Novartis Ag · SIX:NOVN
Novartis — H1 2005 Earnings Presentation
51 slides from Novartis's earnings presentation, Jul 14, 2005
Slide 1: 6 Months Performance
n 6 Months Performance 14 July 2005 The following information contains certain "Forward-looking Statements" relating to the Company's business, which can be identified by the use of forward-looking terminology such as "will" or "expect", or by discussions of strategy, plans, intentions or potential
Slide 2: Agenda; Strong Net sales Growth Reported by All Divisions
Agenda • Overview R. Breu • Pharmaceuticals T. Ebeling • Sandoz A. Rummelt • Outlook R. Breu 3 Novartis Second Quarter Results 2005 Strong Net sales Growth Reported by All Divisions • First half net sales up 11% in USD, +8% in LC • Leading Cardiovascular and Oncology franchises underpin strong perfo
Slide 3: Double-Digit Growth Across the Board in 1st Half 2005
Double-Digit Growth Across the Board in 1st Half 2005 in USD m 6M 2005 6M 2004 in % USD in % LC Net sales 15 140 13 612 11 8 Operating income 3 529 3 1691 11 as % of net sales 23.3 23.3 Net income 3 123 2 7781 12 as % of net sales 20.6 20.4 EPS (USD) 1.34 1.171 15 Number of employees 83 664 79 816 c
Slide 4: Volume Is Main Driver of Sales Growth in 1st Half 2005
Volume Is Main Driver of Sales Growth in 1st Half 2005 % Growth in 1H 2005 20 15 +3% 11% 10 +1% 8% 8% -1% 5 0 Volume Price Acq./Div. LC Currency USD 7 Novartis Second Quarter Results 2005 Operating Income Grows 9 % in Constant Currencies % Growth in 1H 2005 15 + 4% + 11% 10 9% -2% + 7% 5 0 Currency
Slide 5: All Divisions Record Continued Solid Growth
All Divisions Record Continued Solid Growth 1H 2005 net sales: USD 15.1 bn 2Q 2005 net sales: USD 7.8 bn 1H 2005 % net sales growth 2Q 2005 % net sales growth LC 9 LC 9 Pharmaceuticals USD 12 USD 12 LC 8 LC 9 Sandoz USD 12 USD 13 LC 7 LC 8 Consumer Health USD 9 USD 10 LC 8 LC 9 Group USD 11 USD 12 9
Slide 6: Group Operating Margin Reaches Prior Year Level of 23.3%
Group Operating Margin Reaches Prior Year Level of 23.3% in 1st Half 2005 Operating margins in % 6 M 2005 6 M 2004 30.0 29.5 23.3 23.3 15.3 16.0 16.5 11.6 Pharma- Sandoz Consumer GROUP ceuticals Health 11 Novartis Second Quarter Results 2005 Net Income Increase of 12% Due to Strong Operating Perform
Slide 7: Increase in Share of Net Income from Roche
Increase in Share of Net Income from Roche 6M 2005 6M 2004 Change pro forma USD m USD m in % USD Share of est. Roche net income 131 78 68 Depreciation and amortization of tangibles and intangibles -57 -76 -25 Catch-up for actual Roche previous year 2 30 * Net income effect Roche 76 32 138 Income fro
Slide 8: Free Cash Flow Up USD 0.5 bn vs. H1 2004
Free Cash Flow Up USD 0.5 bn vs. H1 2004 6M 2005 Change vs. USD m 6M 20041 in % USD Cash Flow 3 596 +12 Change in provisions and net current assets -314 -37 Cash Flow from operating activities 3 282 +21 Investment in property, plant and equipment -485 -17 Change in other assets 118 +64 Dividends -2
Slide 9: Key Messages First-Half 2005
Key Messages First-Half 2005 • Continued market share gains in all regions • Dynamic growth of key in-market brands • Improved operating income margin • Attractive pipeline with strong newsflow 17 Novartis Second Quarter Results 2005 Strong Pharmaceutical Net sales Expansion YTD June 2005 Growth in
Slide 10: First-Half Operating Income Margin Improves 0.5 % Points
First-Half Operating Income Margin Improves 0.5 % Points vs. First-Half 2004 % pt change vs. PY COGS -0.2 • Productivity gains, product mix R&D +0.7 • Research investments in infrastructure • Major Phase III M&S +0.3 • Productivity gains offset by launch investments and China/Turkey expansion G&A -0
