Novartis AG (NOVN) Earnings Call Transcript & Summary

Good morning, and good afternoon, and welcome to the Novartis Investor Conference Call on Entresto FDA Label Expansion. [Operator Instructions] The conference is being recorded. [Operator Instructions] A recording of the conference call, including the Q&A session will be available on our website shortly after the call ends. [Operator Instructions] With that, I would like to hand over to Mr. Samir Shah, Head of Investor Relations. Please go ahead, sir.

Thank you very much, and good morning, and good afternoon to everybody. Big thank you for taking the time to participate in this -- mainly Q&A session or investor call in relation to the Entresto label update. With us today, we have David Soergel MD, who's the Global Head of the Cardiovascular, Renal and Metabolism Development unit. We also have Rod Wooten, who is the Global Head for Marketing at Novartis Pharmaceuticals. I think many of you will be familiar with both these people who was present at the Novartis management meeting back in November. Before we start, I just wanted to go through 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 the 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 and 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 for those of you who are on the webcast or on the call, just a reminder, we did -- or we have published the slides, which will be used by Dave and Rod on our Investor page on novartis.com. With that, I'll hand across to Dave Soergel, Global Head for the development group. Thank you.

Thanks a lot, Samir. Really appreciate it. And thanks, everybody, for joining on this really exciting day. As you're well aware, millions of patients with chronic heart failure have not until now had an option to keep them out of the hospital. And with this approval, we see a significant advance for these patients. So if we start on Slide 4, I'd like to just go through a bit of background to start with and talk a little bit about the history of heart failure very briefly. So on this slide, you can see we've sort of presented the typical dichotomy of heart failure, segmented into heart failure with reduced ejection fraction and heart failure with preserved ejection fraction. Now despite the fact that we use these two terms to separate patients into two distinct groups, in reality, chronic congestive heart failure is truly a disease continuing with a significant amount of overlap between these two populations. And as you'll see, as we go through the label update, this is what's being recognized by the FDA. And so despite the fact that chronic heart failure is a complex disease, this recognition of the continuum of heart failure and Entresto being an option for these patients actually simplifies therapy for 5 out of every 6 patients. So if we go to the next slide, Slide 5. This gives you the details of the label update. We've bolded the language that's changed specifically. And as you'll see, this label update covers about 5 million chronic heart failure patients in the United States. So as you can see, the key points here are a recognition of this continuum of heart failure by identifying that Entresto is now indicated to treat adult patients with chronic heart failure. And then it also calls out a lot of the discussion that was had at the advisory committee for those of you, who listened to that and follow the news afterwards, that the benefits of Entresto are most clearly evident in patients with a left ventricular ejection fraction below normal. So this, I think, as we'll talk about in the next slide clearly delineates where we see the major benefit of Entresto in this population. And then I think the second paragraph is important because it calls out the need to use clinical judgment in deciding whom to treat, recognizing that the left ventricular ejection fraction measurement methodology, i.e., echocardiography is a significantly variable measure. So if we look at what's changed in the clinical study section, Section 14. You'll note that none of the information on PARADIGM has changed. So we have all of the information, the compelling data from PARADIGM that was there before has remained unchanged. And we've added the PARAGON data. Specifically, the primary composite endpoint has been displayed in the full population. Graphs showing the primary composite endpoint over time. And then importantly, a forest plot showing the prespecified subgroups, including the less than 57% LVEF subgroup. And then you'll see as we go through in the next slide, a continuous side-by-side representation of PARADIGM and PARAGON by left ventricular ejection fraction. So why don't we flip to that next on Slide 6. So this shows you -- again, this really encapsulates the discussion that we had at the advisory committee meeting, where the adjacent population in PARADIGM informs us about our confidence, about the effects in PARAGON. And this is exactly what we discussed with the advisory committee and with the FDA as well. And so as you can see, this side-by-side representation gives a clear idea for practitioners about whom should derive the best benefit from Entresto within this historically defined heart failure with preserved ejection fraction population. I'll now hand it off to Rod to talk about our next steps.

