Fourth quarter sales rose 5% while core[1] operating income grew 17% in constant currencies (cc); full year sales up 12% cc and core operating income up 16% cc
Net sales increased 4% (+5% cc) to USD 14.8 billion; full year up 16% (+12% cc) to USD 58.6 billion
Core operating income grew 12% (+17% cc) to USD 3.6 billion in the fourth quarter; full year up 14% (+16% cc) to USD 15.9 billion; core margin of 24.0% up 2.7 percentage points in cc; full year core margin of 27.2% up 1.1 percentage points in cc
Core EPS advanced 8% to USD 1.23 (+13% cc) from USD 1.14 in the previous-year quarter; full year core EPS up by 8% (+11% cc) to USD 5.57
Operating income declined 47% (-38% cc) in the quarter and 5% (+1% cc) for the full year, driven by fourth quarter net exceptional charges totaling USD 1.5 billion; EPS declined 48% (-40% cc) in the quarter and 11% (-5% cc) for the full year
Free cash flow of USD 3.9 billion; full year free cash flow of USD 12.5 billion
Dividend of CHF 2.25 per share proposed for 2011; 15th consecutive increase
Diversified healthcare portfolio and industry-leading pipeline expected to enhance our ability to sustain growth through patent expirations
Alcon, world leader in eye care, fully integrated as second largest division in Novartis Group portfolio
Portfolio rejuvenation continues to gain momentum with Group recently launched products growing 38% and contributing 25% (USD 14.4 billion) of 2011 net sales
Strong Pharmaceuticals pipeline results with 15 approvals in the US, EU and Japan in 2011; worldwide filings underway for Afinitor in breast cancer
Outlook 2012: Novartis expects sales to be in line with 2011 despite Diovan patent expiry and Tekturna/Rasilez decline; core operating income margin (cc) expected to be slightly below 2011
Key figures

Q4 2011 Q4 2010 % change FY 2011 FY 2010 % change
USD m USD m USD cc USD m USD m USD cc
Net sales 14 781 14 199 4 5 58 566 50 624 16 12
Operating income 1 317 2 467 -47 -38 10 998 11 526 -5 1
Net income 1 210 2 265 -47 -37 9 245 9 969 -7 -2
EPS (USD) 0.49 0.95 -48 -40 3.83 4.28 -11 -5
Free cash flow 3 909 4 180 -6 12 503 12 346 1
Core[1]
Operating income 3 550 3 166 12 17 15 909 14 006 14 16
Net income 3 011 2 803 7 12 13 490 12 029 12 15
EPS (USD) 1.23 1.14 8 13 5.57 5.15 8 11

[1] See page 52 for further information and definition of core results

Basel, January 25, 2012 - Commenting on the results, Joseph Jimenez, CEO of Novartis, said:
"Novartis achieved solid sales growth and strong operating leverage in the fourth quarter and for the year as a whole. We maintained our innovation momentum this year, achieving 15 key approvals and expanding our already robust pipeline. We also improved core margins through targeted productivity initiatives. However, we experienced some disappointments in the fourth quarter, with Tekturna/Rasilez and with the need to improve our quality standards at some manufacturing sites. We are committed to ensuring one single high quality standard across Novartis and will invest the necessary resources to achieve this goal in all divisions. Novartis is well positioned as we face the expected patent expirations and will continue discovering new treatments to improve the health of patients across the globe."

GROUP REVIEW

Fourth quarter

Strong net sales growth driven by recently launched products
Net sales rose 4% (+5% cc) to USD 14.8 billion in the fourth quarter. The strengthening of the US dollar against most major currencies negatively impacted sales by 1 percentage point.

Our portfolio rejuvenation continued to drive overall growth for the Group, as recently launched products sales grew 30% (USD) over the previous-year quarter to USD 3.7 billion. These products contributed 25% (USD) of Group net sales, up from 20% in the year-ago period.

Pharmaceuticals net sales grew 4% (+5% cc) to USD 8.3 billion, driven by 10 percentage points of volume growth, partly offset by generic entries and product divestments, which had a negative impact of 5 percentage points. Alcon net sales of USD 2.4 billion rose 6% (+7% cc) on a pro forma basis, while Sandoz net sales declined 5% (-4% cc) to USD 2.3 billion due to additional competition to enoxaparin. Vaccines and Diagnostics net sales expanded 86% (+86% cc) to USD 671 million. Consumer Health - which comprises OTC and Animal Health - was down 7% (-6% cc) at USD 1.1 billion due to OTC product return provisions, following the temporary suspension of production at one of the US Consumer Health sites.

Operating income was down 47% (-38% cc) to USD 1.3 billion. Exceptional income and expense in the fourth quarter amounted to a net USD 1.5 billion expense compared to USD 397 million expense in the prior year. The strengthening of the US dollar, combined with the already strong Swiss franc, resulted in a negative currency impact of 9 percentage points.

