Novartis AG (NOVN) Earnings Call Transcript & Summary

Good morning and good afternoon, and welcome to the Novartis ESG Investor Event. [Operator Instructions] With that, I would like to hand over to Maria Cuevas, Investor Relations, ESG Director. Please go ahead, madam.

Good morning, good afternoon and good evening, everyone. Thank you so much for joining our Annual ESG Investor Event, and we appreciate you spending the next 1.5 hours with us. The information presented today contains forward-looking statements that involve known and unknown risks, uncertainties and other factors. These may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. For a description of some of these factors, please refer to the company's Form 20F and its most recently quarterly results on Form 6-K that respectively were filed with and furnished to the U.S. Securities Exchange and Commission. And with that, I hand over to Vas.

Thank you, Maria, and thanks, also, from my side for everyone for joining today's meeting and conference call opportunity for Novartis to share our progress over the last year on all of our ESG priorities and our ongoing goal to deliver lasting value to society. With me today, I have Klaus Moosmayer, our Chief Ethics, Risk and Compliance Officer; Karen Hale, our Chief Legal Officer; Lutz Hegemann, our Global -- our Group Head of Corporate Affairs and Global Health. Also on the line are Racey Muchilwa, our Head for Sub-Saharan Africa, joining us from South Africa; and Patrice Matchaba, our Head of U.S. Corporate Responsibility and President of our Novartis U.S. Foundation. So moving to the next slide. In this section, I'll cover a little bit about our Novartis strategy and some of the other kind of big picture priorities with respect to ESG. There are 6 key points we want to highlight over the course of our discussion in the next 90 minutes. First, we fundamentally believe that focusing on material ESG factors, our inspired, curious, and unbossed culture drives performance, drives the impact of the company. And we deeply care about patient health and safety as well as access to medicines and focus on areas that are consistent with our latest materiality analysis. Our sustainable business models and Access Principles enable us to get our medicines to patients around the world, we think, in a differentiated way from many other companies. We are on track to triple the number of patients we reach, and Lutz will tell you more about that, as well as some of these exciting milestones, such as our 1 billion courses of antimalarial treatment. Our Sub-Saharan Africa model, which Racey will tell you more about, has really shown that we can both deliver a sustainable business and also expand access to medicines. And we've also started to address some of the root causes of health inequities in the U.S. And lastly, we are relentlessly tracking and measuring our progress, and these targets are incorporated in our performance evaluation and compensation systems. So moving to the next slide. I want to first begin with a fundamental reflection about the purpose of Novartis and how that purpose is so clearly linked to our contribution to society and the value we create for the world. Our purpose is to reimagine medicine to improve and extend people's lives. We use our innovation engine to address major challenges in health care around the world, and our focus remains, as it has for nearly a century through all of our predecessor companies, to develop breakthrough treatments to find and deliver medicines to as many people as possible. Some statistics, I think, worth reflecting on, Novartis in a given year can produce as many as 70 billion doses of medicine for the world; aspires to reach 800 million patients, which we can often do with our medicines; are currently working on over 100 new medicines within our clinical trials and clinical development programs. So our base operations, the reason our 100,000 people come to work every day is already tightly linked to creating value for society and truly generating sustainable value in the long term for our shareholders. Moving to the next slide. One of the things we've been reflecting on as an organization as well is as we deliver on that stated purpose, how do we balance the various components of capital to create an integrated stakeholder value proposition. The framework you see here on the slide is from Colin Mayer's work on Prosperity, a book that I personally greatly enjoyed. And it highlighted the 6 forms of capital that we reflect on as a management team to ensure that we are building a company that can sustainably deliver value for the long term. While I won't go through each one in turn, I think it's valuable for us to think about the various sources of capital, how we manage them. And I think as you watch this presentation over the next hour, I think you'll sense that we do take each of these areas seriously and believe that in integrating them together, we create lasting stakeholder value. Now moving to the next slide. Our strategy has remained consistent over the recent years. We're a focused medicines company powered by technology leadership, commercialization and access. We think about where we want to play and want to play in areas we think we can lead in the long term, including 7 core therapeutic areas, a broad geographical footprint and advanced technology platforms. And we have these 5 priority areas that we've consistently communicated within the organization, and I think, integrate very well together to create a, I think, differentiated and sustainable value proposition. So in the next slide -- and when we think about ESG management, this has been an area of intense focus within the management team. This is something, as Karen will mention in a little bit, we take seriously from a governance perspective all the way up to the CEO and the Board. And the reason we've elevated ESG now over recent years in the company is we fundamentally believe if you manage ESG-related matters well, you can reduce risk; amplify your value, hopefully, multiply your value; and fundamentally, as a science-based medically driven organization, it's the right thing to do. We watch carefully, I think, a growing amount of research, which indicates that companies that can manage their material ESG factors over the long run, provide superior financial returns to shareholders, certainly, a complex interconnected set of factors that lead to that. We certainly believe that's the case, and that's why we've elevated it at the highest levels of the organization. Moving to the next slide. Ultimately, we hope that by thinking about this sustainably with investors that, through Novartis, who -- where we get the resources from all of you, we can ultimately have a lasting impact on the world. This quote, I think, is important, ESG funds are measured against benchmarks for financial returns; they're not measured on the impact they deliver. We, as a company, have to keep asking ourselves, are we delivering impact for the world? That's the, in a sense, social contract we have with all the countries and patients that we touch around the world. So moving to the next slide. One of the examples we are proud of, and I think is a good example of our approach to impact and practice is our sustainability-linked bond, which we launched last year. It was a first-of-its-kind approach where we embedded access targets to medicine in the core of our business operations to a bond issuance that we conducted. I can say we're well on our way. We've embedded these targets. Lutz will speak more about it, but we're on our way to reaching 200% more patients in low and middle income countries. Our global health flagship programs continue to expand. And I think this is a nice example of how we align our ESG and financing together and hopefully one of many examples we can demonstrate over time. So moving to the next slide. We've also recently created -- completed an updated materiality analysis for -- that we completed this year in 2021. And it was a very helpful exercise to hear from a broad range of stakeholders, get important feedback. And you can see here the priority areas that came out of that materiality analysis. Notably, patient health and safety and access to health care, innovation, places that we know we need to be leaders as well as ethical business practice, which Klaus will talk more about. But then importantly, areas that touch, I think, a broad range of companies, human capital, governance, financial performance and environmental sustainability. We've set clear targets in the areas that we've mentioned here. You can see them here on the right side of the slide. Just to highlight a few of them. We are now consistently ensuring that 100% of our launches have global access strategies on approval. We're investing $100 million to advance R&D for next-generation anti-malarials. We had a release just today, which you'll hear more about over the course of this presentation, of a novel antimalarial that we've discovered and are now bringing forward into late-stage clinical trials. We have a goal of net 0 by 2040 in terms of our carbon footprint in plastic and water neutrality by 2030. And I'll be speaking a bit more about that in a moment as well. So taken together, we take the materiality analysis, translate that into focus areas for the company. We have consistent targets for the long run, also consistent targets that we are transparent about on an annual basis and then create an accountability environment within Novartis. So moving to the next slide. When you look at our ESG progress, I think we're making good progress across all of our key areas. And you can see this in our Novartis in Society Report. We, again, transparently put out these targets and how we progress against them. We've -- some of the areas I've not mentioned so far, our gender pay gap is now at 3.3% versus 21% for the benchmark. And we're on our way to getting equal representation in management at 45%, though the goal remains 50%, and we have more to go. We ranked #2 in the Access to Medicines Index. We're working hard on diversity in clinical trials, and Patrice will tell you more about that as well. I think these are just symbols of many things that are going on across the company to demonstrate that we're committed to delivering against the targets we set out from an ESG perspective. Now moving to the next slide, and I think the last slide for my section. I also wanted to note that as we've continued to focus on this, we've seen improvements in our ratings and various scores from the rating -- relevant rating agencies. We don't do it because of the ratings. We do it because we believe it's the right thing for the business, the right thing for our impact, the right thing to do. Nonetheless, I think it's worthwhile for us, as a company, to keep asking ourselves how do we stack up against our peer set. And you can see a number of the relevant metrics. We're #1 in the -- our industry or #1 across industries or trending up versus where we've been in the past. And there are areas where we are not doing well. We look at these, honestly, ask ourselves how we can do better and put in concrete plans to improve. Overall, our aspiration remains not only to be a leader in ESG within the biopharmaceutical industry or the health care industry. The aspiration remains to be a leader across industries, and that's what we'll be continuing to work towards over the years ahead. So with that, I will hand over the presentation to Lutz Hegemann, leading our global -- Group Head of Corporate Affairs and Global Health. Lutz?

