Roche Holding AG

SIX:ROG

Earnings Call Transcript 2018-Q3

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the Roche's Third Quarter 2018 Audio Webcast and Conference Call. I'm Iruna, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Severin Schwan, CEO of Roche Group. Please go ahead, sir.

[Severin Schwan, CEO & Executive Director]

Good morning, good afternoon. Welcome to our quarter 3 sales call. As you have seen, a very strong quarter again. Sales now up by 7%, both for Pharma and Diagnostics. You see a continued growth in the mid-single digits. And turning to Slide 7. If we look at sales development from a regional perspective, very much as expected. A decline in Europe due to the entry of biosimilars, and on the other hand, the continued strong growth in the United States and actually also in the International region, very much driven by China. So in addition to the successful product launches, also the pipeline is ramping up nicely. And as you can see on Slide 8, it's not only a matter of quantity of new molecules but also very much a matter of quality. So we had 5 Breakthrough Therapy Designations this year on the Pharma side and actually 4 Breakthrough Device Designations on the Diagnostics side. If we turn to Slide 9, again you can see it's really about the new launches, which are driving the growth. So they account now for over 20% -- new products account now for over 20% of Pharma sales. It's over CHF 2 billion for the first 9 months, by far offsetting the biosimilar exposure. If we turn to Slide 10, then obviously the highlight this year is OCREVUS. I mean, it continues to grow very strongly, stronger than we would actually have thought at the beginning of the year. And this strong growth has continued into the third quarter. And we expect the growth to continue as we roll it out beyond the United States. But it's not only about OCREVUS, it's a number of new medicines coming through beyond oncology, also in other disease areas, as you know. Good start with HEMLIBRA and also good prospects with neuroscience with a number of exciting projects now in late-stage development. So to close on Slide 11 and 12, given the successful launch of our new medicines, given the strong portfolio with now 15 new molecular entities in late stage, I am very confident not only to meet our guidance for this year but to continue to grow as we go into 2019. Thank you very much. And with this, I'm happy to hand over to Dan.

[Daniel O'Day, Chief Executive Officer of Roche Pharmaceuticals]

