?Q3 net sales from continuing operations1were in line with prior year (cc2, +1% USD): ?Growth drivers included Entresto USD 632 million (+45% cc), Zolgensma USD 291 million (+79% cc), Cosentyx USD 1 012 million (+7% cc), Kisqali USD 183 million (+50% cc) and Promacta/Revolade USD 442 million (+16% cc)
?Sandoz Biopharmaceuticals grew 13% (cc, +16% USD), with strong growth across all regions
?COVID-19 negatively impacted demand, particularly: dermatology, ophthalmology and Sandoz retail

?Q3 core operating income grew 11% (cc, +9% USD) due to lower spending and improved gross margin
?Q3 net income in line with prior year (cc, -5% USD) mainly due to legal provisions
?Q3 free cash flow2 of USD 2.7 billion (-32%) mainly due to payments related to legal settlements
?Key innovation milestones: ?Kesimpta approved and launched in the US for treatment of relapsing forms of multiple sclerosis
?Piqray received EC approval for HR+/HER2- advanced breast cancer with a PIK3CA mutation
?Leqvio (Inclisiran) received positive CHMP opinion for hypercholesterolemia/mixed dyslipidemia (Oct)
?Adakveo received positive CHMP opinion for prevention of vaso-occlusive crises in sickle cell disease

?Issued the healthcare industry’s first sustainability-linked bond to increase access to medicines
?Received upgrades to ESG scores from third party ratings agencies including MSCI
?YTD net sales from continuing operations1 grew 4% (cc2, +2% USD) and core2 operating income grew 16% (cc, 12% USD): ?Innovative Medicines grew sales 5% (cc, +4% USD) and core operating income 13% (cc, +9% USD)
?Sandoz sales were in line (cc, -2% USD) and core operating income grew 19% (cc, +15% USD)

?2020 guidance3 for continuing operations1 – Net sales expected to grow mid single digit; core operating income upgraded to low double digit to mid teens (upgraded from low double digit)

Basel, October 27, 2020 - commenting on the quarter, Vas Narasimhan, CEO of Novartis, said:

“Novartis continues to deliver solid performance with double digit increases in core operating income and expanding margins, despite the impact of COVID-19 on healthcare systems. Our key growth drivers and launches are performing well. The strength of Novartis’ underlying operations enables us to upgrade our Full Year 2020 core operating income guidance. We are excited about the progress of our pipeline including the recent US approval of Kesimpta for the treatment of relapsing forms of multiple sclerosis. We continue to integrate ESG across all our operations, with commitments to ambitious climate and access to medicines targets, as we strive for more sustained impact on our journey to become an ESG leader”.

Key Figures Continuing Operations
Q3 2020 Q3 2019 % change 9M 2020 9M 2019 % change
USD m USD m USD cc USD m USD m USD cc
Net sales 12 259 12 172 1 0 35 889 35 042 2 4
Operating income 2 412 2 358 2 9 7 508 7 263 3 11
Net income 1 932 2 041 -5 0 5 972 6 018 -1 6
EPS (USD) 0.85 0.90 -6 0 2.62 2.62 0 7
Free cash flow 2 697 3 968 -32 8 349 9 449 -12
Core operating income 4 069 3 748 9 11 11 915 10 650 12 16
Core net income 3 467 3 212 8 10 10 124 9 119 11 15
Core EPS (USD) 1.52 1.41 8 9 4.44 3.97 12 16



COVID-19 update

The COVID-19 situation continues to evolve and is taking differing courses across the multitude of geographies that Novartis operates in. We continue to take strong actions to help address the pandemic. Our primary concerns remain the health and safety of our associates and patients.

During the third quarter, overall market conditions have been recovering, though COVID-19 continues to weigh on certain therapeutic areas, most notably in dermatology, ophthalmology and the Sandoz retail business. Our operations remain stable and cash collections continue to be according to our normal trade terms, with days sales outstanding at normal levels. Novartis remains well positioned to meet its ongoing financial obligations and has sufficient liquidity to support our normal business activities. At present, drug development operations are continuing with manageable disruptions (please see Innovation Review Section of the Condensed Interim Financial Report for further information), with our range of digital technologies allowing us to proactively manage our clinical trials portfolio and rapidly mitigate any disruptions.

