Novartis AG · SIX:NOVN

Novartis — Q2 2010 Earnings Presentation

63 slides from Novartis's earnings presentation, Jul 15, 2010

  1. Slide 1: Second Quarter and H1 2010 Results

    Second Quarter and H1 2010 Results Investor presentation July 15, 2010

  2. Slide 2: Disclaimer

    Disclaimer These materials contain certain forward-looking statements relating to the Group's business, which can be identified by terminology such as “momentum,” “recommendation,” “investigational,” “strategic,” "commitment,” “goal,” “pipeline,” “encouraged,” “recommendation,” “priority review,” “p

  3. Slide 3: Agenda

    Agenda Group overview Joseph Jimenez Chief Executive Officer Financial Review Jon Symonds Chief Financial Officer Pharmaceuticals David Epstein Division Head, Novartis Pharmaceuticals Summary Joseph Jimenez Chief Executive Officer Q&A session Management team 3 | Novartis Second Quarter 2010 Results

  4. Slide 4: Group overview

    Group overview  Q2 2010 performance  External environment  Progress on our strategic priorities • Innovation • Growth • Productivity 4 | Novartis Second Quarter 2010 Results | July 15, 2010

  5. Slide 5: Strong performance in Q2 2010

    Strong performance in Q2 2010  Continued strong performance in Q2 2010 • Sales growth: +11% in USD (+12% CC1) • Recently launched products: 21% of Group net sales2 • Top 6 emerging growth markets3 sales growth: +16% CC  Focus on our strategic priorities is driving significant profit • Core operati

  6. Slide 6: Impact of US healthcare reform and EU price cuts

    Impact of US healthcare reform and EU price cuts US healthcare reform  Broadens coverage to >30 million more people in 2014+  Increased fees and Medicaid rebates  Financial impact of reform has been factored in our 2010 guidance EU cost containment  Growing above market despite European price cu

  7. Slide 7: Novartis strategic priorities

    Novartis strategic priorities Strategic Priorities: Delivering innovation, growth and productivity 1 2 3 Extend lead in Drive productivity to Accelerate growth innovation improve margins  Extend industry-  Rejuvenate portfolio  Improve profitability leading pipeline  Expand aggressively  Focus

  8. Slide 8: Innovation stems from our leadership in Oncology and specialty diseases

    Innovation Innovation stems from our leadership in Oncology and focus on specialty diseases FTY720 (Multiple Sclerosis) Tasigna® (first line Chronic myeloid leukemia) Reduction in relapse rate Progression to Adv. Phase / Blast Crisis 1 (% of patients) Annualized relapse rate 0.4 −52% vs IFNβ-1a p <

  9. Slide 9: Pipeline momentum into 2H 2010

    Innovation Pipeline momentum into 2H 2010 Key approvals received or expected or received in 2010 Compound Indication US EU FTY720 Multiple Sclerosis   Pharma Tasigna® Newly diagnosed Chronic myeloid leukemia   Lucentis® Diabetic macular edema  Vaccines and Diagnostics Menveo® Meningococcal dise

  10. Slide 10: We expect to file our MenB vaccine in Europe by year end

    Innovation In addition, we expect to file our MenB vaccine in Europe by year end Incidence of Meningococcal Disease Serogroup B in infants <1 year of age (Per 100,000 Population) UK 39.3  Breakthrough innovation leveraging reverse Spain 16.0 vaccinology EU incidence  On track to file in EU by year

  11. Slide 11: Innovation is accelerating growth across our portfolio

    Growth Innovation is accelerating growth across our portfolio Recently launched product sales1 (USD bn) % of Group net sales 14% 19% 21% +66%2 +52%2 2.2 2.4 1.5 Tacrolimus Q2 2009 Q2 2010 Q2 2010 +A (H1N1) A (H1N1) pandemic vaccines Launch products 1 Major products launched since 2007; except Sandoz

  12. Slide 12: Building Menveo into a powerhouse vaccine

    Growth Building Menveo® into a powerhouse vaccine US, EU launch Q2 2010 2011  Head-to-head in label  Broad access in US  0-2 yr on track for  2-yr persistence data  Approvals in Latin Q1 2011 filing  2-10 yr filed in US America and Asia  3-yr persistence data expected 12 | Novartis Second Qua

