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 26, 2007

(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 our Registration Statements on Form S-8 as filed with the Commission on September 5, 2006 (File No. 333-137112) and on October 1, 2004 (File No. 333-119475), in each case to the extent not superseded by documents or reports subsequently filed by us under the Securities Act of 1933 or the Securities Exchange Act of 1934, in each case as amended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: x      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      Nox

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      Nox

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      Nox

Enclosure:             Novartis AG Announces Results for the First Quarter of 2007

 


 

 

Novartis International AG

 

Novartis Global Communications

 

CH-4002 Basel

 

Switzerland

 

 

 

http://www.novartis.com

 

 

 

QUARTERLY REPORT  •  RAPPORT TRIMESTRIEL    QUARTALSBERICHT

 

 

Novartis with dynamic growth in the 2007 first quarter

 

                  Strong 2007 first quarter performance:

 

                  Group net sales advance 18% (+15% in local currencies) to USD 9.8 billion based on excellent performances from all divisions

 

                  Operating income up 11% thanks to business expansion; increase is at a lower rate than net sales primarily due to one-time divestment gain in 2006 first quarter

 

                  Net income up 11% to USD 2.2 billion and EPS rises 11% to USD 0.92 per share

 

                  Group continuing operations operating income up 18% and net income up 17%

 

                  Four important new regulatory approvals received in first quarter, significant progress in achieving multiple new product launches in 2007-2008

 

                  Q1 approvals include Tekturna (hypertension – US), Lucentis (blindness – EU), Exforge (hypertension – EU) and Sebivo (hepatitis B – China)

 

                  Completion of strategic positioning on healthcare with pharmaceuticals at the core

 

                  Novartis expects record 2007 operating and net income on a continuing basis and reaffirms outlook for Group net sales growth of above five percent in local currencies

 

Key Group figures

 

First quarter

 

 

Q1 2007

 

Q1 2006

 

% Change

 

 

 

USD m

 

% of
net sales

 

USD m

 

% of
net sales

 

USD

 

lc

 

Net sales

 

9 819

 

 

 

8 301

 

 

 

18

 

15

 

Operating income

 

2 453

 

25.0

 

2 202

 

26.5

 

11

 

 

 

Net income

 

2 171

 

22.1

 

1 956

 

23.6

 

11

 

 

 

Basic earnings per share/ADS

 

USD

0.92

 

 

 

USD

0.83

 

 

 

11

 

 

 

 

Basel, April 23, 2007 – Commenting on the results, Dr. Daniel Vasella, Chairman and CEO of Novartis, said, “I am pleased with the strong start, enhanced by several new approvals for innovative medicines that address important unmet medical needs. All divisions, particularly Pharmaceuticals and Sandoz, delivered excellent performances. We have now completed the divestments of non-core businesses as part of our long-term strategy to focus on healthcare, and we will continue to invest vigorously into R&D to offer a continuously novel range of medicines. I am confident of another year of record sales and earnings in 2007.”

 

All product names appearing in italics are trademarks owned by or licensed to Novartis Group Companies



 

First quarter 2007 net sales

 

 

Q1 2007

 

Q1 2006

 

% Change

 

 

 

USD m

 

USD m

 

USD

 

lc

 

Pharmaceuticals

 

5 923

 

5 052

 

17

 

14

 

Vaccines and Diagnostics

 

231

 

 

 

 

 

 

 

Sandoz

 

1 696

 

1 431

 

19

 

12

 

Consumer Health continuing operations

 

1 721

 

1 574

 

9

 

6

 

Net sales from continuing operations

 

9 571

 

8 057

 

19

 

15

 

Consumer Health discontinuing operations(1)

 

248

 

244

 

 

 

 

 

Total

 

9 819

 

8 301

 

18

 

15

 

 


(1) Discontinuing operations include Medical Nutrition in 2007 and both Medical Nutrition and Nutrition & Santé in 2006. Gerber is not yet reflected as a discontinuing operation as the divestment was only agreed on April 12, 2007.

 

Group net sales up 18% (+15% lc) to USD 9.8 billion

Contributions from all divisions, particularly Pharmaceuticals and Sandoz, supported the double-digit improvement. Higher sales volumes accounted for ten percentage points of growth and acquisitions for five percentage points, while currency translation had a positive impact of three percentage points. Net price changes had no impact. Net sales from continuing operations were up 19%.

 

Pharmaceuticals net sales advance 17% (+14% lc) to USD 5.9 billion

The two top-selling medicines – Diovan (USD 1.2 billion, +20% lc) and Gleevec/Glivec (USD 674 million, +16% lc) – led the strong underlying performance. Rapid growth also came from Femara (USD 208 million, +32% lc) and from recently launched products, particularly Xolair, Exjade, Lucentis and Prexige. The US gained further market share, with net sales up 18% to USD 2.5 billion. Improving performances in Germany and France underpinned the 22% (+13% lc) increase in Europe. In Japan, net sales growth of 7% (+9%lc) was supported by Diovan. Latin America net sales rose 20% (+19% lc), led by Mexico and Brazil.

 

Vaccines and Diagnostics net sales of USD 231 million

Net sales rose 47% over the 2006 period reported by Chiron on higher sales of tick-borne encephalitis vaccines and increased deliveries of components for use in multivalent pediatric vaccines (including Quinvaxem™ collaboration with Crucell). Diagnostics benefited from geographic expansion and US approval of West Nile Virus tests used in blood banks.

 

Sandoz net sales rise 19% (+12% lc) to USD 1.7 billion

Retail generic sales in the US expanded 27% in the quarter, driven primarily by recent product launches – particularly difficult-to-make products – that contributed about one-third of US quarterly net sales. Strong performances in Germany, Eastern Europe, Canada and Mexico further supported the double-digit expansion.

 

Consumer Health continuing operations net sales up 9% (+6% lc) to USD 1.7 billion

OTC generated double-digit growth from strategic brands, expansion in emerging markets and strong growth in Japan, the world’s No. 2 OTC market. CIBA Vision benefited from improved lens care product supplies and made progress in improving supplies of contact lens after a shortage at the end of 2006.

 

2



 

First quarter 2007 operating income

 

 

 

Q1 2007

 

Q1 2006

 

Change

 

 

 

USD m

 

% of
net
 sales

 

USD m

 

% of
net
sales

 

In %

 

Pharmaceuticals

 

1 853

 

31.3

 

1 626

 

32.2

 

14

 

Vaccines and Diagnostics

 

27

 

11.7

 

 

 

 

 

 

 

Sandoz

 

318

 

18.8

 

238

 

16.6

 

34

 

Consumer Health continuing operations

 

329

 

19.1

 

314

 

19.9

 

5

 

Corporate income & expense, net

 

-103

 

 

 

-120

 

 

 

 

 

Operating income from continuing operations

 

2 424

 

25.3

 

2 058

 

25.5

 

18

 

Consumer Health discontinuing operations(1)

 

29

 

 

 

144

 

 

 

 

 

Total

 

2 453

 

25.0

 

2 202

 

26.5

 

11

 

 


(1) Discontinuing operations include Medical Nutrition in 2007 and both Medical Nutrition and Nutrition & Santé in 2006. Gerber is not yet reflected as a discontinuing operation as the divestment was only agreed on April 12, 2007. The 2006 results include a pre-tax divestment gain of USD 129 million from the sale of Nutrition & Santé.

 

Group operating income advances 11% to USD 2.5 billion

Operating income rose at a strong pace as Pharmaceuticals and Sandoz delivered excellent performances that included operational improvements and contributions from new product launches. For continuing operations, Group operating income advanced 18%, roughly in line with net sales growth.

 

Pharmaceuticals operating income rises 14% to USD 1.9 billion

Reflecting the strong business expansion, operating income grew at a double-digit pace, which resulted in an operating margin of 31.3%. R&D investments rose to 20.5% of net sales as more compounds moved into Phase III trials compared to 2006. Marketing & Sales investments rose 18%, but productivity gains partially offset the rising investments to support new product launches. A one-time charge of USD 52 million was taken in the 2007 first quarter for sales returns and additional expenses related to the temporary suspension of Zelnorm sales in the US. Also during the quarter, one-time income of USD 107 million was recognized from a pre-launch inventory provision that was reversed following the US approval of Tekturna in March 2007. The year-ago period included one-time gains of USD 87 million from product divestments. Excluding these one-time gains and expenses in both quarters, operating income rose 17% and the operating margin was 30.4%.

 

Vaccines and Diagnostics operating income of USD 27 million

Operating income was USD 98 million before acquisition-related amortization charges of USD 71 million. The reported operating income included a one-time contribution of USD 67 million from a legal settlement, of which USD 59 million was reported as royalty income in Other Revenues.

 

Sandoz operating income climbs 34% to USD 318 million

The strong business expansion driven by new product launches led to the double-digit improvement, which was further supported by productivity gains, economies of scale in key markets and synergies from recent acquisitions. These factors more than offset significant investments into new product development and registration, the build-up of sales forces in emerging markets and price erosion driven by regulatory changes, namely in Germany and other European markets.

 

Consumer Health operating income from continuing operations rises 5% to USD 329 million

Higher investments in R&D and marketing for new product launches across the division weighed on the performance, which was also affected by increased marketing and sales efforts to better penetrate key markets, including entries into new geographic areas.

 

3



 

Corporate

 

Income from associated companies

Income from associated companies amounted to USD 97 million in the first quarter, roughly equal with a contribution of USD 104 million in the prior-year period. The investment in Roche provided USD 96 million compared to USD 66 million in the 2006 quarter. The 44% interest in Chiron prior to the full acquisition and consolidation in April 2006 was still accounted for in the 2006 quarter as an associated company and contributed USD 33 million during that period.

 

Financial income, net

Net financial income amounted to USD 34 million, a decline of USD 16 million compared to income of USD 50 million in the year-ago quarter, reflecting the drop in average net liquidity to fund acquisitions. During the first quarter, average net liquidity was
USD 850 million compared to USD 3.2 billion in the year-ago quarter. However, excellent currency management boosted the average return on net liquidity to 16.0% per year, up from 6.3% per year in the 2006 first quarter.

