Novartis maintains strong operational performance in Q1, confirms FY
2020 guidance at this time, and advances a broad range of efforts to
support the global response to COVID-19
? Q1 2020 net sales from continuing operations1 grew 13% (cc2, +11% USD) with double digit growth (cc) in Innovative Medicines and Sandoz:
o Key growth drivers include Entresto USD 569 million (+62% cc), Zolgensma USD 170 million, Cosentyx USD 930 million (+19% cc), Kisqali USD 161 million (+82% cc) and Piqray USD 74 million
o Biopharmaceuticals grew 31% (cc) to USD 450 million, with strong growth in Europe
o Excluding COVID-19 related forward purchases, we estimate3 sales growth to be approximately 9% (cc)
? Core2 operating income grew 34% (cc, +28% USD) mainly driven by higher sales, benefiting from COVID-19 forward purchasing and gross margin improvement, partly offset by launch investments
o Excluding COVID-19 related forward purchases and lower spending, we estimate3 core operating income growth to be approximately 22% (cc)
? Impacts of COVID-19:
o Our operations and product demand remain very stable and strong. Mitigating actions helped to ensure minimal disruption to supply chain and ability to meet forward purchasing demand
o We estimate3 that forward purchasing had a favorable impact of approximately USD 0.4 billion on sales. Core operating income benefited by approximately3 USD 0.4 billion from forward purchasing and lower spending. These impacts3 are expected to reverse in the remainder of 2020
o Currently manageable disruption to clinical trials and minimal disruption to ongoing regulatory submissions
? Net income grew 24% (cc, +16% USD), including higher legal provisions and taxes
? Free cash flow2 increased 8% to USD 2.0 billion driven by higher cash flows from operations
? Sandoz US generic oral solids and dermatology businesses will be retained by Novartis, after mutual agreement with Aurobindo to terminate the transaction
? 2020 guidance4 for continuing operations confirmed at this time - 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, April 28, 2020 — Commenting on the quarter, Vas Narasimhan, CEO of Novartis, said:
“We continue to deliver our medicines to patients and advance our innovative pipeline as reflected in our strong operational performance in Q1. While there are many uncertainties for the coming year, we are maintaining our full year outlook at this time and will continue to play our part to overcome the pandemic.
Our response to the COVID-19 crisis demonstrates Novartis’ relentless commitment to our associates, patients, and the global community. For our associates we’ve committed to no COVID-19 related job losses and a full range of support programs. To support the global public health response, we are engaged in multiple collaborative R&D efforts, large scale clinical trials and donations to support local communities in currently over 60 countries.”
Key figures2 Continuing operations1
Q1 2020 Q1 2019 % change
USD m USD m USD cc
Net sales 12 283 11 106 11 13
Operating income 2 744 2 242 22 30
Net income 2 173 1 868 16 24
EPS (USD) 0.96 0.81 19 27
Free cash flow 2 021 1 869 8
Core operating income 4 177 3 254 28 34
Core net income 3 549 2 811 26 31
Core EPS (USD) 1.56 1.21 29 34

1 Refers to continuing operations as defined on page 33 of the Condensed Interim Financial Report, excludes Alcon, includes the businesses of Innovative Medicines and Sandoz, 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 43 of the Condensed Interim Financial
Report. Unless otherwise noted, all growth rates in this Release refer to same period in prior year. 3 We provide these management estimates based on the best data available to Novartis, as we believe this
information is helpful to our investors to better understand Q1 underlying business performance. 4 Please see detailed guidance assumptions on page 6 including the forecast assumptions of a return to normal
prescription and consumption dynamics during Q2 in our major markets and no Gilenya and no Sandostatin LAR generics enter in 2020 in the US.

COVID-19 Update
As the COVID-19 situation continues to evolve, our primary concern remains the health and safety of our associates and patients globally while we also continue to take strong actions to help address the pandemic.
We are supporting our associates through a range of programs, from additional paid days off for those who have to care for ill family members at home, enhanced child care, on-line learning programs and enabled working from home. Importantly, Novartis has made a commitment that there will be no COVID- 19 related job losses.
During the first quarter, COVID-19 did not have a material impact on our underlying business, financial condition, cash collections or liquidity. COVID-19 did result in increased forward purchasing by customers, including at the patient level, as some patients filled prescriptions to cover a longer period of time. Novartis continues to deliver needed medicines to patients and healthcare providers around the world. We do not anticipate supply chain disruption for the majority of the portfolio at this time given strong mitigation measures and inventory levels.
Clinical trials are continuing and we are leveraging our digital tools to limit the disruption caused by the pandemic. We are seeing slowdowns in new enrollments in ongoing clinical studies and start-up with new studies. We are utilizing the SENSE digital technology implemented in 2018 that allows us to track in real time all of our clinical trials (500+) in more than 70 countries at the level of individual patients and shift to contingency plans rapidly as the situation evolves. This includes, direct-to-patient medication delivery supported by home nursing services, virtual safety assessments and remote medical monitoring.
At this time we remain confident the impact on our ongoing clinical trials is manageable. Looking ahead for the remainder of the year, we do not expect delays in our planned 2020 regulatory submissions. We will continue to monitor and provide more updates as the year unfolds.

