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."

 

 

 

 

	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.

 

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.

 

 

 

	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)

 

 

	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

 

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.

 

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.

 

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).

 

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.

 

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.

 

	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

 

 

	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

 

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%.

 

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.

 

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.

 

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%.

 

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.

 

 

 

 

	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

 

 

	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

 

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.

 

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.

 

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.

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.

 

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.

 

	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

 

 

	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