Yes. Thank you very much, Vas. Good morning, good afternoon to all who are listening. Let me move to the next slide, where Vas, you had highlighted the focus that we have on access and innovation. And while this came out in our most recent materiality analysis, it has confirmed the path that we have been taking for the last decade almost. But why does it matter? If we look at the world around us, then there is about 2 billion fellow citizenships -- citizens who do not get access to the medicines they need. And there is several hundred millions that experience financial hardship through the fact that they need to pay for their medicines. And the current pandemic has really exacerbated, I would say, the need, not only as it existed in low and middle-income countries, but also in high-income countries. We see, in the space of noncommunicable diseases, very varying quality of care based on what we call the determinants of health, ethnicity, socioeconomic factors. And we see different health outcomes depending on ethnicity, depending on country and socioeconomic strata. But also, we have seen now in the COVID-19 pandemic, for instance, that 40% more black people have died from COVID versus white people. And that, to me, is, really, a wake-up call that indicates that underserved patients exist everywhere and not only in low- and middle-income countries. And as Vas had mentioned and Patrice will explain in greater detail, we have started a very comprehensive program to go beyond some of those metrics and really look into the underlying root causes and how we can contribute to correct some of those decades- or even century-old inequalities. And then, of course, in the low- and middle-income countries, as we all know, the countries are struggling with the dual burden of rising noncommunicable diseases while still fighting communicable diseases, where I would argue we have an unfinished agenda. And as you know, a number of our dedicated efforts, what we call the flagship programs, are specifically targeting those challenges and opportunities. Next slide. This is a reminder that shows us that we've been on a journey, for at least the last 20 years, to address innovation and access to innovation. And like many companies in the early 2000s, we started with philanthropy. And over the years, we have integrated this more and more into our core business. And we have been piloting and experimenting with sustainable business models. Vas had mentioned our long-standing commitment in malaria, and we'll get into it a little deeper, but an area that we have been very actively working on for the last 20 years. We crossed a very significant milestone earlier this year by having delivered 1 billion treatments essentially at no profit to the world to fight this global health priority. And later, we'll be diving in a bit more into the Novartis Access Principles that, I'm sure many of you are familiar, we launched in 2017. Racey Muchilwa will be talking about our new business model in Sub-Saharan Africa. The bond was already mentioned and then, really, a highlight this year, and Patrice will go into it, is the co-creation of solutions to address health inequity in the United States. The key point I want to make here is that we are not looking at global health or ESG somewhere in a corporate office totally divorced from our core business, but that we are, very seriously and in earnest, finding ways to integrate ESG into everything that we do and really bringing this to the very heart of the company. Next slide. Can I have the next slide, please. Thank you. The Novartis Access Principles really guide, as a framework, our approach in this space. As you have heard earlier, our commitment is to have 100% of our launches with a global access strategy defined prior to launch. And in the access principles, we have 3 distinct but very closely connected areas that we are working on. First and foremost, research and development, where our portfolio addresses unmet needs, but also takes the specific needs of resource-poor settings and underserved populations into account very early on. Whether that is adaptive development where we consider how can we make our innovation fit for purpose in resource-poor settings or the significant steps that we are taking towards trial diversity strategy, initially focusing on the U.S., but with the ultimate goal that our clinical trial populations are representative of the patients who would eventually benefit from those innovations. In the space of affordability, for quite some time, we've been working with emerging market brands, and I'll give you an update in a minute. Our new business model in Sub-Saharan Africa and our tiered pricing framework help overcome that affordability stance in the way of access. But what we have learned now, and we have many cases that indicate that even if you lower the price all to the way that you essentially donate medicine, it doesn't mean that you're having impact. And this very often is linked to intrinsic weaknesses of health care systems. And here, we, earlier this year, developed a One Novartis Health System Strengthening framework that's being deployed in all our divisions, whether it is oncology, innovative medicines in pharma or in tenders and also, of course, in our global health programs, but also the new mandate of the Novartis U.S. Foundation to make disparities of care a priority for their programmatic approaches. The next slide, please. Now let me take one example, and I'm sure you're all familiar with Leqvio and the approach that we are taking here and, particularly, the significant impact that cardiovascular disease has on mortality. And it's really, as we all know, the largest cause of mortality, not only in high-income countries but, to a large extent also, in low- and middle-income countries. I'm very happy to say that Leqvio, we received approval in Ghana the same week as we received it in Switzerland, which speaks to our desire to bring innovation as quickly as possible to large parts of the world and avoid, historically, this lag time that we had from innovation entering in different parts of the world. For Leqvio also, we have a fairly comprehensive approach to pricing, tiered pricing, emerging market brands, 14 launches within 18 months of the first European Union launch, further registrations being expected. And then the recent example that we have with the National Health Service of England, to try a population health approach here, which essentially would give access to an entire population in a country that is eligible at the same time rather than essentially convincing physician after physician that this is a good intervention for the patients that they are taking care of. And we are committed to working with other health systems to find similar opportunities in other countries, both high-income and low- and middle-income countries. We can move to the next slide. Then this is the overview across the entire portfolio how we are using emerging market brands. And just to reemphasize a few of the messages that I shared with Leqvio, you first see that we do have an emerging market brand strategy for all our major brands. You also see that the launch lag time is being greatly reduced across the portfolio. It's not always entirely in our control but, of course, also depends on approval time lines by health authorities. But our desire is to bring the innovation to as many countries across the globe, irrespective of their financial status as quickly as we can. And Entresto here is a good case in point, that we are seeing now almost half of all the Entresto patient reach coming from low- and middle-income countries. And we see also that sales is nicely following through, so that the focus that we have for low- and middle-income countries is not in conflict of us driving financial performance. It's rather the contrary. And Racey Muchilwa will show this in a very impressive way from the African continent as well. And typically, what we see is that the sales that we get in the low- and middle-income countries are accretive to the sales from the high-income countries, simply because medicines are available here and can create the impact for patients, but also can drive financial performance. We can move to the next slide. Then with that, let me pivot into some of the global health challenges that I'm sure you are familiar that Novartis is engaged in here. Malaria, as I've mentioned, 2 decades of commitment and continuous commitment to invest in research development, but also programmatic implementation so that we, hopefully, in the foreseeable future, I will say, not only control, but also elimination and eradication of malaria. And as Vas had mentioned, we just issued a press release last night on an entirely new combination of medicines. Ganaplacide, a novel medicine with a novel mechanism of action, partnered with lumefantrine, that is a component of our current antimalarial, and it has met its study objective in a Phase IIb study that was -- that included children. And of course, children, as we know, are the population that is at highest risk of contracting malaria and dying of malaria. So a very significant step here. And in fact, it is the first novel chemical entity that enters the malaria space in the last 20 years. In sickle cell disease, we are making great progress here, partnering with health systems across Sub-Saharan Africa to help attenuate and eventually cure this devastating genetic disease. You may be aware, we launched a collaboration with the Bill & Melinda Gates Foundation to reimagine the way how we deliver gene therapy so that it could be applicable to low- and middle-income countries. But then, of course, other health priorities are antimicrobial resistance and as we all experience these days, of course, the COVID-19 pandemic. Before I go there with a quick update, let me also highlight that increasingly so, we are using digital technologies in global health, where, as you know, in low-income countries, we often have a scarcity of reliable data to drive programmatic decision-making. And we entered a collaboration with Hewlett Packard Enterprise to address this and to look at opportunities in the digital space to make our interventions even more targeted and more impactful. The next slide. Now on the theme of COVID-19, we are very happy to have partnered with a Swiss biotech company called Molecular Partners, who have a very new technology called DARPins, which you would have to imagine as a fragment of an antibody that essentially does something very similar to an antibody but, I would argue, in a slightly smarter way. And we have a lead DARPin, currently, in clinical development, together with Molecular Partners. We are -- we expect to see a high potency against SARS-CoV-2, the virus that causes COVID-19. But there are a few other technical upsides that this modality has. So far, in preclinical work, we have seen a remarkable -- remarkably, ability to uphold the potency against all the new variants of concern. And through a different technology, not using mammalian cells, but using fermentation processes, we can also establish a second manufacturing line that doesn't compete with the existing manufacturing lines and would hopefully lead to high volume. And that would, of course, be important to address, particularly those countries that are currently lagging behind in their vaccination efforts and their accessibility to vaccines. So I would invite you to watch this space, very exciting opportunity here and a very unique approach that we are following, that would complement all the other interventions, including vaccines and therapeutics that we currently see in COVID-19. The next slide brings us to antimicrobial resistance, which I believe is a good case in point to see the interconnectedness of the ES&G topics. As you are aware, through our generics division, Sandoz, we are the largest global supplier of antibiotics worldwide. And of course, through the global health efforts, we care about access and community-based health care capabilities. And while those elements existed in the past, we have now come together to really connect the dots and to make this a more impactful program that focuses on responsible manufacturing in Kundl where we are the last, I would say, antibiotic manufacturer in the Western world. We work with partners to address opportunities in advocacy and surveillance, health care professional, patient education. We are partnering with the Commonwealth Association of Pharmacists to address the point of sales or the point of distribution at the pharmacy level, make sure that antibiotics are used as intended and according to all the recommendations that come with responsible antibiotic use. But there's also an excess opportunity that we have, that in many parts of the world, the appropriate antibiotics aren't even available to the patients who needs them. So we are working here on pediatric-specific formulations, bringing our antibiotics to more countries and making sure that we have a portfolio that is allowing a tailored antimicrobial resistance response. And we believe that with those efforts and really doubling down on those, we can delay the emergence of new resistance that where, of course, the current use of antibiotics could be a driving force. And then last but not least, we have joined the Antimicrobial Resistance Action Fund with a very significant investment to enable biotech companies to design the next generation of new antibiotics, which is not going to be a silver bullet. Eventually, we'll see resistance against those as well. But it's a very elegant way and a very needed way to buy us additional time to safeguard the medical advancements that we have made in recent history. The next slide, apologies, that's also my closing slide, really is an area that makes me very proud. And where I believe we also distinguish ourselves from other pharmaceutical companies. And that's the breadth and the depth of our R&D pipeline that is specifically targeting diseases of poverty through our Novartis Institute of Tropical Diseases in Emeryville under the leadership of a very accomplished scientist, Thierry Diagana. And you see here the breadth and depth in areas of malaria that we had mentioned earlier, but also other emerging health threats like Chagas disease; dengue fever, which certainly is on the rise, last but not least, as a consequence of global warming; cryptosporidiosis and many other conditions. But it also shows our long-standing commitment to this space. Though eventually, we hope that many of those drug candidates will reach the clinic and we'll see them through all the way to the benefit for patients. I'll stop here. And it's a great pleasure now to hand it over to 2 esteemed colleague of mine, Racey Muchilwa, who leads in my organization all our efforts in Sub-Saharan Africa; and friend and colleague and many of you know, Patrice Matchaba, who was my predecessor in role and is now focusing on the U.S. efforts. So with that, let me hand it over to you, Racey.

