Sandoz Group AG

Welcome to Sandoz's Half Year Results 2024. Earlier today we issued our half year 2024 report, including the financial statements of the company for the first half of the year.

We also released a press release, summarizing our sales performance in the second quarter and our results for the first half. In addition we published a supplemental slide presentation on our website earlier this morning, which we will follow on today's call.

You can find all these documents in the Investor Relations section of our website at investors.sandoz.com. Joining me on today's call are Richard Saynor, our Chief Executive Officer; and Remco Steenbergen our Chief Financial Officer.

Remco joined us on July 1st and is with us today for his first Sandoz earnings call. Our report, press release, presentation and discussion include forward-looking statements.

You should not place undue reliance on these statements. Such forward-looking statements are based on our current beliefs and expectations regarding future events and are subject to significant known and unknown risks and uncertainties.

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those set forth in the forward-looking statements. In this document, we present certain non-IFRS measures.

These non-IFRS measures may not be comparable to other similarly titled measures of other companies and has limitations as analytical tools and should not be considered in isolation or as a substitute for the analysis of our operating results as reported under IFRS. Non-IFRS measures are not measurements of our performance or liquidity under IFRS.

They should not be considered as alternatives to profit for the year, or any other performance measures derived in accordance with IFRS. For discussion purposes only in today's presentation sales in this document refers systematically to net sales to third parties and our comments on growth are expressed in constant currency.

As a reminder in the first half of 2023, third-party sales excluding sales to our former parent as this was shown as a separate line item. Post separation, sales to our former parent were classified as third-party sales.

And with that, I'll now turn the call over to our CEO, Richard Saynor.

Thanks Karen. It's a pleasure to welcome you to our second quarter and half year 2024 results call.

We had an exciting and promising half year and I'm looking forward to sharing our results with you today. The momentum in our business continues as we execute on our strategy.

We are making considerable progress on our biosimilar launches and at the same time are advancing some of the key biosimilar products in our pipeline. I will talk to each of our new launches and the biosimilar milestones in a moment.

Our sales grew 7% in constant currencies in the first half of the year, driven predominantly by the fantastic progress we're making with our biosimilar business. I'm delighted we saw growth across all our regions.

I would like to take the opportunity to thank all my colleagues at Sandoz for this great achievement. And as this is not it, we expect even more growth in the second half of this year.

Our core EBITDA margin declined versus the first half of 2023 as expected due to the inflationary impact of our cost of goods sold, which impacted us as the second half of 2023. Our core EBITDA margin improved significantly compared to the second half of last year with H1 quarter-by-quarter, driven by continued favorable biosimilar product mix and the absence of further inflationary pressure.

We look forward to the second half of the year. We expect our margin expansion to further accelerate from a continued favorable biosimilar mix and the benefits from our transformation program, which we initiated late last year.

This robust performance gives us the confidence to raise net sales guidance to mid to high single digits and to confirm our core EBITDA margin guidance of around 20% for the full year. I am very proud that we keep on delivering on our top line now with our 11th straight quarter of growth.

In the second quarter, we again saw strong growth of 9%, which resulted in a 7% growth for the first half of 2024. This was primarily driven by biosimilars, and once again all regions contributed to growth, a testament to the strong execution across our organization, the ability to use our scale to deploy our portfolio, and our deep competencies to keep on launching successful new medicines.

For the first time price erosion did not impact the top line in the second quarter of 2024 and over the last four quarters, it has remained lower than what we have seen historically. Now, let's turn to the business.

Our generics business grew 1% in constant currencies in the first half of the year, primarily driven by strong demand in our international regions. In Europe, sales remained stable despite challenging year-over-year comparisons.

We had strong sales of apixaban in the first half of 2023; and due to IP litigation, we have to withdraw the product in The Netherlands in 2023. We also had an exceptional cough and cold season in the first half of last year and a more average season in the first half of this year.

While both items impacted our generics business in the first half of the year, they expect to resolve in the second half of this year. In North America, our generics business declined in the first half of the year as our launches are phased in the second half.

Therefore we're expecting to see a pickup in the second half of the year including the launch of paclitaxel in the fourth quarter which could be a sizable contributor. Our biosimilar business grew a fantastic 29% in constant currencies in the first half of the year.

We are pleased with this exceptional growth as it reflects both the success of our new launches and the strong demand of our base biosimilar business. Hyrimoz continued to win share in the U.S.

and retained the leading market share amongst biosimilars. Tyruko or biosimilar natalizumab has grown share and contributed to sales in Europe.

And Omnitrope continued to experience strong customer demand in a constrained market supply environment. We're also progressing well on key biosimilar assets in our pipeline and are well-positioned for our upcoming launches in 2025.

