Roche Holding AG

SIX:ROG

Earnings Call Transcript 2019-Q1

[Operator]

Ladies and gentlemen, welcome to the Roche's First Quarter Sales 2019 Audio Webcast and Conference Call. I'm Sherry, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Dr. Severin Schwan, CEO of the Roche Group. Please go ahead, sir.

[Severin Schwan, CEO & Executive Director]

Thank you, and welcome to our briefing on the quarter 1 sales. Going right into the presentation on Slide 6, you've seen that we started with strong sales growth into the current year, 10 percentage points up in Pharma, very much driven by the newly launched medicines; 1% in Diagnostics, so 8% sales growth for the group. You see on Slide 7, we keep a good momentum on a quarterly basis. And turning to Slide 8, we have now 27% of our Pharma sales coming from the more recently launched medicines. I mean, just to highlight 3 of them: OCREVUS, as you know, the best launch ever at Roche, continues to grow strongly; HEMLIBRA, really excellent growth now also in the non-inhibitor segment where we have received recently approval in the United States, that was really driving the growth there; and then lastly, for Tecentriq, we saw very strong sales growth, very much driven by the approvals in the new indication of triple-negative breast cancer and small-cell lung cancer.Turning to the pipeline on Page 9, you see that we have received another 2 Breakthrough Therapy Designations in the first quarter: one for VENCLEXTA and an additional one for GAZYVA. As far as Spark is concerned, we expect the transaction to close this quarter, still in the first half of 2019.On Slide 11, I just highlight AAN, American Academy of Neurology, which is upcoming and where we will present additional data on OCREVUS, very much look forward to that. We will also show combination data, Phase III combination data for satralizumab, a combination with steroids. And we also very much look forward to give you an update on risdiplam, our molecule in SMA.Now based on the strong performance in the first quarter, we expect sales now to grow in the mid-single digits. So we raised the outlook from low to mid-single digits, which we gave you earlier this year. Core EPS to grow broadly in line with sales, and on that basis to further increase our dividend in Swiss francs. As such, the last comment on Slide 13, you see a high number of opportunities in late-stage development. Let me just confirm and point out that we expect approval for entrectinib and polatuzumab still this year. And as far as risdiplam and satralizumab is concerned, we expect filing still for the current year.On that positive note, let me hand over to Bill for Pharma. Thank you.

[William N. Anderson, Chief Executive Officer of Roche Pharmaceuticals]

