Novartis Achieves Record Results in 2007 Underscoring Benefits of Strategic Healthcare Portfolio

  • Group results in 2007 set new record as net sales rise 8% (+3% in local currencies) to USD 39.8 billion and net income reaches USD 12.0 billion (+ 66%) with earnings per share up 68%  to USD 5.15
    • Results include contributions from Medical Nutrition and Gerber until divestments during 2007 and after-tax divestment gains of USD 5.2 billion in net income
  • Continuing operations now focused solely on healthcare
    • Full-year net sales rise 11% (+6% in local currencies) to USD 38.1 billion on strong contributions particularly from Sandoz and Vaccines and Diagnostics
    • Pharmaceuticals in the US adversely impacted by generic competition and Zelnorm suspension
    • One-time charges in 2007 of approximately USD 1 billion for Corporate environmental provision and "Forward" initiative to improve competitiveness
    • Excluding these one-time charges, operating income rises 2%. Including these charges, but excluding gains from nutrition business divestments, operating income declines 11%
    • Net income from continuing operations falls 4% to USD 6.5 billion, while earnings per share decline 3% to USD 2.81
  • Launches progressing well for recently approved products - including Exforge, Tekturna/Rasilez, Lucentis, Exjade and Xolair - with 15 approvals in the US and the European Union
  • Increasing returns to shareholders while maintaining sound financial foundation
    • New CHF 10 billion share repurchase program proposed for shareholder approval following share repurchases totaling CHF 4.7 billion in 2007
    • Dividend of CHF 1.60 per share proposed for 2007, up 19% from 2006 and represents dividend payout ratio of 49% of net income from continuing operations
  • Novartis expects record results in 2008 from continuing operations on strong growth outlook for Sandoz, Vaccines and Diagnostics, and Consumer Health
    • First-half 2008 results in Pharmaceuticals to show ongoing negative impact of lost net sales in the US; new growth phase set to emerge in second half of the year
BASEL, Switzerland, January 17, 2008 - Commenting on the results, Dr. Daniel Vasella, Chairman and CEO of Novartis said: "Novartis delivered a strong performance in all major regions and in all divisions, with the exception of Pharmaceuticals in the US hit by generic competition and a product withdrawal. The dynamic growth of Sandoz and Vaccines & Diagnostics and the strong contribution of Consumer Health underscore the benefits of our focused diversification strategy in healthcare businesses to tap new sources of growth and balance risks. The 15 approvals for new prescription medicines obtained in the US and in the EU lay the foundation for a new growth cycle in Pharmaceuticals, which is expected to emerge in the second half of 2008, while our initiative "Forward" is designed to improve the efficiency and productivity of the organization providing savings of USD 1.6 billion in 2010. I am confident Novartis will deliver record results in 2008 and is well-positioned to benefit from current and future trends in healthcare."
 
 
TOTAL GROUP
 
Key figures - Full year
 

 
2007
2006
% change
 
USD m
% of
net sales
USD m
% of
net sales
USD
lc
Total Group
 
 
 
 
 
 
- Net sales
39 800
 
37 020
 
8
3
- Operating income and divestment gains[1]
12 933
32.5
8 174
22.1
58
 
- Net income
11 968
30.1
7 202
19.5
66
 
- Basic earnings per share
USD 5.15
 
USD
3.06
 
68
 
[1] Operating income includes charge for Corporate environmental provision increase of USD 590 million in the 2007
   third quarter and a USD 444 million restructuring charge in the 2007 fourth quarter for the "Forward" initiative as
   well as pre-tax divestment gains of USD 5.8 billion from Medical Nutrition and Gerber.
 
Summary
Novartis achieved record results for the total Group in 2007, with net sales rising 8% (+3% in local currencies) and net income advancing 66% to USD 12.0 billion. Sandoz and Vaccines and Diagnostics led the expansion with double-digit net sales growth and strong contributions to operating income, while Consumer Health provided additional support with a solid performance. The slowdown in Pharmaceuticals in 2007 reflected the negative impact of generic competition in the US for some products and the loss of Zelnorm.
 
