slide number four.
We had what I would call a very strong third quarter; and for me the highlights really were the innovation that we were able to deliver in the quarter, particularly the news around LCZ696 but also the fact that we delivered solid sales growth across all of our divisions, and at the same time, increasing operating income margin again across all of the divisions. So on slide five you can see the P&L.
Sales were up 5% in constant currencies with core operating income up 11% and core EPS grew double-digit whether it's constant currency or in U.S. dollars.
And Harry is going to talk more about the financials in just a minute. But what I want to do is spend just a few minutes talking about our three strategic priorities of extending our leading innovation, accelerating growth and driving productivity.
So, starting on slide number seven. We had several regulatory advances this quarter.
A couple of highlights include secukinumab which is our IL-17 inhibitor where we gained a positive FDA Advisory Committee recommendation in psoriasis. Simbrinza is our new combo treatment for glaucoma, we gained EU approval.
And the FDA accepted Sandoz application for our biosimilar filgrastim. We’re the first company to announce that we’ve filed for approval of a biologic under the Biosimilars Regulatory pathway that was created in 2009.
And on clinical news, on the next slide, it was also a strong quarter. You can hear more about this from David, but beyond LCZ, we also released some data on secukinumab, which had positive results in psoriatic arthritis and ankylosing spondylitis in several Phase III studies and this is going to be an important drug for the company going forward.
We also filed regulatory application to the FDA for LDE225 in advanced basal cell carcinoma. This thing was filed in the EU in the second quarter.
In Alcon, we also had some good news. We completed the acquisition of WaveTec.
This is the first intra-operative guidance system to improve cataract outcomes. The system basically delivers key measurements during refractive cataract surgery and it helps the surgeon with the precision of the placement of the IOL and it increases the surgeon’s confidence to use an advance technology, IOL which is also important for our IOL business.
This is going to be I believe an important new piece to the surgical suite of equipment that Alcon has launched and is proven to be pretty successful. Now moving on to the second priority on the next slide 10 and that is to accelerate growth.
All of our divisions showed top and bottom-line growth and all showed margin improvement, as you can see on the slide. The performance was driven by our growth products which now account for 33% of sales and they are up over 20% versus a year ago, you can see that on slide number 11.
Importantly also, we're not seeing a slowdown in emerging markets despite the fact that the economies are slowing down. We were up 13% and China and Brazil were both up over 20% and Russia was up 18%.
So, we're still seeing very good growth in emerging markets. On the next slide 12, Pharma growth products doing extremely well; three that I just want to point out; Gilenya, Tasigna and Afinitor were up all over 20% versus a year ago in the quarter.
It's an important fact because it's helping Pharma more than offset the patent exploration of Divan and Lucentis, Lucentis up 7%. Now Alcon on the next slide, you can see that sales were up 6% versus the quarter and that was driven by the surgical business which was up double-digit.
This is making me optimistic about early signs of top-line growth acceleration on the Alcon business behind the surgical suite. And we all know what happens as we get that surgical suite out there, there is a pull through of other disposables that could result in some nice growth going forward.
In Sandoz, our sales were up 7% on slide number 14. Core operating income margin also grew 17% for the quarter.
Another highlight I think was biosimilars where we were up 30% versus a year ago. Now in terms of productivity, we had a solid quarter.
We improved group core operating income margin by a 150 basis points and this was driven by procurement savings and R&D and M&S spend control; for the first nine months, you can see were up 120 basis points. And as you heard on Sunday night, we have signed an agreement with CSL to divest our flu business for $275 million in cash.
We expect this transaction to close in the second half of 2015 and until it’s completed, we’re going to continue to operate the flu business. As you can imagine, we’re right now in the process of carving this business out from the rest of the vaccines business that goes to GSK and we’ll run it as a standalone business until the CSL transaction closes.
The transformation is -- shown a little timeline on slide 17; it continues to be on track. So we expect to close both deals in the first half of 2015 and in fact the Animal Health deal will most likely close no later than the first quarter of 2015.
And then finally, I want to just talk about the Novartis Business Services. As you know in April, we announced the creation of Novartis Business Services and we transferred 7,000 of our associates across 60 countries into this unit.
They’re right now building plans to improve quality of services and deliver them at a lower cost. And at the same time, they’re executing everything that they’re responsible for today, which is pretty substantial in the area of IT and procurement.
So I’m feeling good about the progress, but again Novartis Business Services is going to be something that helps us in ‘15, ‘16 and ‘17. So now I’d like to turn it over to Harry.
Harry Kirsch
Thank you, Joe. So before I get into the numbers, as a reminder, we are required by IFRS following the portfolio transformation announced on April 22nd, to report total group numbers for 2014 and the prior year as discontinuing and continuing operations.
