Press Release: Novartis delivers solid sales and profit growth. Strong performance of in-market brands supports confidence in mid-term growth outlook

Ad hoc announcement pursuant to Art. 53 LR

-- Q1 sales grew +5% (cc1, +1% USD), core operating income grew +9% (cc, +3%

USD)

-- Innovative Medicines (IM) sales grew +4% (cc, +1% USD) and core

operating income +5% (cc, 0% USD)

-- Strong performance of key growth brands including Entresto,

Kesimpta, Cosentyx and Zolgensma

-- Sandoz sales grew +8% (cc, +2% USD) and core operating income +26%

(cc, +21% USD), benefiting from a lower prior year comparison as

business dynamics continued to normalize from COVID impacts

-- Operating income grew +26% (cc, +18% USD) mainly due to higher sales,

increased productivity and lower impairments

-- Core operating income grew +9% (cc, +3% USD) with core margin increasing

to 32.6% (+110 bps cc)

-- Net income grew +15% (cc, +8% USD). Excluding the impact of Roche income,

net income grew +32% (cc)

-- Core EPS was USD 1.46 (+2% cc). Excluding the impact of Roche core income,

core EPS grew +12% (cc)

-- Free cash flow of USD 0.9 billion (-42% USD). The decrease was mainly due

to the loss of Roche annual dividend paid out in March (PY USD 0.5

billion)

-- New organizational structure announced to accelerate growth, strengthen

pipeline and increase productivity (April)

-- Q1 key innovation milestones:

-- Pluvicto approved in the US for the treatment of progressive, PSMA

positive mCRPC

-- Vijoice approved in the US for the treatment of PIK3CA-related

overgrowth spectrum (April)

-- Beovu approved in the EU for the treatment of diabetic macular

edema (DME)

-- JDQ443 (KRAS G12C inhibitor) demonstrated anti-tumor activity with

acceptable safety in NSCLC (April)

-- Full-year 2022 group guidance confirmed2

Basel, April 26, 2022 - commenting on the quarter, Vas Narasimhan MD, CEO of Novartis, said: "Novartis delivered solid growth to start 2022, driven by our in-market key growth brands: Cosentyx, Entresto, Zolgensma and Kisqali. Our key launches including Kesimpta, Leqvio, Scemblix and Pluvicto are progressing well. Sandoz business dynamics continue to normalize from COVID impacts. The mid- stage pipeline remains on-track for 20+ potential significant pipeline assets with approval by 2026. The new organizational structure we announced is central to our growth strategy as a focused medicines company, making us more agile and competitive, enhancing patient and customer orientation, unlocking potential in our R&D pipeline, and driving value-creation through operational efficiencies."

Key figures(1)

