Novartis delivers 12% sales and 21% core operating income growth from continuing operations (in cc¹). Executes Sandoz spin-off, achieves important innovation milestones, and raises FY 2023 guidance
Ad hoc announcement pursuant to Art. 53 LR
- Transformation into a “pure-play” innovative medicines business is complete, with the spin-off of Sandoz; commentary below is on continuing operations2
- Q3 sales grew +12% (cc, +12% USD) with core operating income growing +21% (cc, +17% USD)
- Growth driven by continued strong performance from Kesimpta (+124% cc), Entresto (+31% cc), Kisqali (+76% cc), Pluvicto (+217% cc) and Scemblix (+157% cc)
- Q3 operating income grew +13% (cc, -4% USD) driven by higher sales and lower restructuring charges, partly offset by higher impairments through discontinuation of early stage development projects
- Q3 net income grew +37% (cc, +14% USD) mainly due to higher operating income
- Q3 free cash flow3 was USD 5.0 billion (+24% USD) driven by higher net cash flows from operating activities
- Q3 core EPS grew +29% (cc, +24% USD) to USD 1.74
- Strong nine months performance with sales growing +10% (cc, +8% USD) and core operating income growing +19% (cc, +13% USD)
- Q3 key innovation milestones, including positive Ph3 data for multiple pipeline assets with blockbuster potential:
- Cosentyx – FDA approval for intravenous formulation in three indications (PsA, AS, nr-axSpA)
- Demonstrated clinically meaningful and statistically significant Ph3 data for: 1) Pluvicto (mCRPC pre-taxane), 2) iptacopan (IgAN), 3) remibrutinib (CSU), 4) Lutathera (GEP-NETs)
- Kisqali – Ph3 NATALEE iDFS 500 event analysis complete; file submitted in EU, US submission planned for Q4 2023
- Initiated previously announced, up-to USD 15 billion share buyback to be completed by year-end 2025
- Full-year 2023 guidance raised for core operating income based on strong momentum4
- Net sales expected to grow high single digit
- Core operating income expected to grow mid to high teens (from low double digit to mid teens)
Basel, October 24, 2023 – commenting on the quarter, Vas Narasimhan MD, CEO of Novartis, said: “Novartis delivered a very strong quarter, with double-digit sales and core operating income growth leading to a further upgrade to 2023 guidance. We have successfully executed the spin-off of Sandoz, allowing us to fully focus on high-value innovative medicines. Our growth drivers, including Kesimpta, Entresto, Kisqali and Pluvicto, continue to perform well in the market. Our robust pipeline also continues to deliver, and we have achieved important innovation milestones for Pluvicto, iptacopan, remibrutinib and Lutathera. We are confident in our mid-term growth outlook and remain committed to creating value for our shareholders.”
Key figures1
Continuing operations2 | |||||||||
Q3 2023 | Q3 2022 | % change | 9M 2023 | 9M 2022 | % change | ||||
USD m | USD m | USD | cc | USD m | USD m | USD | cc | ||
Net sales | 11 782 | 10 492 | 12 | 12 | 34 017 | 31 630 | 8 | 10 | |
Operating income | 1 762 | 1 826 | -4 | 13 | 7 187 | 6 191 | 16 | 31 | |
Net income | 1 513 | 1 330 | 14 | 37 | 5 934 | 4 734 | 25 | 41 | |
EPS (USD) | 0.73 | 0.61 | 20 | 45 | 2.84 | 2.16 | 31 | 49 | |
Free cash flow | 5 043 | 4 054 | 24 | 11 019 | 8 661 | 27 | |||
Core operating income | 4 405 | 3 772 | 17 | 21 | 12 551 | 11 149 | 13 | 19 | |
Core net income | 3 585 | 3 035 | 18 | 23 | 10 320 | 8 983 | 15 | 22 | |
Core EPS (USD) | 1.74 | 1.40 | 24 | 29 | 4.95 | 4.09 | 21 | 28 |
1 Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page 48 of the Condensed Interim Financial Report. Unless otherwise noted, all growth rates in this Release refer to same period in prior year. 2 As defined on page 37 of the Condensed Interim Financial Report, Continuing operations include the retained business activities of Novartis, comprising the Innovative Medicines Division and the continuing Corporate activities and Discontinued operations include operational results from the Sandoz business. 3 Effective January 1, 2023, Novartis revised its de?nition of free cash ?ow, to de?ne free cash ?ow as net cash ?ows from operating activities less purchases of property, plant and equipment. To aid in comparability, the prior year free cash flow amounts have been revised to conform with the new free cash flow definition. See page 48 of the Condensed Interim Financial Report. 4 Please see detailed guidance assumptions on page 8.