In addition, when comparing our performance with the prior year, we are comparing to 2013 figures excluding our divested blood transfusion diagnostics unit. This is consistent with how we reported our Q2 results.
Now, to slide 20. So, Novartis delivered solid sales growth with strong margin expansion in the third quarter and first nine months of 2014.
In constant currencies, net sales were up 5% in quarter three; core operating income was up 11% and constant currencies, driven by the sales uptick and by the impact of productivity programs. Net income improved substantially by 49% in constant currencies in quarter three due to one-time exceptional gain from the sale of our 22% Idenix stake to Merck.
Core net income and core EPS do not include this one-time gain of course. Free cash flow was much stronger in quarter three than the first two quarters reaching $3.2 billion; I'll give you more detail on that later.
Slide 21 clearly demonstrates our strong underlying growth. If you go step-by-step, underlying volume growth contributed 10% of net sales, pricing was flat, the generic impact was minus 5% and currency had a negative impact of minus 1% on sales resulting in sales growth of 4% in U.S.
dollars and 5% in constant currencies. You'll see similar but much more pronounced picture for core operating income where underlying core operating income growth of 25% more than offsets to 14% impact of generic competition.
Currency took us from 11% growth in constant currency to 8% growth in U.S. dollars.
Please note the core operating income growth includes 1 percent point due to the cessation of depreciation for discontinuing businesses. As you know, a Diovan mono was launched in U.S.
on July the 7th. On the same day, Sandoz launched an authorized generic.
The generic impact for the group in Q3 was $600 million and year-to-date $1.7 billion and expected total year to be around $2.5 billion on a full year basis in line with our previous expectations. And this takes into account to recent launch of generic competition for Exforge in the U.S.
If you turn to slide 22, you can see that the top-line performance was driven by continued momentum in our growth products which now represent a third of total group net sales and 44% of pharma net sales in quarter three. Each of our leading divisions contributed to this momentum.
Key drivers were Gilenya, Afinitor, and Tasigna and Pharma and surgical equipment at Alcon. We also benefited from the Diovan mono authorized generic launch in U.S.
for Sandoz and good performance of growth products in our discontinued operations mainly from the Voltaren 12-hour launch. Looking at our financial performance by division on slide 23, you can see that all divisions contributed to the group core operating income margin improvement of 150 basis points in constant currency in quarter three.
Pharma grew sales only by 1% and fueled the Diovan mono generic entry U.S. on July.
Nevertheless Pharma has been able to grow core operating income by 5 percent points and improved margin by 1 percent point. This is due to the impact of productivity programs on functional cost and higher R&D spend in 2013.
Alcon achieved a 6% sales growth in constant currency and also benefited from productivity programs residing in the 2% point margin improvement. Sandoz margin also improved by 1% point, mainly due to the launch of Diovan and mono authorized generic in the U.S.
which has been partly offset by stock and trade reductions in U.S. due to customer consolidation.
Authorized Diovan mono sales were slightly above $100 million in the quarter and we expect these to be substantially lower in quarter four. Margin improvements at Consumer Health and Vaccines were somewhat higher as both benefited from higher sales growth, but also the cessation of depreciation related to discontinuing operations accounting.
This is particularly true for vaccines; where there is accounting effect represents 6 points of the 8 points of core margin improvements in quarter three. However, overall for the Group the contribution from the cessation of depreciation was only 0.3% margin points.
Please note that part of the significant quarter three sales growth for vaccines is due to the earlier U.S. flu campaign this year versus 2013.
Excluding this flu shipment phasing, vaccines crusades 12% in constant currency. Now to slide 24, as I mentioned, the improvement in Group core margin was due to lower functional cost which was mainly in R&D and M&S.
Group core R&D and M&S both decreased by just over 1% point of sales in constant currency. The R&D decrease at Pharma of 0.9% points in constant currency of sales was driven by ongoing productivity gains, as well as increased investments and late stage clinical trials in quarter three 2013.
The even larger improvement at Alcon of 2% points in constant currency was driven by continued project prioritization, as well as some phasing of expenses. Core R&D spend as a percentage of net sales was 15.7% for the Group and 21.4% for Pharma in quarter three.
The decrease in M&S spend also reflects our ongoing productivity programs started earlier in the year, for example, U.S. primary care [fixed cost] reductions around in quarter one, as well as higher sales.
Slide 25 looks at the currency impact. Currency had a negative impact of minus 1% point on the top-line mainly from the strengthening of U.S.
dollar against Russian ruble and Japanese yen. The bottom-line was impacted by negative 3% points as we also saw stronger Swiss franc this quarter versus the prior year quarter.
