Novartis delivers solid growth in second quarter and continues

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21/07/2018 07:03
. Net sales grew 5% (cc1, +7% USD) mainly driven by:
o Cosentyx grew to USD 701 million, (+40% cc) with strong growth in all indications in the US and EU
o Entresto sales more than doubled to USD 239 million, (+113% cc) driven by continued uptake worldwide
o Oncology grew 10% (cc) driven by continued growth from Promacta/Revolade, Tafinlar +
Mekinist and Jakavi, uptake of Kisqali and Kymriah and contribution from the AAA acquisition
. Core1 operating income grew 7% (cc, +9% USD), driven by higher sales and improved gross
margin, partly offset by growth investments
. Core EPS was USD 1.29 (+4% cc) as core operating income growth was partly offset by the
discontinuation of income from the GSK consumer healthcare joint venture
. Operating income grew 6% (cc, +9% USD) driving free cash flow1 +10% to USD 3.6 billion
. Net income was USD 7.8 billion, including a USD 5.7 billion net gain from the sale of our stake
in the GSK consumer healthcare joint venture
. Continued transformation to a focused medicines company:
o Announced intention to seek shareholder approval for 100% spinoff2 of the Alcon Division
o GSK consumer healthcare joint venture stake sale completed for USD 13 billion
o AveXis acquisition completed; successful pre-BLA meeting and on track for H2 2018 FDA submission
o Announced share buyback of up to USD 5 billion, to be completed by end of 2019
. Innovation momentum continued:
o Kymriah approved by FDA for second indication, r/r DLBCL; in EU positive CHMP opinions3
o Aimovig approved by FDA as the first CGRP treatment for migraine; in EU positive CHMP opinion
o Tafinlar + Mekinist approved by FDA for adjuvant treatment of BRAF V600-mutant melanoma
o AveXis 24 month data showed 100% of patients were alive and event-free
o BAF312 US submission in SPMS was completed, on track for launch in early 2019
o Biosimilars continue to advance in Europe with the approval of Zessly (infliximab) and positive
CHMP opinion for adalimumab
. Alcon sales grew 5% (cc, +7% USD) driving core operating income growth of 14% (cc, +16% USD)
. 2018 Group guidance re-confirmed: net sales in 2018 are expected to grow low to mid-single digit
and core operating income is expected to grow mid to high-single digit (cc)
o Reflecting first half performance, sales guidance for Alcon is revised upwards to mid-single digit
growth while Sandoz is revised downwards to low-single digit decline
Key figures1
Q2 2018 Q2 2017 % change H1 2018 H1 2017 % change
USD m USD m USD cc USD m USD m USD cc
Net sales 13 158 12 242 7 5 25 852 23 781 9 5
Operating income 2 484 2 280 9 6 4 931 4 202 17 11
Net income 7 768 1 979 nm nm 9 796 3 644 nm nm
EPS (USD) 3.34 0.84 nm nm 4.21 1.54 nm nm
Free cash flow 3 562 3 243 10 5 477 4 908 12
Core
Operating income 3 541 3 235 9 7 6 881 6 245 10 6
Net income 3 011 2 866 5 3 5 993 5 556 8 3
EPS (USD) 1.29 1.22 6 4 2.58 2.35 10 5
nm = not meaningful

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 54 of the Condensed Interim
Financial Report. Unless otherwise noted, all growth rates in this Release refer to same period in prior year.
2 Completion of the transaction is subject to general market conditions, tax rulings and opinions, final Board of Directors endorsement and shareholder approval at the 2019
AGM in line with Swiss corporate law.
3 Positive CHMP opinion for both r/r DLBCL and pediatric ALL indications

Basel, July 18, 2018 — Commenting on the results, Vas Narasimhan, CEO of Novartis, said:
“We made significant progress this quarter to transform Novartis into a focused medicines company. We
completed the Alcon strategic review, exited the OTC joint venture, and strengthened our innovation
engine with the acquisition of AveXis. Operationally we delivered solid growth, with margins expanding
and key growth drivers including Cosentyx delivering strong performance. We also advanced
our transformational medicines portfolio as we launched Kymriah in DLBCL and Aimovig in the US,
completed the regulatory submission of BAF312 to FDA, and progressed toward a submission of our
gene therapy AVXS-101.”
