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Novartis AG, Inc. (NYSE:NVS)
Q4 2017 Earnings Conference Call
January 24, 2018, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and good afternoon, and welcome to the Novartis Q4 and Full-Year 2017 Results Release Conference Call and Live Audio Webcast. Please note that during the presentation, all participants will be in listen-only mode and the conference is being recorded. [Operator Instructions] A recording of the conference call, including the Q&A session, will be available on our website shortly after the call ends. [Operator Instructions]

With that, I would like to hand it over to Mr. Joe Jimenez, CEO of Novartis. Please go ahead, sir.

Joseph Jimenez -- Chief Executive Officer

Good afternoon, everybody and welcome. To start off, I would like Samir to read the Safe Harbor statement. Samir?

Samir Shah -- Global Head, Investor Relations

Good afternoon, everybody. 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. Please refer to the company's Form 20-F on file with the U.S. Securities and Exchange Commission for a description of some of these factors.

Joseph Jimenez -- Chief Executive Officer

Thanks, Samir. Since this is my last quarterly earning call as CEO of Novartis, I'm going to have the bulk of the presentation presented by Harry Kirsch, who you know is our CFO. He's going to cover 2017 financial performance. Paul Hudson, Head of Pharma, is going to give us more detail on Cosentyx and Entresto. And then, Vas, incoming CEO, is going to outline his vision and priorities for Novartis going forward.

But first, I just want to share my thoughts on Slide 4. You'll have seen from the press release that we can say 2017 was a good year for the company. We grew sales in constant currency despite the patent expiration of Glivec. We had a great year in terms of innovation. We executed well on the growth drivers and returned the Alcon business to growth. At the same time, we continued to strengthen the company by implementing the new operating model.

So, as I come to the end of my time as CEO, I'm leaving confident that the company is in good hands. Vas and I have worked very closely over the last few months, planning and preparing for this transition. The next phase of this company is all about executing on the growth potential. I know that Vas and the executive committee will be focused on bringing the pipeline to its full potential.

So, now I'd like to turn it over to Harry to talk about the '17 results in detail.

Harry Kirsch -- Chief Financial Officer

Thank you, Joe. Good morning and good afternoon, everyone. As usual, my comments refer to growth rates and constant currencies and compare to prior year, unless otherwise noted.

On Slide 6, I want to start with a quick comparison between the guidance we gave in January last year and the final results. As you can see, we came in at above or at the upper end of our guidance. Full year sales were up 2% and core operating income was in line with prior year, despite 2017 being our second year of Glivec generic erosion.

Turning to Slide 7, we show the quarter four and full year results. On the left side, you can see that we have very good performance in quarter four. Med sales grew 2% and core operating growth accelerated to +5%. In the full year, our sale grew +2%, a strong performance of our growth drivers, including Cosentyx and Entresto, more than offset Glivec generic erosion.

Core operating income was in line with prior year as sales growth and productivity fully offset generic erosion growth investments. Operating income grew 7%, including low amortization. Net income grew even 12%, driven by high income from associate companies. Core EPS was $4.86, growing 3%, including the benefit from share buyback program. On free cash flow, we have delivered a solid full year growth of +10% to $10.4 billion.

Now, moving on to Slide 8. These are the key brands and innovative medicines driving our top line performance. As expected, the greatest contributions came from Cosentyx and Entresto, and Paul will provide more details of those later.

I want to point that Promacta, Tafinlar + Mekinist, and Jakavi continue to grow strongly with sales increasing around 30%. Kisqali was launched during 2017 and contributed full year sales of $76 million. As a result, total oncology business unit sales, excluding Glivec, were up 10% the full year and 30% in quarter four.

Now, let's turn to the margins on Slide 9. As you can see, all divisions grew core operating income in quarter four, starting with a margin improvement of 25% for group. Innovation medicine sales grew 4%, leading to 9% growth in core operating income. Core ROS increased to 30.5%, driving the overall group margin performance.

Sandoz sales declined 4%, mainly due to industrywide pricing pressure in US. However, core operating income grew +1%, as the sales decline was offset by continued strong growth margin improvement and gains from the divestment of small tail and nonstrategic assets. Core ROS increased to 20.9%.

Alcon sales grew 6% in the fourth quarter, driving 36% growth in core operating income. Core ROS was 14.1%. To note, in quarter four, stock and trade movements accounted to approximately one point of Alcon sales growth. So, the underlying CZ sales growth is about 5% in quarter four, in line with the underlying growth in quarter three.

On Slide 10, you'll see the Alcon quarterly results throughout 2017. For the full year, sales grew 4% and core operating income grew five percent. Importantly, Alcon grew sales in every quarter based on the actions taken by Mike and his team to fix the basics, improve operations, and customer relations. As a result of this, surgical grew 5% and vision care grew 3% in the year. With the continued progress of the turnaround in Alcon, we expect continued sales growth and improved margins in 2018.

Slide 11 shows our strong free cash flow of $10.4 billion, 2017 up 10% gross prior year. This was mainly driven by favorable working capital, lower legal settlement payments, and lower CapEx.

On Slide 12, you'll see our improving CapEx trend over the past five years. CapEx was high in 2013-2015 as we completed our new campuses in Boston and Shanghai. In 2017, we continued to prioritize our investments in manufacturing projects.

On Slide 13, you can see the net debt stood at $19 billion at the end of the year. The increase was mainly driven by the $6.5 billion annual dividend payment, net share repurchases of $5.2 billion, mostly offset by a $10.4 billion free cash flow in 2017.

On Slide 14, we propose dividend of CHF 2.80 per share. This is in line with our policy to have strong and growing dividends in Swiss francs. It's an increase of 2% in Swiss francs and 6% in US dollar. In terms of payout ratio, this dividend represents 87% of our net income and 64% of our free cash flow.

Slide 15 shows our full-year guidance for 2018. We expect group sales to grow low to mid single digits. For innovation medicines division, we expect sales to grow mid-single digit, driven by the continued uptick of our growth drivers. For Sandoz, we expect sales to be broadly in line with slight decline for 2017 due to continued industrywide pricing pressures we assume US.

For Alcon, we expect sales to grow low to mid single digits. We are pleased with the 2017 return to growth and look forward to another strong year as the Alcon team completes the turnaround. The transfer of the after RSE products into Alcon will not have a material impact on 2018 top line growth but will increase Alcon's margins. We will issue updated segment financials reflecting the new structure toward the end of quarter one. From group core operating income, we expect growth to be in the range of mid to high single digit.

On Slide 16, let me briefly comment on expected half one and half two core operating income dynamics. We expect our innovative medicines growth drivers to deliver an increasing contribution throughout the year. Of course, Alcon is also expected to be a growth contributor. But, we also expect Sandoz US price pressure to continue, which likely results in Sandoz sales decline in half one.

In half one, we also expect a stronger impact from Glivec generic erosion, the tail end of it, and investments behind oncology launches. Therefore, we expect core operating income in quarter one to be broadly in line to a low single digit increase versus prior year.

In half two, we expect stronger core operating income growth, which will benefit from expected increased contribution of innovation medicine launches and new launches at Sandoz.

On Slide 17, I would like to add some perspective on other key elements of our expected bottom line performance in 2018, beyond core operating income. We expect core net financial expenses to be about $100 million higher, mainly due to the higher interest costs, including financing the AAA acquisition and the full year effect of the bonds we issued for the 2017 share buyback program.

On core tax, we expect a slight positive effect from US tax reform, but how positive is not yet clear as the details and interpretations of the law still have to be finalized with the IRS. We also expect a shift of profit mix to higher tax jurisdiction and, as a result, the core tax rate could stay broadly in line with 2017 or increase slightly to around 16%. We will update you with quarter one results on where we think we will be for a full-year on the tax.

On Slide 18, you see how currencies would impact our results if mid-January rates prevail for the remainder of 2018. Due to the weakening US dollar, mainly versus Euro, the full year currency impact on sales would be +3%. The full year impact on core operating income would be +4%. For quarter one, the currency impact would be +5% on sales and +6% on core operating income. We will continue to publish every month the expected currency impact on our website.

And with that, I'll turn it over to Paul.

