Novartis AG (NOVN) Earnings Call Transcript & Summary

Good morning and good afternoon, and welcome to the Investor Call on Novartis New Organization Model. [Operator Instructions] And the conference is being recorded. [Operator Instructions] A recording of the conference, including the Q&A session, are available on our website shortly after the call ends. [Operator Instructions]. With that, I would like to hand over to Samir Shah, Global Head of Investor Relations. Please go ahead, sir.

Thank you very much, and good morning and good afternoon, everybody. Thank you for taking the time to join us on this brief investor call. Before we start, I just wanted to read you the safe harbor statement. The information presented today contains forward-looking statements that involve known and unknown risks, uncertainties and other factors. These may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. For a description of some of these factors, please refer to the company's Form 20-F, its most recent quarterly results on Form 6-K that, respectively, were filed with and furnished to the U.S. Securities and Exchange Commission. And with that, I'll hand across to Vas.

Thank you, Samir, and thanks to everyone for joining today's call. This morning, we announced a new operating model for the company, which we believe will enable us to accelerate our growth, our productivity and improve the quality of our pipeline. And over the course of the next few minutes, I'd like to just walk you through those changes. I also have Harry Kirsch, our CFO here, who'll talk about the financial elements of this transformation program, and then we'll look forward to taking your questions. If we can go to the next slide. Now I think as all of you know, we've been on a transformation journey really since 2014 to move from a conglomerate health care company to a focused medicines company. Our portfolio simplification has involved the exit of a range of businesses: the Alcon spin-off; the sale of the Roche stake, where we returned the majority of the proceeds back to our shareholders; the announcement of the Sandoz strategic review; and then alongside that, about $31 billion in M&A and BD&L actions since 2018 to strengthen our Innovative Medicines portfolio. Alongside that, if you look over the recent years, we've been able to deliver consistent IM top line growth of 7%. Bottom line, a core operating growth of 13%, with 4% margin improvement in Innovative Medicines. We've been expanding the capabilities of our innovation engine, as we outlined to you in our R&D Day in December. And over this period, we've done $36 billion in share buybacks and dividends to return capital to our shareholders. Now moving to the next slide. This -- we continue to remain confident in our growth outlook as well. When you think about the medium term, we've been consistent in outlining our confidence in our 6 key growth brands, which we believe have a multibillion-dollar outlook. We recently launched Scemblix and Pluvicto, Scemblix with the potential to move to the first line in CML and Pluvicto in earlier lines in prostate cancer, continuing to build out what we believe could be significant medicines. We've outlined to you the breadth of our pipeline with over 20 major assets, which we believe have over $1 billion of potential and could be approved by 2026. And as we assess our own pipeline quality, we have about 85% of the assets in our pipeline as first in class and first in indication. We continue to feel confident in our outlook of 4% constant currency sales growth between 2020 and 2026 as those in-market growth drivers and our pipeline enable us to grow past the generic expiries that we have in this period. And we continue to guide to IM core margin in the high 30s, now we'll move that to the upper end of the range, as Harry will outline in a moment. Now moving to slide -- the next slide. In January, we outlined our top 6 priorities for the company, the launches, the growth momentum, the pipeline, the Sandoz strategic review, reinforcing our foundations, but also to improve the return profile of the organization through productivity, in manufacturing, business services. And really, today, we're highlighting to you the actions we're taking to build a simpler, more efficient Novartis, which we think will enable us both from the soft elements of how we work, but the hard elements as well in terms of productivity in the P&L enable us to build a more competitive and value-creating company. Now moving to the next slide. This morning, we announced 3 fundamental changes in how we're organized. And I'll be walking through each of them in a little bit more detail on the subsequent slide. But first, we'll be integrating our Innovative Medicines business, so integrating pharmaceuticals and oncology with 2 regions, the U.S. and International, reporting to me at our Executive Committee. Second, creating a new strategy and growth function that will work alongside research and development to prioritize the portfolio in an independent way and evaluate our internal and external pipeline opportunities, I'll go through that as well. And then lastly, a single operations unit as well as integrating our global G&A functions, to improve our cost structure, get our SG&A to be more competitive with our peer set and free up resources for us to improve our margins as well as to reinvest in the company. So moving to the next slide and taking each one of these in turn. As many of you know, beginning in 2002/2003, Novartis with the launch of Gleevec and later Zometa and Femara built an independent globally integrated oncology business unit alongside our pharmaceuticals business unit, which was focused on a primary care portfolio at that time. We've continued to maintain that structure over the subsequent decades, but now we believe is the right moment as our pharmaceuticals portfolio is almost entirely in the specialty area. The differences between pharmaceutical and oncology launches are increasingly blurred. The complexity that this organization creates throughout every layer of the company and the opportunity