Group operating income decreased 9% (-2% cc) to USD 2.7 billion. The negative currency impact of 7 percentage points was greater than the currency impact on sales, as the yen and emerging market currencies represent a larger proportion of operating income than sales. Operating income margin declined 2.8 percentage points to 18.6% of net sales mainly due to the currency impact and favorable exceptional items in the prior year.
Core operating income was down 5% (+1% cc) to USD 3.6 billion, which is consistent with the full year guidance we issued in the second quarter. This decline was primarily due to the impact of generic erosion, increased investment in multiple promising pipeline projects and higher cost of goods sold over a low prior-year base. Core operating income margin in constant currencies decreased by 1.4 percentage points; currency had a negative impact of 0.9 percentage points, resulting in a net decline of 2.3 percentage points to 25.3% of net sales. The decline in core operating income was less than the decline in reported operating income due to higher exceptional income in the prior year. The adjustments made to Group operating income to arrive at core operating income amounted to USD 950 million (2012: USD 862 million).
Excluding the impact of generic competition, core operating income grew 12% in constant currencies.
Group net income of USD 2.3 billion was down 6% (+1% cc), a lower decline than operating income, principally due to higher income from associated companies and lower taxes. EPS was down 8% (0% cc) to USD 0.91, mainly due to a negative currency impact, and in line with net income.
Group core net income of USD 3.1 billion was down 3% in USD, but up 3% in constant currencies. Core EPS declined 4% (+1% cc) to USD 1.26, largely in line with core net income.
Pharmaceuticals net sales reached USD 7.9 billion (+1%, +4% cc) in the third quarter, driven by strong volume growth (+10 percentage points) and pricing (+1 percentage point), partly offset by the impact of generic competition (USD 0.5 billion, -7 percentage points). Growth products, including Gilenya, Afinitor, Tasigna, Galvus, Xolair, the Q Family and Jakavi, together generated USD 3.1 billion or 39% of division net sales, up 28% in constant currencies over the prior-year period.
Pharmaceuticals operating income declined 10% (-5% cc) to USD 2.3 billion, driven by the impact of generic erosion, increased investment in multiple promising pipeline projects (mainly in oncology, heart failure and respiratory), as well as higher cost of goods sold (mainly driven by low prior-year production write-offs and increased Gilenya royalties). Core operating income declined 10% (-4% cc) to USD 2.3 billion. Core operating income margin in constant currencies declined 2.8 percentage points; currency had a negative impact of 0.9 percentage points, resulting in a net decrease of 3.7 percentage points to 29.7% of net sales.
Commenting on the results, Joseph Jimenez, CEO of Novartis, said: "Novartis delivered strong sales performance in the third quarter, with all divisions contributing to growth. We achieved impressive momentum in innovation, and set an industry record with our third FDA Breakthrough Therapy designated product of the year for BYM338 in a degenerative muscle disease. Our strategy of leading through science-based innovation is the right one for the business, for patients, and for our shareholders."
Novartis provides innovative healthcare solutions that address the evolving needs of patients and societies. Headquartered in Basel, Switzerland, Novartis offers a diversified portfolio to best meet these needs: innovative medicines, eye care, cost-saving generic pharmaceuticals, preventive vaccines and diagnostic tools, over-the-counter and animal health products. Novartis is the only global company with leading positions in these areas. In 2012, the Group achieved net sales of USD 56.7 billion, while R&D throughout the Group amounted to approximately USD 9.3 billion (USD 9.1 billion excluding impairment and amortization charges). Novartis Group companies employ approximately 133,000 full-time-equivalent associates and operate in more than 140 countries around the world.