Novartis AG · SIX:NOVN
Novartis — 9M 2006 Earnings Presentation
57 slides from Novartis's earnings presentation, Oct 19, 2006
Slide 1: 9 Months Performance
9 Months Performance 19 October 2006 The following information contains certain forward-looking statements relating to the Company business, which can be identified by the use of forward-looking terminology such as “will,” or “expect” or similar expressions, or by express or implied discussions rega
Slide 2: Agenda; Dynamic Sales and Earnings Growth in 9M/06
Agenda • Overview R. Breu • Pharmaceuticals T. Ebeling • Sandoz A. Rummelt • Outlook R. Breu 3 Nine Months 2006 / October 19 2006 Dynamic Sales and Earnings Growth in 9M/06 Reaffirms Outlook for Record Full-Year Results • Double-digit expansion continues: sales +14% in USD • Pharmaceuticals market s
Slide 3: Operating and Net Income Expansion Outpace Sales Growth in 9M
Operating and Net Income Expansion Outpace Sales Growth in 9M – EPS up 15% 9 M 2006 9 M 2005 in % USD in % LC Net sales 26 967 23 555 14 15 1 Operating income 6 350 5 417 17 as % of net sales 23.5 23.0 2 Net income 5 539 4 789 16 as % of net sales 20.5 20.3 Free Cash Flow 2 665 3 063 -13 EPS (USD) 2
Slide 4: Operating Income Growth of 26% Excluding Chiron Charges
Operating Income Growth of 26%, Excluding Chiron Acquisition Related Charges in 9M September 2006 YTD, in USD m Pharma- ceuticals V&D1 Group Reported operating income 5 082 -28 6 350 PPA2 and integration costs 236 226 462 – Amortization of intangibles 42 104 146 – Inventory step-up3 81 93 174 – Rest
Slide 5: Acquisitions and Volume Expansion Key Source of Sales Growth
Acquisitions and Volume Expansion Are Key Source of Net Sales Growth % Growth in 9 M 2006 20.0 +6% +1% +8% +15% -1% +14% 15.0 10.0 5.0 0.0 Volume Price Acq. / Div. LC Currency USD 9 Nine Months 2006 / October 19 2006 Operating Income 2% Points Higher in Constant Currencies % growth 9M 2006 20 +19% +
Slide 6: Sales Growth Driven by Underlying Expansion in all Divisions
Sales Growth Driven by Good Underlying Sales Expansion in all Divisions and from Acquisitions % net sales growth 9 M 2006 Q 3 2006 LC USD Pharmaceuticals 11 12 10 13 V&D na na na na Sandoz1 38 -7 38 -4 Consumer Health2 5 3 4 4 Group3 15 11 14 13 1 Acquisition / Divestment impact: 9M 38%, Q3: 4% in L
Slide 7: Group Operating Margin Up 0.5% Points in 9M 2006
Group Operating Margin Up 0.5% Points in 9M 2006, Despite Chiron Charges 1 Operating margins in % 9 M 2006 9 M 2005 39.51 30.7 31.0 23.5 23.0 19.9 16.0 12.4 7.1 -5.6 Pharma- V&D Sandoz Consumer Group ceuticals Health 1 Operating margin in 9M/2006, excluding items listed below: Pharmaceuticals: 32.4%
Slide 8: Acquisition Related Charges Offset Productivity Improvements
Acquisition Related Charges Offset Productivity Improvements % pt change Q3 2006 vs. -1.4% - COGS: Chiron acquisition related charges of Q3 2005 USD – 204 m, higher royalty payments in -0.4% Pharmaceuticals and change in mix (higher COGS of Sandoz and V&D) 0.6% + M&S: Productivity improvements at Sa
Slide 9: Income from Associated Companies; Cash Flow from Operations
Income from Associated Companies - Improved by USD 67 m 9 M 2006 9 M 2005 Change USD m USD m in % USD Share of est. Roche net income 297 207 43 Depreciation and amortization of - 84 - 86 2 tangibles and intangibles Catch-up for actual Roche 13 2 * previous year Net income effect Roche 226 123 84 Inc