Novartis continues to work closely with third parties to fight the COVID-19 pandemic. In September, we announced a collaboration with the African Union to facilitate the supply of COVID-19 related medicines – with a portfolio of 15 Novartis generic and over-the-counter medicines being offered at zero-profit to 55 African and 15 CARICOM eligible countries.

Financials

In order to comply with International Financial Reporting Standards (IFRS), Novartis has separated the Group’s reported financial data into “continuing” and “discontinued” operations. The results of the Alcon business in 2019 are reported as discontinued operations. See page 42 and Notes 2, 3 and 10 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, as well as the continuing Corporate functions. We also provide information on discontinued operations.

Continuing operations third quarter

Net sales were USD 12.3 billion (+1%, 0% cc) in the third quarter driven by volume growth of 7 percentage points, offset by price erosion of 4 percentage points and the negative impact from generic competition of 3 percentage points.

Operating income was USD 2.4 billion (+2%, +9% cc) mainly due to lower spending, improved gross margin and gains on financial assets, partly offset by higher legal charges.

Net income was USD 1.9 billion (-5%, 0% cc) as higher operating income was offset by a higher tax rate. EPS was USD 0.85 (-6%, 0% cc), in line with net income.

Core operating income was USD 4.1 billion (+9%, +11% cc) due to lower spending and improved gross margin. Core operating income margin was 33.2% of net sales, increasing by 2.4 percentage points (+3.2 percentage points cc).

Core net income was USD 3.5 billion (+8%, +10% cc) mainly driven by growth in core operating income. Core EPS was USD 1.52 (+8%, +9% cc), in line with core net income.

Free cash flow from continuing operations amounted to USD 2.7 billion (-32%) compared to USD 4.0 billion in the prior year quarter. This decrease was due to lower cash flows from operating activities, including higher payments related to legal settlements.

Innovative Medicines net sales were USD 9.8 billion (+2%, +1% cc) with volume contributing 9 percentage points to growth, pricing had a negative impact of 5 percentage points and generic competition had a negative impact of 3 percentage points mainly due to Afinitor and Exjade. Pharmaceuticals BU sales grew 2% (cc) driven by strong growth from Entresto, Cosentyx and Zolgensma. Growth was partly offset by declines in Established Medicines and ophthalmology brands. Oncology BU sales were broadly in line with prior year (-1% cc). Strong performance of Kisqali, Promacta/Revolade, Jakavi, Tafinlar + Mekinist and Piqray was offset by generic competition for Afinitor and Exjade. The COVID-19 pandemic continued to negatively impact dermatology and ophthalmology.

Sandoz net sales were USD 2.4 billion (-2%, -3% cc) with a volume decline of 1 percentage point (cc) impacted by ongoing disruptions to HCP practices due to COVID-19, which limited patient access to treatments for our retail business. There was a negative price effect of 2 percentage points (cc), despite the benefit from off-contract sales and favorable revenue deduction adjustments. The decline was partly offset by global sales of Biopharmaceuticals, growing 13% (cc), with strong growth across all regions.

Continuing operations nine months

Net sales were USD 35.9 billion (+2%, +4% cc) in the first nine months mainly driven by Entresto, Zolgensma and Cosentyx. Volume contributed 9 percentage points to sales growth, partly offset by price erosion of 3 percentage points and the negative impact from generic competition of 2 percentage points.

Operating income was USD 7.5 billion (+3%, +11% cc) mainly driven by sales growth, improved gross margin and lower spending, partly offset by higher amortization and lower divestment gains.

Net income was USD 6.0 billion (-1%, +6% cc) as higher operating income was offset by a higher tax rate. EPS was USD 2.62 (0%, +7% cc), growing faster than net income and benefiting from lower weighted average number of shares outstanding.

Core operating income was USD 11.9 billion (+12%, +16% cc) mainly driven by higher sales and improved gross margin. Core operating income margin was 33.2% of net sales, increasing by 2.8 percentage points (+3.6 percentage points cc).