The dollar has been strengthening further over the past few weeks against most currencies. And as the early October average exchange rates prevail for the remainder of the year, we would expect for the full year a minus 2% currency impact on sales and between minus 4% and minus 5% on core operating income.
Let’s now turn to free cash flow on slide 26. As expected, we continue to see a nice recovery of free cash flow in quarter three and ended the first nine months with free cash flow of $6.3 billion.
This is only slightly down compared to last year as higher operating income was offset by negative currency impact, higher net working capital and investments in intangible assets including the Fovista deal and Google smart lens technology. As you know, we do not include the additional cash we received from divestment of the blood transfusion diagnostic unit and Idenix share sale into our free cash flow definition.
Now on to net debt on Slide 27, you can see how net debt increased from $8.8 billion at the end of 2013 to $9.2 billion at the end of this quarter. This was mainly due to our dividend payment of $6.8 billion and share purchases of $5 billion partly offset by our free cash flow of $6.3 billion, as well as proceeds from divestments and from options exercised related to the employee participation programs.
Slide 28, we have just announced the binding agreement to divest our flu business to CSL for price of $275 million. The flu transaction is expected to close in the second half of 2015 subject to regulatory approvals.
Upon signing of the agreement, IFRS requires a separate valuation of the flu vaccine assets. This immediately triggers the recognition of an exceptional impairment charge of approximately $1.1 billion pre-tax, as the book value of the flu vaccine net assets is above the selling price.
This charge is a non-cash accounting impact and will be excluded from the Group core results. However, the future sale of the remaining non-flu vaccines business to GSK will produce an even higher gain and more than offset this early recognized impairment.
We expect to record significant additional gains upon closing of the other inter-conditional transactions with GSK and the transaction with Lilly announced on April 22nd. These gains will be recalled at deal closing and will also be excluded from the Group core results.
Finally, on slide 29, I want to confirm our group outlook for the full year 2014. We expect group net sales to grow at low to mid single-digits in constant currency and group core operating income to grow ahead of sales at mid to high single-digits in constant currency.
While, this guidance includes the cessation of depreciation and amortization for our discontinuing operations, we do not expect this accounting change to have material impact on the results. And with that I will hand over to David.
David Epstein
Great, thanks Harry. Pharmaceutical sales were up 1% in constant currency in the third quarter with solid core operating leverage despite absorbing declining Diovan sales in the U.S.
and Japan due to initial generic entries. On the next page 32, you see that our portfolio rejuvenation is progressing well with growth products now representing 44% of total division sales.
I think this speaks well to our ability to innovate as well as our global launch capabilities. On page 33, this is the focus on emerging markets, continues to provide a nice return as growth in Q3 was robust driven by Brazil, China and Turkey.
We are now according to IMS the number two pharma company in the emerging markets. On page 34, you see our growth platform is delivering well with the one negative number on the chart being Galvus, due to the cessation of distribution in the German market corrected for the German action.
You see that Galvus also was up 8%. I’ll now spend a few minutes talking about several of these products starting with Gilenya, on the following page.
Gilenya is growing strongly, despite this increasing competition in both the U.S. and Europe.
In fact ex-U.S., Gilenya is now the number one product in the MS market based upon first half sales. We presented new data at ACTRIMS which confirmed the high efficacy of Gilenya in achieving no evidence of disease activity based upon four key measures of MS.
And that's not least; we're looking forward to seeing the first results, the first top-line results from the primary progressive MS study which is expected before the end of this year. On the following page you see Lucentis continues to grow nicely based upon market expansion with the new indications as well as the continued roll out of the prefilled syringe which physicians are telling us that they prefer to use over the old form.
On page 37, you see that Afinitor is growing nicely and in fact there are multiple sources of growth even beyond breast cancer. For example, if you look at the chart on the right hand side of the page, you now see that even a small indication or orphan indication like pancreatic neuroendocrine tumor now represents 10% of the sales.
We recently showed overall survival benefit in this indication of more than 3.5 years, which means over time this indication will become more important for the brand. On page 38, you see another very important product and that’s Tasigna; it's delivering double-digit growth now seven years post launch.
It continues on the success of Glivec and hopefully our ever expanding Bcr-Abl franchise as our ABL inhibitor ABL001 continues to make good progress in its first Phase I trials. You can see that the ex-U.S.
growth of Tasigna is also very strong; in particular, we're seeing very nice continued uptake in the emerging markets. Turning now to page 39, we see Jakavi is performing very well based upon the myelofibrosis indication.
That indication also received a recent approval in reimbursement in Japan indication. We were able to update the European label in July to include a long-term survival follow up.
And last, but not least the submissions are ongoing for the new indication of polycythemia vera which was submitted in the U.S. in Q2 and in Japan and in Europe in Q3.
