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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 or 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934

Report on Form 6-K dated April 22, 2005
(Commission File No. 1-15024)

This Report on Form 6-K shall be incorporated by reference in our Registration Statements on Form F-3 as filed with the Commission on May 11, 2001 (File No. 333-60712) and on January 31, 2002 (File No. 333-81862) and our Registration Statements on Form S-8 as filed with the Commission on October 1, 2004 (File No. 333-119475) and on May 14, 2001 (File No. 333-13506), in each case to the extent not superseded by documents or reports subsequently filed by us under the Securities Act of 1933 or the Securities Exchange Act of 1934, in each case as amended.

Novartis AG
(Name of Registrant)

Lichtstrasse 35
4056 Basel
Switzerland
(Address of Principal Executive Offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F: ý    Form 40-F: o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes: o    No: ý

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes: o    No: ý

Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes: o    No: ý

Enclosure:        Novartis AG Announces Results for the First Quarter of 2005

        Novartis International AG
Novartis Global Communications
CH-4002 Basel
Switzerland
GRAPHIC        
http://www.novartis.com

 
 
John Gilardi
Novartis Global Media Relations
+41 61 324 3018 (direct)
+41 61 324 2200 (main)
john.gilardi@novartis.com
 
Nehl Horton
Novartis Global Media Relations
+ 41 61 324 5749 (direct)
+ 41 61 324 2200 (main)
nehl.horton@novartis.com
         
MEDIA RELEASE • COMMUNIQUE AUX MEDIAS • MEDIENMITTEILUNG

Novartis continues to outpace the market, delivering strong first quarter 2005 sales and earnings growth

Key figures

First quarter

 
   Q1 2005
   Q1 2004
   % Change
 
   USD m

   % of
net sales

   USD m

   % of
net sales

   USD

   lc
Net sales   7 341       6 639       11   7
  Pharmaceuticals   4 789       4 310       11   8
  Sandoz   803       719       12   7
  Consumer Health   1 749       1 610       9   6
Operating income   1 680   22.9   1 454 (1) 21.9   16    
Net income   1 477   20.1   1 270 (1) 19.1   16    
Basic earnings per share/ADS   USD 0.63       USD 0.54 (1)     17    

(1)    Pro forma basis

(1)
This quarterly report incorporates for the first time the adoption of new IFRS accounting standards that became effective on January 1, 2005, and other presentational changes. In order to provide a comparable basis, the 2004 pro forma statements reflect these changes as if they had been in effect already during 2004.

All product names appearing in italics are trademarks of Novartis Group Companies

Unless otherwise stated, growth rates are in USD and comments refer to first-quarter 2005 figures

1


Basel, April 21, 2005—Commenting on the first-quarter results published today, Dr. Daniel Vasella, Chairman and CEO of Novartis, said, "We are off to a strong start in 2005. In Pharmaceuticals, we once more gained market share, especially through the dynamic performance of our oncology portfolio. Our plans to integrate Hexal and Eon Labs making Sandoz the world leader in generics are on track, and will further strengthen our ability to fulfill customer needs with a broad health-care portfolio in the context of an aging population and rising health-care needs. We anticipate delivering a competitive performance in 2005 with record sales and, on a comparable basis, record earnings."

Net sales

Group net sales up 11% to USD 7.3 billion

Double-digit sales growth of 11% (+7% in local currencies, or lc) to USD 7.3 billion was driven by Pharmaceuticals, which once again gained market share, and Sandoz, which posted a solid performance. Volume increases accounted for seven percentage points of Group net sales growth. Currency benefits contributed four percentage points, while acquisitions added one percentage point. Net price decreases led to a decline of one percentage point. Pharmaceuticals provided 65% of total Group net sales, Sandoz 11% and Consumer Health 24%. Geographically, the US accounted for 38% of total Group net sales, Europe 39% and other regions for 23%.

Novartis increased its share of the global health-care market to 4.5% for the first two months of 2005, up from 4.4% in the same year-ago period, according to IMS Health.

Pharmaceuticals net sales rise 11% to USD 4.8 billion

The Pharmaceuticals Division, led by the performance of the key brands Diovan, Gleevec/Glivec, Femara, Lamisil and Zometa, reported a net sales increase of 11% (+8% lc). This is after deducting a one-time adjustment of USD 62 million to reflect the change in accounting for sales rebates in prior years in the US on inventory held by wholesalers and retailers. Excluding this one-time adjustment, net sales would have risen 13% (+10% lc).

Both Primary Care and Specialty Medicines, in particular the oncology and cardiovascular portfolios, contributed to the strong Pharmaceuticals performance. Sales growth was driven by volume expansion, contributing eight percentage points, while currency benefits added three percentage points. Primary Care (excluding Mature Products) reported a net sales increase of 13% (+10% lc). The Cardiovascular franchise improved 12% (+9% lc) despite increased competition. Net sales in Specialty Medicines, which includes activities in Oncology, Transplantation & Immunology, and Ophthalmics, rose 20% (+16% lc). Oncology delivered dynamic growth of 26% (+22% lc) based on leading performances of the "best-in-class" oncology drugs Gleevec/Glivec, Zometa and Femara.

First-quarter net sales in the US rose 5% to USD 1.8 billion after deducting the change in accounting, but were up 9% excluding the impact. In Europe, net sales rose 15% (+9% lc), while net sales advanced 19% (+16% lc) in Japan and 12% (+9% lc) in Latin America. Sales in the emerging growth markets climbed 17% (+11% lc).