Great. So as Severin mentioned, a very strong start to the year for the Pharma business. You can see here the highlights in terms of revenues, 10% overall growth in constant exchange rate, 12% in Swiss francs. And it was actually quite broad-based effect, with really the only exception being a little softness in Europe based on biosimilars. But I would say, even there, given the rate of decline in biosimilars, that the minus 6% is still a pretty strong figure. But you can see, obviously, with U.S. growing 14%; International, outside of Europe and Japan, at 17%; and then even Japan at 7% in a challenging Japanese market. We're very pleased with what we saw as a start to the year.And looking a little deeper at the specific products. Again, you can see that the top 4 were all newer products, led by OCREVUS with a growth of about 2/3 over the last year. And again, you can see that in U.S. and Europe and International, PERJETA, which we'll come back to, but again, sort of broad-based strength on uptake of APHINITY in the early breast cancer setting; HEMLIBRA, very strong both in inhibitors and non-inhibitors; and then Tecentriq based on new approvals.I'd also highlight, you can see sort of down at the bottom of the slide, you can see the biosimilar impact. And I think, again, Q1 was really living out what we've been planning for, for many years and talking about for many years, that we planned to have our new launches offset the impact of biosimilars. And in fact, I think we've done that in a very strong way. So if we drill down a little bit into the therapy areas. Starting with oncology, very pleased to see 7% growth in Q1 despite the biosimilar impacts, led by HER2 franchise with 7% growth. And this is really 2 main effects, which is the uptake of PERJETA in the adjuvant setting, but also KADCYLA, which is a newer phenomenon based on the KATHERINE data in patients who had failed in neoadjuvant therapy, the finding that patients who got KADCYLA did better than patients on Herceptin as standard of care. And we saw early uptake of that spontaneous growth ahead of the approval, which we expect in the U.S. shortly.Moving down to the other franchises. Again, you can see strength from Avastin, which was partly due to newer indications like ovarian cancer, but also due to use of Avastin in combination with Tecentriq, primarily in lung cancer. As you know, we have a number of other indications that we're pursuing with Avastin and Tecentriq. So it's encouraging to see that. And then Hematology, we'll talk about a little bit more shortly.So drilling down a little deeper in the HER2 franchise, you can see 36% growth in the U.S., which is very strong on PERJETA. In the EU, growing 27%. So nice uptake of APHINITY. Again, this is just based on the data which suggest that 3 or 4 patients out of 100 additional will be capable of having a cure with PERJETA. On KADCYLA, again, the early impact of the KATHERINE data, primarily in the U.S., and we would look forward to seeing that impact of KATHERINE in the years ahead in other regions.In lung cancer, we're seeing the beginnings, I think, of a strengthening of the franchise. And primarily, we see this with Tecentriq and Avastin in first-line lung cancer, where we have the ability to treat patients with liver mets. I think that's been one of the more typical uses of the IMpower150 result, where you have patients with significant liver mets, especially larger tumors, and the doctors are choosing Avastin and that combination for its ability to shrink the tumors and help the patients contend with their metastatic disease. But also the fact that we're labeled to cover patients who previously had -- ALK+ patients or EGFR+ patients who've had progression on one of those therapies. So the advantage is there. And then, most recently, the -- with the approval in extensive-stage small-cell lung cancer, another really important setting, and one that we see growth in Q1, and we'll continue to see growth through the year.This slide shows the impact in Tecentriq on small-cell lung cancer and in second line, where we still see gains in Europe. And again, you can see a nice growth for Tecentriq, 135% year-over-year. And we believe we'll see this momentum maintain through the year. So it's quite a positive growth story for Tecentriq and the result of Phase III studies that have read out. We have additional approvals anticipated in 2019 in Europe, and a number of pivotal studies which we'll be reading out in the next 3 quarters. So good momentum for Tecentriq and hopefully, a good sign of things to come.On ALECENSA, primarily, we're seeing the gains in first line. We're now at above 70% share in the U.S. and close to 70% in Japan. So now what we start to see is actually gains that accrued due to patients staying on therapy longer. So as we -- we've sort of reached something probably close to maximum share in new patients. But because patients live a long time without progression on ALECENSA, we'll continue to accrue additional patients as new patients come in and the existing patients stay on longer. And we continue to pursue the launches in other territories, including Europe.In immunology, we were led by Esbriet with 10% growth. And it's, I'd say, hard-earned growth because this is a difficult market and -- in terms of some of the patient characteristics and encouraging patients to stay on therapy. But our efforts have paid off and this is an area we'll continue to invest. Also, ACTEMRA with strength despite competition of, sort of, similar MoA molecules, but we managed to grow it an additional 6%. And then XOLAIR also hanging in with a lot of competition in the asthma space. And there have been questions about how would we hold up. But I think the benefits of XOLAIR, both in asthma with the broad approvals, including pediatric, but also in other indications like chronic urticaria, have helped XOLAIR to maintain sales in the face of additional competition.In Neuroscience, beginning with OCREVUS, it's a very strong story. OCREVUS has really the broadest possible label. So far, OCREVUS has shown strong data in both relapsing/remitting disease as well as sort of active secondary progressive disease and primary progressive disease. It's the only therapy that has shown an effect in primary progressive and is labeled for that. And really the sort of remaining part of MS, which is the nonactive secondary progressive, these are patients who are no longer having relapses and no longer displaying sort of MRI lesion activity, and that's a very difficult-to-treat patient population. So -- but in the other 90%, we're having very strong uptake. We have 37% of new patients and switchers in the U.S., which -- I mean, compared -- if you look at the overall market share, OCREVUS is at 16%. We're getting 37% of new and switch. So again, it portends well for continued growth.If you look at this slide, I think if you look from quarter-to-quarter, what we see is the underlying growth has been rather steady throughout the last 5 quarters. Perhaps Q4 was a bit soft. And what we see in Q1 is a return to the growth rate that we saw over the 2017 and 2018 period. So again, very strong results on OCREVUS, and we see this continuing in the foreseeable future.Coming to hemophilia. We talked a bit about the different patient populations that would be eligible. I think what's most notable is we're beginning to get approvals in the non-inhibitor segment. We were approved in the second half of last year in the U.S. and have seen very strong adoption in the non-inhibitor patients. And then we were just approved in March in the EU in that category. So we haven't actually seen the impact yet, but we look forward to that because the adoption, as I mentioned, has been really strong in the U.S. And patients are choosing the option to have a good control of their disease with a drug that can be dosed either once a week or once a month in a convenient subcutaneous form, it's very attractive. So again, really strong results and we look forward to benefiting many, many more patients with hemophilia in the years ahead.Then in terms of the outlook, I think the slide on the right, sort of, displays our momentum in terms of new product approvals. And we're very pleased to see that we have now 27% of our total Pharma sales are from these products that we've launched in the past 7 or 8 years. And again, I think if you look at the sales, not only is it 27%, but the momentum is actually increasing on these new products, and we have more where they came from. So we look forward to the approvals of both polatuzumab and entrectinib in oncology this year, and then filings for satralizumab and risdiplam this year for approvals next year.You can look forward to seeing some additional data in conferences ahead, and Severin mentioned some of these. The AAN, which will be in the second week of May in Philadelphia. But I think most notably, risdiplam in SMA; satralizumab, with the combination data with steroids and satra in neuromyelitis optica. The Huntington's data will highlight both, sort of, how we came to chose the -- to choose the dose that we have in the pivotal study, but also more information from the pivotal study, the initial phase with the dosing and how we've made our decision around bimonthly and a 3-times-a-year dosing, which we're taking forward in Phase III. On OCREVUS, there's some really interesting data coming out, both on the long-term follow-up, but especially, I'd say, the PK/PD data and exposure response analysis from the Phase III studies. This answers some really important questions about how B-cell therapies should be dosed in MS, and I think really highlights the importance of a high dose to obtain the maximum possible B-cell depletion early on to drive efficacy, particularly efficacy on disability progression, which is sort of the ultimate goal in MS, is preventing declines over time. So you can look forward to that as well as strong safety updates. And at ASCO, another big year for Roche and Genentech at ASCO with VENCLEXTA, Tecentriq, PERJETA and Herceptin, and also some good data on Tecentriq/Avastin and -- in combination, and entrectinib.And then just, again, looking forward at some of the things that are coming, you can see a number of checkmarks on this slide. So it's actually been a really strong year for results and approvals. But we have some additional readouts coming. And so I think, probably, the VENCLEXTA/GAZYVA is certainly one that we're looking forward to with the CLL14 data in non-Hodgkin's lymphoma. And I think this is a really interesting one because it's a combination of 2 biologics -- 2 biotech drugs in a chemo-free regimen in CLL and something that can be very useful for patients.So with that, I'll turn it over to Michael Heuer for the Diagnostics update.

[Michael Heuer, Chief Executive Officer of Roche Diagnostics]