  13. Slide 13: Sandoz growth driven by US and strong biosimilars platform

    Growth Sandoz growth driven by US and strong biosimilars platform Sandoz US sales growth vs. PY1 Sandoz Global biosimilars sales (% CC) 43 +72% 24 19 (filgrastim) 5 2 (epoetin) -1 -5 -11 -14 (hGH) -17 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 H1 2009 H1 2010 2008 2009 2010 1 Retail and Biosimilars, includes EBE

  14. Slide 14: Consumer Health continues to be driven by strong growth of key brands

    Growth Our Consumer Health business continues to be driven by strong growth of key brands Q2 performance highlights  Prevacid24HR® : 25% share in growing US proton pump inhibitors market segment OTC  Pantoloc Control® launched in 11 European countries  Voltaren® : 44% record category share1 in Ge

  15. Slide 15: Alcon global eye care platform with 77% ownership expected

    Growth Alcon global eye care platform with 77% ownership expected in late Q3/Q4 Expected 77% majority ownership Progress with required Late Q3/Q4 2010 regulatory approvals 15 | Novartis Second Quarter 2010 Results | July 15, 2010

  16. Slide 16: We are leveraging our broad portfolio with Customers First

    Growth We are leveraging our broad portfolio with Customers First . . . Age-related Macular Degeneration Education Initiatives  Countries leveraging CIBA Vision access to educate eye care practitioners  Increasing awareness of AMD and early detection to prevent blindness Integrated COPD1 solution

  17. Slide 17: Aggressively expanding in emerging markets

    Growth . . . and we are also aggressively expanding in emerging markets Q2 2010 emerging market sales (% of net sales) 28 25 24 24 24 Other 18 emerging 15 11 14 markets1 17 Top 6 13 emerging 10 10 10 markets2 7 Group Pharma Vaccines and Sandoz Consumer Health Diagnostics Top 6 emerging market sales

  18. Slide 18: Improving efficiency and driving cost reductions

    Productivity We are improving efficiency and driving cost reductions to support future growth Core operating margin1 (%) Sandoz Pharma +1.1 ppts +1.8 ppts 18.4 34.4 17.3 32.6 Q2 2009 Q2 2010 Q2 2009 Q2 2010  COGS productivity improvement  M&S efficiency  G&A, M&S efficiency  Shifting activities

  19. Slide 19: Agenda

    Agenda Group overview Joseph Jimenez Chief Executive Officer Financial Review Jon Symonds Chief Financial Officer Pharmaceuticals David Epstein Division Head, Novartis Pharmaceuticals Summary Joseph Jimenez Chief Executive Officer Q&A session Management team 19 | Novartis Second Quarter 2010 Results

  20. Slide 20: Financial review

    Financial review  Group and divisional overview  Growth  Productivity  Free cash flow and liquidity  Summary 20 | Novartis Second Quarter 2010 Results | July 15, 2010

  21. Slide 21: Strong sales growth and margin improvement drive EPS and cash flow

    Strong sales growth and margin improvement drive EPS and cash flow Growth Growth (%) (%) Q2 H1 USD m 2010 USD CC 2010 USD CC Net sales 11 716 11 12 23 847 18 15 Core operating income 3 276 23 23 7 141 35 32 Operating income 2 961 25 24 6 472 37 33 Core EPS (USD) 1.20 14 14 2.65 29 24 EPS (USD) 1.06

  22. Slide 22: Strong volume growth; price impact negligible; currency turns negative

    Growth Strong volume growth; price impact negligible; currency turns negative Components of sales growth Q2 2010 (% growth) Volume Price (%) (%)  Group 12 -1 1 1 1 Pharma 9 -1 V&D 132 3 12 12 Sandoz 15 -7 11 Consumer Health 6 1  Pharma price impact minimal – but expected to increase in second half

  23. Slide 23: Operating and core profit growth ahead of sales growth

    Growth Operating and core profit growth significantly ahead of the sales growth Components of operating income growth Q2 2010 (% growth) Main exceptional items1 in Q2 2010 (USD m) 2 Litigation charges (mainly Pharma -178, -231 0 V&D - 45 ) Financial impairment -82 (mainly V&D - 71 ) 25 23 23 Restruc