Slide 11: Significant Operating Margin Improvements in Q2
Significant Operating Margin Improvements in Q2 vs. Previous Year and Previous Quarter % pt change Q2 2005 vs. +1.4 + COGS productivity and mix Q2 2004 improvements + M&S and G&A productivity gains + Increased profit split from Xolair US − Continued investments in Research and major Phase III studie
Slide 12: Novartis Continues to Grow Ahead of Market
Novartis Continues to Grow Ahead of Market Market Global quarterly value growth rates, in % Novartis 11.3 10.4 9.7 Market growth below 7.7 8.1 7.9 7% due to 6.5 6.4 6.7 6.7 6.6 • Cost containment 5.0 • Generics • Megapayors Q1 Q2 Q3 Q4 Q1 Q2 1 2004 2005 1 April + May 2005 Source: IMS 16 Countries, J
Slide 13: All Regions Gaining Market Share
All Regions Gaining Market Share Novartis Pharma value market share1 Market share growth vs. 2004 Americas 3.6% +0.06% Europe 4.5% +0.19% Japan 3.8% +0.11% 2 EGM 3.1% +0.05% World 3.9% +0.10% 1 IMS 3-months rolling ending May 05 2 IMS 3-months rolling ending March 05; Top 13 EGM markets 25 Novartis
Slide 14: Key Brands Continue to Grow Dynamically
Key Brands Continue to Grow Dynamically Top 10 product net sales YTD June 2005 in USD m1 Growth in LC vs. PY Diovan 1 757 +16% Glivec 1 033 +31% Zometa 608 +13% Lamisil 564 +7% Lotrel 509 +14% Neoral 470 -10% Sandostatin 453 +12% Lescol 377 +1% Voltaren 346 +12% Trileptal 293 +20% 1 Excl. one-time c
Slide 15: Strong Diovan US Program in Place
Strong Diovan US Program in Place to Continue Dynamic Growth • Screening / compliance programs • New field force territory alignment benefits • SOV leader • Post-MI indication expected in H2 • Distribution gains • Widest Managed Care coverage (>73%) • Secure #1 ARB position in Medicaid/Medicare 29 N
Slide 16: Elidel Continues to Grow Strongly Outside US
Elidel Continues to Grow Strongly Outside US YTD growth in LC vs. PY 20% • Continued strong performance in other markets • Label discussion, seasonality, and DTC stop impacted US Net sales -12% • FDA label decision awaited US Rest of World Source: IMS YTD May 2005 31 Novartis Second Quarter Results
Slide 17: Informing Patients Through DTC Moved Zelnorm to Higher TRx Level
Informing Patients Through DTC / CC Moved Zelnorm to Significantly Higher TRx Level US Weekly Trx volume (4-weeks average) 48 000 Start 46 000 DTC 44 000 • Chronic constipation 42 000 DTC accelerating 40 000 growth 38 000 36 000 • Clinical experience 34 000 program with >40 000 32 000 patients 30 00
Slide 18: Steep Increase in New Patients on Xolair in US
Steep Increase in New Patients on Xolair in US New patients on Xolair, 4-weeks average1 400 350 Further improved growth outlook through 300 • Improved targeting / 250 reach / frequency 200 • Reduced administrative 150 hassle • New patient support 100 Jan Feb Mar Apr Ma y Jun program started 1 Specia
Slide 19: Key Specialty Brands Performing Well
Key Specialty Brands Performing Well • World wide net sales +31% • Leveraging revised CML label in US • Record US segment share of 74%, +4% points YTD • ONJ “Dear Dentist” letters distributed • 15.6% US hormonal breast cancer segment share • Rolling out ext. adjuvant in Europe (+25%) • Strong worldw
Slide 20: Glivec #2 Worldwide Oncology Product
Glivec #2 Worldwide Oncology Product Net sales in Q1 Net sales 2005 USD m growth vs. PY 1. Rituxan / MabThera 604 20% 2. Glivec 419 31% 3. Taxotere 411 12% 4. Eloxatin 368 33% 5. Gemzar 272 11% Source: IMS MIDAS; Excludes certain supportives (hematopoietic growth factors, antiemetics) 39 Novartis Se
