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Novartis AG (NYSE:NVS)
Q2 2019 Earnings Call
July 18, 2019, 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 Q2 2019 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. After the presentation, there will be an opportunity to ask questions by pressing *1 at any time during the conference. A recording of the conference call, including the Q&A session, will be available on our website shortly after the call ends. Should anyone need assistance during the conference call, they may signal the operator by pressing *0. With that, I would like to hand over to Mr. Samir Shah, Global Head of Investor Relations. Please go ahead, sir.

Samir Shah -- Global Head of Investor Relations

Thank you. Thank you, everybody, for taking the time to listen and participate in our quarter 2 investor call. Before we start, I'll just read the safe harbor statement. The information presented today contains forward-looking statements that involve known and unknown risks, uncertainties and other factors. These may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. Please refer to the company's Form 20-F, on file with the US Securities and Exchange Commission, for a description of some of these factors. And, with that, I'll hand across to Vas.

Vasant Narasimhan -- Chief Executive Officer

Thank you, Samir, and thanks, everyone, for joining today's conference call. In the room with me today, I have Harry Kirsch, our CFO, Shannon Klinger, our Chief Legal Officer, Susanne Schaffert, our President of Novartis Oncology, Mary-France Tschudin, our President of Novartis Pharmaceuticals, John Tsai, our Global Head of Drug Development, and Richard Saynor, our new Head of Sandoz.

So, as you saw today in this morning's results, we really had an exceptional Q2 and a strong first half of the year, which we're very pleased with and very pleased to give you further details on over the course of this presentation. If we turn to slide 4, we delivered a strong Q2 with margin expansion and continued to progress our agenda on transformative innovation. When you look at the operational performance, we had plus 8% on sales, plus 20% on core operating income, with a margin expansion of 3.2%, and Harry will go through in a bit more detail the numbers, as well as some of the pushes and pulls that we see for the first half as well as for the second half. But, based on the strong momentum that we've seen, we are increasing our sales and core operating income guidance for the full year, and Harry will go through the specifics of that in a few slides.

Importantly, we also advanced our transformative innovation agenda with our pipeline, with Zolgensma, Piqray, and Mayzent all launched. Xiidra, acquired in July, is now fully integrated, and we're getting prepared to reenergize that brand. SEG101 filed with a priority review, and we also had positive overall survival data with Kisqali in premenopausal women presented at ASCO. So, very strong progress on our innovation agenda as well.

So, moving to slide 5, the sales performance was primarily driven by very strong performance in Innovative Medicines. In particular, we were pleased with the performance in our growth drivers. So, of course, Entresto and Cosentyx continued their strong momentum, as you can see with the growth rates in Q2 and the first half. Across our oncology brands as well, very strong growth -- Lutathera continuing to perform well, Kisqali beginning to accelerate, Kymriah also with very solid performance. So, we saw broad-based growth across our Innovative Medicines portfolio, which gives us confidence as well for the remainder this year and going into future years.

So, moving to slide 6, when you look at Cosentyx specifically, particularly focusing on the U.S., we were pleased we could continue to grow the brand in what is an increasingly competitive environment. Looking at the U.S. dermatology segment, you can see that for NBRx percent gains of Q2 2019 versus Q2 2018, Cosentyx gained 1.5 share points in a very competitive space, so we were very pleased by that strong performance by our U.S. team. When you look at TRxs, we're growing ahead of market at 28% versus a market growth of 10%, and with 17% overall growth in NBRx.

When you go to rheumatology, where, again, Cosentyx has truly unique data in psoriatic arthritis and ankylosing spondylitis, you can see our weekly TRxs are approaching or exceeding Enbrel and Humira. When you think in terms of market growth, we're growing 38% versus a market growth of 14% on TRxs, and also have solid NBRx share growth. So, when you look across the U.S. business, we are very pleased with how Cosentyx is performing in this competitive environment, and we'll look to continue that momentum in the back half.

Turning to slide 7, I also want to highlight that we continue to generate additional data on Cosentyx in the existing indications in psoriasis and rheumatology as we prepare for data we plan to release this year and in the coming years on new indications. In particular, when you look at psoriatic arthritis, most of these patients have so-called "axial manifestations," and Cosentyx has demonstrated in a recent MAXIMISE study that we could impact these axial manifestations in a significant way. You can see the data here that we recently presented. This further bolsters the case for Cosentyx's use in these rheumatology patients, and I think it's just one example of many as we continue to build out the dataset to support Cosentyx's broad use.

So, moving to slide 8, when you look at Entresto, we are seeing a really strong performance from Entresto, continued acceleration for this important medicine for heart failure patients. You saw the revenue growth of 81%, with solid growth both in the U.S. and ex-U.S., but importantly, we continue to get strong recommendations from key groups. So, on the right-hand side, you can see the European Society of Cardiology heart failure expert consensus now supports Entresto's use as first-line therapy for patients with HFrEF. This will allow us to continue to accelerate the use of Entresto in the first-line setting in an ambulatory and in the hospital setting. I'll talk a little bit more about the PARAGON dataset in a few slides.

So, moving to slide 9, I'd like to spend a few slides giving you an update on Zolgensma. We're very pleased with the launch of Zolgensma to date. We've seen very strong demand, we're pleased with the launch and access progress we're making, and I want to give you a few details as proof points. First, when you look at the launch, we had an approval on May 24th. Within three days, we were promoting in the market. Within roughly a week, we had our first commercial policy and product ready to ship. We had our first U.S. patient treated within approximately two weeks, and we already have had patients treated through the French ATU mechanism outside the United States. In some instances, we've even had patients approved for therapy from the time of receiving the Rx within 24 hours, so that kind of shows you the enthusiasm there is in the SMA community for this medicine.

Now, for some of the details, the first thing I want to highlight is even in the absence of medical policies or specific approvals, we are able to use medical exceptions to manage many of these patients getting through the process, and that's the primary route right now we're doing when we don't have a policy in place. But, we're having best-in-class -- we believe -- progress on getting medical policies in place. Over 20 commercial plans, representing 40% of commercial lives and four Medicaid plans, have policies on coverage already. Not all of these have been posted on external websites.

The majority of these policies are in line or close to the label. The common limitations we're seeing are with patients with four SMN2 copies, which is about 10% of the overall SNM2 prevalent population in this age group, and some limitations with combination use with nusinersen. When you look at the approval rates we're seeing so far, patients going through the Novartis hub -- almost all patients going through our hub have been approved thus far after appropriate steps have been taken. We have very high approval rates for the on-label patients, either via policy or medical exception, as I said. And, I think the other important thing to note is we've had a wide range of patients already approved, including patients from age 1 to 23 months, weight up to 12 kilograms, two and three SMN2 copy numbers, treatment-naïve, as well as those previously treated by the currently approved product.

In terms of contracting, to get any of the special contract terms that we've been promoting, we have 17 commercial plans, representing 40% of commercial lives, having already signed a letter of intent on contracting terms, and we continue to try to progress across the relevant insurance community. So, strong progress already in just the first few weeks after launching this medicine.

So, if you go to slide 10 and you look at the news flow we have for the second half, we are planning to initiate discussions with the U.S. FDA on intrathecal dosing for the older populations based on our strong study, we are on track to have E.U. and Japan approval by Q4 2019, and we plan to have other country filings initiated in Q3 for our broad global rollout of the medicine. Later on this year, we'll show the updates on data from SPR1NT, STRONG, and STR1VE at various medical congresses, as you can see, over the course of the fall.

So, moving to slide 11, one piece of data I wanted to highlight from our recent presentations at AAN is Zolgensma's performance in pre-symptomatic patients, where patients are achieving age-appropriate motor milestones. Just to remind you, SPR1NT is our pre-symptomatic study. It's a study that has patients with both two copies and three copies of the SMN2 gene, patients who are pre-symptomatic, and what you can see on the right-hand side is the progress these patients are making versus the WHO windows of normal achievement.

So, you can see the patients in green boxes are sitting without support that have copies of the SMN2 gene, you can see patients standing with assistance, and you can see how these patients are now progressing, and we're looking forward to providing you an update to show -- we hope -- that we can get these patients to progress normally after treatment early in their life after being identified by newborn screening or in the early months of their life. So, very exciting data presented at AAN already on pre-symptomatic patients, and more updates to come in the fall.

