Novartis AG · SIX:NOVN
Novartis — FY2008 Earnings Presentation
54 slides from Novartis's earnings presentation, Jan 28, 2009
Slide 1: Strong operational performance in 2008
Novartis Group Strong operational performance in 2008 2008 Annual Results Conference January 28, 2009 These materials contain certain forward-looking statements relating to the Group's business, which can be identified by the use of forward-looking terminology such as "outlook", "expected", "will",
Slide 2: Agenda; Novartis sustained performance from strategic healthcare portfolio
Agenda Overview D. Vasella Group performance 2008 Strategy for sustained growth Operating performance J. Reinhardt Financial results R. Breu Outlook D. Vasella Novartis sustained performance from strategic healthcare portfolio in 2008 Healthcare portfolio delivers dynamic sales and profit growth
Slide 3: Sustained growth in 2008; Q4 2008 results
Novartis: Sustained growth in 20081 Group key figures 12 M 2007 12 M 2008 Change Change in USD m in USD m in % USD in % LC2 Net sales 38 072 41 459 +9 +5 Operating income3 6 781 8 964 +32 Net income3 6 540 8 163 +25 EPS (USD) 2.81 3.59 +28 Number of associates 98 200 96 717 -2% 1 Continuing operatio
Slide 4: All divisions contribute to successful year
All divisions contribute to successful year Sales growth in USD Op. Inc. growth in USD Actual results 12 M 2008 (USD bn) % growth 12 M 2008 vs. 12 M 2007 Sales1 Op. Inc.1 in USD in LC Pharma 26.3 7.58 Pharma 10% +5% 25% V&D 1.76 0.08 V&D 21% +20% 8% Sandoz 7.56 1.08 Sandoz 5% +1% 4% Consumer 5.81 1.
Slide 5: Growing demand in a resource-constrained environment
Agenda Overview D. Vasella Group performance 2008 Strategy for sustained growth Operating performance J. Reinhardt Financial results R. Breu Outlook D. Vasella Growing demand in a resource-constrained environment Industry fundamentally attractive … but facing significant with strong growth drivers…
Slide 6: Consistent strategy to sustain profitable growth and mitigate risk
Consistent strategy to sustain profitable growth and mitigate risk 1 Selectively strengthen existing franchises of business portfolio addressing specific customer needs Priorities 2 Step up innovation focusing on 2009 differentiated products 3 Expand in high-growth markets 4 Improve organizational e
Slide 7: NIBR aims to change the practice of medicine
NIBR aims to change the practice of medicine Novel therapies in Proof-of-Concept clinical trials include drugs for: RAF265 BEZ235 RSV604 BRAF Inhibitor PI3 Kinase Inhibitor Antiviral Melanoma Colon, Breast, Prostate Cancer Respiratory Syncytial Virus PI3K Pathway LCQ908 AIN457 AFQ056 DGAT1 Inhibitor
Slide 8: Strategy; excellent portfolio to address changing patient needs
Consistent strategy to sustain profitable growth and mitigate risk Selectively strengthen existing franchises of 1 business portfolio addressing specific customer needs 2 Step up innovation focusing on differentiated products 3 Expand in high-growth markets 4 Improve organizational efficiency 15 | 2
Slide 9: Group Emerging Markets (GEM) pilot countries
Group Emerging Markets (GEM): Implemented in 9 pilot countries, achieving 25% sales growth1 Cross-divisional setup with single country head managing entire portfolio Increased efficiency and broader product offerings aligned around channels Kazakhstan Belarus Integrated KAM2 and consolidated b
Slide 10: Forward savings ahead of plan; environmental achievements
Forward savings ahead of plan Delivered Forward savings of USD 1.1 billion, ahead of plan and exceeding 2008 target Strong procurement savings across all divisions Productivity remains a priority for 2009: Expect to surpass original Forward savings target 19 | 2008 Annual Results Analyst Confe
Slide 11: Access to medicine programs
Access to medicine programs – in 2008 we contributed 3.0% of net sales Coartem® subsidized: 73.7 million treatments shipped in 2008 – cumulatively delivered 216 million treatments, which helped save an estimated 550,000 lives Leprosy medication free of charge: 2008: >4.5 million patients cured s
Slide 12: Key messages
Key messages 2008 performance: Sustained momentum • Pharmaceuticals delivers record results • Vaccines and Diagnostics continues with rapid growth • Sandoz has challenging year – poor US performance • Consumer Health shows solid performance with CIBA Vision turnaround Operational priorities for
Slide 13: Pharmaceuticals shows record 2008 performance
Pharmaceuticals shows record 2008 performance Operating Net sales Growth income Growth ROS (USD in bn) USD (%) LC (%) (USD in bn) (%) (%) Pharmaceuticals 26.3 +10 +5 7.58 +25 28.8 Vaccines and Diagnostics 1.76 +21 +20 0.08 +8 4.4 Sandoz 7.56 +5 +1 1.08 +4 14.3 Consumer Health 5.81 +7 +4 1.05 +29 18.