Great. Thank you. Good afternoon, and good morning from my side as well. We'll go right to Slide 15, looking at the sales in the Pharmaceutical Division, as you can see, up 7% in constant currencies. And the geographical trend in quarter 3 remains really very similar to quarter 2, so strong growth in the United States driven by the launch of the new products, OCREVUS, PERJETA, ALECENSA, HEMLIBRA as well as a good, strong performance of LUCENTIS. In EU, as expected, we have a decline of around 8% year-to-date. The launched products are just beginning to get traction now, the very good performance with OCREVUS, TECENTRIQ, PERJETA, ALECENSA, GAZYVA and HEMLIBRA able to offset some of the erosion from the biosimilars of MabThera and the initial biosimilar erosion with Herceptin. Japan, very strong launches, particularly of TECENTRIQ and HEMLIBRA. We're able to offset some of the mandatory price cuts there and the first entrants of biosimilars. And in International, we saw an acceleration of growth from quarter 2 to grow quarter 3 plus 6% to plus 14%. This accelerated growth was largely driven by China, but also good contributions from Brazil and Russia. So the volume growth year-to-date accelerated to around 12%. And I would just say that the underlying pricing trends, if you exclude the price erosion due to biosimilars in the U.S. and the EU, were basically stable and in line with previous years. So turning to the next slide, looking at the overall portfolio. The recently launched products are really driving the growth. As you can see, in fact, the new products alone contributed more than CHF 2.3 billion in additional reported sales. In addition, some of the established products, such as ACTEMRA, XOLAIR and LUCENTIS, contributed another close to CHF 400 million. I'll touch on the other products in the coming slides, but I don't have a slide on LUCENTIS, so let me make a point on it here, which is the sales grew 11% year-to-date, driven by strong volume growth, the successful launch of the prefilled syringe and also some share gains. I would expect continued growth in LUCENTIS. And I don't touch on it but continue to be encouraged by the Port Delivery in the bispecific antibody as a potential follow-on to LUCENTIS in the coming year, as we spoke about those at the half year. So turning to the next slide, digging into the oncology portfolio a little bit, where sales grew 2% driven by the newly launched products. I'll cover the HER2 and the hematology franchises on the next page. Let me make a couple of comments on Avastin here. Avastin sales up 2%, driven by the International region, really strong volume growth in China following the national reimbursement there. Sales in Europe declined around 2%, largely driven by a price impact in France. I would say that in the U.S. and Europe, the first-line colorectal cancer patient shares reached new heights. And as expected, the first-line lung cancer shares continued to soften a bit with the CIT competition. Also in the U.S., we saw good uptake for women with advanced ovarian cancer following initial surgery. That was the indication that was approved in quarter 2 of this year. TECENTRIQ, increased momentum, so 49% now in the quarter versus the half year at 37%, was driven largely by Europe and International growth in the second-line and third-line lung cancer setting and in also the first- and second-line bladder cancer setting. U.S. sales were essentially stable and are awaiting new indications, which I'll cover later in the presentation, several to come to drive growth and be first in a variety of indications. In quarter 3, just to remind you, we presented the positive results from the small cell lung cancer setting at the World Lung Cancer (sic) [ World Conference on Lung Cancer ] and ESMO. And we look forward coming up -- at World Lung. At ESMO, we look forward to presenting triple-negative breast cancer as well as TECENTRIQ in the nab-paclitaxel setting, the first-line setting and some additional data on hepatocellular.ALECENSA sales, up 79%, strong demand in all regions, very strong market share. And maybe a point for future, in quarter 3, we also achieved a first-line approval in China, which was only 8 to 9 months after EMA, FDA approval, which shows, I think, directly the regulatory reform that's occurring for highly innovative medicines now in China. Tarceva, as expected, we have some continued in-class competition. In COTELLIC and ZELBORAF, the story really has transitioned now to looking in 2019 when we show the results of our Phase III programs in combination with immunotherapy. Shifting to our HER2 franchise, which was up 7% in the quarter. PERJETA, continued strong volume growth, driven by the U.S. with good, strong demand in early breast cancer. In the EU, the beginnings of early breast cancer as well as continued strong growth in both neoadjuvant and the first-line metastatic setting. Herceptin was up for the quarter, driven by the U.S., longer durations, some pricing effect. In the EU, we had the decline as expected, both in terms of regular price cuts and then the first 2 biosimilars having an impact on the launch, which led to a 21% decline in Europe in the quarter, accelerating as expected from quarter 2, which was minus 7%. So we'll continue to see an erosion as expected of Herceptin and an increase in erosion in the quarters to come. In International, accelerated growth driven by, again, the China reimbursement for Herceptin as well. KADCYLA, also up 8% in the quarter, driven by really all of the geographic areas, U.S., EU and International, good strong growth in the second-line metastatic breast cancer. When I think about between now and the end of 2018, in terms of the outlook for HER2, we'll continue to see strong PERJETA uptake. International, we'll continue to see Herceptin volume momentum. And in the -- at the San Antonio Breast Cancer Conference, we look forward to presenting the Phase III results from the KATHERINE study, which, as you know, is the adjuvant breast cancer study that we just announced this week achieved significance, and we're highly encouraged by the data. Look forward to regulatory discussions and the impact this can have on patients in the curative setting. Moving to the hematology portfolio. The graph shows, as expected, that our portfolio is in a state of transition, a rejuvenation phase, of course, with the biosimilars now affecting MabThera and Rituxan. But good growth with GAZYVA, good growth with VENCLEXTA. The VENCLEXTA sales are not shown on the slide, just to remind you, because they're booked by our partner and only will be reported out in early November. But we see very good momentum with VENCLEXTA as well. So we'll also be presenting towards the end of the year data on our bispecific antibodies at ASH and some additional data on VENCLEXTA there as well. So just to put the MabThera/Rituxan sales in oncology decline into perspective, on a global basis, it's minus 9% for the quarter versus minus 12% in quarter 2. And then specifically on EU, the oncology sales decline slowed down a bit to minus 49% year-on-year, again as expected now that we're comparing to last year's base, which also included a reduction. So we expect the curve to soften out now a bit after a first full year of biosimilars in Europe. And GAZYVA is growing now at 51% in the quarter, up from 38% in the second quarter, driven by the first-line follicular approval now just starting to get going. VENCLEXTA, as I said, good uptake, particularly in the relapsed/refractory CLL data following the MURANO approval. In addition, in quarter 3, the FDA accepted the early filing for VENCLEXTA in first-line AML. The PDUFA date now is set for December 25. So thinking about the hematology portfolio between now and the end of the year, we look forward to actually reporting out on the CLL14 results, which is the frontline CLL with GAZYVA and VENCLEXTA. We also expect to have the EU approval for VENCLEXTA plus Rituxan in relapsed/refractory CLL still this year. And we have initiated an accelerated filing for polatuzumab in the relapsed/refractory DLBCL setting. Updated OS data from that will also be presented at ASH. Turning the attention to the immunology portfolio, where we have now annualized sales of greater than CHF 8 billion. It was a very good quarter, quarter 3 sales for the immunology franchise up to 7%. Pleased to see that Esbriet now for the quarter grew at 21% versus around 14%, 15% in the first and second quarter. That reflects a couple of things: accelerated growth momentum and an increasing penetration into the mild and moderate segment. Of course, we also introduced the new formulation recently, which allows greater patient convenience. And Esbriet continues to maintain overall leadership in both the U.S. and EU. XOLAIR with a good quarter, plus 9%, continues to be driven by the pediatric asthma indication, allergic asthma and CIU. And as you know, we launched the prefilled syringe in the third quarter, which will be a significant patient convenience. New indication to come with XOLAIR, including nasal polyps, food allergies in the future. ACTEMRA, up 9% in the quarter, continues to be the leader in the overall RA market in monotherapy position. And growth is also being driven now by the ongoing giant cell arteritis launch, which is approved in all major markets. So again, between now and the end of the year for the immunology franchise, we continue to see good growth for Esbriet, XOLAIR and ACTEMRA and, of course, the continued erosion, although a bit softening in Europe, on the MabThera biosimilars. So turning the attention to OCREVUS. I mean, just a really outstanding launch globally. I think the numbers speak for themselves. But the quarter reached CHF 633 million. That was up from CHF 560 million in the second quarter, really without a doubt one of the best launches in the MS space, now achieving 12% U.S. market share after 5 quarters. And about 1 out of every 3 new patients are switch patients that's going on OCREVUS. So in the U.S., we'll continue to see good growth. We're up now to 70,000 patients have been infused. That was up from just 40,000 at the end of March. This is important because this continues to establish the safety database and safety profile of OCREVUS, which is again critical to the earlier use of this product. And we're continuing to see that drive up in the earlier use as we have good share now in third- and fourth-line setting, which will continue to grow, and greater and greater share in the earlier lines. You saw some of the 5-year data just recently at ECTRIMS, continued strong durability. And we're also seeing extremely strong growth and good launches in our European markets, which are really mimicking the uptake that we saw in the United States. So we'll continue to see for the rest of this year, of course, good growth and going into next year for OCREVUS and beyond. For HEMLIBRA, we had sales in the quarter reach CHF 57 million, up from CHF 34 million. Just a short period of time on the market now, we're already at around a 30% to 40% market share in the inhibitor indication. Just to remind you, that's obviously a very important part of medical need but only around 5% of the total hemophilia market. And we're now launched in 13 countries and see a similar trend in Europe as we saw in the United States relative to uptake in the inhibitor market. The exciting news for the quarter just recently was the U.S. approval of the non-inhibitor indication. This is based upon, of course, the HAVEN 3, HAVEN 4 studies, and in particular, the studies that demonstrated the intra-patient comparison with HEMLIBRA significantly reducing treater bleeds compared to prior factor VIII prophylaxis. It's the first medicine that can be administered once a week, once every 2 weeks or once every 4 weeks. So the HEMLIBRA sales will accelerate in quarter 4 due to the U.S. launch of non-inhibitors and further ex U.S. launches. We expect also the CHMP opinion before the end of the year for the non-inhibitor indication in Europe. So on the next slide, you can see that we are now at a stage where our 10 new products that we've launched since 2012 have generated in quarter 3 on an annualized basis around CHF 10 billion, already 23% of the Pharma division sales. I think it's extremely important to note that these medicines will have many important line extensions in the near future. VENCLEXTA, TECENTRIQ and others, the future is really ahead of them in terms of line extensions. And also I would point out that we have a variety of NMEs in our late-stage portfolio that are expected to launch in the near term. We have baloxavir, the cap endonuclease, that has a PDUFA date for December 24. And in 2019, we have additional NMEs, including polatuzumab, entrectinib and possibly an earlier progress with SMA as well. So moving to the innovation section. I would just quickly remind you of the data that was presented at World Lung for small cell lung cancer, also remind you that this is around 15% of all first-line lung cancers. You can see the data repeated on this slide, which show the OS improvements, a first-in-class CIT to demonstrate this improvement, essentially a new standard of care now in the first-line lung cancer setting. And as you know, we have filed this and are in the process now of discussions with regulators to get this medicine to patients as quickly as possible. The next one is entrectinib, the data that was presented also at World Lung on the ROS1 inhibition. We will be showing additional data on entrectinib in the NTRK-mutated patient population coming up at ESMO. I think the data are very compelling, speak for themselves in terms of the overall responses in this patient population with tremendous medical needs and includes the ability to show a difference in patients whose cancers have metastasized to the CNS. Moving to the risdiplam in SMA. We showed some updated data recently at the World Muscle Society. This is updated Phase II results from the FIREFISH data, which, of course, is the type 1 SMA. And the data suggest really a potentially best-in-class oral SMN2 splicing modifier that's systemically distributed throughout the body because of its oral nature. To date, the medicine has been very well tolerated. And importantly, 95% of the babies are alive without the need for ventilation at 10.5 months compared to 50% of babies at the same age in the natural history studies. We look forward to continuing to follow the progress of this study and are in active dialogue with regulators to look for the path forward as we get the totality of data. We also have, of course, a comprehensive program around risdiplam, including types 1, 2 and 3 SMA and a newly initiated study in presymptomatic patients, the so-called RAINBOWFISH study, that will have patients entering in by the end of 2018. Turning the attention to baloxavir in influenza A and B. We presented some data recently at the IDWeek. And this is the second trial to read out the so-called the CAPSTONE-2, which is in people with high risk of complications of influenza. Baloxavir, as you know, is a first-in-class small molecule inhibitor of viral RNA in a single-dose regimen. We already presented the CAPSTONE-1 data, which is the substance of our filing right now with a PDUFA date at the end of the year in uncomplicated influenza. And now with this trial, the first really antiviral to show an effect in people with high-risk complications, this is now the second trial to show a significant antiviral activity and potentially reduced transmission rates. So of note in this table, the fact that the efficacy in type B is significantly better compared to Tamiflu. And reduced time to viral shedding was almost halved compared to Tamiflu as well as reduced use of systematic antibodies (sic) [ antibiotics ] and influenza-related complications. So very consistent with CAPSTONE-1, and we become more and more convinced that this is a medicine that will improve on almost all aspects of Tamiflu moving forward. On Slide 20 (sic) [ Slide 30 ], just a reminder of some really important events coming up for the rest of the year, starting with this coming weekend at Munich and to remind you that we'll have a virtual pipeline event on the Monday of that date. Ask you to join to get an update on a variety of medicines there. We'll have then an important presentation at San Antonio now with the KATHERINE data and a very full ASH in San Diego, where we'll also be having another pipeline event. To close out, I think -- and it says something, I believe, about our confidence as we continue to look at the future and our growth through biosimilars as well as our confidence in having a strong end to '18 and '19, is that in addition to what you see on the slide, what's below this slide was additional 2018 news flow that came in earlier than expected or more positively than we expected. So I'd just point out a couple of those because that's in the table. We've talked about most of those, of course, ACTEMRA in connection with CAR-T; the early filing of polatuzumab in relapsed/refractory DLBCL; entrectinib in both ROS1 and NTRK; SMA, with type 1, in particular, accelerating; baloxavir in influenza; and then most recently, KADCYLA in KATHERINE, so a really strong portfolio. With that, I thank you for your attention. And I will turn it over to Michael to cover the Diagnostics.