 

Group net income advances 11% to USD 2.2 billion

Group net income grew at a double-digit rate in 2007, but rose 17% for continuing operations in line with the expansion in net sales and operating income.

 

Balance sheet

The Group’s equity fell slightly to USD 40.5 billion at March 31, 2007 compared to USD 41.3 billion at December 31, 2006. The decline of USD 0.8 billion was principally due to the dividend of USD 2.6 billion and share repurchases of USD 0.8 billion, which was only partially offset by net income in the first quarter.

 

Total liquidity amounted to USD 7.0 billion at March 31, 2007, down from USD 8.0 billion at the beginning of the year. The debt/equity ratio remained unchanged at 0.18:1 compared to the end of 2006.

 

Novartis is one of the few non-financial services companies worldwide to have attained the highest credit ratings from Standard & Poor’s, Moody’s and Fitch, the three benchmark rating agencies. S&P has rated Novartis as AAA for long-term maturities and as A1+ for short-term maturities. Moody’s has rated the Group as Aaa and P1, respectively, while Fitch has rated Novartis as AAA for long-term maturities and as F1+ for short-term maturities.

 

Cash flow

Cash flow from operating activities from continuing operations was USD 2.2 billion, an increase of USD 0.1 billion from the year-ago period despite higher working capital requirements to support the organic business expansion. Net cash used in financing activities was USD 2.5 billion, mainly for the 2006 dividend payment of USD 1.8 billion (excluding USD 0.8 billion due to withholding tax to be paid in the 2007 second quarter), the purchase of USD 0.8 billion of treasury shares and other net financing cash flow movements of USD 0.1 billion. Total Group free cash outflow after dividends was USD 256 million compared to a free cash inflow of USD 373 million in the year-ago period.

 

4



 

Novartis completes strategic concentration on healthcare

Novartis has consistently strengthened its focus on innovation and healthcare businesses during the last decade, creating a portfolio led by pharmaceuticals to address the needs of patients, physicians and society in a dynamically changing healthcare environment.

 

This strategic repositioning on healthcare – which has included the divestments of over 50% of non-core businesses during the last decade – has been completed following the signing of a definitive agreement to sell the Gerber baby foods business in April 2007. This transaction, along with the pending sale of the Medical Nutrition business announced in December 2006, requires customary regulatory approvals and is expected to be completed in 2007.

 

All Novartis businesses activities are now concentrated on healthcare, areas where the Group has expertise and synergies in addressing the needs of customers. These include innovative pharmaceuticals for human and animal health, vaccines, generics and consumer health products such as over-the-counter (OTC) brands and diagnostics.

 

Novartis intends to invest proceeds from recent divestments into its operations, particularly into research and development. Strategic options will also be considered that would strengthen the competitiveness of these businesses, all of which have been improving their leadership positions through dynamic organic growth and targeted acquisitions.

 

The Group’s policy for its share repurchase program remains unchanged. In the absence of acquisitions, this policy calls for allocating up to half of free cash flow after the payment of dividends for the repurchase of shares.

 

Group outlook

(For continuing operations, barring any unforeseen events)

Novartis revised its 2007 net sales outlook on March 30 when announcing it would comply with a request from the US Food and Drug Administration (FDA) to suspend the US marketing and sales of Zelnorm to allow for the review of cardiovascular safety data. Due to this suspension, the revised expectations take into account a reduction in net sales of more than USD 600 million for the rest of 2007.

 

However, based on management actions to reallocate resources and accelerate ongoing productivity initiatives, and also in light of recent regulatory approvals for important new products such as Tekturna, Lucentis and Exforge, Novartis reaffirms expectations for another year of record operating and net income in 2007 from continuing operations.

 

The Group also reaffirms the revised 2007 outlook communicated on March 30 for net sales growth for continuing operations for the Group of above five percent and for the Pharmaceuticals division at a low- to mid-single-digit rate, both in local currencies.

 

5



 

Pharmaceutical business and key product highlights

Note: All growth figures refer to worldwide sales growth in local currencies

 

Diovan (USD 1.15 billion, +20% lc), the leading angiotensin-receptor blocker by sales worldwide, again delivered solid growth and reaffirmed its position as one of the fastest-growing hypertension medicines. All regions delivered double-digit growth thanks to higher strength doses and greater use of Co-Diovan (fixed-dose combination with a diuretic). A 16% increase in Japanese sales was supported by results from the JIKEI study underscoring the efficacy of Diovan in reducing the risk of cardiovascular events.

 

Gleevec/Glivec (USD 674 million, +16% lc), a targeted treatment used primarily in patients with certain forms of chronic myeloid leukemia (CML) and gastrointestinal stromal tumors (GIST), grew rapidly despite new competition in both disease areas. Growth was driven mostly by increased survival of CML and GIST patients, expansion of the GIST market as well as new indications approved for various rare diseases. Positive interim data made public in April showed GIST patients treated after surgery with Gleevec/Glivec were significantly less likely to experience a return of their cancer over those not taking this medicine. Global submissions are planned.

 

Lotrel (USD 353 million, +20% only in US), the leading fixed-dose combination treatment for hypertension in the US, has benefited from growing use of multiple therapies to help patients reach treatment goals.

 

Zometa (USD 314 million, –4% lc), an intravenous bisphosphonate for patients with bone cancer, was negatively impacted by an overall slowing of its market segment in the US and Europe. However, Zometa has gained market share in treating patients with lung and prostate cancer and has benefited from growth in Japan.

 

Femara (USD 208 million, +32% lc), a leading oral treatment for women with hormone-related breast cancer, remained a key growth driver for Novartis thanks to ongoing market share gains, especially in the use of this agent in women who have undergone surgery (early adjuvant), in the highly competitive segment for aromatase inhibitors.

 

Lamisil (USD 207 million, +2% lc), an oral treatment for fungal nail infections, expanded sales in the US at a double-digit rate, but was partially offset by generic competition in Japan since mid-2006. Generic competition in the US is expected in mid-2007.

 

Trileptal (USD 197 million, +17% lc), a treatment for epilepsy seizures, generated strong growth in Europe and Latin America in addition to the US, where this product is expected to face potential generic competition during the course of 2007.

 

Zelnorm/Zelmac (USD 105 million, –3% lc), a treatment for irritable bowel syndrome and chronic constipation, has been suspended from marketing and sales in the US to comply with a request from the FDA to review recent cardiovascular safety data. This product has also been suspended in seven other countries worldwide. Novartis believes Zelnorm/Zelmac provides important benefits for appropriate patients and will continue working with the FDA and health authorities in other countries to secure access for these patients.

 

Exjade (USD 65 million), the first once-daily oral iron chelator for chronic iron overload, grew rapidly based on its approval in more than 80 countries as a new treatment for iron overload associated with various blood disorders. During the first quarter, Exjade was submitted for approval in Japan, more than one year ahead of schedule.

 

6



 

Xolair (USD 34 million), for moderate to severe allergic asthma, has now been launched in over 20 countries following EU approval in October 2005, with approvals now received in over 50 countries. In the US, Novartis co-promotes Xolair with Genentech and shares a portion of operating income. Xolair had first quarter net sales of USD 111 million in the US, resulting in a contribution to Novartis of USD 38 million reported as Other Revenues.

 

Lucentis, for the eye disease “wet” age-related macular degeneration, is being launched in Europe after approval in January 2007. Reimbursement negotiations are underway in key European markets. Lucentis is now available in 36 countries (including Switzerland) as the first and only treatment proven to maintain and improve vision in patients with wet AMD, which is the leading cause of blindness in people over age 50. Genentech holds the US rights.

 

Prexige (lumiracoxib), an oral COX-2 inhibitor approved in more than 40 countries, has gained market share in the eight countries where it has been launched, including Mexico and Germany. It was resubmitted in March for US approval as an effective treatment option for patients suffering from osteoarthritic pain of the knee and hip. The EU approval in November 2006 was based on data from clinical trials involving more than 34,000 patients – one of the largest bodies of evidence supporting the launch of an anti-inflammatory agent.

 

Novartis pipeline and regulatory update

With 138 projects in pharmaceutical development, Novartis has one of the industry’s most promising pipelines amid plans for multiple new product approvals and launches over the next two years. Several of these anticipated approvals are for potentially best-in-class medicines that would advance treatment standards.

 

Novartis received four important new regulatory approvals during the 2007 first quarter, making significant progress in its goal of achieving multiple new product launches in 2007 and 2008 to support longer-term growth. These include the approval and launch of the high blood pressure medicine Tekturna in the US along with the approval of Exforge in Europe. Also approved were the eye therapy Lucentis in Europe and Sebivo in China for hepatitis B. However, the FDA issued an “approvable letter” for the diabetes treatment Galvus, delaying the potential approval of this investigational medicine.

 

Beyond these recent approvals, key compounds are already in or are moving into late-stage trials. Priority late-stage compounds include FTY720 (multiple sclerosis), QAB149 (respiratory diseases), AGO178 (depression), RAD001 (cancer), ABF656 (hepatitis C) and SOM230 (Cushing’s disease).

 

Among the recent developments:

                  Tekturna/Rasilez(1) (aliskiren), the first new type of high blood pressure medicine in more than a decade, was launched in the US after receiving regulatory approval in March. Known as Tekturna in the US and Rasilez elsewhere, it provides significant blood pressure reductions for a full 24 hours and is generally well tolerated. New data at the American College of Cardiology meeting in March showed Tekturna delivers important additional blood pressure lowering when combined with Diovan. Developed in collaboration with Speedel, Tekturna was submitted for EU approval in September 2006.

 

                  Exforge(1), a single tablet combining the angiotensin receptor blocker valsartan and the calcium channel blocker amlodipine, is being launched in European markets throughout 2007 and 2008 after gaining European Union approval in January. US launch plans are under review after the FDA granted tentative approval in December 2006.