  24. Slide 24: Currency exposure: EUR/CHF builds a natural block

    Growth Currency exposure: EUR/CHF builds a natural block; other currencies represent primary exposure H1 2010 3rd Party net sales1 (USD bn) 5.5 0.7 1.9 7.4 23.8 8.3 H1 2010 Operating Costs1 (USD bn) 3.5 2.1 0.7 5.4 17.4 5.7 USD EUR CHF JPY Others2 Total 1 The breakdown of the currencies is an approx

  25. Slide 25: Full year impact of June rates

    Growth Full year impact of June rates: sales small negative, operating income broadly neutral Currency impact Q1 2010 Q2 2010 Full year1 Sales 7% -1% Small negative Core operating 7% 0% Broadly neutral income Rate change Q1 2010 Q2 2010 H2 2010 vs. PY (% growth) EUR 5.8 -7.0 CHF 7.9 0.3 JPY 3.0 5.3

  26. Slide 26: All divisions contribute – diversified portfolio benefits growth

    Growth All divisions contribute – diversified portfolio benefits growth Sales growth by division (USD bn) Sales Growth 11.7 (USD m) (% CC) 10.5 0.6 0.2 Vaccines and 1.5 564 135 Diagnostics 1.4 2.0 1.8 Consumer 1 509 7 Health Sandoz 1 973 13 7.1 7.7 Pharma 7 670 8 Q2 2009 Q2 2010 Group 11 716 12 26 |

  27. Slide 27: Portfolio rejuvenation building

    Growth Portfolio rejuvenation building Recently launched product sales1 (% of Group net sales) A (H1N1) pandemic vaccines Recently launched products Q2 2010 (USD bn) 21 19 2 Pharma 1.6 14 V&D 0.2 Sandoz 0.3 Consumer Health 0.3 Group 2.4 Q2 2009 Q2 2010 Q2 2010 + A (H1N1) USD bn 1.5 2.2 2.4 1 Major p

  28. Slide 28: Emerging markets growth exceeds established markets

    Growth Emerging markets growth exceeds established markets Emerging market sales and growth Q2 2010 (USD m) % CC Growth vs. PY 10 546 11 716 935 1 150 16 6 824 7 521 12 9 2 787 3 045 Q2 2009 Q2 2010 Top 6 EGM1 Established2 RoW 1 Brazil, China, India, Russia, South Korea, Turkey 2 France, Germany, It

  29. Slide 29: Core operating margins improved by 2.7 ppts

    Productivity Core operating margins improved by 2.7 ppts Core margin improvement Q2 2010 Sales Core operating Operating Core operating growth income growth leverage margin (% CC) (% CC) (% pts) (%) Consumer 7 10 0.3 21.1 Health Sandoz 13 20 1.1 18.4 Vaccines and 135 nm 42.7 24.5 Diagnostics Pharma 8

  30. Slide 30: Core operating income margin improves despite investment

    Productivity Core operating income margin improves despite investment for future growth Impact on core operating margin (% pts) Core operating income margin Q2 2009 25.3 Other revenues -0.2 Cost of Goods Sold -0.5 +2.7 SG&A +2.1 Research & Development +0.8 Other Income and Expense, net +0.5 Core ope

  31. Slide 31: Associated companies, net financial income and taxes depress EPS growth

    Productivity Associated companies, net financial income and taxes depress EPS growth Impact on core EPS USD Growth (% pts) Q2 Core operating income 23 Associated Companies -1 Net Financial Income/Expenses -4 Income Taxes -2 Q2 Core net income 16 Non-controlling interest -1 Number of shares increase

  32. Slide 32: Free cash flow grows 24% to USD 2.4 billion

    Productivity Free cash flow grows 24% to USD 2.4 billion; gross liquidity increases to USD 23.0 billion ahead of Alcon closing Free cash flow Q2 20091 1 916 Cash flow from 338 operating activities  Gross liquidity increases to USD 23 bn from Investments in property, USD 17.4 bn at the end 130 +24%

