Novartis achieves strong third quarter financial performance and pipeline progress
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Novartis International AG /
Novartis achieves strong third quarter financial performance and pipeline
progress
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The issuer is solely responsible for the content of this announcement.
* Novartis sales rose 12% and core operating income grew 15% in constant
currencies in the third quarter, delivering operating leverage
* Net sales increased 18% (+12% in constant currencies, or cc) to USD
14.8 billion; nine months up 20% (+15% cc) to USD 43.8 billion
* Core operating income grew 11% (+15% cc) to USD 4.1 billion; core margin
of 27.7% up 0.6 percentage points in cc; nine months core margin of
28.2% up 0.5 percentage points in cc
* Core EPS advanced 7% to USD 1.45 (+10% cc) from USD 1.36 in previous-
year period
* Free cash flow grew 27% to USD 3.7 billion
* Industry-leading pipeline results in new approvals, further expanding our
ability to meet patient needs and sustain growth long-term
* In the EU, Afinitor/Votubia was approved for two additional indications;
positive CHMP opinion was granted for Rasitrio for high blood pressure
* Gilenya, our breakthrough multiple sclerosis treatment, won approval in
Japan
* Pivotal Phase III study of Afinitor plus exemestane demonstrates that
the treatment significantly lengthens the amount of time women with
advanced breast cancer live without the disease progressing
* Novartis to take further action to improve productivity and to absorb
pricing pressures
* Novartis is announcing today additional cost reduction activity, which
will be executed over three to five years. Elements of the activity to
include: reallocation of production within the Novartis network
resulting in closure of two sites in Switzerland and one in Italy;
restructuring the development organization largely in Switzerland and
the US and relocating some research activities from Switzerland to the
US
* In total, approximately 2,000 positions will be reduced in the Group,
subject to required employee consultation, mostly in Switzerland and the
US offset by 700 new positions in low cost and other countries.
Key figures
% %
Q3 2011 Q3 2010 change 9M 2011 9M 2010 change
USD m USD m USD cc USD m USD m USD cc
----------------------------------------------------------------
Net sales 14 843 12 578 18 12 43 785 36 425 20 15
Operating income 2 951 2 587 14 22 9 681 9 059 7 11
Net income 2 488 2 319 7 15 8 035 7 704 4 9
EPS (USD) 1.02 0.99 3 9 3.34 3.34 0 5
Free cash flow 3 675 2 895 27 8 594 8 166 5
Core[1]
Operating income 4 112 3 699 11 15 12 359 10 840 14 16
Net income 3 539 3 146 12 16 10 479 9 226 14 16
EPS (USD) 1.45 1.36 7 10 4.34 4.00 9 11
----------------------------------------------------------------
[1] See page 45 for further information and definition of core results
Basel, October 25, 2011 - Commenting on the results, Joseph Jimenez, CEO of
Novartis, said:
"Once again, the breadth of our business and product portfolio allowed us to
deliver strong financial results and operating leverage, as well as
significantly advancing the pipeline in the quarter. To strengthen our future,
we have accelerated actions to reduce our cost base over the next few years.
These actions are necessary to ensure that we adapt our organization to continue
delivering on our mission of bringing innovative new drugs to patients."
GROUP REVIEW
Third quarter
Strong net sales growth driven by recently launched products
Net sales rose 18% (+12% cc) to USD 14.8 billion in the third quarter. Sales
were up mainly due to a strong performance from recently launched products,
which contributed USD 3.6 billion or 25% to total net sales for the Group and
grew 31% over the previous-year quarter. The weakness of the US dollar against
most major currencies benefited sales by 6%.
Pharmaceuticals net sales grew 9% (+3% cc) to USD 8.2 billion, driven by 10
percentage points of volume growth, partly offset by a negative pricing impact
of 1 percentage point and the effect of generic entries and product divestments
of 6 percentage points. Recently launched products contributed USD 2.4 billion
or 29% of Pharmaceuticals sales, an increase of 36% in constant currencies over
the third quarter of 2010.
Alcon pro forma net sales rose 12% (+7% cc) to USD 2.5 billion, with
particularly strong performance in non-US markets (+17%, +9% cc), and key
contributions from the pharmaceutical and surgical product categories. Sales in
the top six emerging markets, which include Brazil, China, India, Russia, South
Korea and Turkey, increased by 29% (+24% cc).
Sandoz net sales grew 6% (+1% cc) to USD 2.3 billion, mainly driven by sales of
recently launched products, good performances in North America, Western Europe
and Latin America, and strong growth in biosimilars sales. This growth rate was
suppressed by the enoxaparin launch in the year-ago base. Vaccines & Diagnostics
sales rose 4% (-2% cc) to USD 655 million. Continued growth of the meningococcal
disease franchise compensated for the weakness of the 2011 flu season to-date
and the delay of some product shipments. Consumer Health - which comprises OTC
and Animal Health - grew 8% (+3% cc) to USD 1.2 billion.
Operating income growing ahead of sales
Operating income was up 14% (+22% cc) to USD 3.0 billion. The weakness of the US
dollar, combined with the strong Swiss franc, resulted in a negative currency
impact of 8 percentage points. Exceptional items in operating income in the
third quarter of 2011 include intangible asset impairment charges of USD 134
million (including USD 87 million in Pharmaceuticals for the discontinuation of
the agomelatine development program), USD 69 million for the impairment of
financial assets (including USD 52 million in Vaccines & Diagnostics), USD 80
million of Alcon integration costs, and USD 93 million of restructuring charges
(mainly for the streamlining of our manufacturing network).
Core operating income, which excludes exceptional items and amortization of
intangible assets, increased 11% (+15% cc) to USD 4.1 billion. Core operating
income margin in constant currency increased by 0.6 percentage points; however,
this was offset by currency impact of 2.3 percentage points, resulting in a net
decrease of 1.7 percentage points to 27.7%.
Pharmaceuticals core operating income increased by 1% (+6% cc). Core operating
income margin improved by 0.7 percentage points in constant currency due to
continuing productivity efforts. Alcon pro forma core operating income increased
by 20% (+13% cc) to USD 909 million. Productivity gains resulted in a core
margin improvement of 2.1 percentage points in constant currencies.