Excluding Roche investment

impacts(3) Reported

Q1 2022 Q1 2021 % change Q1 2021 % change

USD m USD m USD cc USD m USD cc

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

Net sales 12 531 12 411 1 5 12 411 1 5

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

Operating

income 2 852 2 415 18 26 2 415 18 26

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

Net income 2 219 1 803 23 32 2 059 8 15

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

EPS (USD) 1.00 0.80 25 34 0.91 10 17

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

Free cash

flow 920 1 075 -14 1 597 -42

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

Core

operating

income 4 083 3 957 3 9 3 957 3 9

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

Core net

income 3 251 3 100 5 11 3 413 -5 0

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

Core EPS

(USD) 1.46 1.38 6 12 1.52 -4 2

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

Strategy Update

Novartis is a focused medicines company, continuing to build depth in five core therapeutic areas (Cardio-Renal, Immunology, Neuroscience, Solid Tumors and Hematology), strength in technology platforms (Gene Therapy, Cell Therapy, Radioligand Therapy, Targeted Protein Degradation and xRNA), and a balanced geographic footprint. Our confidence to grow in the near-term is driven by potential multi-billion-dollar sales from: Cosentyx, Entresto, Kesimpta, Zolgensma, Kisqali and Leqvio. To fuel further growth through 2030 and beyond, we have 20+ new assets with significant sales potential that could be approved by 2026. The strategic review of Sandoz is progressing; we expect to provide an update, at the latest, by the end of 2022. We remain disciplined and shareholder focused in our capital allocation as we balance investing in our business, through organic investments and value-creating bolt-ons, with returning capital to shareholders via our growing annual dividend and share buybacks. Novartis continued to make significant strides in building trust with society and consistently integrating access strategies into how we research, develop and deliver our medicines; reaching over 55 million patients through various access approaches in 2021. We are committed to net zero emissions across our value chain by 2040. Our culture journey towards an inspired, curious and unbossed organization continues, in order to drive performance and competitiveness in the long-term.

In April, we announced a new organizational structure to accelerate growth, strengthen the pipeline and increase productivity. The Pharmaceuticals and Oncology business units are being integrated into an Innovative Medicines business with separate US and International commercial organizations to increase focus, strengthen competitiveness and drive synergies. A new Strategy & Growth function combining corporate strategy, R&D portfolio strategy and business development is being created to further strengthen the pipeline with high-value medicines across internal and external opportunities. A new Operations unit combining Novartis Technical Operations and Customer & Technology Solutions units aims to generate economies of scale, drive productivity and create a strong technology and operational foundation. With the changes, Novartis expects to deliver SG&A savings of at least USD 1 billion, to be fully embedded by 2024.

Financials

First quarter

Net sales were USD 12.5 billion (+1%, +5% cc) in the first quarter driven by volume growth of 11 percentage points, price erosion of 3 percentage points and the negative impact from generic competition of 3 percentage points.

Operating income was USD 2.9 billion (+18%, +26% cc), mainly due to higher sales, increased productivity and lower impairments, partly offset by higher R&D and M&S investments.

Net income was USD 2.2 billion (+8%, +15% cc), mainly driven by higher operating income, partly offset by the loss of Roche income. Excluding the impact of Roche income, net income grew +32% (cc). EPS was USD 1.00 (+10%, +17% cc), growing faster than net income, benefiting from lower weighted average number of shares outstanding. Excluding the impact of Roche income, EPS grew +34% (cc).

Core operating income was USD 4.1 billion (+3%, +9% cc). Core operating income margin was 32.6% of net sales, increasing by 0.7 percentage points (+1.1 percentage points cc).

Core net income was USD 3.3 billion (-5%, 0% cc), as growth in core operating income was offset by the loss of Roche core income. Excluding the impact of Roche core income, core net income grew +11% (cc). Core EPS was USD 1.46 (-4%, +2% cc), benefiting from lower weighted average number of shares outstanding. Excluding the impact of Roche core income, core EPS grew +12% (cc).

Free cash flow amounted to USD 0.9 billion (-42% USD), compared to USD 1.6 billion in the prior year quarter, mainly due to the loss of Roche annual dividend (prior year USD 0.5 billion) and unfavorable working capital, partly offset by favorable hedging results. Excluding the impact of Roche annual dividend, free cash flow declined -14% (USD).

Innovative Medicines net sales were USD 10.2 billion (+1%, +4% cc) with volume contributing 9 percentage points to growth. Sales growth was mainly driven by Entresto, Kesimpta, Cosentyx, Xolair, Zolgensma and Kisqali. Generic competition had a negative impact of 3 percentage points mainly due to Afinitor, Gleevec and Exjade. Pricing had a negative impact of 2 percentage points. Sales in the US were USD 3.7 billion (+3%) and in the rest of the world were USD 6.5 billion (0%, +5% cc).

Sandoz net sales grew to USD 2.4 billion (+2%, +8% cc), benefiting from a lower prior year comparison as business dynamics continued to normalize from COVID impacts, with volume contributing 16 percentage points. Pricing had a negative impact of 8 percentage points. Sales in Europe grew +9% (cc), while sales in the US declined -2%. Global sales of Biopharmaceuticals grew to USD 515 million (+1%, +7% cc).

Q1 key growth drivers

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April 26, 2022 01:00 ET (05:00 GMT)