Thank you. Good morning, good afternoon, everybody. I'm happy to present the Diagnostics division's status. With sales of roughly CHF 2.9 billion, we had 1% growth, driven by Molecular Diagnostics growing at 7% and Diabetes Care growing at 1%. Onetime effects impacted our Centralised and Tissue Diagnostics units, where we see a decline of 1%, which is unusual. Sales of Centralised and Point of Care Solutions were affected by distributors reducing inventories in China. A return to normal ordering patterns was observed at the end of Q1 already. Sales in Tissue Diagnostics were impacted by shipment delays of instruments in Q1, and we will resume shipments as available and expect to completely resolve the issue within the next few months. Diabetes Care increased 1%, mainly driven by 18% growth in North America due to recent management care contract wins and the good adoption of the Accu-Chek Guide and Accu-Chek Instant products. For the full year, we expect [ our regular ] growth going forward.Looking at our regional sales growth, this is driven by EMEA with 3% and Latin America with 8%. Asia Pacific saw 0% growth, while North America and Japan had negative growth of 3% each. The E7 countries grew at 1%, mainly impacted by sales in China. The reason for the decline in Japan is due to customer ordering patterns. Sales in the U.S. were impacted by onetime supply chain effects in coagulation monitoring. This has been resolved and we are back to normal.Looking at the growth drivers. In our business areas, we see that Centralised and Point of Care Solutions continues to bring in the most revenue. Sales declined 1%, while the immunodiagnostics business grew 3%, clinical chemistry was down 2%, affected by reduced distributor inventory levels in China and onetime supply chain effects in coagulation monitoring in the U.S., as I referred before.Sales in Molecular Diagnostics increased 7%, making this unit the largest contributor to the division sales growth, driven by Point of Care Molecular Diagnostics with 18% growth, blood screening with 14% and the cervical cancer portfolio with 52% growth.Tissue Diagnostic sales were down by 1%. Sales were impacted by onetime supply chain effects caused by BenchMark ULTRA and Discovery instrument shipment delays during the first quarter, resulting in lower instrument placements in North America and the Asia Pacific regions. Diabetes Care sales increased 1%, mainly driven by the new Accu-Chek Guide and Accu-Chek Instant blood glucose monitoring systems, which have a great pickup in the market. Roche expanded the collaboration agreement with Senseonics for the distribution of the Eversense insertable continuous glucose monitoring sensor in 17 additional markets.On this slide, you see that with our strong commercial presence and broadest test menu, Roche is continuously outgrowing the market.And on the next slide, I would like to present now some highlights of the first quarter. The cobas vivoDx system reinforces Roche's additional innovation by offering a novel diagnostic technology to address the global threat of ever-evolving drug-resistant bacteria. We're currently in the process of engaging and organizing early access to key customers in Europe to work with the CE Mark cobas vivoDx system. Roche will also feature the system at the European Congress of Clinical Microbiology & Infectious Diseases.On the next slide, you see that the VENTANA PD-L1 SP142 assay is the first FDA companion diagnostics approval for use in first-line triple-negative breast cancer or TNBC. This assay has been used for patients enrollment in the IMpassion130 trial, where the first positive Phase III immunotherapy study was shown for first-line TNBC.The test has been designed to enhance visual contrast of tumor-infiltrating immune cell staining within tumor micro environment.On the next slide, you will see the cobas infinity 3.0. This is a proven global lab software solution for diagnostic laboratories to help them maintain high operational performance, quality, integration and security within the labs across multiple locations. One new feature further improves the intelligent routing of samples in high-volume testing labs by dynamically adapting to changing lab conditions, such as priority testing, to reduce time to results. New improved quality control features ensure that the highest-quality results are reported consistently, while new monitoring features secure high performance and stability of analyzers and reagents 24/7 without additional costs. The addition of more work areas for different clinical laboratory disciplines, such as molecular, hematology and coagulation, enable lab staff to focus on what matters most to them.And following on, on our digital transformation journey, we launched the Navify mutation profiler as a software as a medical device, aiding labs to overcome a major workflow challenge in clinical next-generation sequencing, interpreting complex NGS data sets to identify clinically actionable findings and treatment options. Navify mutation profiler, combined with Navify therapy matcher, acts as a curated knowledge base of genetic variants to help in the clinical significance of mutations and identify suitable therapies. This is another leap in personalized health care and in becoming a leader in digital diagnostics. With cobas vivoDx, cobas infinity [ central ] lab and infinity -- and Navify mutation profiler and therapy matcher, we have achieved important launches in Q1 2019. More to come as we move forward.And with this, I hand over to Alan for the financials.

[Alan Hippe, Chief Financial & Information Officer]

Thanks, Michael. And let's go directly to 42. Hello to everybody out there. Thanks for participating. I think -- starting with sales. I think my colleagues did a great deal in leading you through this. We have great momentum as you have seen, and this has certainly encouraged us to bring the guidance up. On the M&A side, when you look at Spark, nothing unusual here. Closing is expected in the first half of 2019. It's going to be an all-cash transaction, but it will be financed by the available funds and our commercial paper program. And let me also mention that the transaction is not expected to have an impact on the financial guidance for 2019.With that, I come to the currencies and better do that on Slide 43. When you look at 43, you see the sales for the Roche Group in order of magnitude, so what has contributed where. And on the right-hand side, you see that sales have grown by more than CHF 1 billion in Q1 2019 compared to Q1 2018. In constant rates, it was 8% and in Swiss francs was 9%, and the difference is CHF 149 million. And I will dig on -- into this on the next slide. But on the left-hand side, let me mention here. Here you see the growth in the respective business areas, and Bill alluded to that when he talked about Pharma, and especially Pharma in Europe. And there you see that we have a decline of a minus CHF 125 million. Last year, we had a decline of a minus CHF 166 million. So you see really a good momentum moving forward.And with that, let's go to Slide 44. And this is the bridge for the development of group growth. First quarter in constant rates on the left-hand side was 8%, and in Swiss francs on the right-hand side was 9.2%, to be very precise. And you see the currency impacts that we have seen in the first quarter. On one hand, the U.S. dollar, which has strengthened, gave us a positive with plus 2.7 percentage points in growth. And then you see against that negatively the euro with minus 0.5 percentage points, and LATAM with minus 0.7 percentage points, driven by Argentina and Brazil.With that, let's go to Slide 45. And here -- this is what we basically expect from the currency impacts for the year to go. And you know, this is a rather simple model. What we're doing here is that we're assuming that the March 31 exchange rates remain stable until year-end 2019. Let me mention, it's early days and these things will change for sure. But nevertheless, I think it gives you a good guidance, how much the impact will be when everything remains stable. And what you're seeing is basically for the rest of the year. So for half year, September year-to-date and full year, we don't expect a lot, everything remains stable. That said, it's very hypothetical. When you look really at the left-hand side, I think you see really that the positive impact of the U.S. dollar is diminishing a little bit in our model, if you take that assumption into account that I've described before; whereby, on the euro, the negative impact remains stable if you apply the assumption that I've mentioned.And with that, let's once again do the guidance, very happy to bring the guidance up. Group sales growth now assumed to be in -- with a mid-single-digit growth compared to low to mid-single-digit growth that we expected before. Core EPS growth [ with that below ], broadly in line with sales growth as it is connected to sales. And then the dividend outlook, as Severin mentioned, further increased dividend in Swiss franc.And with that, we're very happy to take your questions.

