Novartis AG · SIX:NOVN
Novartis — Merger or Acquisition (February 2005)
20 slides from Novartis's merger presentation, Feb 21, 2005
Slide 1: Focus on Medicines: Creating A Global Leader in Generics
Focus on Medicines: Creating A Global Leader in Generics Analyst Conference Call February 21, 2005 The following information contains certain "Forward-looking Statements" relating to the transaction and resulting business combination described herein, which can be identified by the use of forward-lo
Slide 2: Agenda; Novartis Purpose – Focusing on Patient Needs
Agenda • Transaction rationale D. Vasella • Creating a global leader A. Rummelt • Financials R. Breu 3 A Global Leader in Generics / Conference Call / 21 February 2005 Novartis Purpose – Focusing on Patient Needs A commitment to − Better therapeutic benefit through a continuous flow of innovative, b
Slide 3: Novartis Strategy; Generics Market Place – High Demand and Double-Digit Growth
Novartis Strategy – Consistently Focusing the Portfolio on Medicines Novartis net sales in % by Novartis net sales in % by division for the full year division for the full year 2004 2004E1 14 13 Sales contribution Hexal & Eon Labs 86 87 Medicines Other businesses 1 based on unaudited , preliminary f
Slide 4: Generics Market Offers Significant Opportunities; Generics Penetration Expected to Increase
Generics Market Offers Significant Opportunities Total value of US drugs going off-patent per year1 2003 sales in USD m 20 000 15 000 10 000 5 000 0 2004 2005 2006 2007 2008 2009 2010 1 Value of patent expiries by 2010 based on 2003 sales in USD m Source: Global Generic Drug Stocks, Citigroup – Smit
Slide 5: Building a Global Generics Leader; A Transformational Transaction for Sandoz
Building a Global Generics Leader • Strong competitive position in relevant markets • First entry and broad product offering • Continuous productivity gains and cost leadership intent • Technological differentiation (difficult to make biopharmaceuticals) • Skilled and engaged team 9 A Global Leader
Slide 6: Moving into the Top Rank; A Compelling Business Portfolio
Moving into the Top Rank Nine-Month 2004 sales (in USD m) Excluding branded product sales for Teva, Watson and Mylan Sandoz (pro forma) 3'631 Teva 3'105 Sandoz 2'178 Merck Gx 1'452 Ivax 1'328 Ratiopharm 1'136 Hexal 1'132 Watson 947 Alpharma 925 Barr 869 Mylan 779 Eon Labs 321 Source: 11 A Global Lea
Slide 7: Complementary Geographic Contributions; Leading Positions in Key European Markets
Complementary Geographic Contributions Sandoz Hexal1 Eon Labs USD 3.0 bn USD 1.6 bn USD 0.4 bn Latam Asia Other2 North America North Asia 31% America Europe3 100% Latam Europe3 94% 38% Other2 Sandoz Latam North Global annual Asia America sales of 27% USD 5.1 bn 1 2004 estimates for retail sales by r
Slide 8: Strong Business Logic; A Transaction that Meets Strategic Objectives
Strong Business Logic Sandoz Hexal Eon Labs • Global organization, • Best in class registration • One of the most production and R&D and development effective product network development teams • Market leader in Germany in US • World leader in and strong in other key anti-infectives markets • Leadin
Slide 9: Transaction Synergies; Experienced Leadership Team in Place
Transaction Synergies • Transformational transaction • Sales synergies through broader geographic coverage of complementary product line • Potential sales synergies between generics and branded, innovative pharmaceuticals with large customers, e.g. governments, pharmacy- chains • Production synergie
Slide 10: Agenda; Key Success Factors in the Generics Market
Agenda • Transaction rationale D. Vasella • Creating a global leader A. Rummelt • Financials R. Breu 19 A Global Leader in Generics / Conference Call / 21 February 2005 Key Success Factors in the Generics Market • Strong market position in most key markets • First to the market – and last in market
