Novartis delivers strong sales, double digit core operating income growth and launches Zolgensma and Piqray in second quarter; sales and profit guidance increased Continuing operations1 net sales up 8% (cc2, +4% USD) driven by:
o Cosentyx at USD 858 million, +25% (cc) mainly driven by continued strong US growth (+31%)
o Entresto grew to USD 421 million, +81% (cc) with increased initiation in hospital and ambulatory settings
o Oncology sales grew 9% (cc) driven by growth from Lutathera (USD 109 million), Kisqali (USD 111 million) and Kymriah (USD 58 million) in the second quarter
o Sandoz sales grew 3% (cc, -1% USD) as ex-US growth more than offset the decline in US Core2 operating income grew 20% (cc, +14% USD) mainly driven by strong sales and productivity, increasing core operating income margin by 3.2 percentage points (cc) to 31.0% of net sales Net income from continuing operations was USD 2.1 billion in Q2, declining compared to prior year, which included a USD 5.7 billion net gain from the sale of the OTC JV
? Following the Alcon spin-off, a one-time non-cash IFRS gain of USD 4.7 billion was recorded in discontinued operations
? Free cash flow2 grew 11% to USD 3.6 billion, mainly driven by higher operating income and higher divestment proceeds, partly offset by OTC JV dividends received in prior year
? Landmark innovation year continues with addition of new potential blockbusters:
o Zolgensma gene therapy launched in US for treatment of SMA in children under the age of two, robust data presented at AAN demonstrating efficacy in broad spectrum of patients
o Piqray (alpelisib) launched for treatment of advanced breast cancer with a PIK3CA mutation
o SEG101 (crizanlizumab)for treatment of sickle cell disease filed in the EU and US with FDA priority review Xiidra dry eye treatment acquired expanding our leading presence in ophthalmic pharmaceuticals 2019 guidance increased for new focused medicines company3
- Sales expected to grow mid to high-single digit (cc), core operating income expected to grow low double digit to mid-teens (cc), sales guidance increased for both divisions
Basel, July 18, 2019 — Commenting on the results, Vas Narasimhan, CEO of Novartis, said:
“Novartis delivered an exceptional first half performance in 2019 as a focused medicines company with strong sales and productivity driving double digit core operating income growth with margin expansion. We increased our full year guidance for both sales and core operating income in light of our strong momentum. We continue to progress our breakthrough medicines pipeline, with the launches of Zolgensma and Piqray, and are on track for the upcoming pivotal trial results of Entresto in preserved
ejection fraction heart failure, ofatumumab in multiple sclerosis, and fevipiprant in asthma.”

Key figures2 Continuing operations1
Q2 2019 Q2 2018 % change H1 2019 H1 2018 % change
USD m USD m USD cc USD m USD m USD cc
Net sales 11 764 11 339 4 8 22 870 22 254 3 8
Operating income 2 663 2 431 10 17 4 905 4 802 2 11
Net income 2 109 7 728 -73 -71 3 977 9 698 -59 -56
EPS (USD) 0.91 3.32 -73 -71 1.72 4.17 -59 -55
Free cash flow 3 612 3 268 11 5 481 5 187 6
Core Operating income 3 648 3 207 14 20 6 902 6 187 12 19
Core Net income 3 096 2 735 13 19 5 907 5 419 9 16
Core EPS (USD) 1.34 1.18 14 20 2.55 2.33 9 17

1Refers to continuing operations as defined on page 42 of the Condensed Interim Financial Report, excludes Alcon, includes the businesses of Innovative Medicines and Sandoz (including the US generic oral solids
and dermatology portfolio), as well as the continuing corporate functions. 2Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page
55 of the Condensed Interim Financial Report. Unless otherwise noted, all growth rates in this Release refer to same period in prior year. 3 Removes Alcon and the Sandoz US dermatology and oral solids portfolio from
both 2019 and 2018. Forecast assumption that no Gilenya generics enter in 2019 in the US.