  33. Slide 33: Summary – Financial review

    Summary – Financial review  Strong Q2 2010 • Net sales up 11% to USD 11.7 bn • EPS up 18% to USD 1.06 • Free cash flow1 up 24% to USD 2.4 bn  Outlook for full year 2010 (Barring unforeseen events) • Net sales growth now expected at mid- to high-single-digits2 (cc) • Operating and core operating ma

  34. Slide 34: Agenda

    Agenda Group overview Joseph Jimenez Chief Executive Officer Financial Review Jon Symonds Chief Financial Officer Pharmaceuticals David Epstein Division Head, Novartis Pharmaceuticals Summary Joseph Jimenez Chief Executive Officer Q&A session Management team 34 | Novartis Second Quarter 2010 Results

  35. Slide 35: Strong performance in Pharma for Q2

    Strong performance in Pharma for Q2  Strong net sales growth in Q2 • Net sales growth +8% in USD (+8% CC) • Strong performance of cardiovascular & metabolism and oncology franchises and new product launches • Unit growth well above market  Productivity gains drive Core ROS improvement while invest

  36. Slide 36: Sales growth 8% in CC, accelerating cash flow

    Sales growth 8% in CC, accelerating cash flow Growth USD m Q2 2010 Q2 2009 (% USD) (% CC) Net sales 7 670 7 115 8 8 Core operating income 2 636 2 318 14 14 Operating income 2 337 2 213 6 5 Core return on net sales 34.4 32.6 Return on net sales 30.5 31.1 Free cash flow1 2 289 2 115 8 1 Excluding acqu

  37. Slide 37: Pharmaceuticals tops competitors in IMS sales growth

    Pharmaceuticals tops competitors in IMS sales growth May ‘10 YTD YTD Sales YTD Market Share (% Growth vs PY) (USD bn) (MS %) (vs PY) NOVARTIS PHARMA 10.9% 12.4 4.0% 0.2% LILLY 9.0% 8.7 2.8% 0.1% ASTRAZENECA 5.1% 14.6 4.7% 0.0% ABBOTT 4.1% 9.4 3.0% -0.0% MERCK & CO 1.4% 15.7 5.1% -0.2% ROCHE 0.7% 12.

  38. Slide 38: Primary & specialty care contributing to growth

    Growth Primary & specialty care contributing to growth Sales by therapeutic area Q2 2010 (USD m) Growth vs PY (CC) Oncology 2 480 11% Cardiovascular and 2 043 8% Metabolism Neuroscience and 924 17% Ophthalmics Immunology and 582 12% Infectious Diseases Respiratory 168 15% Other Products 1 473 -4% Ph

  39. Slide 39: Broad geographic presence is a strength

    Growth Broad geographic presence is a strength in the face of pricing actions Net sales Q2 2010 USD 7.7 billion Q2 Growth (CC vs PY) Europe United States (35%) (34%) US +7% 2.7 2.6 Europe +8% Latin America and Canada +15% Asia, Africa and Australia +7% 0.7 1.7 Latin America and Canada Total +8% Asia

  40. Slide 40: Valsartan franchise continues revenue & market share growth

    Growth Valsartan franchise1 continues revenue & market share growth Germany net sales growth Change in value market share (May2) +6%  Diovan® maintains leading Tier 2 +2.3% access in the US  Strong growth seen across all four Valsartan brands US net sales growth  Minimal impact of Losartan +3% ge

  41. Slide 41: Recently launched brands account for 21% of total sales

    Growth Recently launched brands account for 21% of total sales, continuing to rejuvenate our portfolio Recently launched product sales1 (USD m) 1 599 +43% CC 1 127 Q2 2009 Q2 2010 % of total sales 16% 21% 1 Major products launched since 2007 including Lucentis, Tasigna, Exjade, Sebivo/Tyzeka, Exforg

  42. Slide 42: Positive outlook driven by recent and soon-to-be launched blockbusters

    Innovation Our positive outlook is driven in large part from our recent/soon to be launched blockbusters Blockbuster Mechanism of action Indication potential  Bcr-Abl, c-Kit and PDGF-R Tasigna® tyrosine kinase Inhibitor  Chronic myeloid leukemia  Afinitor®  Inhibition of mTOR  Renal Cell Carcin