We would expect that this new indication has the possibility of more than doubling the potential market size for this product. On page 40, we see that Ultibro adoption is quite good, already at $31 million in the third quarter.
In addition, we presented new data, which shows expanding evidence that there is an exacerbation benefit with Seretide, which is the market leader in COPD. We remain very bullish on our COPD line and expect in time to become one of the market leaders ex-U.S.
in this market segment. And then on page 41, Zykadia presented during the quarter new data, actually data on durable responses that was even better than we had anticipated when we started development with this product with median progression-free survival exceeding 18 months.
Now, I want to spend a moment and turn to a little bit on the pipeline, starting on page 42 with LCZ where we’re building very, very good momentum. The preliminary regulatory discussions have gone very well.
As you know, we are in the midst of a rolling submission in the U.S. with an expectation that will complete that submission at the end of this year.
And once the submission is complete, we’ll get a read as to whether or not an accelerated review is likely. I would say based upon the tone of those preliminary discussions and the quality of the data that accelerated review certainly in the realm a possibility.
And then last but not least, we are on track for early 2015 filing in Europe and the rest of the world for this very important brand for our company. The last product I want to mention in our development portfolio is Lucentis.
I think most of you heard about the positive outcome of the FDA advisory panel on psoriasis where there was a vote 7-0 in favor of the approval of Cosentyx for psoriasis. Just as importantly, we presented top-line results during the quarter for two additional indications; psoriatic arthritis and ankylosing spondylitis, which speaks to the broader efficacy profile of this compound compared to some other biologics in the category.
We're clearly aiming to be the first company with an anti-IL17 monoclonal antibody which is labeled against all three of those important indications which should in time drive this product to a multi-billion dollar blockbuster status peak. Last but not least, I present to you on page 44 our expected [inflow] for the remainder of the year.
as you can see, it is a very strong year and we're looking forward to a few more green checks hopefully before the year is out. And with that, I want to turn the meeting back over to Joe.
Joe Jimenez
Thanks David. So just to close, we had a strong quarter.
We delivered strong innovation and sales growth with operating income leverage. But the thing that makes me most pleased about the quarter is that the team did it at a time of unprecedented change in the company with the portfolio transformations and setting up of NVS.
So with that, I'd like to open the call to questions.
Operator
(Operator Instructions). And we will take our first question from Richard Vosser of JP Morgan.
Please go ahead. Your line is open.
Richard Vosser - JP Morgan
Thanks very much. A couple of questions please; it's Richard Vosser from JP Morgan.
Just on the flu business disposal, I wondered if you could give us some details on how you came about the pricing. It does seem that relatively low sales multiple and you have put substantial amounts of investment into that business in terms of the R&D behind cord flu and upgrading the manufacturing facilities.
So, just if you could give us some idea or some details around that that will be good? Secondly on Alcon, just give us an idea of where you are in the roll out of the Centurion machines.
Where that is in terms of your installed base, I know you’re actually gaining market share on your installed base to have obviously good sales numbers? And then secondly on the IOL return to growth, how sustainable do you see that?
Do you see strong growth for the second half driven by patients using their allocations with payers and therefore return to weaker growth in the first half of ‘15; some context there would be good? And then just finally on FX, if I could ask on what sort of FX you’re expecting, an impact on 2015 what sort of negative impact you would see there?
Thanks very much.
Joe Jimenez
Okay. Richard thanks for the questions.
Look regarding the flu business we announced in April that we were going to divest this to somebody else to maximize value. Obviously, we took the best price, it was $275 million.
But then this is a money losing business today so I feel good about the price that we’ve taken. And even though we are recording a loss on the sale of flu, when you look at the vaccines business in total, we do expect to register a fairly significant gain across the entire vaccines business when we closed GSK that will more than compensate for this hit.
So, I have to make the decision as to whether or not we were going to double down in flu and invest more or divest the decision was to divest and $275 million was the best price. Jeff, Alcon?
Jeff George
Yes. Richard with respect to the Centurion roll out, this is exceeding our expectations and we're really pleased with the roll out so far.
We're approaching 10% of our installed base globally and approaching 15% of our installed base in the U.S. So, still a good amount of further room for growth, remember that most phacoemulsification platform roll outs are multi-year roll outs.
So, we're really pleased with the uptick that we're seeing. And we are picking up quite a bit of competitive here from older phacoemulsification platforms from our competitors.
And I think notably, the increase that we're seeing in IOLs is significant in Centurion accounts where we're seeing 10% volume growth in IOLs in units, in accounts that have Centurion versus about 2% unit growth in IOLs in accounts that don't have it. So, I see our momentum and the improvement that we're seeing albeit modest in Q3 in IOLs as something that will be continued going forward and I expect to see that business continued to improve looking forward.
