Novartis Ag · SIX:NOVN
Novartis — 9M 2005 Earnings Presentation
47 slides from Novartis's earnings presentation, Oct 18, 2005
Slide 1: 9 Months Performance
n 9 Months Performance 18 October 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 potenti
Slide 2: Agenda; Strong Performance in 9 Months 2005
Agenda • Overview R. Breu • Pharmaceuticals T. Ebeling • Sandoz A. Rummelt • Outlook R. Breu 3 Novartis Third Quarter Results 2005 Strong Performance in 9 Months 2005 • 9 month Group net sales up +14% in USD, +12% in LC • Pharmaceuticals: Strong net sales growth (+11% in USD, +9% in LC) and signific
Slide 3: Double-Digit Growth Across the Board in 9 Months
Double-Digit Growth Across the Board in 9 Months 2005 in USD m 9M 2005 9M 2004 in % USD in % LC Net sales 23 555 20 669 14 12 Operating income 5 417 4 7891 13 as % of net sales 23.0 23.2 Net income 4 789 4 2471 13 as % of net sales 20.3 20.5 EPS (USD) 2.05 1.791 15 Number of employees 91 681 81 119
Slide 4: Volume Expansion Is Key Source of Growth
Volume Expansion Is Key Source of Growth % Growth in 9M 2005 20 15 +2% 14% +4% 12% 10 8% 0% 5 0 Volume Price Acq./Div. LC Currency USD 7 Novartis Third Quarter Results 2005 Operating Income Grows 11% in Constant Currencies % growth YTD 9 M 2005 15 +3% +13% +11% -1% +10% 10 5 0 Currency Transactional
Slide 5: Strong Underlying Growth and Market Share Gains By All Divisions
Strong Underlying Growth and Market Share Gains By All Divisions 9M 2005 net sales: USD 23.6 bn Q3 2005 net sales: USD 8.4 bn 9M 2005 % net sales growth1 Q3 2005 % net sales growth1 LC 9 LC 9 Pharmaceuticals USD 11 USD 10 LC 8 40 LC 9 104 Sandoz USD 12 43 USD 10 106 LC 7 LC 8 Consumer Health USD 9 U
Slide 6: Group Operating Margin Reaches 23.0% in 9 Months
Group Operating Margin Reaches 23.0% in 9 Months YTD 2005 Operating margins in % 9 M 2005 9 M 2004 31.0 29.8 23.9 23.2 16.7 23.0 16.0 10.7 10.8 7.1 Pharma- Sandoz Consumer GROUP ceuticals Health 1 Figures in italics are margins excluding Hexal and Eon Labs acquisitions 11 Novartis Third Quarter Resu
Slide 7: Net Income Increase of 13% Due to Strong Operating Performance
Net Income Increase of 13% Due to Strong Operating Performance USD m 9M 9M 2004 Change 2005 Pro forma in % USD Operating income 5 417 4 789 13 Result from associated companies 126 154 -18 Financial income, net 124 161 -23 Income before taxes 5 667 5 104 11 Taxes -878 -857 2 Net income 4 789 4 247 13
Slide 8: Ongoing Good Return With Lower Net Liquidity
Ongoing Good Return Achieved With Significantly Lower Available Net Liquidity USD m 9M 2005 9M 2004 Change USD m Pro forma in % Financial income 264 317 -17 % of average liquidity1 3.2% 3.5% Interest expense -227 -198 -15 % of average debt1 -4.5% -4.4% Currency gains / losses on operating activities
Slide 9: Net Liquidity Lowered by USD 6 bn During 9 Months
Owing to Acquisitions, Net Liquidity Is Lowered by USD 6 bn During 9 Months 2005 9M 2005 9M 2004 USD m USD m Free Cash Flow 3 068 2 022 Purchase of own shares - 281 -1 640 Acquisitions/divestments - 8 542 - 1 031 Other1 - 237 1 Change in net liquidity - 5 992 - 648 30.9.2005 31.12.2004 Net Liquidity
Slide 10: Key Messages 9M 2005