  43. Slide 43: Unanimous FDA advisory board recommendation for FTY720 in RRMS

    Innovation Unanimous FDA advisory board recommendation for approval of FTY720 in treatment of RRMS1 Reduction in relapse rate 0.4 −52% vs IFNβ-1a Annualized relapse rate at 1 year (p < 0.001)  FTY720 leads a new class2 of 0.3 0.33 compounds for patients with relapsing multiple sclerosis 0.2 0.16 

  44. Slide 44: Tasigna approved by US FDA for first line treatment of CML

    Innovation Tasigna® approved by US FDA for first line treatment of CML ENESTnd study showed superior efficacy of Tasigna® v. Glivec® along key endpoints Glivec® 400mg QD Tasigna® 300mg BID  Tasigna® demonstrated 6% Complete greater efficacy than Glivec® molecular response1 21%  Tasigna® approved f

  45. Slide 45: Recent results expected to further drive Zometa and Afinitor

    Innovation Recent results expected to further drive Zometa® and Afinitor® Filing date  Progression-Free Survival and Survival Advantage in Multiple Myeloma versus TBD1 Clodronate (MM IX study)  Phase II study shows Afinitor® shrinks TSC SEGA2 Filed in US brain tumors  Phase III study shows progre

  46. Slide 46: Capturing productivity gains to fuel new product launches

    Productivity We are capturing productivity gains to fuel new product launches and drive margin Core ROS improvement +1.8 ppts  Re-allocating and reducing global marketing & sales spend 34.4 32.6 to enable investment in new product launches  Implementing lean processes for clinical trials  Off-sho

  47. Slide 47: 2010 Pharma outlook

    2010 Pharma outlook Barring unforeseen events  Growth: • Mid- to high-single-digit net sales growth • Even stronger underlying volume growth • “Launch” brands continue to drive sales growth  Productivity: • Core operating income growing ahead of sales  Innovation: • Continued strong pipeline news

  48. Slide 48: Agenda

    Agenda Group overview Joseph Jimenez Chief Executive Officer Financial Review Jon Symonds Chief Financial Officer Pharmaceuticals David Epstein Division Head, Novartis Pharmaceuticals Summary Joseph Jimenez Chief Executive Officer Q&A session Management team 48 | Novartis Second Quarter 2010 Results

  49. Slide 49: Making progress on 2010 priorities

    Making progress on 2010 priorities Strategic Priorities: Delivering innovation, growth and productivity 11 22 3 Extend lead in Drive productivity to Accelerate growth innovation improve margins  Progress in Q2  Recently launched  Continued progress on • Tasigna® approval products contributed prod

  50. Slide 50: We are raising sales guidance for the year

    We are raising sales guidance for the year Barring unforeseen events 2010 expectations based on first half performance:  Mid- to high-single-digit net sales growth1 (CC)  Improvement in Group operating income margin 1 Excluding Alcon contribution 50 | Novartis Second Quarter 2010 Results | July 15

  51. Slide 51: Appendix

    Appendix 51 | Novartis Second Quarter 2010 Results | July 15, 2010

  52. Slide 52: Strong volume growth slightly impacted by negative price effect

    Growth Strong volume growth slightly impacted by negative price effect Components of sales growth H1 2010 (% growth) Volume Price 18 (%) (%)  Group 16 -2 16 3 Pharma 9 -1 15 Vaccines and 289 -2 2 Diagnostics 1 Sandoz 13 -7 Consumer Health 6 1  Pharma price impact minimal – but expected to increase

  53. Slide 53: Operating and core income growth ahead of sales growth

    Growth Operating and core income growth significantly ahead of sales growth Components of operating income growth H1 2010 (% growth) Main impairments and exceptional 2 items1 in H1 2010 (USD m) 3 Litigation charges (Pharma -136m, V&D -45m, Sandoz -237 -56m) Impairments 37 -147 (mainly Pharma -65m, V

  54. Slide 54: All divisions contribute to strong H1 sales growth

    Growth All divisions contribute to strong H1 sales growth Sales growth by division (USD bn) Sales Growth 23.8 (USD m) (% CC) Vaccines 20.3 1.9 and 1 925 287 0.5 3.0 Diagnostics 2.7 4.0 Consumer 2 987 7 3.5 Health Sandoz 3 974 11 13.5 15.0 Pharma 14 961 8 H1 2009 H1 2010 Group 23 847 15 54 | Novartis