Slide 11: Sandoz – A Powerhouse in the Making; Strong Presence Across the Globe
Sandoz – A Powerhouse in the Making Strongest brand names in Generics coming together # 1 worldwide # 1 in Europe # 1 in Germany # 2 in US # 1 in antibiotics A pioneer in biopharmaceuticals Strengthened position in injectables 21 A Global Leader in Generics / Conference Call / 21 February 2005 Stron
Slide 12: Broad Product Portfolio; Centers of Excellence in Development
Broad Product Portfolio Sandoz Top marketed brands Hexal Eon Labs Sandoz & Hexal Source Indication Sandoz & Eon Labs Acetylcystein Mucolytic for lung disease AmoxC Infection Amoxicillin Infection Buproprion Depression Citalopram Depression Enalapril Hypertension Lisinopril ACE inhibitor for hyperten
Slide 13: Strong Pipeline – Major Launches in 2005; Powerful Position in Biopharmaceuticals
Strong Pipeline – Major Launches in 2005 in the US and Germany Number of planned launches 2005 Brand sales1 2003, in USD Sandoz (US, Ger) 33 8.5 bn Hexal (Ger) 24 0.8 bn Eon Labs (US) 13 6.5 bn 70 planned launches in 2005 1 Source: IMS for brand sales 2003 25 A Global Leader in Generics / Conference
Slide 14: Global Production Network and Technology Centers; Positioned for Dynamic Growth
Global Production Network and Strong Technology Centers of Excellence Sandoz Hexal and Eon Labs Germany: Denmark: API pilot plant Oral solids, patches & implants, liquids, injectables, inhalers and Poland: Canada: APIs Oral solids Injectables Japan: US: Oral solids Oral solids China: Brazil: Oral so
Slide 15: Integration Strategy; Significant Synergies To be Captured
Integration Strategy • Significant work already done − Decision on top positions taken • “Best of all three” people concept − Excellent talent in all three companies − Best skills and abilities to match jobs • Integration of a global manufacturing network • Centers of expertise in development • Loca
Slide 16: Integration Process; Conclusions
Integration Process Announcement Close Targets / Governance Integration planning Implementation • Define integration • Create task forces • Kick-off integration governance / structure and integration office • Identify and capture • Decide key staffing • Develop master plan quick wins • Set synergy t
Slide 17: Agenda; Transaction Terms
Agenda • Transaction rationale D. Vasella • Integration A. Rummelt • Financials R. Breu 33 A Global Leader in Generics / Conference Call / 21 February 2005 Transaction Terms • Two separate agreements to acquire in cash for EUR 5.65 bn 100% of Hexal and 67.7% 1 of Eon Labs • This will be entirely fin
Slide 18: Transaction Terms for Eon Labs Minority Shareholders; History of Above Market Growth
Transaction Terms for Eon Labs Minority Shareholders • Tender offer to acquire the 31.9 m remaining fully diluted shares at USD 31.00 per share representing a total value of USD 1.0 bn • A premium of 25 % over the unaffected price and a premium of 9% to the price paid for controlling block • Transac
Slide 19: Overview of Key Financials; USD 200 m in Annual Cost Synergies
Overview of Key Financials1 2004 pro forma figures Hexal1 Eon Labs1 Sandoz Sandoz in USD m (combined) Sales 1 605 431 3 045 5 081 Gross profit 945 2 240 1 422 2 607 in percent of sales 58.9% 55.8% 46.7% 51.3% R&D 156 22 286 463 in percent of sales 9.7% 5.0% 9.4% 9.1% SG&A 545 2 46 710 1 301 in perce
Slide 20: Financial Conclusions
Financial Conclusions • Valuation underpinned by growth prospects and synergies − 13.9 x EBIT and 11.7 x EBITDA (after synergies) • Accretive to reported earnings in 2006, even including all acquisition related expenses and amortisation • Financing out of Group cash reserves and strong free cash flo