Paul Hudson -- Chief Executive Officer, Pharmaceuticals

Thank you, Harry. Good afternoon and good morning to everybody. It gives me great pleasure to share some of the highlights from the pharma business. Entresto surpassed the $500 million mark in 2017, delivering on our promise for patients and for the business. Q4 recorded the strongest quarter-on-quarter growth this year, +43% worldwide, with a full year growth of over 195%.

Performance is fueled by continued momentum and progress on access on uptick ex-US as well. We're now launched in over 60 countries, just France to come. Now, we won't guide to a specific number this year. I'm very pleased with our current trajectory and it's probably worth saying that we've seen and learned that Q2 and Q4 are the areas where we get our biggest volume uptakes. So, signposting '18 is going to be important to establish what we could actually achieve this year.

As the underlying dynamics in the US have taken a real positive trajectory, I've put on here the January number, the first couple of data points, at 22,000 on TRx. We broke the 20,000 in December for the first time. We predicted this would happen. We said that our peak productivity per salesperson would really reach optimum impact in November/December and, indeed, that has happened exactly as we hoped.

We're picking up over 640 new writers in the US every week. We have 55,000 physicians who have been prescribing Entresto. Although cardiology remains the bulk of the prescribing, it is fair to say PC adoption is accelerating.

The underlying access situation has also improved. We regularly get questions on this. October gen med D is up to 93%, October gen commercial is at 70%, and importantly no PA restrictions in med D at 60% and no PA in 40% in commercial. We will improve that slightly in med D in the first quarter of this year.

Looking longer-term, I said this time last year that we would try and give some sense of perspective about how big Entresto could be when we exited Q4 of '17. While delighted with the performance, we can now see a path for reduced ejection fraction that would take us somewhere beyond $3 billion before LOE.

Now, on this chart, you can see we tried to dimensionalize our preserved ejection fraction in relation to reduced ejection fraction while no real credible medical treatment in preserved ejection fraction. We'll get our final readout in the summer of next year. We think that, with some good education, this is going to provide not only a great benefit to patients in HFpEF, but also have a positive impact on reduced injection fraction patients.

What does that mean ultimately? Well, we think it means that we'll be somewhere before LOE a $4-5 billion peak meds in Entresto. Importantly, we expect Entresto to be margin accretive from the very beginning of 2019.

Turning to Cosentyx. Cosentyx itself has had also a fantastic 2017. We've new entrants launched, but we've seen ourselves become a multi blockbuster in the full year. Q4 sales of $650 million, which is 11% quarter-on-quarter growth -- in fact, we've seen growth in all indications, in all geographies. Our ex-US performance, in fact Q4 results, are annualizing now at $1 billion on their own.

Now, with entrants, we've still continued that great performance. So, our NBRx leadership, out of all of the new entrants in Q4, has been maintained despite Tremfya. In fact, our NBRx growth over that period is the leader among all of the medicines.

Outside of psoriasis, in spondyloarthropathy, we continue to maintain market leadership against Humira and Enbrel in AS and PsA, which is a huge statement of the clinical benefits of this medicine.

2018 is an important year, clearly, with Tremfya, Taltz, and of course, with the [inaudible] about to come at the end of the year. And, we've been very thoughtful again about our rebates at the beginning of 2018. Our access is very good shape, in fact, for 2018. And, we recognize what an important year it is to decide who comes through this year in great shape. After that, most of the innovation is in the market and our opportunity to grow for the next half decade is in play.

Let me give you some sense of perspective on my last slide, around dimensionalizing the opportunity for Cosentyx. We get continually asked questions, and mainly around psoriasis, and we've tried to share over the last year how big of an opportunity PsA, AS, and indeed, in the future, non-radiographic axial spar is. The number of PsA systemic treated patients is bigger than that in PsO. The number of AS patients is almost the same size, if not slightly bigger, than PsO. And the Anti-IL17s have a greater degree of efficacy in AS and PsA and non-radiographic axial spar.

That sets us up in a very strong position for our performance over the long-term in these indications. Importantly, though, in psoriasis, we still make a breakthrough. We have landmark five-year data. We have head-to-head studies -- most recently, the CLARITY study versus Stelara. And we feel strongly positioned because the efficacy bar has now been set and probably doesn't need to go any higher. We feel well positions to win, and to at least preserve and grow share in psoriasis.

Right across the indications, we're already deployed in dermatology and rheumatology, so the need to add more investment becomes less, which is a great opportunity for us, given that our overall expectation is that we can become a blockbuster in each of these indications separately.

Coming to a conclusion, we're delighted with the progress with Entresto and with Cosentyx. I think it's a great statement of our ability to commercialize on the great science from the company.

I'll hand over to Vas.

Vasant Narasimhan -- Global Head of Drug Development, Chief Medical Officer

Great. Thanks very much, Paul. Thanks, everyone, for joining the call. As I come into the CEO role, I'd like to share some of my initial reflections on the future direction of Novartis. Over the past five months, I've been getting external perspectives on the company, meeting with investors, meeting with external stakeholders, and meeting with our own internal associates, and really trying to develop a strong perspective on the company, informed by my many years here, but also trying to take an outsider's view.

My thinking will continue to evolve, and I look forward to keeping you updated over the coming months and years, but I want to share some of my initial thoughts. If you go to the next slide, we face a dynamic and complex external environment. When you look at the opportunities for a company like Novartis, there are high unmet needs that remain, with many people around the world not living to their full, healthy life expectancy. We have many new therapeutic modalities and platforms that are coming forward, as we demonstrated with our work with Kymriah and cell therapy. I think there are many more to come.

There is increasing demand for curative therapies and improvements and quality of life. We're clearly in the midst of a data and digital revolution in pharmaceuticals, but also across multiple industries. We also face challenges that you're also all aware of -- increasing competition, rising and more difficult standard of care to beat, increasing payer and pricing pressure, and an industry reputation we need to continue to strive to improve.

When I reflect on where Novartis stands with respect to these opportunities and challenges, I sincerely believe we're well positioned for the future. We have global scale. We have innovation power. We have world-class talent. And, we've increased our capability in data and digital, which I think will power us into the future.

If you go to the next slide, our aspiration, as the leadership team, is to lead for the long-term. From a strategic perspective, that means continuing to lead as an innovator of transformative therapies, be a leader in data and digital, be a productivity leader in building a lean and agile organization that can confront the challenges that we'll face, and a leader in attracting and retaining the best talent in the industry.

From a financial standpoint, and for our shareholders, we want to drive solid and sustainable top line growth, drive ongoing core margin expansion, deliver solid cash flow, and keep improving our return on capital employed.

Now, moving to the next slide, when you think of all of that in perspective, if you go back to the 1920s, Novartis was a medicinal chemistry and industrial company. For most of our history of CibaGeigy and Sandoz, this was the core of the company. In 1996, with the formation of Novartis through 2009, we became a diversified healthcare group spanning a number of different sectors in healthcare.

Under Joe's leadership, we've undertaken a portfolio transformation, where we've focused the company in three leading businesses -- Sandoz, Alcon, and Innovative Medicine. As I look into the future and look at a more complex environment, and environment that's going to be increasingly competitive with rapidly changing technologies, I believe we have to focus the company as a focused medicines company powered by data science and digital technologies.

This will allow us to allocate our capital to where our core capabilities are. We'll continue to evaluate if relevant adjacencies make sense, but we really want to focus our investment in our core.

When you go to the next slide, as we look to the future, there will be five priorities we'll be driving across Novartis for the years to come. First, is an increased focus on operational execution to ensure launch excellence, high levels of productivity, and keep driving that margin improvement. Second, is to pivot even harder to break through innovation. Access will also remain important, with our Sandoz division, but we need to pivot to high-end transformative innovation. Be a data and digital leader. Rebuild trust with society. And, shift our culture to a more inspired, empowered, and unbureaucratic organization.

I also have four specific goals over the next five years related to our longer term financial performance. If you go to Slide 30, when we look out on the next five years, I believe we're well positioned to drive dynamic sales growth. When you look off of our 2017 base, we will have the generic impact of Glivec (sic), Afinitor, and the tail end of Glivec.

But, as Paul nicely outlined, Cosentyx and Entresto are growing well. In addition, we have multiple potential blockbuster launches coming through the portfolio in the next three years. When you look across that portfolio, there are exciting medicines like BAF and RTH, among others. In addition, our onco growth drivers continue to perform well.