  55. Slide 55: Portfolio rejuvenation building in H1 2010

    Growth Portfolio rejuvenation building in H1 2010 Recently launched product sales1 (% of Group Net Sales) A (H1N1) pandemic vaccines H1 2010 (USD bn) Recently launched products 23 Pharma 3.1 5 18 Vaccines and 1.4 13 Diagnostics Sandoz 0.5 Consumer Health 0.6 H1 2009 H1 2010 H1 2010 + A (H1N1) Group

  56. Slide 56: Emerging markets drive sales growth in H1 2010

    Growth Emerging markets drive Sales growth in H1 2010 Emerging market sales and growth H1 2010 (USD m) % CC Growth vs. PY 20 255 23 847 1 782 2 314 19 13 230 15 244 15 5 243 6 289 14 H1 2009 H1 2010 Top 6 EGM1 Established2 RoW 1 Brazil, China, India, Russia, South Korea, Turkey 2 France, Germany, It

  57. Slide 57: Core operating margins improved by 3.9 ppts

    Productivity Core operating margins improved by 3.9 ppts Core Margin improvement H1 2010 Sales Core operating Operating Core operating growth income growth leverage margin (% CC) (% CC) (% pts) (%) Consumer Health 7 8 0.1 20.3 Sandoz 11 21 1.8 20.5 Vaccines and 287 nm 62.4 55.1 Diagnostics Pharma 8

  58. Slide 58: Core operating income margin improves despite investment

    Productivity Core operating income margin improves despite investment for future growth Impact on core operating margin (% pts) Core operating income margin H1 2009 26.0 Other revenues -0.3 Cost of Goods Sold -0.1 SG&A +2.9 Research & Development +1.3 Other income and expense, net +0.1 Core operatin

  59. Slide 59: Associated companies and income taxes depress core net income and EPS

    Productivity Associated companies and income taxes depress Core net income and EPS Impact on core EPS USD Growth (% pts) H1 Core operating income 35 Associated companies -2 Net Financial Income -0 Income Taxes -4 H1 Core net income 29 H1 Core EPS 29 59 | Novartis Second Quarter 2010 Results | July 1

  60. Slide 60: Free cash flow grows 54% to USD 5.3 billion

    Productivity Free cash flow grows 54% to USD 5.3 billion Free cash flow H1 20091 3 422 Cash flow from 1 692 operating activities Investments in property, 194 plant and equipment +54% Other - 37 Free cash flow H1 20101 5 271 1 Before dividends 60 | Novartis Second Quarter 2010 Results | July 15, 2010

  61. Slide 61: Q2 2010 net sales growth components by division

    Q2 2010 net sales growth components by division Acquisitions/ Total Total Volume Price Divestments CC Currency USD Pharmaceuticals 9% -1% 0% 8% 0% 8% Vaccines and 132% 3% 0% 135% -7% 128% Diagnostics Sandoz 15% -7% 5% 13% -2% 11% Consumer Health 6% 1% 0% 7% 0% 7% Group 12% -1% 1% 12% -1% 11% 61 | No

  62. Slide 62: H1 2010 net sales growth components by division

    H1 2010 net sales growth components by division Acquisitions/ Total Total Volume Price Divestments CC Currency USD Pharmaceuticals 9% -1% 0% 8% 2% 10% Vaccines and 289% -2% 0% 287% 3% 290% Diagnostics Sandoz 13% -7% 5% 11% 3% 14% Consumer Health 6% 1% 0% 7% 3% 10% Group 16% -2% 1% 15% 3% 18% 62 | No

  63. Slide 63: Planned Pharma filings 2010 to 2014

    Planned Pharma filings 2010 to  2014 2010 2011 2012 2013  2014 AIN457 INC424 AFQ056 DEB025 AEB071 ATI355 Behcet‟s Uveitis Myelofibrosis Fragile X syndrome HCV infection Kidney & heart transpl. Spinal cord injury LBH589 LDE225 AGO178 Mycograb® BAF312 QAX028 Hodgkin„s lymphoma Gorlin‟s syndrome Depr

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