So now, moving to Piqray on slide 12, Piqray received FDA approval on May 24th. CHMP opinion is expected in the second half of this year. We're pleased with the progress we're already making with payers, covering over 80% of the target population in terms of the engagement we have already had. We're also seeing good uptake of the PIK3CA mutation testing, which is really our focus for this year to really ensure high testing rates so that we can drive the launch for the years to come. The NCCN guidelines currently recommend PIK3CA mutation testing, and we've also entered into an agreement with Foundation Medicine to develop plasma and tissue testing. We're also pleased that we're now able to confirm we'll be exploring Piqray in other tumor types in the second half of 2019. We'll have trials start for HER2+ advanced breast cancer as well as triple negative breast cancer, and based on data we already have in-house, we will be moving to late-stage studies in the first half of 2020 in head and neck and ovarian cancers.

So, on slide 13, we move to Mayzent. Now, in Mayzent, we're also pleased with the progress we've made. This was a year where we wanted to focus on educating the physician community, making sure we have strong access in place so that we could drive this brand's use in the SPMS setting for the long term. Just to remind you, we had unique clinical data and a supportive label to start with, with the full range of RMS indications, but the only medicine that has SPMS data specifically in its label. And, some of the interesting profile elements of the drug -- high efficacy, reduced disease progression, no first dose observation for 70% of the patients.

Thus far, our priorities remain and are progressing well. We believe we're the first choice now for active SPMS for healthcare providers in the United States. We have 90% of neurologists willing to prescribe Mayzent based on the survey data that we see. We currently have 70 million lives with preferred access to Mayzent to date, and we continue to try to grow that access over time. And, we're also working to use digital tools to help identify patients who truly are active SPMS patients and would benefit from Mayzent in the long term. So, we'll look forward to providing detailed sales data in Q3 for both Zolgensma and Mayzent, but I hope that gives you a sense of where we are in building the foundational building blocks for both of these launches.

Now, turning to ophthalmology, with Beovu, our RTH258, as you know, we've developed a differentiated medicine that now is on track for launch upon approval later this year. Mind you, the HAWK and HARRIER clinical programs demonstrated uncompromised vision, less retinal fluid, and fewer injections versus the comparator medicine. We've also launched a pretty expanded clinical program, including a study called TALON, which is a head-to-head study of brolucizumab versus aflibercept in a treat-to-control regimen in an apples-to-apples setting. So, we look to continue to provide the data needed to support Beovu's use in a broad range of patients for the long term. We're prepared for the launch, approval expected in Q1 '19, CHMP in Q1 2020. We have already seen strong awareness of the clinical data. Both our U.S. and E.U. operations are preparing, and we plan to be ready for a strong day one launch of this medicine.

Also in ophthalmology, when you go to slide 15, our plan is to accelerate Xiidra now that we've brought it fully in-house while laying the foundation to maximize its long-term potential. Now, just to remind you, dry eye is a significant patient unmet need that's generally underdiagnosed and undertreated. Thirty-four million patients with dry eye in the U.S. alone, it's estimated -- only 50% are accurately diagnosed, and really, only a fraction of that -- 10% -- is treated with an appropriate medicine. We're well aware that when you look at the TRx data for Xiidra over recent quarters, it has been very flat. We believe this is because of the uncertainty involved, as Xiidra's ultimate ownership was not clear. Now that we've brought certainty to the sales organization and the marketing organization, our plan is to reinvest in the medicine. We'll reengage the sales force, focus on share of voice, we have a plan to optimize our medical education with a plan to promote, including a DTC campaign starting in Q4 of '19.

Longer-term, our plan to maximize Xiidra will depend on our ability to expand access for Part D patients beginning in 2021. So, we'll continue to track, continue to push, and we'll look forward to keeping you up to date on our progress with Xiidra.

Now, lastly, on our near-term portfolio, I wanted to give an update on SEG101, crizanlizumab, w has been submitted in both the U.S. and E.U. Now, just as a reminder, in the world of sickle cell disease, we have therapies which are to treat a sickle cell pain crisis, there are therapies to prevent a crisis from happening in the first place, such as with SEG101, and then, of course, there are cell and gene therapies that are looking in certain patients to try to definitively treat the underlying genetic cause of the disease.

In the case of SEG101, we're really focused on preventing vaso-occlusive crises, which are the primary reason for hospitalization, the primary cause of pain and long-term sequelae for these patients, including some of the mortality outcomes, and the long-term cause of cost to the system. So, as I think you may have seen, we've been granted priority review for SEG101 in the U.S., and we continue to advance our filings around the world. We're also gearing up for a successful launch in the U.S. with a commercial organization in place, access plans in place, and an innovative disease awareness campaign we've launched using digital technology, which we hope will truly mobilize the patient community behind this medicine. As a reminder, there's about 60% of the patients we would expect in the sickle cell disease population who have two or more vaso-occlusive crises, and would be eligible for SEG101.

So, moving to slide 17, and just to say a few words about upcoming readouts, we have a number of upcoming readouts in Q3, Q4, and Q1. I wanted to highlight a few of these in my closing comments. So, if you move to slide 18, as many of you are aware, the PARAGON heart failure study -- the first confirmatory trial that's trying to be conducted in preserved ejection fraction -- large-scale study to be conducted in preserved ejection fraction heart failure using a novel endpoint with recurrent heart failure hospitalization.

Our next expected milestones for this are results and filing in the second half of 2019, and we also have a shell that's been posted for the ESC late-breaker. I would note we have not seen the data yet for this study. This is really a shell for the late-breaker presentation. The study was intentionally designed to assess Entresto's impact on the burden of disease this repeat hospitalizations. We believe the study design looking at that primary endpoint as well as other elements. We've learned from past failures in preserved ejection fraction heart failure will give us the best possible chance of succeeding in a patient population that's never had an approved medicine. So, we look forward to giving you updates as soon as we can, and hopefully we'll have positive results to show you later this year.

So, moving to slide 19, I also wanted to say a word about ofatumumab, which is our subcutaneous B-cell depletion agent targeting the CD20 target. It has the potential to provide access to high-efficacy B-cell therapy for a broad RMS patient population. We believe taking a medicine that is highly efficacious, moving it subcutaneous to give patients full flexibility, the potential to avoid having to go regularly in for a lengthy intravenous infusion process, will be welcomed by providers and by patients, and could potentially allow the more broad use of B-cell-depleting agents in RMS.

I also wanted to remind the group of the data profile that we have for ofatumumab, where we know that with the loading dose we've taken into the Phase III program, 60 milligrams q12 dosing to start, we see very rapid B-cell depletion, and you can see that in the attached graph. Then, what we expect is with monthly dosing, we can maintain that B-cell depletion and hopefully avoid some of the rebound that you might see in drugs that are dosed less frequently, especially toward the end of the therapy timing.

So, we wouldn't want to see that rebound, so we believe monthly dosing will hopefully keep those B cells down. On the flip side, we know that when we stop therapy, the B-cell repletion will happen in case safety signals are seen, so we think it could be a positive both from an efficacy and a safety standpoint, and ultimately, of course, the data will tell us. So, we'll look forward to providing that data to you later this year, and hopefully bring something to patients that's flexible, self-administered, and provides an improved overall profile.

So, moving to slide 20, I just wanted to say a word as well about fevipiprant, our oral DP2 agent to tackle severe asthma. Just as a reminder, on the left-hand side, our goal here is to address the so-called "treatment gap" in severe asthma. We know that there are 3.4 million patients in GINA 3 -- moderate patients who are on inhaled therapies -- but many of these patients progress and need something beyond their inhaled therapeutics. But, we know there's only 120,000 patients on biologics, which leaves a significant gap of 3 million patients, either with high EOS or all-comers, that need a better option to enable them to be in control of their asthma before potentially needing a biologic, or perhaps in lieu of a biologic.

We have a sizable Phase III program of five separate studies. LUSTER 1 and 2 look at exacerbations. We have an endpoint there that tries to put us in line with the exacerbation reduction seen with biologics. We have ZEAL 1 and 2 that target lung function. And then, we have the SPIRIT trial that's looking at safety. So, we look forward to providing you with additional data. ZEAL 1 and 2 -- we would expect the data release in Q4, and LUSTER 1 and 2 in Q1 of 2020.

So, lastly, I wanted to just introduce -- we have here in the room Marie-France Tschudin, who's been appointed President of Novartis Pharmaceuticals. She's a member of our executive committee. We're thrilled to have her. She's got 25 years of experience in pharma and biotech, including a lengthy period at Celgene. Most importantly for us, she's a purpose-driven leader who lives the culture we're trying to build at the company every day -- our unboss-inspired curious culture. She joined us in 2017 and has held a few different roles, and we look forward to supporting her with great success here at Novartis Pharmaceuticals. So, thank you very much, and I'll hand it over to Harry for some more detail son the financials.