Sandoz core operating income was down 12% (-10% cc), with core margin declining
2.6 percentage points in constant currencies, principally due to a very strong
quarter last year that included the launch and initial supply chain filling of
enoxaparin, as well as increased investments in the development of
differentiated products (biosimilars and respiratory products).
Vaccines & Diagnostics core operating income was USD 147 million compared to USD
126 million for the same period in 2010, with continued investment in the
pipeline and expansion of the meningococcal disease franchise. Consumer Health
was down by 21% (-16% cc), with core margin declining 4.6 percentage points in
constant currencies, mainly due to a planned increase in Marketing & Sales
expenses to better balance spending in the second half.
Substantial increase in net income and cash flow
Net income increased 7% (+15% cc) on strong operating income growth. Income from
associated companies was lower, mainly due to the full consolidation of Alcon
from August 25, 2010. The related exceptional revaluation gain of USD 204
million also contributed to the reduced income from associated companies.
Additionally, higher net financial expenses due to financing costs related to
the Alcon acquisition impacted net income. The tax rate improved to 14.4% from
17.0%. Core net income grew 12% (+16% cc).
EPS advanced 3% (+9% cc) at a lower rate than net income as a result of the
increase in issued shares following the Alcon merger. Core EPS was up by 7%
(+10% cc).
Free cash flow of USD 3.7 billion was 27% higher than in the third quarter last
year.
Nine months
Double-digit net sales growth
Net sales rose 20% (+15% cc) to USD 43.8 billion, with a 5% benefit arising from
the weakness of the US dollar against most major currencies. Recently launched
products (excluding the A(H1N1) pandemic flu vaccine) grew 41% over the
previous-year period, contributing USD 10.7 billion or 24% to total net sales
for the Group.
Pharmaceuticals net sales grew 8% (+3% cc) to USD 24.2 billion, with 9
percentage points of volume growth partly offset by a negative pricing impact of
1 percentage point and the effect of generic entries and product divestments of
5 percentage points. Recently launched products contributed USD 6.7 billion or
28% of Pharmaceuticals sales, compared to 21% in the 2010 period.
Alcon pro forma net sales rose 11% (+7% cc) to USD 7.5 billion. The strong
performance was driven by robust growth in global pharmaceutical products of
14% (+10% cc). The top six emerging markets also delivered a strong performance
with 28% (+22% cc) growth over the previous-year period.
Sandoz net sales grew 16% (+12% cc) to USD 7.2 billion, driven by volume
expansion due to new product launches, strong growth in US retail generics and
biosimilars, Canada, Western Europe and emerging markets. Vaccines & Diagnostics
sales were down 48% (-51% cc) to USD 1.3 billion, mainly due to USD 1.3 billion
of A(H1N1) pandemic flu vaccine sales in 2010. The two Consumer Health
businesses grew 11% (+6% cc) to USD 3.6 billion.
Operating leverage delivered
Operating income was up 7% (+11% cc) to USD 9.7 billion. The weakness of the US
dollar, combined with the strong Swiss franc, resulted in a negative currency
impact of 4 percentage points.
Exceptional items in operating income in the first nine months of 2011 include
divestment gains of USD 382 million (including USD 324 million net from the sale
of Elidel® in Pharmaceuticals and USD 44 million in Consumer Health). These
positive items were offset by intangible asset impairment charges of USD 243
million (including USD 194 million in Pharmaceuticals), financial asset
impairment charges of USD 167 million (including USD 133 million in Vaccines &
Diagnostics), acquisition-related exceptional charges of USD 87 million (mainly
from Alcon integration costs of USD 151 million offset by divestment gains of
USD 81 million in Pharmaceuticals), and restructuring costs of USD 187 million
(mainly for the streamlining of our manufacturing network).
Core operating income, which excludes exceptional items and amortization of
intangible assets, increased 14% (+16% cc) to USD 12.4 billion. Core operating
income margin in constant currency increased by 0.5 percentage points; however,
this was offset by currency impact of 2.1 percentage points, resulting in a net
decrease of 1.6 percentage points to 28.2%.
Pharmaceuticals core operating income grew 5% (+7% cc) to USD 7.8 billion, with
core operating income margin up 1.3 percentage points in constant currencies,
mainly due to continuing productivity efforts, while making significant
investments in new product launches. Alcon pro forma core operating income
increased by 13% (+9% cc) to USD 2.7 billion. Core operating income margin in
constant currencies increased by 0.9 percentage points.
Sandoz core operating income rose 14% (+17% cc), growing ahead of sales, with
core margin in cc increasing by 1.0 percentage point as declining prices were
more than offset by volume growth and productivity improvements. Vaccines &
Diagnostics had a core operating income of USD 34 million, compared to USD 1.2
billion for the same period in 2010, largely due to income from A(H1N1) pandemic
flu vaccine sales in the prior year. Consumer Health was up by 1% (+9% cc),
impacted by higher sales force investments and the phasing of advertising and
promotion expenses. Core operating income margin improved by 0.6 percentage
points in constant currencies.
Net income and cash flow up
Net income increased 4% (+9% cc) to USD 8.0 billion, following lower income from
associated companies and higher net financial expenses due to financing costs
related to the Alcon acquisition, partially offset by an improved tax rate of
15.5%. Core net income grew 14% (+16% cc) to USD 10.5 billion.
EPS was flat (+5% cc), but lower than net income growth, mainly as a result of
the increase in issued shares following the Alcon merger. Core EPS was up by 9%
(+11% cc).
Free cash flow of USD 8.6 billion grew 5% against an exceptionally strong
performance in the nine months period last year.
Delivering against strategic priorities of innovation, growth and productivity
The Novartis growth strategy is based on scientific excellence leveraged across
high-growth sectors of the healthcare industry. Novartis maintains a leading
position in pharmaceuticals, eye care, generics, vaccines and diagnostics, over-
the-counter medicines and animal health, and continually launches innovative new
offerings in each of these sectors. We believe the breadth of our medicines will
allow us to capture the opportunities of the expanding global healthcare market,
while protecting us from some of the macroeconomic trends that are negatively
impacting our industry. In addition, we expect that the diversity of our
business and product portfolio will help us maintain growth despite the loss of
revenues due to patent expiration. Further, our incorporation of Alcon gives us
an even larger footprint in the attractive, high-growth sector of eye care, the
acceleration of which is driven by the aging global population and increasing
demand in emerging markets.