Novartis strategy to become a focused medicines company
Our long-term strategy is to focus Novartis as a leading medicines company powered by data and digital.
We reimagine medicine to create transformative treatments in areas of great medical need and find new
ways to deliver them to people worldwide. We continue to execute this strategy by pursuing 5 priorities:
operational execution, breakthrough innovation, data and digital leadership, restoring our reputation to be
a trusted stakeholder in society, and the transformation of our culture.
During the second quarter, we took actions that reflect this strategy and our capital allocation priorities.
Novartis concluded the strategic review of Alcon, determining that a proposed 100% spinoff is in the best
interest of shareholders and consistent with the Novartis strategy of focusing as a leading medicines
company. The planned spinoff would create the world leading eye care device company. Completion of
the transaction is subject to general market conditions, tax rulings and opinions, final Board of Directors
endorsement and shareholder approval at the 2019 AGM in line with Swiss corporate law. The transaction
is expected to be tax neutral to Novartis. Mike Ball has become Chairman-designate, Alcon COO David
Endicott took over as Alcon CEO on July 1st.
During the second quarter we also completed the sale of our stake in the GSK consumer healthcare joint
venture for USD 13 billion. The proceeds are being deployed towards the AveXis acquisition, completed in
the quarter, and the announced share buyback of up to USD 5 billion. Novartis intends to continue paying
a strong and growing dividend in Swiss francs, with no adjustment for the intended 100% spinoff of Alcon.
These actions are consistent with our capital allocation strategy, and the dividend policy and share buyback
highlights our confidence in topline growth and margin expansion.
Novartis continues its long-term journey to rebuild trust with society and transform its culture. Strong actions
have been taken this year to strengthen our organization including adding the Ethics, Risk and Compliance
Officer to the executive committee, rolling out a new professional practices policy based on principles to
help associates take better decisions and continuing to further leverage data analytics to become more
predictive in identifying risks. The Novartis leadership team, at all levels of the organization, continues to
reinforce the message of never compromising on ethical standards and values.
GROUP REVIEW
Second quarter financials
Net sales were USD 13.2 billion (+7%, +5% cc) in the second quarter, as volume growth of 9 percentage
points (cc), mainly driven by Innovative Medicines growth drivers, was partly offset by the negative
impacts of pricing (-2 percentage points) and generic competition (-2 percentage points).
Operating income was USD 2.5 billion (+9%, +6% cc) mainly driven by higher sales and improved gross
margin, partly offset by growth investments. Core adjustments amounted to USD 1.1 billion (2017: USD
1.0 billion).
Net income was USD 7.8 billion, compared to USD 2.0 billion in prior year, benefiting from a USD 5.7
billion net gain recognized from the sale of our stake in the GSK consumer healthcare joint venture.
EPS was USD 3.34, compared to USD 0.84 in prior year, driven by growth in net income and the lower
number of shares outstanding.
3/12
Core operating income was USD 3.5 billion (+9%, +7% cc) driven by higher sales and improved gross
margin, partly offset by investments for key growth drivers. Core operating income margin in constant
currencies increased 0.5 percentage points; currency impact was not significant, resulting in a net
increase of 0.5 percentage points to 26.9% of net sales.
Core net income was USD 3.0 billion (+5%, +3% cc) as growth in core operating income was partly offset
by the discontinuation of core income from the GSK consumer healthcare joint venture.
Core EPS was USD 1.29 (+6%, +4% cc), driven by growth in core net income and the lower number of
shares outstanding.
Free cash flow amounted to USD 3.6 billion (+10% USD) compared to USD 3.2 billion in prior year,
driven by higher cash flows from operating activities.