As Harry mentioned, excluding Glivec, we achieved over 10% growth in our oncology business. Kisqali, Kymriah, and Rydapt are key growth drivers for us, that we believe will continue to help us deliver on our growth trajectory. Finally, with the leading biosimilars portfolio in the industry, and Alcon returning to growth, both Sandoz and Alcon will also contribute to this growth dynamic.

Moving to Slide 31, we're also committed to expanding our margins. If you take innovative medicine specifically, our full year 2017 margins were around 31.3%. We know our relevant industry peers are in the mid 30s in terms of their core operating margins, per our own estimates. We believe we can be in this range by accelerating our key growth drivers, continuing to be aggressive with resource allocation and productivity across our commercial unit, and with the new operating model we've set up to drive synergies across Novartis technical operations, NBF, and drug development.

Now, this will be offset by the challenges of generic entries as well as the need to invest in our potential blockbusters. But, our ability to drive core margin improvement will be a key priority for us as a leadership team and for myself as CEO.

In moving to Slide 32, when you think about our innovation power, our ability to keep reinventing our pipeline is absolutely critical for our long-term success. We've demonstrated over the recent years, that we have leading industry pipeline productivity. We have limited binary risks throughout our portfolio, where we can counteract the challenge in one TA with performance in another. And, when you look at some of the highlights on this slide -- 21 breakthrough therapy designations, 90 NMEs in the clinic -- we think our innovation engine is strong.

Lastly, on the longer-term perspective, I wanted to turn to capital allocation. Novartis has been very disciplined in capital allocation under Joe, and we plan to continue that with our four key priorities -- investing in our organic business, growing our annual dividend in Swiss francs, pursuing value creating bolt-on acquisitions -- and I'll continue to have a focus on looking at acquisitions that are true bolt-ons, where we believe we'll bring in new technologies and capabilities in our core areas of the company. And then, share buybacks, when appropriate.

An external analysis on the righthand side of this slide show the kind of discipline that we've had. When you look at R&D as an investment decision of our cash, you can see that we've consistently invested over the last five years 35% of our cash into R&D. We have a solid investment into CapEx at 15% and bolt-on M&A at 15%. And then we've returned 35% of that cash to shareholders in the form of share buybacks and dividends. We want to continue to maintain that kind of capital discipline.

Moving to the next slide, I'd like to turn to 2018, as well as wrap, and give you some perspective on how we see this year unfolding. Moving to Slide 35, 2018 is our return to growth and it's going to build the foundation for the future of the company. We have multiple priorities across each of the five areas and they all will enable us to deliver the financial outlook that Harry provided.

I'd like to go into a few of these in more detail. Turning to Slide 36, in operational execution, our core priority is going to be to continue to drive our key launch growth drivers. With Cosentyx, we want to maintain our competitive edge in psoriasis as well as grow our penetration and spa, as Paul has nicely outlined.

With Entresto, we have want to keep the momentum going in the US and drive further uptake in Europe and around the world. And then, finally, in oncology, where we have a broad portfolio, our goal will be to continue to maximize our GSK acquired brands as well as our launch brand.

Now, with Kisqali, we did have a slower start than we had hoped, but we continue to believe, with the MONALEESA-7 data coming out positive as well as the upcoming MONALESSA-3 readout, as well as our launches now across the European marketplace, we can continue to drive Kisqali toward a blockbuster medicine.

With Kymriah, we'll add our DLBCL launch when approved in the US and Europe. And, with Rydapt, we have the potential to transform the care of AML patients. Overall, we believe, in oncology, we have the opportunity to drive dynamic growth in one of our most important segments.

Moving to Slide 37, as well as operational execution, it's going to be critical for us, given the challenging environment we're in, to deliver in our upcoming blockbuster launches. You can see that, across the next two years, we have six major launches, as well as six more potential significant launches in 2020. Our ability to deliver through the registration process, prepare these launches, and execute on them flawlessly is core to our executive team's goals, and we'll continue to provide you updates as we progress in preparing for these important medicines.

On Slide 38, we're also progressing on the portfolio review of Alcon, as well as accelerating our review and focus on Sandoz and focusing on a differentiated portfolio. With respect to Alcon, our management's focused on completing the turnaround, as you saw nicely in the performance in quarter four. We're making progress toward the capital markets exit with dedicated teams working toward that. But, there is no change on the timing of a potential action. We continue to guide toward the potential action in the first half of 2019.

With respect to Sandoz, we have a very strong global Sandoz business, and it's growing well outside the United States, as well as the leading biosimilars portfolio. But, we are facing challenges, given the US oral solids industrywide pricing pressure in the United States. We will plan to continue to reshape our US business with a focus on more complex products, and that will include looking at how to best shape that portfolio for us to be successful in the future. We'll continue to keep you updated as those decisions evolve.

On Slide 39, finally in operational execution. Our goal will be to continue to drive the cost savings that we've outlined in the past, to deliver over $1 billion of savings in Novartis technical operations, drive flat costs in Novartis business services, and keep our R&D spend in the 20% range, enabled by increasing scale and better digital technology.

Moving to innovation, there are a few additional updates I wanted to provide to the group. In 2017, as Joe outlined, we had a real landmark year -- 16 key approvals, 16 key submissions, six breakthrough therapy designations, and importantly, a rebuilt interface between research and development that called out 14 new projects to transition into the mid stage portfolio.

Turning to Slide 41, what we expect in 2018 is 15 key approvals and 15 key submission, highlighted by a couple of big ones. Aimovig, our migraine prevention medicine, is on track for approvals in both US and Europe, and we recently released additional data from a trial called LIBERTY, which demonstrated Aimovig's effectiveness in patients who had failed two to four prior lines of therapy. We believe that's unique data and it will be compelling to payers to enable us to build an excellent launch for Aimovig.

We also have Kymriah, which continues to progress and DLBCL in US and Europe. And two key submissions that I want to particularly highlight -- RTH258 is on track for a submission in Q4 of this year. We've initiated the bridging study, which we've previously outlined. And BAF312 is on track for a filing in the first half of 2018.

Moving to Slide 42, one of the other areas I wanted to provide an update on is on the IO portfolio. When you look at the IO portfolio, we are a leader in CAR-T. We've continued to expand our CD19 CAR-T presence across the range of D-cell malignancies, and we will be starting a range of pivotal studies in the coming months across the various indications. We also continue to progress our CAR-T programs in solid tumors. So, of course, the science is more challenging.

But now, in our IO combinations and other efforts within immuno-oncology, as we previously outlined, we've end licensed 19 second generation IO agents. We are now in a position to say that we're initiating, as we've previously outlined, our trials with canakinumab in the non-small cell lung cancer adjuvant and metastatic settings. Our Phase III is ongoing with PDR001, our anti PD1 with Mekinist and Tafinlar in melanoma. We'll be initiating late based studies in three combination programs with our anti PD1. One with INC280, our c-Met inhibitor in non-small cell lung cancer. The second, with our anti LAG antibody, LAG525 in triple negative breast cancer. And finally, our PD1 plus our adenosine receptor antagonist  in non-small cell lung cancer.

So, we'll look forward to providing additional data on the performance of these agents in upcoming medical conferences over the course of this year.

Finally, on innovation, on Slide 43, we continue to have strong progress in our mid stage pipeline. We have a range of readouts in both the Phase II readouts as well as Phase III initiations, continuing to build the mid stage pipeline that will enable us to drive future growth. I'll be happy to answer questions regarding this in the Q&A.

Slide 44, we announced two recent deals I want to make sure everyone was aware of. With the acquisition of Advanced Accelerator Applications, which we completed this week, it brings into the portfolio a near-term launch in Lutathera, which is already now approved in Europe. We're expecting an approval in the US in the near term. That also brings into the portfolio potential therapies in prostate cancer, gastric cancer, among other solid tumors.

We also announced a partnership with Biocon in biosimilars. This partnership enables us to broaden our portfolio of the next wave of biosimilars, enabling us to share development costs and also expand our commercial footprint. As I previously stated, we'll continue to look at such partnerships in bolt-on opportunities.

Now, on the last three points, in data and digital, we continue to make good progress in our ability to build core digital capabilities in our R&D operation, commercial operation, and our technical operation. This will be critical for us to drive further productivity gain, but also enabling us to find new patient populations, new medicines, and drive innovation in the company into the future.