Firstly, Wyost/Jubbonti, our biosimilar to denosumab received both European Commission and USA FDA approval. Wyost/Jubbonti are the first and only FDA-approved biosimilars in the reference medicine and we have settled on a launch date by quarter two 2025 in the U.S.

Secondly, Pyzchiva, our biosimilar ustekinumab, was the first biosimilar ustekinumab approved in Europe. We already have a strong presence in immunology and this product will allow us to leverage our existing infrastructure.

We have recently started to launch the product across Europe and have settled on a launch date in the U.S. of quarter one 2025.

Now, let me provide more color on Hyrimoz in the U.S. The launch continues to go very well.

In addition to our private label agreement with Cordavis where we have preferred access to 65% of CVS Caremark commercial templated lives we are winning share with our own branded Hyrimoz and unbranded adalimumab-adaz. The most recent IQVIA data shows that biosimilars have captured 19% of the market.

If we just drill down on the adalimumab biosimilar prescriptions, we have 81% share which includes our private label arrangement with Cordavis and the number one position with our own branded Hyrimoz and unbranded adalimumab-adaz. This puts us in a leading position in terms of market access and paying coverage amongst adalimumab biosimilars.

We are on formulary with all three major pharmacy benefit managers and are uniquely positioned by offering firstly the same dosing options as Humira including a unique starter pack; two presentations high and low concentration to ensure broader access for patients; a premium device that is supported by a comprehensive patient support service and a specialty sales force; interchangeability and a vertically integrated supply chain offering reliability and consistency. And we are a global leader with biosimilar adalimumab in terms of patient lives covered.

Now, let's turn to Omnitrope. Omnitrope was the first biosimilar we launched in 2006 18 years ago and we are still seeing strong double-digit growth, which speaks to the sustainability of biosimilars.

We are the market leader with the most recent share of 38% based on the latest available IQVIA data at the end of March 2024. This market has been supply constrained through the first half of the year and we're proud of prioritizing this critical medicine to ensure physicians and patients are receiving the supply that they need.

Now I would like to update you on Tyruko. We started rolling out Tyruko to markets across Europe at the end of 2023.

This product will build over time as the product profile is complex and we want to ensure an optimal outcome for each launch country with steadily growing share. Both tender authorities and health care professionals are valuing the availability of more affordable biosimilar in the multiple sclerosis space with this positive feedback from both physicians and payers.

In the US, we're still working with the FDA on our approval of the JCV assay and continue to target a year-end 2024 launch for this year. Since our Capital Markets Day of June 2023, we have consistently said there is an organizational efficiency component to our margin expansion goals of approximately 150 basis points.

And I'd like to update you on the progress that we've made since. We've been working hard in transforming our organization to become a more fit for purpose more agile simpler and more efficient organization.

Coming out of a large pharmaceutical company with a much more complex and layered infrastructure we have plans to reduce layers across the organization and simplify our processes. We see in the first half of the year identifying the scope of the opportunity and communicating with our works councils.

We are now in the implementation stage and have started with the first changes and we're already noticing the benefits in terms of our ways of working. This will be a multiyear program and we expect to incur costs of around $350 million, primarily related to personnel costs with expected annualized run rate savings of around $200 million by 2026.

We expect to see the first major saving benefits in our results starting in the second half of this year. With this I hand over to Remco for the financial performance and guidance.

Thank you, Richard. I'm pleased to be here with you today on my first Sandoz earnings call to discuss our second quarter and half year financial performance.

After almost six weeks with the company as CFO, I can tell you there are fantastic opportunities ahead of us, and I'm thrilled to contribute to it to the max. And to Richard and all colleagues at Sandoz thank you very, very much for the warm welcome that you have given me.

To all of you on the call, I look forward to meeting you in person in the coming weeks and months. As Richard mentioned in his opening comments, we had a strong first half of the year and we are gaining momentum, as we launch new high-value products.

Sales growth for the second quarter was 9%, all coming from volume with no price erosion. And sales for the first half of the year grew 7% with 2% price erosion, below the 4% in the first half of last year.

Foreign exchange had a negative two percentage point impact in the second quarter and a negative one percentage point in the first half. This was mainly the consequence of depreciation against the US dollar of several currencies in our international region, partially offset by depreciation of the euro and Swiss franc.

Let's now move to sales by business. Generic sales increased by 1%.

Solid volume demand in international was partly offset by a tough year-over-year comparison. In Europe, we saw strong performance of apixaban in the first half of last year, followed by the withdrawal in the Netherlands in August 2023.

We also had an exceptional cough and cold season in the first half of 2023 compared to a moderate one in the first half of 2024. In the United States as Richard mentioned, launches are phased in the second half of the year including one larger expected launch of paclitaxel with this impacted the sales growth in the first half.

We expect the generic business in the US to pick up in the second half. Biosimilars delivered strong growth of 37% in the quarter and 29% for the first half.