Slide 10: Free Cash Flow Down 13%
Free Cash Flow Down 13 % Due to Higher Investments and Lower Divestments 9 M 2006 Free Cash Flow change vs previous year 3 063 605 - 372 - 346 - 343 58 2 665 4000.0 3000.0 2000.0 1000.0 Free Cash Increased cash Higher cap. Higher Lower sale of Dividends Free Cash Flow 9M / 05 flow from investments i
Slide 11: Key Messages 9M 2006; Strong Pharma Net Sales Expansion
Key Messages 9M 2006 • CV1, Oncology, and NS2 driving double-digit growth • Market share up to 4.0%3 • Strong US, Latin America, and Emerging markets growth • Improved operating income margin excluding Chiron • Strong data presented on upcoming launches 1 Cardiovascular 2 Neuroscience 3 IMS MIDAS 29
Slide 12: Operating Margin Improvements Offset by Chiron; US Growth
Operating Margin Improvements Offset by Chiron %-pt change excl. Chiron Q3 2006 vs. -0.6 + Increased other revenues Q3 2005 + Tricare provision reversal of USD 62m − Ph III spending and R&D cooperations − Increased pre-launch M&S spending 9M 2006 vs. +1.2 + Focused M&S on key growth drivers 9M 2005
Slide 13: Key Franchises and Top Brands
Key Franchises With Dynamic Growth Net sales 9M 2006 in USD m1 Growth in LC vs. PY Cardiovascular2 4 740 +16% Oncology 4 295 +15% Neuroscience2 1 928 +16% Resp. / Derm.2 1 348 -2% IDTI2,3 917 +13% Ophthalmics 554 -13% A/B/G/U2,4 515 +58% Mature Products 2 230 -5% Pharma Total 16 527 +11% 1 Franchise
Slide 14: Diovan Hypertension Segment Share Growth
Significant Hypertension Segment Share Growth in the US Weekly US Diovan and Lotrel TRx segment share of AHY1 All-time high AHY segment 11.5% share 11.3% 11.4% 11.1% 10.9% • Leading SOV 10.7% • Strong formulary 10.5% access 10.3% • Innovative patient and physician 10.1% Aug Oct Dec Jan Mar May Jul S
Slide 15: Zelnorm and Xolair Growth
Zelnorm Reaching New Highs Monthly US TRx volume In thousand TRx +29% 300 vs. PY1 250 • USD 356m US sales2 • 19% segment growth3 200 • Value share up to 68%4 • Patients and physicians campaigns 150 • Improved in-office DTC Pulsed DTC conversion 100 Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug 2005 2006 1
Slide 16: Glivec Growth in GIST and CML
Expansion in GIST and Increased Survival in CML Driving Glivec® Growth Glivec® sales by indication, 9M 2006 In percent US: USD 457 m, +23% vs PY Europe: USD 856 m, +15% vs PY Other Other GIST1 GIST1 ~4 +13-17% ~1 +38-42% 20-25 25-30 73-78 67-72 CML CML +5-9% +11-15% 1 Metastatic and inoperable GIST
Slide 17: Femara Segment Share; Exjade Sales Growth
Femara® Gaining Segment Share Femara® share of US aromatase inhibitor segment, 2006 4-year follow up data from 35% BIG 1-981 33.8% • Strong risk reduction, 34% especially in node-positive 33% and chemo-pretreated NRx share women 32% 31.4% • Distant metastases 31% reduced by 19% • No increase in adve
Slide 18: Best Cardiovascular Reps; 2006 Deals Improving Pipeline
Best Cardiovascular Reps in Most Key Markets Best Rep survey in key market for prescribers of cardiovascular medicines 20061 #1 #2 #1 #1 #2 #1 #1 #1 #1 #1 1 Physicians were asked (unprompted) to name the best rep they have interacted with in any therapeutic area; results reflect rank of % mentions o
Slide 19: Attractive Compounds Advancing in Registration and Late Development
Attractive Compounds Advancing Well in Registration…(1/2) Phase Status Galvus®1 (type 2 diabetes) Reg File accepted by FDA in March 06, filed with EMEA in August 06 Tekturna®2 (hypertension) Reg File accepted by FDA in April 06, filed with EMEA in September 06 Exforge®1 (hypertension) Reg Filed with
