Novartis delivered strong sales growth, margin expansion and breakthrough innovation launching five NMEs in 2019.

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-? Full year net sales for continuing operations1 up 9% (cc2, +6% USD):
o Pharmaceuticals BU growing 12% (cc) driven by Cosentyx USD 3.6 billion (+28% cc), Entresto
USD 1.7 billion (+71% cc) and Zolgensma USD 361 million
o Oncology BU growing 10% (cc) driven by Promacta/Revolade USD 1.4 billion (+23% cc), Kisqali
USD 0.5 billion (+111% cc) and Lutathera USD 0.4 billion (+160% cc)
o Sandoz sales grew 2% (cc, -1% USD) driven by Biopharmaceuticals
? Core2 operating income grew 17% (cc, +12% USD) and Innovative Medicines core margin improved
to 33.5% of sales, driven by sales momentum and productivity, while funding growth investments
? Free cash flow2 grew 15% to USD 12.9 billion mainly driven by higher operating income
? Net income from continuing operations declined 44% due to the one-time net gain from the sale
of the OTC JV in prior year, excluding this item net income was broadly in line with prior year
? Total Group net income was USD 11.7 billion, including the one-time effect from the Alcon spin-off
? Continued focusing Novartis as a leading medicines company:
o Alcon successfully spun-off, creating significant shareholder value. Following the spin-off, a onetime non-cash IFRS gain of USD 4.7 billion was recorded in discontinued operations
o The Medicines Company acquired, adding inclisiran a potentially transformative cholesterol-lowering therapy
o Xiidra acquired, strengthening ophthalmic pharmaceuticals portfolio
? Advanced transformation of Manufacturing and Business Services to optimize footprint and efficiencies
? 2019 breakthrough innovation milestones:
o Five NME approvals of potential blockbusters: Zolgensma, Piqray, Mayzent, Beovu and Adakveo
o Major submissions including: ofatumumab, inclisiran, capmatinib and Cosentyx in nr-axSPA
o Over 30 readouts supporting submission or enabling transition to Phase III
? Significant progress across ESG priorities including steps towards Carbon Neutrality by 2025
in our own operations; set ambitious 2020 ESG targets linked to compensation
? Dividend of CHF 2.95 per share, an increase of 4%, proposed for 2019
? 2020 guidance - Focused medicines company3 - Net sales expected to grow mid to high-single
digit (cc); core operating income expected to grow high-single to low double digit (cc)
Basel, January 29, 2020 — Commenting on the results, Vas Narasimhan, CEO of Novartis, said:
“Novartis delivered an exceptional 2019. Strong sales growth drove double digit increases in core operating income and free cash flow. Significant margin expansion puts us on track to reach mid to high 30s core margin for Innovative Medicines in the mid-term. We launched an unprecedented 5 new molecular entities in 2019 and advanced a breadth of early programs in our pipeline that address significant unmet needs.
Looking ahead, we expect to sustain our long-term growth and margin expansion driven by our in market growth drivers and the 15 ongoing or upcoming major launches, while advancing our rich pipeline.”

Key figures2 Continuing operations1
Q4 2019 Q4 2018 % change FY 2019 FY 2018 % change
USD m USD m USD cc USD m USD m USD cc
Net sales 12 403 11 481 8 9 47 445 44 751 6 9
Operating income 1 823 1 362 34 37 9 086 8 403 8 14
Net income 1 129 1 220 -7 -6 7 147 12 800 -44 -41
EPS (USD) 0.50 0.53 -6 -4 3.12 5.52 -43 -40
Free cash flow 3 488 2 913 20 12 937 11 256 15
Core Operating income 3 462 3 112 11 13 14 112 12 557 12 17
Core Net income 2 985 2 681 11 13 12 104 10 920 11 15
Core EPS (USD) 1.32 1.16 14 15 5.28 4.71 12 17

1 Refers to continuing operations as defined on page 45 of the Condensed 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. 2 Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on
page 58 of the Condensed 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 2020. Forecast assumption that no Gilenya and Sandostatin LAR generics enter in 2020 in the US.