Sandoz sales up 12% to USD 803 million

First-quarter sales were up 12% (+7% lc) to USD 803 million, helped by strong growth in Europe and the benefits of the Durascan and Sabex acquisitions made in 2004. The US generics business remained very competitive, but Anti-infectives delivered solid growth, benefiting from substantial volume increases. Overall, volumes contributed eight percentage points to growth. Currencies and acquisitions each contributed five percentage points, with continued pricing pressure resulting in a decline of six percentage points.

2


Consumer Health net sales up 9% to USD 1.7 billion

Net sales rose 9% (+6% lc) to USD 1.7 billion thanks to strong double-digit sales growth in Medical Nutrition and Animal Health as well as solid performances in CIBA Vision, OTC and Infant & Baby. Medical Nutrition continued to benefit from the Mead Johnson acquisition, while growth in Animal Health was driven by the continued strong performance of new products in the US and major European markets. CIBA Vision growth came from the US launch of O2OPTIX breathable contact lenses and continued success of Focus DAILIES lenses. OTC sales were supported by a strong cough/cold brands performance, which was partially offset by a shrinking smoking-cessation market in Europe. Infant & Baby continued to perform well in the US based on an innovative product strategy. Overall, increased volumes accounted for five percentage points of sales growth, currencies for three percentage points and acquisitions for one percentage point. There was no significant impact from price changes.

Operating income

First quarter

 
   Q1 2005
   Q1 2004(1)
    
 
   USD m

   % of
net sales

   USD m

   % of
net sales

   Change
in %
Pharmaceuticals   1 364   28.5   1 251   29.0   9
Sandoz   110   13.7   91   12.7   21
Consumer Health   286   16.4   265   16.5   8
Corporate income & expense, net   -80       -153        
Total   1 680   22.9   1 454   21.9   16

(1)    Pro forma basis

Group operating income up 16% to USD 1.7 billion

Operating income advanced faster than sales, driven by the strong business performance across all three divisions, leading to a one percentage point improvement in the operating margin. A divestment gain of USD 135 million for the anti-hypertension product Cibacen in Europe also boosted the performance. Excluding the change in accounting for sales rebates in prior years in the US and gain from the Cibacen divestment, operating income would have grown 11%, in line with sales.

Pharmaceuticals operating income climbs 9% to USD 1.4 billion

Operating income expanded 9% to USD 1.4 billion in the first quarter. Cost of Goods Sold (COGS) increased 0.7 percentage points to 17.1% of sales, which was mainly affected by the weaker US dollar. Marketing & Sales expenses rose 14%, in particular for pre-launch and launch investments in products such as Enablex (incontinence), Femara (extended adjuvant breast cancer) and Aclasta (Paget's disease), which were partially offset by productivity gains. Research & Development expenses advanced faster than sales, rising 16% and accounting for 18.9% of sales following the ramp-up of late-stage clinical trials, in particular for LAF237 (diabetes) and SPP100 (hypertension) as well as investments in the Novartis Institute for BioMedical Research (NIBR) and one-time provisions for closing a research site in London. Other Income & Expense decreased 45%, mainly as a result of the divestments gains related to Cibacen. General & Administrative expenses rose slower than sales and accounted for 3.2% of sales.

3


Sandoz operating income rises 21% to USD 110 million

Operating income rose significantly, advancing 21% to USD 110 million. The strong business expansion was a key factor, which was supported by a decline in Marketing & Sales expenses as a percentage of sales due to cost containment measures. In addition, other Income & Expense in the first quarter benefited from one-time gains on the disposal of distributorship businesses in Eastern Europe, while General & Administrative expenses were negatively affected by costs associated with litigation. These developments more than offset an increase in Cost of Goods Sold (COGS) as a result of product mix changes, ongoing pricing pressure in certain markets and higher R&D spending in support of major initiatives, in particular in biopharmaceuticals.

Consumer Health operating income advances 8% to USD 286 million

Operating income increased 8%, in line with sales. Cost of Goods Sold, Research & Development and General & Administrative expenses were close to year-ago levels as a percentage of sales, while Marketing & Sales rose following new product launches, in particular the O2OPTIX launch by CIBA Vision.

Group net income rises 16% to USD 1.5 billion

Net income rose 16% to USD 1.5 billion in the first quarter from USD 1.3 billion (pro forma) in the year-ago period based on the strong business performance. As a percentage of net sales, net income rose to 20.1% from 19.1 % in the 2004 first quarter.

Group outlook (barring any unforeseen events)

Novartis reaffirms its 2005 outlook. Further gains in market share are expected to keep Novartis positioned as one of the fastest-growing pharmaceutical companies, delivering high single-digit net sales growth for the Group and Pharmaceuticals in local currencies.

Barring any unforeseen events, Group operating and net income should reach new record levels on a comparable basis.

Pharmaceutical business and key product highlights

(Note: All net sales percentage figures refer to first-quarter 2005 results)

Primary Care

Diovan (+17%; +14% lc; +10% US), the No. 1 angiotensin-receptor blocker (ARB) worldwide, maintained its share of this market segment in the US at 38%. Diovan remained one of the fastest-growing branded anti-hypertension medicines despite increased competition (IMS Health data as of March 2005). More than 200,000 patients have been enrolled in a Novartis-sponsored US hypertension awareness and education program since its inception, helping to support ongoing growth. Novartis remains in discussion with the US Food and Drug Administration (FDA) regarding an approvable letter granted in early 2005 for Diovan to treat and protect patients after suffering a heart attack, an indication already approved in 37 countries, including the UK, Sweden and Switzerland. European sales growth was strong with key performances in France, Italy and Germany, in particular from the Co-Diovan formulation.