Key Messages 9M 2005 • High single-digit sales growth ahead of market • Dynamic growth of key in-market brands • Improved operating income margin • Positive newsflow on key compounds 19 Novartis Third Quarter Results 2005 Strong Pharmaceutical Net sales Expansion YTD Sept 2005 Growth in % vs. 2004 U
Slide 11: Further Operating Margin Improvements in Q3
Further Operating Margin Improvements in Q3 % pt change 9M 2005 vs. +1.2 + Profit split from Xolair US 9M 2004 + M&S productivity gains partially offset by launch investments and EGM1 FF expansion + G&A and COGS productivity gains − Continued investment in research and partial NKS104 asset impairmen
Slide 12: Dynamic Net Sales Growth in All Regions
Dynamic Net Sales Growth in All Regions Net sales 2005 YTD Sept in USD bn Growth in LC vs. 2004 Americas1 +9% EGM3 Americas US1 +8% 1.6 Japan 1.6 Europe2 +5% 7.0 Japan +9% 4.8 EGM3 +18% Europe2 Total +9% 1 Incl. US Pipeline Rebate Accounting Change; Excl. change: Americas +10%, US +9% 2 Excl. Easter
Slide 13: Key Brands Continue to Grow Dynamically
Key Brands Continue to Grow Dynamically Top 10 product net sales YTD Sept 2005 in USD m1 Growth in LC vs. PY Diovan 2 682 +16% Glivec 1 580 +31% Zometa 910 +13% Lamisil 882 +1% Lotrel 778 +17% Neoral 712 -7% Sandostatin 672 +9% Lescol 571 +0% Voltaren 520 +10% Trileptal 458 +20% 1 Excl. US Pipeline
Slide 14: Strong Global Diovan Performance
Strong Global Diovan Performance • Maintaining #1 global ARB segment share of 30% 1 • #1 ARB in 4 of the top 7 markets1 • #2 global AHY market segment share of 9% (+1ppt vs. PY)1 • Fastest growing top anti-hypertensive agent (+18% vs. PY)1 • Only ARB with both post -MI and CHF indications in EU and
Slide 15: Enablex With Strong Launch Performance
Enablex With Strong Launch Performance in Segment NRx volume post launch1 6 000 Enablex 5 000 Oxytrol Sanctura 4 000 Vesicare 3 000 2 000 1 000 0 W 1 W 5 W k9 W 17 W 21 W 13 W 25 W 29 W 33 W 45 9 W 7 W 41 k4 k3 k k ee ee ee k k k k k k k k ee ee ee ee ee ee ee ee ee ee W 1 Recently launched compound
Slide 16: Good Growth Development of Xolair
Good Growth Development of Xolair Xolair US net sales In USD million +79% 228 • Prescribers basis +20% • 55% of target physicians prescribing Xolair 127 • Patient approval rate >85% • Time to approval improving YTD 2004 YTD 2005 Source: Genentech, US Specialty Pharmacy Data 31 Novartis Third Quarter
Slide 17: Increasing CML Dose
Increasing CML Dose Average dose by CML1 phase, US % of newly diagnosed CML1 patients mg per patient per day by Glivec dose, US 600mg & 800mg 400mg Q3 03 <400mg Q3 04 Q3 05 714 730 17 657 30 636 611 614 442 415 429 75 68 8 2 Chronic Accelerated Blast Starting Maintenance Source: Cancer eSearch Sourc
Slide 18: Global Leader in The Bisphosphonate Market Segment
Global Leader in The Bisphosphonate Market Segment Zometa value market segment share 100% NA 80% Europe RoW 1 60% 40% 20% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2002 2003 2004 2005 1 Excluding Japan Source: IMS PADDS in LC USD Market segment defined as oral and intravenous bisphosphonates for
Slide 19: Increasing Pipeline / Portfolio Value via BD&L
Increasing Pipeline / Portfolio Value via BD&L NVA237 M3 antagonist for the treatment of asthma/COPD (Phase II) Arakis / Vectura Avanir Research collaboration and licensing agreement for MIF1 inhibitors in inflammatory diseases ANA-975 Immunomodulator for treatment of Hep C and B (Phase I) Anadys HY