We're incredibly pleased with this performance and with the strong progress that we are making with our biosimilars. The growth was driven by the ongoing launch of Hyrimoz the acquisition of Cimerli and continued strong demand for our first-ever biosimilar Omnitrope; and contribution from the recent launch of Tyruko in Europe.

In the second half of the year we expect continued momentum from biosimilars I just discussed and contribution to start from the recent launch of Pyzchiva or biosimilar ustekinumab. We also will launch Tyruko or biosimilar natalizumab once we receive FDA approval of our JCV assay in the United States.

Now let's have a look at the performance of our three regions. All three regions delivered good performance in the second quarter and the first half of 2024.

Europe grew 3% in both periods. Gains from generics volume and continued strong demand from Omnitrope were partially offset by the year-over-year impact from the withdrawal of apixaban and the exceptional cough and cold season last year.

North America grew 23% in the quarter and 40% for the half year and benefited from strong biosimilar performance, primarily from the launch of Hyrimoz and the acquisition of Cimerli. This strong growth was partially offset by the decline of the US generics business due to the timing of launches.

International grew 9% in the quarter and 10% for the half year respectively, due to strong volume growth across biosimilars and generics with contributions from Mycamine and fibro pricing. So it's clear that our hard work on biosimilar starts to pay off.

With the continued quarter of strong double-digit biosimilar growth, biosimilars increased as a proportion of total sales to 27% compared to 22% in the first half of last year. If you recall at our Capital Markets Day last June of 2023, we set a goal of obtaining 30% biosimilar mix as a proportion of total sales by 2028.

So we have started very well. Our regional sales mix remains consistent with over half our business in Europe, where we hold strong leading position and the remainder equally divided between the North America region and the international regions.

Now let's move on to margins. Let me first focus on the sequential change in margin before providing details on the year-over-year change in margin on the next slide.

Comparing margin in the second half of 2023 provides a clearer view on our progress as we were still operating as a division in the first half of 2023 and the inflation on input costs only started to affect our cost of goods sold in the second half of last year. On a sequential basis, we're making significant improvement.

Core gross profit margin of 50.4% is 170 basis points higher. For our core EBITDA, sequential improvement is even stronger, with 210 basis points of growth.

These improvements are driven primarily by favorable product mix from strong double-digit biosimilar growth, whereas the inflationary pressure on our cost of goods sold has only been minimal. For the second half of 2024, we expect this trend to continue with more of that later.

If you compare the year-over-year core EBITDA margin, we first need to normalize it for a treatment of third-party sales in standalone costs. Our core EBITDA margin in the first half of 2023 was based on third-party sales excluding sales to our former parent, which were classified as internal sales.

Post separation sales to our former parents are classified as third-party sales. We stated in the first half of 2023 results in the 0.6 percentage points lower core EBITDA margin.

In addition, the first half of 2023 only included part of our cost as a standalone company, whereas the first half of 2024 has the full cost included. Restating the first half of 2023 results in a 1.4 percentage points lower core EBITDA margin.

Therefore on a comparable basis, year-over-year core EBITDA margin decreased by 1.3 percentage points from 8.8% to 17.5%. The positive mix impact from strong double-digit biosimilars growth was more than offset by higher cost of goods sold due to the carryover of higher input costs in 2023; price erosion, increase in sales and marketing to support launches, and investments in the pipeline.

Later I will provide you with more insights on expectations for the core EBITDA for the second half and therefore the full year 2024. Let's first start with the free cash flow.

To provide more insights on our free cash flow from our core business, we're excluding the one-off items and introducing the management free cash flow. This is a new format that we're introducing this quarter.

In the first half of 2024, we increased inventory at a lower rate than last year following the spin-off from our former parent. And other working capital and operating items remained stable despite strong growth.

We have continued to invest in our future. CapEx included investments in our new biosimilar facility in Slovenia and the expansion of our antibiotics facility in Kundl, Austria.

This has led to a management free cash flow of a positive $237 million which is higher than the first half of 2023 of $1 million. Reported free cash flow was $21 million and compared to an outflow of minus $86 million in the first half of last year.

The one-off items mainly were the separation-related operating expenses and the CapEx incurred in the first half of 2024. Now let's have a look at our balance sheet.

For our debt financing, we benefit from a well-balanced maturity profile with an average maturity of gross financial debt of approximately five years. This has been financed with fixed rates for about 70%.

This means that our net debt has been financed with fixed rates for about 90%. Our liquidity decreased as we paid our first dividend in May and acquired Cimerli whereas our reported free cash flow was limited as we paid nearly $200 million one-off separation costs too.

Our equity has remained stable around $8 billion and compares to a net debt of $3.4 billion. We have solid investment grade, ratings placing our company in a strong financial position to support our ambitions.

