Q2 sales grew +5% cc1 (-1% USD)
Innovative Medicines (IM) sales grew +5% cc (-1% USD); strong performance of key growth brands including Entresto (+33% cc), Kesimpta (+270% cc), Cosentyx (+12% cc), Kisqali (+43% cc) and Zolgensma (+26% cc)
Sandoz sales grew +5% cc (-3% USD) benefiting from a return towards normal business dynamics, with growth across all business franchises
Q2 core1 operating income grew +5% cc (-2% USD), mainly driven by higher sales
Q2 operating income declined -30% cc (-36% USD), mainly due to prior year divestment gains, higher impairments and higher restructuring costs. Net income declined -34% cc (-41% USD), or -29% (cc) excluding the impact of Roche income2. Free cash flow was USD 3.3 billion (-22% USD)
Q2 core EPS USD 1.56 +1% cc (-6% USD); excluding Roche core income impact, core EPS grew +10% (cc)
Strong H1 performance with sales growing +5% cc (0% USD) and core operating income growing +7% cc (+1% USD):
Innovative Medicines sales grew +5% cc (0% USD) and core operating income +6% cc (-1% USD)
Sandoz sales grew +6% cc (-1% USD) and core operating income +10% cc (+5% USD)
Previously announced up to USD 15 billion share buyback ongoing; USD 9.4 billion still to be executed
Progressing our new organizational model with a focus on 5 core therapeutic areas; now expect to deliver approximately USD 1.5 billion in SG&A savings by 2024
Q2 key innovation milestones:
Cosentyx approved in the EU for childhood arthritic conditions
Kymriah approved in the US and EU for adults with relapsed or refractory follicular lymphoma
Scemblix received positive CHMP opinion for adults with Ph+ chronic myeloid leukemia
2022 Group guidance confirmed. Sandoz guidance revised upwards with sales expected to grow low single digit and core operating income to be broadly in line with prior year3
Basel, July 19, 2022 - commenting on the quarter, Vas Narasimhan MD, CEO of Novartis, said: “Novartis delivered a solid second quarter. Our six key in-market growth drivers with multi-billion sales potential (Cosentyx, Entresto, Zolgensma, Kisqali, Kesimpta, Leqvio) each grew at least double digits. The mid-stage pipeline remains on-track for 20+ potential significant pipeline assets with approval by 2026. Sandoz performance allows us to increase its guidance for the full-year and the strategic review is on track. Implementation of our streamlined organizational model is progressing well and is now expected to deliver approximately USD 1.5 billion in savings. We reconfirm our 2022 Group guidance and our confidence in delivering consistent growth and margin expansion.”

Key figures1

Q2 2022 Q2 2021 % change H1 2022 H1 2021 % change
USD m USD m USD cc USD m USD m USD cc
Net sales 12 781 12 956 -1 5 25 312 25 367 0 5
Operating income 2 228 3 479 -36 -30 5 080 5 894 -14 -7
Net income 1 695 2 895 -41 -34 3 914 4 954 -21 -14
EPS (USD) 0.77 1.29 -40 -33 1.77 2.20 -20 -12
Free cash flow 3 304 4 235 -22 4 224 5 832 -28
Core operating income 4 270 4 345 -2 5 8 353 8 302 1 7
Core net income 3 431 3 716 -8 -1 6 682 7 129 -6 0
Core EPS (USD) 1.56 1.66 -6 1 3.02 3.17 -5 2
Strategy Update

Novartis is a focused medicines company, with depth in five core therapeutic areas (Hematology, Solid Tumors, Immunology, Neuroscience and Cardiovascular), strength in technology platforms (Gene Therapy, Cell Therapy, Radioligand Therapy, Targeted Protein Degradation and xRNA), and a balanced geographic footprint. Our confidence to grow in the near to mid-term is driven by potential multi-billion-dollar sales from our key growth brands: Cosentyx, Entresto, Kesimpta, Zolgensma, Kisqali and Leqvio. To fuel further growth through 2030 and beyond, we have 20+ assets with significant sales potential that could be approved by 2026.