to leverage capabilities in the sales force, market access, medical, et cetera, this is the right moment to bring these 2 units together into a single Innovative Medicines unit and organize ourselves geographically. As you can see on the right-hand side of the slide, we'll have the IM international unit overseeing the regions and markets all around the world. We'll have a set of global marketing functions that are shared with IM U.S. And then the IM U.S. organization will be focused on driving the growth in the U.S. As a reminder, today, Novartis is ranked #1 in pharmaceutical sales in Europe, #3 amongst multinationals in Japan. Over time, we expect to be in the top 3 in China, but we are not where we would like to be in the U.S. And our goal now with the structure is to supercharge our efforts specifically in the U.S., the largest pharmaceutical market in the world, with a goal to achieve a top 5 position in the U.S. while maintaining that leadership position internationally. And if we could emerge from the coming years with a combination of top 5 in the U.S. and #1 or in the top 3 in Europe, China and Japan, we'll be a formidable company for the time period to come. Now moving to the next slide and the next shift. We've also decided to combine our R&D portfolio management strategy and business development areas to really ensure we're building the pipeline to drive long-term growth. Historically, Novartis' portfolio management has been split within research, within development, within the commercial areas with independent BD&L units, often focused on specific therapeutic areas. We'll be bringing these all together to report in to a Chief Strategy and Growth Officer, who will report directly to me and be responsible for really providing an independent view on our pipeline and pipeline prioritization, having an ongoing view on whether or not our pipeline is delivering against our growth aspirations, building hopefully stronger capabilities to determine when we need to go externally and when we can focus on our internal assets in given therapeutic areas and importantly, increase our focus on our key therapeutic areas as we outlined in our recent R&D Day of cardiovascular, neuroscience, immunology, solid tumors and hematology, to really ensure we have adequate pipeline depth in these 5 core areas. Our overall goal is to increase the quality of the pipeline, to deliver more high-value assets when we know over the history, Novartis has consistently been one of the leaders in the number of NMEs approved but not been a leader in the value per NME approved. And it's our goal now to really use this capability to build on this function, to get higher-value assets out of the pipeline, focus in our key therapeutic areas and then to drive consistent above-peer median growth as we outlined recently. Now moving to the next slide in the third area. Now Novartis has a -- historically has had a fragmented G&A structure as well as operations area. And our goal with this change here is to build -- as we've moved from a conglomerate to a focused-medicines company to build a single operations unit that oversees manufacturing, as you see on the right, procurement, our real estate, IT, data, digital and our other operations areas as a single unit and then to globally integrate our G&A as many of our large-cap peers across sectors have done. And specifically here, all of finance across all of Novartis would have an operational line into Harry, similar for other G&A functions, which will allow us to really get our G&A cost structure and G&A efficiency to be competitive with a rapidly evolving competitive landscape. We also hope this will accelerate the technology transformation in the company, increasing our productivity and, of course, want to maintain those high quality and service levels. Now you've seen historically, we've been successful when you think about our ability in manufacturing between 2016 and 2020 to take out multiple billions of dollars of cost out of the system. And we believe with this setup here, we have the opportunity to drive additional efficiencies in these areas. Now moving to the next slide. We expect -- I wanted to outline here an updated executive team, an executive team that's going to be focused on driving a high-performance organization and a high-performance output for Novartis. First, as you can see, on the #1 here on the slide, Marie-France Tschudin will become the President of IM International. Victor Bulto will become the President of IM U.S., reporting to me. The Chief Strategy and Growth Officer will work alongside Jay Bradner, our President of NIBR; and Shreeram Aradhye, who will be coming back to Novartis, and I'll speak more about him in a moment, as the Head of GDD and our Chief Medical Officer; and Steffen Lang will become President of Novartis Operations. The remainder of the ECN will remain unchanged. And importantly, Sandoz, we'll continue to be focused on driving growth. These changes don't impact Sandoz. Sandoz, we've been able to carve out as an independent generics unit within Novartis. The Sandoz strategic review continues unchanged, and we want Sandoz to really focus on driving that growth outlook and completing -- getting us to the point of a decision in the Sandoz strategic review. Now moving to the next slide. Overall, we believe this simplified structure will help drive value creation at Novartis. We'll be able to accelerate our growth through the pipeline management, technology transformation and importantly, much more agile M&S resource allocation, where regardless of whether it's an oncology brand or a pharmaceuticals band, we will put our M&S dollars against the best opportunities to drive growth for the company. And in the mid and long term, we continue to aspire and believe this organizational structure will allow us to be above peer median sales growth over the long run, get us to top 5 in the U.S., as I outlined, hopefully, get us to a much better place on productivity and focus in R&D and get simpler and faster decision-making in the company. So with that, I will hand it over to Harry. Harry?