[Operator]

[Operator Instructions] The first question comes from the line of Richard Parker (sic) [ Richard Parkes, ] Deutsche Bank.

[Richard J. Parkes, Director]

This is Richard Parkes from Deutsche Bank. I've got 3, if that's okay. Firstly, on Avastin, Herceptin, Rituxan. You had good performance of Avastin and Herceptin in International markets, in particular. And I'm just wondering if you could talk about the price difference, so those big 3 drugs in International markets, particularly in China, where you've had NRTL inclusions and -- versus Western markets. And I'm wondering how we should think about that segment of those sales being protected from biosimilar pressures, given maybe less room for price leverage in that segment. The second question. I wondered if you could talk about -- a little bit more what we can expect at AAN from the Huntington's, for example, in terms of longer-term clinical follow-up. I'm wondering when you might be able to make a decision as to whether that data could be fileable or whether we'll have to wait for the Phase III. And then third question. I just wondered if you could give us your thoughts on potential longer-term competition for the HER2 franchise. We've seen some significant business development in that area, and I wondered whether you've got any plans to develop your own next-generation products to improve on PERJETA and KADCYLA.

[William N. Anderson, Chief Executive Officer of Roche Pharmaceuticals]

Okay. Yes, thanks for the questions. So on the first one, which I think you're sort of getting at is, are the prices in places like China on Avastin, Herceptin and MabThera low enough that, that provides a protection from future biosimilar competition. And I guess what I would say on that is, while we have substantially discounted those products in order to gain broad coverage in emerging markets, including China, I wouldn't want to provide a reassurance that the prices are so low that there won't be a space for biosimilars. I mean, I think there still is room for biosimilars there. I think probably our source of competitive advantage in a place like China would be that we do have an attractive price, and we have a trusted product. And I think that there will be relatively little biosimilar activity or competition against those products, maybe one competitor each in the next few years. And I think, on that basis, we feel like we can continue to compete and grow in China. And the second one about the Huntington’s data, and when we'll be able to decide whether we can file with what we have versus waiting for Phase III. I think we've already pretty much commented on it. We had some initial promising discussions with regulatory authorities. It's obviously a disease of extraordinarily high unmet need. There's really no therapy available. And so I don't think I really have anything to add. We will be taking the data as it emerges from the several studies we're running and sharing them with regulators. And so I think it's too early to really give a more specific time line, but we are hopeful that there will be a sort of a fast-to-market option available. And I say hopeful because the patients are definitely needing it. And then the last question about long-term competition in the HER2 space. I think, as we've been very involved in the HER2 area for many years and have run studies in different segments, including HER2 low, including everything from neoadjuvant to adjuvant, first, second, third line, and with combinations and without combinations, I think it would be worth noting that -- you'll sort of know it when you see it. And I think that there's a lot of -- yes, there's a lot of mileage ahead for any product that's coming into that space in terms of safety questions, combinability questions, efficacy questions in the different settings. So I think we're not overly alarmed. We've got a strong portfolio still emerging from research and early development in HER2 space, and we think we'll be a leader there for many years to come.

[Karl Mahler, Head of Investor Relations]

Yes. I have a question here via the telephone line. Michael, this is going to you. I mean, it's from Michael Leuchten from UBS. And he asks if the inventory reduction in China, you believe, is a question for China itself or is it more a Roche-specific question? This was the first question he had.

[Michael Heuer, Chief Executive Officer of Roche Diagnostics]

Thanks for the question. In China, I cannot comment whether this is a general Chinese situation. We see this specifically with our distributors. They trigger these changes by efficiency improvements they wanted to achieve in their supply chain. And meanwhile, since March, we see already very positive signs with the distributor inventory indicating that the market growth remains very strong, and it has been shown also during the fourth quarter from the in-market sales perspective that we see with our products. A return to normal ordering patterns was observed, and we believe this return will continue, include Q2 and as we go forward.

[Karl Mahler, Head of Investor Relations]

So Michael Leuchten has a second question on HEMLIBRA. So he asks about the overall safety, efficacy profile going forward and how you see the value proposition for HEMLIBRA in view of the fact that it's new drug, new introduction, questions on safety, efficacy balances now and going forward?

[William N. Anderson, Chief Executive Officer of Roche Pharmaceuticals]

Yes. So I think we always have our viewpoint on this, but it's also -- what's more important is what do the key opinion leaders think, what do the patient advocates in the case of hemophilia -- patients are very involved in these decisions, and I think we're very pleased with the response we see from both groups, that we have a very nice safety profile. It's holding up very well. We continue to update the safety profile with findings as they come. We're committed to that. We post updates every quarter in terms of observations, things like deaths or adverse events. In the latest update, for example, we did list 3 additional deaths in our safety database. Obviously, very unfortunate, that -- anytime there's a death, it's obviously a great loss. In these cases, though, once again, there was no causation or -- these deaths were not attributed to HEMLIBRA treatment. So I think that the safety profile's holding up very well. We move forward with confidence.

[Operator]

Next question from the phone is from Tim Anderson.

[Timothy Minton Anderson, Managing Director of Equity Research]

A couple of questions. First one is on adjuvant data with Tecentriq, and specifically, what we may see in 2019. On our radar had been triple-negative breast and bladder. But on triple negative, your Slide 30 shows that you had an interim analysis that has subsequently passed. And I'm guessing that suggests we won't see any data in '19. So if no data in '19, when might we see data? And is bladder still potentially on track to read out in '19? Second question goes back to Huntington's. If you can just describe in a little more detail whether you have any data at this point showing that lowering the mutant protein with your product is translating specifically into a clinical benefit, not just biomarker engagement?