In all its operations, Novartis remains focused on three key priorities:
* Innovation. Our commitment to R&D gives us the capability to develop new
products that expand our portfolio of medicines and address the unmet needs
of patients.
* Growth. We have positioned ourselves to capture significant marketplace
opportunities by establishing our presence in high-growth segments of
healthcare and in emerging markets.
* Productivity. We continually seek to operate as efficiently as possible to
provide flexibility to invest for the future and increase returns to
shareholders.
Innovation: Bringing new innovative medicines to patients
Novartis leads the industry in our clinical trial success rate in R&D. This
track record of innovation excellence has resulted in a robust pipeline that we
expect to support long-term growth. Just as importantly, Novartis continues its
efforts to develop new, targeted therapies for patients with unmet needs.
Three new approvals and a positive CHMP recommendation in Europe
In the third quarter, everolimus received two important approvals in the EU.
First, everolimus was approved as Afinitor for the treatment of patients with
advanced pancreatic neuroendocrine tumors (NET). Pancreatic NET is an aggressive
cancer type for which there had been only limited treatment options. In
addition, everolimus was approved as Votubia for the treatment of subependymal
giant cell astrocytoma (SEGA) associated with tuberous sclerosis complex (TSC).
Votubia is an oral medication that represents the first treatment alternative to
brain surgery for patients with SEGA associated with TSC. In addition, the EMA's
Committee for Medicinal Products for Human Use (CHMP) gave a positive opinion
for Rasitrio, the first Rasilez-based triple combination pill to treat high
blood pressure in Europe. Up to 85% of those who suffer from high blood pressure
require multiple medications as part of their treatment, highlighting the
importance of an effective combination medicine such as Rasitrio.
In Alcon, Dailies Total 1, a daily disposable contact lens that uses silicone
hydrogel technology, was also approved in the EU, with a fourth quarter launch
target for select European markets.
Two new approvals in Japan
Gilenya (fingolimod), our breakthrough oral multiple sclerosis treatment, and
Ilaris (canakinumab), for the treatment of cryopyrin-associated periodic
syndrome (CAPS), both gained approval in Japan in the third quarter. Gilenya is
the first oral therapy for multiple sclerosis patients approved in Japan, while
Ilaris represents the first approved drug of any kind for CAPS patients. These
approvals demonstrate our ongoing commitment to developing our product portfolio
globally to better meet the needs of patients.
Positive results of ACZ885 Phase III study
There were several important results in Phase III studies presented in the third
quarter. First, a study of ACZ885 (canakinumab) showed it provided significant
relief for patients with systemic juvenile idiopathic arthritis (SJIA). This is
a rare and serious childhood auto-inflammatory disease, and the positive results
of this study represent another success in the ongoing attempts by Novartis to
provide treatments for rare diseases. For the use of ACZ885 in the treatment of
gouty arthritis patients, the FDA requested further clinical data and issued a
Complete Response letter requesting more data to support approval. Novartis is
currently working with the agency on next steps.
Afinitor Phase III data shows promise for several indications
Afinitor (everolimus) demonstrated strong Phase III data for several new
treatment indications. When combined with the hormonal therapy exemestane, it
was found to significantly lengthen the time without disease progression for
women with advanced breast cancer. This result offers the promise of an
important new treatment option for breast cancer patients. In a separate study,
Afinitor also showed success in reducing the size of subependymal giant cell
astrocytomas - non-cancerous tumors - in patients with tuberous sclerosis. Prior
to the development of everolimus, brain surgery had been the only treatment
option for TSC patients with growing SEGAs. Finally, Afinitor was also found to
be effective in treating TSC patients with non-cancerous kidney tumors, which
are present in up to 80% of this patient group.
Strong news flow at the European Respiratory Society Congress
Novartis made several major announcements at the annual European Respiratory
Society Congress in Amsterdam, the Netherlands. These included reporting the
results of a major Phase III study of QTI571 (imatinib), which found the
treatment significantly increased the exercise capacity of patients with
pulmonary arterial hypertension (PAH). PAH is a debilitating disease of the
heart and lungs that affects more than a quarter million people around the
world. In addition, Novartis announced the results of a Phase III study that
showed NVA237 improved lung function and helped reduce the symptoms associated
with chronic obstructive pulmonary disease (COPD). NVA237 has recently been
submitted for approval in the EU under the brand name Seebri Breezhaler.
Further, Novartis presented new data analyses that confirm the efficacy of
Onbrez Breezhaler, currently approved in more than 70 countries, in the
treatment of COPD. These results suggest that the Novartis portfolio is well
positioned to continue to address the needs of COPD patients.
Phase III study of rituximab underlines Sandoz continued leadership in
biosimilars
As of October, Sandoz has initiated patient recruitment for a Phase III clinical
study for its biosimilar monoclonal antibody rituximab (Rituxan®/MabThera®).
This milestone study in patients suffering from first-line follicular lymphoma
complements an ongoing Phase II study initiated in December 2010 in rheumatoid
arthritis patients. Follicular lymphoma is one of the most common forms of non-
Hodgkin's lymphoma (NHL), a blood cancer that affects the lymphatic system,
which helps the body filter out bacteria and fight disease. The most recent data
indicate that more than 300,000 new cases of NHL develop around the world each
year, and we look forward to bringing rituximab to market and driving patient
access to this critical biologic medicine.
Growth: Meeting healthcare needs worldwide
Novartis achieved growth of net sales of 18% (+12% cc) in the third quarter,
with the weakness of the US dollar against most major currencies benefiting
sales by 6%. The breadth of our business portfolio allowed us to maintain strong
sales momentum with net sales rising 20% (+15% cc) to USD 43.8 billion for the
nine-month period. Our investments in R&D also continued to yield results, as
recently launched products excluding A(H1N1) for the Group grew 31% over
previous-year quarter and 41% over the nine-month period. We believe our ability
to innovate through the delivery of new medicines will enable us to absorb the
impact of patent loss.