Yes. Thank you, Vas. Hello, everybody. Thanks for calling in on a short notice. So if you go to the next page. So obviously, Vas laid out the case for -- of this change for value creation through growth, also the pipeline elements as well as the operational efficiencies. So I just want to take you through a few slides to detail what we expect from the operational efficiencies. Clearly here, the second point is when we benchmark the organization, we saw that our organization is more complex than most others above field force. So the SG&A reduction getting closer to benchmarks is one key element of the operational efficiencies. Third point here, we see at least $1 billion of SG&A annual structural savings by 2024. And this allows us to increase our midterm IM margin guidance to the high end of the high 30s. All of you know, we have guided so far to the high 30s, but now we believe we are clearly at the high end of that, given we have been last year at 36.2%. And then lastly, we, of course, will not stop there, and there may be more efficiencies. But also with that and our sales projections, we do clearly expect and are confident now that we can reach to low 40s, also a topic often debated with many of you in the mid to long term. Now let me go through some of these details. So on the next page, you see on the left side how the median SG&A has developed of our peer group gaining efficiencies and us basically staying roughly at 29%. Now we are not in a business of chasing KPIs of benchmarks. But clearly, when we reviewed structures, our evolving portfolio, Vas mentioned that also pharma most launches and therapeutic areas are now specialty. And then you look to the right side, where we are in the ranking of the different companies. We are quite far away from the most efficient. Now we have, of course, also a different portfolio, right? We have more blockbusters than many, but also most of our blockbusters in the $1 billion to $2 billion range or our [ ex U.S. business ] is very large and, of course, in many, many countries. So overall, each company is different. But clearly, this indicates room to move our SG&A down as we grow the top line and become more efficient and eliminate duplication and redundancies. On the next page, just want to show you, we have made good progress. I think most people would acknowledge that. Over the last 4, 5 years, we have moved up from the low 30s in the core margin of IM to now the mid to high at 36%. That gives us the confidence with this revised operating model and continued expected and bolster top line growth that we can go into the high end of the high 30s midterm and even beyond that in the mid to long term. Now of course, also after the announcement this morning, several questions came up. How is all of this faced? How will the savings appear? And we try to lay this out on the next page. And of course, we are in the beginning of fully shaping all the details of this program, but roughly, this is how we see this coming up. So we are now already in quarter 2 of this year. So we expect some savings. We, of course, also want to be fast on the one hand, right, to give also to our people the clarity on the impact of jobs, a fast but also fair selection process. On the other hand, of course, we also have operational elements, where we have to ensure that we redesign and don't drop any balls. Even though this is not impacting field force, really, this is not impacting NTO and R&D, but still, of course, the whole [ wall ] machine has to be a bit redesigned, if you will, to ensure that we do a great job on the top line, operations are always stable and then deliver those efficiencies. So in '22, I do not expect this to improve versus the guidance we have given. Recall, we have guided for total company in constant currency mid-single-digit top line and mid-single-digit bottom line growth. And we have also a bit of energy cost increases. It's not significant for the size of the company, given that pharmaceutical companies have low costs, but it's, of course, a bit of inflation pressure. But overall, we are squarely in that guidance for '22, but also would not expect that it goes up because of this change. And then in '23, we would already expect a significant impact of the $1 billion to materialize as most of the people-related changes would be then implemented. And then there are some other elements, which may be around other processes or operations to be redesigned so that in '24, we would expect the full savings to materialize and increase their -- our forecast for the full amount. Of course, we don't stop at the $1 billion if we see further opportunities to also get closer to benchmarks, but the commitment clearly is at least $1 billion of savings. The little box on the lower right, now talks about a onetime cost. Again, we're going to go through all of these details. Usually, such programs, and that's where we believe this is also, is the onetime restructuring cost, is in the range of 1 to 1.5x the annual structural savings. So if we hit the $1 billion, exactly then I would expect that to be $1 billion to $1.5 billion, which would be phased between '22 and '23 mainly. But overall, of course, has immediate paybacks. With that, back to Vas.

