Novartis Ag · SIX:NOVN
Novartis — Q1 2006 Earnings Presentation
42 slides from Novartis's earnings presentation, Apr 24, 2006
Slide 1: Q1 Performance 2006
Q1 Performance 2006 April 24, 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 regard
Slide 2: Agenda; Strong Start to 2006 with Excellent Sales and Earnings Growth
Agenda • Overview R. Breu • Pharmaceuticals T. Ebeling • Sandoz A. Rummelt • Outlook R. Breu 3 Novartis First Quarter 2006 Results Strong Start to 2006 with Excellent Sales and Earnings Growth Performance • Q1 Group net sales up +13% in USD, +17% in LC • Pharmaceuticals: Market share gains with net
Slide 3: Operating and Net Income Expansion Outpace Sales Growth – EPS up 32%
Operating and Net Income Expansion Outpace Sales Growth – EPS up 32% 3 M 2006 3 M 2005 in % USD in % LC Net sales 8 301 7 341 +13 +17 Operating income 2 202 1 680 +31 as % of net sales 26.5 22.9 Net income 1 956 1 477 +32 as % of net sales 23.6 20.1 Free Cash Flow 373 - 269 * EPS (USD) 0.83 0.63 +32
Slide 4: Operating Income Grows 33% in Constant Currencies
Operating Income Grows 33% in Constant Currencies % Growth in 3 M 2006 45 +6% +39% -8% 40 35 +33% +31% 30 25 20 15 10 5 0 Currency Transactional LC growth of Op Translational USD growth of corrected Op Inc gains Inc losses Op Inc growth 7 Novartis First Quarter 2006 Results Strong Growth and Market
Slide 5: Operating Income Growth of 31% Driven by Pharmaceuticals, Sandoz and Acquisitions
Operating Income Growth of 31% Driven by Pharmaceuticals, Sandoz and Acquisition Effects 3 M 2006 operating income: USD 2 202 m Operating income in % by 3 M 2006 growth in % USD division 19 Pharmaceuticals Consumer 19 Health 20 116 Sandoz 14 Sandoz 10 60 Consumer Health 18 70 31 Group USD 29 Pharmac
Slide 6: Acquisition Related Charges Offset Productivity Improvements
Acquisition Related Charges Offset Productivity Improvements % pt change Q1 2006 vs. -1.7% - COGS: Increase owing to Pharmaceuticals Q1 2005 (higher royalty payments / Foradil Certihaler device recall), Consumer Health (CV lens care supply issue) and change in mix (higher COGS of GX business) + M&S:
Slide 7: Cash Flow From Operating Activities Reaches USD 2.14 bn
Cash Flow From Operating Activities Reaches USD 2.14 bn – up 68% in USD m 3 M 2006 Change vs 3 M 2005 in % USD Cash Flow 2 464 41 Change in provisions and net current assets - 320 -32 Cash Flow from operating activities 2 144 68 Investment in property, plant and equipment - 304 37 Change in other as
Slide 8: Key Messages; Strong Pharma Net Sales Expansion
Key Messages • High single-digit sales growth ahead of market • Strong performance of major in-market brands • Improved operating income margin • Exciting pipeline news 15 Novartis First Quarter 2006 Results Strong Pharma Net Sales Expansion 3M 2006 Growth in % vs. 2005 USD m USD LC Net sales 5 052
Slide 9: Improved Operating Margin; Novartis Continues to Grow Ahead of Market
Improved Operating Margin in First Quarter %-pt change 3M 2006 vs. +3.7 + Profit split from Xolair US 3M 2005 + Research (one-time charge in 2005) + High Development cost base in 2005 + M&S high base in 2005, US phasing + 0.8%-pt impact of PRAC1 in Q1 2005 − COGS productivity improvements offset by
Slide 10: Double-Digit Growth in Americas and Emerging Growth Markets
Double-Digit Growth in Americas and Emerging Growth Markets Net sales 3M 2006 % Growth (LC) in USD bn vs PY N America +15% EGM2 North US +15% 0.6 America Japan 0.5 L America +15% 2.2 Europe1 -2% 1.5 Japan +1% 0.3 Europe1 Latin EGM2 +31% America 1 Total +9% Excl. Eastern European countries as part of
Slide 11: Strong In-Market Brand Performance
