Press Release: Novartis continues to grow with further core margin expansion and achieves important innovation milestones

Ad hoc announcement pursuant to Art. 53 LR

Full year

-- Net sales grew +4% (cc1, -2% USD) with core operating income growing +8%

(cc, 0% USD)

-- IM sales grew +4% (cc, -2% USD) and core operating income +8% (cc,

0% USD), with IM core margin reaching 36.9% (+130 bps cc)

-- Sandoz sales grew +4% (cc, -4% USD) with core operating income

decreasing -1% (cc, -8% USD)

-- Operating income declined -13% (cc, -21% USD), mainly due to higher

restructuring and impairments. Net income declined -67% (cc, -71% USD),

or -9% (cc) excluding the impact of Roche income2. Free cash flow was USD

11.9 billion (-10% USD)

-- Core EPS was USD 6.12 +6% (cc, -3% USD); excluding Roche core income

impact, core EPS grew +14% (cc)

Fourth quarter

-- Net sales grew +3% (cc, -4% USD) with core operating income growing +15%

(cc, +6% USD), mainly driven by higher sales and productivity

-- Innovative Medicines (IM) sales grew +3% (cc, -3% USD), growth

drivers include: Entresto (+44% cc), Kesimpta (+157% cc), Pluvicto

(reaching USD 179 million) and Kisqali (+33% cc)

-- Sandoz sales were in line with the prior year (0% cc, -8% USD)

with continued growth in biopharmaceuticals

-- Q4 selected innovation milestones:

-- Pluvicto Ph3 PSMAfore positive results in mCRPC; EC approval for

progressive PSMA+ mCRPC

-- Iptacopan Ph3 APPLY-PNH demonstrated iptacopan superiority vs.

anti-C5 in refractory PNH

-- Iptacopan Ph3 APPOINT-PNH met primary endpoint in complement

inhibitor naive PNH patients

Share buyback, dividend and 2023 guidance

-- Previously announced up-to USD 15 billion share buyback ongoing; USD 4.9

billion still to be executed3

-- Dividend of CHF 3.20 per share, an increase of 3.2%, proposed for 2022

-- 2023 guidance4 -- Group expected to grow sales low-to-mid single digit

and core operating income mid single digit. IM expected to grow sales

low-to-mid single digit and core operating income mid-to-high single

digit

Basel, February 1, 2023 - commenting on 2022 results, Vas Narasimhan, CEO of Novartis, said: "Novartis is on track to become a pure-play innovative medicines company, uniquely positioned to leverage its global scale and R&D platforms. Our six multi-billion brands(5) now represent 32% of our Innovative Medicines sales and are growing 26%. Pluvicto and Scemblix had very strong launch performances, and the Leqvio launch continues to progress. Pivotal Ph3 readouts for two iptacopan studies and Pluvicto in earlier lines of therapy provide strong confidence for near to mid-term growth. Looking ahead, we have a catalyst rich pipeline with 15 pivotal readouts in the mid-term. We expect to continue to deliver improved financials and strengthen Novartis ESG foundations, on our journey to become most trusted and valued medicines company in the world".

Key figures(1)

Q4 2022 Q4 2021 % change FY 2022 FY 2021 % change

USD m USD m USD cc USD m USD m USD cc

------- ------- ---- ---- ------- ------- ---- ----

Net sales 12 690 13 229 -4 3 50 545 51 626 -2 4

------- ------- ---- ---- ------- ------- ---- ----

Operating income 1 949 2 562 -24 -14 9 197 11 689 -21 -13

------- ------- ---- ---- ------- ------- ---- ----

Net income 1 466 16 306 -91 -90 6 955 24 018 -71 -67

------- ------- ---- ---- ------- ------- ---- ----

EPS (USD) 0.69 7.29 -91 -89 3.19 10.71 -70 -66

------- ------- ---- ---- ------- ------- ---- ----

Free cash flow 3 552 3 027 17 11 945 13 282 -10

------- ------- ---- ------- ------- ----

Core operating

income 4 030 3 819 6 15 16 665 16 588 0 8

------- ------- ---- ---- ------- ------- ---- ----

Core net income 3 251 3 135 4 14 13 352 14 094 -5 3

------- ------- ---- ---- ------- ------- ---- ----

Core EPS (USD) 1.52 1.40 9 19 6.12 6.29 -3 6

------- ------- ---- ---- ------- ------- ---- ----

(1) Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page 50 of the Condensed Financial Report. Unless otherwise noted, all growth rates in this Release refer to same period in prior year. (2) A table showing the Q4 2022 and FY 2022 key figures excluding Roche can be found on page 8 and a reconciliation of 2021 IFRS results and non-IFRS measures core results to exclude the impacts of the 2021 divestment of our Roche investment can be found on page 58 of the Condensed Financial Report. (3) As per December 31, 2022. (4) Please see detailed guidance assumptions on page 6. (5) Potential USD sales.