Harry Kirsch -- Chief Financial Officer

Thank you, Vas. Good morning and good afternoon, everyone. My comments refer to the continual operations results, and growth rates are in constant currencies unless otherwise noted. So, slide 23 shows the summary of our quarter 2 and first half continual operations performance. In quarter 2, sales grew 8%, mainly driven by continued by momentum of Cosentyx and Entresto and our oncology growth drivers, including Lutathera, Taf/Mek, Promacta, Kisqali, and Kymriah.

Core operating income and core EPS both grew 20%, mainly driven by higher sales productivity, partly offset by growth investments. On free cash flow, we had $3.6 billion, up 11% in U.S. dollars, mainly driven by the strong operating performance and divestment proceeds from the sale of our Klybeck site here in Basel. These positive cash flows were partly offset by OTC joint venture dividends, which we received for the last time in quarter 2 2018. Net income in the quarter for continuing operations was $2.1 billion and $4 billion in the first half. The decline you see here on these reported net income numbers was prior year's Q2 $5.7 billion OTC joint venture divestment gain we recorded in quarter 2 of last year.

On slide 24, you see the quarter 2 core margin by division. Continuing operations' margin improved by about 3 percentage points in the quarter and first half, driven by the Innovative Medicines division. The Innovative Medicines' strong sales leverage and productivity were key drivers of the margin expansion. With sales growing 9%, we are expanding margin while still increasing investments in our key growth drivers and pre-launches. There were also a couple of favorable one-time items this quarter in the IM core margin. Pre-launch inventory provision releases after the regulatory approvals of Zolgensma and Piqray contributed about 1 margin point. The continued Diovan and Exforge growth due to generic valsartan supply shortages contributed about half a margin point.

So, the total Innovative Medicines margin improved 370 basis points to 35.4% of sales. If we exclude the one-time effect described earlier, the Innovative Medicines margin would have been around 34% of sales. Sandoz improved by 140 basis points to margin, and this was driven by sales growth, positive product geographic mix, productivity, and cost discipline, as we continue the Sandoz transformation.

Onto slide 25, in light of this very strong first-half performance, we are revising upwards our 2019 full-year guidance. For the new Focus Medicines company, net sales are revised upwards, expect to grow mid to high single digits. Core operating income revised upwards, expected to grow low double digits to mid-teens, and from a divisional perspective, we revised Innovative Medicines sales guidance upwards to grow mid to high single digits. And, the Sandoz sales guidance is also revised upwards to broadly align to a low single-digit growth. We now also expect -- just a word on the tax rate -- our full-year core tax rate to be aligned with what you see on the half 1 core tax rate of 16.4%. The increase both was the previous year, as well as versus our original 16%, is driven by some profit mix changes.

On slide 26, I want to talk through some of the dynamics for the first and expected dynamics for the second half of 2019. Clearly, the half 1 performance was very strong, with core operating income growing 19%. This was mainly driven by the continued sales momentum of our growth drivers, as well as ongoing productivity progress. We of course expect these to continue in the second half.

In the first half, we also benefited -- as mentioned earlier -- from valsartan competitor supply shortages, which resulted in double-digit growth for Diovan and Exforge. Recall that this supply issue and Diovan/Exforge growth started in quarter 3 of 2018 and may stop at any time. Hence, also in quarter 3, we begin to lap the growth in the base from this valsartan situation. As we look at the second half, we are expecting potential increased generic settlements, particularly on Afinitor, Exjade, and some older ofa brands. Furthermore, we continue to monitor generic activities on Sandostatin LAR.

Now, as discussed on the quarter 1 call, we were expecting these generic headwinds earlier in the year -- basically, in quarter 2. There is, of course, a potential that we continue to see less generic headwinds than expected also in quarter 3. In that case, if that situation were to come up, I would assume that we end the year 2019 at the higher end of our full-year core operating income guidance, but it's a bit too early to tell, and I'm sure we will discuss this topic again at the quarter 3 call.

On slide 27, you see how currencies would impact our results if mid-July rates prevail for the remainder of 2019. The full-year impact on sales would be a negative 3%, and on core operating income would be a negative 4%. As you know, every month, we update the expected currency impact on our website. And with that, I'll hand back to Vas.

Vasant Narasimhan -- Chief Executive Officer

Thank you, Harry. So, in conclusion, a very strong first half to 2019, and when you take a step back over the last 18 months as a company, we've been able to do over $60 billion of transactions to transform the company, we've set five priorities in place to truly drive performance, starting with culture and innovation, and it's starting to pay off, we believe -- strong sales and margin expansion, double-digit core operating income growth, the innovation pipeline is really kicking in, catalyst-rich second half, and we'll look forward to continue to keep you updated in the second half of the year. So, with that, I'll open it up for questions.

Questions and Answers:

Operator

Ladies and gentlemen, if you wish to ask a question, please press *1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press #. Your first question comes from the line of Graham Parry of Bank of America. Please ask your question. Your line is open.

Graham Parry -- Bank of America -- Analyst

Great. Thanks for taking my question. So, the first one's on Zolgensma and the $100 million inventory provision. Is that indicative of your expectations for a quarter or perhaps the second half of the year? Just trying to get a feel for what sort of inventory you would have built prior to launch. Secondly, on label expansion, with the SPR1NT data, could you just give us some timelines when you expect to meet with FDA and whether you think a 2H filing on the back of that still remains possible? And, similar for the STRONG data on the intrathecal filing as well.

And then, thirdly, on both PARAGON and the ofatumumab data -- you submitted both for medical conferences -- you flagged that you don't have the data in-house yet on PARAGON, but would you issue a headline press release on the data when it comes, or do we have to wait for ESC? And, a similar question for ofatumumab. I see ASCLEPIOS is submitted for ECTRIMS. Do you have data in-house there, or should we expect a headline press release somewhat imminently? Finally, on Gilenya, can you just give us an update with where you are with your Mylan declaratory judgment and preliminary injunction, and whether the EPI win that you had strengthens your hand in settlement negotiations with generics now. Thank you.

Vasant Narasimhan -- Chief Executive Officer

Thanks, Graham. So, on Zolgensma's $100 million provisions -- Harry?

Harry Kirsch -- Chief Financial Officer

Thank you, Graham, for the question. So, we basically -- from an IFRS standpoint, we basically expense the writedown immediately any production of product that is not yet approved. It happens on every product, and then, once approval is there, the inventory basically gets written up and does inventory provision release. Now, in this quarter, we got two products approved -- Zolgensma and Piqray -- and therefore had roughly $100 million of inventory provision release in OIE, where you see it.

That happened last time, I think -- usually, this happens and you don't even notice as much. It's smaller numbers. Last time this was a large number was several years back with Entresto approval, but it's normal practice, and basically, that presents on these products what has been produced since -- on AveXis since we acquired, and is, of course, also showing that production is going extremely well, and we are ready to supply many patients with it.

Vasant Narasimhan -- Chief Executive Officer

And, that does not necessarily indicate anything about sales expectations.

Harry Kirsch -- Chief Financial Officer

No. I would not -- first of all -- of course, this is a product that has a long shelf life, and production, of course, is important, and we want to make sure that we are ready to supply any sales scenario.

Vasant Narasimhan -- Chief Executive Officer

I would say also on Zolgensma production -- it's going well. In addition to our Chicago and North Carolina facilities, we have acquired a facility in Colorado. This year, we'll have ample capacity -- up to a thousand patients plus -- and we'll plan to expand capacity there going forward. Now, with respect to the SPR1NT and STRONG studies, SPR1NT is now technically covered by our existing label -- the treatment of patients in a pre-symptomatic phase -- so we would plan to present updates on that data for the slide, I think, at WMS, but it wouldn't affect our filing. Now, with respect to STRONG, our plan is to go to the FDA in Q3 and hopefully come to an agreement on a filing strategy. If there was agreement, we would aspire to file before the end of this year. Now, moving to PARAGON and ofa -- John?

John Tsai -- Head of Global Drug Development and Chief Medical Officer

Yeah, Graham. Thanks for the question. You know we have a very rich second half of the year with data readouts and Entresto for PARAGON, ofatumumab, as well as fevi. As Vas said earlier, we don't have any data in hand. We're obviously very excited about seeing the data in the very near future. We're going to look at these case by case and evaluate whether we will issue press releases moving forward, but what I will say is that we've had to submit some of the abstracts, for example, for Entresto and for PARAGON to the ESC so that we could hold the late-breaking session at ESC. So, moving forward, we'll be looking for and evaluating these on a case-by-case basis.

Vasant Narasimhan -- Chief Executive Officer

Lastly, on Gilenya, we do not expect any launch of a generic Gilenya in 2019, and this is in part because, as you know, Novartis was granted a motion for preliminary injunction which prohibits any generic manufacturers in that case from launching Gilenya until the decision on the patent -- which, at the earliest, would be in March 2020. So, we expect a potential appeal decision in early 2020, but right now, our focus is on vigorously defending the dosage patent and protecting Gilenya for as long as possible. So, thanks, Graham. Next question.