On Slide 46, on the important priorities for me, as CEO, will be the rebuild trust with society. We, as a company, want to hold ourselves to the highest standards in terms of our values, quality, and compliance. We want to be a leader in delivering value-based healthcare to healthcare systems, and continue to work to expand coverage of our medicines in underserved populations. This will be something we continue to focus on and we believe will be important for investors to consider when looking at a company like Novartis.

Lastly, I want to just turn to a brief comment on culture. Culture is what is the DNA of any company of our size with the legacy that we have, and it's increasingly recognized that culture is a factor that can make the difference between a very high performing organization and a mediocre one. At Novartis, we have high levels of engagement, great collaboration, and strong commitment to our core purpose and values. We believe we now have an opportunity to focus on culture to drive a more inspired, empowered culture, eliminating bureaucracy to enable the best ideas to come forward. Entering into a world where we have to attract the next generation of talent, getting this cultural transformation in place is going to be also the priority.

We have a recent appointment. We brought on Liz Barrett as the CEO of Novartis Oncology. We're thrilled to have her on board. She has 20 years of oncology experience across a range of geographies. She'll be succeeding Bruno Strigini, who we thank for his excellent contributions to the company. We'll look forward to introducing Liz to all of you in upcoming interactions.

To close, we're incredibly excited about the future of Novartis. We're focusing Novartis as a medicines company, powered by data and digital. We're entering the next growth phase with a full pipeline to sustain growth into the future, and we're transforming our productivity, culture, and reputation. We look forward to continuing to demonstrate to you the performance of the company in the quarters to come.

With that, I'll hand it back to Joe for the Q&A.

Joseph Jimenez -- Chief Executive Officer

Thanks, Vas.

...

Okay, we're ready for any questions that you have.

Questions and Answers:

Operator

Thank you. [Operator instructions] The first question comes from the line of Vincent Meunier with Morgan Stanley. Please go ahead.

Vincent Meunier -- Morgan Stanley & Co. International Plc -- Analyst

Hello. Thank you for taking my questions. The first one is on corporate and capitellar location. You said earlier that the stake in consumer in attractive. So, how should we read this? Does it mean that it has reached the right valuation point, or does it mean that you still see an upside in terms of generation of synergies? What will be the rationale for keeping a stake in consumer, given the clear picture you just described, dominated by transformative innovation, data drive medicine, etc.?

My second question is on innovative medicine. Could you make comments on your ability to sustain your operating margins, and even maybe improve the margins further, going through the wave of patent expiries in a couple of years?

Lastly, on Sandoz, the pricing pressure and the commoditization of the US generics has worsened despite the improvement of core margin. So, what should we expect now? Any stabilization or further improvement for the top line? To which extent can you continue to maintain the profitability at this level? Thank you.

Joseph Jimenez -- Chief Executive Officer

Vas?

Vasant Narasimhan -- Global Head of Drug Development, Chief Medical Officer

On capital allocation in the GSK stake, the GSK stake is a financial stake for us, where we put these two businesses together with an expectation we would drive synergy. We have a clear strategic plan we've agreed on, with the leadership, of the consumer group at GSK. Now, what we see going forward is an opportunity to fully realize the value of that stake, as that business plan is executed. So, we're continuing to monitor that, but we want to, of course, think about our timing of when we might exit that stake, based on a value creating situation. We think that's not been reached yet. It will be some more time before we think our value is fully realized.

Harry Kirsch -- Chief Financial Officer

Hello, Vincent. On the innovative medicines margin, we absolutely think it's sustainable and the improvements also are sustainable. You saw on the slide from Vas that we actually expect over the next years to improve the industry benchmark. I think we have several levers and Vas laid them out. One of them is, of course, over the next couple of years less generic exposure. Then, the growth drivers that Paul laid out with Cosentyx and Entresto laid out, and the whole oncology portfolio outside of Glivec -- and then, of course, all of the productivity initiatives we have driven, which we continue to drive.

The majority of the technical operations savings, up to $1 billion, is not yet achieved. We are in a very good way. We are actually slightly ahead of track on that program, but still a lot to come. So, I believe both on the top line, on the productivity programs, we have a lot of margin improvement potential for the future.

Paul Hudson -- Chief Executive Officer, Pharmaceuticals

Thank you, Vincent, for the question on Sandoz. There are a few points that I will try to go through. We anticipate in 2018 the pricing pressure in the US market to continue. Beyond that, we start to see that our portfolio mix starts to play a role as we move the portfolio far more toward the biosimilars, which we have coming through in the differentiated specialty products. Obviously, we filed a number of biosimilars in the US and we'll start to see those coming through. It's more of a question of timing.

Going on to our core margin, to talk about gross margin. You've seen gross margin improve throughout the quarters of this year, and that comes down to the strategy we've been executing around geographical focus and portfolio product mix. We need to focus on the geographies, which we think will drive long-term profitable growth, and making sure that our portfolio mix can also do that. That's why that has continued to improve. We're going to continue executing that strategy, and with the biosimilars coming through, we're confident that that can happen.

Hopefully, that will answer you question. I think one of them in there was the top line growth. We've forecasted a flat to slight decline, and that's taken into account the fact that we have a good business that's past that ex-US that's growing in 2017, and we continue that growth in 2018. But, the pricing pressure in the US is something that's holding back that growth. Although we have the biosimilars coming through, which is a very exciting portfolio, both in Europe and the US, it's really the timing of that and the impact that can have on the top line for 2018. I hope that answers your question.

Operator

The next question is from the line of Jeff Holford calling from Jefferies. Please go ahead.

Jeffrey Holford -- Jefferies LLC -- Analyst

Thanks for very much for taking my questions. This is for Vas. I was wondering if you can elaborate a little more on where Novartis has an edge on data and digital. Are these skills and capabilities internal or external? How and when will we see this manifest in terms of R&D productivity and margin? Is this true machine learning to discover drugs and targets, use of block change to increase clinical trial efficiency, or are those things still a way off?

And second, just on Sandoz and the generics business, can you give us a bit more color on your thoughts on the future of that business? Can you potentially give us a score of zero to ten of the likelihood of ever separating that?

Last of all, on Entresto and Cosentyx, when do you think we're going to reach the point of true stabilization on net pricing, particularly in the US, on both products now that access to both seems to have improved and be pretty good. Thank you.

Vasant Narasimhan -- Global Head of Drug Development, Chief Medical Officer

Thanks, Jeff. On data and digital, as Joe previously announced, we have now a global head of digital medicine that is reporting in to the CEO -- so will be reporting to me -- Bertrand Bodson. He comes from the tech sector. He's worked in Amazon and retail. He brings a very different mindset to thinking about technology and how technology can impact a business like ours. I would say there are three levels of how we're thinking about imbedding data and digital. First, is automation and how we can bring automation into all elements of the business to drive productivity. There, we're really making concrete progress, whether that's automating our safety case processing, our data management, our approach to supply chain, or many of our FRA and other elements within our financial work. This automation should over time deliver real productivity gains in the company.

The second is, how can we use this technology to help us make better decisions? There, as well, we've rolled out a couple of platforms -- one within global drug development to help us choose clinical trial sites, to optimize our patient enrollment patterns and figure out when we need to intervene on studies. We've also got a digital cortex, which is looking to help us identify the right target and identify the right molecule, using these kinds of technologies and not some of the older technologies historically used.

The biggest opportunity, where we're still in the early days, is to use deep learning and artificial intelligence to identify completely new indications, completely new medicines. We are investing. We have a series of partnerships with external companies. We have partnerships, as well, with a number of universities. That's an area of investment because, in the longer term, if we can use the power of data to find new drugs that are more high efficacy and find patient populations that are going to respond better, that's going to drive tremendous value for the company and value to society. So, I would say we're in the early days, but we've made substantial progress and stay tuned for us to make more concrete progress and give you real concrete outcomes.

Now, with respect to Sandoz, it's a $10 billion global business that is attractive that has many different highly performing elements. First, in biosimilars, we're a leader. We have double digit biosimilar growth with over $1 billion in sales, a broad portfolio, and more and more launches coming. So, I'm quite pleased with how we're progressing in biosimilars. And then, similarly, when you look at our hard to make generics business or our work in injectables and inhalables, I think this is also very strong performance that we've seen around the world.