 


(1) Brand name awaiting regulatory approval in certain markets

 

7



 

 

                  Galvus (vildagliptin), in development as a new oral once-daily therapy for patients with type 2 diabetes, received an “approvable letter” from US regulators in February. Novartis is working with the FDA to agree on final actions needed to gain US approval. The FDA has requested additional data, including a clinical study to demonstrate the safety and efficacy of Galvus in specific patient groups with renal (kidney) impairment. Galvus was submitted for US approval in January 2006 to reduce blood sugar levels in patients with type 2 diabetes, both as a monotherapy and when used with other medicines. The global clinical trial program to date has included over 8,000 patients, with some 5,500 treated with Galvus. EU submission was made in August 2006.

 

                  Aclasta/Reclast (zoledronic acid), submitted for regulatory approvals as a once-yearly bisphosphonate infusion for various bone-related diseases, received US approval in April as the first new treatment in nearly a decade for patients with Paget’s disease of the bone. This indication is already approved in more than 50 countries, including key European markets. This medicine was submitted in late 2006 for approval in the US and Europe as a once-yearly infusion for women with postmenopausal osteoporosis.

 

                  Sebivo/Tyzeka (telbivudine), a new oral therapy for hepatitis B, was approved in China – where more than half a million deaths each year are linked to this viral disease – and also Australia. European Union approval is expected in the second quarter of 2007 after an EU regulatory agency recommended approval in February. Sebivo has now been approved in 15 countries, including the US where it is marketed as Tyzeka. Novartis shares the rights for this product with Idenix Pharmaceuticals.

 

                  Mycograb, an antifungal compound acquired with NeuTec in 2006, received a EU recommendation against approval in March 2007 due to manufacturing concerns based on a 2005 submission made by NeuTec. Mycograb is being developed for the treatment of life-threatening fungal infections. Novartis is moving production of this drug in-house, and further work will be conducted to support the resubmission for approval.

 

                  Tasigna (nilotinib) is awaiting decisions this year from US, EU and Swiss regulatory agencies for use as a new treatment option in patients with certain forms of chronic myeloid leukemia who have developed resistance and/or intolerance to Gleevec/Glivec, a Novartis medicine. Both Tasigna and Gleevec/Glivec inhibit Bcr-Abl, the definitive cause of Philadelphia chromosome-positive chronic myeloid leukemia (Ph+ CML). Tasigna was designed to be a more selective inhibitor of Bcr-Abl and its mutations.

 

                  ABF656 (albumin interferon alpha-2b), a longer-acting interferon targeting hepatitis C, has enrolled the first patients in Phase III trials. Interim results from Phase II trials, in which treatment-naïve patients received ABF656 in combination with ribavirin, showed it has the potential for improved efficacy and tolerability with the need for fewer injections compared to pegylated interferon, the current standard of care. Hepatitis C is a potentially fatal liver disease caused by a chronic viral infection estimated to affect more than 170 million patients worldwide. The first regulatory submission is planned for 2009. Novartis and Human Genome Sciences will co-promote ABF656 in the US, while Novartis will have exclusive rights in the rest of the world.

 

                  PTK787, an oral angiogenesis inhibitor, has completed trials in advanced colorectal cancer during the first quarter. Final results from the CONFIRM 1 and 2 studies showed PTK787 did not achieve the overall survival endpoint in either study, confirming previously reported interim results on progression-free survival. With its co-developer, Novartis is evaluating options for PTK787, which has been removed from the Novartis near-term submission/launch schedule.

 

 

8



 

Disclaimer

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 “expects”, “outlook”, “long-term strategy”, “will”, “confident”, “expected”, “intends”, “would”, “expectations”, “expected”, “potential”, “believes”, “pipeline”, “development”, “plans”, “potentially”, “would”, “goal”, “estimated”, “planned”, or similar expressions, or by express or implied discussions regarding potential future revenues from any particular products, or potential future sales or earnings of the Novartis Group or its Pharmaceuticals Division; potential new products, or potential new indications for existing products, or regarding potential future revenues from such products; or by discussions of strategy, plans, expectations or intentions. Such statements reflect the current views of management with respect to future events and are subject to certain known and unknown risks, uncertainties, assumptions and other factors that may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. There can be no guarantee that any particular products will reach any particular sales levels. Neither can there be any guarantees that the Novartis Group, or the Pharmaceuticals Division, will achieve any particular financial results. Nor can there be any guarantee 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, or that they will achieve any particular revenue levels. In particular, management’s expectations could be affected by, among other things, uncertainties involved in the development of new pharmaceutical products, including 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 and other political 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.

 

About Novartis

Novartis AG (NYSE: NVS) is a world leader in offering medicines to protect health, cure disease and improve well-being. Our goal is to discover, develop and successfully market innovative products to treat patients, ease suffering and enhance the quality of life. We are strengthening our medicine-based portfolio, which is focused on strategic growth platforms in innovation-driven pharmaceuticals, high-quality and low-cost generics, human vaccines and leading self-medication OTC brands. Novartis is the only company with leadership positions in these areas. In 2006, the Group’s businesses achieved net sales of USD 37.0 billion and net income of USD 7.2 billion. Approximately USD 5.4 billion was invested in R&D. Headquartered in Basel, Switzerland, Novartis Group companies employ approximately 100,000 associates and operate in over 140 countries around the world. For more information, please visit http://www.novartis.com.

 

Further important dates

 

 

July 17, 2007

 

First-half and second quarter 2007 results

September 12, 2007

 

Novartis Business Review for investors

October 18, 2007

 

Nine-month and third quarter 2007 results

 

9



CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

Consolidated income statements (unaudited)

 

First quarter

 

 

 

Q1 2007

 

Q1 2006

 

Change

 

 

 

USD m

 

USD m

 

USD m

 

%

 

Net sales from continuing operations

 

9 571

 

8 057

 

1 514

 

19

 

Other revenues

 

247

 

93

 

154

 

166

 

Cost of Goods Sold

 

-2 728

 

-2 182

 

-546

 

25

 

Of which amortization and impairments of product and patent rights and trademarks

 

-242

 

-121

 

-121

 

100

 

Gross profit

 

7 090

 

5 968

 

1 122

 

19

 

Marketing & Sales

 

-2 682

 

-2 292

 

-390

 

17

 

Research & Development

 

-1 508

 

-1 131

 

-377

 

33

 

General & Administration

 

-502

 

-406

 

-96

 

24

 

Other income & expense

 

26

 

-81

 

107

 

-132

 

Operating income from continuing operations

 

2 424

 

2 058

 

366

 

18

 

Income from associated companies

 

97

 

104

 

-7

 

-7

 

Financial income

 

87

 

108

 

-21

 

-19

 

Interest expense

 

-53

 

-58

 

5

 

-9

 

Income before taxes from continuing operations

 

2 555

 

2 212

 

343

 

16

 

Taxes

 

-405

 

-373

 

-32

 

9

 

Net income from continuing operations

 

2 150

 

1 839

 

311

 

17

 

Net income from Consumer Health discontinuing operations

 

21

 

117

 

-96

 

-82

 

Total net income

 

2 171

 

1 956

 

215

 

11

 

Attributable to:

 

 

 

 

 

 

 

 

 

Equity holders of Novartis AG

 

2 169

 

1 947

 

222

 

11

 

Minority interests

 

2

 

9

 

-7

 

 -78

 

Average number of shares outstanding – Basic (million)

 

2 345.3

 

2 339.7

 

 

 

 

 

Basic earnings per share (USD) (1)

 

 

 

 

 

 

 

 

 

– Total

 

0.92

 

0.83

 

0.09

 

11

 

– Continuing operations

 

0.91

 

0.78

 

0.13

 

17

 

– Discontinuing operations

 

0.01

 

0.05

 

-0.04

 

-80

 

Average number of shares outstanding – Diluted (million)

 

2 358.8

 

2 354.9

 

 

 

 

 

Diluted earnings per share (USD)(1)

 

 

 

 

 

 

 

 

 

– Total

 

0.92

 

0.83

 

0.09

 

11

 

– Continuing operations

 

0.91

 

0.78

 

0.13

 

 17

 

– Discontinuing operations

 

0.01

 

0.05

 

-0.04

 

-80

 

 


(1) Earnings per share (EPS) is calculated on the amount of net income attributable to the equity holders of Novartis AG

 

Consolidated statement of recognized income and expense (unaudited)

 

First quarter

 

 

 

Q1 2007

 

Q1 2006

 

Change

 

 

 

USD m

 

USD m

 

USD m

 

Net income

 

2 171

 

1 956

 

215

 

Fair value adjustments on financial instruments

 

13

 

22

 

-9

 

Actuarial gains from defined benefit plans

 

83

 

275

 

-192

 

Additionally recognized amounts by associated companies

 

87

 

-67

 

154

 

Revaluation of initial minority interests in Chiron

 

55

 

 

 

55

 

Translation effects

 

113

 

173

 

-60

 

Recognized income and expense

 

2 522

 

2 359

 

163

 

 

 

10



 

Condensed consolidated balance sheets

 

 

 

March 31,
2007
(unaudited)

 

Dec 31,
2006

 

Change

 

March 31,
2006
(unaudited)

 

 

 

USD m

 

USD m

 

USD m

 

USD m

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non-current assets

 

46 990

 

46 604

 

386

 

36 933

 

Current assets

 

 

 

 

 

 

 

 

 

Inventories

 

4 982

 

4 498

 

484

 

3 926

 

Trade accounts receivable

 

6 353

 

6 161

 

192

 

5 292

 

Other current assets

 

2 292

 

2 054

 

238

 

1 580

 

Cash, short-term deposits and marketable securities

 

6 957

 

7 955

 

-998

 

11 117

 

Total current assets from continuing operations

 

20 584

 

20 668

 

-84

 

21 915

 

Assets related to discontinuing operations

 

750

 

736

 

14

 

 

 

Total current assets

 

21 334

 

21 404

 

-70

 

21 915

 

Total assets

 

68 324

 

68 008

 

316

 

58 848

 

Equity and liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total equity

 

40 502

 

41 294

 

-792

 

33 754

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

Financial debts

 