Operator

Thank you. Your next question comes from the line of Tim Anderson from Wolfe Research. Please ask your question.

Tim Anderson -- Wolfe Research -- Managing Director

Thank you. In my opinion, the two most important readouts for Novartis through the rest of the year are PARAGON-HF and the QAW trials, and there's reasons to be cautious with both of those. With PARAGON, no one's succeeded yet in getting a label for HFpEF, and in QAW, there's been lots of prior failed attempts at that class of drugs, so of those two programs, if you had to pick one with higher odds of success on delivering Phase III results that are positive, which would it be? Second question is on Cosentyx. About a year ago or so, you guys had kind of repriced the brand in the U.S. to try to get more first-line biologic usage in psoriasis ahead of TNS, and I'm wondering how that has evolved and played out, and if you can just talk about the evolution of your first-line biologic usage due to that repricing strategy.

Vasant Narasimhan -- Chief Executive Officer

Thanks, Tim. Well, I'll let John go on his pick, and I'll think about my pick. Go ahead, John.

John Tsai -- Head of Global Drug Development and Chief Medical Officer

Thanks, Tim. If I had to pick one versus the other, I would say there's a differential of about 0.01% difference, perhaps, if I had to differentiate between the two, but this is my own personal, subjective opinion, which is -- I would say PARAGON perhaps has a 0.01% chance higher likelihood of success. As you know, there's been numerous trial that have failed in heart failure with preserved ejection fraction, and currently, there is no treatment for this population of patients. We've learned from some of the trials that have been conducted in the past, and we've actually incorporated those learnings into our trial for PARAGON. So, success in PARAGON really is based on what we have for a primary endpoint -- a combination of CV mortality with hospitalizations, whether that would be first-time hospitalizations or recurrent hospitalizations. So, we're excited about it and we're looking forward to seeing those results.

Now, in terms of fevi, I wouldn't say it's a lower likelihood of success. It's just I think that asthma is such a significant unmet medical need, and currently, we have the biologics, and there's really no oral treatments beyond your current inhalers. So, we have a very extensive and comprehensive clinical program that we call Vibrant with close to 5,000 patients, but if I had to pick one of the two, it might be slightly higher, but it would almost be on par. I'll defer to Vas and see if he has any other comments.

Vasant Narasimhan -- Chief Executive Officer

The only thing I'd add on QAW and fevipiprant is just to remind that the key insight here was to shift the DP2s into more severe patient populations. So, we saw a positive result in Phase II --presented at ERS a few years ago -- of patients with high eosinophils. The class has been explored in the past, but it had been explored in GINA 3 or less -- so, far less severe patients. And so, we believe that with the profile of the medicine, its good penetration of the relevant tissues, as well as the eosinophil reductions we saw in at least two studies, that's where it really gave us confidence. In terms of Cosentyx in first-line biologic use in the U.S., Marie-France?

Marie-France Tschudin -- President, Novartis Pharmaceuticals

So, first of all, it's great to be back. It's a great time to be back in pharma. What I would say is that the performance for Cosentyx has played out as expected after last year's access wins, so we're very happy with that. We do remain confident that we will maintain our No. 1 or No. 2 position in our major markets. We see very strong underlying demand, and that is because of Cosentyx's unique profile that does address manifestations beyond skin. We also believe we've got the most robust data, and that will continue. We're also presenting further data later this year -- for example, prevent and non-radiographic axial SpA. We're very confident in the future of Cosentyx in both derm and wound indications.

Vasant Narasimhan -- Chief Executive Officer

Maybe I would just add on the first-line -- we believe it was the right strategy to get to the first-line because I think the data supported it, but also from a payer perspective, it put us in a strong position. I know there's a lot of focus on some of the new entrants coming in, and I think at least what Q2 showed is we were able to hold our own on formulary positioning thus far, and that's going to have to be our focus going forward to ensure we keep growing share and beating the market in the years to come, but we're on it, and we continue to believe that first-line uses and keeping in the first-line is critical. Thanks, Tim. Next question?

Operator

Your next question comes from the line of Keyur Parekh of Goldman Sachs. Please ask your question.

Keyur Parekh -- Goldman Sachs -- Managing Director

Thank you. Good afternoon. Two questions, please -- the first one for Vas, and then for Harry. Vas, you described the launch for Zolgensma as being very strong and good demand. Can you give us some sense for how many patients have you actually treated so far? Is it kind of single-digit? Is it double-digit? How should we think about that?

And then, secondly, Harry, in your remarks about the differences between the first half and the second half, you alluded to the fact that if there was going to be lower generic impact than you expect, you would get to the higher end of the range you have just issued. Given you've delivered 19% core operating income growth in the first half, it would be difficult mathematically for you to get to anywhere other than the midpoint of the range even if you were to get a lot of generic competition, given the guidance you've given on Afinitor. So, what would it take for you to grow above the range, and why isn't that more likely? Thank you.

Vasant Narasimhan -- Chief Executive Officer

Thanks, Keyur. So, first of all, on Zolgensma, we're not going to give any specific numbers. What I would say is we're seeing strong demand in terms of Rxs coming into the hub, which I think is the first marker we were looking for, and that's steady week on week, and that's what we wanted to see, and it's in line with our plan. We're seeing good conversion of those Rxs through the system, whether it's in Medicaid or in private payers, ultimately into approvals, either through the medical exception process or getting policies in place, and then, ultimately shipping the medicine and getting the patients treated, which is when we ultimately recognize sales. So, we're looking at all three. We have a great team on it. I think I personally am involved in many elements of this, so when we say it's on plan, I think it's exactly what we mean. It's where we wanted it to be. We have a lot of work to do, but we're happy with where we are. Now, with respect to the second half, Harry?

Harry Kirsch -- Chief Financial Officer

Yeah, Keyur. We have great momentum, no question. So, the first half has been great, and we do expect that the key growth drivers continue to do well; productivity programs continue to grow slightly or ahead of expectations. The generic impact -- we start seeing some. There is Zemplar coming in a couple of European countries, so we expect a bit higher generic impact. We see early signs. Of course, we will rigorously defend all of our products, but that started a bit. And, of course, the inventory provision release will not happen again to this magnitude. The second impact -- I don't want to talk down the second half here, but we saw the acceleration of our sales momentum in the second half of last year, and also, when you compare half 2 margins last year versus half 1, already an increase of the margins last year, so we have also a bit of a base effect, but we expect continued good performance, and just mainly for generics in addition to some of the base effects, basically, is the unknown.

Vasant Narasimhan -- Chief Executive Officer

Next question, operator. Thanks, Keyur.

Operator

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

Andrew Baum -- Citigroup Research -- Managing Director

Thank you. First question is I note that your provisions of $700 million in relation to DOJ case related to Diovan. Given your chief legal counsel is on the call, perhaps she might care to talk to any anticipated changes to your corporate integrity agreement in terms of the addition of any onerous impact for your marketing activities going forward. Second, on Zolgensma, historically, Novartis has provided guidance for full year for the newly launched products -- I'm thinking of Entresto and Cosentyx. I wonder whether you might intend to do so in this case. And finally, I know you're not exposed to government plans anywhere near as much as some of your peers, but I also remember that you enthusiastically embraced the proposed rebate reform as being good for patients, and by inference, for the industry. Now that that's no longer in place, I'd be interested to hear your thoughts on how you assess the risks of U.S. reimbursement and pricing, given the pressures from both sides of the aisle. Many thanks.

Vasant Narasimhan -- Chief Executive Officer

Thanks, Andrew. So, first, on the provision, I'll answer the question. We've taken the legal provision of about $700 million related to the Southern District case. We've taken the provision in the context of the ongoing settlement discussion, and I think you can understand we can't comment further, as the discussions are ongoing. Once we have a further update, we'll provide it, of course, but I don't want to pre-speak against those negotiations. Now, with respect to providing full-year guidance, I can't recall what we did when, but I think with Zolgensma, we're focused on getting the fundamentals in place, getting a very strong launch, and getting as many patients as possible in -- let's call it the prevalent pool, patients who are not newly diagnosed, trying to get all the patients who are newly diagnosed if we can. So, we're not going to give any guidance, but anyway, you'll see it all in Q3, and I can just say we feel very good with where we are, and we feel very good with the trajectory that we're seeing thus far.