Thank you, Harry. Now moving to the next slide. I just wanted to say a word about the new people and some of the existing colleagues, who have expanded roles in the new organizational setup. Victor Bulto, who currently leads our U.S. Pharmaceuticals organization, previously led the launch of Cosentyx in the U.S. and has had a long history at the company, will move now into the President role of Innovative Medicines U.S., overseeing the entire U.S. business and be charged with driving that goal of getting to the top 5 in the U.S. Marie-France Tschudin, who you know well, who is currently our Head of our Pharmaceuticals BU, will lead our IM International organization, focused on the commercial market outside of the U.S. and the global commercial functions that support our overall commercial organization globally. Steffen Lang, who is currently Head of Novartis Technical Operations and has been the architect of our impressive manufacturing transformation, will now oversee all of operations, inclusive of the additional functions I outlined previously. And Shreeram Aradhye rejoins Novartis after 3-plus years in biotech. Shreeram had a 20-year career at Novartis, primarily in clinical development, both across immunology, transplant in neuroscience, where he oversaw the development of Gilenya and later Kesimpta and Mayzent. Recently -- more recently has been now the Chief Medical Officer at Dicerna, an siRNA company. And so he comes back to us now, having had some important experience in the biotech sector, a deep experience in executing on global drug development, and I think somebody who comes in on day 1, understanding Novartis and able to execute against our pipeline priorities. So moving to the next slide, just in closing. We've transformed ourselves, since 2014, to be a focused medicines company, and this is a logical next step on that journey to redesign our organization to be fit for purpose, as we continue to strive to continue the recent track record we have of delivering consistent performance. We believe this model will support us to upgrade our innovation, growth and productivity profile. And as Harry outlined, this will create value in the near term and over time, lasting value to through growth and operational efficiencies. So thank you all for joining. Just as a reminder, we'll have our first quarter results in -- for 2022 on April 26. The focus there will be on the Q1 financial results. We won't be covering anything further with respect to this transformation. And then Meet Novartis Management will give you further details in due course, will happen in September, where you get to meet the new management team and discuss more details about the company. And with that, operator, we can open the line for questions.

[Operator Instructions] Your first question today comes from the line of Andrew Baum from Citi.

A couple of questions, please. Many investors may interpret today's announcements as being more sign of remedial activity than just a simply new org structure. Could we just revisit 2 themes that we have discussed in the past, Vas? Firstly, what is the new incumbents in terms of Head of Development and Head of Oncology mean in terms of pipeline focus? Your pipeline is much broader in terms of the therapeutic areas than many of your peers, whether you believe that is a priority for the new Head of Development to address. And then second, the pioneer risk, which is very evident within Novartis' history across multiple exciting new modalities, but of course, taking with significant risk. What's the extent to that can be recalibrated in order to reduce risk, even embracing incremental innovation, where there is a significant value proposition for shareholders?