Accelerated growth in emerging markets
Consistent with our long-term growth strategy, we continue to build our presence
in fast-growing emerging markets, delivering new medicines and initiating
collaborations with local governments and customers. Net sales in our top six
emerging markets rose 23% (+19% cc) to USD 1.5 billion in the third quarter of
2011. These six markets represented 10% of total net sales in the quarter, and
the same percentage of net sales in the nine-month period. We have had
particular success in China, where the Group grew 42% (+35% cc) in the third
quarter. In order to maintain this growth, we continue to develop our
Pharmaceuticals portfolio in China, with key brands like Diovan performing
strongly.
Solid performance across divisions
Pharmaceuticals net sales volume grew 10% in the third quarter. Performance was
mainly driven by growth of recently launched products (USD 2.4 billion, +36%),
now representing 29% of total sales for the quarter. Among our recently launched
products, Gilenya had another quarter of strong growth (USD 153 million), with
sales in the nine-month period reaching USD 291 million. Lucentis (USD 515
million, +19% cc) benefited from strong growth in the current indication of wet
age-related macular degeneration and first expansion in the recently approved
indications related to diabetic macular edema and retinal vein occlusion.
Oncology, the largest Pharmaceuticals franchise, continued to grow, underpinned
by Glivec (USD 1.1 billion, +6% cc) and growth in Tasigna (USD 186 million,
+63% cc) as a treatment alternative in CML. Afinitor (USD 118 million, +69% cc)
continues to perform well, and we anticipate it will play an increasingly large
role in Oncology sales as studies suggest the possibility of further expansion
in indications.
Alcon, which operates in the highly attractive eye care segment, continued its
strong 2011 performance in the third quarter, with pro forma net sales rising
12% (+7% cc). Sales in non-US markets rose 17% (+9% cc) to USD 1.5 billion with
key contributions from the ophthalmic pharmaceutical and surgical product
categories. Sales in the top six emerging markets increased 29% (+24% cc), led
by China, South Korea and India. US sales increased 4%, led by the strong
performance of the ophthalmic pharmaceutical franchise (mainly glaucoma,
infection/inflammation, and dry eye products), offset by lower multi-purpose
lens care solution sales.
In the third quarter, Sandoz net sales grew 6% (+1% cc) to USD 2.3 billion
versus the prior year, with 5 percentage points of volume expansion and 2
percentage points from the addition of Falcon more than compensating for price
erosion of 6 percentage points. The growth rate was suppressed by the enoxaparin
launch in the year-ago period. Growth was driven by sales of recently launched
products, including gemcitabine (generic Gemzar®), as well as the successful
launch of docetaxel (Taxotere®) in the US, strong performances in Canada,
France, Spain, Russia and Japan, and strong global biosimilars growth.
Vaccines & Diagnostics grew 4% (-2% cc). Lower flu sales compared to the
exceptionally strong 2010 levels and the impact of the delay of some product
shipments to key customers were partially offset by growth in the meningococcal
disease franchise.
Consumer Health, including our over-the-counter and animal health products, grew
8% (+3% cc). OTC's continued strong performance in the third quarter was driven
by double-digit growth in priority brands, partially offset by a weak summer
season (primarily in Germany and Poland). Animal Health performed strongly
outside the US, with growth outpacing the market.
Productivity: Increasing value and optimizing performance
In order to serve patients as effectively as possible, Novartis seeks to make
continual improvements in productivity. While net sales grew 12% in constant
currencies in the third quarter, core operating income was up 15% in constant
currencies, delivering strong operating leverage primarily due to
Pharmaceuticals and Alcon as a result of their continuing productivity efforts.
This was partially offset by Sandoz and Consumer Health, which both had an
exceptionally high previous-year base.
The core operating income margin in constant currencies improved by 0.6
percentage points in the quarter. Productivity savings for the quarter
contributed 3.9 percentage points, underlining the progress the Group continues
to make to drive productivity and improve operating performance; however, this
was offset by 3.3 percentage points to compensate for price erosion and reinvest
in R&D and Marketing & Sales. For the first nine months, core operating income
margin increased by 0.5 percentage points in constant currencies. Productivity
savings contributed 4.1% percentage points before reinvestments.
We made further progress in our efforts to optimize our manufacturing footprint,
announcing the exit of our chemical operations site in Torre, Italy. Subject to
required employee consultation, we also plan to close the OTC manufacturing site
in Nyon, Switzerland and a chemical operations site in Basel, Switzerland and
transfer this production to other Novartis locations in the network. With these
steps we are reducing excess capacity and enabling the shift of strategic
production to technology competence centers.
We recorded charges related to exits, impairment charges and inventory write-
offs of USD 77 million in the third quarter, USD 176 million in the first nine
months, and USD 239 million cumulatively since the program began in the fourth
quarter of 2010.
Novartis has also accelerated the implementation of a series of actions to
further streamline and simplify the organization. These include consolidation,
planned reduction and outsourcing of select development functions largely across
our US and Swiss operations, including technical research and development, data
management, clinical trial monitoring, drug safety and epidemiology and drug
regulatory affairs as well as the relocation of some research activities from
Switzerland to the US.
Novartis is committed to maintaining its output from R&D at the high end of the
industry. This requires us to find the appropriate balance between where talent
and projects are located and our existing cost structures so that we can
continue to grow our pipeline. The measures we are taking to streamline our
organization and enhance productivity will further allow Novartis to reinvest
resources into new scientific platforms for future growth.
Following required employee consultation, these changes, when completed, will
result in reduced headcount of approximately 2,000 mostly in Switzerland and the
US (offset by 700 new positions created in low cost and other countries) and
annual savings of over USD 200 million. A restructuring charge of around USD
300 million will be taken in the fourth quarter of 2011 in respect of these
initiatives.
Cash flow
The sustainability of our strategy lies with the generation of cash flow that
provides the resources for reinvestment and returns to shareholders. Cash flow
is driven by a continued focus on the cash conversion cycle and operational cash
flow improvements. Free cash flow was USD 3.7 billion for the third quarter, an
increase of 27% over the previous year. For the first nine months free cash flow
was USD 8.6 billion, an increase of 5% over an exceptionally high base in the
previous year.
Capital structure and net debt
Strong cash flows and a sound capital structure have allowed Novartis to invest
in the future of its business through R&D and acquisitions even in turbulent
times while keeping its double-A rating as a reflection of financial strength.
Retaining a good balance between attractive shareholder returns, investment in
the business and a sound capital structure will remain a priority in the future.