Slide 20: Outstanding Results in Pivotal Osteoporosis Study
Outstanding Results in Pivotal Osteoporosis Study Sustained fracture efficacy at year 31 Aclasta Actonel Fosamax Bon(v)iva5 • First to significantly reduce (VERT)2,3 (FIT)4 0 fracture in key OP sites (hip, Relative Risk Reduction (%) vertebral, non-vertebral) in 10 single, prospective study 20 • Unp
Slide 21: Galvus Press Coverage; True Once Daily Drug
Wide and Positive Galvus Press Coverage Post EASD1 “(…) Galvus, working alone, not in combination with another drug, lowered levels by 1.8%. (…) Januvia, combined with glucophage, lowered blood sugar levels by 2.1%.” “Novartis has now largely addressed potential competitive disadvantage of a 2x-dail
Slide 22: Galvus Blockbuster Profile; Tekturna Hypertension Therapy
Blockbuster Profile -1.8% HbA1c reduction as monotherapy1 -1.1% Add. HbA1c lowering in combination with metformin -2.8% HbA1c reduction in initial combination with TZD1 65% Responder rate2 -2.8kg Relative weight reduction vs. TZDs in obese patients 1/day Effective in lowering HbA1c when taken once d
Slide 23: Exforge BP Control; Track Record in Development
Powerful BP Control by Combining Two of the Most Prescribed and Complementary Molecules Up to 43 mmHg1 reductions in systolic BP Powerful reductions in difficult to treat patients Control rates of up to 84%2 Expected to combine end-organ protection4 & ischemia benefits5 Lower incidence of peripheral
Slide 24: 2006 Outlook
2006 Outlook Barring unforeseen events • Double-digit top line growth for the year, incl. Chiron1 • In Q4 intensified pre-marketing activities and anticipated impact of generics • Continued market share gains • Approximately USD 220-250m negative impact on operating income from Chiron integration •
Slide 25: Sandoz: Strong Performance in 9M 2006
Strong Performance in 9M 2006 • Strong performance driven by − Hexal and Eon Labs acquisitions beating expectations − Organic Retail sales growth particularly in US, Eastern Europe, Switzerland and Australia − Gross margin up 3.7% points due to product mix, operating efficiency improvements and non-
Slide 26: Sandoz 9M Sales Up 38%; Margin Improvements
9M Sales Up 38% in LC vs. 2005 9M 2006 Growth in % vs. 2005 USD m USD LC Net sales 4 306 +38 +38 Operating income 532 +139 as % of net sales 12.4 +5.3% points Employees at end 9M 20 744 +1% 51 Nine Months 2006 / October 19 2006 Operating Margin Improvements in 9M, Driven by Synergies and Productivit
Slide 27: Sandoz Operating Income; Retail Business
Operating Income Advancing Sharply Faster than Sales Operating income 9M 2006, in USD m Change % 9M-06 9M-05 (USD) Sandoz operating income as reported1 532 223 139 Total amortization of intangible assets +206 +137 Impairments of intangible assets, goodwill and tangible assets2 +53 +36 Reversal of in
Slide 28: Strong Retail Sales Growth; Launch Activities
Strong Retail Sales Growth in All Regions North YTD September Retail America** Australia/ growth by region in Africa* Oceania LC vs. 2005 in % Latin America 3%2% Europe +52 Asia 3% 4% US +43 4% Latin America +47 Asia +41 27% Africa* +19 57% North America** +22 US Australia/Oceania +119 Europe * incl
Slide 29: Sandoz Collaboration With Momenta; Conclusion