Yes. Thanks, Andrew. So first, on the GDD and the priority. Overall, as a company, as I outlined, both with the new GDD head, Shreeram, as well as the creation of this Growth and Strategy Officer, our goal is to focus much more on delivering high-value NMEs and high-value programs, which naturally means we're going to have to focus with respect to therapeutic areas. We've outlined at our recent R&D Day, a key focus on cardiology, immunology, neuroscience, select solid tumors and select hematology indications. And it's very much in scope for us to continue to prioritize across our pipeline, stop projects that are off strategy and really focus on the highest-value projects. We've created clear thresholds, as I've outlined previously. We really expect programs that come to us at the IMB, the Innovation Management Board, to have sales potential across all indications of $2 billion or more. And we continue to expect to deliver high-value assets out of that pipeline. And these individuals will be tasked to ensuring that's the case. Now with respect to pioneer risk, we continue to believe that the future of this sector will be defined by physicians in these new technologies. And you've seen nearly all of our peers also move into these new areas. So I think it's valuable that Novartis has the leading position in gene therapy and radioligand therapy, cell therapy. We'll be the largest producer of siRNAs in the world. But at the same time, we need to get much better at maximizing the life cycle management of our key assets. And I think that's something we're focused on. So it's not an or statement, but it's an and statement. And if the trade-off exists to really maximize one of the major assets in the portfolio, whether that's VAY, whether that's iptacopan, we want to pursue that if that means -- even if that means we have to pull back some on the new technology areas, and that's a trade-off we're prepared to make. Thank you very much, Andrew, for the questions.

Your next question comes from the line of Graham Parry from Bank of America.

I just wondered to what extent the changes are reactive versus proactive, sort of a little in line with Andrew's question. So have you come under any pressure from shareholders or the Board to make these changes? Or is this sort of proactively coming out of the CEO and Executive Committee. Secondly, you talked about savings in SG&A. You're obviously making changes in R&D. So are there any potential savings there, but are they just being reinvested, for example? And on the midterm revenue guide, I think you said at the Meet Management 4% to 5%. You're now sort of focused on the 4 end of it. I'm just wondering if that's a slight walk down from the upper end? Or is that upper end of 5% still in range for you on your internal projections?

Yes. Thanks, Graham. So this is 100% of proactive move on first my part and then the executive team's part. We made this assessment once we made the Sandoz strategic review announcement and have really been able to separate Sandoz as a stand-alone unit. It was a natural next step to evaluate are we set up for success in Innovative Medicines. We began an independent assessment with some external support and then really made that assessment over the recent months and then decided to make the changes that are outlined here. There was no external pressure to do so. We just fundamentally believe this is the right thing for Novartis to set us up, to be able to be fit for purpose in the commercial area, get smarter and how we think about our pipeline and get much more efficient in our operations and G&A. And so we'll be getting after this now to really get the improvements that we outlined in the presentation. With respect to R&D, right now at R&D, as IM, as a percent of sales, we're at around 19% to 20%. There's no change in that from this. We do expect to, over time, create more flexibility to be able to invest more in R&D, if needed, when we see opportunities arise. Getting after cost in the -- as outlined in this document will enable us to have that flexibility, but you shouldn't expect any reductions in R&D, 19% to 20% puts us roughly in the median of the peer set. And we're always prepared to invest more if needed, but that number, I think, is a good guide for you from a modeling standpoint. And then lastly, there's no change in our sales outlook, either 4% to 5%, very much where we're at. Particularly when you look at IM stand-alone, we see the potential for us to get to that 5% range. Of course, we have to have a pipeline to deliver and the growth drivers deliver, but that's absolutely within the goals that we've set ourselves internally as a company.

Your next question comes from the line of Kerry Holford from Berenberg.

Question on margin, please. So clearly, it's great to see you've got more flexibility coming through here. But first question, I guess, only a handful of your peers can get margins ahead of 40%. And those that do typically have very focused portfolios. So I wonder if you can sort of outline how you intend to get there with arguably a broader portfolio? Will that require more restructuring to get above 40% over and above what you've announced today? And then secondly, I guess the question is, is above 40% the right target? Some of your peers do not want to deliver margins in that region because they believe it signifies under-investment in R&D. So I were just speaking to see how you would counter that for you.

Thank you, Kerry. So obviously, we will never under-invest in R&D. That is very important, right, or also the launches. But we have identified significant efficiency opportunities. And already in the current structure, we had a very robust plan to get in the midterm to the high 30s. Now with this at least $1 billion, which is roughly 2 points, right? Clearly, in the midterm, we see the high end of the high 30s. And with that also and continued expected robust and solid sales growth beyond '26, as Vas laid out, above peer median then to drive into these low 40s. Now where would we end in the low 40s, clearly depends on the magnitude of the blockbusters we can develop and launch and the product mix. So there, of course, we want to ensure always the right levels of investment. But on the other hand, if there are opportunities in the structure, we continue to identify them and go after them.