The net exceptional charge of USD 1.5 billion (2010 USD 397 million) comprised charges of USD 1.7 billion (2010 USD 789 million) offset by exceptional income of USD 186 million (2010 USD 392 million mainly related to the Enablex® divestment). Exceptional charges included: USD 903 million for Tekturna/Rasilez, USD 163 million related to the discontinuation of the PRT128 (elinogrel) and SMC021 (oral calcitonin) development programs, a charge of USD 115 million related to the temporary suspension of production at one of our US Consumer Health sites, Alcon integration charges of USD 61 million, and restructuring costs of USD 288 million. Exceptional income includes a USD 106 million reduction of a contingent consideration obligation in Sandoz. Amortization of intangible assets amounted to USD 742 million compared to USD 302 million in 2010 mainly as a result of the Alcon acquisition.

Core operating income grew strongly ahead of sales
Core operating income, which excludes the exceptional items identified above together with amortization of intangible assets, increased by 12% (+17% cc) to USD 3.6 billion. Core operating income margin in constant currencies increased by 2.7 percentage points. However, this improvement was offset by a negative currency impact of 1.0 percentage point, resulting in a net increase in core operating income margin of 1.7 percentage points to 24.0% of net sales.

Net income decreased 47% (-37% cc), in line with the decline in operating income. EPS declined 48% (-40% cc) at a slightly higher rate than net income as a result of the increase in issued shares following the Alcon merger, partially offset by a lower impact from non-controlling interests.

Core net income grew 7% (+12% cc) below the rate of growth of core operating income as a result of a higher core tax charge (15% compared to 10% in the prior year). Core EPS was up by 8% (+13% cc).

Free cash flow of USD 3.9 billion was 6% lower than in the previous-year quarter mainly as a result of the Enablex® divestment proceeds of USD 392 million in the fourth quarter of 2010.

Full year

Double-digit net sales growth
Net sales rose 16% (+12% cc) to USD 58.6 billion, with a positive currency impact of 4% arising from the weakness of the US dollar against most major currencies during much of 2011.

Recently launched products sales grew 38% over 2010 (in USD, excluding the A(H1N1) pandemic flu vaccine and including Alcon on a pro forma basis for 2010) to USD 14.4 billion. These products contributed 25% of Group net sales, up from 19% in 2010.

Pharmaceuticals net sales grew 7% (+4% cc) to USD 32.5 billion, and Alcon net sales of USD 10.0 billion rose 10% (+7% cc) on a pro forma basis. Sandoz net sales also grew 10% (+7% cc) to USD 9.5 billion. Vaccines and Diagnostics net sales were down 32% (-34% cc) to USD 2.0 billion, mainly due to USD 1.3 billion of A(H1N1) pandemic flu vaccine sales in 2010. Net sales of the two Consumer Health businesses together grew 6% (+3% cc) to USD 4.6 billion.

Operating income was down 5% (+1% cc) to USD 11.0 billion. Exceptional income and expense in 2011 amounted to a net USD 1.9 billion expense compared to USD 1.3 billion expense in the prior year. The weakness of the US dollar, combined with the strong Swiss franc, resulted in a negative currency impact of 6 percentage points.

The net exceptional charge of USD 1.9 billion (2010 USD 1.3 billion) comprised charges of USD 2.9 billion (2010 USD 2.1 billion) offset by exceptional income of USD 1.0 billion (2010 USD 732 million). Exceptional charges included: charges for Tekturna/Rasilez (USD 903 million), USD 348 million related to the discontinuation of the PRT128 (elinogrel), SMC021 (oral calcitonin), AGO178 (agomelatine), and PTK796 development programs, a charge of USD 115 million related to the temporary suspension of production at one of our US Consumer Health sites, other intangible asset impairment charges of USD 71 million principally relating to development projects, financial asset impairment charges of USD 192 million, integration charges of USD 250 million (mainly for Alcon), and restructuring and related costs of USD 492 million. Exceptional income includes divestment proceeds (USD 480 million) and a USD 106 million reduction of a contingent consideration obligation in Sandoz. For the full year, amortization of intangible assets amounted to USD 3.0 billion compared to USD 1.1 billion in 2010 as a result of a full year of incorporating Alcon.

Constant currency core margin up 1.1 percentage points
As a result, core operating income, which excludes the exceptional items identified above together with amortization of intangible assets, increased 14% (+16% cc) to USD 15.9 billion. Core operating income margin in constant currencies increased by 1.1 percentage points. However, this improvement was offset by a negative currency impact of 1.6 percentage points, resulting in a net decrease in core operating income margin of 0.5 percentage points to 27.2% of net sales.