Strategy Update
During 2019, we continued focusing Novartis as a leading medicines company powered by advanced therapy platforms and data science. We are now uniquely positioned with scale and diversification across therapeutic areas and we continue to execute our five strategic priorities: embrace operational excellence, deliver transformative innovation, go big on data and digital, build trust with society, and build a new culture by unleashing the power of our people.
We successfully spun-off Alcon as a separate public company, creating significant value for our shareholders. We acquired Xiidra, expanding our ophthalmic pharmaceuticals franchise, and in January 2020 we acquired The Medicines Company, adding inclisiran, a potentially transformational cholesterollowering therapy to address cardiovascular disease. Sandoz is in the process of becoming a more autonomous and leaner division within Novartis, and returned to sales growth (cc) and margin expansion in 2019 despite continued pricing pressure in the US.
Operationally, strong sales growth drove double digit growth in core operating income and free cash flow. Innovative Medicines core margin increased by 1.8 percentage points (cc) to 33.5% of sales, and we expect this margin to improve to the mid to high 30’s in the mid-term. Sales in China grew double digit and we expect to double our China business by 2024.
2019 was a breakthrough innovation year for Novartis, with five NME approvals with blockbuster potential including the first drug treatment for breast cancer with a PIKC3A mutation, the first oral drug to treat aSPMS, the first gene therapy to treat SMA and next generation treatments for sickle cell disease and wet AMD. Additionally we submitted regulatory filings for several major drugs, including inclisiran, and we had over 30 readouts supporting submissions or enabling transition to Phase 3. Our pipeline remains rich including many 2020 catalysts and we expect to maintain innovation momentum.
We are continuing our cultural journey and are seeing progress towards becoming more inspired, curious and unbossed. We advanced an enterprise-wide digital transformation spanning the entire value chain, from development to commercial operations. We continue our journey to rebuild trust with society based on four pillars; ethical standards, pricing and access, global health and corporate citizenship. We have introduced ESG targets for 2020 across these pillars which are transparent, systemically reviewed and linked to compensation.

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 45 and Notes 2, 3 and 11 in the Condensed 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 fourth quarter
Net sales were USD 12.4 billion (+8%, +9% cc) in the fourth quarter driven by volume growth of 13 percentage points, mainly from Entresto, Zolgensma, Cosentyx and Kisqali. Strong volume growth was partly offset by the negative impacts of pricing (3 percentage points) and generic competition (1 percentage point).
Operating income was USD 1.8 billion (+34%, +37% cc) mainly driven by higher sales and divestments, partly offset by growth investments, higher legal provisions and higher amortization.
Net income was USD 1.1 billion (-7%, -6% cc) due to higher taxes, including a one-time, non-cash deferred tax expense, partly offset by higher operating income. EPS was USD 0.50 (-6%, -4% cc), benefiting from lower weighted average number of shares outstanding.
Core operating income was USD 3.5 billion (+11%, +13% cc) mainly driven by higher sales, partly offset by growth investments. Core operating income margin was 27.9% of net sales, increasing by 0.8 percentage points (+0.8 percentage points cc).