Thank you very much for listening to me so far and we are now moving to our full year 2024 guidance. I'm very pleased to inform you that we're increasing our top-line guidance for the full year.

We now expect net sales to third parties to grow mid to high single-digits in constant currencies compared to mid single-digits which we guided so far. We're also confirming our 2024 guidance of core EBITDA as a percentage of net sales which is expected to be around 20%.

As I said before, I would like to give you now some more insight as to why we expect core EBITDA margin to increase in the second half of the year. First this is due to continued favorable mix as biosimilars expected to become a larger proportion of our sales.

Secondly, we expect price erosion and inflation on input costs both to remain limited. Thirdly, we expect further manufacturing efficiencies in the second half of the year.

Fourthly, as we grow sales we will leverage our fixed cost base. A good example is our recent launch of Pyzchiva in Europe.

We are already a leader in immunology and can leverage our existing sales force without adding incremental expense. Lastly our transformation program started in the first half of the year will start to generate savings.

As Richard mentioned, earlier we expect around $50 million of savings in the second half of 2024. Thank you for listening to me.

And with this I will hand it back to Richard.

Thank you so much, Remco. Indeed our product mix is expected to improve further.

Regarding product approvals in the second half of this year as I mentioned previously we recently announced the launch of Pyzchiva in Europe. This was the first biosimilar ustekinumab approved in the region and we're very excited to add this product to our strong immunology portfolio.

We expect also to launch Tyruko or biosimilar natalizumab in the US late in 2024 pending FDA approval of our JCV assay. And as I laid out in the beginning, we expect more to come in 2025.

I would also like to remind you that what you can expect from us later this year. We have our strategic review update live in Zurich next month on September 3 where we'll explain further our strategy our progress around the spend and highlight key initiatives supporting our growth ambitions.

Regarding our next financial update, we will host our third quarter sales update on October 30, 2024. In summary, we are the global leader in generics and biosimilars and the number one biosimilar company in terms of market share based on IQVIA data.

We are a European champion with a presence in over 40 markets and are well positioned in the United States and through our international region in many markets around the rest of the world. We have the internal capabilities to execute on our pipeline and the scale to develop and attract strong partners to capture high-value long-term opportunities and we are operating in a large growing and attractive market.

This means that we have everything on hand to deliver on our midterm guidance both in terms of portfolio and pipeline and opportunities to simplify our business, all of this with the objective to deliver superior value creation for our society, by pioneering access to patients and our shareholders. Thank you very much for listening to us.

With this, I will ask the operator to open the line for Q&A.

Hello. James Gordon from JPMorgan.

Thanks for taking the question. The first question was to the full year guide implies about five percentage points of core EBITDA margin expansion in H2 and that's quite a step up after about two percentage points that you did today.

And the slide is very useful. I mean the slide 25 showing the bridge.

So it sounded like if I heard correct that the $50 million is the transformation. So, is that the savings?

And then roughly in terms of percentage points or basis points how much do you think you're going to get from the other factors? So, can you help us a bit with some numbers in terms of how much are you going to get from mix and efficiency SG&A and the leverage?

Second question is connected to that. The guide is around 20% core EBITDA margin.

How do you think about around so would 19% be around? Or how close is 20%?

How narrow is your around? And then third and finally, there's been some talk about GLP-1s and you might go after biosimilar GLP-1s.

Is that something that's going to be a focus of the strategy event? And how are you thinking about whether you'd invest lots in CapEx to make those or outsourcing them or the mixture of those two please?

Thank you, James. I'll let Remco take the first two questions and then I'll take the GLP

Hell, James, good morning, Remco here. I understand your question very well on the second half, right?

We laid out correct in the graph three components correct mix leverage on the fixed costs and the transformation benefits coming in. The transformation benefits are indeed $50 million.

So that's indeed a reduction of the $50 million. For the rest of the costs, we expect a relatively flat -- a slight increase, but a relatively flat number compared to the first half and then we have the mix.

If you compare the mix impact and the cost impact it would be around 50-50 as we currently estimate to reach that 500 basis points improvement. I hope that answers that part of your question.

Yeah, around 20%, correct? It is as it says around 20%.

So of course, we want to come as close to 20%. To give you an exact number in this is exactly what we don't want to do because that's why we say around.

But rest assured correct 20% is the number we have in mind and we want to go for this. And with the last question perhaps, we can go back to Richard.

Yeah. Look, I mean, September we intend to give more details.

I think, we've already disclosed that we clearly, this is a space that we're intending to go after. I think the important thing there's a couple of things to think about.

Really think about GLP-1s really in two or three phases. The first wave of GLP-1s coming off patent really starting Canada in 2026 with semaglutide and then a number of the international markets for the diabetes indication.

So, you won't see a big step up there. So I think it'd be interesting to see how that will evolve.