[Michael Heuer, Chief Executive Officer of Roche Diagnostics]

Thank you, Dan. Good morning, good afternoon, everybody. I'm happy to present the Diagnostics Division sales. With sales of roughly CHF 9.4 billion, we have again a strong growth of 6%, driven mainly by Centralised and Point of Care Solutions growing at 7%; Diabetes Care stabilizing at 1%; Molecular Diagnostics at 5%; and Tissue Diagnostics growing at 9%. Looking at our regional sales growth. Growth was driven by Asia Pacific and North America with 13%, respectively, 6%. Also EMEA, Latin America and Japan contributed additional growth with 2%, 3% and, respectively, 8%. Without Diabetes Care, EMEA grew with 4%. The emerging markets, we call them E7 countries, grew at 13%, with the largest contributor, China, growing at 14%. Looking at the growth drivers in our business areas. Strong growth was driven by Centralised and Point of Care Solutions with 7%, strongly supported by 10% growth in Immunodiagnostics, continuing the double-digit growth journey for more than 20 years. Molecular Diagnostics experienced further growth of 5%, driven by the successful adoption of Global Access Program approaching 13 million viral load tests in 2018. Furthermore, HPV is growing 17% based on the continuous rollout of primary screening programs across the world and the successful launch of our molecular point-of-care system, cobas Liat or lab in a tube.Looking at the strategy and news flow of Q3. We continue to expand our core lab portfolio. And meanwhile, we have reached 1,500 cobas e 801 placements in routine use of our Immunodiagnostics flagship. After the approval by the Chinese FDA, we have started the cobas e 801 launch in China in September. The next highlight will be the launch of the first member of a new generation of serum work area analyzers, the cobas pro, for the medium to lower high-throughput segment, where we are in the midst of the global multicenter evaluation. And we scheduled the launch for December this year. Looking at our activities in China. I'm happy to announce the opening of our best-in-class manufacturing site with an R&D center in Suzhou. With a workforce of more than 400 employees, we will ensure a sustainable supply of clinical chemistry and immunoassays for Asia Pacific market. On the next slide, as you can see, fighting HIV is really very close to our hearts. The public-private partnership between Roche and Kenya Medical Research Institute represents another milestone towards achieving the UNAIDS' 90-90-90 initiatives in Kenya. Through the Roche Global Access Program, Roche installed our flagship cobas 8800 system in the new KEMRI lab, helping to improve infrastructure for scaling up HIV diagnostic testing in Kenya. And now moving to our sequencing business. To complement our AVENIO ctDNA kits, 3 AVENIO tumor tissue analysis kits for research use only were launched in Q3 2018: the AVENIO tumor tissue targeted kit, the expanded kit and the surveillance kit. Our tumor tissue analysis kits will enable customers to test tissue samples and to analyze concordance between matched tissue and plasma, expanding clinical research opportunities. The next slide, we are well on track to achieve our 2018 product launches and expect to tick off the remaining launches until year-end. I'm happy to announce our Diagnostics Investors Day at Rotkreuz in Switzerland on November 20 and look forward to meeting you there. And now I hand over to Alan for the financials.

[Alan Hippe, Chief Financial & IT Officer]

Yes, thanks, Michael, pleasure. Perfect. So hello to everybody. Thanks for joining our call. Yes, let me emphasize right at the beginning, on Slide 43, that we provide really growth through the period of biosimilar impact. I think Dan and Severin have talked about it. And you see it really in the strong underlying group sales growth that we're providing with 7%, very much driven by the U.S. and International. On the M&A side, just a reminder, when you do your modeling on the cash flow side, that we had the cash outflow for the Foundation Medicine transaction in Q3 and the cash outflow had been CHF 2.3 billion accordingly to the numbers that we have published in the first half or at the half year reporting already. And the currency impact, I will have a slide on this, very much driven by the euro and the U.S. dollar balancing out to a major extent. And then the bond repayment and issuances in Q3 2018, we had some repayments of roughly CHF 1 billion: CHF 600 million with a 1% coupon at 6.5 years and CHF 400 million with 1.5 years and the 0% coupon. Very sad to see that go. We had to replace that with newer bond issuances of CHF 2.3 billion, and we did that and you see that on the slide, which is basically in line with our interest costs that we have in average. With that, let me go through the next slide. And I think my colleagues talked already about the sales growth. Let me emphasize on that slide, the right-hand side, where you see the currency impact, which is really, really small. And you see here that the growth in constant rate is at 7% for the group, as in Swiss francs. So with that, let me go to the next page and explain that a little bit more in detail what has happened on the currency side, and in fact, I think a pretty simple story. You see on the left-hand side the growth year-to-date in constant rates, on the right-hand side in Swiss francs. And basically, you're seeing that the euro got stronger year-to-date, whereby the U.S. dollar weakened and some of the currencies in Latin America. I think the positive news here is it basically balanced out. With that, let's go to the next page, which is a standard slide, as you know. This is really about how the currencies have developed and a little bit of very much assumption-driven projection for the year. And in Q3, you have seen that the negative impact of the U.S. dollar reduce to basically minus 1%, when we compare that to half year estimate of minus 3%. And as you see, there's a positive impact still of the euro of 6%, which came a little bit down from the 9% that you've seen at half year. So assuming that all the currency rates at year-to-date September stay really where they are, you will see really that the impact for sales as well as core EPS and core operating profit are rather small. But really here, a minus 1 percentage point for all the 3 categories that I've mentioned. And I can say really these are rounded figures. They're really, really small. It's really small impact here, which certainly is a nice situation to be in. And as Severin said, I think we are confident that we're delivering the outlook, which you'll find on Slide 47. And now we're happy to take your questions.