4


In March 2005, Novartis received a letter from a generic company with notification of its Abbreviated New Drug Application (ANDA) to the FDA seeking to market a generic version of valsartan, the active ingredient in Diovan. In its ANDA, a so-called "505(j) application," the company submitted a Paragraph IV certification that its generic version did not infringe the claims of a patent expiring in 2017 covering the formulation of Diovan. However, the ANDA included no challenge (a so-called Paragraph III certification) against a compound patent expiring in 2012 covering the valsartan active ingredient. As a result, the generic company cannot market a product until at least 2012. Novartis has decided not to initiate patent litigation at this time against the generic company on its application. Novartis will continue to vigorously defend its intellectual property related to Diovan.

Lotrel (+4% US), the No. 1 US fixed combination treatment for hypertension, increased its market share in the first quarter, helped by data showing that more than 60% of patients in the US require two or more drugs to bring hypertension under control. Sales growth, however, was negatively affected by inventory de-stocking. Lotrel continues to be ranked as the No. 1 branded combination therapy, a position held since 2002. This product also benefited from the disease and education awareness initiatives in the US.

Lamisil (+13%; +11% lc; +9% US), the leading treatment worldwide for fungal nail infections, delivered a strong performance, driven by greater disease awareness in the US and robust-double digit growth in Europe, particularly in UK, France, Belgium and Holland.

Elidel (+34%; +32% lc; +30% US), a leading medicine for eczema, reported higher sales in the first quarter. Novartis is currently in product labeling discussions with the FDA after an FDA Advisory Committee in February recommended the inclusion of a "black box" warning for Elidel and Protopic® to warn the public of a theoretical risk of cancer. Novartis and independent experts do not agree that these actions are justified. Further, Novartis remains confident in the safety and efficacy of Elidel in its approved indications.

Zelnorm/Zelmac (+18%; +16% lc +17% US), a breakthrough therapy for irritable bowel syndrome (IBS) with constipation (IBS-C) and the first and only prescription medicine for chronic idiopathic constipation, delivered solid double-digit sales growth. Zelnorm has reached a 60% share of the IBS market in the US, where it is also the only branded treatment for chronic constipation, a condition that affects more than 20 million people. Novartis is launching a series of initiatives in 2005 to grow awareness about the benefits of Zelnorm for treating chronic constipation.

Specialty Medicines

Oncology

Gleevec/Glivec (+41%; +36% lc; +55% US), for all stages of Philadelphia-chromosome positive (Ph+) chronic myeloid leukemia (CML) and certain forms of gastro-intestinal stromal tumors (GIST), maintained a strong double-digit growth rate amid solid performances in the US as well as in key European markets. Growth drivers included further penetration of both the CML and GIST markets, in part through improved diagnosis and educational programs, and an increase in the average daily dose. More than 100 clinical trials are underway with Gleevec/Glivec, including Phase II trials in combination with hydroxyurea in glioblastoma multiforme (GBM), a type of brain tumor, and a Phase III NCI-sponsored study in the adjuvant GIST setting. The FDA has granted an expanded label in the US for CML that includes longer-term and molecular response data. The Glivec International Patient Assistance Program is now open in 74 countries, and the combined Gleevec/Glivec patient assistance programs are providing treatments to 10,800 patients worldwide who otherwise would not have access to this innovative therapy.

5


Zometa (+17%; +15% lc; +13% US), the leading intravenous bisphosphonate worldwide for bone metastases, delivered double-digit growth after achieving blockbuster status in 2004. Growth in 2005 is expected to moderate slightly given high penetration rates in breast cancer and myeloma as well as the continuing impact of US reimbursement reforms and increasing competition. At the same time, Zometa continues to make progress in increasing the use of intravenous (IV) bisphosphonates in the treatment of prostate and lung cancer patients, two of the most common forms of cancer.

Femara (+51%; +47% lc; +85% US) continued to grow at high double-digit rates in the first quarter, supported by robust clinical data supporting its position as a leading therapy for early and advanced breast cancer in postmenopausal women. Initial data from the BIG 1-98 study, presented in January, showed Femara provided a disease-free survival advantage over tamoxifen in the adjuvant treatment (post-surgery) of early breast cancer. The BIG 1-98 data will be featured at the upcoming American Society of Clinical Oncology meeting in May and forms the basis for US and EU submissions planned for the second quarter of 2005 for this indication. Femara was approved in the first quarter in Germany, France and seven other countries as the only hormone therapy given after standard tamoxifen treatment for postmenopausal women with early breast cancer, an indication now approved in more than 75 countries, including the US. This approval was based on the landmark MA-17 study, which showed Femara significantly increases a woman's chance of staying cancer-free following five years of adjuvant tamoxifen therapy.

Sandostatin (+11%; +7% lc; +7% US), a leading treatment for patients with the hormone condition acromegaly and also for symptoms of gastro-entero-pancreatic neuroendocrine tumors, maintained recent growth rates thanks to a double-digit expansion for the patient-friendly, long-acting LAR version, which accounted for approximately 70% of global sales. A generic competitor received US approval in March to market a subcutaneous version of Sandostatin. The LAR formulation provides significant advantages for patients in terms of comfort and convenience since it is administered once-monthly compared to an average 90 injections per month for the generic formulation.