Sandoz Enters Exclusive Collaboration With Momenta Pharmaceuticals • Momenta is a biotechnology company with leading technology in the detailed characterization and engineering of complex sugars • Sandoz has exclusive rights to utilize technology, know-how and capacities for characterization of sele
Slide 30: Agenda; Estimated Impact of Chiron Acquisition
Agenda • Overview R. Breu • Pharmaceuticals T. Ebeling • Sandoz A. Rummelt • Outlook R. Breu 59 Nine Months 2006 / October 19 2006 Estimated Impact of Chiron Acquisition on Group Full Year 2006 Results Lowered by USD 50 m1 • Net sales contribution in 2006 approximately USD 1.3 bn incl. Betaseron • U
Slide 31: Outlook for 2006; Appendix
Outlook for 2006 – Stronger Competitive Position Barring unforeseen events • Double-digit net sales growth (in LC) • Continued market share gains • Sustained positive pipeline news flow • Record operating and net income 61 Nine Months 2006 / October 19 2006 Appendix 62 Nine Months 2006 / October 19
Slide 32: Accounting Chiron: Preliminary Opening Balance Sheet
Appendix Accounting Chiron 63 Nine Months 2006 / October 19 2006 Preliminary Opening Balance Sheet Chiron USD m, as per acquisition date Chiron Prelimi- Chiron preliminary Impact on Opening nary Step- Opening Balance operating Balance up and Sheet after step- income sheet Goodwill up and Goodwill 9M
Slide 33: 9M 2006 Net Sales Growth Components by Division
Appendix Group 65 Nine Months 2006 / October 19 2006 9M 2006 Net Sales Growth Components by Division Volume Price Acq./Div. Currency Pharmaceuticals 6% 3% 2% -1% V&D na na na na Sandoz 6% -6% 38% 0% Consumer Health 5% 0% 0% -1% Group 6% 1% 8% -1% 66 Nine Months 2006 / October 19 2006 33
Slide 34: Pharmaceuticals Share of Sales and Operating Income; Regions
Pharmaceuticals Make Up 61% of 9M Net Sales and 75% of Operating Income Net sales in % by Operating income in % by division division 21 Pharmaceuticals 17 Vaccines & 8 Diagnostics 16 Sandoz 61 2 Consumer Health 75 67 Nine Months 2006 / October 19 2006 US and Europe Make Up 77% of Net Sales in 9M – U
Slide 35: US and Europe Share of Q3 Net Sales; Group Margin
US and Europe Make Up 78% of Net Sales in Q3 – US Shows Strong Growth with +20% in LC Net sales Q 3 2006 Q 3 2006 net sales by region growth by region in % US LC 20 US 41% USD 20 Rest of Americas LC 4 8% Europe USD 9 14% Asia/Aus. LC 3 Africa USD Asia/Australia/ 2 Africa 37% Europe Rest of LC 13 Ame
Slide 36: Group Operating Margin Q3; Chiron Charges
Group Operating Margin Reaches 22.0% in Q3, Impacted by Chiron Acquisition Related Charges Q 3 2006 Q 3 2006 Q 3 2005 Change in % points Net sales 100.0% 100.0% Other revenues 2.2% 0.9% 1.3% Total revenues 102.2% 100.9% 1.3% Cost of Goods Sold -30.5% -29.1% -1.4% of which - amort. / impairment of -2
Slide 37: Net Income Growth of 22% Excluding Chiron Charges in Q3
Net Income Growth of 22%, Excluding Chiron Acquisition Related Charges in Q3 Q3 2006, in USD m Group Reported net income 1 870 Chiron acquisition related charges +156 – PPA1 and integration costs +253 – Tax effect -97 Net income excl. Chiron acquisition related charges 2 026 1 Purchase price account
Slide 38: Net Income Rises 22%; Associated Companies Income
Net Income Rises 22%, Excluding Chiron Acquisition Related Charges in USD m Q 3 2006 Q 3 2005 Change in % USD 1 Operating income 2 088 1 888 11 Result from associated companies 88 65 35 Financial income, net -4 18 -122 Income before taxes 2 172 1 971 10 Taxes - 302 - 305 -1 Net income 1 870 1 666 12