Joe Jimenez
And Harry on FX.
Harry Kirsch
Yes. On FX, as I mentioned, the last weeks have given us some more headwinds which led to our guidance for this year for minus 2 and top-line minus 4 to minus 5 on bottom-line.
For 2015, I would like to give that guidance in January when we give you also both top and bottom-line guidance. So, I expect some headwinds, but I’ll give more specifics later.
Joe Jimenez
Okay. Next question please.
Operator
We will take our next question from Andrew Baum of Citigroup. Please go ahead.
Your line is open.
Andrew Baum - Citigroup
Yes. Good afternoon.
Three quick questions please. So, first regarding secukinumab and the psoriasis market.
How should we think about the market dynamics there? So, do you anticipate eroding first the anti-TNF usage in that segment or do you see from the get go increase penetration of biologics?
Second if Rich is there, I’d be interested in any guidance you can give on realistically when to anticipate your biosimilar out of [lirilumab] to get approved within the U.S.? And then finally David, I heard your reinforcement of the continued commitment to respiratory.
Given the wealth of assets that you have at your disposal, particularly with LCZ, but many others that were highlight in your presentation, what is the -- are you the best owner for the respiratory assets? And I note, in the UK, you’ve given outright.
Should we expect the respiratory is going to be a permanent future in Novartis portfolio going forward?
Joe Jimenez
Okay. So, why don’t you go David first, secukinumab and breast?
David Epstein
Okay. I think the best way to think about secukinumab, dermatologists are fairly conservative by nature and that’s one factor; second is that many psoriasis patients, even those on biologics are very dissatisfied with the quality of the products they are on today; they’re not getting clear skin, which is much more likely with the secukinumab.
So what I think will happen you’ll see secukinumab used initially second line, but then you will see the market expand, because patients will be a happier, stick with it and perhaps some patients who didn’t take, who don’t do well on the orals will also switch over to an ever expanding biologics market. That market is about -- I think it’s about $5 billion now for psoriasis biologics.
And then the second question about the respiratory market. I think we’re a company of almost two geographic worlds.
So in Europe and ex-U.S. more generally, we have a dynamite portfolio.
We have Onbrez, Seebri, Ultibro; we have Xolair for allergic asthma. We have several products that in the pipeline will hopefully go into Phase III next year called QAW.
I think we really have a chance to become one of the market leaders in respiratory medicine. And I would see us in most markets doing that ourselves, the UK being an exception where we just but been unable to mount a really strong GP business and recognizing that it takes more than five years to get a return in the UK market.
The U.S. is a bit of a different story; we're working on our strategy.
And as I said earlier we may choose to work with another company. In the U.S.
market, we may choose to do it all ourselves. And the good news is I have plenty of time to figure that out.
So as we do during the course of next year, we'll likely know what our U.S. strategy is for our respiratory product line.
Joe Jimenez
And Andrew on the biosimilar, we announced that we’re moving in Phase III. And I think we don't comment on the timing but we would obviously want to be ready by the time that that patent expired.
So that's about as far as it will go.
Andrew Baum - Citigroup
Thank you.
Joe Jimenez
Next question please?
Operator
We will take our next question from Matthew Weston of Credit Suisse. Please go ahead.
Your line is open.
Matthew Weston - Credit Suisse
Thank you very much. A couple of questions if I can.
Can you just tell us in Sandoz how much generic Diovan actually contributed to those Q3 sales and EBIT? David, if you can let us know on LCZ696 what was the early discussions with regulators indicated in terms of the possibility of a priority review or is the share size of the data package going to limit the opportunity there?
You highlighted the number of products successes and real growth drivers, can you just walk us through where you now see Afinitor going in light of the [patterning] revenue and I note in your pipeline picture delays in B cell lymphoma and TCS seizures because of difficulty recruiting patients? And then finally Gilenya, I think we’re expecting the primary progressive MS data before year-end.
Can you just let us know how you’re going to communicate that to us? Thank you.
Joe Jimenez
Okay. Mathew, starting with Sandoz Richard, generic Diovan.
Richard Francis
Thank you, Joe. Thank you, Mathew.
So, generic Diovan to give you some guidance, the sales that we saw with Diovan were above a $100 million, so a good performance there. And if you look at the competition with Ranbaxy for the generic market price was slightly up with 50%.
So, we’re very pleased with the results we have there.
Joe Jimenez
And then David the three questions on…
David Epstein
Okay. So, we’ll start with, let’s start with LCZ.
Obviously I can’t tell you the exact details on the regulatory discussion, I just want to say that I am pleased with them and they’re consistent across U.S. and Europe.