And then it's not until sort of the early 2030s that you see the US and Europe starting to come off patent. So it's not as though GLP-1s will come off in one go.

In terms of CapEx again this is an injectable product. We are investing heavily in injectable capabilities anyway.

We're already in the auto-injector space. So this isn't a technology concerning from that device point of view that we're not unfamiliar with.

And we'll tend to give you more clarity in terms of how we think about that over the next few years. But clearly, it's not something that's going to happen overnight.

It's going to build over several years.

Thank you.

Okay and thank you very much for taking for questions. My first one is on the US Hyrimoz dynamics.

So you stated that this is a take-or-pay agreement with Cordavis. I wanted to understand to what extent have the volumes in the second quarter exceeded the sort of the contracted minimum supply that you have in this agreement?

And then I also just want to get your thoughts on your ability to supply meaningfully more. We've seen in the prescriptions that you had to step-up and sort of maintained this high level of biosimilar penetration.

But to what extent can you further increase your penetration rates there? And then my second question is on the biosimilar of Stelara.

So you've announced a law in Europe. It would be great if you could give us some details on what you're expecting in terms of the ramp-up in sales there, but then also in the US you've settled for February.

Should we expect that this is going to be similar to the Humira market and that you're going to be relatively reliant on contracting directly with PBMs? And if you were to contract directly with a PBM when should we expect to hear that sort of announcement?

Would it be ahead of launch? Or would it only be after you've already launched off that February date?

Thank you very much.

Thank you so much, Harry. So yes, look, I think clearly there's two parts in the US on Hyrimoz.

Clearly, we're delighted with the relationship that we've built with Cordavis. We're seeing strong demand for the product.

You're seeing the switch flowing through in terms of the IQVIA data. So I think really sort of the take-or-pay element of the contract now is really not that relevant, we're just continuing to support that.

And then really I think your second bit question is the growth what I'm actually more particularly proud of given the number of competitors in this market is that if you strip out the Cordavis business we're the number one biosimilar player in this space. So we've been able to create our own brand momentum.

And that's really where I see the growth now coming as we build on that momentum. Clearly we're still on contract with the other two remaining PBMs and with our sales force looking to pull through incremental growth.

So I don't necessarily see another big step like we saw coming through earlier this year with the deal with Cordavis but I do see a steady progression now going forward. Regarding your question with ustekinumab, firstly, clearly uste, the deal we have with uste a very different kind of deal that we have with ourselves with adalimumab.

Clearly you remember that adalimumab is our product. We're vertically integrated and whereas ustekinumab is an in-licensed product from Samsung Bioepis.

So really it's a very different dynamic. What I would say though is clearly given our strength in the immunology field the strength of our launch capabilities we're confident in terms of how we would expect to see that.

Clearly if we do a deal with the PBM, we would disclose it at the appropriate time. But then ultimately that's been a partnership deal with individual PBM, so I can't really comment any further than that.

Thank you.

Hi. Thanks everyone for taking question.

Victor Floch, BNP Paribas Exane. Just one question on my side.

I was wondering if ever you could comment on what made you amend Eylea launch date to TBD? That would be very much appreciated.

Thanks a lot.

Eylea, the launch date.

Sorry, I missed the product.

Eylea.

Eylea. Again look, this is a complicated case.

We're still going through the court proceedings. I think at this point it's clearly -- I mean the LOE was I think July this year in terms of the base patent with a number of other peripheral patents.

So really launches between now and 2027 plus or minus. So I think at this point it's prudent just to give a broader range.

So that's why we put TBD. Beyond that, I really can't comment any further I'm afraid.

Good morning. Thanks for taking my question.

Firstly, on H1 itself if I look at the performance on revenues exactly in line with consensus costs, and therefore, EBITDA and earnings lower. And I just really wanted to understand to what extent that's us rather than you in a sense that is this a case of phasing of costs in our assumptions was slightly adrift?

Or was there anything underlying that was different? And particularly within that other expense was quite a bit higher than consensus expecting.

So any light you could shed on that? And one more question on the numbers.

I wonder if you could provide a definite for other working capital as defined in your management free cash flow slide. And then a second question on the broader environment.

It'd be interesting to get your thoughts firstly on the July FDA draft guidelines on post-marketing changes to biosimilars. There's an aim to smooth that process how important do you think that is for your business going forward?

And secondly, there's been a lot of political attention focused on the PBMs of late. So really I know you've said in the past Richard that they've not been a powerful enabling biosimilars market.

Do you expect any change to occur as a result of that political in broad-term?

Thanks Simon. If I take the FDA and the PBM question, first and then I'll pass to Remco for the financial questions.

I mean, I think it's too early to say. I mean, look I think clearly getting more clarity from the FDA in terms of the biosimilar position is no bad thing.

But I think, I wouldn't say it's material one way or another in terms of our business. So it's no change to our thinking about that.

