First-half results for continuing operations led by improving Pharmaceuticals performance ahead of expectations and expansion in Vaccines and Diagnostics
Net sales rise 11% (+2% in local currencies) to USD 20.6 billion
Operating income advances 12% to USD 4.9 billion on business expansion, productivity gains and currency benefits
Net income up 13% to USD 4.6 billion; basic EPS rises 17% to USD 2.01
Dynamic growth from new products - including Tekturna/Rasilez, Exforge, Lucentis, Exelon Patch and Aclasta/Reclast - provides USD 1.3 billion in first-half net sales
Key R&D projects on track for 2008 submissions, particularly Afinitor (RAD001) for advanced kidney cancer and Menveo meningococcal meningitis vaccine
25% stake in Alcon, the world leader in eye care, purchased in July; strategic acquisitions strengthen portfolio and complement internal growth drivers
Novartis on track for record sales and earnings in 2008 from continuing operations
Key figures - Continuing operations
First half
H1 2008 H1 2007 % change
USD m % of
net sales USD m % of
net sales USD lc
Net sales 20 635 18 528 11 2
Operating income 4 949 24.0 4 432 23.9 12
Net income 4 574 22.2 4 035 21.8 13
Basic earnings per share USD 2.01 USD 1.72 17

Second quarter
Q2 2008 Q2 2007 % change
USD m % of
net sales USD m % of
net sales USD lc
Net sales 10 726 9 400 14 5
Operating income 2 461 22.9 2 097 22.3 17
Net income 2 266 21.1 1 943 20.7 17
Basic earnings per share USD 0.99 USD 0.83 19

Basel, July 17, 2008 - Commenting on the results, Dr. Daniel Vasella, Chairman and CEO of Novartis said: "The growth acceleration in the second quarter of 2008 and our R&D successes, especially in Pharmaceuticals and Vaccines, demonstrate that our strategy is delivering results and that we are heading towards a promising future despite a weak economy. Speed and productivity of operations are improving and growth in most countries is dynamic."

OVERVIEW
First half
All businesses contributed to the strong performance, especially accelerating sales and profitability in Pharmaceuticals and sustained dynamic growth in Vaccines and Diagnostics that underpinned expectations for record results in 2008.
Net sales rose 11% (+2% in local currencies) to USD 20.6 billion as higher sales volumes contributed two percentage points of growth, while currency translation added nine points. Price changes and acquisitions had no significant impact.
Advancing faster than net sales, operating income was up 12% to USD 4.9 billion and driven by the solid business expansion as well as the Forward initiative, which also provided funds for major investments in new product development and expansion in fast-growing markets. The operating margin was slightly higher at 24.0% of net sales from 23.9% in the 2007 period.
Net income rose 13% to USD 4.6 billion on the increase in operating income as well as higher levels of financial income and income from associated companies. Basic earnings per share (EPS) rose faster, up 17% to USD 2.01 due to fewer outstanding shares.
Second quarter
Net sales for the quarter rose 14% (+5% lc) to USD 10.7 billion as Pharmaceuticals grew ahead of expectations and succeeded in overcoming the impact of 2007 challenges in the US. Vaccines and Diagnostics expanded at a fast rate, while difficult conditions in the US led to moderate growth in Sandoz and Consumer Health. Higher sales volumes provided five percentage points of growth, while positive currency translation added nine points.
Operating income advanced 17% to USD 2.5 billion on double-digit contributions from Pharmaceuticals and Consumer Health. As a result, the operating income margin rose to 22.9% of net sales from 22.3% in the 2007 period.
Net income also rose 17%, rising to USD 2.3 billion, benefiting from the ongoing business expansion and supported by higher levels of financial income and associated company income. Basic earnings per share (EPS) rose 19% to USD 0.99, above the 17% of net income growth reflecting the lower number of outstanding shares.

Underscoring the benefits of a strategic healthcare portfolio
The performance in the first half of 2008 shows how Novartis is fully leveraging growth opportunities and benefits from the Group's strategic healthcare portfolio.
Recently launched pharmaceutical products contributed USD 1.3 billion to net sales in the first half of the year thanks to the ongoing rollout after 15 approvals in the US and EU in 2007. Top performers included Aclasta/Reclast (USD 103 million) as the only once-yearly therapy for osteoporosis and Lucentis (USD 437 million) as the only approved treatment shown to maintain and improve vision in people with age-related macular degeneration.
Sustained investments in innovation are delivering results. Afinitor (RAD001) is set for first regulatory submissions in 2008 as a breakthrough treatment for advanced kidney cancer, with studies underway in other cancers. Among other projects set for 2008 submissions is the meningococcal meningitis vaccine Menveo, which has the potential to become the first to protect from infancy to adulthood against four common serogroups associated with this often-fatal bacterial disease.
The Forward initiative is progressing well since its launch in December 2007 to improve speed, flexibility and productivity for enhanced competitiveness. Novartis is streamlining decision-making and freeing up resources to support future growth. About 65% of the anticipated 2008 cost savings of USD 670 million have been delivered. This initiative has a goal of pre-tax annual cost savings of USD 1.6 billion in 2010. The reduction of 2,500 full-time equivalent positions is underway, with nearly all affected associates notified.
The momentum of Pharmaceuticals in the first half confirmed plans for a new growth cycle starting in the second half of 2008, with quarterly net sales growth from Pharmaceuticals expected at a high-single-digit rate by the fourth quarter, in local currencies.
Strategic actions to strengthen healthcare portfolio
Complementing internal growth drivers, particularly new products from R&D investments and geographic expansion, Novartis has taken strategic actions during 2008 to further strengthen its healthcare portfolio with targeted acquisitions.
A 25% stake in Alcon Inc. (NYSE: ACL) was purchased on July 7 from Nestlé S.A. for USD 10.4 billion as part of an agreement that provides Novartis the opportunity to take majority ownership of the world leader in eye care. In an optional second step, Novartis has the right to acquire, and Nestlé the right to sell, the remaining 52% Alcon stake held by Nestlé between January 2010 and July 2011 for up to approximately USD 28 billion.
The acquisition of Protez Pharmaceuticals, a privately held US biotechnology company, will provide rights in the US and Europe to PZ-601, a promising antibiotic in Phase II development that has shown potential to treat life-threatening hospital infections.
Speedel Holding Ltd. (SWX: SPPN) became a majority-owned subsidiary on July 10 after the acquisition of an additional 51.7% stake. A mandatory public tender offer will start in August to buy remaining shares, with total acquisition costs estimated at CHF 907 million (or USD 880 million). Novartis has a long-standing collaboration with Speedel, whose R&D pipeline is a strong fit with the Group's leading position in cardiovascular disease.

Group outlook
(Barring any unforeseen events)
Novartis reaffirms expectations for another year of record net sales and earnings in 2008 from continuing operations entirely focused on healthcare. Net sales from continuing operations for the Group are expected to rise at a mid-single-digit rate, and at a low-single-digit growth rate in the Pharmaceuticals Division, both in local currencies. Sandoz is now expected to achieve mid-single-digit net sales growth for the full year in local currencies.