It’s hard for me to imagine that we don’t get a speedy look at the data; the size of the package is not the problem. But we won’t know officially whether it is a priority review until we complete the submission and the FDA tells us.
But I think we’re in good shape there, that’s what you should take away. Afinitor is more of a mix story.
As we showed, the brand is growing really nicely; it’s effectively more than 20%. It should continue to grow.
Breast cancer on the other hand will turn out to be as we indicated earlier smaller than we had hoped as the drug is used in later [volumes] of disease and we said that we’ve not seen any type of survival advantage that we could use to offset the stenotype, the patient’s experience. But as I pointed out some of other indications are actually fairly significant and also fairly early in the lifecycle.
So, it is a multi-billion dollar drug, it is growing nicely. And we have a very nice development strategy meant to replace Afinitor before the patent expires with the PI3 kinase inhibitor.
So, I think overall, it's a good solid franchise even though it may turn out to be a little bit less than we had once hoped. Regarding Gilenya and PPMS, we should get the results before year-end.
Assuming the results are positive, I guess either way we would probably give some type of top-line release. But I have to go and think about that a little bit more before I confirm how I’m going to communicate to you.
Matthew Weston - Credit Suisse
All right, thanks.
Joe Jimenez
Next question please.
Operator
Looks like I have a question from Alexandra Hauber of UBS. Please go ahead.
Your line is open.
Alexandra Hauber - UBS
Good afternoon. Thank you.
I've got four questions please. Coming quickly back to Seebri Ultibro and the U.S., the summary still says four quarter U.S.
submission. I'm just wondering whether there is a final decision actually made.
And also given whether you have the data and how soon you are -- by now which you probably need to if you want to submit it this quarter and whether you are confident you have a competitive profile for the U.S.? Secondly, I assume the strong performance in the emerging market this quarter had some -- in Pharma had some contributions from tenders.
Could you just maybe sell out some of the products which were specifically affected by that? And then David you dealt with this briefly mentioning that your ABL inhibitor 001, can you just confirm that we will see some data here at ASH for that?
And then finally for Harry, just a related thought you can share on savings from Novartis business services, the time, but also potential cash cost whether there will be any from any initiatives there?
Joe Jimenez
Okay. Starting with the rest, David.
David Epstein
Okay. So Seebri and Ultibro, we do not have all the data in-house as of yet for the U.S.
market. I have seen -- we have seen some of the data and there are no surprises.
And as we had communicated earlier, most likely there will be a twice a day profile. So, it’s all going to be a question of what’s the overall efficacy safety along with that twice a day profile to understand how competitive it will be.
I do believe that the market will eventually move strongly, the combination of LABA/LAMA. Our competitor has not done a good job doing that.
And I think as other products from our company and other companies coming to the market, to LABA/LAMA market, we’ll expand. Regarding emerging markets, you’re right; the back half of the year is usually tender driven.
We have not had extreme ups or downs in tender this year and in fact some of the most the best performing markets are not really true tender market. So, China for example is one of the highly performing markets.
There is nothing really unusual there. And then ABL001 in an allosteric abl inhibitor, which could be used either as monotherapy or potentially combined with the drug like Tasigna or a drug like Glivec, we’re in the midst of dose escalation.
So, I don’t think you’ll start seeing any data probably until 2015, but it’s a very exciting concept and an opportunity for us to expand that important BCR-ABL franchise.
Joe Jimenez
And Harry on NBS?
Harry Kirsch
Thank you, Alexandra. On NBS, the team is forming the organization, more than 7,000 associates joining as we speak that organization, announced on July 1 the leadership team.
And dispense being managed in the final stage being around 6 billion. Mid-term we expect nice margin improvements from that.
And we will update you on more specifics for 2015 in January where we'll give our full year '15 guidance.
Joe Jimenez
But we would expect some level of restructuring to go with some changes not very significant or huge but something from a cash standpoint.
Alexandra Hauber - UBS
Okay, thank you.
Joe Jimenez
Next question please?
Operator
We'll take our next from of Seamus Fernandez of Leerink. Please go ahead.
Your line is open.
Seamus Fernandez - Leerink
Great. Thanks for the questions.
So just a couple of quick questions. First just strategically David, in terms for your plans for future post Gilenya, should the patent actually make for an expiration in 2019 or 2020 as you've guided, what would your plans be for building out an MS franchise long-term; is Gilenya really your only focus target?
And then separately can you also update us on your -- the pricing assumptions as we think about potential pricing of LCZ in the U.S. and perhaps also in global markets?
And then lastly, we have seen some consternation over the pricing dynamics that are occurring in the insulin market. Historically, Sandoz leadership has stated that that market, they view that market already as being largely generic.
Just wondering if Sandoz has changed its position there perhaps because of differences in breakeven pricing for additional competition or if that remains an unappealing market? Thank you.