Thank you so much, Lutz, and good day to everyone on the call. In the next few minutes, I will take you through the plan mandate and how we are leveraging on partnerships and innovation to treat as many patients as we can. Probably before I go to the content of the slide on the screen, I would like to paint a clear picture of Sub-Saharan Africa for greater context and why we see partnerships as something that has worked very well for us. Sub-Saharan Africa is home to over 1 billion people and 25% of the disease global burden resides in this region. Additionally, you see that 3% -- it accounts for roughly 3% of the world's health workers, with roughly 1 doctor to 10,000 patients in some cases. And especially when it comes to specialists, we find that even being less than that. Whereas the recommended doctor/patient ratio should be roughly 1 to -- 1 doctor to 1,000 patients. So the way -- why I thought it would be great to paint this picture is so that not to see the dire state that we're in, but also -- to also provide the opportunities that we have to collectively come up with sustainable solutions, levering the power of partnership and innovation, which is essential for us to be able to deliver sustainably across the full-income pyramid. So if you could just shift or focus on the slide on the screen. Our business model is pivoting from margin to patient reach, thus driving and sustainably delivering access across the full income pyramid. And with this, we're operating at scale through a single Novartis organization. What does this mean? We have combined all the 3 divisions. So we are talking about Sandoz, we are talking about pharma, we're talking about oncology into 1 single Novartis organization, building on the -- leveraging and building on the strengths and capabilities across all these divisions for us to be able to deliver this mandate of reaching as many patients as possible. From this, what you can see also is apart from the other operational stuff that we are working on to improve operational excellence internally, externally what is seen is that we've had some very high-impact partnerships with key private sector stakeholders all coming to accelerate -- help us accelerate access to medicine. I'll just name but a few. One that was announced last year and is progressing very well is the Clinton Health Access Initiative. This initiative actually works more towards expanding access to oncology patients and this is across the 6 countries -- the 46 countries they're managing currently, but also with a potential of doing more. And this is across the big cancers that we talk about. So we can talk about breast cancer, prostate cancer, cervical cancer. These are the areas we are talking about. And we've been able to reach quite a number of patients on the ground. And this has also contributed towards reaching more patients within the public sector, with an improvement of over 20% within that sector. Also one of the partnerships I need to mention, which is also quite big, is what we call Afya Dumu, which is concentrating more on screening and diagnosis of diabetes and hypertensive patients. We've seen that, as much as Lutz has alluded to that, that you can have donations coming in, but sometimes you compare the impact, it's not as big because then, if the health care providers are not well positioned to be able to give clinical advice and clinical care to these patients, then this costs a lot. What does that mean then? We need to ensure that from all the process from screening, diagnosis all the way, how can we look into that whole patient journey and see where we come in to support the patient to ensure then they are reaching, they have access to the medicines to start with, but also to the right -- the right diagnosis, if we want to look at it that way. So one of the things that we do is also partnering very well with academia to build capacity and capabilities. And I'll give a very big -- a good example that we've seen work very well. In one of the markets within Sub-Saharan Africa, to be precise, Kenya, you'd find that we had only 20 sonographers across the country. And we decided to come and partner with the leading university within Kenya to see how do we build capacity and capabilities of this health care provider, so that then, from screening and diagnosis, they're able to screen the cardiovascular diseases much easily and also the hypertensive patient, considering 1 in every 4 patients also within Kenya is likely to have a cardiovascular issue. So this is something that we've seen working very well. And up to now, we have over 170 sonographers within the country who are able to reach up to the upcountry, the community villages. And this is what we're looking at in terms of building capacity and capabilities. Last but not least is also the sickle cell partnership, where we have hydroxyurea now prioritized under the health care policy. This means being able to partner, not only with the private organizations, but with the public organizations, including the government. And with this, just this change and shift in business approach, we've seen very strong results. In the first half of the year, we saw 29% growth over previous year in terms of our patient reach numbers. And also net sales is at 22% growth. So what this demonstrates is you can actually drive a business purpose -- a business with a purpose and still remain sustainable. And this is what we've been able to demonstrate very well within our business in Sub-Saharan Africa. Over to you, Patrice.