Ophthalmics

The ongoing strong performance from Visudyne (+23%; +19% lc; +13% US) in the US and Europe supported net sales growth of 23% (+19% lc) for the business unit despite the launch in early 2005 of a competing product in the US for the treatment of "wet" AMD (age-related macular degeneration), a leading cause of blindness.

Transplantation

Sales for the business unit declined 6% (-9% lc) as the Neoral/Sandimmun franchise (-10%; -13% lc; -18% US) was primarily affected by erosion from generic competition in the US and other markets. Myfortic, an immunosuppressant used in kidney transplantation, continued to gain market share globally, with regional launches occurring during the first quarter in France, Canada and Spain. Certican, a proliferation signal inhibitor designed to reduce the risk for chronic allograft failure, was launched in Spain in the first quarter and received positive recommendations for approval in Australia, South Africa and Israel, continuing the momentum of world-wide approvals.

6


Product and regulatory update

Novartis has an attractive pipeline, which includes several projects that have the potential to become a new standard of care and the first to market in their respective classes. A number of projects are currently awaiting regulatory approval or planned to be submitted in 2005:


New clinical data from a number of development compounds are planned to be presented during the second quarter, including the following:

7

Novartis has more than 70 projects in clinical development, of which more than 40 are new molecular entities. Internal discovery efforts are complemented with in-licensing activities, which included two new agreements signed so far in 2005:

Hexal and Eon Labs: Integration planning on track

Integration planning is well underway to create the world leader in the generic drug industry by bringing Sandoz together with Hexal AG, the privately-held No. 2 generics company in Germany, and Eon Labs, Inc., a fast-growing US generics company that has a strategic partnership with Hexal.

Novartis announced in February the strategic acquisitions of these two leading generic drug companies, which will combine Sandoz's global geographic presence and expertise in anti-infectives, Hexal's leadership in Germany and strong track record of successful product development, and Eon Labs' strong position in the US for "difficult-to-make" generics. After the closing of both transactions, which is expected in the second half of 2005, Sandoz will be the global leader in generics with combined pro forma 2004 sales of USD 5.1 billion, a portfolio of over 600 active ingredients in more than 5,000 dosage forms and more than 20,000 employees.

Submissions for regulatory approval have been made in the United States and the European Union. The tender process to acquire the publicly-held shares of Eon Labs is planned to happen in coordination with the regulatory process. These transactions are expected to close before the end of 2005.

Corporate

Net corporate expenses amounted to USD 80 million in the first quarter compared to an expense of USD 153 million in 2004, mainly as a result of an increase in certain legal and indirect tax accruals in the prior-year period.

Net financial income amounted to USD 45 million compared with USD 28 million in the 2004 first quarter. Currency gains accounted for the significant part of the increase. Despite the low-yield environment, the overall return on net liquidity was 2.4% versus 1.8% the same period in 2004.

8

Associated companies resulted in an overall income of USD 33 million. The Group's 42% investment in Chiron Corporation contributed a loss of USD 3 million compared with income of USD 11 million in the prior-year period. The investment in Roche resulted in income of USD 35 million. This amount consists of an estimated USD 65 million as being the Novartis share of Roche's net income for the 2005 first quarter, including a positive adjustment for Roche's actual 2004 results of USD 2 million. This was offset by charges of USD 30 million related to amortization of intangible assets.

Novartis debt continues to be rated by Standard & Poor's and Moody's as AAA and Aaa for long-term maturities and A1+ and P1 for short-term debt, respectively, making the Group one of the few non-financial companies worldwide to have attained the highest rating from these two benchmark rating agencies.

The Group's equity fell by USD 1.8 billion in the first quarter to USD 29.5 billion at March 31, 2005, as a result of the USD 2.1 billion dividend payment, a total of USD 0.5 billion in purchases of treasury shares and USD 0.7 billion of translation losses. This more than offset first quarter net income of USD 1.5 billion. The debt/equity ratio at the end of the first quarter was 0.21:1 compared to 0.22:1 as of December 31, 2004.

Novartis continued its share repurchase program in the first quarter via a second trading line on the SWX Swiss Exchange. Since the start of the fourth program in August 2004, a total of 25.2 million shares have been repurchased for USD 1.2 billion. This included 10 million shares repurchased in the first quarter for USD 0.5 billion. Shareholders approved a resolution at the Annual General Meeting on March 1, 2005, to retire 38.0 million shares bought through the repurchase programs via the second trading line until the end of 2004.

Cash flow from operating activities rose by USD 918 million (+88%) to USD 2.0 billion, mainly the result of a change of USD 551 million in net working capital. This was principally due to a timing difference on the payment of withholding tax on the dividend, which will be paid in the second quarter of 2005 compared to a similar payment in the 2004 first quarter.