Slide 14: Pharmaceuticals: US growth accelerating in H2 2008
Pharmaceuticals: US shows accelerating growth in H2 2008 US quarterly net sales growth Overcoming 2007 challenges in local currencies Expansion of multiple brands drove performance 11% 9% -3% -19% Q1 Q2 Q3 Q4 27 | 2008 Annual Results Analyst Conference | January 28, 2009 Pharmaceuticals: UK – an
Slide 15: Recent launches a key sales driver in 2008
Pharmaceuticals: Recent launches a key sales driver in 2008 Cumulative net sales of launch brands 2 931 USD in m 2 078 1 285 559 2008 3M 6M 9M 12 M growth +231% +205% +176% +152% vs PY 29 | 2008 Annual Results Analyst Conference | January 28, 2009 Tekturna/Rasilez: Outcomes data essential to support
Slide 16: Tekturna/Rasilez outcomes data; oncology brands growth
Tekturna/Rasilez: Outcomes data essential to support blockbusters in cardiovascular field Diovan® and Tekturna®/Rasilez® sales JIKEI Years after launch (CV outcomes, stroke) VAL-MARC (C-Reactive Protein) Diovan VALUE Tekturna/Rasilez (CV outcomes) VALIANT (post-MI) APOLLO VAL-HEFT (Primary preventio
Slide 17: Strong pipeline progress in 2008
Strong pipeline progress in 2008 Late pipeline: 14 key submissions and 10 key approvals US EU Japan Submissions Glivec® Adjuvant Glivec® Adjuvant Rasilez® GIST GIST Galvus® Afinitor® Afinitor® Exforge® Menveo® QAB149 COPD QAB149 COPD1 ACZ885 CAPS Tekturna®/Diovan® Menveo® ACZ885 CAPS2 Approvals Te
Slide 18: QAB149 submitted for COPD; FTY720 Phase III results
QAB149 submitted for COPD with strong profile Phase III shows sustained 24 hour bronchodilation at 150 and 300 µg, sustained over one year Superior efficacy vs. bid LABAs1 & tiotropium Good safety profile, even at doses higher than needed for therapeutic effect US and EU files submitted in D
Slide 19: Vaccines and Diagnostics continues strong growth
Vaccines and Diagnostics continues strong growth Operating Net sales Growth income Growth ROS (USD in bn) USD (%) LC (%) (USD in bn) (%) (%) Pharmaceuticals 26.3 +10 +5 7.58 +25 28.8 Vaccines and Diagnostics 1.76 +21 +20 0.08 +8 4.4 Sandoz 7.56 +5 +1 1.08 +4 14.3 Consumer Health 5.81 +7 +4 1.05 +29
Slide 20: Late-stage Vaccines pipeline; challenging year for Sandoz
Late-stage Vaccines pipeline making good progress Meningitis US/EU adolescent submissions in 2008 FDA requires 1 500 additional infants in trials – US infant submission now 2011 US/EU submissions in 2010 MenB Potential to be first global vaccine against B serogroup Japanese encephalitis EU
Slide 21: Sandoz: emerging markets growth offset by US contraction
Sandoz: Good sales growth in emerging countries offset by contraction in the US % of net sales by region 2008 net sales growth vs 2007 Total USD 7.6 bn In local currencies 6% 7% LatAm and Canada 10% 16% 10% Asia, Africa and Australia 9% 57% 59% Europe 4% US 27% 24% -10% 2007 2008 41 | 2008 Annual Re
Slide 22: Sandoz: strong growth in emerging markets; competitive pipeline
Sandoz: Strong growth in emerging markets 2008 net sales growth vs 2007 In local currencies 38% 26% 24% 22% 21% Emerging Russia Brazil Turkey China 1 markets 1 Brazil, Russia, India, China, Turkey, South Korea and Mexico 43 | 2008 Annual Results Analyst Conference | January 28, 2009 Sandoz has stron
Slide 23: Consumer Health: steady sales growth and operating income improvement
Consumer Health: Steady sales growth and strong improvement in operating income Operating Net sales Growth income Growth ROS (USD in bn) USD (%) LC (%) (USD in bn) (%) (%) Pharmaceuticals 26.3 +10 +5 7.58 +25 28.8 Vaccines and Diagnostics 1.76 +21 +20 0.08 +8 4.4 Sandoz 7.56 +5 +1 1.08 +4 14.3 Consu