Financials
In order to comply with International Financial Reporting Standards (IFRS), Novartis has separated the Group’s reported financial data for the current and prior years into “continuing” and “discontinued”
operations. The results of the Alcon business are reported as discontinued operations. See page 42 and Notes 2, 3 and 11 in the Condensed Interim Financial Report for a full explanation.
The commentary below focuses on continuing operations including the businesses of Innovative Medicines and Sandoz (including the US generic oral solids and dermatology portfolio), as well as the continuing Corporate functions. We also provide information on discontinued operations.

Continuing operations second quarter
Net sales were USD 11.8 billion (+4%, +8% cc) in the second quarter driven by volume growth of 10 percentage points (cc), mainly from Cosentyx, Entresto and Lutathera. Strong volume growth was partly offset by the negative impacts of pricing (-1 percentage point cc) and generic competition (-1 percentage point cc).
Operating income was USD 2.7 billion (+10%, +17% cc) mainly driven by higher sales, improved gross margin, productivity programs and higher divestment gains, partly offset by growth investments and legal provisions.
Net income was USD 2.1 billion, declining compared to prior year which benefited 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 0.91.
Core operating income was USD 3.6 billion (+14%, +20% cc) mainly driven by higher sales, improved gross margin and productivity programs, partly offset by growth investments. Core operating income margin was 31.0% of net sales, increasing by 2.7 percentage points (+3.2 percentage points cc).
Core net income was USD 3.1 billion (+13%, +19% cc) driven by growth in core operating income. Core EPS was USD 1.34 (+14%, +20% cc) in line with core net income.
Free cash flow from continuing operations amounted to USD 3.6 billion (+11% USD) compared to USD 3.3 billion in prior year, mainly driven by higher operating income adjusted for non-cash items, and higher
divestment proceeds, partly offset by higher working capital, increased payments out of provisions and lower dividends received from the OTC JV which was divested in Q2 2018.
Innovative Medicines net sales were USD 9.3 billion (+5%, +9% cc) in the second quarter, as Pharmaceuticals grew 10% (cc) and Oncology grew 9% (cc). Volume contributed 10 (cc) percentage points to sales growth, mainly driven by Cosentyx, Entresto and Lutathera. Generic competition had a negative impact of 1 (cc) percentage point. Net pricing had a negligible impact.
Sandoz net sales were USD 2.4 billion (-1%, +3% cc) driven by volume growth of 10 percentage points (cc) partially offset by 7 percentage points (cc) of price erosion, mainly in the US. Excluding the US, net sales grew +7% (cc). Global sales of Biopharmaceuticals grew 16% (cc), driven by continued strong double-digit growth in Europe from Rixathon (rituximab), Hyrimoz (adalimumab) and Erelzi (etanercept).
Novartis continues to expect the previously-announced divestment of the Sandoz US oral solids and dermatology portfolio to be completed during 2019, pending closing conditions including regulatory approvals. Novartis remains fully committed to this business until it is divested to Aurobindo. The results of this business are included in continuing operations.

Continuing operations first half
Net sales were USD 22.9 billion (+3%, +8% cc) in the first half driven by volume growth of 11 percentage points (cc), mainly from Cosentyx, Entresto and Lutathera. Strong volume growth was partly offset by the negative impacts of pricing (-2 percentage points cc) and generic competition (-1 percentage point cc).
Operating income was USD 4.9 billion (+2%, +11% cc) mainly driven by higher sales and improved gross margin, partly offset by growth investments and legal provisions.