[Severin Schwan, CEO & Executive Director]

Can we have the first question, please?

[Operator]

The first question from the phone comes from the line of Richard Vosser with JPMorgan.

[Richard Vosser, Senior Analyst]

First question, just looking at the sales growth, which is again mid- to high single digits, so 7% local currency growth for the 9 months. You're still guiding for 5% or mid-single-digit growth for the full year, which sort of implies no growth in the fourth quarter or very limited growth. So how should we think about the fourth quarter? What hits are we not thinking about that you are? And how should we think about that guidance? Second question, just to go to 2019, and you talked about the growth in '19. You seem more confident on this. So just what's driving that confidence? And also do you continue to expect margins to be flat in 2019? And then final question from me, just thinking about the Herceptin biosimilar rollout in Europe. Should we still be thinking about the erosion the same as Rituxan in the coming quarters? Could you talk a little bit about how the subcutaneous form of Herceptin is holding up and maybe also about the price/volume mix of the erosion you've seen thus far?

[Severin Schwan, CEO & Executive Director]

Thank you very much. This is Severin. Let me take the first 2 questions on the outlook for the fourth quarter and then importantly, the outlook for 2019. And then perhaps, Dan, you can take the biosimilar question. So to be very clear, I mean, we remain very bullish, and we expect further growth in the fourth quarter as well. There is probably some softening as we see Herceptin biosimilar impact increasing in Europe. Also remind you that we had a strong Tamiflu fourth quarter last year, so there is some base effect expected. But overall, due to the really continued increase of the recently launched medicines, such as OCREVUS, PERJETA, ALECENSA, HEMLIBRA now, we are very confident to see continued growth in the fourth quarter. And all of that should clearly enable us to achieve sales growth in the mid-single digits. Now if we look forward into 2019, again we are very confident to keep growth into 2019. And quarter-by-quarter, I should say this confidence goes up. And why does it go up? On the one hand, of course, we see that the new products are delivering more than we had originally expected. That's also why we brought up the guidance actually over the last 2 quarters. And secondly, on top of that, we have seen some pipeline progress, Dan has actually alluded to. So we will, as you know, present next week data for triple-negative breast cancer with TECENTRIQ. We had good interim data for Huntington's, as you have seen. You have seen the SMA data, which were very good. And very importantly, I should also say KADCYLA data, which we are looking forward to present to you following the KATHERINE trial, where we have the data already in house. Put on top polatuzumab, where we accelerated filing, I mean, all of that, of course, contributes to the confidence as we go into 2019, so again on a good track. And whilst we were certainly more careful at the beginning of this year, today, we are sure actually that we can outgrow the impact of the biosimilars. And with this, Dan, to the...

[Daniel O'Day, Chief Executive Officer of Roche Pharmaceuticals]

I certainly share Severin's confidence in the evolving nature of the portfolio and the ability to offset. Specifically, Richard, around the Herceptin biosimilar, happy to give a little more color to that. So as I mentioned in the quarter, we had about a 21% decline. And not all of that is biosimilar erosion. Of course, in previous quarters, we had around a 7%, this is in Europe, around a 7% price decline because of the discounting that occurs with Herceptin, particularly with the Herceptin, PERJETA combination. But you do start to see the beginnings of the biosimilar erosion in quarter 3. You asked about the price/volume. I mean, early days, but we're seeing around 60% price, 40% volume on the Herceptin side. The subcu is holding up. And I think that's the difference in the dynamic to MabThera. As you know, we've talked about this in the past, that the underlying dynamics are slightly different because there's more competitors with Herceptin, on the one hand, which is a downward effect. On the other hand, our subcutaneous share in Europe is much higher than MabThera and that's an upward effect. And I think on balance, those 2 things have led us to be modeling internally an overall erosion rate in Europe that is not dissimilar than MabThera. And I think we can expect now as we go into quarter 4 to see a greater erosion and would expect to be somewhat along the curve that we saw with MabThera if we go back 3 or 4 quarters as well. So I hope that helps give a little color to Herceptin biosimilar in Europe.

[Severin Schwan, CEO & Executive Director]

There is one question from the web, if I can just pull it in, from Lawrence Solomon from Capital Re. He asked about the disclosure, if you ever disclosed the profit split for VENCLEXTA with AbbVie.

[Alan Hippe, Chief Financial & IT Officer]

Yes, actually, we've talked about that. I think it's 50-50 in the U.S., and it's a royalty rate, and I would say really a benchmark royalty rate, a market benchmark rate. We say normally between 2% and 3% when it comes to that outside of the U.S.

[Operator]

The next question from the phone comes from Luisa Hector with Exane.

[Luisa Caroline Hector, Pharma Research Analyst]

I wonder if we could go back to the strength in the international market, particularly driven by China. Obviously, you've got the volume benefits from the reimbursement. How sustainable do you think that double-digit-type growth will be? And what is your expectation for biosimilars as the legacy brands are coming into that market? And then on the pipeline, I noticed that -- a couple of studies. So the emactuzumab, the anti-CSF, it looks you've dropped that. So just to confirm that it's dropped completely and maybe why. And then the VENCLEXTA plus the fulvestrant breast cancer study, just any comment on the rationale for running that study in the breast cancer?

[Daniel O'Day, Chief Executive Officer of Roche Pharmaceuticals]

Yes, thanks, Luisa. So a couple of comments on your questions, thank you for them. China, what we're seeing, and I think you particularly saw it between quarter 2 and quarter 3, is an overall revenue growth that jumped up a bit. And that's because we now have fleshed out essentially some of the price discounting that occurred for the broad reimbursement. And you're starting to get year-on-year comparisons to what we had when we got the reimbursement around quarter 3 of last year. So we think that there is continued good growth in China for these medicines, certainly for 2019 and beyond. In terms of biosimilars, we don't expect a major change to the trajectory in China within the next year. And in general, I would just say for the international markets, we have had for many years so-called noncomparable biologics competing with us in those marketplaces. And so I think we continue to see the International region overall continue to be a growth driver for us in the near term, with China being -- probably leading the pack. I can just confirm that yes, we did terminate the anti-CSF-1R. At this stage, when we looked at the additional trial results on that, they indicated the combination was not meaningfully better than TECENTRIQ alone in this patient population. So we have discontinued this development. And I remind you that we still have around 20 medicines in cancer immunotherapy, around 10 in the clinic that we continue to pursue. So there will be targets that will fall out and there will be targeted will strengthen. One of the targets that we think has strengthened is the bispecific antibodies, amongst others. But those are the ones that are probably most progressed that you're going to see at ASH. And then I'm sorry, Luisa, I was taking notes, you asked about the VENCLEXTA plus what combination? I'm not sure...

[Luisa Caroline Hector, Pharma Research Analyst]

Fulvestrant in the breast cancer. I saw that listed as a Phase II.

[Daniel O'Day, Chief Executive Officer of Roche Pharmaceuticals]

Yes, okay. So this has just started. Sorry, what's the question about that? We're about...

[Luisa Caroline Hector, Pharma Research Analyst]

Yes, about the rationale. Sorry, obviously, we have some Phase I data that...