Also, when you look at retail generics outside the United States, depending on the geography -- but overall, we've had great performance over the recent years in our retail generics business. And that ties in as well to the fact that we have big tail of established medicines, like any pharmaceutical company, both in pharmaceuticals and oncology. So, there is a clear fit and synergy there. Right now, our energy is focused primarily in looking at the US oral solids business, where it is a discreet business. It's a unique situation. There are significant pricing declines. At least in the medium term, we don't see a shift to that situation. So, we're assessing how best to optimize that, given that dynamic.

Joseph Jimenez -- Chief Executive Officer

And Paul on pricing?

Paul Hudson -- Chief Executive Officer, Pharmaceuticals

I'll answer maybe relating to the US market. I mentioned earlier that Entresto will take the benefit of some small adjustments, just to remove a few more PAs while the national picture is in good shape. There are one or two plans that we want to just make sure we give the patient the best shot at getting the medicine. We feel good about that.

On Cosentyx, 2018 is quite an important year between the two new entrants already here and one more to come. We felt it was important to be thoughtful and not rash, but to make sure that we had a strong position for '18. The market will settle down after '18, we hope, certainly in terms of share, and then we'll get to decide how quickly price settles down too. So Entresto, I think some stability now really in going forward. I think Cosentyx, probably another year before we really see it settled, but we're pleased with our position.

Operator

The next question comes is from the line of Tim Anderson calling from Bernstein. Please go ahead.

Timothy Minton Anderson -- Sanford C. Bernstein & Co. LLC -- Analyst

Thank you. A high-level question for Vas. As a new CEO, I'm sure you're focused on making sure that nothing really goes wrong. But, when you look ahead in 2018, can you just identify for us what you think could be the couple of biggest challenges that lay ahead that maybe make you worried? This is something like the Cosentyx trajectory. Is it making progress on certain pipeline products? What would be the two or three things that are the greatest risk in your opinion, in 2018?

Second question goes back to Sandoz. You'd mentioned biosimilars are an important driver today. Year-on-year growth, I think, quarterly sales were about $300 million. But, when are we going to really see that start to blossom in the numbers with Sandoz? Is that the sort of thing where we'll see sharp acceleration in 2019? Is it more like 2020? Is there any way for you to put a stake in the sand and quantify how many billions of new revenue this could bring into the Sandoz P&L over the course of let's say five years? Are we talking a couple billion? Are we talking $5 billion? Anything like that?

Vasant Narasimhan -- Global Head of Drug Development, Chief Medical Officer

In terms of what I'd say the big risks are for 2018, I've outlined three that are top of mind for me. One, we have a couple of binary events within our Sandoz portfolio that we need to go our way. We're going to be watching them carefully. One is the timing of Copaxone 40 and the timing of the Advair generics approval. I think these are things that are difficult to predict. We've done all of the right things. I'm confident that our team is approaching this in the best possible way. But, these are just items that are difficult to predict and some volatility in the system.

The second is going to be turning Kisqali. We need Kisqali to continue to perform toward where we have it hoped. I think the combination of the MONALEESA-3, the MONALEESA-7 data, as well as the fact that we're not as far behind Pfizer in Europe, should enable us to get pickup on Kisqali. But, that's something we're watching closely. I hope that, in totality, when you look at Rydapt. Kisqali, and Kymriah, that those can enable our oncology division to drive the growth that we all hope for and expect from a business like that.

Those would be the big two on the top line. On the pipeline, the key is for us to deliver on RTH and BAF in terms of filing timelines. These are important medicines. We're on track. We feel good about where we are. But, these are the two I think we're going to have to deliver on.

In terms of Sandoz, to give my perspective on biosimilars, we've invested and built a broad portfolio. It's really a tale of two worlds. In Europe, we're seeing very strong uptake. We're seeing organization that's able to launch biosimilars with great success across multiple geographies. We're going to be launching more over the course of this year, as Richard can highlight. And then, in the US, we have a dynamic where we know eventually there's going to be a significant uptake for these medicines. It's a healthcare system that desperately needs biosimilars to be successful to create this space for new medicine -- payers, the FDA, HHS are all on the side of biosimilars.

We know we do have to overcome first the complexity of the patent hurdle in the US, and we have to overcome the complexity of the payer dynamic in the US. But, we're fully aware of that, we're confident we can do it. I think it's not a matter of if, it's a matter of when. And then, we will continue to expect biosimilars to be a multibillion dollar business for us.

Richard, any other additional thoughts?

Richard Francis -- Chief Executive Officer, Sandoz

I think you summed it up really well, Vas. The way I look at it is similar. It's not an if, but a when. If you look at the pipeline that we filed -- adalimumab, infliximab, and filgastrim -- that's all coming in the not too distant future, both in Europe and the US, which are the largest markets. I think we've set ourselves up really well and we're sure we can execute despite some of the challenging unknown environments. We can pivot well.

So, I think we're set for the medium term. It's a timing issue in the US, that we've got to manage carefully.

Operator

The next question is from the line of Richard Vosser calling from JP Morgan. Please go ahead.

Richard Vosser -- JPMorgan Securities Plc -- Analyst

Hi. A couple of questions on Sandoz, just the assumptions you've taken into 2018 on generic Advair. What contribution do you have in the guidance of Sandoz? Then, just going back to the Biocon deal, could go into a bit more detail around the rationale for that deal? Was it driven by gaining new products? I would have though commercially Novartis would have more presence than Biocon. I know you mentioned commercial, but that seems a lesser effect. Does this signify a thought that the opportunity in biosimilars might be less attractive perhaps if there is more competition?

Secondly, on Alcon, could you talk about the inventory fill that you've had benefiting the last two quarters? Should we think about this reversing or if it's an ongoing fill for the new material IOLs?

And then finally, on PARAGON, you sounded quite bullish on the PARAGON trial, so just some thoughts on what's behind that. Do you have increased confidence in the interim readout or in the trial overall? Thanks very much.

Joseph Jimenez -- Chief Executive Officer

Richard?

Richard Francis -- Chief Executive Officer, Sandoz

On the assumptions on our 40 milligrams of [inaudible] is that we're aligned and will launch in the second half of the year. It's the time we have around that. We're working closely with the FDA and our manufacturing partner, Pfizer, to make that happen.

On Advair, we're forecasting that we'll launch that year into a competitive market. That's the second assumption you asked for. On the Biocon deal and the rationale behind that, to build on what Vas said in his presentation, we're currently the number one biosimilar company in the world and we aim to stay the number one biosimilar company in the world. We believe having a broad and significant portfolio is important to do that. As much as we have the largest portfolio now and we're currently developing products to increase that, we also see the rationale and the benefit of partnering with a company like Biocon to make sure we have an even more extensive portfolio. I think that's the deep rationale behind the Biocon deal.

Joseph Jimenez -- Chief Executive Officer

So, just addressing the inventory position, with respect to what Harry said earlier on about 1% of our net sales being in Q4 -- so that was an underlying 5%. As we go forward, it's tough to predict the different shifts, etc., to what things can offset the other. So, I won't predict things moving forward. But, I will say what I said in the last call, that most of the inventory adjustments took place in 2016, relative to our surgical business in the Asia market. Again, there are a lot of offsets going back and forth.

Vasant Narasimhan -- Global Head of Drug Development, Chief Medical Officer

And then, on Entresto, the thing we've always highlighted about the PARAGON study is our unique end point we've taken with repeat hospitalizations. We've really learned from all of the past failed trials within preserve rejection heart failure. The interim readout in 2018 is just that. I think the reduced ejection fraction study was a very unique situation where we had an astonishing T-value, which enabled the study to be stopped earlier.

In this case, because it's going to be likely an end point driven less by deaths and more by hospitalizations, repeat hospitalizations, we're going to need all of the end points in order to demonstrate efficacy. That's why I think the interim readout will be useful, but we really would still guide to a mid '19 firm readout on the study.

In terms of the opportunity, Paul?

Paul Hudson -- Chief Executive Officer, Pharmaceuticals

As Vas has outlined, there's nothing specific that's getting us more excited or less. We'll just go through the normal results. The only thing I would add is in terms of executing with that indication. That's where we're much more confident than we've been previously. You have to remember that, by the middle of '20 or early '20 when we become paying, our working knowledge of the cardiology community patient populations are at a really absolutely critically high level. So, we think we can do more with it when we get it than we thought previously. That's why we're excited about it. After all, there is no medical treatment and we are the only real credible alternative in this space.