Strong In-Market Brand Performance Top 10 product net sales 3M 2006 in USD m1 Growth in LC vs. PY Diovan® 939 +16% Glivec®2 559 +18% Zometa® 319 +10% Lotrel® 295 +28% Sandostatin® 216 +1% Neoral® 214 0% Lamisil® 200 -17% Lescol® 178 +9% Trileptal® 166 +10% Voltaren® 160 +3% 1 Adjusted for US sale re
Slide 12: Strong US TRx Share Growth in 2006
Strong US TRx Share Growth in 2006 US ARB March 06 TRx market segment share and growth vs. Dec 05 In %-point +0.5 -0.4 +0.6 • 9.2% Diovan TRx growth in Q1 • Value share up 1.4 ppt to 39.3%1 38.1 • Improved efficacy perception 22.4 • Best Medicare ARB coverage 14.9 • Regained SOV2 leadership • BPSZ3
Slide 13: Strong Brands and Programs in Hypertension; Zelnorm
Strong Brands and Programs in Hypertension to Get More Patients to Goal Drug therapy / innovation1 Exforge Patient screening, Payor / employer intervention, and programs and compliance treatment guidelines programs Physician programs 1 Rasilez and Exforge tradenames pending regulatory approval 25 No
Slide 14: Xolair Roll-Out in Europe; Prexige in Brazil
Xolair® Roll-Out in Europe Physician1 intention to prescribe2 66 • Approved in 42 countries WW • 20 launches in 2006 in Europe 73 • Included in UK3 and German national treatment guidelines 98 1 Pulmonologists and other respiratory specialists 2 Xolair awareness study Oct 2005; UK Xolair Awareness st
Slide 15: Enablex and NS Brands; Oncology Portfolio Gains
Enablex and NS Brands Performing Strongly • 7.3% US March NRx share, 1 year post launch • ADHD franchise with over 10% of TRxs in the US once-daily segment • First cholinesterase inhibitor to receive a label in Parkinson's Disease Dementia in the EU • Fastest growing PD1 brand in 2004 and 2005 • Com
Slide 16: Key Factors Driving Future Growth; Exjade Adoption
Key Factors Driving Future Growth New indications Dose optimization Extended survival • Glioblastoma • Leveraging recent • Sustained efficacy multiforme label updates and tolerability (newly-diagnosed • Trial ongoing to • 90% overall and recurrent) assess Glivec survival2 at 4 ½ • Adjuvant GIST 800m
Slide 17: Pricing and Generics Challenges; Medicare Part D Enrollment
Selected Pricing and Generics Challenges in Balance of Year • Generic competition in Germany, UK, Italy since Q3 05 • Generic competition in Germany (Q4 05) and Spain (Q2 05) • US generic entry expected in Q2 2006 • SC with generic competition in US since Q2 05 • LAR growing 14%, +20% in US Pricing
Slide 18: Strong Medicare Part D Access Position; #1 in US Managed Care
Strong Novartis Medicare Part D Access Position Estimate of % of lives across plans for Tier 2 formulary access1 >80 >80 >70 Best Competitive ARB with market coverage Best fixed leader dose AHY coverage Diovan® Lotrel® Exelon® 1 Only lives in true PDP/MA-PDP plans, excluding employer subsidized plan
Slide 19: Successful In-Licensing Activities Continue; Agomelatine
Successful In-Licensing Activities Continue Agomelatine (Ph III), anti-depressant with novel mode SGX of action; rights for US market plus selected territories Option exercised to in-license NM283 / valopicitabine (Ph II) for the treatment of hepatitis C KRP-203 (PC), a S1P receptor modulator for tr
Slide 20: Attractive Late-Stage Pipeline Progressing Well
Attractive Late-Stage Pipeline Progressing Well Phase Status Galvus®1 (type 2 diabetes) Reg File accepted by FDA in March 06 Rasilez®1 (hypertension) Reg File accepted by FDA in April 06 Exforge®1 (hypertension) Reg Filed in EU in March, US filing on-track Lucentis™ (wet AMD2) Reg Filed in US (Genen
Slide 21: Strong Newsflow in 2006; 2006 Outlook
Strong Newsflow in 2006 H1 H2 • Exforge®1 PhIII • Aclasta®2 PMO-T PhIII Data • Rasilez®1 PhIII • FTY720 MS PhII (24 months) • Galvus®1 PhIII • AMN107 PhII3 • Sebivo PhIII 9 ®1 • FTY720 MS Ph II (18 months) 9 • NMC283 PhII9 • SOM230 PhII • Rasilez®1 (US) 9 • Rasilez®1 (EU) Filings • Galvus®1 (US) 9 •