Strategy Update

Our focus

During 2022, Novartis unveiled a new focused strategy with our transformation into a "pure-play" Innovative Medicines business. We have a clear focus on five core therapeutic areas (cardiovascular, immunology, neuroscience, solid tumors and hematology), with multiple significant in-market and pipeline assets in each of these areas, that address high disease burden and have substantial growth potential. In addition to two established technology platforms (chemistry and biotherapeutics), three emerging platforms (gene & cell therapy, radioligand therapy, and xRNA) are being prioritized for continued investment into new R&D capabilities and manufacturing scale. Geographically, we are focused on growing in our priority geographies - the US, China, Germany and Japan.

Our priorities

1. Accelerate growth: Renewed attention to deliver high-value medicines

(NMEs) and focus on launch excellence, with a rich pipeline across our

core therapeutic areas.

2. Deliver returns: Continuing to embed operational excellence and deliver

improved financials. Novartis remains disciplined and shareholder-focused

in our approach to capital allocation, with substantial cash generation

and a strong capital structure supporting continued flexibility.

3. Strengthening foundations: Unleashing the power of our people, scaling

data science and technology and continuing to build trust with society.

Sandoz planned spin-off

The planned spin-off remains on track for H2 2023. Completion of the transaction is subject to certain conditions, including consultation with works councils and employee representatives (as required), general market conditions, tax rulings and opinions, final Board of Directors endorsement and shareholder approval in line with Swiss corporate law. The transaction is expected to be tax neutral to Novartis.

Financials

Fourth quarter

Net sales were USD 12.7 billion (-4%, +3% cc) in the fourth quarter driven by volume growth of 10 percentage points, partly offset by price erosion of 3 percentage points and the negative impact from generic competition of 4 percentage points.

Operating income was USD 1.9 billion (-24%, -14% cc), mainly due to higher restructuring costs (USD 0.6 billion), primarily related to the implementation of the previously announced streamlined organizational model.

Net income was USD 1.5 billion (-91%, -90% cc), impacted by Roche income in the prior year of USD 14.6 billion. Excluding the impact of Roche income, net income grew +2% (cc). EPS was USD 0.69 (-91%, -89% cc). Excluding the impact of Roche income, EPS grew +7% (cc).

Core operating income was USD 4.0 billion (+6%, +15% cc) driven by higher sales and productivity, including initial savings from the previously announced streamlined organizational model. Core operating income margin was 31.8% of net sales, increasing by 2.9 percentage points (+3.5 percentage points cc).

Core net income was USD 3.3 billion (+4%, +14% cc), mainly driven by growth in core operating income, partly offset by the loss of Roche core income. Excluding the impact of Roche core income, core net income grew +17% (cc). Core EPS was USD 1.52 (+9%, +19% cc), benefiting from lower weighted average number of shares outstanding. Excluding the impact of Roche core income, core EPS grew +23% (cc).

Free cash flow amounted to USD 3.6 billion (+17% USD), mainly driven by higher net cash flows from operating activities and lower purchases of intangible assets.

Innovative Medicines net sales were USD 10.4 billion (-3%, +3% cc) with volume contributing 11 percentage points to growth, mainly driven by continued strong performance from Entresto, Kesimpta, Pluvicto and Kisqali. Generic competition had a negative impact of 5 percentage points, mainly due to Gilenya, Exjade and Afinitor. Pricing had a negative impact of 3 percentage points, including approximately 1 percentage point impact from a revenue deduction true-up for Cosentyx in the US, which was related to prior quarters in 2022. Sales growth for the quarter was also negatively impacted by the prior year reclassification of contract manufacturing from other revenues to sales. Excluding the contract manufacturing reclassification impact, sales would have grown +4% (cc). Sales in the US were USD 4.2 billion (+7%) and in the rest of the world USD 6.2 billion (-9%, +1% cc).

(MORE TO FOLLOW) Dow Jones Newswires

February 01, 2023 01:00 ET (06:00 GMT)