Novartis has carried out the share repurchases committed to at the time of the
Alcon merger announcement. These share purchases (including the purchase of
Alcon shares and a repurchase of 39.4 million Novartis shares) aggregated
approximately USD 5 billion. All of the Novartis shares were purchased on the
second trading line during the first six months of 2011. No shares were acquired
on the second trading line in the third quarter of 2011. In the third quarter,
Novartis purchased 8.2 million of own shares on the first trading line for a
total amount of USD 0.5 billion. These shares will be kept as treasury shares to
cover future employee participation programs.
As of September 30, 2011, net debt stood at USD 18.3 billion, with USD 5.4
billion outstanding on the commercial paper programs. This represents a net
increase of USD 3.4 billion since December 31, 2010, mainly as a result of the
cash used for the dividend payment (USD 5.4 billion), Alcon-related share
repurchases and contingent value amount (USD 5.3 billion), as well as own share
purchases on the first trading line (USD 0.5 billion). The long-term credit
rating for the company continues to be double-A (Moody's Aa2; Standard & Poor's
AA-; Fitch AA).
2011 Group outlook
(Barring unforeseen events)
During the third quarter, Novartis once again achieved strong growth and
expanded our product portfolio to address unmet patient needs. Our track record
of successfully developing and launching new medicines shows that we have the
capacity to offset revenue lost due to patent expiration through the revenue of
new and recently launched products.
Group constant currency sales growth is expected to be in the low double-digits,
based on the consolidation of Alcon for four months in 2010.
Pharmaceuticals is expected to deliver sales growth in the low- to mid-single
digits, with volume growth more than offsetting the impact of generic
competition and price pressures. In the fourth quarter, Diovan, as expected,
will lose exclusivity in Europe. Alcon sales are expected to increase at a mid-
to high-single digit rate on a pro forma basis. Sandoz is expected to deliver
high-single digit sales growth, with the impact of the annualization of sales
and increased competition for enoxaparin expected to dampen fourth quarter sales
growth.
With the continuing drive to generate productivity improvements across the
Group, we expect to improve constant currency core operating income margin while
absorbing price cuts, generic competition and the loss of sales from the A(H1N1)
pandemic flu vaccine, and while investing for the future.
During the third quarter, the US dollar weakened against most currencies and
experienced significant volatility within the quarter. If end of September
exchange rates prevail for the remainder of the year, we expect that the impact
would be positive (+4%) on sales and negative (-6%) on operating income for the
full year.
HEALTHCARE BUSINESS REVIEW
Pharmaceuticals
% %
Q3 2011 Q3 2010 change 9M 2011 9M 2010 change
USD m USD m USD cc USD m USD m USD cc
----------------------------------------------------------------------
Net sales 8 159 7 500 9 3 24 195 22 336 8 3
Operating income 2 219 1 765 26 35 7 471 6 270 19 23
As % of net sales 27.2 23.5 30.9 28.1
Core operating income 2 510 2 489 1 6 7 751 7 399 5 7
As % of net sales 30.8 33.2 32.0 33.1
----------------------------------------------------------------------
Third quarter
Net sales
Net sales grew 9% (+3% cc) to USD 8.2 billion, driven by 10 percentage points of
volume growth, partly offset by a negative pricing impact of 1 percentage point
(mainly due to healthcare cost-containment measures) and a combined effect of
generic entries and product divestments of an additional 6 percentage points.
Products launched since 2007 generated USD 2.4 billion of net sales, growing
36% in constant currencies over the same period last year. These recently
launched products - Lucentis, Exforge, Exelon Patch, Exjade, Reclast/Aclasta,
Tekturna/Rasilez, Tasigna, Afinitor, Onbrez Breezhaler, Ilaris, Fanapt and
Gilenya - now comprise 29% of division sales, compared to 22% in the same period
last year.
Europe (USD 2.9 billion, +4% cc) maintained strong volume growth of 11
percentage points, more than offsetting a negative pricing impact of 4
percentage points and the effect of generic entries of 3 percentage points.
Recently launched products continued to grow strongly, now contributing 36% of
net sales in the region. US sales (USD 2.5 billion, -2% cc), while benefitting
from strong launches for Tasigna and Gilenya, decreased versus the same period
last year due to generic competition for Femara and high-dose Lotrel, as well as
the Enablex® divestment. Latin America and Canada (USD 0.8 billion, +9% cc)
achieved solid growth rates. Japan's sales (USD 1.0 billion, +11% cc) improved
versus the same period last year primarily due to new launches. The top six
emerging markets (USD 0.8 billion, +7% cc) were led by particularly strong
growth in China and India.
All strategic franchises contributed to the business expansion. Oncology (USD
2.6 billion, +1% cc), the largest franchise, was underpinned by the sustained
growth of Gleevec/Glivec and Tasigna (USD 1.3 billion, +12% cc), as well as
Sandostatin (USD 367 million, +11% cc) and the recently launched Afinitor, which
added USD 118 million (+69% cc). Femara (USD 182 million, -51% cc) was
negatively impacted by generics entry in the US and some European countries. The
Cardiovascular and Metabolism franchise (USD 2.1 billion, +4% cc) maintained
solid momentum supported by the continued strong uptake of Galvus (USD 181
million, +65% cc). The Neuroscience and Ophthalmics franchise (USD 1.2 billion,
+28% cc) saw strong growth from Lucentis (USD 515 million, +19% cc) and the
recently launched Gilenya (USD 153 million), which has shown strong sales
following successful launches in both the US and Europe.
Operating income
Operating income increased 26% (+35% cc) to USD 2.2 billion, including
restructuring charges of USD 92 million mainly related to the streamlining of
our manufacturing network and impairment charges of USD 87 million for the
discontinuation of the agomelatine development program (compared to impairment
charges of USD 592 million in 2010).
Core operating income increased by 6% in constant currency to USD 2.5 billion.
Core operating income margin in constant currency increased by 0.7 percentage
points; however, this was offset by a currency impact of 3.1 percentage points,
resulting in a net decrease of 2.4 percentage points to 30.8%. Gross margin
declined by 1.2 percentage points before negative currency effects of 1.2
percentage points due to unfavorable product mix and increased royalties. R&D
expenses reduced by 0.6 percentage points of net sales in constant currencies.