Your next question comes from the line of Matthew Weston from Credit Suisse.

Two, please. The first really just comes back to a lot of the prior questions asked around sort of the bigger picture strategy. In the past, you said that the real issue with Novartis is that you were good at getting pipeline to market, but you weren't good at getting big drugs to market. And I don't really understand how lowering SG&A really achieves that goal. So I'd really love to understand how quickly you believe the transition in R&D is likely to be seen by investors over the next few years, particularly given that the new strategic role isn't filled and we've now got a new Head of Development to try and tackle the portfolio of earlier-stage assets you've got. So the speed to pipeline change is, I think, what I would love to understand. And then the second question, a simple one for Harry, which is around the cash cost of the restructuring. You gave us the number, I'd love to know how much of that is cash?

Yes. Thanks, Matthew. I mean I think, first and foremost, I mean, a company, like us, has to always look to productivity gains to drive value for shareholders. And when we can identify a way to make the company operate better, operate more simply, we're going to increase the likelihood we turn drugs into multi-blockbuster simply because of the way we're able to operate. Secondly, I think even before I get into the R&D side of the equation, a focus on the U.S. I think it shouldn't be underestimated that Novartis is elevating the U.S. organization for a company that's historically been consistently #1 outside of the U.S., particularly in Europe, but not, and we've been able to get to the top 5 in the U.S., the most valuable and important market in the biopharmaceutical sector. So I wouldn't underestimate that change. Now in terms of the portfolio shifts, the portfolio shift that I outlined, we're already undertaken, I think now it must be 2 years ago where we outlined that we're raising the bar on our pipeline in terms of what we're taking into late-stage development. If you go carefully through our R&D Day document, you'll see that the only assets that we highlight all have, if you look at the little circles, have assets that we believe have multibillion-dollar potential. We highlighted 20 assets that we think -- 20-plus assets, we think, have with different degrees of evidence, the potential to be significant medicines, i.e., multibillion dollars if they were able to work across all of the indications. So the change, it happened. But now I want it to go even deeper. That's why we create a role that we'll be continuously thinking about this and thinking about how to improve the profile of the company. And I think our new development will be focused on executing on this 20-plus assets and then ensuring any further assets we bring into the portfolio are assets with significant potential. So I think if the change is in motion, you should see the change in the coming years. Things like this do not happen overnight. When you're trying to shift how a company that has historically been the leader in the number of NMEs and not the value per NME, it won't happen tomorrow, but I think we've taken the right actions to make sure it happens over the coming years. In terms of the cash cost, Harry?

Matthew, of course, as I mentioned, we still have to go through all the details. But overall, I would say, most of this would be cash, but also the payback would be extremely quick.

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

Two quick ones, please. First, on Leqvio, as this product is on the list of the multibillion-dollar product, I was just wondering if you anticipate that Leqvio could be a multibillion-dollar product by 2026. So that's my first question. My second question is, I'd like to -- if you could give us some color on how you will measure that you've increased the efficiencies with the new organization, not only on the cost side but more on the simplification on the fact it could be more agile. If you could give us some color on this front would be great.

Yes. Thanks, Florent. So the first on Leqvio, we do highlight it as a multibillion-dollar medicine. We think it will be very significant for Novartis into the back half of the 2030s. We've not given specific 2026 guidance. It will take time for the medicine to ramp, but we see promising signals in both the U.S., U.K. and other countries around the world. And we'll, of course, give further guidance on this as the medicine evolves. But we certainly expect it to be a very significant medicine over the coming years and growing well into the 2030s, late 2030s. In terms of the efficiencies beyond the cost, I think hopefully, everyone can understand that when you have 2 parallel organizations engaging in very similar activities, whether that's in commercial infrastructure, the deployment of new technologies to our field force, our medical teams, engaging in market access, back-office operations, moving from 2 to 1, simplifying accountabilities will make it better for our field force, our MSLs, our CRAs. We'll make it better for our external stakeholders, who would only have to deal with one part of -- one interface with Novartis in terms of market access and from a government stakeholder standpoint. In terms of deploying technology, we no longer have to deploy technology independently across 2 organizations, but deploy it once. These are the kind of things we'll be able to do, which won't get captured right away in the SG&A numbers, but will be a massive simplification. And we're responding, I think the consistent feedback we've heard across Novartis about this. And we think that if we get this right, it will really enable us to get even more out of our frontline teams than we do today. Samir, think there's one more question. Last question, operator.