Included in total Group results for 2007 were contributions from Medical Nutrition (until June 30) and Gerber (until August 31) before divestments in separate transactions. These were the final divestments as part of the Group's strategy to focus solely on growth areas of healthcare with innovative medicines as well as generic pharmaceuticals, preventive vaccines and diagnostics, and targeted consumer health products.
 
The 2007 results further include significant charges of approximately USD 1 billion for a Corporate environmental provision increase of USD 590 million, including costs for the related share of any potential remediation costs for historical landfills in the Basel region as well as restructuring charges for "Forward" of USD 444 million. This strategic initiative was launched in December 2007 to improve competitiveness and help Novartis more rapidly meet the needs of patients and customers. This initiative, which is now underway and will be implemented in 2008 and 2009, will simplify organizational structures, accelerate and decentralize decision-making processes, redesign the way Novartis operates and provide productivity gains. Pre-tax annual cost savings of approximately USD 1.6 billion are targeted in 2010.

CONTINUING OPERATIONS
 
Full year
 
Key figures
 

 
2007
2006
% change
 
USD m
% of
net sales
USD m
% of
net sales
USD
lc
Net sales
38 072
 
34 393
 
11
6
Operating income excl. environmental
  provision and "Forward" charges
[
1]
7 815
20.5
7 642
22.2
2
 
Operating income
6 781
17.8
7 642
22.2
-11
 
Net income
6 540
17.2
6 825
19.8
-4
 
Basic earnings per share
USD 2.81
 
USD
2.90
 
-3
 
[1] Excludes approximately USD 1 billion in charges (USD 590 million for Corporate environmental provision increase and USD 444 million for the "Forward" initiative)
 
 
Net sales


 
2007
2006
     % change
 
USD m
USD m
USD
lc
Pharmaceuticals
24 025
22 576
6
2
Vaccines and Diagnostics
1 452
956
52
47
Sandoz
7 169
5 959
20
13
Consumer Health continuing operations
5 426
4 902
11
6
Net sales from continuing operations
38 072
34 393
11
6
 
Group
Sandoz and Vaccines and Diagnostics led the expansion with double-digit growth in local currencies, along with support from Consumer Health. The Pharmaceuticals slowdown reflected the impact of generic competition in the US and the loss of Zelnorm. Higher volumes accounted for five percentage points of the increase in net sales from continuing operations, acquisitions added two percentage points and currencies provided five percentage points to net sales growth. However, net prices declined one percentage point.
 
Pharmaceuticals
Europe, Latin America and key emerging markets generated double-digit growth as many top products strengthened their leading positions. The high blood pressure medicine Diovan (USD 5.0 billion, +16% lc) exceeded USD 5 billion for the first time, while the cancer therapy Gleevec/Glivec (USD 3.1 billion, +14% lc) topped USD 3 billion. US net sales fell 8% after the loss of Lotrel, Lamisil, Trileptal and Famvir to generics and the suspension of Zelnorm. However, worldwide net sales rose 10% for the unaffected product portfolio. The rollout of recently approved products made progress, including Exforge, Tekturna/Rasilez, Lucentis, Aclasta/Reclast, Exelon Patch, Exjade and Xolair.
 
Vaccines and Diagnostics
Excellent performance driven by a rise in sales of TBE (tick-borne encephalitis), pediatric and seasonal influenza vaccines as well as NAT (nucleic acid test) blood testing products. On a comparable full-year basis, net sales rose 25% (including unaudited net sales from Chiron for four months in the year-ago period before the April 2006 acquisition).
 
Sandoz
Dynamic growth in the US and other fast-growing markets, particularly Eastern Europe, provided an incremental contribution of more than USD 1 billion to annual net sales. Recent launches for various "difficult-to-make" and authorized generics underpinned growth.
 
Consumer Health continuing operations
OTC and Animal Health led the performance, driven by a focus on strategic brands, new product launches and geographic expansion. CIBA Vision net sales were higher, supported mainly by improved supplies of contact lenses and lens-care products.
 
