Novartis Ag · SIX:NOVN
Novartis — Q1 2005 Earnings Presentation
35 slides from Novartis's earnings presentation, Apr 21, 2005
Slide 1: Q1 Performance 2005
n Q1 Performance 2005 April 21, 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; Continued Strong Performance in Q1 2005
Agenda • Overview R. Breu • Pharmaceuticals T. Ebeling • Sandoz A. Rummelt • Outlook R. Breu 3 Novartis First Quarter Results 2005 Continued Strong Performance in Q1 2005 • Double-digit growth1) − Net sales + 11% − Operating income + 16% • Pharmaceuticals continues to increase market share / net sal
Slide 3: Operating and Net Income Expansion Outpace Sales Growth
Operating and Net Income Expansion Outpace Sales Growth – EPS up 17% in USD m 3 M 2005 3 M 2004 in % USD in % LC pro forma Net sales 7 341 6 639 +11 +7 Operating income 1 680 1 454 +16 as % of sales 22.9 21.9 Net income 1 477 1 270 +16 as % of sales 20.1 19.1 attributable to 1 481 1 274 +16 equity h
Slide 4: Solid Performance by All Divisions
Solid Performance by All Divisions 3 month 2005 sales: USD 7 341 million 3 M % sales growth vs. 3 M 2004 LC 8 Pharmaceuticals 11 USD LC 7 Sandoz USD 12 LC 6 Consumer Health USD 9 LC 7 Group USD 11 7 Novartis First Quarter Results 2005 Group - Strong Growth Coming From Emerging Markets Sales by regio
Slide 5: Group Operating Income Growth Outpaces Net Sales Growth
Group Operating Income Growth Outpaces Net Sales Growth 3 month operating income: USD 1 680 m 3 M operating income growth in % (USD) Pharmaceuticals 9 Sandoz 21 Consumer Health 8 Group 16 9 Novartis First Quarter Results 2005 Group Operating Income Grows 19 % in Constant Currencies in First 3 Months
Slide 6: Group Operating Margin of 22.9%
3 Month 2005 Group Operating Margin of 22.9% Operating margins in % 3 M 2005 3 M 2004 28.5 29.0 30% 22.9 21.9 16.5 20% 16.4 13.7 12.7 10% 0% Pharma- Sandoz Consumer GROUP ceuticals Health 11 Novartis First Quarter Results 2005 Increase in Operating Margin - M&S and R&D Rise on Product and Trial Roll
Slide 7: Other Revenue and Divestment Gains Offset Functional Costs
Other Revenue and Divestment Gains More Than Offset Increases in Functional Costs Other • Increase in royalty income and profit share in Revenue Pharmaceuticals • Increase as a result of weaker USD COGS • Increase due to prelaunch investments and product M&S launches in particular in Pharmaceuticals
Slide 8: Share of Net Income from Roche; Net Financial Income
Increase in Share of Net Income from Roche Offsets Negative Impact from Chiron 3M 2005 3M 2004 Change pro forma USD m USD m in % USD Share of est. Roche net income +63 +35 +80 Depreciation and amortization of tangibles and intangibles -30 -38 +21 Catch-up for actual Roche previous year +2 +30 -93 Ne
Slide 9: Cash Flow From Operating Activities Reaches USD 1.96 bn
Cash Flow From Operating Activities Reaches USD 1.96 bn – up 88% 3 M 2005 Change vs. 3M USD m 2004 pro forma in % USD Cash Flow 1 748 +21 Change in provisions and net current assets 209 - 151 Cash Flow from operating activities 1 957 +88 Investment in property, plant and equipment -222 -14 Change in
Slide 10: Key Messages; Strong Pharmaceutical Sales Expansion
Key Messages • Continued market share gains • Key brands / franchises with strong in-market performance • Major productivity initiatives ongoing and progressing well • Continue to have one of the best pipelines 19 Novartis First Quarter Results 2005 Strong Pharmaceutical Sales Expansion Growth in %
Slide 11: Continued Market Share Gains in Q1 2005
Continued Market Share Gains in Q1 2005 • 11% sales growth in USD, 8% in LC1 • Growth ahead of market with Novartis Pharma market share up to 3.75%2 • Key franchises with dynamic growth (LC)3 − Cardiovascular +9% − Resp./Derm. + 15% − Oncology +22% − Ophthalmics +20% 1 +10% excl. catch-up for the ch
Slide 12: Operating Income Margin Impacts; Opportunities to Strengthen Return
R&D, M&S Investments and COGS Impact Operating Income Margin in Q1 • Ramp-up of late stage trials R&D • One-time provision for research site closure • Catch-up for the change in accounting for COGS sales rebates in prior years in the US • Negative foreign exchange impact • Pre-launch and launch inve