Lastly, with respect to U.S. government policy, certainly, the environment is very fluid. You can imagine we need to stay very close to it. It's very difficult for us to predict between the executive branch and between the various proposals between the committees in the Senate which ones will ultimately prevail, or if they come in the end to a full legislative vote. So, it's hard to comment on specifics. It's also hard to comment on specifics because we haven't actually seen on paper any of the proposed legislation, proposed rules, or proposed bills.

In broad strokes, we as a company remain supportive of many of the reforms, whether that's around transparency, whether that's around some of the elements addressed by the CREATES Act, enabling stronger access to biosimilars, reforming Part B, thinking about out-of-patient caps in Part D -- all of these things are things we're open and supportive of, but until we see something concretely on paper, it's difficult to say and difficult to really determine how any of this will progress. So, we look forward with you to get more updates as the year progresses.

I would want to highlight our very low exposure relative to our peer group, and we're among the leaders ex-U.S. in the world in medicine. Depending on how you look at it, No. 1 in Europe and among the leaders in the world. In the U.S., we're low-exposed to these government programs relative to our peers, so that also creates a positive relative situation for us. Next question, operator?

Operator

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

Peter Welford -- Jefferies & Company -- Analyst

Hi. Thanks for taking my questions. I've got a few quick ones. Firstly, just for Harry, on the margin, we all know the Innovative Medicines margin long-term gain is supposed to go to around mid-30%. Just curious as to whether or not we should think of that now as being conservative, or should we think of that to be likely to be hit sooner. I guess I'm asking if it's likely that, that is a conservative number where we can likely go ahead of that, or is it more likely that mid-30% would just be achieved before the initial 2022 guidance.

Secondly, then, on Piqray, you mentioned that the sales for Zolgensma and Mayzent could be disclosed in the third quarter, but there was no mention of Piqray. Should we be taking that to mean that Piqray with the companion diagnostic is going to take longer for sales to build, or should we also expect some visibility on Piqray during the quarter? Thank you.

Vasant Narasimhan -- Chief Executive Officer

On the margin, Harry?

Harry Kirsch -- Chief Financial Officer

Yeah, Peter. So, as we all know, quarterly margins are always a bit volatile. So, for example, last year, in quarter 3, we had a 34% margin. We ended the year at 32%, and we made good progress in 2017, 31%, last year, 32%. Now, if you take the one-timers out, in the first half, we are in the range of 33-34%, so, good progress. Now, could we achieve on a full-year basis a bit earlier? We have to see. Two or three big components that would determine that -- one is the Gilenya defense. That is, of course, a big piece. We are confident, but of course, from when we gave the mid-30% guidance, it was not part of it.

So, that would certainly be helpful, and a potential upside if it holds longer than that, and we will do everything that it would, but too early to update our guidance. And, the other element is, of course, how the launches are doing. We have many of them. Good progress overall. I think what I'm highly confident about is how our productivity effort is progressing. That's fully in our own control, and was part of our over-delivery in the first half already, but of course, the first two elements I described -- we have to see how it develops over the next two quarters.

Vasant Narasimhan -- Chief Executive Officer

And then, on Piqray, Susanne?

Susanne Schaffert -- President, Novartis Oncology

Peter, as Mayzent and Zolgensma, there's no difference in terms of disclosure for Piqray. We are off to a very solid start. As you know, Piqray is approved together with the companion diagnostic for PIK3CA mutation testing from QIAGEN, and both of that is already included in the NCCN guidelines. We are engaging with payers, covering 80% of the target population, and as we emphasized last time, obviously, focus is on testing because that's the condition for Piqray treating, and we have to say that testing is going up, and we expect this to continue.

Vasant Narasimhan -- Chief Executive Officer

Thank you, Susanne. Thanks, Peter. Next question.

Operator

Your next question comes from the line of Steve Scala from Cowen. Please ask your question. Your line is open.

Steve Scala -- Cowen & Company -- Analyst

Thank you. I have a few. First, on Zolgensma, based on the strong reception in the market, it would seem an average of five to 10 patients could be put on the drug per week in Q3. Would you like to take this opportunity to suggest that that expectation is too aggressive, too conservative, or are you unsure? All of your comments on the call so far have been plural -- "patients," "Rxs," "plans," "contracts" -- so, based on what you've said, it would seem like that would be a good range.

Second, if PARAGON is a clear success or a clear failure, wouldn't you have to issue a top-line release before ESC? So, no top-line release implies fuzzy data at ESC. And then, lastly, what are some reasons why Mayzent cannot duplicate Gilenya's first-year sales, which were nearly $500 million, given a superior profile and label? Thank you.

Vasant Narasimhan -- Chief Executive Officer

Thank you, Steve. Always well-phrased questions from Steve. On Zolgensma, unfortunately, I can't provide specifics on patients per week. I think what we would say is we are in the plurals range on all of the things you mentioned, and so, we continue to see very solid uptake, and we are seeing that uptake every week, and so, I think it's been positive every week in terms of patients, every week in terms of plans, plans in terms of policies, every week as well in terms of contracting. So, good momentum, and we'll look forward to sharing the sales in quarter 3.

In terms of the PARAGON top-line release, John?

John Tsai -- Head of Global Drug Development and Chief Medical Officer

Thanks, Steve. As I've had a chance to look at various clinical trials, especially the large ones in cardiovascular clinicals, we've seen that results are sometimes difficult to interpret because it takes longer for us to either look at subgroups, or sometimes there are secondary endpoints that we need to understand. So, it would be great if it were clear, and it would be great if it were clearly positive, and I think that would be a very easy decision for us to move forward, but obviously, it really depends on the results that we see, and we do have some secondary endpoints as well as some sub-studies, so we'll have to await what those are.

Vasant Narasimhan -- Chief Executive Officer

And then, lastly, on Mayzent, Marie-France, do you want to take that?

Marie-France Tschudin -- President, Novartis Pharmaceuticals

Sure, Vas. Thanks. So, the first thing I would say is that the physicians haven't identified patients so far with SPMS because there has been no medicine in the marketplace. So, as we've said before, this year is all about education. I can give you some data on where we are with the launch. As you know, it is the only product proven to delay disability in active SPMS patients. The awareness is high. We've got more than 90% of neurologists willing to prescribe. Even in my own personal conversations with physicians, there is a lot of appreciation for the EXPAND data. They need a treatment for this patient population. We've also seen a lot of progress in access -- over 70 million lives with preferred access -- but we really need to focus on patient identification, creating a sense of urgency. At the end, we're very confident in the long-term potential of Mayzent, but this year is all about education.

Vasant Narasimhan -- Chief Executive Officer

Thank you. Next question.

Operator

The next question comes from the line of Florent Cespedes from Société Générale. Please ask your question. Your line is open.

Florent Cespedes -- Société Générale Cross Asset Research -- Analyst

Good afternoon, and thank you for taking my questions. Three quick ones. First, on Entresto, what is behind the sequential acceleration of the sales mainly in Europe -- the guidelines in your recommendations? I'm just wondering what could be the trigger to see such acceleration on the U.S. market. Second question, on Beovu, could you give us more color on your U.S. commercial operations, as your competitors are quite strong and well-established there, and if you have maybe some flexibility to even further expand your U.S. operations on ophthalmology? And, my last question is on Sandoz. So, the division growth is back into positive territories. Do you see some improvement in some areas, or is there any base effects, and is this better performance sustainable? Thank you.

Vasant Narasimhan -- Chief Executive Officer

Great. Thanks. First, on Entresto acceleration, Marie-France?

Marie-France Tschudin -- President, Novartis Pharmaceuticals

So, we see very strong momentum overall, and this is really due to underlying demand. Obviously, the PIONEER data has opened up a new patient segment for us in the in-hospital initiation. We're very confident with the momentum we're seeing across geographies, not only in Europe and the U.S., but I can also say that China is off to a good start. Obviously, the ESC Heart Failure Association consensus paper that positions us in first-line on new-onset and decompensated patients has been very useful for us, and a real endorsement of the product. We're confident Entresto is becoming standard of care across the board, so we will continue to see strong momentum, as I said, worldwide.

Vasant Narasimhan -- Chief Executive Officer

Thank you. Lastly, on Beovu, I think we have a really strong commercial team. We've been able to attract some excellent talent with deep experience in retinal disease and launching retinal medicines. We have a field force fully deployed and ready. We have an excellent MSL team that's been out now for some time educating physicians on the data. We have good plans in place with respect to contracting, particularly given how the medicine is given in a buy-and-bill model. We've been working a lot on our patient hub to ensure that we are ready to go, and make it seamless and easy for our physicians to get patients onto the medicine.