Slide 22: Agenda; Strong Performance in Q1 2006 (Sandoz)
Agenda • Overview R. Breu • Pharmaceuticals T. Ebeling • Sandoz A. Rummelt • Outlook R. Breu 43 Novartis First Quarter 2006 Results Strong Performance in Q1 2006 • Strong performance driven by • Hexal and Eon exceeding targets • Underlying organic sales growth particularly in Russia, South Africa an
Slide 23: Q1 Sandoz Sales Driven by Hexal and Eon Acquisitions
Q1 Sales Driven by Hexal and Eon Acquisitions and Underlying Organic Sales Growth Third party net sales Q1 2006, in USD m Growth1 in % in USD in LC Old Sandoz 828 3 9 Hexal 480 Eon Labs 123 New Sandoz 1 431 78 88 1 Vs. previous year 45 Novartis First Quarter 2006 Results Q1 Sales Up 88% Vs. 2005 Dri
Slide 24: Further Operating Margin Improvements in Q1
Further Operating Margin Improvements in Q1 % pt change Q1 2006 vs. +2.9 + Gross Margin up due to product mix Q1 2005 and operating efficiency improvements + Productivity gains in Development and Registration + Strong economies of scale cause a significant decrease in G&A costs ─ One-time gain in Q1
Slide 25: Productivity Gains in Development; Strong Bottom Line Growth
Good Productivity Gains in Development Expected Throughout 2006 • Synergies due to elimination of overlapping projects • Economies of scale • Efficiency gains in the network due to restructuring and center specialization • Strengthening of API1 vertical integration • Cost per filing down by 17% 1 Ac
Slide 26: Businesses Performing Well Year-to-Date
Businesses Performing Well Year-to-Date • Retail net sales were up +122% in LC to USD 1.3 bn Retail mainly driven by Hexal and Eon acquisition and Generics underlying volume growth 87% • Key growth drivers: Germany, US, France, Russia • Anti-Infective sales declined -3% in LC to Anti- USD 154 m rela
Slide 27: Significant Launch Activities; Hexal and Eon Labs Integration
Significant Launch Activities in Q1 Launches Q1 2006 Germany 19 Key launches Nordics 19 Tamsulosine (D, F, NL) Netherlands 11 Cyclobenzaprine (US) South Africa 6 Pravastatin (Nordics) France 5 Cefuroxim (Nordics) Italy 5 Lamotrigine (F) UK 4 Fentanyl (UK) Poland 3 3 Metoprolol succinate (PL) Canada
Slide 28: Pricing Pressure in Generics Industry; Sandoz Expectations
Q1 2006 Shows Further Consolidation and Pricing Pressure in the Generics Industry • Ongoing price erosion in key markets Market environment • Generic penetration increasing in key markets • Changes in pricing / reimbursement systems (e.g. Germany, France) • Originator’s defense strategies increasing
Slide 29: Agenda; Chiron Reporting Update
Agenda • Overview R. Breu • Pharmaceuticals T. Ebeling • Sandoz A. Rummelt • Outlook R. Breu 57 Novartis First Quarter 2006 Results Chiron Reporting Update • Deal completed on April 20th • Post acquisition results and estimated Balance Sheet from Chiron will be included in Q2 2006 • Alignment of Chi
Slide 30: Outlook for 2006 – Stronger Competitive Position
Outlook for 2006 – Stronger Competitive Position Excluding impact of Chiron transaction and barring unforeseen events • Financial outlook for 2006 reaffirmed • High single-digit sales growth (in LC) • Continued market share gains • Sustained positive pipeline news flow • Record operating and net inc
Slide 31: Consumer Health Key Messages
Appendix Consumer Health Consumer Health Key Messages • Consumer Health net sales up +4% in USD, +7% in LC driven by double digit growth in OTC • Acquisition of the BMS OTC business, a good US cough-and- cold season as well as higher sales of Voltaren in Europe supported OTC • Operating Income surge