Strategy update
Our focus
Novartis has completed its transformation into a “pure-play” innovative medicines business, with the successful spin-off of Sandoz. Our focus is now centered on four core therapeutic areas (cardiovascular, renal and metabolic; immunology; neuroscience, and oncology). In each of these areas, we have multiple significant in-market and pipeline assets, all of which address diseases with a high burden and have substantial growth potential. In addition to two established technology platforms (chemistry and biotherapeutics), three emerging platforms (gene & cell therapy, radioligand therapy, and xRNA) are being prioritized for continued investment into new R&D capabilities and manufacturing scale. Geographically, we are focused on growing in our priority geographies – the US, China, Germany and Japan.
Financials
Following the September 15, 2023, shareholders’ approval of the spin-off of the Sandoz business the Company reported its consolidated financial statements for the current and prior years as “continuing operations” and “discontinued operations.”
Continuing operations include the retained business activities of Novartis, comprising the Innovative Medicines Division and the continuing corporate activities. Discontinued operations include the Sandoz Division and selected portions of corporate activities attributable to Sandoz’s business, as well as certain expenses related to the spin-off.
With the spin-off of the Sandoz business, Novartis operates as a single global operating segment, being a focused innovative medicines company.
The commentary below focuses on continuing operations. We also provide information on discontinued operations, which mainly includes Sandoz and allocated corporate activities.
Continuing operations
Third quarter
Net sales were USD 11.8 billion (+12%, +12% cc) driven by volume growth of 17 percentage points. Pricing had a negative impact of 1 percentage point and generic competition had a negative impact of 4 percentage points.
Operating income was USD 1.8 billion (-4%, +13% cc), mainly driven by higher sales and lower restructuring charges, partly offset by higher impairments through discontinuation of early stage development projects.
Net income was USD 1.5 billion (+14%, +37% cc), mainly due to higher operating income and lower tax rate driven by non-recurring items. EPS was USD 0.73 (+20%, +45% cc), growing faster than net income, benefiting from lower weighted average number of shares outstanding.
Core operating income was USD 4.4 billion (+17%, +21% cc), mainly driven by higher sales. Core operating income margin was 37.4% of net sales, increasing by 1.4 percentage points (+2.7 percentage points cc).
Core net income was USD 3.6 billion (+18%, +23% cc), mainly due to higher core operating income. Core EPS was USD 1.74 (+24%, +29% cc), growing faster than core net income, benefiting from lower weighted average number of shares outstanding.
Free cash flow amounted to USD 5.0 billion (+24% USD), compared with USD 4.1 billion in the prior year quarter driven by higher net cash flows from operating activities.
Nine months
Net sales were USD 34.0 billion (+8%, +10% cc) driven by volume growth of 16 percentage points. Pricing had a negative impact of 2 percentage points and generic competition had a negative impact of 4 percentage points.
Operating income was USD 7.2 billion (+16%, +31% cc), mainly driven by higher sales, other income from legal matters, lower restructuring charges, partly offset by higher impairments through discontinuation of early stage development projects.
Net income was USD 5.9 billion (+25%, +41% cc), mainly due to higher operating income. EPS was USD 2.84 (+31%, +49% cc), growing faster than net income, benefiting from lower weighted average number of shares outstanding.
Core operating income was USD 12.6 billion (+13%, +19% cc), mainly driven by higher sales. Core operating income margin was 36.9% of net sales, increasing by 1.7 percentage points (+2.9 percentage points cc).
Core net income was USD 10.3 billion (+15%, +22% cc), mainly due to higher core operating income. Core EPS was USD 4.95 (+21%, +28% cc), growing faster than core net income, benefiting from lower weighted average number of shares outstanding.
Free cash flow amounted to USD 11.0 billion (+27% USD), compared with USD 8.7 billion in the prior year period driven by higher net cash flows from operating activities.
Discontinued operations
Results for discontinued operations in the third quarter and nine-months 2023 include the results of the Sandoz Division and selected portions of corporate activities attributable to Sandoz business, as well as certain expenses related to the spin-off.
In connection with the Sandoz spin-off on October 4, 2023, the Company will report as part of its Q4 discontinued operations results a one-time non-cash non-taxable IFRS gain of approximately USD 5.9 billion. This IFRS gain represents mainly the excess amount of the IFRS distribution liability, which is the estimated fair value of the Sandoz business distributed to Novartis AG shareholders, over the then carrying value of Sandoz business net assets.
Third quarter
Discontinued operations net sales were USD 2.5 billion (+8%, +6% cc), mainly driven by ex-US growth.
Operating loss amounted to USD 86 million, compared to an operating income of USD 342 million in the previous year. The operating loss in third quarter was driven by the discontinued corporate transaction cost related to spin-off of the Sandoz business, which were core adjustments.
Core operating income was USD 250 million (-51%, -38% cc), mainly driven by lower gross margin and higher SG&A expenses.
Net income from discontinued operations amounted to USD 250 million, compared to USD 245 million in the previous year.
Nine months
Discontinued operations net sales were USD 7.4 billion (+6%, +8% cc), mainly driven by ex-US growth.
Operating income amounted to USD 265 million, compared to USD 1.1 billion in the previous year. The current year period includes the discontinued corporate transaction cost related to spin-off of the Sandoz business, which were core adjustments.