Yes. Good morning, and good afternoon, everybody. It's an exciting day, and I'm pleased to have this opportunity to share how we plan to bring Entresto to this broader population now that we have the updated label. So I'd ask you to turn to Slide 7, and I'll highlight a few key points from this slide. First, we're starting from a position of strength. And as you know, Entresto has grown consistently over the years, and that's really due to 3 key factors that will continue to be very important as we leverage this new indication. And the first is the totality of the evidence behind Entresto and the consistency and the quality of it. The second is the strength and quality of our execution. The third is the support from leading medical practice guidelines. So clearly, with this new opportunity, our first priority is going to be on medical education. And now that we finally have the first proven treatment in Entresto that works in this broader population, we know that the medical community is keen to learn about it. And one of the things we have going in our favor is the fact that the majority of these patients are already on an ACE or ARB treatment, and physicians can now confidently switch them to a proven treatment in Entresto. We also have a strong field force and medical team that's already calling on majority of the health care professionals and health care systems who will also treat this expanded population. So we have strong experience there. And from an execution standpoint, we know one of the critical factors is market access. And we've focused on this over the last several years, and payers recognize the value. And we're confident that we can continue to provide affordable and seamless access to HCPs and the patients in this broader population. One of the other things that we focused is patient activation. So we're actively working towards fine-tuning both our digital tools and our direct-to-consumer advertising to reach this expanded population at scale. And so our focus will really be on the moments that matter most, when the urgency to treat is the highest, like when this population would experience a hospitalization or worsening of their symptoms. And last, our experience tells us that this physician group and medical community guidelines really matter. And we know it will take some time for the guidelines to reflect this new evidence. And while there's a high unmet need and Entresto can certainly help these patients and keep them out of the hospital, we're confident that the guidelines will ultimately evolve in support of Entresto, but we also know that's going to take our experience in the HFrEF indication. Now if you turn to Slide 8. As you know, we're not going to stop there. We're also investigating Entresto in the post acute myocardial infarction population, which could significantly increase the patient opportunity by as many as 800,000 patients per year in terms of the number of those events in the U.S. alone, and it could further strengthen our leadership position that we have in heart failure. And we're also actively exploring a potential indication in Asia for Entresto in hypertension, as we have some studies that show a very strong effect in those populations in some of our early studies. And if you look at the big picture on the right-hand side of this slide, you can also see that this franchise -- it has significant potential beyond Entresto. And in fact, it's one of the very reasons that 2 years ago, I chose to join Novartis and wanted to be a part of this expanding portfolio. And beyond our leadership in heart failure, our next priority is atherosclerotic cardiovascular disease. And we have two really promising assets that could allow us to tackle cardiovascular disease at a whole new scale. And as you know, cardiovascular disease remains the #1 worldwide killer, and we have an opportunity in our hands to potentially change this. And we're going to take a unique or a different approach, as we've shared before with you in the way in which we launched Leqvio by partnering with health care systems to not only provide a unique and differentiated medicine, but address the nonclinical barriers to lowering and sustaining lowering of LDL-C. And as you know, we're preparing to resubmit our third-party manufacturing file in the U.S. in the second or third quarter. And so in the meantime, we're actively working to advance those discussions and partnerships with some of the leading health care systems in the U.S. and across the globe. And with pelacarsen, we have that opportunity to address a genetic risk factor for cardiovascular disease that impacts 20% of the population, and we're expecting the readout of our prevalence study later this year. So as we wait for Phase III outcomes data, our focus right now is to prepare the market by raising awareness and the testing of elevated Lp(a) and the significance of the cardiovascular risk that it represents in those patients. As you can see, there are many reasons to be excited about the life cycle program, not only for Entresto but also for atherosclerotic cardiovascular disease in our portfolio, both in the short and in the long term. And our focus is deliver on the execution of these launches with a great team that we have in place, and thanks to them to help bring us to this point. We will continue to achieve broad and affordable access and seamless prescribing for our physicians and patients to create the best possible experience we can in the marketplace and see that they can benefit from Entresto. So now let me go ahead and hand it back over to you, Samir.

Thank you very much, Rod. Turning to Slide 9, and just in summary, what you've just heard today is chronic heart failure is a complex disease affecting about 6 million people in the United States. The expanded Entresto label includes all patients with chronic heart failure, but with the benefits, most noticeable in those with the ejection fraction that's below normal. So that's about 5 million people in the U.S. The label update clearly recognizes that the chronic heart failure itself is a disease continuum. And the Entresto value proposition is as an essential first-choice treatment that's extending now into that broader CHF population. We're really excited with our cardiovascular franchise, both in terms of the Entresto life cycle management. And you heard from Dave and Rod about the post-MI indication, which we're investigating. But we're also excited by the follow-on molecules of Leqvio and pelacarsen, which we believe could be major players in this marketplace if the data shows out to be positive. With that, I'll now open the line up for Q&A. Thank you, operator.

[Operator Instructions] Your first question comes from the line of Graham Parry from Bank of America.