So thanks, Racey and thanks, Lutz and then Vas. And then thank you all and good morning, good afternoon, good evening. And COVID has made it obvious, and a lot of you, when we engaged last year ,were asking what are we going to do to address the issue of health equity, diversity and inclusion and the impact on black and brown communities. And what we'll show you, we put the most comprehensive partnership, taking our learnings, as Lutz articulated and Racey, from the emerging markets and brand strategies, integration of technology, bringing in multiple partners. And you will see that it is not only comprehensive, but there's an innovation component, there's a talent component, there's a data component and there's a technology component. And as Vas articulated, again, we did the process of materiality analysis. And this time, under Tom's leadership in the U.S., we had a substantial cohort of respondents. And thank you for some of you who responded to our materiality analysis. And again, as Vas articulated, we need and we can do a better job in regards to innovation, health access, health equity, diversity and inclusion in terms of the communities of color. And we know that they have suffered the most because of COVID and it comes at a huge economic cost to the country. Now our strategy then was we need to integrate these findings into our core ESG strategy in the U.S. across the ESGs. And there's complete alignment across the U.S. -- divisions in the U.S. to do so, and we look forward to talking and giving you more details as we progress before I discuss about the actual partnership itself. And in keeping with our purpose, as Vas articulated, we're going to use science, technology and our partnerships to integrate diversity and inclusion throughout our R&D and e-ecosystem. So for example, we've already had an extensive discussion with Jay in NIBR to say, do we have the right portfolio, discovery and development in translational medicine to address high-impact diseases in communities of color. And the answer is yes. You know our work in heart failure, our work in sickle cell, some work that's coming in with myeloma in breast cancer. We just released a program around that. And then into that, ask the question, how do we develop more investigators, first female investigators of color, Hispanic, African-American and indigenous American? Then we can talk about the numbers -- of increasing the number of patients to reflect the fabric of the racial diversity in the U.S. So that's ongoing and I'll talk about some of the technology partners and the innovations that have come out of that. So in summary, we have talked to the President of Morehouse and all the 4 historically black medical schools are part of this partnership to develop centers of excellence for clinical trials to allow research fellows over 10 years to have the capability to do clinical trials that are GCP-compliant of high standards. We've also developed a partnership with 23 other nonmedical HPC use because we want to integrate all capabilities, including technology, the ability to integrate market insight and so on throughout the breadth of careers. And partnered with the Thurgood Marshall College Fund to provide scholarships, internships and mentorships that will impact and empower close to 1,200 young people from black and brown communities so that they can be integrated into our research and development ecosystem. Now with -- this partnership is going to be open to all other pharma companies and biotechnology companies, but it's not about Novartis. It's about us doing the right thing and integrating research and development and rebuilding the trust in the health care system in that population. Now just 2 days ago, you are aware that we announced the partnership with the University of Philadelphia, again trying to address the health equity issue from a population design issue, again coming -- using our experience from Better Hearts Better Cities and the work we've been doing with Lutz and Racey throughout the world, in South America, in Sao Paulo, in Dhaka and in Vietnam. So this is the way we are going to structure it. And we are going to add and weigh discussion with all the major technology companies because they have data and are willing to participate in this partnership. They have data to the ZIP code in the U.S. by ZIP code in terms of health equity and impact of the different diseases. Now from our side, we have already implemented, this year, that 100% of our Phase III programs in the U.S. must integrate diversity and inclusion into their design. And then because of COVID and Vas and [ Patrice ] and John Tsai have mentioned extensively the technology component of our Sense database. The teams have developed a technology now when you design a clinical trial, it automatically populates by ZIP code and by state and by country the percentage ratio numbers that you need in the clinical trial. And depending on the disease burden in certain diseases, if you need a higher representation, for example, of Hispanics or indigenous Americans, that is automatically populated into the clinical trial and the clinical development plan. The second tool which they have developed and we needed to showcase in future events is that at real time, a clinical trial leader, whether they are in Sao Paulo or they're in Dhaka or they're in Cape Town or they're in New York, as they recruit a patient into a trial, the database is updated automatically to say you have the right distribution in terms of racial distribution and ethnic distribution. So that we don't get to a point where at the end of the clinical trial and we've closed the database, we don't have the right number of patients by race and ethnic diversity. Now just as a closing statement. We will be communicating with you and updating this and publishing this in the Novartis in Society Report, just as we've done before in terms of progress, in terms of the number of investigators, the number of trials that have been published there. Just to point out 2 last things. One is that we've introduced a component of innovation and that's related to a center of excellence and looking at data that is used, that users rate for diagnosis, prognosis, imputation, telemedicines and algorithms. You all heard about the discussion around pulse oximeters that were overestimating the oxygen saturation of COVID patients who are black and brown because they had not standardized the data using black and brown patients. And there is a recent publication from the New England Journal of Medicine that has gone through over 13 disease areas, including breast cancer, heart failure, to various sections, where the implication of race is to the detriment of black and brown communities. So we will create a center and support that for 10 years, working with other Ivy League universities and this technology to readdress that component. We've also allocated 10 scholarships payer to the nonmedical faculty of HBCUs to publish -- do research that relates to health equity. So we expect at least 100 publications to come out of this to fundamentally transform the health equity and diversity and inclusion. Lastly, I want to say this. Doing good, as Racey and Vas and Lutz have shown is the right thing to do, but also importantly, we've just seen the U.S. census data. By 2045, the mixed race population will be the majority population in the U.S. So us doing this now and equipping them and integrating them into our R&D system is the right thing to do and the right thing also for the company and the industry to do to rebuild trust. And with that, I'll pass it on to Klaus, my good friend.