Slide 13: Cost Reduction Initiatives; Growth Ahead of Market
Major Initiatives Ongoing to Reduce Costs / Expenses Shared • Offshore/outsource selected R&D, M&S, IT, Services Manufacturing functions M&S / • Global agency network / media buying Field Force • Optimizing resource allocation / ROI model Manufac- • Process orientation and cycle time reductions turi
Slide 14: All Regions with Dynamic Growth
All Regions with Dynamic Growth Net sales YTD March 2005 Growth in (LC) vs. in USD bn YTD March 2004 Americas +5% EGM Americas 0.4 Europe +8% Japan 0.5 2.2 Japan +16% 1.7 EGM +11% Europe Total +8% 27 Novartis First Quarter Results 2005 Top 4 Countries Growing Dynamically IMS Sales growth YTD Feb 200
Slide 15: Soft US Branded Rx Volume Trend
Soft Industry US Branded Rx Volume Trend US MAT TRx growth 20% Branded and Generic market Branded market Industry branded 15% Generic market volume growth under pressure 10% • Cost-containment 5% • Higher co-pays • Gx competition 0% • Safety concerns -5% • OTC switches Apr 03 Apr 04 Dec 02 Feb 03 Ju
Slide 16: Strong Growth of Key Franchises
Strong Growth of Key Franchises Sales YTD March 2005 in USD m1 Growth vs. PY (LC) Cardiovascular 1 279 +9% Nervous System 538 +8% Resp./Derm. 461 +15% A/B/G/H 91 +34% Infect. Diseases 61 -5% Oncology 1 202 +22% Transplantation 254 -9% Ophthalmics 220 +20% Mature Products 745 -5% Pharma Total2 4 789
Slide 17: US TRx Growth for Key Brands Ahead of Market
US TRx Growth for Key Brands Ahead of Market US TRx/DDD unit growth, IMS YTD March 05 vs. PY Growth of relevant market segment Diovan 11% +4%1 Lotrel 10% +4% Glivec2 16% n/a Zometa2 10% 12% Lamisil 5% -2% Femara 54% 3%3 1 AHY market 2 DDD (Defined Daily Doses) 3 Total hormonal breast cancer market 3
Slide 18: Valsartan Segment Share Gains in Hypertension
Valsartan Segment Share Gains in Hypertension in Most Key Markets YTD February 2005 AHY segment share AHY share rank 2004 2005 2005 US 9% 10% #2 Japan 10% 10% #3 France 8% 9% #1 Germany 5% 6% #2 Italy 6% 7% #2 Global 8% 9% #2 Fastest growing top Anti-Hypertensive +17% vs. PY Source: IMS 16 Countries
Slide 19: Future Growth Drivers For Diovan and Lotrel
Future Growth Drivers For Diovan and Lotrel • Continued strong SOV • Driving distribution – managing pricing • Powerful screening / compliance initiatives in all key markets • Introduction of new strengths − 2006: Diovan 320 and 160, Co-Diovan 320/12.5 and 320/25 − 2006: Lotrel 5/40 and 10/40 − 2008
Slide 20: Continued Strong Growth; Future Growth Drivers for Glivec
Continued Strong Growth YTD March 2005 sales growth Per capita (mg) in percent 12 Month Actual Evolution 11 US 55 France 10 Japan 31 USA1 9 France 15 8 Germany Germany 67 7 Italy 29 Japan 6 UK UK 10 5 Spain 38 4 Global 36 3 Mar 04 Feb 05 1 Including GIPAP 39 Novartis First Quarter Results 2005 Futur
Slide 21: ICL670 – Exjade; Strong Novartis NME Pipeline
ICL670 – Exjade Groundbreaking Advance in Iron Chelation Indication: Treatment of iron overload due to blood transfusion in adults and childrens Target Thalassemias, Sickle cell disease, Segments Myelodysplastic syndromes Competitive Clear efficacy, and administration advantage Position vs. Desferal
Slide 22: One of The Most Attractive Mid / Late NME Pipelines
One of The Most Attractive Mid / Late NME Pipelines Aclasta1 (osteoporosis) Phase III osteoporosis on track, Paget’s disease approved in EU, approvable in US AAE581 (osteoporosis) Phase II data expected Q4 2005, Phase III to start 2006 PTK787 (colorectal cancer) Phase III interim analysis confirms e
Slide 23: Licensing-In; Full-year Outlook
Continue to Enhance Pipeline via Licensing-In Deals concluded in last 12 months AD-237 – Arakis M3 antagonist in Phase II for the treatment of COPD PTK787 – Schering AG Anti-angiogenic agent (Phase III in Oncology, Preclinical in Ophtha) Oral hGH – Emisphere Oral treatment for growth failure / growt
Slide 24: Sandoz Q1 2005 Performance
