Novartis delivered solid third quarter

NovartisNet sales were USD 12.1 billion in the third quarter, as volume growth of 5 percentage points was more than offset by the negative impact of generic competition and pricing. Growth Products contributed USD 4.3 billion or 36% of net sales, up 20% (USD) over the prior-year quarter. Operating income was USD 2.3 billion. Core adjustments amounted to USD 1.1 billion (2015: USD 1.3 billion), broadly in line with the prior-year quarter.

Core operating income was USD 3.4 billion. Core operating income margin in constant currencies decreased 0.6 percentage points, mainly due to investments behind new launches and the Alcon growth plan, partially offset by productivity improvements. Currency had a positive impact of 0.1 percentage points, resulting in a net decrease of 0.5 percentage points in US dollar terms to 27.9% of net sales.

Net income was USD 1.9 billion, up more than operating income mainly due to higher income from associated companies.

EPS was USD 0.81, up more than net income due to a reduction in the number of shares outstanding.

Core net income was USD 2.9 billion, broadly in line with core operating income.

Core EPS was USD 1.23, down less than core net income due to a reduction in the number of shares outstanding.

Free cash flow was USD 2.6 billion (-7% USD), a decrease of USD 0.2 billion compared to the prior-year quarter. The decrease was driven by higher net investments in intangible assets, mainly due to the ofatumumab milestone payment, which more than offset an increase in cash flows from operating activities.

Innovative Medicines (formerly named the Pharmaceuticals Division) net sales were USD 8.2 billion in the third quarter. Volume contributed 5 percentage points to sales growth. Generic competition had a negative impact of 5 percentage points and pricing had a negative impact of 1 percentage point, both largely due to Gleevec/Glivec genericization in the US. Growth Products grew 21% (cc) to USD 3.8 billion, or 46% of division net sales.

Sandoz net sales were USD 2.5 billion in the third quarter, as volume growth of 5 percentage points was offset by 6 percentage points of price erosion. Performance was impacted by significantly lower launch activity in the US compared to a strong prior-year quarter. Global sales of Biopharmaceuticals grew 41% to USD 262 million. Anti-Infectives franchise sales (partner label and finished dosage form sales) were USD 339 million, reflecting discontinuation of low-margin products.

Operating income was USD 354 million. Core operating income was USD 530 million. Core operating income margin in constant currencies increased by 0.2 percentage points; currency had a positive impact of 0.1 percentage points, resulting in a net increase to 21.1% of net sales.

Alcon net sales were USD 1.4 billion in the third quarter. Surgical sales were down, impacted by lower IOL sales, mainly due to competitive pressures, and a continued decline in cataract equipment, primarily LenSx, which has reached high penetration in its market segment. The strong installed cataract equipment base continued to generate good growth of consumables.

Commenting on the results, Joseph Jimenez, CEO of Novartis, said: "Novartis delivered a solid Q3 despite the Gleevec generic impact in the US, due to the strong performance of our Growth Products. We continued to drive innovation, with positive pipeline readouts for LEE011 in advanced breast cancer, BAF312 in SPMS and AMG 334 in episodic migraine. We are continuing to invest for the future, as we manage the Gleevec loss of exclusivity in 2016 and 2017."

About Novartis
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 and cost-saving generic pharmaceuticals. Novartis is the only global company with leading positions in these areas. In 2015, the Group achieved net sales of USD 49.4 billion, while R&D throughout the Group amounted to approximately USD 8.9 billion (USD 8.7 billion excluding impairment and amortization charges). Novartis Group companies employ approximately 118,000 full-time-equivalent associates. Novartis products are available in more than 180 countries around the world.

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