[Severin Schwan, CEO & Executive Director]

Yes, that's correct.

[Daniel O'Day, Chief Executive Officer of Roche Pharmaceuticals]

Yes, that's correct. And we saw some effect in the Phase I on disease recurrence and progression. And that's why we took it into Phase II at this stage. And the first patients are just entering that trial right now in quarter 3, or did in quarter 3.

[Operator]

The next question from the phone comes from Sachin Jain with Bank of America.

[Sachin Jain, Managing Director]

It's Sachin Jain from Bank of America. A few questions, please. First just a clarification on the first question on '19. I interpreted your comments, Severin and Dan, as sales growth. There was a limited question on Pharma EBIT growth for next year. I understand the Cabilly, but any sort of change in mood music around growing Pharma EBIT next year? And then my 2 questions. Firstly, on U.S. biosimilar erosion rates. Most U.S. biosimilar erosion rate precedent is that erosion's been better than Europe. Yesterday, J&J showed guidance for continue limited decline in Remicade. You continue to point, I think, the market to U.S. biosimilar erosion to be similar to Europe. Just provide some color as to why oncology biosimilars would be different to precedents? And then second question is on the PERJETA APHINITY and GAZYVA GALLIUM launches. You're well over 6 months into those launches. So wondered, Dan, if you have any penetration numbers for those indications and what the hurdles are to faster adoption?

[Severin Schwan, CEO & Executive Director]

Thank you, Sachin. Perhaps just on the outlook in terms of EBIT quote for 2019. As usual, of course, we will give our guidance at the beginning of next year. And as you rightly pointed out, what we flagged to the market is that we have this step effects with the Cabilly patents, and we also said that we want to work against that so that we make up for that increase in operational expenses now, given the positive dynamics, the positive momentum we have seen quarter-over-quarter, and that, of course, will continue into 2019. Of course, I'm also increasingly confident that we can make up for the effect of Cabilly, but again, I would refer you to the formal guidance then, beginning of next year.

[Daniel O'Day, Chief Executive Officer of Roche Pharmaceuticals]

Sachin, just to add in. I want to make sure that we haven't created any confusion around our expectation of biosimilar erosion in the U.S. Let me just make sure I put a couple facts on the table. I mean, we expect the first entrant of biosimilars in the U.S. in the first half of next year with MabThera, the second half of next year with Herceptin and with Avastin. And what I would say is that even though at our pipeline event a couple of weeks ago, we kind of painted a worst-case scenario to belie our confidence, and even in a worst-case scenario been able to grow through that and with the ability to offset around CHF 10 billion in turnover between now and 2022. And with the success of the new launches, it showed that we could more than offset that. Having said that, that would assume a 60% to 70% biosimilar erosion over that time period in the U.S., which would be similar to Europe. Now that's actually not our expectations, that's rather more an extreme scenario to demonstrate that even in an extreme scenario we can grow through. So I would say that -- maybe just a couple of things on the U.S. biosimilar erosion rates. You've already mentioned some of the precedents that should be looked at here. But I would say that when we look at Europe, that there isn't one biosimilar erosion rate there. We have a variety of different erosion rates depending on the country. And some are very severe and some are less severe, and it's generally related to the heterogeneity of the health care system and the decision making. So I would put the U.S. in a highly heterogeneous system. And therefore, we -- our base case assumes that we actually -- although we expect -- let's be clear, we expect significant entrant of biosimilar. We don't expect the erosion rate to be similar to Europe at this stage, even with some potential additional activities with the administration of the U.S. government. So I think you're right to make sure that we clarify that we see a difference between the erosion rates between U.S. and Europe. And then finally, in terms of the progress with the APHINITY, really strong. I mean, quarter-on-quarter continued growth. I mean, our most experienced market with the adjuvant indication with PERJETA, the U.S. is roughly a 40% share so far in that adjuvant setting, so still significant more growth to go within the context of the high-risk patients. And in Europe, it's even less. And of course, in Europe, we have growth opportunities still in neoadjuvant and in the metastatic setting with PERJETA. With GAZYVA, it's still early days to articulate the share approval. I think we're just getting going now, really, in the front line follicular setting, so I think that's something we can give you in quarters to come. But given the nature of that disease, the slower developing nature of that disease, the take-up of that disease does take a little bit longer.

[Alan Hippe, Chief Financial & IT Officer]

I'll make a quick comment. Alan speaking. I talked about the arrangement that we have with AbbVie on VENCLEXTA, and what is disclosed is certainly the 50-50 profit split in the U.S. Outside of the U.S., we get paid royalty and, I would say, it's a solid double-digit number that we get here, but we have not disclosed really the details yet.

[Severin Schwan, CEO & Executive Director]

Thanks for the clarification.

[Operator]

The next question from the phone comes from Matthew Weston of Crédit Suisse.

[Matthew Weston, Managing Director and Co]

A couple of questions, if I can. Firstly, I noted on Slide 17 when you were discussing Rituxan, you highlighted an expectation for U.S. biosimilars in the first half of 2019. Can you let us know whether that's just a guesstimate from your perspective based on the competitive environment or whether that actually reflects some legal settlement that you've made with a number of the biosimilar parties that means that we should have a more concrete expectation of biosimilar entry then? And then secondly, as we go into ESMO, we've obviously seen that TECENTRIQ triple-negative breast cancer data in the Presidential session, which is clearly exciting. But looking back at your pipeline events slide from some just a couple of weeks ago, I was surprised to see that you classified the opportunity as only CHF 500 million to CHF 1 billion of peak sales opportunity. And given that we know how many patients there are, I wonder if you could explain why that is. Is that some kind of reflection of what we're going to see around duration of therapy, or is there another reason why you think it's just a very modest opportunity relative to the patient size of the total breast cancer market?

[Daniel O'Day, Chief Executive Officer of Roche Pharmaceuticals]

Yes, thanks a lot, Matthew. So let me go back to MabThera U.S. It is based upon our -- an estimate, exactly to your point. So I mean, we are aware of competitive intelligence around where people stand in terms of their approvals and also when they may be able to launch. So I think that's our best estimate. Of course, that has some imprecision to it. It could drift into a little later in the year, a little bit earlier in the year, but that's our best estimate at this stage, whereas with Herceptin and Avastin, I think we're quite confident those fall into the second half of the year. I don't want to be more precise than that right now, but I think that should give you some guidance on when to anticipate it. With TECENTRIQ, yes, I'm also looking back on the slides from the pipeline event. We're very excited about the results of triple-negative breast cancer in TECENTRIQ, and you rightly point out the Presidential session. Obviously, we'll have a chance -- you'll have a chance to see it then, and we'll have the investor event shortly after that to give some color to it with some of our key clinicians. I would just point out that the important results are apparent in the PD-L1 positive portion of that triple-negative breast cancer setting. I don't want to, in any way, capitate the potential, and those potentials were anyway intended to be ranges. But I guess, the only other color that I would add to -- into your assessment so far, Matthew, is it's PD-L1 positive. So let's have a look at it even in more detail once the data is on the page, and we can readdress also the potential. But I want you to know we feel enthusiastic about the opportunity for this to make a difference for patients and the first time we see an immunotherapy showing a difference in breast cancer.

[Operator]

The next question comes from Jack Scannell with UBS.