Agenda • Overview R. Breu • Pharmaceuticals T. Ebeling • Sandoz A. Rummelt • Outlook R. Breu 47 Novartis First Quarter Results 2005 Sandoz Q1 2005 Performance Benefits from Recent Acquisitions and Divestments • Environment continues to be highly competitive – price erosion in particular in US retail
Slide 25: Solid Sandoz Results in Q1
Solid Sandoz Results in Q1 Growth vs PY in % USD m USD LC Sales 803 12¹ 7¹ Operating income 110 21 Employees at end Q1 13 343 +2 1 Excluding acquisitions Sandoz grew +7% in USD and +2% in LC 49 Novartis First Quarter Results 2005 One-Time Divestment Gains and Productivity Improvements Lift Operating
Slide 26: Sandoz Margin Drivers; North America Sales
Benefits in Other Income and Improved M&S Productivity Partially Off-Set by Increases in COGS and R&D • Product mix changes COGS • Negative pricing environment M&S • Successful cost containment measures • Investment in new projects in Retail Generics R&D • Increased R&D in Bio-Pharmaceuticals OI&E •
Slide 27: Hexal and Eon Labs Integration Plans on Track
Hexal and Eon Labs Integration Plans on Track • Integration plans on track − Defining Management − Determining location of headquarters − Developing integration concepts • Submission to US and European regulatory authorities for approval of Eon Labs and Hexal AG acquisitions in March and April • Sec
Slide 28: Outlook; Appendix
Outlook (barring any unforeseen events) • Financial outlook for 2005 reaffirmed • High single-digit net sales growth in local currencies for Group and Pharmaceuticals • Group operating and net income expected to reach new record levels on a comparable basis 55 Novartis First Quarter Results 2005 App
Slide 29: Consumer Health Key Messages
Consumer Health 57 Novartis First Quarter Results 2005 Consumer Health Key Messages • Continued high single-digit growth in USD • Operating income growth in line with sales • Marketing and Sales investments on the back of product launches • Key product launches performing above expectations 58 Novar
Slide 30: Strong Consumer Health Results in Q1 2005
Strong Consumer Health Results in Q1 2005 Growth in % USD m USD LC Net sales 1 749 9 6 Operating income 286 8 Employees at end Q1 19 459 1 59 Novartis First Quarter Results 2005 Income Statement Structure – Consumer Health 3 M 2005 net sales: USD 1 749 m 2005 2004 Change Pro forma % points Net sales
Slide 31: Strong Growth in North America and Asia/Africa/Australia
Strong Growth in North America and Asia/Africa/Australia Sales Share YTD March 2005 Growth of total (USD m) (% LC) sales (%) North America 791 +9 45 Europe 681 +2 39 Asia/Africa/Australia 180 +10 10 Latin America 97 +1 6 Total 1 749 +6 100 61 Novartis First Quarter Results 2005 Additional Informatio
Slide 32: Sales Growth Components by Division; Share Buy-Backs
3 Months 2005 Sales Growth Components by Division/Business Unit Volume Price Acq./Div. Currency Pharmaceuticals 8% 0% 0% 3% Sandoz 8% -6% 5% 5% Consumer Health 5% 0% 1% 3% Group 7% -1% 1% 4% 63 Novartis First Quarter Results 2005 Continuous Share-Buy Backs Reduce Net Liquidity Liquid funds in USD bn
Slide 33: USD 9 bn Returned via Share Buy-Backs; Liquidity Allocation
USD 9 bn Returned to Shareholders via Share Buy-Back Programs Share buy-back in USD m USD 0.5 bn in 3000 Q1 2005 2500 2000 1500 1000 500 0 Dec FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 Q1 2005 1999 1st program 2nd program 3rd program 4th program 65 Novartis First Quarter Results 2005 Asset Allocation
Slide 34: Currency Distribution of Liquidity
Currency Distribution of Liquidity GBP 1% EUR CHF CHF Others 33% 3% 16% 17% 1% JPY 25% 56% 48% EUR USD USD March 20051 March 20051 1 Including hedges 67 Novartis First Quarter Results 2005 USD is The Predominant Currency in 1Q 2005 • Products are imported for sale into US • High cost level in CHF Sa
Slide 35: Currency Appreciation vs. USD; Full Year Currency Impact
Major Currencies Appreciated vs. USD in 3M 2005 Change vs. USD in % CHF 6 JPY 3 EUR 5 GBP 3 CAD 8 0 5 10 69 Novartis First Quarter Results 2005 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: 2.8% • CH