661

 

656

 

5

 

1 344

 

Other non-current liabilities

 

9 612

 

9 824

 

-212

 

8 160

 

Total non-current liabilities

 

10 273

 

10 480

 

-207

 

9 504

 

Current liabilities

 

 

 

 

 

 

 

 

 

Trade accounts payable

 

2 575

 

2 487

 

88

 

1 936

 

Financial debts and derivatives

 

6 689

 

6 643

 

46

 

6 750

 

Other current liabilities

 

8 103

 

6 897

 

1 206

 

6 904

 

Total current liabilities from continuing operations

 

17 367

 

16 027

 

1 340

 

15 590

 

Liabilities related to discontinuing operations

 

182

 

207

 

-25

 

 

 

Total current liabilities

 

17 549

 

16 234

 

1 315

 

15 590

 

Total liabilities

 

27 822

 

26 714

 

1 108

 

25 094

 

Total equity and liabilities

 

68 324

 

68 008

 

316

 

58 848

 

 

Condensed consolidated changes in equity (unaudited)

 

First quarter

 

 

 

Q1 2007

 

Q1 2006

 

Change

 

 

 

USD m

 

USD m

 

USD m

 

Consolidated equity at January 1

 

41 294

 

33 164

 

8 130

 

Recognized income and expense

 

2 522

 

2 359

 

163

 

Purchase/sale of treasury shares, net

 

-847

 

172

 

-1 019

 

Share-based compensation

 

147

 

114

 

33

 

Dividends

 

-2 598

 

-2 049

 

-549

 

Changes in minorities

 

-16

 

-6

 

-10

 

Consolidated equity at March 31

 

40 502

 

33 754

 

6 748

 

 

11



 

Condensed consolidated cash flow statements (unaudited)

 

First quarter

 

 

 

Q1 2007

 

Q1 2006

 

Change

 

 

 

USD m

 

USD m

 

USD m

 

Net income from continuing operations

 

2 150

 

1 839

 

311

 

Reversal of non-cash items

 

 

 

 

 

 

 

Taxes

 

405

 

373

 

32

 

Depreciation, amortization and impairments

 

556

 

428

 

128

 

Net financial income

 

-34

 

-50

 

16

 

Other

 

46

 

-54

 

100

 

Net income adjusted for non-cash items

 

3 123

 

2 536

 

587

 

Interest and other financial receipts

 

242

 

220

 

22

 

Interest and other financial payments

 

-37

 

-44

 

7

 

Taxes paid

 

-286

 

-264

 

-22

 

Cash flow before working capital and provision changes

 

3 042

 

2 448

 

594

 

Restructuring payments and other cash payments out of provisions

 

-79

 

-56

 

-23

 

Change in net current assets and other operating cash flow items

 

-752

 

-269

 

-483

 

Cash flow from operating activities of continuing operations

 

2 211

 

2 123

 

88

 

Investments in property, plant & equipment

 

-527

 

-302

 

-225

 

Acquisitions/divestments of subsidiaries

 

-48

 

23

 

-71

 

Decrease/increase in marketable securities, intangible and financial assets

 

-675

 

-169

 

-506

 

Cash flow from investing activities of continuing operations

 

-1 250

 

-448

 

-802

 

Cash flow from financing activities of continuing operations

 

-2 482

 

-1 748

 

-734

 

Cash flow from discontinuing operations

 

15

 

229

 

-214

 

Translation effect on cash and cash equivalents

 

-17

 

-3

 

-14

 

Change in cash and cash equivalents from discontinuing operations

 

-2

 

 

 

-2

 

Change in cash and cash equivalents from continuing operations

 

-1 525

 

153

 

-1 678

 

Cash and cash equivalents from continuing operations at January 1

 

3 815

 

6 321

 

-2 506

 

Cash and cash equivalents from continuing operations at March 31

 

2 290

 

6 474

 

-4 184

 

 

12



 

 

Consolidated income statements – Divisional segmentation (unaudited)

 

First quarter

 

 

 

Pharmaceuticals

 

Vaccines and
Diagnostics

 

Sandoz

 

Consumer Health
continuing
operations
(1)

 

Corporate

 

Total continuing
operations

 

Consumer Health
discontinuing
operations
(1)

 

Total Group

 

 

 

Q1 2007

 

Q1 2006

 

Q1 2007

 

Q1 2007

 

Q1 2006

 

Q1 2007

 

Q1 2006

 

Q1 2007

 

Q1 2006

 

Q1 2007

 

Q1 2006

 

Q1 2007

 

Q1 2006

 

Q1 2007

 

Q1 2006

 

 

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

Net sales to third parties

 

5 923

 

5 052

 

231

 

1 696

 

1 431

 

1 721

 

1 574

 

 

 

 

 

9 571

 

8 057

 

248

 

244

 

9 819

 

8 301

 

Sales to other Divisions

 

43

 

38

 

4

 

66

 

38

 

10

 

5

 

-123

 

-81

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales of Divisions

 

5 966

 

5 090

 

235

 

1 762

 

1 469

 

1 731

 

1 579

 

-123

 

-81

 

9 571

 

8 057

 

248

 

244

 

9 819

 

8 301

 

Other revenues

 

100

 

77

 

135

 

2

 

4

 

10

 

12

 

 

 

 

 

247

 

93

 

1

 

 

 

248

 

93

 

Cost of Goods Sold

 

-1 011

 

-896

 

-212

 

-951

 

-782

 

-668

 

-603

 

114

 

99

 

-2 728

 

-2 182

 

-124

 

-130

 

-2 852

 

-2 312

 

Of which amortization and impairments of product and patent rights and trademarks

 

-89

 

-40

 

-71

 

-64

 

-60

 

-18

 

-21

 

 

 

 

 

-242

 

-121

 

-3

 

-3

 

-245

 

-124

 

Gross profit

 

5 055

 

4 271

 

158

 

813

 

691

 

1 073

 

988

 

-9

 

18

 

7 090

 

5 968

 

125

 

114

 

7 215

 

6 082

 

Marketing & Sales

 

-1 809

 

-1 533

 

-42

 

-273

 

-237

 

-558

 

-522

 

 

 

 

 

-2 682

 

-2 292

 

-78

 

-80

 

-2 760

 

-2 372

 

Research & Development

 

-1 215

 

-926

 

-54

 

-124

 

-105

 

-72

 

-63

 

-43

 

-37

 

-1 508

 

-1 131

 

-4

 

-3

 

-1 512

 

-1 134

 

General & Administration

 

-172

 

-145

 

-41

 

-77

 

-68

 

-110

 

-99

 

-102

 

-94

 

-502

 

-406

 

-12

 

-13

 

-514

 

-419

 

Other income & expense

 

-6

 

-41

 

6

 

-21

 

-43

 

-4

 

10

 

51

 

-7

 

26

 

-81

 

-2

 

126

 

24

 

45

 

Of which amortization and impairments of capitalized intangibles included in function costs

 

-21

 

-7

 

 

 

-7

 

-8

 

-8

 

-5

 

-1

 

-2

 

-37

 

-22

 

-3

 

-3

 

-40

 

-25

 

Operating income

 

1 853

 

1 626

 

27

 

318

 

238

 

329

 

314

 

-103

 

-120

 

2 424

 

2 058

 

29

 

144

 

2 453

 

2 202

 

Income from associated companies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

97

 

104

 

 

 

 

 

97

 

104

 

Financial income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

87

 

108

 

 

 

 

 

87

 

108

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-53

 

-58

 

 

 

 

 

-53

 

-58

 

Income before taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2 555

 

2 212

 

29

 

144

 

2 584

 

2 356

 

Taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-405

 

-373

 

-8

 

-27

 

-413

 

-400

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2 150

 

1 839

 

21

 

117

 

2 171

 

1 956

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 – Property, plant and equipment(2)

 

329

 

148

 

44

 

90

 

87

 

52

 

43

 

24

 

28

 

539

 

306

 

1

 

3

 

540

 

309

 

– Goodwill and other intangibles(2)

 

76

 

74

 

 

 

11

 

3

 

24

 

19

 

 

 

 

 

111

 

96

 

 

 

 

 

111

 

96

 

 


(1) Not reflecting as a discontinuing operation the divestment of Gerber announced on April 12, 2007

(2) Excluding impact of business acquisitions

 

13



 

Notes to the Condensed Interim Consolidated Financial Statements for the three months ended March 31, 2007 (unaudited)

 

1. Basis of preparation

 

The condensed consolidated financial statements for the three-month period ended March 31, 2007, have been prepared in accordance with International Accounting Standard 34 “Interim Financial Reporting” and with accounting policies set out in the 2006 Annual Report, which was published on January 18, 2007.

 

2. Business combinations and other significant transactions

 

The following significant transactions occurred during 2007 and 2006:

 

2007

 

Consumer Health – Gerber business unit divestment

On April 12 Novartis announced an agreement to divest the Gerber business unit for approximately USD 5.5 billion to Nestlé S.A. This transaction, which is subject to customary regulatory approvals, is expected to be completed in the second half of 2007. In 2006, Gerber had unaudited net sales of USD 1.6 billion and operating income of USD 307 million.

 

The results of operations for the first quarter of 2007 do not reflect this divestment as a discontinuing operation since it was announced after the end of this quarter on April 12.

 

2006

 

Corporate – Chiron acquisition

On April 19, Chiron shareholders approved the acquisition of the remaining 56% of the shares of Chiron Corporation that Novartis did not already own for USD 48.00 per share. The amount paid for the shares, related options of associates and transaction costs totaled approximately USD 5.7 billion. The transaction was completed on April 20. Novartis has created a new division called Vaccines and Diagnostics with two activities: human vaccines named Novartis Vaccines and a diagnostics activity that retained Chiron as its name. Chiron’s biopharmaceuticals activities were integrated into the Pharmaceuticals division.

 

For the period from January 1 to the date of acquisition, the prior 44% interest in Chiron has been accounted for using the equity method. From its date of acquisition Chiron has been fully consolidated with its identifiable assets and liabilities being revalued to their fair value at the date of acquisition. The Group’s initial 44% interest in Chiron was also revalued directly into equity by USD 0.6 billion.