Novartis is participating in collaborative research efforts such as the COVID-19 Therapeutics Accelerator, coordinated by the Bill & Melinda Gates Foundation, Wellcome, and Mastercard, as well as a COVID-19 directed partnership organized by the Innovative Medicines Initiative. Both are cross-sector collaborations that bring several pharmaceutical companies and expert academic institutions into coordinated research programs, with the aim of bringing the most promising molecules forward quickly without organizational barriers. Additionally, in response to an urgent call for research and development on COVID-19, issued by the European Federation of Pharmaceutical Industries and Associations, Novartis is contributing by making available several compounds from its libraries that are considered suitable for in vitro antiviral testing.
Together with the research community, Novartis is assessing whether our clinical-stage investigational or approved medicines could be repurposed beyond their intended or approved indications to treat complications of SARS-CoV-2 infection. Novartis initiated a Phase III clinical trial in collaboration with Incyte to evaluate the use of ruxolitinib in combination with standard of care (SoC), compared to SoC alone, as well as a Phase III study of canakinumab, in patients with pneumonia as a result of SARS-CoV-2 infection.
In addition, Novartis announced a Phase III trial of hydroxychloroquine, alone and in combination with azithromycin, for the treatment of hospitalized patients with COVID-19 disease. Under an expedited managed access program, Novartis has granted requests and provided ruxolitinib and canakinumab.
Requests for investigator initiated trials have also been granted for COVID-19-related clinical studies of imatinib, secukinumab, hydroxychloroquine and valsartan. Novartis has committed to donate up to 130 million doses of generic hydroxychloroquine to support the global COVID-19 pandemic response.

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 in 2019 are reported as discontinued operations. See page 33 and Notes 2, 3 and 10 in the Condensed Interim Financial Report for a full explanation.
The Sandoz US generic oral solids and dermatology businesses will be retained by Novartis, after Mutual agreement with Aurobindo to terminate the transaction. This decision was taken as approval from the U.S.
Federal Trade Commission for the transaction was not obtained within the agreed timelines.

The commentary below focuses on continuing operations including the businesses of Innovative Medicines and Sandoz, as well as the continuing Corporate functions. We also provide information on discontinued operations.

Continuing operations first quarter
Net sales were USD 12.3 billion (+11%, +13% cc) in the first quarter driven by volume growth of 17 percentage points, mainly from Entresto, Zolgensma, Cosentyx and Promacta/Revolade. Volume growth also benefited from COVID-19 related forward purchasing. Strong volume growth was partly offset by price erosion of 3 percentage points and negative impact from generic competition of 1 percentage point.
Excluding COVID-19 related forward purchases, we estimate sales growth would have been approximately 9% (cc).
Operating income was USD 2.7 billion (+22%, +30% cc) mainly driven by higher sales, partly offset by launch investments and higher legal expenses.
Net income was USD 2.2 billion (+16%, +24% cc) mainly driven by higher operating income, partly offset by higher taxes. EPS was USD 0.96 (+19%, +27% cc), growing faster than net income benefiting from lower weighted average number of shares outstanding.
Core operating income was USD 4.2 billion (+28%, +34% cc) mainly driven by higher sales and gross margin, partly offset by launch investments. Core operating income margin was 34.0% of net sales, increasing by 4.7 percentage points (+5.4 percentage points cc). Excluding COVID-19 related forward purchases and lower spending, we estimate core operating income growth would have been approximately 22% (cc) and core operating income margin would have been approximately 32% of net sales.
Core net income was USD 3.5 billion (+26%, +31% cc) driven by growth in core operating income, partly offset by higher financial expenses. Core EPS was USD 1.56 (+29%, +34% cc), growing faster than core net income benefiting from lower weighted average number of shares outstanding.
Free cash flow from continuing operations amounted to USD 2.0 billion (+8%) compared to USD 1.9 billion in the prior year quarter. The increase was mainly driven by higher cash flows from operating activities.
Innovative Medicines net sales were USD 9.8 billion (+11%, +13% cc). Pharmaceuticals BU sales grew 14% (cc), driven by continuing momentum on Entresto and Cosentyx and the launch uptake of Zolgensma. Oncology BU grew 12% (cc) driven by continuing momentum on Promacta/Revolade, Tafinlar + Mekinist and Kisqali as well as the launch uptake of Piqray. Volume contributed 18 percentage points to sales growth and partly benefited from COVID-19 related forward purchasing. Generic competition had a negative impact of 2 percentage points, mainly driven by Afinitor, Exjade, Travatan and Exforge, and net pricing had a negative impact of 3 percentage points.
Sandoz net sales were USD 2.5 billion (+9%, +11% cc) driven by volume growth of 15 percentage points including COVID-19 related forward purchasing, partly offset by price erosion of 4 percentage points.
Excluding the US, net sales grew strongly (+17% cc). Global sales of Biopharmaceuticals grew to USD 450 million (+31% cc), mainly driven by continued strong double-digit growth in Europe.