9

This release contains certain forward-looking statements relating to the Group's business, which can be identified by the use of forward-looking terminology such as "will", "anticipate", "outlook", "expect", "pipeline", "potential", "planned", "will be", "intends to", or similar expressions, or by express or implied discussions regarding potential future sales of new or existing products, potential new products or potential new indications for existing products, or by other discussions of strategy, plans or intentions. Such statements reflect the current views of the Group with respect to future events and are subject to certain risks, uncertainties and assumptions. There can be no guarantee that any products will reach any particular sales levels, or that any new products will be approved for sale in any market, or that any new indications will be approved for existing products in any market. In particular, management's expectations could be affected by, among other things, new clinical data; unexpected clinical trial results; unexpected regulatory actions or delays or government regulation generally; the Group's ability to obtain or maintain patent or other proprietary intellectual property protection; competition in general; government, industry, and general public pricing pressures and other risks and factors referred to in the Group's current Form 20-F on file with the US Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. Novartis is providing the information in this press release as of this date and does not undertake any obligation to update any forward-looking statements contained in this press release as a result of new information, future events or otherwise.

Novartis AG (NYSE: NVS) is a world leader in pharmaceuticals and consumer health. In 2004, the Group's businesses achieved sales of USD 28.2 billion and pro forma net income of USD 5.6 billion. The Group invested approximately USD 4.2 billion in R&D. Headquartered in Basel, Switzerland, Novartis Group companies employ about 81,400 people and operate in over 140 countries around the world.

For further information please consult http://www.novartis.com.

Further Important Dates

July 14, 2005   First half and second quarter results
October 18, 2005   Nine-month and third quarter results

Contacts

Media:   Investors:
+41 61 324 2200
(Nehl Horton or John Gilardi—Basel)		   +41 61 324 7944
(Karen Huebscher—Basel)

+1 212 830 2457
(Sheldon Jones—US)
 
+1 212 830 2433
(Ronen Tamir—US)

10

Consolidated income statements (unaudited)

First quarter

 
    
   Pro forma
Q1 2004(1)
USD m

   Change
   Restated
historical
Q1 2004(2)
USD m
 
   Q1 2005
USD m

   USD m

   %
Total net sales   7 341   6 639   702   11   6 639
Other revenues   73   27   46   170   27
Cost of Goods Sold   -1 926   -1 689   -237   14   -1 689
Of which amortization and impairments of product and patent rights and trademarks   -74   -69   -5   7   -69
Gross profit   5 488   4 977   511   10   4 977
Marketing & Sales   -2 319   -2 060   -259   13   -2 060
Research & Development   -1 087   -938   -149   16   -938
General & Administration   -401   -355   -46   13   -355
Other income & expense   -1   -170   169       -185
Operating income   1 680   1 454   226   16   1 439
Result from associated companies   33   42   -9   -21   14
Financial income, net   45   28   17   61   28
Income before taxes   1 758   1 524   234   15   1 481
Taxes   -281   -254   -27   11   -248
Net income   1 477   1 270   207   16   1 233
Attributable to:                    
  Equity holders of the parent   1 481   1 274   207   16   1 237
  Minority interests   -4   -4   0       -4
Average number of shares outstanding (million)   2 332.1   2 371.1           2 371.1
Basic earnings per share (USD)(3)   0.63   0.54   0.09   17   0.52
Diluted earnings per share (USD)(3)   0.63   0.54   0.09   17   0.52
(1)
Pro forma basis (As part of the IFRS restatement communication, please find further information on the reconciliation of the pro forma 2004 figures to the 2004 actual figures reported in the Investor Relations website at www.novartis.com)

(2)
Restated historical basis (see notes to the interim financial statements for further information)

(3)
Earnings per share (EPS) is calculated on the amount of net income attributable to the equity holders of the parent

11

Condensed consolidated balance sheets (unaudited)

 
   March 31, 2005
USD m

   Dec 31, 2004'(1)
USD m

   March 31, 2004'(1)
USD m
Assets            
Total long-term assets   27 383   28 568   26 526
Current assets            
Inventories   3 470   3 558   3 424
Trade accounts receivable   4 858   4 851   4 326
Other current assets   1 653   1 619   1 378
Cash, short-term deposits and marketable securities   12 282   13 892   11 443
Total current assets   22 263   23 920   20 571
Total assets   49 646   52 488   47 097
Equity and liabilities            
Total equity   29 462   31 305   27 767
Long-term liabilities            
Financial debts   2 592   2 736   3 145
Other long-term liabilities   6 270   6 494   6 155
  Total long-term liabilities   8 862   9 230   9 300
Short-term liabilities            
Trade accounts payable   1 843   2 020   1 597
Financial debts and derivatives   3 455   4 119   3 399
Other short-term liabilities   6 024   5 814   5 034
  Total short-term liabilities   11 322   11 953   10 030
Total liabilities   20 184   21 183   19 330
Total equity and liabilities   49 646   52 488   47 097
(1)
Restated historical basis (see notes to the interim financial statements for further information)

12

Condensed consolidated changes in equity (unaudited)

First quarter

 
   Q1 2005
USD m

   Q1 2004(1)
USD m

   Change
USD m
Consolidated equity at January 1(1)   31 305   29 117   2 188
Net income   1 477   1 233   244
Actuarial gains/losses   -65   -262   197
Translation effects   -736   -237   -499
Movement in comprehensive income   676   734   -58
Dividends   -2 107   -1 896   -211
Purchase of treasury shares, net   -527   -306   -221
Share-based compensation   111   56   55
Changes in minorities   -9   -6   -3
Other   13   68   -55
Total other equity movements   -2 519   -2 084   -435
Consolidated equity at March 31   29 462   27 767   1 695
(1)
Restated historical basis (see notes to the interim financial statements for further information)

13

Condensed consolidated cash flow statements (unaudited)