 

Pharmaceuticals

As part of the Chiron transaction, Chiron’s pharmaceuticals activities have been integrated into the Pharmaceuticals Division. Included in this portfolio are products for the treatment of cystic fibrosis, renal/skin cancer and skin infections. Chiron’s early-stage research has been incorporated into the Pharmaceuticals Division research unit, the Novartis Institutes for BioMedical Research (NIBR). Since the acquisition, the income statement and cash flows from Chiron’s pharmaceuticals activities have been consolidated into the Division’s results.

 

14



 

On March 26, 2007, an agreement was reached with Bayer-Schering AG on the rights of each party in connection with the regulatory, development, manufacturing and supply agreements for the multiple sclerosis medicine Betaseron®. Due to this agreement, a reassessment has been made as of April 20, 2006, for the values for the related assets. This resulted in an increase of USD 235 million in identified net assets. Goodwill and the revaluation of the initial 44% interest in Chiron were adjusted accordingly. Final goodwill on this transaction at March 31, 2007, amounted to USD 1.9 billion.

 

On July 14, Novartis announced that its offer for the UK biopharmaceutical company NeuTec Pharma plc, which is specialized in hospital anti-infectives, became unconditional and the company has been consolidated from this date. Novartis paid a total consideration of USD 606 million (GBP 328 million) to fully acquire the company. NeuTec Pharma plc had no post-acquisition sales, although expenses and cash flows have been consolidated from the acquisition date. Goodwill on this transaction at March 31, 2007, amounted to USD 134 million.

 

Vaccines and Diagnostics

Since the Chiron acquisition, the income statement and cash flows from the vaccines and diagnostics activities comprise the Division’s results. Goodwill on this transaction at March 31, 2007, amounted to USD 1.1 billion.

 

Consumer Health

On February 17, Novartis announced the completion of the sale of its Nutrition & Santé unit, part of the Medical Nutrition Business Unit, for USD 211 million to ABN AMRO Capital France, resulting in a divestment gain before taxes of USD 129 million.

 

On December 14, Novartis announced an agreement to divest the remainder of the Medical Nutrition Business Unit for USD 2.5 billion to Nestlé S.A. This transaction, which is subject to customary regulatory approvals, is expected to be completed in 2007.

 

The Medical Nutrition Business Unit (including the Nutrition & Santé business divested in February 2006) is disclosed as discontinuing operations in all periods in the Group’s consolidated financial statements.

 

15



 

3. Principal currency translation rates

 

First quarter

 

 

 

Average rates 
Q1 2007
USD

 

Average rates 
Q1 2006
USD

 

Period-end rates 
March 31,
2007
USD

 

Period-end rates
March 31,
2006
USD

 

1 CHF

 

0.811

 

0.771

 

0.821

 

0.769

 

1 EUR

 

1.311

 

1.202

 

1.333

 

1.214

 

1 GBP

 

1.955

 

1.752

 

1.963

 

1.742

 

100 JPY

 

0.838

 

0.856

 

0.848

 

0.851

 

 

4. Legal proceedings update

 

A number of our affiliates are the subject of various legal proceedings that arise from time to time in the ordinary course of business. While we do not believe that any of them will have a material adverse effect on our financial position, litigation is inherently unpredictable and excessive verdicts do occur. As a consequence, we may in the future incur judgments or enter into settlements of claims that could have a material adverse effect on our results of operations in any particular period. Please consult the 2006 Annual Report (note 19 to the Group’s consolidated financial statements) for a summary of major legal proceedings. The following non-exhaustive list reflects recent developments in legal proceedings:

 

Investigations (US)

 

TOBI (tobramycin)

The US Attorney’s office for the Northern District of California served a subpoena on a Novartis subsidiary seeking certain information regarding the marketing and promotion of TOBI, a treatment for patients with cystic fibrosis acquired through the purchase of Chiron Corporation in mid-2006.

 

Xolair

The Office of Inspector General of the US Department of Veterans Affairs served a subpoena on a Novartis subsidiary seeking certain information regarding the marketing and promotion of the allergy medicine Xolair.

 

Wage and Hour Litigation (US)

A group of pharmaceutical sales representatives filed suit in State Court in California and Federal Court in New York against Novartis subsidiaries alleging the companies violated wage and hour laws by misclassifying the sales representatives as “exempt” employees, and by failing to pay overtime compensation. The lawsuits were consolidated and certified as class actions. Discovery has begun on the merits of the cases.

 

Patent litigation

 

Lotrel

Lotrel is a combination of benazepril hydrochloride and amlodipine besylate. Patent protection for the benazepril substance has expired in the US. The US Court of Appeals for the Federal Circuit invalidated certain patent claims directed to the amlodipine besylate substance in March 2007; the patent itself expired at the end of March 2007. Lotrel is protected by a combination patent in the US until 2017. Generic manufacturers have challenged this patent, and Novartis has sued them. In March 2007, Novartis filed a motion for preliminary injunction against an at-risk launch by Teva.

 

 

16



 

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

 

The Group’s consolidated financial statements have been prepared in accordance with IFRS, which, as applied by the Group, differ 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.

 

For further comments regarding the nature of these adjustments, please consult note 33 in the Novartis 2006 Annual Report.

 

 

 

Q1 2007
USD m

 

Q1 2006
USD m

 

Net income from continuing operations under IFRS

 

2 150

 

1 839

 

US GAAP adjustments:

 

 

 

 

 

Available-for-sale securities

 

-16

 

-24

 

Inventory impairment reversal

 

-90

 

6

 

Intangible assets

 

-146

 

-170

 

Property, plant and equipment

 

-17

 

15

 

Pensions and other post-employment benefits

 

-44

 

-45

 

Deferred taxes

 

87

 

35

 

Share-based compensation

 

-1

 

-1

 

Currency translation

 

 

 

-3

 

Minority interests

 

-2

 

-9

 

Other

 

-56

 

 

 

Net income from continuing operations under US GAAP

 

1 865

 

1 643

 

Net income from discontinuing operations under US GAAP

 

21

 

48

 

Net income under US GAAP

 

1 886

 

1 691

 

 

 

 

 

 

 

Basic earnings per share under US GAAP (USD)

 

 

 

 

 

– Total

 

0.80

 

0.72

 

– Continuing operations

 

0.79

 

0.70

 

– Discontinuing operations

 

0.01

 

0.02

 

Diluted earnings per share under US GAAP (USD)

 

 

 

 

 

– Total

 

0.80

 

0.72

 

– Continuing operations

 

0.79

 

0.70

 

– Discontinuing operations

 

0.01

 

0.02

 

 

 

 

March 31, 2007
USD m

 

March 31, 2006
USD m

 

Equity under IFRS

 

40 502

 

33 754

 

US GAAP adjustments:

 

 

 

 

 

Available-for-sale securities

 

-37

 

-22

 

Inventory impairment reversal

 

-101

 

-17

 

Associated companies

 

-307

 

24

 

Intangible assets

 

1 000

 

3 952

 

Property, plant and equipment

 

-453

 

-399

 

Pensions and other post-employment benefits

 

14

 

2 754

 

Deferred taxes

 

286

 

-1 297

 

Share-based compensation

 

-52

 

-49

 

Minority interests

 

-171

 

-177

 

Net assets from discontinuing operations

 

-19

 

-19

 

Other

 

53

 

 

 

Total US GAAP adjustments

 

213

 

4 750

 

Equity under US GAAP

 

40 715

 

38 504

 

 

 

17



 

Supplementary information (unaudited)

 

Condensed consolidated change in liquidity

 

First quarter

 

 

 

Q1 2007

 

Q1 2006

 

Change

 

 

 

USD m

 

USD m

 

USD m

 

Change in cash and cash equivalents

 

-1 525

 

153

 

-1 678

 

Change in marketable securities, financial debt and financial derivatives

 

476

 

391

 

85

 

Change in net liquidity

 

-1 049

 

544

 

-1 593

 

Net liquidity at January 1

 

656

 

2 479

 

-1 823

 

Net debt/liquidity from continuing operations at March 31

 

-393

 

3 023

 

-3 416

 

Net liquidity from discontinuing operations at March 31(1)

 

2

 

 

 

2

 

Net debt/liquidity at March 31

 

-391

 

3 023

 

-3 414

 

 


(1) Not reflecting as a discontinuing operation the divestment of Gerber announced on April 12, 2007

 

Free cash flow

 

First quarter

 

 

 

Q1 2007

 

Q1 2006

 

Change

 

 

 

USD m

 

USD m

 

USD m

 

Cash flow from continuing operating activities

 

2 211

 

2 123

 

88

 

Purchase of property, plant & equipment

 

-527

 

-302

 

-225

 

Purchase of intangible and financial assets

 

-334

 

-389

 

55

 

Sale of property, plant & equipment, intangible and financial assets

 

168

 

327

 

-159

 

Dividends

 

-1 792

 

-1 405

 

-387

 

Free cash flow from continuing operations

 

-274

 

354

 

-628

 

Free cash flow from discontinuing operations(1)

 

18

 

19

 

-1

 

Total free cash flow

 

-256

 

373

 

-629

 

 


(1) Not reflecting as a discontinuing operation the divestment of Gerber announced on April 12, 2007

 

Share information

 

 

 

March 31, 2007

 

March 31, 2006

 

Number of shares outstanding (million)

 

2 339.9

 

2 344.9

 

Registered share price (CHF)

 

69.7

 

72.50

 

ADS price (USD)

 

54.63

 

55.44

 

Market capitalization (USD billion)

 

133.9

 

130.7

 

Market capitalization (CHF billion)

 

163.1

 

170.0

 

 

18



 

Impact of intangible asset charges and significant exceptional items

 

First quarter

 

 

 

Pharmaceuticals

 

Vaccines and
Diagnostics

 

Sandoz

 

Consumer Health
continuing
operations

 

Corporate

 

Total continuing
operations

 