Operator

The next question is from the line of Andrew Baum calling from Citi. Please go ahead.

Andrew S. Baum -- Citigroup Global Markets Ltd. -- Analyst

Good morning. Three questions, please. First, I note you have an SGLT12 inhibitor in Phase II, in a patient program that's fairly substantial. Could you help us characterize the profile of this molecule versus the existing SGLT2 inhibitors, both in terms of weight loss, nausea, and I'm assuming you would be able to do a Phase III start as early as the beginning of next year. And then, finally, is there any risk to your Entresto outlook from the established SGLT2 inhibitors, given the participative data?

Second, could you comment at all on whether you've seen any out of scope responses with your STING agonist in combination with your PT1.

Then, finally, for Vas. Following your ascension to CEO, who takes the head of development CMO spot? Thank you.

Vasant Narasimhan -- Global Head of Drug Development, Chief Medical Officer

On the SGLT12 -- this is a unique drug that targets equally SGLT1 and 2. SGLT 1, is expressed on the gut, whereas the SGLT2 is expressed in the kidney. Both transporters are involved with glucose transport into the intracellular space. What we saw in a Phase IIA study with this medicine is a significant weight loss over a relatively short period time of 12 weeks. We saw an extrapolated value that would indicate we could get from 15-20% weight loss perhaps out at one year.

So, we've enrolled a Phase IIB study, which was one our fastest enrolling studies that I can recall. It's fully enrolled and we're now waiting for the Phase IIB results. We should have that result over the course of this year. If it was positive, we would then look to move it forward in a Phase III trial that could start at the end of this year and early next year. Overall, the side effect profile is good. One of the things we are looking at is to mitigate any of the mild diarrhea with split dosing in that Phase IIB study.

With respect to the STING agonist plus PDR001, I don't believe we've publicly disclosed anything further. I think our partner Aduro Biotech will plan to disclose more about the STING molecule's performance soon. I would prefer not to comment on that at this time.

In terms of the GDD, we've named an interim head. His name's Rob Kowalski. He's our Global Head of Regulatory Affairs and has been so for over six years. He's one of the most well-respected people in the space. He knows all of the key regulators and all of our key programs. So, he will be continuing to guide the ship as we complete the search for a successor.

Joseph Jimenez -- Chief Executive Officer

And, Paul, the risks of Entresto?

Paul Hudson -- Chief Executive Officer, Pharmaceuticals

To my understanding, the SGLT2 studies are on top of standard of care in heart failure, so we wouldn't expect anything other than as an add.

Operator

The next question is from the line of Graham Parry calling in from Bank of America. Please go ahead.

Graham Parry -- Bank of America Merrill Lynch -- Analyst

Thanks for taking my question. Vas, going back to Slides 30 and 31, I wonder if you could help quantify the sales upside you're expecting by 2022 and just confirm the relative proportions. I'm afraid I did get my ruler out and it looks as if you're proportionally expecting about half of your incremental integrates to come from Cosentyx, Entresto, and new launches and about a third from oncology. Can you confirm that it is representative?

Secondly, on pharma margins, when you're talking about industry margins in the mid 30s, is that a target or an ambition? What absolute operating cost progression are you expecting to see to get to that sort of level. Are you thinking flat? Are you thinking inflationary growth and then the rest coming from top line leverage? Do you expect to grow margins each year through Gilenya and Afinitor patent expiries in the pharma business?

Thirdly, could you help us understand how to read the lack of renewal of the $5 billion buyback this year in terms of your appetite for M&A? Thank you.

Vasant Narasimhan -- Global Head of Drug Development, Chief Medical Officer

Thanks, Graham. We figured everyone would be taking out their rulers on Slide 30, but it's not our intention to provide specific guidance when you look across those next five years -- only to indicate we believe we can deliver solid growth over that period of time. We'll of course continue to keep you updated. I would say, proportionately, we do believe the key growth drivers will be Cosentyx, Entresto, and the launches as the number one growth driver in the company, followed by the growth of the existing onco and recently launched portfolios.

I think the relative contributions are accurately depicted because these are based on our own current forecast. The graph is based in our own forecast of our outlook. In terms of the margin, I'll take a stab at it and then Harry can add. When we look at this mid 30s, this is a goal to get to the mid-30s. We believe we can deliver a margin improvement between now and 2020. That's what we've previously stated and we continue to stick to that aspiration to deliver consistent margin improvement between now and 2020.

The way we do that is, in part, we get through some of the patent expiries, particularly Glivec. We have strong growth in terms of our key growth drivers, which now are getting to be accretive, as well as continuing to drive strong productivity measures and resource allocations as the slide outlined. Harry?

Harry Kirsch -- Chief Financial Officer

I fully agree. I think it will be also a combination of very accretive top line growth -- as you know many of our growth drivers are our own products that are fully acquired, so there is no royalty burden, or very limited. The generic erosion for Gilenya has a royalty on it, so we are also, from a gross margin standpoint, seeing some good opportunity. And overall, a combination of sales uptake and good cost management and all of the productivity initiatives that we have set up for the company. I think, therefore, we are well established for sales growth for five years as well as margin growth in the years. As you know, 2020, from a sales growth standpoint, will be a little bit challenged, which are in the US. We believe with our growth drivers, we will also get through that.

Joseph Jimenez -- Chief Executive Officer

Buyback.

Harry Kirsch -- Chief Financial Officer

On the buyback, we have completed our up to $5 billion share buyback program in 2017. Under that program, we bought back $4.5 billion. We did buy another $700 million worth of shares back from every patient programs as we have an ongoing commitment to always avoid any dilution from an participation programs. Then, as now the AAA acquisition has to be financed, we simply adjust our capital allocation priorities and we don't finish the $5 billion so say, but we stop at $4.5 billion in 2017.

Joseph Jimenez -- Chief Executive Officer

And Vas, I think Graham's question was also about your appetite on M&A. Does this signal a higher appetite for M&A?

Vasant Narasimhan -- Global Head of Drug Development, Chief Medical Officer

We continue to have the focus on bolt-on acquisitions like AAA that build into our core therapeutic areas and bring in new capabilities into the company. So, we're actively looking at those kinds of opportunities. Valuations in this sector continue to be quite high, so we're only going to pursue things where we're clear we can create value for the company and our shareholders. Nonetheless, that is the focus.

Operator

The next question is from the line of Florent Cespedes from Société Générale. Please go ahead.

Florent Cespedes -- Société Générale SA -- Analyst

Thank you very much for taking my questions. Three quick ones. First, for Paul, on Cosentyx. You explained that the products enjoy a strong potential for growth. But, could you give us an idea of the current sales breakdown by indications?

Secondly, on immuno-oncology, could we have some color on when we will have more physicality on the program? In other words, when we should have meaningful clinical results, although at each stage would be good to have such update.

The last question on Sandoz. You explained that you want to focus your company on more different shaded box for you, but could you share with us what is the proportion of your business which is coming from a difficult to make product for drugs beyond the value pharma sales that you disclosed? Thank you.

Paul Hudson -- Chief Executive Officer, Pharmaceuticals

Thanks for you question. We don't disclose the sales by indication geography, but I can tell you we're growing in all indications in all geographies. One point that you note specifically from the publicly available data sets is our performance in spondyloarthropathy, PsA and AS, in the US. It does get a little bit overlooked, but to be market leader on new patients in the US against Humira and Enbrel, it gives you some indication about our ability to execute, particularly in the indications outside of psoriasis. We do extraordinarily well in psoriasis, too.

Joseph Jimenez -- Chief Executive Officer

Vas on IO?

Vasant Narasimhan -- Global Head of Drug Development, Chief Medical Officer

In terms of the IO results, we'll expect to release those results in the upcoming medical congresses. We would target, ideally ASCO, but it might at other congresses later in the year. You'll be hearing the results from those three combination studies in that timeframe.

Joseph Jimenez -- Chief Executive Officer

And Richard?