Operating income

 
2007
2006
Change
 
USD m
% of
net sales
USD m
% of
net sales
In %
Pharmaceuticals
6 086
25.3
6 703
29.7
-9
Vaccines and Diagnostics
72
5.0
-26
 
 
Sandoz
1 039
14.5
736
12.4
41
Consumer Health continuing operations
812
15.0
761
15.5
7
Corporate income & expense, net
-1 228
 
-532
 
131
Operating income from continuing operations
6 781
17.8
7 642
22.2
-11
 
 
Operating income excluding environmental provision and "Forward" charges


 
2007
2006
Change
 
USD m
% of
net sales
USD m
% of
net sales
In %
Pharmaceuticals[1]
6 393
26.6
6 703
29.7
-5
Vaccines and Diagnostics
72
5.0
-26
 
 
Sandoz
1 039
14.5
736
12.4
41
Consumer Health continuing operations[1]
909
16.8
761
15.5
19
Corporate income & expense, net[1],[2]
-598
 
-532
 
12
Operating income from continuing operations
  excluding Corporate environmental charge
  and "Forward" restructuring charge
7 815
20.5
7 642
22.2
2
Corporate environmental provision increase
-590
 
 
 
 
"Forward" restructuring charges
-444
 
 
 
 
Operating income from continuing operations
6 781
17.8
7 642
22.2
-11
[1] Excludes respective component of the "Forward" restructuring charge in the 2007 fourth quarter of USD 444 million (Pharmaceuticals: USD 307 million, Consumer Health: USD 97 million and Corporate: USD 40 million)
[2] Excludes Corporate environmental provision increase of USD 590 million in the 2007 third quarter
 
Group
Operating income from continuing operations was affected significantly by one-time charges in 2007 that included approximately USD 1 billion in total for Corporate environmental provisions (USD 590 million) and restructuring charges for the "Forward" initiative (USD 444 million). Excluding these two charges, operating income from continuing operations rose 2%.
 
Pharmaceuticals
Among the factors contributing to the decline were lost operating income in the US due to the entry of generic competition for four products and the suspension of Zelnorm, major investments in late-stage development compounds, new product launches and restructuring charges. The operating margin declined to 25.3% of net sales (or to 26.7% of net sales excluding total restructuring charges) from 29.7% in 2006. Research & Development investments rose 19% to USD 5.1 billion and represented 21% of net sales, mainly to support the rich late-stage pipeline that includes the projects FTY720, QAB149, MFF258, ACZ885, ABF656, RAD001 and Exforge. Marketing & Sales expenses were up 9% to support many new product launches and rollouts, which was partly offset by productivity initiatives. Cost of Goods Sold was higher due mainly to a USD 320 million intangible asset impairment charge for Famvir product rights.
 
Vaccines and Diagnostics
The strong business performance supported significant investments in R&D, particularly for late-stage trials involving meningococcal meningitis vaccine candidates and a new strategic alliance with Intercell. The adjusted operating margin was 21.3% of net sales excluding legal settlement gains of USD 83 million in 2007 as well as restructuring and amortization charges for intangible assets.
 
Sandoz
Advancing broadly twice as fast as net sales, operating income expansion was driven by efficiency improvements throughout the division, economies of scale in marketing and productivity gains in R&D. As a result, the operating margin improved to 14.5% of net sales from 12.4% in 2006. Excluding one-time items and acquisition-related amortization of intangible assets in both periods, adjusted operating income rose 20% and the adjusted operating margin reached 20.0%.
 
Consumer Health continuing operations
Excluding the charge for "Forward," operating income rose 19% and supported continued investments in R&D and marketing for new product launches and geographic expansion.
 