Slide 21: Top Ranking for Novartis US Sales Force Continues
Top Ranking for Novartis US Sales Force Continues Sales rep attributes Novartis rank Prescribing will increase/decrease Information provided was new to me Information was important to my practice Primary message was believeable Rep behaved professionally #1 Rep made effective use of my time Rep was
Slide 22: FTY720 Oral Agent With Strong Efficacy in MS
FTY720 FTY720 Oral Agent With Strong Efficacy in MS MS MS • Strong efficacy data in 6-Months Phase II Annualized Relapse rate1 • Benefits after 2 months and increasing over time 0.77 -55% -53% • Treatment well tolerated; 91% of patients completing study 0.35 0.36 • 12-months data expected for ECTRIM
Slide 23: First Compound to Significantly Improve Visual Acuity in Wet AMD
First Compound to Significantly Improve Visual Acuity in Wet AMD1 • Preliminary Phase III data exceeding expectations • Maintained / improved vision in 95% of patients2 • Only mild to moderate side effects2 • MARINA2 1-year data to be presented July 18 at ASRS3 • ANCHOR4 study results expected for Q
Slide 24: Key Anticipated Events H2 2005
Key Anticipated Events H2 2005 Anticipated Data Submissions approvals • LAF237 Ph III • LDT600 hepatitis B • Exjade (US) in US • SPP100 Ph III • Diovan post-MI (US) • Glivec rare diseases • LDT600 Ph IIII (US & EU) • Xolair (EU) • Lucentis Ph III • Glivec Ph+ ALL (US • Zelnorm IBS (EU) ANCHOR data &
Slide 25: Full-year Outlook
Full-year Outlook • Continued growth ahead of market, in-line with year- to-date performance • Continued strong growth potential for key brands • Sustained newsflow from pipeline 49 Novartis Second Quarter Results 2005 Agenda • Overview R. Breu • Pharmaceuticals T. Ebeling • Sandoz A. Rummelt • Outl
Slide 26: 1st Half 2005 – Strong Net sales Expansion Amidst Difficult Market
1st Half 2005 – Strong Net sales Expansion Amidst Difficult Market Environment • Strong Net sales Growth with 12% in USD (+ 8% LC), mainly driven by product launches/volume expansion in France, Germany, Eastern Europe, Russia and Japan • Sabex and Durascan acquisitions add 5% points to LC growth • O
Slide 27: In Q2 2005 Integration Costs Had a Stronger Impact
In Q2 2005 Integration Costs Had a Stronger Impact Growth vs PY in % USD m USD LC Net sales 832 13¹ 9¹ Op Inc 79 -40 excl. restructuring costs 109 -17 Employees at end Q2 13 095 +12 1 Excluding acquisitions Sandoz grew +7% in USD and +4% in LC 2 Excluding acquisitions, headcount was reduced by -3% 5
Slide 28: Strong Net Sales And Solid Cost Control Offset By Pricing Pressure
Strong Net Sales And Solid Cost Control Off- set By Pricing Pressure And One-Time Costs COGS • Productivity improvements more than offset by negative pricing environment in U.S. M&S • Successful cost containment measures • Investment in new projects in Retail Generics R&D • Increased R&D in Bio-Phar
Slide 29: Strong Net sales Growth In All Markets Apart From Latin America
Strong Net sales Growth In All Markets Apart From Latin America Net sales Share YTD June 2005 Growth of total (USD m) (% LC) net sales (%) North America 556 +11 34 Europe 785 +7 48 Asia/Africa/Australia 228 +10 14 Latin America1 66 -11 4 Total 1 635 +8 100 1Latin America impacted by de-stocking in M
Slide 30: Rationale Behind Hexal/Eon Acquisitions
Rationale Behind Hexal/Eon Acquisitions • New global leader in generics Market presence • No. 1 player in Germany, No. 2 player in US • Broad geographic presence • Stronger foothold in Asia and Latin America Techno- • Strengthened technology base in development and logies production • Extended capab