David Epstein
Okay. So, the first question is around our commitment to MS which is very strong.
We see ourselves building a leadership position in MS. Just to clarify some facts, the loss exclusivity for Gilenya is 2019 in the U.S.
only, so outside the U.S., in particular in Europe it’s 2021 which gives us more time. We have other compounds in the pipeline like our anti-IL-17 inhibitor and we are looking at other options as well to continue to build upon our success in the MS market.
Your second question was around pricing assumptions for LCZ; I’ll start by saying we haven’t decided upon the price. Obviously, there is a number of things to think about, the strong benefit of the product overall in terms of reduction in mortality, improvement in quality of life, also the cost offsets because this product will reduce hospitalizations for example as well as other health costs.
And then we also have to think about the total size of the patient population, so whatever we do have to be reasonable from a pricing standpoint. You probably won’t hear about the price from us until a few days before we actually launch the product in the U.S., so we have a little bit of time to nail it down further.
Joe Jimenez
And Richard, on insulin?
Richard Francis
Thanks Joe. We’re constantly looking at opportunities to expand the business and the portfolio, so we constantly look at every market and insulin is no different.
But we do not still consider an attractive opportunity because both things from pricing, low pricing to high capital expenditure required and a high level of competition. So that’s not one of our focuses right now.
Joe Jimenez
Okay. Next question please?
Operator
And we’ll take our next question Graham Parry with Bank of America. Please go ahead.
Your line is open.
Graham Parry - Bank of America
Hey, thanks for taking my questions. And so firstly on LCZ696, I think what a better view on what sales force you think would be needed to launch the product and the extent to which you might need to access GPs longer-term to switch the stable patients once you establish yourselves with cardiologists?
And secondly and are you still on track to enter the clinic in 2015 for the immuno-oncology portfolio from CoStim, any thoughts on which mechanisms are actually going in first? And then thirdly on Novartis business services, in terms of benefits in 2015, we've seen the effect of this happening now.
How much of the benefit could we really see 2015 or should we really be thinking about ‘16, ‘17 for the timing of benefits from that business? Thank you.
David Epstein
Okay. So, for the LCV launch and you asked the question is one of how -- what type of sales force do we put out there?
No, clearly we will fully cover cardiologists who will be the main decision makers and prescribers for this brand. We will also cover a part of the GP market either physicians and internists who act much like cardiologist.
So, they initiate prescribing. And then we will use a series of different methods in order to encourage GPs to refer patients back to the cardiologist so that their prescription can be changed and the drug can be titrated up to the effect, the effect of dose in the cardiologist with the cardiologist guidance.
So, there is multiple channels we'll be using including digital. The current plan is not to have broad coverage of GPs in the U.S.
We will in time refine those plans, but the recent terms of the launch in 2015, you should not expect any kind of significant field force expansion.
Graham Parry - Bank of America
And the question...
David Epstein
Yes. So, the second question around CoStim, CoStim has a series of first and second generation immuno-oncology drug.
I'm very excited we've accelerated those second-generation products in particular; they will enter the clinic in 2015. And I think we're going to wait until 2015 to tell you exactly which ones those are.
Joe Jimenez
Okay. And Harry on NVS.
Harry Kirsch
Yes. Graham thanks for the question.
So, I expect the major impact as of ‘16 and ‘17, but also some impact in 2015. And we plan to update you on more specifics in January when we give the 2015 guidance.
Please recall also this is about standardizing and automating processes, systems, implementations are also part of it. So, one has to be a bit careful to expect significant benefits too early.
So to some of that some benefits in 2015, majority in ‘16 and ‘17.
Joe Jimenez
Okay. Next question please.
Operator
We will take our next question from Tim Race of Deutsche Bank. Please go ahead.
Your line is open.
Tim Race - Deutsche Bank
Thanks for taking my question. Tim Race here from Deutsche Bank.
Just a question on pricing, I see it this year at about 20% price increases. Could you just comment on how much you’re sticking and perhaps just also call out some of the over products in the specialty space where you’ve been able to actually increase price so dramatically, whether that’s just a Glivec specific.
And then just a comment generally on your portfolio in the U.S., which we’ve seen obviously participant to today is the insulin market and prices taken, invested prices rise where or why that was ought to be relatively secure? And hopefully generic, what I’d call specialist, but are you seeing any extra pressure in some of these areas traditionally would have been protected?
And then just another question just perhaps on Lucentis, we saw the NIH headline data of Lucentis albeit on Avastin and I know it’s a U.S. study, but there was obviously not great efficacy for Lucentis in that study and the CB safety signal is a bit.
Do you expect any read across to the EU from this and any impact to your business? Thank you.