And you're right, I mean, clearly the sentiment and the questioning in terms of the PBMs and the role in the U.S. health care market, I think, whichever side of the house, you talk to they have a similar view.

Ultimately, the U.S. is a fascinating market.

You have a highly fragmented supplier base and a very consolidated purchasing base and that's not necessarily to my view to the benefit of patients and ultimately to payers. So I think any debate and discussion around the PBMs is a healthy one.

And I expect it's something that will continue over the next few years. With that, I'll hand over to Remco.

Thank you, Simon for the question. Of course, I have no access to all your Excel sheets and the calculations behind this.

But my interpretation is the following on your question on the top line. We are very happy on the top line on the overall number.

As we've seen the biosimilars is a bit higher than everyone expected and actually a bit lower. We think actually that's a good trend.

If I look at the margin and the expectation and that the expectation was a little bit higher than we came in, my understanding is that the real background of the input cost coming in the cost of goods sold by many was assumed to be already probably into a certain extent. Whereas in H1 last year, clearly, we were still benefiting of all the cost of 2022.

So the full impact of cost of goods sold was coming in. It's probably a bit underestimated.

I think the second element if you compare it versus the first half of second half of last year as well, the standalone costs are not fully in the results, correct? That was not in H1 last year.

That was also not to the full extent in H2 last year. But in H1, they're fully in.

Therefore we also added the comparison versus H2 last year, because there you can clearly see that the input costs are staying flat the standalone costs are going a little bit up. That's probably what you see in the standalone cost.

Other than that there are really the additional launch cost which are in. The rest is well under control and the mix impact comes really visible when we do it for H2 versus H1.

And that is also why when you extrapolate that to the second half of this year we're confident, right? Because then the cost elements will really come in.

On the higher sales this mix improvement of biosimilars continues. So I think it's better for the understanding to compare really the sequential improvements from H2 to H1 and our expectation for H2.

That's my take on what is behind it, but of course, I can't exactly see what everyone has done in their Excel sheets. With regards to your question on the cash flow and the other working capital, it's not only the other working capital it's also other elements, which are outside to working capital and that's mainly all the gross to net related liabilities.

They are, of course, not in a definition of working capital, because they are considered like provisions and accruals in the old accounting terms, but we have combined that in one number, right? So, it's the combination of the normal working capital, plus the gross to net, is the sum of what you see on the inventory and the other.

I hope that helps, in a better understanding.

Yes, That’s very helpful. Thank you.

Hi. Thanks for taking my questions.

I'll just ask two quick ones. First, just pretty notable that price erosion didn't impact the top line in the second quarter.

I may have missed this in the prepared remarks, but I think you may have said that you're assuming limited price erosion in the back half. I was just -- I wanted to ensure just sort of, how are you thinking about price erosion development in the back half and going forward?

How much visibility do you have into that particularly in generics? And then, just thinking about the second half product mix shift and this having a beneficial impact on margin.

Is that more coming from continued mix shifting to biosimilars? Or are some of these expected new launches in generics going to be coming in at a higher margin?

Thank you.

Thank you, Emily. I guess, as for price -- I mean traditionally I think we've always said, and we've always assumed about 4, 5 points price erosion.

We've not really -- we've seen over read over the last 18 months, two years that's nowhere near that. I think last year was sort of about 3%.

Q1 was probably in the two percentage range. And clearly, the second -- Q2 was actually flat to slightly positive.

So I think we're not seeing a broader price. And I think some of that is clearly, location and mix.

International, given the nature these tend to be out-of-pocket products more frequently. Your ability to take price, is a little bit easier.

But overall, I think we've seen pricing stabilize and we don't see any signals that that's likely to change in the second half of this year. So ,we're relatively confident that that trend would continue plus or minus.

And then in terms of mix shift, clearly, I think what we've guided that biosimilars on average are about 20% more profitable than a typical small molecule. And clearly, the bigger proportion of our business comes from biosimilars that again as Remco has explained, helps lift the margin.

But also products like paclitaxel when we launch that in the US, is clearly going to be more accretive than a more classic standard generic. So a bit of both, but probably more heavily weighted towards the biosimilar side.

Okay. Thank you.

Hi, can you hear me okay.

Yes.

Okay. Great.

So just going back to the question on GLP-1 CapEx. Is there anything you see on the GLP-1 CapEx or do you see in the GLP-1 CapEx guidance that you gave at the CMD pre spin?

Or should we expect a CapEx updates at September 3, at the Capital Markets Day? And then, secondly on adalimumab contracting for 2025.

How far to that process are you now? Are you expecting to see any material shift in your contracting position?

Or do we -- should we be expecting to see a fairly dominant market share into 2025 in the adalimumab biosimilar market for Sandoz?

Thank you. I'll take the ada question and I'll let Remco take the CapEx question.