Novartis remains disciplined and shareholder focused in our capital allocation. We balance investing in our business, through organic investments and value-creating bolt-ons, with returning capital to shareholders via our growing annual dividend and share buybacks. Our previously announced up to USD 15 billion share buyback is ongoing, with USD 9.4 billion still to be executed.

In April, we announced a streamlined organizational model, designed to support innovation, growth and productivity, the implementation of which is progressing well. With the changes, Novartis now expects to deliver SG&A savings of approximately USD 1.5 billion, to be fully embedded by 2024. The savings will contribute to achieving mid to long-term IM core margins in the low 40’s and investing in our pipeline.

The strategic review of Sandoz is on track; we expect to provide an update, at the latest, by the end of 2022.

Novartis continues to make significant strides in building trust with society and consistently integrating access strategies into how we research, develop and deliver our medicines. We are committed to net zero emissions across our value chain by 2040. During the quarter, our MSCI ESG rating was increased to “AA”, placing us in the top quartile of companies within the pharmaceutical industry. Our culture journey towards an inspired, curious and unbossed organization continues, in order to drive performance and competitiveness in the long-term.

Financials

Second quarter

Net sales were USD 12.8 billion (-1%, +5% cc) in the second quarter, driven by volume growth of 12 percentage points, price erosion of 4 percentage points and the negative impact from generic competition of 3 percentage points.

Operating income was USD 2.2 billion (-36%, -30% cc), mainly due to lower product divestment gains (USD 0.4 billion), higher impairments (USD 0.4 billion) and higher restructuring costs (USD 0.3 billion) primarily related to the implementation of the new organizational model.

Net income was USD 1.7 billion (-41%, -34% cc), mainly due to lower operating income. Excluding the impact of Roche income, net income declined -29% (cc). EPS was USD 0.77 (-40%, -33% cc). Excluding the impact of Roche income, EPS declined -27% (cc).

Core operating income was USD 4.3 billion (-2%, +5% cc), mainly driven by higher sales, partly offset by higher R&D and M&S investments and lower gross margin. Core operating income margin was 33.4% of net sales, decreasing by 0.1 percentage points (+0.1 percentage points cc).

Core net income was USD 3.4 billion (-8%, -1% cc), as growth in core operating income was more than offset by the loss of Roche core income. Excluding the impact of Roche core income, core net income grew +8% (cc). Core EPS was USD 1.56 (-6%, +1% cc), benefiting from lower weighted average number of shares outstanding. Excluding the impact of Roche core income, core EPS grew +10% (cc).

Free cash flow amounted to USD 3.3 billion (-22% USD), compared to USD 4.2 billion in the prior year quarter, mainly due to lower divestment proceeds and unfavorable changes in working capital.

Innovative Medicines net sales were USD 10.5 billion (-1%, +5% cc) with volume contributing 13 percentage points to growth. Sales growth was mainly driven by continued strong performance from Entresto, Kesimpta, Cosentyx, Kisqali and Zolgensma. Generic competition had a negative impact of 4 percentage points, mainly due to Afinitor/Votubia, Gilenya (ex-US), Gleevec/Glivec, Exjade, and Sandostatin. Pricing had a negative impact of 4 percentage points. Sales in the US were USD 3.9 billion (+6%) and in the rest of the world USD 6.5 billion (-5%, +5% cc).

Sandoz net sales were USD 2.3 billion (-3%, +5% cc), benefiting from a return towards normal business dynamics, with growth across all business franchises. Volume contributed 11 percentage points to growth and pricing had a negative impact of 6 percentage points. Sales in Europe grew +4% (cc), while sales in the US declined -1%. Global sales of Biopharmaceuticals grew to USD 528 million (+1%, +11% cc).

First half

Net sales were USD 25.3 billion (+0%, +5% cc) in the first half, driven by volume growth of 12 percentage points, price erosion of 4 percentage points and the negative impact from generic competition of 3 percentage points.

Operating income was USD 5.1 billion (-14%, -7% cc), mainly due to lower product divestment gains (USD 0.4 billion), unfavorable fair value adjustments on financial assets (USD 0.2 billion) and higher restructuring costs (USD 0.2 billion) primarily related to the implementation of the new organizational model.

Net income was USD 3.9 billion (-21%, -14% cc), mainly due to lower operating income. Excluding the impact of Roche income, net income declined -4% (cc). EPS was USD 1.77 (-20%, -12% cc). Excluding the impact of Roche income, EPS declined -3% (cc).