Harry Kirsch
Okay. So, you asked the general question pricing and I think stickiness.
Just -- a couple of things on pricing. One, in Japan this was the negative price year for Japan and every other year system.
We're down about 6% in Japanese pricing. In Europe, pricing declined or pretty much in line with we've had over the last couple of years, minus two to minus three depending upon the quarter.
And in the U.S. we've had a small amount of price increase.
And I think you're correct, it's been easier to pass through price increases on the specialty brands where there is less competition than on the primary care portfolio and that pricing does seem to stick. Having said that, payers are increasingly focusing on categories like MS, they're starting to look at oncology.
And we will anticipate continued price pressure in those categories as well. And regarding the Lucentis and this was a comparison of Lucentis and Avastin in DME and if you know that was an open label trial relatively modest size trial.
The key issue there in terms of trying to extrapolate data is a doze use, the U.S. dose for DME which is very low compared to the EU dose.
So, there is really no efficacy conclusion that can be made since our doses are higher. And they had a very what I would odd unvalidated definition of side effect which is not traditionally used in I trials.
So, I think we have to get deeper into the data to see if there is anything really there or not.
Joe Jimenez
Okay. I think we have one additional question in the queue.
Operator
We will take our next question from [Kerry Holford]. Please go ahead.
Your line is open.
Unidentified Analyst
Hi, thank you. I have three questions and follow-up for me please.
Firstly on Glivec I saw that you reported very strong growth in the U.S. in the quarter, just wondered whether you can give us a bit more detail on the drivers here, what level of growth you expect for the remainder of the year and into 2015?
Secondly on Xolair, strong growth still remaining for that product in the quarter. Can you detail how much of this is being driven by the asthma indications versus the newer recently launched dermatology indications; and if you’re able to comment on how big an opportunity those dermatology indications might represent to Xolair in terms of peak sales?
And then lastly on secukinumab, I feel that you are now planning file for psoriatic arthritis next year, previously this year, is that just to really make a simultaneous filing with AS in 2015 or are you waiting for any additional data to read out in psoriatic arthritis? Thank you.
Joe Jimenez
Okay, thank you for the questions. So, in terms of the Gleevec, we were up 7% Q3 2014 versus Q3 2013.
The growth was primarily driven by the U.S. which was up 24% which compensated for the declines in the other regions.
The U.S. was a combination of price and inventory which have been low coming back to a normal rate.
You would expect over time Gleevec sales will decline for a number of reasons, generic compensation, patients switching from Gleevec to Tasigna and the like. Regarding Xolair, the chronic spontaneous urticaria launch is actually doing very well, even a bit better than we had hoped.
The peak potential is probably over $0.5 billion in the ex-U.S. markets because remember we don’t book sales in the U.S.; Genentech books those sales.
I don’t have a good split for you right now between allergic asthma and CSU in part because of overlap of prescribers. So, we're trying to do some better market research to understand it.
But when you look at the acceleration of the brand, it's pretty clear that chronic spontaneous urticaria indication is what's driving the acceleration of the growth. And last but not least, you're correct.
We decided to push one of the secukinumab indications into early next year so we could file a contemporaneously with psoriatic arthritis, we think that gives the file the best chance of the smooth regulatory review.
Joe Jimenez
Okay. We have time for one last question.
Operator
We will take our next question from Steve Scala of Cowen. Please go ahead, your line is open.
Steve Scala - Cowen
Thank you very much. Two questions for David.
When all exclusions from the PARADIGM trial are considered, how much does that reduce the potential Class II heart failure population for LCZ696? That's the first question.
And secondly, I apologize if this has already been asked, but what are the next data readouts for LEE011 potentially in 2015? Thank you.
David Epstein
Okay, I'll start with LEE, this is the CDK46 for breast cancer. The product is going to be going into along with Pfizer’s drug into -- will become a very big category.
Most likely scenario for us is we'll see data at the beginning of 2016, now quick either all are event driven things can shift a couple of months one way or another. Regarding LCZ, I can't give you an exact answer.
I'm not even sure people really know exactly how many chronic heart failure patients there are? As you know a large number of them are under diagnosed.
But exclusion criteria which such that most patients with Class II to Class IV chronic heart failure should be eligible for this drug regardless of whether or not they were on enalapril or prior [chip]. Now we’ll see when it comes to the labeling discussions, if there are any constraints in the U.S.
and Europe, but we’re not anticipating them at this point.
Steve Scala - Cowen
Thank you.
Joe Jimenez
Okay. I’d like to thank everybody for tuning in.
And we look forward to giving you an update on our fourth quarter results at year-end. Thank you very much.
Operator
Thank you. That will conclude today’s conference call.
Thank you for participation ladies and gentlemen. You may now disconnect.