So, I think we've got all the elements in place, ready to go, also ex-U.S. as well. We're gearing up well for the RTH Beovu launch. So, overall, we feel like we're in a good place. I would say that for all our launches, we have an executive-level review with our leadership team and deep ownership at the executive team level to make sure that we're doing the best we can to get all the details right on these upcoming launches. Thanks, Florent. Next question.

Oh, Sandoz, sorry. Sandoz growth. Of course. So, at Sandoz, we were pleased by the Q2 performance. When you look at it, it was primarily driven by strong performance outside the U.S., a mix of mostly strong biosimilars performance, but also, I would say, our core generics business with some recent launches, such as fulvestrant and a few others, continues to do well overall. So, I think we're very proud with how Sandoz is performing ex-U.S. Within the U.S., our team continues to work hard in what is a challenging environment.

If you take out certain one-time effects, you would see that in the U.S., the base business continues to have declines in the mid-teens consistent with what we've seen in past quarters, so we haven't seen yet the stabilization in that core GX business in the U.S. I think in the U.S., the key will be our upcoming launches, which we hope will be of pegfilgrastim potentially as well, our inhaled generic, as well as some of the injectable launches we have upcoming. And, if those go well, we hope to also have the U.S. contribute. So, going forward, we felt comfortable raising the guidance to in-line to low single-digit based on that momentum that we're seeing all outside the U.S. Thank you. Next question.

Operator

Your next question comes from the line of Jo Walton from Credit Suisse. Please ask your question. Your line is now open.

Jo Walton -- Credit Suisse -- Analyst

Thank you. Just a few quick ones, please. Harry, you said that you were looking at Sandostatin LAR generics in Europe. I wonder if you could tell us which countries the product has been approved in and what you expect the timeline for that to be moving into perhaps bigger, more important countries, and potentially into the U.S. On the Gilenya situation, could you tell us whether you're still accruing royalties to Mitsubishi Tanabe? Their changing guidance earlier this year suggests that they're not being paid since February, so is that an extra benefit, that this product is now even more profitable for you?

On Zolgensma, I wonder if you could just tell us a little bit about how you're progressing ex-U.S. You say that you've treated somebody in France, but when do you think we'll actually be able to see paying customers outside of the U.S.? Finally, for Harry, you mentioned the tax rate going up because of the mix effect to over 16%. Does that mix effect keep going? Should we now be looking at something above 15% for a medium-term tax rate? Many thanks.

Vasant Narasimhan -- Chief Executive Officer

Thanks, Jo. So, on Sandostatin, Susanne?

Susanne Schaffert -- President, Novartis Oncology

Yeah, Sandostatin -- let me share the facts that we have. So, there is one generic company that has recently received marketing authorization in the E.U. via decentralized procedure, and they will start getting national ratifications for their local marketing authorizations. We know that there are several countries where they have already achieved that, like U.K., Denmark, Germany, and we see some first limited commercial activities. On the U.S., we are closely monitoring the situation, and we will keep you updated of information in case we have...

Vasant Narasimhan -- Chief Executive Officer

I think one reminder on Sandostatin is it is a unique medicine -- the setting it's given in -- so when and if one generic starts to come in, you would really have to model your erosion curves similar to what you see with biologics and with very limited competition. That's our expectation at the moment in all geographies. Next, on Gilenya/Mitsubishi, Harry?

Harry Kirsch -- Chief Financial Officer

Yeah, Jo. All I can say -- I don't know where some of these statements come from, but we are still paying and accruing royalties for Gilenya to Mitsubishi Tanabe in accordance to the contractual terms and agreement with them. So, we keep paying, and we keep accruing.

Vasant Narasimhan -- Chief Executive Officer

Then, in terms of Zolgensma ex-U.S., first, to clarify, the patients we referenced from the French ATU or from the named patient program are fully paid patients. These are paid patients either by self or by the relevant government in the case of France. In terms of when we would expect approval, as I said in the presentation, we're targeting approval before the end of this year. I think for planning assumption, you should assume Q4 this year is when we expect to get European Commission OK and be able to launch the medicine. In terms of tax rate, Harry?

Harry Kirsch -- Chief Financial Officer

Thank you for the question on tax rate, Jo. It is often a bit -- it's a complex and sometimes overlooked topic, but it's also hard to forecast. So, we had a slight increase from 16% to 16.4%. That's where we are quite confident tax rate will be for this year. First of all, a couple of developments. As you know, the Swiss tax reform got approved for us here in the Basel city, cantonal level, and federal level, which is excellent, because that gives us very good planning security in a very large part of our operations. We have a huge substance, as you know, here in Switzerland, with our 10,000-plus associates, many manufacturing sites, as well as R&D and our headquarters -- many of them are here.

So, very positive development there that takes away uncertainty. That's great. And, we have, overall, a very attractive tax rate. Now, of course, since years, the tax environment is getting more and more difficult. We have been able to maintain an attractive tax rate, and I also expect we will continue to maintain an attractive tax rate, probably midterm in the range between 16-17.5%. To be more precise than that, we usually do year by year, but I expect that over the years, we will continue to have a very attractive tax rate.

Vasant Narasimhan -- Chief Executive Officer

Thanks, Harry. Thank you, Jo. Next question, operator

Operator

Your next question comes from the line of Seamus Fernandez from Guggenheim. Please ask your question. Your line is now open.

Seamus Fernandez -- Guggenheim Securities -- Managing Director

Thanks very much for the question. So, just a couple here. Can you guys talk a little bit about Cosentyx and the directional performance there? It just looks like you're coming in somewhat below in the U.S. relative to script trends. Just wanted to get a better sense of how the mix of impacts there were coming in, whether it be some inventory effects, price, direct price negotiations, impacts relative to formulary access, or perhaps just the donut hole impact. The second question -- just wanted to get a general sense of the performance of your Humira generic or biosimilar. I assume, presumably, most of that performance came in European markets. Can you just give us a general qualitative sense if you can't give us exact sales? Just trying to get a sense of how the penetration is going for that product.

And then, the last question -- in terms of the expectations for PARAGON, John, you mentioned that there are always things with regard to large clinical studies like this that we have to be careful about and think about. Maybe could you just give us a general sense of what you would characterize -- you said a "clean win." How would you characterize a clean win, and what are some of the aspects that you think complicate an evaluation of a large study like PARAGON, whether it be the different regional dynamics that we've seen become an issue in a number of studies, or other factors? Thanks a lot.

Vasant Narasimhan -- Chief Executive Officer

Thanks, Seamus. First, on Cosentyx, I'll just quickly take that one. In terms of what we saw, there was a small difference in terms of sales versus script trends. That was primarily driven by a small bit of inventory. Mostly, it's RDs, which were just related to formulary access. But, in general, right now, we're seeing sales volume trend with Rx scripts, and it's nothing that we would say is important to flag with respect to Cosentyx momentum in the U.S. across indications.

With respect to adalimumab in Europe, I think as you know, there's a number of generic entrants who have come to market in adalimumab, which means that it's, of course, a competitive marketplace. To our experience, we have seen solid uptake of the adalimumab biosimilars, whether it's through tenders or in other ways. When you look at our ada penetration in Europe overall versus the originator, it's around 22%. We estimate we're ranked No. 3 among biosimilars players. That's probably the best data we can get. We're very proud of our performance, particularly in rituximab, where we face less competition, as well as in etanercept, which is a little more favorable situation for us relative to the competition. With respect to PARAGON endpoints, John?

John Tsai -- Head of Global Drug Development and Chief Medical Officer

Thanks, Seamus, for the question regarding PARAGON. As you know, what I said earlier -- success would really be based on the primary endpoint, and the primary endpoint being CV mortality and hospitalization. What we know about heart failure with preserved ejection fraction is that the burden really is around hospitalizations and rehospitalizations for these patients. So, for us, what we think would be success, really, is dependent on hospitalizations or sometimes a subsequent readmission into the hospital. So, that's something that we're looking at very closely, and knowing that this is a significant burden for that population of patients.

Now, regarding your second part of the question, on what are some of the things we're looking at for, perhaps, secondary endpoints or sub-studies, you'd specifically mentioned are there regional differences -- we have looked at some of the previous studies, looking at regional recruitment, particularly in the eastern European countries, and we think we've factored that into our study. We have less than 5% from Russia and Georgia, where, in one of the previous studies, there were some questions around that.

So, we think we've taken that into consideration, but perhaps thinking about some of the other sub-studies we're looking at, we have a cognitive sub-study looking at cognitive impacts. What I will say is that as we look at the overall adverse event reporting we have been seeing, as well as the patient experience from spontaneous reports -- because Entresto is being used -- we have not seen any signals in the current spontaneous adverse events, but obviously, we need to see the results of the cognitive sub-study to be able to tell for sure. So, these are some of the things that we take into consideration for the trial.