Core operating income was USD 8.4 billion (+1%, +7% cc), mainly driven by higher sales, partly offset by higher R&D and M&S investments. Core operating income margin was 33.0% of net sales, increasing by 0.3 percentage points (+0.6 percentage points cc).

Core net income was USD 6.7 billion (-6%, +0% cc), as growth in core operating income was offset by the loss of Roche core income. Excluding the impact of Roche core income, core net income grew +9% (cc). Core EPS was USD 3.02 (-5%, +2% cc), benefiting from lower weighted average number of shares outstanding. Excluding the impact of Roche core income, core EPS grew +11% (cc).

Free cash flow amounted to USD 4.2 billion (-28% USD), compared to USD 5.8 billion in the prior year period, mainly due to lower divestment proceeds, unfavorable changes in working capital, and the loss of Roche annual dividend (prior year USD 0.5 billion), partly offset by favorable hedging results.

Innovative Medicines net sales were USD 20.6 billion (0%, +5% cc) with volume contributing 12 percentage points to growth. Sales growth was mainly driven by continued strong performance from Entresto, Kesimpta, Cosentyx, Kisqali and Zolgensma. Generic competition had a negative impact of 3 percentage points, mainly due to Afinitor/Votubia, Gleevec/Glivec, Exjade, Gilenya (ex-US) and Exforge. Pricing had a negative impact of 4 percentage points. Sales in the US were USD 7.6 billion (+4%) and in the rest of the world USD 13.1 billion (-3%, +5% cc).

Sandoz net sales were USD 4.7 billion (-1%, +6% cc), benefiting from a lower prior year comparison, which was most notable for the cough and cold season, as business dynamics continued to return towards normal. Volume contributed 13 percentage points and pricing had a negative impact of 7 percentage points. Sales in Europe grew +7% (cc), while sales in the US declined -2%. Global sales of Biopharmaceuticals grew to USD 1.0 billion (+1%, +9% cc).

Q2 key growth drivers

Underpinning our financial results in the quarter is a continued focus on key growth drivers (ranked in
order of cc contribution to Q2 growth) including:

Entresto (USD 1,125 million, +33% cc) sustained demand led growth across all regions, with increased patient share across markets
Kesimpta (USD 239 million, +270% cc) strong sales growth driven mainly by US launch momentum, due to strong access and increased demand based on a favorable risk-benefit profile
Cosentyx (USD 1,275 million, +12% cc) continued demand-led growth in Europe and the US, with accelerated growth in China
Kisqali (USD 308 million, +43% cc) grew strongly across all regions based on the longest overall survival benefit reported in HR+/HER2- advanced breast cancer
Zolgensma (USD 379 million, +26% cc) growth was driven by expanding access outside the US
Tafinlar + Mekinist (USD 452 million, +13% cc) grew due to demand in adjuvant melanoma and NSCLC
Promacta/Revolade (USD 534 million, +10% cc) growth was driven mainly by the US and Europe, with increased use in chronic ITP and as first-line treatment for severe aplastic anemia
Ilaris (USD 275 million, +20% cc) driven by double-digit growth across all regions
Jakavi (USD 398 million, +11% cc) grew across all regions, driven by strong demand in myelofibrosis and polycythemia vera
Xolair (USD 352 million, +11% cc) continued growth in all regions, driven by increasing demand in severe allergic asthma and chronic spontaneous urticaria
Scemblix (USD 31 million) strong launch uptake demonstrating the high unmet need in CML
Leqvio (USD 22 million) launch in the US and other markets is ongoing, with focus on patient on-boarding, removing access hurdles and enhancing medical education
Mayzent (USD 85 million, +29% cc) sales grew in MS patients showing signs of progression
Sandoz Biopharmaceuticals (USD 528 million, +11% cc) continued to grow across most regions, benefiting from a one-time contract manufacturing sale
Emerging Growth Markets* Overall, grew +10% (cc), with China delivering growth (+5% cc, USD 835 million), despite COVID-19 related lockdowns in the quarter
*All markets except the US, Canada, Western Europe, Japan, Australia, and New Zealand