Slide 39: Return on Liquidity; Net Financial Income
High Return on Much Reduced Liquidity in USD m 9 M 2006 9 M 2005 Change in % Financial income, net 236 264 -11 % of average liquidity 3.4% 3.2% Interest expense -209 -227 8 % of average debt -3.0% -4.5% Currency gains / losses 23 87 -74 on operating activities Net financial income 50 124 -60 % of av
Slide 40: Share Buy-Back Programs; Liquid Funds Reduced
USD 9 bn Returned to Shareholders via Share Buy-Back Programs Share buy-back in USD m No shares bought back via second line in 9M 2006 3000 2500 2000 1500 1000 500 0 Dec FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 9M 2006 1999 1st program 2nd program 3rd program 4th program 79 Nine Months 2006 /
Slide 41: Asset Allocation and Currency Distribution of Liquidity
Asset Allocation of Liquidity Equities Alt. Invest. Equities 3%3% 5% Money market 40% 47% 54% 48% Bonds Bonds Money market September 20061 September 20051 1 Including hedges 81 Nine Months 2006 / October 19 2006 Currency Distribution of Liquidity Others CHF EUR 7% USD CHF 19% 26% 38% 19% 43% 48% USD
Slide 42: USD Predominant Currency; Currency Movements
USD Is the Predominant Currency in 9M 2006 • Products are imported for sale into US • High cost level in CHF Sales Costs In % 44 39 27 25 21 17 15 6 4 2 USD JPY EUR CHF Other 83 Nine Months 2006 / October 19 2006 Major Currencies Depreciate vs. USD in 9M 20061 Change vs. USD in % CHF -2.7 JPY -7.0 E
Slide 43: Full Year Impact of Currency Movements; Pharmaceuticals
Full Year Impact of Currency Movements vs USD on Sales and on Operating Income Impact of a 10% currency appreciation vs USD on group sales: • EUR: 2.7% • CHF: 0.2% • JPY: 0.6% • Others: 2.1% Impact of a 10% currency appreciation vs USD on group operating income1: • EUR: 3.6% • CHF: -5.2% • JPY: 1.3%
Slide 44: Planned Filings 2006 to 2009
NME Planned Filings 2006 to ≥ 2009 NME roll out LCM8 2006 2007 2008 ≥ 2009 Galvus® LIC477 (US) QAB149 AAE581 AEE788 Diabetes Bipolar disorder Asthma, COPD Osteoporosis Solid tumors LucentisTM(EU) PTK7873 EPO906 LDC300 XBD173 AMD1 Colorectal cancer Solid tumors Hepatitis B Anxiety Tekturna® Prexige®
Slide 45: Pharmaceuticals Q3 Growth; Regional Net Sales
Pharmaceuticals Grew +12% in LC in Q3, Driven by Strong Growth in CV, Oncology and Neuroscience as well as Chiron Acquisition Q3 2006, in USD m Growth in % vs 2005 USD m USD LC Net Sales 5 776 13 12 Reported operating income 1 779 6 PPA and integration costs 94 – Amortization of intangibles 33 – Inv
Slide 46: Pharmaceuticals Operating Margin 9M and Q3
Operating Margin in Pharmaceuticals Decreased by 0.3% Points in 9M, Owing to One-time Costs related to Chiron 9 M 2006 9 M 2006 9 M 2005 Change in % points Net sales 100.0% 100.0% Sales to other Divisions 0.7% 0.6% 0.1% Other revenues 1.6% 1.2% 0.4% Total revenues 102.3% 101.8% 0.5% Cost of Goods So
Slide 47: Vaccines & Diagnostics Key Drivers
Appendix Vaccines & Diagnostics 93 Nine Months 2006 / October 19 2006 Vaccines & Diagnostics – Key Drivers Of Performance Nine Months 2006 • Total net sales of USD 501 m • Vaccines sales increased 60% vs prior year driven by: − Flu sales to the UK − Shipments of influenza vaccines to the US • Diagno
Slide 48: Vaccines & Diagnostics Operating Income Excl. Acquisition Costs