Consumer Health 
iscontinuing
operations

 

Total Group

 

 

 

Q1 2007

 

Q1 2006

 

Q1 2007

 

 

Q1 2007

 

Q1 2006

 

Q1 2007

 

Q1 2006

 

Q1 2007

 

Q1 2006

 

Q1 2007

 

Q1 2006

 

Q1 2007

 

Q1 2006

 

Q1 2007

 

Q1 2006

 

 

 

USD m

 

USD m

 

USD m

 

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

Reported operating income

 

1 853

 

1 626

 

27

 

 

318

 

238

 

329

 

314

 

-103

 

-120

 

2 424

 

2 058

 

29

 

144

 

2 453

 

2 202

 

Recurring amortization

 

102

 

43

 

71

 

 

71

 

68

 

26

 

25

 

1

 

2

 

271

 

138

 

6

 

6

 

277

 

144

 

Impairments

 

8

 

4

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

8

 

5

 

 

 

 

 

8

 

5

 

Intangible asset charges

 

110

 

47

 

71

 

 

71

 

68

 

26

 

26

 

1

 

2

 

279

 

143

 

6

 

6

 

285

 

149

 

Impairment charges on property, plant & equipment

 

 

 

-1

 

 

 

 

 

 

7

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

6

 

Restructuring and acquisition related integration expenses, net

 

 

 

 

 

7

 

 

7

 

16

 

 

 

 

 

 

 

 

 

14

 

16

 

 

 

 

 

14

 

16

 

Exceptional restructuring and other acquisition-related integration expenses, net

 

 

 

-1

 

7

 

 

7

 

23

 

 

 

 

 

 

 

 

 

14

 

22

 

 

 

 

 

14

 

22

 

Exceptional gains from divesting subsidiaries and major products

 

 

 

-87

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-87

 

 

 

-129

 

 

 

-216

 

Litigation settlement

 

 

 

 

 

-67

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-67

 

 

 

 

 

 

 

-67

 

 

 

Suspension of Zelnorm

 

52

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

52

 

 

 

 

 

 

 

52

 

 

 

Tekturna inventory provision

 

-107

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-107

 

 

 

 

 

 

 

-107

 

 

 

Other exceptional items

 

-55

 

 

 

-67

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-122

 

 

 

 

 

 

 

-122

 

 

 

Operating income excluding the above items

 

1 908

 

1 585

 

38

 

 

396

 

329

 

355

 

340

 

-102

 

-118

 

2 595

 

2 136

 

35

 

21

 

2 630

 

2 157

 

Income from associated companies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

97

 

104

 

 

 

 

 

97

 

104

 

Net financial income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

34

 

50

 

 

 

 

 

34

 

50

 

Taxes (adjusted for above items)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-473

 

-402

 

-9

 

-9

 

 -482

 

-411

 

Adjusted net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2 253

 

1 888

 

26

 

12

 

2 279

 

1 900

 

Adjusted basic earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.96

 

0.80

 

0.01

 

0.01

 

0.97

 

0.81

 

 

19



 

Supplementary tables: First quarter 2007 net sales of top 20 pharmaceutical products (unaudited)

 

 

 

 

 

US

 

Rest of world

 

Total

 

Brands

 

Therapeutic area

 

USD m

 

% change
in local
currencies

 

USD m

 

% change
in local
currencies

 

USD m

 

in USD

 

% change
in local
currencies

 

Diovan/Co-Diovan

 

Hypertension

 

523

 

27

 

628

 

15

 

1 151

 

23

 

20

 

Gleevec/Glivec

 

Chronic myeloid leukemia

 

156

 

18

 

518

 

15

 

674

 

21

 

16

 

Lotrel

 

Hypertension

 

353

 

20

 

0

 

0

 

353

 

20

 

20

 

Zometa

 

Cancer complications

 

159

 

-14

 

155

 

9

 

314

 

-2

 

-4

 

Sandostatin (group)

 

Acromegaly

 

95

 

8

 

143

 

5

 

238

 

10

 

6

 

Neoral/Sandimmun

 

Transplantation

 

30

 

-9

 

194

 

2

 

224

 

5

 

1

 

Femara

 

Breast cancer

 

96

 

33

 

112

 

32

 

208

 

37

 

32

 

Lamisil (group)

 

Fungal infections

 

132

 

11

 

75

 

-10

 

207

 

3

 

2

 

Trileptal

 

Epilepsy

 

150

 

19

 

47

 

13

 

197

 

19

 

17

 

Voltaren (group)

 

Inflammation/pain

 

2

 

-33

 

169

 

5

 

171

 

7

 

4

 

Top ten products total

 

 

 

1 696

 

16

 

2 041

 

11

 

3 737

 

16

 

13

 

Lescol

 

Cholesterol reduction

 

56

 

-10

 

115

 

-7

 

171

 

-4

 

-8

 

Exelon

 

Alzheimer’s disease

 

50

 

19

 

96

 

21

 

146

 

26

 

21

 

Zelmac/Zelnorm

 

Irritable bowel syndrome

 

90

 

-3

 

15

 

-3

 

105

 

-4

 

-3

 

Ritalin (group)

 

Attention deficit/ Hyperactive disorder

 

85

 

37

 

16

 

3

 

101

 

29

 

30

 

Tegretol (incl. CR/XR)

 

Epilepsy

 

32

 

14

 

67

 

-1

 

99

 

5

 

3

 

Comtan/Stalevo (group)

 

Parkinson’s disease

 

42

 

17

 

52

 

22

 

94

 

22

 

19

 

Foradil

 

Asthma

 

6

 

50

 

82

 

-5

 

88

 

1

 

-4

 

Miacalcic

 

Osteoporosis

 

41

 

-21

 

33

 

-12

 

74

 

-16

 

-17

 

Famvir

 

Viral infections

 

47

 

31

 

23

 

-12

 

70

 

15

 

14

 

TOBI(1)

 

Cystic fibrosis

 

44

 

 

 

25

 

 

 

69

 

 

 

 

 

Top 20 products total

 

 

 

2 189

 

16

 

2 565

 

10

 

4 754

 

16

 

13

 

Rest of portfolio

 

 

 

274

 

28

 

895

 

17

 

1 169

 

24

 

20

 

Total Division sales

 

 

 

2 463

 

18

 

3 460

 

12

 

5 923

 

17

 

14

 

 


(1) Acquired on April 20, 2006, through the purchase of Chiron

 

20



 

First quarter Pharmaceutical therapeutic area net sales

 

 

 

Q1 2007

 

Q1 2006

 

Change

 

 

 

USD m

 

USD m

 

USD (%)

 

Cardiovascular

 

 

 

 

 

 

 

Diovan

 

1 151

 

939

 

23

 

Lotrel

 

353

 

295

 

20

 

Other

 

16

 

2

 

700

 

Total strategic franchise products

 

1 520

 

1 236

 

23

 

Mature products

 

377

 

378

 

0

 

Total Cardiovascular products

 

1 897

 

1 614

 

18

 

 

 

 

 

 

 

 

 

Oncology

 

 

 

 

 

 

 

Gleevec/Glivec

 

674

 

559

 

21

 

Zometa

 

314

 

319

 

-2

 

Sandostatin (group)

 

238

 

216

 

10

 

Femara

 

208

 

152

 

37

 

Exjade

 

65

 

19

 

242

 

Other

 

69

 

63

 

10

 

Total Oncology products

 

1 568

 

1 328

 

18

 

 

 

 

 

 

 

 

 

Neuroscience

 

 

 

 

 

 

 

Trileptal

 

197

 

166

 

19

 

Exelon

 

146

 

116

 

26

 

Ritalin (group)

 

101

 

78

 

29

 

Tegretol

 

99

 

94

 

5

 

Comtan (group)

 

94

 

77

 

22

 

Other

 

109

 

54

 

102

 

Total strategic franchise products

 

746

 

585

 

28

 

Mature products

 

103

 

108

 

-5

 

Total Neuroscience products

 

849

 

693

 

23

 

 

 

 

 

 

 

 

 

Respiratory

 

 

 

 

 

 

 

Foradil

 

88

 

87

 

1

 

TOBI(1)

 

69

 

 

 

 

 

Xolair

 

34

 

4

 

750

 

Other

 

20

 

17

 

18

 

Total strategic franchise products

 

211

 

108

 

95

 

Mature products

 

29

 

29

 

0

 

Total Respiratory products

 

240

 

137

 

75

 

 

 

 

 

 

 

 

 

Ophtalmics/Dermatology/Gastrointestinal/Urinary (ODGU)

 

 

 

 

 

 

 

Zelnorm/Zelmac

 

105

 

109

 

-4

 

Visudyne

 

61

 

107

 

-43

 

Elidel

 

47

 

48

 

-2

 

Enablex/Emselex

 

38

 

21

 

81

 

Other

 

125

 

82

 

52

 

Total strategic franchise products

 

376

 

367

 

2

 

Mature products

 

235

 

226

 

4

 

Total ODGU products

 

611

 

593

 

3

 

 

 

 

 

 

 

 

 

Arthritis/Bone/Pain

 

 

 

 

 

 

 

Prexige

 

21

 

5

 

320

 

Other

 

2

 

0

 

 

 

Total strategic franchise products

 

23

 

5

 

360

 

Mature products (including Voltaren)

 

344

 

345

 

 

 

Total Arthritis/Bone/Pain products

 

367

 

350

 

5

 

 

 

 

 

 

 

 

 

Infectious Diseases, Transplantation & Immunology (IDTI)

 

 

 

 

 

 

 

Neoral/Sandimmun

 

224

 

214

 

5

 

Other

 

92

 

66

 

39

 

Total strategic franchise products

 

316

 

280

 

13

 

Mature products

 

75

 

57

 

32

 

Total IDTI products

 

391

 

337

 

16

 

 

 

 

 

 

 

 

 

Total strategic franchise products

 

4 760

 

3 909

 

22

 

Total mature products

 

1 163

 

1 143

 

2

 

Total division net sales

 

5 923

 

5 052

 

17

 

 