Net sales of the top 20 Innovative Medicines products in 2022

Q2 2022 % change H1 2022 % change
USD m USD cc USD m USD cc
Cosentyx 1 275 9 12 2 434 9 12
Entresto 1 125 27 33 2 218 32 37
Gilenya 555 -23 -19 1 160 -19 -15
Promacta/Revolade 534 4 10 1 025 5 10
Lucentis 501 -9 0 1 021 -7 0
Tasigna 498 -5 0 959 -8 -4
Tafinlar + Mekinist 452 6 13 855 5 10
Jakavi 398 0 11 787 3 13
Zolgensma 379 20 26 742 17 22
Xolair 352 -1 11 720 4 14
Sandostatin 318 -11 -9 638 -11 -9
Ilaris 275 11 20 560 11 19
Kisqali 308 37 43 547 30 36
Galvus Group 222 -21 -11 438 -19 -10
Kesimpta 239 262 270 434 274 280
Exforge Group 199 -19 -15 399 -20 -17
Gleevec/Glivec 194 -26 -22 392 -27 -24
Diovan Group 159 -16 -10 350 -13 -9
Afinitor/Votubia 143 -46 -42 281 -46 -42
Kymriah 136 -7 1 263 -12 -6
Top 20 brands total 8 262 1 7 16 223 2 7
R&D update - key developments from the second quarter

New approvals

Cosentyx Approved in the EU for use in the juvenile idiopathic arthritis (JIA) categories of enthesitis-related arthritis (ERA) and juvenile psoriatic arthritis (JPsA) in patients ?6 years whose disease has responded inadequately to conventional therapy
Kymriah Approved in the US and EU for use in adult patients with relapsed or refractory follicular lymphoma, after two or more lines of systemic therapy
Jakavi Approved in the EU as the first post-steroid treatment for acute and chronic graft-versus-host disease (GvHD)
Tabrecta Approved in the EU for the treatment of advanced NSCLC, harboring alterations leading to METex14 skipping
Tafinlar + Mekinist Granted FDA accelerated approval for the treatment of adult and pediatric patients with unresectable or metastatic solid tumors with BRAF V600E mutation
Regulatory updates

Scemblix Received CHMP positive opinion for the treatment of adult patients with Philadelphia chromosome-positive CML in chronic phase, previously treated with two or more tyrosine kinase inhibitors
Results from ongoing trials and other highlights

Kisqali New CDK4/6i data at ASCO 2022, from the Ph3 MONALEESA-2 study, reinforces Kisqali as the only drug in class with consistently proven overall survival benefit in HR+/HER2- advanced or metastatic breast cancer. Kisqali plus letrozole maintained an OS benefit for postmenopausal patients with HR+/HER2- metastatic breast cancer treated in the first-line, including patients who required dose modification. An OS benefit was also observed in all subgroups treated with Kisqali and letrozole

Further follow-up of MONALEESA-3 showed Kisqali plus fulvestrant achieved a median OS of more than five-and-a-half years (67.6 months) in the first-line setting for postmenopausal women living with HR+/HER2- advanced or metastatic breast cancer. Data presented at ESMO Breast Cancer Congress 2022
Kesimpta