[William N. Anderson, Chief Executive Officer of Roche Pharmaceuticals]

All right. Thanks, Tim. Let's see. Let me come into the second question first. I think that we won't have strong confidence in the clinical effect of reducing the Huntington protein until we have a large controlled study. So I don't think there's anything new to say about that. I think what we do know is this is a disease that's caused by the accumulated effect of mutant Huntington's protein, and we have an agent that lowers the levels of Huntington's protein. And we and I think that the scientific experts in the field and the regulatory agents are hopeful that we'll have an important benefit there, but we're going to have to wait on the data to know for sure. In terms of the question you had about neoadjuvant and adjuvant data with Tecentriq. So TNBC, we did pass an interim analysis. We don't think we'll have the final analysis, though, in neoadjuvant until the second half of 2020. And then in terms of adjuvant, we are hopeful to have adjuvant data in high-risk patients with metastatic bladder cancer in -- yet in Q4 of this year. And I think I'll have to follow up and see if there's anything more I can say about adjuvant. But I think you may be aware of the list of studies we have, but I don't have any updates on the readout timelines on this.

[Operator]

Next question is from Steve Scala, Cowen and Co.

[Stephen Michael Scala]

I have 3 questions. First, Roche has warned several times now that treatment breaks and presumably softer sales between OCREVUS cycles is expected, but it doesn't seem to happen. Are new patient starts and launches overwhelming treatment breaks or are treatment breaks not occurring to the extent you expected? So that's the first question. Second, concerning the VENCLEXTA BELLINI trial, what have you learned post the recent stoppage of enrollment? And is the study still on track for completion in September of this year? And then lastly, I apologize, another Huntington's program question. You mentioned the dosing data at AAN, but just to clarify, might we also see efficacy data in small numbers of patients at the meeting, or is there no chance of that?

[William N. Anderson, Chief Executive Officer of Roche Pharmaceuticals]

Right. So maybe going in reverse order. Yes, we -- you shouldn't expect to see efficacy data in Huntington's disease at AAN. That's coming later. In terms of your question about VENCLEXTA and BELLINI, the study of VENCLEXTA in chemo in multiple myeloma. So we announced earlier that the results -- while we stopped the BELLINI study and the FDA placed a partial clinical hold on the VENCLEXTA studies in multiple myeloma based on safety findings, which was basically an imbalance of deaths in the VENCLEXTA arm versus the control arm, we're still investigating sort of the cause of this. But I think we did see some encouraging signs in the BELLINI study in terms of -- based on biomarkers. And so we're not -- or say, we're taking the finding of the imbalance of deaths very seriously in terms of what it means in multiple myeloma, but we're not counting ourselves out of multiple myeloma with VENCLEXTA yet because we do see some promising indications in the biomarker subsets. And your first question is about treatment breaks with OCREVUS. And I have to say, this is something we've been watching closely. And we see that treatment intervals are actually quite tight. It's very close to the label recommendation, which is twice a year. And so it's not a question of new patient starts or the overwhelming -- the effect of treatment breaks are offsetting it, but we're not really seeing that as a phenomenon right now. The dosing is being followed very -- or the recommended dosing is being followed very closely by the physicians and patients.

[Karl Mahler, Head of Investor Relations]

We have a question from Marietta Miemietz from the -- from Primavenue, and she was asking about the margin outlook, specifically, in Diagnostics. We usually do not comment on margins for the subdivisions, but Michael, if you still want to do -- or Severin. Any comments on that?

[Severin Schwan, CEO & Executive Director]

I'd just like to reiterate our group guidance, which is to increase earnings broadly in line with sales. So I just want to point out with the increase of the sales guidance indirectly, of course, this is also an increase of our earnings guidance. But we wouldn't go into detailed margin discussions on a divisional level, okay? Thank you.

[Operator]

Next question from the phone is from Matthew Weston, Crédit Suisse.

[Matthew Weston, Managing Director and Co]

Three questions, if I can, please. The first, coming back to International growth and really asking around the sustainability in Pharma of the very strong growth rates we're seeing at the moment. Bill, do you envisage that we'll see -- we're essentially seeing a bolus of China growth being driven by the listings of the products that will moderate as we get towards 4Q? Or do you believe that this double-digit growth rate is more sustainable? Secondly, can we have a quick update on expectations for U.S. biosimilar entrants with respect to Rituxan and Herceptin and Avastin over the course of the next couple of months? Have we had any changes in terms of your view of settlements and the risk of at-risk launches? And then one final question, Bill. I was intrigued with your commentary around data of OCREVUS at AAN with respect to the response being linked to the depth of B-cell depletion. Am I reading it right that essentially your contrasting high-dose deep B-cell depletion with potentially more mild continuous B-cell depletion we could see from a competitor with monthly dosing? And you believe you'll show data to say that, that depth of depletion is necessary to get maximum efficacy?

[William N. Anderson, Chief Executive Officer of Roche Pharmaceuticals]

Yes. Okay. Thanks for the questions, Matthew. The first one you asked about sales in China. Is it sustainable? I mean, I think what we are seeing is truly extraordinary and it's actually very encouraging to see literally hundreds of million larger population being -- having the possibility of treatment with drugs like Herceptin, MabThera, Avastin. I mean, there certainly is a new uptake effect that is occurring right now that can't be sustained forever. But we do believe that we'll have sustained growth in China through 2019, 2020 and beyond. So it's a good harbinger of things to come. But I think to think we would continue to see it the rates we've been seeing it for the last 2 quarters, that might be a little more than we could hope for. But I think, again, continued strong market for those drugs in China as well as we're seeing strong uptake of drugs like PERJETA, and we're encouraged with the launch of ALECENSA in China as well. So I think the development in China is really positive, both in terms of broadening access, but also the fact that the Chinese regulators are being much faster to approve new drugs and we're able to launch them. So I think we're quite optimistic about the future in China. In the U.S., there's not a lot more to say than what we said already about biosimilar entrants. We do expect to see biosimilar competition for Rituxan and for Herceptin in the second half. And with Avastin, the potential biosimilar competition would probably be not until Q4 at the earliest. And let's see. Your last question, right, about the OCREVUS data. I mean, I think you'll have to form your own conclusions. But I think we chose to go with the IV dose knowing that from a pure convenience standpoint, subcutaneous is generally better than IV, but also knowing the nature of anti-CD20 therapy and the history with Rituxan, with GAZYVA, with Rituxan in immunology, with Rituxan in oncology, that this really is an area where you benefit from getting a deep dose and a deep suppression of the B-cells that are implicated. And we also know that these B-cells lurk not only in the periphery, but they're lurking in the bone marrow. They're in CNS in the case of MS. And so we did a lot of thinking and studying back -- this goes back even 10, 12 years ago, about the best way to dose these drugs. And we concluded that IV was the way to go and a less frequent dosing was all that was required with the IV, and so we went with that. And I think the new data that we're seeing coming out of the reanalysis of the Phase III data is really sort of adding to that. In addition, some of the leading researchers in MS have been looking at this question of what does it take to really stop progression. Because as you probably know, the field has done much better, for example, at suppressing MRI activity. We're really good at stopping lesions, but not as good at stopping progression. And there's been this emerging hypothesis that what's going on is that there is a residual sort of autoimmune activity that's taking place at a level that's -- doesn't show up in the MRI, doesn't show up as discrete lesions, but it's sort of a smoldering activity. And the way to get at that is a more profound suppression of the offending immune cells. And the analysis I think we'll show at AAN is strongly supporting that. So look forward to more discussions on that as we present the data.