Marketing & Sales and General & Administration expenses improved margin by 1.2
percentage points (cc), benefiting from continuing productivity efforts despite
significant investments in new product launches. Other Income & Expense, net,
improved margin slightly by 0.1 percentage points (cc).
Nine months
Net sales
Net sales expanded 8% (+3% cc) to USD 24.2 billion driven by 9 percentage points
of volume growth, partly offset by a negative pricing impact of 1 percentage
point and the impact of generic entries and product divestments of an additional
5 percentage points. Recently launched products provided USD 6.7 billion of net
sales, representing 28% of net sales compared to 21% in the 2010 period.
Europe remained the largest region (USD 8.8 billion, +3% cc) for
Pharmaceuticals, particularly benefiting from recently launched products, which
generated 34% of net sales. The US (USD 7.4 billion, -1% cc) contributed 31% of
total sales for the division. Japan's performance (USD 2.8 billion, 6% cc)
improved versus prior year due to new launches. Latin America and Canada (USD
2.3 billion, +10% cc) maintained solid growth rates. The top six emerging
markets (USD 2.4 billion, +6% cc) were led by double-digit growth from China and
India.
Operating income
Operating income grew 19% (+23% cc) to USD 7.5 billion, including divestment
income from Elidel® (USD 324 million) and ophthalmic pharmaceutical products
related to the Alcon acquisition (USD 81 million), more than offsetting
impairment charges of USD 194 million.
Core operating income grew 5% (+7% cc) to USD 7.8 billion. In constant currency,
core operating income margin increased by 1.3 percentage points due to
continuing productivity efforts; however, this was offset by a currency impact
of 2.4 percentage points, resulting in a net decrease of 1.1 percentage points
to 32.0%. The underlying gross margin decreased slightly by 0.1 percentage
points (cc) mainly driven by increased royalties. Functional costs improved by
1.9 percentage points from continuing productivity efforts despite significant
investments in new product launches. In Other Income & Expense, net, expenses
increased by 0.5 percentage points (cc), mainly due to a fee associated with
healthcare reform in the US.
Pharmaceuticals product review
All comments below focus on third quarter movements.
Cardiovascular and Metabolism
% %
Q3 2011 Q3 2010 change 9M 2011 9M 2010 change
USD m USD m USD cc USD m USD m USD cc
----------------------------------------------------------------------------
Hypertension medicines
Diovan 1 429 1 483 -4 -7 4 347 4 477 -3 -7
Exforge 317 222 43 36 886 653 36 29
----------------------------------------------------------------------------
Subtotal Valsartan Group 1 746 1 705 2 -2 5 233 5 130 2 -2
Tekturna/Rasilez 159 113 41 34 449 305 47 41
----------------------------------------------------------------------------
Subtotal Hypertension 1 905 1 818 5 0 5 682 5 435 5 0
Galvus 181 101 79 65 478 267 79 67
----------------------------------------------------------------------------
Total strategic products 2 086 1 919 9 4 6 160 5 702 8 3
Established medicines 260 344 -24 -30 782 1 060 -26 -31
----------------------------------------------------------------------------
Total 2 346 2 263 4 -1 6 942 6 762 3 -2
----------------------------------------------------------------------------
Our Hypertension franchise, consisting of the Valsartan Group (which includes
the Diovan Group and Exforge) and Tekturna/Rasilez, maintained its strong
position in the third quarter in line with expectations as our hypertension
portfolio continued to shift from Diovan to Exforge and Tekturna/Rasilez. The
Valsartan Group declined 2% (cc) on a global basis, but showed strong growth in
Japan and emerging markets.
Diovan Group (USD 1.4 billion, -7% cc) worldwide sales declined due to the first
quarter entry of generic valsartan in select markets. The Diovan Group
maintained its position as the top-selling branded anti-hypertensive medication
worldwide, with global market share of 13.5% of the hypertension market in YTD
August 2011 versus 13.4% in YTD August 2010.
Exforge Group (USD 317 million, +36% cc) showed strong worldwide growth fueled
by continued prescription demand in the EU, US and other key regions, as well as
ongoing Exforge HCT launches in Europe, Asia and Latin America. Exforge, a
single-pill combination of Diovan and the calcium channel blocker amlodipine,
has delivered excellent growth globally since its launch in 2007. Exforge
launches are ongoing in China and Japan, two key markets with particularly high
use of calcium channel blockers. Exforge HCT, the first modern triple
hypertension medication that includes a diuretic in a single pill, is now
available for patients in over 40 countries with additional launches expected
over 2011 and 2012.
Tekturna/Rasilez (USD 159 million, +34% cc) maintained strong growth globally,
including in the EU, US, Latin America and Japan. The Tekturna/Rasilez market
share of the total anti-hypertensive market has increased 0.3 ppts to reach
1.1% (YTD August 2011). In the third quarter, the EMA's Committee for Medicinal
Products for Human Use granted a positive opinion for Rasitrio, the Rasilez-
based triple combination medicine with amlodopine and hydrochlorothiazide.
Galvus Group (USD 181 million, +65% cc), which comprises oral treatments
containing vildagliptin for type 2 diabetes, continued to deliver strong growth,
driven partly by Japan, where the two-week prescription restriction was lifted.
The single-pill combination Eucreas/Galvus (vildagliptin and metformin)
contributed 65% of total sales, growing 48% over the third quarter of 2010. In
many markets (where available), the Galvus Group grew faster than the market
leader in the third quarter.
Oncology
% %
Q3 2011 Q3 2010 change 9M 2011 9M 2010 change
USD m USD m USD cc USD m USD m USD cc
-------------------------------------------------------------------
Bcr-Abl Franchise
Gleevec/Glivec 1 142 1 015 13 6 3 421 3 122 10 4
Tasigna 186 109 71 63 509 273 86 78
-------------------------------------------------------------------
Subtotal 1 328 1 124 18 12 3 930 3 395 16 10
Zometa 370 363 2 -3 1 119 1 116 0 -4
Sandostatin 367 318 15 11 1 069 940 14 9
Femara 182 343 -47 -51 777 1 025 -24 -28
Exjade 210 182 15 10 621 553 12 7
Afinitor 118 67 76 69 310 163 90 82
Other 42 54 -22 -25 117 144 -19 -25
-------------------------------------------------------------------
Total 2 617 2 451 7 1 7 943 7 336 8 3
-------------------------------------------------------------------
Our Bcr-Abl franchise, consisting of Gleevec/Glivec and Tasigna, continued to
grow strongly, reaching USD 1.3 billion (+12% cc) in the third quarter.