I never use the word dominant. So anyway, I don't see it that way.

But, so thank you, Graham. Look, we've never disclosed or we've never disclosed the nature of the contract.

But clearly, we said, this is a multiyear contract. I don't see any significant change as we go into 2025 in terms of our relationship with Cordavis.

And as I said, clearly, we intend to continue to focus on expanding Hyrimoz in our own share and continuing to work with the other PBMs. So I think we'll enter 2025, as we leave 2024.

On the question on GLP-1, I think it's first of all important to understand that, production capacity for GLP-1 could also be used for other products. So for the complex generics, it's a similar production capacity both on the devices as well on the whole filling and the elements.

I think it's also important to understand, that we will be buying the API correct and take the rest of the process, right? So over the coming years, until the end of this decade correct, we will have to evaluate how much production we will do in-house versus what we will do externally.

We're in that process of evaluating. There is still this $1.9 billion out there of CapEx we have given so far through 2028 that we will be evaluating in the second half of this year.

How we will have to balance? How the overall cash flow position comes?

And what commercially really makes sense? How to drive this capacity level up?

So in the beginning of September, it's unlikely we will give you new guidance in this regard, but in the beginning of next year we hope to be able to give a little bit more. But of course all commercially driven I think there's a fantastic opportunity here.

So the payback on anything we would do additionally for sure will only help our margins. So I'm very positive on this.

I hope that answered your question, Graham.

Yes. Thanks.

And just actually maybe to follow up on the CapEx point there. So, is it fair to say that your CapEx for the sort of international launches the kind of the earlier parts of the GLP-1 generic market would be easily served by the CapEx you have out to 2028 and it would be a post-2028 CapEx step-up that would be needed in the US and European markets?

Is that the best way to think about it?

I don't think that's unreasonable. I think I said earlier on really think about this sort of two or three phases.

Clearly, our main focus at this point is products like semaglutide in Canada that's with partners. So we have optionality in terms of their capacity or our capacity.

As Remco said in a sense the capacity we're talking about here really is injectable fill finish and auto injectors. That's a capacity we already have.

So it's about how we invest incrementally to expand that rather than something specifically for GLP-1s. And then as that evolves.

And I think honestly I don't think nobody knows -- really knows how those markets are going to evolve once GLP-1 competition comes. Then we'll be in a much better position to think about what that will look like as we then enter the regulated markets in 2031, '32, '35 in which case the frame may look very different.

We don't know what position the orals will take. There's so many variables here.

So our focus very much is sort of '26 to '28 building incrementally what we can leverage with our own capacity partners and then thinking about what that needs to look like as we enter 2030s. So, I think we're in a really nice position as Remco said.

Clearly, look this is a super exciting opportunity.

Great. Thank you.

Hi, thanks for taking the questions. So maybe two questions from me, which will be more related to the PBMs.

The first one will be, do you think that even if you have this first agreement with Cordavis, would it be possible to replicate that with the other key PBMs in the US? And the second question will be more long term, but did this dynamic that you saw with Hyrimoz change anything in your pipeline strategy?

Meaning that you want to develop more biosimilars that will tend to be PBMs-driven market? Or you want to stick to previous plans?

Thank you, Nicolas for the question. I think already -- I think one of the other PBMs have already disclosed who they intend to partner with.

And so look our focus on selling on adalimumab is partnering and working with Cordavis. So I don't expect own label with other PBMs in the market.

That said, we're still on formulary with the other two PBMs and we'll continue to pull our own brand product through and work on expanding the market there. In terms of strategy, I think let's take a step back.

Ultimately, we've always said we think about our pipeline really from a European point of view. So all the biologics we've ever developed we've launched in Europe.

Every one we've launched, we've ended up in a broadly number 1, number 2 position. This is a 10-year journey.

I don't think any of us could predict what the PBMs will be doing in 10 years' time. So I think it will be foolish for us to have a strategy based on what PBMs are doing now.

And I think what's important as we look at this holistically. We look at it multi-regionally really focus on in Europe and then seeing the US as an opportunity.

And because even when you come to the US, there's uncertainty in terms of the launch date. If you look at a drug like Enbrel, Erelzi this is a product that's freely available in Europe.

And yet, we still have a long and complicated patent journey. So I don't think we'll actually launch until about 2029 in the US.

So I think this really comes back to the strength that Sandoz has been really centered in Europe, leveraging that and then really driving those opportunities into the US rather than being so specific in terms of specific molecules that would suit a PBM strategy, which ultimately isn't something that we can control.

Hello. Thank you.

Just maybe a few questions on your biosimilar pipeline and in particular the partnership with Evotec, which was expanded recently. From my understanding they are in charge of each development and then also manufacturing of the biosimilar.