Slide 31: Complementary Businesses
Complementary Businesses Sandoz + Hexal + Eon Labs • Global organization, • Best in class development • One of the most production and R&D and registration effective product network • Market leader in Germany development teams • World leader in and strong in other key in US anti-infectives markets •
Slide 32: Broad Product Portfolio
Broad Product Portfolio Sandoz Top marketed brands Hexal Eon Labs Sandoz & Hexal Source Indication Sandoz & Eon Labs Acetylcystein Mucolytic for lung disease AmoxC Infection Amoxicillin Infection Buproprion Depression Citalopram Depression Enalapril Hypertension Lisinopril ACE inhibitor for hyperten
Slide 33: Global Production Network; Hexal/EON Integration Progress
Global Production Network And Strong Technology Centers Of Excellence Sandoz Hexal and Eon Labs Germany: Denmark: Oral solids, patches & implants, API pilot plant liquids, injectables, inhalers and Poland: Canada: APIs Oral solids Injectables Japan: US: Oral solids Oral solids China: Brazil: Oral so
Slide 34: Hexal Reporting Update
Hexal Reporting Update • Deal completed on June 6th − Hexal P&L not yet included as reporting systems need to be brought in line with Novartis timetable − Estimated Balance Sheet included based on preliminary purchase price allocation − Restructuring and integration costs of USD 30 m recorded in San
Slide 35: Estimated Impact of Hexal and Eon Labs Acquisition on 2005 Results
Estimated Impact of Hexal and Eon Labs Acquisition on Group Full Year 2005 Results • Net sales contribution in 2nd half 2005 to exceed USD 1 bn • Operating income contribution to be more than offset by • Inventory step-ups • Restructuring and integration charges • Amortisation of intangibles • USD 1
Slide 36: Appendix: Consumer Health
Appendix Appendix Consumer Health 36
Slide 37: Consumer Health Key Messages
Consumer Health Key Messages • Continued high single-digit growth in USD • Marketing and Sales investments on the back of product launches • Key product launches performing above expectations 73 Novartis Second Quarter Results 2005 Strong Consumer Health Results in 1H 2005 Growth in % USD m USD LC N
Slide 38: Product Launches Affect Operating Income Expansion in Q2
Product Launches Affect Operating Income Expansion in Q2 2005 Growth in % USD m USD LC Net sales 1 835 10 8 Operating income 289 5 Employees at end Jun 2005 19 767 3 75 Novartis Second Quarter Results 2005 Mainly M & S and R&D Increases Affect Operating Margin 1 H 2005 net sales: USD 3 584 m 2005 20
Slide 39: Income Statement Structure – Consumer Health
Income Statement Structure – Consumer Health Q2 2005 net sales: USD 1 835 m 2005 2004 Change Pro forma % points Net sales 100.0% 100.0% Sales to other Divisions 0.4% 0.5% -0.1 Other revenues 0.6% 0.3% +0.3 Total revenues 101.0% 100.8% +0.2 Cost of Goods Sold 40.9% 40.4% +0.5 Of which - amort. / impa
Slide 40: Additional 1H Slides: Group
Appendix Additional 1H Slides Group 6 Months 2005 Net sales Growth Components by Division Volume Price Acq./Div. Currency Pharmaceuticals 10% -1% 0% 3% Sandoz 10% -7% 5% 4% Consumer Health 6% 0% 1% 2% Group 8% -1% 1% 3% 80 Novartis Second Quarter Results 2005 40
Slide 41: Pharmaceuticals Make-up 65% of 1st Half Net sales
Pharmaceuticals Make-up 65% of 1st Half Net sales and 80% of Operating Income Net sales in % by Operating income in % by division division 15 Pharmaceuticals 24 5 Sandoz 11 65 Consumer 80 Health 81 Novartis Second Quarter Results 2005 US and Europe Make Up 76% of Net Sales – Emerging Markets Expandi