[Operator]

Next question is from Richard Vosser, JPMorgan.

[Richard Vosser, Senior Analyst]

A couple, please. Firstly, just thinking about U.S. price reforms. Perhaps you could update us on how you're seeing these reforms develop? How receptive has the administration been to your proposals around Part B reform? And maybe some comments on how likely you now see international reference pricing, or maybe over the last few days, Medicare for All being adopted? And then second question, just going back to HEMLIBRA and the uptake. Perhaps you could give us a bit more color on the uptake in non-inhibitors? What share of patients do you think that you have at this point in specialist centers relative to maybe more community hospitals, and what the feedback has been there? And maybe a split of revenue between non-inhibitors and inhibitors, if possible? And then finally, actually one final question, just thinking about Tecentriq. The label update for small-cell lung cancer and triple-negative breast cancer, you didn't mention anything about antibody levels. Is it -- has this now been put to bed with data that you submitted to the FDA? I think it was due to be there in Q1. Is that now off the table as a concern?

[William N. Anderson, Chief Executive Officer of Roche Pharmaceuticals]

That's a long list. Let's see. I guess, the first one, we can spend all afternoon talking about the health care reform and pricing pressures in the U.S., but let's not do that because I don't think we would add much value to the discussion. I think we continue to have good discussions with other stakeholders, including other pharma companies, providers, payers, other entities and the administration about some of our proposals for reforming pricing and introducing market-based competition in Part B. I think it is true that there's a lot of competing proposals in Washington coming from very different sources, and the range is quite extreme, including things like this so-called Medicare for All. I think in terms of international reference pricing, I think this is something where we and the rest of the industry and a lot of other folks that are knowledgeable in health care think it's a really bad idea, because we think the price controls that exist in countries like the U.K. is not good for innovation. It doesn't support innovation. And at a time where the biomedical research and development enterprise is never making -- has never made more gains than today, to introduce things that would severely limit innovation, it just seems like a really horrible idea for humankind. And so we'll continue to oppose those things. But meanwhile, we press ahead and we try to offer concrete proposals, and we try to make sure that our behavior is consistent with our values. And I think we've done that in terms of pricing and everything else. In terms of HEMLIBRA, the question is about non-inhibitors and market share. I think in the U.S., we may be approaching 10% market share in non-inhibitors, and this is based on approval in, what was it, September, October last year. So I think it was a very quick uptake. People were wondering and we were wondering what would the rate of uptake be for patients that are, I would say, "well controlled" because they don't have inhibitors. And I think what we're finding is that the ability to give up the frequent IV infusions for those patients who are on prophylaxis or the ability to have control and to have more freedom in life, freedom from bleeds and from having to avoid activities for those patients who are on demand and not on prophylaxis, is proving quite compelling. And we just have a really strong package with the option of once-a-month dosing, a very reasonable price. It's proved very popular. We have broad coverage from a payer standpoint. And now, we have the approval in Europe, in -- just in March. So we're looking forward to hopefully similar types of trends. You asked about the specialist versus community? There are some specialists who've gone very rapidly to converting patients over to HEMLIBRA. But we see also quite healthy adoption in the community. And then you asked about share of revenues that was non-inhibitors versus inhibitors. And I think what you can think of is our sales in Q3 was virtually entirely inhibitor patients. And then almost all of the change in sales since Q3 is in non-inhibitor patients. So that's a pretty good way to think about it. We had highly penetrated the inhibitor population by the end of Q3. So think of that as a baseline. And finally, you asked about the anti-drug antibodies with Tecentriq? We were still analyzing this. We have numerous Phase III trials and Phase II studies, and we have large data sets on this. So far, we're not finding anything that's very concerning about it, but we take it very seriously and we'll continue to study this matter and provide updates to regulatory authorities on it. So I think that's an ongoing discussion we're having with the FDA and other regulatory bodies. But we feel like we're sort of on top of it, and we'll continue to evaluate it.

[Operator]

Next question comes from Simon Baker, Redburn.

[Simon P. Baker, Head of Pharmaceutical Research]

A couple if I may, please. Firstly, on European Rituxan and Herceptin sales. We saw relatively, certainly to market expectations, a better performance for Rituxan, a weaker performance for Herceptin. And I was wondering if we could read anything into that from the -- with regards to the trajectory of biosimilar penetration. Is it a case of, relative to what we expected and perhaps what you expected, that the initial erosion is quicker and then it starts to abate over time? So any color you could offer there would be helpful. And then secondly, moving on to Diagnostics. I wonder if you could give us any quantification of the impact of the distributor inventory level changes in China. I know you said that it has now resolved itself, but I just wonder if you could quantify the impact in Q1.

[William N. Anderson, Chief Executive Officer of Roche Pharmaceuticals]

On the rate of uptake of biosimilars in Europe in MabThera and Herceptin, I'd say that the pattern is very similar for the 2 drugs. And the reason -- I think you cited sort of better performance on MabThera this year. I think that's really because there's not so much left to lose. We had a steep loss in 2018 on MabThera. And so this year, there's -- yes, there's not as much to lose. And with Herceptin, it's a similar pattern, but maybe 6 or 9 months later.