First quarter

 
   Q1 2005
USD m

   Pro forma
Q1 2004(1)
USD m

   Change
USD m

   Restated
historical
Q1 2004(2)
USD m
Net income   1 477   1 270   207   1 233
Reversal of non-cash items                
  Taxes   281   254   27   248
  Depreciation, amortization and impairments   285   286   -1   309
  Net financial income   -45   -28   -17   -28
  Other   -98   -13   -85   2
Net income adjusted for non-cash items   1 900   1 769   131   1 764
Interest and other financial receipts   218   97   121   97
Interest and other financial payments   -41   -29   -12   -29
Taxes paid   -329   -388   59   -388
Cash flow before working capital and provision changes   1 748   1 449   299   1 444
Restructuring payments and other cash payments out of provisions   -100   -41   -59   -41
Change in net current assets and other operating cash flow items   309   -369   678   -364
Cash flow from operating activities   1 957   1 039   918   1 039
Investments in property, plant & equipment   -222   -259   37   -259
Decrease/increase in marketable securities, intangible and financial assets   2 625   -990   3 615   -990
Cash flow used for investing activities   2 403   -1 249   3 652   -1 249
Cash flow used for financing activities   -3 116   -2 169   -947   -2 169
Translation effect on cash and cash equivalents   -38   -19   -19   -19
Change in cash and cash equivalents   1 206   -2 398   3 604   -2 398
Cash and cash equivalents at January 1   6 083   5 646   437   5 646
Cash and cash equivalents at March 31   7 289   3 248   4 041   3 248
(1)
Pro forma basis

(2)
Restated historical basis (see notes to the interim financial statements for further information)

Net sales by Division

First quarter (unaudited)

 
   Q1 2005
USD m

   Q1 2004
USD m

   % Change
 
   USD

   lc
Pharmaceuticals   4 789   4 310   11   8
Sandoz   803   719   12   7
Consumer Health   1 749   1 610   9   6
Total   7 341   6 639   11   7

14

Operating income by Division

First quarter (unaudited)

 
    
    
   Pro forma
Q1 2004(1)
    
    
 
   Q1 2005
    
   Restated historical
Q1 2004(2)
USD m
 
    
   % of sales

    
   % of sales

   Change
 
   USD m

   USD m

   in %
Pharmaceuticals   1 364   28.5   1 251   29.0   9   1 246
Sandoz   110   13.7   91   12.7   21   85
Consumer Health   286   16.4   265   16.5   8   253
Corporate income & expense, net   -80       -153           -145
Total   1 680   22.9   1 454   21.9   16   1 439
(1)
Pro forma basis

(2)
Restated historical basis (see notes to the interim financial statements for further information)

15

Consolidated income statements—Divisional segmentation

First quarter (unaudited)

 
   Pharmaceuticals
Division
   Sandoz
Division
   Consumer Health
Division
   Corporate
   Total
 
   Q1 2005
USD m

   Q1 2004(1)
USD m

   Q1 2005
USD m

   Q1 2004(1)
USD m

   Q1 2005
USD m

   Q1 2004(1)
USD m

   Q1 2005
USD m

   Q1 2004(1)
USD m

   Q1 2005
USD m

   Q1 2004(1)
USD m
Net sales to third parties   4 789   4 310   803   719   1 749   1 610           7 341   6 639
Sales to other Divisions   31   36   53   18   7   6   -91   -60        
Sales of Divisions   4 820   4 346   856   737   1 756   1 616   -91   -60   7 341   6 639
Other revenues   59   24   3   1   11   2           73   27
Cost of Goods Sold   -820   -705   -507   -417   -688   -635   89   68   -1 926   -1 689
Of which amortization and impairments of product and patent rights and trademarks   -43   -39   -18   -16   -13   -14           -74   -69
Gross profit   4 059   3 665   352   321   1 079   983   -2   8   5 488   4 977
Marketing & Sales   -1 577   -1 384   -134   -127   -608   -549           -2 319   -2 060
Research & Development   -905   -781   -76   -59   -69   -62   -37   -36   -1 087   -938
General & Administration   -154   -141   -55   -43   -103   -94   -89   -77   -401   -355
Other income & expense   -59   -108   23   -1   -13   -13   48   -48   -1   -170
Operating income   1 364   1 251   110   91   286   265   -80   -153   1 680   1 454
Result from associated companies                                   33   42
Financial income, net                                   45   28
Income before taxes                                   1 758   1 524
Taxes                                   -281   -254
Net income                                   1 477   1 270
(1)
Pro forma basis

16

Notes to the interim financial report for the first three months ended March 31, 2005 (unaudited)

1. Basis of preparation

This unaudited financial report has been prepared in accordance with the accounting policies set out in International Accounting Standard 34 on Interim Financial Reporting and in the 2004 Annual Report, except that the Group has adopted the following new IFRS rules or made other improvements to its financial statements presentation from January 1, 2005:

17

In addition, the Group has introduced the following changes:

NOTE:    The above-mentioned changes to goodwill amortization, capitalization of R&D intangibles and share-based compensation prior to November 7, 2002, are not required to be included retroactively in the historical consolidated financial statements. In order to assist our investors and analysts in their understanding of our results by having comparable information, we have also produced pro forma 2004 income and cash flow statements that include all of these adjustments.