Innovative Medicines net sales were USD 8.9 billion (+10%, +8% cc) in the second quarter, as
Pharmaceuticals grew 6% (cc) and Oncology grew 10% (cc). Volume contributed 12 percentage points
to sales growth. Generic competition had a negative impact of 3 percentage points largely due to
Gleevec/Glivec in the US and Europe and certain Ophthalmology products. Pricing had a negative
impact of 1 percentage point.
Operating income was USD 2.3 billion (+11%, +8% cc), mainly driven by higher sales and improved
gross margin, partly offset by higher growth and launch investments. Core adjustments were USD 0.6
billion (2017: USD 0.5 billion). Core operating income was USD 2.9 billion (+14%, +12% cc). Core
operating income margin in constant currencies increased by 1.2 percentage points; currency had a
positive impact of 0.1 percentage points, resulting in a margin of 32.2% of net sales.
Sandoz net sales were USD 2.5 billion (0%, -2% cc) in the second quarter, as 9 percentage points of
price erosion, mainly in the US, were largely offset by 7 percentage points of volume growth. Excluding
the US, net sales grew by 5% (cc). Global sales of Biopharmaceuticals grew 34% (cc), mainly driven by
Rixathon (rituximab) and Erelzi (etanercept) in Europe, and Zarxio (filgrastim) in the US.
Operating income was USD 328 million (-1%, -2% cc) mainly due to lower sales and higher ex-US M&S
investments, partly offset by a legal settlement gain. Core operating income was USD 480 million (-3%,
-5% cc). Core operating income margin decreased by 0.6 percentage points; currency had a negative
impact of 0.2 percentage points, resulting in a net decrease of 0.8 percentage points to 19.5% of net
sales.
Alcon net sales were USD 1.8 billion (+7%, +5% cc) in the second quarter. Surgical growth of 8% (cc)
was mainly driven by double-digit growth of implantables, which includes intraocular lenses (IOLs) and
CyPass Micro Stent, and continued strong growth in consumables. Vision Care sales grew 1% (cc), as
double digit growth of Dailies Total1 was mostly offset by declines in both weekly/monthly lenses and
contact lens care. Alcon’s results reflect the sixth consecutive quarter of net sales growth as a result of
improved operations, innovation, and customer relationships.
Operating income was USD 65 million compared to USD 29 million in prior year, mainly driven by higher
sales and improved gross margin, partly offset by growth investments. Core operating income was USD
338 million (+16%, +14% cc). Core operating income margin in constant currencies increased by 1.5
percentage points; currency had a positive impact of 0.1 percentage points, resulting in a net increase
of 1.6 percentage points to 18.6% of net sales.
First half financials
Net sales were USD 25.9 billion (+9%, +5% cc) in the first half, as volume growth of 9 percentage points
(cc), mainly driven by Innovative Medicines growth drivers, was partly offset by the negative impacts of
pricing (-2 percentage points) and generic competition (-2 percentage points).
Operating income was USD 4.9 billion (+17%, +11% cc) driven by higher sales and improved gross
margin, partly offset by growth investments. Core adjustments amounted to USD 2.0 billion (2017: USD
2.0 billion).
4/12
Net income was USD 9.8 billion, compared to USD 3.6 billion in prior year, benefiting from a USD 5.7
billion net gain recognized from the sale of our stake in the GSK consumer healthcare joint venture and
the contribution from the growth in operating income, partly offset by the discontinuation of income from
the GSK consumer healthcare joint venture.
EPS was USD 4.21, compared to USD 1.54 in prior year, driven by growth in net income and the lower
number of shares outstanding.
Core operating income was USD 6.9 billion (+10%, +6% cc) driven by higher sales and improved gross
margin, partly offset by growth investments. Core operating income margin in constant currencies
increased 0.3 percentage points; currency impact was not significant, resulting in a net increase of 0.3
percentage points to 26.6% of net sales.
Core net income was USD 6.0 billion (+8%, +3% cc) driven by growth in core operating income, partly
offset by the discontinuation of core income from the GSK consumer healthcare joint venture.