Your next question comes from the line of Wimal Kapadia, Bernstein.

So just following up some of the earlier questions on portfolios. How do you think about some of the other TAs, where you're currently working on, such as ophthalmology, which are less in focus? Is there a potential for portfolio simplification elsewhere? Or even just running some of these businesses with cash and kind of letting them wind down to some extent? That's the first question. And then the second question is maybe just on Sandoz. There wasn't really any mention of Sandoz in today's announcements, which I appreciate it's very much IM-focused. But is there anything we can read into that with respect to how it comes from the strategic review?

Yes. Thanks, Wimal. So I think beyond the 5 therapeutic areas I've outlined, certainly, respiratory and ophthalmology, we continue to take an opportunistic view on these 2. In ophthalmology, we're focused exclusively at the moment on gene therapies and a few front-of-the-eye assets. But certainly, we will, as part of this process, look at can we optimize our overall M&S footprint around the world and also our investments in R&D? So you can certainly look out from that. I'm not prepared to say specifically what that would be. But certainly, part of this in bringing these 2 portfolios together is to ask or how can we best allocate our resources to maximize growth and maximize the impact based on the assets we have in hand. In terms of Sandoz, I think nothing specific to read in. The strategic review remains on track. Sandoz, we continue to work on the preparations for standing up a stand-alone Sandoz, and we continue to expect to have an update on the Sandoz strategic review by year-end, and we'll continue to work to hit that time line. Next question.

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

I got 2 quick ones. Firstly, just with regards to the 40-plus percent margin in the longer term, mid to long term. Just curious how much of that depends on, I think, the chart you showed at the Capital Markets Day suggested that you see beyond the 2026 time frame a sales growth acceleration. And I think, if I remember the chart, it sort of seems to imply that actually you'll go above peer group, I think it was your words beyond '26. I guess, curious how much of that is dependent on that assumption? Or are you confident in this 40-plus percent, irrespective of whether that growth outlook and the sales is achieved? And then just secondly, on the Chief Strategy and Growth Officer, how important was it that this is an external candidate? I guess, is it that the internal search didn't reveal someone you felt appropriate? Or was it a prerequisite to have someone external to give a fresh look at this? And I guess if you could just talk a little bit about why that is important to you.

Yes. Thanks, Peter. So first on the 40% margins, Harry?

Yes, Peter, of course, as you all know, right, more sales growth are better for the margin. But we are confident in the mid to long-term sales growth as well. With that assumption, 40% plus. And as I mentioned, of course, if you can identify super big blockbusters, very efficient, then that would be -- the plus would be even bigger. But I think at the moment, what is important for us, we are very confident in cracking the code of the 40% and then we have to see how the product mix goes. And again, we will never compromise on R&D investments, for example, or the launch investments just to come to a higher plus on the 40% on the margin side, right? But we clearly see the potential here. Also, even with the $1 billion, we are not yet fully at the benchmarks. So let's see how things develop. And of course, most important, all of it is the top line and the pipeline. That's the focus. And on that way, we now are very confident that we can go beyond the high end of the high 30s in the mid- to long term.

Thanks, Harry. And Peter, on the Chief Strategy and Growth Officer, we do have internal candidates as well. So I think we didn't mean to indicate that there's only an external option. That said, we really value and I really value having an independent voice on the pipeline and the portfolio. I think the company could benefit in having an independent view on whether the assets we take forward, either internally or externally, really after a rigorous evaluation against the competition, given the changing landscape, given the health care payer environment, can really generate that multibillion-dollar potential we're looking for and have that voice in the room so that we can then say no to the projects that aren't going to make it and then have the resources available to really invest in the ones that we believe do. So I think that independence is going to be absolutely critical for the success of the role, and it's why we structured it the way we do.

Your next question comes from the line of Steve Scala from Cowen.