18


2. Changes in the scope of consolidation and other significant transactions

The following significant transactions were made during the three months to March 31, 2005, and in 2004:

2005

Sandoz

On February 21, Novartis announced that it was acquiring two generics companies in a series of transactions with an anticipated total purchase price of approximately USD 8.3 billion. Novartis signed definitive agreements to acquire 100% of Hexal AG and a 67.7% stake (65.4% fully diluted) in Eon Labs, Inc. (NASDAQ: ELAB) for a total of EUR 5.65 billion in cash. In addition, pursuant to a merger agreement unanimously approved by the Eon Board of Directors and the Special Committee of independent directors of the Eon Board, Novartis will launch a tender offer to acquire the remaining 31.9 million fully diluted shares (34.6%) in Eon Labs for USD 31.00 per share, totaling approximately USD 1 billion. Both transactions, which are subject to regulatory approvals in a number of countries (including the US and Europe), are expected to close before the end of 2005.

2004

Sandoz

On June 30, Novartis acquired 100% of the shares of the Danish generics company Durascan A/S from AstraZeneca. Goodwill of USD 23 million has been recorded on this transaction.

On August 13, Novartis completed the acquisition of 100% of the shares of Sabex Inc., a Canadian generic manufacturer with a leading position in generic injectables, for USD 565 million in cash. Based on a preliminary estimate, goodwill of USD 329 million has been recorded on this transaction.

Medical Nutrition

On February 13, Novartis completed the acquisition of Mead Johnson & Company's global adult medical nutrition business for USD 385 million in cash. These activities are included in the consolidated financial statements from that date with USD 220 million of net sales and a USD 31 million operating loss being recorded in 2004. Goodwill of USD 183 million has been recorded on this transaction.

3. Principal currency translation rates

 
   Average rates
Q1 2005
USD

   Average rates
Q1 2004
USD

   Period-end rates
March 31,
2005
USD

   Period-end rates
March 31,
2004
USD
1 CHF   0.847   0.797   0.835   0.785
1 EUR   1.312   1.250   1.293   1.226
1 GBP   1.891   1.838   1.877   1.837
100 JPY   0.957   0.931   0.933   0.960

19

4. Condensed consolidated change in liquidity (unaudited)

First quarter

 
   Q1 2005
USD m

   Q1 2004(1)
USD m

   Change
USD m
Change in cash and cash equivalents   1 206   -2 398   3 604
Change in marketable securities, financial debt and financial derivatives   -2 008   646   -2 654
Change in net liquidity   -802   -1 752   950
Net liquidity at January 1(1)   7 037   6 651   386
Net liquidity at March 31   6 235   4 899   1 336

(1)    Restated historical basis (see notes to the interim financial statements for further information)

5. Significant differences between IFRS and US Generally Accepted Accounting Principles (US GAAP) (unaudited)

The Group's consolidated financial statements have been prepared in accordance with IFRS, which, as applied by the Group, differs in certain significant respects from US GAAP. The effects of the application of US GAAP to net income and equity are set out in the tables below.

The adjustments have been explained in note 32 of the Novartis 2004 annual report. Adoption of new IFRS and US GAAP standards from January 1, 2005, have led to the following additional adjustments being recorded:

20

 
   Q1 2005
USD m

   Q1 2004(1)
USD m
Net income under IFRS   1 477   1 233
US GAAP adjustments:        
Purchase accounting: Ciba-Geigy   -217   -91
Purchase accounting: Other acquisitions   -2   42
Purchase accounting: IFRS goodwill amortization       45
IFRS amortization of In-Process R&D included in goodwill       50
Available-for-sale securities and financial instruments   119   33
Pension and other post-employment benefits   -46   -17
Share-based compensation   -35   -65
IFRS Research & Development capitalization   -22    
Minority interests   4   4
Other   7   3
Deferred tax   -60   2
Net income under US GAAP   1 225   1 239
Basic earnings per share under US GAAP (USD)   0.53   0.52
Diluted earnings per share under US GAAP (USD)   0.52   0.52

(1)    Restated historical basis (see notes to the interim financial statements for further information)

 
   March 31, 2005
USD m

   March 31, 2004(1)
USD m
Equity under IFRS   29 462   27 767
US GAAP adjustments:        
Purchase accounting: Ciba-Geigy   2 226   2 565
Purchase accounting: Other acquisitions   2 801   2 850
Purchase accounting: IFRS goodwill amortization   554   382
Available-for-sale securities and derivative financial instruments   -67    
Pension and other post-employment benefits   3 277   2 486
In-Process Research & Development included in goodwill   -1 455   -1 272
Minority interests   -124   -80
Other   131   -217
Deferred tax   -1 132   -1 105
Equity under US GAAP   35 673   33 376

(1)    Restated historical basis (see notes to the interim financial statements for further information)

21

Supplementary information (unaudited)

Free cash flow

First quarter

 
   Q1 2005
USD m

   Q1 2004(1)
USD m

   Change
USD m
Cash flow from operating activities   1 957   1 039   918
Purchase of property, plant & equipment   -222   -259   37
Purchase of intangible and financial assets   -265   -227   -38
Sale of intangible and financial assets   368   228   140
Dividends paid to third parties   -2 107   -1 896   -211
Free cash flow   -269   -1 115   846

(1)    Pro forma basis

Share information

 
   March 31, 2005

   March 31, 2004
Number of shares outstanding (million)   2 329.5   2 367.6(1)
Registered share price (CHF)   55.80   53.80
ADS price (USD)   46.78   42.60
Market capitalization (USD billion)   108.5   100.0(1)
Market capitalization (CHF billion)   130.0   127.4(1)