Core EPS was USD 2.58 (+10%, +5% cc), driven by growth in core net income and the lower number of
shares outstanding.
Free cash flow amounted to USD 5.5 billion (+12% USD) compared to USD 4.9 billion in prior year,
mainly driven by higher cash flows from operating activities, partly offset by higher investments in
intangible assets.
Innovative Medicines delivered net sales of USD 17.3 billion (+11%, +7% cc) in the first half, as
Pharmaceuticals grew 6% (cc) and Oncology grew 8% (cc). Volume contributed 12 percentage points
to sales growth. Generic competition had a negative impact of 3 percentage points largely due to
Gleevec/Glivec. Pricing had a negative impact of 2 percentage points.
Operating income was USD 4.4 billion (+18%, +13% cc) mainly driven by higher sales, partly offset by
higher growth and launch investments. Core adjustments were USD 1.1 billion (2017: USD 1.1 billion).
Core operating income was USD 5.5 billion (+13%, +8% cc). Core operating income margin in constant
currencies increased by 0.5 percentage points; currency had a positive impact of 0.2 percentage points,
resulting in a net increase of 0.7 percentage points to 31.8% of net sales.
Sandoz net sales were USD 5.0 billion (+2%, -3% cc) in the first half, as 8 percentage points of price
erosion, mainly in the US, were partly offset by 5 percentage points of volume growth. Excluding the US,
net sales grew by 5% (cc). Global sales of Biopharmaceuticals grew 23% (cc) mainly driven by Rixathon
(rituximab) and Erelzi (etanercept) in the EU.
Operating income was USD 737 million (+10%, +4% cc) mainly driven by strong gross margin
improvements and higher divestment gains, partly offset by lower sales and higher ex-US M&S
investments. Core operating income was USD 979 million (+2%, -2% cc). Core operating income margin
increased by 0.2 percentage points; currency had a negative impact of 0.1 percentage points, resulting
in a net increase of 0.1 percentage points to 19.7% of net sales.
Alcon net sales were USD 3.6 billion (+9%, +6% cc) in the first half. Stock in trade movements accounted
for approximately 1% (cc) of growth. Surgical sales grew 8% (cc) driven mainly by implantables and
consumables. Vision Care sales grew 3% (cc) driven by contact lenses, including continued double-digit
growth of Dailies Total1.
Operating income was USD 155 million in the first half, compared to USD 27 million in prior year, driven
by higher sales and improved gross margin, partly offset by growth investments. Core operating income
was USD 698 million (+27%, +21% cc). Core operating income margin in constant currencies increased
by 2.3 percentage points; currency had a positive impact of 0.5 percentage points, resulting in a net
increase of 2.8 percentage points to 19.4% of net sales.
5/12
Key growth drivers
Underpinning our financial results in the second quarter is a continued focus on key growth drivers,
including Cosentyx, Entresto, Promacta/Revolade, Tafinlar + Mekinist, Kisqali, Jakavi, Lutathera and
Kymriah as well as Biopharmaceuticals and Emerging Growth Markets.
Growth Drivers (Q2 performance)
? Cosentyx (USD 701 million, +40% cc) delivered strong volume growth across all indications in the
US (USD 409 million, +33% cc) and rest of the world (USD 292 million, +53% cc).
? Entresto (USD 239 million, +113% cc) more than doubled sales driven by uptake in all launched
markets (US +95% cc, rest of world +145% cc).
? Promacta/Revolade (USD 292 million, +38% cc) grew at a strong double-digit rate across all
regions driven by increased demand and continued uptake of the thrombopoietin class for chronic
immune thrombocytopenia.
? Tafinlar + Mekinist (USD 284 million, +28% cc) continued strong double-digit growth in melanoma
and NSCLC across all regions due to increased demand.
? Kisqali (USD 59 million) continues to progress with growth in the US and launches in some EU
countries. Additional markets in the EU are expected to gain reimbursement over the next 12 months
and filings are underway with other health authorities worldwide.