Richard Francis -- Chief Executive Officer, Sandoz

To give you an idea of the makeup of the business, I think -- especially, in terms of the business architypes we've got. As Vas pointed out, we have the biosimilar business, which is over $1 billion now. We have a significant OTC business and we have a branded generics business, which we promote. In itself, it isn't differentiated apart from the great brand. So, those are significant aspects of our business. When you look at the US exposure to more of the commoditized business, Vas and Joe have already highlighted it's around $1.5 billion, where we see that product pricing pressure. But, we're aiming to move that business with the launches of our biosimilars significantly away from that portfolio makeup, as well we'll be introducing products that go through the 505B2 pathway, which by definition, will also have a level of differentiation.

Operator

The next question is from the line of Steve Scala from Cowen. Please go ahead.

Steve Scala -- Cowen and Company -- Analyst

Many thanks. First, on generic Advair, if it were approved tomorrow, would you be ready to launch in the US? What proportion of demand could you satisfy? And, you mentioned it would be a competitive market. Are you implying you expect other generics?

Second, Vas you didn't mention the Roche stake. At least, I didn't hear you mention it. Any updated thoughts?

Lastly, on Entresto, Harry you mentioned Q4 adjustments. Would you please quantify? Thank you.

Paul Hudson -- Chief Executive Officer, Pharmaceuticals

We don't actually give guidance on when we're going to launch and assumptions around possibilities. What we are anticipating is that we'll launch it this year into a competitive environment. We anticipate other people will come to the market with Advair, just based on other communications from other companies with that product. That's how we've assessed and modeled ourselves for 2018.

Vasant Narasimhan -- Global Head of Drug Development, Chief Medical Officer

On the Roche stake, there's no change really. It continues to be something we view as a strategic stake that we continue to evaluate on an ongoing basis. As soon as there's a change in our perspective, we'll of course let everybody know.

Joseph Jimenez -- Chief Executive Officer

Harry?

Harry Kirsch -- Chief Financial Officer

Actually, I didn't mention anything on Entresto, but just to also make it clear there were no adjustments. So, this is pure demand.

Operator

The next question is from the line of Matt Weston calling from Credit Suisse. Please go ahead.

Matthew Weston -- Credit Suisse Securities (Europe) Ltd. -- Analyst

Thank you. Two questions, if I can. The first on Cosentyx. You've highlighted how important access and growth is this year. The one thing we noticed was the change to a number of healthcare plants which have kicked in, that manufacturer's copay assistance will no longer be allowed to contribute to a patient's deductible. How do you expect that to impact growth of Cosentyx, and the whole of the specialty category going forward, given how significant that is to the pharma industry?

The second question, on Entresto, Paul. I note that in 4Q they released highlights that you launched in China. In terms of the growth we saw in revenue in 4Q, can you walk us through how much of that was underlying patient demand versus channel filling? Thank you.

Joseph Jimenez -- Chief Executive Officer

Paul?

Paul Hudson -- Chief Executive Officer, Pharmaceuticals

Thank you, Matthew. To look at Cosentyx on the first one, yes, I do think access is important for '18. This next 12 months has all of the major players in the market. We want to come out of this year in a strong position in terms of preferred by dermatologist and rheumatologists with great access. So, we've made great progress there. I think you're referring to the copay accumulator that is an emerging trend in the United States. Just a first initial observation on that, the affordability in copay we put in to help patients in the United States is for patients. The biggest loser in any change across the pharmacy benefit design would be the patient in this situation.

It's causing a lot of confusion. It's an industrywide phenomenon and it would effect everybody, give or take whether their medicine is in the benefit design more or less. We have picked it up. We understand what the implications are. We clearly consider all scenarios. We're comfortable with where we sit. The industry has picked it up, and really, the biggest loser in the short-term is the patient. That's not a good situation for anybody.

Joseph Jimenez -- Chief Executive Officer

Entresto China?

Paul Hudson -- Chief Executive Officer, Pharmaceuticals

Yes, Entresto China. We did get approved in China, but not reimbursed. The team have done a rather excellent job. We have 2,000 patients approximately that have been initiated in the few months since launch. That means that we have about $4 million worth of demand pulled inventory. There are no non-demand generated stocking effects. In fact, if you look at December's outturn, from an industry perspective, it's consistent with all previous months, and the December before that. So, we feel very good about the underlying demand for Entresto.

Operator

The next question is from the line of Michael Leuchten calling from UBS. Please go ahead.

Michael Leuchten -- UBS Ltd. -- Analyst

Thank you for taking my question. Could I ask about the value of the volume both for US Entresto and US Cosentyx? I'm looking at the quarterly sequential development here, where we seem to have seen a soft spot in Q2 and Q3 for Entresto and another strong uptick of the value of the volume in Q4. For Cosentyx, we've seen a slide throughout the year. So, could you comment on channel mix? Could you comment on rebate adjustments? Could you try to explain what that fluctuation in those two products -- what's driving that? Thank you.

Paul Hudson -- Chief Executive Officer, Pharmaceuticals

I mentioned in the upfront presentation that what we've learned over the last year to two years is where the demand to bring in, and the appetite to bring in, chronic patients who consider themselves well controlled but armed. We see during the summer just a staffing in cardiology staffing point, that bringing in and reviewing and titrating patients slows down on a chronic med, on somebody that's thought to be, but isn't, well controlled. So, that sort of slowdown, as we came out of Q3 is a phenomenon you see with new entrants with chronic diseases, particularly in cardiovascular.

The step up in Q4 is really just about our ability to execute and all the plans pulling through the least productivity from the sales force. Cosentyx is interesting again. Remember, we said at the beginning of last year, that we'd do some thoughtful rebating. We have to grow volume throughout he remainder of the year because that's what makes rebating make sense. You bought the access. We've done that also this year and we intend to do that this year.

The bit that gets missed is that free drug programs got rolled in in the second part of the year and patients that we were supporting then because part of the overall, which has a small impact on the value of the TRx. But, we're really pleased, and the evolution of the value is exactly as we predicted.

Operator

The next question is from the line of Kerry Holford calling from Exane. Please go ahead.

Kerry Holford -- Exane Ltd. -- Analyst

Thank you. Firstly, a question for Harry. Just looking at the disposal gains and the milestones that were focused in Q4, that sell within core earnings, I wondered if you could quantify those and the factors of GSK and the Sandoz disposal gains please.

And then just quickly on Glivec and Tasigna. I think Glivec was a little stronger and Tasigna a little weaker than we had anticipated in Q4. Just looking to understand whether there were any unusual items within the mix there, any rebate reversals or anything else to be aware of? Thank you.

Joseph Jimenez -- Chief Executive Officer

Harry?

Harry Kirsch -- Chief Financial Officer

First, the GSK milestone is the $450 million milestone, and any gain or loss above $25 million at one time is core adjusted. So, that was one of the reasons why OpInc was growing ahead of core OpInc. The gain that really cornered on that milestone was net of what we had already on the books as a contingent receivable. So, it was in the $340 million range. But again, core adjusted.

Joseph Jimenez -- Chief Executive Officer

Adjusted out.

Harry Kirsch -- Chief Financial Officer

Adjusted out. Yes. And the disposal gains. Overall, as small tail and nonstrategic assets -- so, as we have sometimes financial impairments or legal settlements on the negative side -- also when we have small positives, we don't core adjust to not make it too complicated. So, above $25 million we do core adjust. And, when you compare year-over-year, it's a $25 million beta gain, which is five points off the core operating and growth of Sandoz.

When you look at year -- by the way, I also ask to look at the core operating income for the company, and other income expense for the company. There is no change on the full year basis. Also, quarter four over quarter four there's nothing. We had some small divested gains, which we didn't core adjust, and we had some small negatives which we didn't core adjust on a corporate level.

Joseph Jimenez -- Chief Executive Officer

And Bruno?

Bruno Strigini -- Chief Executive Officer, Oncology

On Tasigna, we continue to see some good growth with high single digit growth. We updated our label both in Europe and the US with TFR indication, and we don't see a change in the dynamics between Tasigna then.

Operator

The next question is from the line of Seamus Fernandez from Leerink. Please go ahead.

Seamus Fernandez -- Leerink Partners LLC -- Analyst

The question is around immuno-oncology and some of the progress we're seeing there, as well as the research portfolio advances in lunch cancer. Vas, can you just give us a general sense of what you've learned about the mechanism of action that has the company moving forward so aggressively with a costly program there? I have to assume that you're learning quite a bit about the mechanism of action to drive that forward. I'd love to know when we might learn more about that.