Slide 24: Consumer Health: developing strong market position
Consumer Health: Developing strong market position in its businesses % of net sales by business unit Growth Global Market above industry share1 market CIBA rank Vision in 2008 29% OTC #4 3.5% 9 52% OTC CIBA Vision #2 20.9% 9 19% Animal Animal Health Health #6 6.0% 9 1 Source: Internal market researc
Slide 25: Consumer Health: innovation expected to drive growth
Consumer Health: Innovation expected to be a key driver of growth OTC Number of R&D projects • Increasing focus on switches and new CIBA dosage forms Vision 14 Animal Health 90 • Leveraging capabilities and assets from other Novartis divisions OTC • Focus areas are vaccines, parasiticides and th
Slide 26: 2009 priorities; growth drivers for 2009
2009 priorities Target superior growth – essential to focus on execution in turbulent times Rejuvenate portfolio – achieve key launches and submissions Drive productivity – Build on “Forward” achievements and strengthen customer focus 51 | 2008 Annual Results Analyst Conference | January 28, 2
Slide 27: Innovative commercial models; innovation anticipated in 2009
Innovative commercial models will help to drive success ples Exam US/Pharma New regional approach to address market dynamics Germany/Sandoz: • AOK tenders • 1 A Pharma UK/Pharma: Outcomes-based reimbursement schemes Italy/Pharma: Partnership with AIFA1 on Rasilez® outcomes Malaysia, Vietnam, Jordan,
Slide 28: Productivity increases; conclusions
Productivity increases are essential to improve operating performance Most important operational initiatives Achieve “Forward” objectives ahead of schedule Improve cash flow Implement project “Customers First”: strengthen customer orientation 55 | 2008 Annual Results Analyst Conference | Janua
Slide 29: Novartis 2008 financial takeaways
Agenda Overview D. Vasella Operating performance J. Reinhardt Financial results R. Breu Outlook D. Vasella Novartis 2008 financial takeaways Record sales1 and earnings1 High growth driven by Pharmaceuticals and helped by currency Strong free cash flow before dividends enhances financial flexib
Slide 30: 2008 continuing operations results
2008 continuing operations1 results reflect business expansion and productivity gains 12 M 2008 12 M 2007 % USD % LC 2 USD m Net sales 41 459 38 072 9 5 3 Operating income 8 964 6 781 32 as % of net sales 21.6% 17.8% 3 Net income 8 163 6 540 25 as % of net sales 19.7% 17.2% 4 Free cash flow 7 646 6
Slide 31: Productivity gains drive margin expansion
Productivity gains drive margin expansion1 and support high R&D investments % pt change % pt due to exceptionals FY 08 vs. + 0.4 + Other Increase in Pharma royalties - 0.1 FY 07 revenues +1.1 + 1.4 + COGS Productivity gains in Pharma and + 1.1 Sandoz, 2007 Famvir impairment + 0.6 + M&S Efficiency im
Slide 32: Q4 results reflect business expansion and productivity gains
Q4 08 results reflect business expansion and productivity gains, but also currency headwind USD m Q4 20081 Q4 2007 1 % USD % LC Net sales 10 077 9 931 1 8 Operating income2 1 680 897 87 as % of net sales 16.7% 9.0% Net income2 1 507 931 62 as % of net sales 15.0% 9.4% Free cash flow 2 558 2 032 26 E
Slide 33: Q4 reported results impacted by currencies and provisions
... but Q4 2008 reported results impacted by negative currencies and strengthened provisions Change Selected factors USD m Adverse currency impact on Group operating income (-5 ppt) - 91 Sandoz restructuring and US recall costs - 50 Legal provisions, litigation and settlements - 79 Increase in produ