Thank you very much, Racey and Patrice. We could feel your passion from Africa and U.S. to Basel. That's very, very impressive. Yes, we can go to the next slide directly. You heard Vas talking about the importance of ethical business practices from the point of our associates and also, from all the stakeholders. That's beyond compliance. Compliance is important. It's part of our management system, but it's a broader scope we have started 3 years ago at Novartis. 3 distinct pillars: ethics, enterprise risk management and compliance. If I start with ethics, it also, of course, comprises a very important topic, which I know is all close to your heart. This is a human rights topic. It's very close to culture [ and ] impact. And it's very innovative because it also goes into areas which are not regulated. For example, artificial intelligence. We just issued, a couple of weeks ago, the first position paper as a pharmaceutical company on the responsible and ethical use of artificial intelligence. If you do it right, ethics gives us the right boundaries for an integrated risk and crisis management. And crisis management, you all know what this means in the pandemic, taking care of our nearly 800 million patients around the globe. So risk management is most -- is more than a pure risk workshop. It's a holistic system which comprises assessment of risks, but also the right link to enterprise policies and controls. And I will talk about this, because it's important for you to notice, third-party risk management. Compliance, of course, has, as a basis, a sound and effective compliance management system, which is based on data and digital. It also has an important element in the SpeakUp culture and the SpeakUp office, which is our investigative office, the whistleblower office. Because a good company will always see a singular individual misconduct. This is part of society. But a good company is acting on it, seeing it early and investigating it thoroughly. And that's the last point, continuous improvement. Centralized monitoring and remediation, that means acting on the shortcomings we see over time, is part of a good and forward-looking compliance system. If I focus a little bit on our ethical journey on the next slide. So we launched -- and go to the next slide, please, last year, our new code of ethics, and we did it differently than others. And as we did in the past, we said we want to co-create this with our associates. So we literally used the voice of several thousands of our associates around the globe to talk about their ethical principles, their ethical commitments and the way how the people want to see their daily dilemmas reflected in our Code of Ethics. It's also more than a code. It is a code, its commitments, but we built, around the code, a support platform for our associates where we offer, based on artificial intelligence, a decision explorer. Not a solution machine for associates, but a decision explorer which helps our associates in difficult situation to reflect on their own ethical biases, to get support from the ethics, risk and compliance organization, to solve their concrete specific dilemma they're in. And now there are a lot of questions at ESG and you're asking this all the time, how do you measure success on ethics? Well, we give you a little bit of numbers here. The training numbers, 99% training. But maybe more important, we measure how many of our associates, how often do they visit the Code of Ethics platform? This is a living platform. This is meaningful for our associates in their daily life. And you see that we had more than 100,000 visits to the Code of Ethics platform. We are nearing the 200,000 visits on the decision explorer and have a very good feedback there. If we do it right, as I said at the beginning, this gives us the right boundary for enterprise risk management. If you go to our next slide. And also this is in a comprehensive integrated standard. It's based on a common methodology of our risk assessment. But it's then linked to our global policies, guidelines and standards. And we link it to our new centralized internal control system, because we believe that clear accountability and improved governance will help us to stay on track. I already mentioned the topic of third-party risk management. If you go to the next slide, this is also a topic in the call with investors. And it's not an easy task. We have 10,000 of suppliers around the globe. How do we address them in a consistent and integrated way? So we have developed our third-party risk management platform as an integrated platform. We [ covered only ] antibribery risks, we cover cybersecurity risks, labor rights risks, animal welfare risks, health safety environment risks, data privacy and trade sanction risks, because we believe it's important to have an early due diligence, an early dialogue with our third parties, our suppliers, our distributors how do we want to drive together our business and together also our ESG aspiration? Because again, here, it comes all together, if we want to progress in our environmental goals, if we want to progress in our diversity and inclusion goals, if we want to progress on our ethical goals, we need to work together with our third parties. In closing, I want to quickly touch on a topic which is also important for all of you. You all know that last year we could settle most of our legacy compliance case. That's an important task for management. We informed you and we announced already in March last year, the settlement with a criminal division in the DOJ, U.S. DOJ antitrust division. And already last year, we disclosed that we are in talks with the civil division of the DOJ antitrust administration to also settle and solve their claims, which are the same claims as we settled with the criminal division. And as transparency is important with investors at ESG, just to give you out of interest, the heads-up that we anticipate finalizing also the civil part of the Sandoz antitrust topic in due time. And having said this, I hand over to my colleague, Karen.