Vas, you have been asked a couple of times about whether these changes were reactive or proactive, and you have argued proactive. But I don't recall a company ever making changes of this magnitude from a position of strength. Perhaps you can correct me if I'm wrong. Perhaps there are examples you could cite from the past? And what are specific things that you think should have been done differently in the past, say, 5 to 7 years that prompted you to even think about this possibility. You mentioned life cycle management. What specifically would you identify as less than ideal? And lastly, why are you doing this now instead of when you became CEO 4 years ago?

Yes. Thanks, Steve. So first, Steve, I think it's a natural progression, as I outlined, that we were a conglomerate 4 years ago. I can take the first and the third together. If you remember well, we had a stake in a Consumer Health joint venture, we owned Alcon. We had a Sandoz generics unit. We had a Roche stake, and we were also a pharma and oncology unit. I think it would've been difficult to have executed a simplification in innovative medicines. At the country level, when you had so many different units. Over the subsequent years, I think you'll also recall, we did the public market spin-off Alcon. We exited the Consumer Health stake. We sold the Roche stake and then the share buyback and now have announced Sandoz strategic review. So I think it's pretty logical that at this moment in time, you think about how would you optimally set up your Innovative Medicines organization for long-term success. So I don't think I need a benchmark from anywhere else. I would just focus on what's the right thing to do for Novartis in our story. And I think this is the right moment for us to move to this model. We've benchmarked carefully against our peer set. Most successful, very successful companies in the U.S. have a geographic organization of the P&L across innovative medicines and have the U.S. report directly to the CEO, since it's a top priority for us to improve our U.S. performance, that's why we do this. And I think there have been a few companies that have created an independent Chief Strategy and Growth Officer in charge of both BD&L and pipeline prioritization. So I think it's all within the realm of logical moves for a focused medicines company. In terms of things we can do better and need to do better, I don't think there's new things to add. As I said, we need to get more value per NME of the pipeline assets that we launched. It's notable we do have 6 multi-blockbuster assets, which we talked about that have potential to have a patent protection or LOE protection into the 2030s. But we need to do better. And while we have consistently won the race of the number of NMEs, we want to win the race of the value per NME because that's actually a much better marker for long-term success in this sector. Margins, of course, matter. They're not the most important thing in our particular sector. But certainly, if you have the opportunity to get more competitive on margins, that's value you can unlock in your company. As Harry outlined, we've done a lot better on IM margins. But looking at our SG&A, there's places for us to get even better. So I think it's very logical for us to drive even further on the margin and productivity side. And lastly, we want to be much more consistent in our launches. And I think these organizational changes will -- rather than having 2 independent organizations, optimizing how to launch in every market around the world, we'll have one IM powerhouse with the best capabilities to be able to launch our medicines in the best possible way and also say no to the medicines that we don't think we should launch and then move them to a better owner. So I think I covered all 3 questions with a comprehensive answer, and always happy Steve to discuss further.

Your last question today comes from the line of Martin Hall from Hardman & Co.

First, I think it's always good to have a medium to long-term goal. And I look at your target of becoming or returning to #5 in the United States. But just looking at the math involved in that, you're currently #15 in the United States based on branded drug sales. To get to #5, you'd need to have sales of $25 billion, which is $10 billion more than where you are today, a 60% increase just to get you to that seems incredibly challenging, especially when biopharmaceuticals are driving the industry and Novartis is significantly underrepresented in that arena. Can you tell me how you're going to get this -- achieve this goal?

Yes, sure. So we have a different, I guess, set of figures in our books. We currently estimate total we're I think, ranked 10 in the market. And we see when we look at our own internal forecast within 2026, we're within range, but not there fair enough to get to the top 5. So it will be a combination of better launch excellence and launch execution, delivery on the pipeline and really ensuring that we have very strong launches as we've had with Cosentyx, Entresto, Zolgensma, which is one of the better launches recently, and fewer launches that are like [ Mayzent ]. And if we can deliver that, we think with outstanding execution, delivery on the pipeline. And if needed, licensing of attractive assets to get to that goal over time. Certainly not committing to do it quickly, but our goal in the medium term to long term is to get to that top 5 position. It's a position we held in the past 20 years ago and a position we endeavor to get back to. Good. So thank you all for joining. Really appreciate your time, and we'll look forward to catching up in Q1. Bye-bye.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.