So I've got 3. So firstly, do you think there's a good understanding or consensus among treating physicians of what ejection fraction below normal means? And is it the hard LVEF cutoff of less than 57%, for example, that you think they'll use? And what does Novartis use when defining that 5 million patient population? Secondly, the PARAGON's trial investigated patients with elevated NT-pro-BNP biomarker and NYHA Class 2 to 4. Do you think physicians will limit use to these groups in HFpEF alone as well as using LVEF as a guide to who to treat? Or do you think you could get broader use, just given the high level of unmet need there? And then thirdly, this might be a question more for the excom, but Novartis previously indicated Entresto peak sales guide was $3 billion to $4 billion in HFrEF, $4 billion to $5 billion if you added HFpEF. But given Entresto is now growing strongly in HFrEF, it's probably going to be at the lower end of that peak range this year already. And in light of the expanded label, which is increasing that population by 2/3, do you think this is perhaps a time to readdress that guidance for the product?

Great. Thank you very much, Graham. Can I ask that the first 2 questions be addressed by Dave, both with respect to PARAGON, and the pro-BNP as well as the earlier -- the first question as well. And then perhaps, Rod, to address the question about peak sales and how we get to 5 million in terms of patient number, et cetera.

Yes. Great. Thanks, Samir. So thanks, Graham, for the question. So your first question was how well understood is this concept of ejection fraction below normal, and is that sort of anchored around the 57% number. So I think if you look at any echocardiography lab, so any place where they do echocardiograms and measure ejection fraction, there is a general understanding of what a normal ejection fraction looks like qualitatively, and what it isn't. And it's usually a qualitative assessment first. So if you think about a patient with shortness of breath and other signs and symptoms of heart failure, who've come in and they get an echocardiogram, and they clearly have severely depressed left ventricular function, that's pretty clearly below normal. What happens in the HFpEF population and kind of in that area between rEF and pEF is you have subtle abnormalities in cardiac structure and function that then may be called below normal function. So it tends not to be associated with a single ejection fraction value, but rather a relatively wide range. So for example, in most publications, a normal ejection fraction extends between 50% and 70%. So this is the importance of the mention in the indication statement of clinical judgment being used and not to the fact that this measurement is quite variable. I guess, to your second question, you asked if treating physicians would limit use in pEF patients who met the inclusion criteria, essentially of PARAGON. We would imagine that when -- if you think about it from the other direction, again, when you see a patient who's short of breath and has signs and symptoms of heart failure, typically, your first couple of steps are doing a thorough history in physical and then doing some lab tests, including an N-terminal-pro-BNP and likely an echocardiogram. So taken together, it's that total clinical picture that's going to likely drive the potential use of Entresto in that patient. And again, I think given the way that the label has been released by the FDA, the full information is now there and available for practitioners to fully inform the prescribing. And I'll hand it off to Rod for the -- your third question.

Yes. So Rod, the first question is how did we get to the 5 million number in the U.S. And the second one is when if -- will we change our guidance in terms of peak sales?

Yes. I think -- Graham, thanks for the question. If we look at the -- from various sources that we have in the U.S. to evaluate diagnosed patients and where they currently have ejection fraction measures using the new data from the label, what we see is roughly 5 out of 6 patients would have this lower-than-normal ejection fraction range. So it's the best data sources we have available is how we get to the 5 million patients in the U.S. or roughly a little over 80% of the population. If we also then look at how that affects in terms of the way that we're thinking about peak year sales and our guidance, as we shared at the fourth quarter earnings, we're comfortable with the external expectations as they stand right now at $5 billion. And really that's based on the fact that we will continue to see that the HFrEF population globally will continue to be the major driver of our forecast. We still have 75% of patients in the G-7 countries that can benefit from Entresto. And now on the back of the updated ACC expert consensus pathway, that will continue to be a strong driver for our growth. And now with this expanded population, we have a few things working in our favor. Obviously, as I said, with an existing set of relationships, strong field team, medical team in the marketplace and really solid access, there are a couple of things that we'll need to work towards. We're still operating in a COVID environment at least in the first half of this year. Guidelines are a major driver, and we learned that in the rEF population that it's just going to take time for this evidence to be evaluated and create some of that clarity in the marketplace. And going beyond the $5 billion, it's really going to depend on ongoing loss of exclusivity. We still anticipate the paradise MI, which is a post acute myocardial infarction readout that happened in the second quarter of this year. And then I referenced earlier the potentially the hypertension indication in Asia. So we're comfortable with the $5 billion, but going beyond that, we need a few things to go in our favor.

Your next question comes from the line of Andrew Baum from Citi.

A couple of questions, please. Firstly, on the patent. And then second on the adoption rate. So congratulations for the approval. It's not every day there's a trial with a -- this Phase III primary endpoint gets approved. But the market reaction is obviously very muted regardless, which I think is reflecting the perception that the patented period of this drug is very limited. So could you just clarify for us for your internal planning on a probability weighted basis, where does it fit? I think previously, you've given a '24 to '27 time frame. I guess what I'm getting at, is there any potential, firstly, that it could actually even go beyond '27? I note that there are a number of pending patent applications relating to the MAP component, which have not been issued yet, but I'm just wondering whether a submarine patent could actually extend the time frame and make this a more material contribution. And then second, anything you'd like to say given the pending discovery and court case for next year in terms of settlements and so on? And then moving to the second question, and you touched upon it in your last answer. Given the combination of conservative prescribers, guidelines and COVID, I would imagine that it's going to be a fair while yet before we see any material inflection point in relation to Entresto from this patient population. I just want to make sure that I'm understanding that correctly.