Core operating income was USD 1.2 billion (-20%, -11% cc), mainly driven by higher SG&A expenses and R&D investments.
Net income from discontinued operations amounted to USD 440 million, compared to USD 755 million in the previous year.
Total company
Third quarter
Total company net income was USD 1.8 billion, mainly due to higher operating income and lower tax rate driven by non-recurring items compared to USD 1.6 billion in the prior year. EPS increased to USD 0.85 from USD 0.73 in prior year.
Cash flows from operating activities amounted to USD 5.4 billion compared to USD 4.7 billion in the prior year. Free cash flow amounted to USD 5.0 billion compared to USD 4.4 billion in the prior year.
Nine months
Total company net income was USD 6.4 billion, mainly due to higher operating income compared to USD 5.5 billion in the prior year. EPS increased to USD 3.05 from USD 2.50 in prior year.
Cash flows from operating activities amounted to USD 11.9 billion compared to USD 10.1 billion in the prior year. Free cash flow amounted to USD 11.0 billion compared to USD 9.3 billion in the prior year.
Q3 key growth drivers
Underpinning our financial results in the quarter is a continued focus on key growth drivers including:
Kesimpta | (USD 657 million, +124% cc) sales growth was driven by increased demand, strong access and benefitting from a one-time revenue deduction adjustment in Europe |
Entresto | (USD 1 485 million, +31% cc) sustained robust demand-led growth, benefitting from the adoption of guideline-directed medical therapy across regions |
Kisqali | (USD 562 million, +76% cc) sales grew strongly across all regions, based on increasing recognition of consistent overall survival and quality of life benefits |
Pluvicto | (USD 256 million, +217% cc) continued sales growth in the US. Supply now unconstrained, focusing on initiating new patients |
Ilaris | (USD 335 million, +24% cc) sales grew across all regions |
Scemblix | (USD 106 million, +157% cc) sales grew across all regions, demonstrating the high unmet need in CML |
Leqvio | (USD 90 million, +165% cc) launch in the US and other markets ongoing, with focus on patient on-boarding, removing access hurdles and enhancing medical education |
Cosentyx | (USD 1 329 million, +4% cc) continued demand growth across key regions, partly offset by US revenue deduction fluctuations across periods. Ex-US sales grew +15% (cc) |
Promacta/Revolade | (USD 576 million, +10% cc) grew across all regions, driven by increased use in chronic ITP and severe aplastic anemia |
Xolair | (USD 369 million, +13% cc) sales grew across most regions |
Jakavi | (USD 427 million, +9% cc) sales grew in Emerging Growth Markets, Europe and Japan, driven by strong demand in both myelofibrosis and polycythemia vera |
Tafinlar + Mekinist | (USD 482 million, +8% cc) sales grew in the US and Emerging Growth Markets, driven by demand in BRAF+ adjuvant melanoma and NSCLC indications |
Lutathera | (USD 159 million, +19% cc) sales grew mainly in the US, Japan and Europe due to increased demand |
Emerging Growth Markets* | Overall, grew +17% (cc). Growth in China (+14% cc, USD 848 million) *All markets except the US, Canada, Western Europe, Japan, Australia, and New Zealand |
Net sales of the top 20 products in 2023
Q3 2023 | % change | 9M 2023 | % change | |||
USD m | USD | cc | USD m | USD | cc | |
Entresto | 1 485 | 31 | 31 | 4 400 | 31 | 33 |
Cosentyx | 1 329 | 4 | 4 | 3 677 | -1 | 1 |
Promacta/Revolade | 576 | 10 | 10 | 1 706 | 10 | 12 |
Kesimpta - excl. revenue deduction adjust.* | 657 | 127 87 | 124 86 | 1 530 | 112 95 | 112 96 |
Kisqali | 562 | 72 | 76 | 1 470 | 68 | 74 |
Tafinlar + Mekinist | 482 | 7 | 8 | 1 436 | 10 | 13 |
Tasigna | 464 | -5 | -5 | 1 402 | -3 | -1 |
Jakavi | 427 | 11 | 9 | 1 276 | 9 | 11 |
Lucentis | 363 | -20 | -22 | 1 174 | -20 | -19 |
Xolair | 369 | 15 | 13 | 1 085 | 4 | 6 |
Sandostatin | 338 | 15 | 15 | 998 | 7 | 8 |
Ilaris | 335 | 23 | 24 | 979 | 18 | 20 |
Zolgensma | 308 | -3 | -2 | 928 | -13 | -11 |
Gilenya | 270 | -47 | -48 | 771 | -54 | -53 |
Pluvicto | 256 | 220 | 217 | 707 | nm | nm |
Exforge Group | 187 | 1 | 3 | 557 | -5 | -1 |
Galvus Group | 181 | -15 | -4 | 539 | -17 | -10 |
Diovan Group | 153 | -4 | -1 | 466 | -9 | -4 |
By: GlobeNewswire
- 24 Oct 2023
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