[Jack Scannell, Co]

Two questions. The first one again relates to U.S. biosimilar entry. It's clear that you have an agreement on one of the Herceptin biosimilars, but the others, as far as I can tell, you're actually litigating in patent dispute with the entrants. So the question there is, would it be reasonable to assume that Herceptin is likely to remain a duopoly with you and one biosimilar for some time in the U.S.? And then the second question is sort of the same question you have answered on Herceptin in Europe, but asked about Rituxan. You've been asked this in prior quarters, but I'll ask it again. If we look at the reduction in Rituxan sales in Europe, again, could you give me the kind of price-volume breakdown that you're currently seeing?

[Daniel O'Day, Chief Executive Officer of Roche Pharmaceuticals]

Yes, thanks, Jack. So as you can imagine, I mean, we're not going to comment extensively on our protection, if you like, of our patent landscape in the United States, so I don't want to comment specifically about that. What I would say is that we are aware that we have different pieces of our patent defense that we are certainly defending as an originator, appropriately, I think, in the U.S. So I wouldn't speculate any further on this concept of duopoly or more entrants into Herceptin and in what time frame at this stage. I think that would not be something I would comment further on. I would just leave it at the fact that we expect at least the first entrant of Herceptin in the second half of the year at this stage. Obviously, as we hear more information and as we can update you, just as we did in Europe, where we had variety of changing time lines, we will do the same for you as we go into next year and as we get more clarity, both on the competitive environment and what we may be doing to defend our patents landscape. Finally, on the reduction in Rituxan. So just to compare the price/volume then on MabThera, it's roughly around 25% and around 75% of volume. And I think that, that indicates, as far as I'm concerned, the difference, of course, in the subcutaneous share because subcutaneous had been, in MabThera, a very defensible position because health care systems have switched and changed their processes. And so however, in MabThera, it was a much smaller percentage in terms of the subcutaneous penetration versus Herceptin. So I think that's why you see, first of all, only a couple of entrants of biosimilars for MabThera and a lower subcutaneous volume versus Herceptin having more competitors entering at the same time and a higher subcutaneous volume. So you see the more aggressive action on the pricing side on Herceptin than you do with MabThera, which is very much in line with what we expected in our expectations.

[Operator]

The next question from the phone comes from Tim Race with Deutsche Bank.

[Timothy Michael Race, Research Analyst]

A couple of questions, please. First on the KATHERINE data for KADCYLA. Can you just help us understand exactly how PERJETA in the neoadjuvant, and then following on for longer-duration treatment, sort of how this KADCYLA data is going to [ keep up KATHERINE ] and what the overall value to Roche is from these 2 sort of usages of therapies in similar areas and how we should sort of conceptualize that? Next, sorry to bang on about the biosimilar side of things, but can you just help us understand a little bit more in terms of from your knowledge of the litigation that's ongoing, without any summary judgments on U.S. biosimilars, would they have to launch at risk in 2019 unless you agree to any of the settlements or is this something that we're not understanding here?

[Daniel O'Day, Chief Executive Officer of Roche Pharmaceuticals]

Great, thanks. Maybe the second one, first. I mean, I wouldn't comment any further on litigation or the moves of the competitors. I think those are better questions for them accordingly. So I would just continue to reemphasize that we will defend our patent landscape appropriately and make sure that we change the standard of care as quickly as possible in the areas that we intend to be doing that. So back to your KATHERINE data, yes, very good question. So I think it's important to note that the KATHERINE data adds yet another important tool in the toolbox to give patients a better chance for a cure. And so clearly, we've got patients that will go directly to adjuvant, and those that go directly to adjuvant will be on standard of care PERJETA plus Herceptin, the APHINITY data. So we're really talking about the [ tree of ] patients that go on the neoadjuvant first, and those patients will either receive Herceptin or more importantly these days, be receiving Herceptin plus PERJETA. And then at the time of surgery, of course, is when they evaluate whether or not there's a pathological complete response or not. And our data suggest that roughly -- it could be a little bit more, a little bit less -- around 20% of patients at that period of time that have had a proper neoadjuvant treatment with Herceptin plus PERJETA would not have a complete pathological response. So that is where KADCYLA would come in, with the way and the design of the KATHERINE data, and allow for another option. We've always known that physicians that treated with Herceptin and PERJETA prior to surgery and didn't get a complete response had some question about how that therapy would continue to evolve post-surgically. Now they have another option, and I think we are certainly looking forward to sharing the strength of that data with you when we are together at San Antonio. So if I had to describe kind of the market opportunities for KATHERINE, I think this could encourage greater neoadjuvant use in general. And particularly in Europe, we don't have as high a neoadjuvant share as we do in the United States just because physicians will know they have another option for those that don't evolve. That can lead to better penetration, particularly in the EU. There is a higher price on KADCYLA versus PERJETA. And eventually, because you would treat the KATHERINE protocol as you're treating a full 12 cycles after the neoadjuvant, you can have more cycles involved with the overall therapy and curative [ statement ] of patients. So hopefully that gives a little bit of understanding of how we see the opportunity. Definitely very complementary to what we've seen with KADCYLA, both in the metastatic setting and PERJETA metastatic setting, and now adding KADCYLA to the earlier-stage setting to really further complete the picture, to increase the number of patients that can have a chance for a cure. And as we've seen when we're talking the curative settings, this is generally of very strong interest and attention amongst patients and physicians and healthcare systems and guidelines. So more to come. Is that okay, Tim?

[Operator]

The next question from the phone comes from Sam Fazeli with Bloomberg Intelligence.

[Sam Fazeli, Research Director of Europe, Mideast and Africa]

Just have 3. First one is back on the Herceptin biosimilar. I may have missed it, but can you just again reiterate for us what the price/volume action was in this, what I'm assuming to be, the first full quarter of, for want of a better phrase, attack compared to what the equivalent quarter was for MabThera, so that we can get that indication of how the dynamics are working out? And also with MabThera, are you suggesting that we're pretty much close to the bone with regards to the IV infusion version and now the erosion rate will slow down with -- in Europe as the biosimilars try to get into the subcutaneous version? That's question one. Question 2 is, we're expecting the TNBC data at ESMO to be probably the strongest data set that you've had with TECENTRIQ. If it ends up being, as you've suggested, mostly PD-L1 positives, what read-through should I have on what it means for the neoadjuvant and the adjuvant setting, where the opportunity is not much larger and will potentially then eat into the metastatic TNBC setting? And the last one is, have you thought about or looked at PD-1 [ anti -- or PAU ] or TECENTRIQ in pulmonary fibrosis at all? Is there any activity there?