Slide 42: Group Operating Margin Reaches Prior Year Level of 23.3%
Group Operating Margin Reaches Prior Year Level of 23.3% in 1H 2005 6 M 2005 group net sales: USD 15.1 bn 6 M 2005 6 M 2004 Change pro forma % points Net sales 100.0% 100.0 % Other revenues 1.0% 0.4% +0.6 Total revenues 101.0% 100.4% +0.6 Cost of Goods Sold 25.8% 25.4% +0.4 Of which amort./impairmen
Slide 43: Share Buy-Back Program and Hexal Acquisition Reduce Net Liquidity
Share-Buy Back Program and Hexal Acquisition Reduce Net Liquidity to USD 1.7 bn Liquid funds in USD bn 15 13.9 12.6 10 9.4 5 2003 2004 1H 2005 Net liquidity in USD bn 10 6.7 7.0 5 1.7 0 1 1 2003 2004 1H 2005 1 Restated for derivatives 85 Novartis Second Quarter Results 2005 Asset Allocation of Liqui
Slide 44: Currency Distribution of Liquidity
Currency Distribution of Liquidity JPY 1% CHF CHF 18% USD 21% Others 1% Others 4% 43% 56% 24% 32% EUR USD EUR June 20041 June 20051 1 Including hedges 87 Novartis Second Quarter Results 2005 USD is The Predominant Currency in 1H 2005 • Products are imported for sale into US • High cost level in CHF
Slide 45: Major Currencies Continued to Appreciate vs. USD in 1H 2005
Major Currencies Continued to Appreciate vs. USD in 1H 20051 but to a lower degree vs. 2004 Change vs. USD in % CHF 5 JPY 2 EUR 5 GBP 3 CAD 8 0 5 10 1 Based on average rates 89 Novartis Second Quarter Results 2005 Full Year Impact of Currency Movements vs USD on Sales and on Operating Income Impact
Slide 46: Additional 1H Slides: Pharmaceuticals
Appendix Additional 1H Slides Pharmaceuticals Operating Income Affected by R&D and Launch/Pre-Marketing Investments In percent of net sales 6 M 2005 6 M 2004 Change pro forma % points Net sales 100.0% 100.0% Sales to other Divisions 0.6% 0.8% -0.2 Other revenues 1.2% 0.5% +0.7 Total revenues 101.8%
Slide 47: Additional Q2 Slides: Group
Appendix Additional Q2 Slides Group Second Quarter 2005 Sales Growth and Split 2Q % net sales growth by region 2Q net sales by region in % LC 9 US US USD 9 LC 6 39% Europe USD 12 Rest of the +8% Americas Asia/Aus. LC 13 36% 17% Africa USD 16 Europe Rest of LC 13 Asia/Australia/ Africa Americas USD 2
Slide 48: Q2 Operating Margin Affected By Restructuring Charges
Group Operating Margin Declines 0.9 % to 23.7% in the 2nd Quarter 2005 Operating margins in % Q2 2005 Q2 2004 35% 31.4 30.0 30% 23.7 24.6 25% 17.9 16.5 20% 15.7 15% 9.5 10% 5% 0% Pharma- Sandoz Consumer GROUP ceuticals Health 95 Novartis Second Quarter Results 2005 Q2 Operating Margin Affected By Re
Slide 49: Net Income Increase of 9% in Q2 2005
Net Income Increase of 9% Due to Strong Operating Performance in Q2 2005 USD m 2Q 2005 2Q 2004 Change Pro forma in % USD Operating income 1 849 1 715 8 Result from associated companies 28 14 100 Financial income, net 61 98 -38 Income before taxes 1 938 1 827 6 Taxes -292 -319 -8 Net income 1 646 1 5
Slide 50: Good Bond and Currency Management
Good Bond and Currency Management USD m 2Q 2005 2Q 2004 Change USD m Pro forma in % Financial income 119 152 -22 % of average liquidity 4.1% 5.3% Interest expense -76 -70 -9 % of average debt -4.7% -4.3% Currency gains / losses on operating activities 18 16 +13 Net financial income 61 98 -38 % of av
Slide 51: Q2 Bottom-line Affected By Low Margins And One-Time Integration Costs
Q2 Bottom-line Affected By Low Margins And One- Time Integration Costs Q2 2005 Net Sales: USD 832 m Q2 2005 Q2 2004 Change pro forma % points Net sales 100.0% 100.0 % Sales to other Divisions 4.2% 2.3% +1.9 Other revenues 0.4% 0.1% +0.3 Total revenues 104.6% 102.4% +2.2 Cost of Goods Sold 59.5% 54.4