Net income decreased 7% (-2% cc) to USD 9.2 billion, more than the decline in operating income as a result of lower associated company income, higher financing costs following the Alcon acquisition, partly offset by a lower tax rate (14.2% compared to 14.8%). EPS declined 11% (-5% cc), more than the decline in net income, mainly as a result of the increase in issued shares following the Alcon merger, partially offset by a lower impact from non-controlling interests.

Core net income grew 12% (+15% cc) to USD 13.5 billion broadly in line with core operating income. Core EPS was up by 8% (+11% cc): a lower rate than net income as a result of a higher number of outstanding shares in 2011.

Free cash flow reached USD 12.5 billion (2010 USD 12.3 billion), an increase of 1% over the previous year. Free cash flow in 2010 included substantial cash flows from sales of A(H1N1) amounting to USD 1.8 billion.

Delivering against strategic priorities of innovation, growth and productivity

The Novartis strategy for sustained, long-term growth is based on advancing science to meet global patient needs across the healthcare spectrum and is underpinned by a consistent focus on three key priorities: innovation, growth and productivity. On all of these fronts, Novartis made significant progress in 2011, and the key developments in the fourth quarter are listed below.

Innovation: Bringing new innovative medicines to patients

Scientific innovation is at the heart of the Novartis strategy. We plan to maintain our industry-leading commitment to R&D, which we expect will allow us to discover and develop new targeted therapies for patients worldwide. Our track record of innovation excellence, which has produced one of the most productive pipelines in the global pharmaceutical industry, is expected to help us maintain growth momentum despite the anticipated loss of revenues from patent expirations.

Regulatory filings underway for Afinitor in breast cancer
In the fourth quarter, we filed applications worldwide for approval of Afinitor (everolimus) in advanced ER+/HER2- breast cancer, potentially representing the first major breakthrough in the treatment of this disease in 15 years. The filing was based on updated data from a Phase III trial (BOLERO-2) of everolimus in combination with exemestane for postmenopausal women with advanced breast cancer that recurred or progressed despite treatment with hormonal therapies. If approved, this indication for everolimus - which is already approved for the treatment of advanced kidney cancer, advanced pancreatic neuroendocrine tumors and subependymal giant cell astrocytomas associated with tuberous sclerosis complex, as well as other non-oncology indications - would further validate the Novartis research strategy, which is based on understanding the molecular pathways of diseases.

A separate Phase III study (GRANITE-1) of everolimus in patients with advanced gastric cancer did not meet its primary endpoint, with everolimus plus best supportive care (BSC) failing to show a statistically significant difference over placebo plus BSC in overall survival.

ACZ885 Phase III study showed promise for treatment of childhood arthritis
A study of ACZ885 showed that 45% of children with active systemic juvenile idiopathic arthritis (SJIA) were able to substantially reduce their use of steroids within 28 weeks of commencing treatment with ACZ885. The study also showed SJIA patients treated with ACZ885 were nearly three times less likely to suffer a new flare versus placebo. A subtype of the more common juvenile idiopathic arthritis, SJIA is the most serious form of childhood arthritis, and the positive results of this study represent another success in the Novartis commitment to finding new treatments wherever there is patient need.

Two Phase III studies continued to show superiority of Tasigna over Glivec
Data from two studies (ENESTcmr and ENESTnd) contributed to the growing body of evidence indicating that adult patients with Philadelphia chromosome-positive chronic myeloid leukemia (Ph+ CML) who are treated with Tasigna have a better response at the molecular level than those treated with Glivec, the long-time standard of care.

Updated positive Phase III results of INC424 in myelofibrosis
Two pivotal Phase III trials (COMFORT-I and -II) demonstrated the significant potential of Janus kinase inhibitor INC424 in treating patients with myelofibrosis, a life-threatening blood cancer. COMFORT-II data showed that INC424 provided improvements in symptoms at each evaluation versus the best available therapy, underlining the dramatic benefits that INC424 can have on quality of life for patients suffering from this debilitating disease. In addition, in the COMFORT-I survival analysis, INC424 demonstrated an early overall survival advantage over placebo.

Gilenya continued to demonstrate efficacy in large-scale clinical trials; FDA and EMA review of benefits and risks
Now supported by more than 25,000 patients on drug, Gilenya, our breakthrough oral multiple sclerosis (MS) treatment, continues to demonstrate efficacy in Phase III studies. In the fourth quarter, new data from the FREEDOMS II trial showed patients with relapsing-remitting multiple sclerosis treated with Gilenya experienced a 48% reduction in relapse rates compared to placebo. These results, which are consistent with two previous studies, underscore the potential that Gilenya holds for patients and the MS community.