Slide 20: Full-year Outlook
Full-year Outlook • Continued high single-digit growth, ahead of market • Operating margin slightly ahead of 2004 • Continued strong growth potential for key brands • Sustained newsflow from pipeline 39 Novartis Third Quarter Results 2005 Agenda • Overview R. Breu • Pharmaceuticals T. Ebeling • Sand
Slide 21: 9 Month 2005 Performance Beats Expectations
Agenda • Performance • Integration update • Strategy update 41 Novartis Third Quarter Results 2005 9 Month 2005 Performance Beats Expectations • First time consolidation of Hexal / Eon Labs sales and operating income • Strong underlying performance driven by • Volume expansion in Europe, South Afric
Slide 22: Strong Underlying Business Expansion
Strong Underlying Business Expansion YTD Sept 2005 Growth in % vs. 2004 USD m USD LC Net sales 3 121 +43 +40 • Sandoz 2 431 +12 +8 • Hexal/Eon Labs 690 N/A Employees at end Q3 20 608 +53%1 1 Excluding Hexal/EonLabs Headcount is down -5% 43 Novartis Third Quarter Results 2005 Hexal and Eon Labs Contr
Slide 23: Acquisition-Related Charges Mainly Affect Q3 2005
Acquisition-Related Charges Mainly Affect Q3 2005 Q3 2005 Change in % USD m USD LC Net sales 1 486 +106 +104 • Sandoz 796 +10 +9 • Hexal/Eon Labs 690 N/A N/A Operating income 34 +183 • Sandoz 41 +2421 • Hexal/Eon Labs 189 N/A - Amortisation of intangibles -67 One-time charges: - Inventory step-up -1
Slide 24: Retail Sales in Europe More Than Offset Price Erosion in US
Retail Sales in Europe More Than Offset Price Erosion in US1 Retail sales driven by strong volume expansion in France, Italy, Russia and Eastern Europe and by authorized generics in Germany and the US Sales Growth in LC vs PY ( Sandoz Retail business excluding acquisitions ) France South Africa Russ
Slide 25: Sandoz Effectively Addresses Competitive Pressures in Anti-Infectives
Sandoz Effectively Addresses Competitive Pressures in Anti-Infectives Market Segment • Leveraging state-of-the- Ø Headcount reduced by art technology 14% in 2 years • Restructuring plant Ø Production costs of most network important molecules • Cost cutting and reduced by 21% from successful lean 200
Slide 26: Integration - Key Steps Achieved So Far
Integration - Key Steps Achieved So Far Current status • Merger approved in EU and US (negligible divestments) General • Organization in place • New headquarters in Holzkirchen established in September • Long-term strategic plan developed • Top talent retained • Go-to-market models for all countries
Slide 27: Hexal Reporting Update
Hexal Reporting Update • Hexal Deal completed on June 6th − Hexal reporting systems have already been brought in line with Novartis timetable ( fast close ) − Estimated Balance Sheet included based on preliminary purchase price allocation − Restructuring costs of USD 40 m YTD recorded in Hexal and S
Slide 28: Key Objectives for Sandoz
Key Objectives for Sandoz Key objectives “First in” the market • Broad and global portfolio 1 with strong product • Over 80 product approvals p.a. portfolio • Difficult to make products Be cost competitive • Efficient plant network 2 (‘last out’) • High level of vertical integration Be a leading • F
Slide 29: Estimated Impact of Hexal and Eon Labs Acquisition on 2005