Thank you, Klaus, I appreciate it, and good day to everyone on the call. Next slide, please. As Vas has indicated, governance and transparency are key priorities for Novartis, and it actually starts at the top with our Board of Directors. Specifically, our Governance, Nomination & Corporate Responsibility Committee is charged with the oversight of the strategy and governance of our public health initiatives, our corporate responsibilities and other ESG-related initiatives. In 2021, the committee extended its oversight, including reviewing our progress against our environmental sustainability strategy, further enhancing our governance as well as reviewing our 2021 materiality assessment. Responsibility for our governance is not only with the Board, but it also resides at the level of the ECN. Specifically, we have our Trust and Reputation Committee, which is chaired by our CEO, Vas. And it's a subcommittee of the ECN that is responsible for overseeing the progress of our ESG initiatives as well as accelerating decision-making in key areas. In 2021, the Trust and Reputation Committee has met 4 times already. Topics of discussion include reviewing our progress against our environmental sustainability strategy, ESG reporting and also reviewing our 2021 materiality assessment. In 2020, we further enhanced our governance by creating our Chief Sustainability Officer role, which reports to a member of the ECN. The Chief Sustainability Officer is responsible for the strategy and execution of environmental sustainability across Novartis. In addition, we created the ESG management office. And the ESG management office is responsible for working with subject matter experts in the business functions and countries to help implement our ESG strategy and for the key ESG initiatives. Just this year, we created our ESG Council. The ESG Council is comprised of senior leaders across Novartis who report into the ECN. Specifically, the members are unit leads, subject matter leads with respect to specific ESG topics as well as several corporate functions. The ESG Council is charged with identifying relevant topics and making recommendations to the Trust and Reputation Committee with co-creating cross-functional ESG strategies and also ensuring that our ESG activities are integrated into our operations. Not only is governance important, we are also focused on transparency. In 2020, Novartis had its first TCFD disclosure and its first SASB index aligned disclosure contained in the Novartis in Society Report. In addition, Novartis comprised an index of ESG-related disclosures that they posted on novartis.com. In 2021, we will be moving to an integrated report that will be published in February of 2022. Specifically, we will be integrating or merging the Novartis in Society Report and our annual review. The consolidated report will focus on describing our strategy, our business, our performance as well as our governance. It is designed to communicate and to demonstrate the long-term value that Novartis brings, not only to our shareholders, but also to society. Last but not least, this merged report will appear in February of 2022, along with our 2 regulatory filings and our year-end results. With that, I'll return the program to Vas.