Slide 34: Accounting for the 25% Alcon equity stake; free cash flow
Accounting for the 25% Alcon equity stake Equity accounting for Alcon stake USD m Q4 2008 12 M 2008 Novartis share of Alcon net income1 100 221 Catch up Q3 recorded Q4 34 34 Amortization charges (after tax) -140 -266 Net income effect Alcon -6 -11 Carrying value of Alcon investment: USD 10.4 bn
Slide 35: FCF before dividends; limited impact of financial crisis
FCF before dividends1 increases 23% 12 M 2008 free cash flow before dividends change vs. previous year (USD m) in USD bn Free Cash Flow before dividends 12 M 2007 6'045 Increased cash flow from operating activities 417 Lower capital expenditure 475 Lower investment in intangible and financial assets
Slide 36: Sustained sales and profit growth
Agenda Overview D. Vasella Operating performance J. Reinhardt Financial results R. Breu Outlook D. Vasella Sustained sales and profit growth Novartis group, historic performance1 Sales Operating income EPS (in USD bn) (in USD bn) (in USD) CAGR +11% CAGR +11% CAGR +13% 41.5 9.0 3.59 24.9 5.3 1.94 12
Slide 37: Twelfth consecutive dividend increase; defensive share performance
Twelfth consecutive dividend increase CHF per share 2.00 CAGR 1.60 +12% 1.35 1.15 1.05 0.95 1.00 0.80 0.85 0.90 0.73 0.63 0.50 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Proposed 2008 dividend: CHF 2.00 per share, + 25% versus 2007 73 | 2008 Annual Results Analyst Conference |
Slide 38: TSR outperformance; Novartis Group outlook for FY 2009
Novartis outperformed peers long-term in TSR1 Total shareholder return 1 January 1996 – 16 January 2009 in percentage, USD TSR1 CAGR 400 Novartis 8.1% 350 World 300 6.5% Pharma2 250 Peers3 6.4% 200 World 3.3% 150 Market2 100 50 0 Jan 96 Jan 98 Jan 00 Jan 02 Jan 04 Jan 06 Jan 08 Jan 09 1 Total Shareh
Slide 39: Appendix - Group
77 | 2008 Annual Results Analyst Conference | January 28, 2009 Appendix - Group 39
Slide 40: Q4 margin expansion drivers
Pharmaceuticals and Consumer Health drive Q4 margin expansion % pt change Q4 08 vs. Q4 07 + 0.3 + Other revenues: increase in Pharma (royalties) + 3.2 + 2.2 + COGS: Pharma productivity gains Consumer Health operational efficiency improvements + 0.4 + M&S: Pharma productivity gains offseting investme
Slide 41: Operating income adjustments for intangible asset charges and exceptional items
Operating income adjustments for intangible asset charges and significant exceptional items USD m Q4 2008 Q4 2007 P&L Line Pharmaceuticals 198 542 Mainly due to: Intangible asset charges 128 203 Litigation and settlements provision 79 OIE Exceptional restructuring 332 OIE V&D 29 93 Mainly due to: In
Slide 42: Adjusted Group operating income grows 15% in Q4
Adjusted1 Group operating income grows 15% in Q4, driven by Pharmaceuticals Adjusted % operating % operating income 1 income growth growth Pharmaceuticals 20 69 V&D NA NA Sandoz -9 -20 2 Consumer Health 0 124 Group continuing 15 87 -20 -10 0 10 20 30 -50 0 50 100 150 1 Adjusted for intangible asset
Slide 43: Adjusted Group FY operating income increases 15%
Adjusted1 Group FY operating income increases 15% driven by Pharmaceuticals, Consumer Health Adjusted % operating income growth1 % operating income growth 15 25 Pharmaceuticals 0 8 V&D 1 4 Sandoz 2 11 29 Consumer Health 11 32 Group continuing -5 5 15 -10 0 10 20 30 1 Adjusted for intangible asset ch
Slide 44: Non-operating items; Q4 free cash flow
Non-operating items reflect reduced average net liquidity and higher tax rate USD m Q4 2008 Q4 2007 Change (% USD) Operating income from continuing operations 1 680 1 341 25 Forward restructuring provision - 444 Operating income from continuing operations 1 680 897 87 Income from associated companie