(1) Acquired on April 20, 2006, through the purchase of Chiron

 

21



 

Net sales by region (unaudited)

 

First quarter

 

 

 

Q1 2007

 

Q1 2006

 

% change

 

Q1 2007

 

Q1 2006

 

 

 

USD m

 

USD m

 

USD

 

local
currencies

 

% of total

 

% of total

 

Pharmaceuticals

 

 

 

 

 

 

 

 

 

 

 

 

 

US

 

2 463

 

2 094

 

18

 

18

 

42

 

41

 

Rest of world

 

3 460

 

2 958

 

17

 

12

 

58

 

59

 

Total

 

5 923

 

5 052

 

17

 

14

 

100

 

100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vaccines and Diagnostics

 

 

 

 

 

 

 

 

 

 

 

 

 

US

 

72

 

 

 

 

 

 

 

31

 

 

 

Rest of world

 

159

 

 

 

 

 

 

 

69

 

 

 

Total

 

231

 

 

 

 

 

 

 

100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sandoz

 

 

 

 

 

 

 

 

 

 

 

 

 

US

 

474

 

371

 

28

 

27

 

28

 

26

 

Rest of world

 

1 222

 

1 060

 

15

 

7

 

72

 

74

 

Total

 

1 696

 

1 431

 

19

 

12

 

100

 

100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Health(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

US

 

891

 

872

 

2

 

2

 

45

 

48

 

Rest of world

 

1 078

 

946

 

14

 

8

 

55

 

52

 

Total

 

1 969

 

1 818

 

8

 

5

 

100

 

100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Group(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

US

 

3 900

 

3 337

 

17

 

17

 

40

 

40

 

Rest of world

 

5 919

 

4 964

 

19

 

13

 

60

 

60

 

Total

 

9 819

 

8 301

 

18

 

15

 

100

 

100

 

 


(1) Includes both Consumer Health Division continuing and discontinuing operations

 

22



 

Quarterly analysis

 

Key figures by quarter(1)

 

 

 

 

Q1 2007

 

Q4 2006

 

Change

 

 

 

USD m

 

USD m

 

USD m

 

%

 

Net sales

 

9 819

 

10 053

 

-234

 

-2

 

Operating income

 

2 453

 

1 824

 

629

 

34

 

Financial income

 

87

 

95

 

-8

 

-8

 

Interest expense

 

-53

 

-57

 

4

 

-7

 

Taxes

 

-413

 

-270

 

-143

 

53

 

Net income

 

2 171

 

1 663

 

508

 

31

 

 


(1) Includes both Consumer Health Division continuing and discontinuing operations

 

Net sales by region(1)

 

 

 

Q1 2007

 

Q4 2006

 

 

 

Change

 

 

 

USD m

 

USD m

 

USD m

 

%

 

US

 

3 900

 

4 047

 

-147

 

-4

 

Europe

 

3 808

 

3 705

 

103

 

3

 

Rest of world

 

2 111

 

2 301

 

-190

 

-8

 

Total

 

9 819

 

10 053

 

-234

 

-2

 

 


(1) Includes both Consumer Health Division continuing and discontinuing operations

 

Net sales by division

 

 

 

Q1 2007

 

Q4 2006

 

Change

 

 

 

USD m

 

USD m

 

USD m

 

%

 

Pharmaceuticals

 

5 923

 

6 049

 

-126

 

-2

 

Vaccines and Diagnostics

 

231

 

455

 

-224

 

-49

 

Sandoz

 

1 696

 

1 653

 

43

 

3

 

Consumer Health continuing operations

 

1 721

 

1 644

 

77

 

5

 

Net sales from continuing operations

 

9 571

 

9 801

 

-230

 

-2

 

Consumer Health discontinuing operations

 

248

 

252

 

-4

 

-2

 

Total

 

9 819

 

10 053

 

-234

 

-2

 

 

Operating income by division

 

 

 

Q1 2007

 

Q4 2006

 

Change

 

 

 

USD m

 

USD m

 

USD m

 

%

 

Pharmaceuticals

 

1 853

 

1 621

 

232

 

14

 

Vaccines and Diagnostics

 

27

 

2

 

25

 

 

 

Sandoz

 

318

 

204

 

114

 

56

 

Consumer Health continuing operations

 

329

 

143

 

186

 

130

 

Corporate income & expense, net

 

-103

 

-176

 

73

 

-41

 

Operating income from continuing operations

 

2 424

 

1 794

 

630

 

35

 

Consumer Health discontinuing operations

 

29

 

30

 

-1

 

-3

 

Total

 

2 453

 

1 824

 

629

 

34

 

 

 

23



 

PRO FORMA CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

This pro forma information has been provided due to the significance of an announcement made following the end of the first quarter on April 12, 2007, to divest the Gerber business unit of the Consumer Health division. The Condensed Interim Consolidated Financial Statements for the three months ended March 31, 2007, reflect only the Medical Nutrition (divestment expected to be completed by the end of 2007) and Nutrition & Santé (completed in the 2006 first quarter) business units of the Consumer Health division as discontinuing operations. This pro forma information reflects the inclusion of Gerber, which is expected to be divested in the second half of 2007, as a discontinuing operation.

 

Pro forma consolidated income statements

 

First quarter

 

 

 

Q1 2007

 

Q1 2006

 

Change

 

 

 

USD m

 

USD m

 

USD m

 

%

 

Net sales from continuing operations

 

9 128

 

7 666

 

1 462

 

19

 

Other revenues

 

246

 

90

 

156

 

173

 

Cost of Goods Sold

 

-2 488

 

-1 980

 

-508

 

26

 

Of which amortization and impairments of product and patent rights and trademarks

 

-242

 

-121

 

-121

 

100

 

Gross profit

 

6 886

 

5 776

 

1 110

 

19

 

Marketing & Sales

 

-2 587

 

-2 200

 

-387

 

18

 

Research & Development

 

-1 502

 

-1 124

 

-378

 

34

 

General & Administration

 

-483

 

-388

 

-95

 

24

 

Other income & expense

 

21

 

-90

 

111

 

-123

 

Operating income from continuing operations

 

2 335

 

1 974

 

361

 

18

 

Income from associated companies

 

97

 

104

 

-7

 

-7

 

Financial income

 

87

 

108

 

-21

 

-19

 

Interest expense

 

-53

 

-58

 

5

 

-9

 

Income before taxes from continuing operations

 

2 466

 

2 128

 

338

 

16

 

Taxes

 

-374

 

-343

 

-31

 

9

 

Net income from continuing operations

 

2 092

 

1 785

 

307

 

17

 

Net income from Consumer Health discontinuing operations

 

79

 

171

 

-92

 

-54

 

Total net income

 

2 171

 

1 956

 

215

 

11

 

Attributable to:

 

 

 

 

 

 

 

 

 

Equity holders of Novartis AG

 

2 169

 

1 947

 

222

 

11

 

Minority interests

 

2

 

9

 

-7

 

-78

 

Average number of shares outstanding – Basic (million)

 

2 345.3

 

2 339.7

 

 

 

 

 

Basic earnings per share (USD) (1)

 

 

 

 

 

 

 

 

 

– Total

 

0.92

 

0.83

 

0.09

 

11

 

– Continuing operations

 

0.89

 

0.76

 

0.13

 

17

 

– Discontinuing operations

 

0.03

 

0.07

 

-0.04

 

-57

 

Average number of shares outstanding – Diluted (million)

 

2 358.8

 

2 354.9

 

 

 

 

 

Diluted earnings per share (USD)(1)

 

 

 

 

 

 

 

 

 

Total

 

0.92

 

0.83

 

0.09

 

11

 

Continuing operations

 

0.89

 

0.76

 

0.13

 

17

 

Discontinuing operations

 

0.03

 

0.07

 

-0.04

 

-57

 

 


(1) Earnings per share (EPS) is calculated on the amount of net income attributable to the equity holders of Novartis AG

 

24



 

Pro forma condensed consolidated balance sheets

 

 

 

March 31,
2007

 

Dec 31,
2006

 

Change

 

March 31,
2006

 

 

 

USD m

 

USD m

 

USD m

 

USD m

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non-current assets

 

45 135

 

46 604

 

-1 469

 

36 933

 

Current assets

 

 

 

 

 

 

 

 

 

Inventories

 

4 739

 

4 498

 

241

 

3 926

 

Trade accounts receivable

 

6 203

 

6 161

 

42

 

5 292

 

Other current assets

 

2 111

 

2 054

 

57

 

1 580

 

Cash, short-term deposits and marketable securities

 

6 947

 

7 955

 

-1 008

 

11 117

 

Total current assets from continuing operations

 

20 000

 

20 668

 

-668

 

21 915

 

Assets related to discontinuing operations

 

3 189

 

736

 

2 453

 

 

 

Total current assets

 

23 189

 

21 404

 

1 785

 

21 915

 

Total assets

 

68 324

 

68 008

 

316

 

58 848

 

Equity and liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total equity

 

40 502

 

41 294

 

-792

 

33 754

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

Financial debts

 

661

 

656

 

5

 

1 344

 

Other non-current liabilities

 

8 586

 

9 824

 

-1 238

 

8 160

 

Total non-current liabilities

 

9 247

 

10 480

 

-1 233

 

9 504

 

Current liabilities

 

 

 

 

 

 

 

 

 

Trade accounts payable

 

2 504

 

2 487

 

17

 

1 936

 

Financial debts and derivatives

 

6 689

 

6 643

 

46

 

6 750

 

Other current liabilities

 

7 795

 

6 897

 

898

 

6 904

 

Total current liabilities from continuing operations

 

16 988

 

16 027

 

961

 

15 590

 

Liabilities related to discontinuing operations

 

1 587

 

207

 

1 380

 

 

 

Total current liabilities

 

18 575

 

16 234

 

2 341

 

15 590

 

Total liabilities

 

27 822

 

26 714

 

1 108

 

25 094

 

Total equity and liabilities

 

68 324

 

68 008

 

316

 

58 848

 

 

25



 

Pro forma condensed consolidated cash flow statements

 