[Daniel O'Day, Chief Executive Officer of Roche Pharmaceuticals]

So just again, just to repeat the price/volume differences for Herceptin and MabThera. So for Herceptin, it's 60% price, 40% volume, early data, one quarter, a few countries. And for MabThera, it's 25% price, 75% volume. So those dynamics, I think, are explained again by the nature of the number of competitors and also the strength of the subcutaneous penetration. So I think, again, we think that even though those are 2 different price/volume equations, we think that given the market dynamics, that actually the erosion rates will be quite similar. And this is Europe, of course. Europe with MabThera, the only thing I'm suggesting is that the erosion rate is starting to slow down a little bit. It doesn't in any way imply that there won't be further erosion, right? There's more erosion to be had on the IV side. It's just that the steepness of the curve, if you like, as we expected after a certain period of time, is starting to flatten out. The subcutaneous continues to be very durable with MabThera. So we actually don't yet see a replacement from biosimilar MabThera IV with subcutaneous MabThera at this stage. Triple-negative breast, I can't pick my favorite child. I think it's a very good data set. But I equally think that the data that we have in something like small cell that is the first, respectively, by the way, not comparatively, but to see the first data on OS about chemotherapy after 20 years in small cell, I think the data that we have in mutated forms in 150, I think the developing data on hepatocellular. What I would just say is just taking a step back from that, and I'm happy to maybe address your adjuvant -- your neoadjuvant questions with the experts when we're together on Monday, if you wouldn't mind dialing into that event, because I think it's a bit premature to think too far ahead about metastatic setting, but certainly we can get the experts view on that at ESMO. But I would just say, just stepping back from all of this, we've had TECENTRIQ with a certain share position in second-line lung and with bladder, both in the U.S. and now in Europe. And we're getting ready now to go into a variety of different areas. So the IMpower150 PDUFA date is at the end of the year. We believe we have strong data with Avastin in what is to be around 20% or so of the front-line lung cancer market that has EGFR, ALK or liver met mutations. We've got the small cell data that we filed and we'll expect some information on next year, which is another 15% of the lung cancer data. And then the triple-negative breast that we filed and expect next year to play out with TECENTRIQ. So certainly, we have areas where we were complementing data that other competitors have already introduced, and then we have data where we're first and ahead. And I think those things will come to light over the next 12 to 18 months. Yes, and then the last question...

[Severin Schwan, CEO & Executive Director]

I can make it short.

[Daniel O'Day, Chief Executive Officer of Roche Pharmaceuticals]

Go ahead.

[Severin Schwan, CEO & Executive Director]

No activities in [ cystic ] fibrosis.

[Daniel O'Day, Chief Executive Officer of Roche Pharmaceuticals]

Thank you.

[Operator]

The next question comes from Andrew Baum with Citi.

[Andrew Simon Baum]

Three questions, please. Firstly, I know that HEMLIBRA has only been recently approved in the non-inhibitor segment in the U.S. But as we think about the initial uptake over the next 3 quarters or so, could you just talk us through, given the high patient awareness, your expectations, where they'd be positioned, aside from those patients who are obviously transitioning from having been within the trials? Second on satralizumab, could you outline your and Chugai's plans for filing and time lines, obviously thinking about the data set versus the Alexion data? And then finally, could you share with us -- again, I know it's early days, but from a competitive reason as well, I'm interested in the market share you've attained with Avastin within the ovarian indication.

[Daniel O'Day, Chief Executive Officer of Roche Pharmaceuticals]

Yes, thanks, Andrew. So a couple of comments just to put the non-inhibitor opportunity in perspective. First of all, I think we've got very good reception from the community since the approval that we received, a lot of enthusiasm around the breadth of the label, covering a large patient population in the inhibitor setting -- in the non-inhibitor setting. Essentially, as you know, we've got the entirety of the hemophilia market. Around 5% is the inhibitor, which we've been playing in so far. Around 20% is where we won't be playing, which is the mild segment. So that leaves an additional 75%, if you like, of the market in the non-inhibitor space. And that includes non-inhibitors with bleeds, non-inhibitors without bleeds and the pediatric population. So the label clearly can accommodate all of those, and I think we will be -- particularly the strength of the data around the intra-patient comparability around well-controlled factor VIII will enable us to make sure that we represent all the characteristics of HEMLIBRA well. So we expect a good launch, look forward to updating you as we go into the coming quarters. Relative to the Chugai compound in NMO, we're encouraged by the first set of data that we've seen, and I know that'll be presented shortly by the colleagues of Chugai. We have another trial that comes in towards the end of this year that will fill out, if you like, the entirety of the data package for [ selling ], and then we'll be able to give you more specific details about our path forward there. So I would just say that, clearly, I can give you some more data at the year-end on the path forward for that. And then finally, on Avastin, unfortunately, we don't have the chart audits or things that we can give you market share on that as well, but the feedback has been good, I would say, from the market overall.

[Operator]

The next question from the phone comes from Keyur Parekh with Goldman Sachs.

[Keyur Parekh, Equity Analyst]

Three questions, please. Dan, 2 for you from a clarification perspective, and one for Severin. The first for you, Dan. Can you confirm that you're not seeing any impact of biosimilars on the subcutaneous versions either for Herceptin or for rituximab in Europe? The second one is, can you confirm what proportion of the front-line triple-negative breast cancer patients do you expect to be PD-L1 positive? And then for you, Severin. You kind of mentioned increased confidence in the growth outlook, kind of not just for the fourth quarter, but also longer term, both on the top line and the bottom line. How should we think of that being reflected in the dividend payout for 2018?

[Daniel O'Day, Chief Executive Officer of Roche Pharmaceuticals]

Thanks, Keyur, for the 2 questions. To clarify, no, we're not seeing an impact on MabThera subcutaneous so far now, after more than a year of launch. And of course, with Herceptin, we're just getting going, but currently, the early launch markets like Germany did not have a high uptake of subcutaneous in Herceptin, I should just point out. Other markets in Europe have a much, much higher uptake of subcutaneous. So the answer is no and no, we haven't seen an uptake of biosimilars in the subcutaneous market so far with either one of those products. And your second question, our epidemiology suggests somewhere around 40% to 50% of triple-negative breast cancer patients are PD-L1 positive.

[Severin Schwan, CEO & Executive Director]

Okay, on the dividend question, I'd just like to confirm that we are committed to an attractive dividend policy. It's clearly too early to comment on the dividend for 2018. This will only be decided by the board beginning of next year, but we never made a secret out of the intention to increase the dividend not only for this year, but for the long term.

[Operator]

The next question comes from Naresh Chouhan from New Street Research.

[Naresh Chouhan, Former Research Analyst]

Just quickly check on HEMLIBRA. What are we stocking there in the quarter? In the International region, Herceptin and Rituxan continues to grow strongly. Is there any risk to -- or what is the risk from biosimilars there and in which regions? That will be helpful to get some clarity on that. And then you won a number of patent cases recently in the U.S. And if you continue to win them and biosimilars are delayed, is there any reasons why margins can't improve next year and potentially beyond that until those biosimilars launch?

[Daniel O'Day, Chief Executive Officer of Roche Pharmaceuticals]

Thanks for the question. So no, there's no stocking in HEMLIBRA. It's not the nature of that product through the distribution channel. So no. What -- the results you see are true demand. In terms of the second question around the International region in Herceptin and MabThera and biosimilars, again, I think we're still at the early stages of supplying and satisfying, if you like, the medical need in China. And we went from really only having provincial reimbursement in a couple of provinces to all provinces now having reimbursement as of around quarter 3 of last year. So we can expect to continue to have, I think, good uptake of all those products. And China also has a regulatory system that has a highly regulated pathway for biosimilars, and as I said before, don't see any major biosimilar entrants in the next year or so. Now outside of China, in the International region, I would just mention, in many countries around the world, there has been a less strong regulatory threshold for biosimilars. And so there have been these so-called noncomparable biologics medicines that don't meet the standard of international biosimilar guidelines that have been available. And even with those available, we've been successful at getting, for instance, like in Brazil, our innovative medicines reimbursed in the public sector. So we don't expect, where those markets that have had competition for many years with low-priced biosimilars, to have a drastic change moving forward. And then finally, on the -- the last question was...