Slide 45: Q4 sales growth by division and region
Q4 sales growth driven by Pharmaceuticals and V&D % net sales growth LC USD Net sales by division 10 Pharmaceuticals 5 Consumer Health 13% 33 V&D 23 Pharmaceuticals Sandoz 64% 18% 0 -8 Sandoz V&D 5% 4 -4 Consumer Health 8 1 Group 89 | 2008 Annual Results Analyst Conference | January 28, 2009 US cont
Slide 46: Group operating income and margin in Q4
Group operating income surges 87% (includes USD 444 m “Forward” charge in Q4 071) % Operating income growth (USD) Operating income by division Pharmaceuticals 69 Consumer 10% Sandoz V&D NA 10% V&D 1% Sandoz -20 Consumer Health 124 Pharma- ceuticals 79% Group 87 1 Excluding the charge, operating inco
Slide 47: Income from associated companies
FY 2008 income from associated companies driven by Roche USD m 12 M 2008 12 M 2007 Change (% USD) Share of est. Roche net income 560 496 13 Depreciation and amortization of tangible and -132 -118 12 intangible assets Catch-up for actual Roche previous year 11 13 -15 Net income effect Roche 439 391 1
Slide 48: Alcon financing leads to lower net liquidity
Alcon financing leads to lower net liquidity USD m 12 M 2008 12 M 2007 Change (%) Financial Income/Expense 228 373 -39 % of average liquidity 2.2 3.7 Interest expense -249 -237 5 % of average debt 3.0 3.4 Currency gains/losses 156 158 -1 on operating activities Treasury result, net 135 294 -54 % of
Slide 49: Asset allocation and currency distribution of liquidity
Asset allocation of liquidity – Group Level December 20081 December 20071 Alt. invest. Equities Alt. invest. Equities 6% 5% 3% 7% Bonds 18% 17% Bonds 73% 71% Money Money market market 1 Including hedges 97 | 2008 Annual Results Analyst Conference | January 28, 2009 Currency distribution of liquidity
Slide 50: USD is the predominant currency
USD is the predominant currency Products are imported for sale into US Sales Costs High cost level in CHF 40% 34% 35% 32% 31% 30% 28% 25% 25% 20% (%) 20% 16% 15% 10% 7% 5% 5% 2% 0% USD JPY EUR CHF Other 99 | 2008 Annual Results Analyst Conference | January 28, 2009 Major currencies1 on average s
Slide 51: Volume and currency drive FY 2008 sales growth
Volume and currency drive FY 2008 sales growth Growth in 12 M 2008 (%) Volume 6 Price -1 Total LC 5 Acq. / Div. 0 Currency 4 Total USD 9 -1.0 1.0 3.0 5.0 7.0 9.0 11.0 101 | 2008 Annual Results Analyst Conference | January 28, 2009 Operating income grows 12% in constant currencies Operating income1 -
Slide 52: FY 2008 net sales growth components by division
FY 2008 net sales growth components by division Volume Price Acq./div. Total LC Currency Total USD Pharmaceuticals 3% 2% 0% 5% 5% 10% V&D 21% -1% 0% 20% 1% 21% Sandoz 10% -9% 0% 1% 4% 5% Consumer Health 3% 1% 0% 4% 3% 7% Group 6% -1% 0% 5% 4% 9% 103 | 2008 Annual Results Analyst Conference | January
Slide 53: Forward ahead of plan; FTE reduction
Forward ahead of plan, delivering USD 1056 m1 in 2008 Expected and realized savings 2008 breakdown by division Actual savings FY 2008 USD m Target savings FY 2008 Overachievement 21 37 1,056 121 229 648 670 Pharma NCH Sandoz V&D Corporate Total 1 Above numbers do not include cost savings of USD 230
Slide 54: Appendix - Pharma: Planned filings 2009 to 2012
Appendix - Pharma NME Pharma: Planned filings 2009 to ≥ 2012 LCM 2009 2010 2011 ≥ 2012 AGO178 EPO906 ASA404 LCI699 AEB071 Depression Ovarian cancer Non small cell lung can. Heart failure Kidney & heart transpl. LBH589 SOM230 PTZ601 CAD106 NIC002 CTCL1 Cushing’s disease Hospital bacterial inf Alzheim