[Michael Heuer, Chief Executive Officer of Roche Diagnostics]

On the Diagnostics side, we cannot give you the detailed numbers, but I can only refer to a significant impact of the efficiency improvements in the distributor's inventory levels. And we compare that always with the in-market sales. And there we see major [ risk capacity ] between what is going out to the market, what was in the inventories of the distributors. And we see also the pickup now of the sales and purchases from the distributors to Roche since March. So this was that individual topic, single event in the month of January and February, and we are about [ done ] and we see a positive development now going forward.

[Operator]

Next question comes from the line of Luisa Hector from Exane.

[Luisa Caroline Hector, Pharma Research Analyst]

I have a few more questions on International sales, please. I noticed that Rituxan was a bit weak, and I just wondered if there was anything specific behind that in the International region. And sorry if I missed it, but did you actually give the China Pharma growth in the quarter, please? And whether any -- in Pharma now, was there anything in terms of stocking or tenders that you would mention for the quarter? And then a second question on HEMLIBRA. Just looking at that European label, so good to see the approval, but as you flagged at the full year results, the label is restricted to severe patients for the non-inhibitor group. So I just wondered what would be required to then expand the label. Do you need another study? Or is it -- can you use real-world data, for example?

[William N. Anderson, Chief Executive Officer of Roche Pharmaceuticals]

Okay. Let's see. So the first question was about MabThera and International. Yes, I don't think there's any particular trend there, other than there are some noncomparable biologics and biosimilar competition in the International region to both MabThera and Herceptin. And in the case of Herceptin, we had stronger new uptake in China that was offsetting the biosimilars in noncomparable biologics. So I think that's just probably the difference between Herceptin and MabThera. And you asked about China growth, and we do provide that on the IR webpage. So if you want to look at the details on that, you can find it in, I think -- yes, you can just check it there. And then on HEMLIBRA, you asked about the effect of being limited to severe patients in Europe. And I think the slide we showed in my presentation, I gave the segmentation -- the patient segmentation, and the bottom line is, independent of the country and which study you look at, severe patients are between 50%, 60%, up to 70% of the patients. But in terms of the use of factor VIII or the use of the bypassing agents in the case of inhibitor patients, it's a much higher proportion, so up -- 85% or 90% of the market. So we don't believe that the limitation of the European label to severe will have a significant effect on the ultimate potential HEMLIBRA in Europe. Yes, and I'm looking at the IR webpage for the China sales growth in the quarter and it was up 63%. So very strong results, I think, by any account.

[Operator]

Next question comes from the line of Peter Welford from Jefferies.

[Peter James Welford, Senior Equity Analyst]

Couple of follow-up questions, please, if you don't mind. OCREVUS, first of all, just with regards to the PPMS and RMS split. I wonder if you're willing to give any sort of detail on that. And also any sort of rough percentage of those patients who are coming back, the new starts, for the second infusion? Is there any sort of data you have on the, I guess, the discontinuation rate prior to the second infusion? And secondly then, just on the Herceptin Hylecta in the U.S. I appreciate it's still early days. But any sort of feedback you have on the adoption of that in the U.S. since approval? Particularly, I guess, if you can draw any comparisons as to how you saw it adopted in some of the key European markets when you also got that approval? And then just finally -- sorry, going back to Huntington's again, but just curious, given the change of the protocol and obviously the stop to the GENERATION trial. While you did that protocol change to change the dosing to Q3, I'm just wondering whether or not that change in dosing schedule has any impact on the regulatory discussions. And I guess, what I'm wondering is, do you have to get some sort of data on the effect of the Q3 dosing before you're able to go to -- back to regulators, given obviously that's a pretty lengthy dose interval for many patients?

[William N. Anderson, Chief Executive Officer of Roche Pharmaceuticals]

Okay. Let's see. Let me try to answer, and if I miss one of your questions, please go back because I was taking notes and I'm not sure I got them all. But yes, about OCREVUS and the retreatment rates and -- we're not providing specific numbers on that, but it's -- the retreatment has been very strong. The vast majority of patients are getting the second dose and third dose, frankly, higher than what we anticipated before the launch. We continue to follow that very closely. But I would say by any precedence of other chronic therapies I've been around, it's very strong. And I think it's basically that combination of very strong efficacy and the fact that they only have to get dosed twice a year and that the side effect profile is quite good. So again, very encouraged by what we see there. You asked about the Herceptin subcu launch in the U.S., and I think we've commented before that subcutaneous dosing, while it's a nice convenience advantage for patients, in the U.S. health care system, physicians are very comfortable with IV dosing. That's very much their system and their setup. So the amount of uptake of subcu is quite small and -- both for MabThera -- or for Rituxan. And now with Herceptin subcutaneous, we've only just recently received the approval. But we don't anticipate it will be a major part of the market. But we think it's a good option for patients to have. And then you asked about the dosing change in the pivotal studies for the antisense therapy for Huntington's. And we don't think that -- I mean, we basically -- we were following a monthly and a bimonthly approach, and the early data that we were looking at suggested that there wasn't an incremental benefit for monthly over bimonthly, and so we decided to drop that arm. And then because we have the option to explore 2 arms, we decided to look at a less frequent dosing basis. So I think you said 3 months, but it's actually every 4 months. So there's dosing -- some patients being dosed every 2 months and others every 4 months. And but we don't anticipate that to have an effect on our discussions regarding faster market approaches for -- yes, with the regulatory authorities. Did I answer your questions?

[Peter James Welford, Senior Equity Analyst]

That's great.

[Operator]

Next question comes from the line of Naresh Chouhan, Intrinsic Health.

[Naresh Chouhan, Founder]

I just wanted to ask, in the U.S., was there any material price rise on Avastin? And then with Tecentriq, in the second line, it would seem, based on some of the conversations we had with KOLs, that the second-line setting -- in the second-line setting, Tecentriq has become standard of care, [ replacing ] KEYTRUDA use in Europe, at least. Would you -- are you seeing that? And can you help us understand what the penetration rates in the second line and also in the first line are in the U.S. and in Europe?