Vasant Narasimhan -- Chief Executive Officer

I think overall with PARAGON, the key thing to remember as we get to the final study is we looked very closely at past history. We studied very closely how the past studies were conducted. We tried to manage as best we could. We tried to also ensure we used repeat hospitalization to the composite endpoint, along with CV deaths for the composite primary endpoint. And then, we tried to also leverage our Phase II study, which showed both significant decreases in NT-proBNP as well as atrial remodeling. So, all of that taken together makes us feel like we've conducted a study in the best possible way to give us a chance of success, but then, in the end, the science will ultimately tell us. Next question, operator.

Operator

Your next question comes from the line of Richard Parkes from Deutsche Bank. Please ask your question. Your line is now open.

Richard Parkes -- Deutsche Bank -- Analyst

Hi. Thanks for taking my question. This is Richard Parkes from Deutsche Bank. First question -- on gross margin within Innovative Medicines, I think you'd previously said that flat year-on-year gross margin for the full year would be a good guide, but you had a very strong second quarter, and I just wondered how we should think about that, whether there was anything specific in Q2 gross margin, and should the new launches be a positive to gross margin offsetting maybe some of the impact from the generic launches. So, that's the first question. The second question is on Lutathera. I think sequential quarter-on-quarter growth slowed a bit, so I just wanted to fill in any special effects there, and whether you could discuss the longer-term growth prospects for that franchise. Thanks.

Vasant Narasimhan -- Chief Executive Officer

So, first, on gross margin, Harry?

Harry Kirsch -- Chief Financial Officer

Gross margin is a bit hard to predict, as you know. Our gross margin started to increase quite significantly, driven by the productivity programs' favorable mix in the second half of last year. So, while I continue the good growth margin for the second half, probably improvement versus prior-year second half, where it's expected not to be as much. Now, a lot depends on the product mix. As you know, it depends on some of the products with higher cost of goods progressing versus the ones that have either no royalty burden or very high gross margins. So, hard to predict, but I think it hopefully had split with the modeling that probably was prior-year half 2. I would not assume such a significant improvement.

Vasant Narasimhan -- Chief Executive Officer

I just want to add -- overall, our transformation of our manufacturing is progressing really nicely, whether you look at our improvements in yield, improvement production performance in our facilities, the optimization of our plant footprint around the world, the use of new technologies we had set up to really transform our manufacturing engine at the company. I think you're seeing now the impacts of all of that work in the gross margin. Susanne, on Lutathera?

Susanne Schaffert -- President, Novartis Oncology

Thank you, Richard, for the question. So, on Lutathera, we had another strong quarter, reaching $109 million, and the majority of sales are still coming from the U.S. And, you're right that growth rates in the U.S. slightly declined in Q2, and the main reason is really that major Tier 1 centers have now worked through their prevalence pool -- really, patients on the waiting list that were mostly in late-line. So, what we are focusing now on is really positioning Lutathera as the preferred second-line treatment, and we expect further continued growth. We remain very confident in Lutathera, and we also expect now sales coming in from ex-U.S. We make nice progress in receiving reimbursement approvals, recently got approval for reimbursement in Spain and Italy, we got all the regulatory approval in Switzerland and in Israel, so we remain very confident with Lutathera, that it has potential for blockbuster sales, and will continue to grow strongly.

Vasant Narasimhan -- Chief Executive Officer

Thank you, Susanne. Next question, operator. If the remaining people in the queue could try to limit themselves with one question, and maybe not so many parts to the one question. We only have a limited amount of time left. So, next question.

Operator

The next question comes from the line of Richard Vosser from J.P. Morgan. Please ask your question. Your line is now open.

Richard Vosser -- J.P. Morgan -- Analyst

Thanks. Thanks for taking my question. One question on China and the impact from the 4+7 tenders, please. Thinking about -- I think Glivec has mentioned and there's been some tenders there, but maybe thinking about the impact on Diovan and Exforge, how should we think about that? And, maybe if I can one second question, just on SEG101, how are you expecting that to be used? Do you see it being used primarily in patients who've had a vaso-occlusive crisis? How should we think about that? Thanks very much.

Vasant Narasimhan -- Chief Executive Officer

Thank you, Richard. So, on China in general, we are focused very much on our launch medicines. We are focused on moving out of the historical established medicines business, given the number of recent approvals we've had. We've had double-digit approvals, double-digit reimbursements, Entresto is doing well, Cosentyx is off to a strong start, our new oncology medicines are off to a strong start.

So, our focus is very much on driving the new launches. We do expect in due course these tenders to impact our legacy established medicines business, primarily Glivec and valsartan-containing medicines. To date, these tenders have not started at a significant scale on those specific medicines for a variety of reasons, so at the moment, it's not a significant impact. Even when it comes, we expect that our launches should more than offset the impact of the 4+7 tenders. That's very much our focus on strategy. We also believe the government is doing the right thing in shifting resources from these older medicines and focusing on new innovation. It actually fits Novartis's strategy quite well. With respect to SEG101, Susanne?

Susanne Schaffert -- President, Novartis Oncology

In terms of positioning, what we would expect -- really, SEG101 has impressive effect on prevention reduction of VOCs. We could show in our data that we could reduce VOCs by 50%, and that's how we would expect it to position. So, patient population is probably patients with two or more VOCs per year, which is around 60% of the total patient population.

Vasant Narasimhan -- Chief Executive Officer

Thank you, Susanne. Thank you, Richard. Next question, operator.

Operator

Your next question comes from the line of Michael Leacock from MainFirst. Please ask your question. Your line is now open.

Michael Leacock -- MainFirst Bank -- Analyst

Thank you. Two very quick questions. On Entresto, any update in terms of reimbursement timing in China? And, you mentioned on Xiidra that there was a lack in progress owing to uncertainty to its ownership. Could the same apply to Aimovig?

Vasant Narasimhan -- Chief Executive Officer

I'll start with Xiidra, and then come back on Entresto. So, right now, with respect to Aimovig, we think there's clarity in the field force, and we've been working together with Amgen to ensure that any of our legal disputes do not impact the focus of the field force in the United States. I would also say we're pleased -- even though it's not come up yet on the call, we're pleased with the uptake of Aimovig outside the United States. It's been very positive overall, and we continue to drive that.

With respect to Entresto, we're working through now reimbursement at the regional level and are focused very much on getting an NRDL listing nationally for Entresto. We hope to achieve that in one of the upcoming cycles. We do have a number of regions where Entresto is already now on the listing at the regional level. But, the goal very much remains to get on the national NRDL schedule in the coming cycles. Next question, operator.

Operator

The next question comes from the line of Naresh Chouhan from Intron Health. Please ask your question. Your line is now open.

Naresh Chouhan -- Intron Health -- Founder

Hi, there. Thanks for taking my questions. On Mayzent, can you update us how you're doing with setting up and implementing the CYP screening, and is that adding to the inertia among doctors to -- you've mentioned trying to instill some urgency in doctors. Is this adding to the inertia in prescribing or switching patients to Mayzent? Just quickly, if I can, Entresto ex-U.S. was very strong. Some insights would be helpful. Thank you.

Vasant Narasimhan -- Chief Executive Officer

So, on Mayzent, Marie-France?

Marie-France Tschudin -- President, Novartis Pharmaceuticals

So, with Mayzent, we are using a hub system that does manage the start forms, benefits verification, and genotyping, as well as the other lab data, and then, ultimately, the delivery of the product. What we do see is that the numbers in the hub are encouraging, but it is a 60-day onboarding, plus one month free, so it's about 90 days. So, we are now working to try and accelerate that, but our initial feedback is very positive on how that's looking.

Vasant Narasimhan -- Chief Executive Officer

And then, with respect to Entresto ex-U.S. acceleration, Marie-France would be the right person to ask. She oversaw Entresto.

Marie-France Tschudin -- President, Novartis Pharmaceuticals

As I mentioned before in the call, I think the momentum is really strong all over, and the PIONEER data has really boosted the in-hospital initiation, which has really changed the dynamics. And so, overall, we've seen great performance in Europe, we've seen great performance in the U.S., we're starting to see very encouraging performance in China, and I just believe that momentum will continue as we go forward and we establish Entresto as standard of care.

Vasant Narasimhan -- Chief Executive Officer

Thank you, Marie-France. Next question, operator.

Operator

Your next question comes from the line of Kerry Holford from Exane BNP Paribas. Please ask your question. Your line is now open.