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, the first quarter of the prior year includes three months of operating results of the divested business.
In the first quarter of 2020, there were no activities related to discontinued operations. In the first quarter 2019, discontinued operations net sales were USD 1.8 billion, operating income amounted to USD 71 million and net loss from discontinued operations was USD 101 million. For further details see Note 2
“Distribution of Alcon Inc. to Novartis AG shareholders”, Note 3 “Significant transactions – Completion of the spin-off of the Alcon business through a dividend in kind distribution to Novartis AG shareholders” and Note 10 “Discontinued operations”.

Total Group first quarter
For the total Group, net income amounted to USD 2.2 billion compared to USD 1.8 billion in prior year, and basic earnings per share was USD 0.96 compared to USD 0.77 in prior year. Cash flow from operating activities for the total Group amounted to USD 2.5 billion and free cash flow to USD 2.0 billion.

Key growth drivers (Q1 performance):
Underpinning our financial results in the first quarter is a continued focus on key growth drivers including:
? Entresto (USD 569 million, +62% cc) continued demand-driven growth momentum across geographies. In the US, new weekly prescriptions reached all-time-high at >4,500.
? Zolgensma (USD 170 million) US launch continues to progress well. Policies are in place covering ~97% of commercial patients and >50% of Medicaid patients. Currently, 25 states representing 42% of newborns are screening for SMA in the US.
? Cosentyx (USD 930 million, +19% cc) continued to grow strongly across indications and regions. In the US sales grew 22% vs. Q1 2019 with broad first line access in all three indications.
? Promacta/Revolade (USD 403 million, +33% cc) continued double-digit growth in all regions driven by increased use in ITP and further uptake as first-line treatment for SAA in the US.
? Xiidra (USD 90 million) is the only prescription eye drop solution marketed in the US and Canada to treat the signs and symptoms of dry eye disease. Xiidra was acquired from Takeda in 2019.
? Tafinlar + Mekinist (USD 366 million, +26% cc) continued double-digit growth driven by demand in adjuvant melanoma as well as NSCLC.
? Piqray (USD 74 million) continued strong launch uptake in the US, benefiting from further uptake in PIK3CA mutation testing.
? Kisqali (USD 161 million, +82% cc) continued strong double-digit growth driven by demand in all geographies, benefiting from the impact of positive overall survival data from two pivotal Phase III trials (MONALEESA-7 and MONALEESA-3).
? Beovu (USD 68 million) was launched in the US in October 2019. Post marketing cases reported as severe vision loss, retinal artery occlusion and/or vasculitis had an unfavorable impact on US sales.
? Kymriah (USD 93 million, +109% cc) grew strongly in Europe and in the US. Over 230 qualified treatment centers and more than 20 countries have coverage for at least one indication.
? Mayzent (USD 30 million) sales increased driven by enhanced education of the EXPAND trial data.
? Adakveo (USD 15 million) US launch is progressing well, with high brand awareness among hematologists. Payer coverage and reimbursement are expanding, including Medicaid coverage policies issued in 12 states and by many national and regional private payers; C-code was issued on April 1, and a permanent J-code is on track to be issued on July 1.
? Biopharmaceuticals (biosimilars, biopharmaceutical contract manufacturing and Glatopa) grew to USD 450 million (+31% cc), driven by continued strong double-digit growth in Europe.
? Emerging Growth Markets, which comprise all markets except the US, Canada, Western Europe, Japan, Australia and New Zealand, sales grew 14% (cc) including China (USD 622 million), which grew 18% (cc).

Net sales of the top 20 Innovative Medicines products in 2020
Q1 2020 % change
USD m USD cc
Cosentyx 930 18 19
Gilenya 772 1 2
Entresto 569 59 62
Lucentis 487 -9 -6
Tasigna 487 12 15
Promacta/Revolade 403 31 33
Sandostatin 374 -5 -3
Tafinlar + Mekinist 366 23 26
Galvus Group 338 7 10
Gleevec/Glivec 329 7 9
Jakavi 318 23 27
Xolair 307 9 13
Afinitor/Votubia 296 -21 -20
Diovan Group 274 5 9
Exforge Group 258 -3 0
Ilaris 213 41 44
Exjade/Jadenu 172 -28 -26
Zolgensma 170 nm nm
Votrient 166 -11 -9
Kisqali 161 77 82
Top 20 products total 7 390 12 14

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