[William N. Anderson, Chief Executive Officer of Roche Pharmaceuticals]

See on Avastin, we haven't had any price increases in the U.S. since last July. And I think the price increase we had on Avastin was rather modest in 2018. So I think we're mostly seeing a volume effect on Avastin. The price effect would be very minimal. And as I think I mentioned, we mostly see that on new indications like ovarian cancer as well as the use of Avastin in combination with Tecentriq. In terms of second-line use of Tecentriq, I guess, you said first and second line in lung cancer in the U.S. So again, the place where we're hearing from physicians that they're likely to use Tecentriq is in the patients that have been -- previously received an EGFR inhibitor or an ALK inhibitor, or patients with large metastases, large tumor volumes, where they're keen to debulk the tumors, and they know the effect of Avastin and the IMpower150 regimen with Tecentriq plus Avastin plus chemo had a very high response rate and strong anti-tumor effect. And so that's where we're seeing most of the use there in first line. In second line, it's tough competition between Tecentriq, KEYTRUDA and Opdivo. All 3 products had good data in the second line, and there, I think it's more of a kind of tough battle. And because we were third to market, that's -- in lung cancer, that's a harder area. In terms of -- in the EU, we've done rather stronger in second line. In first line, it's too early to say because we've just been approved with the IMpower150 regimen in Europe and haven't yet had approval in the small-cell lung cancer, but we look forward to that later this year.

[Operator]

Next question comes from the line of Sachin Jain, Bank of America.

[Sachin Jain, Managing Director]

Sachin Jain from Bank of America. Thank you for taking my questions. Just 2 product questions. Firstly, on the Spark acquisition and SPK-8011, their product for hemophilia. I wonder if you could just comment on the competitive profile versus a BioMarin gene therapy and your level of comfort that you've acquired a potentially best-in-class asset, or any other factors behind that acquisition. And then secondly, just -- apologies, going back to Huntington's. Just a follow-up on 2 comments. Firstly, on efficacy, functional outcomes correlation to protein. I believe you had post-hoc analysis at AAN last year correlating protein reduction to functional outcome. So I just wanted to clarify your prior comment, Bill. Did you not put a lot of credence in that post-hoc analysis? Or is data internally potentially changing? And then on the filing strategy, your partner has been fairly vocal that you have an agreement to use the Phase I open-label extension in comparison to the natural history study. I just wanted to check whether that was correct. And if it is, are you essentially just waiting for the data to discuss with the regulators? Or are there any other factors still pending in that discussion?

[Severin Schwan, CEO & Executive Director]

It is Severin. I have just a comment on hemophilia and the Spark acquisition. So we expect data still this year, competitive data, which will further inform us. You know Spark is at the earlier stage in terms of the development. So it's simply a question of time to wait for the clinical data to see how the different opportunities for patients will eventually play out. But from all of what we have seen, we think that Spark has a good chance to be well positioned in this market. Bill, over to you.

[William N. Anderson, Chief Executive Officer of Roche Pharmaceuticals]

Yes, thanks, Sachin. For -- on Huntington's, I appreciate you asking, but there's really no news there. Basically -- so there's no -- you asked whether there's some change in the internal data, change in our view. There is no change in the outlook. I think my answer was -- because you mentioned the post-hoc analysis and correlation, and that's all good, and nothing has changed on that. But I was -- I think what I was answering earlier is, when will we know what the clinical impact is? And I guess I would say, the word know is a high bar. And we'll know that when we have randomized controlled data. We're optimistic with what we have. And again, because of the high unmet need in Huntington's, both we, the Huntington's community and the regulators are looking at innovative ways to make the product available. But there's really no news on it. We're going to get the data from the studies we're running. We will continue to share it as it emerges with the regulatory agencies. And we will all be working on the most expeditious possible way to make the products available to patients. But in the meantime, I don't think there's anything else to say and we'll be waiting on those results.

[Sachin Jain, Managing Director]

Is there any comment you can make to your partner's commentary re your filing strategy?

[William N. Anderson, Chief Executive Officer of Roche Pharmaceuticals]

I don't think there's anything else to say.

[Operator]

The last question is from Graham Doyle from Liberum.

[Graham Doyle, Research Analyst]

Just two, please. One on HEMLIBRA. Assuming Spark's gene therapy does indeed work, what type of patient population do you envision staying on HEMLIBRA? And then just the second on OCREVUS. Considering the sort of potential competition in a subcut form, obviously, this has been discussed a little bit earlier. Do you think you'll be able to replicate the data you have shown, the efficacy you've shown with the intravenous form of OCREVUS in a subcut conversion? And does it leave that option open longer term?

[Severin Schwan, CEO & Executive Director]

Right. So on the hemophilia and how is HEMLIBRA positioned against the potential gene therapy. Again, it will very much depend on the data. We still have to wait for the data and analyze how response rates are, how safety profiles show up, et cetera, for the various patient groups. We could well see a situation where we have a complementary positioning. There's still use for factor VIII, for example, in very mild patients. There will definitely continue to be a market for HEMLIBRA. And then depending on the data for gene therapies, they are a potential option for a number of patients as well, and it might also be that over time you need a combination. We don't have long-term data yet. By their very nature, the development of these new modalities [ stands ]. But it will also depend a lot on how the effect from gene therapies plays out in the long term, and you could potentially even see, for those patients who go on gene therapies, a combination with a medicine like HEMLIBRA over time. So really bottom line is that we have to wait for the data to be more granular of how the market will segment in the future.

[William N. Anderson, Chief Executive Officer of Roche Pharmaceuticals]

Great. And regarding the OCREVUS, and you mentioned subcutaneous. I mean, it's -- I think probably the most important factor is that the IV formulation is well tolerated. It happens every 6 months. And patients are typically going in to see their physician about every 6 months. And so I think what we're finding is that the combination of the current OCREVUS profile of -- the dosing profile, safety profile, the tolerability in terms of sort of nuisance side effects and things that are seen with other MS therapies and then just really compelling efficacy, which is ultimately the name of the game, it makes OCREVUS a very attractive option. And so I think, if we were considering what are the benefits of the different dosing regimen, we have to consider also that we have 37% of basically switches and new starts in a market with -- I don't even -- I think we've lost count here. It's either 14 or 15 products. So we're by far the #1 used product. So I think that kind of puts it in context. And obviously, we keep our options open in terms of alternative dosing approaches, but I don't think I would say anymore at this point.

[Severin Schwan, CEO & Executive Director]

So thank you very much for attending our briefing today. Thank you for your interest, and have a good day.

[Operator]

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.