Gleevec/Glivec (USD 1.1 billion, +6% cc) continued to grow as a targeted therapy
for Philadelphia chromosome-positive chronic myeloid leukemia (Ph+ CML), and as
a treatment for metastatic, unresectable and adjuvant (post-surgery)
gastrointestinal stromal tumors.
Tasigna (USD 186 million, +63% cc) has been growing rapidly as a next-generation
targeted therapy for adult patients with Ph+ CML in chronic phase. We have
achieved regulatory approvals for Tasigna in the first-line indication in 50
markets globally, including the US, EU, Japan and Switzerland, with additional
submissions pending worldwide. Tasigna market share continues to rise in Ph+ CML
in the second-line indication with approvals in over 90 countries.
Zometa (USD 370 million, -3% cc) is a leading treatment to reduce or delay
skeletal-related events in patients with bone metastases from solid tumors and
multiple myeloma. While sales in Europe grew, competition in the US caused a 3%
decline in total in the third quarter.
Sandostatin (USD 367 million, +11% cc) continues to benefit from the increasing
use of Sandostatin LAR in key markets for the treatment of symptoms associated
with neuroendocrine tumors, as well as approvals in 19 countries for the delay
of tumor progression in patients with midgut carcinoid tumors. Sandostatin LAR
is also approved as treatment for patients with acromegaly.
Femara (USD 182 million, -51% cc), a treatment for early stage and advanced
breast cancer in postmenopausal women, experienced a decline in sales due to
multiple generic entries in the US, Europe and other key markets.
Exjade (USD 210 million, +10% cc) reached double-digit growth in the third
quarter. It is currently approved in 108 countries as the only once-daily oral
therapy for transfusional iron overload.
Afinitor (USD 118 million, +69% cc), an oral inhibitor of the mTOR pathway,
continued to achieve strong growth in key markets as the only approved treatment
for patients with advanced renal cell carcinoma following VEGF-targeted therapy.
Afinitor is also approved in the US and EU for the treatment of pancreatic
neuroendocrine tumors. The active ingredient in Afinitor/Votubia, everolimus, is
also approved in the US, EU, Switzerland and Canada for the treatment of
subependymal giant cell astryocytomas associated with tuberous sclerosis.
Everolimus is exclusively licensed to Abbott and sublicensed to Boston
Scientific for use in drug-eluting stents.
Neuroscience and Ophthalmics
% %
Q3 2011 Q3 2010 change 9M 2011 9M 2010 change
USD m USD m USD cc USD m USD m USD cc
--------------------------------------------------------------------------
Lucentis 515 398 29 19 1 500 1 139 32 22
Exelon/Exelon Patch 281 244 15 10 796 747 7 2
Comtan/Stalevo 156 152 3 -2 462 443 4 -1
Gilenya 153 4 nm nm 291 4 nm nm
Extavia 37 26 42 34 115 84 37 29
Other (including Fanapt) 36 42 -14 -28 114 149 -23 -33
--------------------------------------------------------------------------
Total strategic products 1 178 866 36 28 3 278 2 566 28 20
Established medicines 136 137 -1 -8 414 419 -1 -8
--------------------------------------------------------------------------
Total 1 314 1 003 31 23 3 692 2 985 24 16
--------------------------------------------------------------------------
nm - not meaningful
Lucentis (USD 515 million, +19% cc) continued to show strong growth as the only
approved medicine in more than 100 countries to significantly improve vision in
patients with wet age-related macular degeneration, for which it is established
as the standard of care. Lucentis is also approved for the treatment of visual
impairment due to diabetic macular edema and macular edema secondary to retinal
vein occlusion in more than 50 countries. Genentech/Roche holds the rights to
Lucentis in the US.
Exelon/Exelon Patch (USD 281 million, +10% cc) combined sales were impacted by
the entry of oral generic competition in the US despite continued conversion
from oral to transdermal therapy. Exelon Patch, the transdermal form of the
medicine, grew 17% and generated more than 75% of total Exelon sales in the
third quarter. Exelon Patch is approved for the treatment of mild-to-moderate
Alzheimer's disease dementia in more than 80 countries, including more than 20
countries where it is also approved for Parkinson's disease dementia.
Gilenya (USD 153 million) showed continued rapid growth as a once-daily, oral
disease-modifying treatment for relapsing remitting and/or relapsing forms of
multiple sclerosis (MS) in adult patients. With US sales driving overall growth,
Gilenya is now approved in more than 50 countries with regulatory reviews
pending in other countries around the world. Novartis received approval for
Gilenya in the third quarter in Japan for prevention of relapse and delay of
progression of physical disability in adults with MS. Gilenya is licensed from
Mitsubishi Tanabe Pharma Corporation.
Extavia (USD 37 million, +34% cc), the Novartis-branded version of
Betaferon®/Betaseron® (interferon beta-1b) for relapsing forms of multiple
sclerosis, continued to grow in key markets. Extavia has been approved in over
35 countries since it received EU approval in 2008. Betaferon® and Betaseron®
are registered trademarks of Bayer.
Respiratory
% %
Q3 2011 Q3 2010 change 9M 2011 9M 2010 change
USD m USD m USD cc USD m USD m USD cc
------------------------------------------------------------------------
Xolair 116 97 20 17 348 267 30 28
TOBI 76 70 9 6 217 207 5 2
Onbrez Breezhaler 25 8 nm nm 71 16 nm nm
------------------------------------------------------------------------
Total strategic products 217 175 24 20 636 490 30 26
Established medicines 38 37 3 -8 126 126 0 -7
------------------------------------------------------------------------
Total 255 212 20 15 762 616 24 20
------------------------------------------------------------------------
nm - not meaningful
Onbrez Breezhaler (USD 25 million) continued to grow strongly across markets.
The drug was first approved in the EU in November 2009 as a once-daily long-
acting beta(2)-agonist for the maintenance bronchodilator treatment of airflow
obstruction in adult patients with chronic obstructive pulmonary disease (COPD).