Agenda • Overview R. Breu • Pharmaceuticals T. Ebeling • Sandoz A. Rummelt • Outlook R. Breu 57 Novartis Third Quarter Results 2005 Estimated Impact of Hexal and Eon Labs Acquisition on Group Full Year 2005 Results • Net sales contribution higher than originally expected • To exceed USD 1.3 bn in 2n
Slide 30: Outlook for 2005
Outlook for 2005 (on a comparable basis, barring unforeseen events, excluding the impact of the Hexal and Eon Labs acquisition) • Strong business expansion to continue • High single-digit net sales growth in constant currencies for both Group and Pharmaceuticals • Operating business to be key driver
Slide 31: Consumer Health Key Messages
Appendix Consumer Health Consumer Health Key Messages • Continued high single-digit growth in USD • Marketing and Sales investments in support of product launches • Acquisition of BMS OTC fully on track − USD 16 m one-time charge • Key product launches performing above expectations 62 Novartis Third
Slide 32: Strong Consumer Health Results in 9M 2005
Strong Consumer Health Results in 9M 2005 Consumer Health key figures Growth in % USD m USD LC Net sales 5 420 9 7 Operating income 865 4 Employees at end Sept 2005 19 909 4 63 Novartis Third Quarter Results 2005 One-Time Costs in OTC of USD 16 m and Marketing Investments Affect Operating Income Exp
Slide 33: Consumer Health One-Time Charges Affect COGS and OI&E
Consumer Health – One-Time Charges Affect COGS and OI&E; M&S Increase Behind Product Launches in 9 M… Consumer Health 9M 2005 net sales: 2005 2004 Change USD 5 420 m Pro forma % points Net sales 100.0% 100.0% Sales to other Divisions 0.4% 0.4% 0.0 Other revenues 0.6% 0.2% +0.4 Total revenues 101.0%
Slide 34: Strong Double-Digit Growth in North America and Europe
Strong Double-Digit Growth In North-America and Europe in Consumer Health in 9 Months 2005 … Net sales Share 9M 2005 Growth of total (USD m) (% LC) net sales (%) North America 2 500 +9 46 Europe 1 990 +4 37 Asia/Africa/Australia 606 +13 11 Latin America 324 +4 6 Total 5 420 +7 100 67 Novartis Third
Slide 35: Additional 9M Slides Group
Appendix Additional 9M Slides Group 9 Months 2005 Net Sales Growth Components by Division Volume Price Acq./Div. Currency Pharmaceuticals 9% 0% 0% 2% Sandoz 10% -5% 35% 3% Consumer Health 6% 0% 1% 2% Group 8% 0% 4% 2% 70 Novartis Third Quarter Results 2005 35
Slide 36: Pharmaceuticals Make Up 64% of Net Sales
Pharmaceuticals Make Up 64% of 9 Month Net Sales and 81% of Operating Income Net sales in % by Operating income in % by division division 15 Pharmaceuticals 23 4 Sandoz 64 13 81 Consumer Health 71 Novartis Third Quarter Results 2005 US and Europe Make Up 77% of Net Sales – Emerging Markets Expand Ra
Slide 37: One-Time Charges Offset Productivity Improvements
One-Time Charges Offset Productivity Improvements in Functional Costs 9 M 2005 group net sales: USD 23.6 bn 9 M 2005 9 M 2004 Change pro forma % points Net sales 100.0% 100.0 % Other revenues 0.9% 0.5% +0.4 Total revenues 100.9% 100.5% +0.4 Cost of Goods Sold 27.0% 25.2% +1.8 Of which amort./impairm
Slide 38: Share-Buy Back Program and Acquisitions Reduce Net Liquidity