Can you just tell us to what extent these products are going to be interlinked with their continuous manufacturing technology? Can you potentially put in place your sourcing later on with your own manufacturing capacity or with other CDMOs for this pipeline asset?

And the reason I'm asking this is just because continuous manufacturing is still a relatively new technology and there might still be some regulatory question marks associated with it until regulatory agencies are comfortable with the kind of question on this. And just also related to this on this biosimilar pipeline, do you have even very approximate time line on when we should see the first biosimilar from this partnership or kind of your next wave of patent assets going through regulatory -- going through basically regulatory assessments?

Thank you.

Okay. Thank you so much for your question.

Really I mean the partnership with Evotec is -- you're right in a way, there's two parts to it. There's a development component and a supply component and the two don't necessarily have to link.

So we've worked -- we've started working with just really in terms of using them as a development partner and that's progressing well. It's difficult -- I mean really the frame on these products is much further out than the guidance period, so I can't really comment about in terms of filing and expectations there.

But I'm really pleased with the relationships that we have. I think the collaboration between our scientists and theirs is really, really strong.

And then the continuous manufacturing really it's an option. I'm delighted that we have access to this technology on a unique basis.

It has the potential to transform costs and flexibility of supply over the long-term. But certainly it's not a critical component of our supply program as we go forward and think about the development of those products.

And if you think about our supply network at the moment, clearly we take the bulk of our supply from Novartis on a cost-plus basis. We're investing heavily in our own network now in Slovenia to have capacity there, and then also a blended capacity with partners with [indiscernible] or Samsung that gives us a flex.

So I think we're ultimately building a strategy of supply that gives us as much optionality and security of supply as well as cost leadership over the next few years. But thank you for your question.

Thank you.

Thanks for taking my questions. Just two if I may please.

Firstly just to come back on pricing. Can you comment on US pricing specifically and what you expect to see in the second half?

And then my second question again is looking at the second half dynamics looking at the second half last year in particularly Q4, it seems like it's a tougher base comparison. So how should we think about the growth phasing from here with the new launches and then exit rate for this year?

Thank you.

Yeah. We only really ever talk about pricing on a global scale.

We tend not to break it out regionally. I don't think it's ultimately -- I know why you're asking, but I think there's so many ups and downs.

I don't think it becomes that useful when you break it down by region. But certainly I think on a macro level, we don't see any fundamental shifts in terms of a broader pricing base.

And also bear in mind a bigger proportion of the U.S. business is coming from biosimilars, which tend to have a more stable pricing dynamic anyway.

And then, I guess the quarter-on-quarter or Q4 comp over Q4 last year, I mean, I think a lot of the negative impacts that we saw last year and Remco talked about apixaban, clearly the strong cough and cold season that we saw in 2023 all of those effectively wash out. And so clearly I think it puts us in a nice position, as we go into Q4 this year with I guess all the negatives that we've seen in the previous year washing through coupled with clearly the ustekinumab launch denosumab launch in Canada, natalizumab launch potentially in the U.S.

So again, it helps strengthen our confidence and hence why we ultimately raised the sales guidance for the rest of the year.

…taking my question, I've got -- so the first one, but what is your Stelara [Technical Difficulty] versus low-single digit? And how are tender negotiations going?

And then, the second one is just how is, your market share for Cimerli being growing share after you took over the rights. And just on Omnitrope is your share up?

Q1 I think it was around 34%. Thank you.

Thank you, Victoria for the question. I mean, Stelara, it's still early days.

I think we launched literally about a week ago. So I'd love to give you the figures, but it's a bit soon.

So it's probably more a question, as we get into the sales call later this year. Cimerli, broadly it's stable.

We never really anticipate – remember, the rationale for acquiring Cimerli was twofold. Clearly it gave us a LUCENTIS biosimilar in the U.S.

but it also gives us a commercial capability to launch ophthalmology products in the U.S. market going forward which clearly aflibercept potentially will be one of them.

So we didn't really buy for opportunity growth potentially it had achieved a reasonable market share and we expect that to remain broadly stable. And then Omnitrope, I guess Omnitrope is -- I'm a big fan.

I mean this is our first ever biosimilar. In fact, I launched this product in Japan 18 years ago which is showing my age.

And it's a fact that it's continuing to grow and now we're the world's largest supplier of human growth hormone. And we're seeing that trend continue; a it's a testament to the longevity of biosimilars.

But also how important is we focus and make sure we continue to supply this for patients going forward. So very proud of what we're doing and how that is continuing.

So I don't see any significant change and I would expect that to continue to grow over the next few quarters. So with that, I think, that's the last question.

I'd again, just like to thank you all for your questions this morning. I look forward to interacting with you over the next weeks and months.

Hopefully many of you will make our Capital Markets Day in September, in Zurich. And look forward to seeing you all then.

So have a good day. And thank you for your time.