Press Release: Novartis maintains growth momentum and confirms FY'22 Group guidance

Ad hoc announcement pursuant to Art. 53 LR

-- Q3 sales grew +4% cc1 (-4% USD)

-- Innovative Medicines (IM) sales grew +4% cc (-3% USD), driven by

key growth brands including: Entresto (+31% cc), Kesimpta (+172%

cc), Kisqali (+49% cc), Cosentyx (+7% cc) and Pluvicto (reaching

USD 80 million)

-- Sandoz sales grew +4% cc (-7% USD) driven by continued growth in

biopharmaceuticals

-- Q3 core1 operating income grew +5% cc (-4% USD), mainly driven by higher

sales, with IM core margin increasing to 38.1% (+ 100 bps cc)

-- Q3 operating income declined -23% cc (-33% USD), mainly due to higher

impairments and higher restructuring costs. Net income declined -33% cc

(-43% USD), or -27% (cc) excluding the impact of Roche income2. Free cash

flow was USD 4.2 billion (-6% USD)

-- Q3 core EPS was USD 1.58 +1% cc (-8% USD); excluding Roche core income

impact, core EPS grew +10% (cc)

-- Strong nine months performance with sales growing +5% cc (-1% USD) and

core operating income growing +6% cc (-1% USD):

-- Innovative Medicines sales grew +5% cc (-1% USD) and core

operating income +6% cc (-1% USD)

-- Sandoz sales grew +6% cc (-3% USD) and core operating income +5%

cc (-2% USD)

-- Previously announced up to USD 15 billion share buyback ongoing; USD 7.6

billion still to be executed

-- Intention to separate Sandoz to create a standalone Gx/Biosimilars

company by way of a 100% spin-off; with this, Novartis will become a

fully focused "pure-play" Innovative Medicines business

-- Q3 key innovation milestones:

-- Scemblix approved in the EU for adults with Ph+ chronic myeloid

leukemia

-- Iptacopan demonstrates clinically meaningful superiority vs

anti-C5 treatment in Ph3 PNH study (Oct)

-- Cosentyx positive results from pivotal Ph3 trials (SUNSHINE and

SUNRISE) in hidradenitis suppurativa

-- 2022 Group guidance confirmed at mid single digit sales and core

operating income growth. Sandoz guidance revised upwards, with sales

expected to grow low to mid single digit (from low single digit) and core

operating income expected to grow low single digit (from broadly in

line)3

Basel, October 25, 2022 - commenting on the quarter, Vas Narasimhan MD, CEO of Novartis, said:

"Novartis delivered a solid third quarter, with strong YTD operational performance. Our six in-market growth drivers with multi-billion sales potential (Cosentyx, Entresto, Zolgensma, Kisqali, Kesimpta, Leqvio) grew 23% in the quarter and now represent 33% of total IM sales. Pluvicto and Scemblix launches are progressing well and we are awaiting data in earlier lines of therapy. We announced the planned separation of Sandoz by way of a 100% spin-off, creating the #1 European generics company and a global leader in biosimilars. Looking ahead, we are confident in delivering growth and margin expansion through our new focused "pure-play" Innovative Medicines strategy, underpinned by our five core TAs, technology platforms, priority geographies and a deep, value-oriented pipeline."

Key figures(1)

Q3 2022 Q3 2021 % change 9M 2022 9M 2021 % change

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

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

Net sales 12 543 13 030 -4 4 37 855 38 397 -1 5

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

Operating income 2 168 3 233 -33 -23 7 248 9 127 -21 -13

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

Net income 1 575 2 758 -43 -33 5 489 7 712 -29 -20

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

EPS (USD) 0.73 1.23 -41 -31 2.50 3.44 -27 -19

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

Free cash flow 4 169 4 423 -6 8 393 10 255 -18

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

Core operating

income 4 282 4 467 -4 5 12 635 12 769 -1 6

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

Core net income 3 419 3 830 -11 -2 10 101 10 959 -8 -1

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

Core EPS (USD) 1.58 1.71 -8 1 4.60 4.88 -6 2

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

Strategy Update

Our focus

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 strategic review

Novartis concluded the strategic review of Sandoz, announcing a proposed 100% spin-off of Sandoz, its generics and biosimilars division into a new publicly traded standalone company. We believe that the 100% spin-off is in the best interest of shareholders and consistent with the Novartis strategy of focusing as a leading medicines company. The planned spin-off allows Sandoz to leverage its strong brand and sustain its leading global position by continuing to invest in the key strategic areas of Biosimilars, Antibiotics and Generic Medicines. 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.

Sandoz CEO designate announcement

In anticipation of the intended Sandoz spin-off, Richard Saynor, will be appointed CEO designate of Sandoz and step down from the Executive Committee of Novartis with immediate effect. He will continue to report directly to Vas Narasimhan and lead the Sandoz division.

Financials

Third quarter

Net sales were USD 12.5 billion (-4%, +4% cc) in the third quarter, driven by volume growth of 11 percentage points, price erosion of 4 percentage points and the negative impact from generic competition of 3 percentage points.

Operating income was USD 2.2 billion (-33%, -23% cc), mainly due to higher impairments (USD 0.5 billion) and higher restructuring costs (USD 0.4 billion) primarily related to the implementation of the previously announced streamlined organizational model.

Net income was USD 1.6 billion (-43%, -33% cc), mainly due to lower operating income. Excluding the impact of Roche income, net income declined -27% (cc). EPS was USD 0.73 (-41%, -31% cc). Excluding the impact of Roche income, EPS declined -25% (cc).

Core operating income was USD 4.3 billion (-4%, +5% cc), mainly driven by higher sales, partly offset by higher R&D and M&S investments. Core operating income margin was 34.1% of net sales, decreasing by 0.2 percentage points (+0.2 percentage points cc).

Core net income was USD 3.4 billion (-11%, -2% cc), as growth in core operating income was more than offset by the loss of Roche core income. Excluding the impact of Roche core income, core net income grew +7% (cc). Core EPS was USD 1.58 (-8%, +1% cc), benefiting from lower weighted average number of shares outstanding. Excluding the impact of Roche core income, core EPS grew +10% (cc).

Free cash flow amounted to USD 4.2 billion (-6% USD), compared to USD 4.4 billion in the prior year quarter, mainly due to lower operating income adjusted for non-cash items.

Innovative Medicines net sales were USD 10.3 billion (-3%, +4% cc) with volume contributing 12 percentage points to growth. Sales growth was mainly driven by continued strong performance from Entresto, Kesimpta, Kisqali, Cosentyx, and the Pluvicto launch. Generic competition had a negative impact of 4 percentage points, mainly due to Afinitor/Votubia, Gilenya (ex-US), Gleevec/Glivec and Exjade. Pricing had a negative impact of 4 percentage points. Sales in the US were USD 4.1 billion (+8%) and in the rest of the world USD 6.2 billion (-9%, +2% cc).

Sandoz net sales were USD 2.2 billion (-7%, +4% cc) with volume contributing 10 percentage points to growth. Pricing had a negative impact of 6 percentage points. Sales in Europe were USD 1.2 billion (-13%, +1% cc), in the US USD 435 million (-1%) and in the rest of the world USD 647 million (+4%, +14% cc). Global sales of Biopharmaceuticals grew to USD 533 million (+1%, +14% cc) partly benefiting from a one-time revenue deduction adjustment.

Nine months

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October 25, 2022 01:00 ET (05:00 GMT)