(1)    Restated historical basis

22

Supplementary tables: Q1 2005—Net sales of top twenty pharmaceutical products (unaudited)

 
    
   US
   Rest of world
   Total
   % change
Brands

   Therapeutic area

   USD m

   % change
in local
currencies

   USD m

   % change
in local
currencies

   USD m

   in USD

   in local
currencies
Diovan/Co-Diovan   Hypertension   358   10   487   17   845   17   14
Gleevec/Glivec   Chronic myeloid leukemia   117   55   379   30   496   41   36
Zometa   Cancer complications   167   13   129   18   296   17   15
Lamisil (group)   Fungal infections   115   9   134   12   249   13   11
Neoral/Sandimmun   Transplantation   38   -18   188   -12   226   -10   -13
Lotrel   Hypertension   231   4           231   4   4
Sandostatin (group)   Acromegaly   93   7   128   8   221   11   7
Lescol   Cholesterol reduction   48   -26   124   6   172   -1   -5
Voltaren (group)   Inflammation/pain   2   -14   159   7   161   10   7
Trileptal   Epilepsy   115   19   37   20   152   21   19
Top ten products total       1 284   10   1 765   13   3 049   14   12
Visudyne   Macular degeneration   51   13   73   24   124   23   19
Femara   Breast cancer   54   85   64   25   118   51   47
Exelon   Alzheimer's disease   48   -3   69   15   117   10   7
Elidel   Eczema   81   30   25   37   106   34   32
Tegretol (incl. CR/XR)   Epilepsy   25   1   72   1   97   4   1
Foradil   Asthma   5   92   87   6   92   16   9
Miacalcic   Osteoporosis   58   14   34   -8   92   7   5
Zelnorm/Zelmac   Irritable bowel syndrome   68   17   12   11   80   18   16
Comtan Group   Parkinson's Disease   30   23   32   58   62   41   39
Leponex/Clozaril   Schizophrenia   14   7   47   -29   61   -22   -25
Top twenty products total       1 718   12   2 280   12   3 998   15   12
Rest of portfolio       166   -17   687   4   853   3   -1
Total Division sales excluding accounting adjustment       1 884   9   2 967   10   4 851   13   10
Prior-years' US sales rebate accounting adjustment      

-62		              

-62		        
Total Division net sales       1 822   5   2 967   10   4 789   11   8

23

First Quarter Pharmaceutical Division therapeutic area net sales (unaudited)

 
   Q1 2005
USD m

   Q1 2004
USD m

   Change
USD (%)
Cardiovascular            
Strategic franchise products            
Diovan   845   722   17
Lotrel   231   221   4
Lescol   172   174   -1
Other   31   23   35
Total strategic franchise products   1 279   1 140   12
Mature products   188   236   -20
Total Cardiovascular products   1 467   1 376   7
Oncology            
Strategic franchise products            
Gleevec/Glivec   496   352   41
Zometa   296   252   17
Sandostatin   221   200   11
Femara   118   78   51
Other   71   70   1
Total Oncology products   1 202   952   26
Neuroscience            
Strategic franchise products            
Trileptal   152   126   21
Exelon   117   106   10
Tegretol   97   93   4
Other   172   160   8
Total strategic franchise products   538   485   11
Mature products   129   125   3
Total Neuroscience products   667   610   9
Respiratory & Dermatology            
Strategic franchise products            
Lamisil   249   220   13
Elidel   106   79   34
Foradil   92   79   16
Other   14   12   17
Total strategic franchise products   461   390   18
Mature products   49   39   26
Total Respiratory & Dermatology products   510   429   19
Arthritis/Bone/Gastrointestinal/Hormonal/ Infectious diseases/other (ABGHI)            
Strategic franchise products            
Zelnorm/Zelmac   80   68   18
Other   72   62   16
Total strategic franchise products   152   130   17
Mature products   379   361   5
Total ABGHI products   531   491   8
Transplantation            
Neoral/Sandimmun   226   251   -10
Other   28   18   56
Total Transplantation products   254   269   -6
Ophthalmics            
Visudyne   124   101   23
Other   96   77   25
Total Ophthalmics products   220   178   24
Total strategic franchise products   4 106   3 544   16
Total mature products   745   761   -2
Prior-years' US sales rebate accounting adjustment   -62   5    
Total Division net sales   4 789   4 310   11

24

Net sales by region (unaudited)

First quarter

 
    
    
   % change
    
    
 
   Q1 2005
USD m

   Q1 2004
USD m

   USD

   local currencies

   Q1 2005
% of total

   Q1 2004
% of total
Pharmaceuticals                        
  US   1 822   1 733   5   5   38   40
  Rest of world   2 967   2 577   15   10   62   60
Total   4 789   4 310   11   8   100   100
Sandoz                        
  US   251   226   11   10   31   31
  Rest of world   552   493   12   6   69   69
Total   803   719   12   7   100   100
Consumer Health                        
  US   744   676   10   10   43   42
  Rest of world   1 005   934   8   3   57   58
Total   1 749   1 610   9   6   100   100
Group                        
  US   2 817   2 635   7   7   38   40
  Rest of world   4 524   4 004   13   8   62   60
Total   7 341   6 639   11   7   100   100

25


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, Novartis AG has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 
 
NOVARTIS AG

Date: April 22, 2005
 
By:
 
/s/ MALCOLM CHEETHAM

 
 
Name:
 
Malcolm Cheetham
    Title:   Head Group Financial Reporting and Accounting



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SIGNATURES