New data from the Ph3 ASCLEPIOS I/II trials and ALITHIOS open-label extension show that after four years nearly 8 out of 10 of people with relapsing multiple sclerosis (RMS) treated continuously with Kesimpta had no evidence of disease activity (NEDA-3), compared with 5 out of 10 of those who switched to Kesimpta at a later date after initial teriflunomide treatment
Zolgensma Nature Medicine publication of Zolgensma data demonstrated nearly all children with two and three copies of the SMN2 gene treated presymptomatically achieved age-appropriate milestones, including sitting, standing and walking. All children were free of respiratory and nutritional support, and serious, treatment-related adverse events
Scemblix Scemblix showed superior efficacy with more-than-two-fold improvement in major molecular response rate vs. Bosulif® (bosutinib) at 96 weeks (37.6% vs. 15.8%). Long-term safety remains consistent, with discontinuation rates due to adverse events more than three times lower in the Scemblix vs. Bosulif® arm (7.7% vs. 26.3%). Data presented at the 2022 ASCO and EHA annual meetings
Tislelizumab First-line tislelizumab plus chemotherapy showed median overall survival of 17.2 months vs. 10.6 months for chemotherapy and reduced risk of death by 34% in patients with advanced esophageal squamous cell carcinoma. Data presented at ESMO World Congress on Gastrointestinal Cancer
Tafinlar + Mekinist Treatment with Taf + Mek resulted in 47% ORR vs. chemotherapy (11%) and reduced risk of progression or death by 69%, showing significant efficacy improvement in patients aged 1 to 17 years old with BRAF V600 low-grade gliomas requiring first systemic treatment. Data presented at ASCO 2022
Kymriah In the final ELIANA analysis, 55% of patients with relapsed or refractory B-cell acute lymphoblastic leukemia (ALL) who were treated with Kymriah were still alive after more than five years. 44% of patients who experienced remission within three months of infusion were still in remission at the five-year mark, demonstrating the long-term benefit and curative potential of one-time Kymriah infusion. The safety profile remained consistent with previously reported results, without late adverse effects in these heavily pretreated patients. Data presented at EHA 2022
Piqray Biomarker analysis from the Ph3 SOLAR-1 study showed Piqray plus fulvestrant has clinical benefit regardless of the presence of ESR1 mutations and genes implicated in CDK4/6 inhibitor resistance. Data presented at ASCO 2022
Sabatolimab Submission in MDS is expected to be based on the ongoing Ph3 trial as, in isolation, the Ph2 STIMULUS-MDS-1 readout is not supportive of an early submission. Ph2 will be presented later this year
Icenticaftor Ph2b in COPD demonstrated dose response across multiple efficacy endpoints, study results to be presented by the end of 2022. Out-licensing planned
Capital structure and net debt

Retaining a good balance between investment in the business, a strong capital structure and attractive shareholder returns remains a priority.

During the first half of 2022, Novartis repurchased a total of 61.7 million shares for USD 5.4 billion on the SIX Swiss Exchange second trading line under the up-to USD 15 billion share buyback announced in December 2021. In addition, 1.2 million shares (for an equity value of USD 0.1 billion) were repurchased from employees. In the same period, 10.8 million shares (for an equity value of USD 0.5 billion) were delivered as a result of options exercised and share deliveries related to participation plans of employees. Novartis aims to offset the dilutive impact from equity based participation plans of employees over the remainder of the year. Consequently, the total number of shares outstanding decreased by 52.1 million versus December 31, 2021. These treasury share transactions resulted in an equity decrease of USD 5.0 billion and a net cash outflow of USD 5.2 billion.

As of June 30, 2022, net debt increased to USD 9.5 billion compared to USD 0.9 billion at December 31, 2021. The increase was mainly due to the USD 7.5 billion annual dividend payment and net cash outflow for treasury share transactions of USD 5.2 billion, partially offset by USD 4.2 billion free cash flow during the first half of 2022.

As of Q2 2022, the long-term credit rating for the company is A1 with Moody’s Investors Service and AA- with S&P Global Ratings.

2022 outlook

Barring unforeseen events; growth vs. prior year in cc

Innovative Medicines Sales expected to grow mid single digit
Core operating income expected to grow mid to high single digit, ahead of sales
Sandoz Sales expected to grow low single digit (revised upwards from broadly in line)
Core operating income expected to be broadly in line with prior year (revised upwards from to decline low to mid single digit)
Group Sales expected to grow mid single digit
Core operating income expected to grow mid single digit
Our guidance assumes that we see a continuing return to normal global healthcare systems, including prescription dynamics, and that no Gilenya and no Sandostatin LAR generics enter in the US.

In June 2022, an appeals court held the Gilenya US dosing regimen patent invalid. Novartis plans to petition the appeals court for further review to uphold validity of the dosing regimen patent. There is no generic competition in the US at this time. In Q2, Gilenya US sales were USD 332 million, US sales have been steadily declining due to competitive pressures.

Foreign exchange impact

If mid-July exchange rates prevail for the remainder of 2022, the foreign exchange impact for the year would be negative 6 to negative 7 percentage points on net sales and negative 7 to negative 8 percentage points on core operating income. The estimated impact of exchange rates on our results is provided monthly on our website.

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