 
CONTINUING OPERATIONS
 
Fourth quarter
 
Key figures
 

 
Q4 2007
Q4 2006
% change
 
USD m
% of
net sales
USD m
% of
net sales
USD
lc
Net sales
9 931
 
9 398
 
6
-1
Operating income excl. "Forward"[1]
1 341
13.5
1 725
18.4
-22
 
Operating income
897
9.0
1 725
18.4
-48
 
Net income
931
9.4
1 596
17.0
-42
 
Basic earnings per share
USD 0.41
 
USD
0.67
 
-39
 
[1] Excludes USD 444 million in restructuring charges for the "Forward" initiative
 
 
Net sales

 
Q4 2007
Q4 2006
     % change
 
USD m
USD m
USD
lc
Pharmaceuticals
6 152
6 049
2
-5
Vaccines and Diagnostics
398
455
-13
-18
Sandoz
1 971
1 653
19
9
Consumer Health continuing operations
1 410
1 241
14
6
Net sales from continuing operations
9 931
9 398
6
-1
 
Group
Overall good net sales growth in reported US dollars was achieved as Sandoz and Consumer Health offset the negative developments in Pharmaceuticals in the US and a weaker quarter in Vaccines and Diagnostics. Sales volumes and price changes each resulted in a loss of one percentage point in net sales, but were offset by acquisitions that provided one percentage point and currency translation that added seven percentage points to net sales.
 
Pharmaceuticals
Europe, Latin America and key emerging markets generated high-single-digit growth, but US net sales fell 21% due to generic competition for four products - Lotrel, Lamisil, Trileptal and Famvir - and the suspension of Zelnorm. However, worldwide net sales rose 8% for the unaffected product portfolio. Diovan (USD 1.4 billion, +12% lc) and Gleevec/Glivec (USD 0.8 billion, +12% lc) both improved their leadership positions as the Oncology, Cardiovascular and Neuroscience franchises all delivered solid performances. The continued rollout of many new products - including Tekturna/Rasilez, Exforge, Exjade, Lucentis, Aclasta/Reclast, Exelon Patch and Xolair - in key markets around the world provided combined net sales of USD 427 million for the quarter.
 
Vaccines and Diagnostics
The net sales decline reflected deliveries of seasonal influenza vaccines occurring mainly in the third quarter of 2007 due to earlier availability as a result of high viral strain production yields for the vaccine. In comparison, poor production yields for vaccines last year led to more shipments occurring in the fourth quarter of 2006 than in the third quarter. Further expansion in Europe of the blood testing business supported the ongoing positive performance in Diagnostics.

Sandoz
Ongoing dynamic expansion as US net sales increased at a fast pace, while contributions from Eastern Europe, Asia and Latin America underpinned the performance. Key drivers were solid growth in the base retail generics business as well as recent launches of difficult-to-make and authorized generics.
 
Consumer Health continuing operations
Animal Health led the division with double-digit growth, reflecting the benefits of new product launches, recent sales force investments and the integration of Sankyo Lifetech in Japan. OTC grew at a slower pace, mainly due to the weak "cough and cold" season in the US. CIBA Vision was supported by new product launches, including Air Optix Toric contact lenses in Europe, with the year-ago period negatively impacted by a product recall.
 
Operating income

 
Q4 2007
Q4 2006
Change
 
USD m
% of
net sales
USD m
% of
net sales
In %
Pharmaceuticals
925
15.0
1 621
26.8
-43
Vaccines and Diagnostics
-107
 
2
0.4
 
Sandoz
250
12.7
204
12.3
23
Consumer Health continuing operations
85
6.0
74
6.0
15
Corporate income & expense, net
-256
 
-176
 
45
Operating income from continuing operations
897
9.0
1 725
18.4
-48
 
 
Operating income excluding "Forward" charge


 
Q4 2007
Q4 2006
Change
 
USD m
% of
net sales
USD m
% of
net sales
In %
Pharmaceuticals[1]
1 232
20.0
1 621
26.8
-24
Vaccines and Diagnostics
-107
 
2
0.4
 
Sandoz
250
12.7
204
12.3
23
Consumer Health continuing operations[1]
182
12.9
74
6.0
146
Corporate income & expense, net[1]
-216
 
-176
 
23
Operating income from continuing operations
 excluding "Forward"[
1]
1 341
13.5
 
1 725
18.4
-22
"Forward" restructuring charge
-444
 
 
 
 
Operating income from continuing operations
897
9.0
1 725
   

Posted: January 2008


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