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Published on 23 April 2009

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Strong product portfolio for Novartis

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Pharmaceuticals delivers strong underlying growth in first quarter of 2009 as Novartis continues to rejuvenate product portfolio

  • Group’s strong operational performance led by Pharmaceuticals net sales growth of 12% in local currencies on rapid expansion of recently launched products
  • R&D progress led by first approvals of anti-cancer medicine Afinitor and Ixiaro, a vaccine against Japanese encephalitis; key development projects advancing well
  • Q1 2009 reported results include significant negative currency impact:
  • Net sales of USD 9.7 billion (–2%, but +8% in local currencies, or lc) driven by underlying Pharmaceuticals expansion; Sandoz up 4% lc on sustained growth in many regions
  • Operating income of USD 2.3 billion down 6%, but rises 7% excluding adverse currencies (-11 percentage points) and exceptional items in both periods
  • Net income of USD 2.0 billion falls 14%, includes effects in 2009 first quarter of lower average net liquidity and Alcon financing costs
  • Basic EPS of USD 0.87 in first quarter of 2009 vs. USD 1.02 in 2008 period

 

  • Novartis expects strong operational performance in 2009, but a continuation of recent currency rates could more than offset underlying profit improvements

Commenting on the results, Dr. Daniel Vasella, Chairman and
CEO of Novartis, said: “New products fueled ongoing momentum in Pharmaceuticals in the first quarter of 2009, and the fundamentals of the business remain positive. R&D projects are progressing well, and I am pleased with the first approvals of Afinitor, offering hope to advanced kidney cancer patients, and the Ixiaro vaccine against Japanese encephalitis.
The uncertain economy and currency market volatility create an opportunity to continue to enhance productivity and manage costs. Our aim in 2009 remains to again deliver record
underlying net sales and earnings excluding currency effects.”

OVERVIEW
Pharmaceuticals led the Group’s healthcare portfolio in the first quarter of 2009, with the division’s net sales up 12% in local currencies. Sustained expansion of recently launched
products rejuvenated the Pharmaceuticals portfolio and led to market share gains in 11 of the top 15 countries. The benefits of R&D investments were reaffirmed with the first regulatory approval of the anti-cancer medicine Afinitor in the US as well as the US and European approvals of the new Ixiaro vaccine against Japanese encephalitis. Good progress was achieved in a number of the Group’s development projects.

The solid underlying performance was offset in reported results by the effect of a stronger US dollar (the Group’s reporting currency), with net sales reduced by 10 percentage points
and operating income by 11 percentage points, and was also impacted by weaker performances in OTC and Animal Health, due to the global economic crisis.

As a result, net sales rose 8% in local currencies in the first quarter, but fell 2% in US dollars to USD 9.7 billion. Higher sales volumes provided eight percentage points of growth over the 2008 quarter, but this could not overcome the 10 percentage points lost to negative currency movements. Net price changes and acquisitions had no impact.

Operating income fell 6% to USD 2.3 billion, which included currency losses along with sustained Pharmaceuticals investments, reduced contributions from Sandoz and higher
one-time gains in 2008. However, operating income rose 7% when adjusted for currencies, exceptional items and the amortization of intangible assets in both periods.

Net income declined 14% to USD 2.0 billion, also hurt by currencies. A drop in average net liquidity and financing costs for the 25% Alcon stake, which was acquired in 2008, further reduced non-operating income in the 2009 quarter. Basic earnings per share (EPS) were USD 0.87 in the 2009 first quarter compared to USD 1.02 in the 2008 period.

Targeting sustainable growth in a challenging environment
Novartis continues its focus in 2009 on driving sustainable growth from its broad healthcare portfolio in a challenging environment, one in which the demand for medicines continues to rise.

Following a consistent strategy paired with disciplined execution, Novartis is committed to selectively strengthen its businesses, step up investments in innovation and expand in
high-growth markets while improving organizational efficiency.

These are particularly important to ensure Novartis, which also benefits from its sound financial position, emerges stronger and more competitive when economic conditions start to improve.

Novartis believes it has an excellent portfolio to address the fast-changing and complex needs of patients and societies worldwide. The Group is building on leadership, expertise
and synergies in innovative medicines as well as high-quality cost-effective generic drugs, preventive vaccines and diagnostics, and consumer health products.

In Pharmaceuticals, recently launched products are increasingly driving growth, providing USD 0.9 billion of net sales in the first quarter in 2009 and representing 14% of
net sales compared to 8% in the 2008 quarter. Major R&D investments are being made to accelerate the highly rated pipeline, spurred on by the first worldwide approval of
Afinitor in the US.

More than 130 regulatory submissions are planned for the US, Europe and Japan between 2009 and 2011, while decisions are pending for 2008 submissions that included QAB149 (COPD) and Ilaris (formerly ACZ885, Muckle-Wells Syndrome).

Vaccines and Diagnostics has built a platform for growth while advancing a pipeline led by the 2009 approvals of Ixiaro in the US and Europe and progress in the two late-stage meningitis vaccines.

Menveo (serogroups A,C,W,Y) is awaiting first regulatory decisions in the US and Europe after submissions in 2008 for initial use in people from ages 11 to 55, while the MenB vaccine in late-stage trials has the potential to be the first of its kind.

Major initiatives are also underway to return Sandoz, the world’s second-largest generics company, to higher growth rates and profitability. Key to this is resolving challenges in
the US while accelerating the solid growth seen in the rest of the world. New global and US leadership teams are aiming to increase the contribution of new product launches and address all FDA concerns about a US manufacturing site that is being remediated.

Globally, Sandoz is expanding in emerging markets and accelerating development of higher-value generics.
Consumer Health is maximizing the value of trusted brands and seeking to achieve above-market growth. While CIBA Vision expands with new product launches, OTC and Animal Health are addressing difficult consumer trends amid recessions in some regions, particularly the US, through renewed efforts on innovation and marketing excellence.
Expansion in targeted high-growth markets continues with a long-term perspective.

Net sales in the top six emerging markets rose 23% lc to USD 846 million in the 2009 first quarter, with only limited signs to date of an adverse impact from global economic conditions.

Novartis is also integrating the drive for greater productivity and increased efficiency into the Group’s operations, improving efficiency and speed while freeing up resources to focus on customers and growth initiatives. Forward, the Group-wide project launched in late 2007, is ahead of schedule, delivering USD 329 million of incremental savings in the 2009 first quarter. The program is set to exceed the 2009 cost savings goal of USD 1.3 billion, and the 2010 savings goal of USD 1.6 billion (compared to 2007).

Novaritis



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