Second, there are three programs that are listed on one of your slides as advancing into different settings, from Phase I to Phase II. LAG, with triple negative breast cancer -- the MET program with a PD1 combination in lung, and then your adenosine receptor product as well. I'm trying to understand -- when I look at value creation, at least investor related value creation, there is probably a limited number of assets that have gained significantly -- one in particular being a PEGylated IL-2 -- that has gained a lot of investor attention.

Your company knows IL-2 very well and knows IO well. Can you help us understand how we should think about those data relative to the kind of metrics that are bringing you forward into Phase II? Thanks so much.

Vasant Narasimhan -- Global Head of Drug Development, Chief Medical Officer

First, are general perspectives on IO. I think we need to take a step back. You see that the only agents we've seen with significant efficacy in getting toward patients are the CAR-T therapies. Across the broad spectrum of other agents, a lot of activity -- historic levels of activity over 1,00 trials -- but, in terms of actual hard data that suggests there's going to be a significant breakthrough, it's still limited. I think that is the overall context we have to take when looking at IO.

We hold a very high bar when we look at all of these programs. We don't feel like we want to rush in and just chase small signals. We're really looking for something compelling before we take it into later stages of development. So, to take the questions in turn, With canakinumab, we have been able -- in addition to looking at preclinical work that is quite extensive and is part of the reason both FDA and EMA felt comfortable with us going forward -- we have been circulating tumor DNA work on the patients who had cancer in the course of the cancer study, to understand better their profile, what was their potential stage of disease, and how did the drug act on this patient.

So, it's based on that understanding, we're moving forward in the adjuvant study and in the second line where we feel clear on our path forward. In the first line, we're going to have to carefully think about what's the best study design in light of the Keytruda recent data. That's something we're reflecting on. We'll keep you updated as we think through the first line trial design.

Now, when you think about the second-generation IO programs, the three you mentioned, we have seen early evidence of efficacy in the clinic, which is why we take those into later phases. When we look at data, such as the PEGylated IL-2 as well as the IO, which is out there, we're interested to see again, with control arm data, when there is a PD1 mono arm, what is the incremental effect of the added agent. That's something we have to all carefully look at.

The agents we've taken forward here, we've tried to be rigorous about trying to look at is this PD1 alone or is this a combination effect? Of course, we can't answer definitively from small studies. But, that's in the back of my mind as I look at all of these programs, given the variability in the patient profiles, in the biomarker profiles -- without good control arms, it's always difficult to really ascertain what is the additive benefit of the new medicine.

Operator

The last question is from the line of Marietta Miemietz from Primavenue. Please go ahead.

Marietta E. Miemietz -- Primavenue Advisory Sciences -- Analyst

Good afternoon. Thanks for taking my questions. I have one clinical question on your EGFR blocker nazartinib. Can you share the design of the Phase III trial with us that will be the basis of your 2020 submission in lung cancer and maybe speak about positioning more broadly? I haven't been able to find any Phase III trials on clinical trials. It looks like you're still playing around with all sorts of different combos, so I wasn't quite sure what to make of your pipeline chart there.

And then a commercial question on Kymriah. In the press release, you spoke about the progress you're making with the treatment centers. Can you give us a little more color on the characteristics of the centers that do and don't get certified, i.e. what are the triggers for getting certified or what are the reasons for holding on off on certification? And is there actually much overlap between the centers that get certified for Kymriah and those that get certified for Yescarata on the grounds that once you have the expertise and infrastructure in place, you may as well go for both? Or, is it just more economical for the centers to just go for one and operate on the assumption that sooner or later both drugs will be licensed for similar indications?

And then, finally, I wanted to clarify with Harry on the core tax rate. The one other sect that you mentioned in your press release that affected the reported tax rate, have they also been included in your core tax rate? If so, what would the core tax rate have been in 2017 without these? And that brings me on to the core tax rate for 2018. I'm actually very surprised to hear it may go up. On my math, the US tax reform could give you a boost of five percentage points or so at the group level. And I appreciate some of that may not materialize and you have incomplete visibility, but your guidance really suggests a massive increase in the underlying tax rate, even though it doesn't seem that the shift of your product makes two high tax jurisdictions more pronounced this year than in the past.

So, are you just being conservative and don't want to guide for a low teens rate until the dust settles on US reform? Or, is your base case really that mix effects largely wipe out the benefits from US reform? And if so, should we expect your tax rate to keep on creeping up over the coming years and ultimately move into the 20s? Thank you very much.

Joseph Jimenez -- Chief Executive Officer

Let's start with tax. That's a big question. Go ahead, Harry.

Harry Kirsch -- Chief Financial Officer

First of all, we have one adjustment and I think you referred to that, because of US tax rate, where we had to assess our deferred tax assets and liabilities. So, there's a $61 million tax expense, very much lower than some of the other US based companies who have billions because we have a very different structure IP and headquarter in Switzerland. Very limited earnings non-repatriated, and that is not in the core tax rate because of the one-off.

I don't want to quantify what we think as the range of potential US tax benefit. It's certainly not up to the number you mentioned. It's a smaller benefit that we see. But, many details have to be first clarified with the IRS because we can be more specific.

That's why we guide to either it's in line with what we have or 16%. Over the years, I see your range overall between 15-17%. The tax is very hard to predict, but I don't see that it would go outside of that range.

Joseph Jimenez -- Chief Executive Officer

Bruno on Kymriah?

Bruno Strigini -- Chief Executive Officer, Oncology

So, 33 centers have been certified and about 25 of them are fully operational. Fully operational means that there is a contractor in place. We're very pleased with the launch. Offline was even the small population we needed to cover 30 centers. We are there or thereabout. In terms of certification, it's very product specific and therefore, we are going for certification of the sites for our products while the competition has to do exactly the same.

Now, I can't compliment on what each and every center will do in terms of certifying different products or just --

Joseph Jimenez -- Chief Executive Officer

And overlap? Are you seeing a high level of overlap?

Not really. No.

Vasant Narasimhan -- Global Head of Drug Development, Chief Medical Officer

And then, finally, on the EGFRs. We have a third generation EGFR. The EGFR landscape has been shifting now given some of the recent challenges for some of the players in the space. Our core goal in pursuing a third generation EGFR is to use it in combination with a 280 or cMet inhibitor, which is one of the primary resistance mechanisms to third generation TKIs.

So, the EGFR study will get posted in due course, but I think our overall strategy is to assess if we can get differential efficacy with the combination within 280.

Marietta E. Miemietz -- Primavenue Advisory Sciences -- Analyst

Thank you very much.

Vasant Narasimhan -- Global Head of Drug Development, Chief Medical Officer

Thank you all very much for joining the call. A big thank you to Joe. This is Joe's last conference call. We're grateful for all that he's done for the company and we wish him well on all of his future endeavors. I look forward to speaking with you at our next quarterly call and continuing to dialogue on how we drive Novartis into the future. Thanks very much.

...

Operator

Thank you for joining today's conference. You may now replace your handset.

Duration: 90 minutes

Call participants:

Joseph Jimenez -- Chief Executive Officer

Samir Shah -- Global Head, Investor Relations

Harry Kirsch -- Chief Financial Officer

Vasant Narasimhan -- Global Head of Drug Development, Chief Medical Officer

Richard Francis -- Chief Executive Officer, Sandoz

Paul Hudson -- Chief Executive Officer, Pharmaceuticals

Bruno Strigini -- Chief Executive Officer, Oncology

Vincent Meunier -- Morgan Stanley & Co. International Plc -- Analyst

Jeffrey Holford -- Jefferies LLC -- Analyst

Graham Parry -- Bank of America Merrill Lynch -- Analyst

Timothy Minton Anderson -- Sanford C. Bernstein & Co. LLC -- Analyst

Andrew S. Baum -- Citigroup Global Markets Ltd. -- Analyst

Florent Cespedes -- Société Générale SA -- Analyst

Matthew Weston -- Credit Suisse Securities (Europe) Ltd. -- Analyst

Michael Leuchten -- UBS Ltd. -- Analyst

Richard Vosser -- JPMorgan Securities Plc -- Analyst

Kerry Holford -- Exane Ltd. -- Analyst

Seamus Fernandez -- Leerink Partners LLC -- Analyst

Steve Scala -- Cowen and Company -- Analyst

Marietta E. Miemietz -- Primavenue Advisory Sciences -- Analyst

More NVS analysis

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