Thank you, Karen. So just in closing, I have a few more areas I'd like to cover with all of you, human capital, environmental sustainability and our longer-term ambitions. So you can see an image with our partnership with Zipline in Ghana, an organization using drones to deliver medicines and support clinical trials, one, I think, example of many great partners that we've been able to work with on our ESG journey. Now going to the next slide, and I wanted to say a word on our cultural transformation. 3.5 years ago, we set out to transform Novartis' culture to what we called an inspired, curious and unbossed organization, building on extensive research, which shows that organizations that have a strong sense of purpose, whose people have a strong sense of autonomy and whose people also have a growth mindset, the ability to learn and improve leads to better long-term innovation, better long-term performance, data sets that have been consistent over many decades. And we work to deploy this knowledge and know-how through a very comprehensive approach to cultural transformation, leadership transformation, really touching almost every element of the employee experience at the company. We use a rigorous approach to measuring our progress on this front using an analytical tool called Glint. We consistently measure this on a quarterly basis, compare ourselves to external benchmarks. And as you can see, from an engagement standpoint, we've seen a significant improvement from our initial baseline and ahead of the benchmarks that are available. But -- still, work to do, and we're going to continue to work to be leading across all sectors on the level of engagement. From a growth and learning standpoint as well, through our various efforts and a broad range of initiatives, we've, I think, assumed a leadership role in how we enable learning at our company, similarly with collaboration. And we have a very extensive leadership development program, which we call the unbossed leadership experience, which endeavors to reach 10,000 managers around the company. What that's led to is a consistent improvement on the experience of empowerment. But also importantly, now up to an 84 rating for manager recommendations at the company, which is 7 points above an industry-wide benchmark. As I like to say to our organization, if we can get leaders to grow, we can get teams to grow. And if we can get those 2 areas to grow, the company will grow along with it. So moving to the next slide. Some other dimensions on our progress on human capital that we wanted to highlight. I've already mentioned the gender pay gap and how we are committed to closing it fully by 2023. And we're working now on pay transparency and pay equity in most of our key markets. Gender balance in management, I also covered it earlier, but we are now included, once again, in the Bloomberg Gender Equality Index, and we work very hard to ensure that we have a diverse candidate panels and diverse slates. And we also have gender-neutral parental leave, which has really been a globally recognized leadership position we took by being one of the early actors in providing broad parental leave. From a supply chain standpoint, we continue to embed D&I principles in all of our third-party risk management efforts, and we're going to -- our goal by 2023, to have this fully embedded. And lastly, with respect to racial equity, an area we need to do better on, we acknowledge it and we're working on it. But you can see some of the actions that we're taking in terms of diverse slates and focusing on better ethnic representation in our U.S. organization. Now moving to the next slide. I wanted to turn for a moment in the environment. Novartis had previously stated and are committed to getting to carbon-neutral and net 0 in our scope 1 and 2 operations. So to be clear, we believe we can achieve net 0 in our scope 1 and 2 operations and carbon waste and water neutrality in the operations that we control. Scope 3, as you all well know, is a bigger challenge and one that we're very aggressively focused on. We're committed to being carbon-neutral in scope 3 as well by 2030 and net 0 by 2040, but of course, have an aspiration to minimize the use of offsets and try to bring forward our ability to be net 0 as we work through detailed plans with our third parties. We know there are about 1,000 third-parties, in particular, that we will need to focus on. And now we're doing the systematic work to ensure that we get to the goals that we set out here and hopefully, again, can overdeliver against them. Now some of the specific initiatives we have include driving efficiency with the electrification of thermal energy loads in our supply chain. We're consolidating our supply chain to a more limited set of suppliers. We're 100% renewable energy for the EU and U.S. with 6 virtual power purchase agreements and 7 solar and wind projects in Europe and the U.S. as well. So a lot of effort going on here, but still a lot of work to do. Now moving to the next slide. One thing that we are looking at more systematically and is high in our mind is we know that global biodiversity and the ability to protect the climate -- planet from climate change is fundamental to human health. We know that as the climate changes, we increase the risks of many forms of human health challenges, whether that's tropical diseases, whether that's because of air pollution, respiratory, cardiovascular and renal complications. So we're working very hard to understand the impact of climate change on health. I'd also note that Novartis has one of the largest libraries of naturally occurring compounds. We know nature has consistently been a source of breakthrough medicines. And so losing biodiversity will surely have an impact in the future of our ability to find such medicines. So it's an area where we know it's the right thing to do. We want to, of course, have an impact, but also from our business of improving human health and finding new medicines is also fundamental. Now moving to the next slide and in closing, we're on track to meet our ESG aspirations in each of the areas we've outlined. We have long-term goals, short-term goals you can find in the various reports that we published. I won't go through all of them here -- all of them now, but you can see here, very clearly, the goals that we have. And then moving to the next slide. I think we want to come back to where we started. It is our deep belief that companies that focus on material ESG factors have better financial performance. And Novartis, with our clear purpose of reimagining medicine to improve human health around the world, our core purpose ensures that a fundamentally powerful ESG impact is embedded in everything that we do at this company as we continue to work to generate 70 billion doses in medicine and reach 800 million patients. Now as a final note on the last slide, I think it's worthwhile as we've gone through so much data, so much information, is a very human element of the work that we do. I think a great mentor of mine, Bill Foege, one of the leaders of small pox eradication, said you have to work on the numbers but remember the faces. And I think we, as a leadership team, really believe that in the end, it's the faces that matter. It's the impact we have on individual human beings around the world that's the ultimate legacy we leave as a company. We're quite committed to that. We'll keep working on it. We appreciate your interest and look forward to taking your questions. So thank you all very much. And with that, operator, we can open the line for any questions in the audience.