Vaccines & Diagnostics Operating Income Reaches USD 198 m Excl. Acquisition Costs in 9M September 2006 YTD, in USD m USD m Net Sales 501 Reported operating income -28 PPA and integration costs 226 – Amortization of intangibles 104 – Inventory step-up 93 – Restructuring charges 29 Operating income ex
Slide 49: Vaccines & Diagnostics Regional Sales; Underlying Margin
Vaccines & Diagnostics –North America and Europe Make Up 90% of Net Sales in 9M Net sales Share of 9 M 2006 Growth total net (USD m) (% LC) sales (%) North America 235 na 47 Europe 217 na 43 Asia / Africa / Australia 43 na 9 Latin America 6 na 1 Total 501 na 100 97 Nine Months 2006 / October 19 2006
Slide 50: Vaccines & Diagnostics Q3 Margin; Sandoz Appendix
Underlying Operating Margin Reaches 45.2%, Excluding Acquisition Related Charges Q 3 2006 Q 3 2006 Net sales 100.0% Sales to other Divisions 3.7% Other revenues 23.8% Total revenues 127.5% Cost of Goods Sold -85.8% of which - amort. / impairment of -21.1% product rights, patents and trademarks Marke
Slide 51: Sandoz Margin Drivers; Q3 Net Sales
Synergies and Productivity Gains in Production, D&R and G&A Drove Margin Improvement 9 M 2006 9 M 2006 9 M 2005 Change in % points Net sales 100.0% 100.0% Sales to other Divisions 2.7% 3.8% -1.1% Other revenues 0.4% 0.4% 0.0% Total revenues 103.1% 104.2% -1.1% Cost of Goods Sold -57.8% -62.6% 4.8% o
Slide 52: Sandoz Top Line on Comparable Basis; Q3 Margin
Top Line 6% Above Q3 2005 on a Comparable Basis Net sales Q3 2006, in USD m Change % Q3-06 Q3-05 (USD) Sandoz net sales as reported 1 425 1 486 -4 Hexal / Eon first time consolidation effect -124 One-time adjustment for sales deductions +20 Net sales on a comparable basis 1 445 1 362 6 103 Nine Mont
Slide 53: Sandoz Q3 Margin; Bottom Line Comparable Basis
…Driven by Synergies and Productivity Gains in Production, D&R and M&S Q 3 2006 Q 3 2006 Q 3 2005 Change in % points Net sales 100.0% 100.0% Sales to other Divisions 2.6% 2.0% 0.6% Other revenues 0.5% 0.5% 0.0% Total revenues 103.1% 102.5% 0.6% Cost of Goods Sold -61.4% -64.1% 2.7% of which - amort.
Slide 54: Consumer Health Sales Growth 9M
Strong Double-digit Sales Growth in 9M, Driven by Hexal/Eon Acquisition and Good Retail GX Performance Net sales Share of 9 M 2006 Growth total net (USD m) (% LC) sales (%) North America 1 232 36 29 Europe 2 465 43 57 Asia / Africa / Australia 440 20 10 Latin America 169 40 4 Total 4 306 38 100 107
Slide 55: Consumer Health Growth 9M and Q3
Consumer Health Grew +5% in LC in H1, Driven by Robust Growth in OTC and Animal Health 9 M 2006 Growth vs PY in % USD m USD LC Net sales 5 633 4 5 Operating income 1 120 29 Employees at end of 19 411 -3 September 2006 109 Nine Months 2006 / October 19 2006 Consumer Health Grew +3% in LC in Q3, Drive
Slide 56: Consumer Health Regional Growth; Margin Improvement
Strong Double-Digit Growth In North America and Latin America in Consumer Health in 9M Net sales Share of 9 M 2006 Growth total net (USD m) (% LC) sales (%) North America 2 800 12 50 Europe 1 843 -6 33 Asia / Africa / Australia 594 1 10 Latin America 396 19 7 Total 5 633 5 100 111 Nine Months 2006 /
Slide 57: Consumer Health Q3 Margin Improvement
Margin Improvement of 2.5% pts. Driven by OTC, Animal Health and Medical Nutrition Q 3 2006 2006 2005 Change in % points Net sales 100.0% 100.0% Sales to other Divisions 0.6% 0.4% 0.2% Other revenues 0.5% 0.5% 0.0% Total revenues 101.1% 100.9% 0.2% Cost of Goods Sold -41.9% -41.7% -0.2% of which - a