Slide 32: Consumer Health Grew +7% in LC in Q1
Consumer Health Grew +7% in LC in Q1, Driven by Robust Growth in OTC Growth vs PY in % USD m USD LC Net sales 1 818 4 7 Operating income 458 60 Employees at end of 19 063 -2 March 2006 63 Novartis First Quarter 2006 Results Operating Income Rises +60% to USD 458 m, Mainly Due to USD 129 m One-time G
Slide 33: Additional Q1 Slides Group
Strong Double-Digit Growth In North-America and Latin America in Consumer Health in Q1/06 Net sales Share of Q 1 2006 Growth total net (USD m) (% LC) sales (%) North America 918 16 50 Europe 600 -4 33 Asia / Africa / Australia 178 6 10 Latin America 122 17 7 Total 1 818 7 100 65 Novartis First Quart
Slide 34: Q1 2006 Net Sales Growth Components by Division
Q1 2006 Net Sales Growth Components by Division Volume Price Acq./Div. Currency Pharmaceuticals 7% 2% 0% -4% Sandoz 12% -3% 79% -10% Consumer Health 6% 0% 1% -3% Group 8% 1% 8% -4% 67 Novartis First Quarter 2006 Results Pharmaceuticals Make Up 61% of Q1 Net Sales and 70% of Operating Income Net sale
Slide 35: US and Europe Make Up 77% of Net Sales
US and Europe Make Up 77% of Net Sales – US Shows Fastest Growth with +18% in LC Net sales 3 M 2006 3 M 2006 % net sales by region growth by region LC 18 US US USD 18 40% Rest of Americas LC 18 8% Europe USD 8 Asia/Aus. LC 13 15% Africa USD 6 Asia/Australia/ 37% Africa Europe Rest of LC 17 USD 25 Am
Slide 36: Net Financial Income Up 11%; Productivity Improvements
Net Financial Income Went up 11% Despite Lower Available Net Liquidity in USD m 3 M 2006 3 M 2005 Change in % Financial income, net 101 90 12 % of average liquidity 3.6% 2.6% Interest expense -58 -71 -18 % of average debt -2.9% -4.4% Currency gains / losses 7 26 -73 on operating activities Net finan
Slide 37: Returned to Shareholders via Share Buy-Back Programs
USD 9 bn Returned to Shareholders via Share Buy-Back Programs Share buy-back in USD m USD 0 bn in Q1 2006 3000 2500 2000 1500 1000 500 0 Dec FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 Q1 2006 1999 1st program 2nd program 3rd program 4th program 73 Novartis First Quarter 2006 Results Net Liquidi
Slide 38: Asset Allocation and Currency Distribution of Liquidity
Asset Allocation of Liquidity Equities Equities 5% 3% Bonds 29% 29% 66% Bonds 68% Money Money market market March 20061 March 20051 1 Including hedges 75 Novartis First Quarter 2006 Results Currency Distribution of Liquidity EUR Others 2% CHF Others 22% 3% CHF 16% 20% 25% 56% 56% EUR USD USD March 2
Slide 39: USD Is the Predominant Currency in Q1 2006
USD Is the Predominant Currency in Q1 2006 • Products are imported for sale into US • High cost level in CHF Sales Q1 2006 In % Costs Q1 2006 44 34 27 24 21 21 17 6 4 2 USD JPY EUR CHF Other 77 Novartis First Quarter 2006 Results Major Currencies Depreciate vs. USD in Q1 20061 Change vs. USD in % CH
Slide 40: Full Year Impact of Currency Movements vs USD
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: 3.5% • CHF: -4.0% • JPY: 1.2%
Slide 41: Pharmaceuticals Operating Margin Strongly Improved
Operating Margin Strongly Improved Driven Mainly Driven by Lower M&S Expenses 3 M 2006 3 M 2006 3 M 2005 Change in % points Net sales 100.0% 100.0% Sales to other Divisions 0.8% 0.7% 0.1% Other revenues 1.5% 1.2% 0.3% Total revenues 102.3% 101.9% 0.4% Cost of Goods Sold -17.7% -17.1% -0.6% of which
Slide 42: Sandoz Q1/06 Operating Margin Improvement
Improvement in Q1/06 Operating Margin Driven by Sales Growth, Productivity Gains and Synergies 3 M 2006 3 M 2006 3 M 2005 Change in % points Net sales 100.0% 100.0% Sales to other Divisions 2.6% 6.6% -4.0% Other revenues 0.3% 0.4% -0.1% Total revenues 102.9% 107.0% -4.1% Cost of Goods Sold -54.6% -6