Thank you very much, Andrew. So Rod, do you want to comment first on the adoption rate? And then secondly, on the patent situation and any possibility of upsides?

Yes, Andrew, thanks for the question. So in terms of the uptake and adoption rate, I think very consistent with what you outlined in your question, the way that we're thinking about it. We're continuing to see strong growth today, and that's largely driven in the HFrEF population, we'd expect that to continue. In terms of this expanded population, to the point in the comments, it will take some time before we see a full ramp-up and adding to the incremental growth we're already seeing from the rEF population. It will take time for the medical education, the land for the data to get broadly distributed and the right patients, as Dave identified with below normal ejection fraction and some of the other tools to take place. So it will be a -- take some time for that to unfold. But we would expect continued strong growth that we've been seeing already and guided. In terms of the patent situation, as we've shared before, we have patents that has a range of patents that they extend up to 2027. And what I can share is that for internal forecasting purposes, we currently do not assume generic entry before 2025. And as you referenced, we're in ongoing litigation, and we will vigorously defend the patents that we have and are confident in them. But as its active litigation, Andrew, I really can't comment any further than that at this point.

Your next question comes from the line of Emmanuel Papadakis from Deutsche Bank.

Maybe a follow-up on the commercialization side of things. It doesn't sound like you think we'll need any incremental SG&A efforts. But I just wanted to check I understand that correctly. And if you are planning to add additional resource, is that going to be contingent on access levels, specifically for pEF and/or guideline changes? Do you anticipate those steps might come? And then just to be clear, I understood PARADISE, it sounds like you're talking about that as potentially upside to the current $5 billion guidance. So if you could just help clarify that and then help us think about the potential speed of uptake in that setting relative to the relatively slow uptake you've outlined potentially impact.

Great. Thank you, Emmanuel. So again, it's for Rod. So the first question relates to, do you need more resources or not? So are you going to hurry, asking for more or not? Or is the gating factor going to be access and/or guidelines before you get extra resources?

Yes. Thanks for the question. Let me start by saying, so the short answer is no. We're already investing significantly in this space. And I think that's reflected by the strong, consistent growth that you've seen. And as we've assessed the marketplace to both prepare the market and the product, we're already actively calling with our customer-facing resources, our field force and our MSLs, where we believe the majority of these patients will be treated and those prescribers and within those health care systems where we also have a very strong team. So we're not anticipating requiring a significant more investment because we're already covering that population. We will, as I said, fine-tune some of our efforts in our digital activities and our direct-to-consumer to extend to this new population. But we've got the right investment mix and feel confident in what we're doing there. I think the other really important thing to remember is this team has worked incredibly hard to build the access with payers and the value proposition that we have with Entresto. We've shared before, but it's worth noting again. And we have almost 100% access in the Medicare Part D population at 90% -- 99%. 80% commercial have preferred coverage in the commercial space. And what that means for affordability for patients is greater than half of the patients have no more than a USD 10 per month in their co-pay requirements. From the conversations we have with them, the payers particularly understand the value of preventing hospitalizations. And we've talked before about the fact that heart failure contributes $30 billion annually to health care costs, and almost 1/3 of that is related to hospitalization. So whether it was the PARADIGM data or now PARAGON in this expanded label, they see the real value that Entresto can be in reducing hospitalizations in the population. So those are things that we'll build on as we go forward in our commercialization. And no, we're not expecting payers to implement new prior authorizations. There's clearly no ejection fraction cutoff in the label. So one, it would be difficult to implement. And frankly, they see the value that Entresto brings overall. So that's our situation relative to access. In terms of PARADISE -- sorry, go ahead, Samir.

No, no, I was just going to ask you, yes, is exactly in terms of PARADISE trends. Any update or more optimism on peak sales forecast, I think was Emmanuel's second question.

Yes. For PARADISE-MI, it's important we see the data that we'll expect to see here in the second quarter. As I said, it's a large population. One of the things we've learned in this space clearly is to benefit. We will have to work very closely with the hospital systems, achieving protocol status and making it a seamless choice to them, but it ultimately will depend on the beta -- data that we see. As we've guided before, we do see it as a potential several hundred million opportunity, but it's going to depend on the data and the timing of the readout and approval before we would guide any further. Today, we really just want to focus on the excitement that we have in the expanded label.

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