Core net income was USD 10.1 billion (+11%, +15% cc) mainly driven by growth in core operating income. Core EPS was USD 4.44 (+12%, +16% 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 8.3 billion (-12%) compared to USD 9.4 billion in the prior year period, primarily as higher operating income adjusted for non-cash items was more than offset by payments related to legal settlements and lower divestment proceeds.

Innovative Medicines net sales were USD 28.8 billion (+4%, +5% cc) with volume contributing 12 percentage points to growth, pricing a negative 4 percentage points and generic competition had a negative impact of 3 percentage points. Pharmaceuticals BU grew 6% (cc) driven by Entresto (+48% cc), Zolgensma (reaching USD 0.7 billion) and Cosentyx (+12% cc). Growth was partly offset by declines in Lucentis and other ophthalmology products, primarily driven by lower demand due to COVID-19. Oncology BU grew 4% (cc) driven by Promacta/Revolade (+24% cc), Kisqali (+59% cc) and Piqray (reaching USD 0.2 billion).

Sandoz net sales were USD 7.1 billion (-2%, 0% cc) as volume growth of 2 percentage points (cc) was impacted by ongoing disruptions to HCP practices due to COVID-19, which limited patient access to treatments for our retail business. There was a negative price effect of 2 percentage points (cc), despite the benefit from off-contract sales and favorable revenue deduction adjustments. Sales in Europe grew 2% (cc), while sales in the US declined 14%, driven by oral solids. Global sales of Biopharmaceuticals grew 20% (cc) to USD 1.4 billion, with strong growth across all regions.

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 nine months of the prior year included three months of operating results of the divested business.

In the first nine months of 2020, there were no activities related to discontinued operations. In the first nine months of 2019, discontinued operations net sales were USD 1.8 billion, operating income amounted to USD 71 million and net income from discontinued operations was USD 4.6 billion, including 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 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 nine months

For the total Group, net income amounted to USD 6.0 billion compared to USD 10.6 billion in the prior year, including the non-taxable non-cash net gain on distribution of Alcon Inc. Basic earnings per share was USD 2.62 compared to USD 4.62 in prior year. Cash flow from operating activities for the total Group amounted to USD 9.6 billion and free cash flow to USD 8.3 billion.

Key growth drivers

Underpinning our financial results in the quarter is a continued focus on key growth drivers (ranked in order of contribution to Q3 growth) including:

Entresto (USD 632 million, +45% cc) sustained strong growth with increased patient share across markets, driven by demand as the essential first choice therapy for rEF heart failure.
Zolgensma (USD 291 million, +79% cc) delivered significant growth. Contributing factors included geographic expansion outside the US and increased newborn screening in the US.
Cosentyx (USD 1 012 million, +7% cc) saw continued growth despite lower new patient starts across the market in dermatology and rheumatology due to COVID-19.
Kisqali (USD 183 million, +50% cc) continued strong growth across all geographies, benefiting from the ongoing impact of positive overall survival data.
Promacta/Revolade (USD 442 million, +16% cc) grew across all regions, driven by increased use in chronic immune thrombocytopenia and as first-line treatment for severe aplastic anemia in the US.
Beovu (USD 51 million) launch roll-out continued, with approval now in more than 45 countries.
Jakavi (USD 335 million, +18% cc) growth was driven by strong demand in the myelofibrosis and polycythemia vera indications.
Tafinlar + Mekinist (USD 397 million, +14% cc), continued to show solid growth driven by demand in adjuvant melanoma as well as NSCLC.
Mayzent (USD 49 million) continued to grow steadily. Growth is driven by fulfilling an important unmet need in patients showing signs of progression.
Piqray (USD 83 million, +95% cc) grew significantly in the US as the launch roll-out continued.
Kymriah (USD 122 million, +51% cc) grew strongly in Europe, US and Japan. Coverage continues to expand, with more than 260 qualified treatment centers and 26 countries having coverage for at least one indication.
Adakveo (USD 35 million) US launch continues to progress well, with close to 100% brand awareness among hematologists and expanding payer coverage decisions.
Biopharmaceuticals (USD 498 million, +13% cc) continued strong growth across all regions.
Emerging Growth Markets* Strong growth in China (+13% cc) to USD 667 million was offset by COVID-19 related declines in certain emerging markets. Overall, sales grew 4% (cc).
*All markets except the US, Canada, Western Europe, Japan, Australia and New Zealand