Net income was USD 4.0 billion (-59%, -56% cc) as prior year benefited 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 1.72 (-59%, -55% cc) in line with net income.
Core operating income was USD 6.9 billion (12%, +19% cc) mainly driven by higher sales, improved gross margin and productivity programs, partly offset by growth investments. Core operating income margin was 30.2% of net sales, increasing by 2.4 percentage points (+2.9 percentage points cc).
Core net income was USD 5.9 billion (+9%, +16% 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 2.55 (+9%, +17% cc) in line with core net income.
Free cash flow from continuing operations amounted to USD 5.5 billion (+6% USD) compared to USD 5.2 billion in the prior year, mainly driven by higher operating income adjusted for non-cash items, and higher divestment proceeds, partly offset by higher working capital, a sales milestone from the divested Vaccines business received in the prior year, increased payments out of provisions and lower dividends received from the OTC JV which was divested in Q2 2018.
Innovative medicines delivered net sales of USD 18.1 billion (+5%, +10% cc) in the first half.
Pharmaceuticals BU grew 10% (cc) driven by Cosentyx and Entresto. Oncology grew 9% (cc) driven by Lutathera, as well as Promacta/Revolade, Tafinlar + Mekinist and Kisqali. Volume contributed 11 (cc) percentage points to sales growth. Generic competition had a negative impact of 1 (cc) percentage point.

Net pricing had a negligible impact.
Sandoz net sales were USD 4.8 billion (-4%, +1% cc) driven by volume growth of 9 percentage points (cc) partially offset by 8 percentage points (cc) of price erosion, mainly in the US. Excluding the US, net sales grew 6% (cc). Global sales of Biopharmaceuticals grew 14% (cc), driven by continued strong double-digit growth in Europe from Rixathon (rituximab), Hyrimoz (adalimumab) and Erelzi (etanercept).

Discontinued operations second quarter
Discontinued operations include the business of Alcon and certain Corporate costs directly attributable to Alcon up to the spin-off date. As the Alcon spin-off was completed on April 9, 2019, the operating results in the second quarter were not material. Net income in the second quarter 2019 includes the nontaxable non-cash net gain on distribution of Alcon Inc. to Novartis AG shareholders which amounted to USD 4.7 billion. The second quarter of prior year included the results from the operations of the Alcon Division and certain Corporate costs directly attributable to Alcon with sales of USD 1.8 billion and operating income of USD 53 million. For further details see Note 3 Significant transactions – Completion of the spin-off of the Alcon business through a dividend in kind distribution to Novartis shareholders.

Discontinued operations first half
Discontinued operations net sales in the first half of 2019 were USD 1.8 billion compared to USD 3.6 billion in 2018 and operating income amounted to USD 71 million compared to USD 129 million in 2018.
Net income from discontinued operations in the first half of 2019 amounted to USD 4.6 billion compared to USD 98 million in 2018 driven by the non-taxable non-cash net gain on distribution of Alcon Inc. to Novartis AG shareholders which amounted to USD 4.7 billion. For further details see Note 3 Significant transactions – Completion of the spin-off of the Alcon business through a dividend in kind distribution to Novartis shareholders.

Total Group second quarter
For the total Group, net income amounted to USD 6.8 billion compared to USD 7.8 billion in the prior year, and basic earnings per share decreased to USD 2.94 from USD 3.34. Cash flow from operating activities for the total Group amounted to USD 3.1 billion and free cash flow to USD 3.6 billion.

Total Group first half
For the total Group, net income amounted to USD 8.6 billion compared to USD 9.8 billion in the prior year, and basic earnings per share decreased to USD 3.70 from USD 4.21. Cash flow from operating activities for the total Group amounted to USD 5.5 billion and free cash flow to USD 5.4 billion.

ECN Appointment
Novartis has appointed Marie-France Tschudin as president of Novartis Pharmaceuticals. She is a member of the Executive Committee of Novartis and reports to Vas Narasimhan, CEO, Novartis.
Marie-France Tschudin has more than 25 years of broad, multi-national experience in the pharmaceuticals and biotech industry. She was most recently Head of Novartis Pharmaceuticals, Region Europe where she successfully grew the largest regional business within Novartis to over USD 8 billion in sales in 2018. She also built a diverse leadership team and oversaw the preparations for our potential blockbuster launches in Europe. Before joining Novartis, Marie-France spent 10 years at Celgene in a variety of leadership and general management positions and led their Hematology-Oncology business for Europe, Middle East and Africa.

see & read more on
https://www.novartis.com/sites/www.novartis.com/files/q2-2019-media-release-en.pdf

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