? Jakavi (USD 239 million, +24% cc) delivered continued strong double-digit growth across all regions
driven by the myelofibrosis indication and reimbursement of the second-line polycythemia vera
indication in additional countries.
? Lutathera (USD 24 million) launch in the US is progressing well, with over 50 centers actively
treating. The Centers for Medicare & Medicaid Services (CMS) granted Lutathera Pass-Through
status, effective July 1, 2018. Sales from all AAA brands were USD 76 million in the quarter.
? Kymriah (USD 16 million) received FDA approval in May 2018 for the treatment of relapsed or
refractory (r/r) adult DLBCL patients.
? Biopharmaceuticals (USD 363 million, +34% cc) grew mainly driven by Rixathon (rituximab) and
Erelzi (etanercept) in the EU, and continued growth of Zarxio in the US.
? Emerging Growth Markets, which comprise all markets except the US, Canada, Western Europe,
Japan, Australia and New Zealand, grew (+8% USD, +9% cc) mainly driven by China (+10% cc) and
Russia (+14% cc).
6/12
Strengthen R&D
Innovation Review
Due to our continued focus on innovation, Novartis has one of the industry’s most competitive pipelines
with more than 200 projects in clinical development.
Key developments from the second quarter of 2018 include:
New approvals and regulatory opinions (in Q2)
? Kymriah (tisagenlecleucel), first-in-class CAR-T therapy, received second FDA approval to treat
appropriate relapsing/refractory (r/r) patients with large B-cell lymphoma. Kymriah demonstrated an
overall response rate of 50%, with median duration of response not yet reached at the time of data
cut-off. In Europe, Kymriah received positive CHMP opinions for r/r DLBCL and pediatric ALL.
? Aimovig (erenumab) was approved and launched in the US for the preventive treatment of migraine
in adults. Aimovig, is the first and only FDA-approved treatment to block the calcitonin gene-related
peptide receptor (CGRP-R). Novartis co-commercializes Aimovig with Amgen in the US and Novartis
has the exclusive rights to Aimovig ex-US, except for Japan. In Europe, Aimovig received a positive
CHMP opinion during Q2.
? Tafinlar + Mekinist was approved in the US and Japan for adjuvant treatment of BRAF V600-mutant
melanoma. Data showed significant reduction in the risk of disease recurrence or death compared
to placebo by 53%. The combination was also approved by FDA for the treatment of patients with
locally advanced or metastatic anaplastic thyroid cancer with BRAF V600E mutation.
? Gilenya (fingolimod) was approved by FDA as the first disease-modifying therapy for pediatric
relapsing multiple sclerosis. Gilenya reduced the annualized relapse rate by approximately 82% vs.
interferon beta-1a injections.
? Promacta (eltrombopag) received FDA Priority Review for first-line treatment of SAA based on data
showing 52% complete response rate and 85% overall response rate when added to standard
immunosuppressive therapy. FDA also granted Promacta Breakthrough Therapy designation for
treatment of hematopoietic sub-syndrome of acute radiation syndrome.
? Signifor LAR was approved by FDA for the treatment of Cushing’s disease.
? Cosentyx (secukinumab) received FDA approval on the PsA efficacy labeling supplement to include
radiographic response data from the FUTURE 5 study.
? Sandoz biosimilar Zessly (infliximab, Janssen and Merck’s Remicade®) was approved in Europe.
Zessly was the third Sandoz Biosimilar approved by the EU in the last 12 months.
? Sandoz proposed biosimilar adalimumab (AbbVie’s Humira®) received a positive CHMP opinion
and is expecting an EU approval decision in August.
? Sandoz proposed biosimilar rituximab received a complete response letter (CRL) from FDA.
Regulatory submissions and filings (in Q2)
? BAF312 (siponimod) submission in SPMS completed with a Priority Review Voucher during the
second quarter, awaiting file acceptance and on track for launch in early 2019.
Results from ongoing trials and other highlights (in Q2)
? AVXS-101 data presented at AAN demonstrated all patients in the SMA Type 1 study were alive
and event-free and with no need for permanent ventilation 24 months following gene transfer.