Share-Buy Back Program and Acquisitions Reduce Net Liquidity to USD 1.0 bn Liquid funds in USD bn 15 13.9 12.6 10 7.9 5 2003 2004 9M 2005 Net liquidity in USD bn 10 6.7 7.0 5 1 0 1 1 2003 2004 9M 2005 1 Restated for derivatives 75 Novartis Third Quarter Results 2005 Asset Allocation of Liquidity Equ
Slide 39: Currency Distribution of Liquidity
Currency Distribution of Liquidity Other 0% CHF CHF 14% 19% USD Others 0% 38% EUR 23% 63% 43% USD EUR September 20041 September 20051 1 Including hedges 77 Novartis Third Quarter Results 2005 USD is The Predominant Currency in 9 M 2005 • Products are imported for sale into US • High cost level in CH
Slide 40: Major Currencies Continue to Appreciate vs. USD
Major Currencies Continue to Appreciate vs. USD in 9 M 20051 Change vs. USD in % CHF 3 JPY 1 EUR 3 GBP 1 CAD 9 0 5 10 1 Based on average rates 79 Novartis Third Quarter Results 2005 Full Year Impact of Currency Movements vs USD on Sales and on Operating Income Impact of a 10% currency appreciation v
Slide 41: Additional 9M Slides Pharmaceuticals
Appendix Additional 9M Slides Pharmaceuticals Jump in Pharmaceutical Margin on Strong Sales Growth and Good Cost Management In percent of net sales 9 M 2005 9 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% 0.7% +0.5 Total revenues
Slide 42: Additional Q3 Slides Group
Appendix Additional Q3 Slides Group Strong Sales Performance Across All Regions in Third Quarter 2005 – Europe Boosted by Acquisitions 3Q % Group net sales growth by 3Q Group net sales by region region in % 12 US LC US USD 12 28 38% Europe LC 28 USD Rest of the +8% Americas Asia/Aus. LC 12 38% 16% A
Slide 43: One-Time Costs Result in Group Operating Margin Decline
One-Time Costs Result in Group Operating Margin Decline of 0.6 % to 22.4% in the 3rd Quarter 2005 Operating margins in %1 Q3 2005 Q3 2004 33.0 35% 30.2 30% 24.5 23.0 25% 17.3 20% 15.8 22.4 15% 5.2 10% 1.7 5% 2.3 0% Pharma- Sandoz Consumer GROUP ceuticals Health 1 Margin in italics is underlying marg
Slide 44: Group - Net Income Increase of 13% in Q3 2005
Group - Net Income Increase of 13% Due to Strong Operating Performance in Q3 2005 USD m 3Q 2005 3Q 2004 Change Pro forma in % USD Operating income 1 888 1 620 17 Result from associated companies 65 98 -34 Financial income, net 18 35 -49 Income before taxes 1 971 1 753 12 Taxes -305 -284 7 Net income
Slide 45: Good Bond and Currency Management
Good Bond and Currency Management USD m 3Q 2005 3Q 2004 Change USD m Pro forma in % Financial income 55 82 -33 % of average liquidity1 2.7% 2.8% Interest expense -80 -69 -16 % of average debt1 -4.4% 4.8% Currency gains / losses on operating activities 43 22 +95 Net financial income 18 35 -49 % of av
Slide 46: Pharmaceutical Margin Growth in Q3 2005
Jump in Pharmaceutical Margin on Strong Sales Growth and Good Cost Management in Q3 2005 In percent of net sales Q3 2005 Q3 2004 Change pro forma % points Net sales 100.0% 100.0% Sales to other Divisions 0.8% 0.8% 0.0 Other revenues 1.1% 0.9% +0.2 Total revenues 101.9% 101.7% +0.2 Cost of Goods Sold
Slide 47: Improvement in Operating Margin with Sandoz in Q3 2005
Improvement in Operating Margin with Sandoz in Q3 2005 Despite Significant One-Time Costs Q3 2005 Net sales: USD 1 486 m Q3 2005 Q3 2004 Change pro forma % points Net sales 100.0% 100.0 % Sales to other Divisions 2.0% 3.6% -1.6 Other revenues 0.5% 0.3% +0.2 Total revenues 102.5% 103.9% -1.4 Cost of