[Severin Schwan, CEO & Executive Director]

Margins going forward, in case we win the biosimilars.

[Daniel O'Day, Chief Executive Officer of Roche Pharmaceuticals]

Yes. I mean, I think, I mean, look, either way, as we've said before, we don't have a structural problem on our cost of goods. The new products are at attractive margins when we look at the mix. So really, what we're looking to do is replace the biosimilars with good, strong-margin products, efficiently. We continue to work on efficiencies and frankly, regardless of the biosimilar impact, we're going to be working on efficiencies and working on maintaining our margins and improving them over time.

[Severin Schwan, CEO & Executive Director]

There was one question from the deck from Ms. [ Gulliver ] from Longbow, she was wondering about the development program for polatuzumab. So we had announced before that polatuzumab is going to be filed with a Phase I/II, so this is ongoing. The filing is actually accepted, and the development program for polatuzumab going forward.

[Daniel O'Day, Chief Executive Officer of Roche Pharmaceuticals]

Right. Yes, exactly. So as you know, we have some really stunning data in the relapse refractory setting, which is the subject of our first filing and what we're working right now with getting that approved. As I said in the past, one of the things that we had to solve to get that filing -- because many people have asked since that data was presented at ASH last year, why are we only completing the filing now? The good news is we've started the filing, it's a rolling filing, but because of the unexpected really good data, we've also had to make sure that our CMC programs can catch up with this. I can report good news that they have caught up and that we're prepared to complete the file in the relapse refractory setting before the end of this year. Now we also have a Phase III trial ongoing in the front line DLBCL segment and the first patient went into that in the fourth quarter of 2017. So that trial is enrolling and enrolling well, and we'll look forward to reporting out on that in earlier line settings as we can.

[Severin Schwan, CEO & Executive Director]

Next question from the line.

[Operator]

The next question from the phone comes from Emmanuel Papadakis with Barclays.

[Emmanuel Douglas Papadakis, MD & Head of European Pharmaceuticals Research]

It's Emmanuel of Barclays. Just a couple of product ones left. XOLAIR, you haven't talked much about the polyps opportunity. You mentioned it on the call earlier. If you could give us some indication of what you expect from that data, which I think is [ just relatively serious ] in light of some of the competitive data we saw earlier this week. And perhaps also remind us your assumptions around the durability of the franchise from an IP perspective, that would be helpful. Another one was on KADCYLA. The majority, I believe, of the current sales were in the second-line metastatic setting. We recently saw Daiichi initiate a head-to-head study with their trastuzumab asset, which has had pretty impressive data so far. So any thoughts you could share there on the competitive risk would be helpful. And then maybe final one for Michael. Congratulations on the Diagnostics role. Look forward to hearing more of your thoughts next month, but perhaps you could give us some preliminary indication of what, if anything, you think could be improved or done differently at Roche Diagnostics since you've assumed the helm.

[Daniel O'Day, Chief Executive Officer of Roche Pharmaceuticals]

Thanks a lot for the question. Let me start with XOLAIR. Yes, I mean, obviously, we're continuing to invest in line extensions in XOLAIR. I would say the prefilled syringe has really been a welcome addition to our offering with XOLAIR and the take-up. At least, the initial reaction is quite positive in the market. And it's extremely important in that market, where we have competitors coming in, that we continue to differentiate and discriminate our offering. I mean, the 2 more significant line extensions coming up are the nasal polyps and the food allergies. The food allergy is quite early, but we're heading into that now. And the polyps, we expect data, to your point, around mid-2019, just to give you a rough feeling for that. KADCYLA, I think we still feel very good about our data in the second-line metastatic setting. I don't have a particular comparison to the other data that you mentioned at this stage, but we don't see the strength of the entirety of the data set around KADCYLA being threatened by that at this stage. And we'll look forward now, obviously, to bringing KADCYLA into the earlier stages of the disease with KATHERINE. Michael, over to you.

[Michael Heuer, Chief Executive Officer of Roche Diagnostics]

Okay, Emmanuel, thanks for asking, and I'm looking forward to welcome you in Rotkreuz in a couple of weeks, and I will then share with you some of my ideas on how to bring the Diagnostics division forward. And we'll see. I think you will be excited.

[Severin Schwan, CEO & Executive Director]

We still have one last question on the line, operator?

[Operator]

The next question comes from Steve Scala with Cowen.

[Stephen Michael Scala, Managing Director and Senior Research Analyst]

I have 3 questions. First on risdiplam. There was evidence in Phase I and II of 5 sitters at World Muscle. That was the original goal in Phase III. Will this count towards FDA filing in the U.S. and the EU? And if yes, might a filing be imminent or perhaps already underway? So that's the first question. Secondly, I'm wondering if you could help us think about HEMLIBRA Q4 sales. Everything we can tell, the non-inhibitor demand is off the charts. I assume you have some read based on sales thus far in October. I would think Q4 could be 3 or 4x greater than Q3, CHF 150 million, CHF 200 million. Any thoughts? And then lastly, on crenezumab, when in 2019 is the Phase III interim look? For instance, is it early in the year or late in the year or somewhere in between?

[Daniel O'Day, Chief Executive Officer of Roche Pharmaceuticals]

Thanks, Steve. Always appreciate your questions. They're fun. So let's go to risdiplam. Yes, what I think we need to focus in on for risdiplam right now is the FIREFISH study and the type 1 SMA. So I understand that you're referring to a larger data set. But within this patient population, we have some 6 out of 14 infants were -- the data we have so far, 6 out of 14 infants were able to sit with support, 3 who achieved unassisted stable sitting so far after 8 months of treatment. So right now, we're at so-called 3 relative to the unassisted sitting. The trial continues, we continue to monitor and evaluate patients and are in close contact with the regulatory authorities relative to what they may want to see in order for us to activate a filing as well. I would just remind you of the broader data also on CHOP-INTEND, which is another score where more than 4 points are meaningful, and we've seen a significant difference there that shows that risdiplam is around 93% from 86% earlier on. So that's quite a significant difference, obviously more than 4. And in relation to other therapies at this same stage in development, also a significant difference overall. So we continue to be encouraged by risdiplam but also need to make sure we see the entirety of the data set as we move forward. Gosh, I'm glad that you're hearing good things about HEMLIBRA and the non-inhibitor demand. I mean, I am too. From a qualitative perspective, it's far too early to understand the demand. I'm going to have to update you towards the end of this year. But clearly, there has been pent-up demand, and we'll see how that flows out over the quarter 4 sales. I can't give you more insight at this stage. Crenezumab, as you know, we'll have a look at the data next year, just to make sure we're on track, and I just want to put that into context. So that's really a look to make sure that the 2020 expected readout is on track. We don't expect a significant milestone event in that nor do we disclose exactly what time of the year that will come. But obviously, it gives us a chance to make sure that we are trending well towards the final readout, which is really what we're focused on in 2020 right now for crenezumab.

[Severin Schwan, CEO & Executive Director]

Thank you. With this, we are coming to the end of our call. Thank you for your interest in Roche and see you next time.

[Operator]

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