Core net income was USD 3.0 billion (+11%, +13% cc) driven by growth in core operating income. Core EPS was USD 1.32 (+14%, +15% cc) growing faster than core net income driven by lower weighted average number of shares outstanding.
Free cash flow from continuing operations amounted to USD 3.5 billion (+20%) compared to USD 2.9 billion in the prior year quarter. The increase was mainly driven by higher cash flows from operating activities and higher proceeds from the divestment of intangible assets.
Innovative Medicines net sales were USD 9.9 billion (+10%, +11% cc) in the fourth quarter.
Pharmaceuticals BU sales grew 14% (cc), driven by continued momentum on Entresto and Cosentyx and the launch uptake of Zolgensma. Oncology BU grew 8% (cc) driven by continued momentum on Kisqali and Kymriah and the launch uptake of Piqray. Volume contributed 15 percentage points to sales growth. Generic competition had a negative impact of 2 percentage points. Net pricing had a negative impact of 2 percentage points.
Sandoz net sales were USD 2.5 billion (+1%, +2% cc), driven by strong volume growth of 5 percentage points partially offset by 3 percentage points of price erosion. Excluding the US, net sales grew strongly (+8% cc). Global sales of Biopharmaceuticals grew to USD 425 million (+11% cc), mainly driven by continued strong double-digit growth in Europe.
Novartis continues to expect the previously-announced divestment of the Sandoz US oral solids and dermatology portfolio to be completed in Q1 2020, pending regulatory approval. 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 full year
Net sales were USD 47.4 billion (+6%, +9% cc) in 2019 driven by volume growth of 12 percentage points, mainly from Cosentyx, Entresto and Zolgensma for the Pharmaceuticals BU and Promacta/Revolade, Kisqali and Lutathera for the Oncology BU. Strong volume growth was partly offset by the negative impacts of pricing (2 percentage points) and generic competition (1 percentage point).
Operating income was USD 9.1 billion (+8%, +14% cc) mainly driven by higher sales, higher divestments and productivity programs, partly offset by growth investments, legal provisions and higher impairments.
Net income was USD 7.1 billion (-44%, -41% 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 3.12 (-43%, -40% cc) benefiting from lower weighted average number of shares outstanding.
Core operating income was USD 14.1 billion (+12%, +17% cc) mainly driven by higher sales and productivity programs, partly offset by growth investments. Core operating income margin was 29.7% of net sales, increasing by 1.6 percentage points (+1.9 percentage points cc).
Core net income was USD 12.1 billion (+11%, +15% 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 5.28 (+12%, +17% cc) growing faster than core net income driven by lower weighted average number of shares outstanding.

Free cash flow from continuing operations amounted to USD 12.9 billion (+15%) compared to USD 11.3 billion in 2018. The increase was mainly driven by higher operating income adjusted for non-cash items.
Innovative Medicines net sales were USD 37.7 billion (+8%, +11% cc) in 2019. Pharmaceuticals BU grew 12% (cc) driven by Cosentyx reaching USD 3.6 billion, Entresto USD 1.7 billion and Zolgensma USD 361 million. Oncology BU grew 10% (cc) driven by Promacta/Revolade reaching USD 1.4 billion, Kisqali USD 0.5 billion and Lutathera USD 0.4 billion. Volume contributed 13 percentage points to sales growth. Generic competition had a negative impact of 1 percentage point. Net pricing had a negative impact of 1 percentage point.
Sandoz net sales were USD 9.7 billion (-1%, +2% cc) driven by strong volume growth of 8 percentage points partially offset by 6 percentage points (of price erosion, mainly in the US. Excluding the US, net sales grew strongly (+7% cc). Global sales of Biopharmaceuticals grew to USD 1.6 billion (+16% cc), driven by continued strong double-digit growth in Europe from Hyrimoz (adalimumab), Rixathon (rituximab) and Erelzi (etanercept).

Discontinued operations
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, there were no operating results in the fourth quarter of 2019.
Discontinued operations net sales in 2019 were USD 1.8 billion compared to USD 7.1 billion in 2018 and operating income amounted to USD 71 million compared to an operating loss of USD 234 million in 2018.

Net income from discontinued operations in 2019 amounted to USD 4.6 billion compared to a net loss of USD 186 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 AG shareholders”.

Total Group fourth quarter
For the total Group, net income amounted to USD 1.1 billion compared to USD 1.2 billion in prior year, and basic earnings per share was USD 0.50 compared to USD 0.52 in prior year. Cash flow from operating activities for the total Group amounted to USD 3.5 billion and free cash flow to USD 3.5 billion.

Total Group full year
For the total Group, net income amounted to USD 11.7 billion compared to USD 12.6 billion in prior year, and basic earnings per share was USD 5.12 compared to USD 5.44 in prior year. Cash flow from operating activities for the total Group amounted to USD 13.6 billion and free cash flow to USD 12.9 billion.

see & read more on
https://www.novartis.com/sites/www.novartis.com/files/q4-2019-media-release-en.pdf



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