Onbrez Breezhaler is now approved in more than 70 countries, including the US
and Japan as of July 2011, with further approvals and launches anticipated in
the fourth quarter of 2011. In Germany, the reimbursed price of Onbrez
Breezhaler was reduced below that of generic LABAs from October 1, following a
reference pricing review. Novartis will maintain current prices in Germany, as
we remain convinced that once-daily Onbrez Breezhaler offers additional benefits
over existing LABAs, as described in the EU-approved label. Consequently an
additional co-payment for Onbrez Breezhaler will be required for many patients
in Germany.
Xolair (USD 116 million, +17% cc), a biotechnology drug approved for severe
persistent allergic asthma in Europe and for moderate-to-severe persistent
allergic asthma in the US, continued to grow strongly in Europe, major Latin
American markets and Japan. Xolair is approved in more than 85 countries and a
Phase III trial to support registration in China is ongoing. Launches are
continuing across Europe for Xolair Liquid, a new formulation in pre-filled
syringes that enables easier administration over the original lyophilized
formulation. Novartis co-promotes Xolair with Genentech/Roche in the US and
shares a portion of the operating income.
Integrated Hospital Care
% %
Q3 2011 Q3 2010 change 9M 2011 9M 2010 change
USD m USD m USD cc USD m USD m USD cc
-------------------------------------------------------------------------
Neoral/Sandimmun 228 207 10 1 669 636 5 -2
Myfortic 117 122 -4 -7 372 330 13 9
Zortress/Certican 46 35 31 22 138 105 31 24
Ilaris 13 6 117 86 36 16 125 110
Other 92 74 24 17 271 214 27 20
-------------------------------------------------------------------------
Total strategic products 496 444 12 5 1 486 1 301 14 8
Established medicines 360 380 -5 -8 1 087 1 069 2 -2
-------------------------------------------------------------------------
Total 856 824 4 -1 2 573 2 370 9 3
-------------------------------------------------------------------------
Zortress/Certican (USD 46 million, +22% cc) is indicated to prevent organ
rejection in adult heart and kidney transplant recipients and is now available
in more than 85 countries. It continues to generate solid growth, particularly
in the US market, where it has been available since April 2010 for adult kidney
transplantation under the trade name Zortress. It is exclusively licensed to
Abbott and sublicensed to Boston Scientific for use in drug-eluting stents.
Ilaris (USD 13 million, +86% cc) is available in over 50 countries for the
treatment of adults and children four years of age and older who suffer from
cryopyrin-associated periodic syndrome (CAPS), a group of rare auto-inflammatory
disorders. Ilaris was recently approved for the treatment of CAPS in Japan.
Alcon
Q3 2011 Q3 2010 9M 2011 9M 2010
USD m USD m USD m USD m
----------------------------------------------------------------------
Net sales 2 492 1 138 7 533 2 161
Operating income 341 233 1 236 488
As % of net sales 13.7 20.5 16.4 22.6
Core operating income 909 362 2 696 632
As % of net sales 36.5 31.8 35.8 29.2
----------------------------------------------------------------------
Pro forma % %
Q3 2011 Q3 2010 change 9M 2011 9M 2010 change
USD m USD m USD cc USD m USD m USD cc
----------------------------------------------------------------------
Net sales 2 492 2 234 12 7 7 524 6 754 11 7
Operating income 341 276 24 6 1 225 949 29 20
As % of net sales 13.7 12.4 16.3 14.1
Core operating income 909 760 20 13 2 694 2 378 13 9
As % of net sales 36.5 34.0 35.8 35.2
----------------------------------------------------------------------
As the restated net sales figures only include CIBA Vision and Pharmaceuticals
Division Ophthalmics activities through August 25, 2010, all of the following
comments are based on pro forma figures.
Third quarter
Net sales
Pro forma net sales rose 12% (+7% cc) to USD 2.5 billion. This continued strong
performance was seen across all key geographies and products.
Sales in non-US markets rose 17% (+9% cc) to USD 1.5 billion driven by the
pharmaceutical and surgical product categories. Sales in the top six emerging
markets increased 29% (+24% cc), led by China, South Korea and India. US sales
increased 4%, led by the strong performance of the pharmaceuticals franchise
(mainly glaucoma, infection/inflammation and dry eye products), offset by lower
multi-purpose lens care solution sales.
Operating income
Pro forma operating income rose 24% (+6% cc) to USD 341 million. Third quarter
operating income includes amortization of intangible assets (USD 484 million)
and integration costs (USD 80 million).
Pro forma core operating income increased by 20% (+13% cc) to USD 909 million.
Alcon delivered strong operating leverage through productivity gains and the
realization of post-integration synergies (USD 21 million). Core operating
income margin in constant currency increased by 2.1 percentage points, with a
positive currency impact of 0.4 percentage points, resulting in a net increase
of 2.5 percentage points to 36.5%. Gross margin was 74.6% of net sales and
broadly in line with 2010. R&D expenses represented 8.5% of net sales, also in
line with prior year. Marketing & Sales, which represented 24.8% of net sales,
improved by 1.5 percentage points despite increased investments in key emerging
markets. General & Administration expenses declined from 5.4% to 4.7% of net
sales in the 2011 period, as a result of good cost management and merger-related
cost synergies.
Nine months
Net sales
Pro forma net sales rose 11% (+7% cc) to USD 7.5 billion, driven by strong
global pharmaceutical product growth of 14% (+10% cc), as well as by the top six
emerging markets at 28% (+22% cc).
Operating income
Pro forma operating income rose 29% (+20% cc) to USD 1.2 billion. Operating
income for the first nine months was impacted by the inclusion of exceptional
income from a legal settlement (USD 183 million), amortization of intangible
assets (USD 1.5 billion), integration costs (USD 160 million) and the impact of
streamlining our manufacturing network (USD 42 million).
Pro forma core operating income increased by 13% (+9% cc) to USD 2.7 billion.
Core operating income margin in constant currency increased by 0.9 percentage
points; however, this was offset by a negative currency impact of 0.3 percentage
Unternehmensinformation / Kurzprofil:
Datum: 25.10.2011 - 08:31 Uhr
Sprache: Deutsch
News-ID 79645
Anzahl Zeichen: 65547
contact information:
Town:
Basel
Kategorie:
Business News
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"Novartis achieves strong third quarter financial performance and pipeline progress"
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