Novartis is working with the European Medicine's Agency (EMA) and the US Food and Drug Administration (FDA) on their reviews of the benefits and risks of Gilenya that were initiated following the report of a patient death that occurred within 24 hours after receiving the first dose of Gilenya in November 2011. The FDA has stated that, at this time, it cannot conclude whether the drug resulted in the November 2011 patient death. According to the EMA, the cause of that patient death is still unexplained. In addition, the EMA described 10 other deaths as being of potential interest but noted that the role of Gilenya in these deaths has not been established. These other events preceded the November 2011 death, and were reported to the health authorities per regulations.

During the EMA review process and following the recent consultation with the Committee for Medicinal Products for Human Use (CHMP), Novartis is in the process of notifying physicians of new interim recommendations regarding the initiation of treatment with Gilenya in the European Union to be effective immediately. This includes the addition of continuous electrocardiogram (ECG) monitoring during the six-hour observation period following the first dose. First dose monitoring is already recommended in the Gilenya label. In patients who meet certain specified criteria, monitoring should be extended.

Positive Phase II results for DEB025 in hepatitis C
A study of first-in-class DEB025 showed that it may produce early viral clearance in previously untreated patients infected with the hepatitis C virus (HCV) genotypes 2 and 3. Instead of targeting the virus directly, DEB025 targets host proteins essential for the replication of all types of HCV. DEB025 has the potential to be an effective treatment option across HCV genotypes with favorable tolerability and a high barrier to resistance, a promising development for the more than 170 million people worldwide who are infected with HCV.

ALTITUDE trial with Tekturna/Rasilez stopped
In late December, following the seventh interim review of data from the ALTITUDE study with Tekturna/Rasilez, Novartis announced that the trial was halted on the recommendation of the independent Data Monitoring Committee (DMC) overseeing the study. The DMC concluded that patients were unlikely to benefit from treatment on top of standard anti-hypertensive medicines, and identified higher adverse events in patients receiving Tekturna/Rasilez in addition to standard of care as part of the trial. Following discussions with health authorities, Novartis has written to healthcare professionals worldwide recommending that hypertensive patients with diabetes should not be treated with Tekturna/Rasilez, or combination products containing aliskiren, if they are also receiving an angiotensin-converting enzyme (ACE) inhibitor or angiotensin receptor blocker (ARB). As an additional precautionary measure, Novartis has ceased promotion of Tekturna/Rasilez-based products for use in combination with an ACE inhibitor or ARB.

Alcon devices approved in Japan
The EX-PRESS Glaucoma Filtration Device (P50PL and P200PL) and the WaveLight Allegretto Wave Eye-Q Refractive Laser gained approval in Japan in the fourth quarter. The EX-PRESS Glaucoma Filtration Device is the first glaucoma filtration device in Japan and complements Alcon's pharmaceutical eye drops, such as Travatan Z and DuoTrav, in physicians' treatment of glaucoma patients. The filtration device provides an easier path for the physician to drain aqueous fluid from the anterior chamber of the eye, compared to the current trabeculectomy procedure, providing a more consistent surgical procedure and more predictable patient outcomes. The Eye-Q excimer laser has enhanced pulse frequency of 400 Hz while providing innovative and reliable eye tracking and improved ergonomics for the physician and patient.

Positive CHMP opinion for Nepafenac
The EMA's Committee for Medicinal Products for Human Use adopted a positive opinion in the fourth quarter for expanding the label claim for Nepafenac, an ophthalmic suspension that treats eye pain and inflammation resulting from cataract surgery, adding an indication for the reduction in the risk of postoperative macular edema associated with cataract surgery in diabetic patients. Macular edema is an important complication that can lead to permanent loss of vision in patients with diabetes who undergo cataract surgery.

Alcon's refractive offering expanded through US approval
The WaveLight EX500 Excimer Laser gained approval in the US in the fourth quarter. The WaveLight EX500 system improves refractive outcomes while offering additional precision and safety in laser eye surgery procedures. This approval follows the earlier certification of the WaveLight FS200 Femtosecond Laser in 2010, which allows Alcon to offer physicians an integrated Refractive Suite where the two lasers communicate - saving time and improving refractive outcomes.

Two additional Phase III studies underline Sandoz leadership in biosimilars
In January, Sandoz announced two Phase III clinical trials for daily filgrastim (generic Neupogen®) and once-per-cycle pegfilgrastim (generic Neulasta®) in breast cancer patients eligible for myelosuppressive chemotherapy treatment. Filgrastim, a granulocyte-colony stimulating factor (G-CSF) analog, is used to prevent or treat neutropenia, a common side effect of chemotherapy characterized by low white blood cell count. Sandoz's filgrastim biosimilar is already marketed under the brand name Zarzio in more than 30 countries outside the US, and this study is expected to support extension of commercialization to the US. The pegfilgrastim study represents the next major step in the Sandoz global biosimilar development program, which aims to create the number one overall G-CSF franchise worldwide.

Growth: Meeting healthcare needs worldwide