Patients enrolled in the Long-Term Follow-Up study continued to achieve new milestones. Initial data
from the pivotal Type 1 study showed that all symptomatic patients who were enrolled in the study
as of April 11, 2018, were alive and event-free without the need for permanent ventilation. During
Q2, Novartis had a successful pre-BLA meeting with FDA; on track for H2 2018 FDA submission.
7/12
The Phase I data in SMA Type 1 will be the basis for the BLA submission with some data from the
on-going Phase III STR1VE study.
? BAF312 EXPAND study data presented at AAN showed a reduced risk of disability progression was
sustained at three-months (14-20% compared to placebo), and an even greater reduction for
disability sustained at six-months (29-33%). Siponimod also had a meaningful benefit on patients'
cognitive processing speed.
? RTH258 (brolucizumab) data presented at ARVO showed that patients identified for a 12-week
treatment interval in Phase III HAWK and HARRIER trials had an 87% and 83% probability of
successfully continuing on a 12-week interval through week 48. On track for filing in Q4 2018.
? Cosentyx data presented at the Annual European Congress of Rheumatology advanced the
understanding of the role of IL-17A and reinforced Cosentyx leadership in spondyloarthritis.
? Kymriah JULIET trial demonstrated more than one-year durability of responses in adult patients
with relapsed or refractory DLBCL, with an overall response rate of 52% and median duration of
response not reached at a median 14-month follow-up; as well as patients’ having a 65% chance of
being relapse-free one year after onset of response.
? Aimovig LIBERTY data at AAN reinforced the robust and consistent efficacy of Aimovig for migraine
patients with multiple treatment failures. Patients taking Aimovig had nearly three-fold higher odds
of having their migraine days cut by at least 50%. Long term safety and efficacy data for chronic
migraine demonstrated sustained reductions in monthly migraine days and long term safety and
tolerability data in episodic migraine showed the safety profile was consistent with that seen in the
pivotal trials.
? QGE031 (ligelizumab) in a Phase IIb trial demonstrated rapid onset of action, and improved and
sustained efficacy compared with omalizumab in patients with chronic spontaneous urticaria who
are not adequately controlled by H1 antihistamines.
? Lutathera (lutetium Lu 177 dotatate) NETTER-1 study data in patients with progressive midgut
NETs was published in the Journal of Clinical Oncology showing significantly longer time to
deterioration of key quality of life measures, 28.8 months vs. 6.1 for global health status and 25.2
months vs. 11.5 for physical functioning.
? Kisqali (ribociclib) MONALEESA-3 data were presented at ASCO showing Kisqali plus fulvestrant
demonstrated superior efficacy, with median PFS of 20.5 months vs. 12.8, in first- and second-line
postmenopausal patients with HR+/HER2- advanced breast cancer. Additionally, 70% of Kisqali
patients were estimated to remain progression-free at median follow-up of 16.5 months.
? Jakavi (ruxolitinib) real-world data presented at the European Hematology Association showed a reduction
in risk of death and dangerous blood clots for patients with rare blood cancer. Patients with lower-risk MF
achieved spleen size reductions when treated with Jakavi, with 82% achieving a ?50% reduction.
? Sandoz Biosimilars Zessly (infliximab) and Erelzi (etanercept) data in rheumatoid arthritis was
presented at EULAR. Research from the 54-week REFLECTIONS B537-02 study of Zessly and the
48-week EQUIRA study of Erelzi showed that each biosimilar matched its reference biologic in terms
of safety, efficacy and quality, reinforcing previously-presented findings.
? FocalView app was launched providing an opportunity for patients to participate in ophthalmology
clinical trials from their home. Using patients' self-recorded measurements, FocalView aims to
enable more sensitive trial endpoints and more accurate patient-reported outcomes.
? Alcon AcrySof IQ PanOptix intraocular lens (IOL) data showed significantly improved near and
intermediate distance vision compared to the ZEISS AT LISA®* tri 839MP IOL.

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