[Operator Instructions] We are taking a question from Charles Pitman at Redburn.

Can you hear me okay?

Yes, we can.

Yes. I was just wondering if you could touch on the targets you have in place for improving your suppliers' commitments to renewable energy as you yourselves work towards your kind of longer-term 2025, 2030 targets.

Yes. So thanks for the question, Charles. We are currently working with our procurement organization to go through the 1,000 suppliers which I mentioned and putting in clear goals that are consistent with our own goals, so namely that they would also need to be able to achieve net 0 or carbon neutrality in their operations. So we're in the process, right now, of updating all of those agreements to ensure they're in place. And then asking ourselves the question, which suppliers are going to be able to meet those goals and which suppliers we have to maybe move away from if they aren't able to meet those goals. Alongside that, we're also reflecting on what additional investments we may need to make to enable or allow some of these suppliers to be able to reach these standards, which is also something we accept we may be part of the equation. I don't think we have a full assessment yet of what that investment would be, but it's also, I think, on our mind. Lutz, anything else to add?

No, I think that sums it up well.

Thank you for the question.

Yes, we are taking our next question from the line of [ Paulina Korshunova ] at [ EOS Federated ].

And thank you for this detailed presentation on your ESG strategy and for all the efforts you are making to take a leading, holistic and integrated approach. Much appreciated. I wanted to ask about AMR. So you explained your strategy to delay the apparition of antimicrobial resistance. But I wonder to what extent is AMR integrated into enterprise risk management and long-term business planning. I don't mean just for your entire antibiotics portfolio, but for the entire business. That's my first question. If you could explain maybe on -- so if you are making -- so because your strategy talks about advocacy, but mostly for responsible use of antibiotics. And I wonder if you could expand on how much you engage with third-parties such as public health authorities or insurance companies to create new mechanism, new incentive mechanisms.

Yes. Thank you for the question. On the first part, on the enterprise risk management, Klaus?

I can give it a start and hand over to Lutz, maybe, for the outreach. It's a great question. And interestingly, all what Lutz has shown you on the efforts on AMR, also, I mean, originated from a strategic risk discussion. What is, from a risk perspective, from the company, from a reputation, from a risk -- for the global health population. And this came also up in our holistic risk workshops with the global health division also and the company. And we said, look, I mean, the one thing is on the research development. There must be other areas as we are a leader in AMR globally and the one remaining European producer. This has an impact, of course, on our brand and our reputation. There, we took it from there. So I think it's a good proof that the risk management is close to our reputational and business question, and you took it up, Lutz, with your team and you made a strategy and implementation plan out of it, right?

Yes, I think it's a fair point that you are making, Klaus. And I would potentially even go a step beyond. I think we all understand that if antimicrobial resistance spread to levels that would really have a significant impact on the core medical interventions, that essentially, surgeries couldn't be conducted anymore, that transplant would be very, very challenging. I mean that would essentially take us back many, many years in the way how we are advancing medical care and offset the advancements that we have made in recent years. So I think we need to look at it, really, from a holistic perspective and see what can we do now in order to protect the progress that we have made in treatment of diseases over so many years. And that's why it's really a burning platform to act here. But as you rightfully said, I mean, there's only so much that we can do as an individual company here. And that's why we are reaching out wherever we can find partners who share our vision and bring complementary skills and approaches to bear to join us in this fight. I think we have to be clear what is it that we can control. And I mentioned the responsible manufacturing, where we've made significant investments. Because you may be aware that antibiotic manufacturing is, for lack of a better term, a bit of a dirty process. And we have invested very significantly with Richard Saynor, our CEO of Sandoz in our manufacturing capabilities to make sure that there is no contamination, no damage being done to the environment. And then it's really the advocacy educational part. And then last but not least, the investment in the discovery of new antimicrobials, where we believe that we need to sort of -- we come to a better outcome if we sort of spread and enable many different and diverse teams to look into these opportunities rather than doing it with one dedicated team in-house. And that's why we are excited about the antimicrobial resistance action funds that we invest in. I hope that's addressed your question. But with regards to partnership, definitely, yes, looking into partnerships across sector and would be very open, of course, also, to any ideas that maybe other sector players may have.

Thank you, both, and thank you for the question.

There are no more questions from the line. Please continue.

Very good. So thank you all for joining the -- this ESG investor event. We hope the information was helpful. As you can see, we have a really dedicated team. But most importantly, we have over 100,000 associates committed to this purpose of reimagining medicine for the planet. We'll continue to do our best to be transparent, provide clear updates on our progress, providing information through our website, through our annual reporting suite. And we look forward to also hearing feedback from you as to what would be most helpful as we continue to try to bring transparency about the impact we're having on the world. So thank you again, and we wish you a good day.