Kerry Holford -- Exane BNP Paribas -- Analyst

Thank you. It's Kerry Holford from Exane. One from me, please, on Xiidra. So, I noticed on the slide in your pack, you highlighted that you're not expecting significant Part D access expansion until 2021. I wonder if you can just talk through why that couldn't come earlier -- beginning of next year -- and so, you're essentially saying that really, we should expect limited growth in Xiidra in 2020, which will be primarily dependent on that commercial plan patient only. Thank you.

Vasant Narasimhan -- Chief Executive Officer

Thank you, Kerry. Marie-France, on Xiidra?

Marie-France Tschudin -- President, Novartis Pharmaceuticals

First of all, let me just say that we're excited to add Xiidra to our portfolio. We think it's a great complement to our front-of-the-eye business, and it does bridge to our pipeline. Xiidra has got a really strong clinical profile. It's really the only product proven to reduce signs and symptoms. Vas already mentioned the medical need, and how under-diagnosed dry eye disease is. Currently, we see 1.6 million prescriptions in a market that's 34 million. What I can say to you is that we've got excellent commercial coverage, and expanding to Part D will happen over 2021 because we're pretty much locked in for 2020. However, we do believe that there is a lot of room to grow. Dry eye disease is promotionally sensitive. We're starting a DTC campaign in Q4. We think it's a strong strategic fit and there's clear blockbuster potential for us in the U.S. alone.

Vasant Narasimhan -- Chief Executive Officer

Thanks, Marie-France. I think if you go back in time and you look at the early quarters, when there was a heavy focus on Xiidra, you saw the strong performance of this medicine, so we want to rekindle that fire. Next question, operator.

Operator

Your next question comes from the line of Laura Sutcliffe from UBS. Please ask your question. Your line is now open.

Laura Sutcliffe -- UBS -- Analyst

Hello, thank you. Just on Zolgensma, and specifically on your Medicaid book of business, we know that reimbursement in Medicaid is going to take much longer than in the commercial setting, but I was just wondering if you could tell us whether your views on access and uptake in the Medicaid environment have evolved at all over the last few weeks, since you got approval. Thank you.

Vasant Narasimhan -- Chief Executive Officer

On Zolgensma and Medicaid, we have four policies now already up on Zolgensma in Medicaid, which I think is very encouraging. I would say in terms of medical exception requests thus far in Medicaid, that Novartis -- at least, managing through our hub -- we've also seen positive responses from Medicaid states. Our first patient actually was a Medicaid patient. And so, when you look at those narratives in general, patients are able to navigate Medicaid through medical exception, so that gives us encouragement that even in the time it will take us to get the medical policies fully set up, we can still work through the system and get patients treated, given the demand from the parents, the children, the providers. We feel generally optimistic. We'd love to accelerate getting those policies in place, and our teams are working hard to do that, but as you rightly point out, it will be longer in Medicaid versus in the private insurance segment. Next question, operator.

Operator

The next question comes from the line of Mani Foroohar from SVB Leerink. Please ask your question. Your line is now open.

Mani Foroohar -- SVB Leerink -- Managing Director

Thanks for taking my call. A quick question on Zolgensma. You talked about the attractive launch metrics you've seen thus far. When we think about modeling in future quarters, how should we think about time from dosage to realized reimbursement in the U.S. versus global markets where you're going to be launching? Should we expect that to be relatively swift, or should we expect the payment-over-time dynamics -- as you've talked in the past -- to come into play as you launch in the U.S. across different markets?

Vasant Narasimhan -- Chief Executive Officer

With respect to the payment-over-time, it's important to know we're doing this through a third party. Actually, what we do is we recognize revenue immediately, and then take a provision for our estimate of whether or not we would need to have any sort of rebate at some time over the period that we ultimately contract for. So, you shouldn't model any lag. As Sarah guided last time, it's really revenue recognition at the time of dosing. To date, because it's very early days, we don't have any plans currently using these kinds of models, but we continue to work with plans in terms of contracting. It would be a similar situation, we expect, outside the United States, as far as we can tell. Once we get those launches moving, we'll of course keep you updated if you need to shift your modeling at all for ex-U.S. patients. Thank you for the question. Next question.

Operator

The next question comes from the line of David Maris from Wells Fargo. Please ask your question. Your line is now open.

David Maris -- Wells Fargo -- Managing Director

Thank you. Just a question -- one of the proposals being floated is reference pricing. If you could just address in broad strokes what the average selling price difference of your lead products or the bulk of your pharma products are in the U.S. versus Europe or the developed markets that they're thinking about benchmarking to. Thank you.

Vasant Narasimhan -- Chief Executive Officer

When you look at the proposals, in our experience, we have very limited exposure in Part B. We don't have many Part B medicines. I can't really give you a specific answer on Part B. It's probably better to ask some of our competitors on Part B. With respect to Part D, our analysis suggests when you take into account rebates, other government subsidies, and things that we give -- patient assistance programs, redrug, et cetera -- that our net pricing for our major medicines within Part D, really -- at least, recently launched medicines in Part D -- approach those of what we see in top European countries. So, we don't see a significant gap in Part D. I know from an industrywide perspective, there's certainly a high variability within Part B, and I think that's where the focus has been. Thank you for the questions. I think we have time for one last question before we finish the call. Last question, please.

Operator

The last question comes from the line of Emmanuel Papadakis from Barclays. Please ask your question. Your line is now open.

Emmanuel Papadakis -- Barclays Investment Bank -- Analyst

Thank you. I'll try and keep it to one semi-brief question. Just to push Harry a little bit on margins, you talked about potentially getting a bit earlier to that mid-30s target. You didn't mention the possibility of us actually getting through that target and beyond. In particular, R&D has been perhaps one of the areas where you've most actively talked in the past about something you can internally control in terms of reduction. You're already at the 20%. To what extent in the world of big data could you take it below that figure?

Vasant Narasimhan -- Chief Executive Officer

Thanks for the question, Emmanuel. In general, for the company, we're trying to make the company as productive as possible, so our goal, of course, is not to stop at one specific number, but certainly focus on areas where we can become as efficient and as competitive with anyone in our industry, and it's relevant in areas like business services or procurement, competitive with anyone in any industry. Right now, our goal is to get to the mid-30s by 2022. If we get there on a full-year basis sooner, then of course, we'll give you updated perspectives on where we want to head next on margins, but I certainly want to set the expectation our aspirations are to be as productive as possible.

Now, with respect to R&D, we don't view R&D as the key lever to achieve this. R&D is fundamental to the company. We always wanted to get to that 20% range. We're there now. But, we don't use R&D as our driver for margin improvement. What we want to do is ensure we fund every good program, and we do that, and we ensure that we're -- and, if we need to, of course, increase our R&D levels in order to fund an excellent project, we'll do that. Now, in the medium and longer term, if data science and digital technologies can help us transform not only our manufacturing and business services and sales areas, we hope it also will transform our R&D. We hope that actually gives us capacity to do more programs, and we can continue to be at 20% and do even more programs to grow the company.

So, I think that's it for today's call. Thank you again for investing in Novartis or your interest in Novartis. We look forward to delivering a strong second half of the year. We appreciate your interest in the company, and we wish you a great summer. Thank you.

Operator

That does conclude our conference for today. Thank you for participating. You may all disconnect.

Duration: 91 minutes

Call participants:

Samir Shah -- Global Head of Investor Relations

Vasant Narasimhan -- Chief Executive Officer

Harry Kirsch -- Chief Financial Officer

Shannon Klinger -- Chief Legal Officer

Susanne Schaffert -- President, Novartis Oncology

Marie-France Tschudin -- President, Novartis Pharmaceuticals

John Tsai -- Head of Global Drug Development and Chief Medical Officer

Richard Saynor -- Chief Executive Officer, Sandoz

Graham Parry -- Bank of America -- Analyst

Tim Anderson -- Wolfe Research -- Managing Director

Keyur Parekh -- Goldman Sachs -- Managing Director

Andrew Baum -- Citigroup Research -- Managing Director

Peter Welford -- Jefferies & Company -- Analyst

Steve Scala -- Cowen & Company -- Analyst

Florent Cespedes -- Société Générale Cross Asset Research -- Analyst

Jo Walton -- Credit Suisse -- Analyst

Seamus Fernandez -- Guggenheim Securities -- Managing Director

Richard Parkes -- Deutsche Bank -- Analyst

Richard Vosser -- J.P. Morgan -- Analyst

Michael Leacock -- MainFirst Bank -- Analyst

Naresh Chouhan -- Intron Health -- Founder

Kerry Holford -- Exane BNP Paribas -- Analyst

Laura Sutcliffe -- UBS -- Analyst

Mani Foroohar -- SVB Leerink -- Managing Director

David Maris -- Wells Fargo -- Managing Director

Emmanuel Papadakis -- Barclays Investment Bank -- Analyst

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