First quarter

 

 

 

Q1 2007

 

Q1 2006

 

Change

 

 

 

USD m

 

USD m

 

USD m

 

Net income from continuing operations

 

2 092

 

1 785

 

307

 

Reversal of non-cash items

 

 

 

 

 

 

 

Taxes

 

374

 

343

 

31

 

Depreciation, amortization and impairments

 

540

 

413

 

127

 

Net financial income

 

-34

 

-50

 

16

 

Other

 

49

 

-44

 

93

 

Net income adjusted for non-cash items

 

3 021

 

2 447

 

574

 

Interest and other financial receipts

 

242

 

220

 

22

 

Interest and other financial payments

 

-37

 

-43

 

6

 

Taxes paid

 

-283

 

-262

 

-21

 

Cash flow before working capital and provision changes

 

2 943

 

2 362

 

581

 

Restructuring payments and other cash payments out of provisions

 

-79

 

-56

 

-23

 

Change in net current assets and other operating cash flow items

 

-813

 

-294

 

-519

 

Cash flow from operating activities of continuing operations

 

2 051

 

2 012

 

39

 

Investments in property, plant & equipment

 

-522

 

-295

 

-227

 

Acquisitions/divestments of subsidiaries

 

-48

 

23

 

-71

 

Decrease/increase in marketable securities, intangible and financial assets

 

-597

 

-118

 

-479

 

Cash flow from investing activities of continuing operations

 

-1 167

 

-390

 

-777

 

Cash flow from financing activities of continuing operations

 

-2 479

 

-1 755

 

-724

 

Cash flow from discontinuing operations

 

89

 

289

 

-200

 

Translation effect on cash and cash equivalents

 

-17

 

-3

 

-14

 

Change in cash and cash equivalents from discontinuing operations

 

-12

 

 

 

-12

 

Change in cash and cash equivalents from continuing operations

 

-1 535

 

153

 

-1 688

 

Cash and cash equivalents from continuing operations at January 1

 

3 815

 

6 321

 

-2 506

 

Cash and cash equivalents from continuing operations at March 31

 

2 280

 

6 474

 

-4 194

 

 

26



 

Pro forma consolidated income statements – Divisional segmentation

 

First quarter

 

 

 

Pharmaceuticals

 

Vaccines and
Diagnostics

 

Sandoz

 

Consumer Health
continuing
operations

 

Corporate

 

Total continuing
operations

 

Consumer Health
discontinuing
operations

 

Total Group

 

 

 

Q1 2007

 

Q1 2006

 

Q1 2007

 

 

Q1 2007

 

Q1 2006

 

Q1 2007

 

Q1 2006

 

Q1 2007

 

Q1 2006

 

Q1 2007

 

Q1 2006

 

Q1 2007

 

Q1 2006

 

Q1 2007

 

Q1 2006

 

 

 

USD m

 

USD m

 

USD m

 

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

Net sales to third parties

 

5 923

 

5 052

 

231

 

 

1 696

 

1 431

 

1 278

 

1 183

 

 

 

 

 

9 128

 

7 666

 

691

 

635

 

9 819

 

8 301

 

Sales to other Divisions

 

43

 

38

 

4

 

 

66

 

38

 

10

 

5

 

-123

 

-81

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales of Divisions

 

5 966

 

5 090

 

235

 

 

1 762

 

1 469

 

1 288

 

1 188

 

-123

 

-81

 

9 128

 

7 666

 

691

 

635

 

9 819

 

8 301

 

Other revenues

 

100

 

77

 

135

 

 

2

 

4

 

9

 

9

 

 

 

 

 

246

 

90

 

2

 

3

 

248

 

93

 

Cost of Goods Sold

 

-1 011

 

-896

 

-212

 

 

-951

 

-782

 

-428

 

-401

 

114

 

99

 

-2 488

 

-1 980

 

-364

 

-332

 

-2 852

 

-2 312

 

Of which amortization and impairments of product and patent rights and trademarks

 

-89

 

-40

 

-71

 

 

-64

 

-60

 

-18

 

-21

 

 

 

 

 

-242

 

-121

 

-3

 

-3

 

-245

 

-124

 

Gross profit

 

5 055

 

4 271

 

158

 

 

813

 

691

 

869

 

796

 

-9

 

18

 

6 886

 

5 776

 

329

 

306

 

7 215

 

6 082

 

Marketing & Sales

 

-1 809

 

-1 533

 

-42

 

 

-273

 

-237

 

-463

 

-430

 

 

 

 

 

-2 587

 

-2 200

 

-173

 

-172

 

-2 760

 

-2 372

 

Research & Development

 

-1 215

 

-926

 

-54

 

 

-124

 

-105

 

-66

 

-56

 

-43

 

-37

 

-1 502

 

-1 124

 

-10

 

-10

 

-1 512

 

-1 134

 

General & Administration

 

-172

 

-145

 

-41

 

 

-77

 

-68

 

-91

 

-81

 

-102

 

-94

 

-483

 

-388

 

-31

 

-31

 

-514

 

-419

 

Other income & expense

 

-6

 

-41

 

6

 

 

-21

 

-43

 

-9

 

1

 

51

 

-7

 

21

 

-90

 

3

 

135

 

24

 

45

 

Of which amortization and impairments of capitalized intangibles included in function costs

 

-21

 

-7

 

 

 

 

-7

 

-8

 

-2

 

 

 

-1

 

-2

 

-31

 

-17

 

-9

 

-8

 

-40

 

-25

 

Operating income

 

1 853

 

1 626

 

27

 

 

318

 

238

 

240

 

230

 

-103

 

-120

 

2 335

 

1 974

 

118

 

228

 

2 453

 

2 202

 

Income from associated companies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

97

 

104

 

 

 

 

 

97

 

104

 

Financial income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

87

 

108

 

 

 

 

 

87

 

108

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-53

 

-58

 

 

 

 

 

-53

 

-58

 

Income before taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2 466

 

2 128

 

118

 

228

 

2 584

 

2 356

 

Taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-374

 

-343

 

-39

 

-57

 

-413

 

-400

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2 092

 

1 785

 

79

 

171

 

2 171

 

1 956

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- Property, plant and equipment(1)

 

329

 

148

 

44

 

 

90

 

87

 

47

 

37

 

24

 

28

 

534

 

300

 

6

 

9

 

540

 

309

 

- Goodwill and other intangibles(1)

 

76

 

74

 

 

 

 

11

 

3

 

1

 

 

 

 

 

 

 

88

 

77

 

23

 

19

 

111

 

96

 

 


(1) Excluding impact of business acquisitions

 

27



 

Pro forma impact of intangible asset charges and significant exceptional items

 

First quarter

 

 

Pharmaceuticals

 

Vaccines and
Diagnostics

 

Sandoz

 

Consumer Health
continuing
operations

 

Corporate

 

Total continuing
operations

 

Consumer Health
discontinuing
operations

 

Total Group

 

 

 

Q1 2007

 

Q1 2006

 

Q1 2007

 

 

Q1 2007

 

Q1 2006

 

Q1 2007

 

Q1 2006

 

Q1 2007

 

Q1 2006

 

Q1 2007

 

Q1 2006

 

Q1 2007

 

Q1 2006

 

Q1 2007

 

Q1 2006

 

 

 

USD m

 

USD m

 

USD m

 

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

USD m

 

Reported operating income

 

1 853

 

1 626

 

27

 

 

318

 

238

 

240

 

230

 

-103

 

-120

 

2 335

 

1 974

 

118

 

228

 

2 453

 

2 202

 

Recurring amortization

 

102

 

43

 

71

 

 

71

 

68

 

20

 

20

 

1

 

2

 

265

 

133

 

12

 

11

 

277

 

144

 

Impairments

 

8

 

4

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

8

 

5

 

 

 

 

 

8

 

5

 

Intangible asset charges

 

110

 

47

 

71

 

 

71

 

68

 

20

 

21

 

1

 

2

 

273

 

138

 

12

 

11

 

285

 

149

 

Impairment charges on property, plant & equipment

 

 

 

-1

 

 

 

 

 

 

7

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

6

 

Restructuring and acquisition related integration expenses, net

 

 

 

 

 

7

 

 

7

 

16

 

 

 

 

 

 

 

 

 

14

 

16

 

 

 

 

 

14

 

16

 

Exceptional restructuring and other acquisition-related integration expenses, net

 

 

 

-1

 

7

 

 

7

 

23

 

 

 

 

 

 

 

 

 

14

 

22

 

 

 

 

 

14

 

22

 

Exceptional gains from divesting subsidiaries and major products

 

 

 

-87

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-87

 

 

 

-129

 

 

 

-216

 

Litigation settlement

 

 

 

 

 

-67

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-67

 

 

 

 

 

 

 

-67

 

 

 

Suspension of Zelnorm

 

52

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

52

 

 

 

 

 

 

 

52

 

 

 

Tekturna inventory provision

 

-107

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-107

 

 

 

 

 

 

 

-107

 

 

 

Other exceptional items

 

-55

 

 

 

-67

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-122

 

 

 

 

 

 

 

-122

 

 

 

Operating income excluding the above items

 

1 908

 

1 585

 

38

 

 

396

 

329

 

260

 

251

 

-102

 

-118

 

2 500

 

2 047

 

130

 

110

 

2 630

 

2 157

 

Income from associated companies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

97

 

104

 

 

 

 

 

97

 

104

 

Net financial income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

34

 

 50

 

 

 

 

 

34

 

50

 

Taxes (adjusted for above items)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-439

 

-370

 

-43

 

-41

 

-482

 

-411

 

Adjusted net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2 192

 

1 831

 

87

 

69

 

2 279

 

1 900

 

Adjusted basic earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.93

 

0.78

 

0.04

 

0.03

 

0.97

 

0.81

 

 

28



 

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 26, 2007

By:

 /s/ MALCOLM CHEETHAM

 

 

 

 

 

Name:

Malcolm Cheetham

 

Title:

Head Group Financial Reporting

 

 

and Accounting

 

 

29