Net sales of the top 20 Innovative Medicines products in 2020

Q3 2020 % change 9M 2020 % change
USD m USD cc USD m USD cc
Cosentyx 1 012 8 7 2 886 12 12
Gilenya 733 -12 -13 2 243 -7 -7
Entresto 632 47 45 1 781 47 48
Tasigna 478 -2 -2 1 445 4 5
Lucentis 515 3 0 1 403 -11 -10
Promacta/Revolade 442 16 16 1 267 22 24
Tafinlar + Mekinist 397 15 14 1 134 15 17
Sandostatin 361 -7 -7 1 076 -9 -8
Jakavi 335 20 18 963 17 19
Xolair 320 7 6 916 5 7
Galvus Group 289 -10 -8 906 -5 -2
Gleevec/Glivec 280 -13 -13 897 -6 -4
Afinitor/Votubia 262 -35 -34 824 -30 -29
Diovan Group 237 -7 -6 779 -2 1
Exforge Group 237 -5 -5 733 -6 -3
Zolgensma 291 82 79 666 nm nm
Ilaris 220 24 25 633 28 30
Kisqali 183 49 50 503 55 59
Exjade/Jadenu 162 -36 -37 497 -33 -33
Votrient 160 -19 -19 488 -16 -14
Top 20 products total 7 546 3 2 22 040 5 6


nm = not meaningful

R&D Update - key developments from the third quarter

New approvals and regulatory update

Kesimpta
(Ofatumumab) Received FDA approval as a subcutaneous injection for the treatment of relapsing forms of multiple sclerosis (RMS), to include: clinically isolated syndrome, relapsing-remitting disease and active secondary progressive disease. Kesimpta is the first self-administered, targeted B-cell therapy for RMS patients.
Piqray

Received EC approval (in combination with fulvestrant) for the treatment of HR+/HER2- advanced breast cancer with a PIK3CA mutation, after disease progression following endocrine therapy as monotherapy. Approximately 40% of HR+/HER2- advanced breast cancer patients have a PIK3CA mutation, which is associated with a poor prognosis.
Leqvio
(Inclisiran) Received positive CHMP opinion for the treatment of adults with hypercholesterolemia or mixed dyslipidemia, marking an important milestone towards it becoming potentially available in the EU.
Cosentyx

Received EC approval for the treatment of moderate-to-severe plaque psoriasis in children and adolescents aged 6 to <18 years.
Approved in Japan for non-radiographic axial spondyloarthritis.
Xolair

Received EC approval as an add-on therapy for the treatment of adults with severe chronic rhinosinusitis with nasal polyps (CRSwNP).
Enerzair Breezhaler

Received EC approval, including the first digital companion (sensor and app) that can be prescribed alongside a treatment for uncontrolled asthma.
Received approval in Canada.
Adakveo

Received positive CHMP opinion for the prevention of recurrent vaso-occlusive crises in patients with sickle cell disease. If approved, Adakveo would be the first targeted sickle cell disease therapy available for use in Europe.
Beovu

EMA approved a safety label update to include additional information regarding retinal vasculitis and retinal vascular occlusion, helping guide physicians in their treatment of wet AMD.
AVXS-101 IT FDA has acknowledged the potential of AVXS-101 IT and requested a pivotal confirmatory study to supplement the existing STRONG data and further support the regulatory submission for AVXS-101 IT.
Iptacopan
(LNP023)

EMA granted PRIME designation for iptacopan in C3 glomerulopathy (C3G).
FDA and EMA have granted an orphan drug designation to iptacopan for the treatment of C3G and paroxysmal nocturnal hemoglobinuria (PNH).
Branaplam (LMI070) FDA granted orphan drug designation for branaplam (LMI070) for the treatment of Huntington’s Disease. Branaplam is an orally administered, once weekly, small molecule RNA splicing modulator that is currently under investigation for the treatment of spinal muscular atrophy

Regulatory submissions and filings

Cosentyx Submitted in the US for pediatric psoriasis indication
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